N-30D 1 n-30d.txt N-30D 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 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 Bear Stearns Asset Management Inc. 575 Lexington Avenue New York, NY 10022 ADMINISTRATOR Bear Stearns Funds Management Inc. 575 Lexington Avenue New York, NY 10022 DISTRIBUTOR Bear, Stearns & Co. Inc. 245 Park Avenue New York, NY 10167 INCOME PORTFOLIO AND HIGH YIELD TOTAL RETURN PORTFOLIO: CUSTODIAN Custodial Trust Company 101 Carnegie Center Princeton, NJ 08540 TRANSFER AND DIVIDEND DISBURSEMENT AGENT PFPC Inc. Bellevue Corporate Center 400 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, NY 10281 COUNSEL Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, NY 10022 EMERGING MARKETS DEBT PORTFOLIO: CUSTODIAN Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109 This report is submitted for the general information of the shareholders of each Portfolio. It is not authorized for distribution to prospective investors in each Portfolio unless it is preceded or accompanied by a current prospectus which includes details regarding each Portfolio's objectives, policies, sales commissions and other information. Total investment return is based on historical results and is not intended to indicate future performance. The investment return and principal value of an investment in each Portfolio will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than original cost. BSF-R-016-06 THE BEAR STEARNS FUNDS FIXED INCOME FUNDS -Income Portfolio -High Yield Total Return Portfolio -Emerging Markets Debt Portfolio ANNUAL REPORT MARCH 31, 2000 [LOGO] THE BEAR STEARNS FUNDS Income Portfolio High Yield Total Return Portfolio Emerging Markets Debt Portfolio LETTER TO SHAREHOLDERS April 30, 2000 Dear Shareholders: We are pleased to present the annual report to shareholders for the Income Portfolio, High Yield Total Return Portfolio ("High Yield Portfolio") and Emerging Markets Debt Portfolio ("EMD Portfolio") for the fiscal year ended March 31, 2000. Detailed performance data for each class of shares of each Portfolio can be found in the "Financial Highlights" and line graph sections of this report. INCOME PORTFOLIO For the fiscal year ended March 31, 2000, the Income Portfolio's Class A shares had a total return of 0.77% (without giving effect to the sales charge) and both Class B and C shares had a total return of 0.12% (without giving effect to the contingent deferred sales charge)(1). The Income Portfolio's broad-based securities market index, the Salomon Smith Barney Broad Investment Grade Bond Index, returned 1.81% for the same period. The Lipper A Rated Bond Fund Index returned 0.87% for the same period. Interest rates rose sharply during the past twelve months as economic growth continued to accelerate worldwide. Faced with strong economic growth in the U.S., record low unemployment and rising commodity prices, the Federal Reserve Board raised interest rates three times in 1999 and twice more so far this year to keep the threat of inflation at bay. In response to the rate hikes last fall, the yield curve flattened (i.e., long-term interest rates were roughly the same as intermediate-term interest rates), indicating that the market believed the Fed would be successful in its efforts. However, long-term rates fell dramatically in the early part of 2000 as nervous stock investors switched to the relative safety and greater liquidity of long-term Treasury bonds. In addition, the U.S. Government began buying back its outstanding bonds and announced that it would hold fewer 30-year auctions, thereby reducing supply as demand was increasing. This imbalance drove up Treasury bond prices, causing long-term yields to fall -- and the yield curve to "invert." By quarter-end, the 2-year Treasury yield was 64 basis points higher than the 30-year yield. As Treasury bond prices rose, investors would normally have turned to agency issues as a substitute, since they carry the real or implied guarantee of the government. However, during the quarter, the Treasury voiced increasing concern about its ability to guarantee an expected surge in agency debt. This caused the yield differential ("spread") between Treasuries and agency issues to widen, beginning a domino effect that rippled through other sectors of the market. As a result, the spread between Treasuries and other issues -- which had narrowed in 1999 -- widened dramatically by the 1 end of March; high yield issues were particularly hard hit. Corporate bond yields also widened due to the "event risk" created by the volatility in the stock market and the pace of corporate refinancing. With many stocks trading at depressed levels, an increasing number of companies have turned to leveraged buyouts to enhance shareholder value -- to the detriment of their bondholders. As companies re-leverage their balance sheets, they increase the risk of a sudden credit downgrade. Looking ahead, we expect yield differentials to narrow, supported by the strength in the U.S. and global economies. In this environment, we will continue to emphasize corporate and mortgage-backed issues, which have become very cheap. To maintain quality, we are focusing on issues of large companies in sectors of the economy that are less likely to succumb to restructuring, such as financial services, energy producers and retail sales. Although we believe there are good values to be found in the high yield market, we are not aggressively looking for issues in this sector due to particularly unfavorable technical factors. With the yield curve inverted, we will continue to focus on 2-7 year maturities, where we are finding the best value. HIGH YIELD TOTAL RETURN PORTFOLIO* For the fiscal year ended March 31, 2000, the High Yield Portfolio's Class A shares had a total return of (4.68)% (without giving effect to the sales charge) and both Class B and C shares had a total return of (5.29)% (without giving effect to the contingent deferred sales charge)(2). The High Yield Portfolio's broad-based securities market index, the Credit Suisse First Boston Global High Yield Index, returned 0.30% for the same period. The Lipper High Yield Bond Fund Index returned (0.02)% for the same period. STRONG FUNDAMENTALS IN A WEAK MARKET During the fiscal year, the high yield market was battered by technical conditions in the market and changes in government policy, rather than any fundamental weakness in the sector. In a period of strong economic growth, both in the U.S. and abroad, the high yield market typically performs well, since corporate earnings growth enhances the credit quality of issuers, but so far that has not happened. During the twelve-month period just ended, the Federal Reserve Board raised interest rates five times to stem inflationary pressures -- actions perceived as detrimental to corporate profits, since rising rates can increase the cost of borrowing. In addition, 1999 was a year in which investors were drawn primarily to technology and Internet stocks to the exclusion of almost everything else. What few "new economy" high yield opportunities there were tended to be only tangentially related to these sectors. The situation was only made worse as high yield issuance increased and net redemptions from high yield bond funds continued. This combination of lack of interest, heavy supply and weak demand added up to a poor technical environment and a disappointing year for high yield investors. Looking ahead, we believe that there are reasons for optimism. As value opportunities reached bargain levels earlier this year in bonds as well as stocks, investors started paying attention to non-technology sectors, and the fundamentals of many areas of the high yield market are excellent. Credit quality is improving along with robust corporate earnings in the U.S. and abroad. After peaking in 1999, the default rate on high yield issues has moderated, a trend we expect to continue. In addition, valuations are very attractive. Recently, the price for the average high yield bond was as low as 85 cents on the dollar, well below the long-term average of 95 cents on the dollar. 2 With strong fundamentals and attractive valuations as the backdrop, we believe the stage is set for modest spread narrowing over the remainder of the year. Given the strength of the U.S. economy, credit quality is solid and improving. Because periods of strong economic growth tend to benefit lower-rated bonds, we have maintained an overweighting in our B-rated holdings. In addition, we have maintained an overweighting in economically sensitive areas such as chemicals, metals and general industrial bonds, where values are still cheap. The High Yield Portfolio also remains overweighted in media and telecommunications issues, which should continue to benefit from the industries' fast growth rate and continuing positive events stemming from heavy merger and acquisition activity. EMERGING MARKETS DEBT PORTFOLIO** For the fiscal year ended March 31, 2000, the EMD Portfolio's Class A shares had a total return of 24.54% (without giving effect to the sales charge) and Class B and C shares had a total return of 23.88% and 23.86%, respectively, (without giving effect to the contingent deferred sales charge)(3). The EMD Portfolio's benchmark index, the Salomon Smith Barney Emerging Markets Debt Mutual Fund Index ("EMMF Index"), returned 29.25% for the same period. Effective April 1, 2000, the EMD Portfolio's benchmark index was changed to the J.P. Morgan Emerging Market Bond Index-Global Constrained, which we believe better represents the evolving universe of emerging market debt. It is a broader index that includes more countries and a wider variety of bonds than the EMMF Index and is updated more frequently. When seen in the wake of the financial crisis that gripped the emerging markets in late-1998 and early 1999, the extent of the economic recovery and general stability that prevails in most of the larger emerging market economies is remarkable. Although progress has been uneven, many of these countries have begun implementing economic reforms to keep attracting capital, and net private capital flows have resumed. In addition, ongoing involvement by the International Monetary Fund, strong import demand created by worldwide economic growth, higher commodity prices and some belt-tightening by the largest borrowers have reduced default risk significantly. The results of important elections in Indonesia, Mexico and Russia bode well for continued reform. UNEXPECTED RECOVERY IN RUSSIAN DEBT Russian and Brazilian debt were the EMD Portfolio's best performers during the fiscal year. Russian assets returned an astounding 249% as the country's national accounts swung from deficit to surplus resulting from high oil prices, economic growth, unexpected success in improving tax collections, and an agreement on terms to restructure the country's commercial debt. The election of a new legislature and president also raised hopes for more aggressive economic reforms. Brazil's debt returned more than 30% as the government passed a series of fiscal responsibility laws aimed at reducing the country's large fiscal deficits. Russia and Brazil are particularly important since developments in these countries greatly affect their neighbors as well as investors' perceptions of emerging markets in general. The worst performing markets were in the Ivory Coast (-26%) and Ecuador (-13%), both of which fell due to high debt levels, political disarray and missed coupon payments. Our outlook for emerging market debt over the medium-term remains positive. Strong economic growth in the industrialized nations, a high level of foreign direct investment and progress toward implementing structural changes continue to support the ability of many emerging countries to service debt. A number of the larger emerging countries, including Brazil and Argentina, have enacted significant fiscal reforms. Improving credit ratings in others are evidence of progress, 3 which confirms our view that the credit cycle is resuming its longer-term uptrend. During the first quarter of 2000, rating upgrades exceeded downgrades by a considerable margin. Although country-specific risks remain, we believe that the most significant risks are external, specifically, commodity price developments, the impact of further increases in U.S. short-term interest rates, and efforts to include private-sector creditors in sovereign debt restructurings. With respect to commodity prices, however, a country's bond prices are more closely correlated with its response to changes in these prices rather than their absolute level. Similarly, we believe that emerging market bond prices are becoming less sensitive to changes in U.S. interest rates as their financing needs decrease. Structural reforms over the past five years have generally reduced government deficits, and big current account deficits are increasingly covered by private inflows rather than by government borrowing. In addition, governments have taken meaningful steps to increase the average maturity of their debt. As a result, total interest costs should rise less than in the past if the U.S. raises short-term rates. In conclusion, we value the confidence you have placed in us and would be pleased to address any questions or concerns you may have. Please feel free to call us at 1-800-766-4111. Sincerely, [Doni L. Fordyce] Doni L. Fordyce President and Trustee The Bear Stearns Funds ---------- * Investing in high yield debt securities generally involves greater risks than investing in more highly rated debt securities such as the risk of greater price fluctuation and the possible loss of principal and income. ** Investing in emerging markets debt involves special risks such as currency exchange-rate volatility, possible political, social, or economic instability and differences in taxation and other financial standards. (1)For the fiscal year ended March 31, 2000, the Income Portfolio's Class A shares had a total return of (3.74)%, including the initial 4.50% maximum sales charge, Class B shares returned (4.62)% including the 5.00% CDSC and Class C shares returned (0.83)%, including the 1.00% CDSC. (2)For the fiscal year ended March 31, 2000, the High Yield Portfolio's Class A shares had a total return of (9.00)%, including the initial 4.50% maximum sales charge, Class B shares returned (9.60)% including the 5.00% CDSC and Class C shares returned (6.16)%, including the 1.00% CDSC. (3)For the fiscal year ended March 31, 2000, the EMD Portfolio's Class A shares had a total return of 18.90%, including the initial 4.50% maximum sales charge, Class B shares returned 18.87% including the 5.00% CDSC and Class C shares returned 22.86%, including the 1.00% CDSC. CDSC Contingent deferred sales charge. Bear Stearns Asset Management Inc. has waived a portion of its advisory fee and agreed voluntarily to reimburse a portion of each Portfolio's operating expenses, as necessary, to maintain the expense limitation as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. 4 THE BEAR STEARNS FUNDS Income Portfolio COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES [EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC] TOTAL RETURNS
ONE YEAR ENDED AVERAGE MARCH 31, 2000 ANNUAL(7) Income Portfolio(2) Class A shares(5) (3.74)% 4.76% Class B shares(4) (4.62) 1.10 Class C shares(6) (0.83) 5.21 Class Y shares(3) 1.13 5.38 Salomon Smith Barney Broad Investment Grade Bond Index(1) 1.81 7.06 Lipper A Rated Bond Fund Index(1) 0.87 6.57
