-----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, O8rVC7qhxMmhmlTzYGnCEEhS+9EpKuwvzxYzvkfG99NIfH4SmoP5XCEhCyJfk3TT dXrf1fg8OVT8y3nqOs4ngw== 0001047469-02-005584.txt : 20021204 0001047469-02-005584.hdr.sgml : 20021204 20021204122009 ACCESSION NUMBER: 0001047469-02-005584 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021204 EFFECTIVENESS DATE: 20021204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEAR STEARNS FUNDS CENTRAL INDEX KEY: 0000931145 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08798 FILM NUMBER: 02848214 BUSINESS ADDRESS: STREET 1: 383 MADISON AVENUE STREET 2: 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10179 BUSINESS PHONE: (212) 272-9027 MAIL ADDRESS: STREET 1: 383 MADISON AVENUE STREET 2: 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10179 N-30D 1 a2092748zn-30d.txt N-30D THE BEAR STEARNS FUNDS FIXED INCOME FUNDS - Income Portfolio - - High Yield Total Return Portfolio SEMI-ANNUAL REPORT SEPTEMBER 30, 2002 BSF-R-016-11 [BEAR STEARNS LOGO] T H E B E A R S T E A R N S F U N D S Income Portfolio High Yield Total Return Portfolio LETTER TO SHAREHOLDERS October 31, 2002 Dear Shareholders: We are pleased to present the semi-annual report to shareholders for the Income Portfolio and High Yield Total Return Portfolio ("High Yield Portfolio") for the six months ended September 30, 2002. Detailed performance data for each class of shares of each Portfolio can be found in the "Financial Highlights" of this report. INCOME PORTFOLIO In order to better reflect the Income Portfolio's focus on the intermediate range of the maturity spectrum, the benchmark was changed during the period to the Lehman Intermediate Government/Credit Index. The goal of this repositioning is to reduce the Income Portfolio's interest rate volatility relative to the benchmark. During the semi-annual period, stock market volatility, rising geopolitical risk and news of a slowing U.S. economy drove investors out of equities and into fixed income, causing the bond markets to rally and yields to fall across the entire maturity spectrum. Yield spreads on the bonds of even high quality corporations with solid accounting practices widened dramatically as investors sought to avoid credit risk. The primary cause of the Income Portfolio's underperformance was its allocation to high yield, a sector that is not included in the benchmark. A growing number of corporate governance scandals and a successive chain of earnings disappointments -- the same factors that contributed to excessive equity market volatility during the period -- caused price depreciation and widening spreads in the high yield sector. High yield spreads reached their widest levels over Treasuries since 1990. In response, we scaled back the Income Portfolio's exposure to high yield during the period -- a decision that helped offset some of the drag on performance. By contrast, the Income Portfolio's overweighted allocation to financial services issues helped performance as the sector outperformed the corporate bond market as a whole. In addition, losses in other areas were somewhat offset by our significantly underweighted position in energy. The fixed income securities of companies involved in energy trading experienced price depreciation as accounting scandals at companies with similar lines of business -- most notably Enron -- tainted the market as a whole. Our overweighted position in asset-backed securities also helped performance. Asset-backed securities benefited from a flight to quality as investors sought fixed income investments that were devoid of credit risk. We underweighted the mortgage-backed securities sector during the period, due to higher levels of prepayment risk -- a decision that contributed positively to performance. In the months ahead, we plan to maintain the Income Portfolio's current yield curve positioning until we see signs of improving economic growth. Once the economy begins to pick up, we will shift our positioning from a bulleted structure to a barbell structure, which tends to outperform in an environment of a flattening yield curve. We will remain cautious on mortgage-backed securities going forward because of increasing prepayment risk and our opinion that the sector may underperform once interest rates reverse direction. HIGH YIELD TOTAL RETURN PORTFOLIO* In order to better reflect the universe of securities in which the High Yield Portfolio currently invests, the benchmark was changed, effective August 1, 2002 to the Lehman High Yield Index. 1 The semi-annual period was challenging for high yield as a series of accounting restatements and concerns over corporate governance issues eroded investor confidence in the markets. In a watershed event, one of the country's largest telecommunications providers, WorldCom, Inc., admitted to accounting fraud in the billions of dollars. The scandal caused high yield spreads over Treasuries to widen dramatically, affecting not only the telecommunications sector but most of the high yield market. The combination of several large-scale accounting scandals, a continuous stream of earnings disappointments and growing geopolitical risk created a flight to quality in which investors moved assets into more conservative investments. As the period drew to a close, high yield spreads reached their widest levels since 1990. In this difficult environment, the High Yield Portfolio outperformed its benchmark, the Lehman High Yield Index. We are pleased to report that the High Yield Portfolio has not experienced a single default for the calendar year -- a significant accomplishment given that high yield defaults reached an all-time high early in the year. During the period, the amount of debt that was downgraded to non-investment grade due to bankruptcies and reduced earnings expectations increased substantially, exceeding the amount of new high yield issuance for 2002 to date. These downgrades, combined with falling stock prices among high yield issuers, quickly translated into widening yield spreads. Concerns over corporate governance issues led to increased scrutiny of accounting practices, with companies that drew any sort of attention in this regard trading off sharply. Evidence of a slowing U.S. economy caused price declines in sectors such as airlines and technology, which depend on business spending. While the High Yield Portfolio did not own any airline issues, it was affected by the downturn in technology. The High Yield Portfolio's outperformance for the period was driven by our overweighted positions in energy, health care and gaming and lodging, all of which benefited from stable cash flows. Our underweighted positions in wireline telecommunications, airlines, finance, cable and utilities -- sectors that suffered from the slowing economy and corporate governance issues -- also helped performance. We reduced our exposure to utilities and cable throughout the period as deteriorating conditions and accounting issues led to poor performance. In the months ahead, we expect the high yield market to remain difficult until corporate governance issues are resolved and the economy begins to show signs of improvement. Our strategy will be to avoid problem areas, while at the same time seeking to identify issues that are undervalued and oversold. Because spreads are at all-time highs, we believe there are good investment opportunities available among issues that have experienced price depreciation by sector association rather than due to any fundamental problems with the issuer. In conclusion, we value the confidence you have placed in us and would be pleased to address any questions or concerns you may have. Please feel free to call us at 1-800-766-4111. Sincerely, /s/ Doni L. Fordyce - ------------------- Doni L. Fordyce President and Trustee The Bear Stearns Funds - ------------- * Investing in high yield debt securities generally involves greater risks than investing in more highly rated debt securities such as the risk of greater price fluctuation and the possible loss of principal and income. 2 T H E B E A R S T E A R N S F U N D S Income Portfolio SEPTEMBER 30, 2002 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------- TOP TEN INDUSTRY/SECTOR WEIGHTINGS - -------------------------------------------------------------------------------------------------------------------- PERCENT OF RANK INDUSTRY/SECTOR NET ASSETS ---- ---------------------------------------------------------------------------------------------- ---------- 1. U.S. Government Agency Obligations ........................................................... 45.12 2. U.S. Government Obligations .................................................................. 18.93 3. Consumer, Non-Cyclical ....................................................................... 6.79 4. Financial .................................................................................... 4.19 5. Energy ....................................................................................... 3.40 6. Communications ............................................................................... 2.84 7. Asset-Backed ................................................................................. 2.61 8. Mortgage-Backed .............................................................................. 2.40 9. Industrial ................................................................................... 1.72 10. Consumer, Cyclical ........................................................................... 1.69 -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- TOP TEN HOLDINGS* - -------------------------------------------------------------------------------------------------------------------- PERCENT OF RANK HOLDINGS INDUSTRY/SECTOR NET ASSETS ---- ---------------------------------------------------- -------------------------------------- ---------- 1. Freddie Mac ........................................ U.S. Government Agency Obligations 22.62 2. Fannie Mae ......................................... U.S. Government Agency Obligations 22.50 3. U.S. Treasuries .................................... U.S. Government Obligations 18.93 4. Mitsubishi Motors Credit of America, Inc. .......... Asset-Backed 1.12 5. PNC Mortgage Acceptance Corp. ...................... Mortgage-Backed 1.06 6. General Mills, Inc. ................................ Consumer, Non-Cyclical 1.05 7. Apache Corp. ....................................... Energy 0.98 8. Coca-Cola Enterprises, Inc. ........................ Consumer, Non-Cyclical 0.96 9. Kraft Foods, Inc. .................................. Consumer, Non-Cyclical 0.94 10. Viacom, Inc. ....................................... Communications 0.89 -------------------------------------------------------------------------------------------------------------------
