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. 7 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 4 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 April 30, 1994 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
filed the Notice required by that Rule on _________________; or
intends to file the Notice required by that Rule on or about
____________; or
X 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
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 Selected Per Share Data and
Ratios; Performance Information.
Item 4. General Description of Registrant General 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;
Expenses 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 Charge;
Systematic Investment Program;
Certificates and Confirmations;
Exchange Privilege.
Item 8. Redemption or Repurchase Redeeming Shares; By Telephone;
By Mail; Redemption Before
Purchase Instruments Clear;
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.
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; Exchange
Privilege; Determining Net Asset
Value; Determining Market Value
of Securities; Redeeming Shares;
Redemption in Kind.
Item 20. Tax Status Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance Data
Yield; Total Return; Current
Distributions; Performance
Comparisons.
Item 23. Financial Statements
Included 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 April 30,
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 April 30, 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
Credit Enhancement 5
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 7
Put and Call Options 7
Risks 8
Investment Limitations 8
THE STARBURST FUNDS II INFORMATION 9
- ------------------------------------------------------
Management of The Starburst Funds II 9
Board of Trustees 9
Investment Adviser 9
Advisory Fees 9
Adviser's Background 9
Distribution of Fund Shares 10
Distribution Plan 10
Shareholder Servicing Arrangements 11
Administration of the Fund 11
Administrative Services 11
Custodian 11
Transfer Agent and
Dividend Disbursing Agent 11
Legal Counsel 11
Independent Auditors 12
Expenses of the Fund 12
NET ASSET VALUE 12
- ------------------------------------------------------
INVESTING IN THE FUND 12
- ------------------------------------------------------
Share Purchases 12
To Place an Order 12
Minimum Investment Required 13
What Shares Cost 13
Purchases at Net Asset Value 13
Sales Charge Reallowance 13
Reducing the Sales Charge 14
Quantity Discounts and
Accumulated Purchases 14
Letter of Intent 14
Reinvestment Privilege 14
Systematic Investment Program 15
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
Retirement Plans 15
EXCHANGE PRIVILEGE 15
- ------------------------------------------------------
Exchange by Telephone 16
Written Exchange 16
REDEEMING SHARES 17
- ------------------------------------------------------
By Telephone 17
By Mail 17
Signatures 18
Systematic Withdrawal Program 18
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Partnership Law 19
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
FINANCIAL STATEMENTS 21
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 32
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... 4.50%
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 Fees (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee.......................................................................... None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)...................................................... 0.00%
12b-1 Fees (after waiver)(2).......................................................... 0.00%
Total Other Expenses (after waiver)(3)................................................ 0.77%
Total Fund Operating Expenses(4)............................................ 0.77%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the investment advisory fee by the investment adviser. 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 was reduced to reflect the
anticipated 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 are estimated to be 0.90% absent the anticipated
voluntary waiver by the administrator. The administrator can terminate this
voluntary waiver at any time at its sole discretion.
(4) Total operating expenses are estimated to be 1.90% absent the anticipated
voluntary waivers described above in notes (1), (2) and (3).
* EXPENSES IN THIS TABLE ARE ESTIMATED BASED ON EXPENSES EXPECTED TO BE INCURRED
DURING THE FISCAL YEAR ENDING OCTOBER 31, 1994. DURING THE COURSE OF THIS
PERIOD, EXPENSES MAY BE MORE OR LESS THAN THE AVERAGE AMOUNT SHOWN.
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 transactions are subject to additional fees, see "Redeeming Shares."
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period............. $ 53 $ 69
</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 32.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
OCTOBER 31, (C) DECEMBER 31,**
------------------------- --------------------------------
1994(E) 1993(D) 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 0.18 -- 0.26 0.47 0.32
- ----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.48) -- -- -- 0.06
- ---------------------------------------------------- --------- ------ ----- ----- -----
Total from investment operations (0.30) -- 0.26 0.47 0.38
- ----------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------
Dividends to shareholders from net investment
income (0.18) -- (0.22) (0.29) (0.17)
- ----------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions -- -- -- -- (0.06)
- ---------------------------------------------------- --------- ------ ----- ----- -----
TOTAL DISTRIBUTIONS (0.18) -- (0.22) (0.29) (0.23)
- ----------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.89 $10.37 $10.37 $10.33 $10.15
- ---------------------------------------------------- --------- ------ ----- ----- -----
TOTAL RETURN*** (2.89)% 0.00 % 2.55% 4.67% 3.78%
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------
Expenses 0.77%(a) 0.00 % 0.91% 1.19% 0.44%(a)
- ----------------------------------------------------
Net Investment Income 7.29%(a) 0.00 % 3.03% 4.66% 7.35%(a)
- ----------------------------------------------------
Expense waiver/reimbursement (b) 1.13%(a) 0.00 % 0.48% 0.08% 0.98%(a)
- ----------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------
Net assets, end of period (000 omitted) $23,967 $100 $103 $102 $100
- ----------------------------------------------------
Portfolio turnover rate 50% -- -- -- --
- ----------------------------------------------------
</TABLE>
* Reflects operations for the period from start of business (June 22, 1990) to
December 31, 1990.
** The financial highlights and ratios presented are historical information for
The Starburst Government Fund (which the Fund was formerly named) (Note 1).
