-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CRR98dHlQv/GDHm4sRjMz2IFA0cDj+qxugwLNM9urRcx0fQFMAoW1scMh0mOL4Pb CJ6DaGQI9Ocme2vsVV6Jew== 0000912057-96-027989.txt : 19961203 0000912057-96-027989.hdr.sgml : 19961203 ACCESSION NUMBER: 0000912057-96-027989 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961202 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEAR STEARNS FUNDS CENTRAL INDEX KEY: 0000931145 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08798 FILM NUMBER: 96674697 BUSINESS ADDRESS: STREET 1: 245 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10167 MAIL ADDRESS: STREET 2: 245 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10167 N-30D 1 N-30D THE INSIDERS SELECT FUND SEMI-ANNUAL REPORT SEPTEMBER 30, 1996 THE BEAR STEARNS FUNDS 245 Park Avenue New York, NY 10167 1.800.766.4111 Robert S. Reitzes . . . . . . . . . . . . . . Chairman of the Board Neil T. Eigen . . . . . . . . . . . . . . . . President Peter B. Fox. . . . . . . . . . . . . . . . . Executive Vice President William J. Montgoris. . . . . . . . . . . . . Executive Vice President Peter M. Bren . . . . . . . . . . . . . . . . Trustee Alan J. Dixon . . . . . . . . . . . . . . . . Trustee John R. McKernan, Jr. . . . . . . . . . . . . Trustee M.B. Oglesby, Jr. . . . . . . . . . . . . . . Trustee Stephen A. Bornstein. . . . . . . . . . . . . Vice President Frank J. Maresca. . . . . . . . . . . . . . . Vice President and Treasurer Raymond D. DeAngelo . . . . . . . . . . . . . Vice President Ellen T. Arthur . . . . . . . . . . . . . . . Secretary Vincent L. Pereira. . . . . . . . . . . . . . Assistant Treasurer Eileen M. Coyle . . . . . . . . . . . . . . . Assistant Secretary INVESTMENT ADVISER & ADMINISTRATOR SUB-INVESTMENT ADVISER Bear Stearns Funds Symphony Asset Management Management Inc. 555 California Street, 245 Park Avenue Suite 2975 New York, NY 10167 San Francisco, CA 94104 DISTRIBUTOR CUSTODIAN Bear, Stearns & Co. Inc. Custodial Trust Company 245 Park Avenue 101 Carnegie Center New York, NY 10167 Princeton, NJ 08540 TRANSFER & DIVIDEND COUNSEL DISBURSEMENT AGENT Stroock & Stroock & Lavan PFPC Inc. 7 Hanover Square Bellevue Corporate Center New York, NY 10004 400 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, NY 10281 This report is submitted for the general information of the shareholders of the Portfolio. It is not authorized for the distribution to prospective investors in the Portfolio unless it is preceded or accompanied by a current prospectus which includes details regarding the Portfolio's objectives, policies, sales commissions and other information. Total return is based on historical results and is not intended to indicate future performance. The investment return and principal value of an investment in the Portfolio will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than original cost. BSF-R-010-03 [LOGO] THE BEAR STEARNS FUNDS The Insiders Select Fund LETTER TO SHAREHOLDERS November 12, 1996 Dear Shareholders, We are pleased to present the semi-annual report to the shareholders of The Insiders Select Fund (the "Portfolio") for the six months ended September 30, 1996. From June 16, 1995 (commencement of investment operations) through September 30, 1996, the Portfolio gained 28.17% and 27.33% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively, compared to 31.85% for its benchmark, the S&P 500 (Composite) Index (the "S&P 500"). The average annual total return at September 30, 1996 was 21.11% and 20.50% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively. The average annual total return for the S&P 500 was 23.78% for the same period. For the six months ended September 30, 1996, class A and C shares returned 9.79% and 9.46% (without giving effect to sales charges and contingent deferred sales charges, if any), respectively, versus 7.72% for the S&P 500. For the period June 20, 1995 (commencement of initial public offering) through September 30, 1996, class Y shares gained 27.56% compared to 29.94% for the S&P 500. The average annual total return at September 30, 1996 for class Y shares was 20.86% compared to 22.61% for the S&P 500. For the six months ended September 30, 1996, class Y shares gained 9.99% compared to 7.72% for the S&P 500. Further performance data for each class of shares for this reporting period is available in the "Financial Highlights" section of this report. The U.S. equity market rebounded in August and September from a sharp correction in July, induced by concerns over corporate earnings and the potential for higher interest rates. As these fears subsided, the market recovered. Over this time period, the Portfolio remained close to fully invested with a small short position in one stock. The Portfolio benefited from its exposure to stocks with strong earnings momentum and above-average growth rates. The Portfolio's exposure to technology stocks helped boost performance as the group rebounded strongly in August and September. Other sectors such as banking and insurance contributed to the Portfolio's performance. Retailing (grocery stores) stocks in the Portfolio also performed well, led by Safeway Inc. Other outstanding performers were Conseco Inc., City National Corp., Equifax Inc. and Hilton Hotels Corp. The Portfolio continues to look for investment opportunities in stocks with attractive valuations coupled with insider accumulation. Insiders selling which had been heavy during the second quarter, decreased in July as the equity market corrected. Insiders buying increased in August as insiders took advantage of lower equity prices. In conclusion, we appreciate your support and would be pleased to respond to any questions or comments. If you have any questions concerning these Portfolios, please call 1-800-766-4111. Sincerely, [SIG] [SIG] Robert S. Reitzes Praveen Gottipalli Chairman of the Board Symphony Asset Management The Bear Stearns Funds Sub-Investment Adviser Portfolio Manager The Insiders Select Fund
1 THE BEAR STEARNS FUNDS The Insiders Select Fund COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P 500 (COMPOSITE) NATIONAL CONSUMER CLASS A SHARES CLASS C SHARES INDEX PRICE INDEX June 16, 1995 $9,525 $10,000 $10,000 $10,000 June 30, 1995 $9,581 $10,067 $10,099 $10,013 Sept. 30, 1995 $10,470 $10,975 $10,902 $10,059 Dec. 31, 1995 $10,802 $11,317 $11,558 $10,112 March 31, 1996 $11,120 $11,633 $12,179 $10,217 June 30, 1996 $11,684 $12,200 $12,591 $10,295 Sept. 30, 1996 $12,208 $12,733 $13,185 $10,361 $9,525 Investment made on June 16, 1995 Past performance is not predictive of future performance
AVERAGE ANNUAL TOTAL RETURN INCLUDING FEE WAIVERS AND EXPENSE EXCLUDING FEE WAIVERS AND REIMBURSEMENTS EXPENSE REIMBURSEMENTS ----------------------- ------------------------- The Insiders Select Fund(4) Class A shares(5)........................... 16.64% 15.42% Class C shares.............................. 20.50 18.75 Class Y shares(2)........................... 20.86 19.50 S&P 500 (Composite) Index(3).................... 23.78 -- National Consumer Price Index(3)................ 2.77 --
- --------- (1) For the period of June 16, 1995 (commencement of investment operations) through September 30, 1996. (2) The return of class Y shares (for which June 20, 1995 was the initial public offering date) would have been higher than class A and C shares if operations were commenced on the same day. The higher return is due to the fact that there is no sales load, CDSC or 12b-1 fee charged to class Y shares. (3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio (class A shares reflects the initial maximum 4.75% sales load) and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the indices are either unmanaged and do not incur sales charges or expenses and/or are not available for investment. Performance of the indices corresponds to the performance of class A and C shares. (4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to voluntarily reimburse a portion of the Portfolio's operating expenses to maintain the expense limitation, as set forth in the notes to financial statements. (5) Reflects the initial maximum 4.75% sales load. Without applicable sales load, the average annual total returns would have been 21.11% including fee waivers and expense reimbursements and 20.04% excluding fee waivers and expense reimbursements. CDSC -- Contingent Deferred Sales Charge. 2 THE BEAR STEARNS FUNDS The Insiders Select Fund SEPTEMBER 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- SECTOR ALLOCATION (AS A PERCENTAGE OF NET ASSETS) - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Aerospace & Defense 2.99% Banks 5.06% Chemicals & Fertilizers 1.75% Commercial Services 2.83% Computers & Office Equipment 1.79% Computer Services 3.58% Credit & Finance 11.70% Drugs & Hospital Supplies 12.96% Electrical Equipment 2.83% Electronics 2.67% Entertainment & Leisure 1.70% Healthcare 1.96% Lodging 4.06% Miscellaneous Manufacturing 2.16% Oil & Natural Gas 10.24% Retailing, Apparel 1.97% Retailing, Department Stores 3.85% Retailing, Grocery Stores 3.52% Telecommunications 8.27% Cash & Cash Equivalents 5.16% Other 8.95%
- -------------------------------------------------------------------------------- TOP TEN HOLDINGS - --------------------------------------------------------------------------------
PERCENT OF RANK HOLDING SECTOR NET ASSETS - ------------------------------------------------------ --------------------------- ---------- 1. Johnson & Johnson................................. Drugs & Hospital Supplies 3.37 2. Merck & Co., Inc.................................. Drugs & Hospital Supplies 3.29 3. Merrill Lynch & Co. .............................. Credit & Finance 3.18 4. Services Corp. International...................... Commercial Services 2.83 5. Jefferson-Pilot Corp.............................. Credit & Finance 2.74 6. Sprint Corp....................................... Telecommunications 2.74 7. Mobil Corp. ...................................... Oil & Natural Gas 2.61 8. Hilton Hotels Corp................................ Lodging 2.56 9. Texaco Inc........................................ Oil & Natural Gas 2.51 10. VONS Companies Inc. .............................. Retailing, Grocery Stores 2.45
3 THE BEAR STEARNS FUNDS The Insiders Select Fund PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
---------------------------------------------------------- MARKET SHARES VALUE ------------------------------------------------------------------------------ COMMON STOCKS--94.84% AEROSPACE & DEFENSE - 2.99% 2,000 General Dynamics Corp. ..................................... $ 137,750 3,000 McDonnell Douglas Corp. .................................... 157,500 7,000 Rockwell International Corp. ............................... 394,625 ----------- 689,875 ----------- AUTO PARTS, REPLACEMENT - 0.91% 4,900 Kaydon Corp. ............................................... 210,700 ----------- BANKS - 5.06% 30,300 City National Corp. ........................................ 549,188 3,900 Green Tree Financial Corp. ................................. 153,075 5,170 Huntington Bancshares Inc. ................................. 118,910 4,410 Provident Bankshares Corp. ................................. 156,004 4,800 Summit Bancorp.............................................. 190,800 ----------- 1,167,977 ----------- CASINO SERVICES - 0.59% 6,600 International Game Technology............................... 135,300 ----------- CHEMICALS & FERTILIZERS - 1.75% 6,100 Cytec Industries Inc. ...................................... 237,138 3,500 Georgia Gulf Corp. ......................................... 104,563 1,400 The B.F. Goodrich Co. ...................................... 63,175 ----------- 404,876 ----------- COMMERCIAL SERVICES - 2.83% 21,600 Services Corp. International................................ 653,400 ----------- COMPUTER SERVICES - 3.58% 8,300 Cheyenne Software Inc. ..................................... 178,450 2,625 Computer Associates International, Inc. .................... 156,844 3,500 Comverse Technology Inc.*................................... 136,063 2,700 Microsoft Corp.*............................................ 356,063 ----------- 827,420 ----------- ------------------------------------------------------------------------------ MARKET SHARES VALUE ------------------------------------------------------------------------------ COMPUTERS & OFFICE EQUIPMENT - 1.79% 2,100 Cabletron Systems Inc.*..................................... $ 143,325 2,100 Gateway 2000, Inc.*......................................... 100,538 3,200 Pitney Bowes Inc. .......................................... 168,800 ----------- 412,663 ----------- CREDIT & FINANCE - 11.70% 6,000 Conseco Inc. ............................................... 295,500 4,500 Freemont General Corp. ..................................... 132,750 12,250 Jefferson-Pilot Corp. ...................................... 633,938 11,200 Merrill Lynch & Co. ........................................ 735,000 5,900 Morgan Stanley Group Inc. .................................. 293,525 3,100 NAC Re Corp. ............................................... 111,600 5,400 Price (T. Rowe) Associates.................................. 175,500 2,500 Student Loan Marketing Association.......................... 186,563 4,000 SunAmerica Inc. ............................................ 138,000 ----------- 2,702,376 ----------- DRUGS & HOSPITAL SUPPLIES - 12.96% 3,700 American Home Products Corp. ............................... 235,875 3,600 Bristol-Myers Squibb Co. ................................... 346,950 4,000 Guidant Corp. .............................................. 221,000 9,600 Hillenbrand Industries...................................... 350,400 15,200 Johnson & Johnson........................................... 779,000 10,800 Merck & Co., Inc. .......................................... 760,050 5,475 Pharmacia & Upjohn, Inc. ................................... 225,844 2,000 Sola International, Inc.*................................... 74,500 ----------- 2,993,619 ----------- ELECTRICAL EQUIPMENT - 2.83% 4,500 Belden, Inc. ............................................... 130,500 8,300 Honeywell, Inc. ............................................ 523,937 ----------- 654,437 ----------- ELECTRONICS - 2.67% 4,400 Intel Corp. ................................................ 419,925 600 National Service Industries, Inc. .......................... 21,000 1,600 Oak Industries Inc.*........................................ 53,200 7,300 Teradyne, Inc.*............................................. 121,362 ----------- 615,487 -----------
The accompanying notes are an integral part of the financial statements. 4 THE BEAR STEARNS FUNDS The Insiders Select Fund PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
------------------------------------------------------------------------------ MARKET SHARES VALUE ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) ENTERTAINMENT & LEISURE - 1.70% 9,300 MGM Grand, Inc.*............................................ $ 392,925 ----------- ENVIRONMENTAL CONTROLS - 1.08% 7,200 United Waste Systems, Inc.*................................. 250,200 ----------- FOOD & BEVERAGES - 0.60% 3,800 Interstate Bakeries Corp. .................................. 138,700 ----------- HEALTHCARE - 1.96% 2,400 Oxford Health Plans, Inc. .................................. 119,400 8,000 United Healthcare Corp. .................................... 333,000 ----------- 452,400 ----------- IRON / STEEL - 0.40% 8,000 The LTV Corp. .............................................. 93,000 ----------- LODGING - 4.06% 5,200 HFS Inc.*................................................... 347,750 20,800 Hilton Hotels Corp. ........................................ 590,200 ----------- 937,950 ----------- MACHINE, DIVERSIFIED - 0.10% 1,400 Credence Systems Corp*...................................... 22,050 ----------- MACHINE, TOOLS - 0.29% 2,100 Snap-On Inc. ............................................... 67,462 ----------- MISCELLANEOUS MANUFACTURING - 2.16% 3,500 Case Corp. ................................................. 170,625 4,200 Harsco Corp. ............................................... 264,600 2,600 ITT Industries, Inc. ....................................... 62,725 ----------- 497,950 ----------- ------------------------------------------------------------------------------ MARKET SHARES VALUE ------------------------------------------------------------------------------ OIL & NATURAL GAS - 10.24% 7,600 Global Marine Inc.*......................................... $ 119,700 5,200 Mobil Corp. ................................................ 601,900 13,900 Oneok, Inc. ................................................ 382,250 1,900 Oryx Energy Co.*............................................ 33,725 2,300 Royal Dutch Petroleum Co. .................................. 359,087 1,500 Schlumberger, Ltd. ......................................... 126,750 6,300 Texaco Inc. ................................................ 579,600 3,200 The Williams Cos., Inc. .................................... 163,200 ----------- 2,366,212 ----------- PACKAGING & CONTAINERS - 0.85% 5,300 Sealed Air Corp.*........................................... 197,425 ----------- PUBLISHING, NEWSPAPER - 0.78% 5,700 Media General Inc., Class A................................. 179,550 ----------- RETAILING, APPAREL - 1.97% 2,000 Nike Inc. .................................................. 243,000 5,900 The TJX Companies, Inc. .................................... 211,662 ----------- 454,662 ----------- RETAILING, DEPARTMENT STORES - 3.85% 5,500 American Stores, Inc. ...................................... 220,000 6,500 Federated Department Stores Inc. ........................... 217,750 3,500 Meyer Fred Inc.*............................................ 115,937 7,500 Sears, Roebuck & Co. ....................................... 335,625 ----------- 889,312 ----------- RETAILING, DRUG STORE - 0.76% 6,300 Eckerd Corp. ............................................... 176,400 ----------- RETAILING, GROCERY STORES - 3.52% 5,800 Safeway Inc.*............................................... 247,225 13,200 VONS Companies Inc.*........................................ 565,950 ----------- 813,175 ----------- RETAILING, OFFICE SUPPLIES - 0.54% 5,600 Staples Inc. ............................................... 124,250 -----------
The accompanying notes are an integral part of the financial statements. 5 THE BEAR STEARNS FUNDS The Insiders Select Fund PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
------------------------------------------------------------------------------ MARKET SHARES VALUE ------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) TELECOMMUNICATIONS - 8.27% 800 360 Degrees Communications Company*......................... $ 18,800 14,200 Equifax Inc. ............................................... 374,525 10,200 GTE Corp. .................................................. 392,700 11,300 Loral Space & Communications Ltd.*.......................... 177,975 6,500 SBC Communications Inc. .................................... 312,812 16,300 Sprint Corp. ............................................... 633,662 ----------- 1,910,474 ----------- UTILITIES - 1.05% 6,100 Texas Utilities Co. ........................................ 241,712 ----------- WHOLESALE, SPECIAL LINE - 1.00% 8,300 Tech Data, Inc.*............................................ 231,362 ----------- Total Common Stocks (cost - $19,424,215)........................................ 21,905,301 ----------- ------------------------------------------------------------------------------ MARKET SHARES VALUE ------------------------------------------------------------------------------ SHORT-TERM INVESTMENT - 2.25% INVESTMENT COMPANY - 2.25% 520,014 The Milestone Funds Treasury Obligations Portfolio, Institutional Shares** (cost - $520,014)........................................... $ 520,014 ----------- Total Investments (cost - $19,944,229) - 97.09%............................... 22,425,315 Other assets in excess of liabilities - 2.91%............... 671,682 ----------- Net Assets - 100.00%........................................ $23,096,997 ----------- ----------- SHORT SALE OF COMMON STOCK RETAILING, APPAREL 4,200 Talbots, Inc. (proceeds received - $125,408).............................. $ (126,000) ----------- -----------
- --------- * Non-income producing security. ** Money market fund. The accompanying notes are an integral part of the financial statements. 6 THE BEAR STEARNS FUNDS The Insiders Select Fund STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996 (UNAUDITED) ASSETS Investments, at value (cost - $19,944,229)...... $22,425,315 Receivable for Portfolio shares sold............ 396,410 Receivable for investments sold................. 320,722 Deposit with broker for security sold short (including margin requirement of $97,889)...... 223,297 Amount segregated at custodian for security sold short.......................................... 160,800 Receivable from investment adviser.............. 39,609 Dividends and interest receivable............... 27,388 Deferred organization expenses and other assets......................................... 197,516 ----------- Total assets.............................. 23,791,057 ----------- LIABILITIES Payable for investments purchased............... 292,343 Payable for Portfolio shares repurchased........ 162,799 Security sold short, at value (proceeds received - $125,408).................................... 126,000 Distribution fee payable (class A and C shares)........................................ 37,461 Administration fee payable...................... 5,617 Custodian fee payable........................... 2,671 Accrued expenses................................ 67,169 ----------- Total liabilities......................... 694,060 ----------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized)...... 1,506 Paid-in capital................................. 18,648,844 Undistributed net investment income............. 21,946 Accumulated net realized gain from investments.................................... 1,944,207 Net unrealized appreciation on investments and security sold short............................ 2,480,494 ----------- Net assets................................ $23,096,997 ----------- ----------- CLASS A Net assets...................................... $12,795,207 ----------- Shares of beneficial interest outstanding....... 832,419 ----------- Net asset value per share....................... $15.37 ----------- ----------- Maximum offering price per share (net asset value plus sales charge of 4.75%* of the offering price)................................ $16.14 ----------- ----------- CLASS C Net assets...................................... $ 8,904,272 ----------- Shares of beneficial interest outstanding....... 582,614 ----------- Net asset value and offering price per share**........................................ $15.28 ----------- ----------- CLASS Y Net assets...................................... $ 1,397,518 ----------- Shares of beneficial interest outstanding....... 90,624 ----------- Net asset value, offering and redemption value per share...................................... $15.42 ----------- -----------
