N-CSR 1 a2136573zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-8798 --------------------------------------------- The Bear Stearns Funds ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 383 Madison Ave. New York, NY 10179 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Stephen A. Bornstein, Esq. 383 Madison Ave. New York, NY 10179 ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 212-272-2553 ---------------------------- Date of fiscal year end: March 31, 2004 -------------------------- Date of reporting period: April 1, 2003 through March 31, 2004 -------------------------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. THE BEAR STEARNS FUNDS FIXED INCOME FUNDS - INCOME PORTFOLIO - HIGH YIELD TOTAL RETURN PORTFOLIO ANNUAL REPORT MARCH 31, 2004 [BEAR STEARNS LOGO] BSF-R-016-14 THE BEAR STEARNS FUNDS INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO LETTER TO SHAREHOLDERS April 8, 2004 Dear Shareholders: We are pleased to present the annual report to shareholders of the Income Portfolio and High Yield Total Return Portfolio ("High Yield Portfolio") of The Bear Stearns Funds for the fiscal year ended March 31, 2004. Detailed performance data for each class of shares of each Portfolio can be found in the "Financial Highlights" and in the line graph sections of this report. INCOME PORTFOLIO The Income Portfolio's fiscal year was, by many measures, a favorable one for the fixed income markets, and especially for lower quality corporate bonds. The Federal Reserve kept short-term interest rates at their lowest level in 45 years, and inflation remained muted. Stronger corporate earnings propelled a rising stock market, and improving consumer confidence following the end of the war with Iraq led to a decline in corporate yield spreads over Treasuries. Default rates declined, and corporate credit profiles improved. Throughout the year, the lowest-rated securities experienced the best performance as investors sought yield. Though interest rates began and ended the period at approximately the same level, yields experienced rollercoaster-like volatility during the year. Treasury yields fell to historical lows in the weeks leading up to the first attacks on Iraq, then climbed once it became apparent that full scale hostilities would be short lived. Through the summer months, yields for spread products* increased steadily as the economy began to show signs of improvement. Toward year end, rates declined again, and then remained stable for the rest of the fiscal year. The Income Portfolio outperformed the Lehman Intermediate Government/Credit Index(1) benchmark due to its allocations to investment grade and high yield corporate bonds. Prior to the start of the fiscal year, both sectors had experienced precipitous price declines due to the high premiums placed on risk during the recession. As the fiscal year progressed, however, these securities benefited from the turnaround in the U.S. economy. Companies used improving cash flows to continue to pay off debt. Yield spreads narrowed significantly due to improvements in the outlook for corporate earnings and an increase in demand for higher-yielding securities. The high yield sector, in particular, posted impressive results. By contrast, our investments in the mortgage-backed sector detracted from performance due to high levels of interest rate volatility, and hence, prepayment uncertainty. In response to the rise in prepayment uncertainty, we reduced the Income Portfolio's mortgage-backed exposure throughout the year. In addition, when we did invest in the sector, we focused on structured securities that were not as vulnerable to prepayment risk, such as collateralized mortgage obligations and commercial mortgage-backed securities. At the time of this writing, jobs growth appeared to be the only factor missing from the U.S. economic recovery. But while a lack of job creation is bad news for the economy, it is good news for the bond markets since the Fed will be unlikely to raise interest rates until job growth materializes and is sustained. In the months ahead, we expect interest rates to remain stable as long as inflation and job creation remain subdued. Though it is unlikely to repeat its record returns of last year, we expect the corporate sector to continue to lead the fixed income markets. HIGH YIELD TOTAL RETURN PORTFOLIO** The high yield market posted its second strongest year of performance during the High Yield Portfolio's fiscal year, trailing only 1991. During the year, the market's favorable supply and demand characteristics attracted investors to all levels of the credit spectrum. Default rates crept lower as companies that might otherwise have faced liquidity crunches were able to secure financing. Historically low interest rates meant easy access to capital for even the least creditworthy of issuers. As a result, new supply for the year included a sizeable portion of low-rated credits. 1 Every sector of the high yield market generated positive returns for the fiscal year, with the one exception of textiles. Other sectors that underperformed, albeit with positive returns, included brokerage firms, railroads, and metals. By contrast, several more volatile, lower-quality sectors rebounded strongly. In particular, electric utility issuers posted the strongest returns for the year. Although utilities' fundamental operating concerns did not abate, many companies were able to achieve temporary relief from balance sheet amortization issues by demonstrating their ease of access to capital. The High Yield Portfolio's modest weighting in the sector contributed positively to performance. Other outperforming sectors for the High Yield Portfolio included financial services, cable, and wireless telecommunications. The high yield market's exceptional returns for the year were driven almost entirely by lower-rated credits, as investors showed an increasing willingness to take on risk in exchange for higher yields. Such risk-taking was rewarded, as credits rated Caa and lower outperformed higher-rated credits by a ratio of more than two to one. For the High Yield Portfolio, we stayed true to our conservative investment philosophy, which has helped generate above average performance in prior periods. Our underperformance versus both the Lehman High Yield Index(2) and Lipper High Yield Bond Fund Index(3) was largely due to our underweighted allocation to credits rated Caa and lower. While the High Yield Portfolio's largest allocations were in stable, single-B credits, we made several calculated investments in lower-quality issues. Conversely, our overweighted positions in three defensive sectors -- health care, energy, and gaming -- detracted from performance as these sectors posted solid, yet below benchmark returns. During the year, the flow of funds into the high yield market was strong, including several weeks where inflows exceeded $1 billion. In such an environment, the pace of new issuance was often unable to keep up with demand. With investors scrambling to put cash to work, almost any new issue was welcomed, regardless of the issuing company's credit profile or the structure of the deal. As the year progressed, bonds rated Caa- and lower became an increasingly larger part of new issuance, reaching 18% of total new issuance in the final quarter of the year. Sincerely, /s/ Barry Sommers Barry Sommers President The Bear Stearns Funds ---------- * The term "spread products" refers to fixed income securities that trade at a yield spread over U.S. Treasuries, and typically refers to corporate bonds, asset-backed securities, mortgage-backed securities, and U.S. government agency issues. ** 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. (1) The Lehman Intermediate Government/Credit Index does not take into account the effect of investment management fees, transaction costs and other expenses. You cannot invest directly into an index. (2) The Lehman High Yield Index does not take into account management fees, transactions costs and other expenses. You cannot invest directly into an index. (3) The Lipper High Yield Bond Fund Index does not take into account management fees, transactions costs and other expenses. You cannot invest directly into an index. Bear Stearns Asset Management Inc. has waived a portion of its advisory fee and agreed to reimburse a portion of each Portfolio's operating expenses, as necessary, to maintain the expense limitation as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. Performance results do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. On the accompanying line charts and total return tables found on pages 3 and 4, the returns of each portfolio assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. In addition to historical information, this report contains forward-looking statements, which may concern, among other things, domestic and foreign markets, industry and economic trends and developments and government regulation and their potential impact on each portfolios' investments. These statements are subject to risks and uncertainties and actual trends, developments and regulations in the future and their impact on each portfolio could be materially different from those projected, anticipated or implied. The portfolios have no obligation to update or revise forward-looking statements. 2 INCOME PORTFOLIO [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(5) VS. VARIOUS INDICES
CLASS A SHARES CLASS C SHARES LEHMAN INTERMEDIATE GOVERNMENT/CREDIT INDEX LIPPER A RATED BOND FUND INDEX Apr 5, 95 $ 9,550 $ 10,000 $ 10,000 $ 10,000 Sep 30, 95 $ 10,145 $ 10,602 $ 10,628 $ 10,884 Mar 31, 96 $ 10,365 $ 10,811 $ 10,909 $ 11,114 Sep 30, 96 $ 10,575 $ 11,009 $ 11,173 $ 11,346 Mar 31, 97 $ 10,822 $ 11,244 $ 11,433 $ 11,625 Sep 30, 97 $ 11,572 $ 11,998 $ 12,088 $ 12,500 Mar 31, 98 $ 11,841 $ 12,243 $ 12,539 $ 13,035 Sep 30, 98 $ 12,504 $ 12,887 $ 13,350 $ 13,776 Mar 31, 99 $ 12,525 $ 12,858 $ 13,364 $ 13,692 Sep 30, 99 $ 12,432 $ 12,720 $ 13,433 $ 13,546 Mar 31, 2000 $ 12,623 $ 12,887 $ 13,642 $ 13,812 Sep 30, 2000 $ 13,109 $ 13,340 $ 14,273 $ 14,333 Mar 31, 2001 $ 13,971 $ 14,170 $ 15,302 $ 15,374 Sep 30, 2001 $ 14,593 $ 14,750 $ 16,113 $ 16,040 Mar 31, 2002 $ 14,514 $ 14,619 $ 16,091 $ 16,038 Sep 30, 2002 $ 15,482 $ 15,543 $ 17,418 $ 17,182 Mar 31, 2003 $ 15,973 $ 15,984 $ 17,979 $ 17,721 Sep 30, 2003 $ 16,359 $ 16,308 $ 18,464 $ 18,229 Mar 31, 2004 $ 16,810 $ 16,714 $ 18,933 $ 18,788
Past performance is not predictive of future performance.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ------------------------------------------------- 5-YEAR SINCE INCEPTION ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7) -------- -------------- ----------------- Income Portfolio(2) Class A shares(5) 0.50% 5.08% 5.93% Class B shares(4) (0.49) 5.03 5.16 Class C shares(6) 3.57 5.39 5.88 Class Y shares(3) 5.61 6.40 6.50 Lehman Intermediate Government/Credit Index(1) 5.30 7.22 7.36 Lipper A Rated Bond Fund Index(1) 6.02 6.53 7.26
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Income Portfolio and reflects all portfolio expenses. Investors should note that the Income Portfolio is a professionally managed mutual fund while the indices are unmanaged, do not incur sales charges or expenses and are not available for investment. Performance of the indices corresponds to the performance of Class A and C shares. (2) Bear Stearns Asset Management Inc. waived its advisory fee and agreed to reimburse a portion of the Income Portfolio's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) The returns of Class Y shares (for which September 8, 1995, was the initial public offering date) are higher than Class A, B and C shares due to the fact that there is no sales load, contingent deferred sales charge or 12b-1 fee charged to Class Y shares. (4) Assuming no redemption of shares at the end of the period, the returns of Class B shares (for which February 2, 1998, was the initial public offering date) would have been higher than Class A shares and would have been substantially the same as Class C shares if operations were commenced on the same day. The higher return is due to the fact that there is no initial sales charge on Class B shares. Total returns reflect the applicable contingent deferred sales charge. Without the applicable sales charge, the total returns would have been 4.49%, 5.35% and 5.16%, respectively, for each period shown. (5) Reflects the initial maximum sales charge of 4.50%. Without the applicable sales charge, the total returns would have been 5.24%, 6.05% and 6.48%, respectively, for each period shown. (6) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 4.57%. (7) Inception dates: Class A and C shares commenced on April 5, 1995, Class B shares commenced on February 2, 1998 and Class Y shares commenced on September 8, 1995. 3 HIGH YIELD TOTAL RETURN PORTFOLIO [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A, B AND C SHARES(1)(2)(4)(5) VS. VARIOUS INDICES
CLASS A SHARES CLASS B SHARES CLASS C SHARES LEHMAN HIGH YIELD INDEX LIPPER HIGH YIELD BOND FUND INDEX Jan 2, 98 $ 9,550 $ 10,000 $ 10,000 $ 10,000 $ 10,000 Mar 31, 98 $ 10,338 $ 10,809 $ 10,809 $ 10,336 $ 10,440 Sep 30, 98 $ 9,778 $ 10,188 $ 10,188 $ 9,974 $ 9,688 Mar 31, 99 $ 10,176 $ 10,568 $ 10,568 $ 10,375 $ 10,312 Sep 30, 99 $ 9,929 $ 10,275 $ 10,275 $ 10,263 $ 10,196 Mar 31, 2000 $ 9,702 $ 10,006 $ 10,006 $ 10,187 $ 10,311 Sep 30, 2000 $ 9,613 $ 9,885 $ 9,885 $ 10,362 $ 10,189 Mar 31, 2001 $ 9,596 $ 9,834 $ 9,834 $ 10,443 $ 9,776 Sep 30, 2001 $ 9,242 $ 9,439 $ 9,439 $ 9,773 $ 8,888 Mar 31, 2002 $ 9,999 $ 10,179 $ 10,179 $ 10,511 $ 9,394 Sep 30, 2002 $ 9,643 $ 9,798 $ 9,797 $ 9,548 $ 8,604 Mar 31, 2003 $ 10,517 $ 10,652 $ 10,639 $ 10,968 $ 9,693 Sep 30, 2003 $ 11,568 $ 11,662 $ 11,650 $ 12,411 $ 10,884 Mar 31, 2004 $ 12,264 $ 12,340 $ 12,328 $ 13,453 $ 11,752
Past performance is not predictive of future performance.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ------------------------------------------------- 5-YEAR SINCE INCEPTION ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7) -------- -------------- ----------------- High Yield Total Return Portfolio(2) Class A shares(4) 11.39% 2.82% 3.30% Class B shares(5) 10.85 2.86 3.42 Class C shares(6) 14.88 3.11 3.40 Class Y shares(3) 17.01 N/A 10.07 Lehman High Yield Index(1) 22.66 5.33 4.85 Lipper High Yield Bond Fund Index(1) 21.25 2.65 2.62
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the High Yield Portfolio and reflects all portfolio expenses. Investors should note that the High Yield Portfolio is a professionally managed mutual fund while the indices are unmanaged, do not incur sales charges or expenses and are not available for investment. Performance of the indices corresponds to the performance of Class A, B and C shares. (2) Bear Stearns Asset Management Inc. waived a portion of its advisory fee and agreed to reimburse a portion of the High Yield Portfolio's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) The returns of Class Y shares (for which July 11, 2001 was the initial public offering date) are higher than Class A, B and C shares due to the fact that there is no sales load, contingent deferred sales charge or 12b-1 fee charged to Class Y shares. (4) Reflects the initial maximum sales charge of 4.50%. Without the applicable sales charge, the total returns would have been 16.62%, 3.78% and 4.07%, respectively, for each period shown. (5) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total returns would have been 15.85%, 3.14% and 3.42%, respectively, for each period shown. (6) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 15.88%. (7) Inception dates: Class A, B and C shares commenced on January 2, 1998 and Class Y shares commenced on July 11, 2001. 4 INCOME PORTFOLIO MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY/SECTOR WEIGHTINGS
PERCENT OF RANK INDUSTRY/SECTOR NET ASSETS ---- -------------------------------------------------------------------------------------- ---------- 1. Asset-Backed Securities 20.26 2. Bank Holding Companies 6.88 3. U.S. Government Agency Obligations 6.87 4. Mortgage-Backed Securities - Structured 6.07 5. Personal Credit Institutions 4.65 6. Mortgage-Backed Securities - Pass-Through 4.37 7. Motor Vehicles & Car Bodies 3.51 8. Telephone Communications 3.49 9. Electric & Other Services Combined 3.07 10. Finance Services 2.90
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY/SECTOR NET ASSETS ---- ------------------------------------------- ------------------------------------- ---------- 1. Fannie Mae Mortgage-Backed Securities 4.12 2. Fannie Mae U.S. Government Agency Obligations 3.68 3. Federal Home Loan Bank U.S. Government Agency Obligations 3.19 4. AmeriCredit Automobile Receivables Trust Asset-Backed Securities 2.89 5. Residential Asset Mortgage Products, Inc. Asset-Backed Securities 2.39 6. Tyco International Group S.A. Conglomerates 2.13 7. Block Mortgage Finance Inc. Asset-Backed Securities 1.93 8. Capital One Bank Personal Credit Institutions 1.78 9. Wal-Mart Stores, Inc. General Merchandise Stores 1.68 10. CIT Group Home Equity Loan Trust Asset-Backed Securities 1.65
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell the securities mentioned. The portfolio is actively managed, therefore holdings may not be current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 5 HIGH YIELD TOTAL RETURN PORTFOLIO MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS
PERCENT OF RANK INDUSTRY NET ASSETS ---- --------------------------------------------------------------------------------------------- ---------- 1. Publishing 8.44 2. Health Care 8.06 3. Oil & Gas 6.97 4. Hotels/Motels/Casinos 5.73 5. Aerospace & Defense 5.64 6. Leisure 4.94 7. Chemicals/Plastics 4.88 8. Electronic Components 4.79 9. Surface Transportation 4.47 10. Building/Development 4.04
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- ---------------------------------------------------------------- ------------------------ ---------- 1. Universal City Development Partners, Ltd. and UCDP Finance, Inc. Leisure 1.80 2. American Seafoods Group LLC and American Seafoods, Inc. Food Products 1.77 3. Case New Holland Inc. Farming/Agriculture 1.75 4. R.H. Donnelley Finance Corp. I Publishing 1.69 5. Sanmina-SCI Corp. Electronic Components 1.67 6. IMC Global Inc. Farming/Agriculture 1.61 7. Dex Media East LLC and Dex Media East Finance Co. Publishing 1.56 8. SESI, L.L.C. Oil & Gas 1.54 9. Dynegy Holdings Inc. Oil & Gas 1.54 10. Mothers Work, Inc. Retailers 1.52
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell the securities mentioned. The portfolio is actively managed, therefore holdings may not be current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 6 INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 2004
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 97.90% ASSET-BACKED SECURITIES - 20.26% $ 1,298 AmeriCredit Automobile Receivables Trust, Series 2002-EM, Class A3A 2.970% 03/06/07 $ 1,314,539 300 AmeriCredit Automobile Receivables Trust, Series 2003-AM, Class A3A 2.370 06/06/07 302,225 1,050 Block Mortgage Finance Inc., Series 1999-1, Class A4 6.600 02/25/30 1,080,361 350 Capital One Auto Finance Trust, Series 2003-B, Class A4 3.180 09/15/10 357,157 900 CIT Group Home Equity Loan Trust, Series 2002-1, Class AF4 5.970 03/25/29 922,359 490 Delta Funding Home Equity Loan Trust, Series 2000-2, Class A6F 7.970 08/15/30 509,354 159 Fannie Mae, Whole Loan, Series 2002-W2, Class AF3 5.127 02/25/30 159,533 675 Greenwich Capital Commercial Funding Corp., Series 2003-C2, Class A2 4.022 01/05/36 694,149 475 GS Auto Loan Trust, Series 2004-1, Class A4 2.650 05/16/11 478,091 573 Mitsubishi Motors Credit of America, Inc., Automobile Trust, Series 2002-2, Class A3 3.670 07/17/06 577,102 875 Navistar International Corp., Owner Trust, Series 2003-A, Class A4 2.240 11/15/09 876,294 750 Onyx Acceptance Auto Trust, Series 2003-D, Class A4 3.200 03/15/10 767,125 750 Residential Asset Mortgage Products, Inc., Series 2003-RS5, Class AI2 2.130 06/25/24 752,052 575 Residential Asset Mortgage Products, Inc., Series 2003-RZ5, Class A2 3.180 03/25/27 586,282 675 Triad Auto Receivables Owner Trust, Series 2002-A, Class A4 3.240 08/12/09 692,765 500 WFS Financial Owner Trust, Series 2004-1, Class A4 2.810 08/22/11 504,543 750 Whole Auto Loan Trust, Series 2003-1, Class A3A 1.840 10/15/06 753,723 --------------- Total Asset-Backed Securities (cost - $11,297,448) 11,327,654 --------------- CORPORATE OBLIGATIONS - 60.33% ALUMINUM FOUNDRIES - 0.30% 170 Newell Rubbermaid Inc., Notes 4.000 05/01/10 169,308 --------------- BANK HOLDING COMPANIES - 6.88% 670 Bank of America Corp., Unsecured Senior Notes 5.875 02/15/09 748,430 800 Bank One Corp., Notes 6.000 08/01/08 894,748 400 J.P. Morgan Chase & Co., Senior Notes 4.000 02/01/08 415,994 500 MBNA Corp., Notes 4.625 09/15/08 523,063 750 SunTrust Banks, Inc., Unsecured Senior Notes 6.250 06/01/08 842,656 350 Washington Mutual Capital I, Subordinated Capital Income Securities, Company Guaranteed 8.375 06/01/27 420,919 --------------- 3,845,810 --------------- BOTTLED & CANNED SOFT DRINKS - 1.62% 800 Coca-Cola Enterprises, Inc., Unsecured Unsubordinated Notes 6.125 08/15/11 907,622 --------------- BUILDING/DEVELOPMENT - 0.59% 300 K. Hovnanian Enterprises, Inc., Senior Subordinated Notes, Company Guaranteed 7.750 05/15/13 328,500 ---------------
The accompanying notes are an integral part of the financial statements. 7
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) CABLE TELEVISION - 1.54% $ 375 Comcast Corp., Unsecured Senior Notes, Company Guaranteed 5.850% 01/15/10 $ 409,094 155 Cox Communications, Inc., Unsecured Notes 3.875 10/01/08 157,363 300 Rogers Cable Inc., Secured Notes* 5.500 03/15/14 292,875 --------------- 859,332 --------------- CIGARETTES - 0.39% 200 Altria Group, Inc., Notes 7.000 11/04/13 220,798 --------------- CONGLOMERATES - 2.13% 455 Tyco International Group S.A., Unsecured Senior Yankee Bonds, Company Guaranteed (1) 6.750 02/15/11 507,383 625 Tyco International Group S.A., Unsecured Yankee Bonds, Company Guaranteed (1) 6.125 11/01/08 680,653 --------------- 1,188,036 --------------- CONTAINERS - METAL/GLASS - 0.59% 300 Owens-Brockway Glass Container Inc., Secured Senior Notes 8.750 11/15/12 327,750 --------------- CRUDE PETROLEUM & NATURAL GAS - 1.41% 700 BP Amoco plc, Notes 5.900 04/15/09 789,374 --------------- DRILLING OIL & GAS WELLS - 0.93% 455 Transocean Inc., Unsecured Notes 6.625 04/15/11 520,991 --------------- ELECTRIC & ELECTRONIC EQUIPMENT - 0.66% 350 General Electric Co., Notes 5.000 02/01/13 367,131 --------------- ELECTRIC & OTHER SERVICES COMBINED - 3.07% 700 National Rural Utilities Cooperative Finance Corp., Collateral Trust Notes 4.375 10/01/10 724,786 175 Pacific Gas & Electric Co., 1st Mortgage 4.200 03/01/11 175,536 800 Peco Energy Co., 1st Mortgage 3.500 05/01/08 816,724 --------------- 1,717,046 --------------- ELECTRIC SERVICES - 0.79% 400 AES Corp. (The), Senior Secured Notes* 9.000 05/15/15 443,500 --------------- ELECTRONIC COMPONENTS - 1.53% 400 Amkor Technology, Inc., Unsecured Senior Notes 7.750 05/15/13 410,000 400 Fairchild Semiconductor International, Inc., Unsecured Senior Subordinated Notes 10.500 02/01/09 443,500 --------------- 853,500 --------------- EQUIPMENT LEASING - 0.42% 250 United Rentals N.A. Inc., Senior Subordinated Notes* 7.000 02/15/14 236,250 ---------------
The accompanying notes are an integral part of the financial statements. 8
