N-30D 1 t22475.txt ANNUAL REPORT 3/31/2001 The Bear Stearns Funds Prime Money Market Portfolio Annual Report BEAR March 31, 2001 STEARNS Prime Money Market Portfolio Letter to Shareholders April 30, 2001 Dear Shareholders: We are pleased to present you with the annual report for the Prime Money Market Portfolio (the "Portfolio") for the fiscal year ended March 31, 2001. As of March 31, 2001, the Portfolio's 7-day average yield was 5.17% and the 7-day effective yield was 5.30%. Based on information compiled by iMoneyNet, Inc., the Portfolio's total return of 6.40% for the fiscal year ended March 31, 2001, exceeded the average total return for tier-one institutional money market funds by 24 basis points.(1) The Portfolio is now in its fourth year of operation and total current assets as of March 31, 2001, were more than $1.9 billion. During the twelve months ended March 2001, the Federal Reserve Board's Open Market Committee ("FOMC") went from a tightening mode that culminated in a targeted Fed Funds rate of 6.50% in May 2000 to an aggressive easing mode that continues today. As we entered the second half of 2000, it started to become apparent economic growth was slowing. Third quarter 2000 GDP slowed to 2.2%. At its meetings in June 2000 through November 2000, although the targeted Fed Funds rate was held constant, the FOMC kept an inflationary bias in effect. As stock averages continued to decline, concerns became focused on a "negative" wealth effect. Manufacturing was beginning to slump and initial jobless claims started to rise. As 2000 ended, the FOMC again kept the targeted rate at 6.50% at its December 19th meeting, but changed its bias to "weakness." Many market participants believed a rate cut should have occurred at this meeting. Those who felt the FOMC should have cut rates at its December meeting, however, did not have to wait long before the action was taken. An inter-meeting cut of 50 basis points in the targeted Fed Funds rate (to 6.00%) was announced on January 3, 2001. An additional cut of 50 basis points occurred at its regularly scheduled meeting on January 31st which lowered the targeted Fed Funds rate to 5.50%. Following disappointing growth of 1% in the 4th quarter of 2000 and a weak employment report that showed the economy losing jobs in February, the FOMC cut the targeted Fed Funds rate by 50 basis points, to 5.00% at its March 20th meeting. Then, in perhaps its most surprising move under Chairman Greenspan, the FOMC announced another interim rate cut of 50 basis points in an April 18th announcement. This action lowered the target Fed Funds rate to 4.50% -- a full 200 basis points of easing in less than four months. Although the FOMC originally believed the economy was in the midst of an inventory cycle correction, it subsequently came to believe that declining stock values could have a negative effect on consumer spending which would produce an extended slowdown in economic growth. Although consumer spending has remained strong (in spite of declining confidence) and housing continues to be a strong point in the economy, the FOMC does not want to take the chance of the economy continuing to spiral downward. In addition, the FOMC realizes that now, more than ever, we are part of a global economy, and slowing world growth could also be a drag on the U.S. economy. Looking at the Fed Funds futures contracts, the market fully expects another 50 - 75 basis points of easing, starting with the regularly scheduled FOMC meeting of May 15th. Whether the aggressive easing will lead to a "v-shaped" more rapid recovery or a longer "u-shaped" recovery is currently not known. We will watch events closely over the coming months and maintain our policy of investing in stable securities that will provide liquidity and competitive returns. -1- We appreciate your continued support. Please feel free to call us at 1-800-766-4111 with any questions or concerns you may have. Sincerely, /s/ DONI L. FORDYCE ------------------- Doni L. Fordyce President and Trustee The Bear Stearns Funds --------- (1) The