- -------- * 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. 7 THE BEAR STEARNS FUNDS The Insiders Select Fund STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends....................................... $ 192,689 Interest........................................ 24,457 ---------- 217,146 ---------- EXPENSES Advisory fees................................... 87,731 Transfer agent fees and expenses................ 63,572 Accounting fees................................. 53,552 Distribution fees - class A..................... 31,199 Distribution fees - class C..................... 46,829 Reports and notices to shareholders............. 31,058 Federal and state registration fees............. 26,603 Legal and auditing fees......................... 21,291 Amortization of organization expenses........... 18,247 Administration fees............................. 17,395 Custodian fees and expenses..................... 11,531 Insurance expenses.............................. 8,122 Trustees' fees and expenses..................... 4,011 Other........................................... 4,016 ---------- Total expenses before waivers and reimbursements............................. 425,157 Less: waivers and reimbursements.......... (212,897) ---------- Total expenses after waivers and reimbursements............................. 212,260 ---------- Net investment income........................... 4,886 ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND SECURITY SOLD SHORT TRANSACTIONS Net realized gain from investments.............. 1,053,115 Net change in unrealized appreciation/(depreciation) on: Investments................................... 995,618 Security sold short........................... 33,600 ---------- Net realized and unrealized gain on investments and security sold short transactions........... 2,082,333 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................................... $2,087,219 ---------- ----------
The accompanying notes are an integral part of the financial statements. 8 THE BEAR STEARNS FUNDS The Insiders Select Fund STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FOR THE SIX JUNE 16, MONTHS ENDED 1995* SEPTEMBER THROUGH 30, 1996 MARCH 31, (UNAUDITED) 1996 ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS Net investment income........................... $ 4,886 $ 28,761 Net realized gain from investments.............. 1,053,115 891,092 Net change in unrealized appreciation/(depreciation) on investments and security sold short............................ 1,029,218 1,451,276 ------------ ------------ Net increase in net assets resulting from operations..................................... 2,087,219 2,371,129 ------------ ------------ DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A shares................................ -- (8,222) Class Y shares................................ -- (3,479) ------------ ------------ -- (11,701) ------------ ------------ SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares............ 3,488,711 26,820,998 Cost of shares repurchased...................... (5,831,887) (5,837,996) Shares issued in reinvestment of dividends...... -- 10,500 ------------ ------------ Net increase/(decrease) in net assets derived from shares of beneficial interest transactions................................... (2,343,176) 20,993,502 ------------ ------------ Total increase/(decrease) in net assets......... (255,957) 23,352,930 NET ASSETS Beginning of period............................. 23,352,954 24 ------------ ------------ End of period (including undistributed net investment income of $21,946 and $17,060, respectively).................................. $23,096,997 $ 23,352,954 ------------ ------------ ------------ ------------
- -------- * Commencement of investment operations. The accompanying notes are an integral part of the financial statements. 9 THE BEAR STEARNS FUNDS The Insiders Select Fund FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------- Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
FOR THE PERIOD FOR THE SIX MONTHS JUNE 16, 1995* ENDED SEPTEMBER 30, 1996 THROUGH (UNAUDITED) MARCH 31, 1996 --------------------------------- --------------------- CLASS A CLASS C CLASS Y CLASS A CLASS C -------- --------- -------- -------- --------- PER SHARE OPERATING PERFORMANCE** Net asset value, beginning of period................................ $ 14.00 $ 13.96 $ 14.02 $ 12.00 $ 12.00 -------- --------- -------- -------- --------- Net investment income/(loss)(1)..................................... 0.02 (0.02) 0.05 0.03 (0.01) Net realized and unrealized gain on investments and security sold short transactions(2).............................................. 1.35 1.34 1.35 1.98 1.97 -------- --------- -------- -------- --------- Net increase in net assets resulting from operations................ 1.37 1.32 1.40 2.01 1.96 -------- --------- -------- -------- --------- Dividends to shareholders from Net investment income............................................. -- -- -- (0.01) -- -------- --------- -------- -------- --------- Net asset value, end of period...................................... $ 15.37 $ 15.28 $ 15.42 $ 14.00 $ 13.96 -------- --------- -------- -------- --------- -------- --------- -------- -------- --------- Total investment return(3).......................................... 9.79% 9.46% 9.99% 16.75% 16.33% -------- --------- -------- -------- --------- -------- --------- -------- -------- --------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........................... $12,795 $ 8,904 $ 1,398 $12,132 $ 9,928 Ratio of expenses to average net assets(1)(4)....................... 1.65% 2.15% 1.15% 1.65% 2.15% Ratio of net investment income/(loss) to average net assets(1)(4)... 0.21% (0.28)% 0.70% 0.38% (0.12)% Decrease reflected in above expense ratios and net investment income/(loss) due to waivers and reimbursements(4)................. 2.19% 2.15% 2.18% 1.87% 1.92% Portfolio turnover rate(6).......................................... 62.25% 62.25% 62.25% 93.45% 93.45% Average commission rate per share(7)................................ $0.0286 $0.0286 $0.0286 $0.0294 $0.0294 FOR THE PERIOD JUNE 20, 1995* THROUGH MARCH 31, 1996 --------------- CLASS Y --------------- PER SHARE OPERATING PERFORMANCE** Net asset value, beginning of period................................ $ 12.12 ------- Net investment income/(loss)(1)..................................... 0.07 Net realized and unrealized gain on investments and security sold short transactions(2).............................................. 1.87 ------- Net increase in net assets resulting from operations................ 1.94 ------- Dividends to shareholders from Net investment income............................................. (0.04) ------- Net asset value, end of period...................................... $ 14.02 ------- ------- Total investment return(3).......................................... 15.98%(5) ------- ------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........................... $ 1,293 Ratio of expenses to average net assets(1)(4)....................... 1.15% Ratio of net investment income/(loss) to average net assets(1)(4)... 0.97%(5) Decrease reflected in above expense ratios and net investment income/(loss) due to waivers and reimbursements(4)................. 2.04%(5) Portfolio turnover rate(6).......................................... 93.45% Average commission rate per share(7)................................ $0.0294
- --------- * Commencement of investment operations. Class Y shares commenced its initial public offering on June 20, 1995. ** Calculated based on shares outstanding on the first and last day of the respective periods, except for dividends and distributions, if any, which are based on the actual shares outstanding on the date of distribution. (1) Reflects waivers and reimbursements. (2) The amount shown for a share outstanding throughout the respective periods are not in accord with the changes in the aggregate gains and losses in investments during the respective periods because of the timing of sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective periods. (3) Total investment return does not consider the effects of sales loads 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, if any. Total investment returns are not annualized. (4) Annualized. (5) The total investment return and ratios for class Y shares are not necessarily comparable to those of class A and C shares, due to timing differences in the commencement of the initial public offering of class Y shares. (6) Not annualized. (7) Represents average commission rate per share charged to the Portfolio on purchases and sales of investments during each period. The accompanying notes are an integral part of the financial statements. 10 THE BEAR STEARNS FUNDS The Insiders Select Fund 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 has five separate portfolios in operation: three diversified portfolios, Large Cap Value Portfolio, Small Cap Value Portfolio and Total Return Bond Portfolio and two non-diversified portfolios, The Insiders Select Fund ("Insiders" or the "Portfolio") and S&P STARS Portfolio (collectively, the "Portfolios"). Each portfolio is treated as a separate entity for certain matters under the Investment Company Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. As of the date hereof, the Portfolio offers three classes of shares, which have been designated as class A, C and Y shares. ORGANIZATIONAL MATTERS--Prior to commencing investment operations on June 16, 1995, the Portfolio did not have any transactions other than those relating to organizational matters and the sale of one class A share and one class C share of beneficial interest of the Portfolio to Bear, Stearns & Co. Inc. ("Bear Stearns" or the "Distributor"). Costs of $181,965 which were incurred by the Portfolio in connection with the organization, registration with the Commission and initial public offering of its shares, have been deferred and are being amortized using the straight-line method over the period of benefit not exceeding sixty months, beginning with the commencement of investment operations of the Portfolio. In the event that the Distributor or any transferee of the Distributor redeems any of its original shares in the Portfolio prior to the end of the sixty month period, the proceeds of the redemption payable in respect of such shares shall be reduced by the pro rata share (based on the proportionate share of the original shares redeemed to the total number of original shares outstanding at the time of the redemption) of the unamortized deferred organization expenses as of the date of such redemption. In the event that the Portfolio is liquidated prior to the end of the sixty month period, the Distributor or the transferee of the Distributor shall bear the unamortized deferred organization expenses. PORTFOLIO VALUATION--The Portfolio calculates the net asset value of and completes orders to purchase or repurchase its shares of beneficial interest on each business day, with the exception of those days on which the New York Stock Exchange is closed. Portfolio securities, including covered call options written by the Portfolio, are valued at the last sale price on the securities exchange or national securities market on which such securities primarily are traded. Securities not listed on an exchange or national securities market, or securities in which there were no transactions, are valued at the average of the most recent bid and asked prices, except in the case of open short positions where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Short-term investments are carried at amortized cost, which approximates market value, unless this method does not represent fair value. Any securities or other assets for which recent market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Portfolio's Board of Trustees. Expenses and fees, including the investment advisory, administration and distribution fees, are accrued daily and taken into account for the purpose of determining the net asset value of the Portfolio's shares. Because of the differences in operating expenses incurred by each class, the per share net asset value of each class will 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 securities are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. The Portfolio's net investment income (other than distribution fees) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class at the beginning of the day (after adjusting for current capital share activity of the respective classes). 11 SHORT SELLING--When the Portfolio makes a short sale, an amount equal to the proceeds received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the short sale. Short sales represent obligations of the Portfolio to make future delivery of specific securities and, correspondingly, create an obligation to purchase the security at market prices prevailing at the later delivery date (or to deliver the security if already owned by the Portfolio). Upon the termination of a short sale, the Portfolio will recognize a gain, limited to the price at which the Portfolio sold the security short, if the market price is less than the proceeds originally received. The Portfolio will recognize a loss, unlimited in magnitude, if the market price at termination is greater than the proceeds originally received. As a result, short sales create the risk that the Portfolio's ultimate obligation to satisfy the delivery requirements may exceed the amount of the proceeds initially received or the liability recorded in the financial statements. The Portfolio has segregated $259,319 in separate accounts as collateral for open short sales. Security sold short at September 30, 1996:
MARKET UNREALIZED SHORT SALE PROCEEDS VALUE LOSS - -------------------------------------------------- -------- -------- ---------- Talbots, Inc...................................... $125,408 $126,000 $ 592
U.S. FEDERAL TAX STATUS--The Portfolio intends to distribute substantially all of its taxable income and to comply with the other requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required. In addition, by distributing during each calendar year substantially all of its ordinary income and capital gains, if any, the Portfolio intends not to be subject to a U.S. federal excise tax. DIVIDENDS AND DISTRIBUTIONS--The Portfolio intends to distribute at least annually to shareholders substantially all of its net investment income. Distribution of net realized gains, if any, will be declared and paid at least annually by the 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. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES During the six months ended September 30, 1996, Bear Stearns Funds Management Inc. ("BSFM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., serves as the investment adviser pursuant to an Investment Advisory Agreement with the Portfolio. BSFM has engaged Symphony Asset Management ("Symphony"), a subsidiary of BARRA, Inc., as the Portfolio's sub- investment adviser to manage the Portfolio's day-to-day investment activities. BSFM is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 1.00% of the Portfolio's average daily net assets from which BSFM, in turn, pays Symphony a monthly fee equal to an annual rate of 0.45% of the Portfolio's average daily net assets. In addition, starting in the thirteenth month of operation, BSFM is entitled to a monthly performance adjustment fee which may increase or decrease the total advisory fee by up to 0.50% per year of the value of the Portfolio's average daily net assets. During the six months ended September 30, 1996, BSFM (or the "Administrator") served as the administrator to the Portfolio pursuant to an Administration Agreement. The Administrator is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 0.15% of the Portfolio's average daily net assets. Under the terms of an Administrative Services Agreement with the Portfolio, PFPC Inc. provides certain administrative services to the Portfolio. For providing these services, PFPC Inc. is entitled to receive a monthly fee equal to an annual rate of 0.10% of the Portfolio's average daily net assets up to $200 million, 0.075% of the next $200 million, 0.05% of the next $200 million and 0.03% of net assets above $600 million, subject to a minimum annual fee of approximately $132,000 for the Portfolio. During the six months ended September 30, 1996, PFPC Inc. has voluntarily waived a portion of its fee. These fees are computed daily and paid monthly, and are subject to reduction in any year to the extent that the Portfolio's expenses (exclusive of brokerage commissions, distribution fees, taxes, interest and extraordinary items) exceed the most stringent limits prescribed by the laws or regulations of any state in which the Portfolio's shares are offered for sale, based on the average total net assets of the Portfolio. The Portfolio will not pay BSFM at a later time for any amounts it may waive, nor will the Portfolio reimburse BSFM for any amounts it may assume. During the six months ended September 30, 1996, the Adviser voluntarily limited the Portfolio's total operating expenses (exclusive of brokerage commissions, taxes, interest and extraordinary items) to a maximum annual level of 1.65% of the average daily net assets of 12 its class A shares, 2.15% of the average daily net assets of its class C shares and 1.15% of the average daily net assets of its class Y shares. As necessary, this limitation is effected by waivers by the Adviser of its advisory fees and reimbursements of expenses exceeding the advisory fee. For the six months ended September 30, 1996, the Adviser waived its advisory fee of $87,731. In addition, the Adviser reimbursed $125,166, in order to maintain the voluntary expense limitation. For the six months ended September 30, 1996, Bear Stearns, an affiliate of the Adviser and the Administrator, earned approximately $7,980 in brokerage commissions from portfolio transactions executed on behalf of the Portfolio. Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies Inc. and an affiliate of the Adviser and the Administrator, serves as custodian to the Portfolio. DISTRIBUTION PLAN The Fund, on behalf of the Portfolio, has entered into a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the Plan in effect for the six months ended September 30, 1996, the Portfolio paid Bear Stearns a fee at an annual rate of 0.50% for class A shares and 1.00% for class C shares. Such fees are based on the average daily net assets in each class of the Portfolio and are accrued daily and paid monthly or at such other intervals as the Board of Trustees may determine. The fees paid to Bear Stearns under the Plan are payable without regard to actual expenses incurred. For the six months ended September 30, 1996, Bear Stearns earned $78,028 in distribution fees. Bear Stearns uses these fees to pay dealers whose clients hold Portfolio shares and other distribution-related activities. In addition, as Distributor of the Portfolio, Bear Stearns collects the sales charges imposed on sales of the Portfolio's class A shares, and reallows a portion of such charges to dealers through which the sales are made. As a result of an undertaking by the Distributor, it reallowed all of the sales charges to its dealers selling Portfolio shares for the period June 16, 1995 (commencement of investment operations) through September 26, 1995 and the period February 15, 1996 through June 30, 1996. Furthermore, the Distributor has increased the compensation paid to its dealers selling Portfolio shares on net asset value transfers (purchases made by investors with the proceeds from a redemption of shares of an investment company sold with a sales charge or commission and not distributed by Bear Stearns) from 0.50% to 1.00% beginning April 15, 1996 until further notice. In addition, Bear Stearns advanced 1.00% in sales commissions on the sale of class C shares to dealers at the time of such sales. For the six months ended September 30, 1996, Bear Stearns has advised the Portfolio that it received approximately $62,000 in front-end sales charges resulting from sales of class A shares of the Portfolio. From these fees, Bear Stearns paid such sales charges to dealers which in turn paid commissions to sales persons. In addition, Bear Stearns has advised the Portfolio that during the period, it received approximately $13,000 in contingent deferred sales charges 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, 1996 was $19,944,229. Accordingly, the net unrealized appreciation of investments of $2,481,086 was composed of gross appreciation of $2,706,190 for those investments having an excess of value over cost and $225,104 of gross depreciation for those investments having an excess of cost over value. For the six months ended September 30, 1996, aggregate purchases and sales of investment securities (excluding short-term investments) for the Portfolio were $13,645,701 and $16,618,391, respectively. SHARES OF BENEFICIAL INTEREST The Portfolio offers class A, C and Y shares. Class A shares are sold with a front-end sales charge of up to 4.75%. Class C shares are sold with a contingent deferred sales charge ("CDSC") of 1.00% during the first year. There is no sales charge or CDSC on class Y shares, which are offered primarily to institutional investors. At September 30, 1996, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized for the Portfolio, of which Bear Stearns owned one class A share and one class C share of the Portfolio. 13 Transactions in the classes of shares of beneficial interest for the six months ended September 30, 1996 were as follows:
SALES REINVESTMENTS REPURCHASES ---------------------- --------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------- ----------- ------ ------ ------- ---------- Class A shares.................................... 151,228 $ 2,183,800 -- -- 185,123 $2,687,225 Class C shares.................................... 74,583 1,094,028 -- -- 203,247 2,913,698 Class Y shares.................................... 14,501 210,883 -- -- 16,068 230,964
