1933 Act File No. 33-35473
1940 Act File No. 811-6119
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 8 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 5 X
THE STARBURST FUNDS II
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on December 31, 1994 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on December 15,1994; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin, L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of THE STARBURST FUNDS
II, which consists of one portfolio, The Starburst Quality Income Fund, is
comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page Cover Page.
Item 2. Synopsis Summary of Fund Expenses.
Item 3. Condensed Financial
Information Financial Highlights; Performance
Information.
Item 4. General Description of
Registrant General Information; Investment
Information; Investment Objective;
Investment Policies; Investment
Limitations.
Item 5. Management of the Fund The Starburst Funds II Information;
Management of The Starburst Funds II;
Distribution of Fund Shares;
Distribution Plan; Shareholder
Servicing Arrangements; Administration
of the Fund.
Item 6. Capital Stock and Other
Securities Dividends; Capital Gains; Shareholder
Information; Voting Rights;
Massachusetts Partnership Law; Effect
of Banking Laws; Tax Information;
Federal Income Tax.
Item 7. Purchase of Securities Being
Offered Net Asset Value; Investing in the
Fund; Share Purchases; Minimum
Investment Required; What Shares Cost;
Reducing the Sales Load; Systematic
Investment Program; Certificates and
Confirmations; Exchange Privilege.
Item 8. Redemption or Repurchase Redeeming Shares; Systematic
Withdrawal Program; Accounts with Low
Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page Cover Page.
Item 11. Table of Contents Table of Contents.
Item 12. General Information and
History General Information About the Fund.
Item 13. Investment Objectives and
Policies Investment Objectives and Policies.
Item 14. Management of the Fund The Starburst Funds II Management.
Item 15. Control Persons and Principal
Holders of Securities Fund Ownership.
Item 16. Investment Advisory and Other
Services Investment Advisory Services;
Administrative Services; Custodian;
Transfer Agent and Dividend Disbursing
Agent.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered Purchasing Shares; Determining Net
Asset Value; Exchange Privilege;
Redeeming Shares.
Item 20. Tax Status Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data Total Return; Yield; Current
Distributions; Performance
Comparisons.
Item 23. Financial Statements Filed in Part A.
THE STARBURST QUALITY INCOME FUND
(A PORTFOLIO OF THE STARBURST FUNDS II)
PROSPECTUS
The shares of The Starburst Quality Income Fund (the "Fund") offered by this
prospectus represent interests in the Fund which is a diversified investment
portfolio in The Starburst Funds II (the "Trust"), an open-end, management
investment company (a mutual fund).
The investment objective of the Fund is to provide current income. The Fund
pursues this investment objective by investing in a diversified portfolio of
corporate debt securities.
Compass Bank professionally manages the Fund's portfolio.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF COMPASS
BANK, COMPASS BANCSHARES, INC. OR ANY OF ITS AFFILIATES, OR OF ANY BANK, ARE NOT
ENDORSED OR GUARANTEED BY COMPASS BANK, COMPASS BANCSHARES, INC. OR ANY OF ITS
AFFILIATES, OR BY ANY BANK, AND ARE NOT OBLIGATIONS OF, GUARANTEED BY OR INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing or calling 1-800-239-1930.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Asset-Backed Securities 4
Non-Mortgage Related Asset-Backed
Securities 5
Other Investment Risks Associated
with Investment in Fund Shares 5
Credit Enhancement 6
Demand Features 6
Investing in Securities of
Other Investment Companies 6
Restricted and Illiquid Securities 6
Temporary Investments 7
Securities of Foreign Issuers 7
Repurchase Agreements 7
When-Issued and Delayed Delivery
Transactions 7
Lending of Portfolio Securities 8
Put and Call Options 8
Risks Associated with Put and
Call Options 9
Investment Limitations 9
THE STARBURST FUNDS II INFORMATION 10
- ------------------------------------------------------
Management of The Starburst Funds II 10
Board of Trustees 10
Investment Adviser 10
Advisory Fees 10
Adviser's Background 10
Distribution of Fund Shares 11
Distribution Plan 11
Shareholder Servicing Arrangements 12
Administration of the Fund 12
Administrative Services 12
Custodian 12
Transfer Agent and
Dividend Disbursing Agent 12
Legal Counsel 12
Independent Auditors 12
NET ASSET VALUE 12
- ------------------------------------------------------
INVESTING IN THE FUND 13
- ------------------------------------------------------
Share Purchases 13
To Place an Order 13
Minimum Investment Required 13
What Shares Cost 13
Purchases at Net Asset Value 14
Sales Load Reallowance 14
Reducing the Sales Load 14
Quantity Discounts and
Accumulated Purchases 14
Letter of Intent 15
Reinvestment Privilege 15
Systematic Investment Program 15
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
Retirement Plans 16
EXCHANGE PRIVILEGE 16
- ------------------------------------------------------
Exchange by Telephone 16
Written Exchange 17
REDEEMING SHARES 17
- ------------------------------------------------------
By Telephone 17
By Mail 18
Signatures 18
Systematic Withdrawal Program 18
Accounts with Low Balances 19
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Partnership Law 19
EFFECT OF BANKING LAWS 20
- ------------------------------------------------------
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
FINANCIAL STATEMENTS 22
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... 2.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.00%
12b-1 Fee (after waiver)(2)........................................................... 0.00%
Total Other Expenses (after waiver)(3)................................................ 0.82%
Total Fund Operating Expenses(4)............................................ 0.82%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time at
its sole discretion. The maximum management fee is 0.75%.
(2) Under the Fund's Rule 12b-1 Distribution Plan, the Fund can pay the
distributor up to 0.25% as a 12b-1 fee. The 12b-1 fee has been reduced to
reflect the voluntary waiver of compensation by the distributor. The distributor
can terminate this voluntary waiver at any time at its sole discretion.
(3) Total Other Expenses would have been 1.04% absent the voluntary waiver by
the administrator and custodian. The administrator and custodian can terminate
these voluntary waivers at any time at their sole discretion.
(4) Total Fund Operating Expenses would have been 2.04% absent the voluntary
waivers by the investment adviser, distributor, administrator, and custodian.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "The Starburst Funds II Information" and "Investing in the Fund."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; (2)
redemption at the end of each time period; and (3)
payment of the maximum sales load. The Fund charges
no redemption fee................................... $ 33 $51 $69 $124
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE STARBURST QUALITY INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 31.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31,* DECEMBER 31,**
-------------------- ----------------------------------
1994 1993*** 1992 1991 1990****
------ ------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.37 $10.37 $10.33 $10.15 $10.00
- -------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------
Net investment income 0.55 -- 0.26 0.47 0.32
- -------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.19) -- -- -- 0.06
- ------------------------------------------------------- ----- ------ ----- ----- ------
Total from investment operations (0.64) -- 0.26 0.47 0.38
- ------------------------------------------------------- ----- ------ ----- ----- ------
LESS DISTRIBUTIONS
- -------------------------------------------------------
Dividends to shareholders from net investment income (0.55) -- (0.22) (0.29) (0.17)
- -------------------------------------------------------
Distributions to shareholders from net realized gain
on investment transactions -- -- -- -- (0.06)
- ------------------------------------------------------- ----- ------ ----- ----- ------
Total distributions (0.55) -- (0.22) (0.29) (0.23)
- ------------------------------------------------------- ----- ------ ----- ----- ------
CAPITAL CONTRIBUTION 0.11 -- -- -- --
- ------------------------------------------------------- ----- ------ ----- ----- ------
NET ASSET VALUE, END OF PERIOD $ 9.29 $10.37 $10.37 $10.33 $10.15
- ------------------------------------------------------- ----- ------ ----- ----- ------
TOTAL RETURN+ (5.13%)(c) 0.00% 2.55% 4.67% 3.78%
- -------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------
Expenses 0.82% 0.00% 0.91% 1.19% 0.44%(a)
- -------------------------------------------------------
Net investment income 6.05% 0.00% 3.03% 4.66% 7.35%(a)
- -------------------------------------------------------
Expense waiver/reimbursement (b) 1.22% 0.00% 0.48% 0.08% 0.98%(a)
- -------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------
Net assets, end of period (000 omitted) $19,513 $100 $103 $102 $100
- -------------------------------------------------------
Portfolio turnover rate 209% -- -- -- --
- -------------------------------------------------------
</TABLE>
* The Fund changed its fiscal year end from December 31 to October 31. The
Fund also changed its name and investment objective effective November 19,
1992.
** The financial highlights and ratios presented are historical information
for The Starburst Government Fund (which the Fund was formerly named).
*** Reflects operations for the period from December 31, 1992 to October 31,
1993.
**** Reflects operations for the period from start of business (June 22, 1990)
to December 31, 1990.
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Total return would have been (6.44%) absent the capital contribution by the
adviser. See Note 4 in Notes to Financial Statements.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended October 31, 1994, which can be obtained
free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated June 1, 1990. The Declaration of Trust permits the Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. This prospectus relates only to the Fund.
The Fund is designed primarily for individuals and institutions seeking current
income through a professionally managed, diversified portfolio of high grade
bonds. A minimum initial investment of $1,000 is required. Subsequent
investments must be in amounts of at least $100. New IRA accounts must be opened
with a minimum of $500.
Fund shares are currently sold at net asset value plus an applicable sales load
and redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective cannot be changed without approval of
shareholders.
INVESTMENT POLICIES
Unless indicated otherwise, the investment policies of the Fund below may be
changed by the Board of Trustees (the "Trustees") without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally managed,
diversified portfolio of high grade securities, including (i) medium and
long-term instruments rated A or better by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P"), Fitch Investors Service,
Inc. ("Fitch"), or Duff & Phelps, Inc.; (ii) short-term instruments having at
least two high quality ratings by nationally recognized rating services, which
ratings would include A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's, or F-1
or F-2 by Fitch. The Fund may also invest in unrated debt securities that are
determined by the Fund's investment adviser to be of comparable quality to
investments having such ratings. Downgraded securities will be evaluated on a
case by case basis by the adviser. The adviser will determine whether or not the
security continues to be an acceptable investment. If not, the security will be
sold.
The Fund will invest primarily in the following securities:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- asset-backed securities;
- obligations of the United States;
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities;
- commercial paper;
- preferred stock;
- bankers' acceptances issued by a Bank Insurance Fund ("BIF") insured
bank, or issued by the bank's Edge Act subsidiary and guaranteed by the
bank; and
- American Depositary Receipts of foreign companies traded on the New York
Stock Exchange or in the over-the-counter market.
- repurchase agreements collateralized by eligible investments.
The Fund may also purchase put options on financial futures contracts and on
portfolio securities and write call options on its portfolio securities. The
prices of fixed income securities fluctuate inversely to the direction of
interest rates.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Fund with the right to tender the security for repurchase
at its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Many variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features."
ASSET-BACKED SECURITIES. Asset-backed securities are created by the
grouping of certain governmental, government-related and private loans,
receivables and other lender assets into pools. Interests in these pools
are sold as individual securities. Payments from the asset pools may be
divided into several different tranches of debt securities, with some
tranches entitled to receive regular installments of principal and
interest, other tranches entitled to receive regular installments of
interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and
accrued interest at maturity or upon specified call dates. Different
tranches of securities will bear different interest rates, which may be
fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities are generally subject to higher
prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage-backed securities tend to increase during periods of
declining mortgage interest rates, because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. All asset-backed securities are subject to
similar prepayment risks, although they may be more or less sensitive to
certain factors. Depending upon market conditions, the yield that the Fund
receives from the reinvestment of such prepayments, or any scheduled
principal payments, may be lower than the yield on the original
asset-backed security. As a consequence, mortgage securities may be a less
effective means of "locking in" interest rates than other types of debt
securities having the same stated maturity and may also
have less potential for capital appreciation. For certain types of asset
pools, such as collateralized mortgage obligations, prepayments may be
allocated to one tranche of securities ahead of other tranches, in order to
reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Fund to the extent that the
prepaid asset-backed securities were purchased at a market premium over
their stated principal amount. Conversely, the prepayment of asset-backed
securities purchased at a market discount from their stated principal
amount will accelerate the recognition of interest income by the Fund,
which would be taxed as ordinary income when distributed to the
shareholders.
The credit characteristics of asset-backed securities also differ in a
number of respects from those of traditional debt securities. The credit
quality of most asset-backed securities depends primarily upon the credit
quality of the assets underlying such securities, how well the entity
issuing the securities is insulated from the credit risk of the originator
or any other affiliated entities, and the amount and quality of any credit
enhancement to such securities.
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES. Non-mortgage related asset
backed securities have structural characteristics similar to
mortgage-related asset-backed securities but have underlying assets that
are not mortgage loans or interests in mortgage loans. The Fund may invest
in non-mortgage related asset-backed securities including, but not limited
to, interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. These securities may be
in the form of pass-through instruments or asset-backed bonds. The
securities are issued by non-governmental entities and carry no direct or
indirect government guarantee.
Non-mortgage related asset-backed securities present certain risks that are
not presented by mortgage-related asset-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
related collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
Most issuers of asset-backed securities backed by motor vehicle installment
purchase obligations permit the servicer of such receivables to retain the
possession of the underlying obligations. If the servicer sells these
obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state
and is then reregistered because the owner and obligor moves to another
state, such registration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under
state laws, the trustee for the holders of asset-backed securities backed
by automobile receivables may not have a proper security interest in all of
the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
OTHER INVESTMENT RISKS ASSOCIATED WITH INVESTMENT IN FUND SHARES. The value of
the Fund's shares will fluctuate. The amount of this fluctuation is dependent
upon the quality and maturity of the securities in the Fund's portfolio, as well
as on market conditions. Prices of securities eligible for
purchase by the Fund are interest rate sensitive, which means that their value
varies inversely with market interest rates. Thus, if market interest rates have
increased from the time a security was purchased, the security, if sold, might
be sold at a price less than its cost. Similarly, if market interest rates have
declined from the time a security was purchased, the security, if sold, might be
sold at a price greater than its cost. (In either instance, if the security was
held to maturity, no loss or gain normally would be realized as a result of
interim market fluctuations.)
Yields on securities eligible for purchase by the Fund depend on a variety of
factors, including: the general conditions of the market in which securities
eligible for purchase by the Fund trade; the size of the particular offering;
the maturity of the obligations; and the credit quality of the issue. The
ability of the Fund to achieve its investment objective also depends on the
continuing ability of the issuers of securities eligible for purchase by the
Fund to meet their obligations for the payment of interest and principal when
due.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances,
applicable regulations may require the Fund to treat the securities as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period following
a demand by the Fund. The demand feature may be issued by the issuer of the
underlying securities, a dealer in the securities or by another third party, and
may not be transferred separately from the underlying security. The Fund uses
these arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership or default by the issuer of the demand feature, or a default on the
underlying security or other event that terminates the demand feature before its
exercise, will adversely affect the liquidity of the underlying security. Demand
features that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will invest
in other investment companies primarily for the purpose of investing short-term
cash which has not yet been invested in other portfolio instruments. It should
be noted that investment companies incur certain expenses such as management
fees and, therefore, any investment by the Fund in shares of another investment
company would be subject to such duplicate expense.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment
objective and policies but which are subject to restriction on resale under
federal securities law. However, the Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, non-negotiable time deposits, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under the federal
securities law, and is generally sold to institutional investors, such as the
Fund, who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees of the Fund are quite liquid. The Fund
intends, therefore, to treat the restricted securities which meet the criteria
for liquidity established by the Trustees, including Section 4(2) commercial
paper, as determined by the Fund's investment adviser, as liquid and not subject
to the investment limitations applicable to illiquid securities.
TEMPORARY INVESTMENTS. From time to time when the adviser determines that
market conditions call for a temporary defensive posture, the Fund may invest in
cash and money market instruments. Money market instruments may include
obligations such as:
- rated commercial paper;
- time and savings deposits (including certificates of deposit);
- bankers' acceptances;
- obligations of the U.S. government or its agencies or instrumentalities;
and
- repurchase agreements collateralized by eligible investments.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities of foreign
issuers which are traded on the New York Stock Exchange or in the
over-the-counter market in the form of depository receipts. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. The Fund will limit its investments in non-American Depositary
Receipts foreign obligations to less than 5% of its net assets.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from the Fund, the Fund
could receive less than the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the
securities purchased may vary from the purchase prices. Accordingly, the Fund
may pay more or less than the market value of the securities on the settlement
date.
The Fund engages in when-issued and delayed delivery transactions only for the
purpose of acquiring portfolio securities consistent with the Fund's investment
objective and policies, and not for investment leverage.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter in transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis, or
both, up to one-third of the value of its total assets to broker/dealers, banks,
or other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Trustees and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis, and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
PUT AND CALL OPTIONS. The Fund may purchase put options on financial futures
contracts and put options on portfolio securities. Financial futures may include
index futures. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. For the immediate
future, the Fund will enter into futures contracts directly only when it desires
to exercise a financial futures put option in its portfolio rather than either
closing out the option or allowing it to expire. The Fund will only purchase
puts on financial futures contracts which are traded on a recognized exchange.