net yield represents past performance, which is not a guarantee of future results. Yields are net of management fees and expenses. As of March 31, 2001, there were 199 funds that had 12-month returns in the taxable First-Tier Institutional Only category, and throughout all periods, some or all of the funds, including the Portfolio, reported fee waivers from time to time. Without such waivers, the reported yields would have been lower. Bear Stearns Asset Management Inc. has agreed to waive a portion of its advisory fee and to reimburse a portion of the Portfolio's operating expenses, as necessary, to maintain the expense limitation as set forth in the notes to the financial statements. Total returns and net yields shown include fee waivers and expense reimbursements, if any; total returns and net yields would have been lower had there been no assumption of fees and expenses in excess of expense limitations. -2-
Prime Money Market Portfolio Portfolio of Investments MARCH 31, 2001 ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000's) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------- CERTIFICATES OF DEPOSITS-- 40.06% BANKS - DOMESTIC - 3.95% $ 30,000 Citibank N.A. [A-1+, P-1] 5.000 - 6.620% 04/19/01 - 06/08/01 $ 30,006,658 10,000 Northern Trust Company, (The) [A-1+, P-1] 5.520 04/09/01 10,000,165 37,500 State Street Bank & Trust Company [A-1+, P-1] 5.040 - 5.150 05/04/01 - 05/15/01 37,500,000 -------------- 77,506,823 -------------- BANKS - EURO - CANADA - 0.61% 12,000 Toronto-Dominion Bank [A-1+, P-1] 4.980 06/12/01 11,999,967 -------------- BANKS - EURO - FRANCE - 1.12% 22,000 Credit Agricole Indosuez [A-1+, P-1] 4.970 06/13/01 22,002,996 -------------- BANKS - EURO - GERMANY - 9.47% 30,000 Bayerische Landesbank Girozentrale [A-1+, P-1] 4.950 - 6.630 05/08/01 - 06/15/01 30,002,018 16,000 Commerzbank AG [A-1, P-1] 6.530 - 6.850 05/07/01 - 05/09/01 16,000,913 14,000 Deutsche Bank AG [A-1+, P-1] 5.070 05/14/01 14,000,332 19,000 Dresdner Bank AG [A-1+, P-1] 6.770 04/19/01 19,011,858 20,000 Landesbank Hessen-Thuringen Girozentrale [A-1+, P-1] 4.750 06/29/01 20,000,489 62,000 Norddeutsche Landesbank Girozentrale [A-1+, P-1] 4.750 - 5.320 05/09/01 - 06/26/01 62,000,606 25,000 Westdeutsche Landesbank Girozentrale [A-1+, P-1] 6.610 - 6.810 04/17/01 - 04/20/01 25,005,492 -------------- 186,021,708 -------------- BANKS - EURO - NETHERLANDS - 2.50% 35,000 ING Bank N.V. [A-1+, P-1] 4.940 - 5.400 04/20/01 - 07/12/01 35,006,418 14,000 Rabobank Nederland N.V. [A-1+, P-1] 5.080 05/09/01 14,000,388 -------------- 49,006,806 -------------- BANKS - EURO - SWEDEN - 0.31% 6,000 Svenska Handelsbanken AB [A-1, P-1] 6.620 05/21/01 6,000,225 -------------- Banks - Euro - Switzerland - 1.02% 20,000 Credit Suisse First Boston [A-1+, P-1] 5.290 05/08/01 20,000,203 -------------- BANKS - EURO - UNITED KINGDOM - 4.23% 12,000 Abbey National Bank plc [A-1+, P-1] 5.280 05/08/01 11,999,747 20,000 Abbey National Treasury Services plc [A-1+, P-1] 4.810 07/02/01 20,000,505 51,000 Barclay's Bank plc [A-1+, P-1] 4.990 - 6.650 04/17/01 - 05/07/01 51,000,524 -------------- 83,000,776 -------------- BANKS - YANKEE - CANADA - 6.47% 51,000 Bank of Nova Scotia [A-1, P-1] 5.400 - 7.155 04/17/01 - 05/08/01 51,016,415 41,000 Canadian Imperial Bank of Commerce [A-1+, P-1] 5.300 - 6.480 04/02/01 - 05/07/01 41,021,850 27,000 Royal Bank of Canada [A-1+, P-1] 6.010 - 6.850 04/06/01 - 09/11/01 27,042,748 8,000 Toronto-Dominion Bank [A-1+, P-1] 4.940 06/15/01 8,000,658 -------------- 127,081,671 -------------- The accompanying notes are an integral part of the financial statements. -3- ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000's) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------- CERTIFICATES OF DEPOSITS (continued) BANKS - YANKEE - FRANCE - 2.39% $ 42,000 Credit Agricole Indosuez [A-1+, P-1] 4.850 - 5.430% 04/06/01 - 05/21/01 $ 42,000,198 5,000 Societe Generale [A-1+, P-1] 6.810 04/17/01 4,999,857 -------------- 47,000,055 -------------- BANKS - YANKEE - GERMANY - 4.15% 37,000 Bayerische Hypo-und Vereinsbank AG [A-1, P-1] 5.000 - 6.410 04/11/01 - 04/27/01 36,998,330 15,000 Bayerische Landesbank Girozentrale [A-1+, P-1] 5.360 04/23/01 15,000,364 13,500 Commerzbank AG [A-1, P-1] 6.850 - 6.880 04/27/01 - 04/30/01 13,500,228 16,000 Deutsche Bank AG [A-1+, P-1] 5.020 05/16/01 16,000,000 -------------- 81,498,922 -------------- BANKS - YANKEE - NETHERLANDS - 1.27% 25,000 Rabobank Nederland N.V. [A-1+, P-1] 4.750 - 6.825 06/29/01 - 08/28/01 25,001,799 -------------- BANKS - YANKEE - SWEDEN - 1.12% 22,000 Svenska Handelsbanken AB [A-1, P-1] 7.120 - 7.360 05/04/01 - 05/16/01 22,036,546 -------------- BANKS - YANKEE - SWITZERLAND - 0.56% 11,000 UBS AG [A-1+, P-1] 7.080 - 7.200 05/08/01 - 06/22/01 11,000,133 -------------- BANKS - YANKEE - UNITED KINGDON - 0.89% 7,500 Lloyds Bank N.Y. [A-1+, P-1] 6.740 04/10/01 7,502,749 10,000 National Westminster Bank [A-1+, P-1] 6.650 04/10/01 10,000,024 -------------- 17,502,773 -------------- Total Certificates of Deposits (cost - $786,661,403) 786,661,403 -------------- COMMERCIAL PAPER -- 44.33% BANKS - YANKEE - UNITED KINGDOM - 0.25% 5,000 Lloyds Bank N.Y. [A-1+, P-1] 6.410 04/30/01 4,974,182 -------------- CHEMICALS - DIVERSIFIED - 1.17% 23,000 E.I. DuPont de Nemours & Company [A-1+, P-1] 5.070 - 5.160 04/12/01 - 04/20/01 22,949,447 -------------- COMMERCIAL FINANCE - 7.79% 30,000 General Electric Capital Corp. [A-1+, P-1] 4.870 - 5.310 04/13/01 - 05/30/01 29,853,729 71,450 Toyota Motor Credit Corp. [A-1+, P-1] 5.210 - 5.450 04/02/01 - 04/06/01 71,426,910 51,900 UBS Finance (DE) LLC [A-1+, P-1] 4.890 - 5.350 04/02/01 - 06/06/01 51,727,189 -------------- 153,007,828 -------------- The accompanying notes are an integral part of the financial statements. -4- ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000's) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (continued) CORPORATE LOAN CONDUIT - 5.30% $ 50,100 Centric Capital Corp. [A-1+, P-1] 4.900 - 6.410% 04/06/01 - 06/12/01 $ 49,883,727 46,413 Greenwich Funding Corp. [A-1+, P-1] 4.860 - 5.370 04/02/01 - 05/25/01 46,244,216 8,000 Greyhawk Funding, LLC [A-1+, P-1] 5.360 04/23/01 7,973,796 -------------- 104,101,739 -------------- COSMETICS & Toiletries - 1.93% 37,800 Gillette Co. [A-1+, P-1] 5.280 - 5.500 04/02/01 - 04/17/01 37,783,694 -------------- DIVERSIFIED RECEIVABLES CONDUIT - 10.56% 20,000 Alpine Securitization Corp. [A-1+, P-1] 5.500 04/02/01 19,996,945 37,957 Barton Capital Corp. [A-1+, P-1] 5.050 - 5.300 04/02/01 - 04/30/01 37,868,623 42,000 Delaware Funding Corp. [A-1+, P-1] 4.940 - 5.170 04/09/01 - 05/14/01 41,857,961 31,000 Enterprise Funding Corp. [A-1+, P-1] 4.920 - 5.160 04/20/01 - 05/24/01 30,825,176 7,052 Park Avenue Receivables Corp. [A-1, P-1] 5.180 04/20/01 7,032,721 20,000 Sheffield Receivables Corp. [A-1+, P-1] 5.250 04/03/01 19,994,167 20,071 Triple-A Funding Corp. [A-1, P-1] 5.000 - 5.140 04/20/01 - 05/09/01 19,990,404 30,000 Windmill Funding Corp. [A-1+, P-1] 4.860 - 5.360 04/05/01 - 05/18/01 29,867,144 -------------- 207,433,141 -------------- GAS & OIL - 3.46% 68,000 Koch Industries, Inc. [A-1+, P-1] 5.400 04/02/01 67,989,800 -------------- INSURANCE - 2.69% 53,000 General Reinsurance Corp. [A-1+, P-1] 4.920 - 5.180 04/06/01 - 05/04/01 52,845,161 -------------- INVESTMENT STRUCTURE - 2.10% 41,550 Sigma Finance Inc. [A-1+, P-1] 4.700 - 6.470 04/04/01 - 07/26/01 41,273,920 -------------- MEDICAL - DRUGS - 4.07% 10,000 Bayer Corp. [A-1+, P-1] 5.280 04/12/01 9,983,867 70,000 Merck & Co., Inc. [A-1+, P-1] 5.500 04/02/01 69,989,306 -------------- 79,973,173 -------------- METAL - ALUMINUM - 1.52% 30,000 ALCOA Inc. [A-1, P-1] 4.800 - 5.320 04/11/01 - 06/04/01 29,898,812 -------------- RETAIL - DEPARTMENT STORES - 0.43% 8,325 Wal-Mart Stores, Inc. [A-1+, P-1] 5.150 04/17/01 8,305,945 -------------- SECURITIES DEALERS - 1.63% 8,000 Credit Suisse First Boston [A-1+, P-1] 6.430 04/11/01 7,985,711 24,000 Morgan Stanley Dean Witter & Co. [A-1+, P-1] 4.950 - 5.100 04/11/01 - 04/23/01 23,946,700 -------------- 31,932,411 -------------- -5- ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000's) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (continued) Telecommunications - 1.43% $ 28,000 SBC Communications, Inc. [A-1+, P-1] 5.120 - 5.140% 04/10/01 - 04/11/01 $ 27,962,236 -------------- Total Commercial Paper (cost - $870,431,489) 870,431,489 -------------- CORPORATE OBLIGATIONS-- 8.17% BANKS - DOMESTIC - 4.86% 22,000 American Express Centurion Bank* [A-1, P-1] 5.163 - 5.204 04/02/01 - 04/17/01 22,000,000 30,750 Bank of America N.A. [A-1+, P-1] 6.600 - 6.950 04/17/01 - 07/16/01 30,771,506 6,000 Bank of America N.A.