-----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, BngxGdzK6Bse+h0alXTbJ9J5afqB8XfuDva6t9AOEdGThPpZhdkUpXaNTGyr7eBi MrptNA8J66bBd8ke0Uuc4g== 0000950130-95-002359.txt : 19951118 0000950130-95-002359.hdr.sgml : 19951118 ACCESSION NUMBER: 0000950130-95-002359 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19951109 EFFECTIVENESS DATE: 19951109 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEAR STEARNS FUNDS CENTRAL INDEX KEY: 0000931145 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-84842 FILM NUMBER: 95588983 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-08798 FILM NUMBER: 95588984 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 485BPOS 1 FORM 485BPOS Registration Nos. 33-84842 811-8798 ========================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/ Pre-Effective Amendment No. / / Post-Effective Amendment No. 7 /x/ and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/ Amendment No. 7 /x/ (Check appropriate box or boxes) THE BEAR STEARNS FUNDS (Exact Name of Registrant as Specified in Charter) 245 Park Avenue New York, New York 10167 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (212) 272-2000 Stephen A. Bornstein, Esq. Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 (Name and Address of Agent for Service) copy to: Stuart H. Coleman, Esq. Stroock & Stroock & Lavan 7 Hanover Square New York, New York 10004-2696 It is proposed that this filing will become effective (check appropriate box) ____ immediately upon filing pursuant to paragraph (b) X on November 10, 1995 pursuant to paragraph (b) ------------------------- 60 days after filing pursuant to paragraph (a)(i) ____ on (date) pursuant to paragraph (a)(i) ____ 75 days after filing pursuant to paragraph (a)(ii) ____ on (date) pursuant to paragraph (a)(ii) of Rule 485. If appropriate, check the following box: ____ this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Registrant has registered an indefinite number of shares of its beneficial interest under the Securities Act of 1933 pursuant to Section 24(f) of the Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal year ending March 31, 1996 will be filed on or about May 30, 1996. Cross-Reference Sheet Pursuant to Rule 495(a)
The Insiders Select Items in Portfolio Part A of Class A and Form N-1A Caption Class C Shares - --------- ------- -------------- 1 Cover Cover 2 Synopsis 3 3 Condensed Financial Information 4 4 General Description of Registration 5 5 Management of the Fund 10 5(a) Management's Discussion of Fund's Performance * 6 Capital Stock and Other 25 7 Purchase of Securities Being Offering 15 8 Redemption or Repurchase 21 9 Pending Legal Proceedings * The Insider Items in Select Part A of Portfolio Form N-1A Caption Class Y Shares - --------- ------- -------------- 1 Cover Cover 2 Synopsis 3 3 Condensed Financial Information 4 4 General Description of Registrant 4 5 Management of the Fund 10
Items in The Insider Part A of Select Form N-1A Portfolio - --------- Class Y Shares Caption -------------- ------- 5(a) Management's Discussion of Fund's Performance * 6 Capital Stock and Other Securities 19 7 Purchase of Securities Being Offered 13 8 Redemption or Repurchase 16 9 Pending Legal Proceedings * The Insider Items in Select Part B of Portfolio All Form N-1A Caption Classes - --------- ------- ------------- 10 Cover Page B-1 11 Table of Contents B-1 12 General Information and History * 13 Investment Objectives and Policies B-2 14 Management of the Fund B-12 15 Control Persons and Principal Holders of Securities B-12, B-25 16 Investment Advisory and Other Services B-16 17 Broker Allocation B-22 18 Capital Stock and Other Securities B-25 19 Purchase, Redemption and Pricing of Securities Being Offered B-18, B-19 20 Tax Status B-20
Items in Part B of The Insider Form N-1A Select - --------- Portfolio All Caption Classes ------- ------------- 21 Underwriters B-25 22 Calculations of Performance Data B-24 23 Financial Statements B-26 Items in Part C of All Form N-1A Portfolios - --------- ---------- 24 Financial Statements and Exhibits C-1 25 Persons Controlled by or Under Common Control with Registrant C-3 26 Number of Holders of Securities C-3 27 Indemnification C-3 28 Business and Other connections of Investment Adviser C-4 29 Principal Underwriter C-4 30 Location of Accounts and Records C-6 31 Management Services C-6 32 Undertakings C-6
- ---------- * Omitted since answer is negative or inapplicable T H E B E A R S T E A R N S F U N D S 2 4 5 P A R K A V E N U E N E W Y O R K, N Y 1 0 1 6 7 1 . 8 0 0 . 7 6 6 . 4 1 1 1 PROSPECTUS The Insiders Select Portfolio THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment com- pany, known as a mutual fund. The Fund permits you to invest in separate port- folios. By this Prospectus, shares of The Insiders Select Portfolio, a non-di- versified portfolio (the "Portfolio") are offered. The Portfolio's investment objective is capital appreciation. The Portfolio's sub-investment adviser uses its proprietary IntelliVest(TM) Model to analyze transactions by corporate in- siders, the behavior of financial analysts and the corporate finance activi- ties of the companies themselves to determine which securities to purchase or sell short. By this Prospectus, the Portfolio is offering two Classes of shares. Class A shares are subject to a sales charge imposed at the time of purchase and Class C shares are subject to a 1% contingent deferred sales charge imposed on re- demptions made within the first year of purchase. Other differences between the Classes include the services offered to and the expenses borne by each Class and certain voting rights, as described herein. These alternatives are offered so an investor may choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other circumstances. The Portfolio issues an- other Class of shares which has different expenses which would affect perfor- mance. Investors desiring to obtain information about this Class of shares should call 1-800-766-4111 or ask their sales representative or the Portfo- lio's distributor. BEAR STEARNS FUNDS MANAGEMENT INC. ("BSFM"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., serves as the Portfolio's investment adviser. BSFM has engaged Symphony Asset Management ("Symphony"), a subsidiary of BARRA, Inc., as the Portfolio's sub-investment adviser to manage the Portfo- lio's day-to-day investment activities. BSFM and Symphony are referred to herein collectively as the "Advisers." BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as the Portfolio's distributor. ---------------------- THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE PORTFOLIO THAT YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE REFER- ENCE. Part B (also known as the Statement of Additional Information), dated November 10, 1995, which may be revised from time to time, provides a further discus- sion of certain areas in this Prospectus and other matters which may be of in- terest to some investors. It has been filed with the Securities and Exchange Commission and is incorporated herein by reference. For a free copy, write to the address or call one of the telephone numbers listed under "General Infor- mation" in this Prospectus. ---------------------- Mutual fund shares are not deposits or obligations of, or guaranteed or en- dorsed by, any bank, and are not federally insured by the Federal Deposit In- surance Corporation, the Federal Reserve Board, or any other agency. The net asset value of funds of this type will fluctuate. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC- CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NOVEMBER 10, 1995 Table of Contents
PAGE Fee Table.................................................................. 3 Condensed Financial Information............................................ 4 Alternative Purchase Methods............................................... 4 Description of the Fund.................................................... 5 Risk Factors.............................................................. 9 Management of the Fund..................................................... 10 How to Buy Shares.......................................................... 15 Shareholder Services....................................................... 19 How to Redeem Shares....................................................... 21 Dividends, Distributions and Taxes......................................... 23 Performance Information.................................................... 24 General Information........................................................ 25 Appendix................................................................... A-1
2 Fee Table - -------------------------------------------------------------------------------
CLASS A CLASS C - ------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........................................ 4.75% -- Maximum Deferred Sales Charge Imposed on Redemptions (as a percentage of the amount subject to charge)............... * 1.00% ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Management Fees (after fee waiver)**...................... 0.00%*** 0.00%*** 12b-1 Fees................................................ 0.50% 1.00% Other Expenses (after expense reimbursement)**............ 1.15% 1.15% Total Portfolio Operating Expenses (after fee waiver and expense reimbursement)**.................................. 1.65% 2.15% EXAMPLE You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period: 1 YEAR................................................... $63 $32 3 YEARS.................................................. $97 $68 EXAMPLE You would pay the following expenses on the same investment, assuming no redemption: 1 YEAR................................................... $63 $22 3 YEARS.................................................. $97 $68
- ------ *In certain situations, where no sales charge is assessed at the time of purchase, a contingent deferred sales charge of 1.00% may be imposed on redemptions within the first year after purchase. See "How to Buy Shares-- Class A Shares." **Based on estimated expenses for the current fiscal year. BSFM has undertaken to waive its investment advisory fee and assume certain expenses of the Portfolio other than brokerage fees, extraordinary items and taxes to the extent Total Portfolio Operating Expenses exceed 1.65% for Class A and 2.15% for Class C. Without such waiver and expense reimbursement, Management Fees stated above would be 1.00%, Other Expenses would be 1.77% and Total Portfolio Operating Expenses would be 3.27% for Class A and 3.77% for Class C. ***The Management Fee is payable at an annual rate equal to 1% of the Portfolio's average daily net assets, subject to increase or decrease by up to 0.50% annually depending on the Portfolio's performance. See "Management of the Fund--Investment Adviser" and "--Sub-Investment Adviser." THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDI- CATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%. The purpose of the foregoing table is to assist you in understanding the vari- ous costs and expenses that investors will bear, directly or indirectly, the payment of which will reduce investors' return on an annual basis. Other Ex- penses and Total Portfolio Operating Expenses are based on estimated amounts for the current fiscal year. In addition to the expenses noted above, the Fund will charge $7.50 for each wire redemption. See "How to Redeem Shares." Long- term investors could pay more in 12b-1 fees than the economic equivalent of paying a front-end sales charge. For a further description of the various costs and expenses incurred in the Portfolio's operation, as well as expense reimbursement or waiver arrangements, see "Management of the Fund." 3 Condensed Financial Information The table below sets forth certain information covering the Portfolio's in- vestment results for the period indicated. Further financial data and related notes are included in the Statement of Additional Information which is avail- able upon request. FINANCIAL HIGHLIGHTS Contained below is per share operating performance data, total investment re- turn, ratios to average net assets and other supplemental data for a Class A and Class C share of the Portfolio for the period June 16, 1995 (commencement of investment operations) to September 30, 1995. This information has been de- rived from information provided in the Portfolio's financial statements (unau- dited). - -------------------------------------------------------------------------------
CLASS A CLASS C - ------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period......................... $12.00 $12.00 Net investment income/(loss)+................................ 0.00 (0.01) Net realized and unrealized gain on investments*............. 1.19 1.18 ------- ------ Net increase in net assets from operations................... 1.19 1.17 ------- ------ Net asset value, end of period............................... 13.19 13.17 ======= ====== Total investment return++.................................... 9.92% 9.75% ======= ====== RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted).................... $11,113 $7,226 Ratio of expenses to average net assets+**................... 1.65% 2.15% Ratio of net investment income to average net assets+**...... 0.19% 0.35% Decrease reflected in above expense ratios and net investment income/(loss) due to waivers and reimbursements*............. 1.69% 1.63% Portfolio turnover rate***................................... 8.53% 8.53% Average commission rate per share............................ $0.03 $0.03
- ------ +Reflects waivers and reimbursements. ++Total return does not consider the effects of sales loads or contingent de- ferred sales charges. Total 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 re- turns are not annualized. *The amount shown for a share outstanding throughout the period is not in ac- cord with the change in the aggregate gains and losses in investments during the period because of the timing of sales and repurchases of Portfolio shares in relation to fluctuating net asset value during the period. **Annualized. ***Not annualized. Further information about performance will be contained in the Portfolio's an- nual report, which should be available on or about May 30, 1996, and which may be obtained without charge by writing to the address or calling one of the telephone numbers listed under "General Information." Alternative Purchase Methods BY THIS PROSPECTUS, THE PORTFOLIO OFFERS YOU TWO METHODS OF PURCHASING ITS SHARES. By this Prospectus, the Portfolio offers investors two methods of purchasing its shares; investors may choose the Class of shares that best suits their needs, given the amount of purchase, the length of time the investor expects to hold the shares and any other relevant circumstances. Each Portfolio share represents an identical pro rata interest in the Portfolio's investment port- folio. Class A shares of the Portfolio are sold at net asset value per share plus a maximum initial sales charge of 4.75% of the public offering price imposed at the time of purchase. The initial sales charge may be reduced or waived for certain purchases. See "How to Buy Shares--Class A Shares." 4 The Class A shares of the Portfolio are subject to an annual distribution and shareholder servicing fee at the rate of .50 of 1% of the value of the average daily net assets. See "Management of the Fund--Distribution and Shareholder Servicing Plan." Class C shares of the Portfolio are subject to a 1% contingent deferred sales charge ("CDSC") which is assessed only if Class C shares are redeemed within one year of purchase. See "How to Redeem Shares--Class C Shares." These shares also are subject to an annual distribution and shareholder servicing fee at the rate of 1% of the value of the average daily net assets of Class C. See "Management of the Fund--Distribution and Shareholder Servicing Plan." The distribution and shareholder servicing fee paid by Class C will cause such Class to have a higher expense ratio and to pay lower dividends than Class A. The decision as to which Class of shares is more beneficial to each investor depends on the amount and the intended length of the investor's investment. Each investor should consider whether, during the anticipated life of the in- vestor's investment in the Fund, the accumulated distribution and shareholder servicing fee and CDSC, if any, on Class C shares would be less than the ini- tial sales charge on Class A shares purchased at the same time, and to what extent, if any, such differential would be offset by the return of Class A. Additionally, investors qualifying for reduced initial sales charges who ex- pect to maintain their investment for an extended period of time might con- sider purchasing Class A shares because the accumulated continuing distribu- tion and shareholder servicing fees on Class C shares may exceed the initial sales charge on Class A shares during the life of the investment. Finally, each investor should consider the effect of the CDSC period in the context of the investor's own investment time frame. Generally, Class A shares may be more appropriate for investors who invest $1,000,000 or more in the Portfo- lio's shares, but will not be appropriate for investors who invest less than $50,000 in the Portfolio's shares, unless they intend to hold those shares for more than 10 years. Description of the Fund GENERAL THE FUND IS A "SERIES FUND." The 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 of 1940, as amended (the "1940 Act"), and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. As described below, for certain matters Fund shareholders vote together as a group; as to others they vote separately by portfolio. By this Prospectus, shares of the Portfolio are being offered. From time to time, other portfolios may be established and sold pursuant to other offering documents. See "General Information." INVESTMENT OBJECTIVE THE PORTFOLIO SEEKS TO PROVIDE CAPITAL APPRECIATION. The Portfolio's investment objective is capital appreciation. The Portfolio's investment objective cannot be changed without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. There can be no assurance that the Portfolio's investment objective will be achieved. INTELLIVEST(TM) MODEL THE INTELLIVEST(TM) MODEL IS SYMPHONY'S PROPRIETARY METHODOLOGY FOR SELECTING A COMPANY'S SECURITIES BY ANALYZING THE BEHAVIOR OF CORPORATE INSIDERS, FINANCIAL ANALYSTS AND THE COMPANY ITSELF. Symphony has developed a proprietary methodology (the "IntelliVest(TM) Model") for analyzing the behavior of (i) corporate insiders--officers, directors and significant stockholders--through an analysis of their publicly filed reports of their trading activities in the equity securities of the companies for which they are insiders, (ii) financial analysts, through an analysis of their published reports about covered companies, including predicted earnings and revisions to predicted earnings, and (iii) the company itself, through an analysis of its behavior as to corporate finance matters, such as stock repur- chase programs, dividend policies and new securities issuance. 5 Corporate insiders are believed by Symphony to be in the best position to un- derstand the near term prospects of their companies. Symphony believes that insider behavior can be observed and analyzed since insiders are required to disclose transactions in their company's equity securities to the Securities and Exchange Commission generally no later than the tenth day of the month following the transaction. Each month many thousands of these disclosures are received. Symphony believes that the laborious process of collecting, classi- fying and analyzing these transactions using the IntelliVest(TM) Model pro- vides valuable investment management information. These INSIDERS may have many reasons for transacting in company stock and stock options. Many of these are entirely incidental to the future of the com- pany. For example, an insider may sell stock to buy a home or finance a col- lege education for his or her child. Likewise a new management team may wish to signal confidence in the company by making token purchases of the company's equity. Many other transactions, however, are related directly to the insid- er's beliefs about the near-term price expectations for the company's stock. An insider who exercises long-term options early for small profits likely be- lieves the stock soon will decline. Insiders who exercise options, hold the stock, and buy in the open market probably believe that the stock soon will rise. Clusters of insiders making substantial buys or sells indicate broad agreement within a firm as to the direction of the stock. FINANCIAL ANALYSTS use a variety of means to learn more about the companies they follow. Among these are visits to the company and in-depth discussions with management. Successful analysts learn to interpret the words and actions of management and the firm itself. Likewise, management uses its discussions with certain analysts as a means of signaling their views to the marketplace. Symphony has a computer model of analysts' predicted earnings and ratings. This model tracks the behavior of analysts as they have revised predicted earnings and the ratings of a company's prospects in the market. Symphony be- lieves that analysts' revisions can be a valuable indicator of future returns for the company's stock. Part of the normal activity of EVERY PUBLIC COMPANY is its financing deci- sions. A company must routinely decide whether to maintain or change its divi- dend policy, whether to buy its own stock in the open market or whether to is- sue new securities. From time to time the firm may decide that its stock is undervalued. Many firms see undervaluation as an opportunity to purchase the company's stock in the open market. Symphony believes that by monitoring changes in shares outstanding (in the hands of the public), a useful signal can be extracted relating to the firm's beliefs about its prospects. Similar- ly, the company's decision to sell securities to the public or another firm can be an indication that the company believes that its stock has reached a near-term high, a potentially useful sell signal. Insiders, analysts and the company each send signals that can be analyzed us- ing the IntelliVest(TM) Model to produce valuable information about the pros- pects for individual companies. Symphony believes that the most powerful anal- ysis, however, comes from the interaction of all three sources. While no one signal alone determines whether a security will be purchased or sold, no secu- rity will be considered for purchase or sale using the IntelliVest(TM) Model unless a positive or negative signal, as the case may be, is received from in- sider behavior. In its analysis, the IntelliVest(TM) Model uses only data that is available to the public. Symphony obtains the data on insider trading ac- tivity from CDA/Investnet, which compiles this information from publicly available Securities and Exchange Commission filings. Symphony's research team has devoted three years of research to developing the framework necessary to analyze the behavior of each of these sources and the interaction among them. MANAGEMENT POLICIES THE PORTFOLIO SEEKS TO INVEST PRIMARILY IN EQUITY SECURITIES THAT, AT THE TIME OF PURCHASE, ARE BELIEVED BY SYMPHONY, USING DATA FROM THE INTELLIVEST(TM) MODEL, TO PROVIDE OPPORTUNITIES FOR CAPITAL APPRECIATION OR GAINS THROUGH SHORT SELLING. Under normal market conditions, Symphony invests substantially all of the Portfolio's assets in the equity securities of U.S. issuers. Using data from the IntelliVest(TM) Model, Symphony selects equity securities believed by it to provide opportunities for capital appreciation or gains through short sell- ing. Issuers are selected without regard to market capitalization, although Symphony anticipates that the issuers principally will be mid- to large capi- talization companies; that is, those with market capitalizations exceeding $1 billion. 6 Symphony seeks to use the IntelliVest(TM) Model to select all the Portfolio's securities. The IntelliVest(TM) Model, however, should not be expected to pro- vide data sufficient to permit the Portfolio's entire portfolio to be invested in its selections. For its remaining assets invested in equity securities, Symphony will use an analytic valuation model created by the active strategies group of BARRA, Inc., Symphony's parent, to select from the universe of U.S. equity securities those securities it believes, in the aggregate, will approx- imate or exceed the total return performance of the Standard & Poor's 500 Stock Index* (the "S&P 500 Index"). The S&P 500 Index is composed of 500 se- lected common stocks, most of which are listed on the New York Stock Exchange. The composition of the S&P 500 Index is determined by Standard & Poor's Corpo- ration based on such factors as the market capitalization and trading activity of each stock and its adequacy as a representative of stocks in a particular industry group, and may be changed from time to time. The weightings of stocks in the S&P 500 Index are based on each stock's relative total market capital- ization; that is, its market price per share times the number of shares out- standing. Because of this weighting, as of September 30, 1995, approximately 46% of the S&P 500 Index was composed of the 50 largest companies. The Portfo- lio will not invest in all or substantially all of the common stocks included in the S&P 500 Index and may invest in stocks that are not included in the S&P 500 index. The Portfolio expects ordinarily to invest in approximately 60 to 150 stocks. By investing in this manner--that is, using its IntelliVest(TM) Model and pur- chasing other equity securities in a manner intended to approximate or exceed the performance of the S&P 500 Index--Symphony seeks to exceed the total re- turn of the S&P 500 Index. Equity securities consist of common stocks, convertible securities and pre- ferred stocks. The convertible securities and preferred stocks in which the Portfolio may invest will be rated at least investment grade by a nationally recognized statistical rating organization at the time of purchase. Convert- ible securities rated in the lowest investment grade rating may be considered to have speculative characteristics. Preferred stock generally receives divi- dends before distributions are paid on common stock and ordinarily has a pri- ority claim over common stockholders if the issuer of the stock is liquidated. The Portfolio may invest, in anticipation of investing cash positions, in money market instruments consisting of U.S. Government securities, certifi- cates of deposit, time deposits, bankers' acceptances, short-term investment grade corporate bonds and other short-term debt instruments, and repurchase agreements, as set forth in the Appendix. Under normal market conditions, the Portfolio expects to have less than 15% of its assets invested in money market instruments. However, when Symphony determines that adverse market conditions exist, the Portfolio may adopt a temporary defensive posture and invest all of its assets in money market instruments. INVESTMENT TECHNIQUES THE PORTFOLIO MAY ENGAGE IN SHORT SELLING, LENDING PORTFOLIO SECURITIES AND OPTIONS AND FUTURES TRANSACTIONS, EACH OF WHICH INVOLVES RISK. The Portfolio may engage in various investment techniques, such as short sell- ing, lending portfolio securities and options and futures transactions, each of which involves risk. Options and futures transactions involve "derivative securities." Short selling and futures transactions are discussed below. For a discussion of these other investment techniques and their related risks, see "Appendix--Investment Techniques" and "Risk Factors" below. SHORT SELLING. Short sales are transactions in which the Portfolio sells a se- curity it does not own in anticipation of a decline in the market value of that security. To complete such a transaction, the Portfolio must borrow the security to make delivery to the buyer. The Portfolio then is obligated to re- place the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Portfolio. Until the security is replaced, the Portfolio is required to pay to the lender amounts equal to any dividend which accrues during the period of the loan. To borrow the security, the Port- folio also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the bro- ker, to the extent necessary to meet margin requirements, until the short po- sition is closed out. - ------ *"Standard & Poor's," "S&P(R)" and "S&P 500(R)" are trademarks of Standard & Poor's Corporation. The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation. 7 Until the Portfolio replaces a borrowed security in connection with a short sale, the Portfolio will: (a) maintain daily a segregated account, containing cash, cash equivalents or U.S. Government securities, at such a level that (i) the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the secu- rity at the time it was sold short; or (b) otherwise cover its short position in accordance with positions taken by the Staff of the Securities and Exchange Commission. The Portfolio will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the Portfolio replaces the borrowed security. The Portfolio will realize a gain if the security declines in price between those dates. This result is the opposite of what one would expect from a cash purchase of a long position in a security. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium or amounts in lieu of interest the Portfolio may be required to pay in connection with a short sale. The Portfolio may purchase call options to provide a hedge against an increase in the price of a security sold short by the Portfolio. See "Appendix--Investment Techniques--Options Transactions." The Portfolio anticipates that the frequency of short sales will vary substan- tially in different periods, and it does not intend that any specified portion of its assets, as a matter of practice, will be invested in short sales. How- ever, no securities will be sold short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 25% of the value of the Portfolio's net assets. The Portfolio may not sell short the securities of any single issuer listed on a national securities ex- change to the extent of more than 5% of the value of its net assets. The Port- folio may not sell short the securities of any class of an issuer to the ex- tent, at the time of the transaction, of more than 2% of the outstanding secu- rities of that class. In addition to the short sales discussed above, the Portfolio may make short sales "against the box," a transaction in which the Portfolio enters into a short sale of a security which the Portfolio owns. The proceeds of the short sale will be held by a broker until the settlement date at which time the Portfolio delivers the security to close the short position. The Portfolio re- ceives the net proceeds from the short sale. The Portfolio at no time will have more than 15% of the value of its net assets in deposits on short sales against the box. It currently is anticipated that the Portfolio will make short sales against the box for purposes of protecting the value of the Port- folio's net assets. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may enter into stock index futures contracts, and options with respect thereto, in U.S. domestic markets. See "Appendix--Investment Techniques--Options Transactions." These transactions will be entered into as a substitute for comparable market positions in the underlying securities or for hedging purposes. Although the Portfolio is not a commodity pool, it is subject to rules of the Commodity Futures Trading Commission (the "CFTC") limiting the extent to which it may engage in these transactions. The Portfolio's commodities transactions must constitute bona fide hedging or other permissible transactions pursuant to regulations promulgated by the CFTC. In addition, the Portfolio may not engage in such transactions if the sum of the amount of initial margin deposits and premiums paid for unexpired commodity options, other than for bona fide hedging transactions, would exceed 5% of the liquidation value of the Portfolio's assets, after taking into ac- count unrealized profits and unrealized losses on such contracts it has en- tered into; provided, however, that in the case of an option that is in-the- money at the time of purchase, the in-the-money amount may be excluded in cal- culating the 5%. To the extent the Portfolio engages in the use of futures and options on futures for other than bona fide hedging purposes, the Portfolio may be subject to additional risk. Engaging in these transactions involves risk of loss to the Portfolio which could adversely affect the value of a shareholder's investment. Although the Portfolio intends to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid mar- ket will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permit- ted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified pe- riods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby pre- venting prompt liquidation of futures positions and potentially subject- 8 ing the Portfolio to substantial losses. In addition, engaging in futures transactions in foreign markets may involve greater risks than trading on do- mestic exchanges. Successful use of futures by the Portfolio also is subject to Symphony's abil- ity to predict correctly movements in the direction of the market or foreign currencies and, to the extent the transaction is entered into for hedging pur- poses, to ascertain the appropriate correlation between the transaction being hedged and the price movements of the futures contract. For example, if the Portfolio has hedged against the possibility of a decline in the market ad- versely affecting the value of securities held in its portfolio and prices in- crease instead, the Portfolio will lose part or all of the benefit of the in- creased value of securities which it has hedged because it will have offset- ting losses in its futures positions. In addition, in such situations, if the Portfolio has insufficient cash, it may have to sell securities to meet daily variation margin requirements. Such sales of securities may, but will not nec- essarily, be at increased prices which reflect the rising market. The Portfo- lio may have to sell securities at a time when it may be disadvantageous to do so. Pursuant to regulations and/or published positions of the Securities and Ex- change Commission, the Portfolio may be required to segregate cash or high quality money market instruments in connection with its commodities transac- tions in an amount generally equal to the value of the underlying commodity. The segregation of such assets will have the effect of limiting the Portfo- lio's ability otherwise to invest those assets. FUTURE DEVELOPMENTS. The Portfolio may take advantage of opportunities in the area of options and futures contracts, options on futures contracts and any other derivative investments which are not presently contemplated for use by the Portfolio or which are not currently available but which may be developed, to the extent such opportunities are both consistent with the Portfolio's in- vestment objective and legally permissible for the Portfolio. Before entering into such transactions or making any such investment, the Portfolio will pro- vide appropriate disclosure in its prospectus. CERTAIN FUNDAMENTAL POLICIES CERTAIN OF THE PORTFOLIO'S INVESTMENT POLICIES ARE FUNDAMENTAL POLICIES THAT CAN BE CHANGED ONLY BY SHAREHOLDER VOTE. The Portfolio may (i) borrow money to the extent permitted under the 1940 Act; and (ii) invest up to 25% of the value of its total assets in the securities of issuers in a single industry, provided that there is no such limitation on investments in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. This paragraph describes fundamental policies that cannot be changed as to the Portfolio without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. See "Investment Objective and Management Policies--Investment Restric- tions" in the Statement of Additional Information. CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES The Portfolio may (i) purchase securities of any company having less than three years' continuous operation (including operations of any predecessors) if such purchase does not cause the value of the Portfolio's investments in all such companies to exceed 5% of the value of its total assets; (ii) pledge, hypothecate, mortgage or otherwise encumber its assets, but only to secure permitted borrowings; and (iii) invest up to 15% of the value of its net as- sets in repurchase agreements providing for settlement in more than seven days after notice and in other illiquid securities. See "Investment Objective and Management Policies--Investment Restrictions" in the Statement of Additional Information. RISK FACTORS NO INVESTMENT IS FREE FROM RISK. INVESTING IN THE PORTFOLIO WILL SUBJECT INVESTORS TO CERTAIN RISKS WHICH SHOULD BE CONSIDERED. NET ASSET VALUE FLUCTUATIONS The Portfolio's net asset value per share is not fixed and should be expected to fluctuate. Investors should purchase Portfolio shares only as a supplement to an overall investment program and only if investors are willing to under- take the risks involved. EQUITY SECURITIES Investors should be aware that equity securities fluctuate in value, often based on factors unrelated to the value of the issuer of the securities, and that fluctuations can be pronounced. Changes in the 9 value of the equity securities in the Portfolio's portfolio will result in changes in the value of the Portfolio's shares and thus the Portfolio's yield and total return to investors. CERTAIN INVESTMENT TECHNIQUES The use of investment techniques such as short selling, lending portfolio se- curities and engaging in options and futures transactions, involves greater risk than that incurred by many other funds with a similar objective. Using these techniques may produce higher than normal portfolio turnover and may af- fect the degree to which the Portfolio's net asset value fluctuates. See "Ap- pendix--Investment Techniques." The Portfolio's ability to engage in certain short-term transactions may be limited by the requirement that, to qualify as a regulated investment company, it must earn less than 30% of its gross income from the disposition of securi- ties held for less than three months. This 30% test limits the extent to which the Portfolio may sell securities held for less than three months, effect short sales of securities held for less than three months, write options ex- piring in less than three months and invest in certain futures contracts, among other strategies. With the exception of the above requirement, the amount of portfolio activity will not be a limiting factor when making portfo- lio decisions. Under normal market conditions, the Portfolio's portfolio turn- over rate generally will not exceed 150%. Higher portfolio turnover rates are likely to result in comparatively greater brokerage commissions or transaction costs. Short-term gains realized from portfolio transactions are taxable to shareholders as ordinary income. See "Portfolio Transactions" in the Portfo- lio's Statement of Additional Information. NON-DIVERSIFIED STATUS The Portfolio's classification as a "non-diversified" investment company means that the proportion of its assets that may be invested in the securities of a single issuer is not limited by the 1940 Act. A "diversified" investment com- pany is required by the 1940 Act generally, with respect to 75% of its total assets, to invest not more than 5% of such assets in the securities of a sin- gle issuer and to hold not more than 10% of the outstanding voting securities of a single issuer. However, the Portfolio intends to conduct its operations so as to qualify as a "regulated investment company" for purposes of the In- ternal Revenue Code of 1986, as amended (the "Code"), which requires that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of the Portfolio's total assets be invested in cash, U.S. Government se- curities, the securities of other regulated investment companies and other se- curities, with such other securities of any one issuer limited for the pur- poses of this calculation to an amount not greater than 5% of the value of the Portfolio's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets be in- vested in the securities of any one issuer (other than U.S. Government securi- ties or the securities of other regulated investment companies). Since a rela- tively high percentage of the Portfolio's assets may be invested in the secu- rities of a limited number of issuers, some of which may be within the same industry or economic sector, the Portfolio's portfolio securities may be more susceptible to any single economic, political or regulatory occurrence than the portfolio securities of a diversified investment company. SIMULTANEOUS INVESTMENTS Investment decisions for the Portfolio are made independently from those of other investment companies or accounts advised by the Advisers. However, if such other investment companies or accounts are prepared to invest in, or de- sire to dispose of, securities of the type in which the Portfolio invests at the same time as the Portfolio, available investments or opportunities for sales will be allocated equitably to each. In some cases, this procedure may adversely affect the size of the position obtained for or disposed of by the Portfolio or the price paid or received by the Portfolio. Management of the Fund BOARD OF TRUSTEES THE TRUSTEES ARE RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF THE PORTFOLIO'S BUSINESS. The Fund's business affairs are managed under the general supervision of its Board of Trustees. The Portfolio's Statement of Additional Information con- tains the name and general business experience of each Trustee. 10 INVESTMENT ADVISER THE PORTFOLIO'S INVESTMENT ADVISER IS BSFM; SYMPHONY PROVIDES DAY-TO-DAY MANAGEMENT OF THE PORTFOLIO'S INVESTMENTS. The Portfolio's investment adviser is BSFM, a wholly-owned subsidiary of The Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York, New York 10167. The Bear Stearns Companies Inc. is a holding company which, through its subsidiaries including its principal subsidiary, Bear Stearns, is a leading United States investment banking, securities trading and brokerage firm serving United States and foreign corporations, governments and institu- tional and individual investors. BSFM is a registered investment adviser and offers, either directly or through affiliates, investment advisory and admin- istrative services to open-end and closed-end investment funds and other man- aged pooled investment vehicles with net assets at September 30, 1995 of over $1.8 billion. BSFM supervises and assists in the overall management of the Portfolio's af- fairs under an Investment Advisory Agreement between BSFM and the Fund, sub- ject to the overall authority of the Fund's Board of Trustees in accordance with Massachusetts law. THE PORTFOLIO PAYS BSFM AN ADVISORY FEE AT AN ANNUAL RATE EQUAL TO 1% OF THE PORTFOLIO'S AVERAGE DAILY NET ASSETS WHICH WILL BE ADJUSTED MONTHLY DEPENDING ON THE EXTENT TO WHICH THE INVESTMENT PERFORMANCE OF PORTFOLIO SHARES EXCEEDED OR WAS EXCEEDED BY THE PERCENTAGE CHANGE IN THE INVESTMENT RECORD OF THE S&P 500 INDEX. Under the terms of the Investment Advisory Agreement, the Portfolio has agreed to pay BSFM a monthly fee at the annual rate of 1% of the Portfolio's average daily net assets (the "Basic Fee") which will be adjusted monthly (the "Monthly Performance Adjustment") depending on the extent to which the invest- ment performance of the Class of shares (currently, Class C) expected to bear the highest total Portfolio operating expenses, after expenses, exceeded or was exceeded by the percentage change in the investment record of the S&P 500 Index. The Monthly Performance Adjustment may increase or decrease the total advisory fee payable to BSFM (the "Total Advisory Fee") by up to .50% per year of the value of the Portfolio's average daily net assets. The monthly Total Advisory Fee is calculated as follows: (a) one-twelfth of the 1.0% annual Basic Fee rate (0.083%) is applied to the Portfolio's average daily net assets over the most recent calendar month, giving a dollar amount which is the Basic Fee for that month; (b) one-twelfth of the applicable per- formance adjustment rate from the table below is applied to the Portfolio's average daily net assets over the most recent calendar month, giving a dollar amount which is the Monthly Performance Adjustment (for the first twelve-month period, no performance adjustment will be made); and (c) the Monthly Perfor- mance Adjustment is then added to or subtracted from the Basic Fee and the re- sult is the amount payable by the Portfolio to BSFM as the Total Advisory Fee for that month. 11 The full range of Total Advisory Fees on an annualized basis is as follows: - -------------------------------------------------------------------------------
PERCENTAGE POINT DIFFERENCE BETWEEN DESIGNATED CLASS' PERFORMANCE (NET OF EXPENSES INCLUDING ADVISORY FEES) PERFORMANCE AND PERCENTAGE CHANGE IN THE ADJUSTMENT S&P 500 INDEX BASIC FEE (%) RATE (%) TOTAL FEE (%) - ------------------------------------------------------------------------------- +3.00 percentage points or more........ 1% .50% 1.50% +2.75 percentage points or more but less than +3.00 percentage points...... 1% .40% 1.40% +2.50 percentage points or more but less than +2.75 percentage points...... 1% .30% 1.30% +2.25 percentage points or more but less than +2.50 percentage points...... 1% .20% 1.20% +2.00 percentage points or more but less than +2.25 percentage points...... 1% .10% 1.10% Less than +2.00 percentage points but more than - -2.00 percentage points................ 1% 0% 1.00% - -2.00 percentage points or less but more than -2.25 percentage points...... 1% -.10% .90% - -2.25 percentage points or less but more than -2.50 percentage points...... 1% -.20% .80% - -2.50 percentage points or less but more than -2.75 percentage points...... 1% -.30% .70% - -2.75 percentage points or less but more than -3.00 percentage points...... 1% -.40% .60% - -3.00 percentage points or less........ 1% -.50% .50%
The period over which performance is measured is a rolling twelve-month period and the performance of the S&P 500 Index is calculated as the sum of the change in the level of the S&P 500 Index during the period, plus the value of any dividends or distributions made by the companies whose securities comprise the S&P 500 Index. The investment advisory fee payable by the Portfolio is higher than that paid by most other investment companies. THE PORTFOLIO'S ADMINISTRATOR IS BSFM. THE PORTFOLIO PAYS BSFM AN ADMINISTRATION FEE AT THE ANNUAL RATE OF .15 OF 1% OF ITS AVERAGE DAILY NET ASSETS. Under the terms of an Administration Agreement with the Fund, BSFM generally supervises all aspects of the operation of the Portfolio, subject to the over- all authority of the Fund's Board of Trustees in accordance with Massachusetts law. For providing administrative services to the Portfolio, the Fund has agreed to pay BSFM a monthly fee at the annual rate of .15 of 1% of the Port- folio's average daily net assets. Under the terms of an Administrative Serv- ices Agreement with the Fund, PFPC Inc. provides certain administrative serv- ices to the Portfolio. For providing these services, the Fund has agreed to pay PFPC Inc. an annual fee, with a minimum of $8,000 for the Portfolio pay- able monthly, as set forth below: - --------------------------------------------------------------------------------
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS - -------------------------------------------------------------------------------- First $200 million................................ .10 of 1% Next $200 million up to $400 million.............. .075 of 1% Next $200 million up to $600 million.............. .05 of 1% Assets in excess of $600 million.................. .03 of 1%
From time to time, BSFM may waive receipt of its fees and/or voluntarily as- sume certain Portfolio expenses, which would have the effect of lowering the Portfolio's expense ratio and increasing yield to investors at the time such amounts are waived or assumed, as the case may be. The Portfolio will 12 not pay BSFM at a later time for any amounts it may waive, nor will the Port- folio reimburse BSFM for any amounts it may assume. Brokerage commissions may be paid to Bear Stearns for executing transactions if the use of Bear Stearns is likely to result in price and execution at least as favorable as those of other qualified broker-dealers. The allocation of brokerage transactions also may take into account a broker's sales of the Portfolio's shares. See "Portfolio Transactions" in the Statement of Addi- tional Information. Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or derivatives thereof as part of the Fund name for as long as the Investment Ad- visory Agreement is in effect. SUB-INVESTMENT ADVISER THE PORTFOLIO'S SUB-INVESTMENT ADVISER, SYMPHONY, PROVIDES INVESTMENT ADVISORY ASSISTANCE AND THE DAY-TO-DAY MANAGEMENT OF THE PORTFOLIO'S INVESTMENTS. BSFM has engaged Symphony, located at 555 California Street, San Francisco, California 94104, to serve as the Fund's sub-investment adviser. Symphony, a registered investment adviser, was formed in 1994. Symphony is a wholly-owned subsidiary of BARRA, Inc., a leading supplier of analytical financial soft- ware. Symphony's principals are Jeffrey Skelton, Praveen Gottipalli, Michael Henman and Neil Rudolph. Messrs. Skelton, Henman and Rudolph joined Symphony in 1994 from Wells Fargo Nikko Investment Advisors where they were Managing Directors. Mr. Gottipalli joined Symphony in 1994 from BARRA, Inc. Symphony, subject to the supervision and approval of BSFM, provides investment advisory assistance and the day-to-day management of the Portfolio's invest- ments, as well as investment research and statistical information, under a Sub-Investment Advisory Agreement with BSFM, subject to the overall authority of the Fund's Board of Trustees in accordance with Massachusetts law. BSFM PAYS SYMPHONY A SUB-ADVISORY FEE AT AN ANNUAL RATE EQUAL TO .45 OF 1% OF THE PORTFOLIO'S AVERAGE DAILY NET ASSETS WHICH WILL BE ADJUSTED MONTHLY DEPENDING ON THE EXTENT TO WHICH THE INVESTMENT PERFORMANCE OF PORTFOLIO SHARES EXCEEDED OR WAS EXCEEDED BY THE PERCENTAGE CHANGE IN THE INVESTMENT RECORD OF THE S&P 500 INDEX. Under the Sub-Investment Advisory Agreement, BSFM has agreed to pay Symphony a monthly fee at the annual rate of .45 of 1% of the Portfolio's average daily net assets (the "Symphony Basic Fee") which will be adjusted by a Monthly Per- formance Adjustment calculated as described above. The Monthly Performance Ad- justment applicable to Symphony may increase or decrease the total advisory fee payable to Symphony (the "Total Sub-Advisory Fee") by up to .25% per year of the value of the Portfolio's average daily net assets. The monthly Total Sub-Advisory fee is calculated in the same manner as the Total Advisory Fee. 13 The full range of Total Sub-Advisory Fees on an annualized basis is as fol- lows: - --------------------------------------------------------------------------------
PERCENTAGE POINT DIFFERENCE BETWEEN DESIGNATED CLASS' PERFORMANCE PERFORMANCE (NET OF EXPENSES INCLUDING ADVISORY FEES) BASIC ADJUSTMENT TOTAL AND PERCENTAGE CHANGE IN THE S&P 500 INDEX FEE (%) RATE (%) FEE (%) - -------------------------------------------------------------------------------- +3.00 percentage points or more.................... .45% .25% .70% +2.75 percentage points or more but less than +3.00 percentage points.................................. .45% .20% .65% +2.50 percentage points or more but less than +2.75 percentage points.................................. .45% .15% .60% +2.25 percentage points or more but less than +2.50 percentage points.................................. .45% .10% .55% +2.00 percentage points or more but less than +2.25 percentage points.................................. .45% .05% .50% Less than +2.00 percentage points but more than - 2.00 percentage points............................. .45% 0% .45% - -2.00 percentage points or less but more than -2.25 percentage points.................................. .45% -.05% .40% - -2.25 percentage points or less but more than -2.50 percentage points.................................. .45% -.10% .35% - -2.50 percentage points or less but more than -2.75 percentage points.................................. .45% -.15% .30% - -2.75 percentage points or less but more than -3.00 percentage points.................................. .45% -.20% .25% - -3.00 percentage points or less.................... .45% -.25% .20%
If for the 12-month period ended February 22, 1997, the Total Sub-Advisory Fee exceeds .45%, without giving effect to any fee waivers by BSFM, then thereaf- ter BSFM has agreed to pay Symphony a Basic Fee equal to .50 of 1% on an annualized basis. The Fund's primary investment officer is Praveen Gottipalli. Since May 1994, he has been Symphony's Director of Investments. For more than five years prior thereto, he was Director of the Active Strategies Group of BARRA, Inc. DISTRIBUTOR Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as the Portfolio's principal underwriter and distributor of the Portfolio's shares pursuant to an agreement which is renewable annually. Bear Stearns is entitled to receive the sales load described under "How to Buy Shares" and payments under the Portfolio's Distribution and Shareholder Servicing Plan de- scribed below. CUSTODIAN AND TRANSFER AGENT Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the Portfolio's transfer agent, dividend disbursing agent and registrar (the "Transfer Agent"). The Transfer Agent also provides certain administrative services to the Portfolio. DISTRIBUTION AND SHAREHOLDER SERVICING PLAN THE PORTFOLIO HAS ADOPTED A RULE 12B-1 PLAN UNDER WHICH THE PORTFOLIO PAYS BEAR STEARNS AT THE ANNUAL RATE OF .50% OF CLASS A'S AVERAGE DAILY NET ASSETS AND 1% OF CLASS C'S AVERAGE DAILY NET ASSETS. Under a plan adopted by the Fund's Board of Trustees pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), the Portfolio pays Bear Stearns for distrib- uting Portfolio shares and for providing personal services to, and/or main- taining accounts of, Portfolio shareholders a fee at the annual rate of .50% and 1% of the average daily net assets of Class A and Class C, respectively. Under the Plan, 14 Bear Stearns may pay third parties in respect of these services such amount as it may determine. The fees paid to Bear Stearns under the Plan are payable without regard to actual expenses incurred. The Fund understands that these third parties also may charge fees to their clients who are beneficial owners of Portfolio shares in connection with their client accounts. These fees would be in addition to any amounts which may be received by them from Bear Stearns under the Plan. EXPENSES All expenses incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by BSFM. The expenses to be borne by the Fund will include: organizational costs, taxes, interest, loan commitment fees, interest and distributions paid on securities sold short, brokerage fees and commissions, if any, fees of board members who are not officers, direc- tors, employees or holders of 5% or more of the outstanding voting securities of BSFM, Symphony or their affiliates, Securities and Exchange Commission fees, state Blue Sky qualification fees, advisory, administrative and fund ac- counting fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of maintaining the Fund's existence, costs of inde- pendent pricing services, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of shareholders' reports and meetings, costs of preparing and printing certain prospectuses and statements of additional information, and any extraordinary expenses. Expenses attributable to a particular portfolio are charged against the assets of that portfolio; other expenses of the Fund are allocated among the portfolios on the basis determined by the Board, including, but not limited to, proportion- ately in relation to the net assets of each portfolio. See also "Management of the Fund--Distribution and Shareholder Servicing Plan." BSFM has undertaken until such time as it gives investors at least 60 days' notice to the contrary that, if in any fiscal year, certain expenses, includ- ing the investment advisory fee and fees under the Plan, exceed 1.65% of Class A's average daily net assets and 2.15% of Class C's average daily net assets for the fiscal year, BSFM may waive a portion of its investment advisory fee or bear other expenses to the extent of the excess expense. How to Buy Shares GENERAL AN INITIAL INVESTMENT IS $1,000, $500 FOR RETIREMENT PLANS; SUBSEQUENT INVESTMENTS MUST BE AT LEAST $250, $100 FOR RETIREMENT PLANS. The minimum initial investment is $1,000, or $500 if the investment is for Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant. Subsequent investments ordinarily must be at least $250 or $100 for retirement plans. Share certificates are issued only upon written request. No certifi- cates are issued for fractional shares. The Fund reserves the right to reject any purchase order. The Fund reserves the right to vary the initial and subse- quent investment minimum requirements at any time. Investments by employees of Bear Stearns and its affiliates are not subject to minimum investment require- ments. Purchases of the Portfolio's shares may be made through a brokerage account maintained with Bear Stearns or through certain investment dealers who are members of the National Association of Securities Dealers, Inc. who have sales agreements with Bear Stearns (an "Authorized Dealer"). Purchases of the Port- folio's shares also may be made directly through the Transfer Agent. When pur- chasing Portfolio shares, investors must specify which Class is being pur- chased. Purchases are effected at the public offering price next determined after a purchase order is received by Bear Stearns, an Authorized Dealer or the Trans- fer Agent (the "trade date"). Payment for Portfolio shares generally is due to Bear Stearns or the Authorized Dealer on the third business day (the "settle- ment date") after the trade date. Investors who make payment before the set- tlement date may permit the payment to be held in their brokerage accounts or may designate a temporary investment for payment until the settlement date. If a temporary investment is not designated, Bear Stearns or the Authorized Dealer will benefit from the temporary use of the funds if payment is made be- fore the settlement date. 15 PURCHASES CAN BE MADE THROUGH BEAR STEARNS ACCOUNT EXECUTIVES, AUTHORIZED DEALERS OR THE TRANSFER AGENT. Purchases through Bear Stearns account executives or Authorized Dealers may be made by check (except that a check drawn on a foreign bank will not be accept- ed), Federal Reserve draft or by wiring Federal Funds with funds held in bro- kerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal Reserve drafts should be made payable as follows: (i) to Bear Stearns or an investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--The Insiders Select Portfolio" if purchased directly from the Portfolio, and should be di- rected to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns Funds-- The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960. Payment by check or Federal Reserve draft must be received within three busi- ness days of receipt of the purchase order by Bear Stearns or an Authorized Dealer. Orders placed directly with the Transfer Agent must be accompanied by payment. Bear Stearns (or an investor's Authorized Dealer) is responsible for forwarding payment promptly to the Fund. The Fund will charge $7.50 for each wire redemption. The payment proceeds of a redemption of shares recently pur- chased by check may be delayed as described under "How to Redeem Shares." Investors who are not Bear Stearns clients may purchase Portfolio shares through the Transfer Agent. To make an initial investment in the Portfolio, an investor must establish an account with the Portfolio by furnishing necessary information to the Fund. An account with the Portfolio may be established by completing and signing the Account Information Form indicating which Class of shares is being purchased, a copy of which is attached to this Prospectus, and mailing it, together with a check to cover the purchase, to PFPC Inc., Atten- tion: The Bear Stearns Funds--The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960. Subsequent purchases of shares may be made by checks made payable to the Fund and directed to the address set forth in the preceding paragraph. The Portfo- lio account number should appear on the check. Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer Agent before the close of regular trading on the New York Stock Exchange (cur- rently 4:00 p.m., New York time) on any day the Portfolio calculates its net asset value are priced according to the net asset value determined on that date. Purchase orders received after the close of trading on the New York Stock Exchange are priced as of the time the net asset value is next deter- mined. NET ASSET VALUE IS COMPUTED DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE. Shares of the Portfolio are sold on a continuous basis. Net asset value per share is determined as of the close of regular trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New York time) on each business day. The net asset value per share of each Class of the Portfolio is computed by dividing the value of the Portfolio's net assets represented by such Class (i.e., the value of its assets less liabilities) by the total number of shares of such Class outstanding. The Portfolio's investments are valued based on market value or, where market quotations are not readily available, based on fair value as determined in good faith by, or in accordance with procedures established by, the Fund's Board of Trustees. For further information regard- ing the methods employed in valuing the Portfolio's investments, see "Determi- nation of Net Asset Value" in the Portfolio's Statement of Additional Informa- tion. Federal regulations require that investors provide a certified Taxpayer Iden- tification Number (a "TIN") upon opening or reopening an account. See "Divi- dends, Distributions and Taxes." Failure to furnish a certified TIN to the Fund could subject the investor to a $50 penalty imposed by the Internal Reve- nue Service (the "IRS"). 16 CLASS A SHARES THE SALES CHARGE MAY VARY DEPENDING ON THE DOLLAR AMOUNT INVESTED IN THE PORTFOLIO. The public offering price for Class A shares of the Portfolio is the net asset value per share of that Class plus a sales load, which is imposed in accor- dance with the following schedule: - -------------------------------------------------------------------------------
TOTAL SALES LOAD ------------------------------ AS A % OF AS A % OF DEALER CONCESSIONS OFFERING PRICE NET ASSET VALUE AS A % OF AMOUNT OF TRANSACTION PER SHARE PER SHARE OFFERING PRICE - ------------------------------------------------------------------------------- Less than $50,000............ 4.75% 4.99% 4.25% $50,000 to less than $100,000.................... 4.25 4.44 3.75 $100,000 to less than $250,000.................... 3.75 3.90 3.25 $250,000 to less than $500,000.................... 3.25 3.36 3.00 $500,000 to less than $750,000.................... 2.75 2.83 2.50 $750,000 to less than $1,000,000.................. 2.25 2.30 2.00 $1,000,000 and above......... 0.00 0.00 0.00
There is no initial sales charge on purchases of $1,000,000 or more of Class A shares. However, if an investor purchases Class A shares without an initial sales charge as part of an investment of at least $1,000,000 and redeems those shares within one year after purchase, a CDSC of 1.00% will be imposed at the time of redemption. The terms contained in the section of the Fund's Prospec- tus entitled "How to Redeem Shares--Contingent Deferred Sales Charge--Class C" are applicable to the Class A shares subject to a CDSC. Letter of Intent and Right of Accumulation apply to such purchases of Class A shares. The dealer concession may be changed from time to time but will remain the same for all dealers. From time to time, Bear Stearns may make or allow addi- tional payments or promotional incentives to dealers that sell Class A shares. In some instances, these incentives may be offered only to certain dealers who have sold or may sell significant amounts of Class A shares. Dealers may re- ceive a larger percentage of the sales load from Bear Stearns than they re- ceive for selling most other funds. Through September 30, 1996, Bear Stearns, at its expense, has agreed to pay Authorized Dealers a fee in respect of the aggregate of all shares of the Portfolio and each other investment company sponsored by Bear Stearns sold to their customers through September 26, 1995. The fee paid is based on the ag- gregate net asset value of all shares of the Portfolio and each other invest- ment company sponsored by Bear Stearns purchased by customers of the Autho- rized Dealer during the period ended September 26, 1995, reduced for redemp- tions during the year ending September 30, 1996. For amounts greater than $1 million but less than $5 million, the fee is .05% of such amount; and for amounts greater than $5 million, the fee is .10% of such amount. Any such amount is expected to be paid, on a pro rata basis, quarterly. Class A shares may be sold at net asset value to (a) each Adviser, its affili- ates or their respective officers, directors or employees (including retired employees), any partnership of which an Adviser is a general partner, any Trustee or officer of the Fund and designated family members of any of the above individuals; (b) qualified retirement plans of each Adviser; (c) any em- ployee or registered representative of any Authorized Dealer or their respec- tive spouses and minor children; (d) trustees or directors of investment com- panies for which an Adviser or an affiliate acts as sponsor; (e) any state, county or city, or any instrumentality, department, authority or agency there- of, which is prohibited by applicable investment laws from paying a sales load or commission in connection with the purchase of Portfolio shares; (f) any in- stitutional investment clients including corporate sponsored pension and prof- it-sharing plans and other benefit plans (excluding Keogh Plans, IRAs and SEP- IRAs), and insurance companies; (g) any pension funds (excluding Keogh Plans, IRAs and SEP-IRAs), state and municipal governments or funds, Taft-Hartley plans and qualified non-profit organizations, foundations and endowments; (h) trust institutions (including bank trust departments) investing on their own behalf or on behalf of their clients; and (i) accounts as to which an Autho- rized Dealer charges an asset management fee. To take advantage of these ex- emptions, a purchaser must indicate its eligibility for an exemption to Bear Stearns along with its Account Information Form. Such purchaser 17 agrees to notify Bear Stearns if, at any time of any additional purchases, it is no longer eligible for an exemption. Bear Stearns reserves the right to re- quest certification or additional information from a purchaser in order to verify that such purchaser is eligible for an exemption. Bear Stearns reserves the right to limit the participation in Class A shares of the Portfolio of its employees. Dividends and distributions reinvested in Class A shares of the Portfolio will be made at the net asset value per share on the reinvestment date. Class A shares of the Portfolio also may be purchased at net asset value, with the proceeds from the redemption of shares of an investment company sold with a sales charge or commission and not distributed by Bear Stearns. However, if such investor redeems those shares within one year after purchase, a CDSC of .50% will be imposed at the time of redemption. This includes shares of a mu- tual fund which were subject to a contingent deferred sales charge upon re- demption. The purchase must be made within 60 days of the redemption, and Bear Stearns must be notified by the investor in writing, or by the investor's in- vestment professional, at the time the purchase is made. Bear Stearns will of- fer to pay Authorized Dealers an amount up to .50% of the net asset value of shares purchased by the dealers' clients or customers in this manner. CLASS C SHARES The public offering price for Class C shares is the next determined net asset value per share of that Class. No initial sales charge is imposed at the time of purchase. A CDSC is imposed, however, on redemptions of Class C shares made within the first year of purchase. See "How to Redeem Shares." RIGHT OF ACCUMULATION--CLASS A SHARES INVESTORS IN CLASS A SHARES MAY QUALIFY FOR A REDUCED SALES CHARGE. Pursuant to the Right of Accumulation, certain investors are permitted to pur- chase Class A shares of the Portfolio at the sales charge applicable to the total of (a) the dollar amount then being purchased plus (b) the current pub- lic offering price of all Class A shares of the Portfolio, shares of the Fund's other portfolios and shares of certain other funds sponsored or advised by Bear Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns Investment Trust, then held by the investor. The following purchases of Class A shares may be aggregated for the purposes of determining the amount of pur- chase and the corresponding sales load: (a) individual purchases on behalf of a single purchaser, the purchaser's spouse and their children under the age of 21 years including shares purchased in connection with a retirement account exclusively for the benefit of such individual(s), such as an IRA, and pur- chases made by a company controlled by such individual(s); (b) individual pur- chases by a trustee or other fiduciary account, including an employee benefit plan (such as employer-sponsored pension, profit-sharing and stock bonus plans, including plans under Section 401(k) of the Code, and medical, life and disability insurance trusts); or (c) individual purchases by a trustee or other fiduciary purchasing shares concurrently for two or more employee bene- fit plans of a single employer or of employers affiliated with each other. LETTER OF INTENT--CLASS A SHARES By checking the appropriate box in the Letter of Intent section of the Account Information Form, investors become eligible for the reduced sales load appli- cable to the total number of Class A shares of the Portfolio, Class A shares of the Fund's other portfolios and shares of certain other funds sponsored or advised by Bear Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns Investment Trust, purchased in a 13-month period pursuant to the terms and under the conditions set forth herein. A minimum initial purchase of $1,000 is required. The Transfer Agent will hold in escrow 5% of the amount indicated in the Account Information Form for payment of a higher sales load if the investor does not purchase the full amount indicated in the Account In- formation Form. The escrow will be released when the investor fulfills the terms of the Letter of Intent by purchasing the specified amount. If an in- vestor's purchases qualify for a further sales load reduction, the sales load will be adjusted to reflect the total purchase at the end of 13 months. If to- tal purchases are less than the amount specified, the investor will be re- quested to remit an amount equal to the difference between the sales load ac- tually paid and the sales load applicable to the aggregate purchases actually made. If such remittance is not received within 20 days, the Transfer Agent, as attorney-in-fact, will redeem an appropriate number of shares held in es- crow to realize the difference. Checking a box in the Letter of Intent section of the Account Information Form does not bind an investor to purchase, or the Portfolio to sell, the full amount indicated at the sales load in effect 18 at the time of signing, but the investor must complete the intended purchase to obtain the reduced sales load. At the time an investor purchases shares of any of the above-listed funds, the investor must indicate its intention to do so under the Letter of Intent section of the Account Information Form. SYSTEMATIC INVESTMENT PLAN THE PORTFOLIO OFFERS SHAREHOLDERS CONVENIENT FEATURES AND BENEFITS, INCLUDING THE SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan permits investors to purchase shares of the Portfolio (minimum initial investment of $250 and minimum subsequent invest- ments of $100 per transaction) at regular intervals selected by the investor. Provided the investor's bank or other financial institution allows automatic withdrawals, Portfolio shares may be purchased by transferring funds from the account designated by the investor. At the investor's option, the account des- ignated will be debited in the specified amount, and Portfolio shares will be purchased once a month, on the twentieth day. Only an account maintained at a domestic financial institution which is an Automated Clearing House member may be so designated. Investors desiring to participate in the Systematic Invest- ment Plan should call the Transfer Agent at 1-800-447-1139 (in Delaware call collect 302-791-1031) to obtain the appropriate forms. The Systematic Invest- ment Plan does not assure a profit and does not protect against loss in de- clining markets. Since the Systematic Investment Plan involves the continuous investment in the Portfolio regardless of fluctuating price levels of the Portfolio's shares, investors should consider their financial ability to con- tinue to purchase through periods of low price levels. The Fund may modify or terminate the Systematic Investment Plan at any time or charge a service fee. No such fee currently is contemplated. Shareholder Services EXCHANGE PRIVILEGE THE EXCHANGE PRIVILEGE PERMITS EASY PURCHASES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY. The Exchange Privilege enables an investor to purchase, in exchange for shares of a Class of the Portfolio, shares of the same Class of the Fund's other portfolios or shares of certain other funds sponsored or advised by Bear Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns Invest- ment Trust, and the Money Market Portfolio of The RBB Fund, Inc., to the ex- tent such shares are offered for sale in the investor's state of residence. These funds have different investment objectives which may be of interest to investors. To use this Privilege, investors should consult their account exec- utive at Bear Stearns, their account executive at an Authorized Dealer or the Transfer Agent to determine if it is available and whether any conditions are imposed on its use. To use this Privilege, exchange instructions must be given to the Transfer Agent in writing or by telephone. A shareholder wishing to make an exchange may do so by sending a written request to the Transfer Agent at the address given above in "How to Buy Shares--General." Shareholders are automatically provided with telephone exchange privileges when opening an account, unless they indicate on the account application that they do not wish to use this privilege. Shareholders holding share certificates are not eligible to ex- change shares of the Portfolio by phone because share certificates must accom- pany all exchange requests. To add this feature to an existing account that previously did not provide for this option, a Telephone Exchange Authorization Form must be filed with the Transfer Agent. This form is available from the Transfer Agent. Once this election has been made, the shareholder may contact the Transfer Agent by telephone at 1-800-447-1139 (in Delaware call collect 302-791-1031) to request the exchange. During periods of substantial economic or market change, telephone exchanges may be difficult to complete and share- holders may have to submit exchange requests to the Transfer Agent in writing. If the exchanging shareholder does not currently own shares of the portfolio or fund whose shares are being acquired, a new account will be established with the same registration, dividend and capital gain options and Authorized Dealer of record as the account from which shares are exchanged, unless other- wise specified in writing by the shareholder with all signatures guaranteed by an eligible guarantor institution as described below. To participate in the Systematic Investment Plan or establish automatic withdrawal for the new ac- count, however, an exchanging shareholder must file a spe- 19 cific written request. The exchange privilege may be modified or terminated at any time, or from time to time, by the Fund on 60 days' notice to the affected portfolio or fund shareholders. The Fund, BSFM and Bear Stearns will not be liable for any loss, liability, cost or expense for acting upon telephone in- structions that are reasonably believed to be genuine. In attempting to con- firm that telephone instructions are genuine, the Fund will use such proce- dures as are considered reasonable, including recording those instructions and requesting information as to account registration (such as the name in which an account is registered, the account number, recent transactions in the ac- count, and the account holder's Social Security number, address and/or bank). Before any exchange, the investor must obtain and should review a copy of the current prospectus of the portfolio or fund into which the exchange is being made. Prospectuses may be obtained free of charge from Bear Stearns, any Au- thorized Dealer or the Transfer Agent. Except in the case of Personal Retire- ment Plans, the shares being exchanged must have a current value of at least $250; furthermore, when establishing a new account by exchange, the shares be- ing exchanged must have a value of at least the minimum initial investment re- quired for the portfolio or fund into which the exchange is being made; if making an exchange to an existing account, the dollar value must equal or ex- ceed the applicable minimum for subsequent investments. If any amount remains in the investment portfolio from which the exchange is being made, such amount must not be below the minimum account value required by the portfolio or fund. Shares will be exchanged at the next determined net asset value; however, ex- cept in the instances described below, a sales load may be charged with re- spect to exchanges of Class A shares into portfolios or funds sold with a sales load. Generally, a sales load will be charged if the shares being ex- changed were subject to a sales load which is lower than the sales load to which the shares being purchased are subject or were not subject to any sales load. No CDSC will be imposed on Class C shares at the time of an exchange. The CDSC applicable on redemption of the acquired Class C shares will be cal- culated from the date of the initial purchase of the Class C shares exchanged. If an investor is exchanging Class A into a portfolio or fund that charges a sales load, the investor may qualify for share prices which do not include the sales load or which reflect a reduced sales load, if the shares of the portfo- lio or fund from which the investor is exchanging were: (a) purchased with a sales load; (b) acquired by a previous exchange from shares purchased with a sales load; or (c) acquired through reinvestment of dividends or distributions paid with respect to the foregoing categories of shares. To qualify, at the time of the exchange the investor must notify Bear Stearns, the Authorized Dealer or the Transfer Agent. Any such qualification is subject to confirma- tion of the investor's holdings through a check of appropriate records. No fees currently are charged shareholders directly in connection with exchanges, although the Fund reserves the right, upon not less than 60 days' written no- tice, to charge shareholders a $5.00 fee in accordance with rules promulgated by the Securities and Exchange Commission. The Fund reserves the right to re- ject any exchange request in whole or in part. The Exchange Privilege may be modified or terminated at any time upon notice to shareholders. The exchange of shares of one portfolio or fund for shares of another is treated for Federal income tax purposes as a sale of the shares given in ex- change by the shareholder and, therefore, an exchanging shareholder may real- ize a taxable gain or loss. REDIRECTED DISTRIBUTION OPTION THE REDIRECTED DISTRIBUTION OPTION PERMITS INVESTMENT OF INVESTORS' DIVIDENDS AND DISTRIBUTIONS IN SHARES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY. The Redirected Distribution Option enables a shareholder to invest automati- cally dividends and/or capital gain distributions, if any, paid by the Portfo- lio in shares of the same Class of another portfolio of the Fund or a fund ad- vised or sponsored by Bear Stearns of which the shareholder is an investor, or the Money Market Portfolio of The RBB Fund, Inc. Shares of the other portfolio or fund will be purchased at the then-current net asset value. If an investor is investing in a Class that charges a CDSC, the shares purchased will be sub- ject on redemption to the CDSC, if any, applicable to the purchased shares. This privilege is available only for existing accounts and may not be used to open new accounts. Minimum subsequent investments do not apply. The Fund may modify or terminate this privilege at any time or charge a service fee. No such fee currently is contemplated. 20 How to Redeem Shares GENERAL THE REDEMPTION PRICE WILL BE BASED ON THE NET ASSET VALUE NEXT COMPUTED AFTER RECEIPT OF A REDEMPTION REQUEST; IN CERTAIN INSTANCES A CDSC WILL BE CHARGED. Investors may request redemption of Portfolio shares at any time. Redemption requests may be made as described below. When a request is received in proper form, the Portfolio will redeem the shares at the next determined net asset value. If the investor holds Portfolio shares of more than one Class, any re- quest for redemption must specify the Class of shares being redeemed. If the investor fails to specify the Class of shares to be redeemed or if the in- vestor owns fewer shares of the Class than specified to be redeemed, the re- demption request may be delayed until the Transfer Agent receives further in- structions from the investor, the investor's Bear Stearns account executive or the investor's Authorized Dealer. The Fund imposes no charges (other than any applicable CDSC) when shares are redeemed directly through Bear Stearns. The Portfolio ordinarily will make payment for all shares redeemed within three days after receipt by the Transfer Agent of a redemption request in proper form, except as provided by the rules of the Securities and Exchange Commission. However, if an investor has purchased Portfolio shares by check and subsequently submits a redemption request by mail, the redemption proceeds will not be transmitted until the check used for investment has cleared, which may take up to 15 days. The Fund will reject requests to redeem shares by tel- ephone or wire for a period of 15 days after receipt by the Transfer Agent of the purchase check against which such redemption is requested. This procedure does not apply to shares purchased by wire payment. The Fund reserves the right to redeem investor accounts at its option upon not less than 60 days' written notice if the account's net asset value is $750 or less, for reasons other than market conditions, and remains so during the no- tice period. Shareholders who have redeemed Class A shares may reinstate their Portfolio account without a sales charge up to the dollar amount redeemed by purchasing Class A shares of the same Portfolio within 60 days of the redemp- tion. To take advantage of this reinstatement privilege, shareholders must no- tify their Bear Stearns account executive, Authorized Dealer or the Transfer Agent at the time the privilege is exercised. CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES CLASS C SHARES OF THE PORTFOLIO ARE SUBJECT TO A CDSC OF 1% UPON REDEMPTION WITHIN ONE YEAR OF PURCHASE. A CDSC of 1% payable to Bear Stearns is imposed on any redemption of Class C shares within one year of the date of purchase. No CDSC will be imposed to the extent that the net asset value of the Class C shares redeemed does not exceed (i) the current net asset value of Class C shares acquired through reinvest- ment of dividends or capital gain distributions, plus (ii) increases in the net asset value of an investor's Class C shares above the dollar amount of all such investor's payments for the purchase of Class C shares held by the in- vestor at the time of redemption. If the aggregate value of Class C shares redeemed has declined below their original cost as a result of the Portfolio's performance, the applicable CDSC may be applied to the then-current net asset value rather than the purchase price. In determining whether a CDSC is applicable to a redemption, the calculation will be made in a manner that results in the lowest possible rate. It will be assumed that the redemption is made first of amounts representing shares ac- quired pursuant to the reinvestment of dividends and distributions; then of amounts representing the increase in net asset value of Class C shares above the total amount of payments for the purchase of Class C shares made during the preceding year; then of amounts representing shares purchased more than one year prior to the redemption; and finally, of amounts representing the cost of shares purchased within one year prior to the redemption. For example, assume an investor purchased 100 shares of the Portfolio at $10 per share for a cost of $1,000. Subsequently, the shareholder acquired five additional shares through dividend reinvestment. During the first year after the purchase the investor decided to redeem $500 of his or her investment. As- suming at the time of the redemption the net asset value had appreciated to $12 per share, the value of the investor's shares would be $1,260 (105 shares at $12 per share). The CDSC 21 would not be applied to the value of the reinvested dividend shares and the amount which represents appreciation ($260). Therefore, $240 of the $500 re- demption proceeds ($500 minus $260) would be charged at a rate of 1% for a to- tal CDSC of $2.40. The CDSC applicable to Class C shares will be waived in connection with (a) redemptions made within one year after the death or disability, as defined in Section 72(m)(7) of the Code, of the shareholder, (b) redemptions by employees participating in Eligible Benefit Plans, (c) redemptions as a result of a com- bination of any investment company with the Portfolio by merger, acquisition of assets or otherwise, and (d) a distribution following retirement under a tax-deferred retirement plan or upon attaining age 70 1/2 in the case of an IRA or Keogh plan or custodial account pursuant to Section 403(b) of the Code. If the Fund's Trustees determine to discontinue the waiver of the CDSC, the disclosure in the Portfolio's prospectus will be revised appropriately. Any Portfolio shares subject to a CDSC which were purchased prior to the termina- tion of such waiver will have the CDSC waived as provided in the Portfolio's prospectus at the time of the purchase of such shares. To qualify for a waiver of the CDSC, at the time of redemption an investor must notify the Transfer Agent or the investor's Bear Stearns account execu- tive or the investor's Authorized Dealer must notify the Distributor. Any such qualification is subject to confirmation of the investor's entitlement. PROCEDURES SHAREHOLDERS MAY REDEEM SHARES IN SEVERAL WAYS. REDEMPTION THROUGH BEAR STEARNS OR AUTHORIZED DEALERS Clients with a brokerage account may submit redemption requests to their ac- count executives or Authorized Dealers in person or by telephone, mail or wire. As the Fund's agent, Bear Stearns or Authorized Dealers may honor a re- demption request by repurchasing Fund shares from a redeeming shareholder at the shares' net asset value next computed after receipt of the request by Bear Stearns or the Authorized Dealer. Under normal circumstances, within three days, redemption proceeds will be paid by check or credited to the sharehold- er's brokerage account at the election of the shareholder. Bear Stearns ac- count executives or Authorized Dealers are responsible for promptly forwarding redemption requests to the Transfer Agent. If an investor authorizes telephone redemption, the Transfer Agent may act on telephone instructions from any person representing himself or herself to be a representative of Bear Stearns or the Authorized Dealer and reasonably be- lieved by the Transfer Agent to be genuine. The Fund will require the Transfer Agent to employ reasonable procedures, such as requiring a form of personal identification, to confirm that instructions are genuine and, if it does not follow such procedures, the Transfer Agent or the Fund may be liable for any losses due to unauthorized or fraudulent instructions. Neither the Fund nor the Transfer Agent will be liable for following telephone instructions reason- ably believed to be genuine. REDEMPTION THROUGH THE TRANSFER AGENT Shareholders who are not clients with a brokerage account who wish to redeem shares must redeem their shares through the Transfer Agent by mail; other shareholders also may redeem Fund shares through the Transfer Agent. Mail re- demption requests should be sent to the Transfer Agent at: PFPC Inc., Atten- tion: The Bear Stearns Funds--The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960. ADDITIONAL INFORMATION ABOUT REDEMPTIONS A shareholder may have redemption proceeds of $500 or more wired to the share- holder's brokerage account or a commercial bank account designated by the shareholder. A transaction fee of $7.50 will be charged for payments by wire. Questions about this option, or redemption requirements generally, should be referred to the shareholder's Bear Stearns account executive, to any Autho- rized Dealer, or to the Transfer Agent if the shares are not held in a broker- age account. Written redemption instructions, indicating the Portfolio from which shares are to be redeemed, and duly endorsed stock certificates, if previously is- sued, must be received by the Transfer Agent in proper form and signed exactly as the shares are registered. All signatures must be guaranteed. The Transfer Agent has adopted standards and procedures pursuant to which signature-guaran- tees in proper form generally will be accepted from domestic banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations, as well as from par- ticipants in the New York Stock Exchange Medallion Signature Program, the Stock Exchanges Medallion Program and the Securities Transfer Agents Medallion Program 22 ("STAMP"). Such guarantees must be signed by an authorized signatory thereof with "Signature Guaranteed" appearing with the shareholder's signature. If the signature is guaranteed by a broker or dealer, such broker or dealer must be a member of a clearing corporation and maintain net capital of at least $100,000. Signature-guarantees may not be provided by notaries public. Redemp- tion requests by corporate and fiduciary shareholders must be accompanied by appropriate documentation establishing the authority of the person seeking to act on behalf of the account. Investors may obtain from the Fund or the Trans- fer Agent forms of resolutions and other documentation which have been pre- pared in advance to assist compliance with the Portfolio's procedures. Any questions with respect to signature-guarantees should be directed to the Transfer Agent by calling 1-800-447-1139 (in Delaware call collect 302-791- 1031). During times of drastic economic or market conditions, investors may experi- ence difficulty in contacting Bear Stearns or Authorized Dealers by telephone to request a redemption of Portfolio shares. In such cases, investors should consider using the other redemption procedures described herein. Use of these other redemption procedures may result in the redemption request being proc- essed at a later time than it would have been if telephone redemption had been used. During the delay, the Portfolio's net asset value may fluctuate. AUTOMATIC WITHDRAWAL Automatic withdrawal permits investors to request withdrawal of a specified dollar amount (minimum of $25) on either a monthly or quarterly basis if the investor has a $5,000 minimum account. An application for automatic withdrawal can be obtained from Bear Stearns or the Transfer Agent. Automatic Withdrawal may be ended at any time by the investor, the Fund or the Transfer Agent. Shares for which certificates have been issued may not be redeemed through Au- tomatic Withdrawal. Purchases of additional shares concurrently with withdraw- als generally are undesirable. Class C shares withdrawn pursuant to the Automatic Withdrawal will be subject to any applicable CDSC. Purchases of additional Class A shares where the sales load is imposed concurrently with withdrawals of Class A shares generally are undesirable. Dividends, Distributions and Taxes DIVIDENDS WILL BE AUTOMATICALLY REINVESTED IN ADDITIONAL PORTFOLIO SHARES AT NET ASSET VALUE, UNLESS PAYMENT IN CASH IS REQUESTED OR DIVIDENDS ARE REDIRECTED INTO ANOTHER FUND PURSUANT TO THE REDIRECTED DISTRIBUTION OPTION. The Portfolio ordinarily pays dividends from its net investment income and distributes net realized securities gains, if any, once a year, but it may make distributions on a more frequent basis to comply with the distribution requirements of the Code, in all events in a manner consistent with the provi- sions of the 1940 Act. The Portfolio will not make distributions from net re- alized securities gains unless capital loss carryovers, if any, have been uti- lized or have expired. Dividends are automatically reinvested in additional Portfolio shares at net asset value, unless payment in cash is requested or dividends are redirected into another fund pursuant to the Redirected Distri- bution Option. All expenses are accrued daily and deducted before declaration of dividends to investors. Dividends paid by each Class of each Portfolio will be calculated at the same time and in the same manner and will be of the same amount, except that the expenses attributable solely to a particular Class will be borne exclusively by such Class. Class C shares will receive lower per share dividends than Class A shares because of the higher expenses borne by Class C. See "Fee Table." Dividends derived from net investment income, together with distributions from net realized short-term securities gains and all or a portion of any gains re- alized from the sale or disposition of certain market discount bonds, paid by the Portfolio will be taxable to U.S. shareholders as ordinary income, whether received in cash or reinvested in additional shares of the Portfolio or redi- rected into another portfolio or fund. Distributions from net realized long- term securities gains of the Portfolio will be taxable to U.S. shareholders as long-term capital gains for Federal income tax purposes, regardless of how long shareholders have held their Portfolio shares and whether such distribu- tions are received in cash or reinvested in, or redirected into other, shares. The Code provides that the net capital gain of an individual generally will not be subject to Federal income tax at a rate in excess of 28%. Dividends and distributions may be subject to state and local taxes. 23 Dividends, together with distributions from net realized short-term securities gains and all or a portion of any gains realized from the sale or other dispo- sition of market discount bonds, paid by the Portfolio to a foreign investor generally are subject to U.S. nonresident withholding taxes at the rate of 30%, unless the foreign investor claims the benefit of a lower rate specified in a tax treaty. Distributions from net realized long-term securities gains paid by the Portfolio to a foreign investor as well as the proceeds of any re- demptions from a foreign investor's account, regardless of the extent to which gain or loss may be realized, generally will not be subject to U.S. nonresi- dent withholding tax. However, such distributions may be subject to backup withholding, as described below, unless the foreign investor certifies his non-U.S. residency status. Notice as to the tax status of investors' dividends and distributions will be mailed to them annually. Investors also will receive periodic summaries of their accounts which will include information as to dividends and distribu- tions from securities gains, if any, paid during the year. The Code provides for the "carryover" of some or all of the sales load imposed on the Portfolio's Class A shares if an investor exchanges such shares for shares of another fund or portfolio advised or sponsored by BSFM or its affil- iates within 91 days of purchase and such other fund reduces or eliminates its otherwise applicable sales load for the purpose of the exchange. In this case, the amount of the sales load charged the investor for such shares, up to the amount of the reduction of the sales load charged on the exchange, is not in- cluded in the basis of such shares for purposes of computing gain or loss on the exchange, and instead is added to the basis of the fund shares received on the exchange. Federal regulations generally require the Fund to withhold ("backup withhold- ing") and remit to the U.S. Treasury 31% of dividends, distributions from net realized securities gains and the proceeds of any redemption, regardless of the extent to which gain or loss may be realized, paid to a shareholder if such shareholder fails to certify either that the TIN furnished in connection with opening an account is correct or that such shareholder has not received notice from the IRS of being subject to backup withholding as a result of a failure to properly report taxable dividend or interest income on a Federal income tax return. Furthermore, the IRS may notify the Fund to institute backup withholding if the IRS determines a shareholder's TIN is incorrect or if a shareholder has failed to properly report taxable dividend and interest income on a Federal income tax return. A TIN is either the Social Security number or employer identification number of the record owner of the account. Any tax withheld as a result of backup withholding does not constitute an additional tax imposed on the record owner of the account, and may be claimed as a credit on the record owner's Federal income tax return. THE PORTFOLIO IS NOT EXPECTED TO HAVE ANY FEDERAL TAX LIABILITY; ALTHOUGH INVESTORS SHOULD EXPECT TO BE SUBJECT TO FEDERAL, STATE OR LOCAL TAXES IN RESPECT OF THEIR INVESTMENT IN PORTFOLIO SHARES. It is expected that the Portfolio will qualify as a "regulated investment com- pany" under the Code so long as such qualification is in the best interests of its shareholders. Such qualification relieves the Portfolio of any liability for Federal income tax to the extent its earnings are distributed in accor- dance with applicable provisions of the Code. In addition, the Portfolio is subject to a non-deductible 4% excise tax, measured with respect to certain undistributed amounts of taxable investment income and capital gains. Each investor should consult its tax adviser regarding specific questions as to Federal, state or local taxes. Performance Information THE PORTFOLIO MAY ADVERTISE ITS PERFORMANCE IN A NUMBER OF WAYS. For purposes of advertising, performance for each Class may be calculated on the basis of average annual total return and/or total return. These total re- turn figures reflect changes in the price of the shares and assume that any income dividends and/or capital gains distributions made by the Portfolio dur- ing the measuring period were reinvested in shares of the same Class. These figures also take into account any applicable distribution and shareholder servicing fees. As a result, at any given time, the performance of Class C should be expected to be lower than that of Class A. Performance for each Class will be calculated separately. 24 Average annual total return is calculated pursuant to a standardized formula which assumes that an investment in the Portfolio was purchased with an ini- tial payment of $1,000 and that the investment was redeemed at the end of a stated period of time, after giving effect to the reinvestment of dividends and distributions during the period. The return is expressed as a percentage rate which, if applied on a compounded annual basis, would result in the re- deemable value of the investment at the end of the period. Advertisements of the Portfolio's performance will include the Portfolio's average annual total return for one, five and ten year periods, or for shorter periods depending upon the length of time during which the Portfolio has operated. Computations of average annual total return for periods of less than one year represent an annualization of the Portfolio's actual total return for the applicable peri- od. Total return is computed on a per share basis and assumes the reinvestment of dividends and distributions. Total return generally is expressed as a percent- age rate which is calculated by combining the income and principal changes for a specified period and dividing by the net asset value (or maximum public of- fering price in the case of Class A shares) per share at the beginning of the period. Class C total return will reflect the deduction of the CDSC. Adver- tisements may include the percentage rate of total return or may include the value of a hypothetical investment at the end of the period which assumes the application of the percentage rate of total return. Total return for the Port- folio also may be calculated by using the net asset value per share at the be- ginning of the period instead of the maximum offering price per share at the beginning of the period for Class A shares or without giving effect to any ap- plicable CDSC at the end of the period for Class C shares. Calculations based on the net asset value per share do not reflect the deduction of the sales load on the Portfolio's Class A shares, which, if reflected, would reduce the performance quoted. Performance will vary from time to time and past results are not necessarily representative of future results. Investors should remember that performance is a function of portfolio management in selecting the type and quality of portfolio securities and is affected by operating expenses. Performance infor- mation, such as that described above, may not provide a basis for comparison with other investments or other investment companies using a different method of calculating performance. Comparative performance information may be used from time to time in advertis- ing or marketing the Portfolio's shares, including data from Lipper Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price Index, Wilshire 4500 Stock Index, Russell Small Cap Index, the Dow Jones Industrial Average and other industry publications. General Information The Fund was organized as an unincorporated business trust under the laws of the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust (the "Trust Agreement") dated September 29, 1994. The Fund commenced op- erations on or about April 3, 1995 in connection with the offer of shares of certain of its other portfolios. The Fund is authorized to issue an unlimited number of shares of beneficial interest, par value $.001 per share. The Port- folio's shares are classified into three Classes--Class A, Class C and Class Y. Each share has one vote and shareholders will vote in the aggregate and not by Class, except as otherwise required by law. Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Portfolio. However, the Trust Agreement disclaims shareholder liability for acts or obligations of the Portfolio and requires that notice of such disclaimer be given in each agree- ment, obligation or instrument entered into or executed by the Fund or a Trustee. The Trust Agreement provides for indemnification from the Portfolio's property for all losses and expenses of any shareholder held personally liable for the obligations of the Portfolio. Thus, the risk of a shareholder incur- ring financial loss on account of a shareholder liability is limited to cir- cumstances in which the Portfolio itself would be unable to meet its obliga- tions, a possibility which management believes is remote. Upon payment of any liability incurred by the Portfolio, the shareholder paying such liability will be entitled to reimbursement from the general assets of the Portfolio. The Fund's Trustees intend to conduct the operations of the Portfolio in a way so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the Portfolio. As discussed under "Management of the Fund" in the Portfolio's Statement of Additional Information, the Portfolio ordinarily will not hold shareholder meetings; however, shareholders under certain cir- cumstances may have the right to call a meeting of shareholders for the pur- pose of voting to remove Trustees. 25 To date, the Fund's Board has authorized the creation of five portfolios of shares. All consideration received by the Fund for shares of one of the port- folios and all assets in which such consideration is invested will belong to that portfolio (subject only to the rights of creditors of the Fund) and will be subject to the liabilities related thereto. The assets attributable to, and the expenses of, one portfolio (and as to classes within a portfolio) are treated separately from those of the other portfolios (and classes). The Fund has the ability to create, from time to time, new portfolios of shares without shareholder approval. Rule 18f-2 under the 1940 Act provides that any matter required to be submit- ted under the provisions of the 1940 Act or applicable state law or otherwise to the holders of the outstanding voting securities of an investment company, such as the Fund, will not be deemed to have been effectively acted upon un- less approved by the holders of a majority of the outstanding shares of each portfolio affected by such matter. Rule 18f-2 further provides that a portfo- lio shall be deemed to be affected by a matter unless it is clear that the in- terests of such portfolio in the matter are identical or that the matter does not affect any interest of such portfolio. However, the Rule exempts the se- lection of independent accountants and the election of Trustees from the sepa- rate voting requirements of the Rule. The Transfer Agent maintains a record of share ownership and will send confir- mations and statements of account. Shareholder inquiries may be made by writing to the Fund at PFPC Inc., Atten- tion: The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960, by calling 1-800-447-1139 (in Delaware call collect 302-791-1031) or by calling Bear Stearns at 1-800-766-4111. 26 Appendix INVESTMENT TECHNIQUES In connection with its investment objective and policies, the Portfolio may employ, among others, the following investment techniques which may involve certain risks. Options transactions involve "derivative securities." OPTIONS TRANSACTIONS THE PORTFOLIO MAY ENGAGE IN OPTIONS TRANSACTIONS. The Portfolio is permitted to invest up to 5% of its assets, represented by the premium paid, in the purchase of call and put options in respect of spe- cific securities (or groups or "baskets" of specific securities) in which the Portfolio may invest. The Portfolio may write and sell covered call option contracts on securities owned by the Portfolio not exceeding 20% of the value of its net assets at the time such option contracts are written. The Portfolio also may purchase call options to enter into closing purchase transactions. The Portfolio also may write covered put option contracts to the extent of 20% of the value of its net assets at the time such option contracts are written. A call option gives the purchaser of the option the right to buy, and obli- gates the writer to sell, the underlying security at the exercise price at any time during the option period. Conversely, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying security at the exercise price at any time during the option period. A covered put option sold by the Portfolio exposes the Portfolio during the term of the option to a decline in price of the underlying security or securities. A put option sold by the Portfolio is covered when, among other things, cash or liq- uid securities are placed in a segregated account with the Fund's custodian to fulfill the obligation undertaken. The Portfolio may purchase and sell call and put options on stock indexes listed on U.S. securities exchanges or traded in the over-the-counter market. A stock index fluctuates with changes in the market values of the stocks in- cluded in the index. Because the value of an index option depends upon move- ments in the level of the index rather than the price of a particular stock, whether the Portfolio will realize a gain or loss from the purchase or writing of options on an index depends upon movements in the level of stock prices in the stock market generally or, in the case of certain indexes, in an industry or market segment, rather than movements in the price of a particular stock. Successful use by the Portfolio of options will be subject to Symphony's abil- ity to predict correctly movements in the direction of individual stocks, the stock market generally, foreign currencies or interest rates. To the extent Symphony's predictions are incorrect, the Portfolio may incur losses which could adversely affect the value of a shareholder's investment. LENDING PORTFOLIO SECURITIES THE PORTFOLIO MAY EARN ADDITIONAL INCOME BY LENDING ITS PORTFOLIO SECURITIES. From time to time, the Portfolio may lend securities from its portfolio to brokers, dealers and other financial institutions needing to borrow securities to complete certain transactions. Such loans may not exceed 33 1/3% of the value of the Portfolio's total assets. In connection with such loans, the Portfolio will receive collateral consisting of cash, U.S. Government securi- ties or irrevocable letters of credit which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned se- curities. The Portfolio can increase its income through the investment of such collateral. The Portfolio continues to be entitled to payments in amounts equal to the interest, dividends and other distributions payable on the loaned security and receives interest on the amount of the loan. Such loans will be terminable at any time upon specified notice. The Portfolio might experience risk of loss if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Portfolio. BORROWING MONEY THE PORTFOLIO MAY BORROW MONEY. As a fundamental policy, the Portfolio is permitted to borrow to the extent permitted under the 1940 Act. The 1940 Act permits an investment company to borrow in an amount up to 33 1/3% of the value of such company's total assets. However, the Portfolio currently intends to borrow money only A-1 for temporary or emergency (not leveraging) purposes, in an amount up to 15% of the value of its total assets (including the amount borrowed) valued at the lesser of cost or market, less liabilities (not including the amount borrowed) at the time the borrowing is made. While borrowings exceed 5% of the Portfo- lio's total assets, the Portfolio will not make any additional investments. CERTAIN PORTFOLIO SECURITIES CONVERTIBLE SECURITIES THE PORTFOLIO MAY INVEST IN CONVERTIBLE SECURITIES. Convertible securities are fixed-income securities that may be converted at either a stated price or stated rate into underlying shares of common stock. Convertible securities have general characteristics similar to both fixed-in- come and equity securities. Although to a lesser extent than with fixed-income securities generally, the market value of convertible securities tends to de- cline as interest rates increase and, conversely, tends to increase as inter- est rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock, and, therefore, also will react to vari- ations in the general market for equity securities. A unique feature of con- vertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the un- derlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflec- tion of the value of the underlying common stock. While no securities invest- ments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As fixed-income securities, convertible securities are investments that pro- vide for a stable stream of income with generally higher yields than common stocks. Of course, like all fixed-income securities, there can be no assurance of current income because the issuers of the convertible securities may de- fault on their obligations. Convertible securities, however, generally offer lower interest or dividend yields than non-convertible securities of similar quality because of the potential for capital appreciation. A convertible secu- rity, in addition to providing fixed income, offers the potential for capital appreciation through the conversion feature, which enables the holder to bene- fit from increases in the market price of the underlying common stock. There can be no assurance of capital appreciation, however, because securities prices fluctuate. Convertible securities generally are subordinated to other similar but non- convertible securities of the same issuer, although convertible bonds, as cor- porate debt obligations, enjoy seniority in right of payment to all equity se- curities, and convertible preferred stock is senior to common stock, of the same issuer. Because of the subordination feature, however, convertible secu- rities typically have lower ratings than similar non-convertible securities. MONEY MARKET INSTRUMENTS THE PORTFOLIO MAY INVEST IN A VARIETY OF MONEY MARKET INSTRUMENTS. The Portfolio may invest, in the circumstances described under "Description of the Fund--Management Policies," in the following types of money market instru- ments, each of which at the time of purchase must have or be deemed to have under rules of the Securities and Exchange Commission remaining maturities of 13 months or less. U.S. GOVERNMENT SECURITIES The Portfolio may purchase securities issued or guaranteed by the U.S. Govern- ment or its agencies or instrumentalities, which include U.S. Treasury securi- ties that differ in their interest rates, maturities and times of issuance. Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of greater than ten years. Some obligations issued or guar- anteed by U.S. Government agencies and instrumentalities, for example, Govern- ment National Mortgage Association pass-through certificates, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the right of the issuer to borrow from the U.S. Treasury; others, such as those issued by the Federal National Mortgage Asso- ciation, by discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others, such as those issued by the Student Loan Marketing Association, only by the credit of the agency or instrumentality. These securities bear fixed, floating or variable rates of interest. Principal and interest may fluctuate based A-2 on generally recognized reference rates or the relationship of rates. While the U.S. Government provides financial support to such U.S. Government-spon- sored agencies or instrumentalities, no assurance can be given that it will always do so, since it is not so obligated by law. BANK OBLIGATIONS The Portfolio may invest in bank obligations, including certificates of depos- it, time deposits, bankers' acceptances and other short-term obligations of domestic banks, foreign subsidiaries of domestic banks, foreign branches of domestic banks, and domestic and foreign branches of foreign banks, domestic savings and loan associations and other banking institutions. With respect to such securities issued by foreign branches of domestic banks, foreign subsidi- aries of domestic banks, and domestic and foreign branches of foreign banks, the Portfolio may be subject to additional investment risks that are different in some respects from those incurred by a fund which invests only in debt ob- ligations of U.S. domestic issuers. Such risks include possible future politi- cal and economic developments, the possible imposition of foreign withholding taxes on interest income payable on the securities, the possible establishment of exchange controls or the adoption of other foreign governmental restric- tions which might adversely affect the payment of principal and interest on these securities and the possible seizure or nationalization of foreign depos- its. Certificates of deposit are negotiable certificates evidencing the obligation of a bank to repay funds deposited with it for a specified period of time. Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated interest rate. Time deposits which may be held by the Portfolio will not benefit from insurance from the Bank In- surance Fund or the Savings Association Insurance Fund administered by the Federal Deposit Insurance Corporation. The Portfolio will not invest more than 15% of the value of its net assets in time deposits maturing in more than seven days and in other securities that are illiquid. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity. The other short-term obligations may include unin- sured, direct obligations bearing fixed, floating or variable interest rates. REPURCHASE AGREEMENTS Repurchase agreements involve the acquisition by the Portfolio of an under- lying debt instrument, subject to an obligation of the seller to repurchase, and the Portfolio to resell, the instrument at a fixed price usually not more than one week after its purchase. Certain costs may be incurred by the Portfo- lio in connection with the sale of the securities if the seller does not re- purchase them in accordance with the repurchase agreement. In addition, if bankruptcy proceedings are commenced with respect to the seller of the securi- ties, realization on the securities by the Portfolio may be delayed or limit- ed. COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS Commercial paper consists of short-term, unsecured promissory notes issued to finance short-term credit needs. The commercial paper purchased by the Portfo- lio will consist only of direct obligations which, at the time of their pur- chase, are (a) rated not lower than Prime-1 by Moody's Investors Service Inc. ("Moody's"), A-1 by Standard & Poor's Corporation ("S&P"), F-1 by Fitch In- vestors Service, Inc. ("Fitch") or Duff-1 by Duff & Phelps, Inc. ("Duff"), (b) issued by companies having an outstanding unsecured debt issue currently rated not lower than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined by the Advisers to be of comparable quality to those rated obliga- tions which may be purchased by the Portfolio. The Portfolio may purchase floating and variable rate demand notes and bonds, which are obligations ordi- narily having stated maturities in excess of one year, but which permit the holder to demand payment of principal at any time or at specified intervals. WARRANTS THE PORTFOLIO MAY INVEST UP TO 5% OF ITS NET ASSETS IN WARRANTS. The Portfolio may invest up to 5% of its net assets in warrants, except that this limitation does not apply to warrants acquired in units or attached to securities. Included in such amount, but not to exceed 2% of the value of the Portfolio's net assets, may be warrants which are not listed on the New York or American Stock Exchange. A warrant is an instrument issued by a corporation which A-3 gives the holder the right to subscribe to a specified amount of the corpora- tion's capital stock at a set price for a specified period of time. INVESTMENT COMPANY SECURITIES THE PORTFOLIO MAY INVEST IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Portfolio may invest in securities issued by other investment companies. Under the 1940 Act, the Portfolio's investment in such securities currently is limited to, subject to certain exceptions, (i) 3% of the total voting stock of any one investment company, (ii) 5% of the Portfolio's net assets with respect to any one investment company and (iii) 10% of the Portfolio's net assets in the aggregate. Investments in the securities of other investment companies will involve duplication of advisory fees and certain other expenses. ILLIQUID SECURITIES THE PORTFOLIO MAY PURCHASE ILLIQUID SECURITIES. The Portfolio may invest up to 15% of the value of its net assets in securi- ties as to which a liquid trading market does not exist, provided such invest- ments are consistent with the Portfolio's investment objective. Such securi- ties may include securities that are not readily marketable, such as certain securities that are subject to legal or contractual restrictions on resale, repurchase agreements providing for settlement in more than seven days after notice, and options traded in the over-the-counter market and securities used to cover such options. As to these securities, the Portfolio is subject to a risk that should the Portfolio desire to sell them when a ready buyer is not available at a price the Portfolio deems representative of their value, the value of the Portfolio's net assets could be adversely affected. A-4 T H E B E A R S T E A R N S F U N D S 2 4 5 P A R K A V E N U E N E W Y O R K, N Y 1 0 1 6 7 1 . 8 0 0 . 7 6 6 . 4 1 1 1 PROSPECTUS The Insiders Select Portfolio CLASS Y SHARES ONLY THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment com- pany, known as a mutual fund. The Fund permits you to invest in separate port- folios. By this Prospectus, Class Y shares of The Insiders Select Portfolio, a non-diversified portfolio (the "Portfolio"), are offered. The Portfolio's in- vestment objective is capital appreciation. The Portfolio's sub-investment ad- viser uses its proprietary IntelliVest(TM) Model to analyze transactions by corporate insiders, the behavior of financial analysts and the corporate fi- nance activities of the companies themselves to determine which securities to purchase or sell short. Class Y shares are sold at net asset value without a sales charge to investors whose minimum investment is $2.5 million. The Portfolio issues other Classes of shares which have sales charges and different expenses which would affect performance. Investors desiring to obtain information about these other Clas- ses of shares should call 1-800-766-4111 or ask their sales representative or the Portfolio's distributor. BEAR STEARNS FUNDS MANAGEMENT INC. ("BSFM"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., serves as the Portfolio's investment adviser. BSFM has engaged Symphony Asset Management ("Symphony"), a subsidiary of BARRA, Inc., as the Portfolio's sub-investment adviser to manage the Portfo- lio's day-to-day investment activities. BSFM and Symphony are referred to herein collectively as the "Advisers." BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as the Portfolio's distributor. ---------------------- THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE PORTFOLIO THAT YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE REFER- ENCE. Part B (also known as the Statement of Additional Information), dated November 10, 1995, which may be revised from time to time, provides a further discus- sion of certain areas in this Prospectus and other matters which may be of in- terest to some investors. It has been filed with the Securities and Exchange Commission and is incorporated herein by reference. For a free copy, write to the address or call one of the telephone numbers listed under "General Infor- mation" in this Prospectus. ---------------------- Mutual fund shares are not deposits or obligations of, or guaranteed or en- dorsed by, any bank, and are not federally insured by the Federal Deposit In- surance Corporation, the Federal Reserve Board, or any other agency. The net asset value of funds of this type will fluctuate. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC- CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NOVEMBER 10, 1995 Table of Contents
