N-30D 1 a2061892zn-30d.txt N-30D THE BEAR STEARNS FUNDS 383 MADISON AVENUE NEW YORK, NY 10179 1.800.766.4111 Michael Minikes Chairman of the Board and Trustee Doni L. Fordyce President and Trustee Peter M. Bren Trustee John S. Levy Trustee Robert E. Richardson Trustee Barry Sommers Executive Vice President Stephen A. Bornstein Vice President and Frank J. Maresca Secretary Vincent L. Pereira Vice President and Treasurer Assistant Treasurer INVESTMENT ADVISER Bear Stearns Asset TRANSFER AND DIVIDEND Management Inc. DISBURSEMENT AGENT 383 Madison Avenue PFPC Inc. New York, NY 10179 Bellevue Corporate Center 400 Bellevue Parkway ADMINISTRATOR Wilmington, DE 19809 Bear Stearns Funds Management Inc. INDEPENDENT AUDITORS 575 Lexington Avenue Deloitte & Touche LLP New York, NY 10022 Two World Financial Center New York, NY 10281 DISTRIBUTOR Bear, Stearns & Co. Inc. COUNSEL 383 Madison Avenue Kramer Levin New York, NY 10179 Naftalis & Frankel LLP 919 Third Avenue INCOME PORTFOLIO AND New York, NY 10022 HIGH YIELD TOTAL RETURN PORTFOLIO: EMERGING MARKETS DEBT CUSTODIAN PORTFOLIO: Custodial Trust Company CUSTODIAN 101 Carnegie Center Brown Brothers Harriman & Princeton, NJ 08540 Co. 40 Water Street Boston, MA 02109 The financial information included herein is taken from the records of each Portfolio without examination by independent auditors who do not express an opinion thereof. This report is submitted for the general information of the shareholders of 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-016-09 THE BEAR STEARNS FUNDS FIXED INCOME FUNDS INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO EMERGING MARKETS DEBT PORTFOLIO SEMI-ANNUAL REPORT SEPTEMBER 30, 2001 [BEAR STEARNS LOGO] THE BEAR STEARNS FUNDS INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO EMERGING MARKETS DEBT PORTFOLIO LETTER TO SHAREHOLDERS October 25, 2001 Dear Shareholders: We are pleased to present the semi-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 six months ended September 30, 2001. Detailed performance data for each class of shares of each Portfolio can be found in the "Financial Highlights" of this report. INCOME PORTFOLIO For the six months ended September 30, 2001, the Income Portfolio's Class A shares had a total return of 4.42% (without giving effect to the sales charge) and both Class B and C shares had a total return of 4.08% (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 5.25% for the same period. The Lipper A Rated Bond Fund Index returned 4.33% for the same period. CONSERVATIVE POSITIONING PAYS OFF Anticipating that the economy would slow further, the Portfolio was defensively positioned throughout the six months ended September 30, 2001. Over the course of the summer, the economy did weaken further and the yield curve did steepen as the Federal Reserve moved to cut interest rates. These moves, coupled with the promise of tax cuts phasing in soon, led to an improvement in sentiment as the summer drew to a close. Recovery, while not immediate, was in the offing. The attacks of September 11th, however, exacerbated the economy's downturn. Moving to ensure that liquidity remained in the system, the Federal Reserve lowered short-term rates significantly and rapidly. All of this contributed to further steepening of the yield curve -- and portfolios positioned more conservatively benefited. Of course, some fixed income sectors were more affected by events than others. Not surprisingly, the spread between treasuries and corporate securities widened during the period. Hit by profit warnings over the summer, corporates suffered as investors grew more uncertain about the speed of recovery in the wake of the terrorist attacks. The performance of mortgage-backed securities was stellar in comparison to corporate bonds. But this sector, too, suffered as interest rates declined during the period and prepayment risk rose. Asset-backeds were also affected by the increase in prepayment risk. In both sectors, however, the Portfolio held discount coupons, which mitigated much of the risk. As a result, the Portfolio, which is invested across the fixed income markets, posted solid returns in the volatile environment of the third quarter. We believe our economy was moving toward recession as the summer drew to an end. After September 11th, it was equally apparent that a recession is in the cards. Having cut interest rates in response to the economy and events, the Federal Reserve seems inclined to cut rates further. In fact, it would not be surprising to see the Federal Funds rate at 1 2% before year-end. In addition, the government is putting together a variety of stimulus packages. The effects of these efforts, coupled with tax cuts passed earlier in the year, should become apparent moving forward. The economic climate should be considerably brighter in 2002, particularly in the second half of the year. Inflation may not even be a problem as there is a good deal of excess capacity and very little pricing pressure. Consequently, the environment for corporate securities should be much improved and as signs of improvement become more apparent, we expect to take advantage of some of the tremendous opportunities now available in this sector. As always, however, this will be done on an issue-by-issue basis after subjecting each issuer to in-depth scrutiny. HIGH YIELD TOTAL RETURN PORTFOLIO* For the six months ended September 30, 2001, the High Yield Portfolio's Class A shares had a total return of (3.70)% (without giving effect to the sales charge) and both Class B and C shares had a total return of (4.02)% (without giving effect to the contingent deferred sales charge).(2) The High Yield Portfolio's benchmark index, the Credit Suisse First Boston High Yield Index (developed countries only), returned (4.82)% for the same period. The Lipper High Yield Bond Fund Index returned (9.08)% for the same period. QUALITY ISSUES STAND STRONG Interest rate cuts and anticipation of a recovery offset some of the gloom in the marketplace in the first half of the six months ended September 30, 2001. While telecommunications issues did continue to suffer like their equity counterparts, the market firmed overall as spreads tightened modestly and new issuance was strong. Not surprisingly, given the weakness in the economy, higher quality issues were among the strongest performers. In the days following the attacks on the United States, however, the market was volatile. While the airlines, travel-related businesses and media industries were affected directly and immediately, all sectors were impacted to some degree. As would be expected, however, quality became investors' overriding concern. Focused on issues from companies with strong and stable cash flows, the Portfolio held its ground in this very challenging environment. Much of this was due to the Portfolio's change in direction over the past year. Throughout the period, we worked to eliminate questionable credits and positions in more economically-sensitive sectors and expand positions in sectors with reliable cash flows. Thus, prior to September 11th, positions had been increased in food services and healthcare. With this, the quality of our holdings had increased and the Portfolio was well-positioned for a slower economic environment. Still, performance was impacted to some degree by the events of September 11th. The hotel and gaming sector (being travel-related) experienced a bit of a bump. However, the Portfolio's holdings were in diversified, multi-jurisdictional gaming companies whose revenues do not depend on customers traveling by air. As this became clear, these issues began to snap back. Also, while positions had been reduced in telecommunications over the past year, remaining exposures in the wireless sector were focused in quality issues. Rather than hurting these companies, events showed what a critical role their products now play. Clearly, the events of September 11th exacerbated the economy's weakness. The downturn is now likely to be longer than originally anticipated. Nonetheless, the Federal Reserve has shown it is willing to do whatever it takes to aid the economy -- and short-term interest rates may go lower yet. Also, politicians from both parties are working on a variety of fiscal stimulus packages which should be put in place soon. These efforts, combined with declining energy prices and tax cuts passed earlier should begin to take hold as we move into the second quarter of 2002. As the third quarter began, the Portfolio was defensively positioned with its assets invested primarily in industries with strong cash flows. In the months ahead, we look to expand our holdings here. Moreover, over the past six months, the Portfolio's cash position was increased -- cash is on hand to take advantage of opportunities as the environment improves. 2 EMERGING MARKETS DEBT PORTFOLIO** For the six months ended September 30, 2001, the EMD Portfolio's Class A shares had a total return of 3.00% (without giving effect to the sales charge) and Class B and C shares had a total return of 2.75% (without giving effect to the contingent deferred sales charge)(3). The EMD Portfolio's benchmark index, the J.P. Morgan Emerging Market Bond Index-Global Constrained, returned 2.73% for the same period. Despite a volatile global environment following the events of September 11th, the emerging debt markets fell just 2% over the course of the quarter ended September 30, 2001, as represented by the J.P. Morgan Emerging Market Bond Index-Global Constrained. Moreover, due to strong performance in the months preceding the attacks, the Portfolio produced a positive total return of 3% over the six-month period ended the same day. These results were considerably better than other asset classes against which emerging market debt is typically compared, such as emerging market equity and U.S. high yield. Still, the market has been affected by concerns, both ongoing and new. The outlook for economic growth in the major industrial nations continued to fuel concerns about the prospects for growth in emerging economies. The attacks on the United States only intensified these concerns. In addition, Argentina's ability to continue servicing its debt remained uncertain. Brazil's ability to meet its longer-term obligations is being questioned due to declining foreign investment and persistent weakness in its currency. Finally, as we moved into the fourth quarter, the recent declines in commodity prices began to worry investors. While lower oil prices, for example, will benefit certain countries, the recent declines are somewhat negative for the