* [A-1+, P-1] 5.113 06/06/01 6,001,697 10,000 Bank One, N.A. [A-1, P-1] 6.640 - 6.930 04/25/01 - 06/29/01 10,000,000 10,000 Bank One, N.A.* [A-1, P-1] 5.020 04/02/01 10,000,000 5,000 First Union N.B.* [A-1, P-1] 5.180 04/02/01 5,000,000 5,000 Key Bank N.A.* [A-1, P-1] 5.350 04/02/01 5,000,000 6,600 Wachovia Bank N.A.* [A-1+, P-1] 5.006 04/18/01 6,599,104 -------------- 95,372,307 -------------- BANKS - YANKEE - GERMANY - 0.23% 4,500 Bayerische Landesbank N.Y.* [A-1+, P-1] 5.110 04/02/01 4,499,232 -------------- COMMERCIAL FINANCE - 0.56% 11,000 General Motors Acceptance Corp.* [A-1, P-1] 5.510 - 5.710 04/02/01 11,006,323 -------------- INVESTMENT STRUCTURE - 0.51% 10,000 Sigma Finance Inc.* [A-1+, P-1] 5.100 - 5.315 04/02/01 9,998,291 -------------- SECURITIES DEALERS - 1.76% 12,000 Goldman Sachs Group L.P., (The)* [A-1+, P-1] 5.048 04/23/01 12,000,000 5,000 J.P. Morgan & Co., Inc.* [A-1+, P-1] 5.260 04/06/01 5,000,000 5,000 Merrill Lynch & Co., Inc.* [A-1+, P-1] 5.520 05/08/01 5,006,600 12,500 Morgan Stanley Dean Witter & Co.* [A-1+, P-1] 5.310 04/02/01 12,500,000 -------------- 34,506,600 -------------- TELECOMMUNICATIONS - 0.25% 5,000 SBC Communications, Inc.* [A-1+, P-1] 5.339 05/15/01 5,000,000 -------------- Total Corporate Obligations (cost - $160,382,753) 160,382,753 -------------- SHARES ------ INVESTMENT COMPANY-- 0.03% 586,768 AIM Prime Short-Term Investment Company-Prime Portfolio (1) [AAAm, Aaa] (cost - $586,768) 5.080 -- 586,768 -------------- -6- ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000's) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------- TIME DEPOSITS-- 4.07% $ 60,000 Societe Generale [A-1+,P-1] 5.500% 04/02/01 $ 60,000,000 20,000 SunTrust Banks, Inc. [A-1+,P-1] 5.250 04/02/01 20,000,000 Total Time Deposits -------------- (cost - $80,000,000) 80,000,000 -------------- REPURCHASE AGREEMENT**-- 2.99% 58,803 ABN-AMRO Inc. (cost - $58,803,000) 5.250 04/02/01 58,803,000 -------------- Total Investments-- 99.65% (cost - $1,956,865,413)*** 1,956,865,413 Cash and other assets in excess of liabilities-- 0.35% 6,780,624 -------------- Net Assets-- 100.00% $1,963,646,037 ============== ------------ * Variable Rate Obligations - The rate shown is the rate as of March 31, 2001 and the maturity date shown is the date the interest rate resets. ** See notes to financial statements for description of underlying collateral. *** The cost of investments for federal income tax purposes is substantially the same as for financial reporting purposes. (I) Money market fund; interest rate reflects SEC seven-day yield at March 31, 2001.
The accompanying notes are an integral part of the financial statements. -7-
Prime Money Market Portfolio Statement of Assets and Liabilities MARCH 31, 2001 ASSETS Investments, at amortized cost which approximates market value (identified and tax cost - $1,956,865,413) ........ $ 1,956,865,413 Cash ...................................................... 319 Interest receivable ....................................... 15,415,496 Deferred organization expenses and other assets .................................. 72,251 --------------- Total assets .............................................. 1,972,353,479 --------------- LIABILITIES Dividends payable ......................................... 8,151,723 Advisory fee payable ...................................... 120,822 Administration fee payable ................................ 78,425 Custodian fee payable ..................................... 18,928 Accrued expenses .......................................... 