PAGE Fee Table.................................................................. 3 Condensed Financial Information............................................ 4 Description of the Fund.................................................... 4 Risk Factors.............................................................. 9 Management of the Fund..................................................... 10 How to Buy Shares.......................................................... 13 Shareholder Services....................................................... 15 How to Redeem Shares....................................................... 16 Dividends, Distributions and Taxes......................................... 17 Performance Information.................................................... 18 General Information........................................................ 19 Appendix................................................................... A-1
2 Fee Table - -------------------------------------------------------------------------------
CLASS Y - ------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................................................... None Maximum Deferred Sales Charge Imposed on Redemptions (as a percentage of the amount subject to charge)..................................... None ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Management Fees (after fee waiver)*.................................. 0.00%** 12b-1 Fees........................................................... None Other Expenses (after expense reimbursement)*........................ 1.15% Total Portfolio Operating Expenses (after fee waiver and expense reimbursement)*...................................................... 1.15% EXAMPLE You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period: 1 YEAR.............................................................. $12 3 YEARS............................................................. $37
- ------ *Based on estimated expenses for the current fiscal year. BSFM has undertaken to waive its investment advisory fee and assume certain expenses of the Port- folio other than brokerage fees, extraordinary items and taxes to the extent Total Portfolio Operating Expenses exceed 1.15% for Class Y. Without such waiver and expense reimbursement, Management Fees stated above would be 1.00%, Other Expenses would be 1.77% and Total Portfolio Operating Expenses would be 2.77% for Class Y. **The Management Fee is payable at an annual rate equal to 1% of the Portfo- lio's average daily net assets, subject to increase or decrease by up to 0.50% annually depending on the Portfolio's performance. See "Management of the Fund-- Investment Adviser" and "--Sub-Investment Adviser." THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDI- CATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%. The purpose of the foregoing table is to assist you in understanding the vari- ous costs and expenses that investors will bear, directly or indirectly, the payment of which will reduce investors' return on an annual basis. Other Ex- penses and Total Portfolio Operating Expenses are based on estimated amounts for the current fiscal year. In addition to the expenses noted above, the Fund will charge $7.50 for each wire redemption. See "How to Redeem Shares." For a further description of the various costs and expenses incurred in the Portfo- lio's operation, as well as expense reimbursement or waiver arrangements, see "Management of the Fund." 3 Condensed Financial Information The table below sets forth certain information covering the Portfolio's in- vestment results for the period indicated. Further financial data and related notes are included in the Statement of Additional Information which is avail- able upon request. FINANCIAL HIGHLIGHTS Contained below is per share operating performance data, total investment re- turn, ratios to average net assets and other supplemental data for a Class Y share of the Portfolio for the period June 20, 1995 (commencement of initial public offering) to September 30, 1995. This information has been derived from information provided in the Portfolio's financial statements (unaudited). - -------------------------------------------------------------------------------- CLASS Y - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period................................... $12.12 Net investment income+................................................. 0.01 Net realized and unrealized gain on investments*....................... 1.07 ------ Net increase in net assets from operations............................. 1.08 ------ Net asset value, end of period......................................... 13.20 ====== Total investment return++.............................................. 8.91% ====== RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted).............................. $484 Ratio of expenses to average net assets+**............................. 1.15% Ratio of net investment income to average net assets+**................ 0.64% Decrease reflected in above expense ratios and net investment income due to waivers and reimbursements*.................................... 1.89% Portfolio turnover rate***............................................. 8.53% Average commission rate per share...................................... $0.03
- ------ +Reflects waivers and reimbursements. ++Total 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 re- investment of dividends and distributions, if any. Total return is not annualized. *The amount shown for a share outstanding throughout the period is not in ac- cord with the change in the aggregate gains and losses in investments during the period because of the timing of sales and repurchases of Portfolio shares in relation to fluctuating net asset value during the period. **Annualized. ***Not annualized. Further information about performance will be contained in the Portfolio's an- nual report, which should be available on or about May 30, 1996, and which may be obtained without charge by writing to the address or calling one of the telephone numbers listed under "General Information." Description of the Fund GENERAL THE FUND IS A "SERIES FUND." The 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 of 1940, as amended (the "1940 Act"), and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. As described below, for certain matters Fund shareholders vote together as a group; as to others they vote separately by portfolio. By this Prospectus, shares of the Portfolio are being offered. From time to time, other portfolios may be established and sold pursuant to other offering documents. See "General Information." INVESTMENT OBJECTIVE THE PORTFOLIO SEEKS TO PROVIDE CAPITAL APPRECIATION. The Portfolio's investment objective is capital appreciation. The Portfolio's investment objective cannot be changed without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. There can be no assurance that the Portfolio's investment objective will be achieved. 4 INTELLIVEST(TM) MODEL THE INTELLIVEST(TM) MODEL IS SYMPHONY'S PROPRIETARY METHODOLOGY FOR SELECTING A COMPANY'S SECURITIES BY ANALYZING THE BEHAVIOR OF CORPORATE INSIDERS, FINANCIAL ANALYSTS AND THE COMPANY ITSELF. Symphony has developed a proprietary methodology (the "IntelliVest(TM) Model") for analyzing the behavior of (i) corporate insiders--officers, directors and significant stockholders--through an analysis of their publicly filed reports of their trading activities in the equity securities of the companies for which they are insiders, (ii) financial analysts, through an analysis of their published reports about covered companies, including predicted earnings and revisions to predicted earnings, and (iii) the company itself, through an analysis of its behavior as to corporate finance matters, such as stock repur- chase programs, dividend policies and new securities issuance. Corporate insiders are believed by Symphony to be in the best position to un- derstand the near term prospects of their companies. Symphony believes that insider behavior can be observed and analyzed since insiders are required to disclose transactions in their company's equity securities to the Securities and Exchange Commission generally no later than the tenth day of the month following the transaction. Each month many thousands of these disclosures are received. Symphony believes that the laborious process of collecting, classi- fying and analyzing these transactions using the IntelliVest(TM) Model pro- vides valuable investment management information. These INSIDERS may have many reasons for transacting in company stock and stock options. Many of these are entirely incidental to the future of the com- pany. For example, an insider may sell stock to buy a home or finance a col- lege education for his or her child. Likewise a new management team may wish to signal confidence in the company by making token purchases of the company's equity. Many other transactions, however, are related directly to the insid- er's beliefs about the near-term price expectations for the company's stock. An insider who exercises long-term options early for small profits likely be- lieves the stock soon will decline. Insiders who exercise options, hold the stock, and buy in the open market probably believe that the stock soon will rise. Clusters of insiders making substantial buys or sells indicate broad agreement within a firm as to the direction of the stock. FINANCIAL ANALYSTS use a variety of means to learn more about the companies they follow. Among these are visits to the company and in-depth discussions with management. Successful analysts learn to interpret the words and actions of management and the firm itself. Likewise, management uses its discussions with certain analysts as a means of signaling their views to the marketplace. Symphony has a computer model of analysts' predicted earnings and ratings. This model tracks the behavior of analysts as they have revised predicted earnings and the ratings of a company's prospects in the market. Symphony be- lieves that analysts' revisions can be a valuable indicator of future returns for the company's stock. Part of the normal activity of EVERY PUBLIC COMPANY is its financing deci- sions. A company must routinely decide whether to maintain or change its divi- dend policy, whether to buy its own stock in the open market or whether to is- sue new securities. From time to time the firm may decide that its stock is undervalued. Many firms see undervaluation as an opportunity to purchase the company's stock in the open market. Symphony believes that by monitoring changes in shares outstanding (in the hands of the public), a useful signal can be extracted relating to the firm's beliefs about its prospects. Similar- ly, the company's decision to sell securities to the public or another firm can be an indication that the company believes that its stock has reached a near-term high, a potentially useful sell signal. Insiders, analysts and the company each send signals that can be analyzed us- ing the IntelliVest(TM) Model to produce valuable information about the pros- pects for individual companies. Symphony believes that the most powerful anal- ysis, however, comes from the interaction of all three sources. While no one signal alone determines whether a security will be purchased or sold, no secu- rity will be considered for purchase or sale using the IntelliVest(TM) Model unless a positive or negative signal, as the case may be, is received from in- sider behavior. In its analysis, the IntelliVest(TM) Model uses only data that is available to the public. Symphony obtains the data on insider trading ac- tivity from CDA/Investnet, which compiles this information from publicly available Securities and Exchange Commission filings. Symphony's research team has devoted three years of research to developing the framework necessary to analyze the behavior of each of these sources and the interaction among them. 5 MANAGEMENT POLICIES THE PORTFOLIO SEEKS TO INVEST PRIMARILY IN EQUITY SECURITIES THAT, AT THE TIME OF PURCHASE, ARE BELIEVED BY SYMPHONY, USING DATA FROM THE INTELLIVEST(TM) MODEL, TO PROVIDE OPPORTUNITIES FOR CAPITAL APPRECIATION OR GAINS THROUGH SHORT SELLING. Under normal market conditions, Symphony invests substantially all of the Portfolio's assets in the equity securities of U.S. issuers. Using data from the IntelliVest(TM) Model, Symphony selects equity securities believed by it to provide opportunities for capital appreciation or gains through short sell- ing. Issuers are selected without regard to market capitalization, although Symphony anticipates that the issuers principally will be mid- to large capi- talization companies; that is, those with market capitalizations exceeding $1 billion. Symphony seeks to use the IntelliVest(TM) Model to select all the Portfolio's securities. The IntelliVest(TM) Model, however, should not be expected to pro- vide data sufficient to permit the Portfolio's entire portfolio to be invested in its selections. For its remaining assets invested in equity securities, Symphony will use an analytic valuation model created by the active strategies group of BARRA, Inc., Symphony's parent, to select from the universe of U.S. equity securities those securities it believes, in the aggregate, will approx- imate or exceed the total return performance of the Standard & Poor's 500 Stock Index* (the "S&P 500 Index"). The S&P 500 Index is composed of 500 se- lected common stocks, most of which are listed on the New York Stock Exchange. The composition of the S&P 500 Index is determined by Standard & Poor's Corpo- ration based on such factors as the market capitalization and trading activity of each stock and its adequacy as a representative of stocks in a particular industry group, and may be changed from time to time. The weightings of stocks in the S&P 500 Index are based on each stock's relative total market capital- ization; that is, its market price per share times the number of shares out- standing. Because of this weighting, as of September 30, 1995, approximately 46% of the S&P 500 Index was composed of the 50 largest companies. The Portfo- lio will not invest in all or substantially all of the common stocks included in the S&P 500 Index and may invest in stocks that are not included in the S&P 500 index. The Portfolio expects ordinarily to invest in approximately 60 to 150 stocks. By investing in this manner--that is, using its IntelliVest(TM) Model and pur- chasing other equity securities in a manner intended to approximate or exceed the performance of the S&P 500 Index--Symphony seeks to exceed the total re- turn of the S&P 500 Index. Equity securities consist of common stocks, convertible securities and pre- ferred stocks. The convertible securities and preferred stocks in which the Portfolio may invest will be rated at least investment grade by a nationally recognized statistical rating organization at the time of purchase. Convert- ible securities rated in the lowest investment grade rating may be considered to have speculative characteristics. Preferred stock generally receives divi- dends before distributions are paid on common stock and ordinarily has a pri- ority claim over common stockholders if the issuer of the stock is liquidated. The Portfolio may invest, in anticipation of investing cash positions, in money market instruments consisting of U.S. Government securities, certifi- cates of deposit, time deposits, bankers' acceptances, short-term investment grade corporate bonds and other short-term debt instruments, and repurchase agreements, as set forth in the Appendix. Under normal market conditions, the Portfolio expects to have less than 15% of its assets invested in money market instruments. However, when Symphony determines that adverse market conditions exist, the Portfolio may adopt a temporary defensive posture and invest all of its assets in money market instruments. INVESTMENT TECHNIQUES THE PORTFOLIO MAY ENGAGE IN SHORT SELLING, LENDING PORTFOLIO SECURITIES AND OPTIONS AND FUTURES TRANSACTIONS, EACH OF WHICH INVOLVES RISK. The Portfolio may engage in various investment techniques, such as short sell- ing, lending portfolio securities and options and futures transactions, each of which involves risk. Options and futures transactions involve "derivative securities." Short selling and futures transactions are discussed below. For a discussion of these other investment techniques and their related risks, see "Appendix--Investment Techniques" and "Risk Factors" below. - ------ *"Standard & Poor's," "S&P(R)" and "S&P 500(R)" are trademarks of Standard & Poor's Corporation. The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation. 6 SHORT SELLING. Short sales are transactions in which the Portfolio sells a se- curity it does not own in anticipation of a decline in the market value of that security. To complete such a transaction, the Portfolio must borrow the security to make delivery to the buyer. The Portfolio then is obligated to re- place the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Portfolio. Until the security is replaced, the Portfolio is required to pay to the lender amounts equal to any dividend which accrues during the period of the loan. To borrow the security, the Port- folio also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the bro- ker, to the extent necessary to meet margin requirements, until the short po- sition is closed out. Until the Portfolio replaces a borrowed security in connection with a short sale, the Portfolio will: (a) maintain daily a segregated account, containing cash, cash equivalents or U.S. Government securities, at such a level that (i) the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the secu- rity at the time it was sold short; or (b) otherwise cover its short position in accordance with positions taken by the Staff of the Securities and Exchange Commission. The Portfolio will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the Portfolio replaces the borrowed security. The Portfolio will realize a gain if the security declines in price between those dates. This result is the opposite of what one would expect from a cash purchase of a long position in a security. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium or amounts in lieu of interest the Portfolio may be required to pay in connection with a short sale. The Portfolio may purchase call options to provide a hedge against an increase in the price of a security sold short by the Portfolio. See "Appendix--Investment Techniques--Options Transactions." The Portfolio anticipates that the frequency of short sales will vary substan- tially in different periods, and it does not intend that any specified portion of its assets, as a matter of practice, will be invested in short sales. How- ever, no securities will be sold short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 25% of the value of the Portfolio's net assets. The Portfolio may not sell short the securities of any single issuer listed on a national securities ex- change to the extent of more than 5% of the value of its net assets. The Port- folio may not sell short the securities of any class of an issuer to the ex- tent, at the time of the transaction, of more than 2% of the outstanding secu- rities of that class. In addition to the short sales discussed above, the Portfolio may make short sales "against the box," a transaction in which the Portfolio enters into a short sale of a security which the Portfolio owns. The proceeds of the short sale will be held by a broker until the settlement date at which time the Portfolio delivers the security to close the short position. The Portfolio re- ceives the net proceeds from the short sale. The Portfolio at no time will have more than 15% of the value of its net assets in deposits on short sales against the box. It currently is anticipated that the Portfolio will make short sales against the box for purposes of protecting the value of the Port- folio's net assets. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may enter into stock index futures contracts, and options with respect thereto, in U.S. domestic markets. See "Appendix--Investment Techniques--Options Transactions." These transactions will be entered into as a substitute for comparable market positions in the underlying securities or for hedging purposes. Although the Portfolio is not a commodity pool, it is subject to rules of the Commodity Futures Trading Commission (the "CFTC") limiting the extent to which it may engage in these transactions. The Portfolio's commodities transactions must constitute bona fide hedging or other permissible transactions pursuant to regulations promulgated by the CFTC. In addition, the Portfolio may not engage in such transactions if the sum of the amount of initial margin deposits and premiums paid for unexpired commodity options, other than for bona fide hedging transactions, would exceed 5% of the liquidation value of the Portfolio's assets, after taking into ac- count unrealized profits and unrealized losses on such contracts it has en- tered into; provided, however, that in the case of an option that is in-the- money at the time of purchase, the in-the-money amount may be excluded in cal- culating the 5%. To the extent the Portfolio engages in the use of futures and options on futures for other than bona fide hedging purposes, the Portfolio may be subject to additional risk. 7 Engaging in these transactions involves risk of loss to the Portfolio which could adversely affect the value of a shareholder's investment. Although the Portfolio intends to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid mar- ket will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permit- ted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified pe- riods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby pre- venting prompt liquidation of futures positions and potentially subjecting the Portfolio to substantial losses. In addition, engaging in futures transactions in foreign markets may involve greater risks than trading on domestic ex- changes. Successful use of futures by the Portfolio also is subject to Symphony's abil- ity to predict correctly movements in the direction of the market or foreign currencies and, to the extent the transaction is entered into for hedging pur- poses, to ascertain the appropriate correlation between the transaction being hedged and the price movements of the futures contract. For example, if the Portfolio has hedged against the possibility of a decline in the market ad- versely affecting the value of securities held in its portfolio and prices in- crease instead, the Portfolio will lose part or all of the benefit of the in- creased value of securities which it has hedged because it will have offset- ting losses in its futures positions. In addition, in such situations, if the Portfolio has insufficient cash, it may have to sell securities to meet daily variation margin requirements. Such sales of securities may, but will not nec- essarily, be at increased prices which reflect the rising market. The Portfo- lio may have to sell securities at a time when it may be disadvantageous to do so. Pursuant to regulations and/or published positions of the Securities and Ex- change Commission, the Portfolio may be required to segregate cash or high quality money market instruments in connection with its commodities transac- tions in an amount generally equal to the value of the underlying commodity. The segregation of such assets will have the effect of limiting the Portfo- lio's ability otherwise to invest those assets. FUTURE DEVELOPMENTS. The Portfolio may take advantage of opportunities in the area of options and futures contracts, options on futures contracts and any other derivative investments which are not presently contemplated for use by the Portfolio or which are not currently available but which may be developed, to the extent such opportunities are both consistent with the Portfolio's in- vestment objective and legally permissible for the Portfolio. Before entering into such transactions or making any such investment, the Portfolio will pro- vide appropriate disclosure in its prospectus. CERTAIN FUNDAMENTAL POLICIES CERTAIN OF THE PORTFOLIO'S INVESTMENT POLICIES ARE FUNDAMENTAL POLICIES THAT CAN BE CHANGED ONLY BY SHAREHOLDER VOTE. The Portfolio may (i) borrow money to the extent permitted under the 1940 Act; and (ii) invest up to 25% of the value of its total assets in the securities of issuers in a single industry, provided that there is no such limitation on investments in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. This paragraph describes fundamental policies that cannot be changed as to the Portfolio without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. See "Investment Objective and Management Policies--Investment Restric- tions" in the Statement of Additional Information. CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES The Portfolio may (i) purchase securities of any company having less than three years' continuous operation (including operations of any predecessors) if such purchase does not cause the value of the Portfolio's investments in all such companies to exceed 5% of the value of its total assets; (ii) pledge, hypothecate, mortgage or otherwise encumber its assets, but only to secure permitted borrowings; and (iii) invest up to 15% of the value of its net as- sets in repurchase agreements providing for settlement in more than seven days after notice and in other illiquid securities. See "Investment Objective and Management Policies--Investment Restrictions" in the Statement of Additional Information. 8 RISK FACTORS NO INVESTMENT IS FREE FROM RISK. INVESTING IN THE PORTFOLIO WILL SUBJECT IN- VESTORS TO CERTAIN RISKS WHICH SHOULD BE CONSIDERED. NET ASSET VALUE FLUCTUATIONS The Portfolio's net asset value per share is not fixed and should be expected to fluctuate. Investors should purchase Portfolio shares only as a supplement to an overall investment program and only if investors are willing to under- take the risks involved. EQUITY SECURITIES Investors should be aware that equity securities fluctuate in value, often based on factors unrelated to the value of the issuer of the securities, and that fluctuations can be pronounced. Changes in the value of the equity secu- rities in the Portfolio's portfolio will result in changes in the value of the Portfolio's shares and thus the Portfolio's yield and total return to invest- ors. CERTAIN INVESTMENT TECHNIQUES The use of investment techniques such as short selling, lending portfolio se- curities and engaging in options and futures transactions, involves greater risk than that incurred by many other funds with a similar objective. Using these techniques may produce higher than normal portfolio turnover and may af- fect the degree to which the Portfolio's net asset value fluctuates. See "Ap- pendix--Investment Techniques." The Portfolio's ability to engage in certain short-term transactions may be limited by the requirement that, to qualify as a regulated investment company, it must earn less than 30% of its gross income from the disposition of securi- ties held for less than three months. This 30% test limits the extent to which the Portfolio may sell securities held for less than three months, effect short sales of securities held for less than three months, write options ex- piring in less than three months and invest in certain futures contracts, among other strategies. With the exception of the above requirement, the amount of portfolio activity will not be a limiting factor when making portfo- lio decisions. Under normal market conditions, the Portfolio's portfolio turn- over rate generally will not exceed 150%. Higher portfolio turnover rates are likely to result in comparatively greater brokerage commissions or transaction costs. Short-term gains realized from portfolio transactions are taxable to shareholders as ordinary income. See "Portfolio Transactions" in the Portfo- lio's Statement of Additional Information. NON-DIVERSIFIED STATUS The Portfolio's classification as a "non-diversified" investment company means that the proportion of its assets that may be invested in the securities of a single issuer is not limited by the 1940 Act. A "diversified" investment com- pany is required by the 1940 Act generally, with respect to 75% of its total assets, to invest not more than 5% of such assets in the securities of a sin- gle issuer and to hold not more than 10% of the outstanding voting securities of a single issuer. However, the Portfolio intends to conduct its operations so as to qualify as a "regulated investment company" for purposes of the In- ternal Revenue Code of 1986, as amended (the "Code"), which requires that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of the Portfolio's total assets be invested in cash, U.S. Government se- curities, the securities of other regulated investment companies and other se- curities, with such other securities of any one issuer limited for the pur- poses of this calculation to an amount not greater than 5% of the value of the Portfolio's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets be in- vested in the securities of any one issuer (other than U.S. Government securi- ties or the securities of other regulated investment companies). Since a rela- tively high percentage of the Portfolio's assets may be invested in the secu- rities of a limited number of issuers, some of which may be within the same industry or economic sector, the Portfolio's portfolio securities may be more susceptible to any single economic, political or regulatory occurrence than the portfolio securities of a diversified investment company. SIMULTANEOUS INVESTMENTS Investment decisions for the Portfolio are made independently from those of other investment companies or accounts advised by the Advisers. However, if such other investment companies or accounts are prepared to invest in, or de- sire to dispose of, securities of the type in which the Portfolio invests at the same time as the Portfolio, available investments or opportunities for sales will be allocated equitably to each. In some cases, this procedure may adversely affect the size of the position obtained for or disposed of by the Portfolio or the price paid or received by the Portfolio. 9 Management of the Fund BOARD OF TRUSTEES THE TRUSTEES ARE RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF THE PORTFOLIO'S BUSINESS. The Fund's business affairs are managed under the general supervision of its Board of Trustees. The Portfolio's Statement of Additional Information con- tains the name and general business experience of each Trustee. INVESTMENT ADVISER THE PORTFOLIO'S INVESTMENT ADVISER IS BSFM; SYMPHONY PROVIDES DAY-TO-DAY MAN- AGEMENT OF THE PORTFOLIO'S INVESTMENTS. The Portfolio's investment adviser is BSFM, a wholly-owned subsidiary of The Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York, New York 10167. The Bear Stearns Companies Inc. is a holding company which, through its subsidiaries including its principal subsidiary, Bear Stearns, is a leading United States investment banking, securities trading and brokerage firm serving United States and foreign corporations, governments and institu- tional and individual investors. BSFM is a registered investment adviser and offers, either directly or through affiliates, investment advisory and admin- istrative services to open-end and closed-end investment funds and other man- aged pooled investment vehicles with net assets at September 30, 1995 of over $1.8 billion. BSFM supervises and assists in the overall management of the Portfolio's af- fairs under an Investment Advisory Agreement between BSFM and the Fund, sub- ject to the overall authority of the Fund's Board of Trustees in accordance with Massachusetts law. THE PORTFOLIO PAYS BSFM AN ADVISORY FEE AT AN ANNUAL RATE EQUAL TO 1% OF THE PORTFOLIO'S AVERAGE DAILY NET ASSETS WHICH WILL BE ADJUSTED MONTHLY DEPENDING ON THE EXTENT TO WHICH THE INVESTMENT PERFORMANCE OF PORTFOLIO SHARES EXCEEDED OR WAS EXCEEDED BY THE PERCENTAGE CHANGE IN THE INVESTMENT RECORD OF THE S&P 500 INDEX. Under the terms of the Investment Advisory Agreement, the Portfolio has agreed to pay BSFM a monthly fee at the annual rate of 1% of the Portfolio's average daily net assets (the "Basic Fee") which will be adjusted monthly (the "Monthly Performance Adjustment") depending on the extent to which the invest- ment performance of the Class of shares (currently, Class C) expected to bear the highest total Portfolio operating expenses, after expenses, exceeded or was exceeded by the percentage change in the investment record of the S&P 500 Index. The Monthly Performance Adjustment may increase or decrease the total advisory fee payable to BSFM (the "Total Advisory Fee") by up to .50% per year of the value of the Portfolio's average daily net assets. The monthly Total Advisory Fee is calculated as follows: (a) one-twelfth of the 1.0% annual Basic Fee rate (0.083%) is applied to the Portfolio's average daily net assets over the most recent calendar month, giving a dollar amount which is the Basic Fee for that month; (b) one-twelfth of the applicable per- formance adjustment rate from the table below is applied to the Portfolio's average daily net assets over the most recent calendar month, giving a dollar amount which is the Monthly Performance Adjustment (for the first twelve-month period, no performance adjustment will be made); and (c) the Monthly Perfor- mance Adjustment is then added to or subtracted from the Basic Fee and the re- sult is the amount payable by the Portfolio to BSFM as the Total Advisory Fee for that month. 10 The full range of Total Advisory Fees on an annualized basis is as follows: - -------------------------------------------------------------------------------
PERCENTAGE POINT DIFFERENCE BETWEEN DESIGNATED CLASS' PERFORMANCE (NET OF EXPENSES INCLUDING ADVISORY FEES) PERFORMANCE AND PERCENTAGE CHANGE IN THE ADJUSTMENT S&P 500 INDEX BASIC FEE (%) RATE (%) TOTAL FEE (%) - ------------------------------------------------------------------------------- +3.00 percentage points or more........ 1% .50% 1.50% +2.75 percentage points or more but less than +3.00 percentage points...... 1% .40% 1.40% +2.50 percentage points or more but less than +2.75 percentage points...... 1% .30% 1.30% +2.25 percentage points or more but less than +2.50 percentage points...... 1% .20% 1.20% +2.00 percentage points or more but less than +2.25 percentage points...... 1% .10% 1.10% Less than +2.00 percentage points but more than -2.00 percentage points...... 1% 0% 1.00% - -2.00 percentage points or less but more than -2.25 percentage points...... 1% -.10% .90% - -2.25 percentage points or less but more than -2.50 percentage points...... 1% -.20% .80% - -2.50 percentage points or less but more than -2.75 percentage points...... 1% -.30% .70% - -2.75 percentage points or less but more than -3.00 percentage points...... 1% -.40% .60% - -3.00 percentage points or less........ 1% -.50% .50%
The period over which performance is measured is a rolling twelve-month period and the performance of the S&P 500 Index is calculated as the sum of the change in the level of the S&P 500 Index during the period, plus the value of any dividends or distributions made by the companies whose securities comprise the S&P 500 Index. The investment advisory fee payable by the Portfolio is higher than that paid by most other investment companies. THE PORTFOLIO'S ADMINISTRATOR IS BSFM. THE PORTFOLIO PAYS BSFM AN ADMINISTRATION FEE AT THE ANNUAL RATE OF .15 OF 1% OF ITS AVERAGE DAILY NET ASSETS. Under the terms of an Administration Agreement with the Fund, BSFM generally supervises all aspects of the operation of the Portfolio, subject to the over- all authority of the Fund's Board of Trustees in accordance with Massachusetts law. For providing administrative services to the Portfolio, the Fund has agreed to pay BSFM a monthly fee at the annual rate of .15 of 1% of the Port- folio's average daily net assets. Under the terms of an Administrative Serv- ices Agreement with the Fund, PFPC Inc. provides certain administrative serv- ices to the Portfolio. For providing these services, the Fund has agreed to pay PFPC Inc. an annual fee, with a minimum of $8,000 for the Portfolio pay- able monthly, as set forth below: - --------------------------------------------------------------------------------
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS - -------------------------------------------------------------------------------- First $200 million................................ .10 of 1% Next $200 million up to $400 million.............. .075 of 1% Next $200 million up to $600 million.............. .05 of 1% Assets in excess of $600 million.................. .03 of 1%
From time to time, BSFM may waive receipt of its fees and/or voluntarily as- sume certain Portfolio expenses, which would have the effect of lowering the Portfolio's expense ratio and increasing yield to investors at the time such amounts are waived or assumed, as the case may be. The Portfolio will not pay BSFM at a later time for any amounts it may waive, nor will the Portfolio re- imburse BSFM for any amounts it may assume. Brokerage commissions may be paid to Bear Stearns for executing transactions if the use of Bear Stearns is likely to result in price and execution at least as favorable as those of other qualified 11 broker-dealers. The allocation of brokerage transactions also may take into account a broker's sales of the Portfolio's shares. See "Portfolio Transac- tions" in the Statement of Additional Information. Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or derivatives thereof as part of the Fund name for as long as the Investment Ad- visory Agreement is in effect. SUB-INVESTMENT ADVISER THE PORTFOLIO'S SUB-INVESTMENT ADVISER, SYMPHONY, PROVIDES INVESTMENT ADVISORY ASSISTANCE AND THE DAY-TO-DAY MANAGEMENT OF THE PORTFOLIO'S INVESTMENTS. BSFM has engaged Symphony, located at 555 California Street, San Francisco, California 94104, to serve as the Fund's sub-investment adviser. Symphony, a registered investment adviser, was formed in 1994. Symphony is a wholly-owned subsidiary of BARRA, Inc., a leading supplier of analytical financial soft- ware. Symphony's principals are Jeffrey Skelton, Praveen Gottipalli, Michael Henman and Neil Rudolph. Messrs. Skelton, Henman and Rudolph joined Symphony in 1994 from Wells Fargo Nikko Investment Advisors where they were Managing Directors. Mr. Gottipalli joined Symphony in 1994 from BARRA, Inc. Symphony, subject to the supervision and approval of BSFM, provides investment advisory assistance and the day-to-day management of the Portfolio's invest- ments, as well as investment research and statistical information, under a Sub-Investment Advisory Agreement with BSFM, subject to the overall authority of the Fund's Board of Trustees in accordance with Massachusetts law. BSFM PAYS SYMPHONY A SUB-ADVISORY FEE AT AN ANNUAL RATE EQUAL TO .45 OF 1% OF THE PORTFOLIO'S AVERAGE DAILY NET ASSETS WHICH WILL BE ADJUSTED MONTHLY DE- PENDING ON THE EXTENT TO WHICH THE INVESTMENT PERFORMANCE OF PORTFOLIO SHARES EXCEEDED OR WAS EXCEEDED BY THE PERCENTAGE CHANGE IN THE INVESTMENT RECORD OF THE S&P 500 INDEX. Under the Sub-Investment Advisory Agreement, BSFM has agreed to pay Symphony a monthly fee at the annual rate of .45 of 1% of the Portfolio's average daily net assets (the "Symphony Basic Fee") which will be adjusted by a Monthly Per- formance Adjustment calculated as described above. The Monthly Performance Ad- justment applicable to Symphony may increase or decrease the total advisory fee payable to Symphony (the "Total Sub-Advisory Fee") by up to .25% per year of the value of the Portfolio's average daily net assets. The monthly Total Sub-Advisory fee is calculated in the same manner as the Total Advisory Fee. The full range of Total Sub-Advisory Fees on an annualized basis is as fol- lows: - -------------------------------------------------------------------------------
PERCENTAGE POINT DIFFERENCE BETWEEN DESIGNATED CLASS' PERFORMANCE (NET OF EXPENSES INCLUDING ADVISORY FEES) PERFORMANCE AND PERCENTAGE CHANGE IN THE ADJUSTMENT S&P 500 INDEX BASIC FEE (%) RATE (%) TOTAL FEE (%) - ------------------------------------------------------------------------------- +3.00 percentage points or more........ .45% .25% .70% +2.75 percentage points or more but less than +3.00 percentage points...... .45% .20% .65% +2.50 percentage points or more but less than +2.75 percentage points...... .45% .15% .60% +2.25 percentage points or more but less than +2.50 percentage points...... .45% .10% .55% +2.00 percentage points or more but less than +2.25 percentage points...... .45% .05% .50% Less than +2.00 percentage points but more than -2.00 percentage points...... .45% 0% .45% - -2.00 percentage points or less but more than -2.25 percentage points...... .45% -.05% .40% - -2.25 percentage points or less but more than -2.50 percentage points...... .45% -.10% .35% - -2.50 percentage points or less but more than -2.75 percentage points...... .45% -.15% .30% - -2.75 percentage points or less but more than -3.00 percentage points...... .45% -.20% .25% - -3.00 percentage points or less........ .45% -.25% .20%
12 If for the 12-month period ended February 22, 1997, the Total Sub-Advisory Fee exceeds .45%, without giving effect to any fee waivers by BSFM, then thereaf- ter BSFM has agreed to pay Symphony a Basic Fee equal to .50 of 1% on an annualized basis. The Fund's primary investment officer is Praveen Gottipalli. Since May 1994, he has been Symphony's Director of Investments. For more than five years prior thereto, he was Director of the Active Strategies Group of BARRA, Inc. DISTRIBUTOR Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as the Portfolio's principal underwriter and distributor of the Portfolio's shares pursuant to an agreement which is renewable annually. CUSTODIAN AND TRANSFER AGENT Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the Portfolio's transfer agent, dividend disbursing agent and registrar (the "Transfer Agent"). The Transfer Agent also provides certain administrative services to the Portfolio. EXPENSES All expenses incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by BSFM. The expenses to be borne by the Fund will include: organizational costs, taxes, interest, loan commitment fees, interest and distributions paid on securities sold short, brokerage fees and commissions, if any, fees of board members who are not officers, direc- tors, employees or holders of 5% or more of the outstanding voting securities of BSFM, Symphony or their affiliates, Securities and Exchange Commission fees, state Blue Sky qualification fees, advisory, administrative and fund ac- counting fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of maintaining the Fund's existence, costs of inde- pendent pricing services, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of shareholders' reports and meetings, costs of preparing and printing certain prospectuses and statements of additional information, and any extraordinary expenses. Expenses attributable to a particular portfolio are charged against the assets of that portfolio; other expenses of the Fund are allocated among the portfolios on the basis determined by the Board, including, but not limited to, proportion- ately in relation to the net assets of each portfolio. BSFM has undertaken until such time as it gives investors at least 60 days' notice to the contrary that, if in any fiscal year, certain expenses, includ- ing the investment advisory fee, exceed 1.15% of Class Y's average daily net assets for the fiscal year, BSFM may waive a portion of its investment advi- sory fee or bear other expenses to the extent of the excess expense. How to Buy Shares GENERAL The minimum initial investment is $2.5 million. Subsequent investments may be made in any amount. Share certificates are issued only upon written request. The Fund reserves the right to re-ject any purchase order. The Fund reserves the right to vary the initial and subsequent investment minimum requirements at any time. Investments by employees of Bear Stearns and its affiliates are not subject to the minimum investment requirement. In addition, accounts under the discretionary management of Bear Stearns and its affiliates or Symphony and its affiliates are not subject to the minimum investment requirement. Purchases of the Portfolio's shares may be made through a brokerage account maintained with Bear Stearns or through certain investment dealers who are members of the National Association of Securities Dealers, Inc. who have sales agreements with Bear Stearns (an "Authorized Dealer"). Purchases of the Port- folio's shares also may be made directly through the Transfer Agent. Investors must specify that Class Y is being purchased. 13 Purchases are effected at Class Y's net asset value next determined after a purchase order is received by Bear Stearns, an Authorized Dealer or the Trans- fer Agent (the "trade date"). Payment for Portfolio shares generally is due to Bear Stearns or the Authorized Dealer on the third business day (the "settle- ment date") after the trade date. Investors who make payment before the set- tlement date may permit the payment to be held in their brokerage accounts or may designate a temporary investment for payment until the settlement date. If a temporary investment is not designated, Bear Stearns or the Authorized Dealer will benefit from the temporary use of the funds if payment is made be- fore the settlement date. PURCHASES CAN BE MADE THROUGH BEAR STEARNS ACCOUNT EXECUTIVES, AUTHORIZED DEALERS OR THE TRANSFER AGENT. Purchases through Bear Stearns account executives or Authorized Dealers may be made by check (except that a check drawn on a foreign bank will not be accept- ed), Federal Reserve draft or by wiring Federal Funds with funds held in bro- kerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal Reserve drafts should be made payable as follows: (i) to Bear Stearns or an investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--The Insiders Select Portfolio--Class Y" if purchased directly from the Portfolio, and should be directed to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns Funds--The Insiders Select Portfolio--Class Y, P.O. Box 8960, Wilming- ton, Delaware 19899-8960. Payment by check or Federal Reserve draft must be received within three business days of receipt of the purchase order by Bear Stearns or an Authorized Dealer. Orders placed directly with the Transfer Agent must be accompanied by payment. Bear Stearns (or an investor's Autho- rized Dealer) is responsible for forwarding payment promptly to the Fund. The Fund will charge $7.50 for each wire redemption. The payment proceeds of a re- demption of shares recently purchased by check may be delayed as described un- der "How to Redeem Shares." Investors who are not Bear Stearns clients may purchase Portfolio shares through the Transfer Agent. To make an initial investment in the Portfolio, an investor must establish an account with the Portfolio by furnishing necessary information to the Fund. An account with the Portfolio may be established by completing and signing the Account Information Form indicating which Class of shares is being purchased, a copy of which is attached to this Prospectus, and mailing it, together with a check to cover the purchase, to PFPC Inc., Atten- tion: The Bear Stearns Funds--The Insiders Select Portfolio--Class Y, P.O. Box 8960, Wilmington, Delaware 19899-8960. Subsequent purchases of shares may be made by checks made payable to the Fund and directed to the address set forth in the preceding paragraph. The Portfo- lio account number should appear on the check. Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer Agent before the close of regular trading on the New York Stock Exchange (cur- rently 4:00 p.m., New York time) on any day the Portfolio calculates its net asset value are priced according to the net asset value determined on that date. Purchase orders received after the close of trading on the New York Stock Exchange are priced as of the time the net asset value is next deter- mined. NET ASSET VALUE IS COMPUTED DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE. Shares of the Portfolio are sold on a continuous basis. Net asset value per share is determined as of the close of regular trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New York time) on each business day. The net asset value per share of Class Y of the Portfolio is computed by di- viding the value of the Portfolio's net assets represented by Class Y (i.e., the value of its assets less liabilities) by the total number of shares of Class Y outstanding. The Portfolio's investments are valued based on market value or, where market quotations are not readily available, based on fair value as determined in good faith by, or in accordance with procedures estab- lished by, the Fund's Board of Trustees. For further information regarding the methods employed in valuing the Portfolio's investments, see "Determination of Net Asset Value" in the Portfolio's Statement of Additional Information. Federal regulations require that investors provide a certified Taxpayer Iden- tification Number (a "TIN") upon opening or reopening an account. See "Divi- dends, Distributions and Taxes." Failure to furnish a certified TIN to the Fund could subject the investor to a $50 penalty imposed by the Internal Reve- nue Service (the "IRS"). 14 Shareholder Services EXCHANGE PRIVILEGE THE EXCHANGE PRIVILEGE PERMITS EASY PURCHASES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY. The Exchange Privilege enables an investor to purchase, in exchange for Class Y shares of the Portfolio, Class Y shares of the Fund's other portfolios or shares of certain other funds sponsored or advised by Bear Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns Investment Trust, and the Money Market Portfolio of The RBB Fund, Inc., to the extent such shares are offered for sale in the investor's state of residence. These funds have dif- ferent investment objectives which may be of interest to investors. To use this Privilege, investors should consult their account executive at Bear Stearns, their account executive at an Authorized Dealer or the Transfer Agent to determine if it is available and whether any conditions are imposed on its use. To use this Privilege, exchange instructions must be given to the Transfer Agent in writing or by telephone. A shareholder wishing to make an exchange may do so by sending a written request to the Transfer Agent at the address given above in "How to Buy Shares--General." Shareholders are automatically provided with telephone exchange privileges when opening an account, unless they indicate on the account application that they do not wish to use this privilege. Shareholders holding share certificates are not eligible to ex- change shares of the Portfolio by phone because share certificates must accom- pany all exchange requests. To add this feature to an existing account that previously did not provide for this option, a Telephone Exchange Authorization Form must be filed with the Transfer Agent. This form is available from the Transfer Agent. Once this election has been made, the shareholder may contact the Transfer Agent by telephone at 1-800-447-1139 (in Delaware call collect 302-791-1031) to request the exchange. During periods of substantial economic or market change, telephone exchanges may be difficult to complete and share- holders may have to submit exchange requests to the Transfer Agent in writing. If the exchanging shareholder does not currently own Class Y shares of the portfolio or fund whose shares are being acquired, a new account will be es- tablished with the same registration, dividend and capital gain options and Authorized Dealer of record as the account from which shares are exchanged, unless otherwise specified in writing by the shareholder with all signatures guaranteed by an eligible guarantor institution as described below. The ex- change privilege may be modified or terminated at any time, or from time to time, by the Fund on 60 days' notice to the affected portfolio or fund share- holders. The Fund, BSFM and Bear Stearns will not be liable for any loss, lia- bility, cost or expense for acting upon telephone instructions that are rea- sonably believed to be genuine. In attempting to confirm that telephone in- structions are genuine, the Fund will use such procedures as are considered reasonable, including recording those instructions and requesting information as to account registration (such as the name in which an account is regis- tered, the account number, recent transactions in the account, and the account holder's Social Security number, address and/or bank). Before any exchange, the investor must obtain and should review a copy of the current prospectus of the portfolio or fund into which the exchange is being made. Prospectuses may be obtained free of charge from Bear Stearns, any Au- thorized Dealer or the Transfer Agent. When establishing a new account by ex- change, the Class Y shares being exchanged must have a value of at least the minimum initial investment required for the portfolio or fund into which the exchange is being made; if making an exchange to an existing account, the dol- lar value must equal or exceed the applicable minimum for subsequent invest- ments. If any amount remains in the investment portfolio from which the ex- change is being made, such amount must not be below the minimum account value required by the portfolio or fund. Class Y Shares will be exchanged at the next determined net asset value. No fees currently are charged shareholders directly in connection with exchanges, although the Fund reserves the right, upon not less than 60 days' written no- tice, to charge shareholders a $5.00 fee in accordance with rules promulgated by the Securities and Exchange Commission. The Fund reserves the right to re- ject any exchange request in whole or in part. The Exchange Privilege may be modified or terminated at any time upon notice to shareholders. The exchange of Class Y shares of one portfolio or fund for Class Y shares of another is treated for Federal income tax purposes as a sale of the Class Y shares given in exchange by the shareholder and, therefore, an exchanging shareholder may realize a taxable gain or loss. 15 REDIRECTED DISTRIBUTION OPTION THE REDIRECTED DISTRIBUTION OPTION PERMITS INVESTMENT OF INVESTORS' DIVIDENDS AND DISTRIBUTIONS IN SHARES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY. The Redirected Distribution Option enables a shareholder to invest automati- cally dividends and/or capital gain distributions, if any, paid by the Portfo- lio in Class Y shares of another portfolio of the Fund or a fund advised or sponsored by Bear Stearns of which the shareholder is an investor, or the Money Market Portfolio of The RBB Fund, Inc. Shares of the other portfolio or fund will be purchased at the then-current net asset value. This privilege is available only for existing accounts and may not be used to open new accounts. Minimum subsequent investments do not apply. The Fund may modify or terminate this privilege at any time or charge a service fee. No such fee currently is contemplated. HOW TO REDEEM SHARES GENERAL THE REDEMPTION PRICE WILL BE BASED ON THE NET ASSET VALUE NEXT COMPUTED AFTER RECEIPT OF A REDEMPTION REQUEST. Investors may request redemption of Portfolio shares at any time. Redemption requests may be made as described below. When a request is received in proper form, the Portfolio will redeem the shares at the next determined net asset value. If the investor holds Portfolio shares of more than one Class, any re- quest for redemption must specify the Class of shares being redeemed. If the investor fails to specify the Class of shares to be redeemed or if the in- vestor owns fewer shares of the Class than specified to be redeemed, the re- demption request may be delayed until the Transfer Agent receives further in- structions from the investor, the investor's Bear Stearns account executive or the investor's Authorized Dealer. The Fund imposes no charges when shares are redeemed directly through Bear Stearns. The Portfolio ordinarily will make payment for all shares redeemed within three days after receipt by the Transfer Agent of a redemption request in proper form, except as provided by the rules of the Securities and Exchange Commission. However, if an investor has purchased Portfolio shares by check and subsequently submits a redemption request by mail, the redemption proceeds will not be transmitted until the check used for investment has cleared, which may take up to 15 days. The Fund will reject requests to redeem shares by tel- ephone or wire for a period of 15 days after receipt by the Transfer Agent of the purchase check against which such redemption is requested. This procedure does not apply to shares purchased by wire payment. The Fund reserves the right to redeem investor accounts at its option upon not less than 60 days' written notice if the account's net asset value is $750 or less, for reasons other than market conditions, and remains so during the no- tice period. PROCEDURES SHAREHOLDERS MAY REDEEM SHARES IN SEVERAL WAYS. REDEMPTION THROUGH BEAR STEARNS OR AUTHORIZED DEALERS Clients with a brokerage account may submit redemption requests to their ac- count executives or Authorized Dealers in person or by telephone, mail or wire. As the Fund's agent, Bear Stearns or Authorized Dealers may honor a re- demption request by repurchasing Fund shares from a redeeming shareholder at the shares' net asset value next computed after receipt of the request by Bear Stearns or the Authorized Dealer. Under normal circumstances, within three days, redemption proceeds will be paid by check or credited to the sharehold- er's brokerage account at the election of the shareholder. Bear Stearns ac- count executives or Authorized Dealers are responsible for promptly forwarding redemption requests to the Transfer Agent. If an investor authorizes telephone redemption, the Transfer Agent may act on telephone instructions from any person representing himself or herself to be a representative of Bear Stearns or the Authorized Dealer and reasonably be- lieved by the Transfer Agent to be genuine. The Fund will re- 16 quire the Transfer Agent to employ reasonable procedures, such as requiring a form of personal identification, to confirm that instructions are genuine and, if it does not follow such procedures, the Transfer Agent or the Fund may be liable for any losses due to unauthorized or fraudulent instructions. Neither the Fund nor the Transfer Agent will be liable for following telephone in- structions reasonably believed to be genuine. REDEMPTION THROUGH THE TRANSFER AGENT Shareholders who are not clients with a brokerage account who wish to redeem shares must redeem their shares through the Transfer Agent by mail; other shareholders also may redeem Fund shares through the Transfer Agent. Mail re- demption requests should be sent to the Transfer Agent at: PFPC Inc., Atten- tion: The Bear Stearns Funds--The Insiders Select Portfolio--Class Y, P.O. Box 8960, Wilmington, Delaware 19899-8960. ADDITIONAL INFORMATION ABOUT REDEMPTIONS A shareholder may have redemption proceeds of $500 or more wired to the share- holder's brokerage account or a commercial bank account designated by the shareholder. A transaction fee of $7.50 will be charged for payments by wire. Questions about this option, or redemption requirements generally, should be referred to the shareholder's Bear Stearns account executive, to any Autho- rized Dealer, or to the Transfer Agent if the shares are not held in a broker- age account. Written redemption instructions, indicating the Portfolio from which shares are to be redeemed, and duly endorsed stock certificates, if previously is- sued, must be received by the Transfer Agent in proper form and signed exactly as the shares are registered. All signatures must be guaranteed. The Transfer Agent has adopted standards and procedures pursuant to which signature-guaran- tees in proper form generally will be accepted from domestic banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations, as well as from par- ticipants in the New York Stock Exchange Medallion Signature Program, the Stock Exchanges Medallion Program and the Securities Transfer Agents Medallion Program ("STAMP"). Such guarantees must be signed by an authorized signatory thereof with "Signature Guaranteed" appearing with the shareholder's signa- ture. If the signature is guaranteed by a broker or dealer, such broker or dealer must be a member of a clearing corporation and maintain net capital of at least $100,000. Signature-guarantees may not be provided by notaries pub- lic. Redemption requests by corporate and fiduciary shareholders must be ac- companied by appropriate documentation establishing the authority of the per- son seeking to act on behalf of the account. Investors may obtain from the Fund or the Transfer Agent forms of resolutions and other documentation which have been prepared in advance to assist compliance with the Portfolio's proce- dures. Any questions with respect to signature-guarantees should be directed to the Transfer Agent by calling 1-800-447-1139 (in Delaware call collect 302- 791-1031). During times of drastic economic or market conditions, investors may experi- ence difficulty in contacting Bear Stearns or Authorized Dealers by telephone to request a redemption of Portfolio shares. In such cases, investors should consider using the other redemption procedures described herein. Use of these other redemption procedures may result in the redemption request being proc- essed at a later time than it would have been if telephone redemption had been used. During the delay, the Portfolio's net asset value may fluctuate. Dividends, Distributions and Taxes DIVIDENDS WILL BE AUTOMATICALLY REINVESTED IN ADDITIONAL PORTFOLIO SHARES AT NET ASSET VALUE, UNLESS PAYMENT IN CASH IS REQUESTED OR DIVIDENDS ARE REDIRECTED INTO ANOTHER FUND PURSUANT TO THE REDIRECTED DISTRIBUTION OPTION. The Portfolio ordinarily pays dividends from its net investment income and distributes net realized securities gains, if any, once a year, but it may make distributions on a more frequent basis to comply with the distribution requirements of the Code, in all events in a manner consistent with the provi- sions of the 1940 Act. The Portfolio will not make distributions from net re- alized securities gains unless capital loss carryovers, if any, have been uti- lized or have expired. Dividends are automatically reinvested in additional Class Y shares of the Portfolio at net asset value, unless payment in cash is requested or dividends are redirected into another fund pursuant to the Redi- rected Distribution Option. All expenses are accrued daily and deducted before declaration of dividends to investors. Dividends derived from net investment income, together with distributions from net realized short-term securities gains and all or a portion of any gains re- alized from the sale or disposition of certain 17 market discount bonds, paid by the Portfolio will be taxable to U.S. share- holders as ordinary income, whether received in cash or reinvested in addi- tional shares of the Portfolio or redirected into another portfolio or fund. Distributions from net realized long-term securities gains of the Portfolio will be taxable to U.S. shareholders as long-term capital gains for Federal income tax purposes, regardless of how long shareholders have held their Port- folio shares and whether such distributions are received in cash or reinvested in, or redirected into other, shares. The Code provides that the net capital gain of an individual generally will not be subject to Federal income tax at a rate in excess of 28%. Dividends and distributions may be subject to state and local taxes. Dividends, together with distributions from net realized short-term securities gains and all or a portion of any gains realized from the sale or other dispo- sition of market discount bonds, paid by the Portfolio to a foreign investor generally are subject to U.S. nonresident withholding taxes at the rate of 30%, unless the foreign investor claims the benefit of a lower rate specified in a tax treaty. Distributions from net realized long-term securities gains paid by the Portfolio to a foreign investor as well as the proceeds of any re- demptions from a foreign investor's account, regardless of the extent to which gain or loss may be realized, generally will not be subject to U.S. nonresi- dent withholding tax. However, such distributions may be subject to backup withholding, as described below, unless the foreign investor certifies his non-U.S. residency status. Notice as to the tax status of investors' dividends and distributions will be mailed to them annually. Investors also will receive periodic summaries of their accounts which will include information as to dividends and distribu- tions from securities gains, if any, paid during the year. Federal regulations generally require the Fund to withhold ("backup withhold- ing") and remit to the U.S. Treasury 31% of dividends, distributions from net realized securities gains and the proceeds of any redemption, regardless of the extent to which gain or loss may be realized, paid to a shareholder if such shareholder fails to certify either that the TIN furnished in connection with opening an account is correct or that such shareholder has not received notice from the IRS of being subject to backup withholding as a result of a failure to properly report taxable dividend or interest income on a Federal income tax return. Furthermore, the IRS may notify the Fund to institute backup withholding if the IRS determines a shareholder's TIN is incorrect or if a shareholder has failed to properly report taxable dividend and interest income on a Federal income tax return. A TIN is either the Social Security number or employer identification number of the record owner of the account. Any tax withheld as a result of backup withholding does not constitute an additional tax imposed on the record owner of the account, and may be claimed as a credit on the record owner's Federal income tax return. THE PORTFOLIO IS NOT EXPECTED TO HAVE ANY FEDERAL TAX LIABILITY; ALTHOUGH IN- VESTORS SHOULD EXPECT TO BE SUBJECT TO FEDERAL, STATE OR LOCAL TAXES IN RE- SPECT OF THEIR INVESTMENT IN PORTFOLIO SHARES. It is expected that the Portfolio will qualify as a "regulated investment com- pany" under the Code so long as such qualification is in the best interests of its shareholders. Such qualification relieves the Portfolio of any liability for Federal income tax to the extent its earnings are distributed in accor- dance with applicable provisions of the Code. In addition, the Portfolio is subject to a non-deductible 4% excise tax, measured with respect to certain undistributed amounts of taxable investment income and capital gains. Each investor should consult its tax adviser regarding specific questions as to Federal, state or local taxes. Performance Information THE PORTFOLIO MAY ADVERTISE ITS PERFORMANCE IN A NUMBER OF WAYS. For purposes of advertising, performance for Class Y may be calculated on the basis of average annual total return and/or total return. These total return figures reflect changes in the price of the shares and assume that any income dividends and/or capital gains distributions made by the Portfolio during the measuring period were reinvested in Class Y shares. Average annual total return is calculated pursuant to a standardized formula which assumes that an investment in the Portfolio was purchased with an ini- tial payment of $1,000 and that the investment was redeemed at the end of a stated period of time, after giving effect to the reinvestment of divi- 18 dends and distributions during the period. The return is expressed as a per- centage rate which, if applied on a compounded annual basis, would result in the redeemable value of the investment at the end of the period. Advertise- ments of the Portfolio's performance will include the Portfolio's average an- nual total return for one, five and ten year periods, or for shorter periods depending upon the length of time during which the Portfolio has operated. Computations of average annual total return for periods of less than one year represent an annualization of the Portfolio's actual total return for the ap- plicable period. Total return is computed on a per share basis and assumes the reinvestment of dividends and distributions. Total return generally is expressed as a percent- age rate which is calculated by combining the income and principal changes for a specified period and dividing by the net asset value per share at the begin- ning of the period. Advertisements may include the percentage rate of total return or may include the value of a hypothetical investment at the end of the period which assumes the application of the percentage rate of total return. Performance will vary from time to time and past results are not necessarily representative of future results. Investors should remember that performance is a function of portfolio management in selecting the type and quality of portfolio securities and is affected by operating expenses. Performance infor- mation, such as that described above, may not provide a basis for comparison with other investments or other investment companies using a different method of calculating performance. Comparative performance information may be used from time to time in advertis- ing or marketing the Portfolio's shares, including data from Lipper Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price Index, Wilshire 4500 Stock Index, Russell Small Cap Index, the Dow Jones Industrial Average and other industry publications. General Information The Fund was organized as an unincorporated business trust under the laws of the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust (the "Trust Agreement") dated September 29, 1994. The Fund commenced op- erations on or about April 3, 1995 in connection with the offer of shares of certain of its other portfolios. The Fund is authorized to issue an unlimited number of shares of beneficial interest, par value $.001 per share. The Port- folio's shares are classified into three Classes--Class A, Class C and Class Y. Each share has one vote and shareholders will vote in the aggregate and not by Class, except as otherwise required by law. Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Portfolio. However, the Trust Agreement disclaims shareholder liability for acts or obligations of the Portfolio and requires that notice of such disclaimer be given in each agree- ment, obligation or instrument entered into or executed by the Fund or a Trustee. The Trust Agreement provides for indemnification from the Portfolio's property for all losses and expenses of any shareholder held personally liable for the obligations of the Portfolio. Thus, the risk of a shareholder incur- ring financial loss on account of a shareholder liability is limited to cir- cumstances in which the Portfolio itself would be unable to meet its obliga- tions, a possibility which management believes is remote. Upon payment of any liability incurred by the Portfolio, the shareholder paying such liability will be entitled to reimbursement from the general assets of the Portfolio. The Fund's Trustees intend to conduct the operations of the Portfolio in a way so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the Portfolio. As discussed under "Management of the Fund" in the Portfolio's Statement of Additional Information, the Portfolio ordinarily will not hold shareholder meetings; however, shareholders under certain cir- cumstances may have the right to call a meeting of shareholders for the pur- pose of voting to remove Trustees. To date, the Fund's Board has authorized the creation of five portfolios of shares. All consideration received by the Fund for shares of one of the port- folios and all assets in which such consideration is invested will belong to that portfolio (subject only to the rights of creditors of the Fund) and will be subject to the liabilities related thereto. The assets attributable to, and the expenses of, one portfolio (and as to classes within a portfolio) are treated separately from those of the other portfolios (and classes). The Fund has the ability to create, from time to time, new portfolios of shares without shareholder approval. Rule 18f-2 under the 1940 Act provides that any matter required to be submit- ted under the provisions of the 1940 Act or applicable state law or otherwise to the holders of the outstanding voting 19 securities of an investment company, such as the Fund, will not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each portfolio affected by such matter. Rule 18f- 2 further provides that a portfolio shall be deemed to be affected by a matter unless it is clear that the interests of such portfolio in the matter are identical or that the matter does not affect any interest of such portfolio. However, the Rule exempts the selection of independent accountants and the election of Trustees from the separate voting requirements of the Rule. The Transfer Agent maintains a record of share ownership and will send confir- mations and statements of account. Shareholder inquiries may be made by writing to the Fund at PFPC Inc., Atten- tion: The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960, by calling 1-800-447-1139 (in Delaware call collect 302-791-1031) or by calling Bear Stearns at 1-800-766-4111. 20 Appendix INVESTMENT TECHNIQUES In connection with its investment objective and policies, the Portfolio may employ, among others, the following investment techniques which may involve certain risks. Options transactions involve "derivative securities." OPTIONS TRANSACTIONS THE PORTFOLIO MAY ENGAGE IN OPTIONS TRANSACTIONS. The Portfolio is permitted to invest up to 5% of its assets, represented by the premium paid, in the purchase of call and put options in respect of spe- cific securities (or groups or "baskets" of specific securities) in which the Portfolio may invest. The Portfolio may write and sell covered call option contracts on securities owned by the Portfolio not exceeding 20% of the value of its net assets at the time such option contracts are written. The Portfolio also may purchase call options to enter into closing purchase transactions. The Portfolio also may write covered put option contracts to the extent of 20% of the value of its net assets at the time such option contracts are written. A call option gives the purchaser of the option the right to buy, and obli- gates the writer to sell, the underlying security at the exercise price at any time during the option period. Conversely, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying security at the exercise price at any time during the option period. A covered put option sold by the Portfolio exposes the Portfolio during the term of the option to a decline in price of the underlying security or securities. A put option sold by the Portfolio is covered when, among other things, cash or liq- uid securities are placed in a segregated account with the Fund's custodian to fulfill the obligation undertaken. The Portfolio may purchase and sell call and put options on stock indexes listed on U.S. securities exchanges or traded in the over-the-counter market. A stock index fluctuates with changes in the market values of the stocks in- cluded in the index. Because the value of an index option depends upon move- ments in the level of the index rather than the price of a particular stock, whether the Portfolio will realize a gain or loss from the purchase or writing of options on an index depends upon movements in the level of stock prices in the stock market generally or, in the case of certain indexes, in an industry or market segment, rather than movements in the price of a particular stock. Successful use by the Portfolio of options will be subject to Symphony's abil- ity to predict correctly movements in the direction of individual stocks or the stock market generally, foreign currencies or interest rates. To the ex- tent Symphony's predictions are incorrect, the Portfolio may incur losses which could adversely affect the value of a shareholder's investment. LENDING PORTFOLIO SECURITIES THE PORTFOLIO MAY EARN ADDITIONAL INCOME BY LENDING ITS PORTFOLIO SECURITIES. From time to time, the Portfolio may lend securities from its portfolio to brokers, dealers and other financial institutions needing to borrow securities to complete certain transactions. Such loans may not exceed 33 1/3% of the value of the Portfolio's total assets. In connection with such loans, the Portfolio will receive collateral consisting of cash, U.S. Government securi- ties or irrevocable letters of credit which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned se- curities. The Portfolio can increase its income through the investment of such collateral. The Portfolio continues to be entitled to payments in amounts equal to the interest, dividends and other distributions payable on the loaned security and receives interest on the amount of the loan. Such loans will be terminable at any time upon specified notice. The Portfolio might experience risk of loss if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Portfolio. BORROWING MONEY THE PORTFOLIO MAY BORROW MONEY. As a fundamental policy, the Portfolio is permitted to borrow to the extent permitted under the 1940 Act. The 1940 Act permits an investment company to borrow in an amount up to 33 1/3% of the value of such company's total assets. However, the Portfolio currently intends to borrow money only A-1 for temporary or emergency (not leveraging) purposes, in an amount up to 15% of the value of its total assets (including the amount borrowed) valued at the lesser of cost or market, less liabilities (not including the amount borrowed) at the time the borrowing is made. While borrowings exceed 5% of the Portfo- lio's total assets, the Portfolio will not make any additional investments. CERTAIN PORTFOLIO SECURITIES CONVERTIBLE SECURITIES THE PORTFOLIO MAY INVEST IN CONVERTIBLE SECURITIES. Convertible securities are fixed-income securities that may be converted at either a stated price or stated rate into underlying shares of common stock. Convertible securities have general characteristics similar to both fixed-in- come and equity securities. Although to a lesser extent than with fixed-income securities generally, the market value of convertible securities tends to de- cline as interest rates increase and, conversely, tends to increase as inter- est rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock, and, therefore, also will react to vari- ations in the general market for equity securities. A unique feature of con- vertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the un- derlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflec- tion of the value of the underlying common stock. While no securities invest- ments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As fixed-income securities, convertible securities are investments that pro- vide for a stable stream of income with generally higher yields than common stocks. Of course, like all fixed-income securities, there can be no assurance of current income because the issuers of the convertible securities may de- fault on their obligations. Convertible securities, however, generally offer lower interest or dividend yields than non-convertible securities of similar quality because of the potential for capital appreciation. A convertible secu- rity, in addition to providing fixed income, offers the potential for capital appreciation through the conversion feature, which enables the holder to bene- fit from increases in the market price of the underlying common stock. There can be no assurance of capital appreciation, however, because securities prices fluctuate. Convertible securities generally are subordinated to other similar but non- convertible securities of the same issuer, although convertible bonds, as cor- porate debt obligations, enjoy seniority in right of payment to all equity se- curities, and convertible preferred stock is senior to common stock, of the same issuer. Because of the subordination feature, however, convertible secu- rities typically have lower ratings than similar non-convertible securities. MONEY MARKET INSTRUMENTS THE PORTFOLIO MAY INVEST IN A VARIETY OF MONEY MARKET INSTRUMENTS. The Portfolio may invest, in the circumstances described under "Description of the Fund--Management Policies," in the following types of money market instru- ments, each of which at the time of purchase must have or be deemed to have under rules of the Securities and Exchange Commission remaining maturities of 13 months or less. U.S. GOVERNMENT SECURITIES The Portfolio may purchase securities issued or guaranteed by the U.S. Govern- ment or its agencies or instrumentalities, which include U.S. Treasury securi- ties that differ in their interest rates, maturities and times of issuance. Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of greater than ten years. Some obligations issued or guar- anteed by U.S. Government agencies and instrumentalities, for example, Govern- ment National Mortgage Association pass-through certificates, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the right of the issuer to borrow from the U.S. Treasury; others, such as those issued by the Federal National Mortgage Asso- ciation, by discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others, such as those issued by the Student Loan Marketing Association, only by the credit of the agency or instrumentality. These securities bear fixed, floating or variable rates of interest. Principal and interest may fluctuate based A-2 on generally recognized reference rates or the relationship of rates. While the U.S. Government provides financial support to such U.S. Government-spon- sored agencies or instrumentalities, no assurance can be given that it will always do so, since it is not so obligated by law. BANK OBLIGATIONS The Portfolio may invest in bank obligations, including certificates of depos- it, time deposits, bankers' acceptances and other short-term obligations of domestic banks, foreign subsidiaries of domestic banks, foreign branches of domestic banks, and domestic and foreign branches of foreign banks, domestic savings and loan associations and other banking institutions. With respect to such securities issued by foreign branches of domestic banks, foreign subsidi- aries of domestic banks, and domestic and foreign branches of foreign banks, the Portfolio may be subject to additional investment risks that are different in some respects from those incurred by a fund which invests only in debt ob- ligations of U.S. domestic issuers. Such risks include possible future politi- cal and economic developments, the possible imposition of foreign withholding taxes on interest income payable on the securities, the possible establishment of exchange controls or the adoption of other foreign governmental restric- tions which might adversely affect the payment of principal and interest on these securities and the possible seizure or nationalization of foreign depos- its. Certificates of deposit are negotiable certificates evidencing the obligation of a bank to repay funds deposited with it for a specified period of time. Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated interest rate. Time deposits which may be held by the Portfolio will not benefit from insurance from the Bank In- surance Fund or the Savings Association Insurance Fund administered by the Federal Deposit Insurance Corporation. The Portfolio will not invest more than 15% of the value of its net assets in time deposits maturing in more than seven days and in other securities that are illiquid. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity. The other short-term obligations may include unin- sured, direct obligations bearing fixed, floating or variable interest rates. REPURCHASE AGREEMENTS Repurchase agreements involve the acquisition by the Portfolio of an under- lying debt instrument, subject to an obligation of the seller to repurchase, and the Portfolio to resell, the instrument at a fixed price usually not more than one week after its purchase. Certain costs may be incurred by the Portfo- lio in connection with the sale of the securities if the seller does not re- purchase them in accordance with the repurchase agreement. In addition, if bankruptcy proceedings are commenced with respect to the seller of the securi- ties, realization on the securities by the Portfolio may be delayed or limit- ed. COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS Commercial paper consists of short-term, unsecured promissory notes issued to finance short-term credit needs. The commercial paper purchased by the Portfo- lio will consist only of direct obligations which, at the time of their pur- chase, are (a) rated not lower than Prime-1 by Moody's Investors Service Inc. ("Moody's"), A-1 by Standard & Poor's Corporation ("S&P"), F-1 by Fitch In- vestors Service, Inc. ("Fitch") or Duff-1 by Duff & Phelps, Inc. ("Duff"), (b) issued by companies having an outstanding unsecured debt issue currently rated not lower than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined by the Advisers to be of comparable quality to those rated obliga- tions which may be purchased by the Portfolio. The Portfolio may purchase floating and variable rate demand notes and bonds, which are obligations ordi- narily having stated maturities in excess of one year, but which permit the holder to demand payment of principal at any time or at specified intervals. WARRANTS THE PORTFOLIO MAY INVEST UP TO 5% OF ITS NET ASSETS IN WARRANTS. The Portfolio may invest up to 5% of its net assets in warrants, except that this limitation does not apply to warrants acquired in units or attached to securities. Included in such amount, but not to exceed 2% of the value of the Portfolio's net assets, may be warrants which are not listed on the New York or American Stock Exchange. A warrant is an instrument issued by a corporation which A-3 gives the holder the right to subscribe to a specified amount of the corpora- tion's capital stock at a set price for a specified period of time. INVESTMENT COMPANY SECURITIES THE PORTFOLIO MAY INVEST IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Portfolio may invest in securities issued by other investment companies. Under the 1940 Act, the Portfolio's investment in such securities currently is limited to, subject to certain exceptions, (i) 3% of the total voting stock of any one investment company, (ii) 5% of the Portfolio's net assets with respect to any one investment company and (iii) 10% of the Portfolio's net assets in the aggregate. Investments in the securities of other investment companies will involve duplication of advisory fees and certain other expenses. ILLIQUID SECURITIES THE PORTFOLIO MAY PURCHASE ILLIQUID SECURITIES. The Portfolio may invest up to 15% of the value of its net assets in securi- ties as to which a liquid trading market does not exist, provided such invest- ments are consistent with the Portfolio's investment objective. Such securi- ties may include securities that are not readily marketable, such as certain securities that are subject to legal or contractual restrictions on resale, repurchase agreements providing for settlement in more than seven days after notice, and options traded in the over-the-counter market and securities used to cover such options. As to these securities, the Portfolio is subject to a risk that should the Portfolio desire to sell them when a ready buyer is not available at a price the Portfolio deems representative of their value, the value of the Portfolio's net assets could be adversely affected. A-4 - -------------------------------------------------------------------------------- THE BEAR STEARNS FUNDS THE INSIDERS SELECT PORTFOLIO CLASS A, CLASS C AND CLASS Y PART B (STATEMENT OF ADDITIONAL INFORMATION) NOVEMBER 10, 1995 - -------------------------------------------------------------------------------- This Statement of Additional Information, which is not a prospectus, supplements and should be read in conjunction with the current relevant Prospectus dated November 10, 1995 of The Insiders Select Portfolio (the "Portfolio") of The Bear Stearns Funds (the "Fund"), as each may be revised from time to time. To obtain a free copy of such Prospectus, please write to the Fund at PFPC Inc., Attention: The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960, call 1-800-447-1139 (in Delaware call collect 302-791-1031) or call Bear, Stearns & Co. Inc. ("Bear Stearns") at 1-800-766-4111. Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., serves as the Portfolio's investment adviser. 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 and Symphony are referred to herein collectively as the "Advisers." Bear Stearns, an affiliate of BSFM, serves as distributor of the Portfolio's shares. TABLE OF CONTENTS
Page ---- Investment Objective and Management Policies........ B-2 Management of the Fund.............................. B-12 Management Arrangements............................. B-16 Purchase and Redemption of Shares................... B-18 Determination of Net Asset Value.................... B-19 Dividends, Distributions and Taxes.................. B-20 Portfolio Transactions.............................. B-22 Performance Information............................. B-24 Information About the Fund.......................... B-25 Custodian, Transfer and Dividend Disbursing Agent, Counsel and Independent Auditors.................. B-25 Financial Statements................................ B-26 Report of Independent Auditors B-28
B-1 INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES The following information supplements and should be read in conjunction ----------------------------------------------------------------------- with the section in the Portfolio's Prospectus entitled "Description of the - --------------------------------------------------------------------------- Fund." - ---- Portfolio Securities - -------------------- Bank Obligations. Domestic commercial banks organized under Federal ---------------- law are supervised and examined by the Comptroller of the Currency and are required to be members of the Federal Reserve System and to have their deposits insured by the Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state law are supervised and examined by state banking authorities but are members of the Federal Reserve System only if they elect to join. In addition, state banks whose certificates of deposit ("CDs") may be purchased by the Portfolio are insured by the FDIC (although such insurance may not be of material benefit to the Portfolio, depending on the principal amount of the CDs of each bank held by the Portfolio) and are subject to Federal examination and to a substantial body of Federal law and regulation. As a result of Federal or state laws and regulations, domestic branches of domestic banks whose CDs may be purchased by the Portfolio generally are required, among other things, to maintain specified levels of reserves, are limited in the amounts which they can loan to a single borrower and are subject to other regulation designed to promote financial soundness. However, not all of such laws and regulations apply to the foreign branches of domestic banks. Obligations of foreign branches of domestic banks, foreign subsidiaries of domestic banks and domestic and foreign branches of foreign banks, such as CDs and time deposits ("TDs"), may be general obligations of the parent banks in addition to the issuing branch, or may be limited by the terms of a specific obligation and governmental regulation. Such obligations are subject to different risks than are those of domestic banks. These risks include foreign economic and political developments, foreign governmental restrictions that may adversely affect payment of principal and interest on the obligations, foreign exchange controls and foreign withholding and other taxes on interest income. These foreign branches and subsidiaries are not necessarily subject to the same or similar regulatory requirements that apply to domestic banks, such as mandatory reserve requirements, loan limitations, and accounting, auditing and financial record keeping requirements. In addition, less information may be publicly available about a foreign branch of a domestic bank or about a foreign bank than about a domestic bank. B-2 Obligations of United States branches of foreign banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation or by Federal or state regulation as well as governmental action in the country in which the foreign bank has its head office. A domestic branch of a foreign bank with assets in excess of $1 billion may be subject to reserve requirements imposed by the Federal Reserve System or by the state in which the branch is located if the branch is licensed in that state. In addition, Federal branches licensed by the Comptroller of the Currency and branches licensed by certain states ("State Branches") may be required to: (1) pledge to the regulator, by depositing assets with a designated bank within the state, a certain percentage of their assets as fixed from time to time by the appropriate regulatory authority; and (2) maintain assets within the state in an amount equal to a specified percentage of the aggregate amount of liabilities of the foreign bank payable at or through all of its agencies or branches within the state. The deposits of Federal and State Branches generally must be insured by the FDIC if such branches take deposits of less than $100,000. In view of the foregoing factors associated with the purchase of CDs and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of domestic banks, by foreign branches of foreign banks or by domestic branches of foreign banks, BSFM carefully evaluates such investments on a case-by-case basis. Repurchase Agreements. The Portfolio's custodian or sub-custodian will --------------------- have custody of, and will hold in a segregated account, securities acquired by the Portfolio under a repurchase agreement. Repurchase agreements are considered by the staff of the Securities and Exchange Commission to be loans by the Portfolio. In an attempt to reduce the risk of incurring a loss on a repurchase agreement, the Portfolio will enter into repurchase agreements only with domestic banks with total assets in excess of one billion dollars, or primary government securities dealers reporting to the Federal Reserve Bank of New York, with respect to securities of the type in which the Portfolio may invest, and will require that additional securities be deposited with it if the value of the securities purchased should decrease below the resale price. The Advisers will monitor on an ongoing basis the value of the collateral to assure that it always equals or exceeds the repurchase price. The Portfolio will consider on an ongoing basis the credit worthiness of the institutions with which it enters into repurchase agreements. B-3 Commercial Paper and Other Short-Term Corporate Obligations. Variable ----------------------------------------------------------- rate demand notes include variable amount master demand notes, which are obligations that permit the Portfolio to invest fluctuating amounts at varying rates of interest pursuant to direct arrangements between the Portfolio, as lender, and the borrower. These notes permit daily changes in the amounts borrowed. As mutually agreed between the parties, the Portfolio may increase the amount under the notes at any time up to the full amount provided by the note agreement, or decrease the amount, and the borrower may repay up to the full amount of the note without penalty. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments generally will be traded, and there generally is no established secondary market for these obligations, although they are redeemable at face value, plus accrued interest, at any time. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, the Portfolio's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. In connection with floating and variable rate demand obligations, the Advisers will consider, on an ongoing basis, earning power, cash flow and other liquidity ratios of the borrower, and the borrower's ability to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies, and the Portfolio may invest in them only if at the time of an investment the borrower meets the criteria set forth in the Portfolio's Prospectus for other commercial paper issuers. Illiquid Securities. When purchasing securities that have not been ------------------- registered under the Securities Act of 1933, as amended, and are not readily marketable, the Portfolio will endeavor to obtain the right to registration at the expense of the issuer. Generally, there will be a lapse of time between the Portfolio's decision to sell any such security and the registration of the security permitting sale. During any such period, the price of the securities will be subject to market fluctuations. However, if a substantial market of qualified institutional buyers develops pursuant to Rule 144A under the Securities Act of 1933, as amended, for certain unregistered securities held by the Portfolio, the Portfolio intends to treat them as liquid securities in accordance with procedures approved by the Fund's Board of Trustees. Because it is not possible to predict with assurance how the market for restricted securities pursuant to Rule 144A will develop, the Fund's Board of Trustees has directed the Advisers to monitor carefully the Portfolio's investments in such securities with particular regard to trading activity, availability of reliable price information and other relevant information. To the extent that, for a period of time, qualified institutional buyers cease purchasing restricted securities pursuant to Rule 144A, the Portfolio's investing in B-4 such securities may have the effect of increasing the level of illiquidity in the Portfolio during such period. Management Policies - ------------------- The Portfolio engages in the following practices in furtherance of its objective. Options Transactions. The Portfolio may engage in options -------------------- transactions, such as purchasing or writing covered call or put options. The principal reason for writing covered call options, which are call options with respect to which the Portfolio owns the underlying security or securities, is to realize, through the receipt of premiums, a greater return than would be realized on the Portfolio's securities alone. In return for a premium, the writer of a covered call option forfeits the right to any appreciation in the value of the underlying security above the strike price for the life of the option (or until a closing purchase transaction can be effected). Nevertheless, the call writer retains the risk of a decline in the price of the underlying security. Similarly, the principal reason for writing covered put options is to realize income in the form of premiums. The writer of a covered put option accepts the risk of a decline in the price of the underlying security. The size of the premiums that the Portfolio may receive may be adversely affected as new or existing institutions, including other investment companies, engage in or increase their option-writing activities. Options written ordinarily will have expiration dates between one and nine months from the date written. The exercise price of the options may be below, equal to or above the market values of the underlying securities at the time the options are written. In the case of call options, these exercise prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money," respectively. The Portfolio may write (a) in-the-money call options when Symphony expects that the price of the underlying security will remain stable or decline moderately during the option period, (b) at-the-money call options when Symphony expects that the price of the underlying security will remain stable or advance moderately during the option period and (c) out-of-the-money call options when Symphony expects that the premiums received from writing the call option plus the appreciation in market price of the underlying security up to the exercise price will be greater than the appreciation in the price of the underlying security alone. In these circumstances, if the market price of the underlying security declines and the security is sold at this lower price, the amount of any realized loss will be offset wholly or in part by the premium received. Out-of-the-money, at-the-money and in-the-money put options (the reverse of call options as to the relation of exercise price to B-5 market price) may be utilized in the same market environments that such call options are used in equivalent transactions. So long as the Portfolio's obligation as the writer of an option continues, the Portfolio may be assigned an exercise notice by the broker-dealer through which the option was sold, requiring the Portfolio to deliver, in the case of a call, or take delivery of, in the case of a put, the underlying security against payment of the exercise price. This obligation terminates when the option expires or the Portfolio effects a closing purchase transaction. The Portfolio can no longer effect a closing purchase transaction with respect to an option once it has been assigned an exercise notice. While it may choose to do otherwise, the Portfolio generally will purchase or write only those options for which Symphony believes there is an active secondary market so as to facilitate closing transactions. There is no assurance that sufficient trading interest to create a liquid secondary market on a securities exchange will exist for any particular option or at any particular time, and for some options no such secondary market may exist. A liquid secondary market in an option may cease to exist for a variety of reasons. In the past, for example, higher than anticipated trading activity or order flow, or other unforeseen events, at times have rendered certain clearing facilities inadequate and resulted in the institution of special procedures, such as trading rotations, restrictions on certain types of orders or trading halts or suspensions in one or more options. There can be no assurance that similar events, or events that otherwise may interfere with the timely execution of customers' orders, will not recur. In such event, it might not be possible to effect closing transactions in particular options. If as a covered call option writer the Portfolio is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or it otherwise covers its position. Stock Index Options. The Portfolio may purchase and write put and call ------------------- options on stock indexes listed on U.S. or foreign securities exchanges or traded in the over-the-counter market. A stock index fluctuates with changes in the market values of the stocks included in the index. Options on stock indexes are similar to options on stock except that (a) the expiration cycles of stock index options are generally monthly, while those of stock options are currently quarterly, and (b) the delivery requirements are different. Instead of giving the right to take or make delivery of a stock at a specified price, an option on a stock index gives the holder the right to receive a cash "exercise settlement amount" equal to (i) the amount, if any, by which the B-6 fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of exercise, multiplied by (ii) a fixed "index multiplier." Receipt of this cash amount will depend upon the closing level of the stock index upon which the option is based being greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The amount of cash received will be equal to such difference between the closing price of the index and the exercise price of the option expressed in dollars times a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The writer may offset its position in stock index options prior to expiration by entering into a closing transaction on an exchange or it may let the option expire unexercised. Futures Contracts and Options on Futures Contracts. The Portfolio may -------------------------------------------------- trade futures contracts and options on futures contracts in U.S. domestic markets, such as the Chicago Board of Trade and the International Monetary Market of the Chicago Mercantile Exchange. Initially, when purchasing or selling futures contracts the Portfolio will be required to deposit with the Fund's custodian in the broker's name an amount of cash or cash equivalents up to approximately 10% of the contract amount. This amount is subject to change by the exchange or board of trade on which the contract is traded and members of such exchange or board of trade may impose their own higher requirements. This amount is known as "initial margin" and is in the nature of a performance bond or good faith deposit on the contract which is returned to the Portfolio upon termination of the futures position, assuming all contractual obligations have been satisfied. Subsequent payments, known as "variation margin," to and from the broker will be made daily as the price of the index or securities underlying the futures contract fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking-to-market." At any time prior to the expiration of a futures contract, the Portfolio may elect to close the position by taking an opposite position, at the then prevailing price, which will operate to terminate the Portfolio's existing position in the contract. Although the Portfolio intends to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a B-7 particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting the Portfolio to substantial losses. If it is not possible, or the Portfolio determines not, to close a futures position in anticipation of adverse price movements, the Portfolio will be required to make daily cash payments of variation margin. In such circumstances, an increase in the value of the portion of the portfolio being hedged, if any, may offset partially or completely losses on the futures contract. However, no assurance can be given that the price of the securities being hedged will correlate with the price movements in a futures contract and thus provide an offset to losses on the futures contract. In addition, to the extent the Portfolio is engaging in a futures transaction as a hedging device, due to the risk of an imperfect correlation between securities owned by the Portfolio that are the subject of a hedging transaction and the futures contract used as a hedging device, it is possible that the hedge will not be fully effective in that, for example, losses on the portfolio securities may be in excess of gains on the futures contract or losses on the futures contract may be in excess of gains on the portfolio securities that were the subject of the hedge. In futures contracts based on indexes, the risk of imperfect correlation increases as the composition of the Portfolio's investments varies from the composition of the index. In an effort to compensate for the imperfect correlation of movements in the price of the securities being hedged and movements in the price of futures contracts, the Portfolio may buy or sell futures contracts in a greater or lesser dollar amount than the dollar amount of the securities being hedged if the historical volatility of the futures contract has been less or greater than that of the securities. Such "over hedging" or "under hedging" may adversely affect the Portfolio's net investment results if market movements are not as anticipated when the hedge is established. Upon exercise of an option, the writer of the option will deliver to the holder of the option the futures position and the accumulated balance in the writer's futures margin account, which represents the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. The potential loss related to the purchase of options on futures contracts is limited to the premium paid for the option (plus transaction costs). Because the value of the option is fixed at the time of sale, there are no daily cash payments to reflect changes in the value of the underlying contract; however, the value of the option does B-8 change daily and that change would be reflected in the net asset value of each Portfolio. Lending Portfolio Securities. To a limited extent, the Portfolio may ---------------------------- lend its portfolio securities to brokers, dealers and other financial institutions, provided it receives cash collateral which at all times is maintained in an amount equal to at least 100% of the current market value of the securities loaned. By lending its portfolio securities, the Portfolio can increase its income through the investment of the cash collateral. For purposes of this policy, the Portfolio considers collateral consisting of U.S. Government securities or irrevocable letters of credit issued by banks whose securities meet the standards for investment by the Portfolio to be the equivalent of cash. From time to time, the Portfolio may return to the borrower or a third party which is unaffiliated with the Portfolio, and which is acting as a "placing broker," a part of the interest earned from the investment of collateral received for securities loaned. The Securities and Exchange Commission currently requires that the following conditions must be met whenever portfolio securities are loaned: (1) the Portfolio must receive at least 100% cash collateral from the borrower; (2) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (3) the Portfolio must be able to terminate the loan at any time; (4) the Portfolio must receive reasonable interest on the loan, as well as any dividends, interest or other distributions payable on the loaned securities, and any increase in market value; (5) the Portfolio may pay only reasonable custodian fees in connection with the loan; and (6) while voting rights on the loaned securities may pass to the borrower, the Fund's Board of Trustees must terminate the loan and regain the right to vote the securities if a material event adversely affecting the investment occurs. These conditions may be subject to future modification. Investment Restrictions. The Portfolio has adopted investment ----------------------- restrictions numbered 1 through 8 as fundamental policies. These restrictions cannot be changed, as to a Portfolio, without approval by the holders of a majority (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the Portfolio's outstanding voting shares. Investment restrictions numbered 9 through 14 are not fundamental policies and may be changed by vote of a majority of the Trustees at any time. The Portfolio may not: 1. Invest more than 25% of the value of its total assets in the securities of issuers in any single industry, provided that there shall be no limitation on the purchase of B-9 obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. 2. Invest in commodities, except that the Portfolio may purchase and sell options, forward contracts, futures contracts, including those relating to indexes, and options on futures contracts or indexes. 3. Purchase, hold or deal in real estate, real estate limited partnership interests, or oil, gas or other mineral leases or exploration or development programs, but the Portfolio may purchase and sell securities that are secured by real estate or issued by companies that invest or deal in real estate or real estate investment trusts. 4. Borrow money, except to the extent permitted under the 1940 Act. The 1940 Act permits an investment company to borrow in an amount up to 33-1/3% of the value of such company's total assets. For purposes of this Investment Restriction, the entry into options, forward contracts, futures contracts, including those relating to indexes, and options on futures contracts or indexes shall not constitute borrowing. 5. Make loans to others, except through the purchase of debt obligations and the entry into repurchase agreements. However, the Portfolio may lend its portfolio securities in an amount not to exceed 33-1/3% of the value of its total assets. Any loans of portfolio securities will be made according to guidelines established by the Securities and Exchange Commission and the Fund's Board of Trustees. 6. Act as an underwriter of securities of other issuers, except to the extent the Portfolio may be deemed an underwriter under the Securities Act of 1933, as amended, by virtue of disposing of portfolio securities. 7. Issue any senior security (as such term is defined in Section 18(f) of the 1940 Act). 8. Purchase securities on margin, but the Portfolio may make margin deposits in connection with transactions in options, forward contracts, futures contracts, including those relating to indexes, and options on futures contracts or indexes. 9. Purchase securities of any company having less than three years' continuous operations (including operations of any predecessor) if such purchase would cause the value of the Portfolio's investments in all such companies to exceed 5% of the value of its total assets. B-10 10. Invest in the securities of a company for the purpose of exercising management or control, but the Portfolio will vote the securities it owns in its portfolio as a shareholder in accordance with its views. 11. Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the purchase of securities on a when-issued or forward commitment basis and the deposit of assets in escrow in connection with writing covered put and call options and collateral and initial or variation margin arrangements with respect to options, forward contracts, futures contracts, including those relating to indexes, and options on futures contracts or indexes. 12. Purchase, sell or write puts, calls or combinations thereof, except as described in the Portfolio's Prospectus and Statement of Additional Information. 13. Enter into repurchase agreements providing for settlement in more than seven days after notice or purchase securities which are illiquid, if, in the aggregate, more than 15% of the value of its net assets would be so invested. 14. Purchase securities of other investment companies, except to the extent permitted under the 1940 Act. If a percentage restriction is adhered to at the time of investment, a later change in percentage resulting from a change in values or assets will not constitute a violation of such restriction. The Fund may make commitments more restrictive than the restrictions listed above so as to permit the sale of the Portfolio's shares in certain states. Should the Fund determine that a commitment is no longer in the best interest of the Portfolio and its shareholders, the Fund reserves the right to revoke the commitment by terminating the sale of Fund shares in the state involved. B-11 MANAGEMENT OF THE FUND ---------------------- Trustees and officers of the Fund, together with information as to their principal business occupations during at least the last five years, are shown below. Each Trustee who is an "interested person" of the Fund, as defined in the 1940 Act, is indicated by an asterisk.