The Fund will generally purchase over-the-counter put options on portfolio
securities in negotiated transactions with the writers of the options since
options on the portfolio securities held by the Fund are typically not traded on
an exchange. The Fund will purchase options only from investment dealers and
other financial associations (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Fund's adviser.
In general, over-the-counter put options differ from exchange-traded put options
in the following respects. Over-the-counter put options are two party contracts
with price and terms negotiated between buyer and seller, and such options are
endorsed and/or guaranteed by third parties (such as a New York Stock Exchange
member). Additionally, over-the-counter strike prices are adjusted to reflect
dividend payments, initial strike prices are generally set at market, and option
premiums (which are all time premiums) are amortized on a straight line basis
over the life of the option. In contrast, exchange-traded options are
third-party contracts with standardized strike prices and expiration dates and
are
purchased from the clearing corporation. Strike prices are not adjusted for
dividends, and options are marked to market, thereby obviating the need to
amortize the time premium. Exchange-traded options have a continuous liquid
market while over-the-counter options do not.
The Fund may also write call options on all or any portion of its portfolio to
generate income for the Fund. The Fund will write call options on securities
either held in its portfolio or which it has the right to obtain without payment
of further consideration or for which it has segregated cash in the amount of
any additional consideration. The call options which the Fund writes and sells
must be listed on a recognized options exchange. Although the Fund reserves the
right to write covered call options on its entire portfolio, it will not write
such options on more than 25% of its total assets unless a higher limit is
authorized by its Trustees.
The Fund may attempt to hedge the portfolio by entering into financial futures
contracts and writing calls on financial futures contracts. The Fund will notify
shareholders before it begins engaging in these transactions.
RISKS ASSOCIATED WITH PUT AND CALL OPTIONS. When the Fund writes a call
option, the Fund risks not participating in any rise in the value of the
underlying security. In addition, when the Fund purchases puts on financial
futures contracts to protect against declines in prices of portfolio
securities, there is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
its corresponding put to react differently than the portfolio securities to
market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors such as interest rate movements. In such an event, the Fund may
lose the purchase price of the put option. Finally, it is not certain that
a secondary market for options will exist at all times. Although the
investment adviser will consider liquidity before entering into option
transactions, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option or at any particular time.
The Fund's ability to establish and close out option positions depends on
this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings; or
- with respect to 75% of the value of its total assets, invest more than 5%
in securities of any one issuer (except cash and cash items, repurchase
agreements, and U.S. government obligations) or own more than 10% of the
outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
THE STARBURST FUNDS II INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE STARBURST FUNDS II
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Compass Bank as the Fund's
investment adviser (the "Adviser") subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to .75 of 1% of the Fund's average daily net assets. The fee paid by the
Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser has undertaken to reimburse the Fund,
up to the amount of the advisory fee, for operating expenses in excess of
limitations established by certain states. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse a portion of certain
expenses of the Fund.
ADVISER'S BACKGROUND. Compass Bank (formerly known as Central Bank of the
South), an Alabama state member bank, is a wholly-owned subsidiary of
Compass Bancshares, Inc. ("Bancshares"), formerly known as Central
Bancshares of the South, Inc., a bank holding company organized under the
laws of Delaware. Through its subsidiaries and affiliates, Bancshares, the
73rd largest bank holding company in the United States in terms of total
assets as of December 31, 1993, offers a full range of financial services
to the public including commercial lending, depository services, cash
management, brokerage services, retail banking, credit card services,
investment advisory services, and trust services.
As of December 31, 1993, Compass Bank, which offers a broad range of
commercial banking services, was the 119th largest commercial bank in the
United States and the third largest bank in Alabama in terms of total
assets. The Adviser has managed mutual funds since February 5, 1990 and as
of December 31, 1993, the Trust Division of Compass Bank had approximately
$4.5 billion under administration of which it had investment discretion
over approximately $1.5 billion. The Trust Division of Compass Bank
provides investment advisory and management services for the assets of
individuals, pension and profit sharing plans, endowments and foundations.
Since 1972, the Trust Division of Compass Bank has managed pools of
commingled funds which now number 12.
As part of its regular banking operations, Compass Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Compass Bank. The lending relationship will not be a factor in the
selection of securities.
The Fund is managed by members of the Starburst Portfolio Management
Committee. No one person is primarily responsible for the management of the
Fund.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to Federated Securities Corp. an amount computed at an annual rate of
.25 of 1% of the average daily net asset value of the shares to finance any
activity which is principally intended to result in the sale of shares subject
to the Plan.
Federated Securities Corp. may from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the shares exceed such lower expense
limitation as the Distributor may, by notice to the Trust, voluntarily declare
to be effective.
The Distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers, including
Compass Bank and various other affiliates of Bancshares, to provide sales and/or
administrative services as agents for their clients or customers who
beneficially own shares of the Fund. Administrative services may include, but
are not limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Fund; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
Financial institutions, including Compass Bank and various other affiliates of
Bancshares, may receive fees from the Distributor based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined, from time to time, by the
Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the Distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the Distributor, including amounts expended by the
Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
SHAREHOLDER SERVICING ARRANGEMENTS. In addition to the fees paid by the
Distributor to financial institutions under the Plan as described above, the
distributor may also pay financial institutions, including Compass Bank and
various other affiliates of Bancshares, a fee with respect to the average daily
net asset value of shares held by their customers for providing administrative
services. This fee is in addition to the amounts paid under the Plan, and, if
paid, will be reimbursed by the Adviser and not the Fund.
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- --------------------- -----------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per portfolio of the Trust. Federated Administrative Services may voluntarily
reimburse a portion of its fee.
CUSTODIAN. Compass Bank, Birmingham, Alabama, is custodian for the securities
and cash of the Fund for which it receives an annual fee of 0.02% of the Fund's
daily net assets and is reimbursed for its out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, L.L.P., Washington,
D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund may be purchased through Compass Brokerage, Inc., a
subsidiary of Compass Bank formerly known as Central Brokerage Services, Inc.
and which is a member of the National Association of Securities Dealers.
Investors may purchase shares of the Fund on all business days except on days
which the New York Stock Exchange is closed and federal or state holidays
restricting wire transfers. In connection with the sale of Fund shares, the
Distributor may, from time to time, offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
TO PLACE AN ORDER. An investor (including Compass customers) may call Compass
Brokerage, Inc.; customers in Birmingham, Alabama, call at 205-558-5620. Other
customers may call 1-800-239-1930. Payment may be made either by check,
wire-transfer of federal funds or direct debit from a Compass account.
To purchase by check, the check must be included with the order and made payable
to "The Starburst Quality Income Fund." Orders are considered received after
payment by check is converted into federal funds by Compass.
To purchase by wire, investors should call their Compass representative for
wiring instructions at 205-558-5620 in Birmingham, Alabama, or 1-800-239-1930.
Payment for all orders must be received within five days of placing the order.
Shares cannot be purchased on days on which the New York Stock Exchange is
closed or on federal or state holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares is $1,000. Subsequent investments must
be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
- -------------------------------------------- ------------------------ ----------------------
<S> <C> <C>
Less than $500,000.......................... 2.50% 2.56%
$500,000 but less than $750,000............. 2.00% 2.04%
$750,000 but less than $1 million........... 1.00% 1.01%
$1 million but less than $2 million......... 0.25% 0.25%
$2 million or more.......................... 0.00% 0.00%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales load, by the Trust Division of Compass Bank or other
affiliates of Bancshares for funds which are held in a fiduciary, agency,
custodial, or similar capacity including Individual Retirement Accounts.
Trustees and employees of the Fund, Bancshares or its affiliates, or Federated
Securities Corp. or its affiliates, or any bank or investment dealer who has a
sales agreement with Federated Securities Corp. with regard to the Fund, and
their spouses and children under 21 may also buy shares at net asset value,
without a sales load.
SALES LOAD REALLOWANCE. For sales of shares of the Fund, Compass or any
authorized broker/dealer will normally receive up to 85% of the applicable sales
load. Any portion of the sales load which is not paid to Compass or registered
broker/dealers will be retained by the Distributor. However, the Distributor
will periodically, uniformly offer to pay dealers additional amounts in the form
of cash or promotional incentives, such as reimbursement of certain expenses of
qualified employees and their spouses to attend informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. Such payments, all or a portion of which may be paid from the
sales load to the Distributor normally retains or any other source available to
it, will be predicated upon the amount of the shares of the Fund that are sold
by the dealer.
The sales load for shares sold other than through Compass or registered
broker/dealers will be retained by the Distributor. The Distributor may pay fees
to financial institutions out of the sales load in exchange for sales and/or
administrative services performed on behalf of the financial institutions'
customers in connection with the initiation of customer accounts and purchases
of Fund shares.
REDUCING THE SALES LOAD
The sales load can be reduced on the purchase of Fund shares through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent; or
- using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales load paid. The Fund will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales load.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$490,000 and purchases $10,000 more at the public offering price, the sales load
on the additional purchase according to the schedule now in effect would be
2.00%, not 2.50%.
To receive the sales load reduction, Compass Brokerage, Inc. or the Distributor
must be notified by the shareholder in writing at the time the purchase is made
that Fund shares are already owned or that purchases are being combined. The
Fund will reduce the sales load after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $500,000 of Fund
shares over the next 13 months, the sales load may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold 2.50% of the
total amount intended to be purchased in escrow (in shares of the Fund) until
such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales load.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
load applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales load. Compass
Brokerage, Inc. or the Distributor must be notified by the shareholder in
writing or by his financial institution of the reinvestment, in order to
eliminate a sales load. If the shareholder redeems his shares in the Fund, there
may be tax consequences.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by Federated Securities Corp., plus the applicable sales load. A
shareholder may apply for participation in this program by calling a Compass
representative.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting a Compass representative in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested in
additional shares on payment dates without a sales load unless cash payments are
requested by writing to the Fund or Compass as appropriate.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange shares in the Fund for shares in The Starburst
Government Income Fund, The Starburst Government Money Market Fund, The
Starburst Money Market Fund, The Starburst Municipal Income Fund and any other
portfolio of The Starburst Funds or The Starburst Funds II. Shares of funds with
a sales load may be exchanged at net asset value for shares of other funds with
an equal sales load or no sales load. Shares of funds with no sales load
acquired by direct purchase or reinvestment of dividends on such shares may be
exchanged for shares of funds with a sales load at net asset value, plus the
applicable sales load imposed by the fund shares being purchased. Neither the
Trust nor any of the funds imposes any additional fees on exchanges. Exchange
requests cannot be executed on days on which the New York Stock Exchange is
closed or on applicable banking holidays for affiliates of Bancshares.
When an exchange is made from a fund with a sales load to a fund with no sales
load, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales load would be at net asset
value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares by Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Compass representative or an authorized broker.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by calling 205-558-5620 in Birmingham, Alabama or
1-800-239-1930. In addition, investors may exchange shares by calling their
authorized broker directly.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Compass representative or authorized broker.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received by Compass or an authorized
broker and transmitted to Federated Services Company before 4:00 p.m. (Eastern
time) for shares to be exchanged the same day.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Mutual Fund Coordinator, Compass Brokerage, Inc.,
701 S. 32nd Street, Birmingham, Alabama 35233. In addition, investors may
exchange shares by sending a written request to their authorized broker
directly.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through banks, brokers and other financial institutions during times of drastic
economic or market changes. If shareholders cannot contact their Compass
representative or authorized broker by telephone, it is recommended that an
exchange request be made in writing and sent by mail for next day delivery. Send
mail requests to: Mutual Fund Coordinator, Compass Brokerage, Inc., 701 S. 32nd
Street, Birmingham, Alabama 35233.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, by a Compass
representative or authorized broker and deposited to the shareholder's account
before being exchanged.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemption requests cannot be
executed on days which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemptions must be received in proper form and can be made through a Compass
representative or authorized broker.
BY TELEPHONE. Shareholders may redeem shares of the Fund by telephoning a
Compass representative at 205-558-5620 in Birmingham, Alabama or 1-800-239-1930.
For calls received by Compass before 4:00 p.m. (Eastern time), proceeds will
normally be deposited into the shareholder's account, if any, at Compass or a
check will be sent to the address of record on the next business day. In no
event will it take more than seven days for proceeds to be wired or a check to
be sent after a proper request for redemption has been received. If, at any
time, the Fund shall determine it necessary to terminate or modify this method
of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Compass representative. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. Shareholders may redeem shares of the Fund by sending a written request
to the Fund through a Compass representative. The written request should include
the shareholder's name, the Fund name, the account number, and the share or
dollar amount requested. Investors redeeming through Compass should mail written
requests to: Mutual Fund Coordinator, Compass Brokerage, Inc., 701 S. 32nd
Street, Birmingham, Alabama 35233.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Fund shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder. Depending upon the amount of
the withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to Fund shares, and the fluctuation of the net asset
value of Fund shares redeemed under this program, redemptions may reduce, and
eventually deplete, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as
yield or income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have invested at least $10,000
in the Fund (at current offering price).
A shareholder may apply for participation in this program by calling a Compass
representative. Due to the fact that shares are sold with a sales load, it is
not advisable for shareholders to be purchasing shares while participating in
this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. Before shares
are redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum requirement.
This requirement does not apply, however, if the balance falls below $1,000
because of changes in the Fund's net asset value.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that in matters affecting only a
particular fund, only shares of that fund are entitled to vote. As of December
5, 1994, Compass Bank, Birmingham, Alabama, acting in various capacities for
numerous accounts, was the owner of record of approximately 815,600 shares
(40.66%) of the Fund, and therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of their customer. Compass Bank, Bancshares and
certain of Bancshares' affiliates are subject to such banking laws and
regulations.
Compass Bank believes, based on the advice of its counsel, that Compass Bank may
perform the services for the Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent the adviser from continuing to perform all or a part of the above
services for its customers and/or the Fund. If it were prohibited from engaging
in these customer-related activities, the Trustees would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of the Fund may occur, including possible termination
of any automatic or other Fund share investment and redemption services that are
being provided by Compass Bank and other affiliates of Bancshares. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Compass Bank is
found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
THE STARBURST QUALITY INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--85.8%
- -----------------------------------------------------------------------------------
CORPORATE BONDS--40.8%
- -----------------------------------------------------------------------------------
BANKING--5.3%
-------------------------------------------------------------------
$1,000,000 Republic New York Corp., 8.875%, 2/15/2001 $ 1,039,170
------------------------------------------------------------------- -----------
FINANCIAL--11.9%
-------------------------------------------------------------------
800,000 Associates Corp. North America, 5.25%, 9/1/98 736,424
-------------------------------------------------------------------
800,000 Ford Capital BV, 9.375%, 1/1/98 835,160
-------------------------------------------------------------------
800,000 International Lease Finance Co., 5.75%, 7/1/98 748,112
------------------------------------------------------------------- -----------
Total 2,319,696
------------------------------------------------------------------- -----------
INDUSTRIAL--23.6%
-------------------------------------------------------------------
1,000,000 American Brands, Inc., 7.50%, 5/15/99 986,560
-------------------------------------------------------------------
900,000 Atlantic Richfield Co., 10.375%, 7/15/95 925,173
-------------------------------------------------------------------
800,000 IBM Corp., 6.375%, 6/15/2000 738,072
-------------------------------------------------------------------
900,000 Kimberly-Clark Corp., 9.75%, 6/15/95 915,469
-------------------------------------------------------------------
1,000,000 Phillip Morris Cos., Inc., 8.90%, 7/15/98 1,033,220
------------------------------------------------------------------- -----------
Total 4,598,494
------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $8,091,439) 7,957,360
------------------------------------------------------------------- -----------
U.S. GOVERNMENT AGENCY OBLIGATIONS--43.9%
- -----------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--10.1%
-------------------------------------------------------------------
1,014,174 8.25%, 10/1/2001, Pool #220015 1,021,760
-------------------------------------------------------------------
288,018 8.50%, 1/1/2009, Pool #183201 287,744
-------------------------------------------------------------------
220,186 9.25%, 9/1/2008, Pool #251941 225,068
-------------------------------------------------------------------
129,972 9.30%, 10/15/2019, REMIC, Series 65, Class D 132,027
-------------------------------------------------------------------
140,079 9.50%, 2/1/2002, Pool #215829 144,148
-------------------------------------------------------------------
163,312 9.50%, 7/1/2002, Pool #218152 168,056
------------------------------------------------------------------- -----------
Total 1,978,803
------------------------------------------------------------------- -----------
</TABLE>
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--CONTINUED
- -----------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--32.9%
-------------------------------------------------------------------
$6,000,000 * 5.35%, 1/20/95, Discount Note $ 5,935,560
-------------------------------------------------------------------
250,000 6.00%, 6/25/2014, REMIC, Series 1992-125, Class D 246,303
-------------------------------------------------------------------
240,746 9.15%, 9/25/2018, REMIC, Series 1989-33, Class D 245,949
------------------------------------------------------------------- -----------
Total 6,427,812
------------------------------------------------------------------- -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--0.9%
-------------------------------------------------------------------
161,820 9.00%, 5/15/2001, Pool #145649 168,239
------------------------------------------------------------------- -----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(IDENTIFIED COST, $8,650,987) 8,574,854
------------------------------------------------------------------- -----------
COLLATERALIZED MORTGAGE OBLIGATION--1.1%
- -----------------------------------------------------------------------------------
221,796 Collateralized Mortgage Obligation Trust, Series 51, Class A,
9.10%, 11/20/2019 (IDENTIFIED COST, $228,727) 221,936
------------------------------------------------------------------- -----------
TOTAL LONG-TERM INVESTMENTS (IDENTIFIED COST, $16,971,153) 16,754,150
------------------------------------------------------------------- -----------
SHORT-TERM INVESTMENTS--43.7%
- -----------------------------------------------------------------------------------
*COMMERCIAL PAPER--5.1%
- -----------------------------------------------------------------------------------
FINANCE SERVICES--5.1%
-------------------------------------------------------------------
1,000,000 Xerox Credit Corp., 4.81%, 11/7/94 999,198
------------------------------------------------------------------- -----------
</TABLE>
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <C> <S> <C>
**REPURCHASE AGREEMENTS--38.6%
- -----------------------------------------------------------------------------------
$ 800,000 First Chicago Capital Markets, Inc., 4.77%, dated 10/31/94, due
11/1/94 $ 800,000
-------------------------------------------------------------------
4,333,000 Fuji Securities, Inc., 4.77%, dated 10/31/94, due 11/1/94 4,333,000
-------------------------------------------------------------------
800,000 Harris Government Securities, Inc., 4.45%, dated 10/31/94, due
11/1/94 800,000
-------------------------------------------------------------------
800,000 HSBC Securities, Inc., 4.25%, dated 10/31/94, due 11/1/94 800,000
-------------------------------------------------------------------
800,000 Merrill Lynch & Co., Inc., 4.55%, dated 10/31/94, due 11/1/94 800,000
------------------------------------------------------------------- -----------
TOTAL REPURCHASE AGREEMENTS 7,533,000
------------------------------------------------------------------- -----------
TOTAL SHORT-TERM INVESTMENTS, AT AMORTIZED COST 8,532,198
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $25,503,351) $25,286,348+
------------------------------------------------------------------- -----------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $25,503,351. The
net unrealized depreciation of investments on a federal tax cost basis
amounts to $217,003, which is comprised of $6,893 appreciation and $223,896
depreciation at October 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($19,513,284) at October 31, 1994.