337,544 --------------- Total liabilities ......................................... 8,707,442 --------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) .............................. 1,963,682 Paid-in capital ........................................... 1,961,718,218 Accumulated net realized loss from investments ............ (35,863) --------------- Net assets ................................................ $ 1,963,646,037 =============== CLASS Y Net assets ................................................ $ 1,963,646,037 --------------- Shares of beneficial interest outstanding ................. 1,963,681,900 --------------- Net asset value, offering and redemption price per share ........................ $ 1.00 ===============
The accompanying notes are an integral part of the financial statements. -8-
Prime Money Market Portfolio Statement of Operations FOR THE FISCAL YEAR ENDED MARCH 31, 2001 INVESTMENT INCOME Interest .................................................... $ 77,079,071 ------------ EXPENSES Advisory fees ............................................... 2,428,010 Administration fees ......................................... 607,003 Accounting fees ............................................. 323,159 Federal and state registration fees ......................... 278,430 Custodian fees and expenses ................................. 153,709 Legal and auditing fees ..................................... 63,702 Transfer agent fees and expenses ............................ 34,320 Amortization of organization expenses ....................... 13,089 Reports and notices to shareholders ......................... 10,767 Insurance expenses .......................................... 9,712 Trustees' fees and expenses ................................. 9,676 Other ....................................................... 24,911 ------------ Total expenses before waivers and related reimbursements ...................... 3,956,488 Less: waivers and related reimbursements ........... (1,528,405) ------------ Total expenses after waivers and related reimbursements ...................... 2,428,083 ------------ Net investment income ....................................... 74,650,988 ------------ NET REALIZED LOSS ON INVESTMENTS ............................ (41) ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ $ 74,650,947 ============
The accompanying notes are an integral part of the financial statements. -9-
Prime Money Market Portfolio Statements of Changes in Net Assets FOR THE FISCAL YEARS ENDED MARCH 31, ---------------------------------- 2001 2000 --------------- ---------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income ...................................... $ 74,650,988 $ 31,658,609 Net realized loss on investments ........................... (41) (214) --------------- ---------------- Net increase in net assets resulting from operations ....... 74,650,947 31,658,395 --------------- ---------------- DIVIDENDS TO SHAREHOLDERS FROM Net investment income ...................................... (74,650,988) (31,658,609) --------------- ---------------- SHARES OF BENEFICIAL INTEREST* Net proceeds from the sale of shares ....................... 8,234,056,726 2,681,516,787 Cost of shares repurchased ................................. (7,244,952,498) (2,179,152,635) Shares issued in reinvestment of dividends ................. 60,634,872 25,342,284 --------------- ---------------- Net increase in net assets derived from shares of beneficial interest transactions ...................................... 1,049,739,100 527,706,436 --------------- ---------------- Total increase in net assets ............................... 1,049,739,059 527,706,222 NET ASSETS Beginning of year .......................................... 913,906,978 386,200,756 --------------- ---------------- End of year ................................................ $ 1,963,646,037 $ 913,906,978 =============== ================ ------------- * Share transactions at net asset value of $1.00 per share.
