-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QO3rFlMkTbGdw5PwfZjdrK4oqMoJ+WyRjbkC4ZcuTLw3nrVHtyKNyZPMJY1MJSYS ARWu2QuHKVG7f58jhIeF7g== 0000909012-02-000875.txt : 20021126 0000909012-02-000875.hdr.sgml : 20021126 20021126144719 ACCESSION NUMBER: 0000909012-02-000875 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021126 EFFECTIVENESS DATE: 20021126 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEAR STEARNS FUNDS CENTRAL INDEX KEY: 0000931145 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08798 FILM NUMBER: 02840900 BUSINESS ADDRESS: STREET 1: 383 MADISON AVENUE STREET 2: 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10179 BUSINESS PHONE: (212) 272-9027 MAIL ADDRESS: STREET 1: 383 MADISON AVENUE STREET 2: 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10179 N-30D 1 t25014.txt SEMI ANNUAL REPORT 9/30/02 THE BEAR STEARNS FUNDS o Prime Money o o Market Portfolio o SEMI-ANNUAL REPORT SEPTEMBER 30, 2002 BEAR STEARNS T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio LETTER TO SHAREHOLDERS October 25, 2002 Dear Shareholders: We are pleased to present you with the semi-annual report for the Prime Money Market Portfolio (the "Portfolio") for the six months ended September 30, 2002. During the period, corporate governance scandals, a slower-than-expected economic recovery and growing geopolitical risk drove investors out of equities and into fixed income, causing the U.S. Treasury market to rally and yields to fall across the entire maturity spectrum. The two-year Treasury note ended the period at its lowest rate since it began regular issuance in 1972. The short end of the yield curve flattened, with the three to six month part of the curve becoming inverted by the period's end, an indicator that a cut in the targeted Federal Funds rate is increasingly probable. Early in the period, GDP growth for the first quarter came in at a surprisingly strong rate of 6.1% (since revised to 5.0%). This led the Federal Reserve Board to shift from a bias of weakness to a neutral stance on the economy-a position it held through July. The Fed kept the targeted Fed Funds rate steady at 1.75%, its lowest level in 40 years. At the end of April, the Fed Funds futures market reflected this optimism, implying a rate increase of 75 basis points by year-end. By August, however, the Fed changed its stance back to one of economic weakness on news of a slowing economy, the growing threat of war with Iraq and record stock market volatility. By the end of the period, the Fed Funds futures market had factored in a rate decrease of 25 basis points by year-end. Uncertainty regarding the Fed's next interest rate move led us to be somewhat cautious during the period. Early in the period, we maintained a somewhat shorter average maturity in anticipation of an increase in the Fed Funds rate. However, as it became clear that economic growth was slowing, we began to lengthen the Portfolio's maturity in anticipation that the Fed would leave rates stable or even lower them. The Portfolio closed the period with an average maturity of 54 days. In the months ahead, we expect performance for the fixed income markets to be more tempered. We do, however, believe that if economic sluggishness persists and unemployment numbers deteriorate further, the