Registration No. 811-8800
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 6 /X/
(Check appropriate box or boxes)
S&P STARS FUND
(Exact Name of Registrant as Specified in Charter)
80 Harcourt Street
Dublin 2, Ireland
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (353) 1 790 3500
Stephen A. Bornstein, Esq.
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
(Name and Address of Agent for Service)
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant
pursuant to Section 8(b) of the Investment Company Act of 1940, as amended.
However, beneficial interests in the Registrant are not being registered under
the Securities Act of 1933, as amended (the "1933 Act"), since such interests
will be issued solely in private placement transactions which do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant may only be made by investment companies or
certain other entities which are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the Registrant.
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S&P STARS FUND
S&P STARS MASTER SERIES
PART A
JUNE 20, 1996
RESPONSES TO ITEMS 1 THROUGH 3 HAVE BEEN OMITTED PURSUANT TO
PARAGRAPH 4 OF INSTRUCTION F OF THE GENERAL INSTRUCTIONS TO
FORM N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
GENERAL
S&P STARS Fund (the "Master Fund") is an open-end, management investment
company, organized on October 5, 1994 as a trust under the laws of the State of
Delaware. The Master Fund is a "series fund," which is a mutual fund divided
into separate portfolios. By this offering document, the Master Fund is offering
one non-diversified portfolio, the S&P STARS Master Series (the "Master
Series"). The Master Series is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of the Master Series is not deemed to be a
shareholder of any other series. As described below, for certain matters Master
Fund shareholders vote together as a group; as to others they vote separately by
series. To date, the Master Fund has established only the Master Series. From
time to time, other series may be established and sold pursuant to other
offering documents.
Bear Stearns Funds Management Inc. ("BSFM"), a wholly- owned
subsidiary of The Bear Stearns Companies Inc., serves as the
Master Series' investment adviser.
Beneficial interests in the Master Series are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Master Series may be made only by investment companies
or certain other entities which are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This registration statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any "security" within
the meaning of the 1933 Act.
INVESTMENT OBJECTIVE
The Master Series' investment objective is to provide investment results
that exceed the total return of publicly traded common stocks, in the aggregate,
as represented by the Standard & Poor's 500 Stock Index (the "S&P 500").
As its investment strategy, BSFM principally uses Standard & Poor's
("S&P") STock Appreciation Ranking System (or STARS) to identify a universe of
securities in the highest category (which is five stars) to evaluate for
purchase and in the lowest category (which is one star) to evaluate for short
selling. BSFM believes that this approach will provide opportunities to achieve
performance that exceeds the S&P 500's total return.
The Master Series' investment objective cannot be changed without
approval by the holders of a majority (as defined in the 1940 Act) of the Master
Series' outstanding voting securities.
There can be no assurance that the Master Series' investment objective
will be achieved.
STARS
STARS ranks on a scale from five stars (highest) to one star (lowest)
the stocks of approximately 1,100 issuers analyzed by S&P's research staff of
securities analysts. STARS represents the evaluation of S&P's analysts of the
short-term (up to 12 months) appreciation potential of the evaluated stocks. The
rankings are as follows:
***** Buy--Expected to be among the best
performers over the next 12 months and
to rise in price.
**** Accumulate--Expected to be an above-
average performer.
*** Hold--Expected to be an average
performer.
** Avoid--Expected to be a below-average
performer.
* Sell--Expected to be a well-below-
average performer and to fall in price.
STARS was introduced by S&P in January 1987. Since 1993, on average, the
five star category has consisted of approximately 95 stocks, the four star
category has consisted of approximately 375 stocks, the three star category has
consisted of approximately 525 stocks, the two star category has consisted of
approximately 100 stocks, and the one star category has consisted of between
approximately 14 and 23 stocks. Rankings may change frequently as developments
affecting individual securities and the markets are considered by the S&P
analysts.
For purposes of evaluating the performance of stocks in the various
categories--and thus of the performance of its analysts--S&P has created a model
which initially equally weights by dollar amount the stocks in the various
categories, does not rebalance the portfolio based on changes in values or
rankings and does not take into account dividends or transaction costs. STARS is
only a model; it does not reflect actual investment performance. While its
performance CANNOT be used to predict actual results, S&P believes it is useful
in evaluating the capability of its analysts. Investors should recognize that
the pool of S&P analysts changes and their past performance is not necessarily
predictive of future results either of the model or of the Master Series.
From January 1, 1987 through March 31, 1996:
o The S&P 500 (measured on a total return basis,
without dividend reinvestment)* increased by
166.55%.
o The ranked stocks, measured as described
above, changed in value as follows:
o Five stars - +353.64%
o Four stars - +220.18%
o Three stars - +146.37%
o Two stars - +116.87%
o One star - -36.83%
The Master Series believes that this information should be used by
investors only in their consideration that, historically, the five star stocks,
measured as described above, have significantly outperformed lower ranked stocks
and the one star stocks, similarly measured, have significantly underperformed
the higher ranked stocks. THIS INFORMATION SHOULD NOT BE USED TO PREDICT WHETHER
THE RESULTS WILL OCCUR IN THE FUTURE OR THE ACTUAL PERFORMANCE OF A PARTICULAR
CATEGORY. STARS performance has been more volatile than that of conventional
indices such as the Dow Jones Industrial Average and the S&P 500. In addition,
at times, lower ranked STARS categories have out-performed higher ranked STARS
categories and higher ranked STARS categories have under-performed the S&P 500.
Specifically, the performance of five star and one star stocks has not
consistently exceeded or fallen below the performance of the S&P 500. In some
years, one star stocks have outperformed the S&P 500 as well as five star
stocks; in other years, both one and five star stocks have outperformed the S&P
500. In 1994, one star stocks outperformed the S&P 500, which in turn
outperformed five star stocks. In 1995, the S&P 500 outperformed five star
stocks, which in turn outperformed one star stocks. Investors also should
consider that the Master Series is managed actively--and, thus, its performance
will depend materially on BSFM's investment determinations--and will incur
transaction and other costs, including management fees, which are not reflected
in the foregoing information.
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* During this period, the average dividend yields on securities
included in the S&P 500 and the securities ranked five STARS were
approximately 3.1% and 1.9%, respectively.
STARS is available to the public through various S&P publications. BSFM
has access to STARS through S&P's MarketScope, a computer-accessed subscription
service available for an annual fee, currently with more than 72,000
subscribers.
MANAGEMENT POLICIES
GENERAL--As its investment strategy, BSFM uses STARS to identify a universe of
securities in the five star category to evaluate for purchase and in the one
star category to evaluate for short selling. BSFM anticipates that at least 85%
of the value of the Master Series' total assets (except when maintaining a
temporary defensive position) will be invested in common stocks that, at their
time of purchase, were ranked as five stars in STARS or, at their time of short
sale, were ranked as one star in STARS. The Master Series may invest up to 15%
of its assets in common stocks without regard to STARS ranking, if BSFM believes
that such securities offer opportunities for capital appreciation. BSFM will not
seek to replicate STARS performance and will not necessarily sell a security
once it has been downgraded from five stars or cover a short position once it
has been upgraded from one star. From time to time, certain closed-end
investment companies are ranked by STARS and will be eligible for purchase by
the Master Series. The Master Series may invest, in anticipation of investing
cash positions and, without limitation, for temporary defensive purposes, in
money market instruments consisting of U.S. Government securities, certificates
of deposit, time deposits, bankers' acceptances, short-term investment grade
corporate bonds and other short-term debt instruments, and repurchase
agreements, as set forth in the Appendix.
The Master Series may engage in various investment techniques, such as
short selling, lending portfolio securities, and options transactions each of
which involves risk. Options transactions involve "derivative securities." For a
discussion of these investment techniques and their related risks, see
"Appendix--Investment Techniques" and "Risk Factors" below.
CERTAIN FUNDAMENTAL POLICIES
The Master Series may (i) borrow money to the extent permitted under the
1940 Act; and (ii) invest up to 25% of the value of its total assets in the
securities of issuers in a single industry, provided that there is no such
limitation on investments in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. This paragraph describes
fundamental policies that cannot be changed as to the Master Series without
approval by the holders of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Master Series. See Item 13, "Investment
Objective and Policies--Investment Restrictions" in Part B.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
The Master Series may (i) purchase securities of any company having less
than three years' continuous operation (including operations of any
predecessors) if such purchase does not cause the value of its investments in
all such companies to exceed 5% of the value of its total assets; (ii) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to secure
permitted borrowings; and (iii) invest up to 15% of the value of its net assets
in repurchase agreements providing for settlement in more than seven days after
notice and in other illiquid securities. See Item 13, "Investment Objective and
Policies--Investment Restrictions" in Part B.
RISK FACTORS
NET ASSET VALUE FLUCTUATIONS--The Master Series' net asset value is not fixed
and should be expected to fluctuate. Investors should purchase Master Series
shares only as a supplement to an overall investment program and only if
investors are willing to undertake the risks involved, including the potential
loss of a significant portion of their investment.
EQUITY SECURITIES--Investors should be aware that equity securities fluctuate in
value, often based on factors unrelated to the value of the issuer of the
securities, and that fluctuations can be pronounced. Changes in the value of the
common stocks in the Master Series' portfolio will result in
changes in the value of its shares and thus its yield and total
return to investors.
STARS PERFORMANCE--STARS rankings are the subjective determination of S&P's
analysts. The pool of these analysts changes. Past performance of securities and
issuers included in STARS cannot be used to predict future results of the Master
Series, which is managed actively by BSFM and the results of which should be
expected to vary from the performance of STARS.
None of the Master Series, Bear, Stearns & Co. Inc. ("Bear Stearns") or BSFM
have any ongoing relationship with S&P regarding the Master Series other than
the right for a fee to use the S&P, Standard & Poor's and STARS trademarks in
connection with the management of mutual funds and access to STARS through S&P's
publicly available subscription service.