The following abbreviation is used in this portfolio:
REMIC -- Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
THE STARBURST QUALITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in repurchase agreements $ 7,533,000
- -------------------------------------------------------------------
Investments in securities 17,753,348
- ------------------------------------------------------------------- -----------
Total investments, at amortized cost and value
(identified and tax cost, $25,503,351) $25,286,348
- ---------------------------------------------------------------------------------
Cash 837
- ---------------------------------------------------------------------------------
Interest receivable 253,224
- ---------------------------------------------------------------------------------
Receivable for principal paydown 31,139
- --------------------------------------------------------------------------------- -----------
Total assets 25,571,548
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable for investments purchased 5,928,667
- -------------------------------------------------------------------
Payable for Fund shares redeemed 42,700
- -------------------------------------------------------------------
Dividends payable 20,147
- -------------------------------------------------------------------
Accrued expenses 66,750
- ------------------------------------------------------------------- -----------
Total liabilities 6,058,264
- --------------------------------------------------------------------------------- -----------
NET ASSETS for 2,100,882 shares of beneficial interest outstanding $19,513,284
- --------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid-in capital $21,484,056
- ---------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (217,003)
- ---------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (1,753,769)
- --------------------------------------------------------------------------------- -----------
Total Net Assets $19,513,284
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE and Redemption Proceeds Per Share:
($19,513,284 / 2,100,882 shares of beneficial interest outstanding) $9.29
- --------------------------------------------------------------------------------- -----------
Computation of Offering Price:
Offering Price Per Share (100/97.5 of $9.29) $9.53*
- --------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST QUALITY INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income $ 1,222,656
- --------------------------------------------------------------------------------------------------
Dividend income 103,623
- -------------------------------------------------------------------------------------------------- ----------
Total investment income 1,326,279
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee $ 144,639
- ------------------------------------------------------------------------------------
Trustees' fees 1,779
- ------------------------------------------------------------------------------------
Administrative personnel and services fees 26,406
- ------------------------------------------------------------------------------------
Custodian fees 15,000
- ------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 44,305
- ------------------------------------------------------------------------------------
Fund share registration costs 27,805
- ------------------------------------------------------------------------------------
Auditing fees 4,132
- ------------------------------------------------------------------------------------
Legal fees 5,136
- ------------------------------------------------------------------------------------
Printing and postage 17,491
- ------------------------------------------------------------------------------------
Portfolio accounting fees 49,549
- ------------------------------------------------------------------------------------
Insurance premiums 7,534
- ------------------------------------------------------------------------------------
Distribution services fee 48,215
- ------------------------------------------------------------------------------------
Miscellaneous 1,250
- ------------------------------------------------------------------------------------ ---------
Total expenses 393,241
- ------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 144,639
- -----------------------------------------------------------------------
Waiver of administrative and personnel services fees 26,406
- -----------------------------------------------------------------------
Waiver of custodian fees 15,000
- -----------------------------------------------------------------------
Waiver of distribution services fee 48,215 234,260
- ----------------------------------------------------------------------- --------- ---------
Net expenses 158,981
- -------------------------------------------------------------------------------------------------- ----------
Net investment income 1,167,298
- -------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (1,753,769)
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (217,003)
- -------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments (1,970,772)
- -------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ (803,474)
- -------------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST QUALITY INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
OCTOBER 31,
----------------------------- DECEMBER 31,
1994 1993* 1992
------------- ------------ -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------
OPERATIONS--
- --------------------------------------------------
Net investment income $ 1,167,298 $ -- $ 290,607
- --------------------------------------------------
Net realized gain (loss) on investment
transactions (($1,753,769), $0, and $1,656 net
gain (loss), respectively, as computed for federal
tax purposes) (1,753,769) -- 1,656
- --------------------------------------------------
Net change in unrealized appreciation
(depreciation) of investments (217,003) -- --
- -------------------------------------------------- ------------- ----------- ------------
Change in net assets resulting from operations (803,474) -- 292,263
- -------------------------------------------------- ------------- ----------- ------------
NET EQUALIZATION DEBITS -- -- (290,026)
- -------------------------------------------------- ------------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------
Dividends to shareholders from net investment
income (1,167,298) -- (2,237)
- -------------------------------------------------- ------------- ----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- --------------------------------------------------
Proceeds from sale of shares 39,751,717 -- 31,105,666
- --------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 759,227 -- --
- --------------------------------------------------
Cost of shares redeemed (19,400,903) (3,699) (31,105,239)
- -------------------------------------------------- ------------- ----------- -----------
Change in net assets from Fund share
transactions 21,110,041 (3,699) 427
- -------------------------------------------------- ------------- ----------- -----------
CAPITAL CONTRIBUTION 273,873 -- --
- -------------------------------------------------- ------------- ----------- ------------
Change in net assets 19,413,142 (3,699) 427
- --------------------------------------------------
NET ASSETS:
- --------------------------------------------------
Beginning of period 100,142 103,841 103,414
- -------------------------------------------------- ------------- ----------- -----------
End of period $19,513,284 $100,142 $ 103,841
- -------------------------------------------------- ------------- ----------- -----------
</TABLE>
* For the period from December 31, 1992 to October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST QUALITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds II (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 one diversified portfolio. The financial
statements included herein present those of The Starburst Quality Income Fund
(the "Fund").
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A.INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sale price reported on national
securities exchanges. Unlisted securities and bonds are generally valued at
the price provided by an independent pricing service. Short-term securities
with remaining maturities of sixty days or less may be stated at amortized
cost, which approximates value.
B.REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to guidelines established by
the Board of Trustees (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.
C.INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code").
D.FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary.
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
At October 31, 1994, the Fund, for federal tax purposes, had a capital loss
carryforward of $1,753,769, 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 in 2002.
E. EQUALIZATION--The Fund follows the accounting practice known as equalization
by which a portion of the proceeds from sales and costs of redemptions of
capital stock equivalent, on a per share basis, to the amount of
undistributed net investment income on the date of the transaction is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares.
F. 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.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
OCTOBER 31, DECEMBER
------------------- 31,
1994 1993* 1992
- ------------------------------------------------------- ---------- ---- -----------
<S> <C> <C> <C>
Shares sold 4,057,203 -- 3,009,149
- -------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 79,438 -- --
- -------------------------------------------------------
Shares redeemed (2,045,412) (357) (3,009,149)
- ------------------------------------------------------- ---------- ---- ----------
Net change resulting from Fund share transactions 2,091,229 (357) --
- ------------------------------------------------------- ---------- ---- ----------
</TABLE>
* For the period from December 31, 1992 to October 31, 1993.
(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 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION - A capital contribution in the amount of $273,873 was made
by the Adviser to the Fund during the fiscal year ended October 31, 1994, to
compensate the Fund for capital losses incurred on the sale of certain
securities to unaffiliated third parties.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Fund for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's shares. The Plan provides that the Fund may incur distribution
expenses up to 0.25 of 1% of the average daily net assets of the Fund, annually,
to compensate FSC. FSC may voluntarily choose to waive a portion of its fee.
TRANSFER AND DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The FServ fee is based on
the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $42,318 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following June 22, 1990 (date the Fund first became
effective). For the year ended October 31, 1994, the Fund paid $989 pursuant to
this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Purchases $41,245,146
- ------------------------------------------------------------------------------- -----------
Sales $30,374,923
- ------------------------------------------------------------------------------- -----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of THE STARBURST FUNDS II
and the Shareholders of THE STARBURST QUALITY INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Starburst Quality Income Fund (a portfolio
of The Starburst Funds II) as of October 31, 1994, and the related statement of
operations for the year then ended, and the statement of changes in net assets
for the years ended October 31, 1994 and 1993, and for the year ended December
31, 1992, and the financial highlights (see page 2) for the years ended October
31, 1994 and 1993 and for each of the three years in the period ended December
31, 1992. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Starburst
Quality Income Fund as of October 31, 1994, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 16, 1994
ADDRESSES
- ----------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Starburst Quality Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Compass Bank 701 S. 32nd Street
Birmingham, Alabama 35233
- ------------------------------------------------------------------------------------------------
Custodian
Compass Bank 701 S. 32nd Street
Birmingham, Alabama 35233
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ------------------------------------------------------------------------------------------------
</TABLE>
THE STARBURST
QUALITY INCOME FUND
PROSPECTUS
An Open-End,
Diversified Management
Investment Company
December 31, 1994
---------------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
COMPASS BANK
(LOGO)
--------------------------------------------------
Investment Adviser
855246104
2121709A (12/94)
99/33-2415
The Starburst Quality Income Fund
(A Portfolio of The Starburst Funds II)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of The Starburst Quality Income Fund (the "Fund") dated
December 31, 1994. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write or call toll-free nationwide,
1-800-239-1930.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated December 31, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 1
Option Transactions 1
Lending of Portfolio Securities 2
Reverse Repurchase Agreements 2
Portfolio Turnover 3
Investment Limitations 3
The Starburst Funds II Management 5
The Funds 8
Fund Ownership 8
Trustee Liability 8
Investment Advisory Services 8
Adviser to the Fund 8
Advisory Fees 9
Administrative Services 9
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 9
Purchasing Shares 10
Distribution Plan 10
Conversion to Federal Funds 10
Determining Net Asset Value 11
Determining Market Value of
Securities 11
Exchange Privilege 11
Redeeming Shares 11
Redemption in Kind 11
Tax Status 12
The Fund's Tax Status 12
Shareholders' Tax Status 12
Total Return 12
Yield 12
Current Distributions 13
Performance Comparisons 13
Duration 14
Appendix 15
General Information About the Fund
The Starburst Funds II (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated June 1, 1990. Effective
November 19, 1992, shareholders approved a change in the name of the Fund
from "The Starburst Government Fund" to "The Starburst Quality Income
Fund," the adoption of the Trust's ability to offer separate classes of
shares representing interests in separate portfolios of securities, and
approved a change in the investment objective of the Fund to provide
current income.
Investment Objective and Policies
The investment objective of the Fund is to provide current income. The
investment objective cannot be changed without approval of shareholders.
Types of Investments
The Fund invests primarily in high grade securities which include:
o domestic issues of corporate debt obligations rated A or better by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), Fitch Investors Service, Inc. ("Fitch"), or
Duff & Phelps, Inc., or, if unrated, are deemed to be of comparable
quality by the Fund's investment adviser; and
o obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Board of Trustees (the
"Trustees").
Option Transactions
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio
through the purchase of put options on portfolio securities and listed put
options on financial futures contracts for portfolio securities. The Fund
may also write covered call options on its portfolio securities to attempt
to increase its current income.
The Fund will maintain its positions in securities, option rights, and
segregated cash subject to puts and calls until the options are exercised,
closed, or have expired.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series.
Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures
contracts. These options will be used only to protect portfolio
securities against decreases in value resulting from market factors
such as an anticipated increase in interest rates.
A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of instrument called
for in the contract ("going short") and the buyer who agrees to take
delivery of the instrument ("going long") at a certain time in the
future. Financial futures contracts call for the delivery of
particular debt instruments issued or guaranteed by the U.S. Treasury
or by specified agencies or instrumentalities of the U.S. government.
If the Fund could enter into financial futures contracts directly to
hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of
its fixed income securities may decline during the Fund's anticipated
holding period.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles
(but does not obligate) its purchaser to decide on or before a future
date whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value
during the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an
event, the Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received
by the Fund upon the sale of the second option will be large enough
to offset both the premium paid by the Fund for the original option
plus the realized decrease in value of the hedged securities.
Alternately, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would
then deliver the futures contract in return for payment of the strike
price.
Currently, the Fund will only enter into futures contracts in order
to exercise put options in its portfolio. If the Fund neither closes
out nor exercises an option, the option will expire on the date
provided in the option contract, and only the premium paid for the
contract will be lost.
Purchasing Put Options on Portfolio Securities
The Fund may purchase put options on portfolio securities in an
effort to protect against price movements in particular securities in
its portfolio. A put option gives the Fund, in return for a premium,
the right to sell the underlying security to the writer (seller) at a
specified price during the term of the option.
Writing Covered Call Options
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying
security upon payment of the exercise price.
The Fund may only sell listed call options either on securities held
in its portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash in
the amount of any such additional consideration).
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. The securities are marked to
market daily and maintained until the transaction is settled.
Portfolio Turnover
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. The Fund does not anticipate
that portfolio turnover will exceed 100%. For the fiscal year ended October
31, 1994 and the fiscal period ended October 31, 1993, the Fund's portfolio
turnover rates were 209% and 0%, respectively.
Investment Limitations
Buying on Margin
The Fund will not purchase any securities on margin but may obtain
such short-term credits as may be necessary for the clearance of
transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any
such borrowings in excess of 5% of assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the
borrowing.
Investing in Real Estate
The Fund will not buy or sell real estate, although it may invest in
the securities of issuers whose business involves the purchase or
sale of real estate or in securities which are secured by real estate
or interests in real estate.
Investing in Commodities
The Fund will not purchase or sell commodities. However, the Fund may
purchase put options on portfolio securities and on financial futures
contracts. In addition, the Fund reserves the right to hedge the
portfolio by entering into financial futures contracts and to sell
calls on financial futures contracts.
Underwriting
The Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933
in connection with the sale of securities in accordance with its
investment objective, policies and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities
up to one-third of the value of its total assets.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets
in any one industry. However, investing in U.S. government
obligations shall not be considered investments in any one industry
and investing in electric, gas and communications utilities,
respectively, shall be considered investments in separate industries.
Diversification of Investments
With respect to 75% of the value of its total assets, the Fund will
not invest more than 5% in any one issuer (except cash and cash
items, repurchase agreements, and U.S. government obligations) or own
more than 10% of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
Investing in Restricted Securities
The Fund will not invest more than 10% of its total assets in
securities subject to restrictions on resale under the federal
securities laws (except for commercial paper issued under Section
4(2) of the Securities Act of 1933).
Investing in Minerals
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs, although it may purchase the
securities of issuers which invest in or sponsor such programs.
Investing in Securities of Other Investment Companies
The Fund will not own more than 3% of the total outstanding voting
stock of any investment company, invest more than 5% of its total
assets in any investment company, or invest more than 10% of its
total assets in investment companies in general. The Fund will
purchase securities of investment companies only in open-market
transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired
in a merger, consolidation, or acquisition of assets.
Acquiring Securities
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
Investing in New Issuers
The Fund will not invest more than 5% of its total assets in
securities of issuers that have records of less than three years of
continuous operations, including the operation of any predecessor.