*** 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 (Note 5).
(c) The Fund changed its fiscal year end from December 31 to October 31 (Note
7). The Fund also changed its name and investment objective effective
November 19, 1992 (Note 1).
(d) Reflects operations for the period from December 31, 1992, to October 31,
1993.
(e) Reflects operations for the period from November 1, 1993, to February 28,
1994 (unaudited).
(See Notes which are an integral part of the Financial Statements).
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated 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
charge 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 ("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") or by Standard & Poor's Corporation ("S&P") or 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 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.
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.
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. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
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.
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 $4.50 billion
under administration of which it had investment discretion over $1.50
billion. The Trust Division of Compass Bank provides investment advisory
and management services for the assets of individu-
als, 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 will be managed by members of the Starburst Portfolio Investment
Committee. No one person will be primarily responsible for the management
of the Fund.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. 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
- -------------------- ------------------------------------
<C> <S>
.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, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
Holders of shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
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 "Compass Brokerage, Inc." 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 and 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 charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A AS A
PERCENTAGE PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
--------------------------------------------- -------------- -------------
<S> <C> <C>
Less than $100,000........................... 4.50% 4.71%
$100,000 but less than $250,000.............. 3.75% 3.90%
$250,000 but 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>
During the period from January 1, 1994, to October 31, 1994, the maximum sales
charge imposed on the purchase of shares of the Fund will be 2.50% of the
offering price of the shares purchased.
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 charge, 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 charge.
SALES CHARGE REALLOWANCE. For sales of shares of the Fund, Compass or any
authorized broker/ dealer will normally receive up to 85% of the applicable
sales charge. Any portion of the sales charge which is not paid to Compass or
registered broker/dealers will be retained by the distributor. However, the
distributor, in its sole discretion, may uniformly offer to pay all dealers
selling shares of the Fund, all or a portion of the sales charge it normally
retains. If accepted by the dealer, such additional payments will be predicated
upon the amount of Fund shares sold.
The sales charge 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 charge 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.
The Distributor will, periodically, uniformly offer to pay cash, or promotional
incentives in the form of trips to sales seminars at luxury resorts, tickets or
other items, to all dealers selling shares of the Fund. Such payments will be
predicated upon the amount of shares of the Fund that are sold by the dealer.
REDUCING THE SALES CHARGE
The sales charge 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 charge 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 charge.
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
$90,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 3.75%, not 4.50%.
To receive the sales charge 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 charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of Fund
shares over the next 13 months, the sales charge may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales charge adjustment depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold 4.50% of the
total amount intended to be purchased in escrow (in shares of the Fund) until
such purchase is completed.
The 4.50% 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 charge.
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
charge 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 charge.
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 charge. 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 charge. 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 charge 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 charge may be exchanged at net asset value for shares of other funds
with an equal sales charge or no sales charge. Shares of funds with no sales
charge acquired by direct purchase or reinvestment of dividends on such shares
may be exchanged for shares of funds with a sales charge at net asset value,
plus the applicable sales charge 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 charge to a fund with no sales
charge, 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 charge 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 Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings 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 charge, it is
not advisable for shareholders to be purchasing shares while participating in
this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. Before shares
are redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum requirement.
This requirement does not apply, however, if the balance falls below $1,000
because of changes in the Fund's net asset value.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that in matters affecting only a
particular fund, only shares of that fund are entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
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
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- -------------------------------------------------------------------------- -----------
<C> <S> <C> <C>
LONG--TERM INVESTMENTS--74.8%
- ------------------------------------------------------------------------------------------
PREFERRED STOCK--11.1%
- ------------------------------------------------------------------------------------------
BANKING--4.8%
--------------------------------------------------------------------------
20,000 Morgan Stanley Group, Inc., 9.36% $ 532,500
--------------------------------------------------------------------------
10,000 Royal Bank of Scotland Group, Inc., PFD Series A, 11.25% 275,000
--------------------------------------------------------------------------
11,900 Santander Overseas Bank, Inc., Guaranteed, Series A, 10.64% 339,150
-------------------------------------------------------------------------- -----------
Total 1,146,650
-------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
ENERGY--2.2%
--------------------------------------------------------------------------
20,000 Enterprise Oil, ADR, Series A, 10.5% 517,500
-------------------------------------------------------------------------- -----------
INSURANCE--1.8%
--------------------------------------------------------------------------
25,000 SunAmerica, Inc., Depository Shares, $1.11, Series A 440,350
-------------------------------------------------------------------------- -----------
UTILITIES--2.3%
--------------------------------------------------------------------------
19,800 Pacific Gas & Electric Co., 8.20% 559,350
-------------------------------------------------------------------------- -----------
TOTAL PREFERRED STOCK (IDENTIFIED COST $2,690,337) 2,663,850
-------------------------------------------------------------------------- -----------