- --------- * Holdings will change over time. Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell the securities mentioned. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 3 High Yield Total Return Portfolio SEPTEMBER 30, 2002 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------- TOP TEN INDUSTRY WEIGHTINGS - -------------------------------------------------------------------------------------------------------------------- PERCENT OF RANK INDUSTRY NET ASSETS ---- -------------------------------------------------------------------------------------------- ----------- 1. Hotels/Motels/Casinos ...................................................................... 10.98 2. Oil & Gas .................................................................................. 9.52 3. Health Care ................................................................................ 9.02 4. Retailers .................................................................................. 7.13 5. Building/Development ....................................................................... 6.62 6. Electronic Components ...................................................................... 5.93 7. Food Services .............................................................................. 5.75 8. Chemicals/Plastics ......................................................................... 4.32 9. Radio/Television ........................................................................... 4.04 10. Leisure .................................................................................... 3.22
- -------------------------------------------------------------------------------------------------------------------- TOP TEN HOLDINGS* - -------------------------------------------------------------------------------------------------------------------- PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- ---------------------------------------------------- --------------------------------------- ---------- 1. Fairchild Semiconductor Corp. ...................... Electronic Components 2.40 2. The William Carter Co. ............................. Clothing/Textiles 2.36 3. Simmons Co. ........................................ Home Furnishings 2.08 4. ALARIS Medical Systems, Inc. ....................... Health Care 2.06 5. Ameristar Casinos, Inc. ............................ Hotels/Motels/Casinos 1.99 6. Bally Total Fitness Holding Corp. .................. Leisure 1.97 7. Armkel, LLC and Armkel Finance, Inc. ............... Cosmetics/Toiletries 1.92 8. Mandalay Resort Group .............................. Hotels/Motels/Casinos 1.91 9. SESI, L.L.C. ....................................... Oil & Gas 1.83 10. Swift Energy Co. ................................... Oil & Gas 1.82
- --------- * Holdings will change over time. Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell the securities mentioned. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 4 T H E B E A R S T E A R N S F U N D S Income Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT INVESTMENTS -- 91.73% CORPORATE OBLIGATIONS - 27.68% ASSET-BACKED - 2.61% $ 250 Citibank Credit Card Master Trust, Series A ................................ 5.950% 10/07/04 $ 260,080 755 Mitsubishi Motors Credit of America, Inc., Automobile Trust, Series 2002-2, Class A3 ................................................. 3.670 07/17/06 774,294 84 PaineWebber Mortgage Acceptance Corp., Series 2000-HE1, Class A2 ........... 8.270 02/25/30 86,511 227 UCFC Home Equity Loan, Series 1996-B1, Class A6 ............................ 7.975 02/15/22 232,757 450 WFS Financial Inc., Owner Trust, Series 2002-3, Class A3 ................... 2.760 02/20/07 453,318 ---------- 1,806,960 ---------- COMMUNICATIONS - 2.84% 200 AOL Time Warner, Inc., Bonds ............................................... 7.700 05/01/32 170,028 175 AOL Time Warner, Inc., Notes ............................................... 6.150 05/01/07 161,844 150 AOL Time Warner, Inc., Unsecured Debentures ................................ 6.850 01/15/26 149,248 100 GTE Northwest, Inc., Unsecured Debentures, Series D ........................ 5.550 10/15/08 101,481 150 Southern New England Telephone Co., Medium Term Notes, Series C ............ 6.125 12/15/03 155,370 350 Sprint Capital Corp., Unsecured Notes, Company Guaranteed .................. 6.000 01/15/07 240,814 375 Verizon Pennsylvania, Notes, Series A ...................................... 5.650 11/15/11 369,030 525 Viacom, Inc., Unsecured Senior Notes, Company Guaranteed ................... 7.700 07/30/10 617,781 ---------- 1,965,596 ---------- CONSUMER, CYCLICAL - 1.69% 250 Bally Total Fitness Holding Corp., Unsecured Senior Subordinated Notes, Series D ................................................................ 9.875 10/15/07 230,938 150 Meritage Corp., Unsecured Senior Notes, Company Guaranteed ................. 9.750 06/01/11 151,125 500 Safeway, Inc., Unsecured Senior Notes ...................................... 4.800 07/16/07 520,139 250 Southwest Airlines Co., Unsecured Notes .................................... 6.500 03/01/12 269,398 ---------- 1,171,600 ---------- CONSUMER, NON-CYCLICAL - 6.79% 260 Abbott Laboratories, Unsecured Notes ....................................... 5.625 07/01/06 282,495 250 Armkel, LLC and Armkel Finance, Inc., Senior Subordinated Notes ............ 9.500 08/15/09 265,000 200 Beazer Homes USA, Inc., Unsecured Senior Notes, Company Guaranteed ......... 8.375 04/15/12 201,000 200 Bristol-Myers Squibb Co., Notes ............................................ 4.750 10/01/06 210,578 150 Cendant Corp., Unsecured Notes ............................................. 6.875 08/15/06 150,969 650 Coca-Cola Enterprises, Inc., Unsecured Unsubordinated Notes ................ 4.375 09/15/09 661,650 250 Fleming Cos., Inc., Senior Subordinated Notes* ............................. 9.875 05/01/12 133,750 675 General Mills, Inc., Notes ................................................. 6.000 02/15/12 728,352 600 Kraft Foods, Inc., Notes ................................................... 5.625 11/01/11 649,594 450 Kroger Co., Unsecured Senior Notes, Company Guaranteed ..................... 6.200 06/15/12 475,646 450 Unilever Capital Corp., Unsecured Unsubordinated Senior Notes, Company Guaranteed ........................................ 6.875 11/01/05 505,982 200 United Rentals, Inc., Unsecured Subordinated Senior Notes, Series B, Company Guaranteed .............................. 9.500 06/01/08 170,000 250 YUM! Brands, Inc., Unsecured Senior Notes .................................. 7.700 07/01/12 260,000 ---------- 4,695,016 ----------
The accompanying notes are an integral part of the financial statements. 5 T H E B E A R S T E A R N S F U N D S Income Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) ENERGY - 3.40% $ 600 Apache Corp., Unsecured Senior Notes ............................ 6.250% 04/15/12 $ 677,431 500 BP Amoco plc, Notes ............................................. 5.900 04/15/09 559,336 100 Consolidated Natural Gas Co., Unsecured Notes ................... 7.250 10/01/04 107,893 150 Consolidated Natural Gas Co., Unsecured Unsubordinated Senior Notes, Series B ....................................... 5.375 11/01/06 157,358 200 Forest Oil Corp., Unsecured Senior Notes, Company Guaranteed .... 7.750 05/01/14 200,000 350 Smith International, Inc., Unsecured Senior Notes ............... 7.000 09/15/07 394,128 250 Swift Energy Co., Unsecured Senior Subordinated Notes ........... 10.250 08/01/09 251,250 ---------- 2,347,396 ---------- FINANCIAL - 4.19% 200 Boeing Capital Corp., Unsecured Senior Notes .................... 5.650 05/15/06 209,684 625 Ford Motor Credit Co., Notes .................................... 7.875 06/15/10 617,230 550 Goldman Sachs Group, Inc., Unsecured Senior Notes ............... 5.700 - 6.600 01/15/12 - 09/01/12 582,203 250 Lehman Brothers Holdings, Inc., Unsecured Notes ................. 6.625 01/18/12 274,417 400 Marshall & Ilsley Bank, Subordinated Notes ...................... 5.250 09/04/12 419,469 350 National Rural Utilities Cooperative Finance Corp., Collateral Trust Senior Notes ................................ 6.000 05/15/06 377,546 200 Washington Mutual Capital I, Subordinated Capital Income Securities, Company Guaranteed ............................... 8.375 06/01/27 219,888 175 Wells Fargo Financial, Inc., Senior Notes ....................... 6.750 06/01/05 193,230 ---------- 2,893,667 ---------- INDUSTRIAL - 1.72% 200 AK Steel Corp., Senior Notes, Company Guaranteed* ............... 7.750 06/15/12 199,000 250 Allied Waste North America, Inc., Senior Subordinated Notes, Series B, Company Guaranteed ................................. 8.500 12/01/08 238,750 200 Kansas City Southern, Unsecured Senior Notes, Company Guaranteed 7.500 06/15/09 203,000 150 Raytheon Co., Unsecured Senior Notes ............................ 5.700 11/01/03 153,275 350 Tyco International Group S.A., Unsecured Yankee Bonds, Company Guaranteed (1) ....................................... 6.125 11/01/08 287,414 100 Union Pacific Corp., Unsecured Notes ............................ 6.125 01/15/12 109,941 ---------- 1,191,380 ---------- MORTGAGE-BACKED - 2.40% 398 Comm 2000-C1, Commercial Mortgage Pass-Through Certificates, Class A1 ..................................................... 7.206 08/15/33 443,566 57 Lehman Brothers Commercial Conduit Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 1998-C1, Class A1 ..................................................... 6.330 02/18/30 58,641 375 Lehman Large Loan, Series 1997-LL1, Class A3 .................... 6.900 03/12/07 421,261 652 PNC Mortgage Acceptance Corp., Series 2000-C1, Class A1 ......... 7.520 07/15/08 733,095 ---------- 1,656,563 ----------