market as a whole because the governments of several major emerging economies, including Mexico and Venezuela, are heavily dependent upon oil revenues. We have become more cautious about the market's near-term prospects and have begun lightening positions. There are several factors now present that, if they persist, could have the potential to negatively impact the growth prospects and debt-servicing capacity of some emerging economies. Among our concerns are low commodity prices, declining global foreign direct investment, and a slowdown in global economic growth. On the other hand, we believe many positive factors remain intact. Contagion effects continue to decline; the market as a whole is less affected by events in any one country. Despite the variety of challenges faced by emerging economies, more than three-quarters of the markets in the benchmark posted positive returns for the 6-month period. Also, volatility is decreasing, as the number of sovereign securities and the sophistication of investors increases; based on relative standard deviation for the past ten years, emerging market debt, as represented by the J.P. Morgan Emerging Market Bond Index-Global Constrained, has been 42% less volatile than emerging market equity, as represented by the Morgan Stanley Capital International Emerging Markets Free Index. While still significantly more volatile than U.S. high yield, emerging market debt is now only 9% and 3% more volatile than the S&P 500 and international equities, respectively. And although lower oil prices have adversely impacted the revenues of several emerging economies, average oil prices -- even at the current levels -- are close to or above the budget assumptions of most emerging market oil exporters. Moreover, we believe the performance of emerging market debt is heavily influenced by how a country responds to lower commodity prices, and not simply to the drop in prices themselves. Long-term investors in the emerging debt markets have been well rewarded. For the ten years ended September 30, 2001, the emerging debt markets are up more than 231%, considerably more than the asset classes against which it is typically compared. During this same period, the U.S. high yield market, as represented by the Lehman Brothers High Yield Index, and emerging market equity, as represented by the Morgan Stanley Capital International Emerging Market Free Index (in U.S. dollar terms), returned only 107% and 22%, respectively. Given the performance of the emerging debt markets over the past quarter -- one of most difficult in some time -- we believe long-term prospects remain bright. 3 S&P STARS OPPORTUNITIES PORTFOLIO We are pleased to introduce our newest fund, the S&P STARS Opportunities Portfolio, which commenced operations on October 1, 2001. This new fund focuses on small- to mid-capitalization companies using the investment process of the Bear Stearns Funds' S&P STARS Portfolio. The S&P STARS Opportunities Portfolio will invest primarily in companies with market capitalizations of $7 billion or less. Stocks will generally be selected for their potential to outperform the S&P MidCap 400 Index through an analytical process based on Standard & Poor's highest-ranked 5-STARS stocks and Bear Stearns' disciplined fundamental analysis. 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, /s/ 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. ** International investing involves risks such as currency exchange-rate volatility, possible political, social, or economic instability and differences in taxation and other financial standards. (1) For the six months ended September 30, 2001, the Income Portfolio's Class A shares had a total return of (0.24)%, including the initial 4.50% maximum sales charge, Class B shares returned (0.92)%, including the 5.00% CDSC and Class C shares returned 3.08%, including the 1.00% CDSC. (2) For the six months ended September 30, 2001, the High Yield Portfolio's Class A shares had a total return of (8.02)%, including the initial 4.50% maximum sales charge, Class B shares returned (8.63)%, including the 5.00% CDSC and Class C shares returned (4.94)%, including the 1.00% CDSC. (3) For the six months ended September 30, 2001, the EMD Portfolio's Class A shares had a total return of (1.63)%, including the initial 4.50% maximum sales charge, Class B shares returned (2.16)%, including the 5.00% CDSC and Class C shares returned 1.75%, including the 1.00% CDSC. CDSC Contingent deferred sales charge. "Standard & Poor's(R)" and "S&P(R)" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Bear, Stearns & Co. Inc. S&P STARS Opportunities Portfolio is not sponsored, managed, advised, sold or promoted by Standard & Poors. Bear Stearns Asset Management Inc. has waived a portion of its advisory fee and agreed 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 SEPTEMBER 30, 2001 (UNAUDITED) INDUSTRY/SECTOR WEIGHTINGS* ---------------------------
PERCENT OF RANK INDUSTRY/SECTOR NET ASSETS ---- --------------- ---------- 1. U.S. Government Agency Obligations 35.22 2. U.S. Government Obligations 26.77 3. Industrial 11.88 4. Finance 8.60 5. Utilities 3.31 6. Telecommunications 2.55 7. Asset-Backed 2.26 8. Multimedia 1.21 9. Computer Services 0.79
TOP TEN HOLDINGS* -----------------
PERCENT OF RANK HOLDINGS INDUSTRY/SECTOR NET ASSETS ---- -------- --------------- ---------- 1. U.S. Treasuries U.S. Government Obligations 26.77 2. Fannie Mae U.S. Government Agency Obligations 16.13 3. Freddie Mac U.S. Government Agency Obligations 14.90 4. Government National Mortgage Association U.S. Government Agency Obligations 4.19 5. Ford Motor Credit Co. Finance 1.23 6. Western Resources, Inc. Utilities 1.14 7. Qwest Capital Funding Telecommunications 1.07 8. General Electric Capital Corp. Finance 0.86 9. Unilever Capital Corp. Industrial 0.81 10. Consolidated Natural Gas Co. Utilities 0.80
-------------------- * The Portfolio's composition will change over time. 5 HIGH YIELD TOTAL RETURN PORTFOLIO SEPTEMBER 30, 2001 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS* ----------------------------
PERCENT OF RANK INDUSTRY NET ASSETS ---- -------- ---------- 1. Health Care 11.40 2. Hotels/Motels/Casinos 7.55 3. Cable Television 7.33 4. Wireless Telecommunications 7.09 5. Food Services 6.60 6. Building/Development 5.34 7. Utilities 5.23 8. Cosmetics/Toiletries 4.16 9. Chemicals/Plastics 4.09 10. Publishing 2.80
TOP TEN HOLDINGS* -----------------
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- -------- -------- ---------- 1. Allied Waste North America Inc. Ecological Services/Equipment 2.60 2. Armkel LLC Cosmetics/Toiletries 2.41 3. EchoStar Broadband Corporation Cable Television 2.40 4. Autonation, Inc. Retailers 2.33 5. Alliant Techsystems, Inc. Aerospace & Defense 2.22 6. Fleming Companies, Inc. Food Services 2.21 7. Vanguard Health Systems Health Care 2.21 8. The William Carter Company Clothing/Textiles 2.20 9. Ameristar Casinos, Inc. Hotels/Motels/Casinos 2.20 10. Sesi, LLC Oil & Gas 2.18
-------------------- * The Portfolio's composition will change over time. 6 EMERGING MARKETS DEBT PORTFOLIO SEPTEMBER 30, 2001 (UNAUDITED) TOP TEN COUNTRY WEIGHTINGS* ---------------------------
PERCENT OF RANK COUNTRY NET ASSETS ---- ------- ---------- 1. Mexico 12.35 2. Brazil 9.06 3. Argentina 8.70 4. Russia 8.17 5. Venezuela 5.47 6. Malaysia 4.70 7. Turkey 4.58 8. South Korea 4.12 9. Colombia 3.99 10. Philippines 3.84
TOP TEN ISSUERS* ----------------
SECURITY PERCENTOF RANK ISSUER CURRENCY TYPE NET ASSETS ---- ------ -------- ---- ---------- 1. United Mexican States U.S. dollar Sovereign 11.70 2. Federal Republic of Brazil U.S. dollar Sovereign 9.06 3. Republic of Argentina U.S. dollar Sovereign 8.70 4. Russian Federation U.S. dollar Sovereign 8.17 5. Republic of Venezuela U.S. dollar Sovereign 5.47 6. Republic of Colombia U.S. dollar Sovereign 3.99 7. Republic of the Philippines U.S. dollar Sovereign 3.84 8. Republic of Turkey U.S. dollar Sovereign 3.67 9. Republic of Korea U.S. dollar Sovereign 3.62 10. The Republic of Panama U.S. dollar Sovereign 3.26
----------------- * The Portfolio's composition will change over time. 7 THE BEAR STEARNS FUNDS INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2001 (UNAUDITED)
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 92.59% CORPORATE OBLIGATIONS - 30.60% ASSET-BACKED - 2.26% $ 213 Comm 2000-C1, Commercial Mortgage Pass-Through Certificates, Class A1 7.206% 09/15/08 $ 229,750 150 Paine Webber Mortgage Acceptance Corp., Series 2000-HE1, Class A2 8.270 02/25/30 159,494 175 Saxon Asset Securities Trust, Series 2000-3, Class AF4 7.630 09/25/23 185,207 175 UCFC Home Equity Loan, Series 1996-B1, Class A6 7.975 02/15/22 181,449 ------------ 755,900 ------------ COMPUTER SERVICES - 0.79% 250 Computer Sciences Corp., Unsecured Notes 7.375 - 7.500 08/08/05 - 06/15/11 263,503 ------------ FINANCE - 8.60% 200 Boeing Capital Corp., Senior Unsecured Notes 5.650 05/15/06 200,996 400 Ford Motor Credit Co., Notes 6.875 02/01/06 412,278 250 General Electric Capital Corp., Debentures 8.850 04/01/05 286,437 150 General Motors Acceptance Corp., Notes 6.125 09/15/06 150,067 225 Household Finance Corp., Senior Unsecured Notes 6.400 06/17/08 231,016 250 Morgan Stanley Dean Witter & Co., Unsubordinated Notes 6.750 04/15/11 257,115 200 National Rural Utilities Cooperative Finance Corp., Collateral Trust Bonds 6.000 05/15/06 208,949 250 NISource Finance Corp., Senior Unsecured Notes 7.500 11/15/03 265,183 150 Salomon Smith Barney Holdings Co., Notes 6.500 02/15/08 157,478 150 Textron Financial Corp., Medium Term Notes, Series E 5.950 03/15/04 155,196 150 Transamerica Finance Corp., Senior Notes 7.250 08/15/02 155,314 200 Washington Mutual Capital I, Subordinated Capital Income Securities, Washington Mutual Inc. Guaranteed 8.375 06/01/27 206,199 175 Wells Fargo Financial, Inc., Senior Notes 6.750 06/01/05 186,704 ------------ 2,872,932 ------------ INDUSTRIAL - 11.88% 150 Alliant Techsystems Inc., Senior Subordinated Notes* 8.500 05/15/11 154,500 200 American Home Products, Notes 5.875 03/15/04 207,650 175 Anheuser-Busch Companies, Inc., Senior Unsecured Debentures 6.800 08/20/32 180,114 200 Bristol-Myers Squibb Co., Notes 4.750 10/01/06 201,392 150 Cendant Corp., Notes* 6.875 08/15/06 135,662 200 Charter Communications Holdings LLC, Senior Unsecured Notes* 9.625 11/15/09 191,000 200 Coca-Cola Co., Unsecured Notes 5.750 03/15/11 201,248 200 Coca-Cola Enterprises, Inc., Debentures 6.750 09/15/28 195,876 150 Electronic Data Systems Corp., Unsecured Notes 6.850 10/15/04 158,316 200 Georgia-Pacific Corp., Senior Unsecured Notes 8.875 05/15/31 196,619 The accompanying notes are an integral part of the financial statements. 