CORPORATE BONDS--21.8%
- ------------------------------------------------------------------------------------------
BANKING--2.1%
--------------------------------------------------------------------------
$500,000 Citicorp, 8.45%, 3/15/2007 511,925
-------------------------------------------------------------------------- -----------
ENERGY--1.5%
--------------------------------------------------------------------------
318,000 Chevron Corp., 9.375%, 6/1/2016 354,936
-------------------------------------------------------------------------- -----------
FOOD--1.1%
--------------------------------------------------------------------------
250,000 Kraft, Inc., 8.50%, 2/15/2017 261,513
-------------------------------------------------------------------------- -----------
MACHINERY--0.9%
--------------------------------------------------------------------------
220,000 John Deere & Co., 8.45%, 3/1/2000 221,760
-------------------------------------------------------------------------- -----------
</TABLE>
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- -------------------------------------------------------------------------- -----------
<C> <S> <C> <C>
RETAIL--1.5%
--------------------------------------------------------------------------
334,000 Dayton Hudson Corp., 9.25%, 11/15/2016 352,928
-------------------------------------------------------------------------- -----------
</TABLE>
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------------- -----------
<C> <S> <C> <C>
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--3.3%
--------------------------------------------------------------------------
$775,000 New York Telephone Co., Series T, 7.75%, 12/15/2006 $ 796,413
-------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TRANSPORTATION--1.8%
--------------------------------------------------------------------------
400,000 Union Pacific Corp., 8.50%, 1/15/2017 422,100
-------------------------------------------------------------------------- -----------
UTILITIES--9.6%
--------------------------------------------------------------------------
305,000 Alabama Power Co., 9.25%, 5/1/2021 327,009
--------------------------------------------------------------------------
250,000 Florida Power & Light Co., 8.50%, 1/1/2022 268,470
--------------------------------------------------------------------------
500,000 Ohio Power Co., 9.875%, 8/1/2020 541,850
--------------------------------------------------------------------------
424,000 Pennsylvania Power & Light Co., 8.50%, 12/1/2007 438,068
--------------------------------------------------------------------------
650,000 Southern California Edison Co., 9.25%, 6/15/2021-12/1/2022 717,813
-------------------------------------------------------------------------- -----------
Total 2,293,210
-------------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST $5,227,546) 5,214,785
-------------------------------------------------------------------------- -----------
U.S. GOVERNMENT OBLIGATIONS--34.2%
- ------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--21.3%
--------------------------------------------------------------------------
175,000 9.50%, 2/1/2002, Pool #215829 186,072
--------------------------------------------------------------------------
789,622 8.25%, 6/1/2002, Pool #217410 822,684
--------------------------------------------------------------------------
256,864 9.50%, 7/1/2002, Pool #218152 271,634
--------------------------------------------------------------------------
857,353 11.19%, 6/15/2008, Series 1538, Class SB 857,893
--------------------------------------------------------------------------
279,250 9.25%, 9/1/2008, Pool #251941 298,010
--------------------------------------------------------------------------
434,109 8.50%, 1/1/2009, Pool #183201 455,272
--------------------------------------------------------------------------
240,614 9.30%, 10/15/2019, Series 65, Class D 245,936
--------------------------------------------------------------------------
250,000 7.00%, 1/15/2021, Series 1241, Class I 251,663
--------------------------------------------------------------------------
759,578 13.93%, 11/15/2022, Series 1439, Class QA 762,426
--------------------------------------------------------------------------
958,900 6.31%, 5/15/2023, Series 1508, Class MA 957,884
-------------------------------------------------------------------------- -----------
Total 5,109,474
-------------------------------------------------------------------------- -----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--7.3%
--------------------------------------------------------------------------
250,000 6.00%, 6/25/2014, REMIC, Series 1992-125, Class D 251,072
--------------------------------------------------------------------------
</TABLE>
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
- ------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--CONTINUED
--------------------------------------------------------------------------
365,699 9.15%, 9/25/2018, REMIC, Series 1989-33, Class D 377,928
--------------------------------------------------------------------------
500,000 8.75%, 6/25/2019, REMIC, Series 1990-10, Class K 519,410
--------------------------------------------------------------------------
</TABLE>
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
- ------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--CONTINUED
--------------------------------------------------------------------------
$592,669 13.84%, 3/25/2023, REMIC, Series 1993-44, Class SA $ 594,524
-------------------------------------------------------------------------- -----------
Total 1,742,934
-------------------------------------------------------------------------- -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--0.9%
--------------------------------------------------------------------------
200,167 9.00%, 5/15/2001, Pool #145649 215,866
-------------------------------------------------------------------------- -----------
U.S. TREASURY NOTES--4.7%
--------------------------------------------------------------------------
1,050,000 9.25%, 1/15/96 1,135,963
-------------------------------------------------------------------------- -----------
TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST $8,249,291) 8,204,237
-------------------------------------------------------------------------- -----------
COLLATERALIZED MORTGAGE OBLIGATIONS--7.7%
- ------------------------------------------------------------------------------------------
399,172 Collateralized Mortgage Obligation Trust, Series 51, Class A, 9.10%,
11/20/2019 406,980
--------------------------------------------------------------------------
428,090 Ryland Acceptance Corp., Series 66, Class 1, 8.55%, 8/20/2017 428,086
--------------------------------------------------------------------------
993,291 Ryland Acceptance Corp., Series 1989-4B, 10.00%, 9/25/2019 1,006,639
-------------------------------------------------------------------------- -----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST $1,851,727) 1,841,705
-------------------------------------------------------------------------- -----------
TOTAL LONG--TERM INVESTMENTS (IDENTIFIED COST $18,018,901) 17,924,577
-------------------------------------------------------------------------- -----------
* REPURCHASE AGREEMENT--28.5%
- ------------------------------------------------------------------------------------------
6,823,000 First Chicago Capital Markets, Inc., 3.40%, dated 2/28/94, due 3/1/94
(at amortized cost)(Note 2B) 6,823,000
-------------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $24,841,901) $24,747,577+
-------------------------------------------------------------------------- -----------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $24,841,901. The
net unrealized depreciation of investments on a federal tax cost basis
amounts to $94,324, which is comprised of $19,244 appreciation and $113,568
depreciation at February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($23,966,984) at February 28, 1994.