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) EQUIPMENT RENTAL & LEASING - 1.61% $ 820 International Lease Finance Corp., Notes 5.875% 05/01/13 $ 898,181 --------------- FINANCE SERVICES - 2.90% 260 Infinity Property & Casualty, Inc., Notes* 5.500 02/18/14 263,598 800 Prudential Financial, Inc., Medium Term Senior Notes 3.750 05/01/08 819,759 450 Unilever Capital Corp., Notes, Company Guaranteed 7.125 11/01/10 537,291 --------------- 1,620,648 --------------- FIRE, MARINE & CASUALTY INSURANCE - 1.24% 650 Allstate Corp., Unsecured Senior Notes 7.875 05/01/05 694,021 --------------- GAS TRANSMISSION & DISTRIBUTION - 1.44% 750 Consolidated Natural Gas Co., Unsecured Senior Unsubordinated Notes, Series B 5.375 11/01/06 804,893 --------------- GENERAL MEDICAL & SURGICAL HOSPITALS - 0.48% 270 HCA Inc., Notes 5.750 03/15/14 270,285 --------------- GENERAL MERCHANDISE STORES - 1.68% 800 Wal-Mart Stores, Inc., Unsecured Senior Notes 6.875 08/10/09 939,934 --------------- GROCERY STORES - 1.01% 530 Safeway, Inc., Unsecured Senior Notes 5.800 08/15/12 566,771 --------------- MEN'S & BOY'S SHIRTS - 0.47% 250 Phillips-Van Heusen Corp., Senior Notes* 7.250 02/15/11 260,000 --------------- METAL CANS - 0.46% 250 Silgan Holdings Inc., Senior Subordinated Notes 6.750 11/15/13 258,750 --------------- MISCELLANEOUS BUSINESS CREDIT INSTITUTIONS - 1.21% 650 CIT Group, Inc., Senior Notes 4.750 12/15/10 674,857 --------------- MOTION PICTURE & VIDEO PRODUCTION - 1.76% 465 AOL Time Warner, Inc., Notes, Company Guaranteed 6.750 04/15/11 528,061 450 Liberty Media Corp., Notes 3.500 09/25/06 458,562 --------------- 986,623 --------------- MOTOR VEHICLES & CAR BODIES - 3.51% 550 DaimlerChrysler N.A. Holdings, Notes 6.500 11/15/13 595,928 610 Ford Motor Credit Co., Notes 7.250 10/25/11 661,633 650 General Motors Acceptance Corp., Notes 6.875 09/15/11 706,226 --------------- 1,963,784 ---------------
The accompanying notes are an integral part of the financial statements. 9
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) NEWSPAPERS - 0.65% $ 350 MediaNews Group Inc., Senior Subordinated Notes* 6.875% 10/01/13 $ 361,375 ------------ OIL & GAS - 0.48% 250 Swift Energy Co., Unsecured Senior Subordinated Notes 10.250 08/01/09 268,750 ------------ PAPER MILLS - 0.71% 350 International Paper Co., Unsecured Senior Notes 6.750 09/01/11 398,603 ------------ PERSONAL CREDIT INSTITUTIONS - 4.65% 935 Capital One Bank, Notes 4.250 - 5.750 12/01/08 - 09/15/10 992,673 690 General Electric Capital Corp., Medium Term Notes, Series A 6.875 11/15/10 811,091 700 Household Finance Corp., Notes 6.375 11/27/12 793,445 ------------ 2,597,209 ------------ PHARMACEUTICAL PREPARATIONS - 1.55% 825 Wyeth, Notes 5.500 03/15/13 867,490 ------------ PRINTING & PUBLISHING - 0.37% 200 Reader's Digest Association, Inc. (The), Unsecured Senior Notes* 6.500 03/01/11 207,000 ------------ PUBLISHING - 1.34% 400 Dex Media East LLC & Dex Media East Finance Co., Unsecured Senior Notes, Series B, Company Guaranteed 9.875 11/15/09 452,000 250 R.H. Donnelley Finance Corp. I, Unsecured Senior Subordinated Notes, Company Guaranteed* 10.875 12/15/12 299,375 ------------ 751,375 ------------ REAL ESTATE - 1.10% 300 Intrawest Corp., Unsecured Senior Notes, Company Guaranteed (2) 7.500 10/15/13 311,250 300 iStar Financial Inc., Unsecured Senior Notes* 4.875 01/15/09 304,500 ------------ 615,750 ------------ REAL ESTATE INVESTMENT TRUST - 1.09% 600 Duke Realty Corp., Notes 3.350 01/15/08 609,110 ------------ REFRIGERATION & HEATING EQUIPMENT - 0.48% 250 Manitowoc Co., Inc. (The), Unsecured Senior Notes, Company Guaranteed 7.125 11/01/13 267,500 ------------ REFUSE SYSTEMS - 0.79% 400 Allied Waste North America, Inc., Senior Notes 7.875 04/15/13 439,000 ------------ RETAILERS - 0.63% 300 J.C. Penney Co., Inc., Unsecured Notes 8.000 03/01/10 353,250 ------------
The accompanying notes are an integral part of the financial statements. 10
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) SECURITY BROKERS & DEALERS - 0.53% $ 300 Morgan Stanley, Subordinated Notes 4.750% 04/01/14 $ 295,661 ------------ SHIPBUILDING & REPAIRING - 0.44% 250 Ship Finance International Ltd., Unsecured Senior Notes*(3) 8.500 12/15/13 246,250 ------------ SURGICAL & MEDICAL INSTRUMENTS - 0.48% 250 ALARIS Medical, Inc., Senior Subordinated Notes 7.250 07/01/11 265,625 ------------ TELEGRAPH COMMUNICATIONS - 0.93% 500 Level 3 Communications Corp., Senior Subordinated Notes, Company Guaranteed 6.125 07/15/13 518,750 ------------ TELEPHONE COMMUNICATIONS - 3.49% 275 Cingular Wireless LLC, Unsecured Senior Notes 5.625 12/15/06 297,037 350 Sprint Capital Corp., Notes, Company Guaranteed 6.375 05/01/09 390,510 320 TELUS Corp., Notes 8.000 06/01/11 386,125 770 Verizon New York, Inc., Unsecured Senior Debentures, Series A 6.875 04/01/12 877,778 ------------ 1,951,450 ------------ Total Corporate Obligations (cost - $32,521,514) 33,727,846 ------------ MORTGAGE-BACKED SECURITIES - 10.44% PASS-THROUGH - 4.37% 563 Comm 2000-C1, Commercial Mortgage Pass-Through Certificates, Class A1 7.206 08/15/33 613,748 1,458 Fannie Mae, TBA 4.500 - 5.000 02/01/18 - 10/01/18 1,493,838 323 Federal Gold Home Loan Mortgage Corp., Pool #G01477 6.000 12/01/32 335,432 ------------ 2,443,018 ------------ STRUCTURED - 6.07% 800 Fannie Mae, Series 2003-33, Class PB 4.000 02/25/22 807,739 654 JP Morgan Commercial Mortgage Finance Corp., Series 1998-C6, Class A2 6.533 01/15/30 688,237 575 Lehman Large Loan, Series 1997-LL1, Class A3 6.900 03/12/07 638,651 599 Mortgage Capital Funding, Inc., Series 1997-MC1, Class A3 7.288 07/20/27 641,454 547 PNC Mortgage Acceptance Corp., Series 2000-C1, Class A1 7.520 07/15/08 615,113 ------------ 3,391,194 ------------ Total Mortgage-Backed Securities (cost - $5,800,072) 5,834,212 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS - 6.87% FANNIE MAE - 3.68% 1,870 Unsecured Notes 5.250 - 5.375 01/15/09 - 11/15/11 2,056,244 ------------
The accompanying notes are an integral part of the financial statements. 11
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) FEDERAL HOME LOAN BANK - 3.19% $ 1,725 Unsecured Bonds, Series 7Y07 3.500% 11/15/07 $ 1,780,267 --------------- Total U.S. Government Agency Obligations (cost - $3,746,520) 3,836,511 --------------- Total Long-Term Debt Investments (cost - $53,365,554) 54,726,223 --------------- SHARES ------------ SHORT-TERM INVESTMENTS -- 4.59% INVESTMENT COMPANY - 0.12% 67,001 Federated Government Obligations Fund** 0.900 -- 67,001 --------------- PRINCIPAL AMOUNT (000'S) ------------ U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 4.47% $ 2,500 Freddie Mac, Discount Notes (4) 0.990 04/01/04 2,500,000 --------------- Total Short-Term Investments (cost - $2,567,001) 2,567,001 --------------- Total Investments -- 102.49% (cost - $55,932,555) 57,293,224 Liabilities in excess of other assets -- (2.49)% (1,389,787) --------------- Net Assets -- 100.00% $ 55,903,437 ===============
---------- * SEC Rule 144A security. Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities have been determined to be liquid in accordance with procedures adopted by the Fund's Board of Trustees. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. (1) Domiciled in Luxembourg. (2) Domiciled in Canada. (3) Domiciled in Bermuda. (4) All or a portion of which was segregated as collateral for TBA securities. TBA To Be Announced. The accompanying notes are an integral part of the financial statements. 12 HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 2004
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 95.22% UNITED STATES - 85.90% AEROSPACE & DEFENSE - 5.64% $ 1,600 Armor Holdings, Inc., Senior Subordinated Notes 8.250% 08/15/13 $ 1,780,000 1,500 DRS Technologies, Inc., Unsecured Senior Subordinated Notes 6.875 11/01/13 1,567,500 2,000 L-3 Communications Corp., Unsecured Senior Subordinated Notes, Company Guaranteed 6.125 07/15/13 2,075,000 2,500 TD Funding Corp., Senior Subordinated Notes, Company Guaranteed 8.375 07/15/11 2,662,500 2,800 Vought Aircraft Industries, Inc., Senior Notes* 8.000 07/15/11 2,912,000 --------------- 10,997,000 --------------- AUTOMOTIVE - 2.37% 1,000 Collins & Aikman Products Co., Unsecured Senior Subordinated Notes, Company Guaranteed 11.500 04/15/06 987,500 1,875 Stoneridge, Inc., Unsecured Senior Notes, Company Guaranteed 11.500 05/01/12 2,245,312 1,200 Tenneco Automotive Inc., Secured Senior Notes, Series B 10.250 07/15/13 1,386,000 --------------- 4,618,812 --------------- BUILDING/DEVELOPMENT - 2.71% 500 K. Hovnanian Enterprises, Inc., Senior Subordinated Notes, Company Guaranteed 7.750 05/15/13 547,500 1,000 K. Hovnanian Enterprises, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed 8.875 04/01/12 1,135,000 2,000 KB HOME, Senior Subordinated Notes 7.750 02/01/10 2,175,000 1,250 WCI Communities, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed 10.625 02/15/11 1,418,750 --------------- 5,276,250 --------------- BUILDING MANAGEMENT - 0.87% 1,500 CB Richard Ellis Services, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed 11.250 06/15/11 1,702,500 --------------- BUSINESS EQUIPMENT/SERVICES - 1.13% 2,000 Buhrmann US, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed 12.250 11/01/09 2,210,000 --------------- CABLE TELEVISION - 3.65% 2,750 Charter Communications Holdings II, Unsecured Senior Notes* 10.250 09/15/10 2,846,250 2,000 CSC Holdings, Inc., Unsecured Senior Notes, Series B 7.625 04/01/11 2,120,000 2,000 Insight Midwest, L.P. and Insight Capital, Inc., Senior Notes* 10.500 11/01/10 2,160,000 --------------- 7,126,250 ---------------
The accompanying notes are an integral part of the financial statements. 13
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT INVESTMENTS (CONTINUED) CHEMICALS/PLASTICS - 3.47% $ 2,000 Equistar Chemicals, LP and Equistar Funding Corp., Unsecured Senior Notes 10.625% 05/01/11 $ 2,165,000 1,750 Huntsman International LLC, Unsecured Senior Notes, Company Guaranteed 9.875 03/01/09 1,933,750 2,400 Westlake Chemical Corp., Senior Notes, Company Guaranteed 8.750 07/15/11 2,664,000 ------------ 6,762,750 ------------ CLOTHING/TEXTILES - 1.00% 1,663 William Carter Co. (The), Unsecured Senior Subordinated Notes, Series B, Company Guaranteed 10.875 08/15/11 1,941,553 ------------ CONTAINERS - METAL/GLASS - 1.62% 1,000 Owens-Brockway Glass Container Inc., Secured Senior Notes 8.750 11/15/12 1,092,500 2,000 Silgan Holdings Inc., Senior Subordinated Notes 6.750 11/15/13 2,070,000 ------------ 3,162,500 ------------ ELECTRONIC COMPONENTS - 3.66% 1,500 Amkor Technology, Inc., Senior Notes* 7.125 03/15/11 1,507,500 1,950 ON Semiconductor Corp. and Semiconductor Components Industries, LLC, Secured Senior Notes, Company Guaranteed 13.000 05/15/08 2,369,250 2,750 Sanmina-SCI Corp., Secured Senior Notes, Company Guaranteed 10.375 01/15/10 3,258,750 ------------ 7,135,500 ------------ EQUIPMENT LEASING - 0.99% 2,000 United Rentals N.A. Inc., Senior Subordinated Notes* 7.000 - 7.750 11/15/13 - 02/15/14 1,925,000 ------------ FARMING/AGRICULTURE - 3.36% 3,000 Case New Holland Inc., Senior Notes* 9.250 08/01/11 3,405,000 2,500 IMC Global Inc., Senior Notes 10.875 08/01/13 3,143,750 ------------ 6,548,750 ------------ FINANCE SERVICES - 0.98% 1,750 Dollar Financial Group, Inc., Senior Notes, Company Guaranteed 9.750 11/15/11 1,907,500 ------------ FOOD PRODUCTS - 2.75% 2,875 American Seafoods Group LLC and American Seafoods, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed 10.125 04/15/10 3,450,000 1,800 Pinnacle Foods Holding, Senior Subordinated Notes* 8.250 12/01/13 1,921,500 ------------ 5,371,500 ------------ FOOD SERVICES - 1.99% 2,339 Carrols Corp., Unsecured Senior Subordinated Notes, Company Guaranteed 9.500 12/01/08 2,356,542 1,500 Real Mex Restaurants Inc., Secured Senior Notes* 10.000 04/01/10 1,518,750 ------------ 3,875,292 ------------
The accompanying notes are an integral part of the financial statements. 14
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) FOREST PRODUCTS - 0.51% $ 1,000 Cellu Tissue Holdings, Secured Senior Notes* 9.750% 03/15/10 $ 990,000 ------------ HEALTH CARE - 8.06% 1,250 ALARIS Medical, Inc., Senior Subordinated Notes 7.250 07/01/11 1,328,125 1,600 AmeriPath, Inc., Unsecured Senior Notes, Company Guaranteed 10.500 04/01/13 1,640,000 900 AmeriPath, Inc., Unsecured Senior Subordinated Notes* 10.500 04/01/13 922,500 2,250 InSight Health Services Corp., Unsecured Senior Subordinated Notes, Series B, Company Guaranteed 9.875 11/01/11 2,266,875 750 Inverness Medical Innovations, Inc., Senior Subordinated Notes* 8.750 02/15/12 765,000 2,500 Medex, Inc., Senior Subordinated Notes* 8.875 05/15/13 2,731,250 2,500 NDCHealth Corp., Unsecured Senior Subordinated Notes, Company Guaranteed 10.500 12/01/12 2,887,500 1,750 Pharma Intermediate, Senior Discount Notes*(1) 11.500 04/01/14 1,010,625 2,000 Select Medical Corp., Senior Subordinated Notes 7.500 08/01/13 2,165,000 ------------ 15,716,875 ------------ HOMEBUILDERS - 0.67% 1,250 William Lyon Homes, Inc., Senior Notes* 7.500 02/15/14 1,306,250 ------------ HOTELS/MOTELS/CASINOS - 5.73% 2,750 HMH Properties, Inc., Secured Senior Notes, Series B, Company Guaranteed 7.875 08/01/08 2,870,313 1,000 Penn National Gaming, Inc., Senior Subordinated Notes* 6.875 12/01/11 1,020,000 1,500 Poster Financial Group Inc., Secured Notes* 8.750 12/01/11 1,582,500 2,500 Station Casinos, Inc., Senior Subordinated Notes* 6.500 - 6.875 02/01/14 - 03/01/16 2,553,125 1,500 Turning Stone Casino Resort Enterprise, Senior Notes* 9.125 12/15/10 1,631,250 1,250 Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp., Unsecured Second Mortgage Notes 12.000 11/01/10 1,512,500 ------------ 11,169,688 ------------ INDUSTRIAL EQUIPMENT - 1.25% 2,250 SPX Corp., Unsecured Senior Notes 7.500 01/01/13 2,441,250 ------------ LEISURE - 4.94% 1,500 AMC Entertainment Inc., Senior Subordinated Notes* 8.000 03/01/14 1,496,250 1,250 Bally Total Fitness Holding Corp., Unsecured Senior Subordinated Notes, Series D 9.875 10/15/07 1,031,250 1,700 Samsonite Corp., Unsecured Senior Subordinated Notes 10.750 06/15/08 1,780,750 3,000 Universal City Development Partners, Ltd. and UCDP Finance, Inc., Senior Notes 11.750 04/01/10 3,506,250 1,800 Vail Resorts, Inc., Senior Subordinated Notes* 6.750 02/15/14 1,813,500 ------------ 9,628,000 ------------
The accompanying notes are an integral part of the financial statements. 15
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) NON-FERROUS METALS - 2.15% $ 1,900 Compass Minerals Group, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed 10.000% 08/15/11 $ 2,166,000 2,000 Peabody Energy Corp., Senior Notes 5.875 04/15/16 2,025,000 --------------- 4,191,000 --------------- OIL & GAS - 4.79% 2,750 Dynegy Holdings Inc., Secured Notes* 9.875 07/15/10 3,004,375 2,750 SESI, L.L.C., Unsecured Senior Notes, Company Guaranteed 8.875 05/15/11 3,011,250 1,500 Swift Energy Co., Unsecured Senior Subordinated Notes 10.250 08/01/09 1,612,500 1,600 TransMontaigne Inc., Senior Subordinated Notes* 9.125 06/01/10 1,720,000 --------------- 9,348,125 --------------- PUBLISHING - 8.44% 2,700 Dex Media East LLC and Dex Media East Finance Co., Unsecured Senior Notes, Series B, Company Guaranteed 9.875 11/15/09 3,051,000 2,500 Dex Media West LLC and Dex Media West Finance Co., Senior Subordinated Notes* 9.875 08/15/13 2,787,500 2,250 Mail-Well I Corp., Senior Subordinated Notes* 7.875 12/01/13 2,137,500 2,600 MediaNews Group Inc., Senior Subordinated Notes* 6.875 10/01/13 2,684,500 2,500 PRIMEDIA Inc., Senior Notes* 8.000 05/15/13 2,512,500 2,750 R.H. Donnelley Finance Corp. I, Unsecured Senior Subordinated Notes, Company Guaranteed* 10.875 12/15/12 3,293,125 --------------- 16,466,125 --------------- RADIO/TELEVISION - 0.88% 1,500 LBI Media, Inc., Unsecured Senior Subordinated Notes, Company Guaranteed 10.125 07/15/12 1,721,250 --------------- RAIL INDUSTRIES - 0.62% 1,200 Trinity Industries, Inc., Senior Notes* 6.500 03/15/14 1,206,000 --------------- RETAILERS - 3.41% 1,500 Jo-Ann Stores, Inc., Senior Subordinated Notes* 7.500 03/01/12 1,533,750 2,750 Mothers Work, Inc., Unsecured Senior Notes, Company Guaranteed 11.250 08/01/10 2,970,000 500 Phillips-Van Heusen Corp., Senior Notes* 7.250 02/15/11 520,000 1,500 Sonic Automotive, Inc., Unsecured Senior Subordinated Notes, Series B 8.625 08/15/13 1,635,000 --------------- 6,658,750 --------------- STEEL - 1.16% 2,000 Jorgensen, Earle M. Co., Secured Notes 9.750 06/01/12 2,260,000 --------------- SURFACE TRANSPORTATION - 1.20% 2,265 Accuride Corp., Unsecured Senior Subordinated Notes, Series B 9.250 02/01/08 2,349,938 ---------------
The accompanying notes are an integral part of the financial statements. 16
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) UTILITIES - 2.34% $ 2,500 AES Corp. (The), Unsecured Senior Notes 9.500% 06/01/09 $ 2,725,000 2,000 Calpine Corp., Secured Senior Notes* 8.750 07/15/13 1,840,000 --------------- 4,565,000 --------------- WIRELESS TELECOMMUNICATIONS - 3.56% 1,500 Crown Castle International Corp., Senior Notes 7.500 12/01/13 1,481,250 2,000 Nextel Communications, Inc., Unsecured Senior Notes 7.375 08/01/15 2,175,000 1,500 Qwest Communications International Inc., Senior Notes* 7.500 02/15/14 1,421,250 1,600 Qwest Services Corp., Notes* 13.500 12/15/10 1,868,000 --------------- 6,945,500 --------------- Total United States (cost - $157,325,298)** 167,524,908 --------------- BERMUDA - 1.26% SURFACE TRANSPORTATION - 1.26% 2,500 Ship Finance International Ltd., Unsecured Senior Notes* (cost - $2,500,000) 8.500 12/15/13 2,462,500 --------------- CANADA - 2.74% BUILDING/DEVELOPMENT - 1.33% 2,500 Intrawest Corp., Unsecured Senior Notes, Company Guaranteed 7.500 10/15/13 2,593,750 --------------- CHEMICALS/PLASTICS - 1.41% 2,500 Acetex Corp., Unsecured Senior Notes 10.875 08/01/09 2,750,000 --------------- Total Canada (cost - $5,080,418) 5,343,750 --------------- CAYMAN ISLANDS - 1.90% ELECTRONIC COMPONENTS - 1.13% 2,000 Seagate Technology HDD Holdings, Unsecured Senior Notes, Company Guaranteed 8.000 05/15/09 2,195,000 --------------- OIL & GAS - 0.77% 1,500 Gemstone Investors Ltd., Unsecured Senior Notes, Company Guaranteed* 7.710 10/31/04 1,503,750 --------------- Total Cayman Islands (cost - $3,500,000) 3,698,750 --------------- MARSHALL ISLAND - 2.01% SURFACE TRANSPORTATION - 2.01% 2,000 General Maritime Corp., Senior Notes 10.000 03/15/13 2,250,000 1,600 OMI Corp., Unsecured Senior Notes 7.625 12/01/13 1,668,000 --------------- Total Marshall Island (cost - $3,671,364) 3,918,000 ---------------
The accompanying notes are an integral part of the financial statements. 17
PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) NORWAY - 1.41% OIL & GAS - 1.41% $ 2,500 Petroleum Geo-Services ASA, Senior Notes (cost - $2,688,958) 10.000% 11/05/10 $ 2,743,750 --------------- Total Long-Term Debt Investments (cost - $174,766,038) 185,691,658 --------------- SHARES ------------ EQUITY INVESTMENT -- 0.00% PREFERRED STOCK - UNITED STATES - 0.00% CLOTHING/TEXTILES - 0.00% 51 Cluett American Corp., Senior Exchangeable Preferred Stock, Series B (2) (cost - $512) 12.500 -- 1,033 --------------- SHORT-TERM INVESTMENTS -- 7.40% INVESTMENT COMPANY - 0.35% 686,879 Federated Government Obligations Fund*** 0.900 -- 686,879 --------------- PRINCIPAL AMOUNT (000'S) ------------ U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 7.05% $ 13,750 Freddie Mac, Discount Notes 0.990 04/01/04 13,750,000 --------------- Total Short-Term Investments (cost - $14,436,879) 14,436,879 --------------- Total Investments -- 102.62% (cost - $189,203,429) 200,129,570 Securities Lending Collateral (3) -- 1.70% 3,314,600 Liabilities in excess of other assets -- (4.32)% (8,424,478) --------------- Net Assets -- 100.00% $ 195,019,692 ===============
---------- * SEC Rule 144A security. Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities have been determined to be liquid in accordance with procedures adopted by the Fund's Board of Trustees. ** Included in the cost is $8,750 relating to 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 March 31, 2004. (1) Step-up bond; coupon rate is zero until step-up date. Step-up rate is provided. (2) Payment-in-kind; of which all or a portion of the coupon is being capitalized at periodic intervals. (3) Cash collateral invested in various money market mutual funds. The accompanying notes are an integral part of the financial statements. 18 STATEMENTS OF ASSETS & LIABILITIES MARCH 31, 2004
HIGH YIELD INCOME TOTAL RETURN PORTFOLIO PORTFOLIO --------------- --------------- ASSETS Investments, at value (cost - $55,932,555 and $189,203,429, respectively) $ 57,293,224 $ 200,129,570 Interest and dividends receivable 668,180 4,285,216 Collateral received for securities loaned -- 3,314,600 Receivable for investments sold 1,848,375 -- Receivable for Portfolio shares sold 4,682 2,372 Prepaid expenses 17,084 26,474 --------------- --------------- Total assets 59,831,545 207,758,232 --------------- --------------- LIABILITIES Payable for Portfolio shares repurchased 90,523 8,498,178 Payable upon return for securities loaned -- 3,314,600 Payable for investments purchased 1,847,391 -- Loan payable 1,800,000 -- Distribution and service fees payable (Class A, B, and C shares) 68,343 368,349 Dividends payable 52,147 367,855 Advisory fee payable 10,899 76,047 Administration fee payable 7,420 26,555 Custodian fee payable 1,705 2,841 Accrued expenses 49,680 84,115 --------------- --------------- Total liabilities 3,928,108 12,738,540 --------------- --------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) 4,489 22,178 Paid-in capital 54,219,798 220,300,485 Accumulated net investment loss (26,210) -- Accumulated net realized gain/(loss) from investments 344,691 (36,229,112) Net unrealized appreciation on investments 1,360,669 10,926,141 --------------- --------------- Net assets $ 55,903,437 $ 195,019,692 =============== =============== CLASS A Net assets $ 11,207,002 $ 62,543,381 --------------- --------------- Shares of beneficial interest outstanding 899,118 7,112,722 --------------- --------------- Net asset value per share $ 12.46 $ 8.79 =============== =============== Maximum offering price per share (net asset value plus sales charge of 4.50%* of the offering price) $ 13.05 $ 9.20 =============== =============== CLASS B Net assets $ 14,551,194 $ 50,155,817 --------------- --------------- Shares of beneficial interest outstanding 1,169,117 5,700,379 --------------- --------------- Net asset value and offering price per share** $ 12.45 $ 8.80 =============== =============== CLASS C Net assets $ 8,041,958 $ 51,269,054 --------------- --------------- Shares of beneficial interest outstanding 645,605 5,834,305 --------------- --------------- Net asset value and offering price per share** $ 12.46 $ 8.79 =============== =============== CLASS Y Net assets $ 22,103,283 $ 31,051,440 --------------- --------------- Shares of beneficial interest outstanding 1,774,843 3,530,145 --------------- --------------- Net asset value, offering and redemption price per share $ 12.45 $ 8.80 =============== ===============
---------- * 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. 19 STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2004
HIGH YIELD INCOME TOTAL RETURN PORTFOLIO PORTFOLIO --------------- --------------- INVESTMENT INCOME Interest $ 3,141,664 $ 18,750,007 Dividends 7,720 48,832 Securities lending income -- 41,503 --------------- --------------- 3,149,384 18,840,342 --------------- --------------- EXPENSES Advisory fees 334,592 1,352,970 Distribution and service fees - Class A 70,633 293,753 Distribution and service fees - Class B 170,168 504,492 Distribution and service fees - Class C 92,878 557,673 Administration fees 111,532 338,245 Transfer agent fees and expenses 172,611 251,572 Legal and auditing fees 70,144 77,110 Accounting fees 26,024 78,924 Federal and state registration fees 51,663 53,207 Reports and notices to shareholders 17,998 39,000 Custodian fees and expenses 13,688 32,147 Trustees' fees and expenses 14,347 14,272 Insurance expenses 7,155 7,044 Other 8,367 6,920 --------------- --------------- Total expenses before waivers and related reimbursements, if any 1,161,800 3,607,329 Less: waivers and related reimbursements, if any (355,283) (541,083) --------------- --------------- Total expenses after waivers and related reimbursements, if any 806,517 3,066,246 --------------- --------------- Net investment income 2,342,867 15,774,096 --------------- --------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from investments 1,251,757 15,113,886 Net change in unrealized appreciation on investments (220,083) 3,271,498 --------------- --------------- Net realized and unrealized gain on investments 1,031,674 18,385,384 --------------- --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,374,541 $ 34,159,480 =============== ===============