8 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) INDUSTRIAL (CONTINUED) $ 150 Integrated Electric Services, Inc., Senior Subordinated Notes, Company Guaranteed 9.375% 02/01/09 $ 132,750 250 LG-Caltex Oil Corp., Unsecured Notes* 7.500 07/15/07 265,435 150 Meritage Corp., Senior Unsecured Notes, Company Guaranteed 9.750 06/01/11 139,500 100 Pitney Bowes Inc., Unsecured Notes 5.950 02/01/05 103,957 100 Primedia Inc., Senior Notes* 8.875 05/15/11 75,500 150 Raytheon Co., Senior Unsecured Notes 5.700 11/01/03 152,695 200 Safeway Inc., Senior Unsecured Notes 6.050 11/15/03 207,577 175 Smith International Inc., Senior Notes 7.000 09/15/07 184,136 200 Transcontinental Gas Pipe Line Corp., Notes* 7.000 08/15/11 201,721 150 Tricon Global Restaurants, Inc., Senior Unsecured Notes 8.875 04/15/11 153,750 250 TXU Corp., Senior Notes, Series J 6.375 06/15/06 258,342 250 Unilever Capital Corp., Senior Unsecured Notes 6.875 11/01/05 271,506 ------------ 3,969,246 ------------ MULTIMEDIA - 1.21% 150 AOL Time Warner Inc., Unsecured Debentures 6.850 01/15/26 155,806 225 Viacom, Inc., Senior Unsecured Notes, Company Guaranteed 7.700 07/30/10 246,591 ------------ 402,397 ------------ TELECOMMUNICATIONS - 2.55% 100 GTE Northwest Inc., Unsecured Debentures, Series D 5.550 10/15/08 98,701 150 Nextel Communications, Inc., Senior Unsecured Notes 9.375 11/15/09 93,375 350 Qwest Capital Funding, Unsecured Notes, Company Guaranteed 6.375 - 7.900 07/15/08 - 08/15/10 358,874 150 Rogers Wireless, Inc., Senior Unsecured Notes 9.625 05/01/11 144,750 150 Southern New England Telephone Co., Medium Term Notes, Series C 6.125 12/15/03 156,810 ------------ 852,510 ------------ UTILITIES - 3.31% 100 American Electric Power Co., Inc., Notes, Series A 6.125 05/15/06 103,092 250 Cleveland Electric Illuminating Co., Senior Secured Notes, Series D 7.880 11/01/17 256,963 100 CMS Energy Corp., Senior Unsecured Notes 8.500 04/15/11 97,886 250 Consolidated Natural Gas Co., Unsecured Notes 7.250 10/01/04 268,559 400 Western Resources, Inc., Notes 6.250 08/15/03 381,451 ------------ 1,107,951 ------------ Total Corporate Obligations (cost - $10,084,307) 10,224,439 ------------ The accompanying notes are an integral part of the financial statements. 9 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) U.S. GOVERNMENT AGENCY OBLIGATIONS - 35.22% FANNIE MAE - 16.13% $3,260 Pass-through Pools 6.000 - 6.500% 03/01/16 - 02/01/31 $ 3,331,186 2,000 TBA 6.500 - 7.500 10/16/30 - 10/15/31 2,055,937 ------------ 5,387,123 ------------ FREDDIE MAC - 14.90% 1,268 Pass-through Pools 6.000 - 6.500 05/01/31 - 06/01/31 1,283,121 1,875 Reference Notes 5.125 10/15/08 1,897,663 1,800 TBA 6.000 10/15/31 1,796,062 ------------ 4,976,846 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 4.19% 1,341 Pass-through Pools 7.000 - 8.000 11/15/29 - 10/15/30 1,399,075 ------------ Total U.S. Government Agency Obligations (cost - $11,392,747) 11,763,044 ------------ U.S. GOVERNMENT OBLIGATIONS - 26.77% U.S. TREASURIES - 26.77% 5,220 Bonds 4.750 - 7.250 11/15/08 - 08/15/29 5,439,875 3,325 Notes 5.000 - 6.500 11/15/05 - 02/15/11 3,502,106 ------------ Total U.S. Government Obligations (cost - $8,684,370) 8,941,981 ------------ Total Long-Term Debt Investments (cost - $30,161,424) 30,929,464 ------------ SHORT-TERM INVESTMENTS -- 17.00% SHARES -------- INVESTMENT COMPANY - 0.47% 158,812 Federated Investors, Trust for Short-Term U.S. Government Securities** 2.990 - 158,812 ------------ PRINCIPAL AMOUNT (000'S) --------- U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 16.53% $3,721 Fannie Mae, Discount Notes (1) 2.600 10/15/01 3,721,234 1,800 Federal Home Loan Bank, Discount Notes (1) 3.050 10/01/01 1,800,000 ------------ 5,521,234 ------------ Total Short-Term Investments (cost - $5,680,046) 5,680,046 ------------ Total Investments-- 109.59% (cost - $35,841,470) 36,609,510 Liabilities in excess of other assets-- (9.59)% (3,202,431) ------------ Net Assets-- 100.00% $33,407,079 ============
------------------------- * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Money market fund; interest rate reflects SEC seven-day yield at September 30, 2001. (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. 10 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2001 (UNAUDITED)
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 85.98% UNITED STATES - 84.30% AEROSPACE & DEFENSE - 2.22% $2,500 Alliant Techsystems, Inc., Senior Subordinated Notes* 8.500% 05/15/11 $ 2,575,000 ------------ AUTOMOTIVE EQUIPMENT - 2.15% 2,500 Delco Remy International, Inc., Senior Unsecured Notes, Company Guaranteed* 11.000 05/01/09 2,500,000 ------------ BUILDING/DEVELOPMENT - 5.34% 1,000 D.R. Horton, Inc., Senior Subordinated Notes, Company Guaranteed 10.000 04/15/06 1,015,000 2,400 Integrated Electrical Services, Senior Subordinated Notes, Series B, Company Guaranteed 9.375 02/01/09 2,124,000 2,500 Meritage Corporation, Senior Notes* 9.750 06/01/11 2,325,000 800 Ryland Group, Senior Subordinated Notes 9.125 06/15/11 740,000 ------------ 6,204,000 ------------ BUSINESS EQUIPMENT/SERVICES - 1.53% 2,000 Buhrmann U.S. Inc., Senior Subordinated Notes, Company Guaranteed 12.250 11/01/09 1,780,000 ------------ CABLE TELEVISION - 7.15% 2,500 Charter Communications Holdings LLC and Charter Communications Holdings Capital Corporation, Senior Notes* 9.625 11/15/09 2,387,500 2,750 EchoStar Broadband Corporation, Senior Notes 10.375 10/01/07 2,791,250 1,000 Insight Midwest L.P., and Insight Capital, Inc., Senior Notes 9.750 10/01/09 1,060,000 500 Insight Midwest L.P., and Insight Capital, Inc., Senior Notes* 10.500 11/01/10 525,000 1,500 Mediacom Broadband LLC and Mediacom Capital Corp., Senior Notes* 11.000 07/15/13 1,537,500 ------------ 8,301,250 ------------ CHEMICALS/PLASTICS - 4.09% 1,000 Acetex Corp., Senior Notes* 10.875 08/01/09 965,000 2,000 Huntsman ICI Chemicals LLC, Senior Subordinated Notes, Company Guaranteed 10.125 07/01/09 1,730,000 2,500 Lyondell Chemical Company, Senior Subordinated Notes 10.875 05/01/09 2,056,250 ------------ 4,751,250 ------------ CLOTHING/TEXTILES - 2.20% 2,500 The William Carter Company, Senior Subordinated Notes* 10.875 08/15/11 2,550,000 ------------ COSMETICS/TOILETRIES - 4.16% 2,750 Armkel LLC, Senior Subordinated Notes* 9.500 08/15/09 2,798,125 2,000 Playtex Products Inc., Senior Subordinated Notes, Company Guaranteed 9.375 06/01/11 2,030,000 ------------ 4,828,125 ------------ The accompanying notes are an integral part of the financial statements. 11 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) ECOLOGICAL SERVICES/EQUIPMENT - 2.60% $3,000 Allied Waste North America, Inc., Senior Subordinated Notes, Series B, Company Guaranteed 10.000% 08/01/09 $ 3,015,000 ------------ ELECTRONIC COMPONENTS - 1.25% 1,500 Fairchild Semiconductor, Senior Subordinated Notes 10.500 02/01/09 1,455,000 ------------ EQUIPMENT LEASING - 1.14% 1,500 United Rentals Inc., Senior Subordinated Notes, Series B, Company Guaranteed 9.250 01/15/09 1,327,500 ------------ FOOD PRODUCTS - 1.70% 2,000 Premium Standard Farms, Senior Notes 9.250 06/15/11 1,980,000 ------------ FOOD SERVICES - 6.60% 1,339 Carrols Corp., Senior Subordinated Notes, Company Guaranteed 9.500 12/01/08 1,218,490 2,500 Fleming Companies, Inc., Senior Unsecured Notes, Company Guaranteed 10.125 04/01/08 2,562,500 2,000 Sbarro Inc., Senior Unsecured Notes, Company Guaranteed 11.000 09/15/09 1,830,000 2,000 Tricon Global Restaurants, Inc., Senior Notes 8.875 04/15/11 2,050,000 ------------ 7,660,990 ------------ FOOD/DRUG RETAILER - 0.70% 800 Rite Aid Corp., Senior Notes* 11.250 07/01/08 812,000 ------------ HEALTH CARE - 11.40% 2,000 Alaris Medical Systems, Senior Subordinated Notes, Company Guaranteed 9.750 12/01/06 1,630,000 2,000 Alliance Imaging, Senior Subordinated Notes 10.375 04/15/11 2,074,000 1,000 Healthsouth Corp., Notes* 8.375 10/01/11 1,016,250 1,750 Magellan Health Services, Senior Notes* 9.375 11/15/07 1,793,750 1,500 Select Medical Corp., Senior Subordinated Notes 9.500 06/15/09 1,417,500 1,050 Team Health, Inc., Senior Subordinated Notes, Series B, Company Guaranteed 12.000 03/15/09 1,097,250 1,600 Triad Hospitals Inc., Senior Unsecured Notes, Series B, Company Guaranteed 8.750 05/01/09 1,648,000 2,500 Vanguard Health Systems, Senior Subordinated Notes* 9.750 08/01/11 2,562,500 ------------ 13,239,250 ------------ HOME FURNISHINGS - 1.95% 2,500 Simmons Company, Senior Subordinated Notes, Series B 10.250 03/15/09 2,262,500 ------------ HOTELS/MOTELS/CASINOS - 7.55% 2,500 Ameristar Casinos, Inc., Senior Subordinated Notes, Company Guaranteed 10.750 02/15/09 2,550,000 2,000 Argosy Gaming Company, Senior Unsecured Notes, Company Guaranteed 10.750 06/01/09 2,140,000 2,000 Aztar Corp., Senior Subordinated Notes* 9.000 08/15/11 1,940,000 The accompanying notes are an integral part of the financial statements. 12 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) HOTELS/MOTELS/CASINOS (CONTINUED) $2,250 Boyd Gaming Corp., Senior Notes* 9.250% 08/01/09 $ 2,137,500 ------------ 8,767,500 ------------ LEISURE - 2.14% 2,500 Bally Total Fitness Holding Corporation, Senior Subordinated Notes, Series D 9.875 10/15/07 2,487,500 ------------ OIL & GAS - 2.18% 2,750 Sesi, LLC, Senior Unsecured Notes, Company Guaranteed 8.875 05/15/11 2,530,000 ------------ PUBLISHING - 2.80% 2,000 Primedia, Inc., Senior Notes* 8.875 05/15/11 1,510,000 1,750 Quebecor Media Inc., Senior Notes* 11.125 07/15/11 1,741,250 ------------ 3,251,250 ------------ RADIO/TELEVISION - 1.45% 2,500 Lin Holdings Corporation, Senior Discount Notes (1) 10.000 03/01/08 1,687,500 ------------ RETAILERS - 2.33% 2,800 Autonation, Inc., Senior Notes* 9.000 08/01/08 2,702,000 ------------ UTILITIES - 3.55% 2,500 AES Corporation (The), Senior Notes 9.375 09/15/10 2,162,500 2,000 CMS Energy Corporation, Senior Notes 8.500 04/15/11 1,957,724 ------------ 4,120,224 ------------ WIRELESS TELECOMMUNICATIONS - 6.12% 1,600 Alamosa Delaware, Inc., Senior Notes, Company Guaranteed 12.500 02/01/11 1,432,000 1,600 American Cellular Corporation, Senior Notes, Company Guaranteed 9.500 10/15/09 1,496,000 2,000 Nextel Communications, Inc., Senior Serial Redeemable Notes 9.375 11/15/09 1,245,000 2,000 SBA Communications Corporation, Senior Notes 10.250 02/01/09 1,610,000 1,500 TeleCorp PCS, Inc., Senior Subordinated Notes, Company Guaranteed 10.625 07/15/10 1,327,500 ------------ 7,110,500 ------------ Total United States (cost - $102,038,027) 97,898,339 ------------ CANADA - 1.68% UTILITIES - 1.68% 2,000 Calpine Canada Energy Finance, Senior Unsecured Notes, Company Guaranteed (cost - $1,989,989) 8.500 05/01/08 1,955,290 ------------ Total Long-Term Debt Investments (cost - $104,028,016) 99,853,629 ------------ The accompanying notes are an integral part of the financial statements. 