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
ADR-- American Depositary Receipt
REMIC-- Real Estate Mortgage Investment Conduit
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST QUALITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------
Cash $105,776
- -----------------------------------------------------------------------------------
Total assets 105,776
- ----------------------------------------------------------------------------------- --------
LIABILITIES:
- -----------------------------------------------------------------------------------
Due to Bank $5,634
- --------------------------------------------------------------------------
Total liabilities 5,634
- ----------------------------------------------------------------------------------- --------
NET ASSETS for 9,653 shares of beneficial interest outstanding $100,142
- ----------------------------------------------------------------------------------- --------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------
Paid-in capital $100,142
- ----------------------------------------------------------------------------------- --------
Total $100,142
- ----------------------------------------------------------------------------------- --------
NET ASSET VALUE and Redemption Price Per Share ($100,142 / 9,653 shares of
beneficial interest outstanding) $10.37
- ----------------------------------------------------------------------------------- --------
COMPUTATION OF OFFERING PRICE:
- -----------------------------------------------------------------------------------
Offering Price Per Share (100/95.5 of $10.37*) $10.86
- ----------------------------------------------------------------------------------- --------
</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 ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------
Investments, in repurchase agreements, at amortized cost and value $ 6,823,000
- ----------------------------------------------------------------------------
Investments in other securities, at value 17,924,577
- ---------------------------------------------------------------------------- -----------
Total investments (Notes 1A and 1B)(identified and tax cost $24,841,901) $24,747,577
- ------------------------------------------------------------------------------------------
Cash 40,469
- ------------------------------------------------------------------------------------------
Dividends and interest receivable 597,468
- ------------------------------------------------------------------------------------------
Due from bank 466,029
- ------------------------------------------------------------------------------------------
Receivable for capital stock sold 360,174
- ------------------------------------------------------------------------------------------
Receivable for investments sold 200,625
- ------------------------------------------------------------------------------------------ -----------
Total assets 26,412,342
- ------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------
Payable for investments purchased $ 2,355,046
- ----------------------------------------------------------------------------
Dividends payable 31,727
- ----------------------------------------------------------------------------
Payable for capital stock redeemed 21,025
- ----------------------------------------------------------------------------
Due to bank 11,963
- ----------------------------------------------------------------------------
Accrued expenses and other liabilities 25,597
- ---------------------------------------------------------------------------- -----------
Total liabilities 2,445,358
- ------------------------------------------------------------------------------------------ -----------
NET ASSETS for 2,422,424 shares of beneficial interest outstanding $23,966,984
- ------------------------------------------------------------------------------------------ -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------
Paid-in capital $24,074,949
- ------------------------------------------------------------------------------------------
Unrealized depreciation of investments (94,324)
- ------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (25,214)
- ------------------------------------------------------------------------------------------
Undistributed net investment income 11,573
- ------------------------------------------------------------------------------------------ -----------
Total $23,966,984
- ------------------------------------------------------------------------------------------ -----------
NET ASSET VALUE and Redemption Price Per Share ($23,966,984 / 2,422,424 shares of
beneficial interest outstanding) $9.89
- ------------------------------------------------------------------------------------------ -----------
COMPUTATION OF OFFERING PRICE:
- ------------------------------------------------------------------------------------------
Offering Price Per Share (100/95.5 of $9.89*) $10.36
- ------------------------------------------------------------------------------------------ -----------
</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
PERIOD ENDED OCTOBER 31, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2C) $240,481
- ---------------------------------------------------------------------------------------
Dividend income (Note 2C) 27,511
- ---------------------------------------------------------------------------------------
Total investment income $ 267,992
- ---------------------------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------------
Investment advisory fee (Note 5) 24,932
- ---------------------------------------------------------------------------------------
Trustees' fees 1,261
- ---------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 4,493
- ---------------------------------------------------------------------------------------
Custodian fees (Note 5) 2,974
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees 4,338
- ---------------------------------------------------------------------------------------
Capital stock registration costs 4,295
- ---------------------------------------------------------------------------------------
Auditing fees 2,443
- ---------------------------------------------------------------------------------------
Legal fees 867
- ---------------------------------------------------------------------------------------
Printing and postage 2,232
- ---------------------------------------------------------------------------------------
Recordkeeping fees 5,363
- ---------------------------------------------------------------------------------------
Insurance premiums 985
- ---------------------------------------------------------------------------------------
Distribution service fees (Note 5) 8,205
- ---------------------------------------------------------------------------------------
Miscellaneous 839
- --------------------------------------------------------------------------------------- -------
Total expenses 63,227
- ---------------------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $24,932
- -----------------------------------------------------------------------------
Waiver of administrative personnel and services fees (Note 5) 4,493
- -----------------------------------------------------------------------------
Waiver of distribution service fees (Note 5) 8,205 37,630
- ----------------------------------------------------------------------------- ------ -------
Net expenses 25,597
- --------------------------------------------------------------------------------------------------- ---------
Net investment income 242,395
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (25,214)
- ---------------------------------------------------------------------------------------------------
Net change in realized appreciation (depreciation) on investments (94,324)
- --------------------------------------------------------------------------------------------------- ---------
Net realized and unrealized loss on investments (119,538)
- --------------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 122,857
- --------------------------------------------------------------------------------------------------- ---------
</TABLE>
* For the period from November 1, 1993 to February 28, 1994 (unaudited).