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Income Portfolio and reflects all portfolio expenses. Investors should note that the Income Portfolio is a professionally managed mutual fund while the indices are unmanaged, do not incur sales charges or expenses and are not available for investment. Performance of the indices correspond to the performance of Class A and C shares. (2) Bear Stearns Asset Management Inc. waived its advisory fee and agreed to voluntarily reimburse a portion of the Income Portfolio's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) The returns of Class Y shares (for which September 8, 1995 was the initial public offering date) is higher than Class A and C shares due to the fact that there is no sales load, contingent deferred sales charge or 12b-1 fee charged to Class Y shares. (4) Assuming no redemption of shares at the end of the period, the returns of Class B shares (for which February 2, 1998 was the initial public offering date) would have been higher than Class A shares and would have been substantially the same as Class C shares if operations were commenced on the same day. The higher return is due to the fact that there is no initial sales charge on Class B shares. Total returns reflect the applicable contingent deferred sales charge. Without the applicable sales charge, the total returns would have been 0.12% and 2.36%, respectively, for each period shown. (5) Reflects the initial maximum sales charge (4.50%). Without the applicable sales charge, the total returns would have been 0.77% and 5.74%,respectively, for each period shown. (6) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total return for the one year ended March 31, 2000 would have been 0.12%. (7) For the period of April 5, 1995 (commencement of investment operations) through March 31, 2000, unless otherwise indicated. 5 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A, B AND C SHARES(1)(2)(3) VS. VARIOUS INDICES [EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC] TOTAL RETURNS
ONE YEAR ENDED AVERAGE MARCH 31, 2000 ANNUAL(3) High Yield Total Return Portfolio(2) Class A shares(4) (9.00)% (1.35)% Class B shares(5) (9.60) (1.03) Class C shares(6) (6.16) 0.06 Credit Suisse First Boston Global High Yield Index(1) 0.30 1.12 Lipper High Yield Bond Fund Index(1) (0.02) 1.37
----------- (1) The chart assumes a hypothetical $10,000 initial investment in the High Yield Portfolio and reflects all portfolio expenses. Investors should note that the High Yield Portfolio is a professionally managed mutual fund while the indices are either unmanaged, do not incur sales charges or expenses and are not available for investment. The Credit Suisse First Boston Global High Yield Index began in 1986 and is based on monthly returns. (2) Bear Stearns Asset Management Inc. waived a portion of its advisory fee and agreed to voluntarily reimburse a portion of the High Yield Portfolio's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) For the period January 2, 1998 (commencement of investment operations) through March 31, 2000. (4) Reflects the initial maximum sales charge (4.50%). Without the applicable sales charge, the total returns would have been (4.68)% and 0.71%, respectively, for each period shown. (5) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total returns would have been (5.29)% and 0.06%, respectively, for each period shown. (6) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total return for the one year ended March 31, 2000 would have been (5.29)%. 6 THE BEAR STEARNS FUNDS Emerging Markets Debt Portfolio COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A SHARES(1)(2)(3) VS. ITS BROAD-BASED INDEX [EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC] TOTAL RETURNS
ONE YEAR ENDED AVERAGE MARCH 31, 2000 ANNUAL(4) Emerging Markets Debt Portfolio(2) Class A shares(5) 18.90% 17.22% Class B shares(3) 18.87 5.54 Class C shares(3) 22.86 17.52 Salomon Smith Barney Emerging Markets Debt Mutual Fund Index(1) 29.25 21.08
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the EMD Portfolio and reflects all portfolio expenses. Investors should note that the EMD Portfolio is a professionally managed mutual fund while the index is unmanaged, does not incur sales charges or expenses and is not available for investment. Performance of the index corresponds to the performance of Class A shares only. (2) Bear Stearns Asset Management Inc. waived a portion of its advisory fee and agreed to voluntarily reimburse a portion of the EMD Portfolio's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements; total returns would have been lower had there been no assumption of fees and expenses in excess of the expense limitations. (3) Assuming no redemption of shares at the end of the period, the returns of Class B and C shares (for which January 12, 1998 and July 26, 1995, respectively, were the initial public offering dates) would have been higher than Class A shares if operations were commenced on the same day. The higher return is due to the fact that there is no initial sales charge on Class B and C shares. Total returns reflect the applicable contingent deferred sales charges. Without the applicable sales charges for Class B shares, the total returns would have been 23.88% and 6.71%, respectively, for each period shown. Without the applicable sales charge for Class C shares, the total return for the one year ended March 31, 2000 would have been 23.86%. (4) Commencing May 4, 1995, Bear Stearns Asset Management Inc. assumed the daily portfolio management responsibility for the EMD Portfolio. Total returns for Class A shares are shown for the period May 4, 1995 through March 31, 2000. For the period May 3, 1993 (commencement of investment operations) through May 3, 1995 the EMD Portfolio's investment adviser was BEA Associates and those results are not shown. (5) Reflects the initial maximum sales charge (4.50%). Without the applicable sales charge, the total returns would have been 24.54% and 18.33%, respectively, for each period shown. 7 THE BEAR STEARNS FUNDS Income Portfolio MARCH 31, 2000 (UNAUDITED) -------------------------------------------------------------------------------- TOP TEN INDUSTRY/SECTOR WEIGHTINGS* --------------------------------------------------------------------------------
PERCENT OF RANK INDUSTRY/SECTOR NET ASSETS 1. U.S. Government Agency Obligations ............................................................ 36.63 2. Industrial .................................................................................... 11.20 3. Finance ....................................................................................... 10.19 4. Asset-Backed .................................................................................. 9.72 5. U.S. Government Obligations ................................................................... 7.52 6. Utilities ..................................................................................... 5.22 7. Telecommunications ............................................................................ 4.06 8. Telephone - Local ............................................................................. 3.35 9. Multimedia .................................................................................... 2.00 10. Super-Regional Bank - U.S. .................................................................... 0.99
-------------------------------------------------------------------------------- TOP TEN HOLDINGS* --------------------------------------------------------------------------------
PERCENT OF RANK HOLDINGS INDUSTRY/SECTOR NET ASSETS 1. Government National Mortgage Association ................. U.S. Government Agency Obligations 26.98 2. Fannie Mae ............................................... U.S. Government Agency Obligations 9.65 3. U.S. Treasuries .......................................... U.S. Government Obligations 7.52 4. Western Resources Inc. ................................... Utilities 2.41 5. Conti-Mortgage Home Equity Loan Trust .................... Asset-Backed 2.27 6. Washington Mutual Capital I .............................. Finance 2.13 7. Time Warner Inc. ......................................... Multimedia 2.00 8. Cleveland Electric Illuminating Co. ...................... Utilities 1.74 9. LG-Caltex Oil Corporation ................................ Industrial 1.69 10. Lehman Brothers Holdings ................................. Finance 1.63
----------- * The Portfolio's composition will change over time. 8 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio MARCH 31, 2000 (UNAUDITED) -------------------------------------------------------------------------------- TOP TEN INDUSTRY WEIGHTINGS* --------------------------------------------------------------------------------
PERCENT OF RANK INDUSTRY NET ASSETS 1. Competitive Local Exchange Companies .......................................................... 12.78 2. Enhanced Service Mobile Radios & Personal Communication Services .............................. 9.00 3. Long Distance Telephone Services .............................................................. 5.78 4. International Cable ........................................................................... 5.43 5. Data & Internet Services ...................................................................... 5.15 6. Forest - Paper Products ....................................................................... 4.35 7. Healthcare .................................................................................... 3.96 8. North American Cable Services ................................................................. 3.88 9. Steel - Metals - Mining ....................................................................... 3.88 10. Chemicals ..................................................................................... 3.86
-------------------------------------------------------------------------------- TOP TEN HOLDINGS* --------------------------------------------------------------------------------
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS 1. Sterling Chemicals Holdings, Inc. ........................ Chemicals 1.74 2. Verio Inc. ............................................... Data & Internet Services 1.68 3. United Pan-Europe Communications N.V. .................... International Cable 1.65 4. Nextel Communications, Inc. .............................. Enhanced Service Mobile Radios & Personal Communication Services 1.56 5. Triad Hospitals Holdings, Inc. ........................... Healthcare 1.44 6. Motors and Gears, Inc. ................................... Industrial Products 1.42 7. TeleCorp PCS, Inc. ....................................... Enhanced Service Mobile Radios & Personal Communication Services 1.42 8. Oxford Health Plans, Inc. ................................ Healthcare 1.42 9. Adelphia Communications Corporation ...................... North American Cable Services 1.40 10. Metris Companies Inc. .................................... Other Finance 1.36
---------- * The Portfolio's composition will change over time. 9 THE BEAR STEARNS FUNDS Emerging Markets Debt Portfolio MARCH 31, 2000 (UNAUDITED) -------------------------------------------------------------------------------- TOP TEN COUNTRY WEIGHTINGS* --------------------------------------------------------------------------------
PERCENT OF RANK COUNTRY NET ASSETS 1. Brazil ........................................................................................ 19.29 2. Argentina ..................................................................................... 14.57 3. Mexico ........................................................................................ 9.95 4. Russia ........................................................................................ 7.36 5. Peru .......................................................................................... 4.84 6. Ecuador ....................................................................................... 4.72 7. Panama ........................................................................................ 4.68 8. Bulgaria ...................................................................................... 4.63 9. Morocco ....................................................................................... 4.61 10. Nigeria ....................................................................................... 4.58
-------------------------------------------------------------------------------- TOP TEN ISSUERS* --------------------------------------------------------------------------------
SECURITY PERCENT OF RANK ISSUER CURRENCY TYPE NET ASSETS 1. Federal Republic of Brazil ............................... U.S. dollar Brady/Global bond 19.29 2. Republic of Argentina .................................... U.S. dollar Brady bond 14.57 3. United Mexican States .................................... U.S. dollar Brady/Global bond 9.95 4. Vnesheconombank .......................................... U.S. dollar Loan Participation 6.11 5. The Republic of Peru ..................................... U.S. dollar Brady/Sovereign bond 4.84 6. The Republic of Ecuador .................................. U.S. dollar Brady bond 4.72 7. The Republic of Panama ................................... U.S. dollar Brady bond 4.68 8. Republic of Bulgaria ..................................... U.S. dollar Brady bond 4.63 9. The Kingdom of Morocco ................................... U.S. dollar Loan Participation 4.61 10. Central Bank of Nigeria .................................. U.S. dollar Brady bond 4.58
---------- * The Portfolio's composition will change over time. 10 THE BEAR STEARNS FUNDS Income Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000
----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS 92.58% CORPORATE OBLIGATIONS - 48.43% ASSET-BACKED - 9.72% $ 200 Conseco Finance Home Equity Loan, Series-B, Class AF2 ................ 7.340% 02/15/31 $ 200,031 100 Conti-Mortgage Home Equity Loan Trust, Series 1998-1, Class A4 ....... 6.280 01/15/13 97,319 225 Conti-Mortgage Home Equity Loan Trust, Series 1998-1, Class A5 ....... 6.430 04/15/16 216,406 200 Green Tree Home Improvement Loan Trust, Series 1998-D, Class HEA3 .... 6.130 08/15/29 197,554 150 Honda Auto Lease Trust, Series 1999-A, Class A4 ...................... 6.450 09/16/02 148,373 150 JP Morgan Commercial Mortgage Finance Corp., Series 2000-C9, Class A2 7.770 10/15/32 153,311 150 Sawgrass Finance L.L.C., Series 1993-1, Class A ...................... 6.450 01/20/06 149,053 175 UCFC Home Equity Loan, Series 1996-B1, Class A6 ...................... 7.975 02/15/22 182,106 ------------ 1,344,153 ------------ FINANCE - 10.19% 125 Associates Corp. N.A., Senior Unsecured Notes ........................ 6.000 07/15/05 117,031 150 Conseco Inc., Unsecured Notes ........................................ 8.500 10/15/02 148,875 150 Finova Capital Corp., Notes .......................................... 7.250 11/08/04 144,000 150 General Electric Capital Corp., Debentures ........................... 8.850 04/01/05 160,687 225 Lehman Brothers Holdings, Unsecured Notes ............................ 7.875 11/01/09 225,562 175 Norwest Financial, Inc., Senior Notes ................................ 6.750 06/01/05 170,187 150 Transamerica Finance Corp., Notes .................................... 7.250 08/15/02 149,437 300 Washington Mutual Capital I, Subordinated Capital Income Securities, Washington Mutual Inc. Guaranteed .................................. 8.375 06/01/27 294,000 ------------ 1,409,779 ------------ INDUSTRIAL - 11.20% 150 Boyd Gaming Corporation, Senior Subordinated Notes ................... 9.500 07/15/07 141,187 150 Electrical Data Systems, Unsecured Notes ............................. 6.850 10/15/04 147,938 150 Enron Oil & Gas Resources Inc., Notes ................................ 6.000 12/15/08 136,688 150 Georgia-Pacific Corp., Unsecured Notes ............................... 7.750 11/15/29 144,563 250 LG-Caltex Oil Corporation, Unsecured Notes ........................... 7.500 07/15/07 234,063 200 MedPartners, Inc., Senior Unsecured Subordinated Notes ............... 6.875 09/01/00 190,500 200 Safeway Inc., Senior Unsecured Notes ................................. 6.050 11/15/03 192,000 225 Smith International Inc., Senior Unsecured Notes ..................... 7.000 09/15/07 214,594 150 Textron Inc., Unsecured Notes ........................................ 