13 INTEREST MATURITY SHARES RATE(S) DATE VALUE --------------------------------------------------------------------------------------------------------------------------- EQUITY INVESTMENTS -- 1.15% COMMON STOCKS - UNITED STATES - 0.00% WIRELINE TELECOMMUNICATIONS - 0.00% 2,015 Viatel, Inc. (2) - - $ 121 3,927 World Access, Inc. (2) - - 45 ------------ Total Common Stocks - United States (cost - $69,878) 166 ------------ PREFERRED STOCKS - UNITED STATES - 1.15% CABLE TELEVISION - 0.18% 2,500 Adelphia Communications Corporation, Cumulative Exchangeable Preferred Stock, Series B (3) 13.000% - 205,549 1 Paxson Communications Corporation (3) 12.500 - 751 ------------ 206,300 ------------ WIRELESS TELECOMMUNICATIONS - 0.97% 1,039 Dobson Communications Corporation, Senior Exchangeable Preferred Stock (3) 12.250 -13.000 - 904,362 573 Nextel Communications, Inc., Exchangeable Preferred Stock, Series E (3) 11.125 - 224,305 ------------ 1,128,667 ------------ Total Preferred Stocks - United States (cost - $1,831,227) 1,334,967 ------------ Total Equity Investments (cost - $1,901,105) 1,335,133 ------------ UNITS WARRANTS -- 0.00% --------- UNITED STATES - 0.00% WIRELINE TELECOMMUNICATIONS - 0.00% 250 Mpower Communications Corp.* (2) (cost - $8,750) - 10/01/04 250 ------------ SHARES SHORT-TERM INVESTMENTS -- 11.15% --------- INVESTMENT COMPANY - 1.16% 1,347,877 Federated Investors, Trust for Short-Term U.S. Government Securities** 2.990 - 1,347,877 ------------ The accompanying notes are an integral part of the financial statements. 14 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE --------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (CONTINUED) U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 9.99% $11,600 Federal Home Loan Bank, Discount Notes 3.050% 10/01/01 $ 11,600,000 ------------ Total Short-Term Investments (cost - $12,947,877) 12,947,877 ------------ Total Investments - 98.28% (cost - $118,885,748) 114,136,889 Other assets in excess of liabilities-- 1.72% 2,000,633 ------------ Net Assets-- 100.00% $116,137,522 ============
------------------ * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Money market fund; interest rate reflects SEC seven-day yield at September 30, 2001. (1) Coupon rate is zero until step-up date. Step-up rate is provided. (2) Non-income producing security. (3) Payment-in-kind; of which all or a portion of the coupon is being capitalized at periodic intervals. The accompanying notes are an integral part of the financial statements. 15 EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2001 (UNAUDITED)
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT INVESTMENTS -- 90.64% ALGERIA - 0.88% SOVEREIGN - 0.88% $ 131 Republic of Algeria, Loan Tranche I (1)(2)(3) 4.313% 09/04/06 $ 106,904 170 Republic of Algeria, Loan Tranche III (1)(2)(3) 4.313 03/04/10 131,325 ----------- Total Algeria (cost - $246,645) 238,229 ----------- ARGENTINA - 8.70% SOVEREIGN - 8.70% 320 Republic of Argentina (4) 11.375 - 12.000 03/15/10 - 02/01/20 178,109 66 Republic of Argentina, Bocon, Series PRE4 (2)(3)(5) 3.580 09/01/02 53,819 74 Republic of Argentina, Bocon, Series PRO2 (2)(3)(5) 3.580 04/01/07 34,675 200 Republic of Argentina, Bonos del Tesoro, Series BT02 (5) 8.750 05/09/02 178,957 150 Republic of Argentina, Bonos del Tesoro, Series BT07 (5) 11.750 05/21/03 113,464 105 Republic of Argentina, Bonos del Tesoro, Series BTO8 (5) 12.125 05/21/05 73,085 565 Republic of Argentina, Capitalized Bonds (4)(6) 12.000 06/19/31 304,394 375 Republic of Argentina, Capitalized Bonds, Series 2018 (4)(6) 12.250 06/19/18 199,687 141 Republic of Argentina, FRD (2)(3)(7) 3.375 03/31/05 99,176 450 Republic of Argentina, Par Bonds, Series L-GP (7)(8) 6.000 03/31/23 278,719 70 Republic of Argentina, Secured Discount Bonds, Series L-GL (2)(7) 4.813 03/31/23 42,262 140 Republic of Argentina, Senior Unsubordinated Bonds, Series BGL0 (4) 8.375 12/20/03 100,625 125 Republic of Argentina, Unsubordinated Bonds (4) 11.750 04/07/09 75,000 205 Republic of Argentina, Unsubordinated Bonds, Series BGL5 (4) 11.375 01/30/17 116,850 865 Republic of Argentina, Unsubordinated Bonds, Series 2008 (4)(6)(8) 7.000 12/19/08 522,244 ----------- Total Argentina (cost - $3,133,072) 2,371,066 ----------- BRAZIL - 9.06% SOVEREIGN - 9.06% 180 Federal Republic of Brazil (4) 12.250 - 12.750 01/15/20 - 03/06/30 135,556 493 Federal Republic of Brazil, Capitalization Bonds (3)(6)(7)(8) 8.000 04/15/14 332,789 310 Federal Republic of Brazil, Collateralized Par Bonds (6)(7) 6.000 04/15/24 199,175 40 Federal Republic of Brazil, Secured DCB (2)(3)(7) 5.500 04/15/12 23,750 475 Federal Republic of Brazil, Secured DCB, Series RG (2)(3)(7) 5.500 04/15/12 282,031 240 Federal Republic of Brazil, Secured Discount Bonds (2)(7) 5.438 04/15/24 154,200 50 Federal Republic of Brazil, Secured FLIRB Bearer (2)(3)(7) 5.438 04/15/09 34,250 329 Federal Republic of Brazil, Secured NMB (2)(3)(7) 5.500 04/15/09 244,176 240 Federal Republic of Brazil, Series EI-L (2)(3)(7) 5.438 04/15/06 200,250 1,140 Federal Republic of Brazil, Unsubordinated Bonds (4) 11.000 - 14.500 10/15/09 - 08/17/40 863,025 ----------- Total Brazil (cost - $2,849,143) 2,469,202 ----------- The accompanying notes are an integral part of the financial statements. 16 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT INVESTMENTS (CONTINUED) BULGARIA - 3.23% SOVEREIGN - 3.23% $ 385 Republic of Bulgaria, Collateralized Discount Bonds, Series A (2)(7) 4.563% 07/28/24 $ 297,653 370 Republic of Bulgaria, Collateralized FLIRB, Series A (2)(3)(7)(8) 4.563 07/28/12 292,300 371 Republic of Bulgaria, Debentures, Series PDI (2)(3)(7) 4.563 07/28/11 289,575 ----------- Total Bulgaria (cost - $857,892) 879,528 ----------- CHILE - 0.54% SOVEREIGN - 0.54% 145 Republic of Chile, Notes (4) (cost - $137,037) 6.875 04/28/09 146,269 ----------- CHINA - 0.04% CORPORATE - 0.04% 120 Zhuhai Highway Co. Ltd. (9) (cost - $68,827) - 07/01/08 12,000 ----------- COLOMBIA - 3.99% SOVEREIGN - 3.99% 280 Republic of Colombia (3)(4) 9.750 04/09/11 289,800 150 Republic of Colombia (4) 11.750 02/25/20 144,094 355 Republic of Colombia, Unsubordinated Bonds, Series NOV (4) 9.750 04/23/09 355,637 320 Republic of Colombia, Unsubordinated Bonds (4) 7.625 02/15/07 297,600 ----------- Total Colombia (cost - $1,043,772) 1,087,131 ----------- CROATIA - 0.66% SOVEREIGN - 0.66% 184 Croatia, Series A (2)(7) (cost - $168,592) 4.563 07/31/10 179,028 ----------- ECUADOR - 1.80% SOVEREIGN - 1.80% 454 Republic of Ecuador (4)(8)* 5.000 08/15/30 183,019 338 Republic of Ecuador (4)* 12.000 11/15/12 221,179 4 Republic of Ecuador, Registered (4) 12.000 11/15/12 2,617 210 Republic of Ecuador, Registered (4)(8) 5.000 08/15/30 84,656 ----------- Total Ecuador (cost - $346,136) 491,471 ----------- EGYPT - 1.18% SOVEREIGN - 1.18% 100 Arab Republic of Egypt (4)* 7.625 07/11/06 94,750 250 Arab Republic of Egypt, Unsubordinated Bonds (4)* 8.750 07/11/11 226,250 ----------- Total Egypt (cost - $351,165) 321,000 ----------- The accompanying notes are an integral part of the financial statements. 17 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) IVORY COAST - 0.08% SOVEREIGN - 0.08% $ 140 Ivory Coast, Collateralized FLIRB (3)(7)(14) (cost - $23,625) 2.000% 03/29/18 $ 21,175 ----------- MALAYSIA - 4.70% CORPORATE - 2.11% 585 Petroliam Nasional Berhad, Unsubordinated Bonds, Registered (4)* 7.125 - 7.625 10/18/06 - 10/15/26 573,726 ----------- SOVEREIGN - 2.59% 650 Malaysia (4) 7.500 - 8.750 06/01/09 - 07/15/11 706,052 ----------- Total Malaysia (cost - $1,227,036) 1,279,778 ----------- MEXICO - 12.35% CORPORATE - 0.65% 100 Conproca SA, Secured Bonds (3)(4) 12.000 06/16/10 116,436 60 Pemex Project Funding Master Trust, Company Guaranteed (4) 9.125 10/13/10 61,701 ----------- 178,137 ----------- SOVEREIGN - 11.70% 775 United Mexican States (4) 9.875 - 11.500 01/15/07 - 08/15/31 885,533 1,160 United Mexican States, Notes (4) 8.125 - 9.875 02/01/06 - 12/30/19 1,138,756 175 United Mexican States, Secured Discount Bonds, Series C (2)(7) 4.838 12/31/19 174,234 20 United Mexican States, Secured Par Bonds, Series A (7) 6.250 12/31/19 18,212 800 United Mexican States, Secured Par Bonds, Series B (7) 6.250 12/31/19 728,500 220 United Mexican States, Series XW (4) 10.375 02/17/09 241,725 ----------- 3,186,960 ----------- Total Mexico (cost - $3,275,979) 3,365,097 ----------- MOROCCO - 1.45% SOVEREIGN - 1.45% 457 The Kingdom of Morocco, Tranche A (1)(2) (cost - $371,104) 5.094 01/01/09 395,823 ----------- NIGERIA - 2.70% SOVEREIGN - 2.70% 500 Central Bank of Nigeria, Collateralized Par Bonds, Series WW (7)(8)(11) 6.250 11/15/20 319,375 673 Nigeria Promissory Notes (4)(6) 5.092 01/05/10 416,332 ----------- Total Nigeria (cost - $752,208) 735,707 ----------- PANAMA - 3.26% SOVEREIGN - 3.26% 710 The Republic of Panama (4) 8.875 - 10.750 02/08/11 - 04/01/29 696,687 The accompanying notes are an integral part of the financial statements. 18 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) PANAMA (CONTINUED) $ 226 The Republic of Panama, IRD (2)(3)(9) 4.750% 07/17/14 $ 192,069 ----------- Total Panama (cost - $887,973) 888,756 ----------- PERU - 2.21% SOVEREIGN - 2.21% 480 The Republic of Peru, Collateralized FLIRB (3)(7)(8) 4.000 03/07/17 309,300 240 The Republic of Peru, PDI Bonds (2)(6) 4.500 03/07/17 168,900 176 The Republic of Peru, PDI Bonds (3)(7)(8)* 4.500 03/07/17 123,860 ----------- Total Peru (cost - $593,660) 602,060 ----------- PHILIPPINES - 3.84% SOVEREIGN - 3.84% 505 Republic of the Philippines (4) 9.500 - 9.875 01/15/19 - 10/21/24 473,306 460 Republic of the Philippines, Notes (4) 9.875 - 10.625 03/16/10 - 03/16/25 402,891 180 Republic of the Philippines, Unsecured Bonds (4) 8.875 04/15/08 169,650 ----------- Total Philippines (cost - $1,047,210) 1,045,847 ----------- POLAND - 0.91% SOVEREIGN - 0.91% 250 The Republic of Poland, Series PDIB (7)(8) (cost - $238,800) 6.000 10/27/14 247,344 ----------- RUSSIA - 8.17% SOVEREIGN - 8.17% 160 Russian Federation, Senior Unsubordinated Bonds, Registered (4) 11.750 06/10/03 166,900 231 Russian Federation, Unsubordinated Bonds (3)(4)* 8.250 3/31/30 175,900 1,626 Russian Federation, Unsubordinated Bonds (3)(4)(8)* 5.000 3/31/30 745,095 300 Russian Federation, Unsubordinated Bonds, Registered (3)(4)(8) 5.000 03/31/30 137,438 1,110 Russian Federation, Unsubordinated Bonds, Registered (4) 10.000 - 12.750 06/26/07 - 06/24/28 1,001,310 ----------- Total Russia (cost - $1,510,313) 2,226,643 ----------- SOUTH AFRICA - 1.53% SOVEREIGN - 1.53% 240 Republic of South Africa (4) 9.125 05/19/09 266,400 150 Republic of South Africa, Notes (12) 8.500 06/23/17 151,543 ----------- Total South Africa (cost - $374,963) 417,943 ----------- SOUTH KOREA - 4.12% CORPORATE - 0.50% 130 Hanvit Bank, Registered (1)(8) 12.750 03/01/10 135,710 ----------- The accompanying notes are an integral part of the financial statements. 