Fed's next move will be to reduce the targeted Fed Funds rate. For the Portfolio, we will continue our strategy of investing opportunistically in money market sectors that offer a yield advantage, while at the same time continuing to focus on high quality issuance. We will keep a vigilant watch on changes in the credit quality of issuers, as well as on the Fed's guidance, the release of key economic data, and the Fed Funds futures market for signs of interest rate movements in either direction. We appreciate your continued support. Please feel free to call at 1-800-766-4111 with any questions or concerns you may have. Sincerely, /S/ DONI L. FORDYCE - ------------------- Doni L. Fordyce President and Trustee -1-
T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED) - ------------------------------------------------------------------------------------------------------ PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000's) RATE(S) DATE(S) VALUE - ------------------------------------------------------------------------------------------------------ CERTIFICATES OF DEPOSITS - 41.37% BANKS - DOMESTIC - 4.21% $ 20,000 Southtrust Bank N.A. [A-1, P-1] 1.750% 03/04/03 $ 20,000,000 64,000 State Street Bank & Trust Co. [A-1+, P-1] 1.710 - 2.290 10/07/02 - 06/18/03 64,030,856 5,700 Wells Fargo Bank NA [A-1+, P-1] 1.750 10/24/02 5,700,177 ------------- 89,731,033 ------------- BANKS - EURO - CANADA - 0.56% 12,000 Royal Bank of Canada [A-1+, P-1] 1.660 11/18/02 11,998,876 ------------- BANKS - EURO - FRANCE - 1.27% 16,000 BNP Paribas [A-1+, P-1] 2.170 11/04/02 15,998,004 11,000 Societe Generale [A-1+, P-1] 1.730 02/07/03 11,000,392 ------------- 26,998,396 ------------- BANKS - EURO - GERMANY - 2.54% 10,000 Deutsche Bank AG [A-1+, P-1] 2.300 11/19/02 10,001,570 44,000 Landesbank Hessen-Thuringen Girozentrale [A-1+, P-1] 1.900 - 2.020 10/24/02 - 09/12/03 44,001,949 ------------- 54,003,519 ------------- BANKS - EURO - NETHERLANDS - 2.49% 53,000 ING Bank N.V. [A-1+, P-1] 1.700 - 1.970 11/15/02 - 09/12/03 53,000,000 ------------- BANKS - EURO - UNITED KINGDOM - 4.00% 45,000 Barclays Bank plc [A-1+, P-1] 1.780 10/04/02 - 10/16/02 45,000,096 40,000 Lloyds TSB Bank plc [A-1+, P-1] 2.600 - 2.650 05/16/03 - 05/20/03 40,089,399 ------------- 85,089,495 ------------- BANKS - YANKEE - AUSTRALIA - 1.79% 14,000 Australia & New Zealand Banking Group [A-1+, P-1] 2.375 03/03/03 14,009,962 24,000 Westpac Banking Corp. [A-1+, P-1] 2.355 03/10/03 23,996,308 ------------- 38,006,270 ------------- BANKS - YANKEE - CANADA - 1.13% 10,000 Royal Bank of Canada [A-1+, P-1] 2.000 10/15/02 9,998,834 14,000 Toronto-Dominion Bank [A-1+, P-1] 2.040 11/13/02 13,996,505 ------------- 23,995,339 ------------- BANKS - YANKEE - FRANCE - 3.50% 14,000 BNP Paribas [A-1+, P-1] 1.800 12/11/02 14,001,195 36,500 Credit Agricole Indosuez [A-1+, P-1] 1.850 - 2.980 10/31/02 - 04/21/03 36,516,135 24,000 Societe Generale [A-1+, P-1] 2.000 - 2.010 12/05/02 - 10/27/03 24,001,283 ------------- 74,518,613 ------------- The accompanying notes are an integral part of the financial statements. -2- T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED) - ------------------------------------------------------------------------------------------------------ PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000's) RATE(S) DATE(S) VALUE - ------------------------------------------------------------------------------------------------------ CERTIFICATES OF DEPOSITS (continued) BANKS - YANKEE - GERMANY - 6.84% $ 10,000 Bayerische HYPO-UND Vereinsbank AG [A-1, P-1] 1.790% 10/18/02 $ 10,000,122 20,000 Deutsche Bank AG [A-1+, P-1] 2.570 12/23/02 20,007,544 38,500 Dresdner Bank AG [A-1+, P-1] 2.160 - 2.310 11/14/02 - 12/09/02 38,503,182 25,000 Norddeutsche Landesbank Girozentrale [A-1+, P-1] 1.730 10/28/02 25,000,000 52,000 Westdeutsche Landesbank Girozentrale [A-1+, P-1] 1.950 - 2.650 10/22/02 - 01/27/03 52,000,060 ------------- 145,510,908 ------------- BANKS - YANKEE - NETHERLANDS - 3.38% 33,500 ABN-AMRO Bank N.V. [A-1+, P-1] 2.380 - 2.605 01/15/03 - 06/06/03 33,560,880 38,250 Rabobank Nederland N.V. NY [A-1+, P-1] 2.220 - 2.505 12/09/02 - 03/28/03 38,322,880 ------------- 71,883,760 ------------- BANKS - YANKEE - SWEDEN - 2.68% 57,000 Svenska Handelsbanken AB [A-1, P-1] 1.770 - 2.040 10/03/02 - 11/08/02 56,999,939 ------------- BANKS - YANKEE - SWITZERLAND - 1.41% 30,000 UBS AG [A-1+, P-1] 2.490 - 2.650 10/15/02 - 11/29/02 30,000,642 ------------- BANKS - YANKEE - UNITED KINGDOM - 5.57% 50,000 Abbey National Treasury Service [A-1+, P-1] 1.690 - 1.760 10/18/02 - 12/19/02 50,000,298 68,500 Royal Bank of Scotland plc [A-1+, P-1] 1.760 - 2.730 10/02/02 - 04/22/03 68,557,260 ------------- 118,557,558 ------------- Total Certificates of Deposits (cost - $880,294,348) 880,294,348 ------------- COMMERCIAL PAPER - 21.58% COMMERCIAL FINANCE - 2.95% 20,000 General Electric Capital Corp. [A-1+, P-1] 1.684 02/03/03 19,884,028 43,000 Toyota Motor Credit Corp. [A-1+, P-1] 1.763 10/21/02 - 10/25/02 42,955,413 ------------- 62,839,441 ------------- CORPORATE LOAN CONDUIT - 1.19% 25,500 Greyhawk Funding, LLC [A-1+, P-1] 1.739 - 1.758 10/21/02 - 01/15/03 25,411,323 ------------- DEPARTMENT STORES - 0.56% 12,000 Wal-Mart Stores, Inc. [A-1+, P-1] 1.901 10/04/02 11,998,100 ------------- DIVERSIFIED RECEIVABLES CONDUIT - 14.67% 40,000 Alpine Securitization Corp. [A-1+, P-1] 1.759 - 1.782 10/15/02 - 12/13/02 39,938,672 44,956 Barton Capital Corp. [A-1+, P-1] 1.782 - 1.900 10/01/02 - 10/09/02 44,947,364 15,000 Enterprise Funding Corp. [A-1+, P-1] 1.783 10/15/02 14,989,617 53,000 Eureka Securitization [A-1+, P-1] 1.795 - 1.802 10/16/02 - 10/28/02 52,948,063 The accompanying notes are an integral part of the financial statements. -3- T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED) - ------------------------------------------------------------------------------------------------------ PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000's) RATE(S) DATE(S) VALUE - ------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER (continued) DIVERSIFIED RECEIVABLES CONDUIT (CONTINUED) $ 54,450 Govco, Inc. [A-1+, P-1] 1.758 - 1.784% 10/10/02 - 12/02/02 $ 54,340,055 42,000 Old Line Funding [A-1+, P-1] 1.785 - 1.812 10/15/02 - 11/26/02 41,931,201 31,000 Park Avenue Receivables Corp. [A-1, P-1] 1.791 - 1.812 10/09/02 - 10/15/02 30,983,078 32,000 Windmill Funding Corp. [A-1+, P-1] 1.772 - 1.803 10/01/02 - 10/30/02 31,975,350 ------------- 312,053,400 ------------- GAS & OIL - 0.78% 16,500 Koch Industries, Inc. [A-1+, P-1] 1.762 10/11/02 16,491,933 ------------- INVESTMENT STRUCTURE - 0.49% 10,500 Sigma Finance, Inc. [A-1+, P-1] 1.708 11/12/02 10,479,175 ------------- SECURITY BROKERS & DEALERS - 0.94% 20,000 Goldman Sachs & Co. [A-1+, P-1] 1.763 10/15/02 19,986,311 ------------- Total Commercial Paper (cost - $459,259,683) 459,259,683 ------------- CORPORATE OBLIGATIONS - 10.70% BANKS - DOMESTIC - 4.32% 18,500 Bank One, N.A.