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION (AND AGE) WITH FUND DURING PAST FIVE YEARS - ---------------------------------- ------------ ------------------------------- Peter M. Bren (61) Trustee President of The Bren Co.; 2 East 70th Street President of Cole, Bren New York, NY 10021 Realty Advisors and Senior Partner for Lincoln Properties prior thereto. Alan J. Dixon* (68) Trustee Partner of Bryan Cave, a law 7535 Claymont Court firm in St. Louis since Apt. #2 January 1993; United Belleville, IL 62223 States Senator of Illinois from 1981 to 1993. John R. McKernan, Jr. (47) Trustee Chairman and Chief Executive 114 Nottingham Road Officer of McKernan Auburn, ME 04210 Enterprises since January 1995; Governor of Maine prior thereto. M.B. Oglesby, Jr. (53) Trustee Senior Vice President of RJR 5300 Albemarle Street Nabisco, Inc. since April Bethesda, MD 20816 1989; Former Deputy Chief of Staff-White House from 1988 to January 1989. Robert S. Reitzes* (50) Chairman Director of Mutual Funds- 245 Park Avenue of the Board Bear Stearns Asset New York, NY 10167 Management and Senior Managing Director of Bear Stearns since March 1994; Co-Director of Research and Senior Chemical Analyst of C.J. Lawrence/Deutsche Bank Securities Corp. from January 1991 to March 1994; Chief Investment Officer and Chemical Analyst of Mabon, Nugent & Co. prior thereto.
B-12
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION (AND AGE) WITH FUND DURING PAST FIVE YEARS - ---------------------------------- ------------ ------------------------------- Peter B. Fox (43) Executive Senior Managing Director, Three First National Vice President Bear Stearns, Public Plaza Finance. Chicago, IL 60602 William J. Montgoris (48) Executive Chief Financial Officer and 245 Park Avenue Vice President Chief Operating Officer, New York, NY 10167 Bear Stearns. Stephen A. Bornstein (52) Vice President Managing Director, Legal 245 Park Avenue and Secretary Department, Bear Stearns. New York, NY 10167 Frank J. Maresca (37) Vice President Managing Director of Bear 245 Park Avenue and Treasurer Stearns since September New York, NY 10167 1994; Associate Director of Bear Stearns from September 1993 to September 1994; Executive Vice President of BSFM since March 1992; Vice President of Bear Stearns from March 1992 to September 1993; First Vice President of Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") from June 1988 to March 1992; Director of Funds Administration Division of Mitchell Hutchins from November 1991 to March 1992; and Chief Financial Officer of the Mitchell Hutchins Fund Group (holding the position of Vice President and Treasurer of PaineWebber Mutual Funds) from June 1988 to November 1990.
B-13
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION (AND AGE) WITH FUND DURING PAST FIVE YEARS - ---------------------------------- -------------- ------------------------------- Raymond D. DeAngelo (34) Vice President Associate Director of Bear 245 Park Avenue Stearns since October 1994; New York, NY 10167 Vice President and Manager-- Mutual Fund Sales Support Group of Kidder, Peabody & Co. Incorporated ("Kidder Peabody") from August 1994 to October 1994; Vice President and Manager--Unit Investment Trust Department of Kidder Peabody from August 1992 to August 1994; Vice President and Wholesaler of Nike Securities, L.P. (formerly Clayton Brown & Associates) from September 1991 to August 1992; Assistant Vice President and Wholesaler of Clayton Brown & Associates prior thereto. Vincent L. Pereira (30) Assistant Vice President of Bear 245 Park Avenue Treasurer Stearns and Vice President New York, NY 10167 of BSFM since May 1993; Assistant Vice President of Mitchell Hutchins from October 1992 to May 1993; Senior Relationship Manager of Mitchell Hutchins from June 1988 to October 1992. Eileen M. Coyle (29) Assistant Senior Fund Administrator 245 Park Avenue Secretary for BSFM since January New York, NY 10167 1994; Accounting Supervisor and Senior Accountant for Bear Stearns since 1990; Senior Accountant for Deloitte & Touche from 1988 to 1990.
B-14 The Fund intends to pay its non-interested Board members an annual retainer of $5,000 and a per meeting fee of $500 and to reimburse them for their expenses. The Fund does not compensate its officers. For its first fiscal year following commencement of operations (the period ending March 31, 1996), the aggregate compensation expected to be paid to each Board member by the Fund and all other funds in the Bear Stearns Family of Funds for which such person is a Board member (the number of which is set forth in parenthesis next to each Board member's total compensation) is expected to be:
(5) (3) Total (2) Pension or (4) Compensation from (1) Aggregate Retirement Benefits Estimated Annual Fund and Fund Name of Board Compensation Accrued as Part of Benefits Upon Complex Paid to Member from Fund/*/ Fund's Expenses Retirement Board Members - ----------------------- ------------ ------------------- ---------------- ----------------- Peter M. Bren $7,000 None None $12,000(2) Alan J. Dixon $7,000 None None $ 7,000(1) John R. McKernan, Jr. $7,000 None None $12,000(2) M.B. Oglesby, Jr. $7,000 None None $12,000(2) Robert S. Reitzes None None None None(2)
_____________________ /*/ Amount does not include reimbursed expenses for attending Board meetings, which are estimated to be $8,000 for Board members of the Fund, as a group. Board members and officers of the Fund, as a group, owned less than 1% of the Portfolio's shares outstanding on October 15, 1995. For so long as the Plan described in the section captioned "Management Arrangements--Distribution and Shareholder Servicing Plan" remains in effect, the Fund's Trustees who are not "interested persons" of the Fund, as defined in the 1940 Act, will be selected and nominated by the Trustees who are not "interested persons" of the Fund. No meetings of shareholders of the Fund will be held for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Under the 1940 Act, shareholders of record of not less than two- thirds of the outstanding shares of the Fund may remove a Trustee through a declaration in writing or by vote cast in person or by proxy at a meeting called for that purpose. Under the Fund's Agreement and Declaration of Trust, the Trustees are required to call a meeting of shareholders for the purpose of voting upon the question of removal of any such Trustee when B-15 requested in writing to do so by the shareholders of record of not less than 10% of the Fund's outstanding shares. MANAGEMENT ARRANGEMENTS The following information supplements and should be read in conjunction ----------------------------------------------------------------------- with the section in the Portfolio's Prospectus entitled "Management of the - -------------------------------------------------------------------------- Fund." - ------ Investment Advisory Agreement. BSFM provides investment advisory ----------------------------- services to the Portfolio pursuant to the Investment Advisory Agreement (the "Agreement") dated February 22, 1995, with the Fund. The Agreement is subject to annual approval by (i) the Fund's Board of Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Portfolio, provided that in either event the continuance also is approved by a majority of the Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Fund or BSFM, by vote cast in person at a meeting called for the purpose of voting on such approval. The Board of Trustees, including a majority of the Trustees who are not "interested persons" of any party to the Agreement, last approved the Agreement at a meeting as to the Portfolio, held on February 22, 1995. The Agreement is terminable, as to the Portfolio, without penalty, on 60 days' notice, by the Fund's Board of Trustees or by vote of the holders of a majority of the Portfolio's shares, or, on not less than 90 days' notice, by BSFM. As to the Portfolio, the Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act). BSFM is a wholly owned subsidiary of The Bear Stearns Companies Inc. The following persons are directors and/or senior officers of BSFM: Mark A. Kurland, Chief Executive Officer, President, Chairman of the Board and Director; Robert S. Reitzes, Executive Vice President and Director; Milton B. Rubin, Vice Chairman of the Board and Director; Frank J. Maresca, Executive Vice President; Neil T. Eigen, Executive Vice President, Vincent L. Pereira, Treasurer and Secretary; Michael Minikes, Warren J. Spector and Robert M. Steinberg, Directors. Sub-Investment Advisory Agreement. Symphony provides investment --------------------------------- advisory assistance and day-to-day management of the Fund's portfolio pursuant to the Sub-Investment Advisory Agreement (the "Sub-Advisory Agreement") dated February 22, 1995 between Symphony and BSFM. The Sub-Advisory Agreement is subject to annual approval by (i) the Fund's Board of Trustees or (ii) vote of a majority (as defined in the Act) of the outstanding voting securities of the Portfolio, provided that in either event the continuance also is approved by a majority of the Board of B-16 Trustees who are not "interested persons" (as defined in the Act) of the Fund or Symphony, by vote cast in person at a meeting called for the purpose of voting on such approval. The Board of Trustees, including a majority of the Trustees who are not "interested persons" of any party to the Sub-Advisory Agreement, last approved the Sub-Advisory Agreement at a meeting held on February 22, 1995. The Sub-Advisory Agreement is terminable without penalty (i) by BSFM on 60 days' notice, (ii) by the Fund's Board of Trustees, on 60 days' notice, or by vote of the holders of a majority of the Fund's shares or (iii) on not less than 90 days' notice, by Symphony. The Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the Act) or upon termination of the Agreement for any reason. Symphony provides day-to-day management of the Portfolio's portfolio of investments in accordance with the stated policies of the Fund, subject to the supervision of BSFM and the approval of the Fund's Board of Trustees. BSFM and Symphony provide the Fund with Investment Officers who are authorized by the Board of Trustees to execute purchases and sales of securities. All purchases and sales are reported for the Board of Trustees' review at the meeting subsequent to such transactions. Distribution and Shareholder Servicing Plan. Rule 12b-1 (the "Rule") ------------------------------------------- adopted by the Securities and Exchange Commission under the 1940 Act provides, among other things, that an investment company may bear expenses of distributing its shares only pursuant to a plan adopted in accordance with the Rule. The Fund's Trustees have adopted such a plan with respect to Class A and Class C shares (the "Plan"). The Fund's Trustees believe that there is a reasonable likelihood that the Plan will benefit the Portfolio and the holders of its Class A and Class C shares. In some states, banks or other institutions effecting transactions in Portfolio shares may be required to register as dealers pursuant to state law. A quarterly report of the amounts expended under the Plan, and the purposes for which such expenditures were incurred, must be made to the Trustees for their review. In addition, the Plan provides that it may not be amended to increase materially the costs which holders of a Class of shares may bear pursuant to the Plan without approval of such shareholders and that other material amendments of the Plan must be approved by the Board of Trustees, and by the Trustees who are neither "interested persons" (as defined in the 1940 Act) of the Fund nor have any direct or indirect financial interest in the operation of the Plan or in the related Plan agreements, by vote cast in person at a meeting called for the purpose of considering such amendments. The Plan and related agreements are subject to annual approval by such vote cast in person at a meeting called for the purpose of B-17 voting on the Plan. The Plan was so approved on February 22, 1995. The Plan is terminable at any time by vote of a majority of the Trustees who are not "interested persons" and who have no direct or indirect financial interest in the operation of the Plan or in the Plan agreements or by vote of holders of a majority of the Portfolio's relevant Class of shares. A Plan agreement is terminable, as to the Portfolio, without penalty, at any time, by such vote of the Trustees, upon not more than 60 days' written notice to the parties to such agreement or by vote of the holders of a majority of the Portfolio's Class A and Class C shares. A Plan agreement will terminate automatically, as to the Portfolio, in the event of its assignment (as defined in the 1940 Act). Expense Limitation. BSFM agreed that if, in any fiscal year, the ------------------ aggregate expenses of the Portfolio, exclusive of taxes, brokerage, interest on borrowings and (with the prior written consent of the necessary state securities commissions) extraordinary expenses, exceed the expense limitation of any state having jurisdiction over the Portfolio, the Fund may deduct from the payment to be made to BSFM, such excess expense to the extent required by state law. Such deduction or payment, if any, will be estimated daily, and reconciled and effected or paid, as the case may be, on a monthly basis. PURCHASE AND REDEMPTION OF SHARES The following information supplements and should be read in ----------------------------------------------------------- conjunction with the sections in the Portfolio's Prospectus entitled "How to Buy - -------------------------------------------------------------------------------- Shares" and "How to Redeem Shares." - --------------------------------- Sales Loads--Class A. Set forth below is an example of the method of -------------------- computing the offering price of the Class A shares of the Portfolio. The example assumes a purchase of Class A shares aggregating less than $50,000 subject to the schedule of sales charges set forth in the Prospectus at a price based upon the net asset value of the Class A shares. Net Asset Value per Share $12.00 Per Share Sales Charge - 4.75% of offering price (4.99% of net asset value per share) $ 0.60 Per Share Offering Price to the Public $12.60
Redemption Commitment. The Portfolio has committed itself to pay in --------------------- cash all redemption requests by any shareholder B-18 of record, limited in amount during any 90-day period to the lesser of $250,000 or 1% of the value of the Portfolio's net assets at the beginning of such period. Such commitment is irrevocable without the prior approval of the Securities and Exchange Commission. In the case of requests for redemption in excess of such amount, the Board of Trustees reserves the right to make payments in whole or in part in securities or other assets in case of an emergency or any time a cash distribution would impair the liquidity of the Portfolio to the detriment of the existing shareholders. In this event, the securities would be valued in the same manner as the Portfolio is valued. If the recipient sold such securities, brokerage charges would be incurred. Were the Portfolio to redeem securities in kind, it first would seek to distribute readily marketable securities. Suspension of Redemptions. The right of redemption may be suspended or ------------------------- the date of payment postponed (a) during any period when the New York Stock Exchange is closed (other than customary weekend and holiday closings), (b) when trading in the markets the Portfolio ordinarily utilizes is restricted, or when an emergency exists as determined by the Securities and Exchange Commission so that disposal of the Portfolio's investments or determination of its net asset value is not reasonably practicable, or (c) for such other periods as the Securities and Exchange Commission by order may permit to protect Portfolio shareholders. DETERMINATION OF NET ASSET VALUE The following information supplements and should be read in conjunction ----------------------------------------------------------------------- with the section in the Portfolio's Prospectus entitled "How to Buy Shares." - -------------------------------------------------------------------------- Valuation of Portfolio Securities. 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 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 the Fund's Board of Trustees. Expenses and fees, including the management fee and distribution and service 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. B-19 Restricted securities, as well as securities or other assets for which market quotations are not readily available, or are not valued by a pricing service approved by the Board of Trustees, are valued at fair value as determined in good faith by the Board of Trustees. The Board of Trustees will review the method of valuation on a current basis. In making their good faith valuation of restricted securities, the Trustees generally will take the following factors into consideration: restricted securities which are, or are convertible into, securities of the same class of securities for which a public market exists usually will be valued at market value less the same percentage discount at which purchased. This discount will be revised periodically by the Board of Trustees if the Trustees believe that it no longer reflects the value of the restricted securities. Restricted securities not of the same class as securities for which a public market exists usually will be valued initially at cost. Any subsequent adjustment from cost will be based upon considerations deemed relevant by the Board of Trustees. New York Stock Exchange Closings. The holidays (as observed) on which -------------------------------- the New York Stock Exchange is closed currently are: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. DIVIDENDS, DISTRIBUTIONS AND TAXES The following information supplements and should be read in conjunction ----------------------------------------------------------------------- with the section in the Portfolio's Prospectus entitled "Dividends, - ------------------------------------------------------------------- Distributions and Taxes." - ----------------------- It is expected that the Portfolio will qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"), as long as such qualification is in the best interests of its shareholders. Qualification as a regulated investment company relieves the Portfolio from any liability for Federal income taxes on net investment income and net realized securities gains to the extent that such income and gains are distributed to shareholders in accordance with applicable provisions of the Code. The term "regulated investment company" does not imply the supervision of management or investment practices or policies by any government agency. Any dividend or distribution paid shortly after an investor's purchase may have the effect of reducing the net asset value of the shares below the cost of the investment. Such a dividend or distribution would be a return of investment in an economic sense, although taxable as stated above. In addition, the Code provides that if a shareholder holds shares of the regulated investment company for six months or less and has received a capital gain distribution with respect to such shares, any loss incurred on the sale of such shares will be treated as B-20 long-term capital loss to the extent of the capital gain distribution received. Depending on the composition of a regulated investment company's income, dividends paid by the regulated investment company from net investment income may qualify for the dividends received deduction allowable to certain U.S. corporate shareholders ("dividends received deduction"). In general, dividend income of the regulated investment company distributed to qualifying corporate shareholders will be eligible for the dividends received deduction only to the extent that (i) the regulated investment company's income consists of dividends paid by U.S. corporations and (ii) the regulated investment company would have been entitled to the dividends received deduction with respect to such dividend income if the regulated investment company were not a regulated investment company under the Code. The dividends received deduction for qualifying corporate shareholders may be further reduced if the shares of the regulated investment company held by such shareholders with respect to which dividends are received are treated as debt-financed or deemed to have been held for less than 46 days. In addition, the Code provides other limitations with respect to the ability of a qualifying corporate shareholder to claim the dividends received deduction in connection with holding shares of a regulated investment company. Ordinarily, gains and losses realized from portfolio transactions will be treated as capital gain and loss. However, a portion of the gain or loss from the disposition of non-U.S. dollar denominated securities (including debt instruments, certain financial forward futures and option contracts and certain preferred stock) may be treated as ordinary income or loss under Section 988 of the Code. In addition, all or a portion of any gain realized from the sale or other disposition of certain market discount bonds will be treated as ordinary income under Section 1276. Finally, all or a portion of the gain realized from engaging in "conversion transactions" may be treated as ordinary income under Section 1258. "Conversion transactions" are defined to include certain forward, futures, option and straddle transactions, transactions marketed or sold to produce capital gains, or transactions described in Treasury regulations to be issued in the future. Under Section 1256 of the Code, any gain or loss realized by a regulated investment company from certain futures and forward contracts and options transactions will be treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. Gain or loss will arise upon exercise or lapse of such contracts and options as well as from closing transactions. In addition, any such contracts or options remaining unexercised at the end of a regulated investment company's taxable year will be treated as sold for their then fair market value, resulting in additional gain or loss to such regulated investment company characterized in the manner described above. B-21 Offsetting positions held by a regulated investment company involving certain contracts or options may constitute "straddles." "Straddles" are defined to include "offsetting positions" in actively traded personal property. The tax treatment of "straddles" is governed by Sections 1092 and 1258 of the Code, which, in certain circumstances, overrides or modifies the provisions of Section 1256 and 988. If a regulated investment company were treated as entering into "straddles" by reason of its engaging in certain forward contracts or options transactions, such "straddles" would be characterized as "mixed straddles" if the contracts or options transactions comprising a part of such "straddles" were governed by Section 1256 of the Code. A regulated investment company may make one or more elections with respect to "mixed straddles." Depending on which election is made, if any, the results to a regulated investment company may differ. If no election is made to the extent the "straddle" and conversion transactions rules apply to positions established by a regulated investment company, losses realized by the regulated investment company will be deferred to the extent of unrealized gain in the offsetting position. Moreover, as a result of the "straddle" rules, short-term capital loss on "straddle" positions may be recharacterized as long-term capital loss, and long-term capital gains may be treated as short-term capital gains or ordinary income. Investment by a regulated investment company in securities issued or acquired at a discount, or providing for deferred interest or for payment of interest in the form of additional obligations could under special tax rules affect the amount, timing and character of distributions to shareholders by causing a regulated investment company to recognize income prior to the receipt of cash payments. For example, a regulated investment company could be required to accrue a portion of the discount (or deemed discount) at which the securities were issued and to distribute such income in order to maintain its qualification as a regulated investment company. In such case, the regulated investment company may have to dispose of securities which it might otherwise have continued to hold in order to generate cash to satisfy these distribution requirements. PORTFOLIO TRANSACTIONS Symphony assumes general supervision over placing orders on behalf of the Portfolio for the purchase or sale of investment securities. Allocation of brokerage transactions, including their frequency, is made in Symphony's best judgment and in a manner deemed fair and reasonable to shareholders. The primary consideration is prompt execution of orders at the most favorable net price. Subject to this consideration, the brokers selected will include those that supplement Symphony's research facilities with statistical data, investment information, economic facts and opinions. Information so received is in B-22 addition to and not in lieu of services required to be performed by Symphony and Symphony's fees are not reduced as a consequence of the receipt of such supplemental information. Such information may be useful to Symphony in serving both the Portfolio and the other funds which it advises and, conversely, supplemental information obtained by the placement of business of other clients may be useful to Symphony in carrying out its obligations to the Portfolio. Sales of Portfolio shares by a broker may be taken into consideration, and brokers also will be selected because of their ability to handle special executions such as are involved in large block trades or broad distributions, provided the primary consideration is met. Large block trades may, in certain cases, result from two or more funds advised or administered by Symphony being engaged simultaneously in the purchase or sale of the same security. Certain of Symphony's transactions in securities of foreign issuers may not benefit from the negotiated commission rates available to the Portfolio for transactions in securities of domestic issuers. When transactions are executed in the over-the- counter market, the Portfolio will deal with the primary market makers unless a more favorable price or execution otherwise is obtainable. Portfolio turnover may vary from year to year as well as within a year. It is anticipated that in any fiscal year the turnover rate may approach the 150% level for the Portfolio; however, in periods in which extraordinary market conditions prevail, Symphony will not be deterred from changing investment strategy as rapidly as needed, in which case higher turnover rates can be anticipated which would result in greater brokerage expenses. The overall reasonableness of brokerage commissions paid is evaluated by Symphony based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. To the extent consistent with applicable provisions of the 1940 Act and the rules and exemptions adopted by the Securities and Exchange Commission thereunder, the Board of Trustees has determined that transactions for the Portfolio may be executed through Bear Stearns if, in the judgment of BSFM, the use of Bear Stearns is likely to result in price and execution at least as favorable as those of other qualified broker-dealers, and if, in the transaction, Bear Stearns charges the Portfolio a rate consistent with that charged to comparable unaffiliated customers in similar transactions. In addition, under rules recently adopted by the Securities and Exchange Commission, Bear Stearns may directly execute such transactions for the Portfolio on the floor of any national securities exchange, provided (i) the Board of Trustees has expressly authorized Bear Stearns to effect such transactions, and (ii) Bear Stearns annually advises the Board of Trustees of the aggregate compensation it earned on such transactions. Over-the-counter purchases and sales are transacted directly with principal market makers except in those B-23 cases in which better prices and executions may be obtained elsewhere. PERFORMANCE INFORMATION The following information supplements and should be read in conjunction ----------------------------------------------------------------------- with the section in the Portfolio's Prospectus entitled "Performance - -------------------------------------------------------------------- Information." - ----------- Average annual total return is calculated by determining the ending redeemable value of an investment purchased at net asset value (maximum offering price in the case of Class A) per share with a hypothetical $1,000 payment made at the beginning of the period (assuming the reinvestment of dividends and distributions), dividing by the amount of the initial investment, taking the "n"th root of the quotient (where "n" is the number of years in the period) and subtracting 1 from the result. A Class' average annual total return figures calculated in accordance with such formula assume that in the case of Class A the maximum sales load has been deducted from the hypothetical initial investment at the time of purchase or in the case of Class C the maximum applicable CDSC has been paid upon redemption at the end of the period. The total return for Class A for the period June 16, 1995 (commencement of investment operations) to September 30, 1995 was 4.68%. Based on net asset value per share, the total return for Class A was 9.92% for this period. The total return for Class C for the same period was 8.67%. Without giving effect to the applicable CDSC, the total return for Class C was 9.75% for this period. The total return for Class Y for the period June 20, 1995 (commencement of initial public offering) to September 30, 1995 was 8.91%. Total return is calculated by subtracting the amount of the Portfolio's net asset value (maximum offering price in the case of Class A) per share at the beginning of a stated period from the net asset value per share at the end of the period (after giving effect to the reinvestment of dividends and distributions during the period and any applicable CDSC), and dividing the result by the net asset value (maximum offering price in the case of Class A) per share at the beginning of the period. Total return also may be calculated based on the net asset value per share at the beginning of the period instead of the maximum offering price per share at the beginning of the period for Class A shares or without giving effect to any applicable CDSC at the end of the period for Class C shares. In such cases, the calculation would not reflect the deduction of the sales load with respect to Class A shares or any applicable CDSC with respect to Class C shares, which, if reflected would reduce the performance quoted. B-24 INFORMATION ABOUT THE FUND The following information supplements and should be read in conjunction ----------------------------------------------------------------------- with the section in the Portfolio's Prospectus entitled "General Information." - ---------------------------------------------------------------------------- Each Portfolio share has one vote and, when issued and paid for in accordance with the terms of the offering, is fully paid and non-assessable. Portfolio shares have no preemptive, subscription or conversion rights and are freely transferable. The Fund will send annual and semi-annual financial statements to all its shareholders. As of October 31, 1995, the following shareholders owned, directly or indirectly, 5% or more of the Portfolio's outstanding shares. Percent of Class Y Name and Address Shares Outstanding - ---------------- ------------------ Master Works 401 (K) 20.7% c/o Wells Fargo Bank 420 Montgomery Street 8th Floor San Francisco, California 94104 Bear Stearns Securities Corp. 5.1% FBO 048-79821-18 1 Metrotech Center North Brooklyn, NY 11201-3859 Bear Stearns Securities Corp. 5.3% FBO 722-90322-19 1 Metrotech Center North Brooklyn, NY 11201-3859 Bear Stearns Securities Corp. 5.0% FBO 048-33878-17 1 Metrotech Center North Brooklyn, NY 11201-3859 A shareholder who beneficially owns, directly or indirectly, more than 25% of a Portfolio's voting securities may be deemed a "control person" (as defined in the 1940 Act) of the Portfolio. CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL AND INDEPENDENT AUDITORS Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the Portfolio's transfer agent, dividend disbursing agent and registrar. Neither of them has any part in determining the investment policies of the Portfolio or which securities are to be purchased or sold by the Portfolio. Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-2696, as counsel for the Fund, has rendered its opinion as to certain legal matters regarding the due authorization and valid issuance of the shares of beneficial interest being sold pursuant to the Portfolio's Prospectus. Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281-1434, independent auditors, have been selected as auditors of the Fund. BSF-S-003-04 B-25 FINANCIAL STATEMENTS The Insiders Select Portfolio of The Bear Stearns Funds STATEMENT OF ASSETS AND LIABILITIES MAY 5, 1995 Assets: Cash in Bank..................................... $ 24 Deferred organization expenses (Note 3).......... $193,950 -------- Total Assets......................................... $193,974 Liabilities -- deferred organization expenses payable $193,950 -------- Net Assets (equivalent to $12.00 per share on one Class A share of beneficial interest and one Class C share of beneficial interest (par value $0.001) outstanding with an indefinite number of authorized shares of beneficial interest) (Notes 1 and 2)..................... $ 24 ======== Calculation of Offering Price Class A Shares Net Asset Value and Redemption Price............... $ 12.00 Maximum Sales Charge - 4.75% Offering Price........ $ 0.60 -------- Offering Price to Public............................. $ 12.60 ======== Class C Net Asset Value and Redemption Price............... $ 12.00 - --------------------------
(1) The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business trust on September 29, 1994. To date, The Insiders Select Portfolio (the "Portfolio") has not had 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 to Bear, Stearns & Co. Inc. (the "Distributor"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. (2) The Fund has entered into a Distribution Agreement with the Distributor on behalf of the Portfolio. Certain officers and/or Trustees of the Fund are officers and/or directors of the Distributor. (3) Deferred organization expenses will be amortized over a period from the date the Portfolio commences operations not exceeding five years. In the event that the Portfolio's initial shareholder or any transferee of the Portfolio's B-26 initial shareholder redeems any of its original shares prior to the end of the five-year 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 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 five-year period, the Fund's initial shareholder or the transferee of the Portfolio's initial shareholder shall bear the unamortized deferred organization expenses. B-27 REPORT OF INDEPENDENT AUDITORS To the Trustees and Shareholder of The Bear Stearns Funds We have audited the statement of assets and liabilities of The Insiders Select Portfolio of The Bear Stearns Funds as of May 5, 1995. This financial statement is the responsibility of The Bear Stearns Funds' management. Our responsibility is to express an opinion on the financial statement based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the statement of assets and liabilities presents fairly, in all material respects, the financial position of The Insiders Select Portfolio of The Bear Stearns Funds at May 5, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York May 5, 1995 B-28 T H E B E A R S T E A R N S F U N D S THE INSIDERS SELECT PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (unaudited)
- --------------------------------------------------------- ---------------------------------------------------------- MARKET SHARES VALUE SHARES VALUE - --------------------------------------------------------- ---------------------------------------------------------- COMMON STOCKS - 98.50% Aerospace & Defense - 1.69% Electrical Equipment - 0.70% 1,500 Boeing Co. ................... $102,375 3,400 Belden, Inc. ........................ $89,250 3,200 General Dynamics Corp. ....... 175,600 600 Emerson Electric Co. ................ 42,900 600 Lockheed Martin Corp. ........ 40,275 ----------- ----------- 132,150 318,250 ----------- ----------- Electronics - 8.50% Automobiles - 0.78% 4,600 Applied Materials, Inc.*............. 470,350 2,800 Consolidated Freightways, Inc. 69,300 1,700 Arrow Electronics, Inc.*............. 92,438 1,100 Dana Corp. ................... 31,762 1,930 Harman International Industries, Inc. 94,570 100 Goodyear Tire & Rubber Co. ... 3,938 6,600 LSI Logic Corp. ..................... 381,150 900 PACCAR Inc. ................. 42,075 3,100 National Service Industries, Inc. ... 90,675 ----------- 5,900 Texas Instruments Inc. .............. 471,262 147,075 ----------- ----------- 1,600,445 ----------- Building Materials - 1.15% 5,200 Lone Star Industries, Inc. ... 124,150 Entertainment & Leisure - 2.97% 3,300 USG Corp.*.................... 92,400 5,900 Callaway Golf Co. .................. 91,450 ----------- 1,600 Capital Cities/ABC, Inc. ........... 188,200 216,550 200 Comcast Corp. Class A............... 4,000 ----------- 5,600 Mirage Resorts, Inc.*............... 184,100 1,600 The Walt Disney Co. ................ 91,800 Chemicals & Fertilizers - 6.47% ----------- 3,600 Cytec Industries, Inc.*....... 208,350 559,550 1,100 Dow Chemical Co. ............. 81,950 ----------- 1,500 DuPont (E.I.) De Nemours & Co. 103,125 Environmental Controls - 1.50% 6,100 Eastman Chemical Co. ......... 390,400 9,300 Browning-Ferris Industries Inc. .... 282,487 3,600 Georgia Gulf Corp. ........... 124,200 ----------- 1,100 Grace (W.R.) & Co. ........... 73,425 2,800 Lubrizol Corp. ............... 91,350 Financial Services - 15.00% 3,200 Mallinckrodt Group, Inc. ..... 126,800 100 Aetna Life & Casualty Co. .......... 7,338 400 PPG Industries Inc. .......... 18,600 10,800 AFLAC Inc. ......................... 448,200 ----------- 12,100 Allstate Corp. ..................... 428,037 1,218,200 900 American General Corp. ............. 33,638 ----------- 4,000 American International Group, 340,000 1,800 BankAmerica Corp. .................. 107,775 Computers & Office Equipment - 7.83% 4,100 Bank of Boston Corp. ............... 195,262 3,300 Ceridian Corp.*............... 146,437 300 Bank of New York Co. Inc. .......... 13,950 10,350 Computer Associates International Inc. 437,288 2,200 Central Fidelity Banks, Inc. ....... 71,500 7,600 Computervision Corp.*......... 92,150 500 CIGNA Corp. ........................ 52,063 3,700 International Business 33,600 City National Corp. ................ 445,200 Machines Corp. ............ 349,188 2,200 First Virginia Banks, Inc. ......... 90,750 200 Microsoft Corp.*.............. 18,100 100 General Reinsurance Corp. .......... 15,100 2,000 Oak Technology, Inc.*......... 84,000 2,500 Jefferson-Pilot Corp. .............. 160,625 7,600 3Com Corp. ................... 345,800 2,700 J.P. Morgan & Co. .................. 208,912 ----------- 500 Merrill Lynch & Co. ................ 31,250 1,472,963 5,300 Provident Bankshares Corp. ......... 159,000 ----------- 400 Salomon Inc ........................ 15,300 Cosmetics & Soaps - 1.74% ----------- 2,300 Alberto-Culver Co. Class B.... 70,150 2,823,900 5,400 Gillette Co. ................. 257,175 ----------- ----------- Food & Beverages - 8.30% 327,325 6,800 CPC International, Inc. ......... 448,800 ----------- 200 Fleming Cos., Inc. .............. 4,800 3,000 Pepsico, Inc. ................... 153,000 Drug & Hospital Supplies - 9.40% 3,600 Philip Morris Cos., Inc. ........ 300,600 700 Abbott Laboratories. ......... 29,837 7,800 The Coca-Cola Co. ............... 538,200 5,000 Boston Scientific Corp.*...... 213,125 900 Unilever N.V. ................... 117,000 3,600 Bristol-Myers Squibb Co. ..... 262,350 ----------- 7,600 Johnson & Johnson. ........... 563,350 1,562,400 6,300 Merck & Co., Inc. ........... 352,800 ----------- 1,400 Schering-Plough............... 72,100 6,200 Upjohn Co. ................... 276,675 ===========
The accompanying notes are an integral part of the financial statements. B-29 T H E B E A R S T E A R N S F U N D S THE INSIDERS SELECT PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (unaudited)
- ------------------------------------------------ ------------------------------------------------- MARKET MARKET SHARES VALUE SHARES VALUE - ------------------------------------------------ ------------------------------------------------- COMMON STOCKS (continued) Forest Products & Paper - 4.44% Packaging & Containers - 1.61% 2,300 Boise Cascade Corp. .......... $92,863 5,500 Sealed Air Corp.*............. $303,187 1,900 Kimberly-Clark Corp. ......... 127,537 ----------- 7,500 Mead Corp. ................... 439,688 2,300 Scott Paper Co. .............. 111,550 Publishing & Broadcasting - 1.98% 1,400 Weyerhauser Co. .............. 63,875 4,100 Jostens, Inc. ............... 96,350 --------- 4,500 Meredith Corp. ............... 178,875 835,513 1,400 New York Times Co. Class A.... 38,325 --------- 900 Tribune Co. .................. 59,738 ----------- Holding Companies - 3.23% 373,288 4,400 Eastern Enterprises........... 141,350 ----------- 3,000 ITT Corp. .................... 372,000 3,500 Teledyne, Inc. ............... 94,937 --------- Retailing - 1.75% 608,287 200 Harcourt General, Inc. ...... 8,375 --------- 9,400 Kroger Co.*.................. 320,775 ----------- 329,150 Metal Fabricate & Hardware - 0.69% ----------- 3,600 Kennametal Inc. ............. 130,500 --------- Telecommunications - 4.15% Mining - 0.14% 10,100 Equifax Inc. .............. 422,938 2,100 Santa Fe Pacific Gold Corp. .. 26,513 6,500 SBC Communications Inc. .... 357,500 --------- ----------- 780,438 ----------- Miscellaneous Manufacturing - 6.52% 2,400 AGCO Corp. ................... 109,200 Total Common Stocks 12,600 Dover Corp. .................. 481,950 (cost $17,510,653)........ 18,539,358 800 Eastman Kodak Co. ............ 47,400 ----------- 3,000 Leggett & Platt, Inc. ........ 73,875 4,300 Maytag Corp. ................. 75,250 PREFERRED STOCK - 0.00% 5,700 Procter & Gamble Co. ......... 438,900 29 Holding Companies - 0.00% --------- Teledyne, Inc., Cumulative Preferred, 1,226,575 Principal Series E, 6.00% (cost $435) 402 --------- Amount ----------- (000's) SHORT-TERM INVESTMENT - 1.42% Miscellaneous Services - 0.50% 268 Investment Company - 1.42% 2,400 Service Corp. International .. 93,900 Federated Trust for Short-term --------- U.S. Government Securities** (cost $267,734)............ 267,734 Oil & Gas - 7.44% ----------- 13,500 Baker Hughes, Inc. ........... 275,062 500 Louisiana Land & Exploration C 17,813 5,600 Mobil Corp. .................. 557,900 Total Investments 4,200 Oneok, Inc. .................. 97,650 (cost $17,778,822) - 99.92% 18,897,494 2,000 Panhandle Eastern Corp. ...... 54,500 2,800 Phillips Petroleum Co. ....... 91,000 Other assets in excess of 1,700 Royal Dutch Petroleum Co.*.... 208,675 liabilities - 0.08%....... 15,057 1,500 Schlumberger, Ltd. ........... 97,875 ----------- --------- Net Assets - 100.00%.......... $18,822,551 1,400,475 =========== --------- ---------- * Non-income producing security. ** Money market fund.
The accompanying notes are an integral part of the financial statements. B-30 T H E B E A R S T E A R N S F U N D S THE INSIDERS SELECT PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995 (unaudited) Assets Investments, at value (cost - $17,778,822).............. $18,807,494 Receivable for Fund shares sold......................... 624,807 Receivable from investment adviser...................... 31,284 Dividends and interest receivable....................... 27,577 Deferred organization expenses and other assets......... 228,189 --------------- Total assets............................. 19,719,351 --------------- Liabilities Payable for securities purchased........................ 634,183 Distribution fee payable................................ 22,781 Payable for Fund shares repurchased..................... 19,090 Administration fee payable ............................ 5,135 Accrued expenses........................................ 35,068 Organization expenses payable........................... 180,543 --------------- Total liabilities........................... 896,800 --------------- Net Assets Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized)...................... 1,428 Paid-in capital......................................... 17,803,886 Accumulated net investment loss......................... (1,423) Accumulated net realized loss from investments.......... (10,011) Net unrealized appreciation of investments.............. 1,028,671 --------------- Net assets applicable to shares outstanding.. $18,822,551 =============== Class A: Net assets.............................................. $11,112,583 --------------- Shares of beneficial interest outstanding............... 842,646 --------------- Net asset value per share............................... $13.19 --------------- Maximum offering price per share (net asset value plus sales charge of 4.75%* of the offering price)... $13.85 --------------- Class C: Net assets.............................................. $7,226,413 --------------- Shares of beneficial interest outstanding............... 548,596 --------------- Net asset value and offering price per share**.......... $13.17 --------------- Class Y: Net assets.............................................. $483,555 Shares of beneficial interest outstanding............... 36,636 Net asset value, offering and redemption --------------- value per share...................................... $13.20 --------------- - ---------- * 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. B-31 T H E B E A R S T E A R N S F U N D S THE INSIDERS SELECT PORTFOLIO STATEMENT OF OPERATIONS FOR THE PERIOD JUNE 16, 1995* THROUGH SEPTEMBER 30, 1995 (unaudited) Investment income Dividends............................................... $59,122 Interest................................................ 3,350 --------------- 62,472 --------------- Expenses Advisory fees........................................... 25,674 Distribution fees - Class C............................. 15,293 Amortization of organization expenses................... 14,056 Accounting fees......................................... 13,500 Distribution fees - Class A............................. 9,168 Federal registration fees............................... 6,508 Reports and notices to shareholders..................... 5,846 Custodian fees and expenses............................. 5,402 Insurance expenses...................................... 5,274 Legal and auditing fees................................. 5,263 Transfer agent fees and expenses........................ 5,185 Administration fees..................................... 5,135 Trustees' fees and expenses............................. 2,728 Other................................................... 1,821 --------------- Total expenses before waivers and reimbursements.. 120,853 Less: Waivers and reimbursements................. (56,958) --------------- Total expenses after waivers and reimbursements.. 63,895 --------------- Net investment loss..................................... (1,423) --------------- Net realized and unrealized gain/(loss) on investments Net realized loss from investments...................... (10,011) Net change in unrealized appreciation on investments.... 1,028,671 --------------- Net realized and unrealized gain from investments....... 1,018,660 --------------- Net increase in net assets resulting from operations............ $1,017,237 =============== - ---------------- *Commencement of investment operations. The accompanying notes are an integral part of the financial statements. B-32 T H E B E A R S T E A R N S F U N D S THE INSIDERS SELECT PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD JUNE 16, 1995* THROUGH SEPTEMBER 30, 1995 (unaudited) INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income............................. ($1,423) Net realized loss on investments.................. (10,011) Net change in unrealized appreciation on investments..................................... 1,028,671 ------------- Net increase in net assets resulting from operations...................................... 1,017,237 ------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares of beneficial interest ............................ 18,068,706 Cost of shares of beneficial interest repurchased..................................... (263,416) ------------- Net increase in net assets derived from shares of beneficial interest transactions.............. 17,805,290 ------------- Total increase in net assets...................... 18,822,527 NET ASSETS Beginning of period............................... 24 ------------- End of period..................................... $18,822,551 ============= - ---------- * Commencement of investment operations. The accompanying notes are an integral part of the financial statements. B-33 T H E B E A R S T E A R N S F U N D S THE INSIDERS SELECT PORTFOLIO FINANCIAL HIGHLIGHTS For Class A and Class C shares, reference is made to page four of the Prospectus dated November 10, 1995. For Class Y shares, reference is made to page four of the Prospectus dated November 10, 1995. B-34 T H E B E A R S T E A R N S F U N D S THE INSIDERS SELECT 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 Portfolio ("Insiders" or the "Portfolio") and S&P STARS Portfolio (collectively, the "Portfolios"). As of the date hereof, the Portfolios offer three classes of shares, which have been designated as class A, C and Y shares. ORGANIZATIONAL MATTERS--Prior to commencing operations on June 15, 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. (the "Distributor"). Costs of approximately $240,000 which were incurred by the Portfolio in connection with the organization, registration with the Commission and with various states, 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. The Portfolio commenced investment operations on June 16, 1995. 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. 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 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). B-35 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 for 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 period ended September 30, 1995, Bear Stearns Funds Management Inc. ("BSFM" or "Adviser"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., served 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 and Symphony are referred to herein collectively as the "Advisers." 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 of which BSFM 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 period ended September 30, 1995, BSFM (or the "Administrator") served as administrator to the Portfolio pursuant to an Administration Agreement. The Administrator is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 0.15% 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, the Portfolio has agreed to pay PFPC Inc. an annual 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 $8,000 for the Portfolio, payable monthly. 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 asset value 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 period ended September 30, 1995, the Adviser has voluntarily undertaken to limit the Portfolio's total operating expenses (exclusive of brokerage commissions, taxes and extraordinary items) to a maximum annual level of 1.65% of the average daily net assets of 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 period ended September 30, 1995, the Adviser waived its advisory fee of $25,674. In addition, the Adviser reimbursed $31,284, in order to maintain the voluntary expense limitation. For the period ended September 30, 1995, Bear, Stearns Securities Corp., an affiliate of the Adviser, earned approximately $11,400 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, serves as custodian to the Portfolio. B-36 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 period ended September 30, 1995, the Portfolio paid Bear, Stearns & Co. Inc. ("Bear Stearns" or the "Distributor") 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 paid monthly. The fees paid to Bear Stearns under the Plan are payable without regard to actual expenses incurred. For the period June 15, 1995 (commencement of operations) through September 30, 1995, Bear Stearns earned $24,763 in distribution fees. Bear Stearns uses these fees to pay brokers 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 brokers through which the sales are made. For the period June 15, 1995 (commencement of operations) through September 26, 1995, as a result of an undertaking by the Distributor, it reallowed all of the sales charges to brokers selling Portfolio shares. In addition, Bear Stearns advanced 1.00% in sales commissions on the sale of class C shares to the dealer at the time of such sales. For the period ended September 30, 1995, Bear Stearns has advised the Portfolio that it received approximately $224,000 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 $165 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, 1995 was $17,778,822. Accordingly, the net unrealized appreciation of investments of $1,028,671 was composed of gross appreciation of $1,213,808 for those investments having an excess of value over cost and $185,137 of gross depreciation for those investments having an excess of cost over value. For the period June 16, 1995 (commencement of investment operations) through September 30, 1995, aggregate purchases and sales of investment securities (excluding short-term securities) for the Portfolio were $18,590,528 and $1,069,429, respectively. There were no purchases and sales of investment securities of U.S. government obligations by the Portfolio other than short-term investments represented by U.S. Treasury bills. SHARES OF BENEFICIAL INTEREST Each Portfolio offers class A, class C and class 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 of 1% during the first year. There is no sales charge on class Y shares which are offered primarily to institutional investors. At September 30, 1995, 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. B-37 Transactions in the classes of shares of beneficial interest for the period June 15, 1995 (commencement of operations) through September 30, 1995 were as follows:
Shares Sold Shares Repurchased - --------------------------------------------------- Shares Amount Shares Amount - --------------------------------------------------- Class A 854,928 $10,727,091 12,283 $156,058 - --------------------------------------------------- Class C 556,949 6,873,104 8,354 107,358 - --------------------------------------------------- Class Y 36,636 468,511 -- -- - ---------------------------------------------------
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 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 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. The Portfolios use the facility to borrow money only for temporary or emergency (not leveraging) purposes. Each loan is payable on demand or upon termination of this credit agreement on January 23, 1996 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. B-38 THE BEAR STEARNS FUNDS PART C. OTHER INFORMATION ------------------------- Item 24. Financial Statements and Exhibits - ------- --------------------------------- (a) Financial Statements for the Large Cap Value Portfolio, Small Cap Value Portfolio, Total Return Bond Portfolio, S&P STARS Portfolio, S&P STARS Master Series and The Insiders Select Portfolio. (1) Statements of Assets and Liabilities as of February 22, 1995 are incorporated by reference to Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A, filed September 1, 1995. (2) Report of Deloitte & Touche LLP, Independent Accountants, dated February 28, 1995 is incorporated by reference to Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A, filed September 1, 1995. (3) Statement of Investments as of June 30, 1995 (excluding S&P STARS Portfolio) (unaudited) is incorporated by reference to Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A, filed September 1, 1995. (4) Statement of Assets and Liabilities as of June 30, 1995 (unaudited) is incorporated by reference to Post- Effective Amendment No. 5 to the Registration Statement on Form N-1A, filed September 1, 1995. (5) Statement of Operations as of June 30, 1995 (unaudited) is incorporated by reference to Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A, filed September 1, 1995. (6) Statement of Changes in Net Assets as of June 30, 1995 (unaudited) is incorporated by reference to Post- Effective Amendment No. 5 to the Registration Statement on Form N-1A, filed September 1, 1995. (7) Statement of Assets and Liabilities as of May 5, 1995. (8) Report of Deloitte & Touche LLP, Independent Accountants, dated May 5, 1995. (9) Statement of Investments as of September 30, 1995 (unaudited). C-1 (10) Statement of Assets and Liabilities as of September 30, 1995 (unaudited). (11) Statement of Operations as of September 30, 1995 (unaudited). (12) Statement of Changes in Net Assets as of September 30, 1995 (unaudited). (b) Exhibits: (1)(a) Agreement and Declaration of Trust. (1)(b) Amendment to Agreement and Declaration of Trust. (2) By-Laws. (5)(a) Investment Advisory Agreement, between the Registrant and Bear Stearns Funds Management Inc. ("BSFM"). (5)(b) Administration Agreement, between the Registrant and BSFM. (5)(c) Administrative Services Agreement, as amended, between the Registrant and PFPC Inc. (5)(d) Sub-Investment Advisory Agreement. (6)(a) Distribution Agreement. (6)(b) Form of Dealer Agreement. (8) Custody Agreements between the Registrant and Custodial Trust Company. (10) Opinion (including consent) of Stroock & Stroock & Lavan. (11) Consent of Independent Auditors. (15) Distribution and Shareholder Servicing Plan. (16) Schedules of Computation of Performance Data. (17) Financial Data Schedule. (18) Rule 18f-3 Plan, as revised. Other Exhibit: (a) Certificate of Corporate Secretary. (b) Powers of attorney. C-2 Item 25. Persons Controlled by or Under Common Control with Registrant - ------- ------------------------------------------------------------- Not Applicable Item 26. Number of Holders of Securities - ------- ------------------------------- (1) (2) Number of Record Title of Class Holders* -------------- ---------------- Shares of beneficial interest, $.001 par value per share, of the following portfolios: S&P STARS Portfolio--Class A 2,401 S&P STARS Portfolio--Class C 1,184 S&P STARS Portfolio--Class Y 8 Large Cap Value Portfolio--Class A 127 Large Cap Value Portfolio--Class C 84 Large Cap Value Portfolio--Class Y 6 Small Cap Value Portfolio--Class A 307 Small Cap Value Portfolio--Class C 177 Small Cap Value Portfolio--Class Y 20 Total Return Bond Portfolio--Class A 110 Total Return Bond Portfolio--Class C 31 Total Return Bond Portfolio--Class Y 6 The Insiders Select Portfolio--Class A 892 The Insiders Select Portfolio--Class C 451 The Insiders Select Portfolio--Class Y 11 ______________ * As of September 30, 1995. Item 27. Indemnification --------------- Reference is made to Article VIII of the Registrant's Declaration of Trust previously filed as Exhibit 1(b). The application of these provisions is limited by Article 10 of the Registrant's By- Laws filed as Exhibit 2 and by the following undertaking set forth in the rules promulgated by the Securities and Exchange Commission: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is, therefore, unenforce- able. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, C-3 officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in such Act and will be governed by the final adjudication of such issue. Reference also is made to the Distribution Agreement filed as Exhibit 6(a). Item 28(a). Business and Other Connections of Investment Adviser - ---------- ---------------------------------------------------- Registrant is fulfilling the requirement of this Item 28(a) to provide a list of the officers and directors of Bear Stearns Funds Management Inc. ("BSFM"), the investment adviser of the Registrant, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by BSFM or those of its officers and directors during the past two years, by incorporating by reference the information contained in the Form ADV filed with the SEC pursuant to the Investment Advisers Act of 1940 by BSFM (SEC File No. 801-29862). Item 28(b). Business and Other Connections of Sub-Investment Adviser - ---------- -------------------------------------------------------- Registrant is fulfilling the requirement of this Item 28(b) to provide a list of the officers and directors of Symphony Asset Management ("Symphony"), the sub-investment adviser of the Registrant's The Insiders Select Portfolio, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by Symphony or those of its officers and directors during the past two years, by incorporating by reference the information contained in the Form ADV filed with the SEC pursuant to the Investment Advisers Act of 1940 by Symphony (SEC File No. 801- 46388). Item 29. Principal Underwriters - ------- ---------------------- (a) Bear, Stearns & Co. Inc. ("Bear Stearns") acts as principal underwriter or depositor for the following investment companies: . A Corporate Trust, Series 1 (and Subsequent Series) . New York Municipal Trust, Series 1 (and Subsequent Series) . New York Discount & Zero Coupon Fund -- 1st Series (and Subsequent Series) . Municipal Securities Trust, Series 1 (and Subsequent Series) . Municipal Securities Trust, 1st Discount Series (and Subsequent Series) . Municipal Securities Trust, High Income Series 1 (and Subsequent Series) C-4 . Municipal Securities Trust, Multi-State Series 1 (and Subsequent Series) . Municipal Securities Trust, Short-Intermediate Term Series 1 (and Subsequent Series) . Insured Municipal Securities Trust, Series 1 (and Subsequent Series) and 5th Discount Series (and Subsequent Series) . Mortgage Securities Trust CMO Series 1 (and Subsequent Series) . Equity Securities Trust Series 1 (and Subsequent Series) . Bear Stearns Investment Trust -- Emerging Markets Debt Fund (b) Set forth below is a list of each executive officer and director of Bear Stearns. The principal business address of each such person is 245 Park Avenue, New York, New York 10167 except as set forth below.