Transactions in the classes of shares of beneficial interest for the period June 16, 1995 (commencement of investment operations) through March 31, 1996 were as follows:
SALES REINVESTMENTS REPURCHASES ---------------------- --------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------- ----------- ------ ------ ------- ---------- Class A shares.................................... 1,179,727 $15,128,116 537 $7,389 313,951 $4,288,010 Class C shares.................................... 801,060 10,158,978 -- -- 89,783 1,224,227 Class Y shares*................................... 116,322 1,533,904 226 3,111 24,357 325,759
- --------- *Class Y shares commenced its initial public offering on June 20, 1995. CREDIT AGREEMENT The Fund, on behalf of the Portfolio, has entered into a credit agreement with The First National Bank of Boston. S&P STARS Fund, S&P STARS Portfolio, Large Cap Value Portfolio, Small Cap Value Portfolio, Total Return Bond Portfolio and Bear Stearns Investment Trust, which consists of the Emerging Markets Debt Portfolio, are also parties to the credit agreement. The agreement provides that each party to the credit agreement is permitted to borrow in an amount up to 15% of the value of its total assets. Subject to Board approval and upon making necessary disclosure in its prospectus, each portfolio may, in accordance with the provisions of the credit agreement, borrow up to 25% of the value of its total assets, less all liabilities other than liabilities for borrowed money outstanding at the time. However, at no time is the aggregate outstanding principal amount of all loans to any of the portfolios to exceed $25,000,000. The line of credit will bear interest at the greater of: (i) the annual rate of interest announced from time to time from the bank at its head office as its Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or at the borrower's option, the rate quoted by The First National Bank of Boston. Each loan is payable on demand or upon termination of this credit agreement or, for money market loans, on the last day of the interest period and, in any event, not later than 14 days from the date the loan was advanced. The Portfolio uses the facility to borrow money only for temporary or emergency (not leveraging) purposes. The Portfolio had no outstanding loans under the line of credit agreement at September 30, 1996. 14 [Logo] The Bear Stearns Funds 245 PARK AVENUE NEW YORK, NY 10167 1.800.766.4111 Robert S. Reitzes Chairman of the Board Neil T. Eigen President Peter B. Fox Executive Vice President William J. Montgoris Executive Vice President Peter M. Bren Trustee Alan J. Dixon Trustee John R. McKernan, Jr. Trustee M.B. Oglesby, Jr. Trustee Stephen A. Bornstein Vice President Donalda L. Fordyce Vice President Frank J. Maresca Vice President and Treasurer Ellen T. Arthur Secretary Vincent L. Pereira Assistant Treasurer Eileen M. Coyle Assistant Secretary INVESTMENT ADVISER DISTRIBUTOR AND ADMINISTRATOR Bear, Stearns & Co. Inc. Bear Stearns Funds 245 Park Avenue Management Inc. New York, NY 10167 245 Park Avenue New York, NY 10167 CUSTODIAN TRANSFER AND DIVIDEND Custodial Trust Company DISBURSEMENT AGENT 101 Carnegie Center PFPC Inc. Princeton, NJ 08540 Bellevue Corporate Center 400 Bellevue Parkway Wilmington, DE 19809 COUNSEL INDEPENDENT AUDITORS Kramer, Levin, Naftalis & Frankel Deloitte & Touche 919 Third Avenue Deloitte & Touche House New York, NY 10022 Earlsfort Terrace Dublin 2, Ireland The financial information included herein is taken from the records of the Portfolio without examination by independent auditors who do not express an opinion thereon. This report is submitted for the general information of the shareholders of the Portfolio. It is not authorized for distribution to prospective investors in the Portfolio unless it is preceded or accompanied by a current prospectus which includes details regarding the Portfolio's objectives, policies, 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 the Portfolio will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than original cost. "Standard & Poor's-Registered Trademark-", "S&P -Registered Trademark-", and "STARS-Registered Trademark-" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Bear, Stearns & Co. Inc. S&P STARS Portfolio is not sponsored, managed, advised, sold or promoted by Standard & Poor's. BSF-R-011-03 S&P STARS PORTFOLIO SEMI-ANNUAL REPORT SEPTEMBER 30, 1996 THE BEAR STEARNS FUNDS S&P STARS Portfolio LETTER TO SHAREHOLDERS November 12, 1996 Dear Shareholders, We are pleased to present the semi-annual report to shareholders for the S&P STARS Portfolio (the "Portfolio") for the six months ended September 30, 1996. The Portfolio's total return for the period April 5, 1995 (commencement of investment operations) through September 30, 1996, was 39.49% and 38.36% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively. The S&P 500 (Composite) Index ("S&P 500") returned 40.84% for the same period. The average annual total return at September 30, 1996 for the Portfolio was 24.97% and 24.29% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively. The S&P 500's average annual total return was 25.78% for the same period. For the six months ended September 30, 1996, class A and C shares returned 9.25% and 9.02% (without giving effect to sales charges and contingent deferred sales charges, if any), respectively, versus 7.72% for the S&P 500. For the period August 7, 1995 (commencement of initial public offering) through September 30, 1996, class Y shares gained 19.43% compared to 26.36% for the S&P 500. The average annual total return at September 30, 1996 for class Y shares was 16.64% compared to 22.49% for the S&P 500. For the six months ended September 30, 1996, class Y shares gained 9.49% compared to 7.72% for the S&P 500. Further performance data for each class of shares for this reporting period is available in the "Financial Highlights" section of this report. Based on recent economic data and discussions with several U.S. companies, we continue to believe that U.S. economic growth for the second half of the year will slow down. However, we also believe that inflation and interest rates will remain subdued and we continue to look for growth stocks which will benefit in this economic climate. During the last six months, the Portfolio was heavily invested in technology and growth stocks. We also maintained modest positions in oil services and financial stocks. The Portfolio had only a limited exposure to cyclicals and consumer durables. The volatility of the Portfolio reflects the sharp movement in technology stocks. Companies such as Adaptec, Inc., Computer Associates International, Inc. and Sterling Software, Inc., to name a few, experienced sharp sell-offs in the quarter only to hit new highs by the end of September. We continue to hold large positions in Adaptec, Inc., Computer Associates International, Inc., Intel Corp. and International Business Machines Corp. We believe the fundamentals of these and other technology stocks remain strong and we look for continued strong earnings growth in this sector. We believe that Windows NT and new PC developments will contribute to a new wave of corporate upgrading for computers in the U.S. Furthermore, we believe that demand outside the U.S. will remain robust for these products. We continue to maintain a significant position in healthcare-related companies. We believe companies in this industry will show improved results in their pharmaceutical operations. Additionally, we are overweighting the oil service, exploration and production stocks. These stocks should benefit from increased activity from the oil companies, which are actively exploring to increase their depleted reserves. We also have a market weighting in banks with Citicorp remaining the most significant holding. In conclusion, we continue to try to identify companies that have growth characteristics for the next 6 to 12 months. We appreciate your support and would be pleased to respond to any questions or comments. If you have any questions concerning the Portfolio, please call 1-800-766-4111. Sincerely, [SIGNATURE] Robert S. Reitzes Chairman of the Board The Bear Stearns Funds Portfolio Manager S&P STARS Master Series 1 THE BEAR STEARNS FUNDS S&P STARS Portfolio COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P 500 (COMPOSITE) NATIONAL CONSUMER CLASS A SHARES CLASS C SHARES INDEX PRICE INDEX 4/5/95 $9,525 $10,000 $10,000 $10,000 6/30/95 $10,573 $11,083 $10,842 $10,079 9/30/95 $11,446 $11,975 $11,704 $10,126 12/31/95 $11,648 $12,170 $12,409 $10,178 3/31/96 $12,162 $12,691 $13,075 $10,284 6/30/96 $12,307 $12,837 $13,661 $10,364 9/30/96 $13,287 $13,836 $14,084 $10,430
AVERAGE ANNUAL TOTAL RETURN INCLUDING FEE WAIVERS AND EXPENSE EXCLUDING FEE WAIVERS AND REIMBURSEMENTS EXPENSE REIMBURSEMENTS ----------------------- ------------------------- S&P STARS Portfolio(4) Class A shares(5)........................... 20.96% 19.99% Class C shares.............................. 24.29 23.32 Class Y shares(2)........................... 16.64 16.01 S&P 500 (Composite) Index(3).................... 25.78 -- National Consumer Price Index(3)................ 2.86 --
- --------- (1) For the period of April 5, 1995 (commencement of investment operations) through September 30, 1996. (2) The return of class Y shares (for which August 7, 1995 was the initial public offering date) would have been higher than class A and C shares if operations were commenced on the same day. The higher return is due to the fact that there is no sales load, CDSC or 12b-1 fee charged to class Y shares. (3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio and reflects all Portfolio expenses (class A shares reflect the initial maximum 4.75% sales load). Investors should note that the Portfolio is a professionally managed mutual fund while the indices are either unmanaged and do not incur sales charges or expenses and/or are not available for investment. Performance of the indices corresponds to the performance of class A and C shares. (4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to voluntarily reimburse a portion of the Portfolio's operating expenses to maintain the expense limitation, as set forth in the notes to financial statements. (5) Reflects the initial maximum 4.75% sales load. Without applicable sales load, the total returns would have been 24.97% including fee waivers and expense reimbursements and 23.97% excluding fee waivers and expense reimbursements. CDSC -- Contingent Deferred Sales Charge. 2 THE BEAR STEARNS FUNDS S&P STARS Master Series SEPTEMBER 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- SECTOR ALLOCATION (AS A PERCENTAGE OF NET ASSETS) - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Other 6.94% Banks 3.13% Chemicals & Fertilizers 7.38% Computers & Office Equipment 8.40% Computer Networks 4.91% Computer Services 13.19% Cosmetics & Soap 2.45% Drug & Hospital Supplies 12.70% Electrical Equipment 7.18% Electronics 16.47% Food & Beverages 6.89% Healthcare 4.81% Restaurants 3.03% Retailing 2.52%
- -------------------------------------------------------------------------------- TOP TEN HOLDINGS - --------------------------------------------------------------------------------
PERCENT OF RANK HOLDING SECTOR NET ASSETS - ------------------------------------------------------ --------------------------- ---------- 1. General Electric Co. ............................. Electrical Equipment 7.18 2. Adaptec, Inc. .................................... Electronics 7.10 3. Computer Associates International, Inc. .......... Computer Services 6.90 4. Intel Corp. ...................................... Electronics 6.61 5. Sterling Software, Inc. .......................... Computer Services 6.29 6. Bay Networks, Inc. ............................... Computer Networks 4.91 7. Columbia/HCA Healthcare Corp. .................... Healthcare 4.81 8. Merck & Co., Inc. ................................ Drugs & Hospital Supplies 4.76 9. Pfizer Inc. ...................................... Drugs & Hospital Supplies 4.46 10. Crompton & Knowles Corp. ......................... Chemicals & Fertilizers 4.43
3 THE BEAR STEARNS FUNDS S&P STARS Portfolio STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996 (UNAUDITED) ASSETS Investment in S&P STARS Master Series ("Master Series"), at value.................... $ 88,619,281 Receivable for Portfolio shares sold............ 271,439 Receivable for investment sold in Master Series......................................... 290,257 Deferred organization expenses and other assets......................................... 178,954 ------------- Total assets.............................. 89,359,931 ------------- LIABILITIES Payable for Portfolio shares repurchased........ 290,257 Payable for investments purchased in Master Series......................................... 271,439 Distribution fee payable (class A and C shares)........................................ 130,589 Administration fee payable...................... 22,370 Accrued expenses................................ 67,952 ------------- Total liabilities......................... 782,607 ------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized)...... 5,442 Paid-in capital................................. 73,278,800 Accumulated net investment loss from Master Series......................................... (314,068) Accumulated net realized gain from Master Series......................................... 6,227,454 Net unrealized appreciation from Master Series......................................... 9,379,696 ------------- Net assets................................ $ 88,577,324 ------------- CLASS A Net assets...................................... $ 47,964,438 ------------- Shares of beneficial interest outstanding....... 2,942,931 ------------- Net asset value per share....................... $16.30 Maximum offering price per share (net asset value plus sales charge of 4.75%* of the offering price)................................ $17.11 CLASS C Net assets...................................... $ 29,830,621 ------------- Shares of beneficial interest outstanding....... 1,841,430 ------------- Net asset value and offering price per share**........................................ $16.20 CLASS Y Net assets...................................... $ 10,782,265 ------------- Shares of beneficial interest outstanding....... 657,692 ------------- Net asset value, offering and redemption price per share...................................... $16.39
- -------- * 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. 4 THE BEAR STEARNS FUNDS S&P STARS Portfolio STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) INVESTMENT INCOME Allocated net investment income from Master Series......................................... $ 288,370 ---------- EXPENSES Distribution fees - class A..................... 115,674 Distribution fees - class C..................... 144,182 Transfer agent fees and expenses................ 87,364 Administration fees............................. 63,484 Accounting fees................................. 33,090 Federal and state registration fees............. 31,676 Legal and auditing fees......................... 26,773 Reports and notices to shareholders............. 22,562 Amortization of organization expenses........... 20,415 Trustees' fees and expenses..................... 3,761 Custodian fees and expenses..................... 2,507 Other........................................... 3,510 ---------- Total expenses............................ 554,998 ---------- Net investment loss............................. (266,628) ---------- NET REALIZED AND UNREALIZED GAIN FROM MASTER SERIES Net realized gain............................... 4,212,668 Net change in unrealized appreciation........... 3,376,679 ---------- Net realized and unrealized gain from Master Series......................................... 7,589,347 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................................... $7,322,719 ---------- ----------
The accompanying notes are an integral part of the financial statements. 5 THE BEAR STEARNS FUNDS S&P STARS Portfolio STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FOR THE SIX APRIL 5, MONTHS ENDED 1995* SEPTEMBER 30, THROUGH 1996 MARCH 31, (UNAUDITED) 1996 ------------- ------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment loss............................. $ (266,628) $ (47,440) Net realized gain from Master Series............ 4,212,668 3,768,620 Net change in unrealized appreciation from Master Series.................................. 3,376,679 6,003,017 ------------- ------------- Net increase in net assets resulting from operations..................................... 7,322,719 9,724,197 ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class Y shares................................ -- (14,755) ------------- ------------- Net realized capital gains Class A shares................................ -- (994,461) Class C shares................................ -- (560,676) Class Y shares................................ -- (183,942) ------------- ------------- -- (1,739,079) ------------- ------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares............ 16,220,680 86,911,640 Cost of shares repurchased...................... (16,874,591) (14,635,820) Shares issued in reinvestment of dividends...... -- 1,537,317 ------------- ------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions................................... (653,911) 73,813,137 ------------- ------------- Total increase in net assets.................... 6,668,808 81,783,500 NET ASSETS Beginning of period............................. 81,908,516 125,016 ------------- ------------- End of period................................... $ 88,577,324 $ 81,908,516 ------------- ------------- ------------- -------------
- -------- * Commencement of investment operations. The accompanying notes are an integral part of the financial statements. 6 THE BEAR STEARNS FUNDS S&P STARS Portfolio FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------- Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD ENDED APRIL 5, 1995* SEPTEMBER 30, 1996 THROUGH (UNAUDITED) MARCH 31, 1996 ------------------------------ ------------------------------ CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y -------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE** Net asset value, beginning of period.......................... $ 14.92 $ 14.86 $ 14.97 $ 12.00 $ 12.00 $ 14.13 -------- -------- -------- -------- -------- -------- Net investment income/(loss)(1)................ (0.04) (0.08) -- -- (0.06) 0.07 Net realized and unrealized gain on investment(2)................ 1.42 1.42 1.42 3.31 3.28 1.20 -------- -------- -------- -------- -------- -------- Net increase in net assets resulting from operations....... 1.38 1.34 1.42 3.31 3.22 1.27 -------- -------- -------- -------- -------- -------- Dividends and distributions to shareholders from Net investment income.......... -- -- -- -- -- (0.03) Net realized capital gains..... -- -- -- (0.39) (0.36) (0.40) -------- -------- -------- -------- -------- -------- -- -- -- (0.39) (0.36) (0.43) -------- -------- -------- -------- -------- -------- Net asset value, end of period... $ 16.30 $ 16.20 $ 16.39 $ 14.92 $ 14.86 $ 14.97 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total investment return for the period(3)....................... 9.25% 9.02% 9.49% 27.68% 26.91% 9.09%(6) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted)........................ $ 47,964 $ 29,831 $ 10,782 $ 45,049 $ 28,081 $ 8,779 Ratio of expenses to average net assets(1)(4).................... 1.50% 2.00% 1.00% 1.50% 2.00% 1.00% Ratio of net investment income/(loss) to average net assets(1)(4).................... (0.51)% (1.02)% -- (0.01)% (0.45)% 0.82%(6) Decrease reflected in above expense ratios and net investment income/(loss) due to waivers and reimbursements(4)(5)............ 0.74% 0.75% 0.76% 0.89% 0.92% 0.99%(6)