The accompanying notes are an integral part of the financial statements. 20 STATEMENTS OF CHANGES IN NET ASSETS
INCOME HIGH YIELD TOTAL PORTFOLIO RETURN PORTFOLIO ------------------------------ ------------------------------ FOR THE FOR THE FISCAL YEARS FISCAL YEARS ENDED MARCH 31, ENDED MARCH 31, ------------------------------ ------------------------------ 2004 2003 2004 2003 ------------- ------------- ------------- ------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income $ 2,342,867 $ 2,096,420 $ 15,774,096 $ 13,203,181 Net realized gain/(loss) from investments 1,251,757 1,239,185 15,113,886 (9,773,653) Net change in unrealized appreciation/(depreciation) on investments (220,083) 2,049,098 3,271,498 5,790,271 ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations 3,374,541 5,384,703 34,159,480 9,219,799 ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares (729,132) (621,839) (6,115,990) (6,054,300) Class B shares (504,165) (447,104) (3,327,470) (2,692,060) Class C shares (274,799) (293,523) (3,683,630) (2,685,695) Class Y shares (1,102,597) (881,676) (2,681,129) (1,775,411) ------------- ------------- ------------- ------------- (2,610,693) (2,244,142) (15,808,219) (13,207,466) ------------- ------------- ------------- ------------- Net realized capital gains Class A shares (317,155) (44,489) -- -- Class B shares (289,913) (38,437) -- -- Class C shares (156,249) (25,707) -- -- Class Y shares (491,491) (61,911) -- -- ------------- ------------- ------------- ------------- (1,254,808) (170,544) -- -- ------------- ------------- ------------- ------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares 26,957,939 67,589,024 85,015,497 102,263,758 Cost of shares repurchased (56,235,437) (25,383,270) (115,732,302) (59,204,597) Shares issued in reinvestment of dividends and distributions 3,144,454 1,871,830 9,086,335 8,107,135 ------------- ------------- ------------- ------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions (26,133,044) 44,077,584 (21,630,470) 51,166,296 ------------- ------------- ------------- ------------- Total increase/(decrease) in net assets (26,624,004) 47,047,601 (3,279,209) 47,178,629 NET ASSETS Beginning of year 82,527,441 35,479,840 198,298,901 151,120,272 ------------- ------------- ------------- ------------- End of year $ 55,903,437 $ 82,527,441 $ 195,019,692 $ 198,298,901* ============= ============= ============= =============
---------- * Includes undistributed net investment income of $34,123. The accompanying notes are an integral part of the financial statements. 21 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 year indicated. This information has been derived from information provided in the financial statements.
NET NET ASSET REALIZED AND VALUE, NET UNREALIZED BEGINNING INVESTMENT GAIN/(LOSS) ON OF YEAR INCOME*(1) INVESTMENTS*(2) ---------- ---------- --------------- INCOME PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 12.50 $ 0.41 $ 0.23 For the fiscal year ended March 31, 2003 11.84 0.44 0.73 For the fiscal year ended March 31, 2002 11.99 0.60 (0.15) For the fiscal year ended March 31, 2001 11.53 0.73 0.46 For the fiscal year ended March 31, 2000 12.15 0.70 (0.62) CLASS B For the fiscal year ended March 31, 2004 12.50 0.32 0.23 For the fiscal year ended March 31, 2003 11.84 0.36 0.73 For the fiscal year ended March 31, 2002 11.99 0.52 (0.15) For the fiscal year ended March 31, 2001 11.53 0.65 0.46 For the fiscal year ended March 31, 2000 12.15 0.63 (0.62) CLASS C For the fiscal year ended March 31, 2004 12.50 0.32 0.24 For the fiscal year ended March 31, 2003 11.84 0.36 0.73 For the fiscal year ended March 31, 2002 11.99 0.52 (0.15) For the fiscal year ended March 31, 2001 11.53 0.65 0.46 For the fiscal year ended March 31, 2000 12.15 0.63 (0.62) CLASS Y For the fiscal year ended March 31, 2004 12.49 0.45 0.23 For the fiscal year ended March 31, 2003 11.84 0.48 0.72 For the fiscal year ended March 31, 2002 11.99 0.64 (0.15) For the fiscal year ended March 31, 2001 11.53 0.77 0.46 For the fiscal year ended March 31, 2000 12.15 0.74 (0.62) DIVIDENDS DISTRIBUTIONS FROM NET FROM NET INVESTMENT REALIZED INCOME CAPITAL GAINS ---------- -------------- INCOME PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ (0.45) $ (0.23) For the fiscal year ended March 31, 2003 (0.48) (0.03) For the fiscal year ended March 31, 2002 (0.60) -- For the fiscal year ended March 31, 2001 (0.73) -- For the fiscal year ended March 31, 2000 (0.70) -- CLASS B For the fiscal year ended March 31, 2004 (0.37) (0.23) For the fiscal year ended March 31, 2003 (0.40) (0.03) For the fiscal year ended March 31, 2002 (0.52) -- For the fiscal year ended March 31, 2001 (0.65) -- For the fiscal year ended March 31, 2000 (0.63) -- CLASS C For the fiscal year ended March 31, 2004 (0.37) (0.23) For the fiscal year ended March 31, 2003 (0.40) (0.03) For the fiscal year ended March 31, 2002 (0.52) -- For the fiscal year ended March 31, 2001 (0.65) -- For the fiscal year ended March 31, 2000 (0.63) -- CLASS Y For the fiscal year ended March 31, 2004 (0.49) (0.23) For the fiscal year ended March 31, 2003 (0.52) (0.03) For the fiscal year ended March 31, 2002 (0.64) -- For the fiscal year ended March 31, 2001 (0.77) -- For the fiscal year ended March 31, 2000 (0.74) --
---------- * Calculated based on average settled shares outstanding during the respective years, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. (1) Reflects waivers and related reimbursements. (2) The amounts shown for a share outstanding throughout the respective years are not in accord with the changes in the aggregate gains and losses on investments during the respective years because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective years. The accompanying notes are an integral part of the financial statements. 22
NET ASSET VALUE, TOTAL NET ASSETS, RATIO OF END OF INVESTMENT END OF YEAR EXPENSES TO YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1) -------- ---------- --------------- --------------------- INCOME PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 12.46 5.24% $ 11,207 0.97% For the fiscal year ended March 31, 2003 12.50 10.05 23,594 0.80 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 CLASS B For the fiscal year ended March 31, 2004 12.45 4.49 14,551 1.63 For the fiscal year ended March 31, 2003 12.50 9.34 19,185 1.45 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 CLASS C For the fiscal year ended March 31, 2004 12.46 4.57 8,042 1.63 For the fiscal year ended March 31, 2003 12.50 9.34 11,443 1.45 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 CLASS Y For the fiscal year ended March 31, 2004 12.45 5.61 22,103 0.63 For the fiscal year ended March 31, 2003 12.49 10.35 28,307 0.45 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 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 fiscal year ended March 31, 2004 3.25% 0.48% 103.91% For the fiscal year ended March 31, 2003 3.58 0.71 161.09 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 CLASS B For the fiscal year ended March 31, 2004 2.61 0.48 103.91 For the fiscal year ended March 31, 2003 2.91 0.71 161.09 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 CLASS C For the fiscal year ended March 31, 2004 2.61 0.48 103.91 For the fiscal year ended March 31, 2003 2.95 0.71 161.09 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 CLASS Y For the fiscal year ended March 31, 2004 3.60 0.48 103.91 For the fiscal year ended March 31, 2003 3.94 0.71 161.09 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
---------- (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 year reported and includes reinvestment of dividends and distributions, if any. 23 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 VALUE, NET UNREALIZED BEGINNING INVESTMENT GAIN/(LOSS) ON OF PERIOD INCOME*(1) INVESTMENTS*(2) ---------- ---------- --------------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 8.10 $ 0.62 $ 0.69 For the fiscal year ended March 31, 2003 8.36 0.66 (0.26) For the fiscal year ended March 31, 2002 8.74 0.72 (0.38) For the fiscal year ended March 31, 2001 9.78 0.94 (1.04) For the fiscal year ended March 31, 2000 11.36 1.08 (1.58) CLASS B For the fiscal year ended March 31, 2004 8.11 0.56 0.70 For the fiscal year ended March 31, 2003 8.36 0.60 (0.24) For the fiscal year ended March 31, 2002 8.74 0.67 (0.38) For the fiscal year ended March 31, 2001 9.78 0.88 (1.04) For the fiscal year ended March 31, 2000 11.36 1.01 (1.58) CLASS C For the fiscal year ended March 31, 2004 8.10 0.56 0.70 For the fiscal year ended March 31, 2003 8.36 0.60 (0.25) For the fiscal year ended March 31, 2002 8.74 0.67 (0.38) For the fiscal year ended March 31, 2001 9.78 0.88 (1.04) For the fiscal year ended March 31, 2000 11.36 1.01 (1.58) CLASS Y For the fiscal year ended March 31, 2004 8.11 0.65 0.69 For the fiscal year ended March 31, 2003 8.36 0.68 (0.24) For the period July 11, 2001** through March 31, 2002 8.46 0.53 (0.10) DIVIDENDS DISTRIBUTIONS FROM NET FROM NET INVESTMENT REALIZED INCOME CAPITAL GAINS ---------- ------------- HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ (0.62) -- For the fiscal year ended March 31, 2003 (0.66) -- For the fiscal year ended March 31, 2002 (0.72) -- For the fiscal year ended March 31, 2001 (0.94) -- For the fiscal year ended March 31, 2000 (1.08) -- CLASS B For the fiscal year ended March 31, 2004 (0.57) -- For the fiscal year ended March 31, 2003 (0.61) -- For the fiscal year ended March 31, 2002 (0.67) -- For the fiscal year ended March 31, 2001 (0.88) -- For the fiscal year ended March 31, 2000 (1.01) -- CLASS C For the fiscal year ended March 31, 2004 (0.57) -- For the fiscal year ended March 31, 2003 (0.61) -- For the fiscal year ended March 31, 2002 (0.67) -- For the fiscal year ended March 31, 2001 (0.88) -- For the fiscal year ended March 31, 2000 (1.01) -- CLASS Y For the fiscal year ended March 31, 2004 (0.65) -- For the fiscal year ended March 31, 2003 (0.69) -- For the period July 11, 2001** through March 31, 2002 (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 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. 24
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 fiscal year ended March 31, 2004 $ 8.79 16.62% $ 62,543 1.11% For the fiscal year ended March 31, 2003 8.10 5.18 84,889 1.00 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 CLASS B For the fiscal year ended March 31, 2004 8.80 15.85 50,156 1.76 For the fiscal year ended March 31, 2003 8.11 4.63 43,853 1.65 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 CLASS C For the fiscal year ended March 31, 2004 8.79 15.88 51,269 1.76 For the fiscal year ended March 31, 2003 8.10 4.50 46,263 1.65 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 CLASS Y For the fiscal year ended March 31, 2004 8.80 17.01 31,051 0.76 For the fiscal year ended March 31, 2003 8.11 5.69 23,293 0.65 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 fiscal year ended March 31, 2004 7.28% 0.24% 132.41% For the fiscal year ended March 31, 2003 8.20 0.39 103.22 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 CLASS B For the fiscal year ended March 31, 2004 6.58 0.24 132.41 For the fiscal year ended March 31, 2003 7.55 0.38 103.22 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 CLASS C For the fiscal year ended March 31, 2004 6.59 0.24 132.41 For the fiscal year ended March 31, 2003 7.52 0.38 103.22 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 CLASS Y For the fiscal year ended March 31, 2004 7.57 0.24 132.41 For the fiscal year ended March 31, 2003 8.55 0.39 103.22 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. 25 INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business trust on September 29, 1994, and is registered with the Securities and Exchange Commission (the "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, Small Cap Value Portfolio, International Equity Portfolio, Income Portfolio and High Yield Total Return Portfolio ("High Yield Portfolio"), and four non-diversified portfolios, The Insiders Select Fund, Alpha Growth 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. Under the Fund's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with their vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote. MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), 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, Inc. (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 (the "Board"). 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. 26 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 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, 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. 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. 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 end of the day. Expenses and fees, including the respective investment advisory, administration, 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. SECURITIES LENDING--Loans of securities are required to be initially secured by collateral at least equal to 100% of the market value of the securities on loan and maintained at a level at least equal to the value of loaned securities. However, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. In the event that the borrower fails to return securities, and cash collateral being maintained by the borrower is insufficient to cover the value of loaned securities and provided such collateral insufficiency is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Portfolios. The market value of securities on loan to brokers as March 31, 2004 was as follows:
MARKET VALUE OF PORTFOLIO SECURITIES ON LOAN --------- ------------------ High Yield Portfolio $ 3,106,610
The Income Portfolio did not have any securities lending transactions during the fiscal year ended March 31, 2004. Pursuant to an exemptive order received from the SEC (the "Order"), Custodial Trust Company ("CTC"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., custodian to each of the Portfolios and an affiliate of BSAM, Bear Stearns Funds Management Inc. ("BSFM" or the "Administrator") and Bear, Stearns & Co. Inc., ("Bear Stearns" or the "Distributor") served as the securities lending agent for the Portfolios and, subject to the Order, participated in the lending income earned by the Portfolios. For the fiscal year ended March 31, 2004, CTC has been compensated approximately $10,203 from the High Yield Portfolio. In addition, the Order permits (subject to limitations) a Portfolio to loan securities to its affiliates. For the fiscal year ended March 31, 2004, Bear, Stearns Securities Corp., an affiliate of the Portfolios, received rebates in connection with such loans amounting to $21,500 for the High Yield Portfolio. 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. 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. The tax character of distributions paid during the fiscal year ended March 31, 2004 were as follows:
ORDINARY LONG-TERM TOTAL PORTFOLIO INCOME CAPITAL GAIN DISTRIBUTIONS --------- ------------- ------------ ------------- Income Portfolio $ 3,353,022 $ 547,419 $ 3,900,441 High Yield Portfolio 15,890,570 -- 15,890,570
27 The tax character of distributions paid during the fiscal year ended March 31, 2003 were as follows:
ORDINARY LONG-TERM TOTAL PORTFOLIO INCOME CAPITAL GAIN DISTRIBUTIONS --------- ------------- ------------ ------------- Income Portfolio $ 2,278,773 $ 98,648 $ 2,377,421 High Yield Portfolio 13,159,828 -- 13,159,828
At March 31, 2004, the components of distributable earnings on a tax basis were as follows:
ACCUMULATED UNDISTRIBUTED UNDISTRIBUTED CAPITAL TOTAL ORDINARY LONG-TERM DISTRIBUTIONS AND OTHER UNREALIZED ACCUMULATED PORTFOLIO INCOME CAPITAL GAINS PAYABLE LOSSES APPRECIATION EARNINGS/(DEFICIT) --------- ------------- ------------- ------------- ------------- ------------- ------------------ Income Portfolio $ 178,884 $ 209,583 $ (52,147) -- $ 1,342,830 $ 1,679,150 High Yield Portfolio 367,855 -- (367,855) $ (36,217,625) 10,914,654 (25,302,971)
The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales. At March 31, 2004, the High Yield Portfolio 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 2011. 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 High Yield Portfolio had the following capital loss carryforwards at March 31, 2004:
GROSS CAPITAL AMOUNT EXPIRING IN LOSS --------------------------------------------- PORTFOLIO CARRYFORWARD 2009 2010 2011 --------- ------------- ------------- ------------- ------------- High Yield Portfolio $ 36,217,625 $ 6,985,460 $ 20,187,320 $ 9,044,845
During the fiscal year ended March 31, 2004, the High Yield Portfolio utilized $12,380,479 of prior year capital loss carryforwards. For U.S. federal income tax purposes, net realized capital losses from investments incurred after October 31, 2003, within the current fiscal year are deemed to arise on the first day of the following fiscal year. Neither Portfolio incurred such losses. For U.S. federal income tax purposes, the cost of securities owned, gross appreciation, gross depreciation and net unrealized appreciation of investments at March 31, 2004 were as follows:
GROSS GROSS NET PORTFOLIO COST APPRECIATION DEPRECIATION APPRECIATION --------- ------------- ------------- ------------- ------------- Income Portfolio $ 55,950,394 $ 1,487,901 $ (145,071) $ 1,342,830 High Yield Portfolio 189,214,916 11,736,795 (822,141) 10,914,654
At March 31, 2004, the Income Portfolio reclassified within the composition of net assets, $267,867 from accumulated net investment loss to accumulated net realized gain from investments. 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. 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 GAAP. 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 fiscal year ended March 31, 2004, 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 28 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 fiscal year ended March 31, 2004, BSFM 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. Effective August 1, 2003, 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* 1.10% 1.75% 1.75% 0.75% High Yield Portfolio** 1.15 1.80 1.80 0.80
---------- *Prior to August 1, 2003, the expense limitations were 0.80%, 1.45%, 1.45% and 0.45% for Class A, B, C and Y shares, respectively. **Prior to August 1, 2003, the expense limitations were 1.00%, 1.65%, 1.65% and 0.65% for Class A, B, C and Y shares, respectively. As necessary, these limitations were effected by waivers by the Adviser of its advisory fees and reimbursements of expenses exceeding the advisory fee. For the fiscal year ended March 31, 2004, 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 $ 305,323 $ 49,960 High Yield Portfolio 541,083 --
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. 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 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 fees 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 services in connection with the maintenance of shareholder accounts. For the fiscal year ended March 31, 2004, the distribution and shareholder servicing fees paid to Bear Stearns under each Plan were as follows:
PORTFOLIO DISTRIBUTION FEES SHAREHOLDER SERVICING FEES --------- ----------------- -------------------------- Income Portfolio $ 217,467 $ 116,212 High Yield Portfolio 880,553 475,365
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. 29 For the fiscal year ended March 31, 2004, 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 $ 51,033 $ 11,448 $ 122,511 $ 5,880 High Yield Portfolio 331,205 18,477 189,065 42,438
INVESTMENTS IN SECURITIES For the fiscal year ended March 31, 2004, aggregate purchases and sales of investment securities (excluding short-term investments) for each Portfolio were as follows:
PORTFOLIO PURCHASES SALES --------- -------------- -------------- Income Portfolio $ 73,754,799 $ 96,771,085 High Yield Portfolio 279,098,694 297,872,250
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. Transactions in shares of beneficial interest for each Portfolio were as follows:
INCOME PORTFOLIO HIGH YIELD PORTFOLIO ------------------------------------------- ------------------------------------------- SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS ------------- ------------- ------------- ------------- ------------- ------------- CLASS A FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 983,720 2,032,632 60,082 4,314,586 8,012,076 334,361 Value $ 12,386,608 $ 25,287,999 $ 746,474 $ 36,277,978 $ 68,585,800 $ 2,848,022 FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 1,918,416 892,665 38,049 6,370,363 4,975,324 408,346 Value $ 23,511,749 $ 10,924,899 $ 466,500 $ 50,751,493 $ 39,763,822 $ 3,257,445 CLASS B FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 247,616 660,870 47,052 1,240,734 1,133,341 184,653 Value $ 3,100,893 $ 8,223,048 $ 583,375 $ 10,449,237 $ 9,746,019 $ 1,580,197 FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 1,516,519 580,387 27,109 2,581,257 1,206,435 177,294 Value $ 18,475,988 $ 7,071,143 $ 332,372 $ 20,618,000 $ 9,586,223 $ 1,414,056 CLASS C FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 240,403 538,845 28,640 1,954,731 2,083,742 252,925 Value $ 3,015,615 $ 6,724,888 $ 355,535 $ 16,423,914 $ 17,987,733 $ 2,162,802 FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 706,186 325,220 22,051 2,873,843 910,780 213,931 Value $ 8,630,729 $ 3,975,476 $ 269,870 $ 22,966,703 $ 7,229,012 $ 1,702,053 CLASS Y FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 676,411 1,285,062 117,536 2,595,521 2,229,721 290,852 Value $ 8,454,823 $ 15,999,502 $ 1,459,070 $ 21,864,368 $ 19,412,750 $ 2,495,314 FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 1,390,146 278,085 65,567 970,032 331,419 217,625 Value $ 16,970,558 $ 3,411,752 $ 803,088 $ 7,927,562 $ 2,625,540 $ 1,733,581
30 REDEMPTION FEES The Portfolios impose a redemption fee of 1.00% of the total redemption amount (calculated at market value) if a shareholder sells their shares 60 days or less after the purchase date. The redemption fee will not apply to shares purchased through reinvested distributions (dividends and capital gains), shares held in retirement plans or shares redeemed through designated systematic withdrawal plans. The redemption fee is recorded as an increase to paid-in-capital. The redemption fees paid to the Income Portfolio and High Yield Portfolio for the fiscal year ended March 31, 2004 were $4,227 and $44,269, respectively. 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 33 1/3% 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 fiscal year ended March 31, 2004, were as follows:
MAXIMUM LOAN AMOUNT NUMBER OF DAYS PORTFOLIO AVERAGE LOAN BALANCE OUTSTANDING AVERAGE INTEREST RATE BORROWED --------- -------------------- ------------------- --------------------- -------------- Income Portfolio $ 286,115 $ 3,452,500 1.64% 93 High Yield Portfolio 11,120 1,200,000 1.57% 7
The Income Portfolio had $1,800,000 outstanding under the line of credit facility at March 31, 2004. The High Yield Portfolio had no amount outstanding under the credit facility at March 31, 2004. 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. RESULTS OF SPECIAL SHAREHOLDER MEETINGS (UNAUDITED) On November 18, 2003, BSAM and The Dreyfus Corporation with its relevant affiliates ("Dreyfus"), announced a strategic arrangement in which the Portfolios will merge with new or existing Dreyfus funds that have the same or similar investment objectives (the "Transaction"). The Transaction has received the approvals of the Board of Trustees of the Fund and the Boards of the relevant Dreyfus funds. 31 A special joint meeting of each Portfolio's shareholders was held on March 11, 2004 at the offices of Bear Stearns, 383 Madison Avenue, New York, New York, to seek shareholder approval for the merger of each Portfolio into a new or existing Dreyfus fund with the same or similar investment objectives, as set forth in the following table.