The accompanying notes are an integral part of the financial statements. 6 T H E B E A R S T E A R N S F U N D S Income Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) TECHNOLOGY - 1.29% $ 350 Computer Sciences Corp., Unsecured Notes ......................... 7.375 - 7.500% 08/08/05 - 06/15/11 $ 379,062 150 Electronic Data Systems Corp., Unsecured Notes ................... 6.850 10/15/04 142,280 250 Fairchild Semiconductor Corp., Unsecured Senior Subordinated Notes 10.500 02/01/09 261,250 100 Pitney Bowes, Inc., Unsecured Notes .............................. 5.950 02/01/05 107,915 ---------- 890,507 ---------- UTILITIES - 0.75% 250 Cleveland Electric Illuminating Co., Secured Notes, Series D ..... 7.880 11/01/17 275,798 250 NISource Finance Corp., Unsecured Senior Notes, Company Guaranteed 7.500 11/15/03 245,298 ---------- 521,096 ---------- Total Corporate Obligations (cost - $18,866,098) ................. 19,139,781 ---------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 45.12% FANNIE MAE - 22.50% 10,999 Pass-through Pools ............................................... 6.000 04/01/16 - 08/01/17 11,436,056 675 Series 2001-68, Class PM ......................................... 5.000 12/25/24 695,097 2,900 Unsecured Notes .................................................. 4.250 - 5.625 05/14/04 - 07/15/07 3,058,541 350 Whole Loan, Series 2002-W2, Class AF3 ............................ 5.127 02/25/30 365,395 ---------- 15,555,089 ---------- FREDDIE MAC - 22.62% 150 Unsecured Medium-Term Notes ...................................... 4.180 11/08/05 157,206 14,190 Unsecured Notes .................................................. 3.875 - 6.625 01/15/04 - 06/15/11 15,481,560 ---------- 15,638,766 ---------- Total U.S. Government Agency Obligations (cost - $30,577,682) .... 31,193,855 ---------- U.S. GOVERNMENT OBLIGATIONS - 18.93% U.S. TREASURIES - 18.93% 11,985 Notes (cost - $12,447,304) ....................................... 3.250 - 5.875 11/15/04 - 02/15/11 13,090,507 ---------- Total Long-Term Debt Investments (cost - $61,891,084) ............ 63,424,143 ---------- SHARES ------ SHORT-TERM INVESTMENTS -- 13.90% INVESTMENT COMPANIES - 1.32% 108 Federated Automated Government Money Trust** ......................... 1.260 -- 108 914,078 Federated Investors, Trust for Short-Term U.S. Government Securities** 1.450 -- 914,078 ---------- 914,186 ----------
The accompanying notes are an integral part of the financial statements. 7 T H E B E A R S T E A R N S F U N D S Income Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (CONTINUED) U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 12.58% $8,700 Freddie Mac, Discount Notes ..................................... 1.600% 10/01/02 $ 8,700,000 ----------- Total Short-Term Investments (cost - $9,614,186) ................ 9,614,186 ----------- Total Investments -- 105.63% (cost - $71,505,270) ............... 73,038,329 Liabilities in excess of other assets -- (5.63)% ................ (3,892,998) ----------- Net Assets -- 100.00% ........................................... $69,145,331 ===========
- ---------- * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Money market fund; interest rate reflects SEC seven-day yield at September 30, 2002. (1) Domiciled in Luxembourg. The accompanying notes are an integral part of the financial statements. 8 T H E B E A R S T E A R N S F U N D S High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT INVESTMENTS - 92.64% UNITED STATES - 89.79% AEROSPACE & DEFENSE - 0.34% $ 500 TransDigm Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ..... 10.375% 12/01/08 $ 515.000 ------------ AUTOMOTIVE - 1.21% 1,800 Stoneridge, Inc., Unsecured Senior Notes, Company Guaranteed ................ 11.500 05/01/12 1,845,000 ------------ BUILDING/DEVELOPMENT - 6.62% 1,500 Beazer Homes USA, Inc., Unsecured Senior Notes, Company Guaranteed .......... 8.375 04/15/12 1,507,500 2,250 Corrections Corp. of America, Senior Notes* ................................. 9.875 05/01/09 2,337,188 1,500 K. Hovnanian Enterprises, Inc., Unsecured Senior Notes, Company Guaranteed .. 9.125 05/01/09 1,455,000 2,500 Meritage Corp., Unsecured Senior Notes, Company Guaranteed .................. 9.750 06/01/11 2,518,750 2,250 Schuler Homes, Inc., Unsecured Senior Notes, Company Guaranteed ............. 9.000 04/15/08 2,261,250 ------------ 10,079,688 ------------ BUSINESS EQUIPMENT/SERVICES - 1.33% 2,000 Buhrmann U.S., Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 12.250 11/01/09 2,020,000 ------------ CABLE TELEVISION - 1.80% 2,750 EchoStar Broadband Corp., Unsecured Senior Notes ............................ 10.375 10/01/07 2,736,250 ------------ CHEMICALS/PLASTICS - 2.76% 2,250 Huntsman International LLC, Senior Notes* ................................... 9.875 03/01/09 2,261,250 2,000 Lyondell Chemical Co., Secured Senior Notes ................................. 11.125 07/15/12 1,930,000 ------------ 4,191,250 ------------ CLOTHING/TEXTILES - 2.36% 3,250 William Carter Co. (The), Unsecured Senior Subordinated Notes, Series B, Company Guaranteed ............................................. 10.875 08/15/11 3,595,313 ------------ COSMETICS/TOILETRIES - 1.92% 2,750 Armkel, LLC and Armkel Finance, Inc., Senior Subordinated Notes ............. 9.500 08/15/09 2,915,000 ------------ ECOLOGICAL SERVICES/EQUIPMENT - 2.80% 2,000 Allied Waste North America, Inc., Senior Subordinated Notes, Series B, Company Guaranteed ............................................. 8.500 12/01/08 1,910,000 2,050 Stericycle, Inc., Unsecured Senior Subordinated Notes, Series B, Company Guaranteed ............................................. 12.375 11/15/09 2,347,250 ------------ 4,257,250 ------------ ELECTRONIC COMPONENTS - 5.93% 2,000 Amkor Technology, Inc., Unsecured Senior Notes .............................. 9.250 05/01/06 1,390,000 3,500 Fairchild Semiconductor Corp., Unsecured Senior Subordinated Notes .......... 10.500 02/01/09 3,657,500 2,250 Seagate Technology HDD Holdings, Senior Notes* .............................. 8.000 05/15/09 2,103,750 2,250 Solectron Corp., Unsecured Senior Notes ..................................... 9.625 02/15/09 1,867,500 ------------ 9,018,750 ------------
The accompanying notes are an integral part of the financial statements. 9 T H E B E A R S T E A R N S F U N D S High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT INVESTMENTS (CONTINUED) EQUIPMENT LEASING - 1.24% $ 2,250 United Rentals, Inc., Unsecured Senior Subordinated Notes, Series B, Company Guaranteed ............................................. 9.250% 01/15/09 $ 1,878,750 ----------- FOOD PRODUCTS - 1.47% 2,250 American Seafoods Group LLC, Senior Subordinated Notes* ..................... 10.125 04/15/10 2,244,375 ----------- FOOD SERVICES - 5.75% 2,589 Carrols Corp., Unsecured Senior Subordinated Notes, Company Guaranteed ...... 9.500 12/01/08 2,407,770 250 Fleming Cos., Inc., Senior Subordinated Notes* .............................. 9.875 05/01/12 133,750 2,500 Fleming Cos., Inc., Unsecured Senior Notes, Company Guaranteed .............. 10.125 04/01/08 1,962,500 1,500 Friendly Ice Cream Corp., Unsecured Senior Notes, Company Guaranteed ........ 10.500 12/01/07 1,456,875 1,350 Sbarro, Inc., Unsecured Senior Notes, Company Guaranteed .................... 11.000 09/15/09 1,235,250 1,500 YUM! Brands, Inc., Unsecured Senior Notes ................................... 7.700 07/01/12 1,560,000 ----------- 8,756,145 ----------- FOREST PRODUCTS - 2.52% 2,250 Berry Plastics Corp., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 10.750 07/15/12 2,328,750 1,500 Jefferson Smurfit Corp., Senior Notes* ...................................... 8.250 10/01/12 1,500,000 ----------- 3,828,750 ----------- HEALTH CARE - 9.02% 3,250 ALARIS Medical Systems, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ................................... 9.750 12/01/06 3,128,125 2,000 Alliance Imaging, Inc., Unsecured Senior Subordinated Notes ................. 10.375 04/15/11 2,130,000 1,500 Extendicare Health Services, Senior Notes* .................................. 9.500 07/01/10 1,522,500 2,250 MedQuest Inc., Senior Subordinated Notes* ................................... 11.875 08/15/12 2,238,750 2,250 PacifiCare Health Systems, Inc., Unsecured Senior Notes, Company Guaranteed . 10.750 06/01/09 2,233,125 2,500 Vanguard Health Systems, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ................................... 9.750 08/01/11 2,475,000 ----------- 13,727,500 ----------- HOME FURNISHINGS - 2.08% 3,000 Simmons Co., Unsecured Senior Subordinated Notes, Series B .................. 10.250 03/15/09 3,165,000 HOTELS/MOTELS/CASINOS - 10.98% 2,750 Ameristar Casinos, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 10.750 02/15/09 3,031,875 2,250 Boyd Gaming Corp., Unsecured Senior Notes, Company Guaranteed ............... 9.250 08/01/09 2,410,313 2,550 Felcor Lodging L.P., Unsecured Senior Notes, Company Guaranteed ............. 9.500 09/15/08 2,543,625 2,750 HMH Properties Inc., Senior Notes, Series B, Company Guaranteed ............. 7.875 08/01/08 2,585,000 2,750 Mandalay Resort Group, Unsecured Senior Subordinated Notes .................. 9.375 02/15/10 2,901,250
The accompanying notes are an integral part of the financial statements. 10 T H E B E A R S T E A R N S F U N D S High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT INVESTMENTS (CONTINUED) HOTELS/MOTELS/CASINOS (CONTINUED) $ 1,250 Meristar Hospitality Operating Partnership, L.P. and Meristar Hospitality Finance Corp. II, Unsecured Senior Notes, Company Guaranteed ............. 10.500% 06/15/09 $ 1,218,750 2,000 Penn National Gaming, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 8.875 03/15/10 2,020,000 ----------- 16,710,813 ----------- LEISURE - 3.22% 3,250 Bally Total Fitness Holding Corp., Unsecured Senior Subordinated Notes, Series D ................................................................. 9.875 10/15/07 3,002,188 1,850 Intrawest Corp., Senior Notes* .............................................. 10.500 02/01/10 1,896,250 ----------- 4,898,438 ----------- NON-FERROUS METALS - 1.33% 1,900 Compass Minerals Group, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 10.000 08/15/11 2,023,500 ----------- OIL & GAS - 9.04% 2,000 Comstock Resources, Inc., Unsecured Senior Notes, Company Guaranteed ........ 11.250 05/01/07 2,090,000 2,250 Denbury Resources Inc., Unsecured Senior Subordinated Notes, Series B, Company Guaranteed ............................................. 9.000 03/01/08 2,261,250 1,500 Petroleum Helicoptors, Inc., Unsecured Senior Notes, Series B, Company Guaranteed ....................................................... 9.375 05/01/09 1,556,250 2,750 SESI, L.L.C., Unsecured Senior Notes, Company Guaranteed .................... 8.875 05/15/11 2,784,375 2,750 Swift Energy Co., Unsecured Senior Subordinated Notes ....................... 10.250 08/01/09 2,763,750 2,250 Vintage Petroleum, Inc., Unsecured Senior Notes ............................. 8.250 05/01/12 2,306,250 ----------- 13,761,875 ----------- RADIO/TELEVISION - 4.04% 1,750 Entravision Communications Corp., Unsecured Senior Subordinated Notes, Company Guaranteed ................................................ 8.125 03/15/09 1,793,750 2,250 LBI Media, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed* ... 10.125 07/15/12 2,297,813 2,000 LIN Television Corp., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 8.375 03/01/08 2,060,000 ----------- 6,151,563 ----------- RETAILERS - 7.13% 2,250 Advance Stores Co., Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 10.250 04/15/08 2,390,625 2,000 Asbury Automotive Group, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 9.000 06/15/12 1,810,000 2,250 Cole National Group, Inc., Unsecured Senior Subordinated Notes .............. 8.875 05/15/12 2,171,250 1,200 CSK Auto Inc., Unsecured Senior Notes, Company Guaranteed ................... 12.000 06/15/06 1,276,500 1,750 Mothers Work, Inc., Unsecured Senior Notes, Company Guaranteed .............. 11.250 08/01/10 1,793,750 1,385 United Auto Group, Inc., Senior Subordinated Notes* ......................... 9.625 03/15/12 1,405,775 ----------- 10,847,900 -----------