Investing in Issuers Whose Securities are Owned by Officers and Trustees
of the Fund
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Fund or its investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
Investing in Illiquid Securities
The Fund will not invest more than 15% of its net assets in
securities which are illiquid, including certain restricted
securities not determined by the Board of Trustees to be liquid, non-
negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice.
Writing Covered Call Options and Purchasing Put Options
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment. The Fund will
not purchase put options on securities unless the securities are held
in the Fund's portfolio.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction. The Fund has no present intent to
borrow money in excess of 5% of the value of its net assets during the
coming fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
The Starburst Funds II Management
Officers and Trustees are listed with their addresses, present positions
with Compass Bank, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and
Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of
the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Professor of Medicine and Trustee, University of Pittsburgh;
Director of Corporate Health, University of Pittsburgh Medical Center;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.
Two Gateway Center-Suite 674
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer & Flaherty; Director, Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Vice President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice President
and Treasurer, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., and Passport Research, Ltd.; Executive
Vice President, Treasurer, and Director, Federated Securities Corp.;
Trustee, Federated Services Company and Federated Shareholder Services;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer of
the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Two Gateway Center-Suite 674
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer & Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative Services, Federated Services Company, and Federated
Shareholder Services; President or Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and Secretary,
Federated Research Corp. and Passport Research, Ltd.; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Secretary and Trustee, Federated
Shareholder Services; Executive Vice President and Director, Federated
Securities Corp.; Vice President and Secretary of the Funds.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in
the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of
Trustees between meetings of the Board.
The Funds
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Cash
Management Trust; Automated Government Money Trust; California Municipal
Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Intermediate Government
Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government
Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; The
Medalist Funds: Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Trust; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; Star Funds; The Starburst Funds; Stock and Bond Fund,
Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; World Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of December 5, 1994, the following shareholder of record owned 5% or
more of the outstanding shares of the Fund: Compass Bank, Birmingham,
Alabama, acting in various capacities for numerous accounts, owned
approximately 815,600 shares (40.66%).
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Compass Bank, an Alabama state banking
corporation, formerly known as Central Bank of the South (the "Adviser").
The Adviser is a wholly owned subsidiary of Compass Bancshares, Inc. ("Banc
shares"), formerly known as Central Bancshares of the South, Inc., a bank
holding company organized under the laws of Delaware.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
Because of the internal controls maintained by Compass Bank to restrict the
flow of non-public information, Fund investments are typically made without
any knowledge of Compass Bank's or its affiliates' lending relationships
with an issuer.
Advisory Fees
For its advisory services, Compass Bank receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended October 31, 1994, the fiscal period ended October
31, 1993, and the fiscal year ended December 31, 1992, the Adviser earned
advisory fees from the Fund totaling $144,639, $0, and $71,853,
respectively, of which $144,639, $0, and $45,488, respectively, was
voluntarily waived.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2 1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net
assets, and 1 1/2% per year of the remaining average net assets, the
Adviser will reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for the fees set
forth in the prospectus. For the fiscal year ended October 31, 1994, the
fiscal period ended October 31, 1993, and the fiscal year ended December
31, 1992, the Fund incurred costs for administrative services of $26,406
$0, and $14,371, respectively, of which $26,406, $0, and $79, respectively,
was waived.
Custodian
Under the Custodian Agreement, Compass Bank holds the Fund's portfolio
securities in safekeeping and keeps all necessary records and documents
relating to its duties. For its services, Compass Bank receives an annual
fee payable monthly, of 0.02% of the Fund's average aggregate daily net
assets. In addition, Compass Bank is reimbursed for its out-of-pocket
expenses.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the
size, type and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's average
net assets for the period plus out-of-pocket expenses.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates will be obligated to exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses.
Purchasing Shares
Shares are sold at their net asset value with a sales load on days the New
York Stock Exchange is open for business, except for federal or state
holidays restricting wire transfers. The procedure for purchasing shares of
the Fund is explained in the prospectus under "Investing in the Fund."
Compass Bank, Compass Brokerage, Inc. and the other affiliates of
Bancshares which provide shareholder and administrative services to the
Fund are sometimes referred herein as "Compass."
Distribution Plan
The Starburst Funds II has adopted a Plan for the Fund pursuant to Rule 12b-
1 (the "Plan") which was promulgated by the Securities and Exchange
Commission under the Investment Company Act of 1940. The Plan provides for
payment of fees to Federated Securities Corp. to finance any activity which
is principally intended to result in the sale of the Fund's shares subject
to the Plan. Such activities may include the advertising and marketing of
shares; preparing, printing and distributing prospectuses and sales
literature to prospective shareholders, brokers or administrators; and
implementing and operating the Plan. Pursuant to the Plan, the distributor
may pay fees to brokers for distribution and administrative services and to
administrators for administrative services as to shares. The administrative
services include, but are not limited to: communicating account openings;
communicating account closings; entering purchase transactions; entering
redemption transactions; providing or arranging to provide accounting
support for all transactions; wiring funds and receiving funds for share
purchases and redemptions; confirming and reconciling all transactions;
reviewing the activity in Fund accounts; and providing training and
supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's
transfer agent; and maintaining and distributing current copies of
prospectuses and shareholder reports to the beneficial owners of shares and
prospective shareholders.
The Trustees expect that the adoption of the Plan will result in the sale
of a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of
the Fund will facilitate more efficient portfolio management and assist the
Fund in seeking to achieve its investment objective.
For the fiscal year ended October 31, 1994 , brokers and administrators
(financial institutions) received fees in the amount of $48,215, all of
which was voluntarily waived, pursuant to the Plan.
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as follows:
o as provided by an independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices, as furnished by an independent pricing service, or for
short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost unless the Trustees
determine this is not fair value; or
o at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale
price on the national exchange on which such option is traded. Unlisted
call options will be valued at the latest bid price as provided by brokers.
Exchange Privilege
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other
fund.
Instructions for exchanges may be given in writing or by telephone.
Exchange procedures are explained in the prospectus under "Exchange
Privilege."
Redeeming Shares
The Fund redeems shares at the next computed net asset value after Compass
Brokerage, Inc. receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Shares."
Redemption in Kind
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund intends to pay no federal income tax because it expects to meet
the requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. No portion of any income
dividend paid by the Fund is eligible for the dividends received deduction
available to corporations. These dividends, and any short-term capital
gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at long-term capital gains rates on
long-term capital gains distributed to them regardless of how long
they have held the Fund shares.
Total Return
The Fund's average annual total return for the fiscal year ended October
31, 1994, and for the period from June 22, 1990 (start of business) to
October 31, 1994, was (7.54%) and .68%, respectively.
The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, less any
applicable sales load, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and distributions.
Yield
The yield for the Fund for the thirty-day period ended October 31, 1994,
was 4.92%.
The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.
Current Distributions
The Fund calculates its current distributions daily based upon its past
twelve months' income dividends and short-term capital gains distributions
per share divided by its offering price per share on that day. The Fund may
reduce the time period upon which it bases its calculation of current
distributions if the investment adviser believes a shortened period would
be more representative in light of current market conditions.
Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in Fund expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and net asset value per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o Lehman Brothers Government/Corporate Intermediate Index is comprised
of approximately 3,000 issues which include intermediate non-
convertible bonds publicly issued by the U.S. government or its
agencies; intermediate corporate bonds guaranteed by the U.S.
government and quasifederal corporations; and intermediate publicly
issued, fixed rate, non-convertible domestic bonds of companies in
industry, public utilities, and finance. The average maturity of
these bonds approximates four years. Tracked by Lehman Brothers,
Inc., the index calculates total returns for one-month, three-month,
twelve-month, and ten-year periods and year-to-date.
o Salomon Brothers AAA-AA Corporate Index calculates total returns of
approximately 775 issues which include long-term, high grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years
or more and companies in industry, public utilities, and finance.
o Merrill Lynch Corporate & Government Master Index is an unmanaged
index comprised of approximately 4,821 issues which include corporate
debt obligations rated BBB or better and publicly issued, non-
convertible domestic debt of the U.S. government or any agency
thereof. These quality parameters are based on composites of ratings
assigned by Standard and Poor's Corp. and Moody's Investors Service,
Inc. Only notes and bonds with a minimum maturity of one year are
included.
o Merrill Lynch Corporate Master is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better.
These quality parameters are based on composites of ratings assigned
by Standard and Poor's Corp. and Moody's Investors Service, Inc. Only
bonds with a minimum maturity of one year are included.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Fund based on monthly reinvestment of dividends over a specified period
of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
Duration
Duration is a commonly used measure of the potential volatility in the
price of a bond, or other fixed income security, or in a portfolio of fixed
income securities, prior to maturity. Volatility is the magnitude of the
change in the price of a bond relative to a given change in the market rate
of interest. A bond's price volatility depends on three primary variables:
the bond's coupon rate; maturity date; and the level of market yields of
similar fixed income securities. Generally, bonds with lower coupons or
longer maturities will be more volatile than bonds with higher coupons or
shorter maturities. Duration combines these variables into a single
measure.
Duration is calculated by dividing the sum of the time weighted values of
the cash flows of a bond or bonds, including interest and principal
payments, by the sum of the present values of the cash flows. When the Fund
invests in mortgage pass-through securities, its duration will be
calculated in a manner which requires assumptions to be made regarding
future principal prepayments. A more complete description of this
calculation is available upon request from the Fund.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Fitch Investors Service, Inc., Long-Term Debt Ratings
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated F-
1+.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
Standard and Poor's Ratings Group Commercial Paper Ratings
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's Investors Service, Inc., Commercial Paper Ratings
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-
1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; well established access to a range of financial markets
and assured sources of alternate liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch Investors Service, Inc., Short-Term Debt Ratings
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned F-1+ and F-1 ratings.
Duff & Phelps, Inc. Corporate Bond Rating Definitions
AAA Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, and AA- High credit quality protection factors are strong.
Risk is modest but may vary slightly from time to time because of economic
conditions.
A+, A, and A- Protection factors are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
855246104
2121709B (12/94)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements; (filed in Part A)
(b) Exhibits:
(1) Conformed Copy of Declaration of Trust of the
Registrant (1);
(i) Conformed Copy of Amendment No. 1 to Declaration
of Trust (4);
(ii) Conformed Copy of Amendment No. 2 to Declaration
of Trust (4);
(2) Copy of By-Laws of the Registrant (1);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (4);
(5) Conformed Copy of Investment Advisory Contract of the
Registrant;+
(6) Conformed Copy of Distributor's Contract of the
Registrant (4);
(7) Not applicable;
(8) Conformed Copy of Custodian Agreement of the
Registrant;+
(9) (i) Conformed Copy of Electronic Communications
and Recordkeeping Agreement;+
(ii) Conformed Copy of Agreement for Fund
Accounting Shareholder Recordkeeping, and Custody
Services Procurement;+
(10) Conformed Copy of Opinion and Consent of Counsel as
to legality of shares being registered;+
(11) (i) Conformed Copy of Consent of the Independent
Auditors;+
(ii) Not applicable;
(12) Not applicable;
(13) Copy of Initial Capital Understanding (1);
(14) Not applicable;
(15) (i) Conformed Copy of Distribution Plan (4);
(ii) Conformed Copy of Rule 12b-1 Agreement (4);
(16) Copy of Schedule for Computation of Fund
Performance Data (5);
(17) Copy of Financial Data Schedules;+
(18) Conformed Copy of Opinion and Consent of Counsel as
to Availability of Rule 485(b);+
(19) Conformed Copy of Power of Attorney (4);
+ Exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed on June 21, 1990. (File Nos. 33-35473 and
811-6119)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed April 30, 1993. (File Nos. 33-35473
and 811-6119)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed April 27, 1994. (File Nos. 33-35473
and 811-6119)
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of December 5, 1994
Shares of beneficial interest 1,137
Item 27. Indemnification: (1)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of Compass Bank, the
investment adviser, see the section entitled "Management of the
Starburst Funds II" in Part A.
The Officers of the investment adviser are:
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
D. Paul Jones, Jr. Chairman, President, Chairman, Chief
Chief Executive Officer, Executive Officer,
Treasurer and Director Treasurer and Director of
Compass Bancshares, Inc.;
Director of Golden
Enterprises, Inc. (snack
food and metal fastener
production and
distribution), the
principal business address
of which is 110 South
Sixth Street, Birmingham,
Alabama 35205
Byrd Williams Executive Vice President
Christina L. Boles Senior Vice President,
Correspondent and Investment
Services Division
Ralph H. Cassell Senior Vice President,
Consumer Banking
Robert S. McKean Senior Vice President,
Metropolitan Banking
Michale E. Murry Senior Vice President,
Trust Division
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed on June 21, 1990. (File Nos. 33-35473 and
811-6119)
John C. Neiman Senior Vice President,
National Banking Division
G. Ray Stone Senior Vice President,
Senior Credit Policy Officer
Randall Reynolds Senior Vice President and
Manager of Retail Investment
Sales
Garrett R. Hegel Senior Vice President and Chief Financial
Chief Financial Officer Officer of Compass
Bancshares, Inc.
Michael A. Bean Chief Accounting Officer
Jerry W. Powell General Counsel and General Counsel and
Secretary Secretary of Compass
Bancshares, Inc.
Richard H. Votel Senior Vice President President: Compass
Bancshares Insurance Inc.
Jerry L. Goodson Vice President President: Compass
Brokerage, Inc.
The business address for each of the above-listed persons is 15 South 20th
Street, Birmingham, Alabama 35233.
The principal business address of Compass Bank, Compass Bancshares, Inc. and
Compass Bancshares Insurance, Inc. is 15 South 20th Street, Birmingham, Alabama
35233.
Directors
Other Substantial Business,
Name and Address Profession, Vocation or Employment
Harry B. Brock, Jr. Retired since March 31, 1991
701 South 32nd Street as Chairman of the Board,
Birmingham, Alabama 35233 Chief Executive Officer and
Treasurer of Compass Bancshares,
Inc and Compass Bank. Mr. Brock
is the father of Stanley M.
Brock, a director of Compass Bank
and of Harry B. Brock III, an
officer of Compass Bank.
Charles W. Daniel President, Dantract, Inc.
200 Office Park Drive (real estate investments),
Suite 100 Suite 100, 200 Office Park
Birmingham, Alabama 35223 Drive, Birmingham, Alabama 35223.
William Eugene Davenport President and Chief Operating
Russell Lands, Inc. Officer of Russell Lands, Inc.
1 Willowpoint Road (real estate development)
Alexander City, Alabama 35010
Marshall Durbin, Jr. President of Marshall Durbin &
Marshall Durbin & Co., Inc. Company, Inc. (poultry
3125 Independence Drive processing).
Birmingham, Alabama 35209
Tranum Fitzpatrick Chairman of Guiford Company,
Fitzpatrick & Associates Inc. and President of Guiford
2600 East South Blvd. Capital and Empire-Rouse (real
Montgomery, Alabama 36116 estate investment and
development),2600 East South
Blvd., Montgomery, Alabama 36116.
D. Paul Jones, Jr. Chairman, Chief Executive
Compass Bancshares, Inc. Officer and Treasurer of
15 South 20th Street Compass Bancshares, Inc. and
Birmingham, Alabama 35233 Compass Bank; Director of Golden
Enterprises, Inc. (snack food and
metal Fastener production and
distribution, 110 South Sixth
Street, Birmingham, Alabama
35205.
G.W. "Red" Leach, Jr. Former proprietor of Red Leach
418 Chestnut Street and Sons Insurance (insurance
Gadsden, Alabama 35901 sales).
Goodwin L. Myrick President and Chairman of the
Alfa Corporation Board, Alabama Farmers
2108 East South Blvd. Federation, Alfa Corporation,
Montgomery, Alabama 36116 Alfa Insurance Companies and Alfa
Services, Inc. (agriculture and
insurance), the principal address
of each of which is 2108 East
South Boulevard, Montgomery,
Alabama 36116, and a dairy
farmer; Director of Alfa
Corporation.
John S. Stein President and Chief Executive
Golden Enterprises, Inc. Officer of Golden Enterprises,
110 South Sixth Street Inc. (snack food and metal
Birmingham, Alabama 35205 fastenter production and
distribution), Director of Golden
Enterprises, Inc.
Garry Neil Drummund, Sr. Chief Executive Officer of
Drummund Company, Inc. Drummond Company, Inc. (coal
530 Beacon Parkway West and coke production, real
Birmingham, Alabama 35209 estate investment).
Stanley M. Brock Partner, Balch & Bingham (law
Balch & Bingham firm).
Suite 2600
1901 Sixth Avenue North
Birmingham, Alabama 35203
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The
Biltmore Municipal Funds; California Municipal Cash Trust; Cash
Trust Series, Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority
Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fountain Square Funds; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Independence One Mutual Funds; Insight Institutional
Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; The Medalist Funds; Money Market Obligations
Trust; Money Market Trust; The Monitor Funds; Municipal
Securities Income Trust; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; SouthTrust Vulcan Funds; Star Funds; The
Starburst Funds; Stock and Bond Fund, Inc.; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Tower
Mutual Funds; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Fiduciary Funds, Inc.; Vision Group of
Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty Term
Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice President,
Federated Investors Tower President, and Treasurer, and Treasurer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All acounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")
Compass Bank 701 S. 32nd Street
("Investment Adviser") Birmingham, Alabama 35233
Compass Bank 701 S. 32nd Street
("Custodian") Birmingham, Alabama 35233
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE STARBURST FUNDS II, has
duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 28th day of December,
1994.