PORTFOLIO CORRESPONDING DREYFUS FUND --------- ------------------------------------------------- Income Portfolio Dreyfus Premier Core Bond Fund High Yield Portfolio Dreyfus Premier Limited Term High Yield Fund
The following table shows the number of shares of each Portfolio that, as of the record date of January 2, 2004, were outstanding and entitled to vote.
PORTFOLIO NUMBER OF SHARES OUTSTANDING AND ENTITLED TO VOTE --------- ------------------------------------------------- Income Portfolio 5,268,066 High Yield Portfolio 26,572,347
Each reorganization required the affirmative vote of a majority of the relevant Portfolio's shares outstanding and entitled to vote. As of March 11, 2004, of the Portfolios listed above, only the Income Portfolio had received sufficient votes to determine whether to approve the reorganization. As a result, the meeting for the High Yield Portfolio was adjourned until April 8, 2004. The results of the voting at the March 11th meeting for the Income Portfolio, as independently certified by Management Information Services, are shown in the following table. As indicated, this reorganization received shareholder approval at the March 11th meeting.
FOR AGAINST ABSTAIN ----------------------- --------------------- --------------------- PORTFOLIO NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE --------- ---------- ---------- -------- ---------- -------- ---------- Income Portfolio 2,718,309 51.60% 112,751 2.14% 82,646 1.57%
SUBSEQUENT EVENT (UNAUDITED) On April 8, 2004, the High Yield Portfolio reconvened a shareholder meeting to vote on whether to approve the Portfolio's reorganization. The results of the voting at the April 8th meeting for this Portfolio, as independently certified by Management Information Services, are shown in the following table. As indicated, this reorganization received shareholder approval at the April 8th meeting.
FOR AGAINST ABSTAIN ----------------------- --------------------- --------------------- PORTFOLIO NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE --------- ---------- ---------- -------- ---------- -------- ---------- High Yield Portfolio 14,084,366 53.00% 955,510 3.60% 626,532 2.36%
Each reorganization that was approved on either March 11th or April 8th closed after the close of business on April 30, 2004. Immediately after such date, the assets of each Portfolio were transferred to its corresponding Dreyfus fund in exchange for shares of that Dreyfus fund and those Dreyfus fund shares were then distributed pro rata to each Portfolio shareholder, in complete liquidation of each Portfolio. 32 INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders, Income Portfolio High Yield Total Return Portfolio (Series of The Bear Stearns Funds): We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Income Portfolio and High Yield Total Return Portfolio (collectively, the "Portfolios") as of March 31, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Portfolios as of March 31, 2004, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania April 28, 2004 33 INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO SHAREHOLDER TAX INFORMATION - (UNAUDITED) Each Portfolio is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of each Portfolio's fiscal year end (March 31, 2004) as to the U.S. federal tax status of distributions received by each Portfolio's shareholders in respect of such fiscal year. During the fiscal year ended March 31, 2004, the following dividends and distributions per share were paid by each of the Portfolios:
LONG-TERM CAPITAL GAINS NET INVESTMENT SHORT-TERM --------------------------------- INCOME CAPITAL GAINS PRE MAY 6, 2003 POST MAY 5, 2003 -------------- ------------- --------------- ---------------- Income Portfolio: Class A $ 0.449616939 $ 0.1293 $ 0.0365 $ 0.0635 Class B 0.368563216 0.1293 0.0365 0.0635 Class C 0.368330784 0.1293 0.0365 0.0635 Class Y 0.493351712 0.1293 0.0365 0.0635 High Yield Total Return Portfolio: Class A 0.623231283 -- -- -- Class B 0.567499801 -- -- -- Class C 0.567600382 -- -- -- Class Y 0.653077544 -- -- --
None of the above long-term gains distributions relating to pre May 6, 2003 are from qualified 5-year gains. Ordinary income dividends, which include short-term gain distributions, should be reported as dividend income on Form 1040. Income dividends are taxable as ordinary income, as are short-term capital gain distributions. With respect to each Portfolio, none of its ordinary income dividends qualify for the corporate dividends received deduction. Because each Portfolio's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2004. The second notification, which will reflect the amount to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2005. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their actual ordinary dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Portfolios, if any. In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult with their own tax advisers with respect to the tax consequences of their investment in the Portfolios. 34 TRUSTEES AND OFFICERS The following information is provided for each Trustee, Officer and the Advisory Trustee of The Bear Stearns Funds (the "Trust") as of March 31, 2004. Each Trustee oversees all 10 portfolios of the Trust. The mailing address of the Trustees and Officers is 383 Madison Avenue, New York, New York 10179.
POSITION(S) WITH THE NAME AND TRUST AND LENGTH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS AGE OF TIME SERVED(1) IN THE PAST 5 YEARS HELD BY TRUSTEE INDEPENDENT TRUSTEES John S. Levy - 68 Trustee, since 2000 Managing Partner, Fayerweather SL Green Realty Corp. Capital Partners (private investment partnership) M.B. Oglesby, Jr. - 61 Trustee, since 1995 Consultant; Vice Chairman, BKSH & None Associates, Washington DC (government lobbyists) (2002-present); Formerly, Chief of Staff to United States Trade Representative, Executive Office of the President (2001-2002); Consultant, Chairman, Oglesby Properties, Inc.; President and Chief Executive Officer, Association of American Railroads; Vice Chairman, Cassidy & Associates Robert E. Richardson - 62 Trustee, since 2000 Retired; Formerly, Vice President, None Broker/Dealer Department, Mellon Bank (1991-1999) "INTERESTED" TRUSTEE(2) Michael Minikes - 60 Chairman of the Board, Treasurer, The Bear Stearns Companies None and Trustee, since 1999 Inc. and Bear, Stearns & Co. Inc. ("Bear Stearns"); Senior Managing Director, Bear Stearns; Co-President, Bear, Stearns Securities Corporation (1999-present); Director, Custodial Trust Company and Bear Stearns Bank plc
(1) The term of office for a Trustee is indefinite, until he or she resigns, is removed or a successor is elected and qualified. (2) The Interested Trustee is considered to be an "interested person" (as defined by the Investment Company Act of 1940, as amended) of the Trust because of his employment with the Trust's adviser or principal underwriter. 35
POSITION(S) WITH THE NAME AND TRUST AND LENGTH AGE OF TIME SERVED(1) PRINCIPAL OCCUPATION(S) IN THE PAST 5 YEARS ADVISORY TRUSTEE Alan J. Dixon - 77 Advisory Trustee, Partner - Corporate Business and since 1995 Legislative Law, Bryan Cave (law firm); Formerly, United States Senator (1981-1992) OFFICERS WHO ARE NOT TRUSTEES Barry Sommers - 34 President, since Senior Managing Director (since 2000); Head November 2003; of Marketing and Sales for the Trust (since Executive Vice President, 1997) and Managing Director (1997-2000), from 1998 to Bear Stearns November 2003 Stephen A. Bornstein - 60 Vice President and General Counsel, Managing Secretary, since 1995 Director/Principal and Executive Vice President, Bear Stearns Asset Management Inc. ("BSAM"); Managing Director/Principal, Bear Stearns; Vice President, General Counsel and Secretary, Bear Stearns Funds Management Inc. ("BSFM") Frank J. Maresca - 45 Vice President and President and Chief Executive Officer, Treasurer, since 1995 BSFM; Senior Managing Director, Bear Stearns (since 2001); Managing Director, Bear Stearns Vincent L. Pereira - 38 Assistant Treasurer, Executive Vice President, BSFM; Managing since 1995 Director, (since 1999) and Associate Director (1997-1999), Bear Stearns Alaina V. Metz, 36 Assistant Secretary, Chief Administrative Officer of BISYS Fund since 2002 Services
(1) The term of the office for a Trustee or Officer is indefinite, until he or she resigns, is removed or a successor is elected and qualified. 36 INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO PRIVACY NOTICE While information is the cornerstone of our ability to provide superior service, our most important assets are our shareholders and the trust that they place in us. Keeping shareholder information secure and using it only as our shareholders would want us to are top priorities at The Bear Stearns Funds. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information investment goals and risk tolerance. We do not disclose any information about you or about former customers to anyone except as permitted by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and mailers that assist us in the distribution of shareholder materials. This allows us to continue to meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information. You may have received communications regarding information privacy on policies from other financial institutions that gave you the opportunity to "opt-out" of certain information sharing with companies that are not affiliated with that financial institution. The Bear Stearns Funds does not share information with other companies for purposes of marketing solicitations. Therefore, The Bear Stearns Funds does not provide opt-out options to its shareholders. We reserve the right to change our privacy policy at any time. The examples contained within this notice are illustrations; they are not intended to be exclusive. This notice complies with a recently enacted Federal law and SEC regulations regarding privacy. You may have additional rights under foreign or other domestic laws that may apply to you. 37 THE BEAR STEARNS FUNDS 383 MADISON AVENUE, NEW YORK, NY 10179 1.800.766.4111 Michael Minikes Chairman of the Board and Trustee Barry Sommers President John S. Levy Trustee M. B. Oglesby, Jr. Trustee Robert E. Richardson Trustee Stephen A. Bornstein Vice President and Secretary Frank J. Maresca Vice President and Treasurer Vincent L. Pereira Assistant Treasurer Alaina V. Metz Assistant Secretary INVESTMENT ADVISER TRANSFER AND DIVIDEND Bear Stearns Asset DISBURSEMENT AGENT Management Inc. PFPC Inc. 383 Madison Avenue 301 Bellevue Parkway New York, NY 10179 Wilmington, DE 19809 ADMINISTRATOR INDEPENDENT AUDITORS Bear Stearns Funds Deloitte & Touche LLP Management Inc. 1700 Market Street 383 Madison Avenue Philadelphia, PA 19103 New York, NY 10179 COUNSEL DISTRIBUTOR Kramer Levin Bear, Stearns & Co. Inc. Naftalis & Frankel LLP 383 Madison Avenue 919 Third Avenue New York, NY 10179 New York, NY 10022 CUSTODIAN Custodial Trust Company 101 Carnegie Center Princeton, NJ 08540 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. THE BEAR STEARNS FUNDS EQUITY FUNDS S&P STARS PORTFOLIO S&P STARS OPPORTUNITIES PORTFOLIO THE INSIDERS SELECT FUND INTRINSIC VALUE PORTFOLIO SMALL CAP VALUE PORTFOLIO ALPHA GROWTH PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO ANNUAL REPORT MARCH 31, 2004 [BEAR STEARNS LOGO] BSF-R-015-14 THE BEAR STEARNS FUNDS S&P STARS Portfolio S&P STARS Opportunities Portfolio The Insiders Select Fund Intrinsic Value Portfolio Small Cap Value Portfolio Alpha Growth Portfolio International Equity Portfolio LETTER TO SHAREHOLDERS April 8, 2004 Dear Shareholders: We are pleased to present the annual report to shareholders for the S&P STARS Portfolio, S&P STARS Opportunities Portfolio, The Insiders Select Fund, Intrinsic Value Portfolio, Small Cap Value Portfolio, Alpha Growth Portfolio and International Equity Portfolio (each a "Portfolio" of The Bear Stearns Funds), for the fiscal year ended March 31, 2004. Detailed performance data for each class of shares of each Portfolio can be found in the "Financial Highlights" and in the line graph sections of this report. S&P STARS PORTFOLIO The Portfolio's fiscal year benefited from an excellent economic backdrop for the U.S. stock market. To start, corporate earnings growth reached almost 20% for companies in the S&P 500. This, combined with inflation and interest rates that remained at lows not seen since the early 1960s, drove price-to-earnings (P/E) multiples to premium levels by fiscal year end. Additionally, the nation's Gross Domestic Product (GDP) growth for the period came in well ahead of its 10-year historical average. Stock prices performed admirably, with the S&P 500 gaining more than 35% for the fiscal year. The Portfolio's core position with a growth bias enabled it to reap the full benefit of these favorable market conditions, leading to our significant outperformance versus the S&P 500 benchmark. The Portfolio outperformed the S&P 500 in a number of sectors during the fiscal year, including technology, consumer staples, consumer discretionary, healthcare, telecommunications and utilities, with the lion's share of outperformance coming from technology. Technology as a sector benefited from a long awaited increase in business spending starting in the September quarter. In particular, our investment in an advertising-driven Internet site that provides information and commerce services to the technology industry saw its stock price more than double during the period due to a resurgence in on-line advertising. Additionally, one of the Portfolio's semiconductor holdings benefited from an increase in demand for electronic equipment, and hence, for semiconductors -- part of an ongoing recovery in the semiconductor industry that began 15 months ago. Finally, our investment in a very large supplier of data networking products to corporate enterprises was a direct beneficiary of the third quarter's long-awaited increase in business spending, which led to improving prospects for technology sales, and particularly networking products. By contrast, the Portfolio's overweighted position in the drilling services industry within the energy sector detracted modestly from performance during the fiscal year. Historically high energy prices did not translate into as great an increase in demand for oil and gas drilling as had been anticipated. The Portfolio also experienced a modest loss so far from its investment in a discount commercial airline carrier whose share price underperformed due to overcapacity concerns in the airline industry, which are likely to cause downward pressure on pricing. We continue to hold the stock as we believe it is well positioned to participate in the ongoing revival in domestic business travel in the year ahead. 1 Finally, our short position* in a major domestic tire manufacturer detracted from performance. We had originally shorted the stock on the premise that the company's significant financial difficulties would further deteriorate. Though the company's fundamental weaknesses remained unchanged, its stock price spiked on news that it had gained refinancing. In keeping with our policy, we closed the position when the stock's price increased 20%. For calendar year 2004, we expect GDP growth to exceed 4%, and for inflation to start gradually rising toward year-end. Corporate earnings growth is likely to be robust, driven primarily by economically sensitive sectors. The average P/E multiple for the S&P 500 is now above its historical average -- an acceptable state in an environment of low inflation. Above-average P/Es become more of a liability, however, as inflation picks up. For this reason, we expect to see a stock market correction in the range of 10% to 20% once investors incorporate higher future rates of inflation into their investment framework. Whether or not the market will finish 2004 in positive or negative territory will likely depend on the timing of such an event. In either case, we believe such a correction will not mark the end of the current bull market, but merely a pause. Corrections of this nature are typically short lived, and, barring a major terrorist act in the U.S. or other developed nations, we would expect U.S. equities to continue to rise in subsequent months. S&P STARS OPPORTUNITIES PORTFOLIO During the Portfolio's fiscal year, the U.S. economy recovered strongly from the lingering effects of the events of September 11 and deflation of the stock market bubble of the late 1990s. Corporate earnings growth reached almost 20% for companies in the S&P 500. This, combined with inflation and interest rates that remained at lows not seen since the early 1960s, drove price-to-earnings (P/E) multiples to premium levels by year end. Additionally, the nation's GDP growth for the period came in well ahead of its 10-year historical average. Stock prices performed admirably, with the S&P 500 gaining more than 35% for the fiscal year. While the Portfolio's absolute performance for the fiscal year was strong, we underperformed the S&P MidCap 400 benchmark, largely due to our modest cash position. Our equity investments essentially matched the benchmark during the period. Within the healthcare sector, our investments in several HMOs and diagnostic labs detracted from performance. In addition, the Portfolio's stock in a manufacturer and marketer of data storage systems hurt performance. The company's stock suffered from concerns of a possible loss of business to a new competitor. Our short position* in an integrated forest products company, also detracted from performance as an increase in demand for wood products drove the company's share price higher during the period. We had shorted the company prior to the start of the fiscal year as a means of hedging against a continuation of the recession. Finally, the Portfolio has experienced a modest loss so far from its investment in a discount commercial airline carrier whose share price has underperformed due to overcapacity concerns in the airline industry, which could cause downward pressure on pricing. We continue to hold the stock as we believe it is well positioned to participate in the ongoing revival in domestic business travel in the year ahead. On a positive note, the Portfolio's overweighted position in technology -- one of the fiscal year's strongest performing sectors -- contributed positively to performance. Within the technology sector, our investment in a developer and marketer of analog, discrete, logic, and non-volatile memory semiconductors benefited from increasing demand for electronic equipment, and hence, for semiconductors -- part of an ongoing recovery in the semiconductor industry that began 15 months ago. In addition, the Portfolio's stock in a provider of electronics manufacturing services posted better than average performance due to the overall revival in demand for technology hardware products. Our stock selection and underweighted position in utilities, a defensive sector, also helped performance during the fiscal year. THE INSIDERS SELECT FUND As the fiscal year began, the stage was set for an economic recovery, with short-term interest rates at their lowest level in 45 years, tax cuts in the offing, and inflation well under control. As the year progressed, high levels of consumer spending and a long-awaited increase in business spending propelled the economy. GDP growth reached 8.2% in the 2 third calendar quarter -- the fastest rate of growth since 1983. The stock market responded enthusiastically, with the S&P 500 gaining more than 35% for the fiscal year. Equity market performance was led by companies that were more speculative in nature, many of which were smaller, more highly leveraged, and with less-than-promising earnings profiles. Because we focus on companies with strong balance sheets, solid business models and consistent growth dynamics, we deliberately avoid the types of stocks that were 2003's top performers. As a result, while the Portfolio's performance on an absolute basis was strong, we modestly underperformed the S&P MidCap 400 benchmark for the fiscal year. An historically high level of insider selling was a consistent theme for the fiscal year. For every one dollar of insider buying, there were approximately twenty dollars sold, bringing the rate of insider selling to a 10-year high. While it is possible that the high rate of selling could have been caused by employees cashing in on stock options with three-to-five year vesting periods that had been issued in 2000, it could also have been driven by investors' desires to lock in gains after having watched their share prices fall precipitously during the recession. The Portfolio's consumer staples holdings detracted from performance relative to the benchmark during the fiscal year. In particular, our investment in a large grocery store chain suffered from stiff competition. We