The accompanying notes are an integral part of the financial statements. 11 T H E B E A R S T E A R N S F U N D S High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT INVESTMENTS (CONTINUED) STEEL - 0.98% $ 1,500 AK Steel Corp., Senior Notes, Company Guaranteed* ........................... 7.750% 06/15/12 $ 1,492,500 ------------ SURFACE TRANSPORTATION - 0.97% 2,265 Accuride Corp., Unsecured Senior Subordinated Notes, Series B ............... 9.250 02/01/08 1,483,575 ------------ WIRELESS TELECOMMUNICATIONS - 2.95% 1,000 Nextel Communications, Inc., Unsecured Senior Serial Redeemable Notes ....... 9.375 11/15/09 765,000 2,000 SBA Communications Corp., Unsecured Senior Notes ............................ 10.250 02/01/09 1,070,000 1,500 TeleCorp PCS, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ....................................................... 10.625 07/15/10 1,327,500 2,000 Triton PCS, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed ... 8.750 11/15/11 1,330,000 ------------ 4,492,500 ------------ Total United States (cost - $139,238,260)** ................................. 136,636,685 ------------ CANADA - 1.56% CHEMICALS/PLASTICS - 1.56% 2,250 Acetex Corp., Unsecured Senior Notes (cost - $2,248,890) .................... 10.875 08/01/09 2,373,750 ------------ LUXEMBOURG - 0.81% CONGLOMERATES - 0.81% 1,500 Tyco International Group S.A., Unsecured Senior Yankee Notes, Company Guaranteed (cost - $1,313,900) ................................... 6.750 02/15/11 1,239,735 ------------ NORWAY - 0.48% OIL & GAS - 0.48% 1,500 Petroleum Geo-Services ASA, Yankee Notes (cost - $1,402,223) ................ 7.500 03/31/07 727,500 ------------ Total Long-Term Debt Investments (cost - $144,203,273) ...................... 140,977,670 ------------ SHARES ------ EQUITY INVESTMENTS -- 0.18% PREFERRED STOCKS - UNITED STATES - 0.18% CLOTHING/TEXTILES - 0.00% 45 Cluett American Corp., Senior Exchangeable Preferred Stock, Series B (1) .... 12.500 -- 1,350 ------------ WIRELESS TELECOMMUNICATIONS - 0.18% 1,178 Dobson Communications Corp., Senior Exchangeable Preferred Stock (1) ........ 12.250 - 13.000 -- 269,147 ------------ Total Equity Investments (cost - $1,150,330) ................................ 270,497 ------------
12 T H E B E A R S T E A R N S F U N D S High Yield Total Return Portfolio PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2002 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------- INTEREST MATURITY SHARES RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 2.79% INVESTMENT COMPANIES - 2.79% 98 Federated Automated Government Money Trust*** ........................... 1.260% -- $ 98 4,249,351 Federated Investors, Trust for Short-Term U.S. Government Securities*** . 1.450 -- 4,249,350 ------------ Total Short-Term Investments (cost - $4,249,448) ........................ 4,249,448 ------------ Total Investments -- 95.61% (cost - $149,603,051) ....................... 145,497,615 Other assets in excess of liabilities -- 4.39% .......................... 6,680,140 ------------ Net Assets -- 100.00% ................................................... $152,177,755 ============
- --------- * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Included in the cost is $8,750 relating to the Portfolio's investments in 13 warrants of Imperial Credit Industry Corp. (expiring 01/31/08) and 250 warrants of Mpower Holding Corp. (expiring 10/01/04); with no market value, respectively. *** Money market fund; interest rate reflects SEC seven-day yield at September 30, 2002. (1) Payment-in-kind; of which all or a portion of the coupon is being capitalized at periodic intervals. The accompanying notes are an integral part of the financial statements. 13 T H E B E A R S T E A R N S F U N D S STATEMENTS OF ASSETS & LIABILITIES SEPTEMBER 30, 2002 (UNAUDITED)
INCOME HIGH YIELD TOTAL PORTFOLIO RETURN PORTFOLIO ----------- ---------------- ASSETS Investments, at value (cost - $71,505,270 and $149,603,051, respectively) .......... $73,038,329 $145,497,615 Receivable for investments sold .................................................... 1,427,883 3,649,949 Interest and dividends receivable .................................................. 784,408 3,721,328 Receivable for Portfolio shares sold ............................................... 380,617 322,450 Receivable from investment adviser ................................................. 27,843 -- Deferred organization expenses and other assets .................................... 29,560 35,651 ----------- ------------ Total assets .................................................................. 75,688,640 153,226,993 ----------- ------------ LIABILITIES Payable for investments purchased .................................................. 6,088,905 -- Payable for Portfolio shares repurchased ........................................... 215,857 374,258 Dividends payable .................................................................. 52,742 286,073 Distribution and service fees payable (Class A, B, and C shares) ................... 74,782 227,324 Advisory fee payable ............................................................... -- 21,624 Administration fee payable ......................................................... 7,990 19,721 Custodian fee payable .............................................................. 3,523 4,449 Accrued expenses ................................................................... 99,510 115,789 ----------- ------------ Total liabilities ............................................................. 6,543,309 1,049,238 ----------- ------------ NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) 5,591 19,674 Paid-in capital .................................................................... 67,687,933 204,152,230 Undistributed net investment income/(loss) ......................................... (45,298) 35,079 Accumulated net realized loss from investments ..................................... (35,954) (47,923,792) Net unrealized appreciation/(depreciation) on investments .......................... 1,533,059 (4,105,436) ----------- ------------ Net assets .................................................................... $69,145,331 $152,177,755 ----------- ------------ CLASS A Net assets ......................................................................... $19,461,257 $ 65,808,303 ----------- ------------ Shares of beneficial interest outstanding .......................................... 1,573,093 8,510,230 ----------- ------------ Net asset value per share .......................................................... $12.37 $7.73 ====== ===== Maximum offering price per share (net asset value plus sales charge of 4.50%* of the offering price) .................................................... $12.95 $8.09 ====== ===== CLASS B Net assets ......................................................................... $17,966,008 $ 32,691,622 ----------- ------------ Shares of beneficial interest outstanding .......................................... 1,452,573 4,224,843 ----------- ------------ Net asset value and offering price per share** ..................................... $12.37 $7.74 ====== ===== CLASS C Net assets ......................................................................... $10,650,797 $ 33,403,570 ----------- ------------ Shares of beneficial interest outstanding .......................................... 861,186 4,318,154 ----------- ------------ Net asset value and offering price per share** ..................................... $12.37 $7.74 ====== ===== CLASS Y Net assets ......................................................................... $21,067,269 $ 20,274,260 ----------- ------------ Shares of beneficial interest outstanding .......................................... 1,703,679 2,621,144 ----------- ------------ Net asset value, offering and redemption price per share ........................... $12.37 $7.73 ====== =====
- -------------- * 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. 14 T H E B E A R S T E A R N S F U N D S STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
INCOME HIGH YIELD TOTAL PORTFOLIO RETURN PORTFOLIO ----------- ---------------- INVESTMENT INCOME Interest ........................................................................... $1,167,934 $ 7,265,762 Dividends .......................................................................... 3,231 89,174 ---------- ------------ 1,171,165 7,354,936 ---------- ------------ EXPENSES Advisory fees ...................................................................... 110,213 470,651 Administration fees ................................................................ 36,738 118,204 Distribution and service fees - Class A ............................................ 22,240 124,371 Distribution and service fees - Class B ............................................ 57,415 166,676 Distribution and service fees - Class C ............................................ 38,144 161,035 Transfer agent fees and expenses ................................................... 74,546 90,853 Accounting fees .................................................................... 25,256 37,531 Legal and auditing fees ............................................................ 28,328 30,332 Federal and state registration fees ................................................ 22,459 24,127 Reports and notices to shareholders ................................................ 7,069 27,825 Custodian fees and expenses ........................................................ 8,367 11,895 Trustees' fees and expenses ........................................................ 5,578 5,265 Insurance expenses ................................................................. 3,431 3,429 Amortization of organization expenses .............................................. -- 6,089 Other .............................................................................. 1,516 2,963 ---------- ------------ Total expenses before waivers and related reimbursements ....................... 441,300 1,281,246 Less: waivers and related reimbursements ....................................... (213,277) (319,879) ---------- ------------ Total expenses after waivers and related reimbursements ........................ 228,023 961,367 ---------- ------------ Net investment income .............................................................. 943,142 6,393,569 ---------- ------------ NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS Net realized gain/(loss) from investments .......................................... 270,860 (6,355,167) Net change in unrealized appreciation/(depreciation) on investments ................ 2,001,405 (5,969,808) ---------- ------------ Net realized and unrealized gain/(loss) on investments ............................. 2,272,265 (12,324,975) ---------- ------------ NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....................... $3,215,407 $ (5,931,406) ========== ============