THE STARBURST FUNDS II
BY: /s/C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
December 28, 1994
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/C. Grant Anderson
C. Grant Anderson Attorney In Fact December 28,
1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Trustee
J. Christopher Donahue* President
Edward C. Gonzales* Vice President, Treasurer,
and Trustee (Principal
Financial and Accounting
Officer)
Thomas G. Bigley Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit No. 11 under Form N-1A
Exhibit No. 23 under Item 601/Reg S-K
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees of
The Starburst Funds II
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement (No. 33-35473) of THE STARBURST FUNDS II (comprising The
Starburst Quality Income Fund) of our report dated December 21, 1994,
appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Financial
Highlights" in such Prospectus.
By: DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 21, 1994
Exhibit No. 18 under Form N-1A
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTON PITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR. __________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
December 21, 1994
The Starburst Funds II
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
As counsel to The Starburst Funds II ("Trust") we have reviewed Post-
effective Amendment No. 8 to the Trust's Registration Statement to be filed
with the Securities and Exchange Commission under the Securities Act of 1933
(File No. 33-35473). The subject Post-effective Amendment will be filed
pursuant to Paragraph (b) of Rule 485 and become effective pursuant to said
Rule on December 31, 1994.
Our review also included an examination of other relevant portions of
the amended 1933 Act Registration Statement of the Trust and such other
documents and records deemed appropriate. On the basis of this review we are
of the opinion that Post-effective Amendment No. 8 does not contain
disclosures which would render it ineligible to become effective pursuant to
Paragraph (b) of Rule 485.
We hereby consent to the filing of this representation letter as a part
of the Trust's Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and as part of any application or
registration statement filed under the Securities Laws of the States of the
United States.
Very truly yours,
Houston, Houston & Donnelly
By: /s/ Thomas J. Donnelly
TJD:smg
tsbfii[invadvco]
-1-
Exhibit No. 5 under Form N-1A
Exhibit No. 10 under Item 601/Reg. S-K
THE STARBURST FUNDS II
INVESTMENT ADVISORY CONTRACT
This Contract is made between Central Bank of the South (the "Adviser"),
an Alabama state member bank having its principal place of business in
Birmingham, Alabama and which is a wholly owned subsidiary of Central
Bancshares of the South, Inc., a bank holding company organized under the
laws of Delaware, and The Starburst Funds II, a Massachusetts business trust
having its principal place of business in Pittsburgh, Pennsylvania (the
"Trust").
WHEREAS, the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940 and is registered
as such with the Securities and Exchange Commission; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree
as follows:
1. The Trust hereby appoints Adviser as Investment Adviser for each of
the portfolios ("Funds") of the Trust on whose behalf the Trust executes an
exhibit to this Contract, and Adviser, by its execution of each such exhibit,
accepts the appointments. Subject to the direction of the Trustees of the
Trust, Adviser shall provide investment research and supervision of the
investments of each of the Funds and conduct a continuous program of
investment evaluation and of appropriate sale or other disposition and
reinvestment of each Fund's assets.
2. Adviser, in its supervision of the investments of each of the Funds
will be guided by each of the Fund's fundamental investment policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws
of the Trust and as set forth in the Registration Statement and exhibits as
may be on file with the Securities and Exchange Commission.
3. The Trust shall pay or cause to be paid, on behalf of each Fund,
all of the Fund's expenses and the Fund's allocable share of Trust expenses,
including without limitation, the expenses of organizing the Trust and
continuing its existence; fees and expenses of officers and Trustees of the
Trust; fees for investment advisory services and administrative services;
fees and expenses of preparing and printing amendments to its Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940; expenses of registering and qualifying the Trust, the Funds and shares
of the Funds ("Shares") under federal and state laws and regulations;
expenses of preparing, printing and distributing prospectuses (and any
amendments thereto) and sales literature; expenses of registering, licensing,
or other authorization of the Trust as a broker-dealer and of its officers as
agents and salesmen under federal and state laws and regulations; interest
expense, taxes, fees and commissions of every kind; expenses of issue
(including cost of Share certificates), purchase, repurchase and redemption
of Shares, including expenses attributable to a program of periodic issue;
charges and expenses of custodians, transfer agents, dividend disbursing
agents, shareholder servicing agents and registrars; printing and mailing
costs, auditing, accounting and legal expenses; reports to shareholders and
governmental officers and commissions; expenses of meetings of Trustees and
shareholders and proxy solicitations therefor; insurance expenses;
association membership dues; and such nonrecurring items as may arise,
including all losses and liabilities incurred in administering the Trust and
the Funds.
The Trust will also pay each Fund's allocable share of such extraordinary
expenses as may arise, including expenses incurred in connection with
litigation, proceedings, and claims and the legal obligations of the Trust to
indemnify its officers and Trustees and agents with respect thereto.
4. The Trust, on behalf of each of the Funds shall pay to Adviser, for
all services rendered to such Fund by Adviser hereunder, the fees set forth
in the exhibits attached hereto.
5. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of
one or more of the Funds) to the extent that any Fund's expenses exceed such
lower expense limitation as the Adviser may, by notice to the Fund,
voluntarily declare to be effective.
6. This Contract shall begin for each Fund on the date that the Trust
executes an exhibit to this Contract relating to such Fund. This Contract
shall remain in effect for each Fund until the first meeting of Shareholders
held after the execution date of an exhibit relating to the respective Fund,
and if approved at such meeting by the shareholders of a particular Fund,
shall continue in effect for such Fund for two years from the date of its
execution and from year to year thereafter, subject to the provisions for
termination and all of the other terms and conditions hereof if: (a) such
continuation shall be specifically approved at least annually by the vote of
a majority of the Trustees of the Trust, including a majority of the Trustees
who are not parties to this Contract or interested persons of any such party
(other than as Trustees of the Trust) cast in person at a meeting called for
that purpose; and (b) Adviser shall not have notified the Trust in writing at
least sixty (60) days prior to the anniversary date of this Contract in any
year thereafter that it does not desire such continuation with respect to
that Fund.
7. Notwithstanding any provision in this Contract, it may be
terminated at any time with respect to any Fund, without the payment of any
penalty, by the Trustees of the Trust or by a vote of the shareholders of
that Fund on sixty (60) days' written notice to Adviser.
8. This Contract may not be assigned by Adviser and shall
automatically terminate in the event of any assignment. Adviser may employ
or contract with such other person, persons, corporation or corporations at
its own cost and expense as it shall determine in order to assist it in
carrying out this Contract.
9. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties under this Contract on the
part of Adviser, Adviser shall not be liable to the Trust or to any of the
Funds or to any shareholder for any act or omission in the course of or
connected in any way with rendering services or for any losses that may be
sustained in the purchase, holding or sale of any security.
10. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless the Adviser and each person, if any, who controls
the Adviser within the meaning of Section 15 of the 1933 Act and Section 20
of the Securities Exchange Act of 1934, as amended, against any and all loss,
liability, claim, damage and expense whatsoever (including but not limited to
any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or
any claim whatsoever) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any Prospectus (as from time to time amended and supplemented)
or the omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make statements therein not misleading,
unless such statement or omission was made in reliance upon and conformity
with written information furnished to the Trust about the Adviser by or on
behalf of the Adviser expressly for use in the Registration Statement or any
Prospectus, or any amendment or supplement thereof.
If any action is brought against the Adviser or any controlling person
thereof in respect of which indemnity may be sought against the Trust
pursuant to the foregoing paragraph, the Adviser shall promptly notify the
Trust in writing of the institution of such action and the Trust shall assume
the defense of such action, including the employment of counsel selected by
the Trust and payment of expenses. The Adviser or any such controlling
person thereof shall have the right to employ separate counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of
the Adviser or such controlling person unless the employment of such counsel
shall have been authorized in writing by the Trust in connection with the
defense of such action or the Trust shall not have employed counsel to have
charge of the defense of such action, in any of which events such fees and
expenses shall be borne by the Trust and allocated to the Funds, as
appropriate. Anything in this paragraph to the contrary notwithstanding, the
Trust or any of the Funds shall not be liable for any settlement of any such
claim or action effected without its written consent. The Trust agrees
promptly to notify the Adviser of the commencement of any litigation or
proceedings against the Trust or any of its Funds or any of its officers or
Trustees or controlling persons in connection with the issue and sale of
shares or in connection with the Registration Statement or any Prospectus.
(b) The Adviser agrees to indemnify and hold harmless each of the
Funds, the Trust, each of its Trustees, each of its officers who have signed
the Registration Statement and each other person, if any, who controls the
Trust within the meaning of Section 15 of the Securities Act of 1933, but
only with respect to statements or omissions, if any, made in the
Registration Statement or any Prospectus or any amendment or supplement
thereof in reliance upon, and in conformity with, information furnished to
the Trust with respect to the Adviser by or on behalf of the Adviser
expressly for use in the Registration Statement or any Prospectus or any
amendment or supplement thereof. In case any action shall be brought against
the Trust or any of the Funds or any other person so indemnified based on the
Registration Statement or any Prospectus, or any amendment or supplement
thereof, and in respect of which indemnity may be sought against the Adviser,
the Adviser shall have the rights and duties given to the Trust, and the
Trust and each other person so indemnified shall have the rights and duties
given to the Adviser by the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any person
against liability to any of the Funds or the Trust or its shareholders to
which such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the duties
of such person or by reason of the reckless disregard by such person of the
obligations and duties of such person under this Contract.
11. This Contract may be amended at any time by agreement of the
parties provided that the amendment shall be approved both by the vote of a
majority of the Trustees of the Trust, including a majority of Trustees who
are not parties to this Contract or interested persons of any such party to
this Contract (other than as Trustees of the Trust), cast in person at a
meeting called for that purpose, and on behalf of a Fund by a majority of the
outstanding voting securities of such Fund.
12. The Adviser acknowledges that all sales literature for investment
companies (such as the Trust) are subject to strict regulatory oversight.
The Adviser agrees to submit any proposed sales literature for the Trust (or
any Fund) or for itself or its affiliates which mentions the Trust (or any
Fund) to the Trust's distributor for review and filing with the appropriate
regulatory authorities prior to the public release of any such sales
literature. The Trust agrees to cause its distributors to promptly review
all such sales literature to ensure compliance with relevant requirements, to
promptly advise Adviser of any deficiencies contained in such sales
literature, to promptly file complying sales literature with the relevant
authorities, and to cause such sales literature to be distributed to
prospective investors in the Trust.
13. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees
that the obligations pursuant to this Contract of a particular Fund and of
the Trust with respect to that particular Fund be limited solely to the
assets of that particular Fund, and Adviser shall not seek satisfaction of
any such obligation from the assets of any other Fund, the shareholders of
any Fund, the Trustees, officers, employees or agents of the Trust, or any of
them.
14. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
15. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
EXHIBIT A
THE STARBURST GOVERNMENT FUND
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .75 of 1% of
the average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .75 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 22nd day of June, 1990.
Attest: CENTRAL BANK OF THE SOUTH
/s/ Jerry W. Powell By:/s/ D. Paul Jones, Jr.
Secretary Vice President
THE STARBURST FUNDS II
/s/ John W. McGonigle By:/s/ J. Christopher Donahue
Secretary President
1/20/92 -1-
Exhibit No. 8 under Form N-1A
Exhibit No. 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
THE STARBURST FUNDS II
and
CENTRAL BANK OF THE SOUTH
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It............ 1
2. Duties of the Custodian With Respect to Property
of the Funds Held by the Custodian............................... 1
2.1 Holding Securities........................................ 1
2.2 Delivery of Securities.................................... 2
2.3 Registration of Securities................................ 4
2.4 Bank Accounts............................................. 4
2.5 Payments for Shares....................................... 4
2.6 Availability of Federal Funds............................. 4
2.7 Collection of Income...................................... 5
2.8 Payment of Fund Moneys.................................... 5
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased........................... 6
2.10 Payments for Repurchases or Redemptions
of Shares of a Fund....................................... 6
2.11 Appointment of Agents..................................... 6
2.12 Deposit of Fund Assets in Securities System............... 7
2.13 Segregated Account........................................ 8
2.14 Joint Repurchase Agreements............................... 8
2.15 Ownership Certificates for Tax Purposes................... 8
2.16 Proxies................................................... 9
2.17 Communications Relating to Fund Portfolio Securities...... 9
2.18 Proper Instructions....................................... 9
2.19 Actions Permitted Without Express Authority............... 9
2.20 Evidence of Authority.....................................10
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income....................10
4. Records..........................................................10
5. Opinion of Funds' Independent Accountants........................11
6. Reports to Trust by Independent Public Accountants...............11
7. Compensation of Custodian........................................11
8. Responsibility of Custodian......................................11
9. Effective Period, Termination and Amendment......................13
10. Successor Custodian..............................................13
11. Interpretive and Additional Provisions...........................14
12. Massachusetts Law to Apply.......................................14
13. Notices..........................................................14
14. Counterparts.....................................................14
15. Limitations of Liability.........................................15
CUSTODIAN CONTRACT
This Contract between THE STARBURST FUNDS II (the "Trust"), a
Massachusetts business trust, on behalf of the portfolios (the "Funds") of
the Trust, organized and existing under the laws of the Commonwealth of
Massachusetts, having its principal place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, and CENTRAL BANK OF
THE SOUTH, an Alambama state member bank, having its principal place of
business in Birmingham, Alabama hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets
of each of its portfolios (hereinafter collectively called the "Funds" and
individually referred to as a "Fund") of the Trust. Except as otherwise
expressly provided herein, the securities and other assets of each of the
Funds shall be segregated from the assets of each of the other Funds and
from all other persons and entities. The Trust will deliver to the
Custodian all securities and cash owned by the Funds and all payments of
income, payments of principal or capital distributions received by them
with respect to all securities owned by the Funds from time to time, and
the cash consideration received by them for shares ("Shares") of beneficial
interest of the Funds as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Funds held or
received by the Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions, provided
that the Custodian shall have no more or less responsibility or liability
to the Trust or any of the Funds on account of any actions or omissions of
any sub-custodian so employed than any such sub-custodian has to the
Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System", or securities which are
subject to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall maintain records of
all receipts, deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct periodic physical
inspections of certificates representing stocks, bonds and other
securities held by it under this Contract in such manner as the
Custodian shall determine from time to time to be advisable in order
to verify the accuracy of such inventory. With respect to securities
held by any agent appointed pursuant to Section 2.11 hereof, and with
respect to securities held by any sub-custodian appointed pursuant to
Section 1 hereof, the Custodian may rely upon certificates from such
agent as to the holdings of such agent and from such sub-custodian as
to the holdings of such sub-custodian, it being understood that such
reliance in no way relieves the Custodian of its responsibilities
under this Contract. The Custodian will promptly report to the Trust
the results of such inspections, indicating any shortages or
discrepancies uncovered thereby, and take appropriate action to
remedy any such shortages or discrepancies.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in accordance
with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of a Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant to Section 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom";
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own failure
to act in accordance with the standard of reasonable care or any
higher standard of care imposed upon the Custodian by any
applicable law or regulation if such above-stated standard of
reasonable care were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered
to the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
(10) For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified by
the Trust, (b) certificated securities of a description
specified by the Trust, registered in the name of the Fund or in
the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer, or (c) securities of
a description specified by the Trust, transferred through a
Securities System in accordance with Section 2.12 hereof;
(11) For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against receipt
of amounts borrowed, except that in cases where additional
collateral is required to secure a borrowing already made,
further securities may be released for the purpose;
(12) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions for a Fund;
(13) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian, and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating
to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transaction for a Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
in satisfaction of requests by holders of Shares for repurchase
or redemption; and
(15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of
a Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the securities
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of a
particular Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian which nominee shall be assigned exclusively
to the Fund, unless the Trust has authorized in writing the
appointment of a nominee to be used in common with other registered
investment companies affiliated with the Fund, or in the name or
nominee name of any agent appointed pursuant to Section 2.11 or in
the name or nominee name of any sub-custodian appointed pursuant to
Section 1. All securities accepted by the Custodian on behalf of a
Fund under the terms of this Contract shall be in "street name" or
other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Fund, subject only to draft
or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of
each Fund, other than cash maintained in a joint repurchase account
with other affiliated funds pursuant to Section 2.14 of this Contract
or by a particular Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940.
Funds held by the Custodian for a Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Board of
Trustees of the Trust. Such funds shall be deposited by the
Custodian in its capacity as Custodian for the Fund and shall be
withdrawable by the Custodian only in that capacity. If requested by
the Trust, the Custodian shall furnish the Trust, not later than
twenty (20) days after the last business day of each month, an
internal reconciliation of the closing balance as of that day in all
accounts described in this section to the balance shown on the daily
cash report for that day rendered to the Trust.