The accompanying notes are an integral part of the financial statements. -10-
Prime Money Market Portfolio Financial Highlights -------------------------------------------------------------------------------- Contained below is per share operating performance data for each share outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. -------------------------------------------------------------------------------- FOR THE PERIOD FOR THE FISCAL YEARS JULY 14, 1997* ENDED MARCH 31, THROUGH 2001 2000 1999 MARCH 31, 1998 -------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $1.0000 $1.0000 $1.0000 $1.0000 Net investment income (1) 0.0622 0.0526 0.0524 0.0399 ------- ------- ------- ------- Net increase in net assets resulting from operations 0.0622 0.0526 0.0524 0.0399 ------- ------- ------- ------- Dividends to shareholders from net investment income (0.0622) (0.0526) (0.0524) (0.0399) ------- ------- ------- ------- Net asset value, end of period $1.0000 $1.0000 $1.0000 $1.0000 ======= ======= ======= ======= Total investment return (2) 6.40% 5.39% 5.37% 5.72% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $1,963,646 $913,907 $386,201 $121,460 Ratio of expenses to average net assets (1) 0.20% 0.20% 0.20% 0.13%(3) Ratio of net investment income to average net assets (1) 6.15% 5.36% 5.24% 5.58%(3) Increase/(decrease) reflected in above expense and net investment income ratios due to waivers and related reimbursements 0.13% 0.17% 0.25% 0.52%(3) * Commencement of investment operations. (1) Reflects waivers and related reimbursements. (2) Total investment return is calculated assuming a purchase of shares on the first day and a sale of shares on the last day of each period reported and includes reinvestment of dividends. Total investment return is not annualized. (3) Annualized.
The accompanying notes are an integral part of the financial statements. -11- Prime Money Market Portfolio Notes to Financial Statements ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business trust on September 29, 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 Fund consists of eleven separate portfolios: seven diversified portfolios, Large Cap Value Portfolio, Small Cap Value Portfolio, Income Portfolio, International Equity Portfolio, Balanced Portfolio, High Yield Total Return Portfolio and Prime Money Market Portfolio (the "Portfolio"), and four non-diversified portfolios, The Insiders Select Fund, S&P STARS Portfolio, Focus List Portfolio and Emerging Markets Debt Portfolio. Each portfolio is treated as a separate entity for certain matters under the Investment Company Act. In addition, a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. As of the date hereof, the Portfolio offers one class of shares, which has been designated as Class Y shares. ORGANIZATIONAL MATTERS - Prior to commencing investment operations on July 14, 1997, the Portfolio did not have any transactions other than those relating to organizational matters and the sale of one Class Y share to Bear, Stearns & Co. Inc. ("Bear Stearns" or the "Distributor"). Costs of $56,500, which were incurred by the Portfolio in connection with the organization, registration with the Commission and initial public offering of its shares, 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 Portfolio. MANAGEMENT ESTIMATES - The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, requires management to make certain estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. PORTFOLIO VALUATION - Portfolio securities are valued under the amortized cost method, which approximates current market value. Securities are valued at cost when purchased, and thereafter a constant proportionate amortization of any discount or premium is recorded until maturity of the security. Regular review and monitoring of the valuations are performed in an attempt to avoid dilution or other unfair results to shareholders. The Portfolio seeks to maintain a net asset value of $1.00 per share, although there is no assurance that it will be able to do so on a continuing basis. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME - Investment transactions are recorded on the trade date (the date on which the order to buy or sell is executed). Realized gains and losses are calculated on the identified cost basis for both financial reporting and income tax purposes. Interest income and expenses are recorded on the accrual basis. U.S. FEDERAL TAX STATUS - The Portfolio intends to distribute substantially all of its taxable income and to comply with the other requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required. In addition, by distributing during each calendar year substantially all of its ordinary income and capital gains, if any, the Portfolio intends not to be subject to a U.S. federal excise tax. -12- At March 31, 2001, the Portfolio had gross capital loss carryforwards of $35,863, of which $34,543 expires in 2007, $1,279 expires in 2008 and $41 expires in 2009, available as a reduction, to the extent provided in regulations, of any future net capital gains realized before the end of fiscal year 2009. To the extent that the loss is used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders. DIVIDENDS AND DISTRIBUTIONS - Dividends from net investment income are declared daily and paid monthly. Any net realized capital gains are distributed at least annually. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. REPURCHASE AGREEMENTS - The Portfolio may purchase securities from financial institutions subject to the seller's agreement to repurchase and the Portfolio's agreement to resell the securities at par. The investment adviser only enters into repurchase agreements with financial institutions that are primary dealers and deemed to be creditworthy by the investment adviser in accordance with procedures adopted by the Board of Trustees. Securities purchased subject to repurchase agreements are maintained with a custodian of the Portfolio and must have, at all times, an aggregate market value greater than or equal to the repurchase price plus accrued interest. If the value of the underlying securities falls below 102% of the value of the repurchase price plus accrued interest, the Portfolio will require the seller to deposit additional collateral by the next Portfolio business day. In the event that the seller under the agreement defaults on its repurchase obligation or fails to deposit sufficient collateral, the Portfolio has the contractual right, subject to the requirements of applicable bankruptcy and insolvency laws, to sell the underlying securities and may claim any resulting loss from the seller. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES For the fiscal year ended March 31, 2001, Bear Stearns Asset Management Inc. ("BSAM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., served as investment adviser pursuant to an advisory agreement with the Portfolio. Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 0.20% of the Portfolio's average daily net assets. For the fiscal year ended March 31, 2001, Bear Stearns Funds Management Inc. ("BSFM" or the "Administrator") served as administrator to the Portfolio pursuant to an Administration Agreement. The Administrator is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 0.05% of the Portfolio's average daily net assets. Under the terms of an Administrative Services Agreement with the Portfolio, PFPC Inc. ("PFPC"), a wholly-owned subsidiary of PFPC Worldwide, Inc. and an indirect majority-owned subsidiary of The PNC Financial Services Group, provides certain fund accounting and administrative services to the Portfolio. For providing these services, PFPC is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 0.075% of the Portfolio's average daily net assets up to $150 million, 0.04% of the next $150 million, 0.02% of the next $300 million and 0.0125% of net assets above $600 million. For the fiscal year ended March 31, 2001, the Adviser has undertaken to limit the Portfolio's operating expenses to a maximum annual level of no more than 0.20% of its average daily net assets. 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 fiscal year ended March 31, 2001, the Adviser waived advisory fees of $1,490,775. In addition, the Adviser reimbursed expenses of $37,630 in order to maintain the expense limitation. Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies Inc., and an affiliate of BSAM, BSFM and Bear Stearns, serves as custodian to the Portfolio. -13- SHARES OF BENEFICIAL INTEREST The Portfolio currently offers Class Y shares. There is no sales charge or contingent deferred sales charge on Class Y shares, which are offered primarily to institutional investors. At March 31, 2001, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized for the Portfolio, of which Bear Stearns and its affiliates owned 232,001,238 of Class Y shares or approximately 12% of the shares outstanding. COLLATERAL FOR REPURCHASE AGREEMENT Listed below is the collateral associated with the repurchase agreement with ABN-AMRO Inc. outstanding at March 31, 2001:
PRINCIPAL ACCRUED ISSUER AMOUNT MATURITY DATES INTEREST RATES MARKET VALUE INTEREST TOTAL VALUE ------ ----------- ------------------- -------------- ------------ ---------- ----------- Freddie Mac $58,945,000 04/10/01 - 12/21/01 0.00 - 6.625% $58,528,921 $1,453,441 $59,982,362