(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 $ 242,395 $ -- $ 290,607
- --------------------------------------------------
Net realized gain (loss) on investments ($25,214
net loss $0, and 1,656 net gain, respectively,
as computed for federal income tax purposes) (Note
2D) (25,214) -- 1,656
- --------------------------------------------------
Change in unrealized appreciation (depreciation)
on investments (94,324) -- --
- -------------------------------------------------- ------------- ----------- ------------
Change in net assets resulting from operations 122,857 -- 292,263
- -------------------------------------------------- ------------- ----------- ------------
NET EQUALIZATION DEBITS (NOTE 2F) -- -- (290,026 )
- -------------------------------------------------- ------------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- --------------------------------------------------
Dividends to shareholders from net investment
income (230,822) -- (2,237 )
-----------
- -------------------------------------------------- ------------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- --------------------------------------------------
Proceeds from sale of shares 24,894,363 -- 31,105,666
- --------------------------------------------------
Net asset value of shares issued to shareholders
electing to receive payment of dividends in Fund
shares 152,064 -- --
- --------------------------------------------------
Cost of shares redeemed (1,071,620) (3,699) (31,105,239 )
-----------
- -------------------------------------------------- ------------- -----------
Change in net assets resulting from Fund share
transactions 23,974,807 (3,699) 427
-----------
- -------------------------------------------------- ------------- -----------
Change in net assets 23,866,842 (3,699) 427
- --------------------------------------------------
NET ASSETS--
- --------------------------------------------------
Beginning of period 100,142 103,841 103,414
-----------
- -------------------------------------------------- ------------- -----------
End of period (including undistributed net
investment income of $11,573 $0 and $0,
respectively) $23,966,984 $100,142 $ 103,841
-----------
- -------------------------------------------------- ------------- -----------
</TABLE>
* For the period from December 31, 1992, to October 31, 1993.
**For the period from November 1, 1993, to February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST QUALITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Quality Income Fund (the "Fund") is a diversified portfolio of The
Starburst Funds II (the "Trust"), an open-end management investment company
registered under the Investment Company Act of 1940, as amended. Effective
November 19, 1992, shareholders approved a change in the name of the 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. All financial information related to the period November
1, 1993 through February 28, 1994, has not been audited by Deloitte & Touche.
The financial statements included herein present only those of The Starburst
Quality Income Fund. The assets of each portfolio of The Starburst Funds II are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. As of February 28, 1994, the Trust has no other portfolios
effective.
(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. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Listed equity securities and corporate bonds (and other fixed
securities/asset backed securities) are valued at the last sales price on national
securities exchanges on that day, if available. Otherwise, corporate bonds (and other
fixed income securities/asset backed securities) and short-term obligations are valued at
the prices provided by an independent pricing service. Unlisted securities or listed
securities for which there were no sales on the valuation date are valued at the mean
between bid and asked prices. However, short-term obligations with maturities of sixty
days or less may be valued 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
agreements underlying collateral to ensure the value at least equals the principal amount
of the repurchase transaction, 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 Trustees. Risks may arise from
the potential inability of
</TABLE>
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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. INCOME--Interest income is recorded on the accrual basis and includes discount earned,
less any premium, on short-term obligations, and original discount on all other debt
securities. Dividend income is recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue 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.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities 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.
F. EQUALIZATION--For the fiscal year ended December 31, 1992, the Fund followed 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 capital stock. For subsequent
periods, the fund discontinued the use of this accounting practice.
G. OTHER--Investment transactions are accounted for on the date of transaction.
</TABLE>
(3) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid monthly.
Distributions of any net realized capital gains will be made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
(4) 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>
PERIOD ENDED
OCTOBER 31,
--------------------
1994** 1993*
- ------------------------------------------------------------------------ --------- ------
<S> <C> <C>
Shares outstanding, beginning of period 9,653 10,010
- ------------------------------------------------------------------------
Shares sold 2,505,321 --
- ------------------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
distributions in Fund shares 15,315 --
- ------------------------------------------------------------------------
Shares redeemed (107,865) (357)
- ------------------------------------------------------------------------ --------- ------
Shares outstanding, end of period 2,422,424 9,653
- ------------------------------------------------------------------------ --------- ------
</TABLE>
* For the period from December 31, 1992, to October 31, 1993.
** For the period from November 1, 1993, to February 28, 1994.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compass Bank (formerly known as Central Bank of the South), the Fund's
investment adviser ("Adviser"), receives for its services an annual investment
advisory fee equal to .75 of 1% of the Fund's average daily net assets.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services. The fee is based on the level of average
aggregate net assets for the period. FAS may voluntarily choose to waive a
portion of its fee.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. Under the terms of the Plan, the Fund
will compensate Federated Securities Corp. ("FSC"), the principal distributor,
from the net assets of the Fund for the fees it paid which relate to the
distribution and administration of the Fund. The Plan provides that the Fund
will incur distribution expenses up to .25 of 1% of the average daily net assets
of the Fund, annually, to pay commissions, maintenance fees and to compensate
FSC.