sold the position in October. In addition, our modest cash position of approximately 5% acted as a drag on performance, given the strength of the equity markets. By contrast, our energy sector holdings contributed positively to performance. In particular, our investments in several oil and natural gas refiners and exploration & production companies benefited from rising oil prices and favorable supply and demand characteristics. Capacity within the industry has declined over the last 20 years due to the rising volatility of oil and gas prices, which has made it difficult for companies to achieve sustainable returns on investment. This dynamic has driven many competitors out of the market in North America. Our overweighted position in the industrials sector also helped results as the sector performed strongly during the economic recovery. Specifically, our investment in a large multi-industry conglomerate posted exceptional performance. The company, which had seen its stock price plummet as a result of a massive accounting scandal in 2002, continued to benefit from its new management and new board of directors, which have successfully turned the company around. Finally, though we were underweighted technology -- one of 2003's strongest performing sectors -- positive stock selection within technology benefited performance. Technology stocks in general came back strongly from their lows of previous years, fueled by the global economic expansion and ensuing increase in demand for technology products and services. INTRINSIC VALUE PORTFOLIO As the Portfolio's fiscal year began, the U.S. economy had finally turned the corner from one of the most devastating bear markets in modern history. The stage was set for recovery, with short-term interest rates at their lowest level in 45 years, tax cuts in the offing, and inflation well under control. As the year progressed, consumer spending remained strong due to record levels of mortgage refinancings. The third calendar quarter brought a long-awaited increase in business spending, as well as GDP growth of 8.2% -- the fastest rate of growth since 1983. The stock market responded enthusiastically, with the S&P 500 gaining more than 35% for the fiscal year. We are pleased to have outperformed the S&P 500 benchmark for the Portfolio's fiscal year. During the fiscal year, our overweighted positions relative to the benchmark in financial services, consumer discretionary and energy -- all economically sensitive sectors that tend to outperform during times of economic expansion -- contributed to performance. Financial services, the Portfolio's second strongest sector, experienced above average performance as a number of companies posted better than expected earnings results. In addition, unlike other cyclicals, valuations in the financial sector began the fiscal year relatively low, but increased throughout the year, driven by improving consumer and business credit quality and a significant increase in investment banking activity. Similarly, the consumer discretionary sector also benefited from low valuations prior to the start of the fiscal year, which set the stage for particularly strong performance. As a result, many consumer discretionary stocks were at the forefront 3 of the stock market's rebound. In addition to being overweighted in a strong sector, our stock selection among a diverse range of industries within the consumer discretionary sector contributed significantly to returns. Stock selection also helped performance in the energy sector. In particular, our investments in several oil and natural gas refiners and exploration & production companies benefited from the highest oil and gas prices in years, as well as an industry-wide decline in production capacity, which had the effect of limiting supply in an environment of rising demand. Conversely, our underweighted position in technology -- one of the fiscal year's strongest performing sectors -- represented an opportunity cost to the Portfolio. As the year began, technology stocks with attractive valuations were scarce, given that so many of them were unprofitable at the time. Though the Portfolio was underweighted in technology, those names we did hold significantly outperformed all of the benchmark's technology holdings on a total return basis due to superior stock selection. Technology stocks in general came back strongly from their lows of previous years, fueled by the global economic expansion and ensuing increase in demand for technology products and services. The Portfolio's modest cash position of approximately 5% acted as a drag on performance during the fiscal year, given the strength of the equity markets. At present, we believe that much of the improving outlook for the economy is already reflected in stock prices. Going forward, we expect stock price appreciation to be driven more by earnings than by the fundamental re-valuation of securities we saw coming out of the recession. We therefore expect a return to normalcy in which earnings continue to improve, albeit not at the rapid pace of 2003. Historically, equities have generated returns of between 6% and 10% on average. We expect the equity markets for 2004 to generate performance in the higher end of that range. SMALL CAP VALUE PORTFOLIO** As is typical during the initial stages of an economic recovery, small caps outperformed mid and large cap stocks during the fiscal year, resulting in exceptionally strong gains for small cap investors. In an environment in which investors sought risk in pursuit of higher rewards, the year's best performers were illiquid microcaps (stocks with market capitalizations below $300 million) and lower quality stocks with less-than-promising earnings profiles. While the Portfolio's returns for the year were very strong, we underperformed the Russell 2000 benchmark due to the fact that our process precluded us from holding many of the lower quality stocks that were the year's top performers. When considering the Portfolio's relative performance, it is important to keep in mind our objective of achieving above average long term performance by investing in small cap stocks with demonstrated earnings growth, solid business models, strong fundamentals and highly capable management teams. We deliberately avoid lower quality stocks and illiquid microcaps, which tend to be highly volatile and extremely risky. These policies have served our shareholders well during times when stocks of this nature have significantly underperformed. While all of the Portfolio's sectors registered positive performance for the year, our allocation to the healthcare sector detracted from performance relative to the benchmark. Specifically, we were underweighted relative to the benchmark in biotechnology -- an industry that includes a predominance of high risk companies without the strength and consistency of earnings we require. Biotechnology stocks rebounded strongly during the year from their extreme lows reached during the recession. Our underweighted position in the materials & processing sector, which performed strongly during the year, also hurt our relative performance. Earnings improved dramatically in the sector, fueled by the rebounding economy. Within the technology sector, while many of our holdings performed admirably, we did not own the lower quality stocks that experienced the strongest performance for the year. By contrast, our investments in producer durables showed particularly strong performance versus the benchmark. In particular, our investment in a semiconductor company benefited from the spike in business technology spending during the year. Additionally, our investment in a supplier of parts and equipment to the pollution control industry registered better than expected earnings growth, also due to the burgeoning economy. 4 ALPHA GROWTH PORTFOLIO A dynamic economic recovery characterized most of the Portfolio's fiscal year. Stimulative monetary and fiscal policies, a continued high level of consumer spending, and a resurgence in business spending led to the strongest GDP growth in 20 years (during the quarter ended September 30, 2003). Stocks, fueled by increases in corporate profitability and the improving economic outlook, rebounded strongly from one of the worst bear markets in modern history, with the S&P 500 gaining more than 32% for the year. As is typical in the initial stages of a recovery, the stocks that had been beaten down the farthest during the recession bounced back the strongest. Many of these equity market forerunners were smaller, highly leveraged and more speculative in nature. The Portfolio, which is designed to perform well over a full market cycle (typically lasting from three to five years), modestly underperformed the S&P 500 benchmark during the fiscal year. In general, we do not expect to outperform during speculative markets such as that of 2003, but rather to offer protection from overvalued stocks that may have poor long-term growth dynamics. In accordance with our strategy, the Portfolio underwent its annual rebalancing in early January, through which our proprietary systematic screening process was applied anew to our investable universe of 1,800 stocks in order to identify what we believe to be 50 of the strongest investment candidates in terms of relative price appreciation, past and projected earnings growth, and reasonable valuations. The rebalancing led to a reduced weighting in the consumer discretionary sector, and to larger allocations to technology and telecommunications -- both of which exhibited strong relative price appreciation during 2003. The Portfolio's performance for the fiscal year was positively impacted by our allocations to the technology, consumer discretionary and industrials sectors. Within technology, strong performance came from companies in a range of industries including software, hardware and networking systems. The sector's exceptional relative performance during 2003 drove the Portfolio's technology allocation upward, from an underweighted position relative to the benchmark in 2003 to an overweighted position as of the January '04 rebalancing. The Portfolio's investments in the consumer discretionary and industrials sectors both benefited from the economic recovery. Strong levels of consumer and business spending drove earnings and stock price performance in both sectors throughout the year. Our underweighted position in the telecommunications sector, which rebounded strongly during the year, represented an opportunity cost to the Portfolio. Telecommunications stocks were underrepresented in the Portfolio after its January 2003 rebalancing due to the sector's poor relative strength during the prior year. In addition, our allocations to energy and utilities -- both defensive sectors -- detracted somewhat from performance. Looking forward, we expect the equity markets to continue to provide superior returns to other asset classes over the long run, as they have in the past. For the Portfolio, we plan to continue to add value through the highly disciplined application of our time-tested strategy -- an approach we believe offers the potential for consistent, above average returns over the long run. INTERNATIONAL EQUITY PORTFOLIO*** The Portfolio's fiscal year witnessed a widespread recovery in the global equity markets, which had reached a multi-year low in April of 2003. The stage for the year's recovery was set with historically low interest rates in many countries, an abatement of the uncertainty surrounding the conflict with Iraq, and improving sentiment following the spate of corporate governance scandals that roiled markets and shook investor confidence in 2002. The international equity markets came back strongly during the fiscal year, with more speculative, lower quality, and oftentimes highly leveraged companies leading the way. Europe outperformed all other regions due in large part to the euro's appreciation versus the U.S. dollar. Roughly 13% of Europe's gains for the fiscal year were attributable to the euro's appreciation against the dollar -- the effect of which attracted investor capital from around the world to euro-denominated securities. The weakness of the U.S. dollar was driven by concerns that the U.S. current account deficit had become unsustainable and that U.S. interest rates were too 5 low. Europe's strong performance was also fueled by a large number of lower-quality stocks that performed especially well. In addition to Europe, the emerging markets, in particular China, performed strongly during the fiscal year. While the Portfolio's overall performance was positive, we underperformed the MSCI EAFE benchmark due to our underweighted position in Europe. Our decision to underweight Europe reflects the region's weak fundamentals, which included restrictive monetary and fiscal policies, low population growth, low productivity growth rates, inefficient labor market regulations, and relatively high tax rates. Helping to offset some of these losses, our focus on the emerging markets -- China and Russia specifically -- contributed positively to performance. During the fiscal year, the strong performance of several of Russia's largest energy companies drove an economic expansion that led to an increase in consumer spending, which in turn boosted the share prices of some of the Portfolio's investments in Russian wireless telecommunications companies. Our allocation to Thailand also fared well as the country experienced continued strong growth, fueled by an increase in exports. In addition, several of the Portfolio's investments in Canadian technology companies benefited from a resurgence in demand for technology products and services. Sincerely, /s/ Barry Sommers Barry Sommers President The Bear Stearns Funds ---------- * Used to take advantage of an expected decline in the price of a stock, short selling is a strategy in which the investor sells borrowed stock in anticipation of buying it back at a lower price in the future. Short selling is considered leverage and may involve substantial risks. ** Small-cap funds typically carry additional risks, since smaller companies generally have a higher risk of failure than well-established larger companies. Historically, stocks of smaller companies have experienced a greater degree of market volatility than stocks on average. *** International investing involves risks such as currency exchange-rate volatility, possible political, social, or economic instability and differences in taxation and other financial standards. Bear Stearns Asset Management Inc. has waived a portion of its advisory fee and reimbursed a portion of each Portfolio's operating expenses, as necessary, to maintain the expense limitation as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. Performance results do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. On the accompanying line charts and total return tables found on pages 7 through 13, the returns of each portfolio assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. In addition to historical information, this report contains forward-looking statements, which may concern, among other things, domestic and foreign markets, industry and economic trends and developments and government regulation and their potential impact on each portfolio's investments. These statements are subject to risks and uncertainties and actual trends, developments and regulations in the future and their impact on each portfolio could be materially different from those projected, anticipated or implied. The portfolios have no obligation to update or revise forward-looking statements. 6 THE BEAR STEARNS FUNDS S&P STARS Portfolio [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
CLASS A SHARES CLASS C SHARES S&P 500 COMPOSITE INDEX April 5, 1995 $ 9,450 $ 10,000 $ 10,000 September 30, 1995 $ 11,357 $ 11,974 $ 11,714 March 31, 1996 $ 12,066 $ 12,689 $ 13,086 September 30, 1996 $ 13,182 $ 13,835 $ 14,095 March 31, 1997 $ 14,100 $ 14,764 $ 15,680 September 30, 1997 $ 19,203 $ 20,055 $ 19,797 March 31, 1998 $ 20,236 $ 21,077 $ 23,206 September 30, 1998 $ 18,909 $ 19,646 $ 21,587 March 31, 1999 $ 25,792 $ 26,717 $ 27,489 September 30, 1999 $ 26,701 $ 27,604 $ 27,588 March 31, 2000 $ 38,901 $ 40,116 $ 32,420 September 30, 2000 $ 40,098 $ 41,257 $ 31,253 March 31, 2001 $ 30,204 $ 30,994 $ 25,392 September 30, 2001 $ 26,257 $ 26,875 $ 22,933 March 31, 2002 $ 27,245 $ 27,805 $ 25,454 September 30, 2002 $ 17,170 $ 17,481 $ 18,235 March 31, 2003 $ 17,148 $ 17,412 $ 19,150 September 30, 2003 $ 21,702 $ 21,984 $ 22,684 March 31, 2004 $ 25,380 $ 25,661 $ 25,878
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ---------------------------------------------- 5-YEAR SINCE INCEPTION ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7) -------- -------------- ----------------- S&P STARS Portfolio(2) Class A shares(5) 39.87% (1.45)% 10.92% Class B shares(4) 42.39 (1.19) 5.45 Class C shares(6) 46.35 (0.80) 11.05 Class Y shares(3) 48.81 0.23 10.62 S&P 500 Composite Index(1) 35.12 (1.20) 11.15
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the index is unmanaged, does not incur sales charges or expenses and is not available for investment. (2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a portion of the Portfolio's operating expenses, if necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) The returns of Class Y shares (for which August 7, 1995 was the initial public offering date) are higher than Class A, B and C shares. The higher returns are due to the fact that there is no sales load, CDSC or 12b-1 fee charged to Class Y shares. (4) Reflects the applicable CDSC. Without the applicable sales charge, the total returns would have been 47.39%, (0.80)% and 5.45%, respectively, for each period shown. Assuming no redemption of shares at the end of the period, the return of Class B shares (for which January 5, 1998 was the initial public offering date) would have been higher than Class A shares and would have been substantially the same as Class C shares if operations were commenced on the same day. The higher return is due to the fact that there is no initial sales charge on Class B shares. (5) Reflects the initial maximum sales charge of 5.50%, for each period shown. Without the applicable sales charge, the total returns would have been 48.01%, (0.32)% and 11.62%, respectively, for each period shown. (6) Reflects the applicable CDSC. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 47.35%. (7) For the period April 5, 1995 (commencement of investment operations) through March 31, 2004, unless otherwise indicated. CDSC - Contingent Deferred Sales Charge 7 S&P STARS Opportunities Portfolio [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A, B AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
CLASS A SHARES CLASS B SHARES CLASS C SHARES S&P MIDCAP 400 INDEX October 1, 2001 $ 9,450 $ 10,000 $ 10,000 $ 10,000 December 31, 2001 $ 11,103 $ 11,725 $ 11,733 $ 11,799 March 31, 2002 $ 11,237 $ 11,858 $ 11,857 $ 12,592 June 30, 2002 $ 9,977 $ 10,507 $ 10,506 $ 11,420 September 30, 2002 $ 8,340 $ 8,765 $ 8,773 $ 9,530 December 31, 2002 $ 8,595 $ 9,027 $ 9,036 $ 10,086 March 31, 2003 $ 8,387 $ 8,797 $ 8,799 $ 9,639 June 30, 2003 $ 9,691 $ 10,152 $ 10,153 $ 11,338 September 30, 2003 $ 10,315 $ 10,786 $ 10,788 $ 12,086 December 31, 2003 $ 11,595 $ 12,114 $ 12,107 $ 13,679 March 31, 2004 $ 12,218 $ 12,426 $ 12,733 $ 14,372
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ---------------------------------------------- SINCE INCEPTION ONE YEAR AVERAGE ANNUAL(7) -------- ----------------- S&P STARS Opportunities Portfolio(2) Class A shares(5) 37.66% 8.35% Class B shares(4) 39.62 9.09 Class C shares(6) 43.71 10.17 Class Y shares(3) 45.93 11.21 S&P MidCap 400 Index(1) 49.10 15.62
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the index is unmanaged, does not incur sales charges or expenses and is not available for investment. (2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a portion of the Portfolio's operating expenses, if necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) The returns of Class Y shares are higher than Class A, B and C shares. The higher returns are due to the fact that there is no sales load, CDSC or 12b-1 fee charged to Class Y shares. (4) Reflects the applicable CDSC. Without the applicable sales charge, the total returns would have been 44.62% and 10.14%, respectively, for each period shown. Assuming no redemption of shares at the end of the period, the return of Class B shares would have been higher than Class A shares and would have been substantially the same as Class C shares. The higher return is due to the fact that there is no initial sales charge on Class B shares. (5) Reflects the initial maximum sales charge of 5.50%, for each period shown. Without the applicable sales charge, the total returns would have been 45.66% and 10.84% respectively, for each period shown. (6) Reflects the applicable CDSC. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 44.71%. (7) For the period October 1, 2001 (commencement of investment operations) through March 31, 2004. CDSC - Contingent Deferred Sales Charge 8 The Insiders Select Fund [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