19 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) SOUTH KOREA (CONTINUED) SOVEREIGN - 3.62% $ 855 Republic of Korea, Unsecured Unsubordinated Bonds (4) 8.875% 04/15/08 $ 985,922 ----------- Total South Korea (cost - $1,079,390) 1,121,632 ----------- THAILAND - 0.61% SOVEREIGN - 0.61% 150 The Kingdom of Thailand, Unsecured Notes (12) (cost - $160,553) 7.750 04/15/07 166,785 ----------- TURKEY - 4.58% CORPORATE - 0.91% 270 Export Credit Bank of Turkey, Unsubordinated Bonds, Registered (4) 11.500 02/25/05 248,400 ----------- SOVEREIGN - 3.67% 375 Republic of Turkey (4) 11.750 06/15/10 327,188 115 Republic of Turkey, Notes (4) 10.000 09/19/07 98,756 670 Republic of Turkey, Senior Unsubordinated Bonds (4) 11.875 - 12.375 06/15/09 - 01/15/30 572,769 ----------- 998,713 ----------- Total Turkey (cost - $1,434,160) 1,247,113 ----------- UKRAINE - 0.93% SOVEREIGN - 0.93% 301 Ukraine Government, Unsecured Senior Notes, Registered (3)(4) (cost - $207,215) 11.000 03/15/07 253,123 ----------- UNITED STATES - 3.02% U.S. TREASURIES - 3.02% 800 Notes (cost - $778,155) 5.000 02/15/11 822,782 ----------- URUGUAY - 0.63% SOVEREIGN - 0.63% 175 Republica Orient of Uruguay, Unsecured Bonds (4) (cost - $167,403) 7.875 07/15/27 172,266 ----------- VENEZUELA - 5.47% SOVEREIGN - 5.47% 570 Republic of Venezuela (4) 9.250 - 13.625 08/15/18 - 09/15/27 394,776 857 Republic of Venezuela, FLIRD, Series A (2)(3)(7) 3.438 03/31/07 678,208 550 Republic of Venezuela, Par Bonds, Series W-B (7) 6.750 03/31/20 418,044 ----------- Total Venezuela (cost - $1,538,946) 1,491,028 ----------- Total Long-Term Debt Investments (cost - $24,870,974) 24,695,826 ----------- The accompanying notes are an integral part of the financial statements. 20 PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ----------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT -- 6.75% GRAND CAYMAN - 6.75% $1,840 Brown Brothers Harriman & Co. (cost - $1,840,000) 2.200% ** $ 1,840,000 ----------- Total Investments -- 97.39% (cost - $26,710,974) 26,535,826 Other assets in excess of liabilities-- 2.61% 711,069 ----------- Net Assets -- 100.00% $27,246,895 ===========
------------------------------- * 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. (1) Loan Participations. (2) Adjustable rate; rate based on London Interbank Offered Rate (LIBOR). (3) Pro-rata sinking fund has been established. (4) Global/Eurobonds. (5) Domestic bonds. (6) Payment-in-kind; of which all or a portion of the coupon is being capitalized at periodic intervals. (7) Brady bonds. (8) Step-up coupon; coupon increases at periodic intervals. (9) The coupon payments on this subordinated bond which were due and payable on July 1, 2000, January 2, 2001 and July 3, 2001 have not been received by bondholders. The bond is rated D by Standard & Poor's Rating Service ("S&P"). Also, senior notes of the issuer are now in payment default, and are now rated D by S&P. (10) Quasi-government bonds. (11) With an additional 2,250 warrants attached, with no market value. (12) Yankee bonds. (13) With an additional 9,635 value recovery rights attached, with no market value. (14) The coupon payments on this bond which were due and payable on September 30, 2000, March 31, 2001 and September 30, 2001 have not been received by bondholders. DCB Debt Conversion Bonds. FLIRB Front Loaded Interest Reduction Bonds. FLIRD Front Loaded Interest Reduction Debentures. FRD Floating Rate Debentures. IRD Interest Reduction Debentures NMB New Money Bonds. PDI Past Due Interest. The accompanying notes are an integral part of the financial statements. 21 THE BEAR STEARNS FUNDS STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2001 (UNAUDITED)
INCOME HIGH YIELD TOTAL EMERGING MARKETS PORTFOLIO RETURN PORTFOLIO DEBT PORTFOLIO ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value (cost - $35,841,470, $118,885,748 and $26,710,974, respectively) $36,609,510 $114,136,889 $26,535,826 Receivable for investments sold -- -- 377,369 Receivable for Portfolio shares sold 356,503 309,161 1,578 Interest and dividends receivable 419,381 3,076,603 690,636 Receivable from investment adviser 17,486 -- -- Prepaid assets 41,062 54,736 42,874 ----------- ------------ ----------- Total assets 37,443,942 117,577,389 27,648,283 ----------- ------------ ----------- LIABILITIES Payable for investments purchased 3,814,305 -- 183,558 Payable for Portfolio shares repurchased 69,887 772,019 5,168 Distribution and service fees payable (Class A, B, and C shares) 31,978 193,246 33,373 Dividends payable 37,863 320,466 65,538 Administration fee payable 3,757 15,063 3,420 Advisory fee payable -- 5,981 2,869 Custodian fee payable 1,145 1,761 12,026 Accrued expenses 77,928 131,331 95,436 ----------- ------------ ----------- Total liabilities 4,036,863 1,439,867 401,388 ----------- ------------ ----------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) 2,742 14,402 2,672 Paid-in capital 33,150,896 159,693,843 30,478,787 Undistributed net investment income/(loss) (14,878) 55,019 (4,001) Accumulated net realized loss from investments and foreign currency related transactions, if any (499,721) (38,876,883) (3,055,415) Net unrealized appreciation/(depreciation) on investments and foreign currency related transactions, if any 768,040 (4,748,859) (175,148) ----------- ------------ ----------- Net assets $33,407,079 $116,137,522 $27,246,895 =========== ============ =========== CLASS A Net assets $ 9,842,379 $ 65,610,363 $21,811,248 ----------- ------------ ----------- Shares of beneficial interest outstanding 807,976 8,136,665 2,135,826 ----------- ------------ ----------- Net assets value per share $12.18 $8.06 $10.21 ====== ===== ====== Maximum offering price per share (net asset value plus sales charge of 4.50%* of the offering price) $12.75 $8.44 $10.69 ====== ===== ====== CLASS B Net assets $ 9,183,458 $ 27,259,700 $ 2,195,176 ----------- ------------ ----------- Shares of beneficial interest outstanding 753,888 3,380,686 216,669 ----------- ------------ ----------- Net assets value and offering price per share** $12.18 $8.06 $10.13 ====== ===== ====== CLASS C Net assets $ 5,161,877 $ 21,627,774 $ 3,240,471 ----------- ------------ ----------- Shares of beneficial interest outstanding 423,744 2,682,078 319,660 ----------- ------------ ----------- Net assets value and offering price per share** $12.18 $8.06 $10.14 ====== ===== ====== CLASS Y Net assets $ 9,219,365 $ 1,639,685 -- ----------- ------------ ----------- Shares of beneficial interest outstanding 756,827 203,356 -- ----------- ------------ ----------- Net assets value, offering and redemption price per share $12.18 $8.06 -- ====== ===== ======
----------- * On investments of $50,000 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. 22 STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
INCOME HIGH YIELD TOTAL EMERGING MARKETS PORTFOLIO RETURN PORTFOLIO DEBT PORTFOLIO ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Interest $ 814,096 $ 5,794,369 $1,578,284 Dividends -- 113,562 -- ---------- ----------- ----------- 814,096 5,907,931 1,578,284 ---------- ----------- ----------- EXPENSES Advisory fees 59,298 368,556 139,042 Distribution and service fees - Class A 14,207 124,949 39,226 Distribution and service fees - Class B 25,950 141,781 10,635 Distribution and service fees - Class C 19,670 113,441 16,533 Transfer agent fees and expenses 75,690 85,553 50,155 Accounting fees 48,346 69,741 45,124 Administration fees 19,766 92,141 20,856 Federal and state registration fees 20,082 22,345 17,163 Legal and auditing fees 25,579 30,583 37,101 Custodian fees and expenses 5,320 11,350 24,066 Reports and notices to shareholders 3,555 26,072 6,021 Insurance expenses 3,431 4,494 3,519 Trustees' fees and expenses 4,252 3,463 4,738 Amortization of organization expenses -- 6,154 -- Other 1,610 2,507 1,504 ---------- ----------- ----------- Total expenses before waivers and related reimbursements 326,756 1,103,130 415,683 Less: waivers and related reimbursements (207,817) (324,485) (154,259) ---------- ----------- ----------- Total expenses after waivers and related reimbursements 118,939 778,645 261,424 ---------- ----------- ----------- Net investment income 695,157 5,129,286 1,316,860 ---------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS Net realized gain/(loss) from: Investments 43,314 (4,229,359) 248,422 Foreign currency related transactions -- -- (42,328) Net change in unrealized appreciation on: Investments 410,371 (5,553,016) (713,632) Foreign currency related transactions -- -- 13,666 ---------- ----------- ----------- Net realized and unrealized gain/(loss) on investments 453,685 (9,782,375) (493,872) ---------- ----------- ----------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,148,842 $(4,653,089) $ 822,988 ========== =========== ===========
The accompanying notes are an integral part of the financial statements. 23 STATEMENTS OF CHANGES IN NET ASSETS