* [A-1, P-1] 1.920 10/07/02 18,512,295 15,500 First Union National Bank* [A-1, P-1] 2.040 10/18/02 15,508,331 18,000 US Bank NA* [A-1, P-1] 1.970 10/16/02 18,032,268 40,000 Wells Fargo Bank, N.A.* [A-1+, P-1] 1.763 - 1.820 10/01/02 - 10/15/02 40,000,115 ------------- 92,053,009 ------------- BANKS - YANKEE - CANADA - 0.52% 11,000 Bank of Nova Scotia* [A-1, P-1] 1.804 10/25/02 11,002,166 ------------- BANKS - YANKEE - GERMANY - 0.73% 15,500 Norddeutsche Landesbank Girozentrale* [A-1+, P-1] 1.770 10/18/02 15,496,981 ------------- COMMERCIAL FINANCE - 1.42% 30,185 General Electric Capital Corp.* [A-1+, P-1] 1.815 - 1.854 10/07/02 - 10/24/02 30,186,813 ------------- INSURANCe - 1.88% 40,000 Travelers Insurance Co.* [A-1+, P-1] 1.890 - 1.897 10/28/02 40,000,000 ------------- INVESTMENT STRUCTURE - 1.83% 39,000 Sigma Finance, Inc.* [A-1+, P-1] 1.790 - 1.814 10/09/02 - 10/25/02 38,999,273 ------------- Total Corporate Obligations (cost - $227,738,242) 227,738,242 ------------- The accompanying notes are an integral part of the financial statements. -4- T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED) - ------------------------------------------------------------------------------------------------------ INTEREST/ DISCOUNT MATURITY SHARES RATE(S) DATE(S) VALUE - ------------------------------------------------------------------------------------------------------ INVESTMENT COMPANIES - 0.02% 492 Federated Trust Prime Obligations (1) 1.730% -- $ 492 444,987 One Group Prime Money Market - Institutional Class (1) 1.810 -- 444,987 ------------- Total Investment Companies (cost - $445,479) 445,479 ------------- PRINCIPAL AMOUNT (000's) REPURCHASE AGREEMENTS** - 25.94% $175,863 ABN-AMRO Inc. [A-1+, P-1] 1.950 10/01/02 175,863,000 154,000 JPMorgan Securities Inc. [A-1, P-1] 1.960 10/01/02 154,000,000 222,000 Wachovia Securities Inc. [A-1, P-1] 1.950 10/01/02 222,000,000 ------------- Total Repurchase Agreements (cost - $551,863,000) 551,863,000 ------------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.21% FEDERAL HOME LOAN BANK - 1.27% 27,000 Unsecured Bonds 1.900 - 2.000 10/22/03 - 10/27/03 26,998,125 ------------- FREDDIE MAC - 0.94% 20,000 Unsecured Notes, MTN 1.900 10/27/03 20,000,000 ------------- Total U.S. Government Agency Obligations (cost - $46,998,125) 46,998,125 ------------- Total Investments - 101.82% (cost - $2,166,598,877)*** 2,166,598,877 Liabilities in excess of other assets - (1.82)% (38,623,597) -------------- Net Assets - 100.00% $2,127,975,280 ============== - ---------- MTN Medium Term Note. * Variable Rate Obligations - The rate shown is the rate as of September 30, 2002 and the maturity date as 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 for financial reporting purposes. (1) Money market fund; interest rate reflects SEC seven-day yield at September 30, 2002. The accompanying notes are an integral part of the financial statements.