CLASS A SHARES CLASS C SHARES S&P MIDCAP 400 INDEX June 16, 1995 $ 9,450 $ 10,000 $ 10,000 September 30, 1995 $ 10,387 $ 10,975 $ 11,123 March 31, 1996 $ 11,033 $ 11,624 $ 11,977 September 30, 1996 $ 12,114 $ 12,732 $ 12,680 March 31, 1997 $ 13,055 $ 13,689 $ 13,249 September 30, 1997 $ 16,629 $ 17,386 $ 17,639 March 31, 1998 $ 19,064 $ 19,873 $ 19,745 September 30, 1998 $ 15,845 $ 16,478 $ 16,526 March 31, 1999 $ 19,121 $ 19,841 $ 19,834 September 30, 1999 $ 18,616 $ 19,273 $ 20,740 March 31, 2000 $ 19,198 $ 19,830 $ 27,388 September 30, 2000 $ 21,638 $ 22,299 $ 29,702 March 31, 2001 $ 22,632 $ 23,264 $ 25,482 September 30, 2001 $ 19,957 $ 20,473 $ 24,058 March 31, 2002 $ 23,684 $ 24,228 $ 30,294 September 30, 2002 $ 17,183 $ 17,529 $ 22,928 March 31, 2003 $ 17,337 $ 17,633 $ 23,190 September 30, 2003 $ 21,261 $ 21,576 $ 29,076 March 31, 2004 $ 25,212 $ 25,537 $ 34,576
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ---------------------------------------------- 5-YEAR SINCE INCEPTION ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7) -------- -------------- ----------------- The Insiders Select Fund(2) Class A shares(5) 37.39% 4.50% 11.09% Class B shares(4) 39.67 4.84 6.09 Class C shares(6) 43.83 5.17 11.25 Class Y shares(3) 45.51 6.13 12.18 S&P MidCap 400 Index(1) 49.10 11.76 15.14
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the index is unmanaged, does not incur sales charges or expenses and is not available for investment. (2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a portion of the Portfolio's operating expenses, if necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) The returns of Class Y shares (for which June 20, 1995 was the initial public offering date) are higher than Class A, B and C shares. The higher returns are due to the fact that there is no sales load, CDSC or 12b-1 fee charged to Class Y shares. (4) Reflects the applicable CDSC. Without the applicable sales charge, the total returns would have been 44.67%, 5.17% and 6.09%, respectively, for each period shown. Assuming no redemption of shares at the end of the period, the return of Class B shares (for which January 6, 1998 was the initial public offering date) would have been higher than Class A shares and would have been substantially the same as Class C shares if operations were commenced on the same day. The higher return is due to the fact that there is no initial sales charge on Class B shares. (5) Reflects the initial maximum sales charge of 5.50%, for each period shown. Without the applicable sales charge, the total returns would have been 45.41%, 5.69% and 11.80% respectively, for each period shown. (6) Reflects the applicable CDSC. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 44.83%. (7) For the period of June 16, 1995 (commencement of investment operations) through March 31, 2004, unless otherwise indicated. CDSC - Contingent Deferred Sales Charge 9 Intrinsic Value Portfolio [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
CLASS A SHARES CLASS C SHARES S&P 500 COMPOSITE INDEX April 4, 1995 $ 9,450 $ 10,000 $ 10,000 September 30, 1995 $ 11,206 $ 11,824 $ 11,796 March 31, 1996 $ 11,941 $ 12,569 $ 13,177 September 30, 1996 $ 12,161 $ 12,769 $ 14,194 March 31, 1997 $ 13,781 $ 14,422 $ 15,790 September 30, 1997 $ 17,385 $ 18,139 $ 19,936 March 31, 1998 $ 19,926 $ 20,760 $ 23,369 September 30, 1998 $ 17,574 $ 18,259 $ 21,739 March 31, 1999 $ 20,660 $ 21,425 $ 27,682 September 30, 1999 $ 20,117 $ 20,804 $ 27,782 March 31, 2000 $ 19,649 $ 20,273 $ 32,648 September 30, 2000 $ 22,128 $ 22,772 $ 31,472 March 31, 2001 $ 24,322 $ 24,969 $ 25,570 September 30, 2001 $ 22,069 $ 22,605 $ 23,094 March 31, 2002 $ 25,471 $ 26,015 $ 25,632 September 30, 2002 $ 18,140 $ 18,477 $ 18,363 March 31, 2003 $ 18,953 $ 19,263 $ 19,284 September 30, 2003 $ 23,481 $ 23,820 $ 22,843 March 31, 2004 $ 27,199 $ 27,519 $ 26,059
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ---------------------------------------------- 5-YEAR SINCE INCEPTION ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7) -------- -------------- ----------------- Intrinsic Value Portfolio(2) Class A shares(5) 35.66% 4.46% 11.77% Class B shares(4) 37.79 4.77 6.85 Class C shares(6) 41.86 5.13 11.92 Class Y shares(3) 44.41 6.28 11.77 S&P 500 Composite Index(1) 35.12 (1.20) 11.23
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the index is unmanaged, does not incur sales charges or expenses and is not available for investment. (2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a portion of the Portfolio's operating expenses, if necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) The returns of Class Y shares (for which September 11, 1995 was the initial public offering date) for the one year and 5-year average annual periods are higher than Class A, B and C shares. The higher returns are due to the fact that there is no sales load, CDSC or 12b-1 fee charged to Class Y shares. The Class Y since inception average annual returns are not comparable to Class A, B and C shares due to the timing differences in the commencement of initial public offerings. (4) Reflects the applicable CDSC. Without the applicable sales charge, the total returns would have been 42.79%, 5.10% and 6.85%, respectively, for each period shown. Assuming no redemption of shares at the end of the period, the average annual return of Class B shares (for which January 28, 1998 was the initial public offering date) would have been higher than Class A shares and would have been substantially the same as Class C shares if operations were commenced on the same day. The higher return is due to the fact that there is no initial sales charge on Class B shares. (5) Reflects the initial maximum sales charge of 5.50%, for each period shown. Without the applicable sales charge, the total returns would have been 43.53%, 5.65% and 12.48% respectively, for each period shown. (6) Reflects the applicable CDSC. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 42.86%. (7) For the period April 4, 1995 (commencement of investment operations) through March 31, 2004, unless otherwise indicated. CDSC - Contingent Deferred Sales Charge 10 Small Cap Value Portfolio [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
CLASS A SHARES CLASS C SHARES RUSSELL 2000 INDEX April 3, 1995 $ 9,450 $ 10,000 $ 10,000 September 30, 1995 $ 11,963 $ 12,625 $ 12,000 March 31, 1996 $ 12,698 $ 13,361 $ 12,885 September 30, 1996 $ 14,139 $ 14,824 $ 13,576 March 31, 1997 $ 14,187 $ 14,845 $ 13,543 September 30, 1997 $ 18,528 $ 19,337 $ 18,081 March 31, 1998 $ 20,832 $ 21,689 $ 19,233 September 30, 1998 $ 14,885 $ 15,462 $ 14,643 March 31, 1999 $ 16,610 $ 17,203 $ 16,107 September 30, 1999 $ 18,898 $ 19,525 $ 17,435 March 31, 2000 $ 22,956 $ 23,671 $ 22,114 September 30, 2000 $ 21,984 $ 22,601 $ 21,513 March 31, 2001 $ 20,283 $ 20,813 $ 18,724 September 30, 2001 $ 19,578 $ 20,028 $ 16,951 March 31, 2002 $ 24,037 $ 24,508 $ 21,342 September 30, 2002 $ 17,022 $ 17,291 $ 15,374 March 31, 2003 $ 16,361 $ 16,555 $ 15,588 September 30, 2003 $ 20,406 $ 20,595 $ 20,984 March 31, 2004 $ 24,467 $ 24,638 $ 25,536
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ---------------------------------------------- 5-YEAR SINCE INCEPTION ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7) -------- -------------- ----------------- Small Cap Value Portfolio(2) Class A shares(5) 41.33% 6.84% 10.46% Class B shares(4) 43.79 7.10 4.78 Class C shares(6) 47.79 7.45 10.54 Class Y shares(3) 50.08 8.54 10.85 Russell 2000 Index(1) 63.83 9.65 10.98
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the index is unmanaged, does not incur sales charges or expenses, and is not available for investment. (2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a portion of the Portfolio's operating expenses, if necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) The returns of Class Y shares (for which June 22, 1995 was the initial public offering date) are higher than Class A, B and C shares. The higher returns are due to the fact that there is no sales load, CDSC or 12b-1 fee charged to Class Y shares. (4) Reflects the applicable CDSC. Without the applicable sales charge, the total returns would have been 48.79%, 7.40% and 4.78%, respectively, for each period shown. Assuming no redemption of shares at the end of the period, the return of Class B shares (for which January 21, 1998 was the initial public offering date) would have been higher than Class A shares and would have been substantially the same as Class C shares if operations were commenced on the same day. The higher return is due to the fact that there is no initial sales charge on Class B shares. (5) Reflects the maximum sales charge of 5.50%, for each period shown. Without the applicable sales charge, the total returns would have been 49.55%, 8.05% and 11.16%, respectively, for each period shown. (6) Reflects the applicable CDSC. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 48.79%. (7) For the period April 3, 1995 (commencement of investment operations) through March 31, 2004, unless otherwise indicated. CDSC - Contingent Deferred Sales Charge 11 Alpha Growth Portfolio [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A, B AND C SHARES(1)(2)(4)(5) VS. ITS BROAD-BASED INDEX
CLASS A SHARES CLASS B SHARES CLASS C SHARES S&P 500 COMPOSITE INDEX December 31, 1997 $ 9,450 $ 10,000 $ 10,000 $ 10,000 March 31, 1998 $ 10,553 $ 11,149 $ 11,149 $ 11,395 September 30, 1998 $ 9,515 $ 10,024 $ 10,024 $ 10,600 March 31, 1999 $ 13,664 $ 14,338 $ 14,348 $ 13,498 September 30, 1999 $ 13,428 $ 14,046 $ 14,055 $ 13,547 March 31, 2000 $ 16,735 $ 17,468 $ 17,477 $ 15,920 September 30, 2000 $ 14,643 $ 15,246 $ 15,258 $ 15,346 March 31, 2001 $ 13,215 $ 13,738 $ 13,739 $ 12,469 September 30, 2001 $ 12,102 $ 12,544 $ 12,546 $ 11,261 March 31, 2002 $ 14,863 $ 15,367 $ 15,377 $ 12,499 September 30, 2002 $ 12,456 $ 12,862 $ 12,857 $ 8,954 March 31, 2003 $ 12,281 $ 12,664 $ 12,681 $ 9,403 September 30, 2003 $ 14,341 $ 14,760 $ 14,777 $ 11,139 March 31, 2004 $ 16,526 $ 16,964 $ 16,989 $ 12,707
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ---------------------------------------------- 5-YEAR SINCE INCEPTION ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(3) -------- -------------- ----------------- Alpha Growth Portfolio(2) Class A shares(4) 27.12% 2.71% 8.36% Class B shares(5) 28.95 3.06 8.82 Class C shares(6) 32.97 3.43 8.84 S&P 500 Composite Index(1) 35.12 (1.20) 4.50
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the index is unmanaged, does not incur sales charges or expenses and is not available for investment. (2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a portion of the Portfolio's operating expenses to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) For the period of December 29, 1997 (commencement of investment operations) through March 31, 2004. (4) Reflects the initial maximum sales charge of 5.50%, for each period. Without the applicable sales charge, the total returns would have been 34.55%, 3.88% and 9.35%, respectively, for each period shown. (5) Reflects the applicable CDSC. Without the applicable sales charge, the total returns would have been 33.95%, 3.41% and 8.82%, respectively, for each period shown. (6) Reflects the applicable CDSC. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 33.97%. CDSC - Contingent Deferred Sales Charge 12 International Equity Portfolio [CHART] COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A, B AND C SHARES(1)(2)(5)(6) VS. ITS BROAD-BASED INDEX
CLASS A SHARES CLASS B SHARES CLASS C SHARES MSCI EAFE INDEX December 31, 1997 $ 9,450 $ 10,000 $ 10,000 $ 10,000 March 31, 1998 $ 10,843 $ 11,458 $ 11,458 $ 11,479 September 30, 1998 $ 10,197 $ 10,751 $ 10,751 $ 9,966 March 31, 1999 $ 11,924 $ 12,544 $ 12,545 $ 12,209 September 30, 1999 $ 13,507 $ 14,170 $ 14,171 $ 13,086 March 31, 2000 $ 22,141 $ 23,164 $ 23,165 $ 15,311 September 30, 2000 $ 17,028 $ 17,768 $ 17,769 $ 13,535 March 31, 2001 $ 14,173 $ 14,754 $ 14,745 $ 11,380 September 30, 2001 $ 11,652 $ 12,086 $ 12,086 $ 9,708 March 31, 2002 $ 11,821 $ 12,240 $ 12,241 $ 10,444 September 30, 2002 $ 9,367 $ 9,675 $ 9,676 $ 8,226 March 31, 2003 $ 8,327 $ 8,563 $ 8,573 $ 8,047 September 30, 2003 $ 10,055 $ 10,359 $ 10,368 $ 10,410 March 31, 2004 $ 11,809 $ 12,137 $ 12,162 $ 12,728
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004 ---------------------------------------------- 5-YEAR SINCE INCEPTION ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(3) -------- -------------- ----------------- International Equity(2) Class A shares(5) 34.01% (1.32)% 2.69% Class B shares(6) 36.72 (1.05) 3.15 Class C shares(7) 40.87 (0.61) 3.18 Class Y Shares(4) 43.09 N/A (4.16) MSCI EAFE Index(1) 58.15 0.83 4.29
---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio and reflects all Portfolio expenses. Investors should note that the Portfolio is a professionally managed mutual fund while the index is unmanaged, does not incur sales charges or expenses and is not available for investment. (2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a portion of the Portfolio's operating expenses, if necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) For the period of December 29, 1997 (commencement of investment operations) through March 31, 2004. (4) The returns of Class Y (for which July 5, 2001 was the initial public offering date) for the one year period are higher than Class A, B and C shares. The higher return is due to the fact that there is no sales load, CDSC or 12b-1 fee charged to Class Y shares. The Class Y since inception average annual returns are not comparable to Class A, B and C shares due to the timing differences in the commencement of initial public offerings. (5) Reflects the initial maximum sales charge of 5.50%, for each period. Without the applicable sales charge, the total returns would have been 41.80%, (0.20)% and 3.63% respectively, for each period shown. (6) Reflects the applicable CDSC. Without the applicable sales charge, total returns would have been 41.72%, (0.65)% and 3.15%, respectively, for each period shown. (7) Reflects the applicable CDSC. Without the applicable sales charge, the total return for the one year ended March 31, 2004 would have been 41.87%. CDSC - Contingent Deferred Sales Charge 13 S&P STARS Portfolio MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS
PERCENT OF RANK INDUSTRY NET ASSETS ---- ----------------------------------------------------------------------------------- ---------- 1. Prepackaged Software 4.67 2. Computer Related Services 3.74 3. Bank Holding Companies 3.64 4. Semiconductors & Related Devices 3.59 5. Radiotelephone Communications 3.50 6. Department Stores 2.86 7. Pharmaceutical Preparations 2.80 8. Commercial Banks 2.62 9. Petroleum Refining 2.53 10. Hospital & Medical Service Plans 2.52
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- ------------------------------------- ------------------------------------------- ---------- 1. CNET Networks, Inc. Computer Related Services 3.74 2. Pfizer Inc. Pharmaceutical Preparations 2.80 3. Citigroup Inc. Commercial Banks 2.62 4. Exxon Mobil Corp. Petroleum Refining 2.53 5. Coventry Health Care, Inc. Hospital & Medical Service Plans 2.52 6. Apache Corp. Crude Petroleum & Natural Gas 2.34 7. Amgen Inc. Biological Products 2.32 8. Rayovac Corp. Primary Batteries, Dry & Wet 2.28 9. Allstate Corp. (The) Fire, Marine & Casualty Insurance 2.18 10. Best Buy Co., Inc. Radio, TV & Electronic Stores 2.17
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell securities mentioned. The Portfolio is actively managed, therefore holdings may not be current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 14 S&P STARS Opportunities Portfolio MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS
PERCENT OF RANK INDUSTRY NET ASSETS ---- ----------------------------------------------------------------------------------- ---------- 1. Prepackaged Software 5.35 2. Crude Petroleum & Natural Gas 4.26 3. Refrigeration & Heating Equipment 4.15 4. Investment Advisory Service 4.00 5. Real Estate Investment Trusts 3.97 6. Information Retrieval Services 2.70 7. Chemicals & Allied Products 2.33 8. Primary Batteries, Dry & Wet 2.28 9. Colleges & Universities 2.27 10. Health Services 2.25
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- ------------------------------------- ------------------------------------------- ---------- 1. Bankrate, Inc. Information Retrieval Services 2.70 2. FMC Corp. Chemicals & Allied Products 2.33 3. Rayovac Corp. Primary Batteries, Dry & Wet 2.28 4. Corinthian Colleges, Inc. Colleges & Universities 2.27 5. WebMD Corp. Health Services 2.25 6. CNET Networks, Inc. Computer Related Services 2.24 7. Cytyc Corp. Medical & Hospital Equipment 2.22 8. Watts Water Technologies, Inc. Industrial Valves 2.20 9. Evergreen Resources, Inc. Crude Petroleum & Natural Gas 2.18 10. Vishay Intertechnology, Inc. Electronic Resistors 2.16
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell securities mentioned. The Portfolio is actively managed, therefore holdings may not be current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 15 The Insiders Select Fund MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS
PERCENT OF RANK INDUSTRY NET ASSETS ---- ----------------------------------------------------------------------------------- ---------- 1. Bank Holding Companies 10.19 2. Petroleum Refining 6.22 3. Women's Ready-To-Wear Stores 4.99 4. Crude Petroleum & Natural Gas 4.46 5. National Banks 4.22 6. Personal Credit Institutions 3.52 7. Aircraft Engines & Engine Parts 3.25 8. Holding Offices 3.16 9. Surety Insurance 3.01 10. Flat Glass 2.99
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- --------------------------------------- ----------------------------------------- ---------- 1. FleetBoston Financial Corp. National Banks 4.22 2. Sunoco, Inc. Petroleum Refining 3.98 3. American Express Co. Personal Credit Institutions 3.52 4. PNC Financial Services Group, Inc.(The) Bank Holding Companies 3.27 5. United Technologies Corp. Aircraft Engines & Engine Parts 3.25 6. MGIC Investment Corp. Holding Offices 3.16 7. Washington Mutual, Inc. Bank Holding Companies 3.08 8. MBIA Inc. Surety Insurance 3.01 9. PPG Industries, Inc. Flat Glass 2.99 10. Kimberly-Clark Corp. Sanitary Paper Products 2.98
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell securities mentioned. The Portfolio is actively managed, therefore holdings may not be current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 16 Intrinsic Value Portfolio MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS
PERCENT OF RANK INDUSTRY NET ASSETS ---- ----------------------------------------------------------------------------------- ---------- 1. Bank Holding Companies 10.03 2. Petroleum Refining 7.96 3. Fire, Marine & Casualty Insurance 7.22 4. Commercial Banks 4.88 5. Motion Picture & Video Production 4.43 6. Women's Ready-To-Wear Stores 4.33 7. Pharmaceutical Preparations 4.17 8. Telephone Communications 3.85 9. Medical Products 3.70 10. General Medical & Surgical Hospitals 2.61
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- ------------------------------------- ------------------------------------------- ---------- 1. Citigroup Inc. Commercial Banks 4.88 2. Bank of America Corp. Bank Holding Companies 4.43 3. Liberty Media Corp. Motion Picture & Video Production 3.73 4. Johnson & Johnson Medical Products 3.70 5. Exxon Mobil Corp. Petroleum Refining 3.59 6. American International Group, Inc. Fire, Marine & Casualty Insurance 2.62 7. HCA Inc. General Medical & Surgical Hospitals 2.61 8. International Paper Co. Paper Mills 2.60 9. Nokia Corp. Communications Equipment 2.57 10. General Electric Co. Electric & Electronics Equipment 2.55
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell securities mentioned. The Portfolio is actively managed, therefore holdings may not be current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 17 Small Cap Value Portfolio MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS
PERCENT OF RANK INDUSTRY NET ASSETS ---- ----------------------------------------------------------------------------------- ---------- 1. Bank Holding Companies 14.31 2. Semiconductors & Related Devices 5.73 3. Biological Products 5.60 4. Crude Petroleum & Natural Gas 5.50 5. Real Estate Investment Trusts 5.07 6. Prepackaged Software 4.48 7. Electronic Computers 4.23 8. Computer Integrated Systems Design 3.29 9. Freight Transportation Arrangement 3.13 10. Oil & Gas Field Services 2.93