- -------- * Commencement of investment operations. Class Y shares commenced its initial public offering on August 7, 1995. ** Calculated based on shares outstanding on the first and last day of the respective periods, except for dividends and distributions, if any, which are based on actual shares outstanding on the dates of distributions. (1) Reflects waivers and reimbursments. (2) The amounts shown for a share outstanding throughout the respective periods are not in accord with the change in the aggregate gains and losses in investments during the periods because of the timing of sales and repurchases of Portfolio shares in relation to fluctuating net asset value during the respective periods. (3) Total investment return does not consider the effects of sales loads 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, if any. Total investment returns are not annualized. (4) Annualized. (5) Includes Portfolio's share of Master Series' expenses. (6) The total investment return and ratios for class Y shares are not necessarily comparable to those of class A or C shares, due to timing differences in the commencement of the initial public offering of class Y shares. The accompanying notes are an integral part of the financial statements. 7 THE BEAR STEARNS FUNDS S&P STARS 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 has five portfolios in operation: three diversified portfolios, Large Cap Value Portfolio, Small Cap Value Portfolio and Total Return Bond Portfolio, and two non-diversified portfolios, The Insiders Select Fund and S&P STARS Portfolio. As of the date hereof, S&P STARS Portfolio (the "Portfolio") offers three classes of shares which have been designated as class A, C and Y shares. The Portfolio invests all of its assets in S&P STARS Master Series (the "Master Series"), a separate series of S&P STARS Fund (the "Master Fund"), which has the same objective as the Portfolio. The Master Fund was organized as a Delaware business trust on October 5, 1994 and is registered under the Investment Company Act as an open-end management investment company. The Master Fund currently has one fund in operation, the Master Series, a non-diversified fund. The value of the Portfolio's investment in the Master Series reflects the Portfolio's proportionate beneficial interest in the net assets of the Master Series (99.9% at September 30, 1996). The performance of the Portfolio is directly affected by the performance of the Master Series. The financial statements of the Master Series, including the portfolio of investments, should be read in conjunction with the Portfolio's financial statements. ORGANIZATIONAL MATTERS--Prior to commencing investment operations on April 5, 1995, the Portfolio had no transactions other than those relating to organizational matters and the sale of 5,209 class A shares and 5,209 class C shares of beneficial interest of S&P STARS Portfolio to Bear, Stearns & Co. Inc. ("Bear Stearns" or the "Distributor"). Costs of $203,596 incurred by the Portfolio in connection with the organization, its registration with the Commission and with various states and the initial public offering of its shares have been deferred and are being amortized, using the straight-line method over the period of benefit not exceeding sixty months, beginning with the commencement of investment operations of the Portfolio. In the event that the Distributor or any transferee of the Distributor redeems any of its original shares prior to the end of the sixty month period, the proceeds of the redemption payable in respect of such shares shall be reduced by the pro rata share (based on the proportionate share of the original shares redeemed to the total number of original shares outstanding at the time of the redemption) of the unamortized deferred organization expenses as of the date of such redemption. In the event that the Portfolio is liquidated prior to the end of the sixty month period, the Distributor or the transferee of the Distributor shall bear the unamortized deferred organization expenses. INVESTMENT VALUATION--The Portfolio invests all of its assets in the Master Series, rather than in a portfolio of securities. Valuation of securities by the Master Series is discussed in the Master Series' Notes to Financial Statements which are included elsewhere in this report. Expenses and fees, including administrative and distribution fees are accrued daily and taken into account for the purposes of determining the net asset value of the Portfolio's shares. Because of the differences in operating expenses incurred by each class the per share net asset value of each class will differ. INVESTMENT INCOME--The Portfolio accrues its share of income, net of Master Series' expenses, daily on its investment in the Master Series. Net investment income and realized and unrealized gains and losses from investment transactions conducted by the Master Series, are allocated to the Portfolio based on the Portfolio's proportional beneficial interest in the net assets of the Master Series. The Portfolio's allocated net investment income (other than distribution fees) and realized and unrealized gains and losses from the Master Series is further allocated each day to each class of shares based upon the relative proportion of net assets of each class at the beginning of the day (after adjusting for current capital share activity of the respective classes). 8 U.S. FEDERAL TAX STATUS--The Portfolio intends to distribute substantially all of its taxable income and to comply with the other requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required. In addition, by distributing during each calendar year substantially all of its ordinary income and capital gains, if any, the Portfolio intends not to be subject to a U.S. federal excise tax. DIVIDENDS AND DISTRIBUTIONS--The Portfolio intends to distribute at least annually to shareholders substantially all of its net investment income. Distribution of net realized gains, if any, will be declared and paid at least annually by the 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. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES During the six months ended September 30, 1996, Bear Stearns Funds Management Inc. ("BSFM" or the "Administrator") serves as administrator to the Portfolio pursuant to an Administration Agreement. The Administrator is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 0.15% of the Portfolio's average daily net assets. Under the terms of an Administrative Services Agreement with the Portfolio, PFPC Inc. provides certain administrative services to the Portfolio. For providing these services, PFPC Inc. is entitled to receive from the Portfolio a monthly fee of $5,500. These fees are computed daily and paid monthly, and are subject to reduction in any year to the extent that the Portfolio's expenses (exclusive of brokerage commissions, distribution fees, taxes, interest and extraordinary items) exceed the most stringent limits prescribed by the laws or regulations of any state in which the Portfolio's shares are offered for sale, based on the average total net assets of the Portfolio. During the six months ended September 30, 1996, BSFM as the Master Series' Adviser (the "Adviser") has voluntarily undertaken to limit the Portfolio's total operating expenses (other than brokerage commissions, taxes, interest and extraordinary items) to the extent that total Portfolio operating expenses exceeded 1.50% of the average daily net assets of the Portfolio's class A shares, 2.00% of the average daily net assets of the Portfolio's class C shares and 1.00% of the average daily net assets of the Portfolio's class Y shares. As necessary, this limitation is effected by waivers by the Adviser of its advisory fees (Master Series only) and reimbursements of expenses exceeding the advisory fee (Master Series and Portfolio). The Portfolio will not pay the Adviser at a later time for any amounts it may waive, nor will the Portfolio reimburse the Adviser for any amounts it may assume. Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies Inc. and an affiliate of the Administrator, serves as custodian to the Portfolio. DISTRIBUTION PLAN The Fund, on behalf of the Portfolio, has entered into a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the Plan in effect for the six months ended September 30, 1996, the Portfolio paid Bear Stearns a fee at an annual rate of 0.50% for class A shares and 1.00% for class C shares. Such fees are based on the average daily net assets in each class of the Portfolio and are accrued daily and paid monthly or at such other intervals as the Board of Trustees may determine. The fees paid to Bear Stearns are payable without regard to actual expenses incurred. For the period April 1, 1996 through September 30, 1996, Bear Stearns earned $259,856 in distribution fees. Bear Stearns uses these fees primarily to pay dealers whose clients hold Portfolio shares and other distribution-related activities. In addition, as Distributor of the Portfolio, Bear Stearns collects the sales charges imposed on sales of the Portfolio's class A shares, and reallows a portion of such charges to dealers through which the sales are made. In addition, Bear Stearns pays 1.00% in sales commissions on the sale of class C shares to dealers at the time of such sales. For the six months ended September 30, 1996, Bear Stearns has advised the Portfolio that it received approximately $284,000 in front-end sales charges resulting from sales of class A shares of the Portfolio. From these fees, Bear Stearns paid such sales charges to 9 dealers which in turn paid commissions to sales persons. Bear Stearns has advised the Portfolio that for the six months ended September 30, 1996, it received approximately $23,000 in contingent deferred sales charges paid upon certain redemptions by class C shareholders of the Portfolio. INVESTMENT TRANSACTIONS Additions and reductions to the Portfolio's investment in the Master Series amounted to $16,220,680 and $17,401,257 respectively. SHARES OF BENEFICIAL INTEREST The Portfolio offers class A, C and Y shares. Class A shares are sold with a front-end sales charge of up to 4.75%. Class C shares are sold with a contingent deferred sales charge ("CDSC") of 1.00% during the first year. There is no sales charge or CDSC on class Y shares, which are offered primarily to institutional investors. At September 30, 1996, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized of which Bear Stearns owned 5,209 class A shares and 5,209 class C shares. Transactions in the classes of shares of beneficial interest for the six months ended September 30, 1996 were as follows:
SALES REPURCHASES -------------------- --------------------- SHARES AMOUNT SHARES AMOUNT ------- ---------- ------- ----------- Class A shares........................................................ 656,613 $9,960,447 733,558 $10,935,895 Class C shares........................................................ 257,757 3,861,238 305,406 4,581,727 Class Y shares........................................................ 159,901 2,398,995 88,739 1,356,969
Transactions in the classes of shares of beneficial interest for the period April 5, 1995 (commencement of investment operations) through March 31, 1996 were as follows:
SALES REINVESTMENTS REPURCHASES ----------------------- ----------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------- ----------- ------ -------- ------- ---------- Class A shares.......................... 3,601,121 $48,488,374 58,847 $850,924 640,092 $9,215,429 Class C shares.......................... 2,211,148 29,952,540 34,906 503,689 356,975 5,104,093 Class Y shares*......................... 595,898 8,595,742 12,618 182,704 21,986 316,298
- --------- *Class Y shares commenced its initial public offering on August 7, 1995. CREDIT AGREEMENT The Fund, on behalf of the Portfolio, has entered into a credit agreement with The First National Bank of Boston. S&P STARS Fund, Large Cap Value Portfolio, Small Cap Value Portfolio, Total Return Bond Portfolio, The Insiders Select Fund and Bear Stearns Investment Trust, which consists of the Emerging Markets Debt Portfolio, are also parties to the credit agreement. The agreement provides that each portfolio as a party to the credit agreement is permitted to borrow in an amount up to 15% of the value of its total assets. Subject to Board approval and upon making necessary disclosure in its prospectus, each portfolio may, in accordance with the provisions of the credit agreement, borrow up to 25% of the value of its total assets, less all liabilities other than liabilities for borrowed money outstanding at the time. However, at no time shall the aggregate outstanding principal amount of all loans to any of the portfolios exceed $25,000,000. The line of credit will bear interest at the greater of: (i) the annual rate of interest announced from time to time from the bank at its head office as its Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or, at the borrower's option, the rate quoted by The First National Bank of Boston. Each loan is payable on demand or upon termination of this credit agreement or, for money market loans, on the last day of the interest period and, in any event, not later than 14 days from the date the loan was advanced. The Portfolio uses this facility to borrow money only for temporary or emergency (not leveraging) purposes. The Portfolio had no amount outstanding under the line of credit agreement at September 30, 1996. 10 THE BEAR STEARNS FUNDS S&P STARS Master Series PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
---------------------------------------------------------- MARKET SHARES+ VALUE - ------------------------------------------------------------- COMMON STOCKS--98.41% BANKS - 3.13% 17,500 Bank of New York Co., Inc. ...... $ 514,062 25,000 Citicorp......................... 2,265,625 ----------- 2,779,687 ----------- CHEMICALS & FERTILIZERS - 7.38% 240,000 Crompton & Knowles Corp. ........ 3,930,000 40,000 Rohm & Haas Co.++................ 2,620,000 ----------- 6,550,000 ----------- COMPUTER NETWORKS - 4.91% 160,000 Bay Networks, Inc.+++ ........... 4,360,000 ----------- COMPUTER SERVICES - 13.19% 102,500 Computer Associates International, Inc. ............. 6,124,375 73,000 Sterling Software, Inc. ......... 5,575,375 ----------- 11,699,750 ----------- COMPUTERS & OFFICE EQUIPMENT - 8.40% 95,000 Cheyenne Software Inc.+++*....... 2,042,500 31,500 International Business Machines Corp. ........................... 3,921,750 35,000 Oracle Systems Corp. ............ 1,489,688 ----------- 7,453,938 ----------- CONTAINERS - 1.70% 36,600 Fisher Scientific International Inc.++++......................... 1,509,750 ----------- COSMETICS & SOAP - 2.45% 25,000 Colgate-Palmolive Co. ........... 2,171,875 ----------- DRUGS & HOSPITAL SUPPLIES - 12.70% 49,000 Amgen Inc.*...................... 3,093,125 60,000 Merck & Co., Inc. ............... 4,222,500 50,000 Pfizer Inc. ..................... 3,956,250 ----------- 11,271,875 ----------- - ------------------------------------------------------------- MARKET SHARES+ VALUE - ------------------------------------------------------------- ELECTRICAL EQUIPMENT - 7.18% 70,000 General Electric Co. ............ $ 6,370,000 ----------- ELECTRONICS - 16.47% 105,000 Adaptec, Inc.+++*................ 6,300,000 2,000 Intel Corp.+++................... 190,875 100,000 Intel Corp. Warrants expiring 3/09/98+++*...................... 5,675,000 37,500 Microchip Technology Inc.++++*... 1,401,563 10,000 Oaks Industries Inc.*............ 332,500 15,000 SGS - Thompson Microelecs N.V.*............................ 710,625 ----------- 14,610,563 ----------- ENTERTAINMENT & LEISURE - 0.69% 40,000 Comcast Corp., Class A........... 615,000 ----------- FOOD & BEVERAGES - 6.89% 90,000 Interstate Bakeries Corp.++...... 3,285,000 100,000 Pepsico, Inc.+++................. 2,825,000 ----------- 6,110,000 ----------- HEALTHCARE - 4.81% 75,000 Columbia/HCA Healthcare Corp. ... 4,265,625 ----------- MISCELLANEOUS INDUSTRIALS - 0.43% 25,000 Mariner Health Group, Inc.*...... 384,375 ----------- OIL & NATURAL GAS - 1.51% 45,000 Apache Devices Inc. ............. 1,338,750 ----------- OIL - OFFSHORE DRILLING - 1.02% 57,500 Global Marine Inc.*.............. 905,625 ----------- RESTAURANTS - 3.03% 125,000 Wendy's International, Inc. ..... 2,687,500 -----------
The accompanying notes are an integral part of the financial statements. 11 THE BEAR STEARNS FUNDS S&P STARS Master Series PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
- ------------------------------------------------------------- MARKET SHARES+ VALUE - ------------------------------------------------------------- COMMON STOCKS (CONTINUED) RETAILING - 2.52% 50,000 Sears, Roebuck & Co. ............ $ 2,237,500 ----------- Total Common Stocks (cost - $77,929,983)............. 87,321,813 Other assets in excess of liabilities - 1.59%........... 1,413,490 ----------- Net Assets - 100.00%............. $88,735,303 ----------- -----------
- --------- + Unless otherwise indicated all common stocks are ranked five stars. ++ Currently ranked three stars. +++ Currently ranked four stars. ++++ Not ranked by STARS. * Non-income producing security. S&P STARS RANKINGS: Five stars - Buy - Expected to be among the best performers over the next twelve months and to rise in price. Four stars - Accumulate - Expected to be an above-average performer. Three stars - Hold - Expected to be an average performer. Two stars - Avoid - Expected to be a below-average performer. One star - Sell - Expected to be a well-below-average performer and to fall in price. The accompanying notes are an integral part of the financial statements. 12 THE BEAR STEARNS FUNDS S&P STARS Master Series STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996 (UNAUDITED) ASSETS Investments, at value (cost - $77,929,983)...... $ 87,321,813 Cash............................................ 9,070 Receivable for investments sold................. 5,009,300 Receivable for beneficial interests sold........ 271,439 Dividends and interest receivable............... 64,807 Receivable from investment adviser.............. 27,154 Deferred organization expenses and other assets......................................... 77,653 -------------- Total assets.............................. 92,781,236 -------------- LIABILITIES Loan payable.................................... 519,879 Payable for investments purchased............... 3,171,669 Payable for beneficial interests repurchased.... 290,257 Administration and accounting fees payable...... 16,500 Custodian fee payable........................... 8,457 Accrued expenses................................ 39,171 -------------- Total liabilities......................... 4,045,933 -------------- NET ASSETS Net proceeds from capital contributions and withdrawals.................................... 79,343,473 Net unrealized appreciation on investments...... 9,391,830 -------------- Net assets applicable to investors' beneficial interests....................... $ 88,735,303 -------------- --------------
The accompanying notes are an integral part of the financial statements. 13 THE BEAR STEARNS FUNDS S&P STARS Master Series STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) INVESTMENT INCOME Dividends....................................... $ 384,549 Interest........................................ 32,162 ----------- 416,711 ----------- EXPENSES Advisory fees................................... 318,040 Administration and accounting fees.............. 54,952 Custodian fees and expenses..................... 23,060 Legal and auditing fees......................... 16,545 Amortization of organization expenses........... 10,028 Trustees' fees and expenses..................... 10,028 Insurance expenses.............................. 8,243 Other........................................... 2,757 ----------- Total expenses before waivers and reimbursements............................. 443,653 Less: waivers and reimbursements.......... (315,677) ----------- Total expenses after waivers and reimbursements............................. 127,976 ----------- Net investment income........................... 288,735 ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS, SECURITIES SOLD SHORT AND OPTION TRANSACTIONS Net realized gain/(loss) from: Investments............................... 4,276,245 Option transactions....................... (1,540) Securities sold short..................... (60,724) Net change in unrealized appreciation on investments, securities sold short and option transactions................................... 3,385,456 ----------- Net realized and unrealized gain on investments, securities sold short and option transactions................................... 7,599,437 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................................... $ 7,888,172 ----------- -----------
The accompanying notes are an integral part of the financial statements. 14 THE BEAR STEARNS FUNDS S&P STARS Master Series STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FOR THE PERIOD SEPTEMBER 30, APRIL 5, 1995* 1996 THROUGH (UNAUDITED) MARCH 31, 1996 --------------- --------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income..................................... $ 288,735 $ 695,588 Net realized gain from investments, securities sold short and option transactions.................................. 4,213,981 3,769,370 Net change in unrealized appreciation on investments...... 3,385,456 6,006,374 --------------- --------------- Net increase in net assets resulting from operations...... 7,888,172 10,471,332 --------------- --------------- CAPITAL TRANSACTIONS Contributions............................................. 16,220,680 86,999,990 Withdrawals............................................... (17,401,257) (15,568,630) --------------- --------------- Net increase/(decrease) in net assets derived from capital transactions............................................. (1,180,577) 71,431,360 --------------- --------------- Total increase in net assets.............................. 6,707,595 81,902,692 NET ASSETS Beginning of period....................................... 82,027,708 125,016 --------------- --------------- End of period............................................. $88,735,303 $82,027,708 --------------- --------------- --------------- ---------------
- -------- * Commencement of investment operations. The accompanying notes are an integral part of the financial statements. 15 THE BEAR STEARNS FUNDS S&P STARS Master Series FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------- Contained below are ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD ENDED APRIL 5, 1995* SEPTEMBER 30, 1996 THROUGH MARCH (UNAUDITED) 31, 1996 ------------------ ---------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted)....... $88,735 $82,028 Ratio of expenses to average net assets(1)(2)... 0.30% 0.19% Ratio of net investment income to average net assets(1)(2)................................... 0.68% 1.36% Decrease reflected in above expense ratios due to waivers and reimbursements(2)............... 0.74% 0.91% Portfolio turnover rate(3)...................... 111.48% 295.97% Average commission rate per share(4)............ $0.0636 $0.0603