CERTAIN INVESTMENT TECHNIQUES--The use of investment techniques, such as short
selling, lending portfolio securities and engaging in options transactions,
involves greater risk than that incurred by many other funds with a similar
objective.
See "Appendix--Investment Techniques."
Management believes that the Master Series has been managed during the
fiscal year ended March 31, 1996 so that any investment company that invested
all of its assets in the Master Series during such period qualified as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). The Master Series' ability to engage in certain short-term
transactions may be limited by the requirement that, for certain of its holders
of beneficial interests to qualify as a regulated investment company, it must
earn less than 30% of its gross income from the disposition of securities held
for less than three months. This 30% test limits the extent to which the Master
Series may sell securities held for less than three months, effect short sales
of securities held for less than three months, and write options expiring in
less than three months, among other strategies. Except for this requirement, the
amount of portfolio activity will not be a limiting factor when making portfolio
decisions. Under normal market conditions, the Master Series' portfolio turnover
rate generally will not exceed 150%. However, the portfolio turnover rate may
exceed this rate when BSFM believes the anticipated benefits of short-term
investments outweigh any increase in transaction costs or increase in short-term
gains. Higher portfolio turnover rates are likely to result in comparatively
greater brokerage commissions or transaction costs. See Item 17, "Brokerage
Allocation and Other Practices" in Part B.
NON-DIVERSIFIED STATUS--The Master Series' classification as a "non-diversified"
investment company means that the proportion of its assets that may be invested
in the securities of a single issuer is not limited by the 1940 Act. A
"diversified" investment company is required by the 1940 Act generally, with
respect to 75% of its total assets, to invest not more than 5% of such assets in
the securities of a single issuer and to hold not more than 10% of the
outstanding voting securities of a single issuer. However, the Master Series
intends to conduct its operations so as to satisfy the requirements for
qualification as a "regulated investment company" for purposes of the Code,
which requires that, at the end of each quarter of its taxable year, (i) at
least 50% of the market value of the Master Series' total assets be invested in
cash, U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Master Series' total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Master Series' assets may
be invested in the securities of a limited number of issuers, some of which may
be within the same industry or economic sector, the Master Series' portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified investment
company.
SIMULTANEOUS INVESTMENTS--Investment decisions for the Master Series are made
independently from those of other investment companies or accounts advised by
BSFM. However, if such other investment companies or accounts are prepared to
invest in, or desire to dispose of, securities of the type in which the Master
Series invests at the same time as the Master Series, available investments or
opportunities for sales will be allocated equitably to each. In some cases, this
procedure may adversely affect the size of the position obtained for or disposed
of by the Master Series or the price paid or received by the Master Series.
ITEM 5. MANAGEMENT OF THE MASTER FUND.
INVESTMENT ADVISER--The Master Series' investment adviser is BSFM, a
wholly-owned subsidiary of The Bear Stearns Companies Inc., which is located at
245 Park Avenue, New York, New York 10167. The Bear Stearns Companies Inc. is a
holding company which, through its subsidiaries including its principal
subsidiary, Bear Stearns, an affiliate of BSFM, is a leading United States
investment banking, securities trading and brokerage firm serving United States
and foreign corporations, governments and institutional and individual
investors. BSFM is a registered investment adviser and offers, either directly
or through affiliates, investment advisory and administrative services to
open-end and closed-end investment funds and other managed pooled investment
vehicles with assets at March 31, 1996 of over $1.9 billion.
BSFM acts as investment adviser of the Master Series' under
an Investment Advisory Agreement between BSFM and the Master
Fund, subject to the overall authority of the Master Fund's
Board of Trustees in accordance with Delaware law. The Master
Series' principal portfolio manager is Robert S. Reitzes. Mr.
Reitzes joined Bear Stearns Asset Management in 1994 as
Director of Mutual Funds--Bear Stearns Asset Management and
Senior Managing Director of Bear Stearns. From 1991 until
1994, he was Co-Director of Research and Senior Chemical Analyst at
C.J. Lawrence/Deutsche Bank Securities Corp. For six years
prior thereto, Mr. Reitzes was employed by Mabon, Nugent & Co.
as Chief Investment Officer and Chemical Analyst.
Under the terms of the Investment Advisory Agreement, the Master Fund
has agreed to pay BSFM a monthly fee at the annual rate of .75 of 1% of the
Master Series' average daily net assets. For the period from April 3, 1995
(commencement of operations) through March 31, 1996, no fees were paid by the
Master Fund pursuant to an undertaking by BSFM. The investment advisory fee
payable by the Master Series is higher than that paid by most other investment
companies. From time to time, BSFM may waive receipt of its fees and/or
voluntarily assume certain Master Series expenses, which would have the effect
of lowering the Master Series' expense ratio and increasing yield to investors
at the time such amounts are waived or assumed, as the case may be. The Master
Fund will not pay BSFM at a later time for any amounts it may waive, nor will
the Master Fund reimburse BSFM for any amounts it may assume.
Under the terms of an Administrative Services Agreement
with the Master Fund, PFPC International Ltd. provides certain
administrative services to the Master Series. For providing
these services, the Master Fund has agreed to pay PFPC
International Ltd. an annual fee, as set forth below:
Master Series' Annual Fee as a Percentage of
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
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First $200 million . . . . . . . . .12 of 1%
Next $200 up to $400 million. . . . .09 of 1%
Next $200 up to $600 million. . . . .075 of 1%
Assets in excess of $600 million. . .05 of 1%
The above-referenced fee is subject to a monthly minimum fee of $8,500.
From April 3, 1995 (commencement of operations) through March 31, 1996, the
Master Fund paid PFPC International Ltd. a monthly fee at the effective annual
rate of .12 of 1% of the Master Series' average daily net assets.
PLACEMENT AGENT--Bear, Stearns International Limited ("BSIL"), which is located
at 1 Canada Square, London E14 58D, England, and which is an affiliate of Bear
Stearns, serves as placement agent for the Master Series' shares.
CUSTODIAN AND TRANSFER AGENT--Custodial Trust Company, 101 Carnegie Center,
Princeton, New Jersey 08540, an affiliate of Bear Stearns, is the Master Series'
custodian. PFPC International Ltd., 80 Harcourt Street, Dublin 2, Ireland, is
the Master Series' transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides accounting services to the
Master Series.
EXPENSES--All expenses incurred in the operation of the Master Fund (and thus
the Master Series) are borne by the Master Fund (and thus the Master Series),
except to the extent specifically assumed by BSFM. The expenses borne by the
Master Fund include: organizational costs, taxes, interest, loan commitment
fees, interest and distributions paid on securities sold short, brokerage fees
and commissions, if any, fees of Trustees who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of BSFM
or its affiliates, Securities and Exchange Commission fees, advisory fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of independent pricing services, costs of maintaining the Master
Fund's existence, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of shareholders' reports
and meetings, and any extraordinary expenses.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Master Fund is organized as a trust under the laws of the State of
Delaware. Investors in the Master Fund will each be liable for all obligations
of the Master Fund. However, the risk of an investor incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Master Fund itself was unable to meet its obligations.
To date, the Board of Trustees has authorized the creation of one
series. All consideration received by the Master Fund for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Master Fund) and
will be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of any other
series. The Master Fund has the ability to create, from time to time, new series
without shareholder approval.
At the date of this Part A, the S&P STARS Portfolio of The Bear Stearns
Funds owned 99.9% of the Master Series' outstanding shares, and therefore, may
be deemed to control the Master Series.
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency. The net
asset
value of funds of this type will fluctuate.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Master Fund to hold annual meetings of shareholders. As a
result, shareholders may not consider each year the election of Trustees or the
appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Master Fund to hold a special
meeting of shareholders for purposes of removing a Trustee from office. Master
Fund shareholders may remove a Trustee by the affirmative vote of a majority of
the Master Fund's outstanding voting shares. In addition, the Board of Trustees
will call a meeting of shareholders for the purpose of electing Trustees if, at
any time, less than a majority of the Trustees then holding office have been
elected by shareholders.
Investments in the Master Series may not be transferred, but an investor may
withdraw all or any portion of its investment at any time at net asset value.
Under the Master Fund's anticipated method of operation as a
partnership, the Master Series will not be subject to any income tax. However,
each investor in the Master Series will be taxable on its share (as determined
in accordance with the governing instruments of the Master Fund) of the Master
Series' ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Code and regulations promulgated thereunder.
The Master Series is not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to shareholders of
the Master Series or any member of the public regarding the advisability of
investing in the Master Series. S&P's only ongoing relationship with Bear
Stearns and its affiliates is the licensing for a fee of certain S&P trademarks
and trade names and the provision of access to the STARS ranking system through
a publicly available subscription service of S&P. This license is terminable
under circumstances generally described in Item 18, "Capital Stock and Other
Securities" in Part B of the Master Series. BSFM will have no greater access to
STARS than any other subscriber to MarketScope. S&P has no obligation to take
the needs of Bear Stearns and its affiliates or shareholders of the Master
Series into consideration in operating the STARS system. S&P is not responsible
for and has not participated in the determination of the securities to be
purchased by the Master Series. S&P has advised that its Equity Services Group,
which publishes STARS, operates independently of, and has no access to
information obtained by, Standard & Poor's Ratings Services, which may in its
regular operations obtain information of a confidential nature.
Shareholder inquiries may be made by writing to the Fund at PFPC
International Ltd., Attention: S&P STARS Master Series, 80 Harcourt Street,
Dublin 2, Ireland or by calling (353) 1 790 3500.
ITEM 7. PURCHASE OF SECURITIES.