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- ------------------------------------- ------------------------------------------- ---------- 1. Genesee & Wyoming Inc., Class A Freight Transportation Arrangement 3.13 2. Key Energy Services, Inc. Oil & Gas Field Services 2.93 3. Stage Stores, Inc. Department Stores 2.85 4. Swift Energy Co. Crude Petroleum & Natural Gas 2.84 5. InVision Technologies, Inc. Electromedical Equipment 2.68 6. Magnum Hunter Resources, Inc. Crude Petroleum & Natural Gas 2.66 7. Headwaters Inc. Refuse Systems 2.56 8. Greater Bay Bancorp Bank Holding Companies 2.50 9. BankAtlantic Bancorp, Inc., Class A Bank Holding Companies 2.48 10. Provident Bankshares Corp. Bank Holding Companies 2.48
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell securities mentioned. The Portfolio is actively managed, therefore holdings may not be current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 18 Alpha Growth Portfolio MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS
PERCENT OF RANK INDUSTRY NET ASSETS ---- ----------------------------------------------------------------------------------- ---------- 1. Semiconductors & Related Devices 11.66 2. Gold Ores 6.68 3. Motor Vehicles & Car Bodies 4.92 4. Prepackaged Software 3.53 5. Bank Holding Companies 3.47 6. Construction Machinery 3.44 7. Circuit Boards 3.44 8. Electronic Components 3.33 9. Communications Equipment 2.62 10. Mortgage Bankers & Correspondents 2.31
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- ------------------------------------- ------------------------------------------- ---------- 1. Telefonaktiebolaget LM Ericsson, ADR Communications Equipment 2.62 2. Countrywide Financial Corp. Mortgage Bankers & Correspondents 2.31 3. Symantec Corp. Prepackaged Software 2.29 4. Nortel Networks Corp. Telecommunication Equipment 2.25 5. Lucent Technologies Inc. Computer Integrated Systems Design 2.24 6. International Game Technology Manufacturing Industries 2.23 7. QUALCOMM Inc. Radio & TV Communications Equipment 2.21 8. New York Community Bancorp, Inc. Banks, Savings Institutions 2.18 9. Apollo Group, Inc., Class A Colleges & Universities 2.14 10. Capital One Financial Corp. Personal Credit Institutions 2.13
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell 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. All holdings were equally weighted on January 1, 2004. Differences in percentage holdings of each security after January 1, 2004 are due to market movement. 19 International Equity Portfolio MARCH 31, 2004 (UNAUDITED) TOP TEN INDUSTRY WEIGHTINGS
PERCENT OF RANK INDUSTRY NET ASSETS ---- ----------------------------------------------------------------------------------- ---------- 1. Foreign Banks, Branches & Agencies 11.17 2. Real Estate 7.47 3. Insurance Carriers 6.92 4. Telephone Communications 6.30 5. Internet Service Provider 5.09 6. Electronic Components & Accessories 3.90 7. Computer-Integrated Systems 3.53 8. Financial Services 3.05 9. Fire, Marine & Casualty Insurance 2.98 10. Radio & Telephone Communications 2.86
TOP TEN HOLDINGS*
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS ---- ------------------------------------- ------------------------------------------- ---------- 1. Yahoo Japan Corp. Internet Service Provider 5.09 2. Sun Hung Kai Properties Ltd. Real Estate 3.65 3. Research in Motion Ltd. Computer-Integrated Systems 3.53 4. AXA Insurance Carriers 2.90 5. Siemens AG Motors & Generators 2.73 6. Standard Chartered plc Foreign Banks, Branches & Agencies 2.59 7. Credit Suisse Group Foreign Banks, Branches & Agencies 2.51 8. Huaneng Power International, Inc. Electric Services 2.44 9. Koninklijki (Royal) Philips Electronics N.V. Radio & Television Communications Equipment 2.33 10. Zurich Financial Services AG Insurance Carriers 2.30
---------- * Top ten holdings are provided for informational purposes only and should not be deemed as a recommendation to purchase or sell securities mentioned. The Portfolio is actively managed, therefore holdings may not be current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may seek to perform investment banking services for the companies listed. 20 THE BEAR STEARNS FUNDS S&P STARS Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2004
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS -- 100.68% AUTO & HOME SUPPLY STORES - 2.09% 360,000 AutoZone, Inc.+ $ 30,949,200 --------------- BANK HOLDING COMPANIES - 3.64% 280,000 Bank of America Corp.++ 22,674,400 1,120,000 MBNA Corp. 30,945,600 --------------- 53,620,000 --------------- BIOLOGICAL PRODUCTS - 2.32% 590,000 Amgen Inc.+* 34,320,300 --------------- BLAST FURNACES & STEEL MILLS - 0.83% 330,000 United States Steel Corp.++ 12,299,100 --------------- BOTTLED & CANNED SOFT DRINKS - 0.91% 250,000 PepsiCo, Inc. 13,462,500 --------------- CABLE & OTHER PAY TV SERVICES - 2.09% 1,110,000 Comcast Corp., Special Class A* 30,946,800 --------------- COMMERCIAL BANKS - 2.62% 750,000 Citigroup Inc. 38,775,000 --------------- COMPUTER PERIPHERAL EQUIPMENT - 2.02% 1,270,000 Cisco Systems, Inc.* 29,870,400 --------------- COMPUTER RELATED SERVICES - 3.74% 5,330,000 CNET Networks, Inc.^* 55,058,900 --------------- COMPUTERS, PERIPHERALS & SOFTWARE - 1.43% 230,000 International Business Machines Corp. 21,123,200 --------------- CRUDE PETROLEUM & NATURAL GAS - 2.34% 800,000 Apache Corp.+ 34,536,000 --------------- DEPARTMENT STORES - 2.86% 530,000 Neiman Marcus Group, Inc. (The), Class A 28,588,200 780,500 Saks Inc.*++ 13,736,800 --------------- 42,325,000 --------------- DRILLING OIL & GAS WELLS - 1.94% 1,020,000 ENSCO International Inc.* 28,733,400 --------------- DRUGS, PROPRIETARIES & SUNDRIES - 2.01% 430,000 Cardinal Health, Inc. 29,627,000 --------------- ELECTRIC SERVICES - 2.15% 3,860,000 Reliant Resources, Inc.* $ 31,690,600 --------------- ELECTROMEDICAL EQUIPMENT - 1.97% 610,000 Medtronic, Inc.* 29,127,500 --------------- ELECTRONIC RESISTORS - 2.17% 1,500,000 Vishay Intertechnology, Inc.* 32,010,000 --------------- FIRE, MARINE & CASUALTY INSURANCE - 2.18% 710,000 Allstate Corp. (The) 32,276,600 --------------- GAS TRANSMISSION & DISTRIBUTION - 1.46% 2,250,000 Williams Cos., Inc. (The)++ 21,532,500 --------------- HOLDING OFFICES - 1.62% 2,510,000 America West Holdings Corp., Class B+*(a) 23,920,300 --------------- HOSPITAL & MEDICAL SERVICE PLANS - 2.52% 880,000 Coventry Health Care, Inc.* 37,250,400 --------------- INFORMATION RETRIEVAL SERVICES - 0.52% 130,000 Bankrate, Inc.^* 2,588,300 3,870,000 SportsLine.com, Inc.^*(a) 5,147,100 --------------- 7,735,400 --------------- INVESTMENT ADVISORY SERVICE - 2.04% 790,000 Eaton Vance Corp.+ 30,114,800 --------------- LUMBER & OTHER BUILDING MATERIALS - 2.05% 810,000 Home Depot, Inc. (The)+ 30,261,600 --------------- MEASURING & CONTROLLING DEVICES - 1.22% 750,000 MKS Instruments, Inc.* 18,007,500 --------------- MEDICAL & HOSPITAL EQUIPMENT - 1.13% 750,000 Cytyc Corp.* 16,687,500 --------------- MEDICINALS & BOTANICALS - 1.61% 500,000 Celgene Corp.* 23,825,000 --------------- MOTOR VEHICLE PARTS & ACCESSORIES - 1.85% 440,000 Lear Corp.+* 27,262,400 --------------- PETROLEUM REFINING - 2.53% 900,000 Exxon Mobil Corp. 37,431,000 ---------------
The accompanying notes are an integral part of the financial statements. 21
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) PHARMACEUTICAL PREPARATIONS - 2.80% 1,180,000 Pfizer Inc. $ 41,359,000 --------------- PLASTICS, MATERIALS & RESINS - 2.04% 750,000 Dow Chemical Co. (The)* 30,210,000 --------------- POWER DRIVEN HAND TOOLS - 2.00% 520,000 Black & Decker Corp. (The)* 29,608,800 --------------- PREPACKAGED SOFTWARE - 4.67% 700,000 Adobe Systems Inc. 27,601,000 1,360,000 E.piphany, Inc.^* 9,819,200 1,500,000 Sybase, Inc.* 31,485,000 --------------- 68,905,200 --------------- PRIMARY BATTERIES, DRY & WET - 2.28% 1,180,000 Rayovac Corp.* 33,748,000 --------------- RADIO & TV COMMUNICATIONS EQUIPMENT - 2.07% 460,000 QUALCOMM Inc. 30,553,200 --------------- RADIO BROADCASTING - 0.41% 300,000 Cumulus Media Inc., Class A* 5,997,000 --------------- RADIO, TV & ELECTRONIC STORES - 2.17% 620,000 Best Buy Co., Inc. 32,066,400 --------------- RADIOTELEPHONE COMMUNICATIONS - 3.50% 1,100,000 Nextel Communications, Inc., Class A* 27,203,000 1,930,000 Nextel Partners, Inc., Class A* 24,433,800 --------------- 51,636,800 --------------- REAL ESTATE INVESTMENT TRUSTS - 2.04% 480,000 Chelsea Property Group, Inc.++ 30,211,200 --------------- REFRIGERATION & HEATING EQUIPMENT - 2.00% 260,000 American Standard Cos. Inc.* 29,575,000 --------------- SECURITY BROKERS & DEALERS - 2.13% 380,000 Lehman Brothers Holdings Inc. (b) 31,490,600 --------------- SECURITY SYSTEMS SERVICES - 2.06% 1,060,000 Tyco International Ltd.++ 30,369,000 --------------- SEMICONDUCTORS & RELATED DEVICES - 3.59% 500,000 Analog Devices, Inc. $ 24,005,000 1,070,000 Intel Corp. 29,104,000 --------------- 53,109,000 --------------- SOAP & OTHER DETERGENTS - 2.09% 295,000 Procter & Gamble Co. (The) 30,939,600 --------------- SPECIAL INDUSTRY MACHINERY - 0.14% 100,000 Applied Materials, Inc.* 2,138,000 --------------- SURETY INSURANCE - 2.00% 400,000 Ambac Financial Group, Inc.+ 29,512,000 --------------- SURGICAL & MEDICAL INSTRUMENTS - 1.50% 1,300,000 Intuitive Surgical, Inc.+* 22,100,000 --------------- TELEPHONE COMMUNICATIONS - 1.35% 400,000 ALLTEL Corp. 19,956,000 --------------- WINES, BRANDY & BRANDY SPIRITS - 1.98% 910,000 Constellation Brands, Inc., Class A*(b) 29,211,000 --------------- Total Common Stocks (cost - $1,318,756,700) 1,487,475,700 --------------- SHORT-TERM INVESTMENT -- 0.00% INVESTMENT COMPANY - 0.00% 37,486 Federated Government Obligations 0.90%** (cost - $37,486) 37,486 --------------- Total Investments -- 100.68% (cost - $1,318,794,186) 1,487,513,186 Securities Lending Collateral (c) -- 3.06% 45,234,068 Liabilities in excess of other assets -- (3.74)% (55,310,168) --------------- Net Assets -- 100.00% $ 1,477,437,086 =============== SHORT SALES OF COMMON STOCKS -- (1.80)% ADVERTISING - (0.44)% 250,000 Monster Worldwide Inc.+++* $ 6,550,000 --------------- BREAD, CAKE & RELATED PRODUCTS - (0.87)% 1,130,000 Interstate Bakeries Corp.+++ 12,848,100 ---------------
The accompanying notes are an integral part of the financial statements. 22
SHARES VALUE -------------------------------------------------------------------------------- SHORT SALES OF COMMON STOCKS (CONTINUED) COMPUTER PERIPHERAL EQUIPMENT - (0.32)% 650,000 Extreme Networks, Inc.+++* $ 4,686,500 --------------- TIRES & INNER TUBES - (0.17)% 300,000 Goodyear Tire & Rubber Co. (The)+++* 2,562,000 --------------- Total Short Sales of Common Stocks (proceeds received - $27,696,773) $ 26,646,600 ===============
---------- Unless otherwise indicated, all common stocks held long are ranked as five stars. + Currently ranked as four stars. ++ Currently ranked as three stars. +++ Currently ranked as one star. ^ Not ranked by stars. * Non-income producing security. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. (a) Affiliated company; see additional disclosure in the financial statements and notes thereto. (b) A portion of this security is used as collateral for securities sold short. (c) Cash collateral invested in various money market mutual funds. S&P STARS RANKING: Five stars -- Buy -- Expect to be among best performers over next 12 months and to rise in price. Four stars -- Accumulate -- Expect to be an above average performer. Three stars -- Hold -- Expect to be an average performer. Two stars -- Avoid -- Expect to be a below average performer. One star -- Sell -- Expect to be a well below average performer and to fall in price. The accompanying notes are an integral part of the financial statements. 23 S&P STARS Opportunities Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2004
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS -- 100.24% AUTO & HOME SUPPLY STORES - 2.03% 62,000 CSK Auto Corp.* $ 1,122,820 --------------- BLAST FURNACES & STEEL MILLS - 2.12% 19,000 Nucor Corp. 1,168,120 --------------- CHEMICALS & ALLIED PRODUCTS - 2.33% 30,000 FMC Corp.* 1,284,600 --------------- COLLEGES & UNIVERSITIES - 2.27% 38,000 Corinthian Colleges, Inc.* 1,256,280 --------------- COMPUTER RELATED SERVICES - 2.24% 120,000 CNET Networks, Inc.^* 1,239,600 --------------- CONSTRUCTION MACHINERY - 1.81% 70,000 JLG Industries, Inc.++ 1,001,000 --------------- CRUDE PETROLEUM & NATURAL GAS - 4.26% 18,000 Burlington Resources Inc. 1,145,340 35,000 Evergreen Resources, Inc.* 1,202,250 --------------- 2,347,590 --------------- DATA PROCESSING & PREPARATION - 2.16% 23,000 Affiliated Computer Services, Inc., Class A* 1,193,700 --------------- DEPARTMENT STORES - 1.95% 20,000 Neiman Marcus Group, Inc. (The), Class A 1,078,800 --------------- DRILLING OIL & GAS WELLS - 1.99% 39,000 ENSCO International Inc.* 1,098,630 --------------- EATING PLACES - 2.08% 67,000 Ryan's Family Steak Houses, Inc.* 1,146,370 --------------- ELECTRIC SERVICES - 2.08% 140,000 Reliant Resources, Inc.* 1,149,400 --------------- ELECTRONIC RESISTORS - 2.16% 56,000 Vishay Intertechnology, Inc.* 1,195,040 --------------- FERROALLOY ORES - 2.07% 33,000 Inco Ltd.+* 1,142,790 --------------- GAS TRANSMISSION & DISTRIBUTION - 1.96% 113,000 Williams Cos., Inc. (The)++ $ 1,081,410 --------------- HEALTH SERVICES - 2.25% 140,000 WebMD Corp.^* 1,244,600 --------------- HOLDING OFFICES - 1.12% 65,000 America West Holdings Corp., Class B+* 619,450 --------------- HOSPITAL & MEDICAL SERVICE PLANS - 2.11% 27,500 Coventry Health Care, Inc.* 1,164,075 --------------- HOSPITALS - 1.93% 34,500 Triad Hospitals, Inc.* 1,063,290 --------------- HOTELS, MOTELS & TOURIST COURTS - 1.77% 130,000 La Quinta Corp.* 980,200 --------------- INDUSTRIAL VALVES - 2.20% 52,000 Watts Water Technologies, Inc., Class A 1,216,280 --------------- INFORMATION RETRIEVAL SERVICES - 2.70% 75,000 Bankrate, Inc.^* 1,493,250 --------------- INVESTMENT ADVISORY SERVICE - 4.00% 20,250 Affiliated Managers Group, Inc.+* 1,105,245 29,000 Eaton Vance Corp.+ 1,105,480 --------------- 2,210,725 --------------- MEASURING & CONTROLLING DEVICES - 2.13% 49,000 MKS Instruments, Inc.* 1,176,490 --------------- MEDICAL & HOSPITAL EQUIPMENT - 2.22% 55,000 Cytyc Corp.* 1,223,750 --------------- MEDICINALS & BOTANICALS - 2.07% 24,000 Celgene Corp.* 1,143,600 --------------- MEN'S & BOYS' CLOTHING - 2.02% 51,000 Quiksilver, Inc.* 1,114,350 --------------- MISC. BUSINESS CREDIT INSTITUTIONS - 1.30% 55,000 Providian Financial Corp.* 720,500 --------------- PHARMACEUTICAL PREPARATIONS - 1.92% 39,000 Andrx Corp.* 1,060,800 ---------------
The accompanying notes are an integral part of the financial statements. 24
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) PLASTICS, FOAM PRODUCTS - 1.98% 22,000 Sealed Air Corp.* $ 1,094,060 --------------- POWER DRIVEN HAND TOOLS - 2.06% 20,000 Black & Decker Corp. (The)* 1,138,800 --------------- PREPACKAGED SOFTWARE - 5.35% 29,000 Adobe Systems Inc. 1,143,470 51,000 BEA Systems, Inc.* 650,760 55,000 Sybase, Inc.* 1,154,450 --------------- 2,948,680 --------------- PRIMARY BATTERIES, DRY & WET - 2.28% 44,000 Rayovac Corp.* 1,258,400 --------------- RADIO BROADCASTING - 1.99% 55,000 Cumulus Media Inc., Class A* 1,099,450 --------------- RADIO, TV & ELECTRONIC STORES - 2.15% 23,000 Best Buy Co., Inc. 1,189,560 --------------- RADIOTELEPHONE COMMUNICATIONS - 2.15% 94,000 Nextel Partners, Inc., Class A* 1,190,040 --------------- REAL ESTATE INVESTMENT TRUSTS - 3.97% 17,500 Chelsea Property Group, Inc.++ 1,101,450 18,000 Vornado Realty Trust 1,088,640 --------------- 2,190,090 --------------- REFRIGERATION & HEATING EQUIPMENT - 4.15% 10,000 American Standard Cos. Inc.* 1,137,500 39,000 Manitowoc Co., Inc. (The) 1,153,620 --------------- 2,291,120 --------------- SAVINGS & LOAN ASSOCIATIONS - 1.84% 28,000 IndyMac Bancorp, Inc. 1,016,120 --------------- SECURITY BROKERS & DEALERS - 1.97% 13,100 Lehman Brothers Holdings Inc. 1,085,597 --------------- SEMICONDUCTORS & RELATED DEVICES - 2.09% 48,000 Fairchild Semiconductor International, Inc., Class A+* 1,153,440 --------------- SINGLE-FAMILY HOUSING CONSTRUCTION - 0.98% 10,000 Lennar Corp. $ 540,300 --------------- SURETY INSURANCE - 2.00% 15,000 Ambac Financial Group, Inc.+ 1,106,700 --------------- WINES, BRANDY & BRANDY SPIRITS - 2.03% 35,000 Constellation Brands, Inc., Class A* 1,123,500 --------------- Total Common Stocks (cost - $50,194,038) 55,363,367 --------------- SHORT-TERM INVESTMENT -- 0.15% INVESTMENT COMPANY - 0.15% 82,780 Federated Government Obligations 0.90%^** (cost - $82,780) 82,780 --------------- Total Investments -- 100.39% (cost - $50,276,818) 55,446,147 Liabilities in excess of other assets -- (0.39)% (216,067) --------------- Net Assets -- 100.00% $ 55,230,080 ===============
---------- Unless otherwise indicated, all common stocks held long are ranked as five stars. + Currently ranked as four stars. ++ Currently ranked as three stars. ^ Not ranked by stars. * Non-income producing security. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. S&P STARS RANKING: Five stars -- Buy -- Expect to be among best performers over next 12 months and to rise in price. Four stars -- Accumulate -- Expect to be an above average performer. Three stars -- Hold -- Expect to be an average performer. Two stars -- Avoid -- Expect to be a below average performer. One star -- Sell -- Expect to be a well below average performer and to fall in price. The accompanying notes are an integral part of the financial statements. 25 The Insiders Select Fund PORTFOLIO OF INVESTMENTS MARCH 31, 2004
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS -- 89.43% ACCIDENT & HEALTH INSURANCE - 2.98% 27,800 AFLAC Inc. $ 1,115,892 --------------- ADVERTISING AGENCIES - 0.86% 21,000 Interpublic Group of Cos., Inc. (The) 322,980 --------------- AIRCRAFT ENGINES & ENGINE PARTS - 3.25% 14,100 United Technologies Corp. 1,216,830 --------------- BANK HOLDING COMPANIES - 10.19% 7,300 Bank of America Corp. 591,154 15,600 Comerica Inc. 847,392 22,100 PNC Financial Services Group, Inc. (The) 1,224,782 27,000 Washington Mutual, Inc. 1,153,170 --------------- 3,816,498 --------------- COMMUNICATIONS EQUIPMENT - 2.67% 49,300 Nokia Corp., ADR 999,804 --------------- CREDIT REPORTING SERVICES - 2.64% 18,500 Dun & Bradstreet Corp. (The)* 989,750 --------------- CRUDE PETROLEUM & NATURAL GAS - 4.46% 16,700 Anadarko Petroleum Corp. 866,062 18,634 Apache Corp. 804,430 --------------- 1,670,492 --------------- DEPARTMENT STORES - 2.55% 27,600 May Department Stores Co. (The) 954,408 --------------- EATING PLACES - 0.58% 7,600 McDonald's Corp. 217,132 --------------- ELECTRIC SERVICES - 1.50% 8,400 FPL Group, Inc. 561,540 --------------- ELEVATORS & MOVING STAIRWAYS - 0.57% 5,500 Dover Corp. 213,235 --------------- FINANCE SERVICES - 2.27% 20,200 First Data Corp. 851,632 --------------- FIRE, MARINE & CASUALTY INSURANCE - 1.94% 42,400 Travelers Property Casualty Corp., Class A 727,160 --------------- FLAT GLASS - 2.99% 19,200 PPG Industries, Inc. $ 1,119,360 --------------- FOOD & KINDRED PRODUCTS - 1.43% 16,700 Kraft Foods Inc., Class A 534,567 --------------- HOLDING OFFICES - 3.16% 18,400 MGIC Investment Corp. 1,181,832 --------------- INSURANCE AGENTS, BROKERS & SERVICES - 2.31% 18,700 Marsh & McLennan Cos., Inc. 865,810 --------------- LIFE INSURANCE - 2.53% 20,000 Lincoln National Corp. 946,400 --------------- LUMBER & OTHER BUILDING MATERIALS - 2.64% 26,500 Home Depot, Inc. (The) 990,040 --------------- MOTION PICTURE & VIDEO PRODUCTION - 1.28% 43,837 Liberty Media Corp., Class A* 480,015 --------------- MOTORS & GENERATORS - 1.17% 7,300 Emerson Electric Co. 437,416 --------------- NATIONAL BANKS - 4.22% 35,200 FleetBoston Financial Corp. 1,580,480 --------------- NEWSPAPERS - 1.54% 7,900 Knight-Ridder, Inc. 578,675 --------------- PAPER MILLS - 1.90% 16,800 International Paper Co. 709,968 --------------- PERSONAL CREDIT INSTITUTIONS - 3.52% 25,400 American Express Co. 1,316,990 --------------- PETROLEUM REFINING - 6.22% 12,000 ConocoPhillips 837,720 23,900 Sunoco, Inc. 1,490,882 --------------- 2,328,602 --------------- SANITARY PAPER PRODUCTS - 2.98% 17,700 Kimberly-Clark Corp. 1,116,870 --------------- SECURITY SYSTEMS SERVICES - 2.31% 30,200 Tyco International Ltd. 865,230 ---------------
The accompanying notes are an integral part of the financial statements. 26
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) SURETY INSURANCE - 3.01% 18,000 MBIA Inc. $ 1,128,600 --------------- TELEPHONE COMMUNICATIONS - 1.69% 34,300 Sprint Corp. (FON Group) 632,149 --------------- U.S. GOVERNMENT AGENCY - 1.85% 9,300 Fannie Mae 691,455 --------------- WOMEN'S READY-TO-WEAR STORES - 4.99% 42,700 Limited Brands, Inc. 854,000 41,300 TJX Cos., Inc. (The) 1,014,328 --------------- 1,868,328 --------------- WOODWORKING MACHINERY - 1.23% 7,800 Pentair, Inc. 460,200 --------------- Total Common Stocks (cost - $24,567,827) 33,490,340 --------------- SHORT-TERM INVESTMENTS -- 11.05% INVESTMENT COMPANY - 1.70% 637,148 Federated Government Obligations 0.90%** $ 637,148 --------------- PRINCIPAL AMOUNT (000'S) --------- U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 9.35% $ 3,500 Freddie Mac, Discount Notes 0.99%, 04/01/04 3,500,000 --------------- Total Short-Term Investments (cost - $4,137,148) 4,137,148 --------------- Total Investments -- 100.48% (cost - $28,704,976) 37,627,488 Liabilities in excess of other assets -- (0.48)% (180,638) --------------- Net Assets -- 100.00% $ 37,446,850 ===============