2.5 Payments for Shares. The Custodian shall make such arrangements with
the Transfer Agent of each Fund, as will enable the Custodian to
receive the cash consideration due to each Fund and will deposit into
each Fund's account such payments as are received from the Transfer
Agent. The Custodian will provide timely notification to the Trust
and the Transfer Agent of any receipt by it of payments for Shares of
the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from time to
time by the Trust and the Custodian in the amount of checks, clearing
house funds, and other non-federal funds received in payment for
Shares of the Funds which are deposited into the Funds' accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to each Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they
become due and shall collect interest when due on securities
held hereunder. The collection of income due the Funds on
securities loaned pursuant to the provisions of Section 2.2 (10)
shall be the responsibility of the Trust. The Custodian will
have no duty or responsibility in connection therewith, other
than to provide the Trust with such information or data as may
be necessary to assist the Trust in arranging for the timely
delivery to the Custodian of the income to which each Fund is
properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income
due on securities is not collected in due course and will
provide the Trust with monthly reports of the status of past due
income.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1) Upon the purchase of securities, futures contracts or options on
futures contracts for the account of a Fund but only (a) against
the delivery of such securities, or evidence of title to futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian
as its agent for this purpose) registered in the name of the
Fund or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer, (b) in the
case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.12 hereof
or (c) in the case of repurchase agreements entered into between
the Trust and any other party, (i) against delivery of the
securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; management, accounting,
transfer agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of
a Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment
is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be
made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for purchase of securities for
the account of a Fund is made by the Custodian in advance of receipt
of the securities purchased, in the absence of specific written
instructions from the Trust to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund. From
such funds as may be available for the purpose of repurchasing or
redeeming Shares of a Fund, but subject to the limitations of the
Declaration of Trust and any applicable votes of the Board of
Trustees of the Trust pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available
for payment to holders of shares of such Fund who have delivered to
the Transfer Agent a request for redemption or repurchase of their
shares including without limitation through bank drafts, automated
clearinghouse facilities, or by other means. In connection with the
redemption or repurchase of Shares of the Funds, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the
redeeming shareholders.
2.11 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, and any applicable state law or regulation,
to act as a custodian, as its agent to carry out such of the
provisions of this Section 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.12 Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the
following provisions:
(1) The Custodian may keep securities of each Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
(2) The records of the Custodian with respect to securities of the
Funds which are maintained in a Securities System shall identify
by book-entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the account
of each Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Fund. The Custodian shall transfer securities sold for
the account of a Fund upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from
the Securities System of transfers of securities for the account
of a Fund shall identify the Fund, be maintained for the Fund by
the Custodian and be provided to the Trust at its request. Upon
request, the Custodian shall furnish the Trust confirmation of
each transfer to or from the account of a Fund in the form of a
written advice or notice and shall furnish to the Trust copies
of daily transaction sheets reflecting each day's transactions
in the Securities System for the account of a Fund.
(4) The Custodian shall provide the Trust with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to
a Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or
any of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the Securities
System; at the election of the Trust, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any
claim against the Securities System or any other person which
the Custodian may have as a consequence of any such loss or
damage if and to the extent that a Fund has not been made whole
for any such loss or damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and diligence in
making use of any Securities System.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained
in an account by the Custodian pursuant to Section 2.12 hereof, (i)
in accordance with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund, (ii) for
purpose of segregating cash or government securities in connection
with options purchased, sold or written for a Fund or commodity
futures contracts or options thereon purchased or sold for a Fund,
(iii) for the purpose of compliance by the Trust or a Fund with the
procedures required by any release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies and (iv) for other proper
corporate purposes, but only, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Trust and certified by the Secretary or
an Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes.
2.14 Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any assets
of a Fund and any affiliated funds which are subject to joint
repurchase transactions in an account established solely for such
transactions for the Fund and its affiliated funds. For purposes of
this Section 2.14, "affiliated funds" shall include all investment
companies and their portfolios for which subsidiaries or affiliates
of Federated Investors, Inc. serve as investment advisers. The
requirements of segregation set forth in Section 2.1 shall be deemed
to be waived with respect to such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to securities of a Fund held by it and in
connection with transfers of securities.
2.16 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in
the name of a Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.17 Communications Relating to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Trust all written information
(including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and
the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held
for the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Trust desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Trust shall notify the Custodian at least
three business days prior to the date on which the Custodian is to
take such action. However, the Custodian shall nevertheless exercise
its best efforts to take such action in the event that notification
is received three business days or less prior to the date on which
action is required.
2.18 Proper Instructions. Proper Instructions as used throughout this
Section 2 means a writing signed or initialled by one or more person
or persons as the Board of Trustees shall have from time to time
authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will
be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person previously authorized in
Proper Instructions to give such instructions with respect to the
transaction involved. The Trust shall cause all oral instructions to
be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the
Board of Trustees of the Trust accompanied by a detailed description
of procedures approved by the Board of Trustees, Proper Instructions
may include communications effected directly between electro-
mechanical or electronic devices provided that the Board of Trustees
and the Custodian are satisfied that such procedures afford adequate
safeguards for a Fund's assets.
2.19 Actions Permitted Without Express Authority. The Custodian may in
its discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be
accounted for to the Trust in such form that it may be allocated
to the affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts
and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property of
each Fund except as otherwise directed by the Trust.
2.20 Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to
have been properly executed on behalf of a Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of
Trustees of the Trust as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any
determination of or any action by the Board of Trustees pursuant to
the Declaration of Trust as described in such vote, and such vote may
be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information
to the entity or entities appointed by the Board of Trustees of the Trust
to keep the books of account of each Fund and/or compute the net asset
value per share of the outstanding Shares of each Fund or, if directed in
writing to do so by the Trust, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of a Fund as described
in the Fund's currently effective prospectus and shall advise the Trust and
the Transfer Agent daily of the total amounts of such net income and, if
instructed in writing by an officer of the Trust to do so, shall advise the
Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and
the daily income of a Fund shall be made at the time or times described
from time to time in the Fund's currently effective prospectus.
4. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations of the Trust and the Funds under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder, and specifically including identified cost records
used for tax purposes. All such records shall be the property of the Trust
and shall at all times during the regular business hours of the Custodian
be open for inspection by duly authorized officers, employees or agents of
the Trust and employees and agents of the Securities and Exchange
Commission. In the event of termination of this Contract, the Custodian
will deliver all such records to the Trust, to a successor Custodian, or to
such other person as the Trust may direct. The Custodian shall, at the
Trust's request, supply the Trust with a tabulation of securities owned by
a Fund and held by the Custodian and shall, when requested to do so by the
Trust and for such compensation as shall be agreed upon between the Trust
and the Custodian, include certificate numbers in such tabulations.
5. Opinion of Funds' Independent Accountants
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions from
each Fund's independent accountants with respect to its activities
hereunder in connection with the preparation of the Fund's registration
statement, periodic reports, or any other reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
6. Reports to Trust by Independent Public Accountants
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public accountants for each
Fund on the accounting system, internal accounting control and procedures
for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian for the Fund
under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Trust, to provide
reasonable assurance that any material inadequacies would be disclosed by
such examination, and, if there are no such inadequacies, the reports shall
so state.
7. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between the Trust and the Custodian.
8. Responsibility of Custodian
The Custodian shall be held to a standard of reasonable care in
carrying out the provisions of this Contract; provided, however, that the
Custodian shall be held to any higher standard of care which would be
imposed upon the Custodian by any applicable law or regulation if such
above stated standard of reasonable care was not part of this Contract.
The Custodian shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Trust) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice, provided that such action is not in violation of applicable
federal or state laws or regulations, and is in good faith and without
negligence. Subject to the limitations set forth in Section 15 hereof, the
Custodian shall be kept indemnified by the Trust but only from the assets
of the Fund involved in the issue at hand and be without liability for any
action taken or thing done by it in carrying out the terms and provisions
of this Contract in accordance with the above standards.
In order that the indemnification provisions contained in this
Section 8 shall apply, however, it is understood that if in any case the
Trust may be asked to indemnify or save the Custodian harmless, the Trust
shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Custodian will
use all reasonable care to identify and notify the Trust promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification. The Trust shall have the
option to defend the Custodian against any claim which may be the subject
of this indemnification, and in the event that the Trust so elects it will
so notify the Custodian and thereupon the Trust shall take over complete
defense of the claim, and the Custodian shall in such situation initiate no
further legal or other expenses for which it shall seek indemnification
under this Section. The Custodian shall in no case confess any claim or
make any compromise in any case in which the Trust will be asked to
indemnify the Custodian except with the Trust's prior written consent.
Notwithstanding the foregoing, the responsibility of the Custodian
with respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect
to securities, which action involves the payment of money or which action
may, in the reasonable opinion of the Custodian, result in the Custodian or
its nominee assigned to a Fund being liable for the payment of money or
incurring liability of some other form, the Custodian may request the
Trust, as a prerequisite to requiring the Custodian to take such action, to
provide indemnity to the Custodian in an amount and form satisfactory to
the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee from
and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) (referred to herein as authorized
charges) incurred or assessed against it or its nominee in connection with
the performance of this Contract, except such as may arise from it or its
nominee's own failure to act in accordance with the standard of reasonable
care or any higher standard of care which would be imposed upon the
Custodian by any applicable law or regulation if such above-stated standard
of reasonable care were not part of this Contract. To secure any
authorized charges and any advances of cash or securities made by the
Custodian to or for the benefit of a Fund for any purpose which results in
the Fund incurring an overdraft at the end of any business day or for
extraordinary or emergency purposes during any business day, the Trust
hereby grants to the Custodian a security interest in and pledges to the
Custodian securities held for the Fund by the Custodian, in an amount not
to exceed 10 percent of the Fund's gross assets, the specific securities to
be designated in writing from time to time by the Trust or the Fund's
investment adviser. Should the Trust fail to make such designation, or
should it instruct the Custodian to make advances exceeding the percentage
amount set forth above and should the Custodian do so, the Trust hereby
agrees that the Custodian shall have a security interest in all securities
or other property purchased for a Fund with the advances by the Custodian,
which securities or property shall be deemed to be pledged to the
Custodian, and the written instructions of the Trust instructing their
purchase shall be considered the requisite description and designation of
the property so pledged for purposes of the requirements of the Uniform
Commercial Code. Should the Trust fail to cause a Fund to repay promptly
any authorized charges or advances of cash or securities, subject to the
provision of the second paragraph of this Section 8 regarding
indemnification, the Custodian shall be entitled to use available cash and
to dispose of pledged securities and property as is necessary to repay any
such advances.
9. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided,
may be amended at any time by mutual agreement of the parties hereto and
may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect
not sooner than sixty (60) days after the date of such delivery or mailing;
provided, however that the Custodian shall not act under Section 2.12
hereof in the absence of receipt of an initial certificate of the Secretary
or an Assistant Secretary that the Board of Trustees of the Trusthas
approved the initial use of a particular Securities System as required in
each case by Rule 17f-4 under the Investment Company Act of 1940, as
amended; provided further, however, that the Trust shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust, and further
provided, that the Trust may at any time by action of its Board of Trustees
(i) substitute another bank or trust company for the Custodian by giving
notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver
for the Custodian by the Comptroller of the Currency or upon the happening
of a like event at the direction of an appropriate regulatory agency or
court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.
10. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees
of the Trust, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder for each
Fund and shall transfer to separate accounts of the successor custodian all
of each Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the
Board of Trustees of the Trust, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with
such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been
delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to deliver
to a bank or trust company, which is a "bank" as defined in the Investment
Company Act of 1940, doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $100,000,000, all
securities, funds and other properties held by the Custodian and all
instruments held by the Custodian relative thereto and all other property
held by it under this Contract for each Fund and to transfer to separate
accounts of such successor custodian all of each Fund's securities held in
any Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in
the possession of the Custodian after the date of termination hereof owing
to
failure of the Trust to procure the certified copy of the vote referred to
or of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period
as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Trust may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Declaration of Trust. No interpretive
or additional provisions made as provided in the preceding sentence shall
be deemed to be an amendment of this Contract.
12. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
13. Notices
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Custodian
at 225 Franklin Street, Boston, Massachusetts, 02110, or to such other
address as the Trust or the Custodian may hereafter specify, shall be
deemed to have been properly delivered or given hereunder to the respective
address.
14. Counterparts
This Contract may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15. Limitations of Liability
The Custodian is expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees
that the obligations and liabilities assumed by the Trust and any Fund
pursuant to this Contract, including, without limitation, any obligation or
liability to indemnify the Custodian pursuant to Section 8 hereof, shall be
limited in any case to the relevant Fund and its assets and that the
Custodian shall not seek satisfaction of any such obligation from the
shareholders of the relevant Fund, from any other Fund or its shareholders
or from the Trustees, Officers, employees or agents of the Trust, or any of
them. In addition, in connection with the discharge and satisfaction of
any claim made by the Custodian against the Trust, for whatever reasons,
involving more than one Fund, the Trust shall have the exclusive right to
determine the appropriate allocations of liability for any such claim
between or among the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative
and its seal to be hereunder affixed as of the 2nd day of January, 1992.
ATTEST: THE STARBURST FUNDS II
/s/ C. Grant Anderson By /s/ Edward C. Gonzales
Assistant Secretary Vice President
ATTEST CENTRAL BANK OF THE SOUTH
/s/ Jerry W. Powell By /S/ Fred Murphy
Secretary Vice President
1 agr.electcomm
Exhibit No. 9(i) under Form N-1A
Exhibit No. 10 under Item 601/Reg. S-K
ELECTRONIC COMMUNICATIONS AND RECORDKEEPING
AGREEMENT
between
FEDERATED SERVICES COMPANY
and
INSTITUTION
AGREEMENT, made this 31st day of August, 1993, between FEDERATED
SERVICES COMPANY ("Federated"), with offices at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, and CENTRAL BANK OF THE SOUTH, (the
"Institution"), with offices at 701 S. 32nd Street, Birmingham, AL 35233.
WHEREAS, Institution desires to perform certain services on behalf of
its customers who are or may become Shareholders of mutual funds for which
Federated or its affiliates act as transfer agent, administrator, distributor
or advisor ("the Funds");
WHEREAS, performance of such services may require access to Federated's
electronic communication and recordkeeping systems or may require Federated or
the Funds to act upon information about Shareholders (as hereafter defined) or
their Accounts (as hereafter defined) supplied by Institution;
WHEREAS, Federated is willing to provide such access or rely upon such
information as hereinafter provided, subject to the agreement of Institution
to provide indemnification to Federated;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for good and valuable consideration, receipt of which is hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
SECTION 1
CERTAIN DEFINITIONS
Section 1.1 Account. "Account" shall mean any shareholder account in
any Fund for which Institution provides services on behalf of its customers
who are or may become shareholders of the Funds.
Section 1.2 Authorized Person. "Authorized Person" shall mean each
agent or employee of Institution who is duly authorized to give Instructions
(as such term is defined below at Section 1.3) pursuant to this Agreement.
Section 1.3 Instruction(s). "Instruction(s)" shall mean any
instruction or communication including, but not limited to, an oral or written
instruction or communication, and any such instruction or communication
originated by facsimile indicating that such transmission originated from
Institution, and instructions or communications received electronically.
Instructions may include, but are not limited to, the following:
(a) communicating account openings through computer
terminals located on the Institution's premises (the "computer
terminals"), through a toll-free telephone number or otherwise;
(b) communicating account closings via the computer
terminals, through a toll-free telephone number or otherwise;
(c) entering purchase transactions through the computer
terminals, through a toll-free telephone number or otherwise;
(d) entering redemption transactions through the computer
terminals, through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for
purchasing and redeeming shares of a Fund, and confirming and
reconciling all such transactions; and
(f) account maintenance.
Section 1.4 Shareholder. "Shareholder" shall mean the shareholder of
record of any Account.
SECTION 2
OBLIGATIONS OF INSTITUTION
Section 2.1 Authorization by Institution; Confirmation of Oral
Instructions. Institution hereby authorizes Federated to accept, rely upon
and act upon all Instructions received by Federated from or reasonably
believed to be from Institution, all without the delivery by Institution of
written authorization of the Shareholder. Institution authorizes Federated to
accept, rely upon and act upon oral Instructions by any person identifying
himself as an Authorized Person and to tape record such Instructions.
Institution shall confirm all oral Instructions on the same day as given by
facsimile, however, Federated may rely on the oral Instructions regardless of
whether such facsimile is received.
Section 2.2 Certificate of Authorized Persons. Institution shall
provide a certificate signed by two authorized officers of Institution,
setting forth the name and specimen signature of each Authorized Person (the
"Certificate"). Institution shall promptly notify Federated if any such
present Authorized Person ceases to be an Authorized Person and shall send to
Federated a new Certificate in similar form in the event that other or
additional Authorized Persons are elected or appointed. Until Federated
receives any such new Certificate, Federated may rely upon Instructions
received from or reasonably believed to be received from the present
Authorized Persons as set forth in the Certificate or in any subsequently
issued Certificate.