Positions and Positions and Offices with Offices with Name Bear Stearns Registrant - ---- -------------- -------------- Directors - --------- Alan C. Greenberg Chairman James E. Cayne John L. Knight Mark E. Lehman Michael L. Tarnopol Alan D. Schwartz John H. Slade Director Emeritus Warren J. Spector Acting Secretary Executive Officers - ------------------ Alan C. Greenberg Chairman of Board James E. Cayne Chief Executive Officer/ President William J. Montgoris Chief Operating Officer/ Chief Financial Officer/ Chief Operations Officer (designation) Michael L. Tarnopol Executive Vice President Alan D. Schwartz Executive Vice President Warren J. Spector Executive Vice President Kenneth L. Edlow Secretary Michael Minikes Treasurer Michael J. Abatemarco Controller/Assistant Secretary
- -------------- (1) Michael J. Abatemarco's principal business address is 1 Metrotech, Center North, Brooklyn, New York 11201-3859. C-5 Mark E. Lehman Executive Vice President- General Counsel Chief Legal Officer (designation) Samuel L. Molinaro, Jr. Senior Vice President - Finance Frederick B. Casey Assistant Treasurer Item 30. Location of Accounts and Records - ------- -------------------------------- 1. Bear Stearns Funds Management Inc. 245 Park Avenue New York, New York 10167 2. The Bear Stearns Funds 245 Park Avenue New York, New York 10167 3. Custodial Trust Company 101 Carnegie Center Princeton, New Jersey 08540 4. PFPC Inc. Bellevue Corporate Center 400 Bellevue Parkway Wilmington, Delaware 19809 Item 31. Management Services - ------- ------------------- Not Applicable Item 32. Undertakings - ------- ------------ Registrant hereby undertakes (1) to call a meeting of shareholders for the purpose of voting upon the question of removal of a trustee or trustees when requested in writing to do so by the holders of at least 10% of the Registrant's outstanding shares of beneficial interest and in connection with such meeting to comply with the provisions of Section 16(c) of the Investment Company Act of 1940 relating to shareholder communications; and (2) to furnish each person to whom a prospectus is delivered with a copy of its most current annual report to shareholders, upon request and without charge. C-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of the Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 10th day of November, 1995. THE BEAR STEARNS FUNDS (Registrant) By: /s/ Frank J. Maresca ------------------------ Frank J. Maresca, Acting Principal Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. /s/ Frank J. Maresca Vice President November 10, 1995 - -------------------- and Treasurer Frank J. Maresca (Acting Principal Executive Officer, Principal Financial and Accounting Officer) /s/ Peter M. Bren* Trustee November 10, 1995 - ------------------ Peter M. Bren /s/ Alan J. Dixon* Trustee November 10, 1995 - ------------------ Alan J. Dixon /s/ John R. McKernan, Jr.* Trustee November 10, 1995 - -------------------------- John R. McKernan, Jr. C-7 /s/ M.B. Oglesby, Jr.* Trustee November 10, 1995 - ---------------------- M.B. Oglesby, Jr. /s/ Robert S. Reitzes* Trustee November 10, 1995 - ---------------------- Robert S. Reitzes * By: /s/ Frank J. Maresca ------------------------ Frank J. Maresca, Attorney-in-Fact C-8 THE BEAR STEARNS FUNDS Post-Effective Amendment No. 7 to Registration Statement on Form N-1A under the Securities Act of 1933 and the Investment Company Act of 1940 --------------- EXHIBITS --------------- INDEX TO EXHIBITS ----------------- Page ---- (1)(a) Agreement and Declaration of Trust .................. (1)(b) Amendment to Agreement and Declaration of Trust ................................ (2) By-Laws ............................................. (5)(a) Investment Advisory Agreement ....................... (5)(b) Administrative Agreement ............................ (5)(c) Administrative Services Agreement, as amended .......................................... (5)(d) Sub-Investment Advisory Agreement ................... (6)(a) Distribution Agreement .............................. (6)(b) Form of Dealer Agreement ............................ (8) Custody Agreements .................................. (10) Opinion (including consent) of Stroock & Stroock & Lavan .......................... (11) Consent of Independent Auditors ..................... (15) Distribution and Shareholder Servicing Plan ..................................... (16) Schedules of Computation Performance Data ................................... (17) Financial Data Schedule ............................. (18) Rule 18f-3 Plan, as revised ......................... Other Exhibit: (a) Secretary's Certificate ................. (b) Powers of Attorney ...................... EX-27 2 FDS CLASS A SHARES
6 1 CLASS A 6-MOS MAR-31-1996 JUN-15-1995 SEP-30-1995 17,778,822 18,807,494 683,668 228,189 0 19,719,351 634,183 0 262,617 896,800 0 10,570,203 842 0 (1,423) 0 (10,011) 0 1,028,671 18,822,551 59,122 3,350 0 63,895 (1,423) (10,011) 1,028,671 1,017,237 0 0 0 0 854,929 12,283 0 18,822,527 0 0 0 0 25,674 0 120,853 6,272,279 12.00 0.00 1.19 0 0 0 13.19 1.65 0 0
EX-27 3 FDS CLASS Y SHARES
6 2 CLASS C 6-MOS MAR-31-1996 JUN-15-1995 SEP-30-1995 17,708,882 18,807,494 683,668 228,189 0 19,719,351 634,183 0 262,617 896,800 0 6,765,209 549 0 (1,423) 0 (10,011) 0 1,028,671 18,822,551 59,122 3,350 0 63,895 (1,423) (10,011) 1,028,671 1,017,237 0 0 0 0 556,950 8,354 0 18,822,527 0 0 0 0 25,674 0 120,853 5,230,932 12.00 (.01) 1.18 0 0 0 13.17 2.15 0 0
EX-27 4 FDS CLASS C SHARES
6 3 CLASS Y 6-MOS MAR-31-1996 JUN-15-1995 SEP-30-1995 17,778,822 18,807,494 683,668 228,189 0 19,719,351 634,183 0 262,617 896,800 0 468,474 37 0 (1,423) 0 (10,011) 0 1,028,671 18,822,551 59,122 3,350 0 63,895 (1,423) (10,011) 1,028,671 1,017,237 0 0 0 0 36,636 0 0 18,822,527 0 0 0 0 25,674 0 120,853 216,302 12.12 .01 1.07 0 0 0 13.20 1.15 0 0
EX-99.1.A 5 AGREEMENT AND DECLARATION OF TRUST EXHIBIT (1)(a) SSL-1994-1 Agreement and Declaration of Trust THIS AGREEMENT AND DECLARATION OF TRUST is made this 29th day of September, 1994 at Boston, Massachusetts by the Trustee hereunder (hereinafter with any additional and successor trustees referred to as the "Trustees") and by the holders of shares of beneficial interest to be issued hereunder as hereinafter provided. W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Trustees have agreed to manage all property coming into their hands as trustees of a Massachusetts business trust in accordance with the provisions hereinafter set forth. NOW, THEREFORE, the Trustees hereby declare that they will hold all cash, securities and other assets, which they may from time to time acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the following terms and conditions for the pro rata benefit of the holders from time to time of Shares, whether or not certificated, in this Trust as hereinafter set forth. ARTICLE I Name and Definitions Section 1. Name. This Trust shall be known as "SSL-1994-1." --------- ---- Section 2. Definitions. Whenever used herein, unless otherwise required --------- ----------- by the context or specifically provided: (a) The term "Commission" shall have the meaning provided in the 1940 Act; (b) The "Trust" refers to the Massachusetts business trust established by this Agreement and Declaration of Trust, as amended from time to time; (c) "Shareholder" means a record owner of Shares of the Trust; (d) "Shares" means the equal proportionate transferable units of interest into which the beneficial interest in the Trust shall be divided from time to time or, if more than one series or class of Shares is authorized by the Trustees, the equal proportionate transferable units into which each series or class of Shares shall be divided from time to time, and includes a fraction of a Share as well as a whole Share; (e) The "1940 Act" refers to the Investment Company Act of 1940, and the Rules and Regulations thereunder, all as amended from time to time; (f) The term "Manager" is defined in Article IV, Section 5; (g) The term "Person" shall mean an individual or any corporation, partnership, joint venture, trust or other enterprise; (h) "Declaration of Trust" shall mean this Agreement and Declaration of Trust as amended or restated from time to time; (i) "Bylaws" shall mean the Bylaws of the Trust as amended from time to time; (j) The term "series" or "series of Shares" refers to the one or more separate investment portfolios of the Trust into which the assets and liabilities of the Trust may be divided and the Shares of the Trust representing the beneficial interest of Shareholders in such respective portfolios; and (k) The term "class" or "class of Shares" refers to the division of Shares representing any series into two or more classes as provided in Article III, Section 1 hereof. ARTICLE II Purposes of Trust This Trust is formed for the following purpose or purposes: (a) to conduct, operate and carry on the business of an investment company; (b) to subscribe for, invest in, reinvest in, purchase or otherwise acquire, hold, pledge, sell, assign, transfer, lend, write options on, exchange, distribute or otherwise dispose of and deal in and with securities of every nature, kind, character, type and form, including, without limitation of the generality of the foregoing, all types of stocks, shares, futures contracts, bonds, debentures, notes, bills and other negotiable or non-negotiable -2- instruments, obligations, evidences of interest, certificates of interest, certificates of participation, certificates, interests, evidences of ownership, guarantees, warrants, options or evidences of indebtedness issued or created by or guaranteed as to principal and interest by any state or local government or any agency or instrumentality thereof, by the United States Government or any agency, instrumentality, territory, district or possession thereof, by any foreign government or any agency, instrumentality, territory, district or possession thereof, by any corporation organized under the laws of any state, the United States or any territory or possession thereof or under the laws of any foreign country, bank certificates of deposit, bank time deposits, bankers' acceptances and commercial paper; to pay for the same in cash or by the issue of stock, including treasury stock, bonds or notes of the Trust or otherwise; and to exercise any and all rights, powers and privileges of ownership or interest in respect of any and all such investments of every kind and description, including, without limitation, the right to consent and otherwise act with respect thereto, with power to designate one or more persons, firms, associations or corporations to exercise any of said rights, powers and privileges in respect of any said instruments; (c) to borrow money or otherwise obtain credit and to secure the same by mortgaging, pledging or otherwise subjecting as security the assets of the Trust; (d) to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal in, Shares including Shares in fractional denominations, and to apply to any such repurchase, redemption, retirement, cancellation or acquisition of Shares any funds or other assets of the appropriate series or class of Shares, whether capital or surplus or otherwise, to the full extent now or hereafter permitted by the laws of The Commonwealth of Massachusetts; (e) to conduct its business, promote its purposes, and carry on its operations in any and all of its branches and maintain offices both within and without The Commonwealth of Massachusetts, in any and all States of the United States of America, in the District of Columbia, and in any other parts of the world; and (f) to do all and everything necessary, suitable, convenient, or proper for the conduct, promotion, and attainment of any of the businesses and purposes herein specified or which at any time may be incidental thereto or may appear conducive to or expedient for the accomplishment of any of such businesses and purposes and which might be engaged in or carried on by a Trust organized under the Massachusetts General Laws, and to have and -3- exercise all of the powers conferred by the laws of The Commonwealth of Massachusetts upon a Massachusetts business trust. The foregoing provisions of this Article II shall be construed both as purposes and powers and each as an independent purpose and power. ARTICLE III Beneficial Interest Section 1. Shares of Beneficial Interest. The Shares of the Trust shall --------- ----------------------------- be issued in one or more series as the Trustees may, without Shareholder approval, authorize. Each series shall be preferred over all other series in respect of the assets allocated to that series and shall represent a separate investment portfolio of the Trust. The beneficial interest in each series at all times shall be divided into Shares, with or without par value as the Trustees may from time to time determine, each of which shall, except as provided in the following sentence, represent an equal proportionate interest in the series with each other Share of the same series, none having priority or preference over another. The Trustees may, without Shareholder approval, divide Shares of any series into two or more classes, Shares of each such class having such preferences and special or relative rights and privileges (including conversion rights, if any) as the Trustees may determine. The number of Shares authorized shall be unlimited, and the Shares so authorized may be represented in part by fractional shares. From time to time, the Trustees may divide or combine the Shares of any series or class into a greater or lesser number without thereby changing the proportionate beneficial interests in the series or class. Section 2. Ownership of Shares. The ownership of Shares will be recorded --------- ------------------- in the books of the Trust or a transfer agent. The record books of the Trust or any transfer agent, as the case may be, shall be conclusive as to who are the holders of Shares of each series and class and as to the number of Shares of each series and class held from time to time by each. No certificates certifying the ownership of Shares need be issued except as the Trustees may otherwise determine from time to time. Section 3. Issuance of Shares. The Trustees are authorized, from time to --------- ------------------ time, to issue or authorize the issuance of Shares at not less than the par value thereof, if any, and to fix the price or the minimum price or the consideration (in cash and/or such other property, real or personal, tangible or intangible, as from time to time they may determine) or minimum consideration for such Shares. Anything herein to the contrary notwithstanding, the Trustees may issue Shares pro rata to the Shareholders of a series at any time as a stock dividend, except to the extent otherwise required or permitted by the preferences -4- and special or relative rights and privileges of any classes of Shares of that series, and any stock dividend to the Shareholders of a particular class of Shares shall be made to such Shareholders pro rata in proportion to the number of Shares of such class held by each of them. All consideration received by the Trust for the issue or sale of Shares of each series, together with all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall belong irrevocably to the series of Shares with respect to which the same were received by the Trust for all purposes, subject only to the rights of creditors, and shall be so handled upon the books of account of the Trust and are herein referred to as "assets of" such series. Shares may be issued in fractional denominations to the same extent as whole Shares, and Shares in fractional denominations shall be Shares having proportionately to the respective fractions represented thereby all the rights of whole Shares, including, without limitation, the right to vote, the right to receive dividends and distributions, and the right to participate upon liquidation of the Trust or of a particular series of Shares. Section 4. No Preemptive Rights; Derivative Suits. Shareholders shall --------- -------------------------------------- have no preemptive or other right to subscribe for any additional Shares or other securities issued by the Trust. No action may be brought by a Shareholder on behalf of the Trust or a series unless a prior demand regarding such matter has been made on the Trustees and the Shareholders of the Trust or such series. Section 5. Status of Shares and Limitation of Personal Liability. Shares --------- ----------------------------------------------------- shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but only to the rights of said decedent under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind any Shareholder or Trustee personally or to call upon any Shareholder for the payment of any sum of money or -5- assessment whatsoever other than such as the Shareholder at any time personally may agree to pay by way of subscription for any Shares or otherwise. Every note, bond, contract or other undertaking issued by or on behalf of the Trust shall include a recitation limiting the obligation represented thereby to the Trust and its assets or the assets of a particular series (but the omission of such a recitation shall not operate to bind any Shareholder or Trustee personally). ARTICLE IV Trustees Section 1. Election. A Trustee may be elected either by the Trustees or --------- -------- the Shareholders. The Trustees named herein shall serve until the first meeting of the Shareholders or until the election and qualification of their successors. Prior to the first meeting of Shareholders the initial Trustees hereunder may elect additional Trustees to serve until such meeting and until their successors are elected and qualified. The Trustees also at any time may elect Trustees to fill vacancies in the number of Trustees. The number of Trustees shall be fixed from time to time by the Trustees and, at or after the commencement of the business of the Trust, shall be not less than three. Each Trustee, whether referred to hereinafter or hereafter becoming a Trustee, shall serve as a Trustee during the lifetime of this Trust, until such Trustee dies, resigns, retires, or is removed, or, if sooner, until the next meeting of Shareholders called for the purpose of electing Trustees and the election and qualification of his successor. Subject to Section 16(a) of the 1940 Act, the Trustees may elect their own successors and, pursuant to this Section, may appoint Trustees to fill vacancies. Section 2. Powers. The Trustees shall have all powers necessary or --------- ------ desirable to carry out the purposes of the Trust, including, without limitation, the powers referred to in Article II hereof. Without limiting the generality of the foregoing, the Trustees may adopt By-Laws not inconsistent with this Declaration of Trust providing for the conduct of the business of the Trust and may amend and repeal them to the extent that they do not reserve that right to the Shareholders; they may fill vacancies in their number, including vacancies resulting from increases in their own number, and may elect and remove such officers and employ, appoint and terminate such employees or agents as they consider appropriate; they may appoint from their own number and terminate any one or more committees; they may employ one or more custodians of the assets of the Trust and may authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities, retain a transfer agent and a Shareholder servicing agent, or both, provide for the distribution of Shares through a -6- principal underwriter or otherwise, set record dates, and in general delegate such authority as they consider desirable (including, without limitation, the authority to purchase and sell securities and to invest funds, to determine the net income of the Trust for any period, the value of the total assets of the Trust and the net asset value of each Share, and to execute such deeds, agreements or other instruments either in the name of the Trust or the names of the Trustees or as their attorney or attorneys or otherwise as the Trustees from time to time may deem expedient) to any officer of the Trust, committee of the Trustees, any such employee, agent, custodian or underwriter or to any Manager. Without limiting the generality of the foregoing, the Trustees shall have full power and authority: (a) To invest and reinvest cash and to hold cash uninvested; (b) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (c) To hold any security or property in a form not indicating any trust whether in bearer, unregistered or other negotiable form or in the name of the Trust or a custodian, subcustodian or other depository or a nominee or nominees or otherwise; (d) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or concern, any security of which is held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or concern, and to pay calls or subscriptions with respect to any security held in the Trust; (e) To join with other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper; (f) To compromise, arbitrate, or otherwise adjust claims in favor of or against the Trust or any matter in controversy, including, but not limited to, claims for taxes; -7- (g) Subject to the provisions of Article III, Section 3, to allocate assets, liabilities, income and expenses of the Trust to a particular series of Shares or to apportion the same among two or more series, provided that any liabilities or expenses incurred by a particular series of Shares shall be payable solely out of the assets of that series; and to the extent necessary or appropriate to give effect to the preferences and special or relative rights and privileges of any classes of Shares, to allocate assets, liabilities, income and expenses of a series to a particular class of Shares of that series or to apportion the same among two or more classes of Shares of that series; (h) To enter into joint ventures, general or limited partnerships and any other combinations or associations; (i) To purchase and pay for entirely out of Trust property such insurance as they may deem necessary or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisers or Managers, principal underwriters, or independent contractors of the Trust individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person as Shareholder, Trustee, officer, employee, agent, investment adviser or Manager, principal underwriter, or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability; and (j) To pay pensions for faithful service, as deemed appropriate by the Trustees, and to adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust. Further, without limiting the generality of the foregoing, the Trustees shall have full power and authority to incur and pay out of the principal or income of the Trust such expenses and liabilities as may be deemed by the Trustees to be necessary or proper for the purposes of the Trust; provided, -------- however, that all expenses and liabilities incurred by or arising in connection - ------- with a particular series of Shares, as determined by the Trustees, shall be payable solely out of the assets of that series. -8- Any determination made in good faith and, so far as accounting matters are involved, in accordance with generally accepted accounting principles by or pursuant to the authority granted by the Trustees, as to the amount of the assets, debts, obligations or liabilities of the Trust or a particular series or class of Shares; the amount of any reserves or charges set up and the propriety thereof; the time of or purpose for creating such reserves or charges; the use, alteration or cancellation of any reserves or charges (whether or not any debt, obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged or shall be then or thereafter required to be paid or discharged); the price or closing bid or asked price of any investment owned or held by the Trust or a particular series; the market value of any investment or fair value of any other asset of the Trust or a particular series; the number of Shares outstanding; the estimated expense to the Trust or a particular series in connection with purchases of its Shares; the ability to liquidate investments in an orderly fashion; and the extent to which it is practicable to deliver a cross-section of the portfolio of the Trust or a particular series in payment for any such Shares, or as to any other matters relating to the issue, sale, purchase and/or other acquisition or disposition of investments or Shares of the Trust or a particular series, shall be final and conclusive, and shall be binding upon the Trust or such series and its Shareholders, past, present and future, and Shares are issued and sold on the condition and understanding that any and all such determinations shall be binding as aforesaid. Section 3. Meetings. At any meeting of the Trustees, a majority of the --------- -------- Trustees then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, a majority of the Trustees present may take any action, except when a larger vote is required by this Declaration of Trust, the By-Laws or the 1940 Act. Any action required or permitted to be taken at any meeting of the Trustees or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by a majority of the Trustees or members of any such committee then in office, as the case may be, and such written consent is filed with the minutes of proceedings of the Trustees or any such committee. The Trustees or any committee designated by the Trustees may participate in a meeting of the Trustees or such committee by means of a conference telephone or similar communications -9- equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 4. Ownership of Assets of the Trust. Title to all of the assets --------- -------------------------------- of each series of Shares of the Trust at all times shall be considered as vested in the Trustees. Section 5. Investment Advice and Management Services. The Trustees shall --------- ----------------------------------------- not in any way be bound or limited by any present or future law or custom in regard to investments by trustees. The Trustees from time to time may enter into a written contract or contracts with any person or persons (herein called the "Manager"), including any firm, corporation, trust or association in which any Trustee or Shareholder may be interested, to act as investment advisers and/or managers of the Trust and to provide such investment advice and/or management as the Trustees from time to time may consider necessary for the proper management of the assets of the Trust, including, without limitation, authority to determine from time to time what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments. Any such contract shall be subject to the requirements of the 1940 Act with respect to its continuance in effect, its termination and the method of authorization and approval of such contract, or any amendment thereto or renewal thereof. Any Trustee or any organization with which any Trustee may be associated also may act as broker for the Trust in making purchases and sales of securities for or to the Trust for its investment portfolio, and may charge and receive from the Trust the usual and customary commission for such service. Any organization with which a Trustee may be associated in acting as broker for the Trust shall be responsible only for the proper execution of transactions in accordance with the instructions of the Trust and shall be subject to no further liability of any sort whatever. The Manager, or any affiliate thereof, also may be a distributor for the sale of Shares by separate contract or may be a person controlled by or affiliated with any Trustee or any distributor or a person in which any Trustee or any distributor is interested financially, subject only to applicable provisions of law. Nothing herein contained shall operate to prevent any Manager, who also acts as such a distributor, from also receiving compensation for services rendered as such distributor. Section 6. Removal and Resignation of Trustees. The Trustees or the --------- ----------------------------------- Shareholders (by vote of 66-2/3% of the outstanding Shares entitled to vote thereon) may remove at any time any Trustee with or without cause, and any Trustee may resign -10- at any time as Trustee, without penalty by written notice to the Trust; provided that sixty days' advance written notice shall be given in the event that there are only three or fewer Trustees at the time a notice of resignation is submitted. ARTICLE V Shareholders' Voting Powers and Meetings Section 1. Voting Powers. The Shareholders shall have power to vote only --------- ------------- (i) for the election of Trustees as provided in Article IV, Section 1, of this Declaration of Trust; provided, however, that no meeting of Shareholders is -------- ------- required to be called for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees have been elected by the Shareholders, (ii) for the removal of Trustees as provided in Article IV, Section 6, (iii) with respect to any Manager as provided in Article IV, Section 5, (iv) with respect to any amendment of this Declaration of Trust as provided in Article IX, Section 8, (v) with respect to the termination of the Trust or a series of Shares as provided in Article IX, Section 5, and (vi) with respect to such additional matters relating to the Trust as may be required by law, by this Declaration of Trust, or the By-Laws of the Trust or any registration of the Trust with the Commission or any state, or as the Trustees may consider desirable. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote (except that in the election of Trustees said vote may be cast for as many persons as there are Trustees to be elected), and each fractional Share shall be entitled to a proportionate fractional vote. Notwithstanding any other provision of this Declaration of Trust, on any matter submitted to a vote of Shareholders, all Shares of the Trust then entitled to vote shall be voted in the aggregate as a single class without regard to series or classes of Shares, except (i) when required by the 1940 Act or when the Trustees shall have determined that the matter affects one or more series or classes differently Shares shall be voted by individual series or class and (ii) when the Trustees have determined that the matter affects only the interests of one or more series or classes then only Shareholders of such series or classes shall be entitled to vote thereon. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by any one of them, unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Whenever no Shares of any series or class are issued and outstanding, the Trustees may exercise with respect to such series or class all rights of Shareholders and may take any action required by law, this Declaration -11- of Trust or any By-Laws of the Trust to be taken by Shareholders. Section 2. Meetings. Meetings of the Shareholders may be called by the --------- -------- Trustees or such other person or persons as may be specified in the By-Laws and shall be called by the Trustees upon the written request of Shareholders owning at least 30% of the outstanding Shares entitled to vote. Shareholders shall be entitled to at least ten days' prior notice of any meeting. Section 3. Quorum and Required Vote. Thirty percent (30%) of the --------- ------------------------ outstanding Shares shall be a quorum for the transaction of business at a Shareholders' meeting, except that where any provision of law or of this Declaration of Trust permits or requires that holders of any series or class shall vote as a series or class, then thirty percent (30%) of the aggregate number of Shares of that series or class entitled to vote shall be necessary to constitute a quorum for the transaction of business by that series or class. Any lesser number, however, shall be sufficient for adjournment and any adjourned session or sessions may be held within 90 days after the date set for the original meeting without the necessity of further notice. Except when a larger vote is required by any provision of this Declaration of Trust or the By- Laws of the Trust and subject to any applicable requirements of law, a majority of the Shares voted shall decide any question and a plurality shall elect a Trustee, provided that where any provision of law or of this Declaration of Trust permits or requires that the holders of any series or class shall vote as a series or class, then a majority of the Shares of that series or class voted on the matter (or a plurality with respect to the election of a Trustee) shall decide that matter insofar as that series or class is concerned. Section 4. Action by Written Consent. Any action required or permitted to --------- ------------------------- be taken at any meeting may be taken without a meeting if a consent in writing, setting forth such action, is signed by a majority of Shareholders entitled to vote on the subject matter thereof (or such larger proportion thereof as shall be required by any express provision of this Declaration of Trust) and such consent is filed with the records of the Trust. Section 5. Additional Provisions. The By-Laws may include further --------- --------------------- provisions for Shareholders' votes and meetings and related matters. ARTICLE VI Distributions and Redemptions Section 1. Distributions. The Trustees shall distribute periodically to --------- ------------- the Shareholders of each series of Shares an amount approximately equal to the net income of that -12- series, determined by the Trustees or as they may authorize and as herein provided. Distributions of income may be made in one or more payments, which shall be in Shares, cash or otherwise, and on a date or dates and as of a record date or dates determined by the Trustees. At any time and from time to time in their discretion, the Trustees also may cause to be distributed to the Shareholders of any one or more series as of a record date or dates determined by the Trustees, in Shares, cash or otherwise, all or part of any gains realized on the sale or disposition of the assets of the series or all or part of any other principal of the Trust attributable to the series. Each distribution pursuant to this Section 1 shall be made ratably according to the number of Shares of the series held by the several Shareholders on the record date for such distribution, except to the extent otherwise required or permitted by the preferences and special or relative rights and privileges of any classes of Shares of that series, and any distribution to the Shareholders of a particular class of Shares shall be made to such Shareholders pro rata in proportion to the number of Shares of such class held by each of them. No distribution need be made on Shares purchased pursuant to orders received, or for which payment is made, after such time or times as the Trustees may determine. Section 2. Determination of Net Income. In determining the net income of --------- --------------------------- each series or class of Shares for any period, there shall be deducted from income for that period (a) such portion of all charges, taxes, expenses and liabilities due or accrued as the Trustees shall consider properly chargeable and fairly applicable to income for that period or any earlier period and (b) whatever reasonable reserves the Trustees shall consider advisable for possible future charges, taxes, expenses and liabilities which the Trustees shall consider properly chargeable and fairly applicable to income for that period or any earlier period. The net income of each series or class for any period may be adjusted for amounts included on account of net income in the net asset value of Shares issued or redeemed or repurchased during that period. In determining the net income of a series or class for a period ending on a date other than the end of its fiscal year, income may be estimated as the Trustees shall deem fair. Gains on the sale or disposition of assets shall not be treated as income, and losses shall not be charged against income unless appropriate under applicable accounting principles, except in the exercise of the discretionary powers of the Trustees. Any amount contributed to the Trust which is received as income pursuant to a decree of any court of competent jurisdiction shall be applied as required by the said decree. Section 3. Redemptions. Any Shareholder shall be entitled to require the --------- ----------- Trust to redeem and the Trust shall be obligated to redeem at the option of such Shareholder all or any part of the Shares owned by said Shareholder, at the redemption -13- price, pursuant to the method, upon the terms and subject to the conditions hereinafter set forth: (a) Certificates for Shares, if issued, shall be presented for redemption in proper form for transfer to the Trust or the agent of the Trust appointed for such purpose, and these shall be presented with a written request that the Trust redeem all or any part of the Shares represented thereby. (b) The redemption price per Share shall be the net asset value per Share when next determined by the Trust at such time or times as the Trustees shall designate, following the time of presentation of certificates for Shares, if issued, and an appropriate request for redemption, or such other time as the Trustees may designate in accordance with any provision of the 1940 Act, or any rule or regulation made or adopted by any securities association registered under the Securities Exchange Act of 1934, as determined by the Trustees, less any applicable charge or fee imposed from time to time as determined by the Trustees. (c) Net asset value of each series or class of Shares (for the purpose of issuance of Shares as well as redemptions thereof) shall be determined by dividing: (i) the total value of the assets of such series or class determined as provided in paragraph (d) below less, to the extent determined by or pursuant to the direction of the Trustees in accordance with generally accepted accounting principles, all debts, obligations and liabilities of such series or class (which debts, obligations and liabilities shall include, without limitation of the generality of the foregoing, any and all debts, obligations, liabilities, or claims, of any and every kind and nature, fixed, accrued and otherwise, including the estimated accrued expenses of management and supervision, administration and distribution and any reserves or charges for any or all of the foregoing, whether for taxes, expenses, or otherwise, and the price of Shares redeemed but not paid for) but excluding the Trust's liability upon its Shares and its surplus, by (ii) the total number of Shares of such series or class outstanding. The Trustees are empowered, in their absolute discretion, to establish other methods for determining such net asset value whenever such other methods are deemed by them to be necessary to enable the Trust to comply with applicable law, or are deemed by them to be desirable, provided they are not inconsistent with any provision of the 1940 Act. -14- (d) In determining for the purposes of this Declaration of Trust the total value of the assets of each series or class of Shares at any time, investments and any other assets of such series or class shall be valued in such manner as may be determined from time to time by or pursuant to the order of the Trustees. (e) Payment of the redemption price by the Trust may be made either in cash or in securities or other assets at the time owned by the Trust or partly in cash and partly in securities or other assets at the time owned by the Trust. The value of any part of such payment to be made in securities or other assets of the Trust shall be the value employed in determining the redemption price. Payment of the redemption price shall be made on or before the seventh day following the day on which the Shares are properly presented for redemption hereunder, except that delivery of any securities included in any such payment shall be made as promptly as any necessary transfers on the books of the issuers whose securities are to be delivered may be made and, except as postponement of the date of payment may be permissible under the 1940 Act. Pursuant to resolution of the Trustees, the Trust may deduct from the payment made for any Shares redeemed a liquidating charge not in excess of an amount determined by the Trustees from time to time. (f) The right of any holder of Shares redeemed by the Trust as provided in this Article VI to receive dividends or distributions thereon and all other rights of such Shareholder with respect to such Shares shall terminate at the time as of which the redemption price of such Shares is determined, except the right of such Shareholder to receive (i) the redemption price of such Shares from the Trust in accordance with the provisions hereof, and (ii) any dividend or distribution to which such Shareholder previously had become entitled as the record holder of such Shares on the record date for such dividend or distribution. (g) Redemption of Shares by the Trust is conditional upon the Trust having funds or other assets legally available therefor. (h) The Trust, either directly or through an agent, may repurchase its Shares, out of funds legally available therefor, upon such terms and conditions and for such consideration as the Trustees shall deem advisable, by agreement with the owner at a price not exceeding the net asset value per Share as determined by or pursuant to the order of the Trustees at such time or times as the Trustees shall designate, less any applicable charge, if and as fixed by the Trustees from time to time, and to take all other steps deemed necessary or advisable in connection therewith. -15- (i) Shares purchased or redeemed by the Trust shall be cancelled or held by the Trust for reissue, as the Trustees from time to time may determine. (j) The obligations set forth in this Article VI may be suspended or postponed, (1) for any period (i) during which the New York Stock Exchange is closed other than for customary weekend and holiday closings, or (ii) during which trading on the New York Stock Exchange is restricted, (2) for any period during which an emergency exists as a result of which (i) the disposal by the Trust of investments owned by it is not reasonably practicable, or (ii) it is not reasonably practicable for the Trust fairly to determine the value of its net assets, or (3) for such other periods as the Commission or any successor governmental authority by order may permit. Notwithstanding any other provision of this Section 3 of Article VI, if certificates representing such Shares have been issued, the redemption or repurchase price need not be paid by the Trust until such certificates are presented in proper form for transfer to the Trust or the agent of the Trust appointed for such purpose; however, the redemption or repurchase shall be effective, in accordance with the resolution of the Trustees, regardless of whether or not such presentation has been made. Section 4. Redemptions at the Option of the Trust. The Trust shall --------- -------------------------------------- have the right at its option and at any time to redeem Shares of any Shareholder at the net asset value thereof as determined in accordance with Section 3 of Article VI of this Declaration of Trust: (i) if at such time such Shareholder owns fewer Shares than, or Shares having an aggregate net asset value of less than, an amount determined from time to time by the Trustees; or (ii) to the extent that such Shareholder owns Shares of a particular series or class of Shares equal to or in excess of a percentage of the outstanding Shares of that series or class determined from time to time by the Trustees; or (iii) to the extent that such Shareholder owns Shares of the Trust representing a percentage equal to or in excess of such percentage of the aggregate number of outstanding Shares of the Trust or the aggregate net asset value of the Trust determined from time to time by the Trustees. Section 5. Dividends, Distributions, Redemptions and Repurchases. No --------- ----------------------------------------------------- dividend or distribution (including, without limitation, any distribution paid upon termination of the Trust or of any series) with respect to, nor any redemption or repurchase of, the Shares of any series shall be effected by the Trust other than from the assets of such series. -16- ARTICLE VII Compensation and Limitation of Liability of Trustees Section 1. Compensation. The Trustees shall be entitled to --------- ------------ reasonable compensation from the Trust and may fix the amount of their compensation. Section 2. Limitation of Liability. The Trustees shall not be --------- ----------------------- responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee or Manager of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, but nothing herein contained shall protect any Trustee against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Every note, bond, contract, instrument, certificate, share, or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust, shall be deemed conclusively to have been executed or done only in their or his capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon. ARTICLE VIII Indemnification Section 1. Indemnification of Trustees, Officers, Employees and --------- ---------------------------------------------------- Agents. Each person who is or was a Trustee, officer, employee or agent of the - ------ Trust or who serves or has served at the Trust's request as a director, officer or trustee of another entity in which the Trust has or had any interest as a shareholder, creditor or otherwise shall be entitled to indemnification out of the assets of the Trust to the extent provided in, and subject to the provisions of, the By-Laws, provided that no indemnification shall be granted by the Trust in contravention of the 1940 Act. Section 2. Merged Corporations. For the purposes of this Article --------- ------------------- VIII references to "the Trust" include any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents as well as the resulting or surviving entity; so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request -17- of such a constituent corporation as a trustee, director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving entity as he would have with respect to such a constituent corporation if its separate existence had continued. Section 3. Shareholders. In case any Shareholder or former --------- ------------ Shareholder shall be held to be personally liable solely by reason of his being or having been a Shareholder and not because of his acts or omissions or for some other reason, the Shareholder or former Shareholder (or his heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled out of the assets of the particular series of Shares of which he is or was a Shareholder to be held harmless from and indemnified against all losses and expenses arising from such liability. Upon request, the Trust shall cause its counsel to assume the defense of any claim which, if successful, would result in an obligation of the Trust to indemnify the Shareholder as aforesaid. ARTICLE IX Status of the Trust and Other General Provisions Section 1. Trust Not a Partnership. It is hereby expressly declared --------- ----------------------- that a trust and not a partnership is created hereby. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally either the Trust's Trustees or officers or any Shareholders. All persons extending credit to, contracting with or having any claim against the Trust or a particular series of Shares shall look only to the assets of the Trust or the assets of that particular series for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect any Trustee against any liability to which such Trustee otherwise would be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee hereunder. Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or --------- ------------------------------------------------------ Surety. The exercise by the Trustees of their powers and discretion hereunder - ------ under the circumstances then prevailing, shall be binding upon everyone interested. A Trustee shall be liable for his or her own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the -18- conduct of the office of Trustee, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and subject to the provisions of Section 1 of this Article IX shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. Section 3. Liability of Third Persons Dealing with Trustees. No --------- ------------------------------------------------ person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees pursuant hereto or to see to the application of any payments made or property transferred to the Trust or upon its order. Section 4. Trustees, Shareholders, etc. Not Personally Liable; --------- ---------------------------------------------------- Notice. All persons extending credit to, contracting with or having any claim - ------ against the Trust or a particular series of Shares shall look only to the assets of the Trust or the assets of that particular series of Shares for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Section 5. Termination of Trust. Unless terminated as provided --------- -------------------- herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by vote of Shareholders holding at least a majority of the Shares of each series entitled to vote or by the Trustees by written notice to the Shareholders. Any series of Shares may be terminated at any time by vote of Shareholders holding at least a majority of the Shares of such series entitled to vote or by the Trustees by written notice to the Shareholders of such series. Upon termination of the Trust or of any one or more series of Shares, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated as may be determined by the Trustees, the Trust shall reduce, in accordance with such procedures as the Trustees consider appropriate, the remaining assets to distributable form in cash or shares or other securities, or any combination thereof, and distribute the proceeds to the Shareholders of the series involved, ratably according to the number of Shares of such series held by the several Shareholders of such series on the date of termination, except to the extent otherwise required or permitted by the preferences and special or relative rights and privileges of any classes of Shares of that series, provided that any distribution to the Shareholders of a particular class of Shares shall be made to such Shareholders pro rata in proportion to the number of Shares of such class held by each of them. -19- Section 6. Filing of Copies, References, Headings. The original or a --------- -------------------------------------- copy of this instrument and of each amendment hereto and of each Declaration of Trust supplemental hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. A copy of this instrument and of each such amendment and supplemental Declaration of Trust shall be filed by the Trust with the Secretary of State of The Commonwealth of Massachusetts and the Boston City Clerk, as well as any other governmental office where such filing may from time to time be required. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such amendments or supplemental Declarations of Trust have been made and as to matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such amendment or supplemental Declaration of Trust. In this instrument or in any such amendment or supplemental Declaration of Trust, references to this instrument, and all expressions like "herein," "hereof," and "hereunder," shall be deemed to refer to this instrument as amended or affected by any such amendment or supplemental Declaration of Trust. Headings are placed herein for convenience of reference only and in case of any conflict, the text of this instrument, rather than the headings, shall control. This instrument may be executed in any number of counterparts each of which shall be deemed an original. Section 7. Applicable Law. The Trust set forth in this instrument is --------- -------------- made in The Commonwealth of Massachusetts, and it is created under and is to be governed by and construed and administered according to the laws of said Commonwealth. The Trust shall be of the type commonly called a Massachusetts business trust, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust. Section 8. Amendments. This Declaration of Trust may be amended at --------- ---------- any time by an instrument in writing signed by a majority of the then Trustees when authorized so to do by a vote of Shareholders holding a majority of the Shares outstanding and entitled to vote, except that an amendment which shall affect the holders of one or more series or class of Shares but not the holders of all outstanding series or classes of Shares shall be authorized by vote of the Shareholders holding a majority of the Shares entitled to vote of the series or classes affected and no vote of Shareholders of a series or class not affected shall be required. Amendments having the purpose of changing the name of the Trust or of supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained herein shall not require authorization by Shareholder vote. -20- IN WITNESS WHEREOF, the undersigned Trustee has hereunto set his hand and seal for himself and him assigns as of the day and year first above written. /s/ Bryan Chegwidden -------------------------------- Bryan Chegwidden, Trustee Address of Trust - ---------------- c/o Stroock & Stroock & Lavan 7 Hanover Square 19th Floor New York, New York 10004-2696 Address of Trustee - ------------------ c/o Ropes & Gray One International Place Boston, Massachusetts 02110-2624 -21- COMMONWEALTH OF MASSACHUSETTS ) : ss.: COUNTY OF SUFFOLK ) On this 29th day of September, 1994, before me personally came the above-named Trustee of the Fund, to me known, and known to me to be the person described in and who executed the foregoing instrument, and who duly acknowledged to me that he had executed the same. /s/ Frances E. DeFiore ----------------------------- Notary Public EX-99.1.B 6 ARTICLES OF AMENDMENT Exhibit (1)(b) SSL-1994-1 ARTICLES OF AMENDMENT SSL-1994-1, a business trust formed by an Agreement and Declaration of Trust dated September 29, 1994 pursuant to the laws of the Commonwealth of Massachusetts (the "Trust"), hereby certifies to the Secretary of State of the Commonwealth of Massachusetts and to the City Clerk of the City of Boston that: FIRST: The Agreement and Declaration of Trust of the Trust is hereby amended by striking out Article I, Section 1 and inserting in lieu thereof the following: "Section 1. Name. This Trust shall be known as 'The Bear --------- ---- Stearns Funds.'" SECOND: The amendment to the Agreement and Declaration of Trust herein made was duly approved by the written consent of the Sole Trustee of the Trust dated as of October 5, 1994 pursuant to Article IX, Section 8 of the Agreement and Declaration of Trust. IN WITNESS WHEREOF, SSL-1994-1 has caused these Articles to be signed in its name and on its behalf by its Sole Trustee. SSL-1994-1 By: /s/ David Stephens ---------------------------- David Stephens, Sole Trustee STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) Then personally appeared the above-named David Stephens and acknowledged the foregoing instrument to be his free act and deed, before me. /s/ John J. Petrofsky --------------------------- Notary Public Address of Trust - ---------------- c/o Stroock & Stroock & Lavan 7 Hanover Square, 19th Floor New York, New York 10004-2696 Address of Trustee - ------------------ c/o Stroock & Stroock & Lavan 7 Hanover Square, 19th Floor New York, New York 10004-2696 Address of Registered Agent - --------------------------- CT Corporation 2 Oliver Street Boston, Massachusetts 02109 EX-99.2 7 BY-LAWS OF BEAR STEARNS FUNDS Exhibit (2) BY-LAWS OF THE BEAR STEARNS FUNDS ARTICLE 1 Agreement and Declaration of Trust and Principal Office 1.1. Agreement and Declaration of Trust. These By-Laws shall be subject ---------------------------------- to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of the above-captioned Massachusetts business trust established by the Declaration of Trust (the "Trust"). 1.2. Principal Office of the Trust. The principal office of the Trust ----------------------------- shall be located in New York, New York. Its resident agent in Massachusetts shall be CT Corporation System, 2 Oliver Street, Boston, Massachusetts, or such other person as the Trustees from time to time may select. ARTICLE 2 Meetings of Trustees 2.1. Regular Meetings. Regular meetings of the Trustees may be held ---------------- without call or notice at such places and at such times as the Trustees from time to time may determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. 2.2. Special Meetings. Special meetings of the Trustees may be held at ---------------- any time and at any place designated in the call of the meeting when called by the President or the Treasurer or by two or more Trustees, sufficient notice thereof being given to each Trustee by the Secretary or an Assistant Secretary or by the officer or the Trustees calling the meeting. 2.3. Notice of Special Meetings. It shall be sufficient notice to a -------------------------- Trustee of a special meeting to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to the Trustee at his or her usual or last known business or residence address or to give notice to him or her in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 2.4. Notice of Certain Actions by Consent. If in accordance with the ------------------------------------ provisions of the Declaration of Trust any action is taken by the Trustees by a written consent of less than all of the Trustees, then prompt notice of any such action shall be furnished to each Trustee who did not execute such written consent, provided that the effectiveness of such action shall not be impaired by any delay or failure to furnish such notice. ARTICLE 3 Officers 3.1. Enumeration; Qualification. The officers of the Trust shall be a -------------------------- President, a Treasurer, a Secretary, and such other officers, if any, as the Trustees from time to time may in their discretion elect. The Trust also may have such agents as the Trustees from time to time may in their discretion appoint. Officers may be but need not be a Trustee or shareholder. Any two or more offices may be held by the same person. 3.2. Election. The President, the Treasurer and the Secretary shall be -------- elected by the Trustees upon the occurrence of any vacancy in any such office. Other officers, if any, may be elected or appointed by the Trustees at any time. Vacancies in any such other office may be filled at any time. 3.3. Tenure. The President, Treasurer and Secretary shall hold office in ------ each case until he or she sooner dies, resigns, is removed or becomes disqualified. Each other officer shall hold office and each agent shall retain authority at the pleasure of the Trustees. 3.4. Powers. Subject to the other provisions of these By-Laws, each ------ officer shall have, in addition to the duties and powers herein and in the Declaration of Trust set forth, such duties and powers as commonly are incident to the office occupied by him or her as if the Trust were organized as a Massachusetts business corporation or such other duties and powers as the Trustees may from time to time designate. 3.5. President. Unless the Trustees otherwise provide, the President --------- shall preside at all meetings of the shareholders and of the Trustees. Unless the Trustees otherwise provide, the President shall be the chief executive officer. 3.6. Treasurer. The Treasurer shall be the chief financial and accounting --------- officer of the Trust, and, subject to the provisions of the Declaration of Trust and to any arrangement made -2- by the Trustees with a custodian, investment adviser or manager, or transfer, shareholder servicing or similar agent, shall be in charge of the valuable papers, books of account and accounting records of the Trust, and shall have such other duties and powers as may be designated from time to time by the Trustees or by the President. 3.7. Secretary. The Secretary shall record all proceedings of the --------- shareholders and the Trustees in books to be kept therefor, which books or a copy thereof shall be kept at the principal office of the Trust. In the absence of the Secretary from any meeting of the shareholders or Trustees, an Assistant Secretary, or if there be none or if he or she is absent, a temporary Secretary chosen at such meeting shall record the proceedings thereof in the aforesaid books. 3.8. Resignations and Removals. Any Trustee or officer may resign at any ------------------------- time by written instrument signed by him or her and delivered to the President or Secretary or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. The Trustees may remove any officer elected by them with or without cause. Except to the extent expressly provided in a written agreement with the Trust, no Trustee or officer resigning and no officer removed shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal. ARTICLE 4 Committees 4.1. Appointment. The Trustees may appoint from their number an executive ----------- committee and other committees. Except as the Trustees otherwise may determine, any such committee may make rules for conduct of its business. 4.2. Quorum; Voting. A majority of the members of any Committee of the -------------- Trustees shall constitute a quorum for the transaction of business, and any action of such a Committee may be taken at a meeting by a vote of a majority of the members present (a quorum being present). ARTICLE 5 Reports The Trustees and officers shall render reports at the time and in the manner required by the Declaration of Trust or any applicable law. Officers and Committees shall render such -3- additional reports as they may deem desirable or as may from time to time be required by the Trustees. ARTICLE 6 Fiscal Year The fiscal year of the Trust shall be fixed, and shall be subject to change, by the Board of Trustees. ARTICLE 7 Seal The seal of the Trust shall consist of a flat-faced die with the word "Massachusetts," together with the name of the Trust and the year of its organization cut or engraved thereon but, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on, and in its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. ARTICLE 8 Execution of Papers Except as the Trustees generally or in particular cases may authorize the execution thereof in some other manner, all deeds, leases, contracts, notes and other obligations made by the Trustees shall be signed by the President, any Vice President, or by the Treasurer and need not bear the seal of the Trust. ARTICLE 9 Issuance of Share Certificates 9.1. Sale of Shares. Except as otherwise determined by the Trustees, the -------------- Trust will issue and sell for cash or securities from time to time, full and fractional shares of its shares of beneficial interest, such shares to be issued and sold at a price of not less than net asset value per share as from time to time determined in accordance with the Declaration of Trust and these By-Laws and, in the case of fractional shares, at a proportionate reduction in such price. In the case of shares sold for securities, such securities shall be valued in accordance with the provisions for determining value of assets of the Trust as stated in the Declaration of Trust and these By-Laws. The officers of -4- the Trust are severally authorized to take all such actions as may be necessary or desirable to carry out this Section 9.1. 9.2. Share Certificates. In lieu of issuing certificates for shares, the ------------------ Trustees or the transfer agent either may issue receipts therefor or may keep accounts upon the books of the Trust for the record holders of such shares, who shall in either case, for all purposes hereunder, be deemed to be the holders of certificates for such shares as if they had accepted such certificates and shall be held to have expressly assented and agreed to the terms hereof. The Trustees at any time may authorize the issuance of share certificates. In that event, each shareholder shall be entitled to a certificate stating the number of shares owned by him, in such form as shall be prescribed from time to time by the Trustees. Such certificate shall be signed by the President or Vice President and by the Treasurer or Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent, or by a registrar, other than a Trustee, officer or employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall cease to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he or she were such officer at the time of its issue. 9.3. Loss of Certificates. The Trust, or if any transfer agent is -------------------- appointed for the Trust, the transfer agent with the approval of any two officers of the Trust, is authorized to issue and countersign replacement certificates for the shares of the Trust which have been lost, stolen or destroyed subject to the deposit of a bond or other indemnity in such form and with such security, if any, as the Trustees may require. 9.4. Discontinuance of Issuance of Certificates. The Trustees at any time ------------------------------------------ may discontinue the issuance of share certificates and by written notice to each shareholder, may require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership of shares in the Trust. ARTICLE 10 Indemnification 10.1. Trustees, Officers, etc. The Trust shall indemnify each of its ----------------------- Trustees and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including -5- but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Trustee or officer, except with respect to any matter as to which such Covered Person shall have been finally adjudicated in a decision on the merits in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust and except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders to which such Covered Person would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), may be paid from time to time by the Trust in advance of the final disposition or any such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article, provided -------- that (a) such Covered Person shall provide security for his undertaking, (b) the - ---- Trust shall be insured against losses arising by reason of such Covered Person's failure to fulfill his undertaking, or (c) a majority of the Trustees who are disinterested persons and who are not Interested Persons (as that term is defined in the Investment Company Act of 1940) (provided that a majority of such Trustees then in office act on the matter), or independent legal counsel in a written opinion, shall determine, based on a review of readily available facts (but not a full trial-type inquiry), that there is reason to believe such Covered Person ultimately will be entitled to indemnification. 10.2. Compromise Payment. As to any matter disposed of (whether by a ------------------ compromise payment, pursuant to a consent decree or otherwise) without an adjudication in a decision on the merits by a court, or by any other body before which the proceeding was brought, that such Covered Person either (a) did not act in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or (b) is liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office, indemnification shall be provided if (a) approved as in the best interest of the Trust, after notice that it involves such indemnification, by at least a majority of the Trustees who are -6- disinterested persons and are not Interested Persons (provided that a majority of such Trustees then in office act on the matter), upon a determination, based upon a review of readily available facts (but not a full trial-type inquiry) that such Covered Person acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust and is not liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office, or (b) there has been obtained an opinion in writing of independent legal counsel, based upon a review of readily available facts (but not a full trial-type inquiry) to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust and that such indemnification would not protect such Covered Person against any liability to the Trust to which such Covered Person would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or to have been liable to the Trust or its shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. 10.3. Indemnification Not Exclusive. The right of indemnification hereby ----------------------------- provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article 10, the term "Covered Person" shall include such person's heirs, executors and administrators, and a "disinterested person" is a person against whom none of the actions, suits or other proceedings in question or another action, suit, or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees and officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of such person. 10.4. Limitation. Notwithstanding any provisions in the Declaration of ---------- Trust and these By-Laws pertaining to indemnification, all such provisions are limited by the following undertaking set forth in the rules promulgated by the Securities and Exchange Commission: -7- In the event that a claim for indemnification is asserted by a Trustee, officer or controlling person of the Trust in connection with the registered securities of the Trust, the Trust will not make such indemnification unless (i) the Trust has submitted, before a court or other body, the question of whether the person to be indemnified was liable by reason of wilful misfeasance, bad faith, gross negligence, or reckless disregard of duties, and has obtained a final decision on the merits that such person was not liable by reason of such conduct or (ii) in the absence of such decision, the Trust shall have obtained a reasonable determination, based upon a review of the facts, that such person was not liable by virtue of such conduct, by (a) the vote of a majority of Trustees who are neither interested persons as such term is defined in the Investment Company Act of 1940, nor parties to the proceeding or (b) an independent legal counsel in a written opinion. The Trust will not advance attorneys' fees or other expenses incurred by the person to be indemnified unless the Trust shall have (i) received an undertaking by or on behalf of such person to repay the advance unless it is ultimately determined that such person is entitled to indemnification and one of the following conditions shall have occurred: (x) such person shall provide security for his undertaking, (y) the Trust shall be insured against losses arising by reason of any lawful advances or (z) a majority of the disinterested, non-party Trustees of the Trust, or an independent legal counsel in a written opinion, shall have determined that based on a review of readily available facts there is reason to believe that such person ultimately will be found entitled to indemnification. -8- ARTICLE 11 Shareholders 11.1. Meetings. A meeting of the shareholders shall be called by the -------- Secretary whenever ordered by the Trustees, or requested in writing by the holder or holders of at least 10% of the outstanding shares entitled to vote at such meeting. The ability of the holder or holders of at least 10% of the outstanding shares entitled to vote to call a meeting of the shareholders shall remain in effect at all times that any resident of the State of California owns shares of the Trust. If the meeting is a meeting of the shareholders of one or more series or class of shares, but not a meeting of all shareholders of the Trust, then only the shareholders of such one or more series or classes shall be entitled to notice of and to vote at the meeting. If the Secretary, when so ordered or requested, refuses or neglects for more than five days to call such meeting, the Trustees, or the shareholders so requesting may, in the name of the Secretary, call the meeting by giving notice thereof in the manner required when notice is given by the Secretary. 11.2. Access to Shareholder List. Shareholders of record may apply -------------------------- to the Trustees for assistance in communicating with other shareholders for the purpose of calling a meeting in order to vote upon the question of removal of a Trustee. When ten or more shareholders of record who have been such for at least six months preceding the date of application and who hold in the aggregate shares having a net asset value of at least $25,000 or at least 1% of the outstanding shares, whichever is less, so apply, the Trustees shall within five business days either: (i) afford to such applicants access to a list of names and addresses of all shareholders as recorded on the books of the Trust; or (ii) inform such applicants of the approximate number of shareholders of record and the approximate cost of mailing material to them and, within a reasonable time thereafter, mail, materials submitted by the applicants, to all such shareholders of record. The Trustees shall not be obligated to mail materials which they believe to be misleading or in violation of applicable law. 11.3. Record Dates. For the purpose of determining the shareholders ------------ of any series or class who are entitled to vote or act at any meeting or any adjournment thereof, or who are entitled to receive payment of any dividend or of any other distribution, the Trustees from time to time may fix a time, which shall be not more than 90 days before the date of any meeting of shareholders or the date of payment of any dividend or of any other distribution, as the record date for determining the shareholders -9- of such series or class having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution, and in such case only shareholders of record on such record date shall have such right notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any such purposes close the register or transfer books for all or part of such period. 11.4. Place of Meetings. All meetings of the shareholders shall be ----------------- held at the principal office of the Trust or at such other place within the United States as shall be designated by the Trustees or the President of the Trust. 11.5. Notice of Meetings. A written notice of each meeting of ------------------ shareholders, stating the place, date and hour and the purposes of the meeting, shall be given at least ten days before the meeting to each shareholder entitled to vote thereat by leaving such notice with him or at his residence or usual place of business or by mailing it, postage prepaid, and addressed to such shareholder at his address as it appears in the records of the Trust. Such notice shall be given by the Secretary or an Assistant Secretary or by an officer designated by the Trustees. No notice of any meeting of shareholders need be given to a shareholder if a written waiver of notice, executed before or after the meeting by such shareholder or his attorney thereunto duly authorized, is filed with the records of the meeting. 11.6. Ballots. No ballot shall be required for any election unless ------- requested by a shareholder present or represented at the meeting and entitled to vote in the election. 11.7. Proxies. Shareholders entitled to vote may vote either in ------- person or by proxy in writing dated not more than six months before the meeting named therein, which proxies shall be filed with the Secretary or other person responsible to record the proceedings of the meeting before being voted. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. ARTICLE 12 Amendments to the By-Laws These By-Laws may be amended or repealed, in whole or in part, by a majority of the Trustees then in office at any meeting of the Trustees, or by one or more writings signed by such a majority. Dated: October 5, 1994, As Revised, March 24, 1995 -10- EX-99.5.A 8 INVESTMENT ADVISORY AGREEMENT Exhibit (5)(a) INVESTMENT ADVISORY AGREEMENT THE BEAR STEARNS FUNDS 245 Park Avenue New York, New York 10167 February 22, 1995 As Revised May 4, 1995 Bear Stearns Funds Management Inc. 245 Park Avenue New York, New York 10167 Dear Sirs: The above-named investment company (the "Fund"), with respect to the series named on Schedule 1 hereto, as such Schedule may be revised from time to time (each, a "Series"), herewith confirms its agreement with you as follows: The Fund desires to employ its capital by investing and reinvesting the same in investments of the type and in accordance with the limitations specified in its charter documents and in its Prospectus and Statement of Additional Information as from time to time in effect, copies of which have been or will be submitted to you, and in such manner and to such extent as from time to time may be approved by the Fund's Board. The Fund desires to employ you to act as its investment adviser. In this connection it is understood that from time to time you will employ or associate with yourself such person or persons as you may believe to be particularly fitted to assist you in the performance of this Agreement. Such person or persons may be officers or employees who are employed by both you and the Fund. The compensation of such person or persons shall be paid by you and no obligation may be incurred on the Fund's behalf in any such respect. We have discussed and concur in your employing on this basis each sub-investment adviser indicated on Schedule 1 (each, a "Sub-Investment Adviser") for the Series indicated thereon, as such Schedule may be revised from time to time. Subject to the supervision and approval of the Fund's Board, you will provide investment management of each Series' portfolio in accordance with such Series' investment objectives and policies as stated in the Fund's Prospectus and Statement of Additional Information as from time to time in effect. In connection therewith, you will obtain and provide investment research and will supervise each Series' investments and conduct a continuous program of investment, evaluation and, if appropriate, sale and reinvestment of such Series' assets. You will furnish to the Fund such statistical information, with respect to the investments which a Series may hold or contemplate purchasing, as the Fund may reasonably request. The Fund wishes to be informed of important developments materially affecting any Series' portfolio and shall expect you, on your own initiative, to furnish to the Fund from time to time such information as you may believe appropriate for this purpose. You shall exercise your best judgment in rendering the services to be provided to the Fund hereunder, and the Fund agrees as an inducement to your undertaking the same that neither you nor the Sub-Investment Adviser shall be liable hereunder for any error of judgment or mistake of law or for any loss suffered by one or more Series, provided that nothing herein shall be deemed to protect or purport to protect you or any Sub-Investment Adviser against any liability to the Fund or a Series or to its security holders to which you would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence in the performance of your duties hereunder or by reason of your reckless disregard of your obligations or duties hereunder (hereinafter "Disabling Conduct") or to which any Sub-Investment Adviser would otherwise be subject by reason of Disabling Conduct. In consideration of services rendered pursuant to this Agreement, the Fund will pay you on the first business day of each month a fee at the rate set forth opposite each Series' name on Schedule 1 hereto or will pay you in accordance with the methodology described on additional Schedules hereto. Net asset value shall be computed on such days and at such time or times as described in the Fund's then-current Prospectus and Statement of Additional Information. The fee for the period from the date of the commencement of sales of a Series' shares to the end of the month during which such sales shall have been commenced shall be pro-rated according to the proportion which such period bears to the full monthly period, and upon any termination of this Agreement before the end of any month, the fee for such part of a month shall be pro-rated according to the proportion which such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to you, the value of each Series' net assets shall be computed in the manner specified in the Fund's charter documents for the computation of the value of each Series' net assets. You will bear all expenses in connection with the performance of your services under this Agreement and will pay all fees of each Sub-Investment Adviser in connection with its duties in respect of the Series. All other expenses to be incurred in the operation of the Fund (other than those borne by a Sub-Investment Adviser) will be borne by the Fund, except to the extent specifically assumed by you. The expenses to be borne by the Fund include, without limitation, the following: organizational costs, taxes, interest, loan commitment fees, interest and distributions paid on securities sold short, brokerage fees and commissions, if any, fees of Board members, Securities and Exchange Commission fees, state Blue Sky qualification fees, advisory, administration and fund accounting fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of independent pricing services, costs of maintaining the Series' existence, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing stockholders, costs of stockholders' reports and meetings, and any extraordinary expenses. As to each Series, if in any fiscal year the aggregate expenses of a Series (including fees pursuant to this Agreement, but excluding interest, taxes, brokerage and, with the prior written consent of the necessary state securities commissions, extraordinary expenses) exceed the expense limitation of any state having jurisdiction over such Series, the Fund may deduct from the fees to be paid hereunder, or you will bear, such excess expense to the extent required by state law. Your obligation pursuant hereto will be limited to the amount of your fees hereunder. Such deduction or payment, if any, will be estimated daily, and reconciled and effected or paid, as the case may be, on a monthly basis. The Fund understands that you now act, and that from time to time hereafter you may act, as investment adviser to one or more other investment companies and fiduciary or other managed accounts, and the Fund has no objection to your so acting, provided that when the purchase or sale of securities of the same issuer is suitable for the investment objectives of two or more companies or accounts managed by you which have available funds for investment, the available securities will be allocated in a manner believed by you to be equitable to each company or account. It is recognized that in some cases this procedure may adversely affect the price paid or received by one or more Series or the size of the position obtainable for or disposed of by one or more Series. In addition, it is understood that the persons employed by you to assist in the performance of your duties hereunder will not devote their full time to such service and nothing -3- contained herein shall be deemed to limit or restrict your right or the right of any of your affiliates to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. Any person, even though also your officer, director, partner, employee or agent, who may be or become an officer, Board member, employee or agent of the Fund, shall be deemed, when rendering services to the Fund or acting on any business of the Fund, to be rendering such services to or acting solely for the Fund and not as your officer, director, partner, employee, or agent or one under your control or direction even though paid by you. The Fund will indemnify you and each Sub-Investment Adviser (each, an "indemnitee") against, and hold each indemnitee harmless from, any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) not resulting from Disabling Conduct by the indemnitee. Indemnification shall be made only following: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that the indemnitee was not liable by reason of Disabling Conduct or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the indemnitee was not liable by reason of Disabling Conduct by (a) the vote of a majority of a quorum of Board members who are neither "interested persons" of the Fund nor parties to the proceeding ("disinterested non-party Board members") or (b) an independent legal counsel in a written opinion. Each indemnitee shall be entitled to advances from the Fund for payment of the reasonable expenses incurred by it in connection with the matter as to which it is seeking indemnification in the manner and to the fullest extent permissible under the New York Business Corporation Law. Each indemnitee shall provide to the Fund a written affirmation of its good faith belief that the standard of conduct necessary for indemnification by the Fund has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) the indemnitee shall provide security in form and amount acceptable to the Fund for its undertaking; (b) the Fund is insured against losses arising by reason of the advance; or (c) a majority of a quorum of disinterested non-party Board members, or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Fund at the time the advance is proposed to be made, that there is reason to believe that the indemnitee will ultimately be found to be entitled to indemnification. No provision of this Agreement shall be construed to protect any Board member or officer of the Fund, or any indemnitee, from -4- liability in violation of Sections 17(h) and (i) of the Investment Company Act of 1940, as amended (the "1940 Act"). As to each Series, this Agreement shall continue until the date set forth opposite such Series' name on Schedule 1 hereto (the "Reapproval Date") and thereafter shall continue automatically for successive annual periods ending on the day of each year set forth opposite the Series' name on Schedule 1 hereto (the "Reapproval Day"), provided such continuance is specifically approved at least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of such Series' outstanding voting securities, provided that in either event its continuance also is approved by a majority of the Fund's Board members who are not "interested persons" (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. As to each Series, this Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board or by vote of holders of a majority of such Series' shares or, upon not less than 90 days' notice, by you. This Agreement also will terminate automatically, as to the relevant Series, in the event of its assignment (as defined in the 1940 Act). The Fund recognizes that from time to time your directors, officers and employees may serve as trustees, directors, partners, officers and employees of other business trusts, corporations, partnerships or other entities (including other investment companies), and that such other entities may include the name "Bear Stearns" as part of their name, and that your corporation or its affiliates may enter into investment advisory or other agreements with such other entities. If you cease to act as the Fund's investment adviser, the Fund agrees that, at your request, the Fund will take all necessary action to change the name of the Fund to a name not including "Bear Stearns" in any form or combination of words. The Fund is agreeing to the provisions of this Agreement that limit a Sub-Investment Adviser's liability and other provisions relating to the Sub- Investment Adviser so as to induce the Sub-Investment Adviser to enter into its Sub-Investment Advisory Agreement with you and to perform its obligations thereunder. Each Sub-Investment Adviser is expressly made a third party beneficiary of this Agreement with rights as respects the Fund to the same extent as if it had been a party hereto. This Agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this Agreement shall only be binding upon the assets and property of the relevant Series and shall not be binding upon any Board member, officer or shareholder of the Fund individually. -5- If the foregoing is in accordance with your understanding, will you kindly so indicate by signing and returning to us the enclosed copy hereof. Very truly yours, THE BEAR STEARNS FUNDS By: /s/ Frank J. Maresca ---------------------- Accepted: BEAR STEARNS FUNDS MANAGEMENT INC. By: /s/ Robert S. Reitzes ------------------------------ -6- SCHEDULE 1 Annual Fee as a Percentage of Average Name of Series Assets Reapproval Date Reapproval Day - -------------- ------------- --------------- -------------- Large Cap Value Portfolio .75 of 1% February 22, 1997 February 22 Small Cap Value Portfolio .75 of 1% February 22, 1997 February 22 Total Return Bond Portfolio .45 of 1% February 22, 1997 February 22 The Insiders Select Portfolio * February 22, 1997 February 22 - ------------------------ * See Schedule 2; the Sub-Investment Adviser is Symphony Asset Management. SCHEDULE 2 For the period beginning with the day on which the Fund commences investment operations and ending with the last day of the twelfth full calendar month thereafter, the Fund will pay you, at the end of each month, a monthly advisory fee calculated at an annual rate of 1.0% of the Series' average daily net assets during such month (the "Basic Fee"). Beginning with the thirteenth month, the Basic Fee will be adjusted each month (the "Monthly Performance Adjustment") depending on the extent to which the investment performance of the Class of shares expected to bear the highest total Series operating expenses (as such Class from time to time may be designated by the Fund's Board, the "Designated Class"), reflecting the deduction of expenses, exceeds or is exceeded by the percentage change in the investment record of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500") for the immediately preceding twelve calendar months on a rolling basis. The rate of the Monthly Performance Adjustment may increase or decrease the fee payable to you by up to .50% per annum of the Series' average daily net assets. The performance of the Designated Class during a performance period will be calculated by first determining the change in the Class' net asset value per share during the period, assuming the reinvestment of distributions during that period, and then expressing this amount as a percentage of the net asset value per share at the beginning of the period. The performance of the S&P 500 during a performance period is calculated as the sum of the change in the level of the index during the period, plus the value of any dividends or distributions made by the companies whose securities comprise the index accumulated to the end of the period. After the Monthly Performance Adjustment is effective, the total advisory fee, payable by the Fund to you at the end of each calendar month, will be equal to the Basic Fee for the month adjusted upward or downward for the month by the Monthly Performance Adjustment for the month. The monthly advisory fee will be calculated as follows: (1) one-twelfth of the 1% annual basic fee rate will be applied to the Series' average daily net assets over the most recent calendar month, giving a dollar amount which will be the Basic Fee for that month; (2) one-twelfth of the applicable performance adjustment fee rate from the table below will be applied to the Series' average daily net assets over the most recent month, giving a dollar amount which will be the Monthly Performance Adjustment; and (3) the Monthly Performance Adjustment will then be added to or subtracted from the Basic Fee and the result will be the amount payable by the Fund to you as the total advisory fee for that month. The full range of permitted fees on an annualized basis is as follows:
Percentage Point Difference Between Designated Class' Performance (Net of Expenses Including Advisory Fees) Performance and Percentage Change in the Adjustment S&P 500 Investment Record Basic Fee (%) Rate (%) Total Fee (%) - --------------------------------------- ----------- ----------- ----------- +3.00 percentage points or more........ 1% .50% 1.50% +2.75 percentage points or more but less than +3.00 percentage points.... 1% .40% 1.40% +2.50 percentage points or more but less than +2.75 percentage points.... 1% .30% 1.30% +2.25 percentage points or more but less than +2.50 percentage points.... 1% .20% 1.20% +2.00 percentage points or more but less than +2.25 percentage points.... 1% .10% 1.10% Less than +2.00 percentage points but more than -2.00 percentage points.... 1% 0% 1.00% - -2.00 percentage points or less but more than -2.25 percentage points.... 1% -.10% .90% - -2.25 percentage points or less but more than -2.50 percentage points.... 1% -.20% .80% - -2.50 percentage points or less but more than -2.75 percentage points.... 1% -.30% .70% - -2.75 percentage points or less but more than -3.00 percentage points.... 1% -.40% .60% - -3.00 percentage points or less........ 1% -.50% .50%
The period over which performance will be measured is a rolling 12- month period. EX-99.5.B 9 ADMINSTRATION AGREEMENT Exhibit (5)(b) ADMINISTRATION AGREEMENT THE BEAR STEARNS FUNDS 245 Park Avenue New York, New York 10167 February 22, 1995 As Revised April 11, 1995 Bear Stearns Funds Management Inc. 245 Park Avenue New York, New York 10167 Dear Sirs: The Bear Stearns Funds, a Massachusetts business trust (the "Fund") consisting of the series named on Schedule 1 hereto, as such Schedule may be revised from time to time (each, a "Series"), herewith confirms its agreement with you ("BSFM") as follows: The Fund desires to employ its capital by investing in investments of the type and in accordance with the limitations specified in its charter documents and in its Prospectus and Statement of Additional Information as from time to time in effect, copies of which have been or will be submitted to BSFM, and in such manner and to such extent as from time to time may be approved by the Fund's Board. The Fund desires to employ BSFM to act as its administrator. In this connection it is understood that from time to time BSFM will employ or associate with itself such person or persons as BSFM may believe to be particularly fitted to assist it in the performance of this Agreement. Such person or persons may be officers or employees who are employed by both BSFM and the Fund. The compensation of such person or persons shall be paid by BSFM and no obligation may be incurred on the Fund's behalf in any such respect. Subject to the supervision and control of the Fund's Board, BSFM will assist in supervising all aspects of each Series' operations. BSFM will supply office facilities (which may be in BSFM's own offices), data processing services, clerical, accounting and bookkeeping services, internal auditing and legal services, internal executive and administrative services, and stationery and office supplies; prepare reports to each Series' stockholders, tax returns, reports to and filings with the Securities and Exchange Commission and state Blue Sky authorities; and calculate the net asset value of each Series' shares. BSFM shall exercise its best judgment in rendering the services to be provided to the Fund hereunder, and the Fund agrees as an inducement to BSFM's undertaking the same that BSFM shall not be liable hereunder for any error of judgment or mistake of law or for any loss suffered by one or more Series, provided that nothing herein shall be deemed to protect or purport to protect BSFM against any liability to the Fund or a Series or to its security holders to which BSFM would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence in the performance of its duties hereunder or by reason of BSFM's reckless disregard of its obligations or duties hereunder (hereinafter "Disabling Conduct"). In consideration of services rendered pursuant to this Agreement, the Fund will pay you on the first business day of each month a fee at the rate set forth opposite each Series' name on Schedule 1 hereto. Net asset value shall be computed on such days and at such time or times as described in the Fund's then- current Prospectus and Statement of Additional Information. The fee for the period from the date of the commencement of sales of a Series' shares to the end of the month during which such sales shall have been commenced shall be pro- rated according to the proportion which such period bears to the full monthly period, and upon any termination of this Agreement before the end of any month, the fee for such part of a month shall be pro-rated according to the proportion which such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to you, the value of each Series' net assets shall be computed in the manner specified in the Fund's charter documents for the computation of the value of each Series' net assets. BSFM will bear all expenses in connection with the performance of its services under this Agreement. All other expenses to be incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by BSFM. The expenses to be borne by the Fund include, without limitation, the following: organizational costs, taxes, interest, loan commitment fees, interest and distributions paid on securities sold short, brokerage fees and commissions, if any, fees of Board members, Securities and Exchange Commission fees, state Blue Sky qualification fees, advisory, administration and fund accounting fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of independent pricing services, costs of maintaining the Series' existence, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing stockholders, costs of stockholders' reports and meetings, and any extraordinary expenses. The Fund understands that BSFM now acts and will continue to act as administrator of various investment companies and fiduciary or other managed accounts, and the Fund has no objection to BSFM's so acting. In addition, it is understood that the persons employed by BSFM to assist in the performance of its duties hereunder will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of BSFM or the right of any affiliate of BSFM to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. Any person, even though also an officer, director, partner, employee or agent of BSFM, who may be or become an officer, Board member, employee or agent of the Fund, shall be deemed, when rendering services to the Fund or acting on any business of the Fund, to be rendering such services to or acting solely for the Fund and not as an officer, director, partner, employee, or agent or one under the control or direction of BSFM even though paid by it. The Fund will indemnify you against, and hold you harmless from, any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) not resulting from Disabling Conduct by you. Indemnification shall be made only following: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that you were not liable by reason of Disabling Conduct or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that you were not liable by reason of Disabling Conduct by (a) the vote of a majority of a quorum of Board members of the Fund who are neither "interested persons" of the Fund nor parties to the proceeding ("disinterested non-party Board members") or (b) an independent legal counsel in a written opinion. You shall be entitled to advances from the Fund for payment of the reasonable expenses incurred by you in connection with the matter as to which you are seeking indemnification in the manner and to the fullest extent permissible under the New York Business Corporation Law. You shall provide to the Fund a written affirmation of your good faith belief that the standard of conduct necessary for indemnification by the Fund has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) you shall provide security in form and amount acceptable to the Fund for its undertaking; (b) the Fund is insured against losses arising by reason of the advance; or (c) a majority of a quorum of disinterested non-party Board members, or independent legal counsel, in a written opinion, shall -3- have determined, based on a review of facts readily available to the Fund at the time the advance is proposed to be made, that there is reason to believe that you will ultimately be found to be entitled to indemnification. No provision of this Agreement shall be construed to protect any Board member or officer of the Fund, or you, from liability in violation of Sections 17(h) and (i) of the Investment Company Act of 1940, as amended (the "1940 Act"). As to each Series, this Agreement shall continue until the date set forth opposite such Series' name on Schedule 1 hereto (the "Reapproval Date") and thereafter shall continue automatically for successive annual periods ending on the day of each year set forth opposite the Series' name on Schedule 1 hereto (the "Reapproval Day"), provided such continuance is specifically approved at least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of such Series' outstanding voting securities, provided that in either event its continuance also is approved by a majority of the Fund's Board members who are not "interested persons" (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. As to each Series, this Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board or by vote of holders of a majority of such Series' shares or, upon not less than 90 days' notice, by you. This Agreement also will terminate automatically, as to the relevant Series, in the event of its assignment (as defined in the 1940 Act). The Fund recognizes that from time to time your directors, officers and employees may serve as trustees, directors, partners, officers and employees of other business trusts, corporations, partnerships or other entities (including other investment companies) and that such other entities may include the name "Bear Stearns" as part of their name, and that your corporation or its affiliates may enter into investment advisory, administration or other agreements with such other entities. If you cease to act as the Fund's administrator, the Fund agrees that, at your request, the Fund will take all necessary action to change the name of the Fund to a name not including "Bear Stearns" in any form or combination of words. This Agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this Agreement shall only be binding upon the assets and property of the relevant Series, and shall not be binding upon any Board member, officer or shareholder of the Fund individually. -4- If the foregoing is in accordance with your understanding, will you kindly so indicate by signing and returning to us the enclosed copy hereof. Very truly yours, THE BEAR STEARNS FUNDS By: /s/ Frank J. Maresca ----------------------------- Accepted: BEAR STEARNS FUNDS MANAGEMENT INC. By: /s/ Robert S. Reitzes ------------------------------- -5- SCHEDULE 1 Annual Fees as a Percentage of Average Daily Name of Series Net Assets Reapproval Date Reapproval Day - -------------- ---------- --------------- -------------- S&P STARS Portfolio .15 of 1% February 22, 1998 February 22nd Large Cap Value Portfolio .15 of 1% February 22, 1998 February 22nd Small Cap Value Portfolio .15 of 1% February 22, 1998 February 22nd Total Return Bond Portfolio .15 of 1% February 22, 1998 February 22nd The Insiders Select Portfolio .15 of 1% February 22, 1998 February 22nd EX-99.5.C 10 ADMINISTRATIVE SERVICE AGREEMENT Exhibit (5)(c) ADMINISTRATIVE SERVICES AGREEMENT --------------------------------- THIS AGREEMENT is made as of February 22, 1995 by and between THE BEAR STEARNS FUNDS, a Massachusetts business trust (the "Fund") and PFPC INC., a Delaware corporation ("PFPC"), which is an indirect wholly owned subsidiary of PNC Bank Corp. W I T N E S S E T H : WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund wishes to retain PFPC to provide administration and accounting services to its portfolios listed on Exhibit A attached hereto, as amended from time to time (each a "Portfolio"), and PFPC wishes to furnish such services. NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and intending to be legally bound hereby the parties hereto agree as follows: 1. DEFINITIONS. AS USED IN THIS AGREEMENT: --------------------------------------- (a) "1933 Act" means the Securities Act of 1933, as amended. ---------- (b) "1934 Act" means the Securities Exchange Act of 1934, as ---------- amended. (c) "Authorized Person" means any officer of the Fund and any ------------------- other person duly authorized by the Fund's Board of Trustees to give Oral and Written Instructions on behalf of the Fund and listed on the Authorized Persons Appendix attached hereto and made a part hereof or any amendment thereto as may be received by PFPC. An Authorized Person's scope of authority may be limited by the Fund by setting forth such limitation in the Authorized Persons Appendix. (d) "CEA" mean the Commodities Exchange Act, as amended. ----- (e) "Oral Instructions" mean oral instructions received by PFPC ------------------- from an Authorized Person or from a person reasonably believed by PFPC to be an Authorized Person. (f) "SEC" means the Securities and Exchange Commission. ----- (g) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 ----------------- Act and the CEA. (h) "Shares" mean the shares of beneficial interest of any series -------- or class of the Fund. (i) "Written Instructions" mean written instructions signed by an ---------------------- Authorized Person and received by PFPC. The instructions may be delivered by hand, mail, tested telegram, cable, telex or facsimile sending device. 2. APPOINTMENT. The Fund hereby appoints PFPC to provide ----------- administration and accounting services to the each of the Portfolios, in accordance with the terms set forth in this Agreement. PFPC accepts such appointment and agrees to furnish such services. 3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, --------------------- will provide PFPC with the following: (a) Certified or authenticated copies of the resolutions of the Fund's Board of Trustees, approving the appointment of PFPC or its affiliates to provide services to each Portfolio and approving this Agreement; -2- (b) A copy of the Fund's most recent effective regis- tration statement; (c) A copy of each Portfolio's advisory agreement or agreements; (d) A copy of the distribution agreement with respect to each class of Shares representing an interest in a Portfolio; (e) A copy of any additional administration agreement with respect to a Portfolio; (f) A copy of any shareholder servicing agreement made in respect of the Fund or a Portfolio; and (f) Copies (certified or authenticated, where applicable) of any and all amendments or supplements to the foregoing. 4. COMPLIANCE WITH RULES AND REGULATIONS. ------------------------------------- PFPC undertakes to comply with all applicable requirements of the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC hereunder. Except as specifically set forth herein, PFPC assumes no responsibility for such compliance by the Fund or any Portfolio. 5. INSTRUCTIONS. ------------ (a) Unless otherwise provided in this Agreement, PFPC shall act only upon Oral and Written Instructions. (b) PFPC shall be entitled to rely upon any Oral and Written Instructions it receives from an Authorized Person (or from a person reasonably believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC may assume that any Oral or Written Instruction received hereunder is not in any way inconsistent with the provisions of organizational documents or this Agreement -3- or of any vote, resolution or proceeding of the Fund's Board of Trustees or of the Fund's shareholders, unless and until PFPC receives Written Instructions to the contrary. (c) The Fund agrees to forward to PFPC Written Instructions confirming Oral Instructions (except where such Oral Instructions are given by PFPC or its affiliates) so that PFPC receives the Written Instructions by the close of business on the same day that such Oral Instructions are received. The fact that such confirming Written Instructions are not received by PFPC shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions. Where Oral or Written Instructions reasonably appear to have been received from an Authorized Person, PFPC shall incur no liability to the Fund in acting upon such Oral or Written Instructions provided that PFPC's actions comply with the other provisions of this Agreement. 6. RIGHT TO RECEIVE ADVICE. ----------------------- (a) Advice of the Fund. If PFPC is in doubt as to any ------------------ action it should or should not take, PFPC may request directions or advice, including Oral or Written Instructions, from the Fund. (b) Advice of Counsel. If PFPC shall be in doubt as to any question ----------------- of law pertaining to any action it should or should not take, PFPC may request advice at its own cost from such counsel of its own choosing (who may be counsel for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC). (c) Conflicting Advice. In the event of a conflict ------------------ between directions, advice or Oral or Written Instructions PFPC -4- receives from the Fund and the advice PFPC receives from counsel, PFPC may rely upon and follow the advice of counsel. In the event PFPC so relies on the advice of counsel, PFPC remains liable for any action or omission on the part of PFPC which constitutes willful misfeasance, bad faith, gross negligence or reckless disregard by PFPC of any duties, obligations or responsibilities set forth in this Agreement. (d) Protection of PFPC. PFPC shall be protected in any action it ------------------ takes or does not take in reliance upon directions, advice or Oral or Written Instructions it receives from the Fund or from counsel and which PFPC believes, in good faith, to be consistent with those directions, advice or Oral or Written Instructions. Nothing in this section shall be construed so as to impose an obligation upon PFPC (i) to seek such directions, advice or Oral or Written Instructions, or (ii) to act in accordance with such directions, advice or Oral or Written Instructions unless, under the terms of other provisions of this Agreement, the same is a condition of PFPC's properly taking or not taking such action. Nothing in this subsection shall excuse PFPC when an action or omission on the part of PFPC constitutes willful misfeasance, bad faith, gross negligence or reckless disregard by PFPC of any duties, obligations or responsibilities set forth in this Agreement. 7. RECORDS; VISITS. --------------- (a) The books and records pertaining to the Fund and the Portfolios which are in the possession or under the control of PFPC -5- shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the 1940 Act and other applicable securities laws, rules and regulations. The Fund and Authorized Persons shall have access to such books and records at all times during PFPC's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by PFPC to the Fund or to an Authorized Person, at the Fund's expense. (b) PFPC shall keep the following records: (i) All books and records with respect to each Portfolio's books of account; (ii) Records of each Portfolio's securities transactions; and (iii) All other books and records as PFPC is required to maintain pursuant to Rule 31a-1 of the 1940 Act in connection with the services provided hereunder. 8. CONFIDENTIALITY. PFPC agrees on its own behalf and that of its --------------- employees to keep confidential all records of the Fund and information relating to the Fund and its shareholders (past, present and future), unless the release of such records or information is otherwise consented to, in writing, by the Fund. The Fund agrees that such consent shall not be unreasonably withheld and may not be withheld where PFPC may be exposed to civil or criminal contempt proceedings or when required to divulge such information or records to duly constituted authorities. 9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's ------------------------ independent public accountants and shall provide account analyses, fiscal year summaries, and other audit-related schedules with respect to each Portfolio. PFPC shall take all reasonable -6- action in the performance of its duties under this Agreement to assure that the necessary information is made available to such accountants for the expression of their opinion, as required by the Fund. 10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect ----------------- with appropriate parties one or more agreements making reasonable provisions for emergency use of electronic data processing equipment to the extent appropriate equipment is available. In the event of equipment failures, PFPC shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. PFPC shall have no liability with respect to the loss of data or service interruptions caused by equipment failure, provided such loss or interruption is not caused by PFPC's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties or obligations under this Agreement. 11. COMPENSATION. As compensation for services rendered by PFPC during ------------ the term of this Agreement, the Fund, on behalf of each Portfolio, will pay to PFPC a fee or fees as may be agreed to from time to time in writing by the Fund and PFPC. 12. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to --------------- indemnify and hold harmless PFPC and its affiliates from all taxes, charges, expenses, assessments, claims and liabilities (including, without limitation, liabilities arising under the Securities Laws and any state and foreign securities and blue sky laws, and amendments thereto), and expenses, including (without limitation) attorneys' fees and disbursements arising directly or -7- indirectly from any action or omission to act which PFPC takes (i) at the request or on the direction of or in reliance on the advice of the Fund or (ii) upon Oral or Written Instructions. Neither PFPC, nor any of its affiliates', shall be indemnified against any liability (or any expenses incident to such liability) arising out of PFPC's or its affiliates' own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations under this Agreement. Any amounts payable by the Fund hereunder shall be satisfied only against the relevant Portfolio's assets and not against the assets of any other investment portfolio of the Fund. 13. RESPONSIBILITY OF PFPC. ---------------------- (a) PFPC shall be under no duty to take any action on behalf of the Fund or any Portfolio except as specifically set forth herein or as may be specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise care and diligence in the performance of its duties hereunder, to act in good faith and to use its best efforts, within reasonable limits, in performing services provided for under this Agreement. PFPC shall be liable for any damages arising out of PFPC's failure to perform its duties under this Agreement to the extent such damages arise out of PFPC's willful misfeasance, bad faith, gross negligence or reckless disregard of such duties. (b) Without limiting the generality of the foregoing or of any other provision of this Agreement, (i) PFPC shall not be liable for losses beyond its control, provided that PFPC has acted -8- in accordance with the standard of care set forth above; and (ii) PFPC shall not be liable for (A) the validity or invalidity or authority or lack thereof of any Oral or Written Instruction, notice or other instrument which conforms to the applicable requirements of this Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to Section 10, delays or errors or loss of data occurring by reason of circumstances beyond PFPC's control, including acts of civil or military authority, national emergencies, labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply. (c) Notwithstanding anything in this Agreement to the contrary, neither PFPC nor its affiliates shall be liable to the Fund or to any Portfolio for any consequential, special or indirect losses or damages which the Fund or any Portfolio may incur or suffer by or as a consequence of PFPC's or its affiliate's performance of the services provided hereunder, whether or not the likelihood of such losses or damages was known by PFPC or its affiliates. 14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. -------------------------------------------------------- PFPC will perform the following accounting services with respect to each Portfolio: (i) Journalize investment, capital share and income and expense activities; (ii) Verify investment buy/sell trade tickets when received from the investment adviser for a Portfolio (the "Adviser") and transmit trades to the Fund's custodian (the "Custodian") for proper settlement; -9- (iii) Maintain individual ledgers for investment securities; (iv) Maintain historical tax lots for each security; (v) Reconcile cash and investment balances of the Fund with the Custodian, and provide the Adviser with the beginning cash balance available for investment purposes; (vi) Update the cash availability throughout the day as required by the Adviser; (vii) Post to and prepare the Statement of Assets and Liabilities and the Statement of Operations; (viii) Calculate various contractual expenses (e.g., advisory and custody fees); ---- (ix) Monitor the expense accruals and notify an officer of the Fund of any proposed adjustments; (x) Control all disbursements and authorize such disbursements upon Written Instructions; (xi) Calculate capital gains and losses; (xii) Determine net income; (xiii) Obtain security market quotes from independent pricing services approved by the Adviser, or if such quotes are unavailable, then obtain such prices from the Adviser, and in either case calculate the market value of each Portfolio's Investments; (xiv) Transmit or mail a copy of the daily portfolio valuation to the Adviser; (xv) Compute net asset value; (xvi) As appropriate, compute yields, total return, expense ratios, portfolio turnover rate, and, if required, portfolio average dollar-weighted maturity; and -10- (xvii) Prepare a monthly financial statement, which will include the following items: Schedule of Investments Statement of Assets and Liabilities Statement of Operations Statement of Changes in Net Assets Cash Statement Schedule of Capital Gains and Losses. 15. DESCRIPTION OF ADMINISTRATION SERVICES ON A -------------------------------------------- CONTINUOUS BASIS. ---------------- PFPC will perform the following administration services with respect to each Portfolio: (i) Prepare quarterly broker security transactions summaries; (ii) Prepare monthly security transaction listings; (iii) Supply various normal and customary Portfolio and Fund statistical data as requested on an ongoing basis; (iv) Prepare for execution and file the Fund's Federal and state tax returns; (v) Prepare and file the Fund's Semi-Annual Reports with the SEC on Form N-SAR; (vi) Prepare and file with the SEC the Fund's annual, semi- annual, and quarterly shareholder reports; (vii) Assist in the preparation of registration statements and other filings relating to the registration of Shares; (viii) Monitor each Portfolio's status as a regulated investment company under Sub-chapter M of the Internal Revenue Code of 1986, as amended; (ix) Coordinate contractual relationships and communications between the Fund and its contractual service providers; and (x) Monitor the Fund's compliance with the amounts and conditions of each state qualification. -11- 16. DURATION AND TERMINATION. This Agreement shall continue until ------------------------ terminated by either party on sixty (60) days' prior written notice to the other party. 17. NOTICES. All notices and other communications, including Written ------- Instructions, shall be in writing or by confirming telegram, cable, telex or facsimile sending device. If notice is sent by confirming telegram, cable, telex or facsimile sending device, it shall be deemed to have been given immediately. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. Notices shall be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at 245 Park Avenue, New York, NY 10167, Attn: Frank J. Maresca; or (c) if to neither of the foregoing, at such other address as shall have been provided by like notice to the sender of any such notice or other communication by the other party. 18. AMENDMENTS. This Agreement, or any term thereof, may be changed or ---------- waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought. 19. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its ---------------------- duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank, National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all relevant provisions of the -12- 1940 Act; and (iii) PFPC and such delegate (or assignee) promptly provide such information as the Fund may request, and respond to such questions as the Fund may ask, relative to the delegation (or assignment), including (without limitation) the capabilities of the delegate (or assignee). 20. COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 21. FURTHER ACTIONS. Each party agrees to perform such further acts and --------------- execute such further documents as are necessary to effectuate the purposes hereof. 22. MISCELLANEOUS. ------------- (a) Entire Agreement. This Agreement embodies the entire agreement ---------------- and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to delegated duties and Oral Instructions. (b) Captions. The captions in this Agreement are included for -------- convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (c) Governing Law. This Agreement shall be deemed to be a contract ------------- made in Delaware and governed by Delaware law, without regard to principles of conflicts of law. (d) Partial Invalidity. If any provision of this Agreement shall be ------------------ held or made invalid by a court decision, -13- statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. (e) Successors and Assigns. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (f) Facsimile Signatures. The facsimile signature of any party to -------------------- this Agreement shall constitute the valid and binding execution hereof by such party. (g) Capacity. This Agreement has been executed on behalf of the Fund -------- by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this Agreement shall only be binding upon the assets and property of the relevant Portfolio and shall not be binding upon any Board member, officer or shareholder of the Fund individually. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. PFPC INC. By: /s/ Stephen M. Wynne ---------------------------- Title: Executive Vice President ------------------------- THE BEAR STEARNS FUNDS By: /s/ Frank J. Maresca -------------------------------- Title: Vice President and Treasurer ----------------------------- -14- EXHIBIT A * This Exhibit A is dated May 4, 1995 and adds The Insiders Select Portfolio to the Administrative Services Agreement. PORTFOLIOS ---------- Large Cap Value Portfolio Small Cap Value Portfolio Total Return Bond Portfolio S&P STARS Portfolio The Insiders Select Portfolio AUTHORIZED PERSONS APPENDIX Set forth below are the names of the persons, whose specimen signatures are on file with PFPC, that are authorized to give Oral and Written Instructions on behalf of the Fund. Name - ---- Frank J. Maresca Vincent L. Pereira Eileen M. Coyle The Bear Stearns Funds 245 Park Avenue New York, New York 10067 PFPC Inc. Bellevue Corporate Center 400 Bellevue Parkway Wilmington, Delaware 19809 Dear Sirs: Reference is made to the Administrative Services Agreement (the "Agreement") dated as of February 22, 1995 between The Bear Stearns Funds and PFPC Inc. We wish to amend the Agreement as follows: 1. Exhibit A hereby is amended by adding to the end thereof: "The Insiders Select Portfolio." 2. In all other respects, the Agreement shall remain in full force and effect in accordance with its terms. Kindly sign and return the enclosed duplicate hereof, whereupon this letter agreement shall be binding between us in accordance with its terms. Very truly yours, THE BEAR STEARNS FUNDS By: /s/ Frank J. Maresca ---------------------- Accepted and Agreed to as of the date first written above: PFPC INC. By: /s/ Stephen M. Wynne ---------------------- EX-99.5.D 11 SUB-INVESTMENT ADVISORY AGREEMENT Exhibit (5)(d) SUB-INVESTMENT ADVISORY AGREEMENT BEAR STEARNS FUNDS MANAGEMENT INC. 245 Park Avenue New York, New York 10167 February 22, 1995 As Revised May 4, 1995 Symphony Asset Management 50 California Street, Suite 420 San Francisco, California 94111 Dear Sirs: As you are aware, each Series of The Bear Stearns Funds (the "Fund") desires to employ its capital by investing and reinvesting the same in investments of the type and in accordance with the limitations specified in its charter documents and in its Prospectus and Statement of Additional Information as from time to time in effect, copies of which have been or will be submitted to you, and in such manner and to such extent as from time to time may be approved by the Fund's Board. The Fund intends to employ us (the "Adviser") to act as its investment adviser pursuant to a written agreement (the "Investment Advisory Agreement"), a copy of which has been furnished to you. The Adviser desires to employ you to act as the sub-investment adviser to The Insiders Select Portfolio (the "Series"). In this connection, it is understood that from time to time you will employ or associate with yourself such person or persons as you may believe to be particularly fitted to assist you in the performance of this Agreement. Such person or persons may be officers or employees who are employed by both you and the Fund. The compensation of such person or persons shall be paid by you and no obligation may be incurred on the Fund's behalf in any such respect. Subject to the supervision and approval of the Adviser, you will provide investment management of the Series' portfolio in accordance with the Series' investment objectives and policies as stated in its Prospectus and Statement of Additional Information as from time to time in effect. In connection therewith, you will supervise the Series' investments and conduct a continuous program of investment, evaluation and, if appropriate, sale and reinvestment of the Series' assets. You will furnish to the Adviser or the Fund such statistical information, with respect to the investments which the Series may hold or contemplate purchasing, as the Adviser or the Fund may reasonably request. The Fund and the Adviser wish to be informed of important developments materially affecting the Series' portfolio and shall expect you, on your own initiative, to furnish to the Fund or the Adviser from time to time such information as you may believe appropriate for this purpose. You shall exercise your best judgment in rendering the services to be provided hereunder, and, to the extent provided in the Investment Advisory Agreement, the Fund has agreed as an inducement to your undertaking the same that you shall not be liable hereunder for any error of judgment or mistake of law or for any loss suffered by the Fund, provided that nothing herein shall be deemed to protect or purport to protect you against any liability to the Adviser, the Fund or the Fund's security holders to which you would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties hereunder, or by reason of your reckless disregard of your obligations and duties hereunder. In consideration of services rendered pursuant to this Agreement, the Adviser will pay you, by the twentieth day of each month, out of the investment advisory fee it receives pursuant to the Investment Advisory Agreement and only to the extent thereof, a fee calculated as set forth on Schedule 1 hereto. Net asset value shall be computed on such days and at such time or times as described in the Series' then-current Prospectus and Statement of Additional Information. The fee for the period from the date following the commencement of sales of the Series' shares to the end of the month during which such sales shall have been commenced shall be pro-rated according to the proportion which such period bears to the full monthly period, and upon any termination of this Agreement before the end of any month, the fee for such part of a month shall be pro-rated according to the proportion which such period bears to the full monthly period and shall be payable within 10 business days of date of termination of this Agreement. For the purpose of determining fees payable to you, the value of the Series' net assets shall be computed in the manner specified in the Fund's charter documents for the computation of the value of the Series' net assets. You will bear all expenses in connection with the performance of your services under this Agreement. All other expenses to be incurred in the operation of the Series (other than those borne by the Adviser) will be borne by the Series, except to the extent specifically assumed by you. The expenses to be borne by the Series include, without limitation, the following: organizational costs, taxes, interest, loan commitment fees, -2- interest and distributions paid on securities sold short, brokerage fees and commissions, if any, fees of Board members, Securities and Exchange Commission and state Blue Sky qualification fees, advisory, administration and fund accounting fees, charges of custodians, transfer and dividend disbursing agents' fees, certain insurance premiums, industry association fees, outside auditing and legal expenses, costs of independent pricing services, costs of maintaining the Series' existence, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders, costs of shareholders' reports and meetings, and any extraordinary expenses. If in any fiscal year the aggregate expenses of the Series (including fees pursuant to the Fund's Investment Advisory Agreement, but excluding interest, taxes, brokerage and, with the prior written consent of the necessary state securities commissions, extraordinary expenses) exceed the expense limitation of any state having jurisdiction over the Series, the Adviser may deduct from the fees to be paid hereunder, or you will bear such excess expense on a pro-rata basis with the Adviser, in the proportion that the sub-advisory fee payable to you pursuant to this Agreement bears to the fee payable to the Adviser pursuant to the Investment Advisory Agreement (the "Proportion"), to the extent required by state law. Your obligation pursuant hereto will be limited to the amount of your fees hereunder. Such deduction or payment, if any, will be estimated daily, and reconciled and effected or paid, as the case may be, on a monthly basis. The Adviser understands that you now act, and that from time to time hereafter you may act, as investment adviser to one or more other investment companies and fiduciary or other managed accounts, and the Adviser has no objection to your so acting, provided that when purchase or sale of securities of the same issuer is suitable for the investment objectives of two or more companies or accounts managed by you which have available funds for investment, the available securities will be allocated in a manner believed by you to be equitable to each company or account. It is recognized that in some cases this procedure may adversely affect the price paid or received by the Series or the size of the position obtainable for or disposed of by the Series. In addition, it is understood that the persons employed by you to assist in the performance of your duties hereunder will not devote their full time to such services and nothing contained herein shall be deemed to limit or restrict your right or the right of any of your affiliates to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. -3- Any person, even though also your officer, director, partner, employee or agent, who may be or become an officer, Board member, employee or agent of the Fund, shall be deemed, when rendering services to the Fund or acting on any business of the Fund, to be rendering such services to or acting solely for the Fund and not as your officer, director, partner, employee, or agent or one under your control or direction even though paid by you. This Agreement shall continue until February 22, 1997, and thereafter shall continue automatically for successive annual periods ending on February 22nd of each year, provided such continuance is specifically approved at least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the Investment Company Act of 1940, as amended) of the Fund's outstanding voting securities, provided that in either event its continuance also is approved by a majority of the Fund's Board members who are not "interested persons" (as defined in said Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable without penalty (i) by the Adviser upon 60 days' notice to you, (ii) by the Fund's Board or by vote of the holders of a majority of the Fund's shares upon 60 days' notice to you, or (iii) by you upon not less than 90 days' notice to the Fund and the Adviser. This Agreement also will terminate automatically in the event of its assignment (as defined in said Act). In addition, notwithstanding anything herein to the contrary, if the Investment Advisory Agreement terminates for any reason, this Agreement shall terminate effective upon the date the Investment Advisory Agreement terminates. If the foregoing is in accordance with your understanding, will you kindly so indicate by signing and returning to us the enclosed copy hereof. Very truly yours, BEAR STEARNS FUNDS MANAGEMENT INC. By: /s/ Frank J. Maresca ------------------------------- Accepted: SYMPHONY ASSET MANAGEMENT By: /s/ Neil Rudolph ---------------------- -4- SCHEDULE 1 For the period beginning with the day on which the Fund commences investment operations and ending with the last day of the twelfth full calendar month thereafter, the Adviser will pay you, at the end of each month, a monthly advisory fee calculated at an annual rate of .45% of the Series' average daily net assets during such month (the "Basic Fee"). Beginning with the thirteenth month, the Basic Fee will be adjusted each month (the "Monthly Performance Adjustment") depending on the extent to which the investment performance of the Class of shares expected to bear the highest total Series operating expenses (as such Class from time to time may be designated by the Fund's Board, the "Designated Class"), reflecting the deduction of expenses, exceeds or is exceeded by the percentage change in the investment record of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500") for the immediately preceding twelve calendar months on a rolling basis. The rate of the Monthly Performance Adjustment may increase or decrease the fee payable to you by up to .25% per annum of the Series' average daily net assets. The performance of the Designated Class during a performance period will be calculated by first determining the change in the Class' net asset value per share during the period, assuming the reinvestment of distributions during that period, and then expressing this amount as a percentage of the net asset value per share at the beginning of the period. The performance of the S&P 500 during a performance period is calculated as the sum of the change in the level of the index during the period, plus the value of any dividends or distributions made by the companies whose securities comprise the index accumulated to the end of the period. After the Monthly Performance Adjustment is effective, the total advisory fee, payable by the Adviser to you at the end of each calendar month, will be equal to the Basic Fee for the month adjusted upward or downward for the month by the Monthly Performance Adjustment for the month. The monthly advisory fee will be calculated as follows: (1) one-twelfth of the .45% annual basic fee rate will be applied to the Series' average daily net assets over the most recent calendar month, giving a dollar amount which will be the Basic Fee for that month; (2) one-twelfth of the applicable performance adjustment fee rate from the table below will be applied to the Series' average daily net assets over the most recent month, giving a dollar amount which will be the Monthly Performance Adjustment; and (3) the Monthly Performance Adjustment will then be added to or subtracted from the Basic Fee and the result will be the amount payable by the Adviser to you as the total advisory fee for that month. The full range of permitted fees on an annualized basis is as follows:
Percentage Point Difference Between Designated Class' Performance (Net of Expenses Including Advisory Fees) Performance and Percentage Change in the Basic Adjustment Total S&P 500 Investment Record Fee/*/ (%) Rate (%) Fee (%) - ------------------------------------ ---------- ----------- ----- +3.00 percentage points or more........ .45% .25% .70% +2.75 percentage points or more but less than +3.00 percentage points.... .45% .20% .65% +2.50 percentage points or more but less than +2.75 percentage points.... .45% .15% .60% +2.25 percentage points or more but less than +2.50 percentage points.... .45% .10% .55% +2.00 percentage points or more but less than +2.25 percentage points.... .45% .05% .50% Less than +2.00 percentage points but more than -2.00 percentage points.... .45% 0% .45% - -2.00 percentage points or less but more than -2.25 percentage points.... .45% -.05% .40% - -2.25 percentage points or less but more than -2.50 percentage points.... .45% -.10% .35% - -2.50 percentage points or less but more than -2.75 percentage points.... .45% -.15% .30% - -2.75 percentage points or less but more than -3.00 percentage points.... .45% -.20% .25% - -3.00 percentage points or less........ .45% -.25% .20%
The period over which performance will be measured is a rolling 12- month period. You acknowledged that, from time to time, the Adviser may waive receipt of all or a portion of its fee. You agree that, in such circumstance, the Total Fee payable to you shall be reduced by an amount determined by multiplying the amount of such waiver by the Proportion, provided that the amount of such reduction shall not exceed an annual rate of .075%. - --------------- /*/ If for the 12-month period ended February 22, 1997, your Total Fee exceeds .45%, without giving effect to any fee waivers by the Adviser, then thereafter, so long as this Agreement remains in effect, the Basic Fee shall be increased to .50% on an annualized basis. EX-99.6.A 12 DISTRIBUTION AGREEMENT Exhibit (6)(a) DISTRIBUTION AGREEMENT THE BEAR STEARNS FUNDS 245 Park Avenue New York, New York 10167 February 22, 1995 As Revised April 11, 1995 Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 Dear Sirs: This is to confirm that, in consideration of the agreements hereinafter contained, the above-named investment company (the "Fund") has agreed that you shall be, for the period of this agreement, the distributor of (a) shares of each Series of the Fund set forth on Schedule 1 hereto, as such Schedule may be revised from time to time (each, a "Series") or (b) if no Series are set forth on such Schedule, shares of the Fund. For purposes of this agreement the term "Shares" shall mean the authorized shares of the relevant Series, if any, and otherwise shall mean the Fund's authorized shares. 1. Services as Distributor 1.1 You will act as agent for the distribution of Shares covered by, and in accordance with, the registration statement and prospectus then in effect under the Securities Act of 1933, as amended, and will transmit promptly any orders received by you for purchase or redemption of Shares to the Transfer and Dividend Disbursing Agent for the Fund of which the Fund has notified you in writing. 1.2 You agree to use your best efforts to solicit orders for the sale of Shares. It is contemplated that you will enter into sales or servicing agreements with securities dealers, financial institutions and other industry professionals, such as investment advisers, accountants and estate planning firms, and in so doing you will act only on your own behalf as principal. 1.3 You shall act as distributor of Shares in compliance with all applicable laws, rules and regulations, including, without limitation, all rules and regulations made or adopted pursuant to the Investment Company Act of 1940, as amended, by the Securities and Exchange Commission or any securities association registered under the Securities Exchange Act of 1934, as amended. 1.4 Whenever in their judgment such action is warranted by market, economic or political conditions, or by abnormal circumstances of any kind, the Fund's officers may decline to accept any orders for, or make any sales of, any Shares until such time as they deem it advisable to accept such orders and to make such sales and the Fund shall advise you promptly of such determination. 1.5 The Fund agrees to pay all costs and expenses in connection with the registration of Shares under the Securities Act of 1933, as amended, and all expenses in connection with maintaining facilities for the issue and transfer of Shares and for supplying information, prices and other data to be furnished by the Fund hereunder, and all expenses in connection with the preparation and printing of the Fund's prospectuses and statements of additional information for regulatory purposes and for distribution to shareholders; provided however, that nothing contained herein shall be deemed to require the Fund to pay any of the costs of advertising the sale of Shares. 1.6 The Fund agrees to execute any and all documents and to furnish any and all information and otherwise to take all actions which may be reasonably necessary in the discretion of the Fund's officers in connection with the qualification of Shares for sale in such states as you may designate to the Fund and the Fund may approve, and the Fund agrees to pay all expenses which may be incurred in connection with such qualification. You shall pay all expenses connected with your own qualification as a dealer under state or Federal laws and, except as otherwise specifically provided in this agreement, all other expenses incurred by you in connection with the sale of Shares as contemplated in this agreement. 1.7 The Fund shall furnish you from time to time, for use in connection with the sale of Shares, such information with respect to the Fund or any relevant Series and the Shares as you may reasonably request, all of which shall be signed by one or more of the Fund's duly authorized officers; and the Fund warrants that the statements contained in any such information, when so signed by the Fund's officers, shall be true and correct. The Fund also shall furnish you upon request with: (a) semi-annual reports and annual audited reports of the Fund's books and accounts made by independent public accountants regularly retained by the Fund, (b) quarterly earnings -2- statements prepared by the Fund, (c) a monthly itemized list of the securities in the Fund's or, if applicable, each Series' portfolio, (d) monthly balance sheets as soon as practicable after the end of each month, and (e) from time to time such additional information regarding the Fund's financial condition as you may reasonably request. 1.8 The Fund represents to you that all registration statements and prospectuses filed by the Fund with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and under the Investment Company Act of 1940, as amended, with respect to the Shares have been carefully prepared in conformity with the requirements of said Acts and rules and regulations of the Securities and Exchange Commission thereunder. As used in this agreement the terms "registration statement" and "prospectus" shall mean any registration statement and prospectus, including the statement of additional information incorporated by reference therein, filed with the Securities and Exchange Commission and any amendments and supplements thereto which at any time shall have been filed with said Commission. The Fund represents and warrants to you that any registration statement and prospectus, when such registration statement becomes effective, will contain all statements required to be stated therein in conformity with said Acts and the rules and regulations of said Commission; that all statements of fact contained in any such registration statement and prospectus will be true and correct when such registration statement becomes effective; and that neither any registration statement nor any prospectus when such registration statement becomes effective will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Fund may but shall not be obligated to propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any prospectus as, in the light of future developments, may, in the opinion of the Fund's counsel, be necessary or advisable. If the Fund shall not propose such amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Fund of a written request from you to do so, you may, at your option, terminate this agreement or decline to make offers of the Fund's securities until such amendments are made. The Fund shall not file any amendment to any registration statement or supplement to any prospectus without giving you reasonable notice thereof in advance; provided, however, that nothing contained in this agreement shall in any way limit the Fund's right to file at any time such amendments to any registration statement and/or supplements to any prospectus, of whatever character, as the Fund may deem advisable, such right being in all respects absolute and unconditional. -3- 1.9 The Fund authorizes you to use any prospectus in the form furnished to you from time to time, in connection with the sale of Shares. The Fund agrees to indemnify, defend and hold you, your several officers and directors, and any person who controls you within the meaning of Section 15 of the Securities Act of 1933, as amended, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which you, your officers and directors, or any such controlling person, may incur under the Securities Act of 1933, as amended, or under common law or otherwise, arising out of or based upon any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or any prospectus or arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated in either any registration statement or any prospectus or necessary to make the statements in either thereof not misleading; provided, however, that the Fund's agreement to indemnify you, your officers or directors, and any such controlling person shall not be deemed to cover any claims, demands, liabilities or expenses arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement or prospectus in reliance upon and in conformity with written information furnished to the Fund by you specifically for use in the preparation thereof. The Fund's agreement to indemnify you, your officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Fund's being notified of any action brought against you, your officers or directors, or any such controlling person, such notification to be given by letter or by telegram addressed to the Fund at its address set forth above within ten days after the summons or other first legal process shall have been served. The failure so to notify the Fund of any such action shall not relieve the Fund from any liability which the Fund may have to the person against whom such action is brought by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of the Fund's indemnity agreement contained in this paragraph 1.9. The Fund will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Fund and approved by you. In the event the Fund elects to assume the defense of any such suit and retain counsel of good standing approved by you, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Fund does not elect to assume the defense of any such suit, or in case you do not approve of counsel chosen by the Fund, the Fund will reimburse you, your officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by you or -4- them. The Fund's indemnification agreement contained in this paragraph 1.9 and the Fund's representations and warranties in this agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you, your officers and directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to your benefit, to the benefit of your several officers and directors, and their respective estates, and to the benefit of any controlling persons and their successors. The Fund agrees promptly to notify you of the commencement of any litigation or proceedings against the Fund or any of its officers or Board members in connection with the issue and sale of Shares. 1.10 You agree to indemnify, defend and hold the Fund, its several officers and Board members, and any person who controls the Fund within the meaning of Section 15 of the Securities Act of 1933, as amended, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its officers or Board members, or any such controlling person, may incur under the Securities Act of 1933, as amended, or under common law or otherwise, but only to the extent that such liability or expense incurred by the Fund, its officers or Board members, or such controlling person resulting from such claims or demands, shall arise out of or be based upon any untrue, or alleged untrue, statement of a material fact contained in information furnished in writing by you to the Fund specifically for use in the Fund's registration statement and used in the answers to any of the items of the registration statement or in the corresponding statements made in the prospectus, or shall arise out of or be based upon any omission, or alleged omission, to state a material fact in connection with such information furnished in writing by you to the Fund and required to be stated in such answers or necessary to make such information not misleading. Your agreement to indemnify the Fund, its officers and Board members, and any such controlling person, as aforesaid, is expressly conditioned upon your being notified of any action brought against the Fund, its officers or Board members, or any such controlling person, such notification to be given by letter or telegram addressed to you at your address set forth above within ten days after the summons or other first legal process shall have been served. You shall have the right to control the defense of such action, with counsel of your own choosing, satisfactory to the Fund, if such action is based solely upon such alleged misstatement or omission on your part, and in any other event the Fund, its officers or Board members, or such controlling person shall each have the right to participate in the defense or preparation of the defense of any such action. The failure so to notify you of any such action shall not relieve you from any liability which -5- you may have to the Fund, its officers or Board members, or to such controlling person by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of your indemnity agreement contained in this paragraph 1.10. This agreement of indemnity will inure exclusively to the Fund's benefit, to the benefit of the Fund's officers and Board members, and their respective estates, and to the benefit of any controlling persons and their successors. You agree promptly to notify the Fund of the commencement of any litigation or proceedings against you or any of your officers or directors in connection with the issue and sale of Shares. 1.11 No Shares shall be offered by either you or the Fund under any of the provisions of this agreement and no orders for the purchase or sale of such Shares hereunder shall be accepted by the Fund if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the Securities Act of 1933, as amended, or if and so long as a current prospectus as required by Section 10 of said Act, as amended, is not on file with the Securities and Exchange Commission; provided, however, that nothing contained in this paragraph 1.11 shall in any way restrict or have an application to or bearing upon the Fund's obligation to repurchase any Shares from any shareholder in accordance with the provisions of the Fund's prospectus or charter documents. 1.12 The Fund agrees to advise you immediately in writing: (a) of any request by the Securities and Exchange Commission for amendments to the registration statement or prospectus then in effect or for additional information; (b) in the event of the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of the registration statement or prospectus then in effect or the initiation of any proceeding for that purpose; (c) of the happening of any event which makes untrue any statement of a material fact made in the registration statement or prospectus then in effect or which requires the making of a change in such registration statement or prospectus in order to make the statements therein not misleading; and (d) of all actions of the Securities and Exchange Commission with respect to any amendments to any registration statement or prospectus which may from -6- time to time be filed with the Securities and Exchange Commission. 2. Offering Price Shares of any class of the Fund offered for sale by you shall be offered for sale at a price per share (the "offering price") approximately equal to (a) their net asset value (determined in the manner set forth in the Fund's charter documents) plus (b) a sales charge, if any and except to those persons set forth in the then-current prospectus, which shall be the percentage of the offering price of such Shares as set forth in the Fund's then-current prospectus. The offering price, if not an exact multiple of one cent, shall be adjusted to the nearest cent. In addition, Shares of any class of the Fund offered for sale by you may be subject to a contingent deferred sales charge as set forth in the Fund's then-current prospectus. You shall be entitled to receive any sales charge or contingent deferred sales charge in respect of the Shares. Any payments to dealers shall be governed by a separate agreement between you and such dealer and the Fund's then-current prospectus. 3. Term Subject to the provisions of Paragraph 1.8, this agreement shall continue until the date (the "Reapproval Date") set forth on Schedule 1 hereto (and, if the Fund has Series, a separate Reapproval Date shall be specified on Schedule 1 hereto for each Series), and thereafter shall continue automatically for successive annual periods ending on the day (the "Reapproval Day") of each year set forth on Schedule 1 hereto, provided such continuance is specifically approved at least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the Investment Company Act of 1940) of the Shares of the Fund or the relevant Series, as the case may be, provided that in either event its continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in said Act) of any party to this agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This agreement is terminable without penalty, on 60 days' notice, by vote of holders of a majority of the Fund's shares, and, as to each Series, by the Fund's Board of Trustees or by you. This agreement also will terminate automatically, as to the relevant Series, in the event of its assignment (as defined in said Act). 4. Miscellaneous This agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this agreement shall only be binding upon the assets and property of the Fund and -7- shall not be binding upon any Board member, officer or shareholder of the Fund individually. Please confirm that the foregoing is in accordance with your understanding and indicate your acceptance hereof by signing below, whereupon it shall become a binding agreement between us. Very truly yours, THE BEAR STEARNS FUNDS By: /s/ Frank J. Maresca ------------------------------- Accepted: BEAR, STEARNS & CO. INC. By: /s/ Robert S. Reitzes ------------------------- -8- SCHEDULE 1
Name of Series Reapproval Date Reapproval Day - -------------- --------------- -------------- S&P STARS Portfolio February 22, 1997 February 22nd Large Cap Value Portfolio February 22, 1997 February 22nd Small Cap Value Portfolio February 22, 1997 February 22nd Total Return Bond Portfolio February 22, 1997 February 22nd The Insiders Select Portfolio February 22, 1997 February 22nd
-9- EX-99.6.B 13 DEALER AGREEMENT Exhibit (6)(b) THE BEAR STEARNS FUNDS Shares of Beneficial Interest DEALER AGREEMENT , 199 ------------ - Ladies and Gentlemen: Bear, Stearns & Co. Inc. ("Bear Stearns") has entered into a distribution ------------ agreement (the "Distribution Agreement"), dated February 22, 1995 with The Bear ---------------------- Stearns Funds (the "Trust"), pursuant to which Bear Stearns has agreed to act as ----- distributor (the "Distributor") of shares of each Class of each Series of the ----------- Trust set forth on Schedule 1 hereto, as such Schedule may be revised from time to time (each, a "Series"). For purposes of this Agreement, the term "Shares" shall mean the authorized shares of the relevant Series or Class of the Trust, as the case may be. This Dealer Agreement shall herein be referred to as the "Agreement." For --------- purposes of this Agreement, "Bear Stearns" shall mean Bear, Stearns & Co. Inc. ------------ in our capacity as Distributor. 1. The Offering. The Shares will be offered initially during an ------------ initial offering period (the "Initial Offering Period") for those Series set forth as having an Initial Offering Period on Schedule 1. The Initial Offering Period, for each Series subject to one, will end on the date specified in the relevant Prospectus. After the Initial Offering Period terminates, the Trust intends to commence the continuous offering period (the "Continuous Offering Period") referred to in the Prospectus relating to such Shares. Shares of the other Series will be sold on a continuous basis. 2. Role of Bear Stearns. Pursuant to the Distribution Agreement, we -------------------- have agreed to use our best efforts to make arrangements for securities dealers which can make the representation set forth in Section 7(b) of this Agreement to solicit from the public orders to purchase Shares. You are hereby invited to become one of such securities dealers (each such securities dealer, an "Authorized Dealer"). This will confirm our mutual agreement as to the terms - ------------------ and conditions applicable to your participation as an Authorized Dealer, such agreement to be effective on your confirmation hereof. You understand (a) that we may, at any time at our option, act as an Authorized Dealer, (b) that we are seeking to enter into this Agreement in counterparts with you and certain other securities dealers, which also may act as Authorized Dealers, (c) that, except as we may otherwise agree with you, we may enter into agreements (which may or may not be the same as this Agreement) with Authorized Dealers, (d) that the Trust and we may modify, suspend, terminate or withdraw entirely the offering of Shares at any time without giving notice to you pursuant to Section 11 and without incurring any liability or obligation to you, (e) that we may, upon notice, change the public offering price, sales load, or dealer allowance or modify, cancel or change the terms of this Agreement, and (f) we shall be under no liability to you except for lack of good faith and for obligations expressly assumed by us herein. All purchases of Shares from, and redemptions of Shares by, the Trust shall be effected through us acting on behalf of the Trust. You understand that we shall have no obligation to sell Shares to you at such times as we are not acting as Distributor for the Shares. 3. Role of Authorized Dealers. (a) As an Authorized Dealer, you -------------------------- shall have no obligation to purchase or sell or to solicit the purchase or sale of Shares. As, when and if you determine to purchase Shares or you receive a customer order for the purchase of Shares and you determine to accept such order, you shall comply with the procedures for the purchase of Shares set forth in the relevant Prospectus and Statement of Additional Information as most currently amended or supplemented (the "SAI"). The procedure relating to the --- handling of orders shall be subject to such further instructions as we shall forward to you in writing from time to time. (b) You agree to offer Shares to the public at the then applicable public offering price and subject to the minimum investment amount set forth in the relevant Prospectus and SAI, subject to any waivers or reductions of sales load (the "Sales Load") or dealer allowances (the "Dealer Allowances") as ---------- ----------------- described in the Prospectus as amended from time to time. Any amendment to a Prospectus which affects the Sales Load, Dealer Allowances, waivers or discounts shall not affect Sales Load, Dealer Allowances, discounts or waivers with respect to sales on which orders have been accepted by us prior to the date of notice of such amendment. Your placement of an order for Shares after the date of any notice of such amendment shall conclusively evidence your agreement to be bound thereby. The Trust and Bear Stearns reserve the right to modify the minimum investment requirement, the subsequent investment requirement, the manner in which Shares are offered and the Sales Load rates applicable to future purchases of Shares. You also acknowledge that the amounts charged to the public for Shares may include such transaction fees ("Transaction Fees") as may ---------------- be described in the relevant Prospectus and SAI. Bear Stearns shall make a reasonable effort to notify you of any redetermination or -2- suspension of the public offering price, but Bear Stearns shall be under no liability for failure to do so. Reduced Sales Loads also may be available as a result of a cumulative discount or pursuant to a right of accumulation as set forth in the relevant Prospectus. You agree to advise us promptly as to the amounts of any sales made by you to the public qualifying for reduced Sales Loads. (c) You agree to purchase Shares from us only to cover purchase orders already received from your customers, or for your own bona fide investment. Any order of Shares from us as part of an initial distribution for those Series set forth as having an Initial Offering Period on Schedule 1 must be received by Bear Stearns on or before the close of business on the last day of the Initial Offering Period (the "Closing Date"); after the Closing Date and prior to the commencement of the Continuous Offering Period, orders for Shares may be made by you only in respect of orders from your customers who have purchased Shares as a part of the initial distribution. You will not withhold placing with us orders received from your customers so as to profit yourself as a result of such withholding. All orders for Shares are subject to acceptance or rejection by Bear Stearns or the Trust in the sole discretion of either. (d) In purchasing Shares through us, you shall rely solely on the representations contained in the relevant Prospectus, relevant SAI and the registration statement, as most recently amended (the "Registration Statement"), relating to the Shares. You will not furnish to any person any information relating to the Shares, the Trust, any Series or us that is inconsistent with information contained in the relevant Prospectus, relevant SAI, the Registration Statement or any printed information issued by the Trust or us as information supplemental to such Prospectus or cause any advertisement to be published or posted in any public place without our consent and the consent of the Trust. (e) In all sales of Shares to the public, you shall act as dealer for your own account, whether as agent or principal. Nothing herein shall be deemed to constitute you or any other Authorized Dealer as agent for the Trust, us, or any other Authorized Dealer. You agree not to act as our agent and not to claim to act as our agent or as agent of any of the foregoing. You shall be deemed an independent contractor and you shall have no authority to act for or represent the Trust. You will not act as an "underwriter" or "distributor" of Shares, as those terms are used in the Investment Company Act of 1940, as amended (the "Investment Company Act"), the Securities Act of 1933, as amended (the - ----------------------- "Securities Act"), and the rules and regulations thereunder. - --------------- -3- You agree to buy Shares only through us and not from any other sources and to sell Shares only to us, as the Trust's redemption agent, and not to any other purchasers. (f) You agree to accept orders for the redemption of Shares and to transmit to the Trust such orders and all additional material, as may be required to complete the redemption as described in the relevant Prospectus and SAI. (g) You agree that we shall have full authority to act upon your express instructions to repurchase or exchange Shares through us on behalf of your customers under the terms and conditions provided in the relevant Prospectus and SAI. You agree to hold us harmless as a result of any action taken with respect to authorized repurchases or exchanges upon your express instructions. 4. Compensation. (a) You will be entitled to receive that portion ------------ of the Sales Load allocated to Authorized Dealers as set forth in the relevant Prospectus in connection with purchases of Shares effected to or through you. You acknowledge that the Prospectuses will set forth a description of waivers or reduction of the Sales Load in certain cases and you hereby waive such portion of the Sales Load otherwise allocated to you. We will promptly remit or cause to be remitted to you, by wire transfer of same day funds to an account you shall designate, that portion of the Sales Load or Transaction Fees, if any, to which you are entitled, after deduction of the portion allocated to us, which was received by us and not yet paid to you. (b) If payment in Federal Funds is not received by the fifth business day after the Subscription Date or, in case of orders during the Continuous Offering Period, within five business days after the execution of the order, Bear Stearns reserves the right, without any notice, to cancel the sale and to hold you responsible for any loss, including loss of profits, suffered by Bear Stearns or by the Trust resulting from such failure. 5. Orders and Payment for Shares. Upon receipt from you of any order ----------------------------- to purchase Shares and, if a new account, an Account Information Form, we shall confirm such order to you in writing or by wire to be followed by a confirmation in writing. Additional instructions may be forwarded to you from time to time. Payment for Shares ordered from us shall be made in Federal Funds and must be received by the Trust's agent, PFPC Inc., within five business days of a receipt and acceptance by us of an order. -4- 6. Blue Sky and Other Qualifications. The Trust has registered an --------------------------------- indefinite number of Shares under the Securities Act. Upon application by you, we shall inform you as to any advice received by us concerning the jurisdictions in which the Shares have been qualified for offer or sale or are exempt under the securities or blue sky laws of such jurisdictions, but we assume no obligation or responsibility as to your right to offer or sell Shares in any jurisdiction (other than under the federal laws of the United States). If you propose to offer or sell Shares outside the United States, its territories or its possessions, you will take, at your expense, such action, if any, as may be necessary to comply with the laws of such foreign jurisdictions. 7. Representations, Warranties and Undertakings. You represent and -------------------------------------------- warrant to and undertake that: (a) You are familiar with Rule 15c2-8 under the Securities Exchange Act of 1934 (the "Exchange Act"), Section 4(3) of Securities Act and Section ------------ 24(d) of the Investment Company Act relating to the distribution and delivery of preliminary and final prospectuses and agree that you will comply therewith. You agree to deliver thereafter to any purchaser whose Shares you are holding as record holder copies of the annual and interim reports and proxy solicitation materials relating to the Shares. You further agree to make reasonable efforts to endeavor to obtain proxies from such purchasers whose Shares you are holding as record holder. Additional copies of the Trust's Prospectuses, SAI, annual or interim reports, proxy solicitation materials and any other printed information supplemental to such material will be supplied to you as you reasonably request. (b) You are a member of good standing of the National Association of Securities Dealers, Inc. (the "NASD") or, if you are not such a member, you are ---- a foreign bank, dealer or institution not eligible for membership in the NASD which agrees to make no sales within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply, as though you were a member of NASD, with the provisions of Sections 8, 24 and 36 of Article III of the Rules of Fair Practice of the NASD and with Section 25 thereof as that Section applies to a non-NASD member broker or dealer in a foreign country. (c) You undertake to comply with respect to your offering of Shares to the public pursuant to this Agreement with all applicable provisions of the Securities Act, the Exchange Act and the Investment Company Act and the rules and regulations thereunder and with the applicable rules of the NASD. -5- (d) You represent that any compensation payable to you hereunder (i) will be disclosed to your customers; (ii) will be authorized by your customers; and (iii) will not result in an excessive fee to you. In addition, if an issue relating to a Class' 12b-1 Plan (as defined below) is submitted for shareholder approval, you will vote any Shares held for your own account in the same proportion as the vote of the Shares held by your customers on such issue. You further represent that in effecting the purchase or redemption of Shares in accordance with the terms of this Agreement, you represent as follows: (i) you shall act solely as agent for the account of your customer; (ii) purchases or redemptions of Shares shall be initiated solely upon the instruction and order of your customer; (iii) the customer will have full beneficial ownership of any Shares purchased upon its authorization and order; and (iv) all transactions shall be for the account of the customer and under no circumstances for your account, and shall be without recourse to you. Under no circumstances will you make any oral or written representations to the contrary. 8. 12b-1 Plan. Those Series or Classes set forth as having a 12b-1 ---------- Plan on Schedule 1 have adopted a plan under Rule 12b-1 of the Investment Company Act (a "12b-1 Plan") as described in the Prospectuses. To the extent you provide services of the type contemplated by the 12b-1 Plan, you may be entitled to receive compensation from us as set forth in the 12b-1 Plan. All compensation, including fees under the 12b-1 Plan, shall be payable to you only to the extent that funds are received and in the possession of the Distributor. 9. Indemnification. The parties to this Agreement hereby agree to --------------- indemnify and hold harmless each other, their officers and directors, and any person who is or may be deemed to be a controlling person of each other, from and against any losses, claims, damages, liabilities or expenses (including reasonable fees of counsel) to which any such person or entity may become subject insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon (a) any untrue statement or alleged untrue statement of material fact, or any omission or alleged omission to state a material fact made or omitted by it herein, or (b) any willful misfeasance or gross misconduct by it in the performance of its duties and obligations hereunder. 10. NSCC Indemnity - Shareholder and House Accounts. In ----------------------------------------------- consideration of the Distributor liquidating, exchanging and/or transferring unissued Shares for your customers without the use of original or underlying documentation supporting such instruction (e.g. a signed stock power or signature guarantees), you hereby agree to indemnify the Distributor and the Trust against any losses, including reasonable attorney's fees, that may arise from such liquidation, exchange and/or transfer of -6- unissued Shares upon your direction. This indemnification shall apply only to the liquidation, exchange and/or transfer of unissued Shares in shareholder and house accounts executed as wire orders transmitted via NSCC's Fund/SERV system. You represent and warrant to the Trust and the Distributor that all such transactions shall be authorized by your customers. This indemnification shall not apply to any losses (including attorneys fees) caused by the Distributor or the Trust to comply with any of your instructions governing any of the above transactions, or any negligent act or omission of the Distributor or the Trust, or any of their directors, officers, employees or agents. All transactions shall be settled upon your confirmation through NSCC transmission to the Distributor. The Distributor or the Trust may revoke the indemnity contained in this Section 10 upon written notice to each of the other parties hereto, and in the case of such revocation, this indemnity agreement shall remain effective as to trades made prior to such revocation. 11. Termination. Either party to this Agreement may cancel this ----------- Agreement, as to any Series or Class, as the case may be, by written notice to the other party. Such cancellation shall be effective upon receipt of such notice. Bear Stearns agrees to cancel this Agreement upon instruction by a majority of the Trustees who are not "interested persons" of the Trust (as defined in the Investment Company Act) and who have no direct or indirect financial interest in the operation of this Agreement or by a vote of a majority of the relevant Series' or Class' outstanding voting securities. 12. Representations to Survive. The agreements, representations, -------------------------- warranties and other statements set forth in or made pursuant to this Agreement will remain in full force and effect, to the extent permitted by applicable law, regardless of any investigation made by or on behalf of us or any Authorized Dealer. The provisions of Sections 7 and 9 of this Agreement shall survive the offer and sale of the Shares, to the extent permitted by applicable law, and the termination or cancellation of this Agreement. 13. No Association. Nothing herein contained constitutes an -------------- agreement to become partners with you or with any other Authorized Dealer, but you shall be liable for your proportionate share of any tax, liability or expense based on any claim arising from the sale of Shares under this Agreement. We shall not be under any liability to you, except for obligations expressly assumed by us in this Agreement and liabilities under Section 11(f) of the Securities Act of 1933, as amended, and no obligations on our part shall be implied or inferred herefrom. We and you hereby elect to be excluded from -7- the application of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986, as amended, and agree not to take any position inconsistent with that election. 14. Recordkeeping. You will maintain all records required by law to ------------- be kept by you relating to transactions in the Shares and, upon request by the Trust, promptly make such of these records available to the Trust as the Trust may reasonably request in connection with its operations. 15. Notices. Notices hereunder shall be deemed to have been duly ------- given if delivered by hand or facsimile (a) if to you, at your address or facsimile number set forth below and (b) if to us, to Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, Attention: Frank J. Maresca or, in each case, such other address as may be notified to the other party. 16. Amendments. We may modify this Agreement at any time by written ---------- notice to you. The first order placed by you subsequent to the giving of such notice shall be deemed acceptance by you of the modification described in such notice. 17. Applicable Law. This Agreement shall be governed by and -------------- construed in accordance with the laws of the State of New York. 18. Arbitration. Any controversy or claim arising out of or relating ----------- to this Agreement, or any breach thereof, shall be settled by arbitration in accordance with the Rules of the New York Stock Exchange, Inc. Such arbitration shall be commenced within one year after the cause of action forming the basis of the controversy or claim accrued. The arbitration shall be conducted in New York, New York before three arbitrators, all of whom shall be from the securities industry. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. -8- Please confirm your agreement by signing and returning to us the two enclosed duplicate copies of this Agreement. Upon our acceptance hereof, the Agreement shall constitute a valid and binding contract between us. After our acceptance, we will deliver to you one fully executed copy of this Agreement. Very truly yours, BEAR, STEARNS & CO. INC. By: ____________________________ Name: Title: Confirmed: ___________, 199_ ________________________________ (Name of Authorized Dealer) By: ____________________________ (Authorized Signature) Name: Title: ________________________________ Street Address ________________________________ City State Zip ________________________________ Fax No. ________________________________ Telephone No. ________________________________ Telex No. ________________________________ Firm Taxpayer Identification No. -9- SCHEDULE 1
Name of Series Offering Type 12b-1 Plan - ------------------------------- ---------------- ---------- S&P STARS Portfolio Class A Continuous Basis Yes Class C Continuous Basis Yes Class Y Continuous Basis No Large Cap Value Portfolio Class A Continuous Basis Yes Class C Continuous Basis Yes Class Y Continuous Basis No Small Cap Value Portfolio Class A Continuous Basis Yes Class C Continuous Basis Yes Class Y Continuous Basis No Total Return Bond Portfolio Class A Continuous Basis Yes Class C Continuous Basis Yes Class Y Continuous Basis No The Insiders Select Portfolio Class A Continuous Basis Yes Class C Continuous Basis Yes Class Y Continuous Basis No
-10- EX-99.8 14 CUSTODY AGREEMENTS EXHIBIT (8) CUSTODY AGREEMENT This AGREEMENT, dated as of February 22, 1995, by and between LARGE CAP VALUE PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the "Company"), an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and existing under the laws of the State of New Jersey (the "Custodian"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Fund desires that its Securities, cash and other assets be held and administered by Custodian pursuant to this Agreement; WHEREAS, the Fund is an investment portfolio represented by a series of Shares constituting part of the capital stock of the Company, an open-end management investment company registered under the 1940 Act (as hereinafter defined); WHEREAS, Custodian represents that it is a bank having the qualifications prescribed in Section 26(a)(i) of the 1940 Act; NOW, THEREFORE, in consideration of the mutual agreements herein made, the Fund and Custodian hereby agree as follows: ARTICLE I DEFINITIONS ----------- Whenever used in this Agreement, the following terms, unless the context otherwise requires, shall mean: 1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized ----------------- by resolution of the Board of Directors to give Oral Instructions and Written Instructions on behalf of the Fundand identified, by name or by office, in Exhibit A hereto or any person duly designated to do so by an investment adviser of the Fund specified by the Fund in Exhibit B hereto. 1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when ------------------ permitted under the 1940 Act, the Executive Committee thereof, if any. 1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal ----------------- Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of federal agencies as are substantially in the form of such Subpart O. 1.4 "BUSINESS DAY" means any day recognized as a settlement day by The ------------ New York Stock Exchange, Inc. and on which banks in the State of New Jersey are open for business. 1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is --------------- provided for in Section 3.2 below. 1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust -------------------------- company or other entity organized under the laws of a country other than the United States which is eligible under Rule 17f-5 under the 1940 Act to act as a sub-custodian for Foreign Securities and other assets of the Fund held outside the United States. 1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1) ------------------ of Rule 17f-5 under the 1940 Act. -2- 1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or ----------------------------- clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5 under the 1940 Act. 1.9 "1940 ACT" means the Investment Company Act of 1940, as amended. -------- 1.10 "OFFICER" means the President, any Vice President, the Secretary, any ------- Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund. 1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and ----------------- accepted by Custodian which are (a) reasonably believed by Custodian to have been given by an Authorized Person, (b) recorded and kept among the records of Custodian made in the ordinary course of business, and (c) orally confirmed by Custodian. 1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written ------------------- Instructions. Proper Instructions may be continuing Written Instructions when deemed appropriate by both parties. 1.13 "SECURITIES" includes, without limitation, common and preferred ---------- stocks, bonds, call options, put options, debentures, notes, bank certificates of deposit, forward contracts, futures contracts (including those related to indexes), options on futures contracts or indexes, bankers' acceptances, mortgage-backed securities or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or any similar property or assets that Custodian has the facilities to clear and to service. 1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and --------------------- (provided that Custodian has received a copy of a -3- resolution of the Board of Directors of the Fund, certified by an Officer, specifically approving the use thereof as a depository for the Fund) any other clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts as a system for the central handling and deposit of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities. 1.15 "SHARES" means the shares into which the capital stock of the Fund is ------ divided. 1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by -------------------- Custodian and signed by two persons reasonably believed by Custodian to be Authorized Persons, or (b) communications by telex or any other such system from two persons reasonably believed by Custodian to be Authorized Persons, or (c) communications between electro-mechanical or electronic devices. ARTICLE II APPOINTMENT OF CUSTODIAN ------------------------ 2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all ----------- such Securities, cash and other assets as may be acceptable to Custodian and from time to time delivered to it by the Fund or others for the account of the Fund. 2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian ---------- and agrees to perform the duties thereof as hereinafter set forth. -4- ARTICLE III CUSTODY OF CASH AND SECURITIES ------------------------------ 3.1 SEGREGATION. All Securities and non-cash property of the Fund in the ----------- possession of Custodian (other than Securities maintained by Custodian in a Securities Depository or Book-Entry System) shall be physically segregated from other Securities and non-cash property in the possession of Custodian and shall be identified as belonging to the Fund. 3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust --------------- department a custody account in the name of the Fund, subject only to draft or order of Custodian, in which Custodian shall enter and carry all Securities, cash and other assets of the Fund which are delivered to Custodian and accepted by it. Custodian shall not be under any duty or obligation to require the Fund to deliver to it any Securities or funds owned by the Fund and shall have no responsibility or liability for or on account of Securities or funds not so delivered. (b) If Custodian at any time fails to receive any of the documents referred to in Section 3.5(a) below, then, until such time as it receives such document, it shall not be obligated to receive any Securities of the Fund into the Custody Account and shall be entitled to return to the Fund any Securities of the Fund that it is holding. (c) Custodian may, but shall not be obligated to, hold Securities that may be held only in physical form. (d) Custodian is authorized to disclose the name, address and securities positions of the Fund to the issuers of such securities when requested by them to do so. -5- 3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents, --------------------- which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or Bear, Stearns Securities Corp., both of which are registered broker-dealers. The appointment of any agent pursuant to this Section 3.3(a) shall not relieve Custodian of any of its obligations or liabilities under this Agreement. However, no Book-Entry System, Securities Depository, Foreign Securities Depository or other securities depository or clearing agency (whether foreign or domestic) which it is or may become standard market practice to use for the comparison and settlement of trades in securities shall be an agent or sub- contractor of Custodian for purposes of this Section 3.3(a) or otherwise. (b) In its discretion, Custodian may appoint, and at any time remove, any domestic bank or trust company which is qualified to act as a custodian under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and to carry out such other provisions of this Agreement as it may determine, and may also open and maintain one or more banking accounts with such a bank or trust company (any such accounts to be in the name of Custodian and subject only to its draft or order), provided, however, that the appointment of any such agent or opening and maintenance of any such accounts shall be at Custodian's expense and shall not relieve Custodian of any of its obligations or liabilities under this Agreement. (c) Upon receipt of Written Instructions to do so and at the Fund's expense, Custodian shall appoint as sub-custodian such domestic bank or trust company as is named therein, provided that (i) such bank or trust company is qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding anything to the contrary in Section 7.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any such sub-custodian than any such sub-custodian has to Custodian, and Custodian shall not be required -6- to discharge any such liability which may be imposed on it unless and until such sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. 3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian ------------------------------- the Fund's Securities, cash and other assets, which are acceptable to Custodian, including (a) payments of income, payments of principal and capital distributions received by the Fund with respect to such Securities, cash or other assets owned by the Fund at any time during the term of this Agreement, and (b) cash received by the Fund for the issuance, at any time during such term, of Shares. Custodian shall not be responsible for such Securities, cash or other assets until actually received by it. 3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may ---------------------------------------------- deposit and/or maintain Securities of the Fund in a Securities Depository or in a Book-Entry System, subject to the following provisions: (a) Prior to a deposit of Securities of the Fund in any Securities Depository or Book-Entry System, the Fund shall deliver to Custodian a resolution of the Board of Directors of the Fund, certified by an Officer, authorizing and instructing Custodian (and any sub-custodian appointed pursuant to Section 3.3 above) on an on-going basis to deposit in such Securities Depository or Book-Entry System all Securities eligible for deposit therein and to make use of such Securities Depository or Book-Entry System to the extent possible and practical in connection with its performance hereunder (or under the applicable sub-custody agreement in the case of such sub-custodian), including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of collateral consisting of Securities. -7- (b) Securities of the Fund kept in a Book-Entry System or Securities Depository shall be kept in an account ("Depository Account") of Custodian in such Book-Entry System or Securities Depository which includes only assets held by Custodian as a fiduciary, custodian or otherwise for customers. (c) The records of Custodian with respect to Securities of the Fund maintained in a Book-Entry System or Securities Depository shall at all times identify such Securities as belonging to the Fund. (d) If Securities purchased by the Fund are to be held in a Book-Entry System or Securities Depository, Custodian shall pay for such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that such Securities have been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such payment and transfer for the account of the Fund. If Securities sold by the Fund are held in a Book-Entry System or Securities Depository, Custodian shall transfer such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that payment for such Securities has been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such transfer and payment for the account of the Fund. (e) Custodian shall provide the Fund with copies of any report obtained by Custodian from a Book-Entry System or Securities Depository in which Securities of the Fund are kept on the internal accounting controls and procedures for safeguarding Securities deposited in such Book-Entry System or Securities Depository. (f) At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claim against a Book-Entry System or Securities Depository or any other person for any loss or -8- damage to the Fund arising from the use of such Book-Entry System or Securities Depository, if and to the extent that the Fund has not been made whole for any such loss or damage. 3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall disburse moneys from the Custody Account, but only in the following cases: (a) For the purchase of Securities for the Fund but only (i) in the case of Securities (other than options on Securities, futures contracts and options on futures contracts), against the delivery to Custodian (or any sub- custodian appointed pursuant to Section 3.3 above) of such Securities registered as provided in Section 3.9 below or in proper form for transfer or, if the purchase of such Securities is effected through a Book-Entry System or Securities Depository, in accordance with the conditions set forth in Section 3.5 above; (ii) in the case of options on Securities, against delivery to Custodian (or such sub-custodian) of such receipts as are required by the customs prevailing among dealers in such options; (iii) in the case of futures contracts and options on futures contracts, against delivery to Custodian (or such sub-custodian) of evidence of title thereto in favor of the Fund, the Custodian, any such sub-custodian or any nominee referred to in Section 3.9 below; and (iv) in the case of repurchase or reverse repurchase agreements entered into by the Fund, against delivery of the purchased Securities either in certificate form or through an entry crediting Custodian's account at a Book- Entry System or Securities Depository with such Securities; (b) In connection with the conversion, exchange or surrender, as set forth in Section 3.7(f) below, of Securities owned by the Fund; (c) For the payment of any dividends or capital gain distributions declared by the Fund; -9- (d) In payment of the redemption price of Shares as provided in Article VI below; (e) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, administration, investment management, investment advisory, accounting, auditing, transfer agent, custodian, trustee and legal fees; and other operating expenses of the Fund; in all cases, whether or not such expenses are to be in whole or in part capitalized or treated as deferred expenses; (f) For transfer in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (g) For transfer in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (h) For the funding of any uncertificated time deposit or other interest-bearing account with any banking institution (including Custodian), but only if the payment instructions to Custodian detail specific Securities to be acquired; (i) For the purchase from a bank or other financial institution of loan participations, but only if Custodian has in its possession a copy of the agreement between the Fund and such bank or other financial institution with respect to the purchase of -10- such loan participations and the payment instructions to Custodian detail specific assets to be acquired; (j) For the purchase and sale of foreign currencies or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund pursuant to contracts with such banks and other financial institutions, including Custodian, any sub-custodian and any affiliate of Custodian, as principal, as are approved and authorized by the Fund, but only if the payment instructions to Custodian detail specific assets to be acquired; (k) For transfer to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (l) For the payment of the amounts of dividends received with respect to Securities sold short; and (m) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the amount and purpose of such payment, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom such payment is to be made. 3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall release and deliver Securities of the Fund from the Custody Account but only in the following cases: (a) Upon the sale of Securities for the account of the Fund but, subject to Section 5.3 below, only against receipt of -11- payment therefor in cash, by certified or cashiers' check or bank credit; (b) In the case of a sale effected through a Book-Entry System or Securities Depository, in accordance with the provisions of Section 3.5 above; (c) To an offeror's depository agent in connection with tender or other similar offers for Securities of the Fund; provided that, in any such case, the cash or other consideration is to be delivered to Custodian; (d) To the issuer thereof or its agent (i) for transfer into the name of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for exchange for a different number of certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new Securities are to be delivered to Custodian; (e) To the broker selling Securities, for examination in accordance with the "street delivery" custom; (f) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the issuer of such Securities, or pursuant to provisions for conversion contained in such Securities, or pursuant to any deposit agreement, including surrender or receipt of underlying Securities in connection with the issuance or cancellation of depository receipts; provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (g) Upon receipt of payment therefor pursuant to any repurchase agreement entered into by the Fund; -12- (h) In the case of warrants, rights or similar Securities, upon the exercise thereof, provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (i) For delivery in connection with any loans of Securities pursuant to any securities loan agreement entered into by the Fund, but only against receipt of such collateral as is required under such securities loan agreement; (j) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt by Custodian of the amounts borrowed; (k) Pursuant to any authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; (l) For delivery in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (m) For delivery in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (n) For delivery to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement -13- among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (o) For delivery (by a Foreign Sub-custodian or an agent of Custodian) to the depository used by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter collectively referred to as "ADRs") for such Securities against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the Foreign Sub- custodian or agent that the depository has acknowledged receipt of instructions to issue with respect to such Securities ADRs in the name of the Custodian, or a nominee of the Custodian, for delivery to the Custodian; (p) To deliver ADRs to the issuer thereof against a written receipt therefor adequately describing the ADR's delivered and written evidence satisfactory to the Custodian that the issuer of the ADRs has acknowledged the receipt of instructions to cause its depository to deliver the Securities underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or (q) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom delivery of such Securities is to be made. 3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise ----------------------------------------- instructed by the Fund, Custodian shall with respect to all Securities held for the Fund: -14- (a) Subject to Section 8.4 below, collect on a timely basis all income and other payments to which the Fund is entitled either by law or pursuant to custom in the securities business; (b) Subject to Section 8.4 below, collect on a timely basis the amount payable upon or with respect to all Securities and other assets which may mature or be called, redeemed, retired or otherwise become payable; (c) Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; (d) Surrender interim receipts or Securities in temporary form for Securities in definitive form; (e) Execute, as custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect, and prepare and submit reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in such manner and containing such information as is prescribed by the IRS; (f) Hold for the Fund all rights and similar securities issued with respect to Securities of the Fund; and (g) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with Securities and assets of the Fund. 3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the --------------------------------------- Fund that are issuable only in bearer form shall be held by Custodian in that form, provided that any such Securities shall be held in a Book-Entry System if eligible therefor. All other Securities held for the Fund may be registered in the name of Custodian as agent, any sub-custodian appointed pursuant to Section 3.3 above, any Securities Depository, any Foreign Sub-custodian or -15- Foreign Securities Depository (in the case of Foreign Securities), or any nominee or agent of any of them. The Fund shall furnish to Custodian appropriate instruments to enable Custodian to hold or deliver in proper form for transfer, or to register as in this Section 3.9 provided, any Securities delivered to Custodian which are registered in the name of the Fund. 3.10 RECORDS. (a) Custodian shall maintain complete and accurate records ------- with respect to Securities, cash or other property held for the Fund, including (i) journals or other records of original entry containing an itemized daily record in detail of all receipts and deliveries of Securities and all receipts and disbursements of cash; (ii) ledgers (or other records) reflecting (A) Securities in transfer, if any, (B) Securities in physical possession, (C) monies and Securities borrowed and monies and Securities loaned (together with a record of the collateral therefor and substitutions of such collateral), (D) dividends and interest received, and (E) dividends receivable and interest accrued; and (iii) cancelled checks and bank records related thereto. Custodian shall keep such other books and records with respect to Securities, cash and other property of the Fund which is held hereunder as the Fund may reasonably request. (b) All such books and records maintained by Custodian shall (i) be maintained in a form acceptable to the Fund and in compliance with rules and regulations of the Securities and Exchange Commission, (ii) be the property of the Fund and at all times during the regular business hours of Custodian be made available upon request for inspection by duly authorized officers, employees or agents of the Fund and employees or agents of the Securities and Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act. -16- 3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily -------------------- activity statement, including a summary of all transfers to or from the Custody Account, on the day following such transfers. At least monthly and from time to time, Custodian shall furnish the Fund with a detailed statement of the Securities and moneys held for the Fund under this Agreement. 3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with -------------------------- such reports as the Fund may reasonably request from time to time on the internal accounting controls and procedures for safeguarding Securities which are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3 above. 3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the --------------------------- Fund, Custodian shall promptly deliver to the Fund (at the address set forth in Article XV below) all notices of meetings, proxies and proxy materials which it receives regarding Securities held in the Custody Account. Before delivering them to the Fund, Custodian shall cause all proxies relating to such Securities which are not registered in the name of the Fund, or a nominee thereof, to be promptly executed by the registered holder of such Securities, without indication of the manner in which such proxies are to be voted. Unless otherwise instructed by the Fund, neither Custodian nor any of its agents shall exercise any voting rights with respect to Securities held hereunder. 3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit -------------------------------- to the Fund (at the address set forth in Article XV below) all written information received by Custodian from issuers of Securities held in the Custody Account. With respect to tender or exchange offers for such Securities, Custodian shall promptly transmit to the Fund all written information received by it from the issuers of the Securities whose tender or exchange is sought and by the party (or its agents) making the tender or exchange offer. If the Fund desires to take action with respect to -17- any tender offer, exchange offer or other similar transaction, the Fund shall notify Custodian (a) in the case of Foreign Securities, such number of Business Days prior to the date on which Custodian is to take such action (which number of days is in the Custodian's sole discretion) as will allow Custodian to take such action in the relevant local market in a timely fashion, and (b) in the case of all other Securities, at least five Business Days prior to the date on which Custodian is to take such action. 3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary ------------ information to the entity or entities appointed by the Fund to keep the books of account of the Fund and/or to compute the value of the assets of the Fund. ARTICLE IV DUTIES OF CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE THE UNITED STATES --------------------------------------- 4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub- ------------------------------------- custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians hereunder for the Fund's Securities and other assets maintained outside the United States. Upon receipt of Written Instructions from the Fund to do so, the Custodian shall cease the employment of any Foreign Sub-custodian for maintaining custody of the Fund's assets. 4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and ----------------- other assets maintained in the custody of an Eligible Foreign Custodian to: (a) Foreign Securities, and (b) cash and cash equivalents in such amounts as the Fund may determine. 4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub- ------------------------------- custodian employed by it may maintain assets of the -18- Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the 1940 Act. 4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in -------------------------------------- writing (a) the appointment of each Foreign Sub-custodian and the agreement pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian, the country or countries in which such Foreign Sub-custodian is authorized to hold Securities, cash and other property of the Fund. 4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians ------------------------------- and the countries where and the Foreign Securities Depositories through which they or the Custodian may hold Securities, cash and other property of the Fund which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit D shall be amended from time to time as Foreign Sub-custodians, countries and/or Foreign Securities Depositories are changed, added or deleted. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country not listed in Exhibit E in order to allow the Fund to give the approval required by Section 4.4 hereof and for Custodian to put the appropriate arrangements in place with a Foreign Sub- custodian. (b) If the Fund invests in a Security to be held pursuant to this Article before the foregoing procedures have been completed, such Security may be held by such agent as Custodian may select, and Custodian shall bear no liability to Fund for the actions of such agent, except to the extent Custodian shall have recovered from such agent for any damages caused to Fund by such agent. 4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time -------------------- to time, as mutually agreed upon, reports in respect -19- of the safekeeping of the Securities and other assets of the Fund held by Foreign Sub-custodians, including, but not limited to, advices or notifications of transfers of Securities to or from the accounts maintained by Foreign Sub- custodians for the Custodian on behalf of the Fund. 4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper --------------------------------------- Instructions given in any of the cases specified in Section 3.7 above, Custodian shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign Securities owned by the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market; and (b) Upon receipt of Proper Instructions given in any of the cases specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians to pay out monies of the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market. 4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which ----------------------------------- the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub- custodian to exercise reasonable care in the performance of its duties and shall hold such Foreign sub-custodian responsible for any direct loss or damage arising out of any willful misfeasance, bad faith or negligence of such Foreign Sub-custodian in the performance of its obligations under such agreement or out of its reckless disregard of such obligations. At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claims against a Foreign Sub-custodian as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. -20- 4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in ---------------------- Section 8.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any Foreign Sub- custodian than any such Foreign Sub-custodian has to Custodian, and Custodian shall not be required to discharge any such liability which may be imposed on it unless and until such Foreign Sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. Custodian shall have no liability for any loss or damage resulting from acts or omissions of any Foreign Sub-custodian arising out of or caused, directly or indirectly, by circumstances beyond such Foreign Sub-custodian's reasonable control, including, without limitation, sovereign risk, as described in Section 8.7, or "force majeure", as covered in Article X. 4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian --------------------------- shall annually furnish to the Fund information concerning all Foreign Sub- custodians hereunder which shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval by the Fund of the agreements pursuant to which Custodian employs such Foreign Sub-custodians or as otherwise required by Rule 17f-5 under the 1940 Act. 4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall ------------ exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in connection with Foreign Securities in the Custody Account. ARTICLE V PURCHASE AND SALE OF INVESTMENTS OF THE FUND -------------------------------------------- 5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities ---------------------- for the Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such -21- Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units purchased, (c) the date of purchase and settlement, (d) the purchase price per unit, (e) the total amount payable upon such purchase, and (f) the name of the person to whom such amount is payable. Custodian shall upon receipt of such Securities purchased by the Fund (or, if the Securities are transferred by means of a private placement transaction, upon the receipt of such Securities or payment instructions to Custodian which detail specific Securities to be acquired) pay out of the moneys held for the account of the Fund the total amount specified in such Written Instructions to the person named therein. Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities or other assets for the Fund if there is insufficient cash available in the Custody Account. 5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the ------------------ Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units sold, (c) the date of sale and settlement, (d) the sale price per unit, (e) the total amount payable upon such sale, and (f) the person to whom such Securities are to be delivered. Upon receipt of the total amount payable to the Fund as specified in such Written Instructions, Custodian shall deliver such Securities to the person specified in such Written Instructions. Subject to the foregoing, Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities. 5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or --------------------------- any other provision of this Agreement and subject, in the case of Foreign Securities, to all local laws, regulations, -22- customs, procedures and practices applicable in the relevant local market, Custodian, when instructed to deliver Securities against payment, shall be entitled, but only if in accordance with generally accepted market practice, to deliver such Securities prior to actual receipt of final payment therefor and, exclusively in the case of Securities in physical form, to deliver such Securities prior to receipt of payment. In any such case, the Fund shall bear the risk that final payment for such Securities may not be made or that such Securities may be returned or otherwise held or disposed of by or through the person to whom they were delivered, and Custodian shall have no liability for any of the foregoing. 5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from --------------------------------- time to time, Custodian may credit the Custody Account, prior to actual receipt of final payment thereof, with (a) proceeds from the sale of Securities which it has been instructed to deliver against payment, (b) proceeds from the redemption of Securities or other assets of the Fund, and (c) income from cash, Securities or other assets of the Fund. Any such credit shall be conditional upon actual receipt by Custodian of final payment and may be reversed if final payment is not actually received in full. Custodian may, in its sole discretion and from time to time, permit the Fund to use funds so credited to the Custody Account in anticipation of actual receipt of final payment. Any such funds shall be repayable immediately upon demand made by Custodian at any time prior to the actual receipt of all final payments in anticipation of which funds were credited to the Custody Account. 5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means ------------- payment in funds which are (or have become) immediately available, under applicable law are irreversible, and are not subject to any security interest, levy, lien or other encumbrance. -23- ARTICLE VI REDEMPTION OF FUND SHARES ------------------------- 6.1 TRANSFER OF FUNDS. From such funds as may be available for the ----------------- purpose in the Custody Account, and upon receipt of Proper Instructions specifying that the funds are required to redeem Shares on account of the Fund, Custodian shall wire each amount specified in such Proper Instructions to or through such bank as the Fund may designate therein with respect to such amount. 6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible ------------------------------ for the payment or distribution by any bank designated in Proper Instructions given pursuant to Section 6.1 above of any amount paid by Custodian to such bank in accordance with such Proper Instructions. ARTICLE VII SEGREGATED ACCOUNTS ------------------- Upon receipt of Proper Instructions, Custodian shall establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or Securities, including Securities maintained in a Depository Account: (a) in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer (or any futures commission merchant), relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, -24- (b) for purposes of segregating cash or Securities in connection with securities options purchased or written by the Fund or in connection with financial futures contracts (or options thereon) purchased or sold by the Fund, (c) which constitute collateral for loans of Securities made by the Fund, (d) for purposes of compliance by the Fund with requirements under the 1940 Act for the maintenance of segregated accounts by registered investment companies in connection with reverse repurchase agreements, when-issued, delayed delivery and firm commitment transactions, and short sales of securities, and (e) for other proper purposes, but only upon receipt of, in addition to Proper Instructions, a copy of a resolution of the Board of Directors, certified by an Officer, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper purposes of the Fund. ARTICLE VIII CONCERNING THE CUSTODIAN ------------------------ 8.1 STANDARD OF CARE. Custodian shall be held to the exercise of ---------------- reasonable care in carrying out its obligations under this Agreement, and shall be without liability to the Fund for any loss, damage, cost, expense (including attorneys' fees and disbursements), liability or claim which does not arise from willful misfeasance, bad faith or negligence on the part of Custodian or reckless disregard by Custodian of its obligations under this Agreement. Custodian shall be entitled to rely on and may act upon advice of counsel on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. In no event shall Custodian be liable for special or consequential damages or be liable in any manner whatsoever for any -25- action taken or omitted upon instructions from the Fund or any agent of the Fund. Custodian shall not be under any obligation at any time to ascertain whether the Fund is in compliance with the 1940 Act, the regulations thereunder, the provisions of its charter documents or by-laws, or its investment objectives, policies and limitations as in effect from time to time. 8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or -------------------------- considered to be the custodian of, any cash belonging to the Fund or any money represented by a check, draft or other instrument for the payment of money, until Custodian or its agents actually receive such cash or collect on such instrument. 8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that --------------------------------- it is in the exercise of reasonable care, Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received or delivered by it or its agents. 8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the ----------------------------- Fund whenever any money or property due and payable from or on account of any Securities held hereunder for the Fund is not timely received by it. Custodian shall not, however, be required to enforce collection, by legal means or otherwise, of any such money or other property not paid when due, but shall receive the proceeds of such collections as may be effected by it or its agents in the ordinary course of Custodian's custody and safekeeping business or of the custody and safekeeping business of such agents. 8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations ------------------- whatsoever except such duties and obligations as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against Custodian. Custodian shall have no discretion whatsoever with respect to the -26- management, disposition or investment of the Custody Account and is not a fiduciary to the Fund. 8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all -------------------- applicable requirements of the Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by Custodian hereunder. Except as specifically set forth herein, Custodian assumes no responsibility for such compliance by the Fund. 8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for ------------------------------- any loss involving any Securities, currencies, deposits or other property of the Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for any loss arising from a foreign currency transaction or contract, where the loss results from a sovereign risk or where the entity maintaining such Securities, currencies, deposits or other property of the Fund, whether Custodian, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such property or in connection with the transaction involving such property. For purposes of this Agreement, "sovereign risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other act or event beyond the control of the Foreign Sub-custodian, the Foreign Securities Depository or the agent of any of them. -27- ARTICLE IX INDEMNIFICATION --------------- 9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless --------------- Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian, from and against any loss, damages, cost, expense (including attorneys' fees and disbursements), liability (including, without limitation, liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal, state or foreign securities and/or banking laws) or claim arising directly or indirectly (a) from the fact that Securities are registered in the name of any such nominee, or (b) from any action or inaction by Custodian or such sub- custodian or other agent (i) at the request or direction of or in reliance on the advice of the Fund or any of its agents, or (ii) upon Proper Instructions, or (c) generally, from the performance of its obligations under this Agreement, provided that Custodian, any sub-custodian or any nominee of either of them shall not be indemnified and held harmless from and against any such loss, damage, cost, expense, liability or claim arising from Custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under this Agreement or, in the case of any sub-custodian or its nominee, from such sub-custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under the Agreement under which it is acting. 9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any ------------------------ action with respect to Securities, which may, in the opinion of Custodian, result in Custodian or its nominee becoming liable for the payment of money or incurring liability of some other form, Custodian shall not be required to take such action until the Fund shall have provided indemnity therefor to Custodian in an amount and form satisfactory to Custodian. -28- 9.3 SECURITY. As security for the payment of any present or future -------- obligation or liability of any kind which the Fund may have to Custodian with respect to or in connection with the Custody Account or this Agreement, the Fund hereby pledges to Custodian all cash, Securities and other property of every kind which is in the Custody Account or otherwise held for the Fund pursuant to this Agreement, and hereby grants to Custodian a lien, right of set-off and continuing security interest in such cash, Securities and other property. ARTICLE X FORCE MAJEURE ------------- Neither Custodian nor the Fund shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power failures; computer failure and any such circumstances beyond its reasonable control as may cause interruption, loss or malfunction of utility, transportation, computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation. ARTICLE XI REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Fund and Custodian represents and warrants for itself that (a) it has all necessary power and authority to perform its obligations hereunder, (b) the execution and delivery by it of this Agreement, and the performance by it of its obligations under this Agreement, have been duly authorized by all necessary action and will not violate any law, regulation, charter, by-law, or other -29- instrument, restriction or provision applicable to it or by which it is bound, and (c) this Agreement constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms. ARTICLE XII COMPENSATION OF CUSTODIAN ------------------------- The Fund shall pay Custodian such fees and charges as are set forth in the fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to time be revised by Custodian upon 14 days' prior written notice to the Fund. Any annual fee or other charges payable by the Fund shall be paid monthly by automatic deduction from the Custody Account. Expenses incurred by Custodian in the performance of its services hereunder, and all other proper charges and disbursements of the Custody Account, shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIII TAXES ----- Any and all taxes, including any interest and penalties with respect thereto, which may be levied or assessed under present or future laws or in respect of the Custody Account or any income thereof shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIV AUTHORIZED PERSONS ------------------ 14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance ------------------ with any notice, confirmation, instruction or other communication received by it from the Fund which is reasonably believed by Custodian to have been given or signed on behalf of the Fund by one of the Authorized Persons designated by the Fund in Exhibit A hereto, as it may from time to time be revised. The Fund -30- may revise Exhibit A hereto at any time by notice in writing to Custodian given in accordance with Article XV below, but no revision of Exhibit A hereto shall be effective until Custodian actually receives such notice. 14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any ------------------- Written or Oral Instructions which are reasonably believed by Custodian to have been given or signed by one of the persons designated from time to time by any of the investment advisers of the Fund specified in Exhibit B hereto (if any) as it may from time to time be revised. The Fund may revise Exhibit B hereto at any time by notice in writing to Custodian given in accordance with Article XV below, and each investment adviser specified in Exhibit B hereto (if any) may at any time by like notice designate an Authorized Person or remove an Authorized Person previously designated by it, but no revision of Exhibit B hereto (if any) and no designation or removal by such investment adviser shall be effective until Custodian actually receives such notice. 14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance ----------------- with Oral Instructions (as defined in Section 1.11 above). If Written Instructions confirming Oral Instructions are not received by Custodian prior to a transaction, it shall in no way affect the validity of the transaction authorized by such Oral Instructions or the authorization of the Fund to effect such transaction. Custodian shall incur no liability to the Fund in acting upon Oral Instructions (as defined in Section 1.11 above). To the extent such Oral Instructions vary from any confirming Written Instructions, Custodian shall advise the Fund of such variance but unless confirming Written Instructions are timely received, such Oral Instructions will govern. Either Custodian or Fund may electronically record any instructions given by telephone and any other telephone discussions with respect to the account of the Fund. -31- ARTICLE XV NOTICES ------- Unless otherwise specified herein, all demands, notices, instructions, and other communications to be given hereunder shall be sent, delivered or given to the recipient at the address set forth after its name hereinbelow: IF TO THE FUND: Large Cap Value Portfolio - The Bear Stearns Funds 245 Park Avenue New York, New York 10167 Attention: Frank J. Maresca ---------------- Telephone: (212) 272-2093 Facsimile: (212) 272-3098 IF TO CUSTODIAN: Custodial Trust Company 101 Carnegie Center Princeton, New Jersey 08540-6231 Attention: Vice President - Trust Operations --------------------------------- Telephone: (609) 951-2320 Facsimile: (609) 951-2327 or at such other address as either party shall have provided to the other by notice given in accordance with this Article XV. Writing shall include transmissions by or through teletype, facsimile, central processing unit connection, on-line terminal and magnetic tape. ARTICLE XVI TERMINATION ----------- Either party hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than sixty (60) days after the date of the giving of such notice. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall, upon receipt of a notice of acceptance by the successor custodian, on -32- that date (a) deliver directly to the successor custodian or its agents all Securities (other than Securities held in a Book-Entry System, Securities Depository or Foreign Securities Depository) and cash then owned by the Fund and held by Custodian as custodian, and (b) transfer any Securities held in a Book- Entry System, Securities Depository or Foreign Securities Depository to an account of or for the benefit of the Fund, provided that the Fund shall have paid to Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. ARTICLE XVII MISCELLANEOUS ------------- 17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require ------------- Custodian to perform any function or duties on a day other than a Business Day. 17.2 GOVERNING LAW. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of New York, without regard to the conflict of law principles thereof. 17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed ----------------------- matter which contains any reference to Custodian without the prior written approval of Custodian, excepting printed matter contained in the prospectus or statement of additional information for the Fund and such other printed matter as merely identifies Custodian as custodian for the Fund. The Fund shall submit printed matter requiring approval to Custodian in draft form, allowing sufficient time for review by Custodian and its counsel prior to any deadline for printing. 17.4 NO WAIVER. No failure by either party hereto to exercise, and no --------- delay by such party in exercising, any right hereunder shall operate as a waiver thereof. The exercise by either party hereto of any right hereunder shall not preclude the exercise -33- of any other right, and the remedies provided herein are cumulative and not exclusive of any remedies provided at law or in equity. 17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment ---------- to this Agreement shall be effective unless evidenced by an instrument in writing executed by the parties hereto. 17.6 COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, and by the parties hereto on separate counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same instrument. 17.7 SEVERABILITY. If any provision of this Agreement shall be invalid, ------------ illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby. 17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by -------- ------- either party hereto without the written consent of the other party. Any purported assignment in violation of this Section 17.8 shall be void. 17.9 HEADINGS. The headings of sections in this Agreement are for -------- convenience of reference only and shall not affect the meaning or construction of any provision of this Agreement. -34- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its representative thereunto duly authorized, all as of the day and year first above written. LARGE CAP VALUE PORTFOLIO - CUSTODIAL TRUST COMPANY THE BEAR STEARNS FUNDS By /s/ Frank J. Maresca By /s/ Ronald D. Watson ----------------------- ----------------------- Authorized Officer Authorized Officer -35- EXHIBIT A --------- AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS/*/ Set forth below are the names of the persons, whose specimen signatures are on file with the Custodian, authorized by the Board of Trustees of The Bear Stearns Funds to have access to the Large Cap Portfolio's (the "Fund") investments. Name ---- Neil T. Eigen Richard S. Rosen Frank J. Maresca Vincent L. Pereira Eileen M. Coyle _____________________ /*/Nothing herein shall prohibit any person designated as an Authorized Person from giving Oral Instructions or Written Instructions to the Custodian, so long as it does not result in delivery of or access to securities and similar investments of the Fund by such person. EXHIBIT B --------- INVESTMENT ADVISERS Bear Stearns Funds Management Inc. EXHIBIT C --------- CUSTODY FEES AND TRANSACTION CHARGES DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges ------------- for assets in the United States ("Domestic Assets") and transactions in the United States, all such fees and charges to be payable monthly: (1) an annual fee of the greater of 0.015% (one and one-half basis points) per annum of the value of the Domestic Assets in the Custody Account or $5,000, such fee to be payable monthly based upon the total market value of such Domestic Assets as determined on the last Business Day of the month for which such fee is charged; (2) a transaction charge of $18 for each buy, sell or redemption transaction executed in the Custody Account with respect to such Domestic Assets as are book-entry Securities (but not for any such buy or sell in a repurchase transaction representing a cash sweep investment for the Fund's account or the investment by the Fund of collateral for a loan of Securities); (3) a transaction charge of $50 for each receipt or delivery into or from the Custody Account of such Domestic Assets as are Securities in physical form; (4) a transaction charge for each repurchase transaction in the Custody Account which represents a cash sweep investment for the Fund's account, computed at a rate of 0.10% (ten basis points) per annum on the amount of the purchase price paid or received by the Fund in such repurchase transaction; (5) a charge of $10 for each funds transfer; and (6) a service charge for each holding of Domestic Assets consisting of Securities or other property sold by way of private placement or in such other manner as to require services by Custodian which in the reasonable judgment of Custodian are materially in excess of those ordinarily required for the holding of publicly traded Securities in the United States. INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside ------------------ the United States ("Foreign Assets") and transaction charges and other charges (including, without limitation, charges for funds transfers, tax reclaims, and foreign exchange services) outside the United States, all such fees and charges to be payable monthly, according to a schedule of such fees and charges specific to each country in which Foreign Assets are held, such schedule to be provided from time to time upon request. Fees shall be based upon the total market value of the applicable Foreign Assets as determined on the last Business Day of the month for which such fees are charged. EXHIBIT D --------- APPROVED FOREIGN SUB-CUSTODIANS Foreign Sub-custodian Country(ies) Securities Depositories - --------------------- ------------ ----------------------- (See Attached) CITIBANK, N.A. SEC RULE 17F-5 INFORMATION PACKAGE AUGUST 1994 SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES SECTION 2: OVERVIEW OF CITIBANK'S FOREIGN SUBCUSTODIAN AND DEPOSITORY ARRANGEMENTS Colombia: Cititrust Colombia S.A. Carrera 9A, No. 99-02, Bogota, Colombia 2-01.0 SUBCUSTODIAN NETWORK Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank Bartolome Mitre 502/30 2-12 Holmens Kanal 1036 Buenos Aires, Argentina DK-1092 Copenhagen K. Denmark Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki 101 Collins Street Aleksanterinkatu 42 Melbourne, VIC 3000 Australia 00100 Helsinki, Finland Austria: Citibank (Austria) A.G. France: Citibank S.A. (France) Postfach 90 Cedex 36 Lothringerstrasse 7 92073 Paris la Defense, France A-1015 Vienna, Austria Banque Paribas Belgium: Generale Bank 3 Rue D'Antim Montagne du Parc 3 75002 Paris, France 1000 Brussels, Belgium Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft Avenida Paulista 1111 Neue Mainzer Str. 75, Sao Paulo, Brazil 60311, Frankfurt/Main, Germany Canada: Citibank Canada Greece: Citibank, N.A. (Greece) 123 Front Street West Athens Branch Toronto, Ontario Othonos 8 M5J2M3, Canada Athens 10557, Greece Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong) Ahumada 40 Citicorp Tower Santiago, Chile Citicorp Plaza 3 Garden Road Central, Hong Kong China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt. c/o Citibank, N.A., 1052 Budapest V19-21. Hong Kong, Citicorp Tower, Vaci Utca Citicorp Plaza, 3 Garden Road, Hungary Central, Hong Kong
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New Sakhar Bhavan Zealand) Ltd. 230 Backbay Reclamation 23 Customs Street East Nariman Point Auckland 1, New Zealand Bombay 400 021 Indonesia: Citibank, N.A. (Jakarta) Jalan Jend. Sudirman No. 1 Norway: Christiania Bank Jakarta 12910, Indonesia P.O. Box 1166 Sentrum 0107 Oslo 1, Norway Ireland: Citibank, N.A. (Ireland) IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan) Quay, Dublin 2 P.O. Box 4889 Ireland 11 Chundrigar Road Karachi 74200 Italy: Citibank, N.A. (Italy) Pakistan Foro Buonaparte N. 16 Casella Postale 10932 20121 Milan, Italy Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima) Citicorp Center, Av. Camino Real 456, 2-314 Higashi Shinagawa, Torre Real 5t 0 Piso, Shinagawa - ku, Lima 27 Tokyo, Japan Peru Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines) 3rd Circle Citibank Center Jordan Insurance Building 8741 Paseo de Roxas Prince Mohammad Street Makati Metro Amman, Jordan Manila, Philippines Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A. 89-29 Shinmun-Ro, Sentorska 12, Chongro-ku 00-082 Warsaw, Seoul, Korea Poland Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A. 67 Boulevard Rua Barat, Salgueiro 30, Grande-Duchesse Charlotte 4th floor, 1200 Lisbon, L-1010, Luxembourg Portugal Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A. 28-30 Medan Pasar 252 Ponce De Leon Avenue 50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936 Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore) Paseo de la Reforma 390 UIC Building #01-00 Mexico City DF, 06695 Mexico 5 Shenton Way Singapore 0106 Netherlands: Citibank, N.A. (Netherlands) "Europlaza", South Africa: First National Bank Hoogoorddreef 54 B, Mezzanine floor, 1101 BE Amsterdam z.o., 3 First Place, The Netherlands Post Box 7713 Johannesburg, 2000 South Africa
Spain: Citibank, N.A. (Spain) Jose Ortega Y Gasset 29 28006 Madrid, Spain Sri Lanka: Citibank, N.A. (Sri Lanka) 67 Dharmapala Mawatha P.O. Box 888 Colombo 7, Sri Lanka Sweden: Skandinaviska Enskilda Banken Sergels Torg 2 Stockholm, Sweden Switzerland: Citibank (Switzerland) Bahnhofstrass 63, Post Office Box 24 8021 Zurich, Switzerland Taiwan: Citibank, N.A. (Taiwan) Taipei Branch No. 52 Ming Sheng East Road Sec. 4 Taipei, Taiwan Thailand: Citibank, N.A. (Thailand) 127 South Sathom Road Bangkok 10120, Thailand Turkey: Citibank, N.A. (Turkey) Buyukedere Caddesi, No. 100, Eseutepe 80280 Istanbul, Turkey United Kingdom: Citibank, N.A. 25 Molesworth St, Lewisham, London SE 13 7EX United Kingdom The First National Bank of Chicago 27 Leadenhall Street London EC3A 1AA, England Uruguay: Citibank, N.A. (Uruguay) Cerrito 455 P.O. Box 690 Montevideo Uruguay Venezuela: Citibank, N.A. (Caracas) Carmelitas a Altagracia Edificio Citibank Caracas 1010, Venezuela
2-01.1 STATUS AND SHAREHOLDERS' EQUITY
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS' EQUITY Argentina Citibank, N.A. Branch NA Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption Austria Citibank (Austria) A.G. Subsidiary SEC Exemption Belgium Generale Bank Correspondent US$ 2,260 MM Brazil Citibank, N.A. Branch NA Canada Citibank Canada Subsidiary US$ 299.9 MM Chile Citibank, N.A. Branch NA China Citibank, N.A. Branch NA Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption Sociedad Fiduciary Denmark Den Danske Bank Correspondent US$ 2,975 MM Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM France Citibank S.A. Subsidiary SEC Exemption France Banque Paribas Correspondent US$ 2,998 MM Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM Greece Citibank, N.A. Branch NA Hong Kong Citibank, N.A. Branch NA Hungary Citibank Budapest Rt. Subsidiary SEC Exemption India Citibank, N.A. Branch NA Indonesia Citibank, N.A. Branch NA Ireland Citibank, N.A. Branch NA Italy Citibank, N.A. Branch NA Japan Citibank, N.A. Branch NA Jordan Citibank, N.A. Branch NA Korea Citibank, N.A. Branch NA
Luxembourg Cedel S.A. Depository NA Malaysia Citibank Berhad Subsidiary US$ 145MM Mexico Citibank, N.A. Branch NA Netherlands Citibank, N.A. Branch NA New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption Norway Christiania Bank Correspondent US$ 512MM Pakistan Citibank, N.A. Branch NA Peru Citibank, N.A. Branch NA Philippines Citibank, N.A. Branch NA Poland Citibank Poland S.A. Subsidiary SEC Exemption Portugal Citibank Portugal S.A. Subsidiary SEC Exemption Singapore Citibank, N.A. Branch NA South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM Spain Citibank, N.A. Branch NA Sri Lanka Citibank, N.A. Branch NA Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM Switzerland Citibank (Switzerland) Affiliate US$ 198MM Taiwan Citibank, N.A. Branch NA Thailand Citibank, N.A. Branch NA Turkey Citibank, N.A. Branch NA U.K. Citibank, N.A. Branch NA Uruguay Citibank, N.A. Branch NA Venezuela Citibank, N.A. Branch NA
2-02.0 DEPOSITORIES Argentina: Caja de Valores ("CDV") Finland: Central Share Registry The Helsinki Money Market Center Australia: The Reserve Bank Information France: Societe Interprofessionnelle and Transfer System ("RITS") pour la Compensation de Valeurs Mobilieres Austraclear ("SICOVAM") Austria: Wertpapiersammelbank Banque de France bei der Oesterreichische Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G. ("DKV") Belgium: Caisse Interprofessionelle de Depots et de Virements Greece: Central Securities Depository, de Titres S.A. ("CIK") S.A. ("CSD") Banque Nationale Hong Kong: Central Clearing and de Belgique ("BNB") Settlement System ("CCASS") Brazil: BOVESPA's Registered Shares Fungible Custody Hungary: The Central Depository and ("BOVESPA") Clearing House ("CDCH") Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO") Securities Limited ("CDS") Italy: Monte Titoli Instituto per la China: The Shanghai Securities Custodia e l'Amministrazione Central Clearing and Accentrata di Valori Mibiliar Registration Corporation ("Monte Titoli") ("SSCCRC") The Bank of Italy The Shenzhen Securities Registrars Co. Ltd. - registrar Japan: Japan Securities Depository for three banks forming a Center ("JASDEC") decentralized depository structure The Bank of Japan ("BOJ") Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities Depository ("KSD")
Luxembourg: CEDEL, S.A. Malaysia: Malaysian Central Depository Sdn. Bhd. ("MCD") Mexico: Instituto para el Deposito de Valores ("S.D. Indeval") Netherlands: Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. ("Necigef") New Zealand: Austraclear Norway: The Norwegian Registry of Securities - Verdipapirsentralen ("VPS") Peru: Caja de Valores ("CAVAL") Poland: The National Depository of Securities (Krajowy Depozyt Papierow Wartosciowych) Portugal: Central de Registo e Valores Mobiliarios Singapore: Central Depository (PTE) Ltd. South Africa: The Central Depository (Pty) Ltd. Spain: Servico de Compensacion y Liquidacion de Valores ("SCLV") Sri Lanka: Central Depository System (Pvt) Limited Sweden: Vardepapperscentralen VPC AB ("VPC") Switzerland: Schwerzerische Effekten-Giro AG ("SEGA") Taiwan: Taiwan Securities Central Depository Co., Ltd. ("TSCD") Thailand: Share Depository Center ("SDC") Turkey: Istanbul Stock Exchange Settlement and Custody Company Inc. United Kingdom: Central Gilts Office ("CGO")
MORGAN GUARANTY TRUST COMPANY OF NEW YORK GLOBAL CUSTODY NETWORK
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK, COUNTRY DATE SUBCUSTODIAN IF APPLICABLE. Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores N.Y. - Buenos Aires Office Australia 1982 ANZ Banking Group Austraclear Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der Oesterreichischen Kontrollbank AG) Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de N.Y. - Brussels Office Depots et de Virements de Titres) Euroclear Clearance System Limited Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo; N.Y. - Sao Paulo Office equities) BVRJ (Bolsa de Valores de Rio de Janeiro, equities) CETIP (Central de Custodia e Liquidacao Financeira de Titulos; corporate bonds) SELEC (Sistema Especial de Liquidacao e Custodia; gov't securities) Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities) Commerce Chile 1993 Citibank, N.A. People's Republic 1992 Hongkong and Shanghai Banking of China- Corporation Shanghai and Shenzhen Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S. Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish Securities Centre) Finland 1985 Union Bank of Finland France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle Pour La N.Y. - Paris Office Compensation des Valeurs Mobilieres) Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein) N.Y. - Frankfurt Office
Greece 1989 National Bank of Greece S.A. Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement Corporation System) Hungary 1993 Citibank N.A. India 1993 Hongkong and Shanghai Banking Corporation Indonesia 1990 Hongkong and Shanghai Banking Corporation Ireland 1988 Allied Irish Banks PLC Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange) Clearing House Ltd. Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A. Milan Office Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center) JSA (Japan Securities Agent) Jordan 1994 Citibank, N.A. Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement Corporation) Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Valeurs Luxembourg, S.A. Mobilieres) Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated Corporation Network Services) Mexico 1990 Citibank, N.A. Indeval Morocco 1994 Banque Commerciale du Maroc Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor Giraal Effectenverkeer BV) New Zealand 1982 ANZ Banking Group Ltd. Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian Registry of Securities) Pakistan 1994 Citibank, N.A. Peru 1994 Citibank, N.A. CAVAL (Caja de Valores) Philippines 1990 Hongkong and Shanghai Banking Corporation
Poland 1993 Bank Handlowy Portugal 1988 Banco Espirito Santo E Comercial de Lisboa Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte South Africa 1993 First National Bank of Southern Africa Spain 1977 Morgan Guaranty Trust Co. of N.Y. - Madrid Office Sri Lanka 1992 Hongkong and Shanghai Banking Corporation Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities Register Centre) Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG) Taiwan 1992 Hongkong and Shanghai Banking Corporation Thailand 1988 Hongkong and Shanghai Banking Corporation Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve Saklama A.S.) United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and London Office Lodgement for Investors, Stock Management for Jobbers) CGO (Central Gilts Office) CMS (Central Money Market Office) United States of 1977 Morgan Guaranty Trust Co. of The Federal Reserve Bank of New York America N.Y. The Depository Trust Co. The Participants Trust Co. Venezuela 1991 Citibank, N.A.