INCOME HIGH YIELD TOTAL PORTFOLIO RETURN PORTFOLIO ------------------------------------- ------------------------------------ FOR THE FOR THE FOR THE FOR THE SIX MONTHS ENDED FISCAL YEAR SIX MONTHS ENDED FISCAL YEAR SEPTEMBER 30, 2001 ENDED SEPTEMBER 30, 2001 ENDED (UNAUDITED) MARCH 31, 2001 (UNAUDITED) MARCH 31, 2001 ----------------------------------------------------------------------------------------------------------------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 695,157 $ 944,160 $ 5,129,286 $ 9,163,680 Net realized gain/(loss) from investments and foreign currency related transactions, if any 43,314 (107,724) (4,229,359) (23,438,340) Net change in unrealized appreciation/(depreciation) on investments and foreign currency related transactions, if any 410,371 710,450 (5,553,016) 12,737,866 ------------- -------------- -------------- -------------- Net increase/(decrease) in net assets, resulting from operations 1,148,842 1,546,886 (4,653,089) (1,536,794) ------------- -------------- -------------- -------------- DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A shares (223,690) (360,915) (3,067,920) (4,999,212) Class B shares (125,280) (160,711) (1,126,373) (2,178,629) Class C shares (95,513) (129,207) (901,310) (1,953,819) Class Y shares (265,552) (293,327) (10,684) -- ------------- -------------- -------------- -------------- (710,035) (944,160) (5,106,287) (9,131,660) ------------- -------------- -------------- -------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares 14,477,693 21,523,945 25,377,274 67,107,610 Cost of shares repurchased (6,868,904) (11,716,000) (20,191,036) (30,778,779) Shares issued in reinvestment of dividends 522,555 593,879 2,925,486 4,906,398 ------------- -------------- -------------- -------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions 8,131,344 10,401,824 8,111,724 41,235,229 ------------- -------------- -------------- -------------- Total increase/(decrease) in net assets 8,570,151 11,004,550 (1,647,652) 30,566,775 NET ASSETS Beginning of period 24,836,928 13,832,378 117,785,174 87,218,399 ----------- ------------ ------------ ------------ End of period* $33,407,079 $ 24,836,928 $116,137,522 $117,785,174 =========== ============ ============ ============ EMERGING MARKETS DEBT PORTFOLIO ------------------------------------- FOR THE FOR THE SIX MONTHS ENDED FISCAL YEAR SEPTEMBER 30, 2001 ENDED (UNAUDITED) MARCH 31, 2001 ------------------------------------------------------------------------------ INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 1,316,860 $ 2,678,217 Net realized gain/(loss) from investments and foreign currency related transactions, if any 206,094 633,903 Net change in unrealized appreciation/(depreciation) on investments and foreign currency related transactions, if any (699,966) (1,305,019) ----------- ------------ Net increase/(decrease) in net assets, resulting from operations 822,988 2,007,101 ----------- ------------ DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A shares (1,077,501) (2,266,869) Class B shares (95,100) (159,013) Class C shares (148,260) (258,009) Class Y shares -- -- ----------- ------------ (1,320,861) (2,683,891) ----------- ------------ SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares 3,729,047 8,593,909 Cost of shares repurchased (4,080,247) (15,473,961) Shares issued in reinvestment of dividends 858,438 1,718,915 ----------- ------------ Net increase/(decrease) in net assets derived from shares of beneficial interest transactions 507,238 (5,161,137) ----------- ------------ Total increase/(decrease) in net assets 9,365 (5,837,927) NET ASSETS Beginning of period 27,237,530 33,075,457 ----------- ------------ End of period* $27,246,895 $ 27,237,530 =========== ============
----------- * Includes undistributed net investment income for High Yield Total Return Portfolio of $55,019 and $32,020 for the six months ended September 30, 2001 and for the fiscal year ended March 31, 2001, respectively. The accompanying notes are an integral part of the financial statements. 24 This page is intentionally left blank. 25 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 DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED OF PERIOD INCOME*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS --------- ---------- --------------- ---------- ------------- INCOME PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) $11.99 $0.33 $ 0.19 $(0.33) -- For the fiscal year ended March 31, 2001 11.53 0.73 0.46 (0.73) -- 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) $(0.19) For the fiscal year ended March 31, 1998 12.03 0.76 0.36 (0.76) (0.02) For the fiscal year ended March 31, 1997 12.26 0.73 (0.20) (0.73) (0.03) CLASS B For the six months ended September 30, 2001 (unaudited) 11.99 0.29 0.19 (0.29) -- For the fiscal year ended March 31, 2001 11.53 0.65 0.46 (0.65) -- 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) (0.19) For the period February 2, 1998** through March 31, 1998 12.47 0.10 (0.10) (0.10) -- CLASS C For the six months ended September 30, 2001 (unaudited) 11.99 0.29 0.19 (0.29) -- For the fiscal year ended March 31, 2001 11.53 0.65 0.46 (0.65) -- 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) (0.19) For the fiscal year ended March 31, 1998 12.03 0.70 0.36 (0.70) (0.02) For the fiscal year ended March 31, 1997 12.26 0.68 (0.20) (0.68) (0.03) CLASS Y For the six months ended September 30, 2001 (unaudited) 11.99 0.35 0.19 (0.35) -- For the fiscal year ended March 31, 2001 11.53 0.77 0.46 (0.77) -- 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) (0.19) For the fiscal year ended March 31, 1998 12.03 0.80 0.36 (0.80) (0.02) For the fiscal year ended March 31, 1997 12.26 0.77 (0.20) (0.77) (0.03)
----------- * Calculated based on average settled shares outstanding during 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 initial public offering. (1) Reflects waivers and related reimbursements. (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. The accompanying notes are an integral part of the financial statements. 26
NET ASSET VALUE, TOTAL NET ASSETS, RATIO OF END OF INVESTMENT END OF PERIOD EXPENSES TO PERIOD RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1) ------ ---------- --------------- --------------------- INCOME PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) $12.18 4.42% $9,842 0.80%(5) For the fiscal year ended March 31, 2001 11.99 10.68 8,316 0.80 For the fiscal year ended March 31, 2000 11.53 0.77 5,071 0.80 For the fiscal year ended March 31, 1999 12.15 5.77 4,775 0.80 For the fiscal year ended March 31, 1998 12.37 9.43 2,926 0.80 For the fiscal year ended March 31, 1997 12.03 4.40 3,367 0.80 CLASS B For the six months ended September 30, 2001 (unaudited) 12.18 4.08 9,183 1.45(5) For the fiscal year ended March 31, 2001 11.99 9.96 4,861 1.45 For the fiscal year ended March 31, 2000 11.53 0.12 2,027 1.45 For the fiscal year ended March 31, 1999 12.15 5.09 1,121 1.45 For the period February 2, 1998** through March 31, 1998 12.37 (0.04)(4) 18 1.45(5) CLASS C For the six months ended September 30, 2001 (unaudited) 12.18 4.08 5,161 1.45(5) For the fiscal year ended March 31, 2001 11.99 9.96 3,339 1.45 For the fiscal year ended March 31, 2000 11.53 0.12 1,971 1.45 For the fiscal year ended March 31, 1999 12.15 5.08 2,067 1.45 For the fiscal year ended March 31, 1998 12.37 8.92 1,403 1.28 For the fiscal year ended March 31, 1997 12.03 3.99 1,018 1.20 CLASS Y For the six months ended September 30, 2001 (unaudited) 12.18 4.61 9,219 0.45(5) For the fiscal year ended March 31, 2001 11.99 11.07 8,321 0.45 For the fiscal year ended March 31, 2000 11.53 1.13 4,763 0.45 For the fiscal year ended March 31, 1999 12.15 6.13 4,406 0.45 For the fiscal year ended March 31, 1998 12.37 9.81 4,339 0.45 For the fiscal year ended March 31, 1997 12.03 4.77 13,486 0.45 INCREASE/(DECREASE) REFLECTED IN EXPENSE RATIO OF AND NET INVESTMENT NET INVESTMENT INCOME RATIOS PORTFOLIO INCOME TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- ---------------------- --------- INCOME PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) 5.49%(5) 1.58%(5) 71.25% For the fiscal year ended March 31, 2001 6.22 2.48 174.46 For the fiscal year ended March 31, 2000 5.99 3.13 158.47 For the fiscal year ended March 31, 1999 5.83 2.98 107.21 For the fiscal year ended March 31, 1998 6.13 1.86 244.78 For the fiscal year ended March 31, 1997 5.99 1.73 262.95 CLASS B For the six months ended September 30, 2001 (unaudited) 4.85(5) 1.58(5) 71.25 For the fiscal year ended March 31, 2001 5.55 2.48 174.46 For the fiscal year ended March 31, 2000 5.34 3.13 158.47 For the fiscal year ended March 31, 1999 5.16 2.81 107.21 For the period February 2, 1998** through March 31, 1998 5.22(4)(5) 0.48(4)(5) 244.78 CLASS C For the six months ended September 30, 2001 (unaudited) 4.85(5) 1.58(5) 71.25 For the fiscal year ended March 31, 2001 5.55 2.48 174.46 For the fiscal year ended March 31, 2000 5.33 3.13 158.47 For the fiscal year ended March 31, 1999 5.28 3.18 107.21 For the fiscal year ended March 31, 1998 5.60 1.80 244.78 For the fiscal year ended March 31, 1997 5.57 1.74 262.95 CLASS Y For the six months ended September 30, 2001 (unaudited) 5.87(5) 1.58(5) 71.25 For the fiscal year ended March 31, 2001 6.52 2.48 174.46 For the fiscal year ended March 31, 2000 6.36 3.13 158.47 For the fiscal year ended March 31, 1999 6.27 3.23 107.21 For the fiscal year ended March 31, 1998 6.39 1.78 244.78 For the fiscal year ended March 31, 1997 6.34 1.73 262.95
----------- (3) Total investment return does not consider the effects of sales charges or contingent 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. Total investment return is not annualized. (4) The total investment return and ratios for a class of shares are not necessarily comparable to those of any other outstanding class of shares, due to the timing differences in the commencement of initial public offerings. (5) Annualized. 27 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 DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED OF PERIOD INCOME*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS --------- ---------- --------------- ---------- ------------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) $ 8.74 $0.37 $(0.68) $(0.37) -- For the fiscal year ended March 31, 2001 9.78 0.94 (1.04) (0.94) -- 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) $(0.05) For the period January 2, 1998** through March 31, 1998 12.00 0.26 0.73 (0.26) -- CLASS B For the six months ended September 30, 2001 (unaudited) 8.74 0.34 (0.68) (0.34) -- For the fiscal year ended March 31, 2001 9.78 0.88 (1.04) (0.88) -- 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) (0.05) For the period January 2, 1998** through March 31, 1998 12.00 0.24 0.73 (0.24) -- CLASS C For the six months ended September 30, 2001 (unaudited) 8.74 0.34 (0.68) (0.34) -- For the fiscal year ended March 31, 2001 9.78 0.88 (1.04) (0.88) -- 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) (0.05) For the period January 2, 1998** through March 31, 1998 12.00 0.24 0.73 (0.24) -- CLASS Y For the period July 11, 2001*** through September 30, 2001 (unaudited) 8.46 0.16 (0.40) (0.16) -- EMERGING MARKETS DEBT PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) 10.40 0.50 (0.19) (0.50) -- For the fiscal year ended March 31, 2001 10.58 0.97 (0.18) (0.97) -- 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) (0.17) For the fiscal year ended March 31, 1998 11.14 0.91 1.17 (0.92) (0.30) For the fiscal year ended March 31, 1997 9.02 0.85 2.10 (0.83) -- CLASS B For the six months ended September 30, 2001 (unaudited) 10.31 0.46 (0.17) (0.47) -- For the fiscal year ended March 31, 2001 10.50 0.90 (0.19) (0.90) -- 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) (0.17) For the period January 12, 1998*** through March 31, 1998 11.33 0.21 0.61 (0.20) -- CLASS C For the six months ended September 30, 2001 (unaudited) 10.32 0.47 (0.18) (0.47) -- For the fiscal year ended March 31, 2001 10.51 0.90 (0.19) (0.90) -- 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) (0.17) For the fiscal year ended March 31, 1998 11.14 0.97 1.04 (0.90) (0.30) For the fiscal year ended March 31, 1997 9.04 0.84 2.07 (0.81) --