6.750 09/15/02 147,375 ------------ 1,548,908 ------------ The accompanying notes are an integral part of the financial statements. 11 THE BEAR STEARNS FUNDS Income Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE(S) DATE(S) VALUE --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (continued) MULTIMEDIA - 2.00% $ 150 Time Warner Inc., Company Guaranteed .............................. 6.625% 05/15/29 $ 128,438 150 Time Warner Inc., Debentures ...................................... 6.850 01/15/26 147,750 ------------ 276,188 ------------ RETAIL - DISCOUNT - 0.90% 125 TJX Companies Inc., Notes ......................................... 7.450 12/15/09 123,906 ------------ SUPER-REGIONAL BANK - U.S. - 0.99% 150 PNC Funding Corp., Company Guaranteed ............................. 6.125 02/15/09 137,250 ------------ TELECOMMUNICATIONS - 4.06% 150 Adelphia Communications Corporation, Senior Unsecured Notes ....... 9.375 11/15/09 140,625 150 Cox Communications, Senior Unsecured Notes ........................ 6.400 08/01/08 138,563 150 Nextel Communications, Inc., Senior Notes ......................... 9.375 11/15/09 138,375 150 NEXTLINK Communications, Inc., Senior Notes * ..................... 10.500 12/01/09 144,000 ------------ 561,563 ------------ TELEPHONE - LOCAL - 3.35% 100 BellSouth Capital Funding, Debentures ............................. 7.875 02/15/30 102,500 150 Southern New England Telephone Company, Notes, Series C ........... 6.125 12/15/03 144,750 250 US West Communications, Debentures ................................ 6.875 09/15/33 216,250 ------------ 463,500 ------------ TRANSPORT - 0.80% 125 Burlington North Santa Fe, Unsecured Debentures ................... 6.750 03/15/29 110,938 ------------ UTILITIES - 5.22% 250 Cleveland Electric Illuminating Co., Senior Notes, Series D ....... 7.880 11/01/17 240,625 150 Consolidated Natural Gas Co., Unsecured Notes ..................... 7.250 10/01/04 148,500 400 Western Resources Inc., Senior Unsecured Notes .................... 6.250 08/15/03 333,000 ------------ 722,125 ------------ Total Corporate Obligations (cost - $6,927,207) ................... 6,698,310 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS - 36.63% FANNIE MAE - 9.65% 225 Benchmark Notes ................................................... 5.250 01/15/03 215,032 724 Pass-thru Pools ................................................... 7.000 - 8.000 12/01/29 - 01/01/30 710,494 425 TBA ............................................................... 7.000 10/01/30 408,531 ------------ 1,334,057 ------------ The accompanying notes are an integral part of the financial statements. 12 THE BEAR STEARNS FUNDS Income Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE(S) DATE(S) VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (continued) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 26.98% $2,283 Pass-thru Pools .................................................... 6.000 - 7.000% 05/15/13 - 02/15/29 $2,171,367 1,575 TBA ................................................................ 7.500 03/15/25 1,561,219 ------------ 3,732,586 ------------ Total U.S. Government Agency Obligations (cost - $5,178,683) ....... 5,066,643 ------------ U.S. GOVERNMENT OBLIGATIONS - 7.52% U.S. TREASURIES - 7.52% 700 Bonds .............................................................. 5.500 - 7.2500 5/15/16 - 08/15/28 719,629 325 Notes .............................................................. 6.000 08/15/09 321,084 ------------ Total U.S. Government Obligations (cost - $1,052,557) .............. 1,040,713 ------------ Total Long-Term Debt Investments (cost - $13,158,447) ............. 12,805,666 ------------ SHARES ---------- SHORT-TERM INVESTMENTS 20.34% INVESTMENT COMPANY - 0.18% 24,580 Federated Investors, Trust for Short-Term U.S. Government Securities ** 5.620 -- 24,580 ------------ PRINCIPAL AMOUNT (000's) ----------- U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 20.16% $ 400 Fannie Mae, Discount Notes ........................................... 5.830 04/13/00 399,223 1,550 Fannie Mae, Discount Notes (1) ....................................... 5.830 04/19/00 1,545,482 845 Freddie Mac, Discount Notes (1) ...................................... 6.050 04/03/00 844,716 ------------ 2,789,421 ------------ Total Short-Term Investments (cost - $2,814,001) .................... 2,814,001 ------------ Total Investments 112.92% (cost - $15,972,448) ............................................... 15,619,667 Liabilities in excess of other assets-- (12.92)% ..................... (1,787,289) ------------ Net Assets 100.00% .................................................. $13,832,378 ------------ ------------ ---------- * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2000. (1) All or a portion of which was segregated as collateral for TBA securities. TBA To Be Announced. The accompanying notes are an integral part of the financial statements. 13 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS 88.72% UNITED STATES - 74.55% AEROSPACE - DEFENSE - 0.38% $ 750 Compass Aerospace Corp., Senior Subordinated Notes * ............ 10.125% 04/15/05 $ 330,000 ------------ AIRLINES - 1.02% 1,000 Amtran, Inc., Senior Notes, Company Guaranteed .................. 9.625 12/15/05 890,000 ------------ ALTERNATIVE VIDEO PROVIDERS - 1.31% 250 21st Century Telecom Group, Inc., Senior Discount Notes (1) ..... 12.250 02/15/08 172,187 1,000 EchoStar DBS Corporation, Senior Notes .......................... 9.375 02/01/09 967,500 ------------ 1,139,687 ------------ BUILDING MATERIALS - 2.04% 1,000 Formica Corporation, Senior Subordinated Notes, Series B ........ 10.875 03/01/09 880,000 1,000 Nortek, Inc., Senior Notes, Series B ............................ 8.875 08/01/08 902,500 ------------ 1,782,500 ------------ CELLULAR COMMUNICATIONS - 2.67% 1,000 Crown Castle International Corp., Senior Discount Notes (1) ..... 10.625 11/15/07 695,000 1,000 SBA Communications Corporation, Senior Discount Notes (1) ....... 12.000 03/01/08 665,000 1,000 Spectrasite Holdings, Inc., Senior Discount Notes *(1) .......... 12.875 03/15/10 493,750 500 Spectrasite Holdings, Inc., Senior Notes * ...................... 10.750 03/15/10 476,875 ------------ 2,330,625 ------------ CHEMICALS - 3.86% 1,000 General Chemical Industrial Products Inc., Senior Subordinated Notes ........................................................ 10.625 05/01/09 890,000 1,000 Huntsman ICI Chemicals LLC, Senior Subordinated Notes * ........ 10.125 07/01/09 965,000 2,400 Sterling Chemicals Holdings, Inc., Senior Secured Discount Notes (1)..................................................... 13.500 08/15/08 750,000 750 Sterling Chemicals, Inc., Senior Secured Notes, Series B, Company Guaranteed ........................................... 12.375 07/15/06 765,000 ------------ 3,370,000 ------------ COMPETITIVE LOCAL EXCHANGE COMPANIES - 11.22% 1,000 Adelphia Business Solutions, Inc., Senior Subordinated Notes ... 12.000 11/01/07 1,015,000 500 GST USA, Inc., Senior Discount Exchange Notes, Company Guaranteed (1) ....................................... 13.875 12/15/05 250,000 The accompanying notes are an integral part of the financial statements. 14 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) COMPETITIVE LOCAL EXCHANGE COMPANIES (CONTINUED) $1,250 ICG Holdings Inc., Senior Secured Discount Notes, Company Guaranteed (1) ............................................. 12.500% 05/01/06 $ 1,034,375 1,000 Intermedia Communications of Florida, Inc., Senior Discount Notes (1) 12.500 05/15/06 947,500 1,750 KMC Telecom Holdings, Inc., Senior Discount Notes (1) ................ 12.500 02/15/08 940,625 1,000 McLeodUSA Incorporated, Senior Notes ................................. 8.125 02/15/09 887,500 1,000 Metromedia Fiber Network, Inc., Senior Notes ......................... 10.000 12/15/09 955,000 1,500 NEXTLINK Communications, Inc., Senior Discount Notes (1) ............. 12.250 06/01/09 847,500 350 NEXTLINK Communications, Inc., Senior Notes * ........................ 10.500 12/01/09 336,000 1,000 Teligent, Inc., Senior Notes ......................................... 11.500 12/01/07 905,000 1,070 Time Warner Telecom LLC and Time Warner Telecom Inc., Senior Notes ... 9.750 07/15/08 1,061,975 500 WinStar Communications, Inc., Senior Subordinated Deferred Interest Exchange Notes (2)(3) ..................................... 11.000 03/15/08 602,125 ------------ 9,782,600 ------------ DATA & INTERNET SERVICES - 5.15% 1,000 Covad Communications Group, Inc., Senior Notes ....................... 12.500 02/15/09 930,000 1,000 Globix Corporation, Senior Notes * ................................... 12.500 02/01/10 915,000 250 PSINet Inc., Senior Notes * .......................................... 10.500 12/01/06 240,625 1,000 PSINet Inc., Senior Notes, Series B .................................. 10.000 02/15/05 945,000 1,500 Verio Inc., Senior Notes * ........................................... 10.625 11/15/09 1,462,500 ------------ 4,493,125 ------------ ENHANCED SERVICE MOBILE RADIOS & PERSONAL COMMUNICATION SERVICES - 6.33% 2,000 Alamosa PCS Holdings, Inc., Senior Discount Notes, Company Guaranteed (1) ............................................. 12.875 02/15/10 970,000 500 Nextel Communications, Inc., Senior Notes ............................ 9.375 11/15/09 461,250 1,300 Nextel Communications, Inc., Senior Serial Redeemable Discount Notes (1) ................................................. 9.950 02/15/08 897,000 2,000 TeleCorp PCS, Inc., Senior Subordinated Discount Notes, Company Guaranteed (1) ............................................. 11.625 04/15/09 1,235,000 1,300 Triton PCS, Inc., Senior Subordinated Discount Notes, Company Guaranteed (1) ............................................. 11.000 05/01/08 887,250 2,000 US Unwired Inc., Senior Discount Notes *(1) .......................... 13.375 11/01/09 1,072,500 ------------ 5,523,000 ------------ EXPLORATION & PRODUCTION - 1.64% 500 Chesapeake Energy Corporation, Senior Notes, Series B, Company Guaranteed ................................................. 9.625 05/01/05 468,750 1,000 Ocean Energy, Inc., Senior Subordinated Notes, Series B, Company Guaranteed ................................................. 8.875 07/15/07 965,000 ------------ 1,433,750 ------------ The accompanying notes are an integral part of the financial statements. 15 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) FABRICATED GLASS, PLASTICS & FIBERS - 0.33% $ 500 Graham Packaging Company and GPC Capital Corp. II, Senior Discount Notes, Series B (1) ....................................... 10.750% 01/15/09 $ 287,500 ------------ FOOD, BEVERAGE & TOBACCO - 1.88% 1,000 Packaged Ice, Inc., Senior Notes, Series B, Company Guaranteed.... ... 9.750 02/01/05 832,500 1,475 Purina Mills, Inc., Senior Subordinated Notes (4) .................... 9.000 03/15/10 390,875 750 Richmont Marketing Specialists Inc., Senior Subordinated Notes, Company Guaranteed ................................................. 10.125 12/15/07 419,063 ------------ 1,642,438 ------------ FOREST - PAPER PRODUCTS - 3.32% 500 Bear Island Paper Company, L.L.C. and Bear Island Finance Company II, Senior Secured Notes, Series B ..................................... 10.000 12/01/07 476,875 500 MAXXAM Group Holdings Inc., Senior Secured Notes, Series B ........... 12.000 08/01/03 461,875 1,000 Packaging Corporation of America, Senior Subordinated Notes, Company Guaranteed ................................................. 9.625 04/01/09 975,000 1,000 Riverwood International Corporation, Senior Notes, Company Guaranteed 10.625 08/01/07 985,000 ------------ 2,898,750 ------------ GAMING - 2.21% 1,000 Boyd Gaming Corporation, Senior Subordinated Notes ................... 9.500 07/15/07 941,250 1,000 Pinnacle Entertainment, Inc., Senior Subordinated Notes, Series B, Company Guaranteed ................................................. 9.250 02/15/07 985,000 ------------ 1,926,250 ------------ HEALTHCARE - 3.96% 1,250 Oxford Health Plans, Inc., Senior Notes .............................. 11.000 05/15/05 1,234,375 1,050 Team Health, Inc., Senior Subordinated Notes, Series B, Company Guaranteed ................................................. 12.000 03/15/09 960,750 1,250 Triad Hospitals Holdings, Inc., Senior Subordinated Notes, Series B, Company Guaranteed ................................................. 11.000 05/15/09 1,259,375 ------------ 3,454,500 ------------ The accompanying notes are an integral part of the financial statements. 16 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) INDUSTRIAL PRODUCTS - 3.48% $ 750 Aqua-Chem, Inc., Senior Subordinated Notes ........................... 11.250% 07/01/08 $ 427,500 250 Grove Holdings LLC and Grove Holdings Capital, Inc., Senior Discount Debentures (1) ............................................ 11.625 05/01/09 21,250 1,250 Motors and Gears, Inc., Senior Notes, Series D ....................... 10.750 11/15/06 1,239,062 1,000 Roller Bearing Company of America, Inc., Senior Subordinated Notes, Series B, Company Guaranteed ....................................... 9.625 06/15/07 910,000 500 Thermadyne Holdings Corporation, Senior Discount Debentures (1) ...... 12.500 06/01/08 229,375 250 Thermadyne Mfg. LLC and Thermadyne Capital Corp., Senior Subordinated Notes, Company Guaranteed ............................. 9.875 06/01/08 210,313 ------------ 3,037,500 ------------ INTERNATIONAL CABLE - 1.31% 1,700 NTL Communications Corp., Senior Deferred Coupon Notes, Series B (1) ....................................................... 12.375 10/01/08 1,139,000 ------------ LONG DISTANCE TELEPHONE SERVICES - 3.63% 500 Global TeleSystems Group, Inc., Senior Notes ......................... 9.875 02/15/05 417,500 750 Primus Telecommunications Group, Incorporated, Senior Notes, Series B 9.875 05/15/08 660,000 1,100 Viatel, Inc., Senior Notes ........................................... 11.250 04/15/08 1,001,000 1,250 World Access, Inc., Senior Notes, Series B ........................... 13.250 01/15/08 1,087,500 ------------ 3,166,000 ------------ NORTH AMERICAN CABLE SERVICES - 3.58% 500 Adelphia Communications Corporation, Senior Notes .................... 9.375 11/15/09 468,750 500 Adelphia Communications Corporation, Senior Notes, Series B .......... 9.875 03/01/07 495,000 500 Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation, Senior Discount Notes (1) ............ 9.920 04/01/11 278,750 1,000 Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation, Senior Notes ......................... 8.625 04/01/09 882,500 1,000 Insight Midwest LP and Insight Capital Inc., Senior Notes * .......... 9.750 10/01/09 997,500 ------------ 3,122,500 ------------ OIL SERVICES - 2.28% 1,000 Grey Wolf, Inc., Senior Notes, Company Guaranteed .................... 8.875 07/01/07 910,000 1,000 R&B Falcon Corporation, Senior Notes ................................. 12.250 03/15/06 1,073,750 ------------ 1,983,750 ------------ The accompanying notes are an integral part of the financial statements. 17 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) OTHER CONSUMER CYCLICALS - 0.38% $ 500 COMFORCE Operating Inc., Senior Notes, Series B ...................... 12.000% 12/01/07 $ 299,375 750 Hedstrom Corporation and Hedstrom Holdings, Inc., Senior Subordinated Notes, Company Guaranteed (5) ...................................... 10.000 06/01/07 33,750 ------------ 333,125 ------------ OTHER CONSUMER NON-CYCLICALS - 1.30% 750 AP Holdings, Inc., Senior Discount Notes (1) ......................... 11.250 03/15/08 168,750 750 Bell Sports, Inc., Senior Subordinated Notes, Series B, Company Guaranteed ................................................. 11.000 08/15/08 735,000 750 Styling Technology Corporation, Senior Subordinated Notes, Company Guaranteed ................................................. 10.875 07/01/08 225,000 ------------ 1,128,750 ------------ OTHER FINANCE - 1.36% 1,250 Metris Companies Inc., Senior Notes, Company Guaranteed .............. 