EXHIBIT (8) CUSTODY AGREEMENT This AGREEMENT, dated as of February 22, 1995, by and between SMALL CAP VALUE PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the "Company"), an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and existing under the laws of the State of New Jersey (the "Custodian"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Fund desires that its Securities, cash and other assets be held and administered by Custodian pursuant to this Agreement; WHEREAS, the Fund is an investment portfolio represented by a series of Shares constituting part of the capital stock of the Company, an open-end management investment company registered under the 1940 Act (as hereinafter defined); WHEREAS, Custodian represents that it is a bank having the qualifications prescribed in Section 26(a)(i) of the 1940 Act; NOW, THEREFORE, in consideration of the mutual agreements herein made, the Fund and Custodian hereby agree as follows: ARTICLE I DEFINITIONS ----------- Whenever used in this Agreement, the following terms, unless the context otherwise requires, shall mean: 1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized ----------------- by resolution of the Board of Directors to give Oral Instructions and Written Instructions on behalf of the Fund and identified, by name or by office, in Exhibit A hereto or any person duly designated to do so by an investment adviser of the Fund specified by the Fund in Exhibit B hereto. 1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when ------------------ permitted under the 1940 Act, the Executive Committee thereof, if any. 1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal ----------------- Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of federal agencies as are substantially in the form of such Subpart O. 1.4 "BUSINESS DAY" means any day recognized as a settlement day by The ------------ New York Stock Exchange, Inc. and on which banks in the State of New Jersey are open for business. 1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is --------------- provided for in Section 3.2 below. 1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust -------------------------- company or other entity organized under the laws of a country other than the United States which is eligible under Rule 17f-5 under the 1940 Act to act as a sub-custodian for Foreign Securities and other assets of the Fund held outside the United States. 1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1) ------------------ of Rule 17f-5 under the 1940 Act. -2- 1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or ----------------------------- clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5 under the 1940 Act. 1.9 "1940 ACT" means the Investment Company Act of 1940, as amended. -------- 1.10 "OFFICER" means the President, any Vice President, the Secretary, any ------- Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund. 1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and ----------------- accepted by Custodian which are (a) reasonably believed by Custodian to have been given by an Authorized Person, (b) recorded and kept among the records of Custodian made in the ordinary course of business, and (c) orally confirmed by Custodian. 1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written ------------------- Instructions. Proper Instructions may be continuing Written Instructions when deemed appropriate by both parties. 1.13 "SECURITIES" includes, without limitation, common and preferred ---------- stocks, bonds, call options, put options, debentures, notes, bank certificates of deposit, forward contracts, futures contracts (including those related to indexes), options on futures contracts or indexes, bankers' acceptances, mortgage-backed securities or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or any similar property or assets that Custodian has the facilities to clear and to service. 1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and --------------------- (provided that Custodian has received a copy of a -3- resolution of the Board of Directors of the Fund, certified by an Officer, specifically approving the use thereof as a depository for the Fund) any other clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts as a system for the central handling and deposit of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities. 1.15 "SHARES" means the shares into which the capital stock of the Fund is ------ divided. 1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by -------------------- Custodian and signed by two persons reasonably believed by Custodian to be Authorized Persons, or (b) communications by telex or any other such system from two persons reasonably believed by Custodian to be Authorized Persons, or (c) communications between electro-mechanical or electronic devices. ARTICLE II APPOINTMENT OF CUSTODIAN ------------------------ 2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all ----------- such Securities, cash and other assets as may be acceptable to Custodian and from time to time delivered to it by the Fund or others for the account of the Fund. 2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian ---------- and agrees to perform the duties thereof as hereinafter set forth. -4- ARTICLE III CUSTODY OF CASH AND SECURITIES ------------------------------ 3.1 SEGREGATION. All Securities and non-cash property of the Fund in the ----------- possession of Custodian (other than Securities maintained by Custodian in a Securities Depository or Book-Entry System) shall be physically segregated from other Securities and non-cash property in the possession of Custodian and shall be identified as belonging to the Fund. 3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust --------------- department a custody account in the name of the Fund, subject only to draft or order of Custodian, in which Custodian shall enter and carry all Securities, cash and other assets of the Fund which are delivered to Custodian and accepted by it. Custodian shall not be under any duty or obligation to require the Fund to deliver to it any Securities or funds owned by the Fund and shall have no responsibility or liability for or on account of Securities or funds not so delivered. (b) If Custodian at any time fails to receive any of the documents referred to in Section 3.5(a) below, then, until such time as it receives such document, it shall not be obligated to receive any Securities of the Fund into the Custody Account and shall be entitled to return to the Fund any Securities of the Fund that it is holding. (c) Custodian may, but shall not be obligated to, hold Securities that may be held only in physical form. (d) Custodian is authorized to disclose the name, address and securities positions of the Fund to the issuers of such securities when requested by them to do so. -5- 3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents, --------------------- which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or Bear, Stearns Securities Corp., both of which are registered broker-dealers. The appointment of any agent pursuant to this Section 3.3(a) shall not relieve Custodian of any of its obligations or liabilities under this Agreement. However, no Book-Entry System, Securities Depository, Foreign Securities Depository or other securities depository or clearing agency (whether foreign or domestic) which it is or may become standard market practice to use for the comparison and settlement of trades in securities shall be an agent or sub- contractor of Custodian for purposes of this Section 3.3(a) or otherwise. (b) In its discretion, Custodian may appoint, and at any time remove, any domestic bank or trust company which is qualified to act as a custodian under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and to carry out such other provisions of this Agreement as it may determine, and may also open and maintain one or more banking accounts with such a bank or trust company (any such accounts to be in the name of Custodian and subject only to its draft or order), provided, however, that the appointment of any such agent or opening and maintenance of any such accounts shall be at Custodian's expense and shall not relieve Custodian of any of its obligations or liabilities under this Agreement. (c) Upon receipt of Written Instructions to do so and at the Fund's expense, Custodian shall appoint as sub-custodian such domestic bank or trust company as is named therein, provided that (i) such bank or trust company is qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding anything to the contrary in Section 7.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any such sub-custodian than any such sub-custodian has to Custodian, and Custodian shall not be required -6- to discharge any such liability which may be imposed on it unless and until such sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. 3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian ------------------------------- the Fund's Securities, cash and other assets, which are acceptable to Custodian, including (a) payments of income, payments of principal and capital distributions received by the Fund with respect to such Securities, cash or other assets owned by the Fund at any time during the term of this Agreement, and (b) cash received by the Fund for the issuance, at any time during such term, of Shares. Custodian shall not be responsible for such Securities, cash or other assets until actually received by it. 3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may ---------------------------------------------- deposit and/or maintain Securities of the Fund in a Securities Depository or in a Book-Entry System, subject to the following provisions: (a) Prior to a deposit of Securities of the Fund in any Securities Depository or Book-Entry System, the Fund shall deliver to Custodian a resolution of the Board of Directors of the Fund, certified by an Officer, authorizing and instructing Custodian (and any sub-custodian appointed pursuant to Section 3.3 above) on an on-going basis to deposit in such Securities Depository or Book-Entry System all Securities eligible for deposit therein and to make use of such Securities Depository or Book-Entry System to the extent possible and practical in connection with its performance hereunder (or under the applicable sub-custody agreement in the case of such sub-custodian), including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of collateral consisting of Securities. -7- (b) Securities of the Fund kept in a Book-Entry System or Securities Depository shall be kept in an account ("Depository Account") of Custodian in such Book-Entry System or Securities Depository which includes only assets held by Custodian as a fiduciary, custodian or otherwise for customers. (c) The records of Custodian with respect to Securities of the Fund maintained in a Book-Entry System or Securities Depository shall at all times identify such Securities as belonging to the Fund. (d) If Securities purchased by the Fund are to be held in a Book-Entry System or Securities Depository, Custodian shall pay for such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that such Securities have been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such payment and transfer for the account of the Fund. If Securities sold by the Fund are held in a Book-Entry System or Securities Depository, Custodian shall transfer such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that payment for such Securities has been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such transfer and payment for the account of the Fund. (e) Custodian shall provide the Fund with copies of any report obtained by Custodian from a Book-Entry System or Securities Depository in which Securities of the Fund are kept on the internal accounting controls and procedures for safeguarding Securities deposited in such Book-Entry System or Securities Depository. (f) At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claim against a Book-Entry System or Securities Depository or any other person for any loss or -8- damage to the Fund arising from the use of such Book-Entry System or Securities Depository, if and to the extent that the Fund has not been made whole for any such loss or damage. 3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall disburse moneys from the Custody Account, but only in the following cases: (a) For the purchase of Securities for the Fund but only (i) in the case of Securities (other than options on Securities, futures contracts and options on futures contracts), against the delivery to Custodian (or any sub- custodian appointed pursuant to Section 3.3 above) of such Securities registered as provided in Section 3.9 below or in proper form for transfer or, if the purchase of such Securities is effected through a Book-Entry System or Securities Depository, in accordance with the conditions set forth in Section 3.5 above; (ii) in the case of options on Securities, against delivery to Custodian (or such sub-custodian) of such receipts as are required by the customs prevailing among dealers in such options; (iii) in the case of futures contracts and options on futures contracts, against delivery to Custodian (or such sub-custodian) of evidence of title thereto in favor of the Fund, the Custodian, any such sub-custodian or any nominee referred to in Section 3.9 below; and (iv) in the case of repurchase or reverse repurchase agreements entered into by the Fund, against delivery of the purchased Securities either in certificate form or through an entry crediting Custodian's account at a Book- Entry System or Securities Depository with such Securities; (b) In connection with the conversion, exchange or surrender, as set forth in Section 3.7(f) below, of Securities owned by the Fund; (c) For the payment of any dividends or capital gain distributions declared by the Fund; -9- (d) In payment of the redemption price of Shares as provided in Article VI below; (e) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, administration, investment management, investment advisory, accounting, auditing, transfer agent, custodian, trustee and legal fees; and other operating expenses of the Fund; in all cases, whether or not such expenses are to be in whole or in part capitalized or treated as deferred expenses; (f) For transfer in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (g) For transfer in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (h) For the funding of any uncertificated time deposit or other interest-bearing account with any banking institution (including Custodian), but only if the payment instructions to Custodian detail specific Securities to be acquired; (i) For the purchase from a bank or other financial institution of loan participations, but only if Custodian has in its possession a copy of the agreement between the Fund and such bank or other financial institution with respect to the purchase of -10- such loan participations and the payment instructions to Custodian detail specific assets to be acquired; (j) For the purchase and sale of foreign currencies or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund pursuant to contracts with such banks and other financial institutions, including Custodian, any sub-custodian and any affiliate of Custodian, as principal, as are approved and authorized by the Fund, but only if the payment instructions to Custodian detail specific assets to be acquired; (k) For transfer to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (l) For the payment of the amounts of dividends received with respect to Securities sold short; and (m) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the amount and purpose of such payment, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom such payment is to be made. 3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall release and deliver Securities of the Fund from the Custody Account but only in the following cases: (a) Upon the sale of Securities for the account of the Fund but, subject to Section 5.3 below, only against receipt of -11- payment therefor in cash, by certified or cashiers' check or bank credit; (b) In the case of a sale effected through a Book-Entry System or Securities Depository, in accordance with the provisions of Section 3.5 above; (c) To an offeror's depository agent in connection with tender or other similar offers for Securities of the Fund; provided that, in any such case, the cash or other consideration is to be delivered to Custodian; (d) To the issuer thereof or its agent (i) for transfer into the name of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for exchange for a different number of certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new Securities are to be delivered to Custodian; (e) To the broker selling Securities, for examination in accordance with the "street delivery" custom; (f) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the issuer of such Securities, or pursuant to provisions for conversion contained in such Securities, or pursuant to any deposit agreement, including surrender or receipt of underlying Securities in connection with the issuance or cancellation of depository receipts; provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (g) Upon receipt of payment therefor pursuant to any repurchase agreement entered into by the Fund; -12- (h) In the case of warrants, rights or similar Securities, upon the exercise thereof, provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (i) For delivery in connection with any loans of Securities pursuant to any securities loan agreement entered into by the Fund, but only against receipt of such collateral as is required under such securities loan agreement; (j) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt by Custodian of the amounts borrowed; (k) Pursuant to any authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; (l) For delivery in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (m) For delivery in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (n) For delivery to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement -13- among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (o) For delivery (by a Foreign Sub-custodian or an agent of Custodian) to the depository used by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter collectively referred to as "ADRs") for such Securities against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the Foreign Sub- custodian or agent that the depository has acknowledged receipt of instructions to issue with respect to such Securities ADRs in the name of the Custodian, or a nominee of the Custodian, for delivery to the Custodian; (p) To deliver ADRs to the issuer thereof against a written receipt therefor adequately describing the ADR's delivered and written evidence satisfactory to the Custodian that the issuer of the ADRs has acknowledged the receipt of instructions to cause its depository to deliver the Securities underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or (q) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom delivery of such Securities is to be made. 3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise ----------------------------------------- instructed by the Fund, Custodian shall with respect to all Securities held for the Fund: -14- (a) Subject to Section 8.4 below, collect on a timely basis all income and other payments to which the Fund is entitled either by law or pursuant to custom in the securities business; (b) Subject to Section 8.4 below, collect on a timely basis the amount payable upon or with respect to all Securities and other assets which may mature or be called, redeemed, retired or otherwise become payable; (c) Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; (d) Surrender interim receipts or Securities in temporary form for Securities in definitive form; (e) Execute, as custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect, and prepare and submit reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in such manner and containing such information as is prescribed by the IRS; (f) Hold for the Fund all rights and similar securities issued with respect to Securities of the Fund; and (g) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with Securities and assets of the Fund. 3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the --------------------------------------- Fund that are issuable only in bearer form shall be held by Custodian in that form, provided that any such Securities shall be held in a Book-Entry System if eligible therefor. All other Securities held for the Fund may be registered in the name of Custodian as agent, any sub-custodian appointed pursuant to Section -15- 3.3 above, any Securities Depository, any Foreign Sub-custodian or Foreign Securities Depository (in the case of Foreign Securities), or any nominee or agent of any of them. The Fund shall furnish to Custodian appropriate instruments to enable Custodian to hold or deliver in proper form for transfer, or to register as in this Section 3.9 provided, any Securities delivered to Custodian which are registered in the name of the Fund. 3.10 RECORDS. (a) Custodian shall maintain complete and accurate records ------- with respect to Securities, cash or other property held for the Fund, including (i) journals or other records of original entry containing an itemized daily record in detail of all receipts and deliveries of Securities and all receipts and disbursements of cash; (ii) ledgers (or other records) reflecting (A) Securities in transfer, if any, (B) Securities in physical possession, (C) monies and Securities borrowed and monies and Securities loaned (together with a record of the collateral therefor and substitutions of such collateral), (D) dividends and interest received, and (E) dividends receivable and interest accrued; and (iii) cancelled checks and bank records related thereto. Custodian shall keep such other books and records with respect to Securities, cash and other property of the Fund which is held hereunder as the Fund may reasonably request. (b) All such books and records maintained by Custodian shall (i) be maintained in a form acceptable to the Fund and in compliance with rules and regulations of the Securities and Exchange Commission, (ii) be the property of the Fund and at all times during the regular business hours of Custodian be made available upon request for inspection by duly authorized officers, employees or agents of the Fund and employees or agents of the Securities and Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act. -16- 3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily -------------------- activity statement, including a summary of all transfers to or from the Custody Account, on the day following such transfers. At least monthly and from time to time, Custodian shall furnish the Fund with a detailed statement of the Securities and moneys held for the Fund under this Agreement. 3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with -------------------------- such reports as the Fund may reasonably request from time to time on the internal accounting controls and procedures for safeguarding Securities which are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3 above. 3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the --------------------------- Fund, Custodian shall promptly deliver to the Fund (at the address set forth in Article XV below) all notices of meetings, proxies and proxy materials which it receives regarding Securities held in the Custody Account. Before delivering them to the Fund, Custodian shall cause all proxies relating to such Securities which are not registered in the name of the Fund, or a nominee thereof, to be promptly executed by the registered holder of such Securities, without indication of the manner in which such proxies are to be voted. Unless otherwise instructed by the Fund, neither Custodian nor any of its agents shall exercise any voting rights with respect to Securities held hereunder. 3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit -------------------------------- to the Fund (at the address set forth in Article XV below) all written information received by Custodian from issuers of Securities held in the Custody Account. With respect to tender or exchange offers for such Securities, Custodian shall promptly transmit to the Fund all written information received by it from the issuers of the Securities whose tender or exchange is sought and by the party (or its agents) making the tender or exchange offer. If the Fund desires to take action with respect to -17- any tender offer, exchange offer or other similar transaction, the Fund shall notify Custodian (a) in the case of Foreign Securities, such number of Business Days prior to the date on which Custodian is to take such action (which number of days is in the Custodian's sole discretion) as will allow Custodian to take such action in the relevant local market in a timely fashion, and (b) in the case of all other Securities, at least five Business Days prior to the date on which Custodian is to take such action. 3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary ------------ information to the entity or entities appointed by the Fund to keep the books of account of the Fund and/or to compute the value of the assets of the Fund. ARTICLE IV DUTIES OF CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE THE UNITED STATES --------------------------------------- 4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub- ------------------------------------- custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians hereunder for the Fund's Securities and other assets maintained outside the United States. Upon receipt of Written Instructions from the Fund to do so, the Custodian shall cease the employment of any Foreign Sub-custodian for maintaining custody of the Fund's assets. 4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and ----------------- other assets maintained in the custody of an Eligible Foreign Custodian to: (a) Foreign Securities, and (b) cash and cash equivalents in such amounts as the Fund may determine. 4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub- ------------------------------- custodian employed by it may maintain assets of the -18- Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the 1940 Act. 4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in -------------------------------------- writing (a) the appointment of each Foreign Sub-custodian and the agreement pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian, the country or countries in which such Foreign Sub-custodian is authorized to hold Securities, cash and other property of the Fund. 4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians ------------------------------- and the countries where and the Foreign Securities Depositories through which they or the Custodian may hold Securities, cash and other property of the Fund which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit D shall be amended from time to time as Foreign Sub-custodians, countries and/or Foreign Securities Depositories are changed, added or deleted. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country not listed in Exhibit E in order to allow the Fund to give the approval required by Section 4.4 hereof and for Custodian to put the appropriate arrangements in place with a Foreign Sub- custodian. (b) If the Fund invests in a Security to be held pursuant to this Article before the foregoing procedures have been completed, such Security may be held by such agent as Custodian may select, and Custodian shall bear no liability to Fund for the actions of such agent, except to the extent Custodian shall have recovered from such agent for any damages caused to Fund by such agent. 4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time -------------------- to time, as mutually agreed upon, reports in respect -19- of the safekeeping of the Securities and other assets of the Fund held by Foreign Sub-custodians, including, but not limited to, advices or notifications of transfers of Securities to or from the accounts maintained by Foreign Sub- custodians for the Custodian on behalf of the Fund. 4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper --------------------------------------- Instructions given in any of the cases specified in Section 3.7 above, Custodian shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign Securities owned by the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market; and (b) Upon receipt of Proper Instructions given in any of the cases specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians to pay out monies of the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market. 4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which ----------------------------------- the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub- custodian to exercise reasonable care in the performance of its duties and shall hold such Foreign sub-custodian responsible for any direct loss or damage arising out of any willful misfeasance, bad faith or negligence of such Foreign Sub-custodian in the performance of its obligations under such agreement or out of its reckless disregard of such obligations. At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claims against a Foreign Sub-custodian as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. -20- 4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in ---------------------- Section 8.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any Foreign Sub- custodian than any such Foreign Sub-custodian has to Custodian, and Custodian shall not be required to discharge any such liability which may be imposed on it unless and until such Foreign Sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. Custodian shall have no liability for any loss or damage resulting from acts or omissions of any Foreign Sub-custodian arising out of or caused, directly or indirectly, by circumstances beyond such Foreign Sub-custodian's reasonable control, including, without limitation, sovereign risk, as described in Section 8.7, or "force majeure", as covered in Article X. 4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian --------------------------- shall annually furnish to the Fund information concerning all Foreign Sub- custodians hereunder which shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval by the Fund of the agreements pursuant to which Custodian employs such Foreign Sub-custodians or as otherwise required by Rule 17f-5 under the 1940 Act. 4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall ------------ exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in connection with Foreign Securities in the Custody Account. ARTICLE V PURCHASE AND SALE OF INVESTMENTS OF THE FUND -------------------------------------------- 5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities ---------------------- for the Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such -21- Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units purchased, (c) the date of purchase and settlement, (d) the purchase price per unit, (e) the total amount payable upon such purchase, and (f) the name of the person to whom such amount is payable. Custodian shall upon receipt of such Securities purchased by the Fund (or, if the Securities are transferred by means of a private placement transaction, upon the receipt of such Securities or payment instructions to Custodian which detail specific Securities to be acquired) pay out of the moneys held for the account of the Fund the total amount specified in such Written Instructions to the person named therein. Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities or other assets for the Fund if there is insufficient cash available in the Custody Account. 5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the ------------------ Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units sold, (c) the date of sale and settlement, (d) the sale price per unit, (e) the total amount payable upon such sale, and (f) the person to whom such Securities are to be delivered. Upon receipt of the total amount payable to the Fund as specified in such Written Instructions, Custodian shall deliver such Securities to the person specified in such Written Instructions. Subject to the foregoing, Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities. 5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or --------------------------- any other provision of this Agreement and subject, in the case of Foreign Securities, to all local laws, regulations, -22- customs, procedures and practices applicable in the relevant local market, Custodian, when instructed to deliver Securities against payment, shall be entitled, but only if in accordance with generally accepted market practice, to deliver such Securities prior to actual receipt of final payment therefor and, exclusively in the case of Securities in physical form, to deliver such Securities prior to receipt of payment. In any such case, the Fund shall bear the risk that final payment for such Securities may not be made or that such Securities may be returned or otherwise held or disposed of by or through the person to whom they were delivered, and Custodian shall have no liability for any of the foregoing. 5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from --------------------------------- time to time, Custodian may credit the Custody Account, prior to actual receipt of final payment thereof, with (a) proceeds from the sale of Securities which it has been instructed to deliver against payment, (b) proceeds from the redemption of Securities or other assets of the Fund, and (c) income from cash, Securities or other assets of the Fund. Any such credit shall be conditional upon actual receipt by Custodian of final payment and may be reversed if final payment is not actually received in full. Custodian may, in its sole discretion and from time to time, permit the Fund to use funds so credited to the Custody Account in anticipation of actual receipt of final payment. Any such funds shall be repayable immediately upon demand made by Custodian at any time prior to the actual receipt of all final payments in anticipation of which funds were credited to the Custody Account. 5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means ------------- payment in funds which are (or have become) immediately available, under applicable law are irreversible, and are not subject to any security interest, levy, lien or other encumbrance. -23- ARTICLE VI REDEMPTION OF FUND SHARES ------------------------- 6.1 TRANSFER OF FUNDS. From such funds as may be available for the ----------------- purpose in the Custody Account, and upon receipt of Proper Instructions specifying that the funds are required to redeem Shares on account of the Fund, Custodian shall wire each amount specified in such Proper Instructions to or through such bank as the Fund may designate therein with respect to such amount. 6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible ------------------------------ for the payment or distribution by any bank designated in Proper Instructions given pursuant to Section 6.1 above of any amount paid by Custodian to such bank in accordance with such Proper Instructions. ARTICLE VII SEGREGATED ACCOUNTS ------------------- Upon receipt of Proper Instructions, Custodian shall establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or Securities, including Securities maintained in a Depository Account: (a) in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer (or any futures commission merchant), relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, -24- (b) for purposes of segregating cash or Securities in connection with securities options purchased or written by the Fund or in connection with financial futures contracts (or options thereon) purchased or sold by the Fund, (c) which constitute collateral for loans of Securities made by the Fund, (d) for purposes of compliance by the Fund with requirements under the 1940 Act for the maintenance of segregated accounts by registered investment companies in connection with reverse repurchase agreements, when-issued, delayed delivery and firm commitment transactions, and short sales of securities, and (e) for other proper purposes, but only upon receipt of, in addition to Proper Instructions, a copy of a resolution of the Board of Directors, certified by an Officer, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper purposes of the Fund. ARTICLE VIII CONCERNING THE CUSTODIAN ------------------------ 8.1 STANDARD OF CARE. Custodian shall be held to the exercise of ---------------- reasonable care in carrying out its obligations under this Agreement, and shall be without liability to the Fund for any loss, damage, cost, expense (including attorneys' fees and disbursements), liability or claim which does not arise from willful misfeasance, bad faith or negligence on the part of Custodian or reckless disregard by Custodian of its obligations under this Agreement. Custodian shall be entitled to rely on and may act upon advice of counsel on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. In no event shall Custodian be liable for special or consequential damages or be liable in any manner whatsoever for any -25- action taken or omitted upon instructions from the Fund or any agent of the Fund. Custodian shall not be under any obligation at any time to ascertain whether the Fund is in compliance with the 1940 Act, the regulations thereunder, the provisions of its charter documents or by-laws, or its investment objectives, policies and limitations as in effect from time to time. 8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or -------------------------- considered to be the custodian of, any cash belonging to the Fund or any money represented by a check, draft or other instrument for the payment of money, until Custodian or its agents actually receive such cash or collect on such instrument. 8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that --------------------------------- it is in the exercise of reasonable care, Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received or delivered by it or its agents. 8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the ----------------------------- Fund whenever any money or property due and payable from or on account of any Securities held hereunder for the Fund is not timely received by it. Custodian shall not, however, be required to enforce collection, by legal means or otherwise, of any such money or other property not paid when due, but shall receive the proceeds of such collections as may be effected by it or its agents in the ordinary course of Custodian's custody and safekeeping business or of the custody and safekeeping business of such agents. 8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations ------------------- whatsoever except such duties and obligations as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against Custodian. Custodian shall have no discretion whatsoever with respect to the -26- management, disposition or investment of the Custody Account and is not a fiduciary to the Fund. 8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all -------------------- applicable requirements of the Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by Custodian hereunder. Except as specifically set forth herein, Custodian assumes no responsibility for such compliance by the Fund. 8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for ------------------------------- any loss involving any Securities, currencies, deposits or other property of the Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for any loss arising from a foreign currency transaction or contract, where the loss results from a sovereign risk or where the entity maintaining such Securities, currencies, deposits or other property of the Fund, whether Custodian, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such property or in connection with the transaction involving such property. For purposes of this Agreement, "sovereign risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other act or event beyond the control of the Foreign Sub-custodian, the Foreign Securities Depository or the agent of any of them. -27- ARTICLE IX INDEMNIFICATION --------------- 9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless --------------- Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian, from and against any loss, damages, cost, expense (including attorneys' fees and disbursements), liability (including, without limitation, liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal, state or foreign securities and/or banking laws) or claim arising directly or indirectly (a) from the fact that Securities are registered in the name of any such nominee, or (b) from any action or inaction by Custodian or such sub- custodian or other agent (i) at the request or direction of or in reliance on the advice of the Fund or any of its agents, or (ii) upon Proper Instructions, or (c) generally, from the performance of its obligations under this Agreement, provided that Custodian, any sub-custodian or any nominee of either of them shall not be indemnified and held harmless from and against any such loss, damage, cost, expense, liability or claim arising from Custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under this Agreement or, in the case of any sub-custodian or its nominee, from such sub-custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under the Agreement under which it is acting. 9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any ------------------------ action with respect to Securities, which may, in the opinion of Custodian, result in Custodian or its nominee becoming liable for the payment of money or incurring liability of some other form, Custodian shall not be required to take such action until the Fund shall have provided indemnity therefor to Custodian in an amount and form satisfactory to Custodian. -28- 9.3 SECURITY. As security for the payment of any present or future -------- obligation or liability of any kind which the Fund may have to Custodian with respect to or in connection with the Custody Account or this Agreement, the Fund hereby pledges to Custodian all cash, Securities and other property of every kind which is in the Custody Account or otherwise held for the Fund pursuant to this Agreement, and hereby grants to Custodian a lien, right of set-off and continuing security interest in such cash, Securities and other property. ARTICLE X FORCE MAJEURE ------------- Neither Custodian nor the Fund shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power failures; computer failure and any such circumstances beyond its reasonable control as may cause interruption, loss or malfunction of utility, transportation, computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation. ARTICLE XI REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Fund and Custodian represents and warrants for itself that (a) it has all necessary power and authority to perform its obligations hereunder, (b) the execution and delivery by it of this Agreement, and the performance by it of its obligations under this Agreement, have been duly authorized by all necessary action and will not violate any law, regulation, charter, by-law, or other -29- instrument, restriction or provision applicable to it or by which it is bound, and (c) this Agreement constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms. ARTICLE XII COMPENSATION OF CUSTODIAN ------------------------- The Fund shall pay Custodian such fees and charges as are set forth in the fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to time be revised by Custodian upon 14 days' prior written notice to the Fund. Any annual fee or other charges payable by the Fund shall be paid monthly by automatic deduction from the Custody Account. Expenses incurred by Custodian in the performance of its services hereunder, and all other proper charges and disbursements of the Custody Account, shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIII TAXES ----- Any and all taxes, including any interest and penalties with respect thereto, which may be levied or assessed under present or future laws or in respect of the Custody Account or any income thereof shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIV AUTHORIZED PERSONS ------------------ 14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance ------------------ with any notice, confirmation, instruction or other communication received by it from the Fund which is reasonably believed by Custodian to have been given or signed on behalf of the Fund by one of the Authorized Persons designated by the Fund in Exhibit A hereto, as it may from time to time be revised. The Fund -30- may revise Exhibit A hereto at any time by notice in writing to Custodian given in accordance with Article XV below, but no revision of Exhibit A hereto shall be effective until Custodian actually receives such notice. 14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any ------------------- Written or Oral Instructions which are reasonably believed by Custodian to have been given or signed by one of the persons designated from time to time by any of the investment advisers of the Fund specified in Exhibit B hereto (if any) as it may from time to time be revised. The Fund may revise Exhibit B hereto at any time by notice in writing to Custodian given in accordance with Article XV below, and each investment adviser specified in Exhibit B hereto (if any) may at any time by like notice designate an Authorized Person or remove an Authorized Person previously designated by it, but no revision of Exhibit B hereto (if any) and no designation or removal by such investment adviser shall be effective until Custodian actually receives such notice. 14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance ----------------- with Oral Instructions (as defined in Section 1.11 above). If Written Instructions confirming Oral Instructions are not received by Custodian prior to a transaction, it shall in no way affect the validity of the transaction authorized by such Oral Instructions or the authorization of the Fund to effect such transaction. Custodian shall incur no liability to the Fund in acting upon Oral Instructions (as defined in Section 1.11 above). To the extent such Oral Instructions vary from any confirming Written Instructions, Custodian shall advise the Fund of such variance but unless confirming Written Instructions are timely received, such Oral Instructions will govern. Either Custodian or Fund may electronically record any instructions given by telephone and any other telephone discussions with respect to the account of the Fund. -31- ARTICLE XV NOTICES ------- Unless otherwise specified herein, all demands, notices, instructions, and other communications to be given hereunder shall be sent, delivered or given to the recipient at the address set forth after its name hereinbelow: IF TO THE FUND: Small Cap Value Portfolio - The Bear Stearns Funds 245 Park Avenue New York, New York 10167 Attention: Frank J. Maresca ---------------- Telephone: (212) 272-2093 Facsimile: (212) 272-3098 IF TO CUSTODIAN: Custodial Trust Company 101 Carnegie Center Princeton, New Jersey 08540-6231 Attention: Vice President - Trust Operations --------------------------------- Telephone: (609) 951-2320 Facsimile: (609) 951-2327 or at such other address as either party shall have provided to the other by notice given in accordance with this Article XV. Writing shall include transmissions by or through teletype, facsimile, central processing unit connection, on-line terminal and magnetic tape. ARTICLE XVI TERMINATION ----------- Either party hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than sixty (60) days after the date of the giving of such notice. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall, upon receipt of a notice of acceptance by the successor custodian, on -32- that date (a) deliver directly to the successor custodian or its agents all Securities (other than Securities held in a Book-Entry System, Securities Depository or Foreign Securities Depository) and cash then owned by the Fund and held by Custodian as custodian, and (b) transfer any Securities held in a Book- Entry System, Securities Depository or Foreign Securities Depository to an account of or for the benefit of the Fund, provided that the Fund shall have paid to Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. ARTICLE XVII MISCELLANEOUS ------------- 17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require ------------- Custodian to perform any function or duties on a day other than a Business Day. 17.2 GOVERNING LAW. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of New York, without regard to the conflict of law principles thereof. 17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed ----------------------- matter which contains any reference to Custodian without the prior written approval of Custodian, excepting printed matter contained in the prospectus or statement of additional information for the Fund and such other printed matter as merely identifies Custodian as custodian for the Fund. The Fund shall submit printed matter requiring approval to Custodian in draft form, allowing sufficient time for review by Custodian and its counsel prior to any deadline for printing. 17.4 NO WAIVER. No failure by either party hereto to exercise, and no --------- delay by such party in exercising, any right hereunder shall operate as a waiver thereof. The exercise by either party hereto of any right hereunder shall not preclude the exercise -33- of any other right, and the remedies provided herein are cumulative and not exclusive of any remedies provided at law or in equity. 17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment ---------- to this Agreement shall be effective unless evidenced by an instrument in writing executed by the parties hereto. 17.6 COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, and by the parties hereto on separate counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same instrument. 17.7 SEVERABILITY. If any provision of this Agreement shall be invalid, ------------ illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby. 17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by -------- ------- either party hereto without the written consent of the other party. Any purported assignment in violation of this Section 17.8 shall be void. 17.9 HEADINGS. The headings of sections in this Agreement are for -------- convenience of reference only and shall not affect the meaning or construction of any provision of this Agreement. -34- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its representative thereunto duly authorized, all as of the day and year first above written. SMALL CAP VALUE PORTFOLIO - CUSTODIAL TRUST COMPANY THE BEAR STEARNS FUNDS By /s/ Frank J. Maresca By /s/ Ronald D. Watson -------------------- -------------------- Authorized Officer Authorized Officer -35- EXHIBIT A --------- AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS* Set forth below are the names of the persons, whose specimen signatures are on file with the Custodian, authorized by the Board of Trustees of The Bear Stearns Funds to have access to the Small Cap Portfolio's (the "Fund") investments. Name ---- Neil T. Eigen Richard S. Rosen Frank J. Maresca Vincent L. Pereira Eileen M. Coyle _____________________ *Nothing herein shall prohibit any person designated as an Authorized Person from giving Oral Instructions or Written Instructions to the Custodian, so long as it does not result in delivery of or access to securities and similar investments of the Fund by such person. EXHIBIT B --------- INVESTMENT ADVISERS Bear Stearns Funds Management Inc. EXHIBIT C --------- CUSTODY FEES AND TRANSACTION CHARGES DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges ------------- for assets in the United States ("Domestic Assets") and transactions in the United States, all such fees and charges to be payable monthly: (1) an annual fee of the greater of 0.015% (one and one-half basis points) per annum of the value of the Domestic Assets in the Custody Account or $5,000, such fee to be payable monthly based upon the total market value of such Domestic Assets as determined on the last Business Day of the month for which such fee is charged; (2) a transaction charge of $18 for each buy, sell or redemption transaction executed in the Custody Account with respect to such Domestic Assets as are book-entry Securities (but not for any such buy or sell in a repurchase transaction representing a cash sweep investment for the Fund's account or the investment by the Fund of collateral for a loan of Securities); (3) a transaction charge of $50 for each receipt or delivery into or from the Custody Account of such Domestic Assets as are Securities in physical form; (4) a transaction charge for each repurchase transaction in the Custody Account which represents a cash sweep investment for the Fund's account, computed at a rate of 0.10% (ten basis points) per annum on the amount of the purchase price paid or received by the Fund in such repurchase transaction; (5) a charge of $10 for each funds transfer; and (6) a service charge for each holding of Domestic Assets consisting of Securities or other property sold by way of private placement or in such other manner as to require services by Custodian which in the reasonable judgment of Custodian are materially in excess of those ordinarily required for the holding of publicly traded Securities in the United States. INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside ------------------ the United States ("Foreign Assets") and transaction charges and other charges (including, without limitation, charges for funds transfers, tax reclaims, and foreign exchange services) outside the United States, all such fees and charges to be payable monthly, according to a schedule of such fees and charges specific to each country in which Foreign Assets are held, such schedule to be provided from time to time upon request. Fees shall be based upon the total market value of the applicable Foreign Assets as determined on the last Business Day of the month for which such fees are charged. EXHIBIT D --------- APPROVED FOREIGN SUB-CUSTODIANS Foreign Sub-custodian Country(ies) Securities Depositories - --------------------- ------------ ----------------------- (See Attached) CITIBANK, N.A. SEC RULE 17F-5 INFORMATION PACKAGE AUGUST 1994 SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES SECTION 2: OVERVIEW OF CITIBANK'S FOREIGN SUBCUSTODIAN AND DEPOSITORY ARRANGEMENTS Colombia: Cititrust Colombia S.A. Carrera 9A, No. 99-02, Bogota, Colombia 2-01.0 SUBCUSTODIAN NETWORK Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank Bartolome Mitre 502/30 2-12 Holmens Kanal 1036 Buenos Aires, Argentina DK-1092 Copenhagen K. Denmark Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki 101 Collins Street Aleksanterinkatu 42 Melbourne, VIC 3000 Australia 00100 Helsinki, Finland Austria: Citibank (Austria) A.G. France: Citibank S.A. (France) Postfach 90 Cedex 36 Lothringerstrasse 7 92073 Paris la Defense, France A-1015 Vienna, Austria Banque Paribas Belgium: Generale Bank 3 Rue D'Antim Montagne du Parc 3 75002 Paris, France 1000 Brussels, Belgium Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft Avenida Paulista 1111 Neue Mainzer Str. 75, Sao Paulo, Brazil 60311, Frankfurt/Main, Germany Canada: Citibank Canada Greece: Citibank, N.A. (Greece) 123 Front Street West Athens Branch Toronto, Ontario Othonos 8 M5J2M3, Canada Athens 10557, Greece Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong) Ahumada 40 Citicorp Tower Santiago, Chile Citicorp Plaza 3 Garden Road Central, Hong Kong China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt. c/o Citibank, N.A., 1052 Budapest V19-21. Hong Kong, Citicorp Tower, Vaci Utca Citicorp Plaza, 3 Garden Road, Hungary Central, Hong Kong
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New Sakhar Bhavan Zealand) Ltd. 230 Backbay Reclamation 23 Customs Street East Nariman Point Auckland 1, New Zealand Bombay 400 021 Indonesia: Citibank, N.A. (Jakarta) Jalan Jend. Sudirman No. 1 Norway: Christiania Bank Jakarta 12910, Indonesia P.O. Box 1166 Sentrum 0107 Oslo 1, Norway Ireland: Citibank, N.A. (Ireland) IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan) Quay, Dublin 2 P.O. Box 4889 Ireland 11 Chundrigar Road Karachi 74200 Italy: Citibank, N.A. (Italy) Pakistan Foro Buonaparte N. 16 Casella Postale 10932 20121 Milan, Italy Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima) Citicorp Center, Av. Camino Real 456, 2-314 Higashi Shinagawa, Torre Real 5t 0 Piso, Shinagawa - ku, Lima 27 Tokyo, Japan Peru Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines) 3rd Circle Citibank Center Jordan Insurance Building 8741 Paseo de Roxas Prince Mohammad Street Makati Metro Amman, Jordan Manila, Philippines Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A. 89-29 Shinmun-Ro, Sentorska 12, Chongro-ku 00-082 Warsaw, Seoul, Korea Poland Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A. 67 Boulevard Rua Barat, Salgueiro 30, Grande-Duchesse Charlotte 4th floor, 1200 Lisbon, L-1010, Luxembourg Portugal Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A. 28-30 Medan Pasar 252 Ponce De Leon Avenue 50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936 Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore) Paseo de la Reforma 390 UIC Building #01-00 Mexico City DF, 06695 Mexico 5 Shenton Way Singapore 0106 Netherlands: Citibank, N.A. (Netherlands) "Europlaza", South Africa: First National Bank Hoogoorddreef 54 B, Mezzanine floor, 1101 BE Amsterdam z.o., 3 First Place, The Netherlands Post Box 7713 Johannesburg, 2000 South Africa
Spain: Citibank, N.A. (Spain) Jose Ortega Y Gasset 29 28006 Madrid, Spain Sri Lanka: Citibank, N.A. (Sri Lanka) 67 Dharmapala Mawatha P.O. Box 888 Colombo 7, Sri Lanka Sweden: Skandinaviska Enskilda Banken Sergels Torg 2 Stockholm, Sweden Switzerland: Citibank (Switzerland) Bahnhofstrass 63, Post Office Box 24 8021 Zurich, Switzerland Taiwan: Citibank, N.A. (Taiwan) Taipei Branch No. 52 Ming Sheng East Road Sec. 4 Taipei, Taiwan Thailand: Citibank, N.A. (Thailand) 127 South Sathom Road Bangkok 10120, Thailand Turkey: Citibank, N.A. (Turkey) Buyukedere Caddesi, No. 100, Eseutepe 80280 Istanbul, Turkey United Kingdom: Citibank, N.A. 25 Molesworth St, Lewisham, London SE 13 7EX United Kingdom The First National Bank of Chicago 27 Leadenhall Street London EC3A 1AA, England Uruguay: Citibank, N.A. (Uruguay) Cerrito 455 P.O. Box 690 Montevideo Uruguay Venezuela: Citibank, N.A. (Caracas) Carmelitas a Altagracia Edificio Citibank Caracas 1010, Venezuela 2-01.1 STATUS AND SHAREHOLDERS' EQUITY
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS' EQUITY Argentina Citibank, N.A. Branch NA Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption Austria Citibank (Austria) A.G. Subsidiary SEC Exemption Belgium Generale Bank Correspondent US$ 2,260 MM Brazil Citibank, N.A. Branch NA Canada Citibank Canada Subsidiary US$ 299.9 MM Chile Citibank, N.A. Branch NA China Citibank, N.A. Branch NA Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption Sociedad Fiduciary Denmark Den Danske Bank Correspondent US$ 2,975 MM Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM France Citibank S.A. Subsidiary SEC Exemption France Banque Paribas Correspondent US$ 2,998 MM Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM Greece Citibank, N.A. Branch NA Hong Kong Citibank, N.A. Branch NA Hungary Citibank Budapest Rt. Subsidiary SEC Exemption India Citibank, N.A. Branch NA Indonesia Citibank, N.A. Branch NA Ireland Citibank, N.A. Branch NA Italy Citibank, N.A. Branch NA Japan Citibank, N.A. Branch NA Jordan Citibank, N.A. Branch NA Korea Citibank, N.A. Branch NA
Luxembourg Cedel S.A. Depository NA Malaysia Citibank Berhad Subsidiary US$ 145MM Mexico Citibank, N.A. Branch NA Netherlands Citibank, N.A. Branch NA New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption Norway Christiania Bank Correspondent US$ 512MM Pakistan Citibank, N.A. Branch NA Peru Citibank, N.A. Branch NA Philippines Citibank, N.A. Branch NA Poland Citibank Poland S.A. Subsidiary SEC Exemption Portugal Citibank Portugal S.A. Subsidiary SEC Exemption Singapore Citibank, N.A. Branch NA South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM Spain Citibank, N.A. Branch NA Sri Lanka Citibank, N.A. Branch NA Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM Switzerland Citibank (Switzerland) Affiliate US$ 198MM Taiwan Citibank, N.A. Branch NA Thailand Citibank, N.A. Branch NA Turkey Citibank, N.A. Branch NA U.K. Citibank, N.A. Branch NA Uruguay Citibank, N.A. Branch NA Venezuela Citibank, N.A. Branch NA
2-02.0 DEPOSITORIES
Argentina: Caja de Valores ("CDV") Finland: Central Share Registry The Helsinki Money Market Center Australia: The Reserve Bank Information France: Societe Interprofessionnelle and Transfer System ("RITS") pour la Compensation de Valeurs Mobilieres Austraclear ("SICOVAM") Austria: Wertpapiersammelbank Banque de France bei der Oesterreichische Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G. ("DKV") Belgium: Caisse Interprofessionelle de Depots et de Virements Greece: Central Securities Depository, de Titres S.A. ("CIK") S.A. ("CSD") Banque Nationale Hong Kong: Central Clearing and de Belgique ("BNB") Settlement System ("CCASS") Brazil: BOVESPA's Registered Shares Fungible Custody Hungary: The Central Depository and ("BOVESPA") Clearing House ("CDCH") Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO") Securities Limited ("CDS") Italy: Monte Titoli Instituto per la China: The Shanghai Securities Custodia e l'Amministrazione Central Clearing and Accentrata di Valori Mibiliar Registration Corporation ("Monte Titoli") ("SSCCRC") The Bank of Italy The Shenzhen Securities Registrars Co. Ltd. - Japan: Japan Securities Depository registrar for three banks Center ("JASDEC") forming a decentralized depository structure The Bank of Japan ("BOJ") Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities Depository ("KSD")
Luxembourg: CEDEL, S.A. Malaysia: Malaysian Central Depository Sdn. Bhd. ("MCD") Mexico: Instituto para el Deposito de Valores ("S.D. Indeval") Netherlands: Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. ("Necigef") New Zealand: Austraclear Norway: The Norwegian Registry of Securities - Verdipapirsentralen ("VPS") Peru: Caja de Valores ("CAVAL") Poland: The National Depository of Securities (Krajowy Depozyt Papierow Wartosciowych) Portugal: Central de Registo e Valores Mobiliarios Singapore: Central Depository (PTE) Ltd. South Africa: The Central Depository (Pty) Ltd. Spain: Servico de Compensacion y Liquidacion de Valores ("SCLV") Sri Lanka: Central Depository System (Pvt) Limited Sweden: Vardepapperscentralen VPC AB ("VPC") Switzerland: Schwerzerische Effekten-Giro AG ("SEGA") Taiwan: Taiwan Securities Central Depository Co., Ltd. ("TSCD") Thailand: Share Depository Center ("SDC") Turkey: Istanbul Stock Exchange Settlement and Custody Company Inc. United Kingdom: Central Gilts Office ("CGO") MORGAN GUARANTY TRUST COMPANY OF NEW YORK GLOBAL CUSTODY NETWORK
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK, COUNTRY DATE SUBCUSTODIAN IF APPLICABLE. Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores N.Y. - Buenos Aires Office Australia 1982 ANZ Banking Group Austraclear Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der Oesterreichischen Kontrollbank AG) Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de N.Y. - Brussels Office Depots et de Virements de Titres) Euroclear Clearance System Limited Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo; N.Y. - Sao Paulo Office equities) BVRJ (Bolsa de Valores de Rio de Janeiro, equities) CETIP (Central de Custodia e Liquidacao Financeira de Titulos; corporate bonds) SELEC (Sistema Especial de Liquidacao e Custodia; gov't securities) Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities) Commerce Chile 1993 Citibank, N.A. People's Republic 1992 Hongkong and Shanghai Banking of China- Corporation Shanghai and Shenzhen Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S. Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish Securities Centre) Finland 1985 Union Bank of Finland France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle Pour La N.Y. - Paris Office Compensation des Valeurs Mobilieres) Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein) N.Y. - Frankfurt Office
Greece 1989 National Bank of Greece S.A. Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement System) Corporation Hungary 1993 Citibank N.A. India 1993 Hongkong and Shanghai Banking Corporation Indonesia 1990 Hongkong and Shanghai Banking Corporation Ireland 1988 Allied Irish Banks PLC Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange) Clearing House Ltd. Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A. Milan Office Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center) JSA (Japan Securities Agent) Jordan 1994 Citibank, N.A. Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement Corporation) Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Valeurs Luxembourg, S.A. Mobilieres) Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated Corporation Network Services) Mexico 1990 Citibank, N.A. Indeval Morocco 1994 Banque Commerciale du Maroc Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor Giraal Effectenverkeer BV) New Zealand 1982 ANZ Banking Group Ltd. Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian Registry of Securities) Pakistan 1994 Citibank, N.A. Peru 1994 Citibank, N.A. CAVAL (Caja de Valores) Philippines 1990 Hongkong and Shanghai Banking Corporation
Poland 1993 Bank Handlowy Portugal 1988 Banco Espirito Santo E Comercial de Lisboa Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte South Africa 1993 First National Bank of Southern Africa Spain 1977 Morgan Guaranty Trust Co. of N.Y. - Madrid Office Sri Lanka 1992 Hongkong and Shanghai Banking Corporation Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities Register Centre) Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG) Taiwan 1992 Hongkong and Shanghai Banking Corporation Thailand 1988 Hongkong and Shanghai Banking Corporation Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve Saklama A.S.) United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and London Office Lodgement for Investors, Stock Management for Jobbers) CGO (Central Gilts Office) CMS (Central Money Market Office) United States of 1977 Morgan Guaranty Trust Co. of The Federal Reserve Bank of New York America N.Y. The Depository Trust Co. The Participants Trust Co. Venezuela 1991 Citibank, N.A.