----------- * Calculated based on average settled 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. For Emerging Markets Debt Portfolio, for fiscal years prior to March 31, 2000, shares were calculated based on shares outstanding on the first and last day of the respective periods. ** Commencement of investment operations. *** Commencement of initial public offerings. (1) Reflects waivers and related reimbursements. The accompanying notes are an integral part of the financial statements. 28
NET ASSET VALUE, TOTAL NET ASSETS, END OF INVESTMENT END OF PERIOD PERIOD RETURN(3) (000'S OMITTED) ------ ---------- --------------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) $ 8.06 (3.70)% $65,610 For the fiscal year ended March 31, 2001 8.74 (1.07) 69,132 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 six months ended September 30, 2001 (unaudited) 8.06 (4.02) 27,260 For the fiscal year ended March 31, 2001 8.74 (1.71) 26,336 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 six months ended September 30, 2001 (unaudited) 8.06 (4.02) 21,628 For the fiscal year ended March 31, 2001 8.74 (1.71) 22,317 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 CLASS Y For the period July 11, 2001*** through September 30, 2001 (unaudited) 8.06 (3.11)(4) 1,640 EMERGING MARKETS DEBT PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) 10.21 3.00 21,811 For the fiscal year ended March 31, 2001 10.40 7.98 22,051 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 CLASS B For the six months ended September 30, 2001 (unaudited) 10.13 2.75 2,195 For the fiscal year ended March 31, 2001 10.31 7.16 1,947 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 six months ended September 30, 2001 (unaudited) 10.14 2.75 3,240 For the fiscal year ended March 31, 2001 10.32 7.16 3,240 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 RATIO OF RATIO OF NET INVESTMENT EXPENSES TO INCOME TO AVERAGE NET ASSETS(1) AVERAGE NET ASSETS(1) --------------------- --------------------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) 1.00%(5) 8.63%(5) For the fiscal year ended March 31, 2001 1.00 10.03 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 six months ended September 30, 2001 (unaudited) 1.65(5) 7.96(5) For the fiscal year ended March 31, 2001 1.65 9.45 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 six months ended September 30, 2001 (unaudited) 1.65(5) 7.96(5) For the fiscal year ended March 31, 2001 1.65 9.45 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) CLASS Y For the period July 11, 2001*** through September 30, 2001 (unaudited) 0.65(5) 8.85(4)(5) EMERGING MARKETS DEBT PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) 1.75(5) 9.60(5) For the fiscal year ended March 31, 2001 1.75 9.27 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 CLASS B For the six months ended September 30, 2001 (unaudited) 2.40(5) 8.94(5) For the fiscal year ended March 31, 2001 2.40 8.76 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 six months ended September 30, 2001 (unaudited) 2.40(5) 8.94(5) For the fiscal year ended March 31, 2001 2.40 8.75 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 INCREASE/(DECREASE) REFLECTED IN EXPENSE AND NET INVESTMENT INCOME RATIOS PORTFOLIO DUE TO WAIVERS AND TURNOVER RELATED REIMBURSEMENTS RATE ---------------------- --------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) 0.53%(5) 118.91% For the fiscal year ended March 31, 2001 0.64 122.83 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 six months ended September 30, 2001 (unaudited) 0.53(5) 118.91 For the fiscal year ended March 31, 2001 0.64 122.83 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 six months ended September 30, 2001 (unaudited) 0.53(5) 118.91 For the fiscal year ended March 31, 2001 0.64 122.83 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 CLASS Y For the period July 11, 2001*** through September 30, 2001 (unaudited) 0.53(5) 118.91 EMERGING MARKETS DEBT PORTFOLIO CLASS A For the six months ended September 30, 2001 (unaudited) 0.56(5) 49.36 For the fiscal year ended March 31, 2001 1.06 156.45 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 CLASS B For the six months ended September 30, 2001 (unaudited) 0.56(5) 49.36 For the fiscal year ended March 31, 2001 1.06 156.45 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 six months ended September 30, 2001 (unaudited) 0.56(5) 49.36 For the fiscal year ended March 31, 2001 1.06 156.45 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
----------- (2) The amounts shown for a share outstanding thoughout the respective periods 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. Net realized and unrealized gain/(loss) on investments include forward foreign currency exchange contracts and translation of foreign currency related transactions, if any. (3) Total investment return does not consider the effects of sales charges or contingent 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. 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. 29 INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO EMERGING MARKETS DEBT PORTFOLIO NOTES TO FINANCIAL STATEMENTS - (UNAUDITED) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business trust on September 29, 1994, and is registered with the Securities and Exchange Commission (the "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 twelve 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 five non-diversified portfolios, Emerging Markets Debt Portfolio ("EMD Portfolio"), The Insiders Select Fund, Focus List Portfolio, S&P STARS Portfolio and S&P STARS Opportunities 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 EMD Portfolio has yet to commence its initial public offering. On October 1, 2001, S&P STARS Opportunities Portfolio commenced operations. 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. ORGANIZATIONAL MATTERS--Prior to commencing investment operations on January 2, 1998, the High Yield Portfolio did not have any transactions other than those relating to organizational matters and the sale of one share each of Class A, B and C shares of beneficial interest to Bear, Stearns & Co. Inc. ("Bear Stearns" or the "Distributor"). Costs of $56,234 which were incurred by the High Yield Portfolio 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. MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, requires management to make certain estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. PORTFOLIO VALUATION--Each Portfolio calculates the net asset value of and completes orders to purchase or repurchase its shares of beneficial interest as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally 4:00 p.m. Eastern time) on each day that the Exchange is open for trading. Substantially all fixed-income securities (including short-term investments that are not valued using the amortized cost method) are valued each business day as of the close of regular trading on the Exchange by one or more independent pricing services (the "Pricing Services") approved by the Fund's Board of Trustees. When quoted bid prices are readily available, the Pricing Services generally value fixed-income securities at the mean of the bid and asked prices, provided that the Pricing Services believe those prices to reflect the fair market value of the securities. Other investments valued by the Pricing Services are carried at fair value as determined by the Pricing Services, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Pricing Services may take other factors into consideration in pricing securities, including institutional size transactions in similar groups of securities as well as developments related to specific securities. Securities that are not valued by a Pricing Service are valued at the average of the most recent bid and asked prices in the market in which such securities are primarily traded, or at the last sales price for securities traded primarily on an exchange or a national securities market. In the absence of reported sales of securities traded primarily on an exchange or a national securities market, the average of the most recent bid and asked prices is used. Bid price is used when no asked price is available. Other assets and securities for which no quotations are readily available or which are restricted as to sale (or resale) are valued by such methods as the Fund's Board of Trustees deems in good faith to reflect the fair value. Restricted securities, as well as securities or other assets for which market quotations are not readily available, or are not valued by a Pricing Service approved by the Fund's Board of Trustees, are valued at fair value as determined in good faith by Bear Stearns Asset Management Inc.'s 30 ("BSAM" or the "Adviser") Valuation Committee, pursuant to procedures approved by the Fund's Board of Trustees. The Board reviews the methods of valuation quarterly. Short-term investments (those acquired with remaining maturities of 60 days or less) are valued at cost, plus or minus any amortized discount or premium, which approximates market 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. The Portfolios have adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, as revised, effective for fiscal years beginning after December 15, 2000. As required, the Portfolios modified the manner of accounting for paydown gains and losses on mortgage- and asset-backed securities and record such amounts as an adjustment to interest income. In addition, the Portfolios amortize premiums and discounts on debt securities. Discounts and premiums 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 Portfolios 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 Statements 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 EXCHANGE CURRENCY CONTRACTS--A Portfolio may enter into forward foreign currency exchange contracts ("forward currency contracts") to hedge against adverse changes in the relationship of the U.S. dollar to foreign currencies. The Portfolios may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Portfolios may also use these contracts to hedge the U.S. dollar value of securities it already owns denominated in foreign currencies. Forward currency contracts are valued at the forward rate, and are marked-to-market daily. The change in market value is recorded by the Portfolio as an unrealized gain or loss. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the current contract at the time it was opened and the value at the time it was closed. The use of forward currency contracts does not eliminate fluctuations in the underlying prices of the Portfolio's securities, but it does establish a rate of exchange that can be achieved in the future. Although forward currency contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of currency increase. In addition, the Portfolio could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Portfolios had no open forward foreign currency exchange contracts at September 30, 2001. 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, 2001, 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 2009. To the extent that the capital loss carryforwards are used 31 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, 2001:
AMOUNT AMOUNT AMOUNT GROSS CAPITAL LOSS EXPIRING EXPIRING EXPIRING PORTFOLIO CARRYFORWARDS IN 2007 IN 2008 IN 2009 --------- ------------------ -------- ----------- ---------- Income Portfolio $ 509,191 -- $ 128,196 $ 380,995 High Yield Portfolio 19,365,939 $175,885 5,403,558 13,786,496 EMD Portfolio 2,857,775 -- 2,857,775 --
For U.S federal income tax purposes, net realized capital losses from investments incurred after October 31, 2000, within the prior fiscal year are deemed to arise on the first day of the current fiscal year. The Income Portfolio, High Yield Portfolio and EMD Portfolio incurred and elected to defer such losses of $33,193, $15,285,363 and $294,869, respectively. DIVIDENDS AND DISTRIBUTIONS--Each Portfolio declares 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. 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 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 six months ended September 30, 2001, BSAM, a wholly-owned subsidiary of The Bear Stearns Companies Inc., served as investment adviser pursuant to an Investment Advisory Agreement with respect to each Portfolio. Under the terms of the Investment Advisory Agreement, the Income Portfolio and High Yield Portfolio have 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 six months ended September 30, 2001, 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 up to $1 billion, 0.12% of the next $1 billion, 0.10% of the next $3 billion and 0.08% of average daily net assets above $5 billion. For the six months ended September 30, 2001, BSAM has undertaken to limit the total operating expenses (exclusive of brokerage commissions, taxes, interest and extraordinary items) to a maximum annual level as a percent of each Portfolio's average daily net assets as follows:
PORTFOLIO CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES --------- -------------- -------------- -------------- -------------- Income Portfolio 0.80% 1.45% 1.45% 0.45% High Yield Portfolio 1.00 1.65 1.65 0.65 EMD Portfolio 1.75 2.40 2.40 --
32 As necessary, this limitation is effected by waivers by the Adviser of its advisory fees and reimbursements of expenses exceeding the advisory fee. For the six months ended September 30, 2001, the advisory fee waivers and reimbursements of expenses (in order to maintain the expense limitation) were as follows:
PORTFOLIO ADVISORY FEE WAIVERS EXPENSE REIMBURSEMENTS --------- -------------------- ---------------------- Income Portfolio $ 59,298 $148,519 High Yield Portfolio 324,485 -- EMD Portfolio 139,042 15,217
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, each Portfolio 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 each Portfolio paid Bear Stearns 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 other intervals as the Board of Trustees may determine. For the six months ended September 30, 2001, Bear Stearns earned $38,274, $227,116, and $31,583 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 $21,553, $153,055, and $34,811 for the Income Portfolio, High Yield Portfolio and EMD Portfolio, respectively, in shareholder servicing fees. Bear Stearns uses shareholder servicing fees to pay broker-dealers and other financial institutions that provide for personal service in connection with the maintenance of shareholder accounts. 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. In addition, 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 six months ended September 30, 2001, Bear Stearns has advised each Portfolio that it received $18,925, $74,858 and $8,095 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 six months ended September 30, 2001, it received approximately $297 from the High Yield Portfolio in contingent deferred sales charges ("CDSC") upon certain redemptions by Class A shareholders and approximately $17,159, $31,519 and $1,631 from each Portfolio, respectively, in CDSC upon certain redemptions by Class B shareholders and approximately $640, $1,340 and $480 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 September 30, 2001, were $35,859,760, $119,062,148 and $26,828,653 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:
GROSS GROSS NET APPRECIATION/ PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION) --------- ------------ ------------- ----------------- Income Portfolio $ 905,544 $ (155,794) $ 749,750 High Yield Portfolio 904,059 (5,829,318) (4,925,259) EMD Portfolio 1,390,308 (1,683,135) (292,827)
For the six months ended September 30, 2001, aggregate purchases and sales of portfolio securities (excluding short-term investments) for each Portfolio were as follows: 33
PORTFOLIO PURCHASES SALES --------- ------------ ------------ Income Portfolio $ 27,389,466 $ 18,601,279 High Yield Portfolio 136,044,241 131,044,675 EMD Portfolio 12,712,614 13,515,937
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 September 30, 2001, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized for each Portfolio, of which Bear Stearns owned 1,319 of Class A shares and 1,287 Class C shares of the Income Portfolio and 1 each of Class A, B and C shares of the High Yield Portfolio. The Income Portfolio's shares owned by Bear Stearns include 278 Class A shares and 246 Class C shares which were acquired through dividend reinvestment. Transactions in shares of beneficial interest for each Portfolio were as follows:
INCOME PORTFOLIO ---------------------------------------------- SALES REPURCHASES REINVESTMENTS ------------ ----------- ------------- CLASS A FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 465,160 362,323 11,859 Value $ 5,516,761 $4,264,112 $141,924 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 809,598 571,310 15,073 Value $ 9,676,558 $6,839,617 $176,005 CLASS B FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 430,853 88,487 6,275 Value $ 5,217,106 $1,057,629 $ 75,092 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 275,463 55,113 9,045 Value $ 3,244,108 $ 651,691 $105,666 CLASS C FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 242,249 103,672 6,768 Value $ 2,905,647 $1,231,161 $ 80,997 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 341,033 242,107 8,522 Value $ 4,030,013 $2,845,724 $ 99,278 CLASS Y FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 70,621 26,279 18,771 Value $ 838,179 $ 316,002 $224,542 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 382,870 120,553 18,261 Value $ 4,572,763 $1,378,968 $212,930 34 HIGH YIELD PORTFOLIO ---------------------------------------------- SALES REPURCHASES REINVESTMENTS ------------ ----------- ------------- CLASS A FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 1,861,727 1,842,089 210,945 Value $16,075,370 $15,788,427 $1,791,225 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 4,812,964 1,812,714 305,479 Value $43,581,437 $16,469,672 $2,785,806 CLASS B FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 684,848 384,680 68,767 Value $ 5,880,381 $ 3,258,603 $ 583,356 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 1,176,384 684,610 115,057 Value $10,484,107 $ 6,180,060 $1,054,218 CLASS C FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 200,735 134,955 64,077 Value $ 1,729,529 $ 1,144,006 $ 543,870 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 1,414,173 891,343 116,638 Value $13,042,066 $ 8,129,047 $1,066,374 CLASS Y FOR THE PERIOD JULY 11, 2001* THROUGH SEPTEMBER 30, 2001 Shares 202,511 -- 845 Value $ 1,691,994 -- $ 7,035 EMD PORTFOLIO ---------------------------------------------- SALES REPURCHASES REINVESTMENTS ------------ ----------- ------------- CLASS A FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 313,666 364,325 65,632 Value $ 3,282,550 $ 3,807,990 $ 682,339 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 643,599 1,353,929 136,641 Value $ 6,780,969 $14,062,273 $1,414,333 CLASS B FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 29,766 8,443 6,635 Value $ 308,577 $ 88,007 $ 68,443 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 45,195 39,859 11,181 Value $ 466,666 $ 407,231 $ 115,042 CLASS C FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 Shares 13,331 17,998 10,431 Value $ 137,920 $ 184,250 $ 107,656 FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Shares 131,299 97,613 18,428 Value $ 1,346,274 $ 1,004,457 $ 189,540
---------- * Commencement of initial public offering. 35 CREDIT FACILITY The Fund has entered into a demand promissory note arrangement with JPMorgan Chase 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. High Yield Portfolio as a fundamental policy is permitted to borrow in an amount up to 331U3% of the value of its assets. Income Portfolio and EMD Portfolio, each intend to borrow money only for temporary or emergency (not leveraging) purposes and only in amounts not to exceed 15% of its net assets. Each loan is payable on demand or upon termination of this credit facility or on the last day of the interest period and, in any event, not later than 14 days from the date the loan was advanced. In addition, EMD Portfolio can borrow, for temporary purposes, from its custodian, Brown Brothers Harriman & Co., to cover periodic overdrafts. There were no such borrowings during the six months ended September 30, 2001. The Portfolios had no amounts outstanding under the line of credit facility either during the period or at September 30, 2001. 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 and 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. 36