10.000 11/01/04 1,187,500 ------------ PUBLISHING - 0.44% 250 American Color Graphics, Inc., Senior Subordinated Exchange Notes, Company Guaranteed ................................................. 12.750 08/01/05 256,875 250 Liberty Group Publishing, Inc., Senior Discount Debentures (1) ....... 11.625 02/01/09 125,000 ------------ 381,875 ------------ RADIO BROADCASTING - 1.33% 1,000 Citadel Broadcasting Company, Senior Subordinated Notes, Company Guaranteed ................................................. 9.250 11/15/08 935,000 250 Cumulus Media Inc., Senior Subordinated Notes, Company Guaranteed .... 10.375 07/01/08 223,125 ------------ 1,158,125 ------------ RECREATIONAL SERVICES - 1.03% 750 Premier Parks Inc., Senior Discount Notes (1) ........................ 10.000 04/01/08 480,000 450 Premier Parks Inc., Senior Notes ..................................... 9.750 06/15/07 420,188 ------------ 900,188 ------------ RETAILERS - 2.21% 500 Advance Holding Corporation, Senior Discount Debentures, Series B (1) 12.875 04/15/09 235,000 1,000 Advance Stores Company, Incorporated, Senior Subordinated Notes, Series B, Company Guaranteed ....................................... 10.250 04/15/08 800,000 1,000 Hollywood Entertainment Corporation, Senior Subordinated Notes, Series B .................................................... 10.625 08/15/04 890,000 ------------ 1,925,000 ------------ The accompanying notes are an integral part of the financial statements. 18 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) STEEL - METALS - MINING - 3.12% $ 372 Anker Coal Group, Inc., Second Priority Senior Secured Notes, Series B, Company Guaranteed (6) ............................................. 14.250% 09/01/07 $ 167,175 1,250 Metal Management, Inc., Senior Subordinated Notes, Company Guaranteed ................................................. 10.000 05/15/08 948,438 750 Renco Steel Holdings, Inc., Senior Secured Notes, Series B ........... 10.875 02/01/05 675,000 1,000 WHX Corporation, Senior Exchange Notes ............................... 10.500 04/15/05 930,000 ------------ 2,720,613 ------------ TECHNOLOGY - 0.52% 500 Telecommunications Techniques Co., LLC, Senior Subordinated Notes, Company Guaranteed ................................................. 9.750 05/15/08 454,375 ------------ TELEVISION BROADCASTING - 0.73% 710 ACME Television, LLC and ACME Finance Corporation, Senior Discount Notes, Series B, Company Guaranteed (1) ............ 10.875 09/30/04 639,000 ------------ TEXTILE - APPAREL - 0.53% 450 Consoltex Group Inc., Senior Subordinated Notes, Series B ............ 11.000 10/01/03 409,500 1,000 Globe Holdings, Inc., Senior Discount Notes, Series B (1)(7) ......... 14.000 08/01/09 50,000 ------------ 459,500 ------------ Total United States (cost - $75,205,696) ............................. 65,021,526 ------------ ARGENTINA - 0.63% SOVEREIGN - 0.63% 650 Republic of Argentina, Discount Bonds, Series L-GL (8)(9) (cost - $495,900) .................................................. 6.875 03/31/23 550,875 ------------ AUSTRALIA - 0.76% STEEL - METALS - MINING - 0.76% 750 Murrin Murrin Holdings Pty. Ltd., Senior Yankee Notes (cost - $709,826) 9.375 08/31/07 666,562 ------------ BERMUDA - 1.17% LONG DISTANCE TELEPHONE SERVICES - 1.17% 1,050 Global Crossing Holdings Ltd., Senior Notes, Company Guaranteed (cost - $1,122,601) ................................................ 9.625 05/15/08 1,018,500 ------------ The accompanying notes are an integral part of the financial statements. 19 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) BRAZIL - 0.62% SOVEREIGN - 0.62% $ 728 Federal Republic of Brazil, Capitalization Bonds (2)(6)(9) (cost - $515,486)................................................... 8.000% 04/15/14 $ 545,944 ------------ CANADA - 3.70% ENHANCED SERVICE MOBILE RADIOS & PERSONAL COMMUNICATION SERVICES - 2.67% 2,050 Clearnet Communications Inc., Senior Discount Yankee Notes (1) ....... 10.125 05/01/09 1,173,625 1,300 Microcell Telecommunications Inc., Senior Discount Yankee Notes, Series B (1) ................................................ 14.000 06/01/06 1,157,000 ------------ 2,330,625 ------------ FOREST - PAPER PRODUCTS - 1.03% 1,000 Repap New Brunswick Inc., Senior Yankee Notes ........................ 10.625 04/15/05 897,500 ------------ Total Canada (cost - $3,401,440) ..................................... 3,228,125 ------------ MEXICO - 0.59% SOVEREIGN - 0.59% 600 United Mexican States, Secured Par Bonds, Series W-A (9)(10) (cost - $477,965) .................................................. 6.250 12/31/19 511,125 ------------ NETHERLANDS - 2.78% COMPETITIVE LOCAL EXCHANGE COMPANIES - 1.13% 1,000 Versatel Telecom International N.V., Senior Yankee Notes ............. 11.875 07/15/09 982,500 ------------ INTERNATIONAL CABLE - 1.65% 500 United Pan-Europe Communications N.V., Senior Notes * ................ 11.250 11/01/09 480,000 1,000 United Pan-Europe Communications N.V., Senior Yankee Notes, Series B.. 10.875 08/01/09 960,000 ------------ 1,440,000 ------------ Total Netherlands (cost - $2,489,520) ................................ 2,422,500 ------------ UNITED KINGDOM - 3.92% INTERNATIONAL CABLE - 2.30% 1,000 Ono Finance plc, Senior Subordinated Notes, Company Guaranteed ....... 13.000 05/01/09 1,023,750 1,750 Telewest Communications plc, Senior Discount Notes *(1) .............. 11.375 02/01/10 984,375 ------------ 2,008,125 ------------ The accompanying notes are an integral part of the financial statements. 20 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) LONG DISTANCE TELEPHONE SERVICES - 0.78% $ 750 Esprit Telecom Group plc, Senior Yankee Notes ........................ 10.875% 06/15/08 $ 676,875 ------------ PUBLISHING - 0.84% 750 Regional Independent Media Group plc, Senior Yankee Notes ............ 10.500 07/01/08 734,062 ------------ Total United Kingdom (cost - $3,536,726) ............................. 3,419,062 ------------ Total Long-Term Debt Investments (cost - $87,955,160) ................ 77,384,219 ------------ SHARES ---------------------------------------------------------------------------------------------------------------------------------- EQUITY INVESTMENTS 2.91% COMMON STOCKS - UNITED STATES - 0.20% LONG DISTANCE TELEPHONE SERVICES - 0.20% 2,015 Viatel, Inc. (11) .................................................... -- -- 101,128 3,927 World Access, Inc. (11) .............................................. -- -- 75,104 ------------ Total Common Stocks - United States (cost - $69,878) ................. -- -- 176,232 ------------ PREFERRED STOCKS - UNITED STATES - 2.71% ALTERNATIVE VIDEO PROVIDERS - 0.34% 329 21st Century Telecom Group, Inc., Senior Cumulative Exchangeable Preferred Stock (6) ................................................ 13.750 -- 290,287 ------------ CELLULAR COMMUNICATIONS - 0.98% 549 Dobson Communications Corporation, Senior Exchangeable Preferred Stock (6) ................................................ 13.000 -- 551,121 314 Dobson Communications Corporation, Senior Exchangeable Preferred Stock (6) ................................................ 12.250 -- 305,863 ------------ 856,984 ------------ COMPETITIVE LOCAL EXCHANGE COMPANIES - 0.41% 250 WinStar Communications, Inc., Senior Cumulative Exchangeable Preferred Stock, Series C .......................................... 14.250 -- 359,313 ------------ NORTH AMERICAN CABLE SERVICES - 0.30% 2,500 Adelphia Communications Corporation, Cumulative Exchangeable Preferred Stock, Series B .......................................... 13.000 -- 260,625 ------------ The accompanying notes are an integral part of the financial statements. 21 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 --------------------------------------------------------------------------------------------------------------------------------- INTEREST MATURITY SHARES RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------------- EQUITY INVESTMENTS (CONTINUED) RADIO BROADCASTING - 0.45% 423 Cumulus Media Inc., Cumulative Exchangeable Redeemable Preferred Stock, Series A (6) ...................................... 13.750% -- $ 392,818 ------------ SUPERMARKETS & DISTRIBUTORS - 0.00% 909 Nebco Evans Holding Company, Senior Redeemable Exchangeable Preferred Stock (6) ................................... 11.250 -- 114 ------------ TELEVISION BROADCASTING - 0.00% 1 Paxson Communications Corporation (6) ................................ 12.500 -- 292 ------------ TEXTILE - APPAREL - 0.23% 8,983 Cluett American Corp., Senior Exchangeable Preferred Stock, Series B (6) 12.500 -- 199,908 ------------ Total Preferred Stocks - United States (cost - $3,982,385) ........... 2,360,341 ------------ Total Equity Investments (cost - $4,052,263) ......................... 2,536,573 ------------ UNITS ---------------------------------------------------------------------------------------------------------------------------------- WARRANTS+ 0.19% UNITED STATES - 0.02% ALTERNATIVE VIDEO PROVIDERS - 0.00% 250 21st Century Telecom Group, Inc. *(11) ............................... -- 02/15/10 625 ------------ COMPETITIVE LOCAL EXCHANGE COMPANIES - 0.02% 750 KMC Telecom Holdings, Inc. *(11) ..................................... -- 04/15/08 2,297 250 MGC Communications, Inc. *(11) ....................................... -- 10/01/04 9,500 ------------ 11,797 ------------ Total United States (cost - $10,000) ................................. 12,422 ------------ UNITED KINGDOM - 0.17% INTERNATIONAL CABLE - 0.17% 1,000 Ono Finance plc *(11) ................................................ -- 05/31/09 150,500 ------------ Total Warrants (cost - $10,000) 162,922 ------------ The accompanying notes are an integral part of the financial statements. 22 THE BEAR STEARNS FUNDS High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- INTEREST MATURITY SHARES RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 6.44% INVESTMENT COMPANY - 0.02% 17,719 Federated Investors, Trust for Short-Term U.S. Government Securities ** 5.620% -- $ 17,719 ------------ PRINCIPAL AMOUNT (000's) U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 6.42% $5,600 Federal Home Loan Bank, Discount Notes ............................... 6.050 04/03/00 5,598,118 ------------ Total Short-Term Investments (cost - $5,615,837) ..................... 5,615,837 ------------ Total Investments 98.26% (cost - $97,633,260) ............................................... 85,699,551 Other assets in excess of liabilities 1.74% ......................... 1,518,848 ------------ Net Assets 100.00% .................................................. $87,218,399 ------------ ------------ ---------- * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2000. + With an additional 750 warrants of American Banknote Corporation, expiring 12/01/02, with no market value. (1) Coupon rate is zero until step-up date. Step-up rate is provided. (2) Pro-rata sinking fund has been established. (3) Coupon payment is deferred until 09/15/03. (4) Coupon payment is in default. Company filed Chapter 11 on 10/28/99. Court approved reorganization plan in 04/00. (5) Coupon payment is in default. Company filed Chapter 11 on 04/11/00. (6) Payment-in-kind; of which all or a portion of the coupon is being capitalized at periodic intervals. (7) With an additional 1,000 warrants, expiring 08/01/09, with no market value. (8) Adjustable rate; rate based on London Interbank Offered Rate (LIBOR) plus 0.8125%. (9) Brady bond. (10) Traded with value recovery rights based on the price of oil. (11) Non-income producing security. The accompanying notes are an integral part of the financial statements. The accompanying notes are an integral part of the financial statements. 23 THE BEAR STEARNS FUNDS Emerging Markets Debt Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's) RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 90.45% ARGENTINA - 14.57% SOVEREIGN 850 Republic of Argentina, Discount Bonds, Series L-GL (a)(b) ............ 6.875% 03/31/23 $ 719,312 2,376 Republic of Argentina, FRB Bearer (a)(b) ............................. 7.375 03/31/05 2,226,015 194 Republic of Argentina, FRB Registered, Series L (a)(b) ............... 7.375 03/31/05 181,379 2,410 Republic of Argentina, Par Bonds, Series L-GP (b)(c) ................. 6.000 03/31/23 1,691,519 ------------ Total Argentina (cost - $4,600,022) .................................. 4,818,225 ------------ BRAZIL - 19.29% SOVEREIGN 825 Federal Republic of Brazil, Capitalization Bonds (b)(c)(d) ........... 8.000 04/15/14 617,706 1,300 Federal Republic of Brazil, DCB (a)(b) ............................... 7.000 04/15/12 989,625 625 Federal Republic of Brazil, DCB, Series RG (a)(b) .................... 7.000 04/15/12 475,781 840 Federal Republic of Brazil, Discount Bonds (a)(b) .................... 6.938 04/15/24 668,850 865 Federal Republic of Brazil, EI Bearer Bonds, Series EI-L (a)(b) ...... 6.938 04/15/06 785,887 350 Federal Republic of Brazil, FLIRB Bearer (a)(b) ...................... 5.000 04/15/09 271,250 1,265 Federal Republic of Brazil, Global Bonds ............................. 14.500 10/15/09 1,380,115 590 Federal Republic of Brazil, NMB (a)(b) ............................... 7.000 04/15/09 500,762 1,050 Federal Republic of Brazil, Par Bonds (a)(b)(c) ...................... 5.750 04/15/24 689,719 ------------ Total Brazil (cost - $6,136,323) ..................................... 6,379,695 ------------ BULGARIA - 4.63% SOVEREIGN 600 Republic of Bulgaria, Discount Bonds, Series A (a)(b) ................ 7.063 07/28/24 487,125 900 Republic of Bulgaria, FLIRB, Series A (a)(b) ......................... 2.750 07/28/12 650,250 170 Republic of Bulgaria, IAB Bearer (a)(b) .............................. 7.063 07/28/11 135,575 325 Republic of Bulgaria, IAB Registered (a)(b) .......................... 7.063 07/28/11 259,187 ------------ Total Bulgaria (cost - $1,292,234) ................................... 1,532,137 ------------ CHINA - 0.41% CORPORATE 290 Zhuhai Highway Co. Ltd. .............................................. 11.500 07/01/08 101,500 100 Zhuhai Highway Co. Ltd.* ............................................. 11.500 07/01/08 35,000 ------------ Total China (cost - $218,509) ........................................ 136,500 ------------ The accompanying notes are an integral part of the financial statements. 24 THE BEAR STEARNS FUNDS Emerging Markets Debt Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's)+ RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) ECUADOR - 4.72% SOVEREIGN 875 The Republic of Ecuador, Discount Bonds (a)(b)(f) .................... -- 02/28/25 $ 365,312 1,375 The Republic of Ecuador, Par Bonds, Registered (b)(c)(g) ............. -- 02/28/25 502,734 1,269 The Republic of Ecuador, PDI Bearer Bonds (a)(b)(g) .................. -- 02/27/15 356,854 1,193 The Republic of Ecuador, PDI Bonds, Registered (a)(b)(g) ............. -- 02/27/15 335,660 ------------ Total Ecuador (cost - $1,631,782) .................................... 1,560,560 ------------ MEXICO - 9.95% SOVEREIGN 75 United Mexican States, Global Bonds (h) .............................. 9.875 01/15/07 78,581 345 United Mexican States, Secured Par Bonds, Series W-A (b) ............. 6.250 12/31/19 293,897 3,425 United Mexican States, Secured Par Bonds, Series W-B (b) ............. 6.250 12/31/19 2,917,672 ------------ Total Mexico (cost - $3,015,196) ..................................... 3,290,150 ------------ MOROCCO - 4.61% SOVEREIGN 1,688 The Kingdom of Morocco, Tranche A, Loan Participation (a) (cost - $1,360,935) .............................. 6.844 01/01/09 1,524,411 ------------ NIGERIA - 4.58% SOVEREIGN 2,500 Central Bank of Nigeria, Par Bonds (b)(c)(e) (cost - $1,747,873) ..... 6.250 11/15/20 1,515,625 ------------ PANAMA - 4.68% SOVEREIGN 1,100 The Republic of Panama, IRB (a)(b) ................................... 4.250 07/17/14 886,188 776 The Republic of Panama, PDI Bonds (a)(b) ............................. 