- -------- * Commencement of investment operations. (1) Reflects waivers and reimbursements. (2) Annualized. (3) Not annualized. (4) Represents average commission rate per share charged to the Master Series on purchases and sales of investments during each period. The accompanying notes are an integral part of the financial statements. 16 THE BEAR STEARNS FUNDS S&P STARS Fund S&P STARS Master Series NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES S&P STARS Fund (the "Master Fund") was organized as a Delaware business trust on October 5, 1994 and is registered with the Securities and Exchange Commission (the "Commission") under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end management investment company. The Master Fund is a "series fund" which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the Investment Company Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. The Master Fund currently has one portfolio in operation, S&P STARS Master Series (the "Master Series"), a non-diversified portfolio. ORGANIZATIONAL MATTERS--Prior to commencing investment operations on April 5, 1995, the Master Fund had no transactions other than those relating to organizational matters and the sale of 10,418 shares of beneficial interest of the Master Series to S&P STARS Portfolio (the "Portfolio") of The Bear Stearns Funds. Costs of approximately $100,000 incurred by the Master Fund in connection with the organization and its registration with the Commission have been deferred and are being amortized, using the straight-line method over the period of benefit not exceeding sixty months, beginning with the commencement of investment operations of the Master Series. The Master Series commenced investment operations on April 5, 1995. In the event that the Portfolio or any transferee of the Portfolio redeems any of its original shares prior to the end of the sixty month period, the proceeds of the redemption payable in respect of such shares shall be reduced by the pro rata share (based on the proportionate share of the original shares redeemed to the total number of original shares outstanding at the time of the redemption) of the unamortized deferred organization expenses as of the date of such redemption. In the event that the Master Series is liquidated prior to the end of the sixty month period, the Portfolio or the transferee of the Portfolio shall bear the unamortized deferred organization expenses. PORTFOLIO VALUATION--Securities, including covered call options written by the Master Series, are valued at the last sale price on the securities exchange or national securities market on which such securities primarily are traded. Securities not listed on an exchange or national securities market, or securities in which there were no transactions, are valued at the average of the most recent bid and asked prices, except in the case of open short positions where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Securities which mature in 60 days or less are valued at amortized cost which approximates market value, unless this method does not represent fair value. Expenses and fees, including the investment advisory, administration fees and distribution fees, are accrued daily and taken into account for the purposes of determining the net asset value of the Master Series' shares. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Master Series' investment transactions are recorded on the trade date (the date on which the order to buy or sell is executed). Realized gains and losses from securities are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. OPTIONS WRITING--When the Master Series writes an option, an amount equal to the premium received by the Master Series is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from writing options which expire unexercised are recorded by the Master Series on the expiration date as realized gains from option transactions. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the 17 underlying securities in determining whether the Master Series has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Master Series. The Master Series' use of written options involves, to varying degrees, elements of market risk in excess of the amount recognized in the statement of assets and liabilities. The contract or notional amounts reflect the extent of the Master Series' involvement in these financial instruments. In writing an option, the Master Series bears the market risk of an unfavorable change in the price of the security underlying the written option. Exercise of an option written by the Master Series could result in the Master Series selling or buying a security at a price different from the current market value. The Master Series' activities in written options are conducted through regulated exchanges which do not result in counterparty credit risks. Option activity for the six months ended September 30, 1996 was as follows:
PUT OPTIONS ----------------------- CONTRACTS PREMIUMS --------- ----------- Outstanding at beginning of period.................................... -- -- Options purchased..................................................... 70 $ 1,960 Options closed or expired............................................. (70 ) (1,960) -- ----------- Outstanding at end of period.......................................... -- -- -- -----------
SHORT SELLING--When the Master Series makes a short sale, an amount equal to the proceeds received by the Master Series is recorded as a liability and is subsequently adjusted to the current market value of the short sale. Short sales represent obligations of the Master Series to make future delivery of specific securities and, correspondingly, create an obligation to purchase the security at market prices prevailing at the later delivery date (or to deliver the security if already owned by the Master Series). Upon the termination of a short sale, the Master Series will recognize a gain, limited to the price at which the Master Series sold the security short, if the market price is less than the proceeds originally received. The Master Series will recognize a loss, unlimited in magnitude, if the market price at termination is greater than the proceeds originally received. As a result, short sales create the risk that the Master Series' ultimate obligation to satisfy the delivery requirements may exceed the amount of the proceeds initially received or the liability recorded in the financial statements U.S. FEDERAL TAX STATUS--The Master Series is treated as a partnership for U.S. federal tax purposes. No provision is made by the Master Series for U.S. federal taxes; each investor in the Master Series is ultimately responsible for the payment of any taxes. Since one of the Master Series' investors is a regulated investment company that invests all of its assets in the Master Series (S&P STARS Portfolio or the "Portfolio"), the Master Series normally must satisfy the applicable source of income and diversification requirements (under the Internal Revenue Code) in order for the Portfolio to satisfy them. The Master Series intends to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES During the six months ended September 30, 1996, Bear Stearns Funds Management Inc. ("BSFM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., served as the investment adviser of the Master Series pursuant to an Investment Advisory Agreement. The Adviser is entitled to receive from the Master Series a monthly fee equal to an annual rate of 0.75% of the Master Series' average daily net assets. Under the terms of an Administrative Services Agreement with the Portfolio, PFPC International Ltd. provides certain administrative services to the Master Series. For providing these services, PFPC International Ltd. is entitled to receive from the Master Series a monthly fee equal to an annual rate of 0.12% of the Master Series' net assets up to $200 million, 0.09% of the next $200 million, 0.075% of the next $200 million, and 0.05% of net assets above $600 million, subject to a minimum fee of $8,500 for the Master Series, payable monthly. During the six months ended September 30, 1996, the Adviser has voluntarily undertaken to limit the Portfolio's total operating expenses (other than brokerage commissions, interest, taxes and extraordinary items) to the extent that total Portfolio operating expenses exceeded 1.50% of the average daily net assets of the Portfolio's class A shares, 2.00% of the average daily net assets of the Portfolio's class C shares and 1.00% of the average daily net assets of the Portfolio's class Y shares. As necessary, this limitation is 18 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, 1996, the Adviser waived $281,502 of its advisory fee and reimbursed $34,175 of the Master Series expenses in order to maintain the voluntary expense limitation. The Master Series will not pay the Adviser at a later time for any amounts it may waive, nor will the Master Series reimburse the Adviser for any amounts it may assume. For the six months ended September 30, 1996, Bear, Stearns & Co. Inc., an affiliate of the Adviser, earned $163,976 in brokerage commissions from portfolio transactions executed on behalf of the Master Series. Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies Inc. and an affiliate of the Adviser, serves as custodian to the Master Series. INVESTMENTS IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at September 30, 1996 was $78,625,125. Accordingly, the net unrealized appreciation of investments of $8,696,688 was composed of gross appreciation of $10,157,692 for those investments having an excess of value over cost; and gross depreciation of $1,461,004 for those investments having an excess of cost over value. For the six months ended September 30, 1996, aggregate purchases and sales of investment securities (excluding short-term investments) were $94,245,208 and $91,264,909 respectively. CREDIT AGREEMENT The S&P STARS Fund, on behalf of the Master Series, has entered into a credit agreement with The First National Bank of Boston. Bear Stearns Investment Trust, which consists of the Emerging Markets Debt Portfolio and The Bear Stearns Funds consisting of S&P STARS Portfolio, Large Cap Value Portfolio, Small Cap Value Portfolio, Total Return Bond Portfolio and The Insiders Select Fund are also parties to the credit agreement. The agreement provides that each portfolio as a party to the credit agreement is permitted to borrow in an amount up to 15% of the value of its total assets. Subject to Board approval and upon making necessary disclosure in its prospectus, each portfolio may, in accordance with the provisions of the credit agreement, borrow up to 25% of the value of its total assets, less all liabilities other than liabilities for borrowed money outstanding at the time. However, at no time shall the aggregate outstanding principal amount of all loans to any of the portfolios exceed $25,000,000. The line of credit will bear interest at the greater of: (i) the annual rate of interest announced from time to time from the bank at its head office as its Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or, at the borrower's option, the rate quoted by The First National Bank of Boston. Each loan is payable on demand or upon termination of this credit agreement or, for money market loans, on the last day of the interest period and, in any event, not later than 14 days from the date the loan was advanced. The Master Series uses this facility to borrow money only for temporary or emergency (not leveraging) purposes. The Master Series had $519,879 outstanding at an interest rate of 7.375% under the line of credit agreement at September 30, 1996. 19 [Logo] The Bear Stearns Funds 245 PARK AVENUE NEW YORK, NY 10167 1.800.766.4111 Robert S. Reitzes Chairman of the Board Neil T. Eigen President Peter B. Fox Executive Vice President William J. Montgoris Executive Vice President Peter M. Bren Trustee Alan J. Dixon Trustee John R. McKernan, Jr. Trustee M.B. Oglesby, Jr. Trustee Stephen A. Bornstein Vice President Donalda L. Fordyce Vice President Frank J. Maresca Vice President and Treasurer Ellen T. Arthur Secretary Vincent L. Pereira Assistant Treasurer Eileen M. Coyle Assistant Secretary INVESTMENT ADVISER DISTRIBUTOR AND ADMINISTRATOR Bear, Stearns & Co. Inc. Bear Stearns Funds 245 Park Avenue Management Inc. New York, NY 10167 245 Park Avenue New York, NY 10167 CUSTODIAN TRANSFER AND DIVIDEND Custodial Trust Company DISBURSEMENT AGENT 101 Carnegie Center PFPC Inc. Princeton, NJ 08540 Bellevue Corporate Center 400 Bellevue Parkway Wilmington, DE 19809 COUNSEL INDEPENDENT AUDITORS Kramer, Levin, Naftalis & Frankel Deloitte & Touche LLP 919 Third Avenue Two World Financial Center New York, NY 10022 New York, NY 10281 The financial information included herein is taken from the records of each Portfolio without examination by independent auditors who do not express an opinion thereon. 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-009-03 LARGE CAP VALUE PORTFOLIO SMALL CAP VALUE PORTFOLIO TOTAL RETURN BOND PORTFOLIO SEMI-ANNUAL REPORT SEPTEMBER 30, 1996 THE BEAR STEARNS FUNDS Large Cap Value Portfolio Small Cap Value Portfolio Total Return Bond Portfolio LETTER TO SHAREHOLDERS November 12, 1996 Dear Shareholders, We are pleased to present the semi-annual report to shareholders for the Large Cap Value Portfolio ("Large Cap"), Small Cap Value Portfolio ("Small Cap") and Total Return Bond Portfolio ("Bond Portfolio") (collectively, the "Portfolios") for the six months ended September 30, 1996. LARGE CAP VALUE PORTFOLIO Large Cap's total return for the period April 4, 1995 (commencement of investment operations) through September 30, 1996, was 28.68% and 27.71% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively. The S&P 500 (Composite) Index (the "S&P 500") returned 40.95% for the same period. The average annual total return at September 30, 1996 for Large Cap was 18.36% and 17.76% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively. The S&P 500 average annual total return was 25.79% for the same period. For the six months ended September 30, 1996, class A and C shares returned 1.85% and 1.59% (without giving effect to sales charges and contingent deferred sales charges, if any), respectively, versus 7.72% for the S&P 500. For the period September 11, 1995 (commencement of initial public offering) through September 30, 1996, class Y shares gained 11.05% compared to 22.72% for the S&P 500. The average annual total return at September 30, 1996 for class Y shares was 10.42% compared to 21.36% for the S&P 500. For the six months ended September 30, 1996, class Y shares gained 2.12% compared to 7.72% for the S&P 500. Further performance data for each class of shares for this reporting period is available in the "Financial Highlights" section of this report. The first six months of Large Cap's fiscal year was characterized by a relatively strong equity market. Value stocks have under-performed growth stocks over this period and Large Cap has been exceptionally hard hit by earnings disappointments. Digital Equipment Corp. and Stewart & Stevenson Services, Inc. were both the victims of poor earnings reports. However, we believe that value stocks will re-establish themselves in the near future; growth stocks look somewhat extended and value stocks are relatively inexpensive versus growth stocks. Our financial sector holdings continue to do well, led by BankAmerica Corp., Bank of New York Co., Inc., Great Western Financial Corp. and Union Planters Corp. We will continue to overweight the financial sector given its discount to the market in general. Additionally, we find the sector's less variable and less leveraged earnings very attractive. In the banking sector in particular, we see better management of credit and interest rate risk and the best capital level in thirty years. From a fundamental point of view, we are comfortable with the equity market. The economy has slowed from the unsustainable pace of the second quarter. Consumer spending has eased and capital spending is growing more slowly. We believe growth should be modest next year as well. This bodes well for inflation and interest rates. 1 SMALL CAP VALUE PORTFOLIO Small Cap's total return for the period April 3, 1995 (commencement of investment operations) through September 30, 1996, was 49.60% and 48.23% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively, compared to 35.91% for its benchmark, the Russell 2000 Index (the "Russell 2000"). The average annual total return at September 30, 1996 for Small Cap was 30.83% and 30.03% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively, versus 22.72% for the Russell 2000. For the six months ended September 30, 1996, class A and C shares returned 11.34% and 10.96% (without giving effect to sales charges and contingent deferred sales charges), respectively, compared to 5.50% for the Russell 2000. For the period June 22, 1995 (commencement of initial public offering) through September 30, 1996, class Y shares gained 37.70% compared to 24.16% for the Russell 2000. The average annual total return at September 30, 1996 for class Y shares was 28.41% compared to 18.43% for the Russell 2000. For the six months ended September 30, 1996, class Y shares gained 11.48% compared to 5.50% for the Russell 2000. Further performance data for each class of shares for this reporting period is available in the "Financial Highlights" section of this report. Performance during the first six months of this year was paced by a doubling in price of one of our specialty retail holdings, American Eagle Outfitters, Inc. As expected, this company is being viewed more and more as The Gap for Generation X. Additionally, the sharp appreciation of recent purchases including S3 Inc., Furniture Brands Intl., Inc., Health Images, Inc., and Foodmaker Inc. (which we highlighted in the annual report) contributed to the performance of Small Cap. Our best performing stock for the third quarter was S3 Inc., which rose by 53%. We began buying the stock in April, when it sold at just over $11 per share following a decline of nearly 50% over the prior six months due to some product transition concerns. S3 Inc. makes graphics accelerator chips and is considered one of the best in its industry. With the launch of their new 3D chip (which is exactly the direction in which video games and PCs are going), earnings have the ability to truly accelerate over the next 15 months. Although there was a great deal of volatility in the market during the third quarter, by the end of the period, there was little change in the performance of small company stocks. As a result, the solid returns reported last quarter, both on an absolute and relative basis, have been retained. Larger cap stocks in general performed somewhat better during the quarter. As a result, small cap stocks are now even less expensive when compared to their larger brethren. As we are formulating our outlook for 1997, it would appear that following a second half slowdown here in the U.S., economic growth on a global basis will accelerate next year. Coupled with an environment of stable interest rates, 1997 could be a good year for small cap stocks. Generally, small cap stocks perform best when the economy transitions from slow growth to faster growth. TOTAL RETURN BOND PORTFOLIO The Bond Portfolio's total return for the period April 5, 1995 (commencement of investment operations) through September 30, 1996 was 10.73% and 10.10% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively. The Salomon Brothers Broad Investment Grade ("BIG") Bond Index returned 12.84% for the same time period. The average annual total return at September 30, 1996 for the Bond Portfolio was 7.05% and 6.64% (without giving effect to sales charges and contingent deferred sales charges, if any) for class A and C shares, respectively, compared to the Salomon Brothers BIG Bond Index which returned 8.43%. For the six months ended September 30, 1996, class A and C shares gained 2.18% and 1.97% (without giving effect to sales charges and contingent deferred sales charges, if any), respectively, versus 2.37% for the Salomon Brothers BIG Bond Index. For the period September 8, 1995 (commencement of initial public offering) through September 30, 1996, class Y shares gained 5.18% compared to 5.54% for the Salomon Brothers BIG Bond Index. The average annual total return at September 30, 1996 for class Y shares was 4.85% compared to 5.19% for the Salomon Brothers BIG Bond Index. For the six months ended September 30, 1996, class Y shares gained 2.37% compared to 2.37% for the Salomon Brothers BIG Bond Index. Further performance data for each class of shares for this reporting period is available in the "Financial Highlights" section of this report. 2 The fixed income markets traded in a range from late April through the end of the third quarter as economic indicators gave conflicting signs about the direction and strength of economic growth. Employment and hourly earnings statistics remained strong, consistent with the increases in both industrial production and inventories. New home sales swelled in August, however, soft existing home, retail and auto sales, as well as a large drop in durable goods orders all point to slower growth ahead. Inflation has continued to come in at the low end of estimates and should end the year at or below 3%. The widely expected Federal Reserve (the "Fed") tightening failed to materialize, lending further credence to the slower growth theory. The bond market responded favorably to the Fed's inaction by pushing interest rates down across the maturity spectrum. The yield curve (2 year vs. 30 year) steepened by four basis points as short and intermediate Treasuries modestly outperformed their longer-term counterparts. Mortgage-backed securities were the best performing sector, producing a total return of 2.75% for the six month period. Corporate bonds also performed relatively well, returning 2.35% for the period, as spreads versus comparable Treasuries narrowed. The economy has slowed from the unsustainable pace of the second quarter. Consumer spending has eased and capital spending is growing more slowly. We believe that economic growth should be modest for the remainder of the year and into next year as well. This bodes well for both inflation and interest rates. We have positioned the Bond Portfolio to take advantage of a trend toward slower growth. We have overweighted corporates, which still represent value as spreads versus Treasuries have the potential to narrow further. As expectations of a tighter monetary policy begin to wane, we will also emphasize intermediate maturity Treasuries, which should be good relative performers in this environment. In conclusion, we appreciate your support and would be pleased to respond to any questions or comments. If you have any questions concerning these Portfolios, please call 1-800-766-4111. Sincerely, [SIGNATURE] [SIGNATURE] [SIGNATURE] Robert S. Reitzes Neil T. Eigen Peter E. Mahoney Chairman of the Board President Portfolio Manager The Bear Stearns Funds The Bear Stearns Funds Total Return Bond Portfolio Portfolio Manager Large Cap Value Portfolio Small Cap Value Portfolio
3 THE BEAR STEARNS FUNDS Large Cap Value Portfolio COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CLASS A SHARES CLASS C SHARES S&P 500 (COMPOSITE) INDEX 4/4/95 $9,525 $10,000 $10,000 6/30/95 10,192 10,683 10,851 9/30/95 11,295 11,825 11,714 12/31/95 11,915 12,483 12,419 3/31/96 12,034 12,571 13,086 6/30/96 12,042 12,563 13,673 9/30/96 12,257 12,771 14,095 $9,525 Investment made on April 4, 1995 Past performance is not predictive of future performance NATIONAL CONSUMER PRICE INDEX 4/4/95 $10,000 6/30/95 10,079 9/30/95 10,126 12/31/95 10,178 3/31/96 10,284 6/30/96 10,364 9/30/96 10,430 $9,525 Investment made on April 4, 1995 Past performance is not predictive of future performance
AVERAGE ANNUAL TOTAL RETURN INCLUDING FEE WAIVERS AND EXCLUDING FEE WAIVERS AND EXPENSE REIMBURSEMENTS EXPENSE REIMBURSEMENTS --------------------------- --------------------------- Large Cap Value Portfolio(4) Class A shares(5)........................ 14.57% 12.67% Class C shares .......................... 17.76 15.52 Class Y shares(2)........................ 10.42 9.25 S&P 500 (Composite) Index(3)................. 25.79 -- National Consumer Price Index(3)............. 2.85 --