Organization expenses of the Fund ($44,368) were borne initially by FAS. The
Fund has agreed to pay FAS, at an annual rate of .005% of 1% of average daily
net assets, until the organization expenses initially borne by FAS are
reimbursed or five years from June 22, 1990, the date shares of the Fund were
initially offered to the public, whichever occurs earlier. During the period
ended February 28, 1994, the Fund paid $0 pursuant to this agreement.
Compass Bank is the Fund's custodian. The fee is based on the level of average
net assets for the period plus out-of-pocket expenses.
THE STARBURST QUALITY INCOME FUND
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Purchases, and sales of investments, excluding short-term obligations, for the
period ended February 28, 1994 were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES: $22,795,236
- ------------------------------------------------------------------------------- -----------
SALES: $ 4,751,121
- ------------------------------------------------------------------------------- -----------
</TABLE>
(7) CHANGE IN FISCAL YEAR END
The Fund has changed its fiscal year end from December 31 to October 31
beginning October 31, 1993.
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 of The
Starburst Quality Income Fund (a portfolio of The Starburst Funds II) as of
October 31, 1993, the statement of changes in net assets for the ten month
period ended October 31, 1993 and the year ended December 31, 1992, and
financial highlights (see page 2) for the ten month period ended October 31,
1993 and the years ended December 31, 1992, 1991 and 1990. 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. 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, 1993, the changes in its net assets and
its financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Pittsburgh, Pennsylvania
April 22, 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
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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 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Deloitte & Touche 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ------------------------------------------------------------------------------------------------
</TABLE>
THE STARBURST QUALITY
INCOME FUND
PROSPECTUS
A Diversified Portfolio
of The Starburst Fund II,
an Open-End
Management Investment Company
April 30, 1994
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
FEDERATED SECURITIES CORP.
(LOGO)
--------------------------------------------------
Distributor
COMPASS BANK
(LOGO)
--------------------------------------------------
Investment Adviser
2121709A (4/94)
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 April 30, 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 April 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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 4
- ----------------------------------------------------------------
Officers and Trustees 4
The Funds 6
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ----------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 8
- ----------------------------------------------------------------
CUSTODIAN 8
- ----------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ----------------------------------------------------------------
PURCHASING SHARES 8
- ----------------------------------------------------------------
Distribution Plan 8
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ----------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 9
- ----------------------------------------------------------------
EXCHANGE PRIVILEGE 9
- ----------------------------------------------------------------
REDEEMING SHARES 9
- ----------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 10
- ----------------------------------------------------------------
The Fund's Tax Status 10
Shareholders' Tax Status 10
TOTAL RETURN 10
- ----------------------------------------------------------------
YIELD 10
- ----------------------------------------------------------------
CURRENT DISTRIBUTIONS 11
- ----------------------------------------------------------------
PERFORMANCE COMPARISONS 11
- ----------------------------------------------------------------
Duration 11
APPENDIX 12
- ----------------------------------------------------------------
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 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:
- - domestic issues of corporate debt obligations rated A or better by Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's Corporation
("S&P") or Fitch Investors Service, Inc. ("Fitch"), or, if unrated, are deemed
to be of comparable quality by the Fund's investment adviser; and
- - obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. 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, not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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.
No fees or other expenses, other than normal transaction costs, are incurred in
connection with when-issued and delayed delivery transactions. However, liquid
assets of the Fund sufficient to make payment for the securities to be purchased
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled. The Fund may engage in these
transactions to an extent that would cause the segregation of an amount up to
20% of the total value of 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 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 period from October 31, 1993 to February 28,
1994, the turnover rate of the Fund was 50%.
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
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Compass Bank, Federated
Investors, Federated Securities Corp., Federated Services Company, Federated
Administrative Services, or the Funds (as defined below).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue*+ Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue,
President of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R.
Wood/IPC Wood and Associates, Inc., Realtors; President, Northgate Village
Commercial Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood & ventures in Southwest Florida; Director, Trustee, or Managing General
Associates Partner of the Funds; formerly President Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
Suite 2310, Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
PNC Bank Building Chairman and Director, PNC Financial Corp and Director, Ryan Homes, Inc.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr. Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales* Vice President, Vice President, Treasurer, and Trustee, Federated Investors; Vice President
Federated Investors Treasurer and and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Trustee Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Trustee or Director of some
of the Funds; Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Trustee,
225 Franklin Street Lahey Clinic Foundation, Inc.; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Management Consultant; Trustee, Carnegie Endowment for International Peace
1202 Cathedral of and RAND Corporation, and U.S. Space Foundation; Chairman, National Advisory
Learning Council for Environmental Policy and Technology; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; formerly, President, University of Pittsburgh.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Trustee,
Tower Federated Administrative Services; Trustee, Federated Services Company;
Pittsburgh, PA 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, Chairman of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Jeffrey W. Sterling Vice President Vice President, Federated Administrative Services; Vice President and
Federated Investors and Assistant Assistant Treasurer of some of the Funds.
Tower Treasurer
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Executive Vice President, Secretary, and Director, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV* Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors and Trustee Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Fund or the Trust
as defined in the Investment Company Act of 1940.