7.063 07/17/16 660,868 ------------ Total Panama (cost - $1,491,067) ..................................... 1,547,056 ------------ PERU - 4.84% SOVEREIGN 737 The Republic of Peru, Discount Bonds (a)(b) .......................... 7.188 03/08/27 567,490 680 The Republic of Peru, FLIRB (b)(c) ................................... 3.750 03/07/17 422,875 125 The Republic of Peru, FLIRB *(c) ..................................... 3.750 03/07/17 77,734 240 The Republic of Peru, PDI Bearer Bonds (a)(b) ........................ 4.500 03/07/17 160,800 556 The Republic of Peru, PDI Bonds *(a) ................................. 4.500 03/07/17 372,520 ------------ Total Peru (cost - $1,541,257) ....................................... 1,601,419 ------------ The accompanying notes are an integral part of the financial statements. 25 THE BEAR STEARNS FUNDS Emerging Markets Debt Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 -------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's)+ RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) PHILIPPINES - 4.38% SOVEREIGN 276 Republic of the Philippines, DCB, Series 92-B (a)(b) ................. 6.875% 12/01/09 $ 263,580 453 Republic of the Philippines, FLIRB, Series B (a)(b) .................. 6.875 06/01/08 436,334 75 Republic of the Philippines, Global Bonds ............................ 8.875 04/15/08 70,266 780 Republic of the Philippines, Par Bonds, Series B (b)(c) .............. 6.500 12/01/17 678,113 ------------ Total Philippines (cost - $1,431,806) ................................ 1,448,293 ------------ RUSSIA - 7.36% MUNICIPAL DEM 750 City of Moscow ....................................................... 9.125 04/09/01 337,577 ------------ SOVEREIGN 602 Chase Russian Ruble-linked Notes ..................................... 25.000 01/21/04 77,096 1,647 Vnesheconombank, IAN Series (f) ...................................... -- 12/15/15 486,911 5,280 Vnesheconombank, Principal Loan (f) .................................. -- 12/15/20 1,534,500 ------------ 2,098,507 ------------ Total Russia (cost - $1,608,481) ..................................... 2,436,084 ------------ SLOVAKIA - 1.11% CORPORATE E 380 Slovak Wireless Financial Co., Notes * (cost - $375,344) ............. 11.250 03/30/07 368,157 ------------ SOUTH KOREA - 0.75% CORPORATE 250 Cho Hung Bank, Subordinated Notes * (cost - $250,000) ................ 11.500 04/01/10 248,125 ------------ VENEZUELA - 4.57% SOVEREIGN 571 Republic of Venezuela, DCB, Series DL (a)(b) ......................... 7.000 12/18/07 460,716 350 Republic of Venezuela, Discount Bonds, Series W-A (a)(b)(i) .......... 7.000 03/31/20 264,906 536 Republic of Venezuela, FLIRB, Series B (a)(b) ........................ 7.438 03/31/07 425,891 500 Republic of Venezuela, Par Bonds, Series W-A (b) ..................... 6.750 03/31/20 359,063 ------------ Total Venezuela (cost - $1,389,906) .................................. 1,510,576 ------------ Total Long-Term Debt Investments (cost - $28,090,735) ................ 29,917,013 ------------ The accompanying notes are an integral part of the financial statements. 26 THE BEAR STEARNS FUNDS Emerging Markets Debt Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000's)+ RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT -- 0.20% GRAND CAYMAN - 0.20% 65 Brown Brothers Harriman & Co. (cost - $65,000) ....................... 5.200% ** $ 65,000 ------------ Total Investments 90.65% (cost - $28,155,735) ............................................... 29,982,013 Other assets in excess of liabilities 9.35% ......................... 3,093,444 ------------ Net Assets 100.00% .................................................. $33,075,457 ------------ ------------ ---------- + Denominated in United States dollars unless otherwise indicated. * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Variable rate call account. Rate resets on a daily basis, amounts available generally on the same business day. k Euros. (a) Adjustable rate; rate based on London Interbank Offered Rate (LIBOR). (b) Brady bond. (c) Step-up coupon; coupon increases at periodic intervals. (d) Payment-in-kind; of which all or a portion of the coupon is being capitalized at periodic intervals. (e) With additional 252,000 warrants attached, with no market value. (f) Instrument is in default. (g) Instrument is in technical default as evidenced by current market practice which dictates such instrument be traded flat (i.e., without interest). (h) With additional 2,923,000 value recovery rights attached, with no market value. (i) With additional 8,010 value recovery rights attached, with no market value. DCB Debt Conversion Bond. DEM Deutschemarks. EI Eligible Interest. FLIRB Front Loaded Interest Reduction Bond. FRB Floating Rate Bond. IAB Interest Arrears Bond. IAN Interest Arrears Note. IRB Interest Reduction Bond. NMB New Money Bond. PDI Past Due Interest. The accompanying notes are an integral part of the financial statements. 27
THE BEAR STEARNS FUNDS STATEMENTS OF ASSETS AND LIABILITIES MARCH 31, 2000
INCOME HIGH YIELD TOTAL EMERGING MARKETS PORTFOLIO RETURN PORTFOLIO DEBT PORTFOLIO ASSETS Investments, at value (cost - $15,972,448, $97,633,260 and $28,155,735, respectively) ......................................................... $15,619,667 $ 85,699,551 $29,982,013 Interest and dividends receivable, if any ................................ 169,763 2,278,535 730,828 Receivable for investments sold .......................................... -- 253,715 2,485,437 Receivable for Portfolio shares sold ..................................... 34,176 379,262 70,320 Receivable from investment adviser ....................................... 44,724 1,176 -- Receivable for open forward foreign currency exchange contracts .......... -- -- 10,709 Deferred organization expenses and other assets .......................... 30,497 73,866 176,187 ----------- ----------- ----------- Total assets ...................................................... 15,898,827 88,686,105 33,455,494 ----------- ----------- ----------- LIABILITIES Payable for investments purchased ........................................ 1,950,549 -- 89,375 Payable for Portfolio shares repurchased ................................. 21,555 909,735 58,618 Dividends payable ........................................................ 24,790 309,181 62,215 Distribution and service fees payable (Class A, B and C shares) .......... 14,518 155,914 36,016 Advisory fee payable ..................................................... -- -- 56,156 Administration fee payable ............................................... 1,825 11,459 4,200 Custodian fee payable .................................................... 1,862 1,376 9,892 Accrued expenses ......................................................... 51,350 80,041 63,565 ----------- ----------- ----------- Total liabilities ................................................. 2,066,449 1,467,706 380,037 ----------- ----------- ----------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) ............................................................ 1,200 8,918 3,128 Paid-in capital .......................................................... 14,619,270 110,352,374 35,139,334 Undistributed net investment income ...................................... -- -- 12,870 Accumulated net realized loss from investments and foreign currency related transactions, if any .......................................... (435,311) (11,209,184) (3,909,712) Net unrealized appreciation/(depreciation) on investments and foreign currency related transactions, if any ................................. (352,781) (11,933,709) 1,829,837 ----------- ----------- ----------- Net assets ....................................................... $13,832,378 $ 87,218,399 $33,075,457 ----------- ----------- ----------- ----------- ----------- ----------- CLASS A Net assets ............................................................... $ 5,071,445 $ 44,991,442 $28,517,422 ----------- ----------- ----------- Shares of beneficial interest outstanding ................................ 439,919 4,600,353 2,694,542 ----------- ----------- ----------- Net asset value per share ................................................ $11.53 $9.78 $10.58 ----------- ----------- ----------- ----------- ----------- ----------- Maximum offering price per share (net asset value plus sales charge of 4.50%* of the offering price) ...................................... $12.07 $10.24 $11.08 ----------- ----------- ----------- ----------- ----------- ----------- CLASS B Net assets ............................................................... $ 2,027,482 $ 23,520,317 $ 1,807,696 ----------- ----------- ----------- Shares of beneficial interest outstanding ................................ 175,872 2,404,920 172,194 ----------- ----------- ----------- Net asset value and offering price per share** ........................... $11.53 $9.78 $10.50 ----------- ----------- ----------- ----------- ----------- ----------- CLASS C Net assets ............................................................... $ 1,970,749 $ 18,706,640 $ 2,750,339 ----------- ----------- ----------- Shares of beneficial interest outstanding ................................ 170,951 1,912,753 261,782 ----------- ----------- ----------- Net asset value and offering price per share** ........................... $11.53 $9.78 $10.51 ----------- ----------- ----------- ----------- ----------- ----------- CLASS Y Net assets ............................................................... $ 4,762,702 -- -- ----------- ----------- ----------- Shares of beneficial interest outstanding ................................ 413,136 -- -- ----------- ----------- ----------- Net asset value, offering and redemption price per share ................. $11.53 -- -- ----------- ----------- ----------- ----------- ----------- ----------- ---------- * On investments of $500,000 or more, the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements. 28 THE BEAR STEARNS FUNDS STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2000
INCOME HIGH YIELD TOTAL EMERGING MARKETS PORTFOLIO RETURN PORTFOLIO DEBT PORTFOLIO INVESTMENT INCOME Interest .................................................................. $ 887,639 $ 11,558,117 $3,592,372 Dividends ................................................................. -- 504,225 -- ----------- ----------- ----------- 887,639 12,062,342 3,592,372 ----------- ----------- ----------- EXPENSES Advisory fees ............................................................. 58,835 649,418 392,171 Transfer agent fees and expenses .......................................... 147,262 153,218 96,936 Accounting fees ........................................................... 98,573 137,872 92,010 Distribution and service fees - Class A ................................... 16,785 200,757 107,258 Distribution and service fees - Class B ................................... 19,239 257,571 17,496 Distribution and service fees - Class C ................................... 20,394 250,616 23,447 Administration fees ....................................................... 19,612 162,354 52,054 Legal and auditing fees ................................................... 57,353 49,999 103,999 Federal and state registration fees ....................................... 49,110 49,659 59,489 Reports and notices to shareholders ....................................... 3,660 78,987 23,998 Custodian fees and expenses ............................................... 9,010 21,596 33,000 Amortization of organization expenses ..................................... 13,030 12,309 Insurance expenses ........................................................ 5,919 6,483 6,260 Trustees' fees and expenses ............................................... 4,289 4,514 2,933 Other ..................................................................... 1,573 11,138 9,785 ----------- ----------- ----------- Total expenses before waivers and related reimbursements ............. 524,644 2,046,491 1,020,836 Less: waivers and related reimbursements ............................. (409,178) (628,753) (380,730) ----------- ----------- ----------- Total expenses after waivers and related reimbursements .............. 115,466 1,417,738 640,106 ----------- ----------- ----------- Net investment income ..................................................... 772,173 10,644,604 2,952,266 ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS Net realized gain/(loss)from: Investments ............................................................ (426,746) (9,640,254) 208,643 Foreign currency related transactions .................................. -- -- (1,024) Net change in unrealized appreciation/(depreciation) on: Investments ............................................................ (237,372) (6,413,837) 4,432,184 Foreign currency related transactions .................................. -- -- (16,540) ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS .................... (664,118) (16,054,091) 4,623,263 ----------- ----------- ----------- Net increase/(decrease) in net assets resulting from operations .............. $ 108,055 $ (5,409,487) $7,575,529 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of the financial statements. 29 THE BEAR STEARNS FUNDS STATEMENTS OF CHANGES IN NET ASSETS
INCOME HIGH YIELD TOTAL EMERGING MARKETS PORTFOLIO RETURN PORTFOLIO DEBT PORTFOLIO ----------------------- ---------------------------- --------------------------- FOR THE FOR THE FOR THE FISCAL YEARS FISCAL YEARS FISCAL YEARS ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31, ----------------------- ---------------------------- --------------------------- 2000 1999 2000 1999 2000 1999 ---------- ---------- ------------ ----------- ------------ ----------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income ................... $ 772,173 $ 664,607 $ 10,644,604 $ 6,662,512 $ 2,952,266 $ 3,820,573 Net realized gain/(loss) from investments and foreign currency related transactions, if any ................. (426,746) 13,596 (9,640,254) (1,568,005) 207,619 (4,064,351) Net change in unrealized appreciation/ (depreciation) on investments and foreign currency related transactions, if any ............................... (237,372) (96,146) (6,413,837) (6,079,729) 4,415,644 (5,363,799) ----------- ----------- ------------ ----------- ----------- ----------- Net increase/(decrease) in net assets resulting from operations ............ 108,055 582,057 (5,409,487) (985,222) 7,575,529 (5,607,577) ----------- ----------- ------------ ----------- ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares .................. (287,824) (266,618) (5,826,234) (3,726,455) (2,695,204) (3,336,429) Class B shares .................. (103,053) (24,193) (2,454,402) (1,313,414) (141,858) (137,132) Class C shares .................. (109,008) (91,424) (2,378,968) (1,607,643) (188,282) (321,807) Class Y shares .................. (272,288) (282,372) -- -- -- -- ----------- ----------- ------------ ----------- ----------- ----------- (772,173) (664,607) (10,659,604) (6,647,512) (3,025,344) (3,795,368) ----------- ----------- ------------ ----------- ----------- ----------- Net realized capital gains Class A shares .................. (741) (80,365) -- (192,941) -- (555,419) Class B shares .................. (330) (13,288) -- (86,843) -- (27,661) Class C shares .................. (300) (29,333) -- (103,478) -- (57,010) Class Y shares .................. (711) (69,012) -- -- -- -- ----------- ----------- ------------ ----------- ----------- ----------- (2,082) (191,998) -- (383,262) -- (640,090) ----------- ----------- ------------ ----------- ----------- ----------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares .... 5,724,901 11,220,359 43,646,464 100,285,539 7,512,688 16,138,678 Cost of shares repurchased .............. (4,094,378) (7,794,237) (50,723,201) (26,732,714) (14,026,898) (14,152,454) Shares issued in reinvestment of dividends ............................. 498,729 531,644 5,537,955 3,677,043 1,889,157 2,875,768 ----------- ----------- ------------ ----------- ----------- ----------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions ................ 2,129,252 3,957,766 (1,538,782) 77,229,868 (4,625,053) 4,861,992 ----------- ----------- ------------ ----------- ----------- ----------- Total increase/(decrease) in net assets . 1,463,052 3,683,218 (17,607,873) 69,213,872 (74,868) (5,181,043) NET ASSETS Beginning of year ....................... 12,369,326 8,686,108 104,826,272 35,612,400 33,150,325 38,331,368 ----------- ----------- ------------ ----------- ----------- ----------- End of year* ............................ $13,832,378 $12,369,326 $ 87,218,399 $104,826,272 $33,075,457 $33,150,325 ----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