Beneficial interests in the Master Series are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Master Series may be
made only by investment companies or certain other entities which are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This registration statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
Shares of the Master Series are sold on a continuous basis at the net
asset value per share next determined after an order in proper form is received
by the Transfer Agent. Net asset value per share is determined as of the close
of trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New
York time), on each business day. Net asset value per share is computed by
dividing the value of the Master Series' net assets (I.E., the value of its
assets less liabilities) by the total number of its shares outstanding. The
Master Series' investments are valued based on market value or, where market
quotations are not readily available, based on fair value as determined in good
faith by, or in accordance with procedures established by, the Master Fund's
Board of Trustees. For further information regarding the methods employed in
valuing the Master Series' investments, see Item 19, "Purchase, Redemption and
Pricing of Securities," in Part B.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Master Fund may withdraw all or any portion of its
investment on any business day at the net asset value next determined after a
withdrawal request in proper form is furnished by the investor to the Transfer
Agent. When a request is received in proper form, the Master Fund will redeem
the shares at the next determined net asset value.
The Master Fund will make payment for all shares redeemed within five
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
Investments in the Master Series may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted, or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
APPENDIX
The following is a discussion of the investment techniques used, and
certain securities purchased, by the Master Series.
INVESTMENT TECHNIQUES--In connection with its investment objective and policies,
the Master Series may employ, among others, the following investment techniques
which may involve certain risks. Options transactions involve "derivative
securities."
SHORT SELLING--Short sales are transactions in which the Master Series sells a
security it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, the Master Series must borrow the
security to make delivery to the buyer. The Master Series then is obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Master Series. Until the security is
replaced, the Master Series is required to pay to the lender amounts equal to
any dividend which accrues during the period of the loan. To borrow the
security, the Master Series also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed out.
Until the Master Series replaces a borrowed security in connection with
a short sale, the Master Series will: (a) maintain daily a segregated account,
containing cash, cash equivalents or U.S. Government securities, at such a level
that the amount deposited in the account plus the amount deposited with the
broker as collateral always equals the current value of the security sold short;
or (b) otherwise cover its short position in accordance with positions taken by
the Staff of the Securities and Exchange Commission.
The Master Series will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale and the date
on which the Master Series replaces the borrowed security. The Master Series
will realize a gain if the security declines in price between those dates. This
result is the opposite of what one would expect from a cash purchase of a long
position in a security. The amount of any gain will be decreased, and the amount
of any loss increased, by the amount of any premium or amounts in lieu of
interest the Master Series may be required to pay in connection with a short
sale. The Master Series may purchase call options to provide a hedge against an
increase in the price of a security sold short by the Master Series. See
"Options Transactions" below.
The Master Series anticipates that the frequency of short sales will
vary substantially in different periods, and it does not intend that any
specified portion of its assets, as a matter of practice, will be invested in
short sales. However, no securities will be sold short if, after effect is given
to any such short sale, the total market value of all securities sold short
would exceed 25% of the value of the Master Series' net assets. The Master
Series may not sell short the securities of any single issuer listed on a
national securities exchange to the extent of more than 5% of the value of its
net assets. The Master Series may not sell short the securities of any class of
an issuer to the extent, at the time of the transaction, of more than 2% of the
outstanding securities of that class.
In addition to the short sales discussed above, the Master Series may
make short sales "against the box," a transaction in which the Master Series
enters into a short sale of a security which the Master Series owns. The
proceeds of the short sale will be held by a broker until the settlement date at
which time the Master Series delivers the security to close the short position.
The Master Series receives the net proceeds from the short sale. The Master
Series at no time will have more than 15% of the value of its net assets in
deposits on short sales against the box. It currently is anticipated that the
Master Series will make short sales against the box for purposes of protecting
the value of the Master Series' net assets.
OPTIONS TRANSACTIONS--The Master Series may write and sell covered call option
contracts to the extent of 20% of the value of its net assets at the time such
option contracts are written and may purchase call options to close such
positions. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying security at the exercise price at
any time during the option period.
The Master Series may purchase call and put options on stock indexes
listed on U.S. securities exchanges. A stock index fluctuates with changes in
the market values of the stocks included in the index. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Master Series will realize a gain or
loss from purchasing options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the price of a
particular stock.
The Master Series is permitted to invest in put options in respect of
specific securities (or groups or "baskets" of specific securities) in which the
Master Series may invest. A put option gives the purchaser of the option the
right to sell, and obligates the writer to buy, the underlying security at the
exercise price at any time during the option period.
The Master Series may not invest more than 5% of its assets, represented
by the premium paid, in the purchase of options at any one time.
Successful use by the Master Series of options will be subject to BSFM's
ability to predict correctly movement in the direction of individual stocks or
the stock market generally. To the extent BSFM's predictions are incorrect, the
Master Series may incur losses which could adversely affect the value of a
shareholder's investment.
LENDING PORTFOLIO SECURITIES--From time to time, the Master Series may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. Such
loans may not exceed 33-1/3% of the value of its total assets. In connection
with such loans, the Master Series will receive collateral consisting of cash,
U.S. Government securities or irrevocable letters of credit which will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Master Series can increase its income
through the investment of such collateral. The Master Series continues to be
entitled to payments in amounts equal to the interest, dividends and other
distributions payable on the loaned security and receives interest on the amount
of the loan. Such loans will be terminable at any time upon specified notice.
The Master Series might experience risk of loss if the institution with which it
has engaged in a portfolio loan transaction breaches its agreement with the
Master Series.
BORROWING MONEY--As a fundamental policy, the Master Series is permitted to
borrow to the extent permitted under the 1940 Act.
The 1940 Act permits an investment company to borrow in an amount up to 33-1/3%
of the value of such company's total assets. However, the Master Series
currently intends to borrow money only for temporary or emergency (not
leveraging) purposes, in an amount up to 15% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of its total assets, the Master Series will not
make any additional investments.
CERTAIN PORTFOLIO SECURITIES
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS--The Master Series'
assets may be invested in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs"). These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. The Master Series may invest in ADRs through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depositary, whereas a depositary may
establish an unsponsored facility without participation by the issuer of the
deposited security. Holders of unsponsored depositary receipts generally bear
all the costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
MONEY MARKET INSTRUMENTS
The Master Series may invest, in the circumstances described under
"General Description of Registrant--Management Policies," in the following types
of money market instruments, each of which at the time of purchase must have or
be deemed to have under rules of the Securities and Exchange Commission
remaining maturities of 13 months or less.
U.S. GOVERNMENT SECURITIES--The Master Series may purchase securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, which
include U.S. Treasury securities that differ in their interest rates, maturities
and times of issuance. Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. These
securities bear fixed, floating or variable rates of interest. Principal and
interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance can
be given that it will always do so, because it is not so obligated by law.
BANK OBLIGATIONS--The Master Series may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, the Master
Series may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations of
U.S. domestic issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities and
the possible seizure or nationalization of foreign deposits.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Master Series will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. The Master Series
will not invest more than 15% of the value of its net assets in time deposits
maturing in more than seven days and in other securities that are illiquid.
Bankers' acceptances are credit instruments evidencing the obligation of
a bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
REPURCHASE AGREEMENTS--Repurchase agreements involve the acquisition by the
Master Series of an underlying debt instrument, subject to an obligation of the
seller to repurchase, and the Master Series to resell, the instrument at a fixed
price usually not more than one week after its purchase.
Certain costs may be incurred by the Master Series in connection with the sale
of the securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, realization on the securities by the
Master Series may be delayed or limited.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS-- Commercial paper
consists of short-term, unsecured promissory notes issued to finance short-term
credit needs. The commercial paper purchased by the Master Series will consist
only of direct obligations which, at the time of their purchase, are (a) rated
not lower than Prime-1 by Moody's Investors Service Inc. ("Moody's"), A-1 by the
S&P Ratings Group (which operates separately from and independently of S&P's
Equity Services Group, which publishes STARS), F-1 by Fitch Investors Service,
L.P. ("Fitch") or Duff-1 by Duff & Phelps Credit Rating Co. ("Duff"), (b) issued
by companies having an outstanding unsecured debt issue currently rated not
lower than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated,
determined by BSFM to be of comparable quality to those rated obligations which
may be purchased by the Master Series. The Master Series may purchase floating
and variable rate demand notes and bonds, which are obligations ordinarily
having stated maturities in excess of one year, but which permit the holder to
demand payment of principal at any time or at specified intervals.
INVESTMENT COMPANY SECURITIES--The Master Series may invest in securities issued
by other investment companies which are ranked by STARS. Under the 1940 Act, the
Master Series' investment in such securities currently is limited to, subject to
certain exceptions, (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Master Series' total assets with respect to any one
investment company and (iii) 10% of the Master Series' total assets in the
aggregate. Investments in the securities of other investment companies will
involve duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES--The Master Series may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with its investment objective. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale and repurchase agreements providing for settlement in more than seven
days after notice. As to these securities, the Master Series is subject to a
risk that should it desire to sell them when a ready buyer is not available at a
price it deems representative of their value, the value of its net assets could
be adversely affected.
<PAGE>
S&P STARS FUND
S&P STARS Master Series
PART B
June 20, 1996
ITEM 10. COVER PAGE.
This Part B, which is not a prospectus, supplements and should be read
in conjunction with the current Part A of S&P STARS Master Series (the "Master
Series"), a portfolio of S&P STARS Fund (the "Master Fund"), dated June 20,
1996, as it may be revised from time to time. To obtain a copy of Part A of the
Master Series, please write to the Master Fund at PFPC International Ltd.,
Attention: S&P STARS Master Series, 80 Harcourt Street, Dublin 2, Ireland or
call (353) 1 790 3500.
ITEM 11. TABLE OF CONTENTS.
PAGE
General Information and History................... B-1
Investment Objective and Policies................. B-1
Management of the Master Fund..................... B-10
Control Persons and Principal Holders of
Securities...................................... B-11
Investment Advisory and Other Services............ B-12
Brokerage Allocation and Other Practices.......... B-13
Capital Stock and Other Securities................ B-14
Purchase, Redemption and Pricing of
Securities...................................... B-16
Tax Status........................................ B-17
Underwriters...................................... B-18
Calculations of Performance Data.................. B-18
Financial Statements.............................. B-18
Report of Independent Auditors.................... B-28
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH ITEM 4 IN PART A.