EXHIBIT (8) CUSTODY AGREEMENT This AGREEMENT, dated as of February 22, 1995, by and between TOTAL RETURN BOND PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the "Company"), an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and existing under the laws of the State of New Jersey (the "Custodian"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Fund desires that its Securities, cash and other assets be held and administered by Custodian pursuant to this Agreement; WHEREAS, the Fund is an investment portfolio represented by a series of Shares constituting part of the capital stock of the Company, an open-end management investment company registered under the 1940 Act (as hereinafter defined); WHEREAS, Custodian represents that it is a bank having the qualifications prescribed in Section 26(a)(i) of the 1940 Act; NOW, THEREFORE, in consideration of the mutual agreements herein made, the Fund and Custodian hereby agree as follows: ARTICLE I DEFINITIONS ----------- Whenever used in this Agreement, the following terms, unless the context otherwise requires, shall mean: 1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized ----------------- by resolution of the Board of Directors to give Oral Instructions and Written Instructions on behalf of the Fund and identified, by name or by office, in Exhibit A hereto or any person duly designated to do so by an investment adviser of the Fund specified by the Fund in Exhibit B hereto. 1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when ------------------ permitted under the 1940 Act, the Executive Committee thereof, if any. 1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal ----------------- Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of federal agencies as are substantially in the form of such Subpart O. 1.4 "BUSINESS DAY" means any day recognized as a settlement day by The ------------ New York Stock Exchange, Inc. and on which banks in the State of New Jersey are open for business. 1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is --------------- provided for in Section 3.2 below. 1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust -------------------------- company or other entity organized under the laws of a country other than the United States which is eligible under Rule 17f-5 under the 1940 Act to act as a sub-custodian for Foreign Securities and other assets of the Fund held outside the United States. 1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1) ------------------ of Rule 17f-5 under the 1940 Act. -2- 1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or ----------------------------- clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5 under the 1940 Act. 1.9 "1940 ACT" means the Investment Company Act of 1940, as amended. -------- 1.10 "OFFICER" means the President, any Vice President, the Secretary, any ------- Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund. 1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and ----------------- accepted by Custodian which are (a) reasonably believed by Custodian to have been given by an Authorized Person, (b) recorded and kept among the records of Custodian made in the ordinary course of business, and (c) orally confirmed by Custodian. 1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written ------------------- Instructions. Proper Instructions may be continuing Written Instructions when deemed appropriate by both parties. 1.13 "SECURITIES" includes, without limitation, common and preferred ---------- stocks, bonds, call options, put options, debentures, notes, bank certificates of deposit, forward contracts, futures contracts (including those related to indexes), options on futures contracts or indexes, bankers' acceptances, mortgage-backed securities or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or any similar property or assets that Custodian has the facilities to clear and to service. 1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and --------------------- (provided that Custodian has received a copy of a -3- resolution of the Board of Directors of the Fund, certified by an Officer, specifically approving the use thereof as a depository for the Fund) any other clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts as a system for the central handling and deposit of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities. 1.15 "SHARES" means the shares into which the capital stock of the Fund is ------ divided. 1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by -------------------- Custodian and signed by two persons reasonably believed by Custodian to be Authorized Persons, or (b) communications by telex or any other such system from two persons reasonably believed by Custodian to be Authorized Persons, or (c) communications between electro-mechanical or electronic devices. ARTICLE II APPOINTMENT OF CUSTODIAN ------------------------ 2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all ----------- such Securities, cash and other assets as may be acceptable to Custodian and from time to time delivered to it by the Fund or others for the account of the Fund. 2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian ---------- and agrees to perform the duties thereof as hereinafter set forth. -4- ARTICLE III CUSTODY OF CASH AND SECURITIES ------------------------------ 3.1 SEGREGATION. All Securities and non-cash property of the Fund in the ----------- possession of Custodian (other than Securities maintained by Custodian in a Securities Depository or Book-Entry System) shall be physically segregated from other Securities and non-cash property in the possession of Custodian and shall be identified as belonging to the Fund. 3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust --------------- department a custody account in the name of the Fund, subject only to draft or order of Custodian, in which Custodian shall enter and carry all Securities, cash and other assets of the Fund which are delivered to Custodian and accepted by it. Custodian shall not be under any duty or obligation to require the Fund to deliver to it any Securities or funds owned by the Fund and shall have no responsibility or liability for or on account of Securities or funds not so delivered. (b) If Custodian at any time fails to receive any of the documents referred to in Section 3.5(a) below, then, until such time as it receives such document, it shall not be obligated to receive any Securities of the Fund into the Custody Account and shall be entitled to return to the Fund any Securities of the Fund that it is holding. (c) Custodian may, but shall not be obligated to, hold Securities that may be held only in physical form. (d) Custodian is authorized to disclose the name, address and securities positions of the Fund to the issuers of such securities when requested by them to do so. -5- 3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents, --------------------- which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or Bear, Stearns Securities Corp., both of which are registered broker-dealers. The appointment of any agent pursuant to this Section 3.3(a) shall not relieve Custodian of any of its obligations or liabilities under this Agreement. However, no Book-Entry System, Securities Depository, Foreign Securities Depository or other securities depository or clearing agency (whether foreign or domestic) which it is or may become standard market practice to use for the comparison and settlement of trades in securities shall be an agent or sub- contractor of Custodian for purposes of this Section 3.3(a) or otherwise. (b) In its discretion, Custodian may appoint, and at any time remove, any domestic bank or trust company which is qualified to act as a custodian under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and to carry out such other provisions of this Agreement as it may determine, and may also open and maintain one or more banking accounts with such a bank or trust company (any such accounts to be in the name of Custodian and subject only to its draft or order), provided, however, that the appointment of any such agent or opening and maintenance of any such accounts shall be at Custodian's expense and shall not relieve Custodian of any of its obligations or liabilities under this Agreement. (c) Upon receipt of Written Instructions to do so and at the Fund's expense, Custodian shall appoint as sub-custodian such domestic bank or trust company as is named therein, provided that (i) such bank or trust company is qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding anything to the contrary in Section 7.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any such sub-custodian than any such sub-custodian has to Custodian, and Custodian shall not be required -6- to discharge any such liability which may be imposed on it unless and until such sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. 3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian ------------------------------- the Fund's Securities, cash and other assets, which are acceptable to Custodian, including (a) payments of income, payments of principal and capital distributions received by the Fund with respect to such Securities, cash or other assets owned by the Fund at any time during the term of this Agreement, and (b) cash received by the Fund for the issuance, at any time during such term, of Shares. Custodian shall not be responsible for such Securities, cash or other assets until actually received by it. 3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may ---------------------------------------------- deposit and/or maintain Securities of the Fund in a Securities Depository or in a Book-Entry System, subject to the following provisions: (a) Prior to a deposit of Securities of the Fund in any Securities Depository or Book-Entry System, the Fund shall deliver to Custodian a resolution of the Board of Directors of the Fund, certified by an Officer, authorizing and instructing Custodian (and any sub-custodian appointed pursuant to Section 3.3 above) on an on-going basis to deposit in such Securities Depository or Book-Entry System all Securities eligible for deposit therein and to make use of such Securities Depository or Book-Entry System to the extent possible and practical in connection with its performance hereunder (or under the applicable sub-custody agreement in the case of such sub-custodian), including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of collateral consisting of Securities. -7- (b) Securities of the Fund kept in a Book-Entry System or Securities Depository shall be kept in an account ("Depository Account") of Custodian in such Book-Entry System or Securities Depository which includes only assets held by Custodian as a fiduciary, custodian or otherwise for customers. (c) The records of Custodian with respect to Securities of the Fund maintained in a Book-Entry System or Securities Depository shall at all times identify such Securities as belonging to the Fund. (d) If Securities purchased by the Fund are to be held in a Book-Entry System or Securities Depository, Custodian shall pay for such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that such Securities have been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such payment and transfer for the account of the Fund. If Securities sold by the Fund are held in a Book-Entry System or Securities Depository, Custodian shall transfer such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that payment for such Securities has been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such transfer and payment for the account of the Fund. (e) Custodian shall provide the Fund with copies of any report obtained by Custodian from a Book-Entry System or Securities Depository in which Securities of the Fund are kept on the internal accounting controls and procedures for safeguarding Securities deposited in such Book-Entry System or Securities Depository. (f) At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claim against a Book-Entry System or Securities Depository or any other person for any loss or -8- damage to the Fund arising from the use of such Book-Entry System or Securities Depository, if and to the extent that the Fund has not been made whole for any such loss or damage. 3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall disburse moneys from the Custody Account, but only in the following cases: (a) For the purchase of Securities for the Fund but only (i) in the case of Securities (other than options on Securities, futures contracts and options on futures contracts), against the delivery to Custodian (or any sub- custodian appointed pursuant to Section 3.3 above) of such Securities registered as provided in Section 3.9 below or in proper form for transfer or, if the purchase of such Securities is effected through a Book-Entry System or Securities Depository, in accordance with the conditions set forth in Section 3.5 above; (ii) in the case of options on Securities, against delivery to Custodian (or such sub-custodian) of such receipts as are required by the customs prevailing among dealers in such options; (iii) in the case of futures contracts and options on futures contracts, against delivery to Custodian (or such sub-custodian) of evidence of title thereto in favor of the Fund, the Custodian, any such sub-custodian or any nominee referred to in Section 3.9 below; and (iv) in the case of repurchase or reverse repurchase agreements entered into by the Fund, against delivery of the purchased Securities either in certificate form or through an entry crediting Custodian's account at a Book- Entry System or Securities Depository with such Securities; (b) In connection with the conversion, exchange or surrender, as set forth in Section 3.7(f) below, of Securities owned by the Fund; (c) For the payment of any dividends or capital gain distributions declared by the Fund; -9- (d) In payment of the redemption price of Shares as provided in Article VI below; (e) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, administration, investment management, investment advisory, accounting, auditing, transfer agent, custodian, trustee and legal fees; and other operating expenses of the Fund; in all cases, whether or not such expenses are to be in whole or in part capitalized or treated as deferred expenses; (f) For transfer in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (g) For transfer in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (h) For the funding of any uncertificated time deposit or other interest-bearing account with any banking institution (including Custodian), but only if the payment instructions to Custodian detail specific Securities to be acquired; (i) For the purchase from a bank or other financial institution of loan participations, but only if Custodian has in its possession a copy of the agreement between the Fund and such bank or other financial institution with respect to the purchase of -10- such loan participations and the payment instructions to Custodian detail specific assets to be acquired; (j) For the purchase and sale of foreign currencies or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund pursuant to contracts with such banks and other financial institutions, including Custodian, any sub-custodian and any affiliate of Custodian, as principal, as are approved and authorized by the Fund, but only if the payment instructions to Custodian detail specific assets to be acquired; (k) For transfer to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (l) For the payment of the amounts of dividends received with respect to Securities sold short; and (m) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the amount and purpose of such payment, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom such payment is to be made. 3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall release and deliver Securities of the Fund from the Custody Account but only in the following cases: (a) Upon the sale of Securities for the account of the Fund but, subject to Section 5.3 below, only against receipt of -11- payment therefor in cash, by certified or cashiers' check or bank credit; (b) In the case of a sale effected through a Book-Entry System or Securities Depository, in accordance with the provisions of Section 3.5 above; (c) To an offeror's depository agent in connection with tender or other similar offers for Securities of the Fund; provided that, in any such case, the cash or other consideration is to be delivered to Custodian; (d) To the issuer thereof or its agent (i) for transfer into the name of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for exchange for a different number of certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new Securities are to be delivered to Custodian; (e) To the broker selling Securities, for examination in accordance with the "street delivery" custom; (f) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the issuer of such Securities, or pursuant to provisions for conversion contained in such Securities, or pursuant to any deposit agreement, including surrender or receipt of underlying Securities in connection with the issuance or cancellation of depository receipts; provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (g) Upon receipt of payment therefor pursuant to any repurchase agreement entered into by the Fund; -12- (h) In the case of warrants, rights or similar Securities, upon the exercise thereof, provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (i) For delivery in connection with any loans of Securities pursuant to any securities loan agreement entered into by the Fund, but only against receipt of such collateral as is required under such securities loan agreement; (j) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt by Custodian of the amounts borrowed; (k) Pursuant to any authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; (l) For delivery in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (m) For delivery in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (n) For delivery to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement -13- among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (o) For delivery (by a Foreign Sub-custodian or an agent of Custodian) to the depository used by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter collectively referred to as "ADRs") for such Securities against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the Foreign Sub- custodian or agent that the depository has acknowledged receipt of instructions to issue with respect to such Securities ADRs in the name of the Custodian, or a nominee of the Custodian, for delivery to the Custodian; (p) To deliver ADRs to the issuer thereof against a written receipt therefor adequately describing the ADR's delivered and written evidence satisfactory to the Custodian that the issuer of the ADRs has acknowledged the receipt of instructions to cause its depository to deliver the Securities underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or (q) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom delivery of such Securities is to be made. 3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise ----------------------------------------- instructed by the Fund, Custodian shall with respect to all Securities held for the Fund: -14- (a) Subject to Section 8.4 below, collect on a timely basis all income and other payments to which the Fund is entitled either by law or pursuant to custom in the securities business; (b) Subject to Section 8.4 below, collect on a timely basis the amount payable upon or with respect to all Securities and other assets which may mature or be called, redeemed, retired or otherwise become payable; (c) Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; (d) Surrender interim receipts or Securities in temporary form for Securities in definitive form; (e) Execute, as custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect, and prepare and submit reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in such manner and containing such information as is prescribed by the IRS; (f) Hold for the Fund all rights and similar securities issued with respect to Securities of the Fund; and (g) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with Securities and assets of the Fund. 3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the --------------------------------------- Fund that are issuable only in bearer form shall be held by Custodian in that form, provided that any such Securities shall be held in a Book-Entry System if eligible therefor. All other Securities held for the Fund may be registered in the name of Custodian as agent, any sub-custodian appointed pursuant to Section -15- 3.3 above, any Securities Depository, any Foreign Sub-custodian or Foreign Securities Depository (in the case of Foreign Securities), or any nominee or agent of any of them. The Fund shall furnish to Custodian appropriate instruments to enable Custodian to hold or deliver in proper form for transfer, or to register as in this Section 3.9 provided, any Securities delivered to Custodian which are registered in the name of the Fund. 3.10 RECORDS. (a) Custodian shall maintain complete and accurate records ------- with respect to Securities, cash or other property held for the Fund, including (i) journals or other records of original entry containing an itemized daily record in detail of all receipts and deliveries of Securities and all receipts and disbursements of cash; (ii) ledgers (or other records) reflecting (A) Securities in transfer, if any, (B) Securities in physical possession, (C) monies and Securities borrowed and monies and Securities loaned (together with a record of the collateral therefor and substitutions of such collateral), (D) dividends and interest received, and (E) dividends receivable and interest accrued; and (iii) cancelled checks and bank records related thereto. Custodian shall keep such other books and records with respect to Securities, cash and other property of the Fund which is held hereunder as the Fund may reasonably request. (b) All such books and records maintained by Custodian shall (i) be maintained in a form acceptable to the Fund and in compliance with rules and regulations of the Securities and Exchange Commission, (ii) be the property of the Fund and at all times during the regular business hours of Custodian be made available upon request for inspection by duly authorized officers, employees or agents of the Fund and employees or agents of the Securities and Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act. -16- 3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily -------------------- activity statement, including a summary of all transfers to or from the Custody Account, on the day following such transfers. At least monthly and from time to time, Custodian shall furnish the Fund with a detailed statement of the Securities and moneys held for the Fund under this Agreement. 3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with -------------------------- such reports as the Fund may reasonably request from time to time on the internal accounting controls and procedures for safeguarding Securities which are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3 above. 3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the --------------------------- Fund, Custodian shall promptly deliver to the Fund (at the address set forth in Article XV below) all notices of meetings, proxies and proxy materials which it receives regarding Securities held in the Custody Account. Before delivering them to the Fund, Custodian shall cause all proxies relating to such Securities which are not registered in the name of the Fund, or a nominee thereof, to be promptly executed by the registered holder of such Securities, without indication of the manner in which such proxies are to be voted. Unless otherwise instructed by the Fund, neither Custodian nor any of its agents shall exercise any voting rights with respect to Securities held hereunder. 3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit -------------------------------- to the Fund (at the address set forth in Article XV below) all written information received by Custodian from issuers of Securities held in the Custody Account. With respect to tender or exchange offers for such Securities, Custodian shall promptly transmit to the Fund all written information received by it from the issuers of the Securities whose tender or exchange is sought and by the party (or its agents) making the tender or exchange offer. If the Fund desires to take action with respect to -17- any tender offer, exchange offer or other similar transaction, the Fund shall notify Custodian (a) in the case of Foreign Securities, such number of Business Days prior to the date on which Custodian is to take such action (which number of days is in the Custodian's sole discretion) as will allow Custodian to take such action in the relevant local market in a timely fashion, and (b) in the case of all other Securities, at least five Business Days prior to the date on which Custodian is to take such action. 3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary ------------ information to the entity or entities appointed by the Fund to keep the books of account of the Fund and/or to compute the value of the assets of the Fund. ARTICLE IV DUTIES OF CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE THE UNITED STATES --------------------------------------- 4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub- ------------------------------------- custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians hereunder for the Fund's Securities and other assets maintained outside the United States. Upon receipt of Written Instructions from the Fund to do so, the Custodian shall cease the employment of any Foreign Sub-custodian for maintaining custody of the Fund's assets. 4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and ----------------- other assets maintained in the custody of an Eligible Foreign Custodian to: (a) Foreign Securities, and (b) cash and cash equivalents in such amounts as the Fund may determine. 4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub- ------------------------------- custodian employed by it may maintain assets of the -18- Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the 1940 Act. 4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in -------------------------------------- writing (a) the appointment of each Foreign Sub-custodian and the agreement pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian, the country or countries in which such Foreign Sub-custodian is authorized to hold Securities, cash and other property of the Fund. 4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians ------------------------------- and the countries where and the Foreign Securities Depositories through which they or the Custodian may hold Securities, cash and other property of the Fund which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit D shall be amended from time to time as Foreign Sub-custodians, countries and/or Foreign Securities Depositories are changed, added or deleted. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country not listed in Exhibit E in order to allow the Fund to give the approval required by Section 4.4 hereof and for Custodian to put the appropriate arrangements in place with a Foreign Sub- custodian. (b) If the Fund invests in a Security to be held pursuant to this Article before the foregoing procedures have been completed, such Security may be held by such agent as Custodian may select, and Custodian shall bear no liability to Fund for the actions of such agent, except to the extent Custodian shall have recovered from such agent for any damages caused to Fund by such agent. 4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time -------------------- to time, as mutually agreed upon, reports in respect -19- of the safekeeping of the Securities and other assets of the Fund held by Foreign Sub-custodians, including, but not limited to, advices or notifications of transfers of Securities to or from the accounts maintained by Foreign Sub- custodians for the Custodian on behalf of the Fund. 4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper --------------------------------------- Instructions given in any of the cases specified in Section 3.7 above, Custodian shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign Securities owned by the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market; and (b) Upon receipt of Proper Instructions given in any of the cases specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians to pay out monies of the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market. 4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which ----------------------------------- the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub- custodian to exercise reasonable care in the performance of its duties and shall hold such Foreign sub-custodian responsible for any direct loss or damage arising out of any willful misfeasance, bad faith or negligence of such Foreign Sub-custodian in the performance of its obligations under such agreement or out of its reckless disregard of such obligations. At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claims against a Foreign Sub-custodian as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. -20- 4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in ---------------------- Section 8.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any Foreign Sub- custodian than any such Foreign Sub-custodian has to Custodian, and Custodian shall not be required to discharge any such liability which may be imposed on it unless and until such Foreign Sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. Custodian shall have no liability for any loss or damage resulting from acts or omissions of any Foreign Sub-custodian arising out of or caused, directly or indirectly, by circumstances beyond such Foreign Sub-custodian's reasonable control, including, without limitation, sovereign risk, as described in Section 8.7, or "force majeure", as covered in Article X. 4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian --------------------------- shall annually furnish to the Fund information concerning all Foreign Sub- custodians hereunder which shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval by the Fund of the agreements pursuant to which Custodian employs such Foreign Sub-custodians or as otherwise required by Rule 17f-5 under the 1940 Act. 4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall ------------ exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in connection with Foreign Securities in the Custody Account. ARTICLE V PURCHASE AND SALE OF INVESTMENTS OF THE FUND -------------------------------------------- 5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities ---------------------- for the Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such -21- Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units purchased, (c) the date of purchase and settlement, (d) the purchase price per unit, (e) the total amount payable upon such purchase, and (f) the name of the person to whom such amount is payable. Custodian shall upon receipt of such Securities purchased by the Fund (or, if the Securities are transferred by means of a private placement transaction, upon the receipt of such Securities or payment instructions to Custodian which detail specific Securities to be acquired) pay out of the moneys held for the account of the Fund the total amount specified in such Written Instructions to the person named therein. Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities or other assets for the Fund if there is insufficient cash available in the Custody Account. 5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the ------------------ Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units sold, (c) the date of sale and settlement, (d) the sale price per unit, (e) the total amount payable upon such sale, and (f) the person to whom such Securities are to be delivered. Upon receipt of the total amount payable to the Fund as specified in such Written Instructions, Custodian shall deliver such Securities to the person specified in such Written Instructions. Subject to the foregoing, Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities. 5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or --------------------------- any other provision of this Agreement and subject, in the case of Foreign Securities, to all local laws, regulations, -22- customs, procedures and practices applicable in the relevant local market, Custodian, when instructed to deliver Securities against payment, shall be entitled, but only if in accordance with generally accepted market practice, to deliver such Securities prior to actual receipt of final payment therefor and, exclusively in the case of Securities in physical form, to deliver such Securities prior to receipt of payment. In any such case, the Fund shall bear the risk that final payment for such Securities may not be made or that such Securities may be returned or otherwise held or disposed of by or through the person to whom they were delivered, and Custodian shall have no liability for any of the foregoing. 5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from --------------------------------- time to time, Custodian may credit the Custody Account, prior to actual receipt of final payment thereof, with (a) proceeds from the sale of Securities which it has been instructed to deliver against payment, (b) proceeds from the redemption of Securities or other assets of the Fund, and (c) income from cash, Securities or other assets of the Fund. Any such credit shall be conditional upon actual receipt by Custodian of final payment and may be reversed if final payment is not actually received in full. Custodian may, in its sole discretion and from time to time, permit the Fund to use funds so credited to the Custody Account in anticipation of actual receipt of final payment. Any such funds shall be repayable immediately upon demand made by Custodian at any time prior to the actual receipt of all final payments in anticipation of which funds were credited to the Custody Account. 5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means ------------- payment in funds which are (or have become) immediately available, under applicable law are irreversible, and are not subject to any security interest, levy, lien or other encumbrance. -23- ARTICLE VI REDEMPTION OF FUND SHARES ------------------------- 6.1 TRANSFER OF FUNDS. From such funds as may be available for the ----------------- purpose in the Custody Account, and upon receipt of Proper Instructions specifying that the funds are required to redeem Shares on account of the Fund, Custodian shall wire each amount specified in such Proper Instructions to or through such bank as the Fund may designate therein with respect to such amount. 6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible ------------------------------ for the payment or distribution by any bank designated in Proper Instructions given pursuant to Section 6.1 above of any amount paid by Custodian to such bank in accordance with such Proper Instructions. ARTICLE VII SEGREGATED ACCOUNTS ------------------- Upon receipt of Proper Instructions, Custodian shall establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or Securities, including Securities maintained in a Depository Account: (a) in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer (or any futures commission merchant), relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, -24- (b) for purposes of segregating cash or Securities in connection with securities options purchased or written by the Fund or in connection with financial futures contracts (or options thereon) purchased or sold by the Fund, (c) which constitute collateral for loans of Securities made by the Fund, (d) for purposes of compliance by the Fund with requirements under the 1940 Act for the maintenance of segregated accounts by registered investment companies in connection with reverse repurchase agreements, when-issued, delayed delivery and firm commitment transactions, and short sales of securities, and (e) for other proper purposes, but only upon receipt of, in addition to Proper Instructions, a copy of a resolution of the Board of Directors, certified by an Officer, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper purposes of the Fund. ARTICLE VIII CONCERNING THE CUSTODIAN ------------------------ 8.1 STANDARD OF CARE. Custodian shall be held to the exercise of ---------------- reasonable care in carrying out its obligations under this Agreement, and shall be without liability to the Fund for any loss, damage, cost, expense (including attorneys' fees and disbursements), liability or claim which does not arise from willful misfeasance, bad faith or negligence on the part of Custodian or reckless disregard by Custodian of its obligations under this Agreement. Custodian shall be entitled to rely on and may act upon advice of counsel on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. In no event shall Custodian be liable for special or consequential damages or be liable in any manner whatsoever for any -25- action taken or omitted upon instructions from the Fund or any agent of the Fund. Custodian shall not be under any obligation at any time to ascertain whether the Fund is in compliance with the 1940 Act, the regulations thereunder, the provisions of its charter documents or by-laws, or its investment objectives, policies and limitations as in effect from time to time. 8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or -------------------------- considered to be the custodian of, any cash belonging to the Fund or any money represented by a check, draft or other instrument for the payment of money, until Custodian or its agents actually receive such cash or collect on such instrument. 8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that --------------------------------- it is in the exercise of reasonable care, Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received or delivered by it or its agents. 8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the ----------------------------- Fund whenever any money or property due and payable from or on account of any Securities held hereunder for the Fund is not timely received by it. Custodian shall not, however, be required to enforce collection, by legal means or otherwise, of any such money or other property not paid when due, but shall receive the proceeds of such collections as may be effected by it or its agents in the ordinary course of Custodian's custody and safekeeping business or of the custody and safekeeping business of such agents. 8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations ------------------- whatsoever except such duties and obligations as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against Custodian. Custodian shall have no discretion whatsoever with respect to the -26- management, disposition or investment of the Custody Account and is not a fiduciary to the Fund. 8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all -------------------- applicable requirements of the Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by Custodian hereunder. Except as specifically set forth herein, Custodian assumes no responsibility for such compliance by the Fund. 8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for ------------------------------- any loss involving any Securities, currencies, deposits or other property of the Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for any loss arising from a foreign currency transaction or contract, where the loss results from a sovereign risk or where the entity maintaining such Securities, currencies, deposits or other property of the Fund, whether Custodian, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such property or in connection with the transaction involving such property. For purposes of this Agreement, "sovereign risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other act or event beyond the control of the Foreign Sub-custodian, the Foreign Securities Depository or the agent of any of them. -27- ARTICLE IX INDEMNIFICATION --------------- 9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless --------------- Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian, from and against any loss, damages, cost, expense (including attorneys' fees and disbursements), liability (including, without limitation, liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal, state or foreign securities and/or banking laws) or claim arising directly or indirectly (a) from the fact that Securities are registered in the name of any such nominee, or (b) from any action or inaction by Custodian or such sub- custodian or other agent (i) at the request or direction of or in reliance on the advice of the Fund or any of its agents, or (ii) upon Proper Instructions, or (c) generally, from the performance of its obligations under this Agreement, provided that Custodian, any sub-custodian or any nominee of either of them shall not be indemnified and held harmless from and against any such loss, damage, cost, expense, liability or claim arising from Custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under this Agreement or, in the case of any sub-custodian or its nominee, from such sub-custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under the Agreement under which it is acting. 9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any ------------------------ action with respect to Securities, which may, in the opinion of Custodian, result in Custodian or its nominee becoming liable for the payment of money or incurring liability of some other form, Custodian shall not be required to take such action until the Fund shall have provided indemnity therefor to Custodian in an amount and form satisfactory to Custodian. -28- 9.3 SECURITY. As security for the payment of any present or future -------- obligation or liability of any kind which the Fund may have to Custodian with respect to or in connection with the Custody Account or this Agreement, the Fund hereby pledges to Custodian all cash, Securities and other property of every kind which is in the Custody Account or otherwise held for the Fund pursuant to this Agreement, and hereby grants to Custodian a lien, right of set-off and continuing security interest in such cash, Securities and other property. ARTICLE X FORCE MAJEURE ------------- Neither Custodian nor the Fund shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power failures; computer failure and any such circumstances beyond its reasonable control as may cause interruption, loss or malfunction of utility, transportation, computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation. ARTICLE XI REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Fund and Custodian represents and warrants for itself that (a) it has all necessary power and authority to perform its obligations hereunder, (b) the execution and delivery by it of this Agreement, and the performance by it of its obligations under this Agreement, have been duly authorized by all necessary action and will not violate any law, regulation, charter, by-law, or other -29- instrument, restriction or provision applicable to it or by which it is bound, and (c) this Agreement constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms. ARTICLE XII COMPENSATION OF CUSTODIAN ------------------------- The Fund shall pay Custodian such fees and charges as are set forth in the fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to time be revised by Custodian upon 14 days' prior written notice to the Fund. Any annual fee or other charges payable by the Fund shall be paid monthly by automatic deduction from the Custody Account. Expenses incurred by Custodian in the performance of its services hereunder, and all other proper charges and disbursements of the Custody Account, shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIII TAXES ----- Any and all taxes, including any interest and penalties with respect thereto, which may be levied or assessed under present or future laws or in respect of the Custody Account or any income thereof shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIV AUTHORIZED PERSONS ------------------ 14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance ------------------ with any notice, confirmation, instruction or other communication received by it from the Fund which is reasonably believed by Custodian to have been given or signed on behalf of the Fund by one of the Authorized Persons designated by the Fund in Exhibit A hereto, as it may from time to time be revised. The Fund -30- may revise Exhibit A hereto at any time by notice in writing to Custodian given in accordance with Article XV below, but no revision of Exhibit A hereto shall be effective until Custodian actually receives such notice. 14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any ------------------- Written or Oral Instructions which are reasonably believed by Custodian to have been given or signed by one of the persons designated from time to time by any of the investment advisers of the Fund specified in Exhibit B hereto (if any) as it may from time to time be revised. The Fund may revise Exhibit B hereto at any time by notice in writing to Custodian given in accordance with Article XV below, and each investment adviser specified in Exhibit B hereto (if any) may at any time by like notice designate an Authorized Person or remove an Authorized Person previously designated by it, but no revision of Exhibit B hereto (if any) and no designation or removal by such investment adviser shall be effective until Custodian actually receives such notice. 14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance ----------------- with Oral Instructions (as defined in Section 1.11 above). If Written Instructions confirming Oral Instructions are not received by Custodian prior to a transaction, it shall in no way affect the validity of the transaction authorized by such Oral Instructions or the authorization of the Fund to effect such transaction. Custodian shall incur no liability to the Fund in acting upon Oral Instructions (as defined in Section 1.11 above). To the extent such Oral Instructions vary from any confirming Written Instructions, Custodian shall advise the Fund of such variance but unless confirming Written Instructions are timely received, such Oral Instructions will govern. Either Custodian or Fund may electronically record any instructions given by telephone and any other telephone discussions with respect to the account of the Fund. -31- ARTICLE XV NOTICES ------- Unless otherwise specified herein, all demands, notices, instructions, and other communications to be given hereunder shall be sent, delivered or given to the recipient at the address set forth after its name hereinbelow: IF TO THE FUND: Total Return Bond Portfolio - The Bear Stearns Funds 245 Park Avenue New York, New York 10167 Attention: Frank J. Maresca ---------------- Telephone: (212) 272-2093 Facsimile: (212) 272-3098 IF TO CUSTODIAN: Custodial Trust Company 101 Carnegie Center Princeton, New Jersey 08540-6231 Attention: Vice President - Trust Operations --------------------------------- Telephone: (609) 951-2320 Facsimile: (609) 951-2327 or at such other address as either party shall have provided to the other by notice given in accordance with this Article XV. Writing shall include transmissions by or through teletype, facsimile, central processing unit connection, on-line terminal and magnetic tape. ARTICLE XVI TERMINATION ----------- Either party hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than sixty (60) days after the date of the giving of such notice. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall, upon receipt of a notice of acceptance by the successor custodian, on -32- that date (a) deliver directly to the successor custodian or its agents all Securities (other than Securities held in a Book-Entry System, Securities Depository or Foreign Securities Depository) and cash then owned by the Fund and held by Custodian as custodian, and (b) transfer any Securities held in a Book- Entry System, Securities Depository or Foreign Securities Depository to an account of or for the benefit of the Fund, provided that the Fund shall have paid to Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. ARTICLE XVII MISCELLANEOUS ------------- 17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require ------------- Custodian to perform any function or duties on a day other than a Business Day. 17.2 GOVERNING LAW. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of New York, without regard to the conflict of law principles thereof. 17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed ----------------------- matter which contains any reference to Custodian without the prior written approval of Custodian, excepting printed matter contained in the prospectus or statement of additional information for the Fund and such other printed matter as merely identifies Custodian as custodian for the Fund. The Fund shall submit printed matter requiring approval to Custodian in draft form, allowing sufficient time for review by Custodian and its counsel prior to any deadline for printing. 17.4 NO WAIVER. No failure by either party hereto to exercise, and no --------- delay by such party in exercising, any right hereunder shall operate as a waiver thereof. The exercise by either party hereto of any right hereunder shall not preclude the exercise -33- of any other right, and the remedies provided herein are cumulative and not exclusive of any remedies provided at law or in equity. 17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment ---------- to this Agreement shall be effective unless evidenced by an instrument in writing executed by the parties hereto. 17.6 COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, and by the parties hereto on separate counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same instrument. 17.7 SEVERABILITY. If any provision of this Agreement shall be invalid, ------------ illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby. 17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by -------- ------- either party hereto without the written consent of the other party. Any purported assignment in violation of this Section 17.8 shall be void. 17.9 HEADINGS. The headings of sections in this Agreement are for -------- convenience of reference only and shall not affect the meaning or construction of any provision of this Agreement. -34- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its representative thereunto duly authorized, all as of the day and year first above written. TOTAL RETURN BOND PORTFOLIO - CUSTODIAL TRUST COMPANY THE BEAR STEARNS FUNDS By /s/ Frank J. Maresca By /s/ Ronald D. Watson -------------------- ----------------------- Authorized Officer Authorized Officer -35- EXHIBIT A --------- AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS/*/ Set forth below are the names of the persons, whose specimen signatures are on file with the Custodian, authorized by the Board of Trustees of The Bear Stearns Funds to have access to the Total Return Bond Portfolio's (the "Fund") investments. Name ---- John D. Knox Mark R. Valkenburg Frank J. Maresca Vincent L. Pereira Eileen M. Coyle _____________________ /*/Nothing herein shall prohibit any person designated as an Authorized Person from giving Oral Instructions or Written Instructions to the Custodian, so long as it does not result in delivery of or access to securities and similar investments of the Fund by such person. EXHIBIT B --------- INVESTMENT ADVISERS Bear Stearns Funds Management Inc. EXHIBIT C --------- CUSTODY FEES AND TRANSACTION CHARGES DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges ------------- for assets in the United States ("Domestic Assets") and transactions in the United States, all such fees and charges to be payable monthly: (1) an annual fee of the greater of 0.015% (one and one-half basis points) per annum of the value of the Domestic Assets in the Custody Account or $5,000, such fee to be payable monthly based upon the total market value of such Domestic Assets as determined on the last Business Day of the month for which such fee is charged; (2) a transaction charge of $18 for each buy, sell or redemption transaction executed in the Custody Account with respect to such Domestic Assets as are book-entry Securities (but not for any such buy or sell in a repurchase transaction representing a cash sweep investment for the Fund's account or the investment by the Fund of collateral for a loan of Securities); (3) a transaction charge of $50 for each receipt or delivery into or from the Custody Account of such Domestic Assets as are Securities in physical form; (4) a transaction charge for each repurchase transaction in the Custody Account which represents a cash sweep investment for the Fund's account, computed at a rate of 0.10% (ten basis points) per annum on the amount of the purchase price paid or received by the Fund in such repurchase transaction; (5) a charge of $10 for each funds transfer; and (6) a service charge for each holding of Domestic Assets consisting of Securities or other property sold by way of private placement or in such other manner as to require services by Custodian which in the reasonable judgment of Custodian are materially in excess of those ordinarily required for the holding of publicly traded Securities in the United States. INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside ------------------ the United States ("Foreign Assets") and transaction charges and other charges (including, without limitation, charges for funds transfers, tax reclaims, and foreign exchange services) outside the United States, all such fees and charges to be payable monthly, according to a schedule of such fees and charges specific to each country in which Foreign Assets are held, such schedule to be provided from time to time upon request. Fees shall be based upon the total market value of the applicable Foreign Assets as determined on the last Business Day of the month for which such fees are charged. EXHIBIT D --------- APPROVED FOREIGN SUB-CUSTODIANS Foreign Sub-custodian Country(ies) Securities Depositories - --------------------- ------------ (See Attached) CITIBANK, N.A. SEC RULE 17F-5 INFORMATION PACKAGE AUGUST 1994 SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES SECTION 2: OVERVIEW OF CITIBANK'S FOREIGN SUBCUSTODIAN AND DEPOSITORY ARRANGEMENTS Colombia: Cititrust Colombia S.A. Carrera 9A, No. 99-02, Bogota, Colombia 2-01.0 SUBCUSTODIAN NETWORK Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank Bartolome Mitre 502/30 2-12 Holmens Kanal 1036 Buenos Aires, Argentina DK-1092 Copenhagen K. Denmark Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki 101 Collins Street Aleksanterinkatu 42 Melbourne, VIC 3000 Australia 00100 Helsinki, Finland Austria: Citibank (Austria) A.G. France: Citibank S.A. (France) Postfach 90 Cedex 36 Lothringerstrasse 7 92073 Paris la Defense, France A-1015 Vienna, Austria Banque Paribas Belgium: Generale Bank 3 Rue D'Antim Montagne du Parc 3 75002 Paris, France 1000 Brussels, Belgium Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft Avenida Paulista 1111 Neue Mainzer Str. 75, Sao Paulo, Brazil 60311, Frankfurt/Main, Germany Canada: Citibank Canada Greece: Citibank, N.A. (Greece) 123 Front Street West Athens Branch Toronto, Ontario Othonos 8 M5J2M3, Canada Athens 10557, Greece Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong) Ahumada 40 Citicorp Tower Santiago, Chile Citicorp Plaza 3 Garden Road Central, Hong Kong
China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt. c/o Citibank, N.A., 1052 Budapest V19-21. Hong Kong, Citicorp Tower, Vaci Utca Citicorp Plaza, 3 Garden Road, Hungary Central, Hong Kong India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New Sakhar Bhavan Zealand) Ltd. 230 Backbay Reclamation 23 Customs Street East Nariman Point Auckland 1, New Zealand Bombay 400 021 Indonesia: Citibank, N.A. (Jakarta) Jalan Jend. Sudirman No. 1 Norway: Christiania Bank Jakarta 12910, Indonesia P.O. Box 1166 Sentrum 0107 Oslo 1, Norway Ireland: Citibank, N.A. (Ireland) IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan) Quay, Dublin 2 P.O. Box 4889 Ireland 11 Chundrigar Road Karachi 74200 Italy: Citibank, N.A. (Italy) Pakistan Foro Buonaparte N. 16 Casella Postale 10932 20121 Milan, Italy Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima) Citicorp Center, Av. Camino Real 456, 2-314 Higashi Shinagawa, Torre Real 5t 0 Piso, Shinagawa - ku, Lima 27 Tokyo, Japan Peru Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines) 3rd Circle Citibank Center Jordan Insurance Building 8741 Paseo de Roxas Prince Mohammad Street Makati Metro Amman, Jordan Manila, Philippines Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A. 89-29 Shinmun-Ro, Sentorska 12, Chongro-ku 00-082 Warsaw, Seoul, Korea Poland Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A. 67 Boulevard Rua Barat, Salgueiro 30, Grande-Duchesse Charlotte 4th floor, 1200 Lisbon, L-1010, Luxembourg Portugal Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A. 28-30 Medan Pasar 252 Ponce De Leon Avenue 50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936 Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore) Paseo de la Reforma 390 UIC Building #01-00 Mexico City DF, 06695 Mexico 5 Shenton Way Singapore 0106 Netherlands: Citibank, N.A. (Netherlands) "Europlaza", South Africa: First National Bank Hoogoorddreef 54 B, Mezzanine floor, 1101 BE Amsterdam z.o., 3 First Place, The Netherlands Post Box 7713 Johannesburg, 2000 South Africa
Spain: Citibank, N.A. (Spain) Jose Ortega Y Gasset 29 28006 Madrid, Spain Sri Lanka: Citibank, N.A. (Sri Lanka) 67 Dharmapala Mawatha P.O. Box 888 Colombo 7, Sri Lanka Sweden: Skandinaviska Enskilda Banken Sergels Torg 2 Stockholm, Sweden Switzerland: Citibank (Switzerland) Bahnhofstrass 63, Post Office Box 24 8021 Zurich, Switzerland Taiwan: Citibank, N.A. (Taiwan) Taipei Branch No. 52 Ming Sheng East Road Sec. 4 Taipei, Taiwan Thailand: Citibank, N.A. (Thailand) 127 South Sathom Road Bangkok 10120, Thailand Turkey: Citibank, N.A. (Turkey) Buyukedere Caddesi, No. 100, Eseutepe 80280 Istanbul, Turkey United Kingdom: Citibank, N.A. 25 Molesworth St, Lewisham, London SE 13 7EX United Kingdom The First National Bank of Chicago 27 Leadenhall Street London EC3A 1AA, England Uruguay: Citibank, N.A. (Uruguay) Cerrito 455 P.O. Box 690 Montevideo Uruguay Venezuela: Citibank, N.A. (Caracas) Carmelitas a Altagracia Edificio Citibank Caracas 1010, Venezuela
2-01.1 STATUS AND SHAREHOLDERS' EQUITY
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS' EQUITY Argentina Citibank, N.A. Branch NA Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption Austria Citibank (Austria) A.G. Subsidiary SEC Exemption Belgium Generale Bank Correspondent US$ 2,260 MM Brazil Citibank, N.A. Branch NA Canada Citibank Canada Subsidiary US$ 299.9 MM Chile Citibank, N.A. Branch NA China Citibank, N.A. Branch NA Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption Sociedad Fiduciary Denmark Den Danske Bank Correspondent US$ 2,975 MM Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM France Citibank S.A. Subsidiary SEC Exemption France Banque Paribas Correspondent US$ 2,998 MM Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM Greece Citibank, N.A. Branch NA Hong Kong Citibank, N.A. Branch NA Hungary Citibank Budapest Rt. Subsidiary SEC Exemption India Citibank, N.A. Branch NA Indonesia Citibank, N.A. Branch NA Ireland Citibank, N.A. Branch NA Italy Citibank, N.A. Branch NA Japan Citibank, N.A. Branch NA Jordan Citibank, N.A. Branch NA Korea Citibank, N.A. Branch NA
Luxembourg Cedel S.A. Depository NA Malaysia Citibank Berhad Subsidiary US$ 145MM Mexico Citibank, N.A. Branch NA Netherlands Citibank, N.A. Branch NA New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption Norway Christiania Bank Correspondent US$ 512MM Pakistan Citibank, N.A. Branch NA Peru Citibank, N.A. Branch NA Philippines Citibank, N.A. Branch NA Poland Citibank Poland S.A. Subsidiary SEC Exemption Portugal Citibank Portugal S.A. Subsidiary SEC Exemption Singapore Citibank, N.A. Branch NA South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM Spain Citibank, N.A. Branch NA Sri Lanka Citibank, N.A. Branch NA Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM Switzerland Citibank (Switzerland) Affiliate US$ 198MM Taiwan Citibank, N.A. Branch NA Thailand Citibank, N.A. Branch NA Turkey Citibank, N.A. Branch NA U.K. Citibank, N.A. Branch NA Uruguay Citibank, N.A. Branch NA Venezuela Citibank, N.A. Branch NA
2-02.0 DEPOSITORIES Argentina: Caja de Valores ("CDV") Finland: Central Share Registry The Helsinki Money Market Center Australia: The Reserve Bank Information France: Societe Interprofessionnelle and Transfer System ("RITS") pour la Compensation de Valeurs Mobilieres Austraclear ("SICOVAM") Austria: Wertpapiersammelbank Banque de France bei der Oesterreichische Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G. ("DKV") Belgium: Caisse Interprofessionelle de Depots et de Virements Greece: Central Securities Depository, de Titres S.A. ("CIK") S.A. ("CSD") Banque Nationale Hong Kong: Central Clearing and de Belgique ("BNB") Settlement System ("CCASS") Brazil: BOVESPA's Registered Shares Fungible Custody Hungary: The Central Depository and ("BOVESPA") Clearing House ("CDCH") Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO") Securities Limited ("CDS") Italy: Monte Titoli Instituto per la China: The Shanghai Securities Custodia e l'Amministrazione Central Clearing and Accentrata di Valori Mibiliar Registration Corporation ("Monte Titoli") ("SSCCRC") The Bank of Italy The Shenzhen Securities Registrars Co. Ltd. - registrar Japan: Japan Securities Depository for three banks forming a Center ("JASDEC") decentralized depository structure The Bank of Japan ("BOJ") Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities Depository ("KSD")
Luxembourg: CEDEL, S.A. Malaysia: Malaysian Central Depository Sdn. Bhd. ("MCD") Mexico: Instituto para el Deposito de Valores ("S.D. Indeval") Netherlands: Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. ("Necigef") New Zealand: Austraclear Norway: The Norwegian Registry of Securities - Verdipapirsentralen ("VPS") Peru: Caja de Valores ("CAVAL") Poland: The National Depository of Securities (Krajowy Depozyt Papierow Wartosciowych) Portugal: Central de Registo e Valores Mobiliarios Singapore: Central Depository (PTE) Ltd. South Africa: The Central Depository (Pty) Ltd. Spain: Servico de Compensacion y Liquidacion de Valores ("SCLV") Sri Lanka: Central Depository System (Pvt) Limited Sweden: Vardepapperscentralen VPC AB ("VPC") Switzerland: Schwerzerische Effekten-Giro AG ("SEGA") Taiwan: Taiwan Securities Central Depository Co., Ltd. ("TSCD") Thailand: Share Depository Center ("SDC") Turkey: Istanbul Stock Exchange Settlement and Custody Company Inc. United Kingdom: Central Gilts Office ("CGO")
MORGAN GUARANTY TRUST COMPANY OF NEW YORK GLOBAL CUSTODY NETWORK
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK, COUNTRY DATE SUBCUSTODIAN IF APPLICABLE. Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores N.Y. - Buenos Aires Office Australia 1982 ANZ Banking Group Austraclear Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der Oesterreichischen Kontrollbank AG) Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de N.Y. - Brussels Office Depots et de Virements de Titres) Euroclear Clearance System Limited Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo; N.Y. - Sao Paulo Office equities) BVRJ (Bolsa de Valores de Rio de Janeiro, equities) CETIP (Central de Custodia e Liquidacao Financeira de Titulos; corporate bonds) SELEC (Sistema Especial de Liquidacao e Custodia; gov't securities) Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities) Commerce Chile 1993 Citibank, N.A. People's Republic 1992 Hongkong and Shanghai Banking of China- Corporation Shanghai and Shenzhen Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S. Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish Securities Centre) Finland 1985 Union Bank of Finland France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle Pour La N.Y. - Paris Office Compensation des Valeurs Mobilieres) Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein) N.Y. - Frankfurt Office
Greece 1989 National Bank of Greece S.A. Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement System) Corporation Hungary 1993 Citibank N.A. India 1993 Hongkong and Shanghai Banking Corporation Indonesia 1990 Hongkong and Shanghai Banking Corporation Ireland 1988 Allied Irish Banks PLC Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange) Clearing House Ltd. Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A. Milan Office Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center) JSA (Japan Securities Agent) Jordan 1994 Citibank, N.A. Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement Corporation) Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Valeurs Luxembourg, S.A. Mobilieres) Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated Corporation Network Services) Mexico 1990 Citibank, N.A. Indeval Morocco 1994 Banque Commerciale du Maroc Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor Giraal Effectenverkeer BV) New Zealand 1982 ANZ Banking Group Ltd. Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian Registry of Securities) Pakistan 1994 Citibank, N.A. Peru 1994 Citibank, N.A. CAVAL (Caja de Valores) Philippines 1990 Hongkong and Shanghai Banking Corporation
Poland 1993 Bank Handlowy Portugal 1988 Banco Espirito Santo E Comercial de Lisboa Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte South Africa 1993 First National Bank of Southern Africa Spain 1977 Morgan Guaranty Trust Co. of N.Y. - Madrid Office Sri Lanka 1992 Hongkong and Shanghai Banking Corporation Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities Register Centre) Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG) Taiwan 1992 Hongkong and Shanghai Banking Corporation Thailand 1988 Hongkong and Shanghai Banking Corporation Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve Saklama A.S.) United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and London Office Lodgement for Investors, Stock Management for Jobbers) CGO (Central Gilts Office) CMS (Central Money Market Office) United States of 1977 Morgan Guaranty Trust Co. of The Federal Reserve Bank of New York America N.Y. The Depository Trust Co. The Participants Trust Co. Venezuela 1991 Citibank, N.A.
EXHIBIT (8) CUSTODY AGREEMENT This AGREEMENT, dated as of February 22, 1995, by and between the S&P STARS PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the "Company"), an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and existing under the laws of the State of New Jersey (the "Custodian"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Fund desires that its Securities, cash and other assets be held and administered by Custodian pursuant to this Agreement; WHEREAS, the Fund is an investment portfolio represented by a series of Shares constituting part of the capital stock of the Company, an open-end management investment company registered under the 1940 Act (as hereinafter defined); WHEREAS, Custodian represents that it is a bank having the qualifications prescribed in Section 26(a)(i) of the 1940 Act; NOW, THEREFORE, in consideration of the mutual agreements herein made, the Fund and Custodian hereby agree as follows: ARTICLE I DEFINITIONS ----------- Whenever used in this Agreement, the following terms, unless the context otherwise requires, shall mean: 1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized ----------------- by resolution of the Board of Directors to give Oral Instructions and Written Instructions on behalf of the Fund and identified, by name or by office, in Exhibit A hereto or any person duly designated to do so by an investment adviser of the Fund specified by the Fund in Exhibit B hereto. 1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when ------------------ permitted under the 1940 Act, the Executive Committee thereof, if any. 1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal ----------------- Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of federal agencies as are substantially in the form of such Subpart O. 1.4 "BUSINESS DAY" means any day recognized as a settlement day by The ------------ New York Stock Exchange, Inc. and on which banks in the State of New Jersey are open for business. 1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is --------------- provided for in Section 3.2 below. 1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust -------------------------- company or other entity organized under the laws of a country other than the United States which is eligible under Rule 17f-5 under the 1940 Act to act as a sub-custodian for Foreign Securities and other assets of the Fund held outside the United States. 1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1) ------------------ of Rule 17f-5 under the 1940 Act. -2- 1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or ----------------------------- clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5 under the 1940 Act. 1.9 "1940 ACT" means the Investment Company Act of 1940, as amended. -------- 1.10 "OFFICER" means the President, any Vice President, the Secretary, any ------- Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund. 1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and ----------------- accepted by Custodian which are (a) reasonably believed by Custodian to have been given by an Authorized Person, (b) recorded and kept among the records of Custodian made in the ordinary course of business, and (c) orally confirmed by Custodian. 1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written ------------------- Instructions. Proper Instructions may be continuing Written Instructions when deemed appropriate by both parties. 1.13 "SECURITIES" includes, without limitation, common and preferred ---------- stocks, bonds, call options, put options, debentures, notes, bank certificates of deposit, forward contracts, futures contracts (including those related to indexes), options on futures contracts or indexes, bankers' acceptances, mortgage-backed securities or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or any similar property or assets that Custodian has the facilities to clear and to service. 1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and --------------------- (provided that Custodian has received a copy of a -3- resolution of the Board of Directors of the Fund, certified by an Officer, specifically approving the use thereof as a depository for the Fund) any other clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts as a system for the central handling and deposit of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities. 1.15 "SHARES" means the shares into which the capital stock of the Fund is ------ divided. 1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by -------------------- Custodian and signed by two persons reasonably believed by Custodian to be Authorized Persons, or (b) communications by telex or any other such system from two persons reasonably believed by Custodian to be Authorized Persons, or (c) communications between electro-mechanical or electronic devices. ARTICLE II APPOINTMENT OF CUSTODIAN ------------------------ 2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all ----------- such Securities, cash and other assets as may be acceptable to Custodian and from time to time delivered to it by the Fund or others for the account of the Fund. 2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian ---------- and agrees to perform the duties thereof as hereinafter set forth. -4- ARTICLE III CUSTODY OF CASH AND SECURITIES ------------------------------ 3.1 SEGREGATION. All Securities and non-cash property of the Fund in the ----------- possession of Custodian (other than Securities maintained by Custodian in a Securities Depository or Book-Entry System) shall be physically segregated from other Securities and non-cash property in the possession of Custodian and shall be identified as belonging to the Fund. 3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust --------------- department a custody account in the name of the Fund, subject only to draft or order of Custodian, in which Custodian shall enter and carry all Securities, cash and other assets of the Fund which are delivered to Custodian and accepted by it. Custodian shall not be under any duty or obligation to require the Fund to deliver to it any Securities or funds owned by the Fund and shall have no responsibility or liability for or on account of Securities or funds not so delivered. (b) If Custodian at any time fails to receive any of the documents referred to in Section 3.5(a) below, then, until such time as it receives such document, it shall not be obligated to receive any Securities of the Fund into the Custody Account and shall be entitled to return to the Fund any Securities of the Fund that it is holding. (c) Custodian may, but shall not be obligated to, hold Securities that may be held only in physical form. (d) Custodian is authorized to disclose the name, address and securities positions of the Fund to the issuers of such securities when requested by them to do so. -5- 3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents, --------------------- which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or Bear, Stearns Securities Corp., both of which are registered broker-dealers. The appointment of any agent pursuant to this Section 3.3(a) shall not relieve Custodian of any of its obligations or liabilities under this Agreement. However, no Book-Entry System, Securities Depository, Foreign Securities Depository or other securities depository or clearing agency (whether foreign or domestic) which it is or may become standard market practice to use for the comparison and settlement of trades in securities shall be an agent or sub- contractor of Custodian for purposes of this Section 3.3(a) or otherwise. (b) In its discretion, Custodian may appoint, and at any time remove, any domestic bank or trust company which is qualified to act as a custodian under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and to carry out such other provisions of this Agreement as it may determine, and may also open and maintain one or more banking accounts with such a bank or trust company (any such accounts to be in the name of Custodian and subject only to its draft or order), provided, however, that the appointment of any such agent or opening and maintenance of any such accounts shall be at Custodian's expense and shall not relieve Custodian of any of its obligations or liabilities under this Agreement. (c) Upon receipt of Written Instructions to do so and at the Fund's expense, Custodian shall appoint as sub-custodian such domestic bank or trust company as is named therein, provided that (i) such bank or trust company is qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding anything to the contrary in Section 7.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any such sub-custodian than any such sub-custodian has to Custodian, and Custodian shall not be required -6- to discharge any such liability which may be imposed on it unless and until such sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. 3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian ------------------------------- the Fund's Securities, cash and other assets, which are acceptable to Custodian, including (a) payments of income, payments of principal and capital distributions received by the Fund with respect to such Securities, cash or other assets owned by the Fund at any time during the term of this Agreement, and (b) cash received by the Fund for the issuance, at any time during such term, of Shares. Custodian shall not be responsible for such Securities, cash or other assets until actually received by it. 3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may ---------------------------------------------- deposit and/or maintain Securities of the Fund in a Securities Depository or in a Book-Entry System, subject to the following provisions: (a) Prior to a deposit of Securities of the Fund in any Securities Depository or Book-Entry System, the Fund shall deliver to Custodian a resolution of the Board of Directors of the Fund, certified by an Officer, authorizing and instructing Custodian (and any sub-custodian appointed pursuant to Section 3.3 above) on an on-going basis to deposit in such Securities Depository or Book-Entry System all Securities eligible for deposit therein and to make use of such Securities Depository or Book-Entry System to the extent possible and practical in connection with its performance hereunder (or under the applicable sub-custody agreement in the case of such sub-custodian), including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of collateral consisting of Securities. -7- (b) Securities of the Fund kept in a Book-Entry System or Securities Depository shall be kept in an account ("Depository Account") of Custodian in such Book-Entry System or Securities Depository which includes only assets held by Custodian as a fiduciary, custodian or otherwise for customers. (c) The records of Custodian with respect to Securities of the Fund maintained in a Book-Entry System or Securities Depository shall at all times identify such Securities as belonging to the Fund. (d) If Securities purchased by the Fund are to be held in a Book-Entry System or Securities Depository, Custodian shall pay for such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that such Securities have been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such payment and transfer for the account of the Fund. If Securities sold by the Fund are held in a Book-Entry System or Securities Depository, Custodian shall transfer such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that payment for such Securities has been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such transfer and payment for the account of the Fund. (e) Custodian shall provide the Fund with copies of any report obtained by Custodian from a Book-Entry System or Securities Depository in which Securities of the Fund are kept on the internal accounting controls and procedures for safeguarding Securities deposited in such Book-Entry System or Securities Depository. (f) At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claim against a Book-Entry System or Securities Depository or any other person for any loss or -8- damage to the Fund arising from the use of such Book-Entry System or Securities Depository, if and to the extent that the Fund has not been made whole for any such loss or damage. 3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall disburse moneys from the Custody Account, but only in the following cases: (a) For the purchase of Securities for the Fund but only (i) in the case of Securities (other than options on Securities, futures contracts and options on futures contracts), against the delivery to Custodian (or any sub- custodian appointed pursuant to Section 3.3 above) of such Securities registered as provided in Section 3.9 below or in proper form for transfer or, if the purchase of such Securities is effected through a Book-Entry System or Securities Depository, in accordance with the conditions set forth in Section 3.5 above; (ii) in the case of options on Securities, against delivery to Custodian (or such sub-custodian) of such receipts as are required by the customs prevailing among dealers in such options; (iii) in the case of futures contracts and options on futures contracts, against delivery to Custodian (or such sub-custodian) of evidence of title thereto in favor of the Fund, the Custodian, any such sub-custodian or any nominee referred to in Section 3.9 below; and (iv) in the case of repurchase or reverse repurchase agreements entered into by the Fund, against delivery of the purchased Securities either in certificate form or through an entry crediting Custodian's account at a Book- Entry System or Securities Depository with such Securities; (b) In connection with the conversion, exchange or surrender, as set forth in Section 3.7(f) below, of Securities owned by the Fund; (c) For the payment of any dividends or capital gain distributions declared by the Fund; -9- (d) In payment of the redemption price of Shares as provided in Article VI below; (e) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, administration, investment management, investment advisory, accounting, auditing, transfer agent, custodian, trustee and legal fees; and other operating expenses of the Fund; in all cases, whether or not such expenses are to be in whole or in part capitalized or treated as deferred expenses; (f) For transfer in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (g) For transfer in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (h) For the funding of any uncertificated time deposit or other interest-bearing account with any banking institution (including Custodian), but only if the payment instructions to Custodian detail specific Securities to be acquired; (i) For the purchase from a bank or other financial institution of loan participations, but only if Custodian has in its possession a copy of the agreement between the Fund and such bank or other financial institution with respect to the purchase of -10- such loan participations and the payment instructions to Custodian detail specific assets to be acquired; (j) For the purchase and sale of foreign currencies or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund pursuant to contracts with such banks and other financial institutions, including Custodian, any sub-custodian and any affiliate of Custodian, as principal, as are approved and authorized by the Fund, but only if the payment instructions to Custodian detail specific assets to be acquired; (k) For transfer to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (l) For the payment of the amounts of dividends received with respect to Securities sold short; and (m) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the amount and purpose of such payment, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom such payment is to be made. 3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall release and deliver Securities of the Fund from the Custody Account but only in the following cases: (a) Upon the sale of Securities for the account of the Fund but, subject to Section 5.3 below, only against receipt of -11- payment therefor in cash, by certified or cashiers' check or bank credit; (b) In the case of a sale effected through a Book-Entry System or Securities Depository, in accordance with the provisions of Section 3.5 above; (c) To an offeror's depository agent in connection with tender or other similar offers for Securities of the Fund; provided that, in any such case, the cash or other consideration is to be delivered to Custodian; (d) To the issuer thereof or its agent (i) for transfer into the name of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for exchange for a different number of certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new Securities are to be delivered to Custodian; (e) To the broker selling Securities, for examination in accordance with the "street delivery" custom; (f) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the issuer of such Securities, or pursuant to provisions for conversion contained in such Securities, or pursuant to any deposit agreement, including surrender or receipt of underlying Securities in connection with the issuance or cancellation of depository receipts; provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (g) Upon receipt of payment therefor pursuant to any repurchase agreement entered into by the Fund; -12- (h) In the case of warrants, rights or similar Securities, upon the exercise thereof, provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (i) For delivery in connection with any loans of Securities pursuant to any securities loan agreement entered into by the Fund, but only against receipt of such collateral as is required under such securities loan agreement; (j) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt by Custodian of the amounts borrowed; (k) Pursuant to any authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; (l) For delivery in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (m) For delivery in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (n) For delivery to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement -13- among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (o) For delivery (by a Foreign Sub-custodian or an agent of Custodian) to the depository used by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter collectively referred to as "ADRs") for such Securities against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the Foreign Sub- custodian or agent that the depository has acknowledged receipt of instructions to issue with respect to such Securities ADRs in the name of the Custodian, or a nominee of the Custodian, for delivery to the Custodian; (p) To deliver ADRs to the issuer thereof against a written receipt therefor adequately describing the ADR's delivered and written evidence satisfactory to the Custodian that the issuer of the ADRs has acknowledged the receipt of instructions to cause its depository to deliver the Securities underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or (q) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom delivery of such Securities is to be made. 3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise ----------------------------------------- instructed by the Fund, Custodian shall with respect to all Securities held for the Fund: -14- (a) Subject to Section 8.4 below, collect on a timely basis all income and other payments to which the Fund is entitled either by law or pursuant to custom in the securities business; (b) Subject to Section 8.4 below, collect on a timely basis the amount payable upon or with respect to all Securities and other assets which may mature or be called, redeemed, retired or otherwise become payable; (c) Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; (d) Surrender interim receipts or Securities in temporary form for Securities in definitive form; (e) Execute, as custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect, and prepare and submit reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in such manner and containing such information as is prescribed by the IRS; (f) Hold for the Fund all rights and similar securities issued with respect to Securities of the Fund; and (g) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with Securities and assets of the Fund. 3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the --------------------------------------- Fund that are issuable only in bearer form shall be held by Custodian in that form, provided that any such Securities shall be held in a Book-Entry System if eligible therefor. All other Securities held for the Fund may be registered in the name of Custodian as agent, any sub-custodian appointed pursuant to Section -15- 3.3 above, any Securities Depository, any Foreign Sub-custodian or Foreign Securities Depository (in the case of Foreign Securities), or any nominee or agent of any of them. The Fund shall furnish to Custodian appropriate instruments to enable Custodian to hold or deliver in proper form for transfer, or to register as in this Section 3.9 provided, any Securities delivered to Custodian which are registered in the name of the Fund. 3.10 RECORDS. (a) Custodian shall maintain complete and accurate records ------- with respect to Securities, cash or other property held for the Fund, including (i) journals or other records of original entry containing an itemized daily record in detail of all receipts and deliveries of Securities and all receipts and disbursements of cash; (ii) ledgers (or other records) reflecting (A) Securities in transfer, if any, (B) Securities in physical possession, (C) monies and Securities borrowed and monies and Securities loaned (together with a record of the collateral therefor and substitutions of such collateral), (D) dividends and interest received, and (E) dividends receivable and interest accrued; and (iii) cancelled checks and bank records related thereto. Custodian shall keep such other books and records with respect to Securities, cash and other property of the Fund which is held hereunder as the Fund may reasonably request. (b) All such books and records maintained by Custodian shall (i) be maintained in a form acceptable to the Fund and in compliance with rules and regulations of the Securities and Exchange Commission, (ii) be the property of the Fund and at all times during the regular business hours of Custodian be made available upon request for inspection by duly authorized officers, employees or agents of the Fund and employees or agents of the Securities and Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act. -16- 3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily -------------------- activity statement, including a summary of all transfers to or from the Custody Account, on the day following such transfers. At least monthly and from time to time, Custodian shall furnish the Fund with a detailed statement of the Securities and moneys held for the Fund under this Agreement. 3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with -------------------------- such reports as the Fund may reasonably request from time to time on the internal accounting controls and procedures for safeguarding Securities which are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3 above. 3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the --------------------------- Fund, Custodian shall promptly deliver to the Fund (at the address set forth in Article XV below) all notices of meetings, proxies and proxy materials which it receives regarding Securities held in the Custody Account. Before delivering them to the Fund, Custodian shall cause all proxies relating to such Securities which are not registered in the name of the Fund, or a nominee thereof, to be promptly executed by the registered holder of such Securities, without indication of the manner in which such proxies are to be voted. Unless otherwise instructed by the Fund, neither Custodian nor any of its agents shall exercise any voting rights with respect to Securities held hereunder. 3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit -------------------------------- to the Fund (at the address set forth in Article XV below) all written information received by Custodian from issuers of Securities held in the Custody Account. With respect to tender or exchange offers for such Securities, Custodian shall promptly transmit to the Fund all written information received by it from the issuers of the Securities whose tender or exchange is sought and by the party (or its agents) making the tender or exchange offer. If the Fund desires to take action with respect to -17- any tender offer, exchange offer or other similar transaction, the Fund shall notify Custodian (a) in the case of Foreign Securities, such number of Business Days prior to the date on which Custodian is to take such action (which number of days is in the Custodian's sole discretion) as will allow Custodian to take such action in the relevant local market in a timely fashion, and (b) in the case of all other Securities, at least five Business Days prior to the date on which Custodian is to take such action. 3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary ------------ information to the entity or entities appointed by the Fund to keep the books of account of the Fund and/or to compute the value of the assets of the Fund. ARTICLE IV DUTIES OF CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE THE UNITED STATES --------------------------------------- 4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub- ------------------------------------- custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians hereunder for the Fund's Securities and other assets maintained outside the United States. Upon receipt of Written Instructions from the Fund to do so, the Custodian shall cease the employment of any Foreign Sub-custodian for maintaining custody of the Fund's assets. 4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and ----------------- other assets maintained in the custody of an Eligible Foreign Custodian to: (a) Foreign Securities, and (b) cash and cash equivalents in such amounts as the Fund may determine. 4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub- ------------------------------- custodian employed by it may maintain assets of the -18- Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the 1940 Act. 4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in -------------------------------------- writing (a) the appointment of each Foreign Sub-custodian and the agreement pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian, the country or countries in which such Foreign Sub-custodian is authorized to hold Securities, cash and other property of the Fund. 4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians ------------------------------- and the countries where and the Foreign Securities Depositories through which they or the Custodian may hold Securities, cash and other property of the Fund which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit D shall be amended from time to time as Foreign Sub-custodians, countries and/or Foreign Securities Depositories are changed, added or deleted. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country not listed in Exhibit E in order to allow the Fund to give the approval required by Section 4.4 hereof and for Custodian to put the appropriate arrangements in place with a Foreign Sub- custodian. (b) If the Fund invests in a Security to be held pursuant to this Article before the foregoing procedures have been completed, such Security may be held by such agent as Custodian may select, and Custodian shall bear no liability to Fund for the actions of such agent, except to the extent Custodian shall have recovered from such agent for any damages caused to Fund by such agent. 4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time -------------------- to time, as mutually agreed upon, reports in respect -19- of the safekeeping of the Securities and other assets of the Fund held by Foreign Sub-custodians, including, but not limited to, advices or notifications of transfers of Securities to or from the accounts maintained by Foreign Sub- custodians for the Custodian on behalf of the Fund. 4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper --------------------------------------- Instructions given in any of the cases specified in Section 3.7 above, Custodian shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign Securities owned by the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market; and (b) Upon receipt of Proper Instructions given in any of the cases specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians to pay out monies of the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market. 4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which ----------------------------------- the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub- custodian to exercise reasonable care in the performance of its duties and shall hold such Foreign sub-custodian responsible for any direct loss or damage arising out of any willful misfeasance, bad faith or negligence of such Foreign Sub-custodian in the performance of its obligations under such agreement or out of its reckless disregard of such obligations. At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claims against a Foreign Sub-custodian as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. -20- 4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in ---------------------- Section 8.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any Foreign Sub- custodian than any such Foreign Sub-custodian has to Custodian, and Custodian shall not be required to discharge any such liability which may be imposed on it unless and until such Foreign Sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. Custodian shall have no liability for any loss or damage resulting from acts or omissions of any Foreign Sub-custodian arising out of or caused, directly or indirectly, by circumstances beyond such Foreign Sub-custodian's reasonable control, including, without limitation, sovereign risk, as described in Section 8.7, or "force majeure", as covered in Article X. 4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian --------------------------- shall annually furnish to the Fund information concerning all Foreign Sub- custodians hereunder which shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval by the Fund of the agreements pursuant to which Custodian employs such Foreign Sub-custodians or as otherwise required by Rule 17f-5 under the 1940 Act. 4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall ------------ exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in connection with Foreign Securities in the Custody Account. ARTICLE V PURCHASE AND SALE OF INVESTMENTS OF THE FUND -------------------------------------------- 5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities ---------------------- for the Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such -21- Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units purchased, (c) the date of purchase and settlement, (d) the purchase price per unit, (e) the total amount payable upon such purchase, and (f) the name of the person to whom such amount is payable. Custodian shall upon receipt of such Securities purchased by the Fund (or, if the Securities are transferred by means of a private placement transaction, upon the receipt of such Securities or payment instructions to Custodian which detail specific Securities to be acquired) pay out of the moneys held for the account of the Fund the total amount specified in such Written Instructions to the person named therein. Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities or other assets for the Fund if there is insufficient cash available in the Custody Account. 5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the ------------------ Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units sold, (c) the date of sale and settlement, (d) the sale price per unit, (e) the total amount payable upon such sale, and (f) the person to whom such Securities are to be delivered. Upon receipt of the total amount payable to the Fund as specified in such Written Instructions, Custodian shall deliver such Securities to the person specified in such Written Instructions. Subject to the foregoing, Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities. 5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or --------------------------- any other provision of this Agreement and subject, in the case of Foreign Securities, to all local laws, regulations, -22- customs, procedures and practices applicable in the relevant local market, Custodian, when instructed to deliver Securities against payment, shall be entitled, but only if in accordance with generally accepted market practice, to deliver such Securities prior to actual receipt of final payment therefor and, exclusively in the case of Securities in physical form, to deliver such Securities prior to receipt of payment. In any such case, the Fund shall bear the risk that final payment for such Securities may not be made or that such Securities may be returned or otherwise held or disposed of by or through the person to whom they were delivered, and Custodian shall have no liability for any of the foregoing. 5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from --------------------------------- time to time, Custodian may credit the Custody Account, prior to actual receipt of final payment thereof, with (a) proceeds from the sale of Securities which it has been instructed to deliver against payment, (b) proceeds from the redemption of Securities or other assets of the Fund, and (c) income from cash, Securities or other assets of the Fund. Any such credit shall be conditional upon actual receipt by Custodian of final payment and may be reversed if final payment is not actually received in full. Custodian may, in its sole discretion and from time to time, permit the Fund to use funds so credited to the Custody Account in anticipation of actual receipt of final payment. Any such funds shall be repayable immediately upon demand made by Custodian at any time prior to the actual receipt of all final payments in anticipation of which funds were credited to the Custody Account. 5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means ------------- payment in funds which are (or have become) immediately available, under applicable law are irreversible, and are not subject to any security interest, levy, lien or other encumbrance. -23- ARTICLE VI REDEMPTION OF FUND SHARES ------------------------- 6.1 TRANSFER OF FUNDS. From such funds as may be available for the ----------------- purpose in the Custody Account, and upon receipt of Proper Instructions specifying that the funds are required to redeem Shares on account of the Fund, Custodian shall wire each amount specified in such Proper Instructions to or through such bank as the Fund may designate therein with respect to such amount. 6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible ------------------------------ for the payment or distribution by any bank designated in Proper Instructions given pursuant to Section 6.1 above of any amount paid by Custodian to such bank in accordance with such Proper Instructions. ARTICLE VII SEGREGATED ACCOUNTS ------------------- Upon receipt of Proper Instructions, Custodian shall establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or Securities, including Securities maintained in a Depository Account: (a) in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer (or any futures commission merchant), relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, -24- (b) for purposes of segregating cash or Securities in connection with securities options purchased or written by the Fund or in connection with financial futures contracts (or options thereon) purchased or sold by the Fund, (c) which constitute collateral for loans of Securities made by the Fund, (d) for purposes of compliance by the Fund with requirements under the 1940 Act for the maintenance of segregated accounts by registered investment companies in connection with reverse repurchase agreements, when-issued, delayed delivery and firm commitment transactions, and short sales of securities, and (e) for other proper purposes, but only upon receipt of, in addition to Proper Instructions, a copy of a resolution of the Board of Directors, certified by an Officer, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper purposes of the Fund. ARTICLE VIII CONCERNING THE CUSTODIAN ------------------------ 8.1 STANDARD OF CARE. Custodian shall be held to the exercise of ---------------- reasonable care in carrying out its obligations under this Agreement, and shall be without liability to the Fund for any loss, damage, cost, expense (including attorneys' fees and disbursements), liability or claim which does not arise from willful misfeasance, bad faith or negligence on the part of Custodian or reckless disregard by Custodian of its obligations under this Agreement. Custodian shall be entitled to rely on and may act upon advice of counsel on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. In no event shall Custodian be liable for special or consequential damages or be liable in any manner whatsoever for any -25- action taken or omitted upon instructions from the Fund or any agent of the Fund. Custodian shall not be under any obligation at any time to ascertain whether the Fund is in compliance with the 1940 Act, the regulations thereunder, the provisions of its charter documents or by-laws, or its investment objectives, policies and limitations as in effect from time to time. 8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or -------------------------- considered to be the custodian of, any cash belonging to the Fund or any money represented by a check, draft or other instrument for the payment of money, until Custodian or its agents actually receive such cash or collect on such instrument. 8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that --------------------------------- it is in the exercise of reasonable care, Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received or delivered by it or its agents. 8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the ----------------------------- Fund whenever any money or property due and payable from or on account of any Securities held hereunder for the Fund is not timely received by it. Custodian shall not, however, be required to enforce collection, by legal means or otherwise, of any such money or other property not paid when due, but shall receive the proceeds of such collections as may be effected by it or its agents in the ordinary course of Custodian's custody and safekeeping business or of the custody and safekeeping business of such agents. 8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations ------------------- whatsoever except such duties and obligations as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against Custodian. Custodian shall have no discretion whatsoever with respect to the -26- management, disposition or investment of the Custody Account and is not a fiduciary to the Fund. 8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all -------------------- applicable requirements of the Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by Custodian hereunder. Except as specifically set forth herein, Custodian assumes no responsibility for such compliance by the Fund. 8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for ------------------------------- any loss involving any Securities, currencies, deposits or other property of the Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for any loss arising from a foreign currency transaction or contract, where the loss results from a sovereign risk or where the entity maintaining such Securities, currencies, deposits or other property of the Fund, whether Custodian, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such property or in connection with the transaction involving such property. For purposes of this Agreement, "sovereign risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other act or event beyond the control of the Foreign Sub-custodian, the Foreign Securities Depository or the agent of any of them. -27- ARTICLE IX INDEMNIFICATION --------------- 9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless --------------- Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian, from and against any loss, damages, cost, expense (including attorneys' fees and disbursements), liability (including, without limitation, liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal, state or foreign securities and/or banking laws) or claim arising directly or indirectly (a) from the fact that Securities are registered in the name of any such nominee, or (b) from any action or inaction by Custodian or such sub- custodian or other agent (i) at the request or direction of or in reliance on the advice of the Fund or any of its agents, or (ii) upon Proper Instructions, or (c) generally, from the performance of its obligations under this Agreement, provided that Custodian, any sub-custodian or any nominee of either of them shall not be indemnified and held harmless from and against any such loss, damage, cost, expense, liability or claim arising from Custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under this Agreement or, in the case of any sub-custodian or its nominee, from such sub-custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under the Agreement under which it is acting. 9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any ------------------------ action with respect to Securities, which may, in the opinion of Custodian, result in Custodian or its nominee becoming liable for the payment of money or incurring liability of some other form, Custodian shall not be required to take such action until the Fund shall have provided indemnity therefor to Custodian in an amount and form satisfactory to Custodian. -28- 9.3 SECURITY. As security for the payment of any present or future -------- obligation or liability of any kind which the Fund may have to Custodian with respect to or in connection with the Custody Account or this Agreement, the Fund hereby pledges to Custodian all cash, Securities and other property of every kind which is in the Custody Account or otherwise held for the Fund pursuant to this Agreement, and hereby grants to Custodian a lien, right of set-off and continuing security interest in such cash, Securities and other property. ARTICLE X FORCE MAJEURE ------------- Neither Custodian nor the Fund shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power failures; computer failure and any such circumstances beyond its reasonable control as may cause interruption, loss or malfunction of utility, transportation, computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation. ARTICLE XI REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Fund and Custodian represents and warrants for itself that (a) it has all necessary power and authority to perform its obligations hereunder, (b) the execution and delivery by it of this Agreement, and the performance by it of its obligations under this Agreement, have been duly authorized by all necessary action and will not violate any law, regulation, charter, by-law, or other -29- instrument, restriction or provision applicable to it or by which it is bound, and (c) this Agreement constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms. ARTICLE XII COMPENSATION OF CUSTODIAN ------------------------- The Fund shall pay Custodian such fees and charges as are set forth in the fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to time be revised by Custodian upon 14 days' prior written notice to the Fund. Any annual fee or other charges payable by the Fund shall be paid monthly by automatic deduction from the Custody Account. Expenses incurred by Custodian in the performance of its services hereunder, and all other proper charges and disbursements of the Custody Account, shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIII TAXES ----- Any and all taxes, including any interest and penalties with respect thereto, which may be levied or assessed under present or future laws or in respect of the Custody Account or any income thereof shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIV AUTHORIZED PERSONS ------------------ 14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance ------------------ with any notice, confirmation, instruction or other communication received by it from the Fund which is reasonably believed by Custodian to have been given or signed on behalf of the Fund by one of the Authorized Persons designated by the Fund in Exhibit A hereto, as it may from time to time be revised. The Fund -30- may revise Exhibit A hereto at any time by notice in writing to Custodian given in accordance with Article XV below, but no revision of Exhibit A hereto shall be effective until Custodian actually receives such notice. 14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any ------------------- Written or Oral Instructions which are reasonably believed by Custodian to have been given or signed by one of the persons designated from time to time by any of the investment advisers of the Fund specified in Exhibit B hereto (if any) as it may from time to time be revised. The Fund may revise Exhibit B hereto at any time by notice in writing to Custodian given in accordance with Article XV below, and each investment adviser specified in Exhibit B hereto (if any) may at any time by like notice designate an Authorized Person or remove an Authorized Person previously designated by it, but no revision of Exhibit B hereto (if any) and no designation or removal by such investment adviser shall be effective until Custodian actually receives such notice. 14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance ----------------- with Oral Instructions (as defined in Section 1.11 above). If Written Instructions confirming Oral Instructions are not received by Custodian prior to a transaction, it shall in no way affect the validity of the transaction authorized by such Oral Instructions or the authorization of the Fund to effect such transaction. Custodian shall incur no liability to the Fund in acting upon Oral Instructions (as defined in Section 1.11 above). To the extent such Oral Instructions vary from any confirming Written Instructions, Custodian shall advise the Fund of such variance but unless confirming Written Instructions are timely received, such Oral Instructions will govern. Either Custodian or Fund may electronically record any instructions given by telephone and any other telephone discussions with respect to the account of the Fund. -31- ARTICLE XV NOTICES ------- Unless otherwise specified herein, all demands, notices, instructions, and other communications to be given hereunder shall be sent, delivered or given to the recipient at the address set forth after its name hereinbelow: IF TO THE FUND: S&P STARS Portfolio - The Bear Stearns Funds 245 Park Avenue New York, New York 10167 Attention: Frank J. Maresca ---------------- Telephone: (212) 272-2093 Facsimile: (212) 272-3098 IF TO CUSTODIAN: Custodial Trust Company 101 Carnegie Center Princeton, New Jersey 08540-6231 Attention: Vice President - Trust Operations --------------------------------- Telephone: (609) 951-2320 Facsimile: (609) 951-2327 or at such other address as either party shall have provided to the other by notice given in accordance with this Article XV. Writing shall include transmissions by or through teletype, facsimile, central processing unit connection, on-line terminal and magnetic tape. ARTICLE XVI TERMINATION ----------- Either party hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than sixty (60) days after the date of the giving of such notice. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall, upon receipt of a notice of acceptance by the successor custodian, on -32- that date (a) deliver directly to the successor custodian or its agents all Securities (other than Securities held in a Book-Entry System, Securities Depository or Foreign Securities Depository) and cash then owned by the Fund and held by Custodian as custodian, and (b) transfer any Securities held in a Book- Entry System, Securities Depository or Foreign Securities Depository to an account of or for the benefit of the Fund, provided that the Fund shall have paid to Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. ARTICLE XVII MISCELLANEOUS ------------- 17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require ------------- Custodian to perform any function or duties on a day other than a Business Day. 17.2 GOVERNING LAW. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of New York, without regard to the conflict of law principles thereof. 17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed ----------------------- matter which contains any reference to Custodian without the prior written approval of Custodian, excepting printed matter contained in the prospectus or statement of additional information for the Fund and such other printed matter as merely identifies Custodian as custodian for the Fund. The Fund shall submit printed matter requiring approval to Custodian in draft form, allowing sufficient time for review by Custodian and its counsel prior to any deadline for printing. 17.4 NO WAIVER. No failure by either party hereto to exercise, and no --------- delay by such party in exercising, any right hereunder shall operate as a waiver thereof. The exercise by either party hereto of any right hereunder shall not preclude the exercise -33- of any other right, and the remedies provided herein are cumulative and not exclusive of any remedies provided at law or in equity. 17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment ---------- to this Agreement shall be effective unless evidenced by an instrument in writing executed by the parties hereto. 17.6 COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, and by the parties hereto on separate counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same instrument. 17.7 SEVERABILITY. If any provision of this Agreement shall be invalid, ------------ illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby. 17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by -------- ------- either party hereto without the written consent of the other party. Any purported assignment in violation of this Section 17.8 shall be void. 17.9 HEADINGS. The headings of sections in this Agreement are for -------- convenience of reference only and shall not affect the meaning or construction of any provision of this Agreement. -34- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its representative thereunto duly authorized, all as of the day and year first above written. S&P STARS PORTFOLIO - CUSTODIAL TRUST COMPANY THE BEAR STEARNS FUNDS By /s/ Frank J. Maresca By /s/ Ronald D. Watson -------------------- -------------------- Authorized Officer Authorized Officer -35- EXHIBIT A --------- AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS/*/ Set forth below are the names of the persons, whose specimen signatures are on file with the Custodian, authorized by the Board of Trustees of The Bear Stearns Funds to have access to the S&P STARS Portfolio's (the "Fund") investments. Name ---- Robert S. Reitzes Frank J. Maresca Vincent L. Pereira Eileen M. Coyle _____________________ /*/Nothing herein shall prohibit any person designated as an Authorized Person from giving Oral Instructions or Written Instructions to the Custodian, so long as it does not result in delivery of or access to securities and similar investments of the Fund by such person. -36- EXHIBIT B --------- INVESTMENT ADVISERS Bear Stearns Funds Management Inc. EXHIBIT C --------- CUSTODY FEES AND TRANSACTION CHARGES DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges ------------- for assets in the United States ("Domestic Assets") and transactions in the United States, all such fees and charges to be payable monthly: (1) an annual fee of the greater of 0.01% (one basis point) per annum of the value of the Domestic Assets in the Custody Account or $5,000, such fee to be payable monthly based upon the total market value of such Domestic Assets as determined on the last Business Day of the month for which such fee is charged; (2) a transaction charge of $18 for each buy, sell or redemption transaction executed in the Custody Account with respect to such Domestic Assets as are book-entry Securities (but not for any such buy or sell in a repurchase transaction representing a cash sweep investment for the Fund's account or the investment by the Fund of collateral for a loan of Securities); (3) a transaction charge of $50 for each receipt or delivery into or from the Custody Account of such Domestic Assets as are Securities in physical form; (4) a transaction charge for each repurchase transaction in the Custody Account which represents a cash sweep investment for the Fund's account, computed at a rate of 0.10% (ten basis points) per annum on the amount of the purchase price paid or received by the Fund in such repurchase transaction; (5) a charge of $10 for each funds transfer; and (6) a service charge for each holding of Domestic Assets consisting of Securities or other property sold by way of private placement or in such other manner as to require services by Custodian which in the reasonable judgment of Custodian are materially in excess of those ordinarily required for the holding of publicly traded Securities in the United States. INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside ------------------ the United States ("Foreign Assets") and transaction charges and other charges (including, without limitation, charges for funds transfers, tax reclaims, and foreign exchange services) outside the United States, all such fees and charges to be payable monthly, according to a schedule of such fees and charges specific to each country in which Foreign Assets are held, such schedule to be provided from time to time upon request. Fees shall be based upon the total market value of the applicable Foreign Assets as determined on the last Business Day of the month for which such fees are charged. EXHIBIT D --------- APPROVED FOREIGN SUB-CUSTODIANS Foreign Sub-custodian Country(ies) Securities Depositories - --------------------- ------------ ----------------------- (See Attached) CITIBANK, N.A. SEC RULE 17F-5 INFORMATION PACKAGE AUGUST 1994 SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES SECTION 2:
OVERVIEW OF CITIBANK'S FOREIGN SUBCUSTODIAN AND DEPOSITORY ARRANGEMENTS 2-01.0 SUBCUSTODIAN NETWORK Colombia: Cititrust Colombia S.A. Carrera 9A, No. 99-02, Bogota, Colombia Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank Bartolome Mitre 502/30 2-12 Holmens Kanal 1036 Buenos Aires, Argentina DK-1092 Copenhagen K. Denmark Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki 101 Collins Street Aleksanterinkatu 42 Melbourne, VIC 3000 Australia 00100 Helsinki, Finland Austria: Citibank (Austria) A.G. France: Citibank S.A. (France) Postfach 90 Cedex 36 Lothringerstrasse 7 92073 Paris la Defense, France A-1015 Vienna, Austria Banque Paribas Belgium: Generale Bank 3 Rue D'Antim Montagne du Parc 3 75002 Paris, France 1000 Brussels, Belgium Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft Avenida Paulista 1111 Neue Mainzer Str. 75, Sao Paulo, Brazil 60311, Frankfurt/Main, Germany Canada: Citibank Canada Greece: Citibank, N.A. (Greece) 123 Front Street West Athens Branch Toronto, Ontario Othonos 8 M5J2M3, Canada Athens 10557, Greece Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong) Ahumada 40 Citicorp Tower Santiago, Chile Citicorp Plaza 3 Garden Road Central, Hong Kong China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt. c/o Citibank, N.A., 1052 Budapest V19-21. Hong Kong, Citicorp Tower, Vaci Utca Citicorp Plaza, 3 Garden Road, Hungary Central, Hong Kong
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New Sakhar Bhavan Zealand) Ltd. 230 Backbay Reclamation 23 Customs Street East Nariman Point Auckland 1, New Zealand Bombay 400 021 Indonesia: Citibank, N.A. (Jakarta) Jalan Jend. Sudirman No. 1 Norway: Christiania Bank Jakarta 12910, Indonesia P.O. Box 1166 Sentrum 0107 Oslo 1, Norway Ireland: Citibank, N.A. (Ireland) IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan) Quay, Dublin 2 P.O. Box 4889 Ireland 11 Chundrigar Road Karachi 74200 Italy: Citibank, N.A. (Italy) Pakistan Foro Buonaparte N. 16 Casella Postale 10932 20121 Milan, Italy Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima) Citicorp Center, Av. Camino Real 456, 2-314 Higashi Shinagawa, Torre Real 5t 0 Piso, Shinagawa - ku, Lima 27 Tokyo, Japan Peru Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines) 3rd Circle Citibank Center Jordan Insurance Building 8741 Paseo de Roxas Prince Mohammad Street Makati Metro Amman, Jordan Manila, Philippines Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A. 89-29 Shinmun-Ro, Sentorska 12, Chongro-ku 00-082 Warsaw, Seoul, Korea Poland Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A. 67 Boulevard Rua Barat, Salgueiro 30, Grande-Duchesse Charlotte 4th floor, 1200 Lisbon, L-1010, Luxembourg Portugal Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A. 28-30 Medan Pasar 252 Ponce De Leon Avenue 50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936 Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore) Paseo de la Reforma 390 UIC Building #01-00 Mexico City DF, 06695 Mexico 5 Shenton Way Singapore 0106 Netherlands: Citibank, N.A. (Netherlands) "Europlaza", South Africa: First National Bank Hoogoorddreef 54 B, Mezzanine floor, 1101 BE Amsterdam z.o., 3 First Place, The Netherlands Post Box 7713 Johannesburg, 2000 South Africa
Spain: Citibank, N.A. (Spain) Jose Ortega Y Gasset 29 28006 Madrid, Spain Sri Lanka: Citibank, N.A. (Sri Lanka) 67 Dharmapala Mawatha P.O. Box 888 Colombo 7, Sri Lanka Sweden: Skandinaviska Enskilda Banken Sergels Torg 2 Stockholm, Sweden Switzerland: Citibank (Switzerland) Bahnhofstrass 63, Post Office Box 24 8021 Zurich, Switzerland Taiwan: Citibank, N.A. (Taiwan) Taipei Branch No. 52 Ming Sheng East Road Sec. 4 Taipei, Taiwan Thailand: Citibank, N.A. (Thailand) 127 South Sathom Road Bangkok 10120, Thailand Turkey: Citibank, N.A. (Turkey) Buyukedere Caddesi, No. 100, Eseutepe 80280 Istanbul, Turkey United Kingdom: Citibank, N.A. 25 Molesworth St, Lewisham, London SE 13 7EX United Kingdom The First National Bank of Chicago 27 Leadenhall Street London EC3A 1AA, England Uruguay: Citibank, N.A. (Uruguay) Cerrito 455 P.O. Box 690 Montevideo Uruguay Venezuela: Citibank, N.A. (Caracas) Carmelitas a Altagracia Edificio Citibank Caracas 1010, Venezuela 2-01.1 STATUS AND SHAREHOLDERS' EQUITY
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS' EQUITY Argentina Citibank, N.A. Branch NA Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption Austria Citibank (Austria) A.G. Subsidiary SEC Exemption Belgium Generale Bank Correspondent US$ 2,260 MM Brazil Citibank, N.A. Branch NA Canada Citibank Canada Subsidiary US$ 299.9 MM Chile Citibank, N.A. Branch NA China Citibank, N.A. Branch NA Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption Sociedad Fiduciary Denmark Den Danske Bank Correspondent US$ 2,975 MM Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM France Citibank S.A. Subsidiary SEC Exemption France Banque Paribas Correspondent US$ 2,998 MM Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM Greece Citibank, N.A. Branch NA Hong Kong Citibank, N.A. Branch NA Hungary Citibank Budapest Rt. Subsidiary SEC Exemption India Citibank, N.A. Branch NA Indonesia Citibank, N.A. Branch NA Ireland Citibank, N.A. Branch NA Italy Citibank, N.A. Branch NA Japan Citibank, N.A. Branch NA Jordan Citibank, N.A. Branch NA Korea Citibank, N.A. Branch NA
Luxembourg Cedel S.A. Depository NA Malaysia Citibank Berhad Subsidiary US$ 145MM Mexico Citibank, N.A. Branch NA Netherlands Citibank, N.A. Branch NA New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption Norway Christiania Bank Correspondent US$ 512MM Pakistan Citibank, N.A. Branch NA Peru Citibank, N.A. Branch NA Philippines Citibank, N.A. Branch NA Poland Citibank Poland S.A. Subsidiary SEC Exemption Portugal Citibank Portugal S.A. Subsidiary SEC Exemption Singapore Citibank, N.A. Branch NA South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM Spain Citibank, N.A. Branch NA Sri Lanka Citibank, N.A. Branch NA Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM Switzerland Citibank (Switzerland) Affiliate US$ 198MM Taiwan Citibank, N.A. Branch NA Thailand Citibank, N.A. Branch NA Turkey Citibank, N.A. Branch NA U.K. Citibank, N.A. Branch NA Uruguay Citibank, N.A. Branch NA Venezuela Citibank, N.A. Branch NA
2-02.0 DEPOSITORIES Argentina: Caja de Valores ("CDV") Finland: Central Share Registry The Helsinki Money Market Center Australia: The Reserve Bank Information France: Societe Interprofessionnelle and Transfer System ("RITS") pour la Compensation de Valeurs Mobilieres Austraclear ("SICOVAM") Austria: Wertpapiersammelbank Banque de France bei der Oesterreichische Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G. ("DKV") Belgium: Caisse Interprofessionelle de Depots et de Virements Greece: Central Securities Depository, de Titres S.A. ("CIK") S.A. ("CSD") Banque Nationale Hong Kong: Central Clearing and de Belgique ("BNB") Settlement System ("CCASS") Brazil: BOVESPA's Registered Shares Fungible Custody Hungary: The Central Depository and ("BOVESPA") Clearing House ("CDCH") Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO") Securities Limited ("CDS") Italy: Monte Titoli Instituto per la China: The Shanghai Securities Custodia e l'Amministrazione Central Clearing and Accentrata di Valori Mibiliar Registration Corporation ("Monte Titoli") ("SSCCRC") The Bank of Italy The Shenzhen Securities Registrars Co. Ltd. - registrar Japan: Japan Securities Depository for three banks forming a Center ("JASDEC") decentralized depository structure The Bank of Japan ("BOJ") Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities Depository ("KSD")
Luxembourg: CEDEL, S.A. Malaysia: Malaysian Central Depository Sdn. Bhd. ("MCD") Mexico: Instituto para el Deposito de Valores ("S.D. Indeval") Netherlands: Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. ("Necigef") New Zealand: Austraclear Norway: The Norwegian Registry of Securities - Verdipapirsentralen ("VPS") Peru: Caja de Valores ("CAVAL") Poland: The National Depository of Securities (Krajowy Depozyt Papierow Wartosciowych) Portugal: Central de Registo e Valores Mobiliarios Singapore: Central Depository (PTE) Ltd. South Africa: The Central Depository (Pty) Ltd. Spain: Servico de Compensacion y Liquidacion de Valores ("SCLV") Sri Lanka: Central Depository System (Pvt) Limited Sweden: Vardepapperscentralen VPC AB ("VPC") Switzerland: Schwerzerische Effekten-Giro AG ("SEGA") Taiwan: Taiwan Securities Central Depository Co., Ltd. ("TSCD") Thailand: Share Depository Center ("SDC") Turkey: Istanbul Stock Exchange Settlement and Custody Company Inc. United Kingdom: Central Gilts Office ("CGO")
MORGAN GUARANTY TRUST COMPANY OF NEW YORK GLOBAL CUSTODY NETWORK
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK, COUNTRY DATE SUBCUSTODIAN IF APPLICABLE. Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores N.Y. - Buenos Aires Office Australia 1982 ANZ Banking Group Austraclear Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der Oesterreichischen Kontrollbank AG) Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de N.Y. - Brussels Office Depots et de Virements de Titres) Euroclear Clearance System Limited Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo; N.Y. - Sao Paulo Office equities) BVRJ (Bolsa de Valores de Rio de Janeiro, equities) CETIP (Central de Custodia e Liquidacao Financeira de Titulos; corporate bonds) SELEC (Sistema Especial de Liquidacao e Custodia; gov't securities) Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities) Commerce Chile 1993 Citibank, N.A. People's Republic 1992 Hongkong and Shanghai Banking of China- Corporation Shanghai and Shenzhen Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S. Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish Securities Centre) Finland 1985 Union Bank of Finland France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle N.Y. - Paris Office Pour La Compensation des Valeurs Mobilieres) Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein) N.Y. - Frankfurt Office
Greece 1989 National Bank of Greece S.A. Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement Corporation System) Hungary 1993 Citibank N.A. India 1993 Hongkong and Shanghai Banking Corporation Indonesia 1990 Hongkong and Shanghai Banking Corporation Ireland 1988 Allied Irish Banks PLC Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange) Clearing House Ltd. Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A. Milan Office Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center) JSA (Japan Securities Agent) Jordan 1994 Citibank, N.A. Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement Corporation) Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Luxembourg, S.A. Valeurs Mobilieres) Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated Corporation Network Services) Mexico 1990 Citibank, N.A. Indeval Morocco 1994 Banque Commerciale du Maroc Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor Giraal Effectenverkeer BV) New Zealand 1982 ANZ Banking Group Ltd. Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian Registry of Securities) Pakistan 1994 Citibank, N.A. Peru 1994 Citibank, N.A. CAVAL (Caja de Valores) Philippines 1990 Hongkong and Shanghai Banking Corporation
Poland 1993 Bank Handlowy Portugal 1988 Banco Espirito Santo E Comercial de Lisboa Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte South Africa 1993 First National Bank of Southern Africa Spain 1977 Morgan Guaranty Trust Co. of N.Y. - Madrid Office Sri Lanka 1992 Hongkong and Shanghai Banking Corporation Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities Register Centre) Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG) Taiwan 1992 Hongkong and Shanghai Banking Corporation Thailand 1988 Hongkong and Shanghai Banking Corporation Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve Saklama A.S.) United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and London Office Lodgement for Investors, Stock Management for Jobbers) CGO (Central Gilts Office) CMS (Central Money Market Office) United States of 1977 Morgan Guaranty Trust Co. of N.Y. The Federal Reserve Bank of New York America The Depository Trust Co. The Participants Trust Co. Venezuela 1991 Citibank, N.A.