The accompanying notes are an integral part of the financial statements. 15 T H E B E A R S T E A R N S F U N D S STATEMENTS OF CHANGES IN NET ASSETS
INCOME PORTFOLIO ------------------------------------ FOR THE FOR THE SIX MONTHS ENDED FISCAL YEAR SEPTEMBER 30, 2002 ENDED (unaudited) MARCH 31, 2002 ------------------ -------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income .............................................. $ 943,142 $ 1,458,432 Net realized gain/(loss) from investments .......................... 270,860 243,858 Net change in unrealized appreciation/(depreciation) on investments 2,001,405 (826,015) ----------- ----------- Net increase/(decrease) in net assets resulting from operations .... 3,215,407 876,275 ----------- ----------- DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A shares ................................................... (259,886) (461,744) Class B shares ................................................... (193,831) (282,636) Class C shares ................................................... (131,794) (201,480) Class Y shares ................................................... (382,123) (541,015) ----------- ----------- (967,634) (1,486,875) ----------- ----------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares ............................... 37,986,193 27,437,838 Cost of shares repurchased ......................................... (7,297,110) (17,244,182) Shares issued in reinvestment of dividends ......................... 728,635 1,059,856 ----------- ----------- Net increase in net assets derived from shares of beneficial interest transactions ............................................ 31,417,718 11,253,512 ----------- ----------- Total increase in net assets ....................................... 33,665,491 10,642,912 NET ASSETS Beginning of period ................................................ 35,479,840 24,836,928 ----------- ----------- End of period ...................................................... $69,145,331 $35,479,840 =========== =========== HIGH YIELD TOTAL RETURN PORTFOLIO ------------------------------------- FOR THE FOR THE SIX MONTHS ENDED FISCAL YEAR SEPTEMBER 30, 2002 ENDED (unaudited) MARCH 31, 2002 ------------------ -------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income .............................................. $ 6,393,569 $ 10,597,794 Net realized gain/(loss) from investments .......................... (6,355,167) (6,894,426) Net change in unrealized appreciation/(depreciation) on investment (5,969,808) 1,060,215 ------------ ------------ Net increase/(decrease) in net assets resulting from operations .... (5,931,406) 4,763,583 ------------ ------------ DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A shares ................................................... (2,977,099) (5,984,172) Class B shares ................................................... (1,291,637) (2,283,599) Class C shares ................................................... (1,244,001) (1,887,284) Class Y shares ................................................... (880,832) (466,355) ------------ ------------ (6,393,569) (10,621,410) ------------ ------------ SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares ............................... 44,844,279 70,670,903 Cost of shares repurchased ......................................... (35,506,325) (37,702,374) Shares issued in reinvestment of dividends ......................... 4,044,504 6,224,396 ------------ ------------ Net increase in net assets derived from shares of beneficial interest transactions ............................................ 13,382,458 39,192,925 ------------ ------------ Total increase in net assets ....................................... 1,057,483 33,335,098 NET ASSETS Beginning of period ................................................ 151,120,272 117,785,174 ------------ ------------ End of period ...................................................... $152,177,755* $151,120,272* ============ ============
- --------- * Includes undistributed net investment income of $35,079 and $35,079, respectively. The accompanying notes are an integral part of the financial statements. 16 This page is intentionally left blank. 17 T H E B E A R S T E A R N S F U N D S FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Contained below is per share operating performance data for each class of shares outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
NET NET ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED OF PERIOD INCOME*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS -------- ---------- --------------- ---------- ------------- INCOME PORTFOLIO CLASS A For the six months ended September 30, 2002 (unaudited) ... $11.84 $0.25 $0.53 $(0.25) -- For the fiscal year ended March 31, 2002 .................. 11.99 0.60 (0.15) (0.60) -- For the fiscal year ended March 31, 2001 .................. 11.53 0.73 0.46 (0.73) -- For the fiscal year ended March 31, 2000 .................. 12.15 0.70 (0.62) (0.70) -- For the fiscal year ended March 31, 1999 .................. 12.37 0.74 (0.03) (0.74) $(0.19) For the fiscal year ended March 31, 1998 .................. 12.03 0.76 0.36 (0.76) (0.02) CLASS B For the six months ended September 30, 2002 (unaudited) ... 11.84 0.21 0.53 (0.21) -- For the fiscal year ended March 31, 2002 .................. 11.99 0.52 (0.15) (0.52) -- For the fiscal year ended March 31, 2001 .................. 11.53 0.65 0.46 (0.65) -- For the fiscal year ended March 31, 2000 .................. 12.15 0.63 (0.62) (0.63) -- For the fiscal year ended March 31, 1999 .................. 12.37 0.65 (0.03) (0.65) (0.19) For the period February 2, 1998** through March 31, 1998 .. 12.47 0.10 (0.10) (0.10) -- CLASS C For the six months ended September 30, 2002 (unaudited) ... 11.84 0.21 0.53 (0.21) -- For the fiscal year ended March 31, 2002 .................. 11.99 0.52 (0.15) (0.52) -- For the fiscal year ended March 31, 2001 .................. 11.53 0.65 0.46 (0.65) -- For the fiscal year ended March 31, 2000 .................. 12.15 0.63 (0.62) (0.63) -- For the fiscal year ended March 31, 1999 .................. 12.37 0.65 (0.03) (0.65) (0.19) For the fiscal year ended March 31, 1998 .................. 12.03 0.70 0.36 (0.70) (0.02) CLASS Y For the six months ended September 30, 2002 (unaudited) ... 11.84 0.27 0.53 (0.27) -- For the fiscal year ended March 31, 2002 .................. 11.99 0.64 (0.15) (0.64) -- For the fiscal year ended March 31, 2001 .................. 11.53 0.77 0.46 (0.77) -- For the fiscal year ended March 31, 2000 .................. 12.15 0.74 (0.62) (0.74) -- For the fiscal year ended March 31, 1999 .................. 12.37 0.78 (0.03) (0.78) (0.19) For the fiscal year ended March 31, 1998 .................. 12.03 0.80 0.36 (0.80) (0.02)
- ---------- * Calculated based on average settled shares outstanding during the respective periods, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. ** Commencement of initial public offering. (1) Reflects waivers and related reimbursements. (2) The amounts shown for a share outstanding throughout the respective periods are not in accord with the changes in the aggregate gains and losses on investments during the respective periods because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective periods. 18
NET ASSET VALUE, TOTAL NET ASSETS, RATIO OF END OF INVESTMENT END OF PERIOD EXPENSES TO PERIOD RETURN(3) (000's OMITTED) AVERAGE NET ASSETS(1) ------ ---------- --------------- --------------------- INCOME PORTFOLIO CLASS A For the six months ended September 30, 2002 (unaudited) .. $12.37 6.67% $19,461 0.80%(5) For the fiscal year ended March 31, 2002 ................. 11.84 3.86 9,757 0.80 For the fiscal year ended March 31, 2001 ................. 11.99 10.68 8,316 0.80 For the fiscal year ended March 31, 2000 ................. 11.53 0.77 5,071 0.80 For the fiscal year ended March 31, 1999 ................. 12.15 5.77 4,775 0.80 For the fiscal year ended March 31, 1998 ................. 12.37 9.43 2,926 0.80 CLASS B For the six months ended September 30, 2002 (unaudited) .. 12.37 6.33 17,966 1.45(5) For the fiscal year ended March 31, 2002 ................. 11.84 3.19 6,773 1.45 For the fiscal year ended March 31, 2001 ................. 11.99 9.96 4,861 1.45 For the fiscal year ended March 31, 2000 ................. 11.53 0.12 2,027 1.45 For the fiscal year ended March 31, 1999 ................. 12.15 5.09 1,121 1.45 For the period February 2, 1998** through March 31, 1998 . 12.37 (0.04)(4) 18 1.45(5) CLASS C For the six months ended September 30, 2002 (unaudited) .. 12.37 6.32 10,651 1.45(5) For the fiscal year ended March 31, 2002 ................. 11.84 3.19 6,066 1.45 For the fiscal year ended March 31, 2001 ................. 11.99 9.96 3,339 1.45 For the fiscal year ended March 31, 2000 ................. 11.53 0.12 1,971 1.45 For the fiscal year ended March 31, 1999 ................. 12.15 5.08 2,067 1.45 For the fiscal year ended March 31, 1998 ................. 12.37 8.92 1,403 1.28 CLASS Y For the six months ended September 30, 2002 (unaudited) .. 12.37 6.86 21,067 0.45(5) For the fiscal year ended March 31, 2002 ................. 11.84 4.22 12,884 0.45 For the fiscal year ended March 31, 2001 ................. 11.99 11.07 8,321 0.45 For the fiscal year ended March 31, 2000 ................. 11.53 1.13 4,763 0.45 For the fiscal year ended March 31, 1999 ................. 12.15 6.13 4,406 0.45 For the fiscal year ended March 31, 1998 ................. 12.37 9.81 4,339 0.45 INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET NET INVESTMENT INVESTMENT INCOME RATIOS PORTFOLIO INCOME TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- ------------------------ --------- INCOME PORTFOLIO CLASS A For the six months ended September 30, 2002 (unaudited) .. 