INVESTMENT OBJECTIVE. The Master Fund is an open-end, management
investment company known as a mutual fund. By this offering document, the Master
Fund is offering the Master Series, a non-diversified fund.
The Master Series' investment objective is set forth in Item 4,
"General Description of Registrant--Investment Objective," of Part A. There can
be no assurance that the investment objective of the Master Series will be
achieved. The Master Series' investment objective cannot be changed without
approval by the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of such Master Series' outstanding voting
shares.
Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned subsidiary
of The Bear Stearns Companies Inc., serves as the Master Series' investment
adviser. Bear, Stearns International Limited ("BSIL") serves as the Master
Series' placement agent.
PORTFOLIO SECURITIES
BANK OBLIGATIONS. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System and to have their deposits insured
by the Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks
organized under state law are supervised and examined by state banking
authorities but are members of the Federal Reserve System only if they elect to
join. In addition, state banks whose certificates of deposit ("CDs") may be
purchased by the Master Series are insured by the FDIC (although such insurance
may not be of material benefit to the Master Series, depending on the principal
amount of the CDs of each bank held by the Master Series) and are subject to
Federal examination and to a substantial body of Federal law and regulation. As
a result of Federal or state laws and regulations, domestic branches of domestic
banks whose CDs may be purchased by the Master Series generally are required,
among other things, to maintain specified levels of reserves, are limited in the
amounts which they can loan to a single borrower and are subject to other
regulation designed to promote financial soundness. However, not all of such
laws and regulations apply to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries
of domestic banks and domestic and foreign branches of foreign banks, such as
CDs and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a designated
bank within the state, a certain percentage of their assets as fixed from time
to time by the appropriate regulatory authority; and (2) maintain assets within
the state in an amount equal to a specified percentage of the aggregate amount
of liabilities of the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of Federal and State Branches generally
must be insured by the FDIC if such branches take deposits of less than
$100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, BSFM carefully evaluates such investments on a case-by-case
basis.
REPURCHASE AGREEMENTS. The Master Series' custodian or sub-custodian
will have custody of, and will hold in a segregated account, securities acquired
by the Master Series under a repurchase agreement. Repurchase agreements are
considered by the staff of the Securities and Exchange Commission to be loans by
the Master Series. In an attempt to reduce the risk of incurring a loss on a
repurchase agreement, the Master Series will enter into repurchase agreements
only with domestic banks with total assets in excess of one billion dollars, or
primary government securities dealers reporting to the Federal Reserve Bank of
New York, with respect to securities of the type in which the Master Series may
invest, and will require that additional securities be deposited with it if the
value of the securities purchased should decrease below the resale price. BSFM
will monitor on an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. The Master Series will consider
on an ongoing basis the creditworthiness of the institutions with which it
enters into repurchase agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE Obligations. Variable
rate demand notes include variable amount master demand notes, which are
obligations that permit the Master Series to invest fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the Master
Series, as lender, and the borrower. These notes permit daily changes in the
amounts borrowed. As mutually agreed between the parties, the Master Series may
increase the amount under the notes at any time up to the full amount provided
by the note agreement, or decrease the amount, and the borrower may repay up to
the full amount of the note without penalty. Because these obligations are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest, at any time. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Master Series' right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. In connection with
floating and variable rate demand obligations, BSFM will consider, on an ongoing
basis, earning power, cash flow and other liquidity ratios of the borrower, and
the borrower's ability to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies, and the Master Series may
invest in them only if at the time of an investment the borrower meets the
criteria set forth in the Prospectus for other commercial paper issuers.
ILLIQUID SECURITIES. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are not readily marketable, the Master Series will endeavor to obtain the right
to registration at the expense of the issuer. Generally, there will be a lapse
of time between the Master Series' decision to sell any such security and the
registration of the security permitting sale. During any such period, the price
of the securities will be subject to market fluctuations. However, if a
substantial market of qualified institutional buyers develops for certain
unregistered securities purchased by the Master Series pursuant to Rule 144A
under the 1933 Act, as amended, it intends to treat them as liquid securities in
accordance with procedures approved by the Master Fund's Board of Trustees.
Because it is not possible to predict with assurance how the market for
restricted securities pursuant to Rule 144A will develop, the Master Fund's
Board of Trustees has directed BSFM to monitor carefully the Master Series'
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information. To
the extent that, for a period of time, qualified institutional buyers cease
purchasing restricted securities pursuant to Rule 144A, the Master Series'
investing in such securities may have the effect of increasing the level of
illiquidity in the Master Series during such period.
MANAGEMENT POLICIES
OPTIONS TRANSACTIONS. The Master Series may engage in options
transactions of the type described in the Appendix, "Investment
Techniques--Options Transactions" in Part A of the Master Series.
The principal reason for writing covered call options, which are call
options with respect to which the Master Series owns the underlying security or
securities, is to realize, through the receipt of premiums, a greater return
than would be realized on the Master Series' securities alone. Similarly, the
principal reason for writing covered put options is to realize income in the
form of premiums. In return for a premium, the writer of a covered call option
forfeits the right to any appreciation in the value of the underlying security
above the strike price for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call writer retains the risk of
a decline in the price of the underlying security. The size of the premiums that
the Master Series may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase their
option-writing activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
time the options are written. In the case of call options, these exercise prices
are referred to as "in-the-money," "at-the-money" and "out-of-the- money,"
respectively. The Master Series may write (a) in-the- money call options when
BSFM expects that the price of the underlying security will remain stable or
decline moderately during the option period, (b) at-the-money call options when
BSFM expects that the price of the underlying security will remain stable or
advance moderately during the option period and (c) out-of-the-money call
options when BSFM expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-money put options (the
reverse of call options as to the relation of exercise price to market price)
may be utilized in the same market environments that such call options are used
in equivalent transactions.
So long as the Master Series' obligation as the writer of an option
continues, it may be assigned an exercise notice by the broker-dealer through
which the option was sold, requiring the Master Series to deliver, in the case
of a call, or take delivery of, in the case of a put, the underlying security
against payment of the exercise price. This obligation terminates when the
option expires or the Master Series effects a closing purchase transaction. The
Master Series can no longer effect a closing purchase transaction with respect
to an option once it has been assigned an exercise notice.
While it may choose to do otherwise, the Master Series generally will
purchase or write only those options for which BSFM believes there is an active
secondary market so as to facilitate closing transactions. There is no assurance
that sufficient trading interest to create a liquid secondary market on a
securities exchange will exist for any particular option or at any particular
time, and for some options no such secondary market may exist. A liquid
secondary market in an option may cease to exist for a variety of reasons. In
the past, for example, higher than anticipated trading activity or order flow,
or other unforeseen events, at times have rendered certain clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that otherwise may interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. If as a covered call option
writer the Master Series is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise or it
otherwise covers its position.
STOCK INDEX OPTIONS. The Master Series may engage in stock index option
transactions of the type described in the Appendix, "Investment
Techniques--Options Transactions" in Part A of the Master Series. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
Options on stock indexes are similar to options on stock except that
(a) the expiration cycles of stock index options are generally monthly, while
those of stock options are currently quarterly, and (b) the delivery
requirements are different. Instead of giving the right to take or make delivery
of a stock at a specified price, an option on a stock index gives the holder the
right to receive a cash "exercise settlement amount" equal to (i) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (ii) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option. The amount
of cash received will be equal to such difference between the closing price of
the index and the exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
LENDING PORTFOLIO SECURITIES. To a limited extent, the Master Series
may lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, the Master Series
can increase its income through the investment of the cash collateral. For
purposes of this policy, the Master Series considers collateral consisting of
U.S. Government securities or irrevocable letters of credit issued by banks
whose securities meet the standards for investment by the Master Series to be
the equivalent of cash. From time to time, the Master Series may return to the
borrower or a third party which is unaffiliated with the Master Series, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (1)
the Master Series must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Master Series must
be able to terminate the loan at any time; (4) the Master Series must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; (5) the Master Series may pay only reasonable custodian fees in
connection with the loan; and (6) while voting rights on the loaned securities
may pass to the borrower, the Master Fund's Board of Trustees must terminate the
loan and regain the right to vote the securities if a material event adversely
affecting the investment occurs. These conditions may be subject to future
modification.
INVESTMENTS IN WARRANTS. The Master Series does not presently intend to
invest in warrants. However, any future investment in warrants will be limited
to 5% of its net assets, except that this limitation does not apply to warrants
acquired in units or attached to securities. Included in such amount, but not to
exceed 2% of the value of its net assets, may be warrants which are not listed
on the New York or American Stock Exchange.
INVESTMENT RESTRICTIONS. The Master Series has adopted investment
restrictions numbered 1 through 10 as fundamental policies. These restrictions
cannot be changed, as to the Master Series, without approval by the holders of a
majority (as defined in the 1940 Act) of the Master Series' outstanding voting
securities. Investment restrictions numbered 11 through 14 are not fundamental
policies and may be changed by vote of a majority of the Trustees of the Master
Fund at any time. The Master Series may not:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
2. Invest in commodities, except that each may purchase and sell
options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
3. Purchase, hold or deal in real estate, real estate limited
partnership interests, or oil, gas or other mineral leases or exploration or
development programs, but each may purchase and sell securities that are secured
by real estate or issued by companies that invest or deal in real estate or real
estate investment trusts.
4. Borrow money, except to the extent permitted under the 1940 Act. The
1940 Act permits an investment company to borrow in an amount up to 33-1/3% of
the value of such company's total assets. For purposes of this Investment
Restriction, the entry into options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or indexes
shall not constitute borrowing.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the Master
Fund's Board of Trustees.
6. Act as an underwriter of securities of other issuers, except to the
extent each may be deemed an underwriter under the 1933 Act, as amended, by
virtue of disposing of portfolio securities.
7. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act).
8. Purchase securities on margin, but each may make margin deposits in
connection with transactions in options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes.
9. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) if such purchase
would cause the value of the Master Series' investments in all such companies to
exceed 5% of the value of its total assets.