---------- * Emerging Markets Debt Portfolio, includes undistributed net investment income of $12,870 and $78,308, respectively, for each year presented. The accompanying notes are an integral part of the financial statements. 30 (This page has been left blank intentionally.) 31 THE BEAR STEARNS FUNDS FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Contained below is per share operating performance data for each class of shares outstanding, total investment returns, 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. --------------------------------------------------------------------------------
NET NET ASSET REALIZED AND DIVIDENDS VALUE, NET UNREALIZED FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT OF PERIOD INCOME*(1) INVESTMENTS*(2) INCOME INCOME PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... $12.15 $ 0.70 $ (0.62) $(0.70) For the fiscal year ended March 31, 1999 .......................... 12.37 0.74 (0.03) (0.74) For the fiscal year ended March 31, 1998 .......................... 12.03 0.76 0.36 (0.76) For the fiscal year ended March 31, 1997 .......................... 12.26 0.73 (0.20) (0.73) For the period April 5, 1995** through March 31,1996 .............. 12.00 0.71 0.30 (0.71) CLASS B For the fiscal year ended March 31, 2000 .......................... 12.15 0.63 (0.62) (0.63) For the fiscal year ended March 31, 1999 .......................... 12.37 0.65 (0.03) (0.65) For the period February 2, 1998*** through March 31,1998 .......... 12.47 0.10 (0.10) (0.10) CLASS C For the fiscal year ended March 31, 2000 .......................... 12.15 0.63 (0.62) (0.63) For the fiscal year ended March 31, 1999 .......................... 12.37 0.65 (0.03) (0.65) For the fiscal year ended March 31, 1998 .......................... 12.03 0.70 0.36 (0.70) For the fiscal year ended March 31, 1997 .......................... 12.26 0.68 (0.20) (0.68) For the period April 5, 1995** through March 31,1996 .............. 12.00 0.67 0.30 (0.67) CLASS Y For the fiscal year ended March 31, 2000 .......................... 12.15 0.74 (0.62) (0.74) For the fiscal year ended March 31, 1999 .......................... 12.37 0.78 (0.03) (0.78) For the fiscal year ended March 31, 1998 .......................... 12.03 0.80 0.36 (0.80) For the fiscal year ended March 31, 1997 .......................... 12.26 0.77 (0.20) (0.77) For the period September 8, 1995*** through March 31, 1996 ........ 12.35 0.41 (0.05) (0.41) HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... 11.36 1.08 (1.58) (1.08) For the fiscal year ended March 31, 1999 .......................... 12.73 1.11 (1.32) (1.11) For the period January 2, 1998** through March 31, 1998 ........... 12.00 0.26 0.73 (0.26) CLASS B For the fiscal year ended March 31, 2000 .......................... 11.36 1.01 (1.58) (1.01) For the fiscal year ended March 31, 1999 .......................... 12.73 1.04 (1.32) (1.04) For the period January 2, 1998** through March 31, 1998 ........... 12.00 0.24 0.73 (0.24) CLASS C For the fiscal year ended March 31, 2000 .......................... 11.36 1.01 (1.58) (1.01) For the fiscal year ended March 31, 1999 .......................... 12.73 1.04 (1.32) (1.04) For the period January 2, 1998** through March 31, 1998 ........... 12.00 0.24 0.73 (0.24) EMERGING MARKETS DEBT PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... 9.27 0.83 1.31 (0.83) For the fiscal year ended March 31, 1999 .......................... 12.00 1.05 (2.60) (1.01) For the fiscal year ended March 31, 1998 .......................... 11.14 0.91 1.17 (0.92) For the fiscal year ended March 31, 1997 .......................... 9.02 0.85 2.10 (0.83) For the fiscal year ended March 31, 1996 .......................... 6.90 0.91 2.13 (0.92) CLASS B For the fiscal year ended March 31, 2000 .......................... 9.19 0.76 1.31 (0.76) For the fiscal year ended March 31, 1999 .......................... 11.95 0.98 (2.60) (0.97) For the period January 12, 1998*** through March 31, 1998 ......... 11.33 0.21 0.61 (0.20) CLASS C For the fiscal year ended March 31, 2000 .......................... 9.20 0.76 1.31 (0.76) For the fiscal year ended March 31, 1999 .......................... 11.95 0.98 (2.59) (0.97) For the fiscal year ended March 31, 1998 .......................... 11.14 0.97 1.04 (0.90) For the fiscal year ended March 31, 1997 .......................... 9.04 0.84 2.07 (0.81) For the period July 26, 1995*** through March 31, 1996 ............ 7.81 0.59 1.32 (0.68) DISTRIBUTIONS FROM NET REALIZED CAPITAL GAINS INCOME PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... $ -- For the fiscal year ended March 31, 1999 .......................... (0.19) For the fiscal year ended March 31, 1998 .......................... (0.02) For the fiscal year ended March 31, 1997 .......................... (0.03) For the period April 5, 1995** through March 31,1996 .............. (0.04) CLASS B For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.19) For the period February 2, 1998*** through March 31,1998 .......... -- CLASS C For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.19) For the fiscal year ended March 31, 1998 .......................... (0.02) For the fiscal year ended March 31, 1997 .......................... (0.03) For the period April 5, 1995** through March 31,1996 .............. (0.04) CLASS Y For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.19) For the fiscal year ended March 31, 1998 .......................... (0.02) For the fiscal year ended March 31, 1997 .......................... (0.03) For the period September 8, 1995*** through March 31, 1996 ........ (0.04) HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.05) For the period January 2, 1998** through March 31, 1998 ........... -- CLASS B For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.05) For the period January 2, 1998** through March 31, 1998 ........... -- CLASS C For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.05) For the period January 2, 1998** through March 31, 1998 ........... -- EMERGING MARKETS DEBT PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.17) For the fiscal year ended March 31, 1998 .......................... (0.30) For the fiscal year ended March 31, 1997 .......................... -- For the fiscal year ended March 31, 1996 .......................... -- CLASS B For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.17) For the period January 12, 1998*** through March 31, 1998 ......... -- CLASS C For the fiscal year ended March 31, 2000 .......................... -- For the fiscal year ended March 31, 1999 .......................... (0.17) For the fiscal year ended March 31, 1998 .......................... (0.30) For the fiscal year ended March 31, 1997 .......................... -- For the period July 26, 1995*** through March 31, 1996 ............ --
---------- * Calculated based on shares outstanding on the first and last day of the respective periods, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. ** Commencement of investment operations. *** Commencement of intial public offering. (1) Reflects waivers and related reimbursements. 32
NET ASSET VALUE, TOTAL NET ASSETS, END OF INVESTMENT END OF PERIOD PERIOD RETURN(3) (000's OMITTED) INCOME PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 ..................... $ 11.53 0.77% $5,071 For the fiscal year ended March 31, 1999 ..................... 12.15 5.77 4,775 For the fiscal year ended March 31, 1998 ..................... 12.37 9.43 2,926 For the fiscal year ended March 31, 1997 ..................... 12.03 4.40 3,367 For the period April 5, 1995** through March 31,1996 ......... 12.26 8.54 4,467 CLASS B For the fiscal year ended March 31, 2000 ..................... 11.53 0.12 2,027 For the fiscal year ended March 31, 1999 ..................... 12.15 5.09 1,121 For the period February 2, 1998*** through March 31,1998 ..... 12.37 (0.04)(4) 18 CLASS C For the fiscal year ended March 31, 2000 ..................... 11.53 0.12 1,971 For the fiscal year ended March 31, 1999 ..................... 12.15 5.08 2,067 For the fiscal year ended March 31, 1998 ..................... 12.37 8.92 1,403 For the fiscal year ended March 31, 1997 ..................... 12.03 3.99 1,018 For the period April 5, 1995** through March 31,1996 ......... 12.26 8.13 1,775 CLASS Y For the fiscal year ended March 31, 2000 ..................... 11.53 1.13 4,763 For the fiscal year ended March 31, 1999 ..................... 12.15 6.13 4,406 For the fiscal year ended March 31, 1998 ..................... 12.37 9.81 4,339 For the fiscal year ended March 31, 1997 ..................... 12.03 4.77 13,486 For the period September 8, 1995*** through March 31, 1996 ... 12.26 2.92(4) 12,199 HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 ..................... 9.78 (4.68) 44,991 For the fiscal year ended March 31, 1999 ..................... 11.36 (1.57) 55,367 For the period January 2, 1998** through March 31, 1998 ...... 12.73 8.30 18,301 CLASS B For the fiscal year ended March 31, 2000 ..................... 9.78 (5.29) 23,520 For the fiscal year ended March 31, 1999 ..................... 11.36 (2.21) 23,395 For the period January 2, 1998** through March 31, 1998 ...... 12.73 8.13 6,013 CLASS C For the fiscal year ended March 31, 2000 ..................... 9.78 (5.29) 18,707 For the fiscal year ended March 31, 1999 ..................... 11.36 (2.21) 26,064 For the period January 2, 1998** through March 31, 1998 ...... 12.73 8.13 11,298 EMERGING MARKETS DEBT PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 ..................... 10.58 24.54 28,517 For the fiscal year ended March 31, 1999 ..................... 9.27 (12.40) 29,526 For the fiscal year ended March 31, 1998 ..................... 12.00 19.31 33,448 For the fiscal year ended March 31, 1997 ..................... 11.14 33.48 33,185 For the fiscal year ended March 31, 1996 ..................... 9.02 46.13 28,860 CLASS B For the fiscal year ended March 31, 2000 ..................... 10.50 23.88 1,808 For the fiscal year ended March 31, 1999 ..................... 9.19 (13.08) 1,459 For the period January 12, 1998*** through March 31, 1998 .... 11.95 7.29(4) 566 CLASS C For the fiscal year ended March 31, 2000 ..................... 10.51 23.86 2,750 For the fiscal year ended March 31, 1999 ..................... 9.20 (12.99) 2,165 For the fiscal year ended March 31, 1998 ..................... 11.95 18.66 4,317 For the fiscal year ended March 31, 1997 ..................... 11.14 32.97 2,583 For the period July 26, 1995*** through March 31, 1996 ....... 9.04 25.45(4) 202 RATIO OF RATIO OF NET INVESTMENT EXPENSES TO INCOME TO AVERAGE NET ASSETS(1) AVERAGE NET ASSETS(1) INCOME PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... 0.80% 5.99% For the fiscal year ended March 31, 1999 .......................... 0.80 5.83 For the fiscal year ended March 31, 1998 .......................... 0.80 6.13 For the fiscal year ended March 31, 1997 .......................... 0.80 5.99 For the period April 5, 1995** through March 31,1996 .............. 0.80(5) 5.76(5) CLASS B For the fiscal year ended March 31, 2000 .......................... 1.45 5.34 For the fiscal year ended March 31, 1999 .......................... 1.45 5.16 For the period February 2, 1998*** through March 31,1998 .......... 1.45(5) 5.22(4)(5) CLASS C For the fiscal year ended March 31, 2000 .......................... 1.45 5.33 For the fiscal year ended March 31, 1999 .......................... 1.45 5.28 For the fiscal year ended March 31, 1998 .......................... 1.28 5.60 For the fiscal year ended March 31, 1997 .......................... 1.20 5.57 For the period April 5, 1995** through March 31,1996 .............. 1.25(5) 5.38(5) CLASS Y For the fiscal year ended March 31, 2000 .......................... 0.45 6.36 For the fiscal year ended March 31, 1999 .......................... 0.45 6.27 For the fiscal year ended March 31, 1998 .......................... 0.45 6.39 For the fiscal year ended March 31, 1997 .......................... 0.45 6.34 For the period September 8, 1995*** through March 31, 1996 ........ 0.45(5) 5.93(4)(5) HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... 1.00 10.14 For the fiscal year ended March 31, 1999 .......................... 1.00 9.37 For the period January 2, 1998** through March 31, 1998 ........... 1.00(5) 9.14(5) CLASS B For the fiscal year ended March 31, 2000 .......................... 1.65 9.49 For the fiscal year ended March 31, 1999 .......................... 1.65 8.76 For the period January 2, 1998** through March 31, 1998 ........... 1.65(5) 8.46(5) CLASS C For the fiscal year ended March 31, 2000 .......................... 1.65 9.49 For the fiscal year ended March 31, 1999 .......................... 1.65 8.73 For the period January 2, 1998** through March 31, 1998 ........... 1.65(5) 8.46(5) EMERGING MARKETS DEBT PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... 1.75 8.59 For the fiscal year ended March 31, 1999 .......................... 1.75 10.38 For the fiscal year ended March 31, 1998 .......................... 1.75 7.70 For the fiscal year ended March 31, 1997 .......................... 2.00 7.95 For the fiscal year ended March 31, 1996 .......................... 2.00 10.64 CLASS B For the fiscal year ended March 31, 2000 .......................... 2.40 7.93 For the fiscal year ended March 31, 1999 .......................... 2.40 9.73 For the period January 12, 1998*** through March 31, 1998 ......... 2.40(5) 7.13(4)(5) CLASS C For the fiscal year ended March 31, 2000 .......................... 2.40 7.82 For the fiscal year ended March 31, 1999 .......................... 2.40 9.73 For the fiscal year ended March 31, 1998 .......................... 2.40 7.31 For the fiscal year ended March 31, 1997 .......................... 2.40 7.59 For the period July 26, 1995*** through March 31, 1996 ............ 2.40(5) 8.72(4)(5) INCREASE/(DECREASE) REFLECTED IN EXPENSE RATIOS AND NET INVESTMENT INCOME PORTFOLIO DUE TO WAIVERS AND TURNOVER RELATED REIMBURSEMENTS RATE INCOME PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... 3.13% 158.47% For the fiscal year ended March 31, 1999 .......................... 2.98 107.21 For the fiscal year ended March 31, 1998 .......................... 1.86 244.78 For the fiscal year ended March 31, 1997 .......................... 1.73 262.95 For the period April 5, 1995** through March 31,1996 .............. 2.87(5) 107.35 CLASS B For the fiscal year ended March 31, 2000 .......................... 3.13 158.47 For the fiscal year ended March 31, 1999 .......................... 2.81 107.21 For the period February 2, 1998*** through March 31,1998 .......... 0.48(4)(5) 244.78 CLASS C For the fiscal year ended March 31, 2000 .......................... 3.13 158.47 For the fiscal year ended March 31, 1999 .......................... 3.18 107.21 For the fiscal year ended March 31, 1998 .......................... 1.80 244.78 For the fiscal year ended March 31, 1997 .......................... 1.74 262.95 For the period April 5, 1995** through March 31,1996 .............. 2.95(5) 107.35 CLASS Y For the fiscal year ended March 31, 2000 .......................... 3.13 158.47 For the fiscal year ended March 31, 1999 .......................... 3.23 107.21 For the fiscal year ended March 31, 1998 .......................... 1.78 244.78 For the fiscal year ended March 31, 1997 .......................... 1.73 262.95 For the period September 8, 1995*** through March 31, 1996 ........ 2.89(4)(5) 107.35 HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... 0.58 70.61 For the fiscal year ended March 31, 1999 .......................... 0.74 101.75 For the period January 2, 1998** through March 31, 1998 ........... 1.67(5) 139.61 CLASS B For the fiscal year ended March 31, 2000 .......................... 0.59 70.61 For the fiscal year ended March 31, 1999 .......................... 0.73 101.75 For the period January 2, 1998** through March 31, 1998 ........... 1.68(5) 139.61 CLASS C For the fiscal year ended March 31, 2000 .......................... 0.59 70.61 For the fiscal year ended March 31, 1999 .......................... 0.73 101.75 For the period January 2, 1998** through March 31, 1998 ........... 1.67(5) 139.61 EMERGING MARKETS DEBT PORTFOLIO CLASS A For the fiscal year ended March 31, 2000 .......................... 1.11 91.98 For the fiscal year ended March 31, 1999 .......................... 1.28 82.47 For the fiscal year ended March 31, 1998 .......................... 1.01 128.91 For the fiscal year ended March 31, 1997 .......................... 0.80 223.41 For the fiscal year ended March 31, 1996 .......................... 1.18 266.46 CLASS B For the fiscal year ended March 31, 2000 .......................... 1.02 91.98 For the fiscal year ended March 31, 1999 .......................... 1.43 82.47 For the period January 12, 1998*** through March 31, 1998 ......... 2.25(4)(5) 128.91 CLASS C For the fiscal year ended March 31, 2000 .......................... 1.01 91.98 For the fiscal year ended March 31, 1999 .......................... 1.16 82.47 For the fiscal year ended March 31, 1998 .......................... 1.05 128.91 For the fiscal year ended March 31, 1997 .......................... 0.64 223.41 For the period July 26, 1995*** through March 31, 1996 ............ 3.42(4)(5) 266.46