4.10%(5) 0.87%(5) 157.66% For the fiscal year ended March 31, 2002 ................. 4.99 1.45 240.84 For the fiscal year ended March 31, 2001 ................. 6.22 2.48 174.46 For the fiscal year ended March 31, 2000 ................. 5.99 3.13 158.47 For the fiscal year ended March 31, 1999 ................. 5.83 2.98 107.21 For the fiscal year ended March 31, 1998 ................. 6.13 1.86 244.78 CLASS B For the six months ended September 30, 2002 (unaudited) .. 3.45(5) 0.87(5) 157.66 For the fiscal year ended March 31, 2002 ................. 4.27 1.45 240.84 For the fiscal year ended March 31, 2001 ................. 5.55 2.48 174.46 For the fiscal year ended March 31, 2000 ................. 5.34 3.13 158.47 For the fiscal year ended March 31, 1999 ................. 5.16 2.81 107.21 For the period February 2, 1998** through March 31, 1998 . 5.22(4)(5) 0.48(4)(5) 244.78 CLASS C For the six months ended September 30, 2002 (unaudited) .. 3.45(5) 0.87(5) 157.66 For the fiscal year ended March 31, 2002 ................. 4.27 1.45 240.84 For the fiscal year ended March 31, 2001 ................. 5.55 2.48 174.46 For the fiscal year ended March 31, 2000 ................. 5.33 3.13 158.47 For the fiscal year ended March 31, 1999 ................. 5.28 3.18 107.21 For the fiscal year ended March 31, 1998 ................. 5.60 1.80 244.78 CLASS C For the six months ended September 30, 2002 (unaudited) .. 4.45(5) 0.87(5) 157.66 For the fiscal year ended March 31, 2002 ................. 5.35 1.45 240.84 For the fiscal year ended March 31, 2001 ................. 6.52 2.48 174.46 For the fiscal year ended March 31, 2000 ................. 6.36 3.13 158.47 For the fiscal year ended March 31, 1999 ................. 6.27 3.23 107.21 For the fiscal year ended March 31, 1998 ................. 6.39 1.78 244.78
- ---------- (3) Total investment return does not consider the effects of sales charges or contingent deferred sales charges.Total investment return is calculated assuming a purchase of shares on the first day and a sale of shares on the last day of each period reported and includes reinvestment of dividends and distributions. Total investment return is not annualized. (4) The total investment return and ratios for a class of shares are not necessarily comparable to those of any other outstanding class of shares, due to the timing differences in the commencement of initial public offerings. (5) Annualized. The accompanying notes are an integral part of the financial statements. 19 T H E B E A R S T E A R N S F U N D S FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Contained below is per share operating performance data for each class of shares outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
NET NET ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED OF PERIOD INCOME*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS -------- ---------- --------------- ---------- ------------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 2002 (unaudited) ... $8.36 $0.34 $(0.63) $(0.34) -- For the fiscal year ended March 31, 2002 .................. 8.74 0.72 (0.38) (0.72) -- For the fiscal year ended March 31, 2001 .................. 9.78 0.94 (1.04) (0.94) -- For the fiscal year ended March 31, 2000 .................. 11.36 1.08 (1.58) (1.08) -- For the fiscal year ended March 31, 1999 .................. 12.73 1.11 (1.32) (1.11) $(0.05) For the period January 2, 1998** through March 31, 1998 ... 12.00 0.26 0.73 (0.26) CLASS B For the six months ended September 30, 2002 (unaudited) ... 8.36 0.31 (0.62) (0.31) -- For the fiscal year ended March 31, 2002 .................. 8.74 0.67 (0.38) (0.67) -- For the fiscal year ended March 31, 2001 .................. 9.78 0.88 (1.04) (0.88) -- For the fiscal year ended March 31, 2000 .................. 11.36 1.01 (1.58) (1.01) -- For the fiscal year ended March 31, 1999 .................. 12.73 1.04 (1.32) (1.04) (0.05) For the period January 2, 1998** through March 31, 1998 ... 12.00 0.24 0.73 (0.24) -- CLASS C For the six months ended September 30, 2002 (unaudited) ... 8.36 0.31 (0.62) (0.31) -- For the fiscal year ended March 31, 2002 .................. 8.74 0.67 (0.38) (0.67) -- For the fiscal year ended March 31, 2001 .................. 9.78 0.88 (1.04) (0.88) -- For the fiscal year ended March 31, 2000 .................. 11.36 1.01 (1.58) (1.01) -- For the fiscal year ended March 31, 1999 .................. 12.73 1.04 (1.32) (1.04) (0.05) For the period January 2, 1998** through March 31, 1998 ... 12.00 0.24 0.73 (0.24) CLASS Y For the six months ended September 30, 2002 (unaudited) ... 8.36 0.35 (0.63) (0.35) -- For the period July 11, 2001*** through March 31, 2002 .... 8.46 0.53 (0.10) (0.53) --
- ---------- * Calculated based on average settled shares outstanding during the respective periods, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. ** Commencement of investment operations. *** Commencement of initial public offering. (1) Reflects waivers and related reimbursements. (2) The amounts shown for a share outstanding throughout the respective periods are not in accord with the changes in the aggregate gains and losses on investments during the respective periods because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective periods. The accompanying notes are an integral part of the financial statements. 20
NET ASSET VALUE, TOTAL NET ASSETS, RATIO OF END OF INVESTMENT END OF PERIOD EXPENSES TO PERIOD RETURN(3) (000's OMITTED) AVERAGE NET ASSETS(1) ------ ---------- --------------- --------------------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 2002 (unaudited) .. $7.73 (3.55)% $65,808 1.00%(5) For the fiscal year ended March 31, 2002 ................. 8.36 4.16 72,491 1.00 For the fiscal year ended March 31, 2001 ................. 8.74 (1.07) 69,132 1.00 For the fiscal year ended March 31, 2000 ................. 9.78 (4.68) 44,991 1.00 For the fiscal year ended March 31, 1999 ................. 11.36 (1.57) 55,367 1.00 For the period January 2, 1998** through March 31, 1998 .. 12.73 8.30 18,301 1.00(5) CLASS B For the six months ended September 30, 2002 (unaudited) .. 7.74 (3.73) 32,692 1.65(5) For the fiscal year ended March 31, 2002 ................. 8.36 3.49 32,233 1.65 For the fiscal year ended March 31, 2001 ................. 8.74 (1.71) 26,336 1.65 For the fiscal year ended March 31, 2000 ................. 9.78 (5.29) 23,520 1.65 For the fiscal year ended March 31, 1999 ................. 11.36 (2.21) 23,395 1.65 For the period January 2, 1998** through March 31, 1998 .. 12.73 8.13 6,013 1.65(5) CLASS C For the six months ended September 30, 2002 (unaudited) .. 7.74 (3.74) 33,404 1.65(5) For the fiscal year ended March 31, 2002 ................. 8.36 3.49 29,535 1.65 For the fiscal year ended March 31, 2001 ................. 8.74 (1.71) 22,317 1.65 For the fiscal year ended March 31, 2000 ................. 9.78 (5.29) 18,707 1.65 For the fiscal year ended March 31, 1999 ................. 11.36 (2.21) 26,064 1.65 For the period January 2, 1998** through March 31, 1998 .. 12.73 8.13 11,298 1.65(5) CLASS Y For the six months ended September 30, 2002 (unaudited) .. 7.73 (3.37) 20,274 0.65(5) For the period July 11, 2001*** through March 31, 2002 .. 8.36 4.99(4) 16,862 0.65(5) INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET NET INVESTMENT INVESTMENT INCOME RATIOS PORTFOLIO INCOME TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- ------------------------ --------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 2002 (unaudited) .. 8.40%(5) 0.41%(5) 51.63% For the fiscal year ended March 31, 2002 ................. 8.51 0.49 212.94 For the fiscal year ended March 31, 2001 ................. 10.03 0.64 122.83 For the fiscal year ended March 31, 2000 ................. 10.14 0.58 70.61 For the fiscal year ended March 31, 1999 ................. 9.37 0.74 101.75 For the period January 2, 1998** through March 31, 1998 .. 9.14(5) 1.67(5) 139.61 CLASS B For the six months ended September 30, 2002 (unaudited) .. 7.75(5) 0.41(5) 51.63 For the fiscal year ended March 31, 2002 ................. 7.86 0.49 212.94 For the fiscal year ended March 31, 2001 ................. 9.45 0.64 122.83 For the fiscal year ended March 31, 2000 ................. 9.49 0.59 70.61 For the fiscal year ended March 31, 1999 ................. 8.76 0.73 101.75 For the period January 2, 1998** through March 31, 1998 .. 8.46(5) 1.68(5) 139.61 CLASS C For the six months ended September 30, 2002 (unaudited) .. 7.75(5) 0.41(5) 51.63 For the fiscal year ended March 31, 2002 ................. 7.84 0.49 212.94 For the fiscal year ended March 31, 2001 ................. 9.45 0.64 122.83 For the fiscal year ended March 31, 2000 ................. 9.49 0.59 70.61 For the fiscal year ended March 31, 1999 ................. 8.73 0.73 101.75 For the period January 2, 1998** through March 31, 1998 .. 8.46(5) 1.67(5) 139.61 CLASS Y For the six months ended September 30, 2002 (unaudited) .. 8.75(5) 0.41(5) 51.63 For the period July 11, 2001*** through March 31, 2002 .. 8.67(4)(5) 0.49(4)(5) 212.94