10. Invest in the securities of a company for the purpose of exercising
management or control, but each will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
12. Purchase, sell or write puts, calls or combinations thereof, except
as described in the Master Fund's offering documents.
13. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of its net assets would be so
invested.
14. Purchase securities of other investment companies,
except to the extent permitted under the 1940 Act.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
The Master Fund may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Master Series' shares in
certain states. Should the Master Fund determine that a commitment is no longer
in the best interest of the Master Series and its shareholders, the Master Fund
reserves the right to revoke the commitment by terminating the sale of Master
Series shares in the state involved.
ITEM 14. MANAGEMENT OF THE MASTER FUND.
Trustees and officers of the Master Fund, together with information as
to their principal business occupations during at least the last five years, are
shown below. Each Trustee who is an "interested person" of the Master Fund, as
defined in the 1940 Act, is indicated by an asterisk.
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION
(AND AGE) WITH FUND DURING PAST FIVE YEARS
John J. Danilovich (45) Trustee Chairman and Principal of
32 Blomfield Road Danilovich & Company,
London, W9 1AA merchants bankers.
England
Robert S. Reitzes* (51) Chairman of Described above.
245 Park Avenue the Board
New York, NY 10167
Vincent Anthony Walsh (69) Trustee Consultant of Arthur Cox,
41-45 St. Stephen's a law firm in Dublin,
Green since 1993, Senior Partner
Dublin 2 of Arthur Cox prior thereto.
Ireland
Barry Nix (36) President Senior Managing Director of
1 Canada Square Fixed Income Sales of
London E14 58D BSIL since 1991; Managing
England Director of BSIL prior
thereto.
James Fergus McKeon (36) Treasurer General Manager of PFPC
Jordanstown and Secretary International Ltd. since
Oldtown September 1993; Chief
Dublin Accountant of Swiss
Ireland Bank Corporation Ireland from
1990 to 1993.
The Master Fund pays its non-affiliated Board members an annual retainer
of $5,000 and a per meeting fee of $500 and reimburses them for their expenses.
The Master Fund does not compensate its officers. The aggregate amount of
compensation paid to each Board member by the Master Fund and by all other funds
in the Bear Stearns Family of Funds for which such person is a Board member (the
number of which is set forth in the parenthesis next to each Board member's
total compensation) for the fiscal year ended March 31, 1996 is as follows:
<TABLE>
<CAPTION>
(3) (5)
Pension or Total
(2) Retirement Benefits (4) Compensation from
(1) Aggregate Accrued as Part of Estimated Annual Master Fund and Fund
Name of Board Compensation Master Fund's Benefits Upon Complex Paid to
MEMBER from Master FUND* EXPENSES RETIREMENT BOARD MEMBERS
<S> <C> <C> <C> <C>
John J. Danilovich $7,000 None None $7,000 (1)
Vincent Anthony Walsh $7,000 None None $7,000 (1)
Robert S. Reitzes None None None None (2)
- ---------------------
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $2,113 for Board members of the Master Fund,
as a group.
</TABLE>
No meetings of shareholders of the Master Fund ordinarily will be held
for the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office will call a shareholders' meeting for the
election of Trustees. Under the 1940 Act, shareholders of record of not less
than two-thirds of the outstanding shares of the Master Fund may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. Under the Master Fund's Declaration of
Trust, the Trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any such Trustee when
requested in writing to do so by the shareholders of record of not less than 10%
of the Master Fund's outstanding shares.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
No Board member or officer of the Master Fund owned any of the Master
Series' shares outstanding on May 31, 1996.
As of May 31, 1996, the following shareholders beneficially owned,
directly or indirectly, 5% or more of the Master Series' outstanding shares:
Percent of Master
Series Shares
NAME AND ADDRESS OUTSTANDING
S&P STARS Portfolio 99.9%
c/o PFPC Inc.
P.O. Box 8960
Wilmington, Delaware 19899-8960
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH ITEM 5 IN PART A.
INVESTMENT ADVISORY AGREEMENT. BSFM provides investment advisory
services to the Master Series pursuant to the Investment Advisory Agreement (the
"Agreement") dated February 23, 1995, with the Master Fund. The Agreement is
subject to annual approval by (i) the Master Fund's Board of Trustees or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Master Series, provided that in either event the continuance
also is approved by a majority of the Master Fund's Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Master Fund or
BSFM, by vote cast in person at a meeting called for the purpose of voting on
such approval. The Master Fund's Board of Trustees, including a majority of the
Trustees who are not "interested persons" of any party to the Agreement, last
approved the Agreement at a meeting held on February 23, 1995. The Agreement is
terminable on 60 days' notice, by the Master Fund's Board of Trustees or by vote
of the holders of a majority of the Master Series' shares, or, on not less than
90 days' notice, by BSFM. The Agreement will terminate automatically in the
event of its assignment (as defined in the 1940 Act).
Under the terms of the Investment Advisory Agreement, the Master Fund
has agreed to pay BSFM a monthly fee at the annual rate of .75 of 1% of the
Master Series' average daily net assets. For the period from April 3, 1995
(commencement of operations) through March 31, 1996, the investment advisory fee
payable amounted to $384,779. This amount was waived pursuant to an undertaking
by BSFM, resulting in no fees being paid by the Master Series.
ADMINISTRATIVE SERVICES AGREEMENT. PFPC International Ltd. provides
certain administrative services to the Master Series pursuant to the
Administrative Services Agreement dated February 23, 1995, with the Master Fund.
PFPC International Ltd. may delegate any of its functions and duties under the
terms of the Administrative Services Agreement to any person, provided that such
appointment shall first be approved in writing by the Master Fund. For the
period from April 3, 1995 (commencement of operations) through March 31, 1996,
the administrative fee payable amounted to $102,000. This amount was reduced to
$61,620 as a result of a waiver of fees by PFPC International Ltd.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
BSFM assumes general supervision over placing orders on behalf of the
Master Series for the purchase or sale of investment securities. Allocation of
brokerage transactions, including their frequency, is made in BSFM's best
judgment and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders at the most favorable net price.
Subject to this consideration, the brokers selected will include those that
supplement BSFM's research facilities with statistical data, investment
information, economic facts and opinions. Information so received is in addition
to and not in lieu of services required to be performed by BSFM and BSFM's fees
are not reduced as a consequence of the receipt of such supplemental
information.
Such information may be useful to BSFM in serving both the Master Series
and other funds which it advises and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to BSFM in
carrying out their obliga- tions to the Master Series. Sales of Master Series
shares by a broker may be taken into consideration, and brokers also will be
selected because of their ability to handle special executions such as are
involved in large block trades or broad distributions, provided the primary
consideration is met. Large block trades may, in certain cases, result from two
or more funds advised or administered by BSFM being engaged simultaneously in
the purchase or sale of the same security. When transactions are executed in the
over-the-counter market, the Master Series will deal with the primary market
makers unless a more favorable price or execution otherwise is obtainable.
Portfolio turnover may vary from year to year as well as within a year.
The turnover rate for the Master Series for the period April 3, 1995
(commencement of operations) through March 31, 1996 was 296%. The portfolio
turnover rate differed from the anticipated portfolio turnover rate because of
market volatility in the last quarter of 1995 and first month of 1996. BSFM
repositioned the Master Series' portfolio by selling some of its technology
stocks and purchasing stocks that were believed to be more defensive in nature,
such as healthcare, consumer non- durables, and growth stocks. In periods in
which extraordinary market conditions prevail, BSFM will not be deterred from
changing investment strategy as rapidly as needed, in which case higher turnover
rates can be anticipated which would result in greater brokerage expenses. The
overall reasonableness of brokerage commissions paid is evaluated by BSFM based
upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the Securities and Exchange Commission
thereunder, the Board of Trustees has determined that transactions for the
Master Series may be executed through Bear, Stearns & Co. Inc. ("Bear Stearns")
if, in the judgment of BSFM, the use of Bear Stearns is likely to result in
price and execution at least as favorable as those of other qualified
broker-dealers, and if, in the transaction, Bear Stearns charges the Master
Series a rate consistent with that charged to comparable unaffiliated customers
in similar transactions. In addition, under rules recently adopted by the
Securities and Exchange Commission, Bear Stearns may directly execute such
transactions for the Master Series on the floor of any national securities
exchange, provided (i) the Board of Trustees has expressly authorized Bear
Stearns to effect such transactions, and (ii) Bear Stearns annually advises the
Board of Trustees of the aggregate compensation it earned on such transactions.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere.
For the period April 3, 1995 (commencement of operations) through March
31, 1996, the Master Series paid total brokerage commissions of $415,246, of
which $378,353 was paid to Bear Stearns. The Master Series paid 91.10% of its
commissions to Bear Stearns, and, with respect to all the securities
transactions for the Master Series, 90.60% of the transactions involved
commissions being paid to Bear Stearns.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH ITEM 6 IN PART A.
Bear Stearns and S&P entered into a License Agreement dated October 1,
1994 that provides for, among other matters: (i) the grant by S&P to Bear
Stearns of the exclusive right until March 31, 2001, and the non-exclusive right
thereafter, to use certain of S&P's proprietary trade names and trademarks for
investment companies based, in whole or in part, on the STARS System, (ii) such
right to become non-exclusive at an earlier date, if the Master Series and
certain other investment companies which, in the future, may be sponsored by
Bear Stearns fail to reach certain aggregate asset sizes, measured annually
commencing on April 1, 1996, (iii) such right to terminate at S&P's option upon
certain events, such as breach by Bear Stearns of the material terms of the
License Agreement, S&P ceasing to publish STARS, the adoption of adverse
legislation or regulation (none of which currently is foreseen) affecting S&P's
ability to license its trade names or trademarks as contemplated by the License
Agreement, or the existence of certain litigation (none of which is known to
exist or to be threatened), (iv) the payment by Bear Stearns of annual license
fees in amounts equal to a range of .30% to .375% of the net assets of the
Master Series and other investment companies subject to the License Agreement
and (v) a partial reduction of the license fees to offset certain marketing
expenses incurred by Bear Stearns in connection with the Master Series.