---------- (2) The amounts shown for a share outstanding thoughout the respective periods are not in accord with the changes in the aggregate gains and losses on investments during the respective periods because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective periods. For Emerging Markets Debt Portfolio net realized and unrealized gain/(loss) on investments include forward foreign currency exchange contracts and translation of foreign currency related transactions. (3) Total investment return does not consider the effects of sales charges or contigingent deferred sales charges. 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 and distributions, if any. Total investment return is not annualized. (4) The total investment return and ratios for a class of shares are not necessarily comparible to those of any other outstanding class of shares, due to the timing differences in the commencement of intial public offerings. (5) Annualized. The accompanying notes are an integral part of the financial statements. 33 THE BEAR STEARNS FUNDS Income Portfolio High Yield Total Return Portfolio Emerging Markets Debt 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 currently consists of eleven separate portfolios: seven diversified portfolios, Prime Money Market Portfolio, Large Cap Value Portfolio, Small Cap Value Portfolio, International Equity Portfolio, Balanced Portfolio, High Yield Total Return Portfolio ("High Yield Portfolio") and Income Portfolio, and four non-diversified portfolios, Emerging Markets Debt Portfolio ("EMD Portfolio"), The Insiders Select Fund, Focus List Portfolio and S&P STARS Portfolio. As of the date hereof, the Income Portfolio, High Yield Portfolio and EMD Portfolio (each a "Portfolio" and collectively, the "Portfolios") offer four classes of shares, which have been designated as Class A, B, C and Y shares. Class Y shares of the High Yield Portfolio and EMD Portfolio have yet to commence its initial public offering. 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. At a Special Meeting of Shareholders held on April 29, 1999, the shareholders of the Bear Stearns Investment Trust (the "Trust") approved the reorganization and liquidation of the Trust on behalf of the Emerging Markets Debt Portfolio pursuant to the Agreement and Plan of Reorganization and Liquidation previously approved by the Board of Trustees. It provided for the transfer of the assets and liabilities of the Emerging Markets Debt Portfolio to a newly created separate series of the Fund with the same name and materially the same investment objective and policies as the Emerging Markets Debt Portfolio. Such transaction was effected on July 29, 1999. ORGANIZATIONAL MATTERS--Prior to commencing investment operations on April 5, 1995 and January 2, 1998, Income Portfolio and High Yield Portfolio, respectively, did not have any transactions other than those relating to organizational matters and the sale of shares of beneficial interest of the Income Portfolio and High Yield Portfolio to Bear, Stearns & Co. Inc. ("Bear Stearns" or the "Distributor") as follows:
PORTFOLIO CLASS A CLASS B CLASS C --------- ------- ------- ------- Income Portfolio............................................................... 1,041 -- 1,041 High Yield Portfolio........................................................... 1 1 1
Costs of $76,571 and $56,234 which were incurred by the Income Portfolio and High Yield Portfolio, respectively, in connection with the organization 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 each Portfolio. In the event that Bear Stearns or any transferee thereof redeems any of its original shares prior to the end of the sixty month period, the proceeds of the redemption payable with respect to 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 any of the Portfolios are liquidated prior to the end of the sixty month period, Bear Stearns or any transferee thereof shall bear the unamortized deferred organization expenses. 34 MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with generally accepted accounting principles 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--Each Portfolio calculates the net asset value of and completes orders to purchase or repurchase its shares of beneficial interest on each business day, with the exception of those days on which the New York Stock Exchange is closed. For the Income Portfolio and High Yield Portfolio, substantially all of the investments (including short-term investments) are valued each business day by one or more independent pricing services (the "Service") approved by the Fund's Board of Trustees. Securities valued by the Service for which quoted bid prices in the judgement of the Service are readily available and are representative of the bid side of the market are valued at the mean between the quoted bid (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). The assets of the EMD Portfolio are generally not listed on security exchanges or traded on other regulated markets. Therefore, in the absence of reported sales prices on a valuation date, assets generally will be valued at the mean of the last bid and offer quotations. In the absence of reported bid and offer quotations on such valuation date, such assets will be valued from the broker bids of at least one market maker. Any assets which are denominated in a foreign currency are converted into U.S. dollars at the prevailing market rates for purposes of calculating net asset value. In the absence of current broker bids or if such broker bids are not indicative of the fair value for such assets by reason of the illiquidity of a particular security or investment, or other factors, the value of such assets will be recorded at their fair value determined in good faith by the Valuation Committee. In making this determination the Valuation Committee will follow procedures adopted by the Board of Trustees, such procedures are among other things, publicly available information regarding the issuer, market conditions and values ascribed to comparable companies. The amortized cost method of valuation is used with respect to debt obligations with 60 days or less remaining to maturity, unless this method does not represent fair value. Expenses and fees, including the respective investment advisory, administration and distribution fees, are accrued daily and taken into account for the purpose of determining the net asset value of each Portfolio's shares. Because of the differences in operating expenses incurred by each class, the per share net asset value of each class may differ. 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 security and foreign currency transactions are calculated on the identified cost basis. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date. Discounts are treated as adjustments to interest income and identified costs of investments over the lives of the respective investments. The Portfolios' net investment income (other than distribution and service fees) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of the settled shares value of each class at the beginning of the day. FOREIGN CURRENCY TRANSLATION--The books and records of the EMD Portfolio are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. The resulting exchange gains and losses are included in the Statement of Operations. The Portfolios do not generally isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of investments. However, the Portfolios do isolate the effect of fluctuations in foreign exchange rates when determining the gain or loss upon the sale or maturity of foreign currency-denominated debt obligations pursuant to U.S. federal income tax regulations; such amount is categorized as foreign exchange gain or loss for both financial reporting and income tax reporting purposes. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Portfolios are permitted to enter into forward foreign currency exchange contracts solely for the purpose of protecting against adverse changes in foreign currency exchange rates. The Portfolios 35 may enter into contracts to purchase foreign currencies to protect against a rise in the U.S. dollar price of securities it has purchased pending final settlement, or it may enter into contracts to sell foreign currencies to protect against the decline in value of its non-dollar denominated securities due to a decline in the value of foreign currencies against the U.S. dollar. When a Portfolio enters into a forward foreign currency exchange contract to buy a foreign currency, it will place cash or readily marketable securities in a segregated account in an amount equal to the value of its total assets committed to the consummation of the forward contract. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account so that the value of the account will equal the amount of the Portfolio's commitment with respect to the contract. Investors should be aware that the forward currency market for the purchase of U.S. dollars in many emerging countries is not highly developed and that in certain emerging countries no forward market for foreign currencies currently exists or that such market may be closed to investment by each Portfolio. The Portfolios had no open forward foreign currency exchange contracts at March 31, 2000, except for the EMD Portfolio, which had the following open contracts:
DELIVERY VALUE SETTLEMENT UNREALIZED CURRENCY (LOCAL CURRENCY) DATE COMMITMENT VALUE GAIN -------- ---------------- ---------- ---------- ----- ---------- SALE: European Euro........................ 739,209 06/02/00 $718,040 $707,331 $10,709 =======
U.S. FEDERAL TAX STATUS--Each 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, each Portfolio intends not to be subject to a U.S. federal excise tax. At March 31, 2000, the Portfolios had capital loss carryforwards available as a reduction to the extent provided in regulations of any future net capital gains realized before the end of fiscal year 2008. To the extent that the capital loss carryforwards are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders. The Portfolios had the following capital loss carryforwards at March 31, 2000:
AMOUNT AMOUNT GROSS CAPITAL LOSS EXPIRING EXPIRING PORTFOLIO CARRYFORWARDS IN 2007 IN 2008 --------- ------------------ -------- ---------- Income Portfolio..................................................... $ 127,545 -- $ 127,545 High Yield Portfolio................................................. 5,460,739 $175,885 5,284,854 EMD Portfolio........................................................ 3,636,607 780,615 2,855,992
For U.S. federal income tax purposes, realized foreign currency losses and net realized capital losses from investments incurred after October 31, 1999, within the current fiscal year are deemed to arise on the first day of the following fiscal year. The Income Portfolio and High Yield Portfolio incurred and elected to defer net realized losses of $307,115 and $5,748,445, respectively. The EMD Portfolio incurred and elected to defer realized foreign currency losses of $8,664. DIVIDENDS AND DISTRIBUTIONS--The Portfolios declare dividends from net investment income on each day the New York Stock Exchange is open for business. These dividends are paid usually on or about the twentieth day of each month. Distribution of net realized gains, if any, will be declared and paid at least annually by each Portfolio. Dividends and distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within capital accounts based on their U.S. federal tax-basis treatment; temporary differences do not require reclassification. At March 31, 2000, the Income Portfolio reclassified $503 within the composition of net assets from accumulated net realized losses to paid-in capital. The EMD Portfolio reclassified $7,640 within the composition of net assets from accumulated net realized foreign currency gains to undistributed net investment income. FOREIGN WITHHOLDING TAXES--Income received from sources outside of the United States may be subject to withholding and other taxes imposed by countries other than the United States. OTHER--Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in 36 exchange rates. Some countries in which the Portfolios invest require government approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is a deterioration in a country's balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES For the fiscal year ended March 31, 2000, 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 Investment Advisory Agreement. Under the terms of the Investment Advisory Agreement, the Income Portfolio and High Yield Portfolio has agreed to pay BSAM a monthly fee at an annual rate of 0.45% and 0.60%, respectively, of each Portfolio's average daily net assets. The EMD Portfolio has agreed to pay BSAM a monthly fee at an annual rate of 1.00% of average daily net assets up to $50 million, 0.85% of average daily net assets of more than $50 million but not in excess of $100 million and 0.55% of average daily net assets above $100 million. For the fiscal year ended March 31, 2000, Bear Stearns Funds Management Inc. ("BSFM" or the "Administrator") served as administrator to each Portfolio pursuant to an Administration Agreement. BSFM is entitled to receive from each Portfolio a monthly fee equal to an annual rate of 0.15% of each Portfolio's average daily net assets. Under the terms of an Administrative Services Agreement with the Portfolios, PFPC provides certain accounting and administrative services to each Portfolio. For providing these services, PFPC is entitled to receive from the Portfolios a monthly fee equal to an annual rate of 0.10% of each Portfolio's average daily net assets up to $200 million, 0.075% of the next $200 million, 0.05% of the next $200 million and 0.03% of the net assets above $600 million, subject to a minimum annual fee for each Portfolio. For the fiscal year ended March 31, 2000, BSAM has voluntarily undertaken to limit the total operating expenses to a maximum annual level as a percent of each Portfolio's average daily net assets as follows:
PORTFOLIO CLASS A CLASS B CLASS C CLASS Y -------- ------- ------- ------- ------- Income Portfolio.................................. 0.80% 1.45% 1.45% 0.45% High Yield Portfolio.............................. 1.00 1.65 1.65 -- EMD Portfolio..................................... 1.75 2.40 2.40 --
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, 2000, the advisory fee waivers and reimbursements of expenses (in order to maintain the voluntary expense limitation) were as follows:
PORTFOLIO ADVISORY FEE WAIVERS EXPENSE REIMBURSEMENTS -------- -------------------- ---------------------- Income Portfolio.................................. $ 58,835 $350,343 High Yield Portfolio.............................. 601,201 27,552 EMD Portfolio..................................... 297,720 83,010
The Portfolios will not pay BSAM at a later time for any amounts BSAM may waive, nor will the Portfolios 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 and BSFM, serves as custodian to the Income Portfolio and High Yield Portfolio. DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN The Fund, on behalf of the Portfolios, has entered into a Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act. Under the Distribution Plan, the Portfolios paid Bear Stearns a fee at an annual rate of 0.10% for Class A shares and 0.75% for both Class B and C shares. The Fund, on behalf of the Portfolios, has adopted a Shareholder Servicing Plan whereby the Portfolios paid fees of up to 0.25% of its Class A, B and C shares. Fees are based on the average daily net assets in each class of each Portfolio and are accrued daily and paid quarterly or at such 37 other intervals as the Board of Trustees may determine. For the fiscal year ended March 31, 2000, Bear Stearns earned $34,520, $438,499, and $61,352 for the Income Portfolio, High Yield Portfolio and EMD Portfolio,respectively, in distribution fees. The fees paid to Bear Stearns under the Distribution Plan are payable without regard to actual expenses incurred. Bear Stearns uses these fees to pay broker/dealers whose clients hold each Portfolio's shares and other distribution-related activities. For the same period, Bear Stearns earned $21,898, $270,445, and $86,849 for the Income Portfolio, High Yield Portfolio and EMD Portfolio, respectively, in shareholder servicing fees. Bear Stearns pays broker/dealers and other financial institutions whose clients hold Portfolio shares primarily for shareholder liaison and other account maintenance services. In addition, as Distributor of the Portfolios, Bear Stearns collects the sales charges imposed on sales of each Portfolio's Class A shares, and reallows a portion of such charges to dealers through which the sales are made. Furthermore, Bear Stearns advanced 4.25% and 1.00% in sales commissions on the sale of Class B and C shares, respectively, to dealers at the time of such sales. For the fiscal year ended March 31, 2000, Bear Stearns has advised each Portfolio that it received $26,759, $235,696 and $49,829 in front-end sales charges resulting from sales of Class A shares of the Income Portfolio, High Yield Portfolio and EMD Portfolio, respectively. From these fees, Bear Stearns paid sales charges to dealers which in turn paid commissions to salespersons. In addition, Bear Stearns has advised the Income Portfolio, High Yield Portfolio and EMD Portfolio that during the fiscal year ended March 31, 2000, it received $20,942 from the High Yield Portfolio in contingent deferred sales charges ("CDSC") upon certain redemptions by Class A shareholders, $14,385, $173,140 and $16,989 from each Portfolio, respectively, in CDSC upon certain redemptions by Class B shareholders and $223, $20,369 and $53 from each Portfolio, respectively, in CDSC upon certain redemptions by Class C shareholders. INVESTMENTS IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at March 31, 2000, were $15,973,099, $97,633,260 and $28,420,176 for the Income Portfolio, High Yield Portfolio and EMD Portfolio, respectively. Accordingly, the net unrealized appreciation/(depreciation) on investments for each Portfolio were as follows:
NET GROSS GROSS APPRECIATION/ PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION) -------- ------------ ------------ -------------- Income Portfolio.................................................... $ 60,737 $ (414,169) $ (353,432) High Yield Portfolio................................................ 862,205 (12,795,914) (11,933,709) EMD Portfolio....................................................... 2,589,769 (1,027,932) 1,561,837
For the fiscal year ended March 31, 2000, aggregate purchases and sales of investment securities (excluding short-term investments) for each Portfolio were as follows:
PORTFOLIO PURCHASES SALES --------- --------- ----- Income Portfolio.................................................... $21,505,847 $19,749,051 High Yield Portfolio................................................ 71,585,007 76,249,841 EMD Portfolio....................................................... 30,054,862 36,687,517
38 SHARES OF BENEFICIAL INTEREST Each Portfolio offers Class A, B, C and Y shares. Class A shares are sold with a front-end sales charge of up to 4.50% for each Portfolio. Class B shares are sold with a CDSC of up to 5.00% within six years of purchase. Class C shares are sold with a CDSC of 1.00% within the first year of purchase. There is no sales charge or CDSC on Class Y shares, which are offered primarily to institutional investors. At March 31, 2000, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized for each Portfolio, of which Bear Stearns owned 1,205 of Class A shares and 1,188 Class C shares of the Income Portfolio and 1 each of Class A, B and C shares of the High Yield Portfolio. Shares of the Income Portfolio owned by Bear Stearns include 164 Class A shares and 147 Class C shares which were acquired through dividend reinvestment. Transactions in shares of beneficial interest for each Portfolio were as follows:
INCOME PORTFOLIO HIGH YIELD PORTFOLIO EMD PORTFOLIO ---------------------------------- --------------------------------- --------------------------------- SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS ----- ----------- ------------- ----- ----------- ------------- ----- ----------- ------------- FOR THE FISCAL YEARS ENDED: CLASS A MARCH 31, 2000 Shares........... 163,837 128,806 11,831 2,046,001 2,607,245 286,754 622,886 1,289,673 175,086 Value............ $1,918,988 $1,508,227 $138,514 $22,253,022 $27,209,668 $3,053,931 $ 5,891,337 $12,534,987 $1,646,974 MARCH 31, 1999 Shares........... 652,813 512,338 16,075 4,591,690 1,328,105 173,523 1,353,990 1,217,322 262,381 Value............ $8,140,024 $6,375,966 $199,578 $55,352,368 $15,720,812 $2,039,096 $13,884,104 $11,562,827 $2,415,066 CLASS B MARCH 31, 2000 Shares........... 144,531 67,853 6,877 1,036,215 803,901 113,499 80,139 76,062 9,429 Value............ $1,699,578 $ 787,231 $ 80,141 $11,213,716 $ 8,390,332 $1,205,625 $ 748,885 $ 718,270 $ 87,930 MARCH 31, 1999 Shares........... 95,133 6,176 1,917 1,698,449 172,814 61,079 134,300 36,459 13,490 Value............ $1,180,901 $ 75,940 $ 23,739 $20,280,591 $ 2,036,035 $ 709,943 $ 1,458,377 $ 329,735 $ 119,962 CLASS C MARCH 31, 2000 Shares........... 68,592 74,773 6,971 944,475 1,446,955 119,893 91,962 81,973 16,549 Value............ $ 806,590 $ 874,826 $ 81,499 $10,179,726 $15,123,201 $1,278,399 $ 872,466 $ 773,641 $ 154,253 MARCH 31, 1999 Shares........... 125,661 76,187 7,293 2,098,034 769,764 79,488 77,215 240,138 37,052 Value............ $1,564,198 $ 942,593 $ 90,493 $24,652,580 $ 8,975,867 $ 928,004 $ 796,197 $ 2,259,892 $ 340,740 CLASS Y* MARCH 31, 2000 Shares........... 111,924 78,521 17,002 -- -- -- -- -- -- Value............ $1,299,745 $ 924,094 $198,575 -- -- -- -- -- -- MARCH 31, 1999 Shares........... 27,127 32,617 17,555 -- -- -- -- -- -- Value............ $ 335,236 $ 399,738 $217,834 -- -- -- -- -- --
---------- * Class Y shares have yet to commence its initial public offering for the High Yield Portfolio and EMD Portfolio. CREDIT AGREEMENT Effective October 1, 1999, the Fund entered into a demand promissory note arrangement with The Chase Manhattan Bank (the "Bank") to provide an uncommitted credit facility to the Fund (on behalf of each 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. Prior thereto, the Fund on behalf of each Portfolio, had a credit agreement with BankBoston, N.A. which Small Cap Value Portfolio, Large Cap Value Portfolio, The Insiders Select Fund, S&P STARS Portfolio, Prime Money Market Portfolio, Balanced Portfolio, International Equity Portfolio and Focus List Portfolio were also parties to. This agreement provided that each party to the credit agreement was permitted to borrow in an amount equal to the lesser of $25 million or 25% of the net assets of a Portfolio. At no time was the aggregate outstanding principal amount of all loans to any of the Portfolios to exceed $25 million. Each Portfolio as a fundamental policy was permitted to borrow in an amount up to 331U3% of the value of such Portfolio's assets. However, each Portfolio intended to borrow money only for temporary or emergency (not leveraging) purposes in an amount up to 15% of its net assets. The line of credit bore interest at the greater of: (i) the annual 39 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 BankBoston, N.A. In addition, the EMD Portfolio borrowed, for temporary purposes, from its custodian, Brown Brothers Harriman & Co., to cover periodic overdrafts. Such borrowings were at a rate of interest based on the London Interbank Offered Rate (LIBOR) plus 2%. Each loan is payable on demand or upon termination of these credit arrangements 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. Amounts outstanding under these credit arrangements during the fiscal year ended March 31, 2000, were as follows:
MAXIMUM LOAN PORTFOLIO AVERAGE LOAN BALANCE AMOUNTS OUTSTANDING AVERAGE INTEREST RATE --------- -------------------- ------------------- --------------------- Income Portfolio................................... $ 5,402 $1,243,700 6.42% High Yield Portfolio............................... 90,824 4,165,400 6.11 EMD Portfolio...................................... 105,136 4,783,647 7.49
The Portfolios had no amounts outstanding under the line of credit agreement at March 31, 2000. CONCENTRATION OF RISK--HIGH YIELD PORTFOLIO Lower-rated debt securities (commonly known as "junk bonds") possess speculative characteristics and are subject to greater market fluctuations and risk of lost income and principal than higher-rated debt securities for a variety of reasons. Also, during an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress which would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals and to obtain additional financing. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of lower-rated debt securities and the High Yield Portfolio's net asset value. CONCENTRATION OF RISK--EMD PORTFOLIO Investments in emerging markets debt involve special risks. The issuer of the debt of the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and the EMD Portfolio may have limited legal recourse in the event of a default. Certain emerging countries may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging country's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. The EMD Portfolio could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the EMD Portfolio of any restrictions on investments. Most securities markets in emerging market countries may have substantially less volume and are subject to less government supervision than U.S. securities markets. Securities of many issuers in emerging market countries may be less liquid and more volatile than securities of comparable domestic issuers. In addition, there is less regulation of securities exchanges, securities dealers, and listed and unlisted companies in emerging market countries than in the U. S. Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates. In addition, forward contracts are subject to the risk that the counterparty to the contract will default on its obligations. A default on the contract would deprive the EMD Portfolio of unrealized profits, the benefits of a currency hedge, increase transaction costs or force the EMD Portfolio to cover its purchase or sale commitments, if any, at the current market price. The EMD Portfolio will not enter into such transactions unless the credit quality of the claims-paying ability of the counterparty is considered to be investment grade by BSAM. 40 THE BEAR STEARNS FUNDS Income Portfolio High Yield Total Return Portfolio Emerging Markets Debt Portfolio INDEPENDENT AUDITORS' REPORT The Board of Trustees and Shareholders, Income Portfolio High Yield Total Return Portfolio Emerging Markets Debt Portfolio (Series of The Bear Stearns Funds): We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Income Portfolio, High Yield Total Return Portfolio and Emerging Markets Debt Portfolio (collectively, the "Portfolios")as of March 31, 2000, and the related statements of operations, changes in net assets and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and the 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 the 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, 2000 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 Income Portfolio, High Yield Total Return Portfolio and Emerging Markets Debt Portfolio as of March 31, 2000, the results of their operations, the changes in their net assets and the financial highlights for each of the periods presented in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York May 17, 2000 41 THE BEAR STEARNS FUNDS Income Portfolio High Yield Total Return Portfolio Emerging Markets Debt Portfolio SHAREHOLDER TAX INFORMATION -- (UNAUDITED) Each Portfolio is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of each Portfolio's fiscal year end (March 31, 2000) as to the U.S. federal tax status of distributions received by each Portfolio's shareholders in respect of such fiscal year. During the fiscal year ended March 31, 2000, the following dividends and distributions per share were paid by each of the Portfolios:
INCOME PORTFOLIO LONG-TERM NET INVESTMENT INCOME CAPITAL GAINS --------------------- ------------- Class A $0.699960961 $0.0018 Class B 0.624002419 0.0018 Class C 0.624034724 0.0018 Class Y 0.740848341 0.0018 HIGH YIELD TOTAL RETURN PORTFOLIO NET INVESTMENT INCOME --------------------- Class A $1.083727152 Class B 1.014313408 Class C 1.014325087 EMERGING MARKETS DEBT PORTFOLIO NET INVESTMENT INCOME --------------------- Class A $0.833397012 Class B 0.765870318 Class C 0.766720108
All dividends and distributions from the Emerging Markets Debt Portfolio were derived from income and capital gains on foreign obligations; however they were not subject to foreign withholding taxes. With respect to each Portfolio, none of its ordinary income dividends qualify for the corporate dividends received deduction. Because each Portfolio's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2000. The second notification, which will reflect the amount to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2001. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their dividend. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Portfolios, if any. In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult with their own tax advisers with respect to the tax consequences of their investment in the Portfolios. 42 (This page has been left blank intentionally.) (This page has been left blank intentionally.)