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T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2002 (UNAUDITED) ASSETS Investments, at amortized cost which approximates market value (identified and tax cost - $2,166,598,877) ................................. $ 2,166,598,877 Interest receivable ................................................................ 8,784,209 Prepaid expenses ................................................................... 51,057 --------------- Total assets .................................................................. 2,175,434,143 --------------- LIABILITIES Payable for investments purchased .................................................. 43,998,125 Dividends payable .................................................................. 3,041,886 Advisory fee payable ............................................................... 191,331 Administration fee payable ......................................................... 91,618 Custodian fee payable .............................................................. 39,541 Accrued expenses ................................................................... 96,362 --------------- Total liabilities ............................................................. 47,458,863 --------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) 2,128,011 Paid-in capital .................................................................... 2,125,883,015 Accumulated net realized loss from investments ..................................... (35,746) --------------- Net assets ......................................................................... $ 2,127,975,280 =============== CLASS Y Net Assets ......................................................................... $ 2,127,975,280 --------------- Shares of beneficial interest outstanding .......................................... 2,128,011,026 --------------- Net asset value, offering and redemption price per share ........................... $ 1.00 =============== The accompanying notes are an integral part of the financial statements.
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T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 (unaudited) INVESTMENT INCOME Interest .................................................... $ 24,217,040 ------------ EXPENSES Advisory fees ............................................... 2,428,065 Administration fees ......................................... 607,025 Accounting fees ............................................. 194,501 Custodian fees and expenses ................................. 122,167 Legal and auditing fees ..................................... 42,954 Transfer agent fees and expenses ............................ 16,909 Reports and notices to shareholders ......................... 10,636 Federal and state registration fees ......................... 7,507 Trustees' fees and expenses ................................. 5,516 Insurance expenses .......................................... 4,233 Amortization of organization expenses ....................... 3,883 Other ....................................................... 34,059 ------------ Total expenses before waivers ....................... 3,477,455 Less: waivers ....................................... (1,049,328) ------------ Total expenses after waivers ........................ 2,428,127 ------------ Net investment income ....................................... 21,788,913 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ $ 21,788,913 ============ The accompanying notes are an integral part of the financial statements.
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T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio STATEMENTS OF CHANGES IN NET ASSETS For the Six Months For the Ended Fiscal Year September 30, Ended 2002 March 31, (unaudited) 2002 --------------- --------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income ................................... $ 21,788,913 $ 62,276,088 Net realized gain on investments ........................ -- 117 --------------- --------------- Net increase in net assets resulting from operations .... 21,788,913 62,276,205 --------------- --------------- DIVIDENDS TO SHAREHOLDERS FROM Net investment income ................................... (21,788,913) (62,276,088) --------------- --------------- SHARES OF BENEFICIAL INTEREST* Net proceeds from the sale of shares .................... 3,785,049,174 8,686,821,236 Cost of shares repurchased .............................. (4,315,015,265) (8,071,947,269) Shares issued in reinvestment of dividends .............. 20,220,798 59,200,452 --------------- --------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions ..................... (509,745,293) 674,074,419 --------------- --------------- Total increase/(decrease) in net assets ................. (509,745,293) 674,074,536 NET ASSETS Beginning of period ..................................... 2,637,720,573 1,963,646,037 --------------- --------------- End of period ........................................... $ 2,127,975,280 $ 2,637,720,573 =============== =============== - -------- * Share transactions at net asset value of $1.00 per share. The accompanying notes are an integral part of the financial statements.
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T H E B E A R S T E A R N S F U N D S 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 FOR THE SIX MONTHS PERIOD ENDED JULY 14, 1997* SEPTEMBER 30, THROUGH 2002 FOR THE FISCAL YEARS ENDED MARCH 31, MARCH 31, (UNAUDITED) 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance Net asset value, beginning of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 Net investment income (1) 0.0090 0.0308 0.0622 0.0526 0.0524 0.0399 Net increase in net assets resulting from operations 0.0090 0.0308 0.0622 0.0526 0.0524 0.0399 Dividends to shareholders from net investment income (0.0090) (0.0308) (0.0622) (0.0526) (0.0524) (0.0399) Net asset value, end of period $1.0000 $1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 Total investment return (2) 0.90% 3.13% 6.40% 5.39% 5.37% 4.08% Ratios/Supplemental Data Net assets, end of period (000's omitted) $2,127,975 $2,637,721 $1,963,646 $913,907 $386,201 $121,460 Ratio of expenses to average net assets (1) 0.20%(3) 0.20% 0.20% 0.20% 0.20% 0.13%(3) Ratio of net investment income to average net assets (1) 1.79%(3) 2.95% 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 0.09%(3) 0.10% 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.