STARS is the centerpiece of the OUTLOOK, S&P's flagship investment
newsletter that has a high net worth readership of 25,000 weekly subscribers.
STARS reaches more than 72,000 brokers and investment professionals on their
desktop computers through MARKETSCOPE, S&P's on-line, real-time equity
evaluation service, which is accessed more than one million times daily.
S&P has more than 130 years' experience in providing financial
information and analysis, offers more than 60 products and employs more than 50
experienced equity analysts. These analysts consider fundamental factors that
are expected to impact growth. These factors include company operations and
industry and macroeconomic conditions. Among the fundamental factors are the
company's balance sheet, ability to finance growth, competitive market
advantages, earnings per share growth and strength of management.
Under the Declaration of Trust, the Trustees are authorized to issue
shares of beneficial interests in the Master Series. Investors in the Master
Series are entitled to participate pro rata in distributions of income, loss,
gain and credit of the Master Series. Upon liquidation or dissolution of the
Master Series, investors are entitled to share pro rata in the Master Series'
net assets available for distribution to its investors. Investments in the
Master Series have no preference, pre- exemptive, conversion or similar rights
and are fully paid and non-assessable, except as set forth below. Investments in
the Master Series may not be transferred. No certificates are issued.
Each investor is entitled to a vote, with respect to matters effecting
each of the Master Fund's series, in proportion to the amount of its investment
in the Master Fund. Investors in the Master Fund do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial interest
in the Master Fund may elect all of the Trustees of the Master Fund if they
choose to do so and in such event the other investors in the Master Fund would
not be able to elect any Trustee. The Master Fund is not required to hold annual
meetings of investors but the Master Fund will hold special meetings of
investors when in the judgment of the Master Fund's Trustees it is necessary or
desirable to submit matters for an investor vote.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
company, such as the Master Fund, will not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of the Master Series affected by such matter.
Rule 18f-2 further provides that the Master Series shall be deemed to be
affected by a matter unless it is clear that the interests of the Master Series
in the matter are identical or that the matter does not affect any interest of
the Master Series. However, the Rule exempts the selection of independent
accountants and the election of Trustees from the separate voting requirements
of the Rule.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH ITEMS 7 AND 8 IN PART A.
PURCHASE OF SECURITIES. Beneficial interests in the Master Series are
issued solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Investments in the
Master Series may only be made by investment companies or certain other entities
which are "accredited investors" within the meaning of Regulation D under the
1933 Act. This registration statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
SUSPENSION OF REDEMPTIONS. The right of redemption of Master Series
shares may be suspended or the date of payment postponed (a) during any period
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings), (b) when trading in the markets the Master Series ordinarily
utilizes is restricted, or when an emergency exists as determined by the
Securities and Exchange Commission so that disposal of the Master Series'
investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit to protect the Master Series' shareholders.
PRICING OF SECURITIES. Portfolio securities, including covered call options
written by the Master Series, are valued at the last sale price on the
securities exchange or national securities market on which such securities
primarily are traded. Securities not listed on an exchange or national
securities market, or securities in which there were no transactions, are valued
at the average of the most recent bid and asked prices, except in the case of
open short positions where the asked price is used for valuation purposes. Bid
price is used when no asked price is available. Short-term investments are
carried at amortized cost, which approximates value. Any securities or other
assets for which recent market quotations are not readily available are valued
at fair value as determined in good faith by the Master Fund's Board of
Trustees. Expenses and fees, including the management fee, are accrued daily and
taken into account for the purpose of determining the net asset value of Master
Series' shares.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Board of Trustees, are valued at fair value as
determined in good faith by the Board of Trustees. The Board of Trustees will
review the method of valuation on a current basis. In making their good faith
valuation of restricted securities, the Trustees generally will take the
following factors into consideration: restricted securities which are, or are
convertible into, securities of the same class of securities for which a public
market exists usually will be valued at market value less the same percentage
discount at which purchased. This discount will be revised periodically by the
Board of Trustees if the Trustees believe that it no longer reflects the value
of the restricted securities. Restricted securities not of the same class as
securities for which a public market exists usually will be valued initially at
cost. Any subsequent adjustment from cost will be based upon considerations
deemed relevant by the Board of Trustees.
NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as
observed) on which the New York Stock Exchange is closed
currently are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
ITEM 20. TAX STATUS.
The Master Fund is organized as a trust under Delaware law. Management
of the Master Fund believes that the Master Series has qualified for the fiscal
year ended March 31, 1996 as a partnership for Federal income tax purposes. As
such, the Master Series will not be subject to any income tax. However, each
investor in the Master Series will be taxable on its share (as determined in
accordance with the governing instruments of the Master Fund) of the Master
Series' ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
The Master Fund's taxable year-end is December 31. Although the Master
Fund will not be subject to Federal income tax, it will file appropriate Federal
income tax returns.
It is intended that the Master Series' assets, income and distributions
will be managed in such a way that an investor in the Master Series will be able
to satisfy the requirements of Subchapter M of the Code for qualification as a
regulated investment company, assuming that the investor invested all of its
investable assets in the Master Series.
Investors are advised to consult their own tax advisers as to the tax
consequences of an investment in the Master Series.
ITEM 21. UNDERWRITERS.
The exclusive placement agent for the Master Fund is BSIL, which
receives no compensation for serving in this capacity.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
<PAGE>
S&P STARS MASTER SERIES
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
- --------------------------------------------------------------------------
MARKET
SHARES+ VALUE
- --------------------------------------------------------------------------
COMMON STOCKS--93.48%
AEROSPACE - 2.83%
39,500 Rockwell International Corp....................... $2,325,562
----------
AIR TRANSPORT - 3.28%
35,000 Delta Air Lines Inc............................... 2,690,625
---------
AUTOMOTIVE EQUIPMENT - 4.97%
80,000 Goodyear Tire & Rubber Co........................ 4,080,000
----------
BANKS - 7.86%
25,000 Bank of New York Co., Inc........................ 1,287,500
43,000 Citicorp......................................... 3,440,000
50,000 Green Tree Financial Corp.++*.................... 1,718,250
----------
6,446,250
BROADCASTING - 1.06%
20,000 Infinity Broadcasting Co......................... 867,500
----------
CHEMICALS & FERTILIZERS - 5.45%
10,000 The Dow Chemical Co.............................. 868,750
46,000 Grace (W.R.) & Co.+++............................ 3,599,500
----------
4,468,250
COAL - 0.53%
30,000 Zeigler Coal Holding Co.......................... 435,000
----------
COMPUTERS & OFFICE EQUIPMENT - 2.41%
45,000 Cheyenne Software Inc.++*........................ 708,750
27,000 Oracle Systems Corp.............................. 1,272,375
----------
1,981,125
COMPUTER NETWORKS - 3.00%
80,000 Bay Networks Inc................................. 2,460,000
----------
COMPUTER SERVICES - 11.06%
31,000 Automatic Data Processing, Inc.++................ 1,220,625
51,500 Computer Associates.............................. 3,688,688
59,000 Sterling Software, Inc.*......................... 4,159,500
----------
9,068,813
CREDIT & FINANCE - 4.12%
39,000 American Express Co.............................. 1,925,625
----------
45,500 Federal National Mortgage Association............ 1,450,312
----------
3,375,937
DRUGS & HOSPITAL SUPPLIES - 9.95%
40,000 Amgen, Inc....................................... 2,325,000
35,000 Bio-Technology General Corp.*.................... 229,688
36,000 Foundation Health Corp.++*....................... 1,372,500
35,000 Johnson & Johnson................................. 3,228,750
15,000 Pfizer Inc. ...................................... 1,005,000
----------
8,160,938
ELECTRICAL EQUIPMENT - 6.65%
70,000 General Electric Co.............................. 5,451,250
----------
The accompanying notes are an integral part of the financial statements.
ELECTRONICS - 5.54%
55,000 Adaptec Inc.++*.................................... $2,653,750
80,500 Dynatech Corp..................................... 1,891,750
----------
4,545,500
ENTERTAINMENT & LEISURE - 1.29%
60,000 Comcast Corp. Class A............................. 1,061,250
-----------
FOOD & BEVERAGES - 2.72%
27,000 The Coca-Cola Co.................................. 2,230,875
-----------
FOREST PRODUCTS & PAPER - 4.09%
45,000 Kimberly-Clark Corp.+++........................... 3,352,500
-----------
INSURANCE - 2.29%
20,000 Chubb Corp. ...................................... 1,877,500
-----------
MISCELLANEOUS MANUFACTURING - 2.75%
96,000 Whittaker Corp.*.................................. 2,256,000
-----------
OIL AND NATURAL GAS - 5.12%
25,000 Baker Hughes, Inc.................................. 731,250
20,000 Dresser Industries, Inc............................ 610,000
16,000 Mobil Corp......................................... 1,854,000
20,000 Williams Cos., Inc............................... 1,007,500
-----------
4,202,750
OIL-OFFSHORE DRILLING - 1.22%
100,000 Global Marine, Inc.*.............................. 1,000,000
-----------
RAILROADS - 1.74%
50,000 Illinois Central Corp.++.......................... 1,425,000
-----------
TELECOMMUNICATIONS - 3.55%
42,500 ECI Telecom Ltd.................................... 950,938
65,000 MCI Communications Corp.++........................ 1,966,250
-----------
2,917,188
Total Common Stocks
(cost - $70,673,439)............................ 76,679,813
SHORT-TERM INVESTMENTS - 7.18%
INVESTMENT COMPANY - 1.08%
886,080 The Milestone Funds Treasury Obligations
Portfolio, Institutional Shares**................. 886,080
-----------
PRINCIPAL
AMOUNT
(000'S)
U.S. GOVERNMENT AGENCY OBLIGATION - 6.10%
$5,000 Federal Home Loan Bank Discount
Note, 5.25%, 04/01/96.............................$ 5,000,000
Total Short Term Investments
(cost - $5,886,080)............................... 5,886,080
-----------
Total Investments
(cost $76,559,519) - 100.66%...................... 82,565,893
Liabilities in excess of other
assets - (0.66)%................................... (538,185)
-----------
Net Assets - 100.00%..............................$82,027,708
- ----------------
+ Unless otherwise indicated all common stocks are ranked five stars.