Section 2.3 Duties, Functions and Responsibilities. Institution shall
undertake the duties, functions and responsibilities contemplated hereby in a
businesslike and competent manner. Institution shall conduct its activities
under this Agreement in accordance with (a) all applicable laws, rules and
regulations; (b) the then-current registration statements of the Funds; and
(c) industry standards.
Section 2.4 Information about Shareholders. Institution shall provide
to Federated, with respect to each Account, the following information, and any
subsequent changes to such information, which Institution hereby certifies is,
and shall remain, true and correct: (a) the full and complete name of the
Shareholder for Internal Revenue Service information reporting; (b) the
Shareholder's address; (c) the Shareholder's Taxpayer Identification Number or
notice of foreign status and applicable backup or penalty withholding status;
and (d) the state or country code of tax residence of the Shareholder (if
different from address). Institution shall provide Federated with such
information in writing or by electronic transmission and any other medium that
Federated reasonably requests.
Section 2.5 Reconciling to Fund Records. The book entry records of the
shareholder recordkeeping agent for each Fund shall be determinative with
respect to each Account. Institution will notify Federated in writing of any
discrepancy between its records and the records of Federated and the Fund
within a reasonable period of time after it becomes aware of such discrepancy.
Notwithstanding anything to the contrary, Institution solely shall be
responsible and liable for any discrepancies between its records and the
records of Federated and the Funds, provided that such discrepancy is not
solely a result of the negligence of Federated or the Funds.
ARTICLE 3
OBLIGATIONS OF FEDERATED
Section 3.1 Acceptance of Instructions. Federated may, for all
Accounts, accept, rely upon and act upon all Instructions received by
Federated from or reasonably believed to be from Institution, all without the
delivery by Institution of written Instructions executed by a Shareholder.
Section 3.2 Reliance by Federated. Federated may conclusively rely
upon any Instructions received by it by any person whom Federated reasonably
believes to be an Authorized Person.
Section 3.3 Incomplete or Unclear Instructions. Federated shall not be
required to act on any Instructions that, in its sole determination, are
incomplete or unclear, and may defer action on such Instructions until
Federated has resolved any question to its reasonable satisfaction. Federated
shall notify Institution, by telephone or by facsimile, within one business
day after it fails to act on any Instructions that it has determined are
incomplete or unclear.
Section 3.4 Limitation of Access to Federated's Electronic
Communication and Recordkeeping Systems. Federated may limit access to its
electronic communication and recordkeeping systems. Notwithstanding any such
limitation, Federated may act and rely upon all Instructions in any form
received by Federated from or reasonably believed to be from an Authorized
Person.
Section 3.5 Processing Instructions and Communications. Federated
shall correctly process any Instructions from Institution and execute the
Institution's Instructions within a reasonable period of time of receipt,
subject to any conditions or restrictions in the currently effective
registration statement of each Fund or other applicable restrictions.
ARTICLE 4
WARRANTIES AND REPRESENTATIONS OF INSTITUTION
Section 4.1 Organization and Authority. Institution warrants and
represents that it is a corporation duly organized in its state of
incorporation and has the power and authority to conduct its business.
Institution is a bank chartered under the laws of the State of Alabama. The
execution, delivery and performance by Institution of this Agreement has been
duly authorized by all necessary corporate action of Institution. This
Agreement, when executed and delivered, will constitute the legal, valid and
binding obligation of Institution, enforceable against it in accordance with
its terms.
Section 4.2 Adequate Facilities. Institution warrants and represents
that it has adequate facilities, equipment, procedures, controls and skilled
personnel to responsibly perform its duties and obligations hereunder.
Section 4.3 Authorization from Shareholders. Institution warrants and
represents that:
4.3.1 each Shareholder has authorized Institution to take any actions
contemplated in this Agreement with respect to each Account
of each Shareholder;
4.3.2 Institution shall refrain from issuing Instructions with respect
to a Shareholder's Account immediately upon receipt of
notice that the Shareholder has revoked authorization to
give such Instructions;
4.3.3 all Instructions, including, but not limited to, changes in
registration, transfers, exchanges and liquidations, will be
duly authorized by the Shareholder of such Account and shall
be lawful and not submitted by Institution for any improper,
inappropriate or illegal purpose; and
4.3.4 Federated is properly authorized to effect changes in its or the
Funds records upon receipt of Instructions.
Section 4.4 Insurance. Institution warrants and represents that
Institution maintains adequate fidelity insurance, errors and omissions
insurance and other insurance coverage appropriate for the Institution's
duties and obligations under this Agreement. Upon written request,
Institution will provide evidence of such insurance coverage and on each such
policy or bond.
Section 4.5 Taxpayer Identification. Institution warrants and
represents that each Taxpayer Identification Number or certificate of foreign
status provided by Institution to the Funds and Federated has been certified,
under penalties of perjury, by the Shareholder on the appropriate Internal
Revenue Service form or an acceptable substitute. Institution agrees that it
shall promptly advise the Funds or Federated of any other matter that may
affect the responsibilities of the Funds or Federated to Shareholders pursuant
to the Internal Revenue Code of 1986, as amended. Institution further agrees
that it shall maintain adequate documentation to verify the foregoing for each
Account.
Section 4.6 Authority of Authorized Persons. Institution warrants and
represents that:
4.6.1 each Authorized Person set forth on the Certificate has been duly
authorized by a duly elected officer of Institution to
provide Instructions pursuant to this Agreement;
4.6.2 Institution shall adopt, implement and maintain procedures
reasonably designed to ensure the accuracy and integrity of
all Instructions, including, but not limited to, procedures
(i) requiring all Instructions on behalf of Institution to
originate from a specific office (or offices) designated by
Institution; and (ii) limiting the use of each computer
terminal used for transmitting Instructions to Federated's
electronic communication and recordkeeping systems to
Authorized Persons with adequate training and supervision.
Upon Federated's request, Institution shall provide
Federated with copies of its security procedures with
respect to the foregoing and shall use and safeguard any
access passwords, codes, manuals or other information it
obtains with respect to Federated's electronic communication
and recordkeeping systems and the data thereon in a manner
consonant with the protection of its own proprietary
business records.
Section 4.7 Institution's Financial Condition. Institution represents
and warrants that it shall deliver to Federated its audited annual report, its
quarterly financial reports and such other financial statements as Federated
shall reasonably request which indicate the Institution's financial condition
and, if applicable, net capital ratio. Institution further represents and
warrants that such statements fairly represent its financial condition and/or
net capital ratio on the date of such statements and that there has been no
material adverse change in its financial condition and/or net capital ratio
since that date.
Section 4.8 Confidentiality. Institution shall treat as confidential
all data it receives through Federated's electronic communication and
recordkeeping systems, except to the extent required by applicable law, rule
or regulation.
ARTICLE 5
WARRANTIES AND REPRESENTATIONS OF
FEDERATED SERVICES COMPANY
Section 5.1 Organization and Authority. Federated Services Company
warrants and represents that it is a business trust duly organized in the
State of Delaware and has the power and authority to conduct its business.
The execution, delivery and performance by Federated Services Company of this
Agreement has been duly authorized by all necessary corporate action of
Federated Services Company. This Agreement, when executed and delivered, will
constitute the legal, valid and binding obligation of Federated Services
Company, enforceable against it in accordance with its terms.
Section 5.2 Proper Registration. Federated Services Company warrants
that it has duly registered as transfer agent pursuant to the Securities
Exchange Act of 1934, that its registration remains in full force and effect,
and that it will take all action required to maintain such registration as a
transfer agent, including, without limitation, making all required filings to
the Securities and Exchange Commission and complying with all rules of the
Securities and Exchange Commission applicable to transfer agents.
Section 5.2 Adequate Facilities. Federated Services Company warrants
and represents that it has adequate facilities, equipment, procedures,
controls and skilled personnel to perform its duties and obligations
hereunder.
Section 5.3 Confidentiality. Federated Services Company shall treat as
confidential all data it receives from Institution through Federated's
electronic communication and recordkeeping systems, except to the extent
required by applicable law, rule or regulation.
ARTICLE 6
INDEMNIFICATION
Section 6.1 Indemnification by Institution. Institution shall
indemnify and hold harmless the Funds, the Funds' custodian, the Funds'
transfer agent, the Funds' underwriter, the Funds' investment adviser,
Federated, each of their affiliated companies, and all of the divisions,
subsidiaries, directors, trustees, officers, agents, subcontractors, employees
and assigns of each of the foregoing (collectively, "Indemnified Fund
Parties"), against and from any and all demands, damages, liabilities, and
losses, or any threatened, pending or completed actions, claims, suits,
complaints, proceedings, or investigations (including reasonable
attorneys'fees and other costs, including all expenses of litigation or
arbitration, judgments, fines or amounts paid in settlement), to which any of
them may be or become subject as a result or arising out of: (a) any action
taken by Federated in reliance upon the Institution's Instructions; (b) any
act or omission by Institution or its agents which constitutes negligence,
gross negligence, or willful misconduct; (c) any breach of the Institution's
representations or warranties contained in this Agreement; (d) the
Institution's failure to comply with any of the terms of this Agreement; (e)
the Institution's action or inaction relating to any duties, functions,
procedures or responsibilities undertaken by Institution pursuant to this
Agreement or otherwise, including that which may arise out of the malfunction
of equipment, systems, programs and telephone lines; (f) the failure by
Institution to obtain written authorization from a Shareholder to facilitate
any transaction through Federated's electronic communication and recordkeeping
systems; and (g) Federated's acceptance of and reliance on any Instruction
without supporting documentation. Institution shall make all payments
hereunder promptly upon presentation by an Indemnified Fund Party of an
invoice therefor, which invoice relates to any payment, including any partial
payment, made by the Indemnified Fund Party in respect of any and all demands,
damages, liabilities, and losses, or any threatened, pending or completed
actions, claims, suits, complaints, proceedings, or investigations (including
reasonable attorneys fees and other costs, including all expenses of
litigation or arbitration, judgments, fines or amounts paid in settlement), to
which any of them may be or become subject which give rise to indemnification
by Institution under this Agreement. At the request of any of the Indemnified
Fund Parties, Institution shall provide for an appropriate defense against any
circumstances which may give rise to indemnification by Institution under this
Agreement. Institution represents and warrants that at all times it has
sufficient financial resources, whether through a fidelity bond or otherwise,
to meet all of its indemnification obligations arising under this Agreement.
Section 6.2 Indemnification by Federated. Federated shall indemnify and
hold harmless Institution, each of the Institution's affiliated companies, and
all of the divisions, subsidiaries, directors, officers, agents, employees and
assigns of each of the foregoing (collectively, "Indemnified Institution
Parties"), against and from any and all demands, damages, liabilities, and
losses, or any threatened, pending or completed actions, claims, suits,
complaints, proceedings, or investigations (including reasonable attorneys
fees and other costs, including all expenses of litigation or arbitration,
judgments, fines or amounts paid in settlement) to which any of them may be or
become subject as a result or arising out of: (a) any act or omission by
Federated or its agents which constitutes negligence, gross negligence or
willful misconduct; (b) any breach of Federated's representations or
warranties contained in this Agreement; or (c) Federated's failure to comply
with any of the terms of this Agreement. At the request of any of the
Indemnified Institution Parties, Federated shall provide for an appropriate
defense against any and all demands, damages, liabilities, and losses, or any
threatened, pending or completed actions, claims, suits, complaints,
proceedings, or investigations (including reasonable attorneys fees and other
costs, including all expenses of litigation or arbitration, judgments, fines
or amounts paid in settlement) to which any of them may be or become subject
which give rise to indemnification by Federated under this Agreement. In no
event shall Federated be liable for demands, damages, liabilities and losses
arising out of failure of its equipment or force majeure.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Termination. Either party may terminate this Agreement
upon 30 days' written notice to the other party. The obligations of Article 6
shall survive the termination of this Agreement.
Section 7.2 Force Majeure. Federated shall have no liability for
cessation of services hereunder or any damages resulting therefrom to
Institution as a result of work stoppage, power or other mechanical failure,
natural disaster, governmental action, communication disruption or other
impossibility of performance.
Section 7.3 Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of The Commonwealth of Pennsylvania,
without regard to conflict of law.
Section 7.4 Assignment. This Agreement may not be transferred or
assigned by either party without the prior written consent of the other party
(other than pursuant to a consolidation, merger, transfer of all or
substantially all the assets or other business combination transaction) and
any purported transfer or assignment without such consent will be void.
Section 7.5 Notice. Whenever notice is required under this Agreement,
it shall be given in writing by first class mail, return receipt requested, to
Federated at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779,
attention: Assistant Vice President, Transfer Agency Services, Federated
Services Company; and to Institution at , attention:
.
Section 7.6 Integrity of Data. Institution shall take all reasonable
steps to protect and insure the integrity of the data it transmits into
Federated's electronic communication and recordkeeping systems and to prevent
the damage of records maintained by others, including the Funds or Federated.
shall take all reasonable steps to protect and insure the integrity of the
data it maintains on Federated's electronic communication and recordkeeping
systems and to prevent the damage of records maintained by others, including
Institution.
Section 7.7 Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter
hereof and supersedes all oral communications and prior writings with respect
thereto, and neither of the parties shall be bound by any conditions,
warranties, or representations with respect to such subject matter other than
as expressly provided herein, or as duly set forth on or subsequent to the
effective date hereof in writing and signed by a proper and duly authorized
representative of the party to be bound thereby.
Section 7.8 Attorneys' Fees. If any dispute arising out of this
Agreement is litigated between the parties hereto, the prevailing party shall
be entitled to recover its reasonable attorneys' fees in addition to any other
relief to which it may be entitled.
Section 7.9 Waiver of Remedies. A waiver of a breach or a default
under this Agreement shall not be a waiver of any subsequent default. Failure
of either party to enforce compliance with any term or condition of this
Agreement shall not constitute a waiver of such term or condition.
Section 7.10 Captions. Captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 7.11 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original.
Section 7.12 Severability. If any provision of this Agreement is held
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 7.13 Amendment. No amendment, modification or waiver in
respect of this Agreement will be effective unless in writing and executed by
each of the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written by their respective officers
hereunto duly authorized.
FEDERATED SERVICES COMPANY
By:/s/ Thomas P. Schmitt
Name: Thomas P. Schmitt
Title: Assistant Vice President
Attest: By:/s/ Jeannette Fisher-Garber
Name: Jeannette Fisher-Garber
Title:
CENTRAL BANK OF THE SOUTH
By:/s/ Jerry Goodson
Name: Jerry Goodson
Title: Vice President, Central Bank of the South
Attest: By:David S. Neel, Jr.
Name: David S. Neel, Jr.
Title: Counsel
SCHEDULE A
CERTIFICATE OF AUTHORIZED INDIVIDUALS
April 26, 1994
Date
NAME, TITLE SIGNATURE, FACIMILE SIGNATURE
Jerry Goodson, President /s/ Jerry Goodson
Sue Hawkins, Manager /s/ Sue Hawkins
The undersigned hereby attest that they are officers of
____________________________and are duly authorized to and do so designated
the aforelisted individuals as Authorized Persons under the Electronic
Communications and Recordkeeping Agreement between Institution and Federated
Services Company this designation to be effective as of
______________________.
By:/s/ Jerry Goodson
Name:Jerry Goodson
Title:President
By:
Name:
Title:
FSCO Services Provider New Contract1 December 1, 1994
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of the 1st day of December , 1994, by and between
those investment companies listed on Exhibit 1 as may be amended from
time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on
behalf of the portfolios (individually referred to herein as a "Fund" and
collectively as "Funds") of the Trust, and FEDERATED SERVICES COMPANY, a
Delaware business trust, having its principal office and place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"), with authorized and issued shares of capital stock or
beneficial interest ("Shares"); and
WHEREAS, the Trust may desire to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so
indicated on Exhibit 1, and the Company is willing to furnish such
services; and
WHEREAS, the Trust may desire to appoint the Company as its transfer
agent, dividend disbursing agent if so indicated on Exhibit 1, and agent
in connection with certain other activities, and the Company desires to
accept such appointment; and
WHEREAS, the Trust may desire to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved
list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or
another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and
on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return
for the compensation as provided in Article 3 of this Section.
Article 2. The Company's Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the Trust with
regard to fund accounting for the Trust, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not
provide a price for a security which the Company believes should
be available by market quotation, the Company may obtain a price
by calling brokers designated by the investment adviser of the
fund holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own to
find brokers to price those securities; thirdly, for securities
for which no market price is available, the Pricing Committee of
the Board will determine a fair value in good faith. Consistent
with Rule 2a-4 of the 40 Act, estimates may be used where
necessary or appropriate. The Company's obligations with regard
to the prices received from outside pricing services and
designated brokers or other outside sources, is to exercise
reasonable care in the supervision of the pricing agent. The
Company is not the guarantor of the securities prices received
from such agents and the Company is not liable to the Fund for
potential errors in valuing a Fund's assets or calculating the
net asset value per share of such Fund or Class when the
calculations are based upon such prices. All of the above
sources of prices used as described are deemed by the Company to
be authorized sources of security prices. The Company provides
daily to the adviser the securities prices used in calculating
the net asset value of the fund, for its use in preparing
exception reports for those prices on which the adviser has
comment. Further, upon receipt of the exception reports
generated by the adviser, the Company diligently pursues
communication regarding exception reports with the designated
pricing agents.