+ Members of the Trust's 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; Automated Cash Management Trust;
Automated Government Money Trust; 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, Inc.; Federated
Income Trust; Federated Index 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 Term Trust, Inc.-1999;
Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Managed Series Trust; Mark Twain 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; Signet Select Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; and 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 April 7, 1994, the following shareholders of record owned 5% or more of
the outstanding shares of the Fund: Buffalo Rock Co., Birmingham, Alabama, owned
approximately 508,331 shares (18.53%); and Compass Bank Trust Department,
Birmingham, Alabama, owned approximately 218,672 shares (7.97%).
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.
ADVISORY FEES
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectus.
For the period from November 1, 1993 to February 28, 1994, and for the fiscal
years ended October 31, 1993, and December 31, 1992, and 1991, the Fund's
adviser earned advisory fees from the Fund totaling $24,932, $0, $71,853, and
$225,039, respectively, of which $24,932, $0, $45,488, and $18,996,
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 period from November 1, 1993 to February 28, 1994, and for
the fiscal years ended October 31, 1993, and December 31, 1992, and 1991, the
Fund incurred costs for administrative services of $4,493, $0, $14,371, and
$45,008, respectively, of which $4,493, $0, $79, and $77, respectively, was
waived. John A. Staley, IV, an officer of the Trust, holds approximately 15% of
the outstanding common stock and serves as a Director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services. For the fiscal years ended December 31, 1993,
1992, and 1991, Federated Administrative Services paid approximately $162,309,
$184,862, and $196,783, respectively, for services provided by Commercial Data
Services, Inc.
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.
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 Board of 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:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - 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 charge 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 Board of Trustees expects 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.
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:
- - as provided by an independent pricing service;
- - 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
- - at fair value as determined in good faith by the Fund's Board of Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
- - yield;
- - quality;
- - coupon rate;
- - maturity;
- - type of issue;
- - trading characteristics; and
- - 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:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - 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 one-year period ended February
28, 1994, and for the period from June 22, 1990 (start of business) to February
28, 1994, was (7.26)% and 3.31%, 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 net asset value 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.
The Fund's cumulative total return for the period from November 1, 1993 to
February 28, 1994, was (3.27%). Cumulative total return reflects the Fund's
total performance over a specific period of time. The Fund's cumulative total
return is representative of only four months of Fund activity.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund for the thirty-day period ended February 28, 1994, was
6.53%.
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:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in Fund expenses; and
- - 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:
- - LEHMAN 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 Shearson Lehman Hutton, Inc.,
the index calculates total returns for one-month, three-month, twelve-month,
and ten-year periods and year-to-date.
- - SALOMON BROTHERS AAA-AA CORPORATES 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.
- - 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.
- - 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 timeweighted 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 CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
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
edge." 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 high 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 high 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 high 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 CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
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:
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.
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+--High credit quality protection factors are strong. Risk is modest but may
vary slightly from time to time
AA because of economic conditions.
AA-
A+--Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of
A economic stress.
A-
2121709B (4/94)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements; (filed in Part A)
(b) Exhibits:
(1) Copy of Declaration of Trust of the Registrant; (1.)
(i) Copy of Amendment No. 1 to Declaration of Trust (4);
(ii) 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) Copy of Investment Advisory Contract of the Registrant; (1.)
(6) Copy of Distributor's Contract of the Registrant (4);
(7) Not applicable;
(8) (i) Copy of Custodian Agreement of the Registrant; (1.)
(ii) Copy of Agency Agreement of the Registrant; (1.)
(iii) Fund Accounting and Shareholder Recordkeeping Agreement;+
(9) Not applicable;
(10) Copy of Opinion and Consent of Counsel as to legality of
shares being registered; (1.)
(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) Copy of Distribution Plan (4);
(ii) Rule 12b-1 Agreement (4);
(16) Schedule for Computation of Fund Performance Data; +
(17) Power of Attorney (4);
(18) Conformed Copy of Opinion and Consent of Counsel as to
Availability of Rule 485(b); +
+ 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
No. 33-35473)
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed December 26, 1990. (File No.
33-35473)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed February 28, 1992. (File No.
33-35473)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6. on Form N-1A filed April 30, 1993. (File No.
33-35473)
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 April 6, 1994
Shares of beneficial interest 1,088
Item 27. Indemnification: (1.)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of Central Bank of the
South, the investment adviser, see the section entitled
"Management of the 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
Harry B. Brock III Senior Vice President,
Birmingham Region
Ralph H. Cassell Senior Vice President,
Consumer Banking
Robert S. McKean Senior Vice President,
Metropolitan Banking
Michale E. Murry Senior Vice President,
Trust Division
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.
Harry B. Brock III is the son of Harry B. Brock, Jr., a director of Compass
Bank and the brother of Stanley M. Brock, a director of Compass Bank.
Directors
Other Substantial Business,
Name and Address Profession, Vocation or Employment
Harry B. Brock, Jr. Retired since March 31, 1991 as Chairman of
701 South 32nd Street the Board, Chief Executive Officer and
Birmingham, Alabama 35233 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. (real estate
200 Office Park Drive investments), Suite 100, 200 Office Park
Suite 100 Drive, Birmingham, Alabama 35223.
Birmingham, Alabama 35223
William Eugene Davenport President and Chief Operating Officer
Russell Lands, Inc. of Russell Lands, Inc. (real estate
1 Willowpoint Road development)
Alexander City, Alabama 35010
Marshall Durbin, Jr. President of Marshall Durbin & Company,
Marshall Durbin & Co., Inc. Inc. (poultry processing).