++ Currently ranked four stars; ranked five stars when purchased.
+++ Currently ranked three stars; ranked five stars when purchased.
* Non-income producing security.
** Money market fund
S&P STARS RANKINGS:
Five stars - Buy - Expected to be among the best performers over the
next twelve months and to rise in price.
Four stars - Accumulate - Expected to be an above-average performer.
Three stars- Hold - Expected to be an average performer.
Two stars - Avoid - Expected to be a below average performer.
One star - Sell - Expected to be a well-below-average performer and
to fall in price.
The accompanying notes are an integral part of the financial statements.
S&P STARS Master Series
Statement of Assets and Liabilities
MARCH 31, 1996
ASSETS
Investments, at value (cost - $76,559,519).............. $82,565,893
Receivable for investments sold......................... 2,444,131
Receivable for beneficial interests sold................ 1,023,063
Dividends and interest receivable....................... 140,998
Receivable from investment adviser...................... 79,750
Prepaid insurance....................................... 15,768
Deferred organization expenses.......................... 80,156
------------
Total assets................................... 86,349,759
-----------
LIABILITIES
Payable for investments purchased....................... 4,042,156
Payable for beneficial interests repurchased............ 241,862
Administration and accounting fee payable............... 5,901
Custodian fee payable................................... 2,800
Accrued expenses........................................ 29,339
------------
Total liabilities.............................. 4,322,051
-----------
NET ASSETS
Net proceeds from capital contributions and withdrawals. 76,021,334
Net unrealized appreciation on investments.............. 6,006,374
-----------
Net assets applicable to investors'
beneficial interests........................... $82,027,708
===========
The accompanying notes are an integral part of the financial statements.
S&P STARS Master Series
Statement of Operations
FOR THE PERIOD APRIL 5, 1995* THROUGH MARCH 31, 1996
INVESTMENT INCOME
Dividends............................................... $ 667,421
Interest................................................ 127,898
------------
795,319
EXPENSES
Advisory fees........................................... 384,778
Administration and accounting fees...................... 61,620
Custodian fees and expenses............................. 37,542
Legal and auditing fees................................. 22,783
Amortization of organizational expenses................. 19,844
Insurance expenses...................................... 17,302
Trustees' fees and expenses............................. 16,870
Other................................................... 3,521
-----------
Total expenses before waivers and reimbursements..... 564,260
Less: waivers and reimbursements..................... (464,529)
----------
Total expenses after waivers and reimbursements...... 99,731
-------------
Net investment income..................................... 695,588
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS,
SECURITIES SOLD SHORT AND OPTION TRANSACTIONS
Net realized gain/(loss) from:
Investments...................................... 4,059,481
Option transactions.............................. (65,149)
Securities sold short............................ (224,962)
Net change in unrealized appreciation on investments...... 6,006,374
------------
Net realized and unrealized gain on investments,
securities sold short and option transactions............... 9,775,744
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...............$10,471,332
===========
*Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
S&P STARS Master Series
Statement of Changes in Net Assets
FOR THE PERIOD APRIL 5, 1995* THROUGH MARCH 31, 1996
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income......................................... $ 695,588
Net realized gain from investments, securities sold short
and option transactions...................................... 3,769,370
Net change in unrealized appreciation on investments ......... 6,006,374
------------
Net increase in net assets resulting from operations.......... 10,471,332
------------
CAPITAL TRANSACTIONS
Contributions......................................... 86,999,990
Withdrawals........................................... (15,568,630)
------------
Net increase in net assets derived from capital transactions.. 431,360
---------
Total increase in net assets................................ 902,692
NET ASSETS
Beginning of period................................... . 125,016
------------
End of period....................................... $82,027,708
===========
*Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
S&P STARS Master Series
Financial Highlights
FOR THE PERIOD APRIL 5, 1995* THROUGH MARCH 31, 1996
Contained below are ratios to average net assets and other supplemental data for
the period. This information has been derived from information provided in the
financial statements.
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted).................... $82,028
Ratio of expenses to average net assets (1)(2)............... 0.19%
Ratio of net investment income to average net assets (1)(2).. 1.36%
Decrease reflected in above expense ratios and net
investment income due to waivers and reimbursements (2).... 0.91%
Portfolio turnover rate (3).................................. 295.97%
Average commission rate per share............................ $ 0.06
* Commencement of investment operations.
(1) Reflects waivers and reimbursements.
(2) Annualized.
(3) Not annualized.
The accompanying notes are an integral part of the financial statements.
S&P STARS Fund
S&P STARS Master Series
Notes to Financial Statements
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
S&P STARS Fund (the "Master Fund") was organized as a Delaware business trust on
October 5, 1994 and is registered with the Securities and Exchange Commission
(the "Commission") under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), as an open-end management investment company. The
Master Fund is a "series fund" which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act, and for other purposes, and a shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. The
Master Fund currently has one portfolio in operation, S&P STARS Master Series
(the "Master Series"), a non-diversified portfolio.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on April 5,
1995, the Master Fund had not had any transactions other than those relating to
organizational matters and the sale of 10,418 shares of beneficial interest of
the Master Series to S&P STARS Portfolio (the "Portfolio") of The Bear Stearns
Funds. Costs of $100,000 incurred by the Master Fund in connection with the
organization and its registration with the Commission have been deferred and are
being amortized, using the straight-line method over the period of benefit not
exceeding sixty months, beginning with the commencement of investment operations
of the Master Series. The Master Series commenced investment operations on April
5, 1995. In the event that the Portfolio or any transferee of the Portfolio
redeems any of its original shares prior to the end of the sixty month period,
the proceeds of the redemption payable in respect of such shares shall be
reduced by the pro rata share (based on the proportionate share of the original
shares redeemed to the total number of original shares outstanding at the time
of the redemption) of the unamortized deferred organization expenses as of the
date of such redemption. In the event that the Master Series is liquidated prior
to the end of the sixty month period, the Portfolio or the transferee of the
Portfolio shall bear the unamortized deferred organization expenses.
PORTFOLIO VALUATION--Securities, including covered call options written by the
Master Series, are valued at the last sale price on the securities exchange or
national securities market on which such securities primarily are traded.
Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of the
most recent bid and asked prices, except in the case of open short positions
where the asked price is used for valuation purposes. Bid price is used when no
asked price is available. Securities which mature in 60 days or less are valued
at amortized cost which approximates market value, unless this method does not
represent fair value. Expenses and fees, including the investment advisory and
administration fees, are accrued daily and taken into account for the purposes
of determining the net asset value of the Master Series shares.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME-- Master Series' investment
transactions are recorded on the trade date (the date on which the order to buy
or sell is executed). Realized gains and losses from securities are calculated
on the identified cost basis. Dividend income is recorded on the ex-divided
date. Interest income is recorded on an accrual basis.
OPTIONS WRITING--When the Master Series writes an option, an amount equal to the
premium received by the Master Series is recorded as a liability and is
subsequently adjusted to the current market value of the option written.
Premiums received from writing options which expire unexercised are recovered by
the Master Series on the expiration date as realized gains from option
transactions. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
securities in determining whether the Master Series has a realized gain or loss.
If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Master Series. The Master Series' use of written
options involves, to varying degrees, elements of market risk in excess of the
amount recognized in the statement of assets and liabilities. The contract or
notional amounts reflect the extent of the Master Series' involvement in these
financial instruments. In writing an option, the Master Series bears the market
risk of an unfavorable change in the price of the security underlying the
written option. Exercise of an option written by the Master Series could result
in the Master Series selling or buying a security at a price different from the
current market value. The Master Series' activities in written options are
conducted through regulated exchanges which do not result in counterparty credit
risks.
Option activity for the period ended March 31, 1996 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
----------------------------- -------------------------
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period................... -- -- -- --
Options written...................................... 88,665 $4,008,132 75 $ 18,975
Options closed or expired (88,665) (4,008,132) (75) (18,975)
------- ---------- --- -------
Outstanding at end of period......................... -- -- -- --
------- ---------- -- -------
</TABLE>
SHORT SELLING--When the Master Series makes a short sale, an amount equal to the
proceeds received by the Master Series is recorded as a liability and is
subsequently adjusted to the current market value of the short sale. Short sales
represent obligations of the Master Series to make future delivery of specific
securities and, correspondingly, create an obligation to purchase the security
at market prices prevailing at the later delivery date (or to deliver the
security if already owned by the Master Series). Upon the termination of a short
sale, the Master Series will recognize a gain, limited to the price at which the
Master Series sold the security short, if the market price is less than the
proceeds originally received. The Master Series will recognize a loss, unlimited
in magnitude, if the market price at termination is greater than the proceeds
originally received. As a result, short sales create the risk that the Master
Series' ultimate obligation to satisfy the delivery requirements may exceed the
amount of the proceeds initially received or the liability recorded in the
financial statements.
U.S. FEDERAL TAX STATUS--The Master Series is treated as a partnership for
U.S. federal tax purposes. No provision is made by the Master Series for U.S.
federal taxes; each investor in the Master Series is ultimately responsible for
the payment of any taxes. Since one of the Master Series' investors is a
regulated investment company that invests all of its assets in the Master Series
(S&P STARS Portfolio or the "Portfolio"), the Master Series normally must
satisfy the applicable source of income and diversification requirements (under
the Internal Revenue Code) in order for the Portfolio to satisfy them. The
Master Series intends to comply with the requirements of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
During the period ended March 31, 1996, Bear Stearns Funds Management Inc.