- --------- (1) For the period of April 4, 1995 (commencement of investment operations) through September 30, 1996. (2) The return of class Y shares (for which September 11, 1995 was the initial public offering date) would have been higher than class A and C shares if operations were commenced on the same day. The higher return is due to the fact that there is no sales load, CDSC or 12b-1 fee charged to class Y shares. (3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio (class A shares reflects the initial maximum 4.75% sales load) and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the indices are either unmanaged and do not incur sales charges or expenses and/or are not available for investment. Performance of the indices corresponds to the performance of class A and C shares. (4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to voluntarily reimburse a portion of the Portfolio's operating expenses to maintain the expense limitation, as set forth in the notes to the financial statements. (5) Reflects the initial maximum 4.75% sales load. Without applicable sales load, the total returns would have been 18.36% including fee waivers and expense reimbursements and 16.40% excluding fee waivers and expense reimbursements. CDSC -- Contingent Deferred Sales Charge. 4 THE BEAR STEARNS FUNDS Small Cap Value Portfolio COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CLASS A SHARES CLASS C SHARES RUSSELL 2000 INDEX 4/3/95 $9,525 $10,000 $10,000 6/30/95 10,343 10,842 10,875 9/30/95 12,057 12,625 11,901 12/31/95 12,128 12,674 12,115 3/31/96 12,797 13,359 12,682 6/30/96 14,241 14,848 13,316 9/30/96 14,249 14,823 13,591 $9,525 Investment made on April 3, 1995 Past performance is not predictive of future performance NATIONAL CONSUMER PRICE INDEX 4/3/95 $10,000 6/30/95 10,079 9/30/95 10,126 12/31/95 10,178 3/31/96 10,284 6/30/96 10,364 9/30/96 10,430 $9,525 Investment made on April 3, 1995 Past performance is not predictive of future performance
AVERAGE ANNUAL TOTAL RETURN INCLUDING FEE WAIVERS AND EXCLUDING FEE WAIVERS AND EXPENSE REIMBURSEMENTS EXPENSE REIMBURSEMENTS --------------------------- --------------------------- Small Cap Value Portfolio(4) Class A shares(5)........................ 26.65% 24.97% Class C shares .......................... 30.03 28.93 Class Y shares(2)........................ 28.41 27.64 Russell 2000 Index(3)........................ 22.72 -- National Consumer Price Index(3)............. 2.85 --
- --------- (1) For the period of April 3, 1995 (commencement of investment operations) through September 30, 1996. (2) The return of class Y shares (for which June 22, 1995 was the initial public offering date) would have been higher than class A and C shares if operations were commenced on the same day. The higher return is due to the fact that there is no sales load, CDSC or 12b-1 fee charged to class Y shares. (3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio (class A shares reflects the initial maximum 4.75% sales load) and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the indices are either unmanaged and do not incur sales charges or expenses and/or are not available for investment. Performance of the indices corresponds to the performance of class A and C shares. (4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to voluntarily reimburse a portion of the Portfolio's operating expenses to maintain the expense limitation, as set forth in the notes to the financial statements. (5) Reflects the initial maximum 4.75% sales load. Without applicable sales load, the total returns would have been 30.83% including fee waivers and expense reimbursements and 29.11% excluding fee waivers and expense reimbursements. CDSC -- Contingent Deferred Sales Charge. 5 THE BEAR STEARNS FUNDS Total Return Bond Portfolio COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SALOMON BROTHERS BROAD CLASS A SHARES CLASS C SHARES INVESTMENT GRADE BOND INDEX 4/5/95 $9,625 $10,000 $10,000 6/30/95 10,027 10,412 10,553 9/30/95 10,206 10,587 10,753 12/31/95 10,679 11,064 11,219 3/31/96 10,430 10,797 11,023 6/30/96 10,467 10,824 11,077 9/30/96 10,658 11,010 11,284 $9,625 Investment made on April 5, 1995 Past performance is not predictive of future performance NATIONAL CONSUMER PRICE INDEX 4/5/95 $10,000 6/30/95 10,079 9/30/95 10,126 12/31/95 10,178 3/31/96 10,284 6/30/96 10,364 9/30/96 10,430 $9,625 Investment made on April 5, 1995 Past performance is not predictive of future performance
AVERAGE ANNUAL TOTAL RETURN INCLUDING FEE WAIVERS AND EXCLUDING FEE WAIVERS AND EXPENSE REIMBURSEMENTS EXPENSE REIMBURSEMENTS --------------------------- --------------------------- Total Return Bond Portfolio(4) Class A shares(5)........................ 4.35% 1.86% Class C shares .......................... 6.64 3.99 Class Y shares(2)........................ 4.85 2.60 Salomon Brothers Broad Investment Grade Bond Index(3).................................... 8.43 -- National Consumer Price Index(3)............. 2.86 --
- --------- (1) For the period of April 5, 1995 (commencement of investment operations) through September 30, 1996. (2) The return of class Y shares (for which September 8, 1995 was the initial public offering date) would have been higher than class A and C shares if operations were commenced on the same day. The higher return is due to the fact that there is no sales load, CDSC or 12b-1 fee charged to class Y shares. (3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio (class A shares reflects the initial maximum 3.75% sales load) and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the indices are either unmanaged and do not incur sales charges or expenses and/or are not available for investment. Performance of the indices corresponds to the performance of class A and C shares. (4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to voluntarily reimburse a portion of the Portfolio's operating expenses to maintain the expense limitation, as set forth in the notes to the financial statements. (5) Reflects the initial maximum 3.75% sales load. Without applicable sales load, the average annual total returns would have been 7.05% including fee waivers and expense reimbursements and 4.54% excluding fee waivers and expense reimbursements. CDSC -- Contingent Deferred Sales Charge. 6 THE BEAR STEARNS FUNDS Large Cap Value Portfolio SEPTEMBER 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- SECTOR ALLOCATION (AS A PERCENTAGE OF NET ASSETS) - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Credit & Finance 13.95% Electrical Equipment 13.88% Chemicals & Fertilizers 3.28% Computers & Office Equipment 9.14% Retailing 3.38% Banks 6.16% Insurance 6.05% Services 3.28% Automobiles 5.34% Furnishings & Appliances 3.38% Drugs & Hospital Supplies 13.72% Aerospace 3.15% Forest Products & Paper 3.08% Other 12.21%
- -------------------------------------------------------------------------------- TOP TEN HOLDINGS - --------------------------------------------------------------------------------
PERCENT OF RANK HOLDING SECTOR NET ASSETS - ----- -------------------------------------------------- --------------------------- ---------- 1. Baxter International, Inc. ....................... Drugs & Hospital Supplies 3.95 2. Stewart & Stevenson Services, Inc................. Electrical Equipment 3.78 3. ADT Ltd........................................... Electrical Equipment 3.76 4. Union Planters Corp. ............................. Credit & Finance 3.73 5. BankAmerica Corp. ................................ Banks 3.59 6. Federal National Mortgage Association............. Credit & Finance 3.52 7. Great Western Financial Corp. .................... Credit & Finance 3.48 8. Bristol-Myers Squibb Co. ......................... Drugs & Hospital Supplies 3.41 9. Armstrong World Industries, Inc. ................. Furnishings & Appliances 3.38 10. May Department Stores Co. ........................ Retailing 3.38
7 THE BEAR STEARNS FUNDS Small Cap Value Portfolio SEPTEMBER 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- SECTOR ALLOCATION (AS A PERCENTAGE OF NET ASSETS) - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Textiles & Shoes 12.49% Coal 3.06% Credit & Finance 3.91% Miscellaneous Industrials 8.31% Electrical Equipment 4.75% Non-Ferrous Metals 2.91% Banks 7.66% Publishing & Broadcasting 4.17% Building & Housing 7.40% Drugs & Hospital Supplies 2.80% Telecommunications 3.10% Electronics 6.73% Services 4.57% Other 9.09% Tobacco 3.07% Lodging & Catering 4.84% Computers & Office Equipment 6.61% Retailing 4.53%
- -------------------------------------------------------------------------------- TOP TEN HOLDINGS - --------------------------------------------------------------------------------
PERCENT OF RANK HOLDING SECTOR NET ASSETS - ----- -------------------------------------------------- --------------------------- ---------- 1. California Financial Holding Co. ................. Banks 5.28 2. Cephalon Inc. .................................... Services 4.57 3. S3 Inc. .......................................... Computers & Office Equipment 4.38 4. Cadmus Communications Corp. ...................... Publishing & Broadcasting 4.17 5. Foodmaker Inc. ................................... Lodging & Catering 3.96 6. Windmere Corp. ................................... Electrical Equipment 3.79 7. Furniture Brands Intl., Inc. ..................... Textiles & Shoes 3.60 8. Donnkenny Inc. ................................... Textiles & Shoes 3.37 9. Ann Taylor, Inc. ................................. Textiles & Shoes 3.32 10. Davel Communications Group, Inc. ................. Telecommunications 3.10
8 THE BEAR STEARNS FUNDS Total Return Bond Portfolio SEPTEMBER 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- SECTOR ALLOCATION (AS A PERCENTAGE OF NET ASSETS) - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TREASURY / GOVERNMENT SECURITIES CORPORATE ASSET-BACKED Total Return Bond Portfolio 19.86% 41.78% 4.40% Salomon Brothers Broad Investment Grade Bond Index 52.00% 17.00% 2.00% MORTGAGE-BACKED SECURITIES CASH & CASH EQUIVALENTS Total Return Bond Portfolio 26.05% 7.91% Salomon Brothers Broad Investment Grade Bond Index 29.00% 0.00%
- -------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO CHARACTERISTICS - --------------------------------------------------------------------------------
TOTAL RETURN SALOMON BROTHERS BROAD BOND INVESTMENT GRADE BOND PORTFOLIO INDEX ------------- ------------------------- 8.36 years 8.46 years Average Maturity.................................... 5.09 years 4.79 years Average Duration.................................... 6.87% 7.23% Average Coupon...................................... 7.00% 6.98% Yield to Maturity................................... - ----------------------------------------------------------------------------------------------
9 THE BEAR STEARNS FUNDS Large Cap Value Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
- ---------------------------------------------------------- MARKET SHARES VALUE - ----------------------------------------------------------- COMMON STOCKS--99.33% AEROSPACE - 3.15% 6,000 United Technologies Corp. ......... $ 720,750 ----------- AUTOMOBILES - 5.34% 20,000 Ford Motor Co. .................... 625,000 12,400 General Motors Corp. .............. 595,200 ----------- 1,220,200 ----------- BANKS - 6.16% 10,000 BankAmerica Corp. ................. 821,250 20,000 Bank of New York Co., Inc. ........ 587,500 ----------- 1,408,750 ----------- BUILDING & HOUSING - 2.74% 17,000 Owens-Corning Fiberglas Corp. ..... 626,875 ----------- CHEMICALS & FERTILIZERS - 3.28% 10,000 Grace (W.R.) & Co. ................ 750,000 ----------- COMPUTERS & OFFICE EQUIPMENT - 9.14% 16,000 Digital Equipment Corp.*........... 572,000 19,000 Tandy Corp. ....................... 767,125 14,000 Xerox Corp. ....................... 750,750 ----------- 2,089,875 ----------- CREDIT & FINANCE - 13.95% 23,100 Federal National Mortgage Association........................ 805,613 30,000 Great Western Financial Corp. ..... 795,000 15,000 Travelers Group, Inc. ............. 736,875 24,000 Union Planters Corp. .............. 852,000 ----------- 3,189,488 ----------- DRUGS & HOSPITAL SUPPLIES - 13.72% 19,300 Baxter International, Inc. ........ 902,275 8,100 Bristol-Myers Squibb Co. .......... 780,637 36,000 Chiron Corp.*...................... 684,000 12,000 Medtronic, Inc. ................... 769,500 ----------- 3,136,412 ----------- - ----------------------------------------------------------- MARKET SHARES VALUE - ----------------------------------------------------------- ELECTRICAL EQUIPMENT - 13.88% 45,000 ADT Ltd.*.......................... $ 860,625 8,000 General Electric Co. .............. 728,000 9,600 Raychem Corp. ..................... 720,000 40,000 Stewart & Stevenson Services, Inc. .............................. 865,000 ----------- 3,173,625 ----------- ELECTRONICS -1.70% 7,500 Motorola, Inc. .................... 387,188 ----------- FOOD & BEVERAGES - 2.93% 7,450 Philip Morris Cos. Inc. ........... 668,637 ----------- FOREST PRODUCTS & PAPER - 3.08% 8,000 Kimberly - Clark Corp. ............ 705,000 ----------- FURNISHINGS & APPLIANCES - 3.38% 12,400 Armstrong World Industries, Inc. .............................. 773,450 ----------- INSURANCE - 6.05% 25,000 Equitable Cos., Inc. .............. 643,750 40,000 USF&G Corp. ....................... 740,000 ----------- 1,383,750 ----------- MISCELLANEOUS INDUSTRIALS - 1.32% 22,000 Dial Corp. ........................ 302,500 ----------- RAILROADS - 2.85% 9,000 Conrail Inc. ...................... 651,375 ----------- RETAILING - 3.38% 15,900 May Department Stores Co. ......... 773,138 ----------- SERVICES - 3.28% 37,000 Humana Inc.*....................... 749,250 ----------- Total Common Stocks (cost - $21,680,471)............... 22,710,263 -----------
The accompanying notes are an integral part of the financial statements. 10 THE BEAR STEARNS FUNDS Large Cap Value Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
- ----------------------------------------------------------- MARKET SHARES VALUE - ----------------------------------------------------------- SHORT-TERM INVESTMENT--8.28% INVESTMENT COMPANY - 8.28% 1,892,912 The Milestone Funds Treasury Obligations Portfolio, Institutional Shares** (cost - $1,892,912)................ $ 1,892,912 ----------- Total Investments (cost - $23,573,383) - 107.61%..... 24,603,175 Liabilities in excess of other assets - (7.61)%................... (1,739,595) ----------- Net Assets - 100.00%............... $22,863,580 ----------- -----------
- --------- * Non-income producing security. ** Money market fund. The accompanying notes are an integral part of the financial statements. 11 THE BEAR STEARNS FUNDS Small Cap Value Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
---------------------------------------------------------- MARKET SHARES VALUE - ------------------------------------------------------------ COMMON STOCKS--99.98% BANKS - 7.66% 10,000 Bank United Corp., Class A.......... $ 248,750 20,100 Bay View Capital Corp. ............. 716,063 92,250 California Financial Holding Co. ... 2,144,813 ----------- 3,109,626 ----------- BUILDING & HOUSING - 7.40% 132,625 Fedders Corp., Class A.............. 679,703 48,500 Giant Cement Holding, Inc.*......... 721,438 56,800 M/I Schottenstein Homes, Inc.*...... 497,000 56,000 Triangle Pacific Corp.*............. 1,106,000 ----------- 3,004,141 ----------- CHEMICALS & FERTILIZERS - 1.91% 85,000 Applied Extrusion Technologies, Inc.*............................... 775,625 ----------- COAL - 3.06% 72,000 Zeigler Coal Holding Co. ........... 1,242,000 ----------- COMPUTERS & OFFICE EQUIPMENT - 6.61% 25,600 Dialogic Corp.*..................... 908,800 90,000 S3 Inc.*............................ 1,777,500 ----------- 2,686,300 ----------- COSMETICS & SOAPS - 1.98% 60,550 Guest Supply, Inc.*................. 802,288 ----------- CREDIT & FINANCE - 3.91% 30,000 RenaissanceRe Holdings Ltd. ........ 840,000 23,900 Security-Connecticut Corp. ......... 749,862 ----------- 1,589,862 ----------- DRUGS & HOSPITAL SUPPLIES - 2.80% 85,000 Health Images, Inc. ................ 1,136,875 ----------- ELECTRICAL EQUIPMENT - 4.75% 62,500 Aerovax Inc.*....................... 390,625 112,000 Windmere Corp. ..................... 1,540,000 ----------- 1,930,625 ----------- - ------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------ ELECTRONICS - 6.73% 57,300 Cubic Corp. Designs................. $ 1,117,350 40,000 Elsag Bailey Process Automation N.V. ............................... 855,000 77,000 Griffon Corp.*...................... 760,375 ----------- 2,732,725 ----------- ENTERTAINMENT & LEISURE - 1.75% 32,000 Avondale Industries, Inc.*.......... 596,000 48,000 Graff Pay-Per-View Inc.*............ 114,000 ----------- 710,000 ----------- GROCERY PRODUCTS - 1.60% 53,200 FoodBrands America, Inc.*........... 651,700 ----------- LODGING & CATERING - 4.84% 161,000 Foodmaker Inc.*..................... 1,610,000 36,200 John Q. Hammons Hotels, Inc.*....... 357,475 ----------- 1,967,475 ----------- MACHINERY - 1.83% 83,900 Lamson & Sessions Co.*.............. 744,612 ----------- MISCELLANEOUS INDUSTRIALS - 8.31% 36,000 Furon Co. .......................... 1,212,500 58,400 Greyhound Lines Inc.*............... 197,100 43,900 Ornda Healthcorp*................... 1,201,763 45,000 VWR Scientific Products*............ 765,000 ----------- 3,376,363 ----------- NON-FERROUS METALS - 2.91% 29,100 Mueller Industries, Inc.*........... 1,182,187 ----------- PUBLISHING & BROADCASTING - 4.17% 101,100 Cadmus Communications Corp. ........ 1,693,425 ----------- RETAILING - 4.53% 45,000 American Eagle Outfitters, Inc.*.... 956,250 60,000 Michaels Stores, Inc.*.............. 881,250 ----------- 1,837,500 -----------
The accompanying notes are an integral part of the financial statements. 12 THE BEAR STEARNS FUNDS Small Cap Value Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
- ------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------ COMMON STOCKS (CONTINUED) SERVICES - 4.57% 77,000 Cephalon Inc.*...................... $ 1,857,625 ----------- TELECOMMUNICATIONS - 3.10% 72,500 Davel Communications Group, Inc.*... 1,259,687 ----------- TEXTILES & SHOES - 12.49% 80,000 Ann Taylor, Inc.*................... 1,350,000 46,000 Cone Mills Corp.*................... 362,250 80,000 Donnkenny Inc.*..................... 1,370,000 37,000 Fieldcrest Cannon, Inc.*............ 527,250 100,000 Furniture Brands Intl., Inc.*....... 1,462,500 ----------- 5,072,000 ----------- TOBACCO - 3.07% 65,100 Dimon Inc. ......................... 1,245,037 ----------- Total Common Stocks (cost - $35,300,293)................ 40,607,678 ----------- - ------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------ SHORT-TERM INVESTMENT--1.18% INVESTMENT COMPANY - 1.18% 480,934 The Milestone Funds Treasury Obligations Portfolio, Institutional Shares** (cost - $480,934)................... $ 480,934 ----------- Total Investments (cost - $35,781,227) - 101.16%...... 41,088,612 Liabilities in excess of other assets - (1.16)%.................... (473,622) ----------- Net Assets - 100.00%................ $40,614,990 ----------- -----------
- --------- * Non-income producing security. ** Money market fund. The accompanying notes are an integral part of the financial statements. 13 THE BEAR STEARNS FUNDS Total Return Bond Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT MARKET DESCRIPTION (000'S) VALUE - ------------------------------------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS--92.09% CORPORATE OBLIGATIONS - 46.18% ASSET-BACKED - 4.40% Access Financial Mortgage Loan Trust, Sequential Paper, Series 1996-2, Class A5, 7.925%, 06/18/27....................................................................................... $ 200 $ 203,458 Ford Credit 1995-B Grantor Trust, Asset-Backed Certificates, Class A, 5.90%, 10/15/00........... 602 599,907 Standard Credit Card Trust 1990-6, Credit Card Participation Certificates, Class A, 9.375%, 07/10/97....................................................................................... 190 195,531 ----------- 998,896 ----------- FINANCE - 17.93% Associates Corp. N.A., Senior Notes, 7.50%, 05/15/99............................................ 150 153,562 Caterpillar Financial Services Corp., Series E, MTN, 6.56%, 11/03/97............................ 150 150,592 CIT Group Holdings, Inc., Senior Notes, MTN, 6.75%, 05/14/01.................................... 250 249,062 Ford Motor Credit, Global Bond, 7.00%, 09/25/01................................................. 500 501,875 General Motors Acceptance Corp., MTN, 6.125%, 09/08/97.......................................... 675 674,507 International Bank for Reconstruction and Development, 7.625%, 02/13/97......................... 100 100,625 Lehman Brothers Inc., Senior Subordinated Notes, 7.125%, 07/15/02............................... 400 397,000 Mepc Finance Inc., Mepc P.L.C. Guaranteed, 7.50%, 05/01/03...................................... 500 503,750 Salomon Inc, Senior Notes, 6.75%, 02/15/03...................................................... 750 721,875 Secured Finance, Inc., Debentures, FSA Insured, 9.05%,12/15/04.................................. 550 617,375 ----------- 4,070,223 ----------- GOVERNMENT - REGIONAL - 2.43% Province of Quebec, Yankee Debentures, 7.50%, 07/15/23.......................................... 575 552,000 ----------- INDUSTRIAL - 21.42% Anadarko Petroleum, 7.73%, 09/15/45............................................................. 500 503,750 Chevron Trust Fund, Debentures, Chevron Corp. Guaranteed, 8.11%, 12/01/04....................... 750 792,188 Commonwealth Edison Co., 6.375%, 07/15/00....................................................... 500 490,625 Philip Morris Cos. Inc., Notes, 7.25%, 09/15/01................................................. 650 654,063 Phillips Petroleum Co., Notes, 8.49%, 01/01/23.................................................. 600 607,500 Sears, Roebuck & Co., MTN, 9.05%, 02/06/12...................................................... 450 507,375 Six Flags Entertainment Inc., Senior Notes, Time Warner Entertainment Inc. Guaranteed, Zero Coupon, 12/15/99............................................................................... 250 200,313 Time Warner Entertainment Inc., Debentures, 8.375%, 03/15/23.................................... 500 492,500 U.S. West Communications, Debentures, 6.875%, 09/15/33.......................................... 700 614,250 ----------- 4,862,564 ----------- Total Corporate Obligations (cost - $10,480,366)................................................ 10,483,683 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 26.05% Federal Home Loan Mortgage Corporation 6.00%, 10/01/00............................................................................... 250 244,943 6.00%, 05/01/11............................................................................... 1,482 1,407,475 8.00%, 04/01/10............................................................................... 300 307,019 8.00%, 06/01/11............................................................................... 344 351,925