B. Determine the net asset value per share of each Fund and/or Class,
at the time and in the manner from time to time determined by the
Board and as set forth in the Prospectus and Statement of
Additional Information ("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and
financial records of the Trust, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the
Rules thereunder in connection with the services provided by the
Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940
Act the records to be maintained by Rule 31a-1 under the 1940 Act
in connection with the services provided by the Company. The
Company further agrees that all such records it maintains for the
Trust are the property of the Trust and further agrees to
surrender promptly to the Trust such records upon the Trust's
request;
G. At the request of the Trust, prepare various reports or other
financial documents required by federal, state and other
applicable laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the
fees agreed upon from time to time between the parties hereto.
Such fees do not include out-of-pocket disbursements of the
Company for which the Funds shall reimburse the Company upon
receipt of a separate invoice. Out-of-pocket disbursements shall
include, but shall not be limited to, the items agreed upon
between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the
cost of: custodial expenses; membership dues in the Investment
Company Institute or any similar organization; transfer agency
expenses; investment advisory expenses; costs of printing and
mailing stock certificates, Prospectuses, reports and notices;
administrative expenses; interest on borrowed money; brokerage
commissions; taxes and fees payable to federal, state and other
governmental agencies; fees of Trustees or Directors of the
Trust; independent auditors expenses; Federated Administrative
Services and/or Federated Administrative Services, Inc. legal and
audit department expenses billed to Federated Services Company
for work performed related to the Trust, the Funds, or the
Classes; law firm expenses; or other expenses not specified in
this Article 3 which may be properly payable by the Funds and/or
classes.
C. The compensation and out-of-pocket expenses shall be accrued by
the Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company.
The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a duly
authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement
with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period
bears to the full month period. Upon any termination of this
Agreement before the end of any month, the fee for such period
shall be prorated according to the proportion which such period
bears to the full month period. For purposes of determining fees
payable to the Company, the value of the Fund's net assets shall
be computed at the time and in the manner specified in the Fund's
Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing services under this Section One. Such
person or persons may be third-party service providers, or they
may be officers and employees who are employed by both the
Company and the Funds. The compensation of such person or
persons shall be paid by the Company and no obligation shall be
incurred on behalf of the Trust, the Funds, or the Classes in
such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's
Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic investment
plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the Company
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved, and (b) the Trust, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trust, or the
Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Trust as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefore to the custodian of the
relevant Fund, (the "Custodian"). The Company shall notify
the Fund and the Custodian on a daily basis of the total
amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the
Fund's current Prospectus, the Company shall compute and
issue the appropriate number of Shares of each Fund and/or
Class and hold such Shares in the appropriate Shareholder
accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or
its agent requests a certificate, the Company, as Transfer
Agent, shall countersign and mail by first class mail, a
certificate to the Shareholder at its address as set forth
on the transfer books of the Funds, and/or Classes, subject
to any Proper Instructions regarding the delivery of
certificates.
(4) In the event that any check or other order for the purchase
of Shares of the Fund and/or Class is returned unpaid for
any reason, the Company shall debit the Share account of
the Shareholder by the number of Shares that had been
credited to its account upon receipt of the check or other
order, promptly mail a debit advice to the Shareholder, and
notify the Fund and/or Class of its action. In the event
that the amount paid for such Shares exceeds proceeds of
the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund
and/the Class or its distributor will reimburse the Company
on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Funds in accordance with
the provisions of its governing document and the then-
current Prospectus of the Fund. The Company shall prepare
and mail or credit income, capital gain, or any other
payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of
any such distribution, notify the Custodian of the
estimated amount required to pay any portion of said
distribution which is payable in cash and request the
Custodian to make available sufficient funds for the cash
amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with
the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made
to the Shareholder's account, for certificated Funds and/or
Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund
and Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or
set forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the
Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the
Company shall pay or cause to be paid the redemption
proceeds in the manner instructed by the redeeming
Shareholders, pursuant to procedures described in the then-
current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the
reason therefor, and shall effect such redemption at the
price applicable to the date and time of receipt of
documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the
registered owners thereof.
(5) The Company shall identify and process abandoned accounts
and uncashed checks for state escheat requirements on an
annual basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each
Fund, and/or Class, and maintain pursuant to applicable
rules of the Securities and Exchange Commission ("SEC") a
record of the total number of Shares of the Fund and/or
Class which are authorized, based upon data provided to it
by the Fund, and issued and outstanding. The Company shall
also provide the Fund on a regular basis or upon reasonable
request with the total number of Shares which are
authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall be the
sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by
the Trust or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and
whether such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account,
including dividends paid and date and price for all
transactions;
(d) Any stop or restraining order placed against the
account;
(e) Information with respect to withholding in the case of
a foreign account or an account for which withholding
is required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any
Shareholder holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by
this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company,
and such records may be inspected by the Fund at reasonable
times. The Company may, at its option at any time, and
shall forthwith upon the Fund's demand, turn over to the
Fund and cease to retain in the Company's files, records
and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by
the Company in performance of its services or for its
protection. If not so turned over to the Fund, such
records and documents will be retained by the Company for
six years from the year of creation, during the first two
of which such documents will be in readily accessible form.
At the end of the six year period, such records and
documents will either be turned over to the Fund or
destroyed in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in
each state for "blue sky" purposes as determined
according to Proper Instructions delivered from time
to time by the Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption
fees, or other transaction- or sales-related
payments;
(f) Such other information as may be agreed upon from time
to time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state
agencies, and, if required, mail to Shareholders, such
notices for reporting dividends and distributions paid as
are required to be so filed and mailed and shall withhold
such sums as are required to be withheld under applicable
federal and state income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth
above, the Company shall:
(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account
or similar plans (including without limitation any
periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports
and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other
withholding (including non-resident alien accounts),
preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms
required with respect to dividends and distributions
by federal authorities for all Shareholders,
preparing and mailing confirmation forms and
statements of account to Shareholders for all
purchases and redemptions of Shares and other
conformable transactions in Shareholder accounts,
preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor
the total number of Shares of each Fund and/or Class
sold in each state ("blue sky reporting"). The Fund
shall by Proper Instructions (i) identify to the
Company those transactions and assets to be treated
as exempt from the blue sky reporting for each state
and (ii) verify the classification of transactions
for each state on the system prior to activation and
thereafter monitor the daily activity for each state.
The responsibility of the Company for each Fund's
and/or Class's state blue sky registration status is
limited solely to the recording of the initial
classification of transactions or accounts with
regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as
provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other
correspondence as may from time to time be addressed to the
Company;
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund
in connection with Shareholder Meetings of each Fund;
receive, examine and tabulate returned proxies, and certify
the vote of the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share
certificates shall be properly signed, manually or by facsimile,
if authorized by the Trust and shall bear the seal of the Trust
or facsimile thereof; and notwithstanding the death, resignation
or removal of any officer of the Trust authorized to sign
certificates, the Company may continue to countersign
certificates which bear the manual or facsimile signature of such
officer until otherwise directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of
any dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as agreed
upon between the parties and as may be added to or amended from
time to time. Such fees may be changed from time to time subject
to written agreement between the Trust and the Company. Pursuant
to information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund
into Classes or other sub-components for recordkeeping purposes.
The Company will charge the Fund the same fees for each such
Class or sub-component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added to or amended from time
to time. In addition, any other expenses incurred by the Company
at the request or with the consent of the Trust and/or the Fund,
will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by
the Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company.
The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a duly
authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of the
other party.
A. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and
assigns.
B. The Company may without further consent on the part of the Trust
subcontract for the performance hereof with (A) State Street Bank
and its subsidiary, Boston Financial Data Services, Inc., a
Massachusetts Trust ("BFDS"), which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities
Exchange Act of 1934, as amended, or any succeeding statute
("Section 17A(c)(1)"), or (B) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1), or (C) a BFDS
affiliate, or (D) such other provider of services duly registered
as a transfer agent under Section 17A(c)(1) as Company shall
select; provided, however, that the Company shall be as fully
responsible to the Trust for the acts and omissions of any
subcontractor as it is for its own acts and omissions; or
C. The Company shall upon instruction from the Trust subcontract for
the performance hereof with an Agent selected by the Trust, other
than BFDS or a provider of services selected by Company, as
described in (2) above; provided, however, that the Company shall
in no way be responsible to the Trust for the acts and omissions
of the Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and obtain
custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved
by the Board as eligible for selection by the Company as a custodian (the
"Eligible Custodian"). The Company accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
A. evaluate the nature and the quality of the custodial services
provided by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the Trust as
Custodian of the Trust's assets substantially on the terms set
forth as the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for the
benefit of the Trust, with the Trust as a party to each such
agreement. The Company shall not be a party to any agreement
with any such Custodian;
D. establish procedures to monitor the nature and the quality of the
services provided by the Custodians;
E. continuously monitor the nature and the quality of services
provided by the Custodians; and
F. periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature and
amount of disbursement made on account of the Trust with respect
to each custodial agreement; and (iii) such other information as
the Board shall reasonably request to enable it to fulfill its
duties and obligations under Sections 17(f) and 36(b) of the 1940
Act and other duties and obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of
this Agreement, the Trust and/or the Fund agree to pay the
Company an annual fee as agreed upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added to or amended from time
to time. In addition, any other expenses incurred by the Company
at the request or with the consent of the Trust and/or the Fund,
will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by
the Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company.
The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a duly
authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
Article 12. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to
enter into this arrangement and to provide the services contemplated in
Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Trust and all
amendments thereto;
(2) A copy of the resolution of the Board of the Trust
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of
the Trust or the Funds in the forms approved by the Board
of the Trust with a certificate of the Secretary of the
Trust as to such approval;
(4) All account application forms and other documents relating
to Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and
amendments thereof and orders relating thereto in effect
with respect to the sale of Shares of any Fund, and/or
Class;
(3) A certified copy of each amendment to the governing document
and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accountant, custody services procurement,
and shareholder recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares
of any Fund, accompanied by Board resolutions approving
such forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in
good standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State
of Delaware.
(3) It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations
under this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
(6) It is in compliance with federal securities law requirements
and in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and
in good standing under the laws of its state of
organization;
(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under
this Agreement;
(3) All corporate proceedings required by said Charter and By-
Laws have been taken to authorize it to enter into and
perform its obligations under this Agreement;
(4) The Trust is an open-end investment company registered under
the 1940 Act; and
(5) A registration statement under the 1933 Act will be
effective, and appropriate state securities law filings
have been made and will continue to be made, with respect
to all Shares of each Fund being offered for sale.
Article 15. Standard of Care and Indemnification.
A. Standard of Care
The Company shall be held to a standard of reasonable care in
carrying out the provisions of this Contract. The Company shall be
entitled to rely on and may act upon advice of counsel (who may be
counsel for the Trust) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to
such advice, provided that such action is not in violation of
applicable federal or state laws or regulations, and is in good
faith and without negligence.
B. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and
affiliates, harmless against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser
or other party contracted by or approved by the Trust or
Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in
proper form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of
the Fund, its Shareholders or investors regarding the
purchase, redemption or transfer of Shares and
Shareholder account information;
(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of
the Funds; or
(c) are received by the Company or its agents or
subcontractors from Advisers, Sub-advisers or other
third parties contracted by or approved by the Trust
of Fund for use in the performance of services under
this Agreement;
(d) have been prepared and/or maintained by the Fund or
its affiliates or any other person or firm on behalf
of the Trust.
(3) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the
Trust or the Fund.
(4) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such
Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of
such Shares in such state.
Provided, however, that the Company shall not be protected
by this Article 15.A. from liability for any act or
omission resulting from the Company's willful misfeasance,
bad faith, negligence or reckless disregard of its duties
of failure to meet the standard of care set forth in 15.A.
above.
C. Reliance
At any time the Company may apply to any officer of the Trust or
Fund for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company
and its agents or subcontractors shall not be liable and shall be
indemnified by the Trust or the appropriate Fund for any action
reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such
action is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Trust or the Fund, and the
proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with
respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other
party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust exercise
its rights to terminate, all out-of-pocket expenses associated with the
movement of records and materials will be borne by the Trust or the
appropriate Fund. Additionally, the Company reserves the right to charge
for any other reasonable expenses associated with such termination. The
provisions of Article 15 shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and
the Trust may from time to time agree on such provisions interpretive of
or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Charter. No
interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company
at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to
such other address as the Trust or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust and signed by an authorized officer of the
Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Trust, but bind only the
appropriate property of the Fund, or Class, as provided in the
Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized by
the Trustees of the Company and signed by an authorized officer of the
Company, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Company, but bind only
the property of the Company as provided in the Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of the
parties hereto except by the specific written consent of the other party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust,
the Company shall upon termination of this Agreement deliver to such
successor agent at the office of the Company all properties of the Trust
held by it hereunder. If no such successor agent shall be appointed, the
Company shall at its office upon receipt of Proper Instructions deliver
such properties in accordance with such instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or before
the date when such termination shall become effective, then the Company
shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the 1940 Act, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $2,000,000, all properties held by the
Company under this Agreement. Thereafter, such bank or trust company
shall be the successor of the Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a result of
work stoppage, power or other mechanical failure, natural disaster,
governmental action, communication disruption or other impossibility of
performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign
to a successor all of or a substantial portion of its business, or to a
party controlling, controlled by, or under common control with such
party. Nothing in this Article 28 shall prevent the Company from
delegating its responsibilities to another entity to the extent provided
herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first
above written.
ATTEST: INVESTMENT COMPANIES (listed on Exhibit 1)
/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President
Exhibit 1
The Starburst Funds II
The Starburst Quality Income Fund
The Trustees of
The Starburst Funds II
Page 2
June 20, 1990
Exhibit No. 10 under Form N-1A
Exhibit No. 5 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTON PITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR. __________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
June 20, 1990
The Trustees of
The Starburst Funds II
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentleman:
The Starburst Funds II ("Trust") proposes to offer and sell shares
of beneficial interest representing interests in a portfolio of
securities known as The Starburst Government Money Market Fund
("Shares") in the manner and on the terms set forth in its Registration
Statement filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
As counsel we have participated in the organization of the Trust,
its registration under the Investment Company Act of 1940 and the
preparation and filing of its Registration Statement under the
Securities Act of 1933. We have examined and are familiar with the
provisions of the written Declaration of Trust dated June 1, 1990,
("Declaration of Trust"), the Bylaws of the Trust and such other
documents and records deemed relevant. We have also reviewed questions
of law and consulted with counsel thereon as deemed necessary or
appropriate by us for the purposes of this opinion.
Based upon the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing pursuant to
the Declaration of Trust.
2. The Shares which are currently being registered by the
Registration Statement referred to above may be legally and validly
issued from time to time in accordance with the Declaration of Trust
upon receipt of consideration sufficient to comply with the provisions
of Article III, Section 3, of the Declaration of Trust and subject to
compliance with the Securities Act of 1933, as amended, the Investment
Company Act of 1940, as amended, and applicable state laws regulating
the sale of securities. Such Shares, when so issued, will be fully paid
and non-assessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement referred to above and to any application or
registration statement filed under the securities laws of any of the
States of the United States. We further consent to the reference to our
firm under the caption "Legal Counsel" in the prospectus filed as a part
of such Registration Statement, applications and registration
statements.
Very truly yours,
HOUSTON, HOUSTON & DONNELLY
By:/s/Thomas J. Donnelly
TJD/heh
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 25,503,351
<INVESTMENTS-AT-VALUE> 25,286,348
<RECEIVABLES> 284,363
<ASSETS-OTHER> 837
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,571,548
<PAYABLE-FOR-SECURITIES> 5,928,667
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 129,597
<TOTAL-LIABILITIES> 6,058,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,484,056
<SHARES-COMMON-STOCK> 2,100,882
<SHARES-COMMON-PRIOR> 9,653
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,753,769)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (217,003)
<NET-ASSETS> 19,513,284
<DIVIDEND-INCOME> 103,623
<INTEREST-INCOME> 1,222,656
<OTHER-INCOME> 0
<EXPENSES-NET> 158,981
<NET-INVESTMENT-INCOME> 1,167,298
<REALIZED-GAINS-CURRENT> (1,753,769)
<APPREC-INCREASE-CURRENT> (217,003)
<NET-CHANGE-FROM-OPS> (803,474)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,167,298
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,057,203
<NUMBER-OF-SHARES-REDEEMED> 2,045,412
<SHARES-REINVESTED> 79,438
<NET-CHANGE-IN-ASSETS> 19,413,142
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 144,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 393,241
<AVERAGE-NET-ASSETS> 18,430,174
<PER-SHARE-NAV-BEGIN> 10.370
<PER-SHARE-NII> .550
<PER-SHARE-GAIN-APPREC> (1.190)
<PER-SHARE-DIVIDEND> .550
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.280
<EXPENSE-RATIO> 82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