- ---------- (3) Total investment return does not consider the effects of sales charges or contingent deferred sales charges. Total investment return is calculated assuming a purchase of shares on the first day and a sale of shares on the last day of each period reported and includes reinvestment of dividends and distributions. Total investment return is not annualized. (4) The total investment return and ratios for a class of shares are not necessarily comparable to those of any other outstanding class of shares, due to the timing differences in the commencement of initial public offerings. (5) Annualized. 21 T H E B E A R S T E A R N S F U N D S Income Portfolio High Yield Total Return Portfolio NOTES TO FINANCIAL STATEMENTS--(UNAUDITED) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business trust on September 29, 1994, and is registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end management investment company. The Fund currently consists of ten separate portfolios: six diversified portfolios, Prime Money Market Portfolio, Intrinsic Value Portfolio (formerly, Large Cap Value Portfolio), Small Cap Value Portfolio, International Equity Portfolio, High Yield Total Return Portfolio ("High Yield Portfolio") and Income Portfolio, and four non-diversified portfolios, The Insiders Select Fund, Alpha Growth Portfolio (formerly, Focus List Portfolio), S&P STARS Portfolio and S&P STARS Opportunities Portfolio. As of the date hereof, the Income Portfolio and High Yield Portfolio (each a "Portfolio" and collectively, the "Portfolios") offer four classes of shares, which have been designated as Class A, B, C and Y shares. Each Portfolio is treated as a separate entity for certain matters under the Investment Company Act, and for other purposes, and a shareholder of one Portfolio is not deemed to be a shareholder of any other Portfolio. At the quarterly Board of Trustees meeting held on May 6, 2002, the Trustees of the Emerging Markets Debt Portfolio approved the liquidation and termination of the portfolio pursuant to a Plan of Liquidation and Termination. As a result, the portfolio was liquidated and substantially all of its assets were distributed to shareholders on July 1, 2002. MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. PORTFOLIO VALUATION--Each Portfolio calculates the net asset value of and completes orders to purchase or repurchase its shares of beneficial interest as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally 4:00 p.m. Eastern time) on each day that the Exchange is open for trading. Substantially all fixed-income securities (including short-term investments that are not valued using the amortized cost method) are valued each business day as of the close of regular trading on the Exchange by one or more independent pricing services (the "Pricing Services") approved by the Fund's Board of Trustees. When quoted bid prices are readily available, the Pricing Services generally value fixed-income securities at the mean of the bid and asked prices, provided that the Pricing Services believe those prices to reflect the fair market value of the securities. Other investments valued by the Pricing Services are carried at fair value as determined by the Pricing Services, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Pricing Services may take other factors into consideration in pricing securities, including institutional size transactions in similar groups of securities as well as developments related to specific securities. Securities that are not valued by a Pricing Service are valued at the average of the most recent bid and asked prices in the market in which such securities are primarily traded, or at the last sales price for securities traded primarily on an exchange or a national securities market. In the absence of reported sales of securities traded primarily on an exchange or a national securities market, the average of the most recent bid and asked prices are used. Bid price is used when no asked price is available. Equity securities, including written covered call options, are valued each business day at the last sale price as of the close of regular trading on the Exchange by one or more Pricing Services. 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. 22 Other assets and securities for which no quotations are readily available or which are restricted as to sale (or resale) are valued by such methods as the Fund's Board of Trustees deems in good faith to reflect the fair value. Restricted securities, as well as securities or other assets for which market quotations are not readily available, or are not valued by a Pricing Service approved by the Fund's Board of Trustees, are valued at fair value as determined in good faith by Bear Stearns Asset Management Inc.'s ("BSAM" or the "Adviser") Valuation Committee, pursuant to procedures approved by the Fund's Board of Trustees. The Board reviews the methods of valuation quarterly. Short-term investments (those acquired with remaining maturities of 60 days or less) are valued at cost, plus or minus any amortized discount or premium, which approximates market value. Expenses and fees, including the respective investment advisory, administration and distribution and service fees, are accrued daily and taken into account for the purpose of determining the net asset value of each Portfolio's shares. Because of the differences in operating expenses incurred by each class, the per share net asset value of each class may differ. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are recorded on the trade date (the date on which the order to buy or sell is executed). Realized gains and losses from securities transactions are calculated on the identified cost basis. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date. Discounts and premiums are treated as adjustments to interest income and identified costs of investments over the lives of the respective investments. The Portfolios' net investment income (other than distribution and service fees) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of the settled shares value of each class at the beginning of the day. U.S. FEDERAL TAX STATUS--Each Portfolio intends to distribute substantially all of its taxable income and to comply with the other requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required. In addition, by distributing during each calendar year substantially all of its ordinary income and capital gains, if any, each Portfolio intends not to be subject to a U.S. federal excise tax. At March 31, 2002, the Portfolios had capital loss carryforwards available as a reduction to the extent provided in regulations of any future net capital gains realized before the end of fiscal year 2010. To the extent that the capital loss carryforwards are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders. The Portfolios had the following capital loss carryforwards at March 31, 2002:
GROSS CAPITAL AMOUNTS EXPIRING IN LOSS --------------------------------------------------------- PORTFOLIO CARRYFORWARD 2007 2008 2009 2010 - --------- ------------- -------- ---------- ----------- ----------- Income Portfolio ............. $ 299,200 -- -- $ 299,200 -- High Yield Portfolio ......... 39,553,260 $175,885 $5,403,558 13,786,496 $20,187,321
For U.S. federal income tax purposes, net realized capital losses from investments incurred after October 31, 2001, within the prior fiscal year are deemed to arise on the first day of the current fiscal year. The High Yield Portfolio incurred and elected to defer such losses of $1,811,857. DIVIDENDS AND DISTRIBUTIONS--Each Portfolio declares dividends from net investment income on each day the Exchange is open for business. These dividends are paid usually on or about the twentieth day of each month. Distributions of net realized gains, if any, will be declared and paid at least annually by each Portfolio. Dividends and distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within capital accounts based on their U.S. federal tax-basis treatment; temporary differences do not require reclassification. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES For the six months ended September 30, 2002, BSAM, a wholly-owned subsidiary of The Bear Stearns Companies Inc., served as investment adviser pursuant to an Investment Advisory Agreement with respect to each Portfolio. Under the terms of the 23 Investment Advisory Agreement, the Income Portfolio and High Yield Portfolio have agreed to pay BSAM a monthly fee at an annual rate of 0.45% and 0.60%, respectively, of each Portfolio's average daily net assets. For the six months ended September 30, 2002, Bear Stearns Funds Management Inc. ("BSFM" or the "Administrator") served as administrator to each Portfolio pursuant to an Administration Agreement. BSFM is entitled to receive from each Portfolio a monthly fee equal to an annual rate of 0.15% of each Portfolio's average daily net assets up to $1 billion, 0.12% of the next $1 billion, 0.10% of the next $3 billion and 0.08% of average daily net assets above $5 billion. For the six months ended September 30, 2002, BSAM has undertaken to limit each Portfolio's total operating expenses (exclusive of brokerage commissions, taxes, interest and extraordinary items) to a maximum annual level as a percent of each Portfolio's average daily net assets as follows:
PORTFOLIO CLASS A CLASS B CLASS C CLASS Y - --------- ------- ------- ------- ------- Income Portfolio .................................. 0.80% 1.45% 1.45% 0.45% High Yield Portfolio .............................. 1.00 1.65 1.65 0.65
As necessary, this limitation is effected by waivers by the Adviser of its advisory fees and reimbursements of expenses exceeding the advisory fee. For the six months ended September 30, 2002, the advisory fee waivers and reimbursements of expenses (in order to maintain the expense limitation) were as follows:
PORTFOLIO ADVISORY FEE WAIVERS EXPENSE REIMBURSEMENTS - --------- -------------------- ---------------------- Income Portfolio ................................................. $110,213 $103,064 High Yield Portfolio ............................................. 319,879 --
The Portfolios will not pay BSAM at a later time for any amounts BSAM may waive, nor will the Portfolios reimburse BSAM for any amounts BSAM may assume. Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies Inc. and an affiliate of BSAM, BSFM and Bear, Stearns & Co. Inc. ("Bear Stearns" or the "Distributor"), serves as custodian to each of the Portfolios. DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN The Fund, on behalf of the Portfolios, has entered into a Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act. Under the Distribution Plan, each Portfolio paid Bear Stearns a fee at an annual rate of 0.10% for Class A shares and 0.75% for both Class B and C shares. The Fund, on behalf of the Portfolios, has adopted a Shareholder Servicing Plan whereby each Portfolio paid Bear Stearns fees of up to 0.25% of its Class A, B and C shares. Such fees are based on the average daily net assets in each class of the respective Portfolios and are accrued daily and paid quarterly or at such intervals as the Board of Trustees may determine. The fees paid to Bear Stearns under the Distribution Plan are payable without regard to actual expenses incurred. Bear Stearns uses the distribution fee to pay broker-dealers or other financial institutions whose clients hold each Portfolio's shares and other distribution-related activities. Bear Stearns uses shareholder servicing fees to pay broker-dealers or other financial institutions that provide personal service in connection with the maintenance of shareholder accounts. 24 For the six months ended September 30, 2002, the distribution and shareholder servicing fees paid to Bear Stearns under each Plan were as follows:
PORTFOLIO DISTRIBUTION FEES SHAREHOLDER SERVICING FEES - --------- ----------------- -------------------------- Income Portfolio ..................................................... $ 78,024 $ 39,775 High Yield Portfolio ................................................. 281,319 170,763