3125 Independence Drive
Birmingham, Alabama 35209
Tranum Fitzpatrick Chairman of Guiford Company, Inc. and
Fitzpatrick & Associates President of Guiford Capital and Empire-
2600 East South Blvd. Rouse (real estate investment and
Montgomery, Alabama 36116 development),2600 East South Blvd.,
Montgomery, Alabama 36116.
D. Paul Jones, Jr. Chairman, Chief Executive Officer and
Compass Bancshares, Inc. Treasurer of Compass Bancshares, Inc. and
15 South 20th Street Compass Bank; Director of Golden
Birmingham, Alabama 35233 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 and Sons
418 Chestnut Street Insurance (insurance sales).
Gadsden, Alabama 35901
Goodwin L. Myrick President and Chairman of the Board,
Alfa Corporation Alabama Farmers Federation, Alfa
2108 East South Blvd. Corporation, Alfa Insurance Companies
Montgomery, Alabama 36116 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 Officer of
Golden Enterprises, Inc. Golden Enterprises, Inc. (snack food and
110 South Sixth Street metal fastenter production and
Birmingham, Alabama 35205 distribution), Director of Golden
Enterprises, Inc.
Garry Neil Drummund, Sr. Chief Executive Officer of Drummond
Drummund Company, Inc. Company, Inc. (coal and coke production,
530 Beacon Parkway West real estate investment).
Birmingham, Alabama 35209
Stanley M. Brock Partner, Balch & Bingham (law firm).
Balch & Bingham
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: A.T. Ohio Municipal Money Fund;
Alexander Hamilton Funds; American Leaders Fund, Inc.; Annuity
Management Series; Automated Cash Management Trust; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The Biltmore
Municipal Funds; The Boulevard Funds; California Municipal Cash
Trust; Cambridge Series Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; FT Series, Inc.; 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 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; Financial Reserves 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; 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; Mark Twain Funds; Marshall Funds, Inc.; Money Market
Management, Inc.; 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; Signet Select Funds; SouthTrust
Vulcan Funds; Star Funds; The Starburst Funds; The Starburst Funds
II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Tower Mutual Funds; Trademark
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; 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 Trustee,
Federated Investors Tower President, and Treasurer, Vice President and
Pittsburgh, PA 15222-3779 Federated Securities Treasurer
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 A. Staley, IV Executive Vice President Vice President
Federated Investors Tower and Assistant Secretary,
Pittsburgh, PA 15222-3779 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
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball 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
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
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
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
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
Thomas E. Territ 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, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and
Portfolio Recordkeeper
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,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania,
on the 27th day of April, 1994.
THE STARBURST FUNDS II
BY: /s/C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
April 27, 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 April 27, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit (11) under N-1A
Exhibit 23 under 601/Reg SK
DELOITTE & TOUCHE
INDEPENDENT AUDITOR'S CONSENT
We consent to the use of the Post-Effective Amendment No. 7 to
Registration Statement (No. 33-35473) of The Starburst Funds II (comprising
Starburst Quality Income Fund) of our report dated April 22, 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
Deloitte & Touche
Certified Public Accountants
Pittsburgh, Pennsylvania
April 22, 1994
Exhibit (18) under N-1A
Exhibit 99 under 601/Reg SK
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
April 26, 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. 7 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 April 30, 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. 7 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: Thomas J. Donnelly
TJD:heh
<TABLE> <S> <C>
Schedule for Computation Initial
of Fund Performance Data Invest of: $1,000 Ehibit 16 under form N-1A
Offering Exhibit 9 under 601 Reg S-K
Starburst Quality Inc Fd Price/
Share= $10.47
Return Since Inception
ending 2/28/94 NAV= $10.00
FYE: October 31
Begin Capital Reinvest Ending Total
DECLARED: DAILY Reinvest Period Dividend Gain Price Period Ending Invest
PAID: MONTHLY Dates Shares /Share /Share /Share Shares Price Value
6/22/90 95.500 0.000000000 0.00000 $10.00 95.500 $10.00 $955.00
12/21/90 95.500 0.175000000 0.06460 $10.62 97.655 $10.62 $1,037.09
12/20/91 97.655 0.294000000 0.00000 $10.33 100.434 $10.33 $1,037.48
10/9/92 100.434 0.223000000 0.00000 $10.37 102.594 $10.37 $1,063.90
11/30/93 102.594 0.015520721 0.00000 $9.96 102.754 $9.96 $1,023.43
12/31/93 102.754 0.047929419 0.00000 $9.95 103.249 $9.95 $1,027.32
1/31/94 103.249 0.055948427 0.00000 $9.97 103.828 $9.97 $1,035.16
2/28/94 103.828 0.060298719 0.00000 $9.89 104.461 $9.89 $1,033.12
$1,000 (1+T) = End Value
T = 3.31%
</TABLE>
<TABLE> <S> <C>
Starburst Quality Inc Fd Yield = 2{( $105,965.04 - $10,753.64 )+1)^6-1}=
Computation of SEC Yield 1,712,343 * $10.36 - 0.00000 )
As of: February 28, 1994
SEC Yield = 6.53%
Dividend and/or Interest
Inc for the 30 days ended $105,965.04
Net Expenses for $10,753.64
the Period
Avg Daily Shares
Outstanding and entitled
to receive dividends 1,712,343
Maxium offering price $10.36
per share as of 3-31-93
Undistributed net income 0.00000
</TABLE>