The accompanying notes are an integral part of the financial statements. 14 THE BEAR STEARNS FUNDS Total Return Bond Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT MARKET DESCRIPTION (000'S) VALUE - ------------------------------------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS (CONTINUED) U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED) Federal National Mortgage Association 5.80%, 12/10/03............................................................................... $ 250 $ 236,485 6.50%, 03/01/26............................................................................... 1,103 1,037,015 6.50%, 04/01/26............................................................................... 19 18,240 7.00%, 01/01/26............................................................................... 250 241,196 Government National Mortgage Association 7.00%, 08/15/10............................................................................... 234 232,471 7.00%, 08/15/25............................................................................... 271 260,855 7.00%, 02/15/26............................................................................... 143 137,711 7.00%, 03/15/26............................................................................... 1,493 1,437,630 ----------- Total U.S. Government Agency Obligations (cost - $5,920,343).................................... 5,912,965 ----------- U.S. GOVERNMENT OBLIGATIONS - 19.86% U.S. Treasury Bonds 7.625%, 02/15/25.............................................................................. 700 751,716 U.S. Treasury Notes 5.75%, 10/31/00............................................................................... 625 610,125 5.875%, 08/15/98.............................................................................. 1,150 1,145,389 5.875%, 02/15/04.............................................................................. 350 334,750 6.625%, 07/31/01.............................................................................. 300 301,866 7.125%, 09/30/99.............................................................................. 825 843,769 7.75%, 11/30/99............................................................................... 500 520,295 ----------- Total U.S. Government Obligations (cost - $4,559,067)........................................... 4,507,910 ----------- Total Long-Term Investments (cost - $20,959,776)................................................ 20,904,558 ----------- SHORT-TERM INVESTMENTS--10.03% U.S. GOVERNMENT AGENCY DISCOUNT NOTE - 4.40% Federal Home Loan Mortgage Corporation, Discount Note, 5.19%, 10/03/96 (cost - $999,712)........ 1,000 999,712 ----------- SHARES --------- INVESTMENT COMPANY - 5.63% The Milestone Funds Treasury Obligations Portfolio, Institutional Shares* (cost - $1,278,109)... 1,278,109 1,278,109 ----------- Total Short-Term Investments (cost - $2,277,821)................................................ 2,277,821 ----------- Total Investments (cost - $23,237,597) - 102.12%................................................ 23,182,379 Liabilities in excess of other assets - (2.12)%................................................. (482,485) ----------- Net Assets - 100.00%............................................................................ $22,699,894 ----------- -----------
- --------- FSA Financial Security Assurance. MTN Medium Term Notes. * Money market fund. The accompanying notes are an integral part of the financial statements. 15 THE BEAR STEARNS FUNDS STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996 (UNAUDITED)
LARGE CAP SMALL CAP TOTAL RETURN VALUE VALUE BOND PORTFOLIO PORTFOLIO PORTFOLIO -------------- -------------- ------------ ASSETS Investments, at value (cost-$23,573,383, $35,781,227 and $23,237,597, respectively)..................... $ 24,603,175 $ 41,088,612 $23,182,379 Dividends and interest receivable............... 37,503 6,255 248,726 Receivable for Portfolio shares sold............ 42,498 98,257 116,119 Receivable from investment adviser.............. 24,758 13,225 45,011 Deferred organization expenses and other assets......................................... 104,971 123,814 93,933 -------------- -------------- ------------ Total assets.............................. 24,812,905 41,330,163 23,686,168 -------------- -------------- ------------ LIABILITIES Payable for Portfolio shares repurchased........ 1,831,356 561,007 818,270 Administration fee payable...................... 14,751 43,283 34,528 Dividends payable............................... -- -- 26,951 Distribution fee payable (class A and C shares)........................................ 15,993 41,895 7,240 Organization expenses payable................... 8,520 -- 7,095 Custodian fee payable........................... 3,534 4,539 5,055 Accrued expenses................................ 75,171 64,449 87,135 -------------- -------------- ------------ Total liabilities......................... 1,949,325 715,173 986,274 -------------- -------------- ------------ NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized)...... 1,484 2,305 1,869 Paid-in capital................................. 21,157,963 34,637,597 22,961,037 Undistributed net investment income/(loss)...... 87,129 (139,788) -- Accumulated net realized gain/(loss) from investments.................................... 587,212 807,491 (207,794) Net unrealized appreciation/(depreciation) on investments.................................... 1,029,792 5,307,385 (55,218) -------------- -------------- ------------ Net assets................................ $ 22,863,580 $ 40,614,990 $22,699,894 -------------- -------------- ------------ -------------- -------------- ------------ CLASS A Net assets...................................... $ 5,696,018 $ 11,409,044 $ 4,322,833 -------------- -------------- ------------ Shares of beneficial interest outstanding....... 369,622 645,831 355,879 -------------- -------------- ------------ Net asset value per share....................... $15.41 $17.67 $12.15 -------------- -------------- ------------ -------------- -------------- ------------ Maximum offering price per share (net asset value plus sales charge of 4.75%*, 4.75%* and 3.75%*, respectively, of the offering price)... $16.18 $18.55 $12.62 -------------- -------------- ------------ -------------- -------------- ------------ CLASS C Net assets...................................... $ 4,095,640 $ 12,494,605 $ 1,828,085 -------------- -------------- ------------ 267,349 712,959 150,497 Shares of beneficial interest outstanding....... -------------- -------------- ------------ Net asset value and offering price per share**........................................ $15.32 $17.52 $12.15 -------------- -------------- ------------ -------------- -------------- ------------ CLASS Y Net assets...................................... $ 13,071,922 $ 16,711,341 $16,548,976 -------------- -------------- ------------ Shares of beneficial interest outstanding....... 846,751 945,777 1,362,390 -------------- -------------- ------------ Net asset value, offering and redemption price per share...................................... $15.44 $17.67 $12.15 -------------- -------------- ------------ -------------- -------------- ------------
- --------- * 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. 16 THE BEAR STEARNS FUNDS STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
LARGE CAP SMALL CAP TOTAL RETURN VALUE PORTFOLIO VALUE PORTFOLIO BOND PORTFOLIO ---------------- ---------------- ---------------- INVESTMENT INCOME Dividends........................................................... $ 217,682 $ 102,323 -- Interest............................................................ 2,722 5,128 $ 761,510 ---------------- ---------------- ---------------- 220,404 107,451 761,510 ---------------- ---------------- ---------------- EXPENSES Advisory fees....................................................... 80,363 127,493 51,715 Accounting fees..................................................... 52,898 61,319 51,186 Transfer agent fees and expenses.................................... 52,717 56,133 54,243 Distribution fees - class A......................................... 12,006 24,477 7,661 Distribution fees - class C......................................... 18,290 50,797 6,736 Administration fees................................................. 16,072 25,498 17,238 Legal and auditing fees............................................. 16,754 20,537 19,287 Reports and notices to shareholders................................. 13,035 13,035 13,035 Amortization of organization expenses............................... 9,957 10,832 7,673 Federal and state registration fees................................. 10,863 11,141 5,867 Insurance expenses.................................................. 7,589 7,589 7,589 Custodian fees and expenses......................................... 4,914 6,718 7,023 Trustees' fees and expenses......................................... 3,510 3,510 8,010 Other............................................................... 3,518 4,350 478 ---------------- ---------------- ---------------- Total expenses before waivers and reimbursements.............. 302,486 423,429 257,741 Less: waivers and reimbursements.............................. (164,071) (176,190) (191,096) ---------------- ---------------- ---------------- Total expenses after waivers and reimbursements............... 138,415 247,239 66,645 ---------------- ---------------- ---------------- Net investment income/(loss)........................................ 81,989 (139,788) 694,865 ---------------- ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS Net realized gain/(loss) from investments........................... 495,177 603,706 (258,599) Net change in unrealized appreciation/(depreciation) on investments........................................................ (109,561) 2,620,992 97,174 ---------------- ---------------- ---------------- Net realized and unrealized gain/(loss) on investments.............. 385,616 3,224,698 (161,425) ---------------- ---------------- ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 467,605 $3,084,910 $ 533,440 ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
The accompanying notes are an integral part of the financial statements. 17 THE BEAR STEARNS FUNDS STATEMENT OF CHANGES IN NET ASSETS Large Cap Value Portfolio
FOR THE SIX MONTHS FOR THE PERIOD ENDED APRIL 3, 1995* SEPTEMBER 30, 1996 THROUGH MARCH (UNAUDITED) 31, 1996 -------------------- ---------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income..................................... $ 81,989 $ 20,211 Net realized gain from investments........................ 495,177 95,147 Net change in unrealized appreciation on investments...... (109,561) 1,139,353 -------------------- ---------------- Net increase in net assets resulting from operations...... 467,605 1,254,711 -------------------- ---------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares.......................................... -- (4,557) Class C shares.......................................... -- -- Class Y shares.......................................... -- (10,514) -------------------- ---------------- -- (15,071) -------------------- ---------------- Net realized capital gains Class A shares.......................................... -- (1,184) Class C shares.......................................... -- (1,037) Class Y shares.......................................... -- (891) -------------------- ---------------- -- (3,112) -------------------- ---------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares...................... 17,358,508 10,493,529 Cost of shares repurchased................................ (5,511,706) (1,214,980) Shares issued in reinvestment of dividends................ -- 9,088 -------------------- ---------------- Net increase in net assets derived from shares of beneficial interest transactions......................... 11,846,802 9,287,637 -------------------- ---------------- Total increase in net assets.............................. 12,314,407 10,524,165 NET ASSETS Beginning of period....................................... 10,549,173 25,008 -------------------- ---------------- End of period (including undistributed net investment income of $87,129 and $5,140, respectively)........................ $22,863,580 $ 10,549,173 -------------------- ---------------- -------------------- ----------------
- -------- * Commencement of operations. The accompanying notes are an integral part of the financial statements. 18 THE BEAR STEARNS FUNDS STATEMENT OF CHANGES IN NET ASSETS Small Cap Value Portfolio
FOR THE SIX FOR THE PERIOD MONTHS ENDED APRIL 3, 1995* SEPTEMBER 30, 1996 THROUGH MARCH (UNAUDITED) 31, 1996 -------------------- ---------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment loss....................................... $ (139,788) $ (69,561) Net realized gain from investments........................ 603,706 544,848 Net change in unrealized appreciation on investments...... 2,620,992 2,686,393 -------------------- ---------------- Net increase in net assets resulting from operations...... 3,084,910 3,161,680 -------------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net realized capital gains Class A shares.......................................... -- (64,256) Class C shares.......................................... -- (72,361) Class Y shares.......................................... -- (134,885) -------------------- ---------------- -- (271,502) -------------------- ---------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares...................... 19,268,421 23,204,316 Cost of shares repurchased................................ (3,954,586) (4,151,186) Shares issued in reinvestment of dividends................ -- 247,929 -------------------- ---------------- Net increase in net assets derived from shares of beneficial interest transactions......................... 15,313,835 19,301,059 -------------------- ---------------- Total increase in net assets.............................. 18,398,745 22,191,237 NET ASSETS Beginning of period....................................... 22,216,245 25,008 -------------------- ---------------- End of period............................................. $40,614,990 $ 22,216,245 -------------------- ---------------- -------------------- ----------------
- -------- * Commencement of operations. The accompanying notes are an integral part of the financial statements. 19 THE BEAR STEARNS FUNDS STATEMENT OF CHANGES IN NET ASSETS Total Return Bond Portfolio
FOR THE SIX MONTHS FOR THE PERIOD ENDED APRIL 3, 1995* SEPTEMBER 30, 1996 THROUGH MARCH (UNAUDITED) 31, 1996 -------------------- ---------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income..................................... $ 694,865 $ 670,434 Net realized gain/(loss) from investments................. (258,599) 105,601 Net change in unrealized depreciation on investments...... 97,174 (152,392) -------------------- ---------------- Net increase in net assets resulting from operations...... 533,440 623,643 -------------------- ---------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares.......................................... (126,994) (232,740) Class C shares.......................................... (48,460) (84,059) Class Y shares.......................................... (519,411) (353,635) -------------------- ---------------- (694,865) (670,434) -------------------- ---------------- Net realized capital gains Class A shares.......................................... -- (13,644) Class C shares.......................................... -- (5,746) Class Y shares.......................................... -- (35,406) -------------------- ---------------- -- (54,796) -------------------- ---------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares...................... 7,680,122 19,389,794 Cost of shares repurchased................................ (3,810,806) (1,253,726) Shares issued in reinvestment of dividends................ 551,287 381,251 -------------------- ---------------- Net increase in net assets derived from shares of beneficial interest transactions......................... 4,420,603 18,517,319 -------------------- ---------------- Total increase in net assets.............................. 4,259,178 18,415,732 NET ASSETS Beginning of period....................................... 18,440,716 24,984 -------------------- ---------------- End of period............................................. $22,699,894 $ 18,440,716 -------------------- ---------------- -------------------- ----------------
- -------- * Commencement of operations. The accompanying notes are an integral part of the financial statements. 20 THE BEAR STEARNS FUNDS FINANCIAL HIGHLIGHTS Large Cap Value Portfolio ------------------------------------------------------------------------- Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD ENDED SEPTEMBER 30, 1996 APRIL 3, 1995* THROUGH (UNAUDITED) MARCH 31, 1996 ------------------------- ------------------------- CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE** Net asset value, beginning of period........................... $ 15.13 $ 15.08 $ 15.12 $ 12.00 $ 12.00 $ 13.98 ------- ------- ------- ------- ------- ------- Net investment income/(loss)(1)................................ 0.02 -- 0.09 0.06 (0.01) 0.07 Net realized and unrealized gain on investments(2)............. 0.26 0.24 0.23 3.10 3.10 1.16 ------- ------- ------- ------- ------- ------- Net increase in net assets resulting from operations........... 0.28 0.24 0.32 3.16 3.09 1.23 ------- ------- ------- ------- ------- ------- Dividends and distributions to shareholders from Net investment income.......................................... -- -- -- (0.02) -- (0.08) Net realized capital gains..................................... -- -- -- (0.01) (0.01) (0.01) ------- ------- ------- ------- ------- ------- -- -- -- (0.03) (0.01) (0.09) ------- ------- ------- ------- ------- ------- Net asset value, end of period................................. $ 15.41 $ 15.32 $ 15.44 $ 15.13 $ 15.08 $ 15.12 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment return(3)..................................... 1.85% 1.59% 2.12% 26.35% 25.71% 8.75%(4) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted)...................... $ 5,696 $ 4,096 $13,072 $ 3,616 $ 3,520 $ 3,413 Ratio of expenses to average net assets(1)(5).................. 1.50% 2.00% 1.00% 1.50% 2.00% 1.00% Ratio of net investment income/(loss) to average net assets(1)(5).................................................. 0.49% -- 1.09% 0.46% (0.06)% 0.76%(4) Decrease reflected in above expense ratios and net investment income/(loss) due to waivers and reimbursements(5)............ 1.77% 1.81% 1.67% 4.34% 4.39% 4.41%(4) Portfolio turnover rate(6)..................................... 34.01% 34.01% 34.01% 45.28% 45.28% 45.28% Average commission rate per share(7)........................... $0.0596 $0.0596 $0.0596 $0.0596 $0.0596 $0.0596
- --------- * Commencement of operations. Commenced investment operations on April 4, 1995. Class Y shares commenced its initial public offering on September 11, 1995. ** Calculated based on shares outstanding on the first and last day of the respective periods, except for dividends and distributions, if any, which are based on actual shares outstanding on the dates of distributions. (1) Reflects waivers and reimbursements. (2) The amounts shown for a share outstanding throughout the respective periods are not in accord with the changes in the aggregate gains and losses in investments during the respective periods because of the timing of sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective periods. (3) Total investment return does not consider the effects of sales loads 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, if any. Total investment returns are not annualized. (4) The total investment return and ratios for class Y shares are not necessarily comparable to those of class A and C shares, due to timing differences in the commencement of the initial public offering of class Y shares. (5) Annualized. (6) Not annualized. (7) Represents average commission rate per share charged to the Portfolio on purchases and sales of investments during each period. The accompanying notes are an integral part of the financial statements. 21 THE BEAR STEARNS FUNDS FINANCIAL HIGHLIGHTS Small Cap Value Portfolio ------------------------------------------------------------------------- Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD ENDED SEPTEMBER 30, 1996 APRIL 3, 1995* THROUGH (UNAUDITED) MARCH 31, 1996 --------------------------------- ----------------------------------- CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y --------- --------- --------- --------- --------- ----------- PER SHARE OPERATING PERFORMANCE** Net asset value, beginning of period............ $ 15.87 $ 15.79 $ 15.85 $ 12.00 $ 12.00 $ 13.09 --------- --------- --------- --------- --------- ----------- Net investment loss(1).......................... (0.07) (0.10) (0.03) (0.07) (0.10) -- Net realized and unrealized gain on investments(2)................................. 1.87 1.83 1.85 4.17 4.11 3.05 --------- --------- --------- --------- --------- ----------- Net increase in net assets resulting from operations..................................... 1.80 1.73 1.82 4.10 4.01 3.05 --------- --------- --------- --------- --------- ----------- Distributions to shareholders from Net realized capital gains...................... -- -- -- (0.23) (0.22) (0.29) --------- --------- --------- --------- --------- ----------- Net asset value, end of period.................. $ 17.67 $ 17.52 $ 17.67 $ 15.87 $ 15.79 $ 15.85 --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- ----------- Total investment return(3)...................... 11.34% 10.96% 11.48% 34.36% 33.59% 23.52%(4) --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- ----------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted)....... $ 11,409 $ 12,495 $ 16,711 $ 6,474 $ 6,753 $ 8,989 Ratio of expenses to average net assets(1)(5)... 1.50% 2.00% 1.00% 1.50% 2.00% 1.00% Ratio of net investment loss to average net assets(1)(5)................................... (0.88)% (1.38)% (0.38)% (0.66)% (1.09)% -- Decrease reflected in above expense ratios and net investment loss due to waivers and reimbursements(5).............................. 1.09% 1.08% 1.08% 2.32% 2.39% 2.45%(4) Portfolio turnover rate(6)...................... 12.96% 12.96% 12.96% 40.79% 40.79% 40.79% Average commission rate per share(7)............ $ 0.0559 $ 0.0559 $ 0.0559 $ 0.0572 $ 0.0572 $ 0.0572