-9- T H E B E A R S T E A R N S F U N D S Prime Money Market Portfolio NOTES TO FINANCIAL STATEMENTS - (UNAUDITED) 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 "SEC") under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end management investment company. The Fund consists of ten separate portfolios: six diversified portfolios, Intrinsic Value Portfolio (formerly, Large Cap Value Portfolio), Small Cap Value Portfolio, Income Portfolio, International Equity 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, S&P STARS Opportunities Portfolio and Alpha Growth Portfolio (formerly, Focus List Portfolio). As of the date hereof, the Portfolio offers one class of shares, which has been designated as Class Y shares. Each portfolio is treated as a separate entity for certain matters under the Investment Company Act, and for other purposes, a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. 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 amortized using the straight-Iine method over the period of benefit not exceeding sixty months (concluding during the period), 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 from securities transactions 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. -10- At March 31, 2002, the Portfolio had gross capital loss carryforwards of $35,746, of which $34,426 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. 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 the 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 six months ended September 30, 2002, 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 six months ended September 30, 2002, 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. For the six months ended September 30, 2002, the Adviser has undertaken to limit the Portfolio's operating expenses (exclusive of brokerage commissions, taxes, interest and extraordinary items) 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 six months ended September 30, 2002, the Adviser waived advisory fees of $1,049,328 in order to maintain the expense limitation. The Portfolio will not pay BSAM at a later time for any amounts BSAM may waive, nor will the Portfolio reimburse BSAM for any amounts BSAM may assume. 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. -11- 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 September 30, 2002, 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 259,014,424 of Class Y shares or approximately 12% of the shares outstanding. COLLATERAL FOR REPURCHASE AGREEMENTS Listed below is the collateral associated with the repurchase agreements outstanding at September 30, 2002:
PRINCIPAL ACCRUED ISSUER AMOUNT MATURITY DATES INTEREST RATES MARKET VALUE INTEREST TOTAL VALUE ABN-AMRO Inc. Fannie Mae, Pass-through Pools $151,745,000 11/15/10 - 03/15/12 6.125 - 6.625% $176,112,532 $3,267,862 $179,380,394 ============ ========== ============ JPMorgan Securities Inc. Government National Mortgage Association, Pass-through Pools $206,143,525 01/15/26 - 08/15/32 6.000 - 7.000% $156,293,660 $ 786,573 $157,080,233 ============ ========== ============ Wachovia Securities Inc. Fannie Mae, Pass-through Pools $240,414,086 12/01/16 - 10/01/32 5.000 - 9.000% $195,931,569 $ 952,976 $196,884,545 Freddie Mac, Pass-through Pools 28,908,304 01/01/32 - 10/01/32 5.500 - 6.000 29,427,392 128,064 29,555,456 ------------ ---------- ------------ $225,358,961 $1,081,040 $226,440,001 ============ ========== ============
CREDIT FACILITY The Fund has entered into a demand promissory note agreement with JPMorgan Chase 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 331/3% of its total 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. The Portfolio had no amounts outstanding under the credit facility at or for the six months ended September 30, 2002. -12- This page is intentionally left blank. This page is intentionally left blank. The Bear Stearns Funds 383 Madison Avenue, New York, NY 10179 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 M.B. Oglesby, Jr. Trustee Robert E. Richardson Trustee Robert M. Steinberg 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. 383 Madison Avenue 383 Madison Avenue New York, NY 10179 New York, NY 10179 TRANSFER AND DIVIDEND ADMINISTRATOR DISBURSEMENT AGENT Bear Stearns Funds PFPC Inc. Management Inc. Bellevue Corporate Center 383 Madison Avenue 400 Bellevue Parkway New York, NY 10179 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 The financial information included herein is taken from the records of the Portfolio without examination by independent auditors who do not express an opinion thereof. 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. The Bear Stearns Funds -----END PRIVACY-ENHANCED MESSAGE-----