CREDIT FACILITY The Fund has entered into a demand promissory note agreement with The Chase Manhattan Bank (the "Bank") to provide an uncommitted credit facility to the Fund (on behalf of the Portfolio). The credit facility bears interest at the greater of (i) the rate otherwise in effect for such loan plus 2%, or (ii) that rate of interest from time to time announced by the Bank at its principal office as its prime commercial lending rate plus 2%, with such interest to be payable on demand and upon payment in full of such principal. The Portfolio, as a fundamental policy, is permitted to borrow in an amount up to 33 1/3% of the value of the Portfolio's assets. However, the Portfolio intends to borrow money only for temporary or emergency (not leveraging) purposes and only in amounts not to exceed 15% of its net assets. Loans are payable on demand or upon termination of this credit facility 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 is advanced. During the fiscal year ended March 31, 2001, the maximum amount outstanding under the credit facility for the Portfolio was $121,000, with an average loan balance of $1,087 with an average interest rate of 6.61%. The Portfolio had no amounts outstanding under the credit facility at March 31, 2001. -14- Prime Money Market Portfolio Independent Auditors' Report The Board of Trustees and Shareholders, Prime Money Market Portfolio (a series of The Bear Stearns Funds): We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Prime Money Market Portfolio (the "Portfolio") as of March 31, 2001, and the related statement of operations for the year then ended, changes in net assets and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with 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 and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2001 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Prime Money Market Portfolio as of March 31, 2001, the results of its operations, the changes in its net assets and the financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, NY May 17, 2001 -15- Prime Money Market Portfolio Privacy Notice While information is the cornerstone of our ability to provide superior service, our most important assets are our shareholders and the trust that they place in us. Keeping shareholder information secure and using it only as our shareholders would want us to are top priorities at The Bear Stearns Funds. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information investment goals and risk tolerance. We do not disclose any information about you or about former customers to anyone except as permitted by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and mailers that assist us in the distribution of shareholder materials. This allows us to continue to meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information. You may have received communications regarding information privacy on policies from other financial institutions that gave you the opportunity to "opt-out" of certain information sharing with companies that are not affiliated with that financial institution. The Bear Stearns Funds does not share information with other companies for purposes of marketing solicitations.Therefore, The Bear Stearns Funds does not provide opt-out options to its shareholders. We reserve the right to change our privacy policy at any time. The examples contained within this notice are illustrations; they are not intended to be exclusive. This notice complies with a recently enacted Federal law and new SEC regulations regarding privacy. You may have additional rights under foreign or other domestic laws that may apply to you. May 2001 -16- This page intentionally left blank. -17- The Bear Stearns Funds 575 Lexington Avenue New York, NY 10022 1-800-766-4111 Michael Minikes Chairman of the Board and Trustee Doni L. Fordyce President and Trustee Peter M. Bren Trustee John S. Levy Trustee Robert E. Richardson Trustee Barry Sommers Executive Vice President Stephen A. Bornstein Vice President and Secretary Frank J. Maresca Vice President and Treasurer Vincent L. Pereira Assistant Treasurer INVESTMENT ADVISER DISTRIBUTOR Bear Stearns Asset Bear, Stearns & Co. Inc. Management Inc. 245 Park Avenue 575 Lexington Avenue New York, NY 10167 New York, NY 10022 TRANSFER AND DIVIDEND ADMINISTRATOR DISBURSEMENT AGENT Bear Stearns Funds PFPC Inc. Management Inc. Bellevue Corporate Center 575 Lexington Avenue 400 Bellevue Parkway New York, NY 10022 Wilmington, DE 19808 CUSTODIAN INDEPENDENT AUDITORS Custodial Trust Company Deloitte & Touche LLP 101 Carnegie Center Two World Financial Center Princeton, NJ 08540 New York, NY 10281 COUNSEL Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, NY 10022 This report is submitted for the general information of the shareholders of the Portfolio. It is not authorized for distribution to prospective investors in the Portfolio unless it is preceded or accompanied by a current prospectus which includes details regarding the Portfolio's objectives, policies, and other information. Total investment return is based on historical results and is not intended to indicate future performance. Prime Money Market Portfolio is neither insured nor guaranteed by the U.S. Government, and there can be no assurance that the Prime Money Market Portfolio will be able to maintain a stable net asset value of $1.00 per share. BSF-R-017-08 -18-