- -------- * Commencement of operations. Commenced investment operations on April 3, 1995. Class Y shares commenced its initial public offering on June 22, 1995. ** Calculated based on shares outstanding on the first and last day of the respective periods, except for dividends and distributions, if any, which are based on actual shares outstanding on the dates of distributions. (1) Reflects waivers and reimbursements. (2) The amounts shown for a share outstanding throughout the respective periods are not in accord with the changes in the aggregate gains and losses in investments during the respective periods because of the timing of sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective periods. (3) Total investment return does not consider the effects of sales loads 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, if any. Total investment returns are not annualized. (4) The total investment return and ratios for class Y shares are not necessarily comparable to those of class A and C shares, due to timing differences in the commencement of the initial public offering of class Y shares. (5) Annualized. (6) Not annualized. (7) Represents average commission rate per share charged to the Portfolio on purchases and sales of investments during each period. The accompanying notes are an integral part of the financial statements. 22 THE BEAR STEARNS FUNDS FINANCIAL HIGHLIGHTS Total Return Bond Portfolio ------------------------------------------------------------------------- Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE PERIOD ENDED SEPTEMBER 30, 1996 APRIL 3, 1995* THROUGH (UNAUDITED) MARCH 31, 1996 --------------------------- --------------------------- CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE** Net asset value, beginning of period........................... $12.26 $12.26 $ 12.26 $12.00 $12.00 $ 12.35 ------- ------- ------- ------- ------- ------- Net investment income(1)....................................... 0.36 0.33 0.38 0.71 0.67 0.41 Net realized and unrealized gain/(loss) on investments(2)...... (0.11) (0.11) (0.11) 0.30 0.30 (0.05) ------- ------- ------- ------- ------- ------- Net increase in net assets resulting from operations........... 0.25 0.22 0.27 1.01 0.97 0.36 ------- ------- ------- ------- ------- ------- Dividends and distributions to shareholders from Net investment income.......................................... (0.36) (0.33) (0.38) (0.71) (0.67) (0.41) Net realized capital gains..................................... -- -- -- (0.04) (0.04) (0.04) ------- ------- ------- ------- ------- ------- (0.36) (0.33) (0.38) (0.75) (0.71) (0.45) ------- ------- ------- ------- ------- ------- Net asset value, end of period................................. $12.15 $12.15 $ 12.15 $12.26 $12.26 $ 12.26 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment return(3)..................................... 2.18% 1.97% 2.37% 8.54% 8.13% 2.92%(4) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- RATIOS/SUPPLEMENTAL DATA(7) Net assets, end of period (000's omitted)...................... $4,323 $1,828 $16,549 $4,467 $1,775 $12,199 Ratio of expenses to average net assets(1)(5).................. 0.80% 1.20% 0.45% 0.85% 1.25% 0.45% Ratio of net investment income to average net assets(1)(5)..... 5.81% 5.40% 6.17% 5.76% 5.38% 5.93%(4) Decrease reflected in above expense ratios and net investment income due to waivers and reimbursements(5)................... 1.83% 1.82% 1.83% 2.87% 2.95% 2.89%(4) Portfolio turnover rate(6)..................................... 116.85% 116.85% 116.85% 107.35% 107.35% 107.35%
- -------- * Commencement of operations. Commenced investment operations on April 5, 1995. Class Y shares commenced its initial public offering on September 8, 1995. ** Calculated based on shares outstanding on the first and last day of the respective periods, except for dividends and distributions, if any, which are based on actual shares outstanding on the dates of distributions. (1) Reflects waivers and reimbursements. (2) The amounts shown for a share outstanding throughout the respective periods are not in accord with the changes in the aggregate gains and losses in investments during the respective periods because of the timing of sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective periods. (3) Total investment return does not consider the effects of sales loads 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, if any. Total investment returns are not annualized. (4) The total investment return and ratios for class Y shares are not necessarily comparable to those of class A and C shares, due to timing differences in the commencement of the initial public offering of class Y shares. (5) Annualized. (6) Not annualized. (7) Average commission rate per share disclosure is required for fiscal years beginning on or after September 1, 1995. The Portfolio incurred no such charges. The accompanying notes are an integral part of the financial statements. 23 THE BEAR STEARNS FUNDS Large Cap Value Portfolio Small Cap Value Portfolio Total Return Bond 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 has five separate portfolios in operation: three diversified portfolios, Large Cap Value Portfolio ("Large Cap"), Small Cap Value Portfolio ("Small Cap") and Total Return Bond Portfolio ("Bond Portfolio") (collectively, the "Portfolios") and two non-diversified portfolios, The Insiders Select Fund and S&P STARS Portfolio. 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. As of the date hereof, each Portfolio offers three classes of shares, which have been designated as class A, C and Y shares. ORGANIZATIONAL MATTERS--Prior to commencing operations on April 3, 1995, the Portfolios did not have any transactions other than those relating to organizational matters and the sale of 1,042, 1,042 and 1,041 class A shares and 1,042, 1,042 and 1,041 class C shares of beneficial interest of Large Cap, Small Cap and Bond Portfolio, respectively, to Bear, Stearns & Co. Inc., ("Bear Stearns" or the "Distributor"). Costs of $99,875, $107,203 and $76,571 which were incurred by Large Cap, Small Cap and Bond Portfolio, respectively, in connection with the organization, registration with the Commission and initial public offering of its shares, have been deferred and are being amortized using the straight-line method over the period of benefit not exceeding sixty months, beginning with the commencement of investment operations of each Portfolio. The Portfolios commenced investment operations on April 4, 1995, April 3, 1995 and April 5, 1995 for Large Cap, Small Cap and Bond Portfolio, respectively. In the event that the Distributor or any transferee of the Distributor redeems any of its original shares in any of the Portfolios prior to the end of the sixty month period, the proceeds of the redemption payable in respect of such shares shall be reduced by the pro rata share (based on the proportionate share of the original shares redeemed to the total number of original shares outstanding at the time of the redemption) of the unamortized deferred organization expenses as of the date of such redemption. In the event that any of the Portfolios are liquidated prior to the end of the sixty month period, the Distributor or the transferee of the Distributor shall bear the unamortized deferred organization expenses. PORTFOLIO VALUATION--Each Portfolio calculates the net asset value of and completes orders to purchase or repurchase its shares of beneficial interest on each business day, with the exception of those days on which the New York Stock Exchange is closed. The Equity Portfolios' (consisting of Large Cap and Small Cap) securities, including covered call options written by the Equity Portfolios, are valued at the last sale price on the securities exchange or national securities market on which such securities primarily are traded. Securities not listed on an exchange or national securities market, or securities in which there were no transactions, are valued at the average of the most recent bid and asked prices, except in the case of open short positions where the asked price is used for valuation purposes. Bid price is used when no asked price is available. For the Bond Portfolio, substantially all of the investments (including short-term investments) are valued at each business day by one or more independent pricing services (the "Service") approved by the Fund's Board of Trustees. Securities valued by the Service for which quoted bid prices in the judgment of the Service are readily available and are representative of the bid side of the market, are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Securities which mature in 60 days or less are valued at amortized cost, which approximates market value, unless this method does not represent fair value. Expenses and fees, including the investment advisory, administration and distribution fees, are accrued daily and taken into account for the purpose of determining the net asset value of a Portfolio's shares. Because of the differences in operating expenses incurred by each class, the per share net asset value of each class will differ. 24 INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are recorded on the trade date (the date on which the order to buy or sell is executed). Realized gains and losses from securities are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Discounts are treated as adjustments to interest income and identified costs of investments over the lives of respective investments. The Equity Portfolios' net investment income (other than distribution fees) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class at the beginning of the day (after adjusting for current capital share activity of the respective classes). The Bond Portfolio's net investment income (other than distribution 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. 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. DIVIDENDS AND DISTRIBUTIONS--Each Equity Portfolio intends to distribute at least annually to shareholders substantially all of its net investment income. The Bond Portfolio declares dividends from net investment income on each day the New York Stock Exchange is open for business. These dividends on the Bond Portfolio 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 all Portfolios. 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. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES During the six months ended September 30, 1996, Bear Stearns Funds Management Inc. ("BSFM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., serves as the investment adviser pursuant to an Investment Advisory Agreement with each Portfolio. The Adviser is entitled to receive from the Portfolios a monthly fee equal to an annual rate of 0.75% of each Equity Portfolio's average daily net assets and 0.45% of the Bond Portfolio's average daily net assets. During the six months ended September 30, 1996, BSFM (or the "Administrator") serves as administrator to each Portfolio pursuant to an Administration Agreement. The Administrator is entitled to receive from each Portfolio a monthly fee equal to an annual rate of 0.15% of each Portfolio's average daily net assets. Under the terms of an Administrative Services Agreement with each Portfolio, PFPC Inc. provides certain administrative services to each Portfolio. For providing these services, PFPC Inc. is entitled to receive from each Portfolio a monthly fee equal to an annual rate of 0.10% of the Portfolio's average daily net assets up to $200 million, 0.075% of the next $200 million, 0.05% of the next $200 million and 0.03% of net assets above $600 million, subject to a minimum annual fee of $132,000 for each Portfolio. During the six months ended September 30, 1996, PFPC Inc. has voluntarily waived a portion of its fee. These fees are computed daily and paid monthly, and are subject to reduction in any year to the extent that a Portfolio's expenses (exclusive of brokerage commissions, distribution fees, taxes, interest and extraordinary items) exceed the most stringent limits prescribed by the laws or regulations of any state in which the Portfolio's shares are offered for sale, based on the average total net assets of the Portfolio. The Portfolios will not pay BSFM at a later time for any amounts it may waive, nor will the Portfolios reimburse BSFM for any amounts it may assume. During the six months ended September 30, 1996, the Adviser has voluntarily undertaken to limit each Equity Portfolio's total operating expenses (exclusive of brokerage commissions, taxes, interest and extraordinary items) to a maximum annual level of 1.50% of the average daily net assets of its class A shares, 2.00% of the average daily net assets of its class C shares and 1.00% of the average daily net assets of its class Y shares. During the period April 3, 1995 through August 31, 1995, the Adviser had voluntarily undertaken to limit the total operating expenses (exclusive of brokerage commissions, taxes, interest and extraordinary items) of the Bond Portfolio, to a maximum annual level of 1.00%, 1.40%, and 0.65% of such Portfolio's average daily net assets for class A, C and Y shares, respectively. Effective September 1, 1995, the total operating expenses (exclusive of brokerage commissions, taxes, interest and extraordinary items) were further reduced by the Adviser with respect to the Bond Portfolio only, to a maximum annual level of 25 0.80%, 1.20% and 0.45% of the Bond Portfolio's average daily net assets for class A, C and Y shares, respectively. 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, 1996, the Adviser waived advisory fees of $80,363, $127,493 and $51,715 for Large Cap, Small Cap and Bond Portfolio, respectively. In addition, the Adviser reimbursed $83,708, $48,697 and $139,381 for Large Cap, Small Cap and Bond Portfolio, respectively, in order to maintain the voluntary expense limitation. For the six months ended September 30, 1996, Bear Stearns, an affiliate of the Adviser and the Administrator, earned approximately $585 and $5,266 in brokerage commissions from portfolio transactions executed on behalf of Large Cap and Small Cap, respectively. Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies Inc. and an affiliate of the Adviser and the Administrator, serves as custodian to the Portfolios. DISTRIBUTION PLAN The Fund, on behalf of each Portfolio, has entered into a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the Plan in effect for the six months ended September 30, 1996, the Equity Portfolios each paid Bear Stearns a fee at an annual rate of 0.50% for class A shares and 1.00% for class C shares and the Bond Portfolio paid Bear Stearns a fee at an annual rate of 0.35% for class A shares and 0.75% for class C shares. Such fees are based on the average daily net assets in each class of the respective Portfolios and are accrued daily and paid monthly or at such other intervals as the Board of Trustees may determine. The fees paid to Bear Stearns under the Plan are payable without regard to actual expenses incurred. For the six months ended September 30, 1996, Bear Stearns earned $30,296, $75,274 and $14,397 for Large Cap, Small Cap and Bond Portfolio, respectively, in distribution fees. Bear Stearns uses these fees to pay its dealers whose clients hold Portfolio shares and for other distribution-related activities. 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. As a result of an undertaking by the Distributor, it reallowed or will reallow all of the sales charges to its dealers selling Portfolio shares for the period April 3, 1995 (commencement of operations) through September 26, 1995 and the period February 15, 1996 through June 30, 1996. Furthermore, the Distributor has increased the compensation paid to its dealers selling Portfolio shares on net asset value transfers (purchases made by investors with the proceeds from a redemption of shares of an investment company sold with a sales charge or commission and not distributed by Bear Stearns) from 0.50% to 1.00% beginning April 15, 1996 until further notice. In addition, Bear Stearns advanced 1.00% in sales commissions on the sale of class C shares to dealers at the time of such sales. For the six months ended September 30, 1996, Bear Stearns has advised each Portfolio that it received approximately $29,000, $143,000 and $12,000 in front-end sales charges resulting from sales of class A shares of Large Cap, Small Cap and Bond Portfolio, respectively. From these fees, Bear Stearns paid such sales charges to dealers which in turn paid commissions to sales persons. In addition, Bear Stearns has advised Large Cap, Small Cap and Bond Portfolio that during the period, it received approximately $2,000, $4,000 and $100 from the Portfolios, respectively, in contingent deferred sales charges upon certain redemptions by class C shareholders. INVESTMENTS IN SECURITIES For U.S. federal income tax purposes, the costs of securities owned at September 30, 1996 were $23,588,054, $35,781,227 and $23,238,818 for Large Cap, Small Cap and Bond Portfolio, respectively. Accordingly, the net unrealized appreciation/(depreciation) of investments are as follows:
NET APPRECIATION/ PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------ ------------ ------------ ---------------- Large Cap..................... $2,042,523 $(1,027,402) $1,015,121 Small Cap..................... 7,136,815 (1,829,430) 5,307,385 Bond Portfolio................ 90,153 (146,592) (56,439)
26 For the six months ended September 30, 1996, aggregate purchases and sales of investment securities (excluding short-term investments) for each Portfolio were as follows:
PORTFOLIO PURCHASES SALES - ------------------------------ ------------ ------------ Large Cap..................... $18,740,877 $ 6,720,995 Small Cap..................... 20,095,075 4,279,122 Bond Portfolio................ 28,110,400 24,441,738
SHARES OF BENEFICIAL INTEREST Each Portfolio offers class A, C and Y shares. Class A shares are sold with a front-end sales charge of up to 4.75% (3.75% in the case of the Bond Portfolio). Class C shares are sold with a contingent deferred sales charge ("CDSC") of 1.00% during the first year. There is no sales charge or CDSC on class Y shares, which are offered primarily to institutional investors. At September 30, 1996, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized for each Portfolio, of which Bear Stearns owned 63,675, 73,811 and 59,598 of class A shares and 63,564, 73,763 and 59,598 of class C shares of Large Cap, Small Cap and Bond Portfolio, respectively. Transactions in the classes of shares of beneficial interest were as follows:
LARGE CAP(1) SMALL CAP(2) BOND PORTFOLIO(3) --------------------------------- -------------------------------- --------------------------------- CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------- FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 SALES: Shares......... 139,065 46,377 963,050 315,737 353,228 464,653 26,988 6,812 599,927 Amount......... $2,123,738 $ 692,576 $14,542,194 $5,372,798 $6,080,991 $7,814,632 $ 326,349 $ 82,586 $ 7,271,187 REINVESTMENTS: Shares......... -- -- -- -- -- -- 6,631 2,240 36,613 Amount......... -- -- -- -- -- -- $ 80,389 $ 27,147 $ 443,751 REPURCHASES: Shares......... 8,454 12,447 342,012 77,914 67,900 85,952 42,250 3,360 269,462 Amount......... $ 125,466 $ 188,097 $ 5,198,143 $1,313,561 $1,144,964 $1,496,061 $ 510,442 $ 40,765 $ 3,259,599 FOR THE PERIOD APRIL 3, 1995* THROUGH MARCH 31, 1996 SALES: Shares......... 315,696 233,174 230,011 670,342 431,865 564,644 412,635 146,761 1,013,077 Amount......... $4,132,049 $3,029,455 $ 3,332,025 $9,119,686 $5,897,544 $8,187,086 $5,005,133 $1,778,698 $12,605,963 REINVESTMENTS: Shares......... 332 68 211 3,827 4,544 8,725 11,440 3,450 15,678 Amount......... $ 4,945 $ 1,009 $ 3,134 $ 55,602 $ 65,802 $ 126,525 $ 142,125 $ 42,916 $ 196,210 REPURCHASES: Shares......... 78,059 865 4,509 267,203 9,820 6,293 60,606 6,447 33,443 Amount......... $1,135,562 $ 12,818 $ 66,600 $3,916,200 $ 142,216 $ 92,770 $ 761,370 $ 81,056 $ 411,300
- --------- * Commencement of operations. (1) Commenced investment operations on April 4, 1995, class Y shares commenced its initial public offering on September 11, 1995. (2) Commenced investment operations on April 3, 1995, class Y shares commenced its initial public offering on June 22, 1995. (3) Commenced investment operations on April 5, 1995, class Y shares commenced its initial public offering on September 8, 1995. CREDIT AGREEMENT The Fund, on behalf of the Portfolios, has entered into a credit agreement with The First National Bank of Boston. S&P STARS Fund, The Insiders Select Fund, S&P STARS Portfolio and Bear Stearns Investment Trust, which consists of the Emerging Markets Debt Portfolio, are also parties to the credit agreement. The agreement provides that each party to the credit agreement is permitted to borrow in an amount up to 15% of the value of its total assets. Subject to Board approval and upon making necessary disclosure in its 27 prospectus, each portfolio may, in accordance with the provisions of the credit agreement, borrow up to 25% of the value of its total assets, less all liabilities other than liabilities for borrowed money outstanding at the time. However, at no time is the aggregate outstanding principal amount of all loans to any of the portfolios to exceed $25,000,000. The line of credit will bear interest at the greater of: (i) the annual rate of interest announced from time to time from the bank at its head office as its Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or at the borrower's option, the rate quoted by The First National Bank of Boston. Each loan is payable on demand or upon termination of this credit agreement or, for money market loans, on the last day of the interest period and, in any event, not later than 14 days from the date the loan was advanced. The Portfolios use the facility to borrow money only for temporary or emergency (not leveraging) purposes. Large Cap, Small Cap and Bond Portfolio had no amounts outstanding under the line of credit agreement at September 30, 1996. 28 -----END PRIVACY-ENHANCED MESSAGE-----