("BSFM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns
Companies Inc., served as the investment adviser of the Master Series pursuant
to an Investment Advisory Agreement. The Adviser is entitled to receive from the
Master Series a monthly fee equal to an annual rate of 0.75% of the Master
Series' average daily net assets.
Under the terms of an Administrative Services Agreement with the Portfolio, PFPC
International Ltd. provides certain administrative services to the Master
Series. For providing these services, PFPC International Ltd. is entitled to
receive from the Master Series a monthly fee equal to an annual rate of 0.12% of
the Master Series' net assets up to $200 million, 0.09% of the next $200
million, 0.075% of the next $200 million, and 0.05% of net assets above $600
million, subject to a minimum annual fee of $8,500 for the Master Series,
payable monthly. During the period ended March 31, 1996, PFPC International Ltd.
has voluntarily waived a portion of its fee.
During the period ended March 31, 1996, the Adviser has voluntarily undertaken
to limit the Portfolio's total operating expenses (other than brokerage
commissions, interest, taxes and extraordinary items) to the extent that total
Portfolio operating expenses exceeded 1.50% of the average daily net assets of
the Portfolio's class A shares, 2.00% of the average daily net assets of the
Portfolio's class C shares and 1.00% of the average daily net assets of the
Portfolio's class Y shares. As necessary, this limitation is effected by waivers
by the Adviser of its advisory fees and reimbursements of expenses exceeding the
advisory fee. For the period ended March 31, 1996, the Adviser waived $384,779
of its advisory fee and reimbursed $79,750 of the Master Series expenses in
order to maintain the voluntary expense limitation. The Master Series will not
pay the Adviser at a later time for any amounts it may waive, nor will the
Master Series reimburse the Adviser for any amounts it may assume.
For the period ended March 31, 1996, Bear, Stearns & Co. Inc., an affiliate of
the Adviser, earned $378,353 in brokerage commissions from portfolio
transactions executed on behalf of the Master Series.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns
Companies Inc. and an affiliate of the Adviser, serves as custodian to the
Master Series.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at March 31,
1996 was $76,887,585. Accordingly, the net unrealized appreciation of
investments of $5,678,308 was composed of gross appreciation of $6,807,564 for
those investments having an excess of value over cost and gross depreciation of
$1,129,256 for those investments having an excess of cost over value.
For the period April 5, 1995 (commencement of investment operations) through
March 31, 1996, aggregate purchases and sales of investment securities
(excluding short-term securities) were $209,191,856 and $142,577,898,
respectively.
CREDIT AGREEMENT
The S&P STARS Fund, on behalf of the Master Series, has entered into a credit
agreement with The First National Bank of Boston. Bear Stearns Investment Trust,
which consists of the Emerging Markets Debt Portfolio and The Bear Stearns Funds
consisting of S&P STARS Portfolio, Large Cap Value Portfolio, Small Cap Value
Portfolio, Total Return Bond Portfolio and The Insiders Select Fund are also
parties to the credit agreement. The agreement provides that each fund as a
party to the credit agreement is permitted to borrow in an amount up to 15% of
the value of its total assets. Subject to Board approval and upon making
necessary disclosure in its prospectus, each fund may, in accordance with the
provisions of the credit agreement, borrow up to 25% of the value of its total
assets, less all liabilities other than liabilities for borrowed money
outstanding at the time. However, at no time shall the aggregate outstanding
principal amount of all loans to any of the funds exceed $25,000,000. The line
of credit will bear interest at the greater of: (i) the annual rate of interest
announced from time to time from the bank at its head office as its Base Rate,
or (ii) the Federal Funds Effective Rate plus 0.50%, or, at the borrower's
option, the rate quoted by The First National Bank of Boston.
Each loan is payable on demand or upon termination of this credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced.
The Master Series uses this facility to borrow money only for temporary or
emergency (not leveraging) purposes. The Master Series had no amount outstanding
under the line of credit agreement at March 31, 1996.
<PAGE>
S&P STARS MASTER SERIES
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Investors S&P STARS Master Series (A series of the S&P
STARS Fund):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of S&P STARS Master Series (the "Master Series"),
as of March 31, 1996, and the related statements of operations, changes in net
assets and the financial highlights for the period April 5, 1995 (commencement
of investment operations) to March 31, 1996. These financial statements and
financial highlights are the responsibility of the Master Series' management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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 S&P STARS Master
Series at March 31, 1996, the results of its operations, the changes in its net
assets and the financial highlights for the period presented in conformity with
generally accepted accounting principles.
Deloitte & Touche
Dublin, Ireland
May 9, 1996
<PAGE>
S&P STARS FUND
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Portfolio of Investments as of March 31, 1996.
(2) Statement of Assets and Liabilities as of March 31, 1996.
(3) Statement of Operations for the period ended March 31, 1996.
(4) Statement of Changes in Net Assets for the period ended March 31,
1996.
(5) Financial Highlights as of March 31, 1996.
(6) Report of Deloitte & Touche, Independent Auditors, dated May
9, 1996.
(b) Exhibits:
(1)(a) Certificate of Trust is incorporated by reference to Exhibit
(1)(a) of Amendment No. 5 to the Registration Statement on Form
N-1A, filed on June 18, 1996.
(1)(b) Agreement and Declaration of Trust is incorporated by reference
to Exhibit (1)(b) of Amendment No. 5 to the Registration
Statement on Form N-1A, filed on June 18, 1996.
(1)(c) Restated Certificate of Trust is incorporated by reference to
Exhibit (1)(c) of Amendment No. 5 to the Registration
Statement on Form N-1A, filed on June 18, 1996.
(1)(d) Instrument of Amendment to the Agreement and Declaration
of Trust is incorporated by reference to Exhibit
(1)(d) of Amendment No. 5 to the Registration Statement on Form
N-1A, filed on June 18, 1996.
(2) By-Laws are incorporated by reference to Exhibit
(2) of Amendment No. 5 to the Registration Statement on Form
N-1A, filed on June 18, 1996.
(5)(a) Investment Advisory Agreement is incorporated by reference to
Exhibit (5(a) of Amendment No. 5 to the Registration
Statement on Form N-1A, filed on June 18, 1996.
(5)(b) Administration Services Agreement is incorporated by reference
to Exhibit (5)(b) of Amendment No. 5 to the Registration
Statement on Form N-1A, filed on June 18, 1996.
(6) Placement Agency Agreement is incorporated by reference to
Exhibit (6) of Amendment No. 5 to the Registration
Statement on Form N-1A, filed on June 18, 1996.
(8) Custody Agreement is incorporated by reference to Exhibit
(8) of Amendment No. 5 to the Registration Statement on Form
N-1A, filed on June 18, 1996.
(10) Opinion (including consent) of Stroock & Stroock & Lavan is
incorporated by reference to Exhibit (10) of Amendment No. 5 to
the Registration Statement on Form N-1A, filed on June 18, 1996.
(11) Consent of Independent Auditors is incorporated by reference to
Exhibit (11) of Amendment No. 5 to the Registration Statement on
Form N-1A, filed on June 18, 1996.
(17) Financial Data Schedule is incorporated by reference to Exhibit
(17) of Amendment No. 5 to the Registration Statement on Form
N-1A, filed on June 18, 1996.
Other Exhibit: Certificate is incorporated by reference to other
Exhibit of Amendment No. 5 to the Registration
Statement on Form N-1A, filed on June 18, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
Number of Record
TITLE OF CLASS HOLDERS
--------------------- ---------------
Shares of beneficial interest,
$.001 per share, of
the following portfolios:
S&P STARS Master Series 2
ITEM 27. INDEMNIFICATION
Reference is made to Article IX of the Registrant's
Declaration of Trust filed as Exhibit 1(b) hereto. The application of these
provisions is limited by Article 10 of the Registrant's By-Laws filed as Exhibit
2 hereto and by the following undertaking set forth in the rules promulgated by
the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a trustee,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final
adjudication of such issue.
Reference also is made to the Placement Agency Agreement
previously filed as Exhibit 6.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See Item 5, "Management of the Master Fund" in Part A and Item 16,
"Investment Advisory and Other Services" in Part B regarding the business of the
investment adviser. For information as to the business, profession, vocation or
employment of a substantial nature engaged in by BSFM or any of its respective
officers and directors during the past two years, reference is made to Form ADV,
filed with the Securities and Exchange Commission under the Investment Advisers
Act of 1940 by BSFM, incorporated by reference herein (SEC File No. 801-29862).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not applicable.
(b) Set forth below is a list of each executive
officer and director of BSIL. The principal business address of each such
person is 245 Park Avenue, New York, New York 10167, except for those persons
whose name is followed by "(London)." As to those persons, their principal
business address is 1 Canada Square, E14 5AD, England.
Positions and Positions and
Offices with Offices with
NAME BSIL REGISTRANT
DIRECTORS
Nicolo Brandolini d'Adda Director
Peter D. Cherasia Director
Wendy L. de Monchaux Director
Paul M. Friedman Director
John L. Knight Director
(London)
William J. Montgoris Director-Finance
Hans Rudolf Kunz Director
Barry Nix (London) Director President
Antony Liberatore Director
MANAGERS (OFFICERS)
William J. Montgoris Secretary
Susan Paton Assistant Treasurer
Jeffrey C. Bernstein Assistant Treasurer
Frederick B. Casey Assistant Treasurer
Bruce E. Geismar Assistant Treasurer
Michael Minikes Treasurer
Patrick Mahon Compliance Officer
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
PFPC International Ltd.
80 Harcourt Street
Dublin 2, Ireland
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of a trustee or trustees
when requested in writing to do so by the holders of at least 10% of the
Registrant's outstanding shares of beneficial interest and in connection with
such meeting to comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 relating to shareholder communications.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant has duly caused this Amendment to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 20th day of June, 1996.
S&P STARS FUND
(Registrant)
By: /s/ BARRY NIX*
----------------------
Barry Nix, President
* By: /s/ FRANK J. MARESCA
----------------------
Frank J. Maresca,
Attorney-in-Fact