In addition, as Distributor of the Portfolios, Bear Stearns collects the sales charges imposed on sales of each Portfolio's Class A shares, and reallows a portion of such charges to dealers through which the sales are made. In addition, Bear Stearns advanced 4.25% and 1.00% in sales commissions on the sale of Class B and C shares, respectively, to dealers at the time of such sales. For the six months ended September 30, 2002, Bear Stearns has advised each Portfolio that it received the amounts noted below in front-end sales charges resulting from sales of Class A shares and contingent deferred sales charges ("CDSC") upon certain redemptions by Class A, B and C shareholders, respectively. The amounts were as follows:
CDSC FRONT-END SALES CHARGES ------------------------------- PORTFOLIO CLASS A CLASS A CLASS B CLASS C - --------- ----------------------- ------- ------- ------- Income Portfolio ....................................... $ 26,654 $1,881 $32,319 $1,704 High Yield Portfolio ................................... 149,342 1,610 80,362 3,031
INVESTMENTS IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at September 30, 2002, were $71,509,171 and $149,687,984 for the Income Portfolio and High Yield Portfolio, respectively. Accordingly, the net unrealized appreciation/(depreciation) on investments for each Portfolio were as follows:
NET GROSS GROSS APPRECIATION/ PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION) - --------- ------------ ------------ ------------- Income Portfolio ...................................................... $1,953,615 $ (424,457) $ 1,529,158 High Yield Portfolio .................................................. 3,121,862 (7,312,231) (4,190,369)
For the six months ended September 30, 2002, aggregate purchases and sales of portfolio securities (excluding short-term investments) for each Portfolio were as follows:
PORTFOLIO PURCHASES SALES - --------- --------- ----- Income Portfolio ........................................................... $98,316,612 $71,041,590 High Yield Portfolio ....................................................... 87,824,172 74,631,057
SHARES OF BENEFICIAL INTEREST Each Portfolio offers Class A, B, C and Y shares. Class A shares are sold with a front-end sales charge of up to 4.50% for each Portfolio. Class B shares are sold with a CDSC of up to 5.00% within six years of purchase. Class C shares are sold with a CDSC of 1.00% within the first year of purchase. There is no sales charge or CDSC on Class Y shares, which are offered primarily to institutional investors. 25 Transactions in shares of beneficial interest for each Portfolio were as follows:
INCOME PORTFOLIO ---------------------------------------------- SALES REPURCHASES REINVESTMENTS ----------- ----------- ------------- CLASS A FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 Shares ............................................................ 998,387 263,959 14,517 Value ............................................................. $12,148,211 $3,207,394 $176,166 FOR THE FISCAL YEAR ENDED MARCH 31, 2002 Shares ............................................................ 794,472 688,148 24,544 Value ............................................................. $ 9,532,988 $8,218,320 $295,102 CLASS B FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 Shares ............................................................ 1,025,833 155,337 9,999 Value ............................................................. $12,396,802 $1,878,177 $121,386 FOR THE FISCAL YEAR ENDED MARCH 31, 2002 Shares ............................................................ 603,678 450,445 13,598 Value ............................................................. $ 7,318,268 $5,427,360 $163,506 CLASS C FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 Shares ............................................................ 433,091 93,723 9,428 Value ............................................................. $ 5,260,071 $1,135,624 $114,217 FOR THE FISCAL YEAR ENDED MARCH 31, 2002 Shares ............................................................ 429,355 209,437 14,073 Value ............................................................. $ 5,167,296 $2,510,222 $169,147 CLASS Y FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 Shares ............................................................ 678,005 88,798 26,142 Value ............................................................. $ 8,181,109 $1,075,915 $316,866 FOR THE FISCAL YEAR ENDED MARCH 31, 2002 Shares ............................................................ 449,139 90,492 35,969 Value ............................................................. $ 5,419,286 $1,088,280 $432,101
HIGH YIELD PORTFOLIO ---------------------------------------------- SALES REPURCHASES REINVESTMENTS ----------- ----------- ------------- CLASS A FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 Shares ............................................................ 2,775,636 3,143,472 205,600 Value ............................................................. $22,385,319 $25,217,181 $ 1,654,616 FOR THE FISCAL YEAR ENDED MARCH 31, 2002 Shares ............................................................ 3,756,865 3,398,078 407,597 Value ............................................................. $32,035,477 $28,817,466 $ 3,446,664 CLASS B FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 Shares ............................................................ 1,073,731 792,799 87,694 Value ............................................................. $ 8,731,863 $ 6,319,794 $ 705,032 FOR THE FISCAL YEAR ENDED MARCH 31, 2002 Shares ............................................................ 1,370,939 669,402 142,929 Value ............................................................. $11,652,781 $ 5,655,996 $ 1,207,816 CLASS C FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 Shares ............................................................ 1,100,770 417,214 101,201 Value ............................................................. $ 8,930,572 $ 3,315,993 $ 813,084 FOR THE FISCAL YEAR ENDED MARCH 31, 2002 Shares ............................................................ 1,174,111 328,871 135,936 Value ............................................................. $ 9,955,418 $ 2,780,854 $ 1,148,557 CLASS Y FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 Shares ............................................................ 578,084 82,726 108,531 Value ............................................................. $ 4,796,525 $ 653,357 $ 871,772 FOR THE PERIOD JULY 11, 2001* THROUGH MARCH 31, 2002 Shares ............................................................ 2,020,342 53,273 50,186 Value ............................................................. $17,027,227 $ 448,058 $ 421,359
- ---------- * Commencement of initial public offering. 26 CREDIT FACILITY The Fund has entered into a demand promissory note arrangement with JPMorgan Chase Bank (the "Bank") to provide an uncommitted credit facility to the Fund (on behalf of each Portfolio). The credit facility bears interest at the greater of: (i) the rate otherwise in effect for such loan plus 2%, or (ii) that rate of interest from time to time announced by the Bank at its principal office as its prime commercial lending rate plus 2%, with such interest to be payable on demand and upon payment in full of such principal. High Yield Portfolio as a fundamental policy is permitted to borrow in an amount up to 331/3% of its total assets. Income Portfolio intends to borrow money only for temporary or emergency (not leveraging) purposes and only in amounts up to 15% of its total assets. Each loan is payable on demand or upon termination of this credit facility or on the last day of the interest period and, in any event, not later than 14 days from the date the loan was advanced. Amounts outstanding under the credit facility during the six months ended September 30, 2002, were as follows:
MAXIMUM LOAN AMOUNT PORTFOLIO AVERAGE LOAN BALANCE OUTSTANDING AVERAGE INTEREST RATE - --------- -------------------- ------------------- --------------------- Income Portfolio .................................. $ 1,477 $ 144,700 1.62% High Yield Portfolio .............................. 39,856 2,351,500 2.25
The Income Portfolio and High Yield Portfolio had no amounts outstanding under the credit facility at September 30, 2002. CONCENTRATION OF RISK -- HIGH YIELD PORTFOLIO Lower-rated debt securities (commonly known as "junk bonds") possess speculative characteristics and are subject to greater market fluctuations and risk of lost income and principal than higher-rated debt securities for a variety of reasons. Also, during an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress which would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals and to obtain additional financing. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of lower-rated debt securities and the High Yield Portfolio's net asset value. 27 The Bear Stearns Funds 383 MADISON AVENUE, NEW YORK, NY 10179 1.800.766.4111 Michael Minikes Chairman of the Board and Trustee Doni L. Fordyce President and Trustee Peter M. Bren Trustee John S. Levy Trustee M. B. Oglesby, Jr. Trustee Robert E. Richardson Trustee Robert M. Steinberg Trustee Barry Sommers Executive Vice President Stephen A. Bornstein Vice President and Secretary Frank J. Maresca Vice President and Treasurer Vincent L. Pereira Assistant Treasurer INVESTMENT ADVISER TRANSFER AND DIVIDEND Bear Stearns Asset DISBURSEMENT AGENT Management Inc. PFPC Inc. 383 Madison Avenue Bellevue Corporate Center New York, NY 10179 400 Bellevue Parkway Wilmington, DE 19809 ADMINISTRATOR Bear Stearns Funds INDEPENDENT AUDITORS Management Inc. Deloitte & Touche LLP 383 Madison Avenue Two World Financial Center New York, NY 10179 New York, NY 10281 DISTRIBUTOR COUNSEL Bear, Stearns & Co. Inc. Kramer Levin 383 Madison Avenue Naftalis & Frankel LLP New York, NY 10179 919 Third Avenue New York, NY 10022 CUSTODIAN Custodial Trust Company 101 Carnegie Center Princeton, NJ 08540 The financial information included herein is taken from the records of each Portfolio without examination by independent auditors who do not express an opinion thereon. This report is submitted for the general information of the shareholders of each Portfolio. It is not authorized for distribution to prospective investors in each Portfolio unless it is preceded or accompanied by a current prospectus which includes details regarding each Portfolio's objectives, policies, sales commissions and other information. Total investment return is based on historical results and is not intended to indicate future performance. The investment return and principal value of an investment in each Portfolio will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than original cost. -----END PRIVACY-ENHANCED MESSAGE-----