EXHIBIT (8) CUSTODY AGREEMENT This AGREEMENT, dated as of June 7, 1995, by and between THE INSIDERS SELECT PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the "Company"), an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and existing under the laws of the State of New Jersey (the "Custodian"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Fund desires that its Securities, cash and other assets be held and administered by Custodian pursuant to this Agreement; WHEREAS, the Fund is an investment portfolio represented by a series of Shares constituting part of the capital stock of the Company, an open-end management investment company registered under the 1940 Act (as hereinafter defined); WHEREAS, Custodian represents that it is a bank having the qualifications prescribed in Section 26(a)(i) of the 1940 Act; NOW, THEREFORE, in consideration of the mutual agreements herein made, the Fund and Custodian hereby agree as follows: ARTICLE I DEFINITIONS ----------- Whenever used in this Agreement, the following terms, unless the context otherwise requires, shall mean: 1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized ----------------- by resolution of the Board of Directors to give Oral Instructions and Written Instructions on behalf of the Fund and identified, by name or by office, in Exhibit A hereto or any person duly designated to do so by an investment adviser of the Fund specified by the Fund in Exhibit B hereto. 1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when ------------------ permitted under the 1940 Act, the Executive Committee thereof, if any. 1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal ----------------- Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of federal agencies as are substantially in the form of such Subpart O. 1.4 "BUSINESS DAY" means any day recognized as a settlement day by The ------------ New York Stock Exchange, Inc. and on which banks in the State of New Jersey are open for business. 1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is --------------- provided for in Section 3.2 below. 1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust -------------------------- company or other entity organized under the laws of a country other than the United States which is eligible under Rule 17f-5 under the 1940 Act to act as a sub-custodian for Foreign Securities and other assets of the Fund held outside the United States. 1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1) ------------------ of Rule 17f-5 under the 1940 Act. 2 1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or ----------------------------- clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5 under the 1940 Act. 1.9 "1940 ACT" means the Investment Company Act of 1940, as amended. -------- 1.10 "OFFICER" means the President, any Vice President, the Secretary, any ------- Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund. 1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and ----------------- accepted by Custodian which are (a) reasonably believed by Custodian to have been given by an Authorized Person, (b) recorded and kept among the records of Custodian made in the ordinary course of business, and (c) orally confirmed by Custodian. 1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written ------------------- Instructions. Proper Instructions may be continuing Written Instructions when deemed appropriate by both parties. 1.13 "SECURITIES" includes, without limitation, common and preferred ---------- stocks, bonds, call options, put options, debentures, notes, bank certificates of deposit, forward contracts, futures contracts (including those related to indexes), options on futures contracts or indexes, bankers' acceptances, mortgage-backed securities or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or any similar property or assets that Custodian has the facilities to clear and to service. 1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and --------------------- (provided that Custodian has received a copy of a 3 resolution of the Board of Directors of the Fund, certified by an Officer, specifically approving the use thereof as a depository for the Fund) any other clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts as a system for the central handling and deposit of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities. 1.15 "SHARES" means the shares into which the capital stock of the Fund is ------ divided. 1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by -------------------- Custodian and signed by two persons reasonably believed by Custodian to be Authorized Persons, or (b) communications by telex or any other such system from two persons reasonably believed by Custodian to be Authorized Persons, or (c) communications between electro-mechanical or electronic devices. ARTICLE II APPOINTMENT OF CUSTODIAN ------------------------ 2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all ----------- such Securities, cash and other assets as may be acceptable to Custodian and from time to time delivered to it by the Fund or others for the account of the Fund. 2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian ---------- and agrees to perform the duties thereof as hereinafter set forth. 4 ARTICLE III CUSTODY OF CASH AND SECURITIES ------------------------------ 3.1 SEGREGATION. All Securities and non-cash property of the Fund in the ----------- possession of Custodian (other than Securities maintained by Custodian in a Securities Depository or Book-Entry System) shall be physically segregated from other Securities and non-cash property in the possession of Custodian and shall be identified as belonging to the Fund. 3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust --------------- department a custody account in the name of the Fund, subject only to draft or order of Custodian, in which Custodian shall enter and carry all Securities, cash and other assets of the Fund which are delivered to Custodian and accepted by it. Custodian shall not be under any duty or obligation to require the Fund to deliver to it any Securities or funds owned by the Fund and shall have no responsibility or liability for or on account of Securities or funds not so delivered. (b) If Custodian at any time fails to receive any of the documents referred to in Section 3.5(a) below, then, until such time as it receives such document, it shall not be obligated to receive any Securities of the Fund into the Custody Account and shall be entitled to return to the Fund any Securities of the Fund that it is holding. (c) Custodian may, but shall not be obligated to, hold Securities that may be held only in physical form. (d) Custodian is authorized to disclose the name, address and securities positions of the Fund to the issuers of such securities when requested by them to do so. 5 3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents, --------------------- which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or Bear, Stearns Securities Corp., both of which are registered broker-dealers. The appointment of any agent pursuant to this Section 3.3(a) shall not relieve Custodian of any of its obligations or liabilities under this Agreement. However, no Book-Entry System, Securities Depository, Foreign Securities Depository or other securities depository or clearing agency (whether foreign or domestic) which it is or may become standard market practice to use for the comparison and settlement of trades in securities shall be an agent or sub- contractor of Custodian for purposes of this Section 3.3(a) or otherwise. (b) In its discretion, Custodian may appoint, and at any time remove, any domestic bank or trust company which is qualified to act as a custodian under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and to carry out such other provisions of this Agreement as it may determine, and may also open and maintain one or more banking accounts with such a bank or trust company (any such accounts to be in the name of Custodian and subject only to its draft or order), provided, however, that the appointment of any such agent or opening and maintenance of any such accounts shall be at Custodian's expense and shall not relieve Custodian of any of its obligations or liabilities under this Agreement. (c) Upon receipt of Written Instructions to do so and at the Fund's expense, Custodian shall appoint as sub-custodian such domestic bank or trust company as is named therein, provided that (i) such bank or trust company is qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding anything to the contrary in Section 7.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any such sub-custodian than any such sub-custodian has to Custodian, and Custodian shall not be required 6 to discharge any such liability which may be imposed on it unless and until such sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. 3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian ------------------------------- the Fund's Securities, cash and other assets, which are acceptable to Custodian, including (a) payments of income, payments of principal and capital distributions received by the Fund with respect to such Securities, cash or other assets owned by the Fund at any time during the term of this Agreement, and (b) cash received by the Fund for the issuance, at any time during such term, of Shares. Custodian shall not be responsible for such Securities, cash or other assets until actually received by it. 3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may ---------------------------------------------- deposit and/or maintain Securities of the Fund in a Securities Depository or in a Book-Entry System, subject to the following provisions: (a) Prior to a deposit of Securities of the Fund in any Securities Depository or Book-Entry System, the Fund shall deliver to Custodian a resolution of the Board of Directors of the Fund, certified by an Officer, authorizing and instructing Custodian (and any sub-custodian appointed pursuant to Section 3.3 above) on an on-going basis to deposit in such Securities Depository or Book-Entry System all Securities eligible for deposit therein and to make use of such Securities Depository or Book-Entry System to the extent possible and practical in connection with its performance hereunder (or under the applicable sub-custody agreement in the case of such sub-custodian), including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of collateral consisting of Securities. 7 (b) Securities of the Fund kept in a Book-Entry System or Securities Depository shall be kept in an account ("Depository Account") of Custodian in such Book-Entry System or Securities Depository which includes only assets held by Custodian as a fiduciary, custodian or otherwise for customers. (c) The records of Custodian with respect to Securities of the Fund maintained in a Book-Entry System or Securities Depository shall at all times identify such Securities as belonging to the Fund. (d) If Securities purchased by the Fund are to be held in a Book-Entry System or Securities Depository, Custodian shall pay for such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that such Securities have been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such payment and transfer for the account of the Fund. If Securities sold by the Fund are held in a Book-Entry System or Securities Depository, Custodian shall transfer such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that payment for such Securities has been transferred to the Depository Account, and (ii) the making of an entry on the records of Custodian to reflect such transfer and payment for the account of the Fund. (e) Custodian shall provide the Fund with copies of any report obtained by Custodian from a Book-Entry System or Securities Depository in which Securities of the Fund are kept on the internal accounting controls and procedures for safeguarding Securities deposited in such Book-Entry System or Securities Depository. (f) At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claim against a Book-Entry System or Securities Depository or any other person for any loss or 8 damage to the Fund arising from the use of such Book-Entry System or Securities Depository, if and to the extent that the Fund has not been made whole for any such loss or damage. 3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall disburse moneys from the Custody Account, but only in the following cases: (a) For the purchase of Securities for the Fund but only (i) in the case of Securities (other than options on Securities, futures contracts and options on futures contracts), against the delivery to Custodian (or any sub- custodian appointed pursuant to Section 3.3 above) of such Securities registered as provided in Section 3.9 below or in proper form for transfer or, if the purchase of such Securities is effected through a Book-Entry System or Securities Depository, in accordance with the conditions set forth in Section 3.5 above; (ii) in the case of options on Securities, against delivery to Custodian (or such sub-custodian) of such receipts as are required by the customs prevailing among dealers in such options; (iii) in the case of futures contracts and options on futures contracts, against delivery to Custodian (or such sub-custodian) of evidence of title thereto in favor of the Fund, the Custodian, any such sub-custodian or any nominee referred to in Section 3.9 below; and (iv) in the case of repurchase or reverse repurchase agreements entered into by the Fund, against delivery of the purchased Securities either in certificate form or through an entry crediting Custodian's account at a Book- Entry System or Securities Depository with such Securities; (b) In connection with the conversion, exchange or surrender, as set forth in Section 3.7(f) below, of Securities owned by the Fund; (c) For the payment of any dividends or capital gain distributions declared by the Fund; 9 (d) In payment of the redemption price of Shares as provided in Article VI below; (e) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, administration, investment management, investment advisory, accounting, auditing, transfer agent, custodian, trustee and legal fees; and other operating expenses of the Fund; in all cases, whether or not such expenses are to be in whole or in part capitalized or treated as deferred expenses; (f) For transfer in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (g) For transfer in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (h) For the funding of any uncertificated time deposit or other interest-bearing account with any banking institution (including Custodian), but only if the payment instructions to Custodian detail specific Securities to be acquired; (i) For the purchase from a bank or other financial institution of loan participations, but only if Custodian has in its possession a copy of the agreement between the Fund and such bank or other financial institution with respect to the purchase of 10 such loan participations and the payment instructions to Custodian detail specific assets to be acquired; (j) For the purchase and sale of foreign currencies or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund pursuant to contracts with such banks and other financial institutions, including Custodian, any sub-custodian and any affiliate of Custodian, as principal, as are approved and authorized by the Fund, but only if the payment instructions to Custodian detail specific assets to be acquired; (k) For transfer to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (l) For the payment of the amounts of dividends received with respect to Securities sold short; and (m) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the amount and purpose of such payment, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom such payment is to be made. 3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of ----------------------------------------------- Proper Instructions, Custodian shall release and deliver Securities of the Fund from the Custody Account but only in the following cases: (a) Upon the sale of Securities for the account of the Fund but, subject to Section 5.3 below, only against receipt of 11 payment therefor in cash, by certified or cashiers' check or bank credit; (b) In the case of a sale effected through a Book-Entry System or Securities Depository, in accordance with the provisions of Section 3.5 above; (c) To an offeror's depository agent in connection with tender or other similar offers for Securities of the Fund; provided that, in any such case, the cash or other consideration is to be delivered to Custodian; (d) To the issuer thereof or its agent (i) for transfer into the name of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for exchange for a different number of certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new Securities are to be delivered to Custodian; (e) To the broker selling Securities, for examination in accordance with the "street delivery" custom; (f) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the issuer of such Securities, or pursuant to provisions for conversion contained in such Securities, or pursuant to any deposit agreement, including surrender or receipt of underlying Securities in connection with the issuance or cancellation of depository receipts; provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (g) Upon receipt of payment therefor pursuant to any repurchase agreement entered into by the Fund; 12 (h) In the case of warrants, rights or similar Securities, upon the exercise thereof, provided that, in any such case, the new Securities and cash, if any, are to be delivered to Custodian; (i) For delivery in connection with any loans of Securities pursuant to any securities loan agreement entered into by the Fund, but only against receipt of such collateral as is required under such securities loan agreement; (j) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt by Custodian of the amounts borrowed; (k) Pursuant to any authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; (l) For delivery in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer, relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; (m) For delivery in accordance with the provisions of any agreement among the Fund, Custodian, and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; (n) For delivery to a broker-dealer registered under the 1934 Act or in accordance with the provisions of any agreement 13 among the Fund, Custodian and such a broker-dealer as margin for a short sale of Securities; (o) For delivery (by a Foreign Sub-custodian or an agent of Custodian) to the depository used by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter collectively referred to as "ADRs") for such Securities against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the Foreign Sub- custodian or agent that the depository has acknowledged receipt of instructions to issue with respect to such Securities ADRs in the name of the Custodian, or a nominee of the Custodian, for delivery to the Custodian; (p) To deliver ADRs to the issuer thereof against a written receipt therefor adequately describing the ADR's delivered and written evidence satisfactory to the Custodian that the issuer of the ADRs has acknowledged the receipt of instructions to cause its depository to deliver the Securities underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or (q) For any other proper purpose, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board of Directors, certified by an Officer, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper purpose of the Fund, and naming the person or persons to whom delivery of such Securities is to be made. 3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise ----------------------------------------- instructed by the Fund, Custodian shall with respect to all Securities held for the Fund: 14 (a) Subject to Section 8.4 below, collect on a timely basis all income and other payments to which the Fund is entitled either by law or pursuant to custom in the securities business; (b) Subject to Section 8.4 below, collect on a timely basis the amount payable upon or with respect to all Securities and other assets which may mature or be called, redeemed, retired or otherwise become payable; (c) Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; (d) Surrender interim receipts or Securities in temporary form for Securities in definitive form; (e) Execute, as custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect, and prepare and submit reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in such manner and containing such information as is prescribed by the IRS; (f) Hold for the Fund all rights and similar securities issued with respect to Securities of the Fund; and (g) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with Securities and assets of the Fund. 3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the --------------------------------------- Fund that are issuable only in bearer form shall be held by Custodian in that form, provided that any such Securities shall be held in a Book-Entry System if eligible therefor. All other Securities held for the Fund may be registered in the name of Custodian as agent, any sub-custodian appointed pursuant to Section 3.3 above, any Securities Depository, any Foreign Sub-custodian or 15 Foreign Securities Depository (in the case of Foreign Securities), or any nominee or agent of any of them. The Fund shall furnish to Custodian appropriate instruments to enable Custodian to hold or deliver in proper form for transfer, or to register as in this Section 3.9 provided, any Securities delivered to Custodian which are registered in the name of the Fund. 3.10 RECORDS. (a) Custodian shall maintain complete and accurate records ------- with respect to Securities, cash or other property held for the Fund, including (i) journals or other records of original entry containing an itemized daily record in detail of all receipts and deliveries of Securities and all receipts and disbursements of cash; (ii) ledgers (or other records) reflecting (A) Securities in transfer, if any, (B) Securities in physical possession, (C) monies and Securities borrowed and monies and Securities loaned (together with a record of the collateral therefor and substitutions of such collateral), (D) dividends and interest received, and (E) dividends receivable and interest accrued; and (iii) cancelled checks and bank records related thereto. Custodian shall keep such other books and records with respect to Securities, cash and other property of the Fund which is held hereunder as the Fund may reasonably request. (b) All such books and records maintained by Custodian shall (i) be maintained in a form acceptable to the Fund and in compliance with rules and regulations of the Securities and Exchange Commission, (ii) be the property of the Fund and at all times during the regular business hours of Custodian be made available upon request for inspection by duly authorized officers, employees or agents of the Fund and employees or agents of the Securities and Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act. 16 3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily -------------------- activity statement, including a summary of all transfers to or from the Custody Account, on the day following such transfers. At least monthly and from time to time, Custodian shall furnish the Fund with a detailed statement of the Securities and moneys held for the Fund under this Agreement. 3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with -------------------------- such reports as the Fund may reasonably request from time to time on the internal accounting controls and procedures for safeguarding Securities which are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3 above. 3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the --------------------------- Fund, Custodian shall promptly deliver to the Fund (at the address set forth in Article XV below) all notices of meetings, proxies and proxy materials which it receives regarding Securities held in the Custody Account. Before delivering them to the Fund, Custodian shall cause all proxies relating to such Securities which are not registered in the name of the Fund, or a nominee thereof, to be promptly executed by the registered holder of such Securities, without indication of the manner in which such proxies are to be voted. Unless otherwise instructed by the Fund, neither Custodian nor any of its agents shall exercise any voting rights with respect to Securities held hereunder. 3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit -------------------------------- to the Fund (at the address set forth in Article XV below) all written information received by Custodian from issuers of Securities held in the Custody Account. With respect to tender or exchange offers for such Securities, Custodian shall promptly transmit to the Fund all written information received by it from the issuers of the Securities whose tender or exchange is sought and by the party (or its agents) making the tender or exchange offer. If the Fund desires to take action with respect to 17 any tender offer, exchange offer or other similar transaction, the Fund shall notify Custodian (a) in the case of Foreign Securities, such number of Business Days prior to the date on which Custodian is to take such action (which number of days is in the Custodian's sole discretion) as will allow Custodian to take such action in the relevant local market in a timely fashion, and (b) in the case of all other Securities, at least five Business Days prior to the date on which Custodian is to take such action. 3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary ------------ information to the entity or entities appointed by the Fund to keep the books of account of the Fund and/or to compute the value of the assets of the Fund. ARTICLE IV DUTIES OF CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE THE UNITED STATES --------------------------------------- 4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub- ------------------------------------- custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians hereunder for the Fund's Securities and other assets maintained outside the United States. Upon receipt of Written Instructions from the Fund to do so, the Custodian shall cease the employment of any Foreign Sub-custodian for maintaining custody of the Fund's assets. 4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and ----------------- other assets maintained in the custody of an Eligible Foreign Custodian to: (a) Foreign Securities, and (b) cash and cash equivalents in such amounts as the Fund may determine. 4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub- ------------------------------- custodian employed by it may maintain assets of the 18 Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the 1940 Act. 4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in -------------------------------------- writing (a) the appointment of each Foreign Sub-custodian and the agreement pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian, the country or countries in which such Foreign Sub-custodian is authorized to hold Securities, cash and other property of the Fund. 4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians ------------------------------- and the countries where and the Foreign Securities Depositories through which they or the Custodian may hold Securities, cash and other property of the Fund which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit D shall be amended from time to time as Foreign Sub-custodians, countries and/or Foreign Securities Depositories are changed, added or deleted. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country not listed in Exhibit E in order to allow the Fund to give the approval required by Section 4.4 hereof and for Custodian to put the appropriate arrangements in place with a Foreign Sub- custodian. (b) If the Fund invests in a Security to be held pursuant to this Article before the foregoing procedures have been completed, such Security may be held by such agent as Custodian may select, and Custodian shall bear no liability to Fund for the actions of such agent, except to the extent Custodian shall have recovered from such agent for any damages caused to Fund by such agent. 4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time -------------------- to time, as mutually agreed upon, reports in respect 19 of the safekeeping of the Securities and other assets of the Fund held by Foreign Sub-custodians, including, but not limited to, advices or notifications of transfers of Securities to or from the accounts maintained by Foreign Sub- custodians for the Custodian on behalf of the Fund. 4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper --------------------------------------- Instructions given in any of the cases specified in Section 3.7 above, Custodian shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign Securities owned by the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market; and (b) Upon receipt of Proper Instructions given in any of the cases specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians to pay out monies of the Fund, subject to all local laws, regulations, customs, procedures and practices applicable in the relevant local market. 4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which ----------------------------------- the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub- custodian to exercise reasonable care in the performance of its duties and shall hold such Foreign sub-custodian responsible for any direct loss or damage arising out of any willful misfeasance, bad faith or negligence of such Foreign Sub-custodian in the performance of its obligations under such agreement or out of its reckless disregard of such obligations. At its election, the Fund shall be subrogated to the rights of Custodian with respect to any claims against a Foreign Sub-custodian as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. 20 4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in ---------------------- Section 8.1 below or elsewhere in this Agreement, Custodian shall have no greater liability to the Fund for the actions or omissions of any Foreign Sub- custodian than any such Foreign Sub-custodian has to Custodian, and Custodian shall not be required to discharge any such liability which may be imposed on it unless and until such Foreign Sub-custodian has effectively indemnified Custodian against it or has otherwise discharged its liability to Custodian in full. Custodian shall have no liability for any loss or damage resulting from acts or omissions of any Foreign Sub-custodian arising out of or caused, directly or indirectly, by circumstances beyond such Foreign Sub-custodian's reasonable control, including, without limitation, sovereign risk, as described in Section 8.7, or "force majeure", as covered in Article X. 4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian --------------------------- shall annually furnish to the Fund information concerning all Foreign Sub- custodians hereunder which shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval by the Fund of the agreements pursuant to which Custodian employs such Foreign Sub-custodians or as otherwise required by Rule 17f-5 under the 1940 Act. 4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall ------------ exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in connection with Foreign Securities in the Custody Account. ARTICLE V PURCHASE AND SALE OF INVESTMENTS OF THE FUND -------------------------------------------- 5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities ---------------------- for the Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such 21 Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units purchased, (c) the date of purchase and settlement, (d) the purchase price per unit, (e) the total amount payable upon such purchase, and (f) the name of the person to whom such amount is payable. Custodian shall upon receipt of such Securities purchased by the Fund (or, if the Securities are transferred by means of a private placement transaction, upon the receipt of such Securities or payment instructions to Custodian which detail specific Securities to be acquired) pay out of the moneys held for the account of the Fund the total amount specified in such Written Instructions to the person named therein. Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities or other assets for the Fund if there is insufficient cash available in the Custody Account. 5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the ------------------ Fund, Written Instructions shall be delivered to Custodian, specifying (a) the name of the issuer or writer of such Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units sold, (c) the date of sale and settlement, (d) the sale price per unit, (e) the total amount payable upon such sale, and (f) the person to whom such Securities are to be delivered. Upon receipt of the total amount payable to the Fund as specified in such Written Instructions, Custodian shall deliver such Securities to the person specified in such Written Instructions. Subject to the foregoing, Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities. 5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or --------------------------- any other provision of this Agreement and subject, in the case of Foreign Securities, to all local laws, regulations, 22 customs, procedures and practices applicable in the relevant local market, Custodian, when instructed to deliver Securities against payment, shall be entitled, but only if in accordance with generally accepted market practice, to deliver such Securities prior to actual receipt of final payment therefor and, exclusively in the case of Securities in physical form, to deliver such Securities prior to receipt of payment. In any such case, the Fund shall bear the risk that final payment for such Securities may not be made or that such Securities may be returned or otherwise held or disposed of by or through the person to whom they were delivered, and Custodian shall have no liability for any of the foregoing. 5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from --------------------------------- time to time, Custodian may credit the Custody Account, prior to actual receipt of final payment thereof, with (a) proceeds from the sale of Securities which it has been instructed to deliver against payment, (b) proceeds from the redemption of Securities or other assets of the Fund, and (c) income from cash, Securities or other assets of the Fund. Any such credit shall be conditional upon actual receipt by Custodian of final payment and may be reversed if final payment is not actually received in full. Custodian may, in its sole discretion and from time to time, permit the Fund to use funds so credited to the Custody Account in anticipation of actual receipt of final payment. Any such funds shall be repayable immediately upon demand made by Custodian at any time prior to the actual receipt of all final payments in anticipation of which funds were credited to the Custody Account. 5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means ------------- payment in funds which are (or have become) immediately available, under applicable law are irreversible, and are not subject to any security interest, levy, lien or other encumbrance. 23 ARTICLE VI REDEMPTION OF FUND SHARES ------------------------- 6.1 TRANSFER OF FUNDS. From such funds as may be available for the ----------------- purpose in the Custody Account, and upon receipt of Proper Instructions specifying that the funds are required to redeem Shares on account of the Fund, Custodian shall wire each amount specified in such Proper Instructions to or through such bank as the Fund may designate therein with respect to such amount. 6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible ------------------------------ for the payment or distribution by any bank designated in Proper Instructions given pursuant to Section 6.1 above of any amount paid by Custodian to such bank in accordance with such Proper Instructions. ARTICLE VII SEGREGATED ACCOUNTS ------------------- Upon receipt of Proper Instructions, Custodian shall establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or Securities, including Securities maintained in a Depository Account: (a) in accordance with the provisions of any agreement among the Fund, Custodian and a broker-dealer (or any futures commission merchant), relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, 24 (b) for purposes of segregating cash or Securities in connection with securities options purchased or written by the Fund or in connection with financial futures contracts (or options thereon) purchased or sold by the Fund, (c) which constitute collateral for loans of Securities made by the Fund, (d) for purposes of compliance by the Fund with requirements under the 1940 Act for the maintenance of segregated accounts by registered investment companies in connection with reverse repurchase agreements, when-issued, delayed delivery and firm commitment transactions, and short sales of securities, and (e) for other proper purposes, but only upon receipt of, in addition to Proper Instructions, a copy of a resolution of the Board of Directors, certified by an Officer, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper purposes of the Fund. ARTICLE VIII CONCERNING THE CUSTODIAN ------------------------ 8.1 STANDARD OF CARE. Custodian shall be held to the exercise of ---------------- reasonable care in carrying out its obligations under this Agreement, and shall be without liability to the Fund for any loss, damage, cost, expense (including attorneys' fees and disbursements), liability or claim which does not arise from willful misfeasance, bad faith or negligence on the part of Custodian or reckless disregard by Custodian of its obligations under this Agreement. Custodian shall be entitled to rely on and may act upon advice of counsel on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. In no event shall Custodian be liable for special or consequential damages or be liable in any manner whatsoever for any 25 action taken or omitted upon instructions from the Fund or any agent of the Fund. Custodian shall not be under any obligation at any time to ascertain whether the Fund is in compliance with the 1940 Act, the regulations thereunder, the provisions of its charter documents or by-laws, or its investment objectives, policies and limitations as in effect from time to time. 8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or -------------------------- considered to be the custodian of, any cash belonging to the Fund or any money represented by a check, draft or other instrument for the payment of money, until Custodian or its agents actually receive such cash or collect on such instrument. 8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that --------------------------------- it is in the exercise of reasonable care, Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received or delivered by it or its agents. 8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the ----------------------------- Fund whenever any money or property due and payable from or on account of any Securities held hereunder for the Fund is not timely received by it. Custodian shall not, however, be required to enforce collection, by legal means or otherwise, of any such money or other property not paid when due, but shall receive the proceeds of such collections as may be effected by it or its agents in the ordinary course of Custodian's custody and safekeeping business or of the custody and safekeeping business of such agents. 8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations ------------------- whatsoever except such duties and obligations as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against Custodian. Custodian shall have no discretion whatsoever with respect to the 26 management, disposition or investment of the Custody Account and is not a fiduciary to the Fund. 8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all -------------------- applicable requirements of the Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by Custodian hereunder. Except as specifically set forth herein, Custodian assumes no responsibility for such compliance by the Fund. 8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for ------------------------------- any loss involving any Securities, currencies, deposits or other property of the Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for any loss arising from a foreign currency transaction or contract, where the loss results from a sovereign risk or where the entity maintaining such Securities, currencies, deposits or other property of the Fund, whether Custodian, a Foreign Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such property or in connection with the transaction involving such property. For purposes of this Agreement, "sovereign risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other act or event beyond the control of the Foreign Sub-custodian, the Foreign Securities Depository or the agent of any of them. 27 ARTICLE IX INDEMNIFICATION --------------- 9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless --------------- Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian, from and against any loss, damages, cost, expense (including attorneys' fees and disbursements), liability (including, without limitation, liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal, state or foreign securities and/or banking laws) or claim arising directly or indirectly (a) from the fact that Securities are registered in the name of any such nominee, or (b) from any action or inaction by Custodian or such sub- custodian or other agent (i) at the request or direction of or in reliance on the advice of the Fund or any of its agents, or (ii) upon Proper Instructions, or (c) generally, from the performance of its obligations under this Agreement, provided that Custodian, any sub-custodian or any nominee of either of them shall not be indemnified and held harmless from and against any such loss, damage, cost, expense, liability or claim arising from Custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under this Agreement or, in the case of any sub-custodian or its nominee, from such sub-custodian's willful misfeasance, bad faith, negligence or reckless disregard of its obligations under the Agreement under which it is acting. 9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any ------------------------ action with respect to Securities, which may, in the opinion of Custodian, result in Custodian or its nominee becoming liable for the payment of money or incurring liability of some other form, Custodian shall not be required to take such action until the Fund shall have provided indemnity therefor to Custodian in an amount and form satisfactory to Custodian. 28 9.3 SECURITY. As security for the payment of any present or future -------- obligation or liability of any kind which the Fund may have to Custodian with respect to or in connection with the Custody Account or this Agreement, the Fund hereby pledges to Custodian all cash, Securities and other property of every kind which is in the Custody Account or otherwise held for the Fund pursuant to this Agreement, and hereby grants to Custodian a lien, right of set-off and continuing security interest in such cash, Securities and other property. ARTICLE X FORCE MAJEURE ------------- Neither Custodian nor the Fund shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power failures; computer failure and any such circumstances beyond its reasonable control as may cause interruption, loss or malfunction of utility, transportation, computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation. ARTICLE XI REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Fund and Custodian represents and warrants for itself that (a) it has all necessary power and authority to perform its obligations hereunder, (b) the execution and delivery by it of this Agreement, and the performance by it of its obligations under this Agreement, have been duly authorized by all necessary action and will not violate any law, regulation, charter, by-law, or other 29 instrument, restriction or provision applicable to it or by which it is bound, and (c) this Agreement constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms. ARTICLE XII COMPENSATION OF CUSTODIAN ------------------------- The Fund shall pay Custodian such fees and charges as are set forth in the fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to time be revised by Custodian upon 14 days' prior written notice to the Fund. Any annual fee or other charges payable by the Fund shall be paid monthly by automatic deduction from the Custody Account. Expenses incurred by Custodian in the performance of its services hereunder, and all other proper charges and disbursements of the Custody Account, shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIII TAXES ----- Any and all taxes, including any interest and penalties with respect thereto, which may be levied or assessed under present or future laws or in respect of the Custody Account or any income thereof shall be charged to the Custody Account by Custodian and paid therefrom. ARTICLE XIV AUTHORIZED PERSONS ------------------ 14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance ------------------ with any notice, confirmation, instruction or other communication received by it from the Fund which is reasonably believed by Custodian to have been given or signed on behalf of the Fund by one of the Authorized Persons designated by the Fund in Exhibit A hereto, as it may from time to time be revised. The Fund 30 may revise Exhibit A hereto at any time by notice in writing to Custodian given in accordance with Article XV below, but no revision of Exhibit A hereto shall be effective until Custodian actually receives such notice. 14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any ------------------- Written or Oral Instructions which are reasonably believed by Custodian to have been given or signed by one of the persons designated from time to time by any of the investment advisers of the Fund specified in Exhibit B hereto (if any) as it may from time to time be revised. The Fund may revise Exhibit B hereto at any time by notice in writing to Custodian given in accordance with Article XV below, and each investment adviser specified in Exhibit B hereto (if any) may at any time by like notice designate an Authorized Person or remove an Authorized Person previously designated by it, but no revision of Exhibit B hereto (if any) and no designation or removal by such investment adviser shall be effective until Custodian actually receives such notice. 14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance ----------------- with Oral Instructions (as defined in Section 1.11 above). If Written Instructions confirming Oral Instructions are not received by Custodian prior to a transaction, it shall in no way affect the validity of the transaction authorized by such Oral Instructions or the authorization of the Fund to effect such transaction. Custodian shall incur no liability to the Fund in acting upon Oral Instructions (as defined in Section 1.11 above). To the extent such Oral Instructions vary from any confirming Written Instructions, Custodian shall advise the Fund of such variance but unless confirming Written Instructions are timely received, such Oral Instructions will govern. Either Custodian or Fund may electronically record any instructions given by telephone and any other telephone discussions with respect to the account of the Fund. 31 ARTICLE XV NOTICES ------- Unless otherwise specified herein, all demands, notices, instructions, and other communications to be given hereunder shall be sent, delivered or given to the recipient at the address set forth after its name hereinbelow: IF TO THE FUND: The Insiders Select Portfolio - The Bear Stearns Funds 245 Park Avenue New York, New York 10167 Attention: Frank J. Maresca ---------------- Telephone: (212) 272-2093 Facsimile: (212) 272-3098 IF TO CUSTODIAN: Custodial Trust Company 101 Carnegie Center Princeton, New Jersey 08540-6231 Attention: Vice President - Trust Operations --------------------------------- Telephone: (609) 951-2320 Facsimile: (609) 951-2327 or at such other address as either party shall have provided to the other by notice given in accordance with this Article XV. Writing shall include transmissions by or through teletype, facsimile, central processing unit connection, on-line terminal and magnetic tape. ARTICLE XVI TERMINATION ----------- Either party hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than sixty (60) days after the date of the giving of such notice. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall, upon receipt of a notice of acceptance by the successor custodian, on 32 that date (a) deliver directly to the successor custodian or its agents all Securities (other than Securities held in a Book-Entry System, Securities Depository or Foreign Securities Depository) and cash then owned by the Fund and held by Custodian as custodian, and (b) transfer any Securities held in a Book- Entry System, Securities Depository or Foreign Securities Depository to an account of or for the benefit of the Fund, provided that the Fund shall have paid to Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. ARTICLE XVII MISCELLANEOUS ------------- 17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require ------------- Custodian to perform any function or duties on a day other than a Business Day. 17.2 GOVERNING LAW. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of New York, without regard to the conflict of law principles thereof. 17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed ----------------------- matter which contains any reference to Custodian without the prior written approval of Custodian, excepting printed matter contained in the prospectus or statement of additional information for the Fund and such other printed matter as merely identifies Custodian as custodian for the Fund. The Fund shall submit printed matter requiring approval to Custodian in draft form, allowing sufficient time for review by Custodian and its counsel prior to any deadline for printing. 17.4 NO WAIVER. No failure by either party hereto to exercise, and no --------- delay by such party in exercising, any right hereunder shall operate as a waiver thereof. The exercise by either party hereto of any right hereunder shall not preclude the exercise 33 of any other right, and the remedies provided herein are cumulative and not exclusive of any remedies provided at law or in equity. 17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment ---------- to this Agreement shall be effective unless evidenced by an instrument in writing executed by the parties hereto. 17.6 COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, and by the parties hereto on separate counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same instrument. 17.7 SEVERABILITY. If any provision of this Agreement shall be invalid, ------------ illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby. 17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by -------- ------- either party hereto without the written consent of the other party. Any purported assignment in violation of this Section 17.8 shall be void. 17.9 HEADINGS. The headings of sections in this Agreement are for -------- convenience of reference only and shall not affect the meaning or construction of any provision of this Agreement. 34 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its representative thereunto duly authorized, all as of the day and year first above written. THE INSIDERS SELECT PORTFOLIO - CUSTODIAL TRUST COMPANY THE BEAR STEARNS FUNDS By /s/ Frank J. Maresca By /s/ Ronald D. Watson -------------------- -------------------- Authorized Officer Authorized Officer 35 EXHIBIT A --------- AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS/*/ Set forth below are the names of the persons, whose specimen signatures are on file with the Custodian, authorized by the Board of Trustees of The Bear Stearns Funds to have access to The Insiders Select Portfolio's (the "Fund") investments. Name ---- Neil L. Rudolph Praveen Gottipalli Frank J. Maresca Vincent L. Pereira Eileen M. Coyle _____________________ /*/Nothing herein shall prohibit any person designated as an Authorized Person from giving Oral Instructions or Written Instructions to the Custodian, so long as it does not result in delivery of or access to securities and similar investments of the Fund by such person. EXHIBIT B --------- INVESTMENT ADVISERS Bear Stearns Funds Management Inc. Symphony Asset Management EXHIBIT C --------- CUSTODY FEES AND TRANSACTION CHARGES DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges ------------- for assets in the United States ("Domestic Assets") and transactions in the United States, all such fees and charges to be payable monthly: (1) an annual fee of the greater of 0.015% (one and one-half basis points) per annum of the value of the Domestic Assets in the Custody Account or $5,000, such fee to be payable monthly based upon the total market value of such Domestic Assets as determined on the last Business Day of the month for which such fee is charged; (2) a transaction charge of $18 for each buy, sell or redemption transaction executed in the Custody Account with respect to such Domestic Assets as are book-entry Securities (but not for any such buy or sell in a repurchase transaction representing a cash sweep investment for the Fund's account or the investment by the Fund of collateral for a loan of Securities); (3) a transaction charge of $50 for each receipt or delivery into or from the Custody Account of such Domestic Assets as are Securities in physical form; (4) a transaction charge for each repurchase transaction in the Custody Account which represents a cash sweep investment for the Fund's account, computed at a rate of 0.10% (ten basis points) per annum on the amount of the purchase price paid or received by the Fund in such repurchase transaction; (5) a charge of $10 for each funds transfer; and (6) a service charge for each holding of Domestic Assets consisting of Securities or other property sold by way of private placement or in such other manner as to require services by Custodian which in the reasonable judgment of Custodian are materially in excess of those ordinarily required for the holding of publicly traded Securities in the United States. INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside ------------------ the United States ("Foreign Assets") and transaction charges and other charges (including, without limitation, charges for funds transfers, tax reclaims, and foreign exchange services) outside the United States, all such fees and charges to be payable monthly, according to a schedule of such fees and charges specific to each country in which Foreign Assets are held, such schedule to be provided from time to time upon request. Fees shall be based upon the total market value of the applicable Foreign Assets as determined on the last Business Day of the month for which such fees are charged. EXHIBIT D --------- APPROVED FOREIGN SUB-CUSTODIANS Foreign Sub-custodian Country(ies) Securities Depositories - --------------------- ------------ ----------------------- (See Attached) CITIBANK, N.A. SEC RULE 17F-5 INFORMATION PACKAGE AUGUST 1994 SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES SECTION 2:
OVERVIEW OF CITIBANK'S FOREIGN SUBCUSTODIAN AND DEPOSITORY ARRANGEMENTS 2-01.0 SUBCUSTODIAN NETWORK Colombia: Cititrust Colombia S.A. Carrera 9A, No. 99-02, Bogota, Colombia Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank Bartolome Mitre 502/30 2-12 Holmens Kanal 1036 Buenos Aires, Argentina DK-1092 Copenhagen K. Denmark Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki 101 Collins Street Aleksanterinkatu 42 Melbourne, VIC 3000 Australia 00100 Helsinki, Finland Austria: Citibank (Austria) A.G. France: Citibank S.A. (France) Postfach 90 Cedex 36 Lothringerstrasse 7 92073 Paris la Defense, France A-1015 Vienna, Austria Banque Paribas Belgium: Generale Bank 3 Rue D'Antim Montagne du Parc 3 75002 Paris, France 1000 Brussels, Belgium Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft Avenida Paulista 1111 Neue Mainzer Str. 75, Sao Paulo, Brazil 60311, Frankfurt/Main, Germany Canada: Citibank Canada Greece: Citibank, N.A. (Greece) 123 Front Street West Athens Branch Toronto, Ontario Othonos 8 M5J2M3, Canada Athens 10557, Greece Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong) Ahumada 40 Citicorp Tower Santiago, Chile Citicorp Plaza 3 Garden Road Central, Hong Kong China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt. c/o Citibank, N.A., 1052 Budapest V19-21. Hong Kong, Citicorp Tower, Vaci Utca Citicorp Plaza, 3 Garden Road, Hungary Central, Hong Kong
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New Sakhar Bhavan Zealand) Ltd. 230 Backbay Reclamation 23 Customs Street East Nariman Point Auckland 1, New Zealand Bombay 400 021 Indonesia: Citibank, N.A. (Jakarta) Jalan Jend. Sudirman No. 1 Norway: Christiania Bank Jakarta 12910, Indonesia P.O. Box 1166 Sentrum 0107 Oslo 1, Norway Ireland: Citibank, N.A. (Ireland) IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan) Quay, Dublin 2 P.O. Box 4889 Ireland 11 Chundrigar Road Karachi 74200 Italy: Citibank, N.A. (Italy) Pakistan Foro Buonaparte N. 16 Casella Postale 10932 20121 Milan, Italy Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima) Citicorp Center, Av. Camino Real 456, 2-314 Higashi Shinagawa, Torre Real 5t 0 Piso, Shinagawa - ku, Lima 27 Tokyo, Japan Peru Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines) 3rd Circle Citibank Center Jordan Insurance Building 8741 Paseo de Roxas Prince Mohammad Street Makati Metro Amman, Jordan Manila, Philippines Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A. 89-29 Shinmun-Ro, Sentorska 12, Chongro-ku 00-082 Warsaw, Seoul, Korea Poland Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A. 67 Boulevard Rua Barat, Salgueiro 30, Grande-Duchesse Charlotte 4th floor, 1200 Lisbon, L-1010, Luxembourg Portugal Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A. 28-30 Medan Pasar 252 Ponce De Leon Avenue 50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936 Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore) Paseo de la Reforma 390 UIC Building #01-00 Mexico City DF, 06695 Mexico 5 Shenton Way Singapore 0106 Netherlands: Citibank, N.A. (Netherlands) "Europlaza", South Africa: First National Bank Hoogoorddreef 54 B, Mezzanine floor, 1101 BE Amsterdam z.o., 3 First Place, The Netherlands Post Box 7713 Johannesburg, 2000 South Africa
Spain: Citibank, N.A. (Spain) Jose Ortega Y Gasset 29 28006 Madrid, Spain Sri Lanka: Citibank, N.A. (Sri Lanka) 67 Dharmapala Mawatha P.O. Box 888 Colombo 7, Sri Lanka Sweden: Skandinaviska Enskilda Banken Sergels Torg 2 Stockholm, Sweden Switzerland: Citibank (Switzerland) Bahnhofstrass 63, Post Office Box 24 8021 Zurich, Switzerland Taiwan: Citibank, N.A. (Taiwan) Taipei Branch No. 52 Ming Sheng East Road Sec. 4 Taipei, Taiwan Thailand: Citibank, N.A. (Thailand) 127 South Sathom Road Bangkok 10120, Thailand Turkey: Citibank, N.A. (Turkey) Buyukedere Caddesi, No. 100, Eseutepe 80280 Istanbul, Turkey United Kingdom: Citibank, N.A. 25 Molesworth St, Lewisham, London SE 13 7EX United Kingdom The First National Bank of Chicago 27 Leadenhall Street London EC3A 1AA, England Uruguay: Citibank, N.A. (Uruguay) Cerrito 455 P.O. Box 690 Montevideo Uruguay Venezuela: Citibank, N.A. (Caracas) Carmelitas a Altagracia Edificio Citibank Caracas 1010, Venezuela 2-01.1 STATUS AND SHAREHOLDERS' EQUITY
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS' EQUITY Argentina Citibank, N.A. Branch NA Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption Austria Citibank (Austria) A.G. Subsidiary SEC Exemption Belgium Generale Bank Correspondent US$ 2,260 MM Brazil Citibank, N.A. Branch NA Canada Citibank Canada Subsidiary US$ 299.9 MM Chile Citibank, N.A. Branch NA China Citibank, N.A. Branch NA Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption Sociedad Fiduciary Denmark Den Danske Bank Correspondent US$ 2,975 MM Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM France Citibank S.A. Subsidiary SEC Exemption France Banque Paribas Correspondent US$ 2,998 MM Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM Greece Citibank, N.A. Branch NA Hong Kong Citibank, N.A. Branch NA Hungary Citibank Budapest Rt. Subsidiary SEC Exemption India Citibank, N.A. Branch NA Indonesia Citibank, N.A. Branch NA Ireland Citibank, N.A. Branch NA Italy Citibank, N.A. Branch NA Japan Citibank, N.A. Branch NA Jordan Citibank, N.A. Branch NA Korea Citibank, N.A. Branch NA
Luxembourg Cedel S.A. Depository NA Malaysia Citibank Berhad Subsidiary US$ 145MM Mexico Citibank, N.A. Branch NA Netherlands Citibank, N.A. Branch NA New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption Norway Christiania Bank Correspondent US$ 512MM Pakistan Citibank, N.A. Branch NA Peru Citibank, N.A. Branch NA Philippines Citibank, N.A. Branch NA Poland Citibank Poland S.A. Subsidiary SEC Exemption Portugal Citibank Portugal S.A. Subsidiary SEC Exemption Singapore Citibank, N.A. Branch NA South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM Spain Citibank, N.A. Branch NA Sri Lanka Citibank, N.A. Branch NA Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM Switzerland Citibank (Switzerland) Affiliate US$ 198MM Taiwan Citibank, N.A. Branch NA Thailand Citibank, N.A. Branch NA Turkey Citibank, N.A. Branch NA U.K. Citibank, N.A. Branch NA Uruguay Citibank, N.A. Branch NA Venezuela Citibank, N.A. Branch NA
2-02.0 DEPOSITORIES Argentina: Caja de Valores ("CDV") Finland: Central Share Registry The Helsinki Money Market Center Australia: The Reserve Bank Information France: Societe Interprofessionnelle and Transfer System ("RITS") pour la Compensation de Valeurs Mobilieres Austraclear ("SICOVAM") Austria: Wertpapiersammelbank Banque de France bei der Oesterreichische Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G. ("DKV") Belgium: Caisse Interprofessionelle de Depots et de Virements Greece: Central Securities Depository, de Titres S.A. ("CIK") S.A. ("CSD") Banque Nationale Hong Kong: Central Clearing and de Belgique ("BNB") Settlement System ("CCASS") Brazil: BOVESPA's Registered Shares Fungible Custody Hungary: The Central Depository and ("BOVESPA") Clearing House ("CDCH") Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO") Securities Limited ("CDS") Italy: Monte Titoli Instituto per la China: The Shanghai Securities Custodia e l'Amministrazione Central Clearing and Accentrata di Valori Mibiliar Registration Corporation ("Monte Titoli") ("SSCCRC") The Bank of Italy The Shenzhen Securities Registrars Co. Ltd. - registrar Japan: Japan Securities Depository for three banks forming a Center ("JASDEC") decentralized depository structure The Bank of Japan ("BOJ") Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities Depository ("KSD")
Luxembourg: CEDEL, S.A. Malaysia: Malaysian Central Depository Sdn. Bhd. ("MCD") Mexico: Instituto para el Deposito de Valores ("S.D. Indeval") Netherlands: Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. ("Necigef") New Zealand: Austraclear Norway: The Norwegian Registry of Securities - Verdipapirsentralen ("VPS") Peru: Caja de Valores ("CAVAL") Poland: The National Depository of Securities (Krajowy Depozyt Papierow Wartosciowych) Portugal: Central de Registo e Valores Mobiliarios Singapore: Central Depository (PTE) Ltd. South Africa: The Central Depository (Pty) Ltd. Spain: Servico de Compensacion y Liquidacion de Valores ("SCLV") Sri Lanka: Central Depository System (Pvt) Limited Sweden: Vardepapperscentralen VPC AB ("VPC") Switzerland: Schwerzerische Effekten-Giro AG ("SEGA") Taiwan: Taiwan Securities Central Depository Co., Ltd. ("TSCD") Thailand: Share Depository Center ("SDC") Turkey: Istanbul Stock Exchange Settlement and Custody Company Inc. United Kingdom: Central Gilts Office ("CGO") MORGAN GUARANTY TRUST COMPANY OF NEW YORK GLOBAL CUSTODY NETWORK
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK, COUNTRY DATE SUBCUSTODIAN IF APPLICABLE. Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores N.Y. - Buenos Aires Office Australia 1982 ANZ Banking Group Austraclear Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der Oesterreichischen Kontrollbank AG) Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de N.Y. - Brussels Office Depots et de Virements de Titres) Euroclear Clearance System Limited Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo; N.Y. - Sao Paulo Office equities) BVRJ (Bolsa de Valores de Rio de Janeiro, equities) CETIP (Central de Custodia e Liquidacao Financeira de Titulos; corporate bonds) SELEC (Sistema Especial de Liquidacao e Custodia; gov't securities) Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities) Commerce Chile 1993 Citibank, N.A. People's Republic 1992 Hongkong and Shanghai Banking of China- Corporation Shanghai and Shenzhen Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S. Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish Securities Centre) Finland 1985 Union Bank of Finland France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle Pour N.Y. - Paris Office La Compensation des Valeurs Mobilieres) Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein) N.Y. - Frankfurt Office
Greece 1989 National Bank of Greece S.A. Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement Corporation System) Hungary 1993 Citibank N.A. India 1993 Hongkong and Shanghai Banking Corporation Indonesia 1990 Hongkong and Shanghai Banking Corporation Ireland 1988 Allied Irish Banks PLC Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange) Clearing House Ltd. Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A. Milan Office Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center) JSA (Japan Securities Agent) Jordan 1994 Citibank, N.A. Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement Corporation) Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Valeurs Luxembourg, S.A. Mobilieres) Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated Corporation Network Services) Mexico 1990 Citibank, N.A. Indeval Morocco 1994 Banque Commerciale du Maroc Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor Giraal Effectenverkeer BV) New Zealand 1982 ANZ Banking Group Ltd. Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian Registry of Securities) Pakistan 1994 Citibank, N.A. Peru 1994 Citibank, N.A. CAVAL (Caja de Valores) Philippines 1990 Hongkong and Shanghai Banking Corporation
Poland 1993 Bank Handlowy Portugal 1988 Banco Espirito Santo E Comercial de Lisboa Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte South Africa 1993 First National Bank of Southern Africa Spain 1977 Morgan Guaranty Trust Co. of N.Y. - Madrid Office Sri Lanka 1992 Hongkong and Shanghai Banking Corporation Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities Register Centre) Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG) Taiwan 1992 Hongkong and Shanghai Banking Corporation Thailand 1988 Hongkong and Shanghai Banking Corporation Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve Saklama A.S.) United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and London Office Lodgement for Investors, Stock Management for Jobbers) CGO (Central Gilts Office) CMS (Central Money Market Office) United States of 1977 Morgan Guaranty Trust Co. of The Federal Reserve Bank of New York America N.Y. The Depository Trust Co. The Participants Trust Co. Venezuela 1991 Citibank, N.A.
EX-99.10 15 OPINIONS OF COUNSEL EXHIBIT (10) STROOCK & STROOCK & LAVAN Seven Hanover Square New York, New York 10004-2696 February 27, 1995 The Bear Stearns Funds 245 Park Avenue New York, New York 10167 Gentlemen: We have acted as counsel to The Bear Stearns Funds (the "Fund") in connection with the preparation of a Registration Statement on Form N-1A, Registration No. 33-84842 (the "Registration Statement"), covering shares of beneficial interest (the "Shares") of the Fund. We have examined copies of the Agreement and Declaration of Trust and By-Laws of the Fund, the Registration Statement and such other documents, records, papers, statutes and authorities as we deemed necessary to form a basis for the opinion hereinafter expressed. In our examination of such material, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. As to various questions of fact material to such opinion, we have relied upon statements and certificates of officers and representatives of the Fund and others. Attorneys involved in the preparation of this opinion are admitted only to the bar of the State of New York. As to various questions arising under the laws of the Commonwealth of Massachusetts, we have relied on the opinion of Messrs. Ropes & Gray, a copy of which is attached hereto. Qualifications set forth in their opinion are deemed incorporated herein. Based upon the foregoing, we are of the opinion that the Fund is authorized to issue an unlimited number of Shares, and that, when the Shares are issued and sold and the authorized consideration therefor is received by the Fund, they will be validly issued, fully paid and nonassessable by the Fund. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Prospectus included in the Registration Statement, and to the filing of this opinion as an exhibit to any application made by or on behalf of the Fund or any distributor or dealer in connection with the registration and qualification of the Fund or its Shares under the securities laws of any state or jurisdiction. In giving such permission, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ Stroock & Stroock & Lavan STROOCK & STROOCK & LAVAN ROPES & GRAY One International Place Boston, Massachusetts 02110-2624 February 27, 1995 Stroock & Stroock & Lavan Seven Hanover Square New York, NY 10004-2594 Gentlemen: We are furnishing this opinion in connection with the proposed offer and sale from time to time by S&P STARS Portfolio, Large Cap Value Portfolio, Small Cap Value Portfolio, Total Return Bond Portfolio and The Insiders Portfolio (each a "Series") of The Bear Stearns Funds (the "Trust") of an indefinite number of shares of beneficial interest, par value $.001 per share (the "Shares"), of each of such Series pursuant to the Trust's Registration Statement on Form N-1A under the Securities Act of 1933, as amended. We are familiar with the action taken by the Trustees of the Trust to authorized the issuance of the Shares. We have examined the Trust's records of Trustee action, its By-Laws and its Agreement and Declaration of Trust, as amended to date. We have examined such other documents as we deem necessary for the purposes of this opinion. We assume that, upon sale of the Shares, the Trust will receive the net asset value thereof, which amount shall be at least equal to the par value thereof. Based upon the foregoing, we are of the opinion that the Trust is authorized to issue an unlimited number of Shares, and that, when the Shares are issued and sold after the Registration Statement has been declared effective and the authorized consideration therefor is received by the Trust, they will be validly issued, fully paid and nonassessable by the Trust. The Trust is an entity of the type commonly known as a "Massachusetts business trust". Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust or any Series. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust or any Series and requires that notice of such disclaimer be given in every note, bond, contract or other undertaking issued by or on behalf of the Trust. The Agreement and Declaration of Trust provides for indemnification out of any Series property for all loss and expense of any shareholder held personally liable for the obligations of any Series. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust or any Series itself would be unable to meet its obligations. We consent to the filing of this opinion as an exhibit to the aforesaid Registration Statement. Very truly yours, /s/ Ropes & Gray Ropes & Gray STROOCK & STROOCK & LAVAN Seven Hanover Square New York, New York 10004-2696 May 8, 1995 The Bear Stearns Funds 245 Park Avenue New York, New York 10167 Gentlemen: We have acted as counsel to The Insiders Select Portfolio (the "Series") of The Bear Stearns Funds (the "Trust") in connection with the preparation of a Registration Statement on Form N-1A, Registration No. 33-84842 (the "Registration Statement"), covering shares of beneficial interest (the "Shares") of the Series. We have examined copies of the Agreement and Declaration of Trust and By-Laws of the Trust, the Registration Statement and such other documents, records, papers, statutes and authorities as we deemed necessary to form a basis for the opinion hereinafter expressed. In our examination of such material, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. As to various questions of fact material to such opinion, we have relied upon statements and certificates of officers and representatives of the Trust and others. Attorneys involved in the preparation of this opinion are admitted only to the bar of the State of New York. As to various questions arising under the laws of the Commonwealth of Massachusetts, we have relied on the opinion of Messrs. Ropes & Gray, a copy of which is attached hereto. Qualifications set forth in their opinion are deemed incorporated herein. Based upon the foregoing, we are of the opinion that the Trust is authorized to issue an unlimited number of Shares, and that, when the Shares are issued and sold and the authorized consideration therefor is received by the Trust, they will be validly issued, fully paid and nonassessable by the Trust. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Prospectus included in the Registration Statement, and to the filing of this opinion as an exhibit to any application made by or on behalf of the Series or any distributor or dealer in connection with the registration and qualification of the Series or its Shares under the securities laws of any state or jurisdiction. In giving such permission, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ Stroock & Stroock & Lavan STROOCK & STROOCK & LAVAN ROPES & GRAY One International Place Boston, Massachusetts 02110-2624 May 8, 1995 Stroock & Stroock & Lavan Seven Hanover Square New York, NY 10004-2594 Gentlemen: We are furnishing this opinion in connection with the proposed offer and sale from time to time by The Insiders Select Portfolio (the "Series") of The Bear Stearns Funds (the "Trust") of an indefinite number of shares of beneficial interest, par value $.001 per share (the "Shares"), of the Series pursuant to the Trust's Registration Statement on Form N-1A (No. 33-84842) under the Securities Act of 1933, as amended. We are familiar with the action taken by the Trustees of the Trust to authorize the issuance of the Shares. We have examined the Trust's records of Trustee action, its By-Laws and its Agreement and Declaration of Trust, as amended to date. We have examined such other documents as we deem necessary for the purpose of this opinion. We have assumed that, upon sale of the Shares, the Trust will receive the net asset value thereof, which amount shall be at least equal to the par value thereof. Based upon the foregoing, we are of the opinion that the Trust is authorized to issue an unlimited number of Shares, and that, when the Shares are issued and sold after the Registration Statement has been declared effective and the authorized consideration therefor is received by the Trust, they will be validly issued, fully paid and nonassessable by the Trust. The Trust is an entity of the type commonly known as a "Massachusetts business trust". Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust or a series of the Trust. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust or any series and requires that notice of such disclaimer be given in every note, bond, contract or other undertaking issued by or on behalf of the Trust. The Agreement and Declaration of Trust provides for indemnification out of property of the Series for all loss and expense of any shareholder held personally liable for the obligations of the Series. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust or the Series itself would be unable to meet its obligations. We consent to the filing of this opinion as an exhibit to the aforesaid Registration Statement. Very truly yours, /s/ Ropes & Gray Ropes & Gray STROOCK & STROOCK & LAVAN Seven Hanover Square New York, New York 10004-2696 June 8, 1995 The Bear Stearns Funds 245 Park Avenue New York, New York 10167 Gentlemen: We have acted as counsel to The Bear Stearns Funds (the "Trust") in connection with the preparation of a Registration Statement on Form N-1A, Registration No. 33-84842 (the "Registration Statement"), covering Class Y shares of beneficial interest of each of its Series (the "Shares"). We have examined copies of the Agreement and Declaration of Trust and By-Laws of the Trust, the Registration Statement and such other documents, records, papers, statutes and authorities as we deemed necessary to form a basis for the opinion hereinafter expressed. In our examination of such material, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. As to various questions of fact material to such opinion, we have relied upon statements and certificates of officers and representatives of the Trust and others. Attorneys involved in the preparation of this opinion are admitted only to the bar of the State of New York. As to various questions arising under the laws of the Commonwealth of Massachusetts, we have relied on the opinion of Messrs. Ropes & Gray, a copy of which is attached hereto. Qualifications set forth in their opinion are deemed incorporated herein. Based upon the foregoing, we are of the opinion that the Trust is authorized to issue an unlimited number of Shares, and that, when the Shares are issued and sold and the authorized consideration therefor is received by the Trust, they will be validly issued, fully paid and nonassessable by the Trust. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Prospectus included in the Registration Statement, and to the filing of this opinion as an exhibit to any application made by or on behalf of the Trust or any distributor or dealer in connection with the registration and qualification of the Trust or its Shares under the securities laws of any state or jurisdiction. In giving such permission, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ Stroock & Stroock & Lavan STROOCK & STROOCK & LAVAN ROPES & GRAY One International Place Boston, Massachusetts 02110-2624 June 8, 1995 Stroock & Stroock & Lavan Seven Hanover Square New York, NY 10004-2594 Gentlemen: We are furnishing this opinion in connection with the proposed offer and sale from time to time by each of the Large Cap Value Portfolio, Small Cap Value Portfolio, S&P Stars Portfolio, Total Return Bond Portfolio and The Insiders Select Portfolio of The Bear Stearns Funds (the "Trust") of an indefinite number of Class Y shares of beneficial interest, par value $.001 per share (the "Shares"), pursuant to the Trust's Registration Statement on Form N-1A (No. 33- 84842) under the Securities Act of 1933, as amended. We are familiar with the action taken by the Trustees of the Trust to authorize the issuance of the Shares. We have examined the Trust's records of Trustee action, its By-laws and its Agreement and Declaration of Trust, as amended to date. We have examined such other documents as we deem necessary for the purposes of this opinion. We assume that, upon sale of the Shares, the Trust will receive the net asset value thereof, which amount shall be at least equal to the par value thereof. Based upon the foregoing, we are of the opinion that the Trust is authorized to issue an unlimited number of Shares, and that, when the Shares are issued and sold after the Registration Statement has been declared effective and the authorized consideration therefor is received by the Trust, they will be validly issued, fully paid and nonassessable by the Trust. The Trust is an entity of the type commonly known as a "Massachusetts business trust". Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust or any series of the Trust (a "Series"). However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust or any Series and requires that notice of such disclaimer be given in every note, bond, contract or other undertaking issued by or on behalf of the Trust. The Agreement and Declaration of Trust provides for indemnification out of property of the Trust or a particular Series for all loss and expenses of any shareholder held personally liable for the obligations of the Trust or that particular Series. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust or the Particular Series itself would be unable to meet its obligations. We consent to the filing of this opinion as an exhibit to the aforesaid Registration Statement. Very truly yours, /s/ Ropes & Gray Ropes & Gray EX-99.11 16 CONSENT OF INDEPENDENT AUDITORS Exhibit (11) INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 7 to Registration Statement No. 33-84842 of The Bear Stearns Funds of our report dated May 5, 1995 appearing in the Statement of Additional Information relating to The Insiders Select Portfolio, which is a part of such Registration Statement, and to the reference to us under the heading "Custodian, Transfer and Dividend Disbursing Agent, Counsel and Independent Auditors" in the Statement of Additional Information. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP New York, New York November 8, 1995 EX-99.15 17 DISTRIBUTION & SHAREHOLDER SERVICING PLAN EXHIBIT (15) THE BEAR STEARNS FUNDS DISTRIBUTION AND SHAREHOLDER SERVICING PLAN WHEREAS, The Bear Stearns Funds (the "Trust") engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); WHEREAS, the Trust is comprised of the series set forth on Schedule 1, as such schedule is revised from time to time (each, a "Portfolio") and the Portfolios are divided into such classes as from time to time may be set forth on such Schedule (each, a "Class"); and WHEREAS, the Trust desires to adopt this Plan pursuant to Rule 12b-1 under the Act, and the Trust's Board has determined that there is a reasonable likelihood that adoption of this Plan will benefit the Portfolios and their shareholders; and WHEREAS, the Trust employs Bear, Stearns & Co. Inc. (the "Distributor") as Distributor of the Portfolios' shares (the "Shares") pursuant to a Distribution Agreement dated February 22, 1995. NOW, THEREFORE, the Trust hereby adopts, and the Distributor hereby agrees to the terms of, this Plan in accordance with Rule 12b-1 under the Act on the following terms and conditions: 1. (a) Each Portfolio or Class, as the case may be, shall pay the Distributor for distributing its Shares and for providing personal services to, and/or maintaining accounts of, its shareholders ("Servicing") a fee at the annual rate, based on its average daily net assets, set forth on Schedule 1. (b) The Distributor may pay one or more third parties a fee in respect of any Shares owned by investors with whom the third party has a Servicing relationship or for whom the third party is the dealer or holder of record. The Distributor shall determine the amounts to be paid to such third parties and the basis on which such payments will be made. Payments to a third party are subject to compliance by the third party with the terms of any related Plan agreement between the third party and the Distributor. (c) For the purposes of determining the fees payable under this Plan, the value of each Portfolio's or Class' net assets shall be computed in the manner specified in the Trust's charter documents as then in effect for the computation of the value of such Portfolios' or Class' net assets. 2. As respects each Portfolio or Class, as the case may be, this Plan shall not take affect until it has been approved by a vote of at least a majority (as defined in the Act) of the outstanding voting securities of the relevant Portfolio or Class. 3. As respects each Portfolio or Class, as the case may be, this Plan shall not take effect until it, together with any related agreement, has been approved by vote of a majority of both (a) the Trust's Board and (b) those Trustees who are not "interested persons" of the Trust (as defined by the Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Trustees") cast in person at a meeting (or meetings) called for the purpose of voting on this Plan and such related Agreements. 4. As respects each Portfolio or Class, as the case may be, this Plan shall remain in effect until February 22, 1996 and shall continue in effect thereafter so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3. 5. The Distributor shall provide to the Trust's Board and the Board shall review, at least quarterly, a written report of amounts paid hereunder and the purposes for which they were made. 6. As respects each Portfolio or Class, as the case may be, this Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of its outstanding voting securities. 7. This Plan may not be amended to increase materially the amount of compensation payable pursuant to paragraph 1 hereof unless such amendment is approved in the manner -2- provided for initial approval in paragraph 2 hereof. No material amendment to the Plan shall be made unless approved in the manner provided in paragraph 3 hereof. 8. While this Plan is in effect, the selection and nomination of the Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons. 9. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of this Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place. 10. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The name The Bear Stearns Funds is the designation of the Trustees for the time being under an Agreement and Declaration of Trust dated September 29, 1994, as amended from time to time, and all persons dealing with the Trust must look solely to the property of the Trust for enforcement of any claims against the Trust as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Trust. IN WITNESS WHEREOF, the Trust, on behalf of the Portfolios and Classes, and the Distributor have executed this Plan as of the date set forth below. Dated: February 22, 1995 THE BEAR STEARNS FUNDS By: /s/ Frank J. Maresca ------------------------ BEAR, STEARNS & CO. INC. By: /s/ Robert S. Reitzes ------------------------ -3- SCHEDULE 1
Name of Series Class A* Class C* - ------------------------------- --------- --------- S&P STARS Portfolio .50% 1.00% Large Cap Value Portfolio .50% 1.00% Small Cap Value Portfolio .50% 1.00% Total Return Bond Portfolio .35% .75% The Insiders Select Portfolio .50% 1.00%
- -------------------- * Annual Fee as a Percentage of Average Daily Net Assets. -4- EX-99.16 18 EXHIBIT 16 EXHIBIT (16) INSIDERS SELECT - SINCE INCEPTION BASED ON NAV CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES -------------------- --- ------ 06/16/95 83.333 $0.000 $12.00 09/30/95 83.333 ENDING NAV 09/30/95 13.19 ENDING REDEEMABLE VALUE $1,099.16 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,099.17 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 9.917% ANNUALIZED BEAR STEARNS INSIDERS SELECT PORTFOLIO - SINCE INCEPTION BASED ON MOP CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 06/16/95 79.365 $0.000 $12.00 09/30/95 79.365 ENDING NAV 09/30/95 $13.19 ENDING REDEEMABLE VALUE $1,046.82 FORMULA: P=INITIAL VALUE $1,000.00 1/N E=ENDIND PERIOD VALUE $1,046.82 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 4.682% ANNUALIZED INSIDERS SELECT - SINCE INCEPTION BASED ON NAV CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 06/16/95 83.333 $0.000 $12.00 09/30/95 83.333 ENDING NAV 09/30/95 $13.17 ENDING REDEEMABLE VALUE $1,097.50 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,097.50 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 9.750% ANNUALIZED INSIDERS SELECT - SINCE INCEPTION(includes CDSC fee) CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 06/16/95 83.333 $0.000 $12.00 09/30/95 83.333 ENDING NAV(includes CDSC $13.04 fee) ENDING REDEEMABLE VALUE $1,086.67 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,086.67 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 8.667% ANNUALIZED INSIDERS SELECT - SINCE INCEPTION BASED ON NAV CLASS Y DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 06/20/95 82.508 $0.000 $12.12 09/30/95 82.508 ENDING NAV 09/30/95 $13.20 ENDING REDEEMABLE VALUE $1,089.11 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,089.11 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 8.911% ANNUALIZED LARGE CAP - SINCE INCEPTION BASED ON NAV CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- ------ 04/03/95 83.333 $0.000 $12.00 06/30/95 83.333 ENDING NAV 06/30/95 $12.84 ENDING REDEEMABLE VALUE $1,070.00 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,070.00 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 7.000% ANNUALIZED LARGE CAP - SINCE INCEPTION BASED ON MOP CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- ------ 04/03/95 79.365 $0.000 $12.00 06/30/95 79.365 ENDING NAV 06/30/95 $12.84 ENDING REDEEMABLE VALUE $1,019.05 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,019.05 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 1.905% ANNUALIZED LARGE CAP - SINCE INCEPTION BASED ON NAV CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- ------ 04/03/95 83.333 $0.000 $12.00 06/30/95 83.333 ENDING NAV 06/30/95 $12.82 ENDING REDEEMABLE VALUE $1,068.33 FORMULA: P=INITIAL VALUE $1,000.00 1/N E=ENDIND PERIOD VALUE $1,068.33 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 6.833% ANNUALIZED LARGE CAP - SINCE INCEPTION(includes CDSC fee) CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- ------ 04/03/95 83.333 $0.000 $12.00 06/30/95 83.333 ENDING NAV(includes CDSC $12.69 fee) ENDING REDEEMABLE VALUE $1,057.50 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,057.50 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 5.750% ANNUALIZED SMALL CAP - SINCE INCEPTION BASED ON NAV CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 83.333 $0.000 $12.00 06/30/95 83.333 ENDING NAV 06/30/95 $13.03 ENDING REDEEMABLE VALUE $1085.83 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,085.83 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1,00000 T=TOTAL RETURN FOR PERIOD T= 8.583% ANNUALIZED SMALL CAP - SINCE INCEPTION BASED ON MOP CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 79.365 $0.000 $12.00 06/30/95 79.365 ENDING NAV 06/30/95 $13.03 ENDING REDEEMABLE VALUE $1034.13 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,034.13 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 3.413% ANNUALIZED SMALL CAP - SINCE INCEPTION BASED ON NAV CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 83.333 $0.000 $12.00 06/30/95 83.333 ENDING NAV 06/30/95 $13.02 ENDING REDEEMABLE VALUE $1,085.00 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,085.00 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 8.500% ANNUALIZED SMALL CAP - SINCE INCEPTION (includes CDSC fee) CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 83.333 $0.000 $12.00 06/30/95 83.333 ENDING NAV (includes CDSC $12.89 fee) ENDING REDEEMABLE VALUE $1,074.17 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,074.17 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 7.417% ANNUALIZED SMALL CAP - SINCE INCEPTION BASED ON NAV CLASS Y DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 76.394 $0.000 $13.09 06/30/95 76.394 ENDING NAV 06/30/95 $13.03 ENDING REDEEMABLE VALUE $995.42 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 995.42 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= -0.458% ANNUALIZED S & P STARS - SINCE INCEPTION BASED ON NAV CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 83.333 $0.000 $12.00 06/30/95 83.333 ENDING NAV 06/30/95 $13.32 ENDING REDEEMABLE VALUE $1,110.00 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,110.00 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 11.000% ANNUALIZED S & P STARS - SINCE INCEPTION BASED ON MOP CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 79.365 $0.000 $12.00 06/30/95 79.365 ENDING NAV 06/30/95 $13.32 ENDING REDEEMABLE VALUE $1,057.14 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,057.14 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.0000 T=TOTAL RETURN FOR PERIOD T= 5.714% ANNUALIZED S & P STARS - SINCE INCEPTION BASED ON NAV CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 83.333 $0.000 $12.00 06/30/95 83.333 ENDING NAV 06/30/95 $13.30 ENDING REDEEMABLE VALUE $1,108.33 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,108.33 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.0000 T=TOTAL RETURN FOR PERIOD T= 10.833% ANNUALIZED S & P STARS - SINCE INCEPTION (includes CDSC fee) CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ----- 04/03/95 83.333 0.0000 $12.00 06/30/95 83.333 ENDING NAV (includes CDSC $13.17 fee) ENDING REDEEMABLE VALUE $1,097.50 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,097.50 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 9.750% ANNUALIZED TOTAL RETURN BOND -- SINCE INCEPTION BASED ON NAV CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 83.333 $0.000 $12.00 04/21/95 83.333 $0.022 $12.05 1.87061125 0.15523745 05/23/95 83.489 $0.064 $12.20 5.30524775 0.43485637 06/20/95 83.923 $0.064 $12.38 5.363569 0.43324 06/30/95 84.357 $0.025 $12.26 2.1443466 0.17490592 06/30/95 84.532 ENDING NAV 06/30/95 $12.35 ENDING REDEEMABLE VALUE $1,043.96 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,043.96 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 4.396% ANNUALIZED TOTAL RETURN BOND -- SINCE INCEPTION BASED ON MOP CLASS A DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 80.208 $0.000 $12.00 04/21/95 80.208 $0.022 $12.05 1.800463 0.14942 05/23/95 80.358 $0.064 $12.20 5.106301 0.41855 06/20/95 30.776 $0.064 $12.38 5.162435 0.41700 06/30/95 81.193 $0.025 $12.35 2.060686 0.16686 06/30/95 81.360 ENDING NAV 06/30/95 $12.35 ENDING REDEEMABLE VALUE $1,004.80 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,004.80 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 0.480% ANNUALIZED TOTAL RETURN BOND -- SINCE INCEPTION BASED ON NAV CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 83.333 $0.000 $12.00 04/21/95 83.333 $0.023 $12.05 1.93924142 0.1609329 05/23/95 83.494 $0.059 $12.20 4.9312607 0.4042017 06/20/95 83.898 $0.060 $12.38 5.02275847 0.40571555 06/30/95 84.304 $0.024 $12.26 1.98114831 0.16159448 06/30/95 84.466 ENDING NAV 06/30/95 $12.35 ENDING REDEEMABLE VALUE $1,043.15 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,043.15 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 4.315% ANNUALIZED TOTAL RETURN BOND -- SINCE INCEPTION (includes CDSC fee) CLASS C DIVIDEND IN DIVIDEND IN SHARES DISTRIBUTION NAV $ SHARES ------ ------------ --- - ------ 04/03/95 83.333 $0.000 $12.00 04/21/95 83.333 $0.023 $12.05 1.93924142 0.1609329 05/23/95 83.494 $0.059 $12.20 4.9312607 0.4042017 06/20/95 83.898 $0.060 $12.38 5.02275847 0.40571555 06/30/95 84.304 $0.024 $12.26 1.98114831 0.16159448 06/30/95 84.466 ENDING NAV 06/30/95 $12.23 ENDING REDEEMABLE VALUE $1,033.02 FORMULA: P=INITIAL VALUE 1,000.00 1/N E=ENDIND PERIOD VALUE 1,033.02 T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000 T=TOTAL RETURN FOR PERIOD T= 3.302% ANNUALIZED EX-99.18 19 RULE 18F-3 PLAN EXHIBIT (18) THE BEAR STEARNS FUNDS RULE 18F-3 PLAN Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), requires that the Board of an investment company desiring to offer multiple classes pursuant to said Rule adopt a plan setting forth the separate arrangement and expense allocation of each class, and any related conversion features or exchange privileges. The Board, including a majority of the non-interested Board members, of the above-referenced fund (the "Fund") which desires to offer multiple classes for the series set forth on Schedule A (the "Series") has determined that the following plan is in the best interests of each class individually and the Fund as a whole: 1. CLASS DESIGNATION: Each Series' shares shall be divided into Class A, Class C and Class Y. 2. DIFFERENCES IN SERVICES: The services offered to shareholders of each Class shall be substantially the same, except that Right of Accumulation and Letter of Intent shall be available only to holders of Class A shares. 3. DIFFERENCES IN DISTRIBUTION ARRANGEMENTS: Class A shares shall be offered with a front-end sales charge, as such term is defined in Article III, Section 26(b), of the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and a deferred sales charge (a "CDSC"), as such term is defined in said Section 26(b), may be assessed on certain redemptions of Class A shares purchased without an initial sales charge as part of an investment of $1 million or more. The amount of the sales charge and the amount of and provisions relating to the CDSC pertaining to the Class A shares are set forth on Schedule B hereto. Class C shares shall not be subject to a front-end sales charge, but shall be subject to a CDSC. The amount of and provisions relating to the CDSC pertaining to Class C shares are set forth on Schedule C hereto. Class A and Class C shares shall be charged a fee pursuant to a Distribution and Shareholder Servicing Plan adopted under Rule 12b-1 under the 1940 Act. The amount of the fees under the Distribution and Shareholder Servicing Plan are set forth on Schedule D hereto. Class Y shares shall be offered at net asset value with no front-end sales charge, CDSC or distribution and shareholder servicing fees. Class Y shares are available to investors whose minimum initial purchase is at least $2.5 million, subject to such waivers or variations as from time to time may be in effect. 4. EXPENSE ALLOCATION. The following expenses will be allocated, to the extent practicable, on a Class-by-Class basis: (a) fees under the Distribution and Shareholder Servicing Plan; (b) printing and postage expenses related to -2- preparing and distributing materials, such as shareholder reports, prospectuses and proxies, to current shareholders of a specific Class; (c) Securities and Exchange Commission and Blue Sky registration fees incurred by a specific Class; (d) the expense of administrative personnel and services as required to support the shareholders of a specific Class; (d) litigation or other legal expenses relating solely to a specific Class; and (f) Board members' fees incurred as a result of issues relating to a specific Class. 5. CONVERSION FEATURES. On October 13, 1995, Class A Shares held by investors who are eligible to purchase Class Y Shares shall be converted to Class Y shares, based on the relative net value of such Classes as of the close of business on such date, without the imposition of any sales charge, fee or other charge. Thereafter, if a holder of Class A Shares notifies the Fund's distributor that it desires to have its Class A Shares converted to Class Y Shares because it then is eligible to purchase Class Y Shares, the shares which are the subject of the notice shall be converted to Class Y shares, without the imposition of any sales charge, fee or other charge, on the third business day following confirmation of the investor's eligibility to own Class Y Shares, at the relative net value of such Classes as of the close of business on such date. 6. EXCHANGE PRIVILEGES. Shares of a Class are exchangeable only for (a) shares of the same Class of another -3- Series or of other investment companies sponsored by the Fund's distributor and (b) shares of the Money Market Portfolio of The RBB Fund, Inc. Dated: March 24, 1995, as revised May 4, 1995, May 31, 1995 and September 29, 1995 -4- SCHEDULE A S&P STARS Portfolio Large Cap Value Portfolio Small Cap Value Portfolio Total Return Bond Portfolio The Insiders Select Portfolio A-1 SCHEDULE B FRONT-END SALES CHARGE--CLASS A SHARES--The public offering price for Class A shares shall be the net asset value per share of that Class plus a sales load as shown below: (A) FOR S&P STARS PORTFOLIO, LARGE CAP VALUE PORTFOLIO, SMALL CAP VALUE PORTFOLIO AND THE INSIDERS PORTFOLIO
TOTAL SALES LOAD ------------------------- AS A % OF AS A % OF OFFERING NET ASSET PRICE PER VALUE PER AMOUNT OF TRANSACTION SHARE SHARE ------------------------ Less than $50,000.................................... 4.75 4.99 $50,000 to less than $100,000........................ 4.25 4.44 $100,000 to less than $250,000....................... 3.75 3.90 $250,000 to less than $500,000....................... 3.25 3.36 $500,000 to less than $750,000....................... 2.75 2.83 $750,000 to less than $1,000,000..................... 2.25 2.30 $1,000,000 and above................................. 0.00 0.00 (B) FOR TOTAL RETURN BOND PORTFOLIO TOTAL SALES LOAD ------------------------- AS A % OF AS A % OF OFFERING NET ASSET PRICE PER VALUE PER AMOUNT OF TRANSACTION SHARE SHARE ------------------------ Less than $50,000.................................... 3.75 3.90 $50,000 to less than $100,000........................ 3.25 3.36 $100,000 to less than $250,000....................... 2.75 2.83 $250,000 to less than $500,000....................... 2.25 2.30 $500,000 to less than $750,000....................... 2.00 2.04 $750,000 to less than $1,000,000..................... 1.50 1.52 $1,000,000 and above................................. 0.00 0.00
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES--A CDSC of 1.00% (.50% in the case of the Total Return Bond Portfolio) shall be assessed at the time of redemption of Class A shares purchased without an initial sales charge as part of an B-1 investment of at least $1,000,000 and redeemed within one year after purchase. A CDSC of .50% shall be assessed at the time of redemption of Class A shares purchased without a sales charge with the proceeds from the redemption of shares of an investment company sold with a sales charge or commission and not distributed by the Fund's Distributor. The terms contained in Schedule C pertaining to the CDSC assessed on redemptions of Class C shares, including the provisions for waiving the CDSC, shall be applicable to the Class A shares subject to a CDSC. Letter of Intent and Right of Accumulation shall apply to such purchases of Class A shares. B-2 SCHEDULE C CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES--A CDSC of 1.00% payable to the Fund's Distributor shall be imposed on any redemption of Class C shares made within one year of the date of purchase. No CDSC shall be imposed to the extent that the net asset value of the Class C shares redeemed does not exceed (i) the current net asset value of Class C shares acquired through reinvestment of dividends or capital gain distributions, plus (ii) increases in the net asset value of the shareholder's Class C shares above the dollar amount of all payments for the purchase of Class C shares of the Fund held by such shareholder at the time of redemption. If the aggregate value of the Class C shares redeemed has declined below their original cost as a result of the Fund's performance, a CDSC may be applied to the then-current net asset value rather than the purchase price. In determining whether a CDSC is applicable to a redemption, the calculation shall be made in a manner that results in the lowest possible rate. Therefore, it shall be assumed that the redemption is made first of amounts representing shares acquired pursuant to the reinvestment of dividends and distributions; then of amounts representing the increase in net asset value of Class C shares above the total amount of payments for the purchase of Class C shares made during the preceding year; then of amounts representing the cost of shares purchased more than one year prior to the redemption; and finally, of amounts representing the cost of shares purchased within one year prior to redemption. WAIVER OF CDSC--The CDSC shall be waived in connection with (a) redemptions made within one year after the death or disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the "Code"), of the shareholder, (b) redemptions by employees participating in Eligible Benefit Plans, (c) redemptions as a result of a combination of any investment company with the Fund or Series by merger, acquisition of assets or otherwise, and (d) a distribution following retirement under a tax-deferred retirement plan or upon attaining age 70-1/2 in the case of an IRA or Keogh plan or custodial account pursuant to Section 403(b) of the Code. Any Fund shares subject to a CDSC which were purchased prior to the termination of such waiver shall have the CDSC waived as provided in the Fund's prospectus at the time of the purchase of such shares. C-1 SCHEDULE D AMOUNT OF DISTRIBUTION AND SHAREHOLDER SERVICING PLAN--Each Series shall pay a fee based on the value of the average daily net assets of the respective Class as follows:
Name of Series Class A Class C - ------------------------------- -------- -------- S&P Stars Portfolio .50% 1.00% Large Cap Value Portfolio .50% 1.00% Small Cap Value Portfolio .50% 1.00% The Insiders Select Portfolio .50% 1.00% Total Return Bond Portfolio .35% .75%
D-1 EX-99.A 20 SECRETARY'S CERTIFICATE Other Exhibit (a) THE BEAR STEARNS FUNDS Secretary's Certificate The undersigned, Stephen A. Bornstein, Secretary of The Bear Stearns Funds (the "Trust"), hereby certifies that set forth below is a copy of the resolution adopted by the Trust's Board authorizing the signing of the Trust's Registration Statement and all amendments and supplements thereto on behalf of the proper officers of the Trust pursuant to a power of attorney. RESOLVED, that the Registration Statement and any and all amendments and supplements thereto, may be signed by any one of Robert S. Reitzes, Stephen A. Bornstein, Frank J. Maresca and Vincent L. Pereira as the attorney-in-fact for the proper officers of the Trust, with full power of substitution and resubstitution; and that the appointment of each of such persons as such attorney-in-fact hereby is authorized and approved; and that such attorneys-in-fact, and each of them, shall have full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection with such Registration Statement and any and all amendments and supplements thereto, as fully to all intents and purposes as the officer, for whom he is acting as attorney-in-fact, might or could do in person. IN WITNESS WHEREOF, I have hereunto signed my name on April 17, 1995. /s/ Stephen A. Bornstein ------------------------------- Stephen A. Bornstein, Secretary EX-99.B 21 POWER OF ATTORNEY Other Exhibit (b) THIS EXHIBIT HAS BEEN PREVIOUSLY FILED ON THE SIGNATURE PAGE OF PRE-EFFECTIVE AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT ON FORM N-1A, FILED FEBRUARY 28, 1995. POWER OF ATTORNEY Each person whose signature appears below on this Amendment to Registration Statement hereby constitutes and appoints Robert S. Reitzes, Stephen A. Bornstein, Frank J. Maresca and Vincent L. Pereira, and each of them, with full power to act without the other, his/her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities (until revoked in writing) to sign any and all amendments to this Registration Statement (including post-effective amendments and amendments thereto), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, and each of them, full power and authority to do and perform each and every act and thing ratifying and confirming all that said attorneys- in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ John D. Knox President February 27, 1995 - ------------------------- (Principal Executive John D. Knox Officer) /s/ Frank J. Maresca Vice President February 27, 1995 - ------------------------- and Treasurer Frank J. Maresca (Principal Financial and Accounting Officer) /s/ Peter M. Bren Trustee February 27, 1995 - ------------------------- Peter M. Bren /s/ Alan J. Dixon Trustee February 27, 1995 - ------------------------- Alan J. Dixon /s/ Peter B. Fox Trustee February 27, 1995 - ------------------------- Peter B. Fox /s/ John R. McKernan, Jr. Trustee February 27, 1995 - ------------------------- John R. McKernan, Jr. /s/ William Montgoris Trustee February 27, 1995 - ------------------------- William Montgoris /s/ M.B. Oglesby, Jr. Trustee February 27, 1995 - ------------------------- M.B. Oglesby, Jr. /s/ Robert S. Reitzes Trustee February 27, 1995 - ------------------------- Robert S. Reitzes -ii- POWER OF ATTORNEY Each person whose signature appears below on this Amendment to Registration Statement hereby constitutes and appoints Robert S. Reitzes, Stephen A. Bornstein, Frank J. Maresca and Vincent L. Pereira, and each of them, with full power to act without the other, his/her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities (until revoked in writing) to sign any and all amendments to this Registration Statement (including post-effective amendments and amendments thereto), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, and each of them, full power and authority to do and perform each and every act and thing ratifying and confirming all that said attorneys- in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Barry Nix President February 27, 1995 - ------------------------- (Principal Executive Barry Nix Officer) /s/ James Fergus McKeon Treasurer and February 27, 1995 - ------------------------- Secretary James Fergus McKeon (Principal Financial and Accounting Officer) /s/ Robert S. Reitzes Chairman of the February 27, 1995 - ------------------------- Board and Trustee Robert S. Reitzes /s/ John J. Danilovich Trustee February 27, 1995 - ------------------------- John J. Danilovich /s/ Vincent Anthony Walsh Trustee February 27, 1995 - ------------------------- Vincent Anthony Walsh -iii- -----END PRIVACY-ENHANCED MESSAGE-----