---------- ADR American Depositary Receipts. * Non-income producing security. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. The accompanying notes are an integral part of the financial statements. 27 Intrinsic Value Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2004
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS -- 97.01% ADVERTISING AGENCIES - 0.92% 65,600 Interpublic Group of Cos., Inc. (The) $ 1,008,928 --------------- AIRCRAFT ENGINES & ENGINE PARTS - 1.51% 19,200 United Technologies Corp. 1,656,960 --------------- BANK HOLDING COMPANIES - 10.03% 60,000 Bank of America Corp. 4,858,800 54,100 J.P. Morgan Chase & Co. 2,269,495 25,827 Washington Mutual, Inc. 1,103,071 48,900 Wells Fargo & Co. 2,771,163 --------------- 11,002,529 --------------- CABLE & OTHER PAY TV SERVICES - 1.47% 56,000 Comcast Corp., Class A* 1,609,440 --------------- CEREAL BREAKFAST FOODS - 1.15% 27,000 General Mills, Inc. 1,260,360 --------------- CIGARETTES - 2.08% 41,800 Altria Group, Inc. 2,276,010 --------------- COMMERCIAL BANKS - 4.88% 103,433 Citigroup Inc. 5,347,486 --------------- COMMUNICATIONS EQUIPMENT - 2.57% 138,900 Nokia Corp., ADR 2,816,892 --------------- COMPUTER RELATED SERVICES - 0.63% 35,700 Electronic Data Systems Corp. 690,795 --------------- CRUDE PETROLEUM & NATURAL GAS - 1.66% 35,200 Anadarko Petroleum Corp. 1,825,472 --------------- DEPARTMENT STORES - 1.89% 45,900 Target Corp. 2,067,336 --------------- ELECTRIC & ELECTRONIC EQUIPMENT - 2.55% 91,800 General Electric Co. 2,801,736 --------------- ELECTRONIC COMPUTERS - 1.71% 81,900 Hewlett-Packard Co. 1,870,596 --------------- FINANCE SERVICES - 2.18% 56,600 First Data Corp. 2,386,256 --------------- FIRE, MARINE & CASUALTY INSURANCE - 7.22% 51,000 Allstate Corp. (The) $ 2,318,460 40,200 American International Group, Inc. 2,868,270 159,200 Travelers Property Casualty Corp., Class A 2,730,280 --------------- 7,917,010 --------------- GENERAL MEDICAL & SURGICAL HOSPITALS - 2.61% 70,600 HCA Inc. 2,867,772 --------------- HOLDING OFFICES - 1.43% 24,500 MGIC Investment Corp. 1,573,635 --------------- INSURANCE AGENTS, BROKERS & SERVICES - 2.52% 59,600 Marsh & McLennan Cos., Inc. 2,759,480 --------------- LIFE INSURANCE - 1.59% 32,500 Torchmark Corp. 1,748,175 --------------- LUMBER & OTHER BUILDING MATERIALS - 1.62% 47,500 Home Depot, Inc. (The) 1,774,600 --------------- MEDICAL PRODUCTS - 3.70% 80,000 Johnson & Johnson 4,057,600 --------------- MOTION PICTURE & VIDEO PRODUCTION - 4.43% 374,006 Liberty Media Corp., Class A* 4,095,366 45,100 Time Warner Inc.* 760,386 --------------- 4,855,752 --------------- NATIONAL BANKS - 2.06% 81,700 U.S. Bancorp 2,259,005 --------------- OFFICE MACHINES - 1.17% 30,200 Pitney Bowes Inc. 1,286,822 --------------- PAPER MILLS - 2.60% 67,500 International Paper Co. 2,852,550 --------------- PERSONAL CREDIT INSTITUTIONS - 2.49% 52,600 American Express Co. 2,727,310 --------------- PETROLEUM REFINING - 7.96% 28,356 ChevronTexaco Corp. 2,489,090 32,900 ConocoPhillips 2,296,749 94,800 Exxon Mobil Corp. 3,942,732 --------------- 8,728,571 ---------------
The accompanying notes are an integral part of the financial statements. 28
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) PHARMACEUTICAL PREPARATIONS - 4.17% 38,300 Abbott Laboratories $ 1,574,130 13,300 Merck & Co., Inc. 587,727 68,900 Pfizer Inc. 2,414,945 --------------- 4,576,802 --------------- SANITARY PAPER PRODUCTS - 2.20% 38,300 Kimberly-Clark Corp. 2,416,730 --------------- SECURITY BROKERS & DEALERS - 0.94% 18,000 Morgan Stanley 1,031,400 --------------- SECURITY SYSTEMS SERVICES - 2.12% 81,000 Tyco International Ltd. 2,320,650 --------------- SHIP BUILDING & REPAIRING - 0.86% 10,600 General Dynamics Corp. 946,898 --------------- TELEPHONE COMMUNICATIONS - 3.85% 62,300 BellSouth Corp. 1,725,087 46,100 SBC Communications Inc. 1,131,294 37,500 Verizon Communications Inc. 1,370,250 --------------- 4,226,631 --------------- U.S. GOVERNMENT AGENCY - 1.91% 28,200 Fannie Mae 2,096,670 --------------- WOMEN'S READY-TO-WEAR STORES - 4.33% 116,800 Limited Brands, Inc. 2,336,000 98,200 TJX Cos., Inc. (The) 2,411,792 --------------- 4,747,792 --------------- Total Common Stocks (cost - $90,334,433) 106,392,651 --------------- SHORT-TERM INVESTMENT -- 2.89% INVESTMENT COMPANY - 2.89% 3,172,949 Federated Government Obligations 0.90%** (cost - $3,172,949) $ 3,172,949 --------------- Total Investments -- 99.90% (cost - $93,507,382) 109,565,600 Other assets in excess of liabilities -- 0.10% 107,446 --------------- Net Assets -- 100.00% $ 109,673,046 ===============
---------- ADR American Depositary Receipts. * Non-income producing security. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. The accompanying notes are an integral part of the financial statements. 29 Small Cap Value Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2004
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS -- 104.24% AIRCRAFT ENGINES & ENGINE PARTS - 1.63% 11,400 Woodward Governor Co. $ 726,636 --------------- ALUMINUM EXTRUDED PRODUCTS - 1.29% 39,400 Tredegar Corp. 576,422 --------------- ANALYTICAL INSTRUMENTS - 2.20% 52,100 Molecular Devices Corp.* 981,564 --------------- BANK HOLDING COMPANIES - 14.31% 65,200 BankAtlantic Bancorp, Inc., Class A 1,105,792 30,000 Commercial Federal Corp. 828,000 38,100 Greater Bay Bancorp 1,114,424 20,300 MAF Bancorp, Inc. 882,238 35,200 Provident Bankshares Corp. 1,104,576 49,650 Republic Bancorp, Inc. 698,079 25,100 Susquehanna Bancshares, Inc. 643,313 --------------- 6,376,422 --------------- BIOLOGICAL PRODUCTS - 5.60% 55,000 Abgenix, Inc.* 730,950 22,000 Connetics Corp.* 487,740 57,800 Nabi Biopharmaceuticals* 898,790 9,200 Techne Corp.* 375,452 --------------- 2,492,932 --------------- COATINGS & PAINT - 0.03% 374 Kronos Worldwide, Inc. 11,333 --------------- COMPUTER INTEGRATED SYSTEMS DESIGN - 3.29% 31,400 JDA Software Group, Inc.* 456,870 53,900 Scientific Games Corp.* 1,009,008 --------------- 1,465,878 --------------- COMPUTERS, PERIPHERALS & SOFTWARE - 2.17% 20,200 ScanSource, Inc.* 968,388 --------------- COPPER FOUNDRIES - 1.55% 20,300 Mueller Industries, Inc. 689,997 --------------- CRUDE PETROLEUM & NATURAL GAS - 5.50% 116,900 Magnum Hunter Resources, Inc.* 1,185,366 67,100 Swift Energy Co.* 1,264,835 --------------- 2,450,201 --------------- DATA PROCESSING & PREPARATION - 2.21% 60,100 eFunds Corp.* $ 985,640 --------------- DEPARTMENT STORES - 2.85% 32,800 Stage Stores, Inc.* 1,269,032 --------------- DIRECT MAIL ADVERTISING SERVICES - 1.71% 23,600 ADVO, Inc.* 760,392 --------------- ELECTRIC SERVICES - 1.13% 20,500 UniSource Energy Corp. 503,685 --------------- ELECTROMEDICAL EQUIPMENT - 2.68% 24,000 InVision Technologies, Inc.* 1,192,080 --------------- ELECTRONIC COMPUTERS - 4.23% 117,500 Adaptec, Inc.* 1,029,300 75,800 Fargo Electronics, Inc.* 856,540 --------------- 1,885,840 --------------- FIRE, MARINE & CASUALTY INSURANCE - 1.71% 21,700 Selective Insurance Group, Inc. 761,019 --------------- FREIGHT TRANSPORTATION ARRANGEMENT - 3.13% 56,400 Genesee & Wyoming Inc., Class A* 1,393,080 --------------- GAMES, TOYS & CHILDREN'S VEHICLES - 1.74% 16,700 Shuffle Master, Inc.* 776,383 --------------- GAS TRANSMISSION & DISTRIBUTION - 2.37% 25,600 Energen Corp. 1,056,000 --------------- INFORMATION RETRIEVAL SERVICES - 1.54% 16,100 FactSet Research Systems Inc. 685,216 --------------- INORGANIC PIGMENTS - 1.64% 52,400 NL Industries, Inc. 728,360 --------------- JEWELRY STORES - 1.51% 10,900 Zale Corp.* 670,895 --------------- KIDNEY DIALYSIS CENTERS - 1.90% 18,500 Renal Care Group, Inc.* 846,560 --------------- MANAGEMENT SERVICES - 2.16% 36,300 SOURCECORP, Inc.* 961,950 ---------------
The accompanying notes are an integral part of the financial statements. 30
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) MOTOR VEHICLE PARTS & ACCESSORIES - 0.63% 7,900 Superior Industries International, Inc. $ 279,976 --------------- NONFERROUS WIRE DRAWING & INSULATING - 2.22% 56,400 Andrew Corp.* 987,000 --------------- OIL & GAS FIELD SERVICES - 2.93% 118,700 Key Energy Services, Inc.* 1,305,700 --------------- PHARMACEUTICAL PREPARATIONS - 2.66% 38,100 Adolor Corp.* 572,643 30,600 Perrigo Co. 613,530 --------------- 1,186,173 --------------- PREPACKAGED SOFTWARE - 4.48% 44,800 Electronics For Imaging, Inc.* 1,100,736 64,200 NetIQ Corp.* 896,232 --------------- 1,996,968 --------------- PUMPS & PUMPING EQUIPMENT - 1.90% 40,500 Flowserve Corp.* 848,475 --------------- RADIO, TV & ELECTRONIC STORES - 1.28% 40,700 InterTAN, Inc.* 568,579 --------------- REAL ESTATE INVESTMENT TRUSTS - 5.07% 10,100 Colonial Properties Trust 412,080 35,800 Glenborough Realty Trust Inc. 800,130 43,000 Keystone Property Trust 1,045,330 --------------- 2,257,540 --------------- REFUSE SYSTEMS - 2.56% 44,500 Headwaters Inc.* 1,140,090 --------------- SAVINGS & LOAN ASSOCIATIONS - 1.21% 18,000 First Financial Holdings, Inc. 538,020 --------------- SECURITY BROKERS & DEALERS - 1.21% 30,200 SWS Group, Inc. 540,882 --------------- SEMICONDUCTORS & RELATED DEVICES - 5.73% 65,200 Lattice Semiconductor Corp.* 569,196 65,000 Microsemi Corp.* 889,200 54,600 OSI Systems, Inc.* 1,092,000 --------------- 2,550,396 --------------- TRANSPORTATION EQUIPMENT - 1.12% 19,600 Arctic Cat Inc. $ 499,604 --------------- WOMEN'S READY-TO-WEAR STORES - 1.16% 25,800 Cato Corp. (The), Class A 518,064 --------------- Total Common Stocks (cost - $34,492,387) 46,433,372 --------------- SHORT-TERM INVESTMENT -- 0.01% INVESTMENT COMPANY - 0.01% 3,080 Federated Government Obligations 0.90%** (cost - $3,080) 3,080 --------------- Total Investments -- 104.25% (cost - $34,495,467) 46,436,452 Liabilities in excess of other assets -- (4.25)% (1,893,636) --------------- Net Assets -- 100.00% $ 44,542,816 ===============
---------- * Non-income producing security. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. The accompanying notes are an integral part of the financial statements. 31 Alpha Growth Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2004
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS -- 98.75% BALL & ROLLER BEARINGS - 1.84% 47,300 Ingersoll-Rand Co. Ltd., Class A $ 3,199,845 --------------- BANK HOLDING COMPANIES - 3.47% 30,267 Golden West Financial Corp. 3,388,391 108,700 Synovus Financial Corp. 2,657,715 --------------- 6,046,106 --------------- BANKS, SAVINGS INSTITUTIONS - 2.18% 111,000 New York Community Bancorp, Inc. 3,805,080 --------------- CIRCUIT BOARDS - 3.44% 197,200 Flextronics International Ltd.* 3,395,784 235,800 Sanmina-SCI Corp.* 2,596,158 --------------- 5,991,942 --------------- COAL, OTHER MINERALS & ORES - 1.79% 166,586 BHP Billiton Ltd., ADR 3,128,485 --------------- COLLEGES & UNIVERSITIES - 2.14% 43,392 Apollo Group, Inc., Class A* 3,736,485 --------------- COMMUNICATIONS EQUIPMENT - 2.62% 164,300 Telefonaktiebolaget LM Ericsson, ADR 4,559,325 --------------- COMPUTER INTEGRATED SYSTEMS DESIGN - 2.24% 952,200 Lucent Technologies Inc.* 3,913,542 --------------- COMPUTER PERIPHERAL EQUIPMENT - 1.67% 123,958 Cisco Systems, Inc.* 2,915,492 --------------- CONSTRUCTION MACHINERY - 3.44% 37,600 Caterpillar Inc. 2,973,032 53,808 PACCAR Inc. 3,026,162 --------------- 5,999,194 --------------- COPPER ORES - 1.92% 40,900 Phelps Dodge Corp.* 3,339,894 --------------- DATA PROCESSING & PREPARATION - 1.62% 54,400 Affiliated Computer Services, Inc., Class A* 2,823,360 --------------- ELECTRONIC COMPONENTS - 3.33% 123,900 American Power Conversion Corp. $ 2,850,939 101,900 Koninklijke (Royal) Philips Electronics N.V., NY Registered Shares 2,953,062 --------------- 5,804,001 --------------- FERROALLOY ORES - 1.55% 78,100 Inco Ltd.* 2,704,603 --------------- FOOTWEAR - 2.07% 46,300 NIKE, Inc., Class B 3,605,381 --------------- GAS & OIL EXPLORATION SERVICES - 1.76% 91,500 Petroleo Brasileiro S.A. - Petrobras, ADR 3,065,250 --------------- GOLD ORES - 6.68% 67,200 AngloGold Ltd., ADR 2,840,544 72,100 Freeport-McMoRan Copper & Gold, Inc., Class B 2,818,389 63,869 Newmont Mining Corp. 2,978,211 167,600 Placer Dome Inc. 3,011,772 --------------- 11,648,916 --------------- INFORMATION RETRIEVAL SYSTEM - 1.86% 66,600 Yahoo! Inc.* 3,236,094 --------------- LUMBER & OTHER BUILDING MATERIALS - 1.81% 56,200 Lowe's Cos., Inc. 3,154,506 --------------- MANUFACTURING INDUSTRIES - 2.23% 86,345 International Game Technology 3,882,071 --------------- MEDICAL PRODUCTS - 1.91% 45,200 Zimmer Holdings, Inc.* 3,334,856 --------------- MISC. FOOD STORES - 2.00% 92,344 Starbucks Corp.* 3,485,986 --------------- MISC. HOME FURNISHINGS STORES - 1.76% 73,303 Bed Bath & Beyond Inc.* 3,061,133 --------------- MORTGAGE BANKERS & CORRESPONDENTS - 2.31% 42,000 Countrywide Financial Corp. 4,027,800 --------------- MOTOR VEHICLE PARTS & ACCESSORIES - 1.83% 56,750 Eaton Corp. 3,188,783 ---------------
The accompanying notes are an integral part of the financial statements. 32
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) MOTOR VEHICLES & CAR BODIES - 4.92% 98,800 AB Volvo, ADR $ 3,270,280 189,300 Ford Motor Co. 2,568,801 58,100 General Motors Corp. 2,736,510 --------------- 8,575,591 --------------- OFFICE MACHINES - 1.85% 221,300 Xerox Corp.* 3,224,341 --------------- PERSONAL CREDIT INSTITUTIONS - 2.13% 49,300 Capital One Financial Corp. 3,718,699 --------------- PREPACKAGED SOFTWARE - 3.53% 86,394 Symantec Corp.* 4,000,042 80,300 VERITAS Software Corp.* 2,160,873 --------------- 6,160,915 --------------- RADIO & TV COMMUNICATIONS EQUIPMENT - 2.21% 57,876 QUALCOMM Inc. 3,844,124 --------------- RADIOTELEPHONE COMMUNICATIONS - 1.52% 107,500 Nextel Communications, Inc., Class A* 2,658,475 --------------- SAVINGS & LOAN ASSOCIATIONS - 1.58% 128,400 Sovereign Bancorp, Inc. 2,750,328 --------------- SEMICONDUCTORS & RELATED DEVICES - 11.66% 135,000 Altera Corp.* 2,760,750 64,400 Analog Devices, Inc. 3,091,844 94,600 Intel Corp. 2,573,120 71,900 Linear Technology Corp. 2,661,738 59,700 Maxim Integrated Products, Inc. 2,811,273 77,100 National Semiconductor Corp.* 3,425,553 103,600 Texas Instruments Inc. 3,027,192 --------------- 20,351,470 --------------- SINGLE-FAMILY HOUSING CONSTRUCTION - 2.05% 66,000 Lennar Corp., Class A 3,565,980 --------------- SOFTWOOD VENEER & PLYWOOD - 1.95% 101,100 Georgia-Pacific Corp. 3,406,059 --------------- STATIONERY & OFFICE SUPPLIES - 1.78% 122,400 Staples, Inc. 3,107,736 --------------- SURGICAL APPLIANCES & SUPPLIES - 1.85% 36,418 Stryker Corp. $ 3,224,086 --------------- TELECOMMUNICATION EQUIPMENT - 2.25% 660,300 Nortel Networks Corp.* 3,922,182 --------------- Total Common Stocks (cost - $160,040,779) 172,168,116 --------------- SHORT-TERM INVESTMENT -- 1.15% INVESTMENT COMPANY - 1.15% 1,998,531 Federated Government Obligations 0.90%** (cost - $1,998,531) 1,998,531 --------------- Total Investments -- 99.90% (cost - $162,039,310) 174,166,647 Other assets in excess of liabilities -- 0.10% 168,237 --------------- Net Assets -- 100.00% $ 174,334,884 ===============
---------- ADR American Depositary Receipts. * Non-income producing security. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. The accompanying notes are an integral part of the financial statements. 33 International Equity Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2004
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS -- 98.71% AUSTRALIA - 2.19% COMMERCIAL SERVICES - 0.39% 49,100 Brambles Industries Ltd. $ 210,293 --------------- DIVERSIFIED MINERALS - 0.81% 47,282 BHP Billiton Ltd. 442,555 --------------- FIRE, MARINE & CASUALTY INSURANCE - 0.99% 189,100 Promina Group Ltd. 535,607 --------------- Total Australia (cost - $1,026,379) 1,188,455 --------------- AUSTRIA - 0.80% FOREIGN BANKS, BRANCHES & AGENCIES - 0.80% 2,900 Erste Bank der oesterreichischen Sparkassen AG* (cost - $221,376) 434,072 --------------- BRAZIL - 0.68% METAL ORES - 0.68% 6,700 Companhia Vale do Rio Doce, ADR (cost - $403,567) 367,830 --------------- CANADA - 3.53% COMPUTER - INTEGRATED SYSTEMS - 3.53% 20,500 Research in Motion Ltd.* (cost - $521,600) 1,912,855 --------------- CAYMAN ISLANDS - 0.46% INFORMATION RETRIEVAL SERVICES - 0.46% 6,600 SINA Corp.* (cost - $111,724) 249,678 --------------- CHINA - 7.09% DRILLING OIL & GAS WELLS - 1.01% 1,416,000 China Petroleum & Chemical Corp., Class H 545,238 --------------- ELECTRIC SERVICES - 2.44% 670,000 Huaneng Power International, Inc. 1,324,332 --------------- INSURANCE CARRIERS - 0.46% 400,000 China Life Insurance Co., Ltd.* 251,569 --------------- OIL & GAS EXPLORATION SERVICES - 1.20% 1,294,000 PetroChina Co. Ltd., Class H 651,891 --------------- RADIO & TELEPHONE COMMUNICATIONS - 1.47% 2,256,000 China Telecom Corp., Ltd., Class H 796,293 --------------- WATER TRANSPORTATION - 0.51% 400,000 China Shipping Development Co., Ltd., Class H $ 274,672 --------------- Total China (cost - $2,211,726) 3,843,995 --------------- DENMARK - 0.65% WATER TRANSPORTATION - 0.65% 49 A.P. Moller - Maersk A/S (cost - $380,682) 349,408 --------------- FRANCE - 4.96% HEAVY CONSTRUCTION CONTRACTORS - 0.38% 1,500 Technip S.A. 202,768 --------------- INSURANCE CARRIERS - 2.90% 75,300 AXA 1,571,264 --------------- WINES, BRANDY & BRANDY SPIRITS - 1.68% 12,400 LVMH Moet Hennessy Louis Vuitton SA 911,254 --------------- Total France (cost - $2,247,110) 2,685,286 --------------- GERMANY - 7.76% COMPUTERS, PERIPHERALS & SOFTWARE - 1.83% 6,300 SAP AG 990,985 --------------- CRUDE PETROLEUM & NATURAL GAS - 1.09% 13,200 RWE AG 592,084 --------------- ELECTRIC, GAS & SANITARY SERVICES - 0.30% 2,500 E.ON AG 164,980 --------------- MAILING, REPRODUCTION & STENOGRAPHIC - 0.24% 5,800 Deutsche Post AG* 129,936 --------------- MISC. RETAIL - 0.73% 9,300 Metro AG 397,721 --------------- MOTORS & GENERATORS - 2.73% 20,000 Siemens AG 1,477,137 --------------- TELEPHONE COMMUNICATIONS - 0.84% 38,300 T-Online International AG* 452,313 --------------- Total Germany (cost - $3,791,432) 4,205,156 ---------------
The accompanying notes are an integral part of the financial statements. 34
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) GREECE - 1.22% BANKING - 1.22% 21,500 Alpha Bank A.E. (cost - $529,253) $ 662,119 --------------- HONG KONG - 9.00% FOREIGN BANKS, BRANCHES & AGENCIES - 1.49% 78,400 Bank of East Asia, Ltd. 236,978 299,000 Boc Hong Kong (Holdings) Ltd. 569,900 --------------- 806,878 --------------- MOTOR VEHICLE & OTHER VEHICLES - 0.50% 234,000 Denway Motors Ltd. 270,308 --------------- REAL ESTATE - 5.44% 57,000 Cheung Kong (Holdings) Ltd. 479,201 216,000 Sun Hung Kai Properties Ltd. 1,975,332 165,000 Wharf (Holdings) Ltd. (The) 495,565 --------------- 2,950,098 --------------- TELEPHONE COMMUNICATIONS - 0.43% 260,000 China Unicom Ltd. 235,268 --------------- WHOLESALE TRADE - DURABLE GOODS - 1.14% 404,000 Li & Fung Ltd. 617,063 --------------- Total Hong Kong (cost - $4,597,930) 4,879,615 --------------- INDIA - 0.30% COMPUTERS, PERIPHERALS & SOFTWARE - 0.30% 2,000 Infosys Technologies Ltd., ADR (cost - $175,285) 163,400 --------------- ITALY - 0.81% FOREIGN BANKS, BRANCHES & AGENCIES - 0.81% 38,600 Sanpaolo IMI S.p.A. (cost - $385,697) 439,727 --------------- JAPAN - 25.74% ADVERTISING - 0.47% 84 Dentsu Inc. 256,760 --------------- AUDIO/VIDEO PRODUCTS - 0.73% 9,400 Sony Corp. 393,944 --------------- COMMERCIAL BANKS - 2.14% 117 Mitsubishi Tokyo Financial Group, Inc. $ 1,158,360 --------------- CONSTRUCTION MACHINERY - 0.40% 34,000 Komatsu Ltd. 215,697 --------------- ELECTRIC & ELECTRONIC EQUIPMENT - 0.55% 53,000 Mitsubishi Electric Corp. 300,572 --------------- ELECTRONIC COMPONENTS & ACCESSORIES - 0.37% 2,400 Kyocera Corp. 201,624 --------------- EQUIPMENT PROVIDERS - 0.88% 7,500 Murata Manufacturing Co., Ltd. 476,522 --------------- FINANCIAL SERVICES - 3.05% 3,300 Acom Co., Ltd. 241,073 6,200 Aiful Corp. 635,882 105 Sumitomo Mitsui Financial Group Inc. 777,142 --------------- 1,654,097 --------------- FIRE, MARINE & CASUALTY INSURANCE - 1.67% 58 Millea Holdings, Inc. 903,158 --------------- HOUSEHOLD AUDIO & VIDEO EQUIPMENT - 1.91% 58,000 Sharp Corp. 1,036,401 --------------- INTERNET SERVICE PROVIDER - 5.09% 226 Yahoo Japan Corp.* 2,758,879 --------------- MEASURING & CONTROLLING DEVICES - 0.41% 2,700 Advantest Corp. 221,377 --------------- MISC. GENERAL MERCHANDISE STORES - 1.26% 15,000 Ito Yokado Co. Ltd. 683,424 --------------- OPTICAL INSTRUMENTS & LENSES - 0.43% 2,400 Hoya Corp. 234,152 --------------- PAINT, GLASS & WALLPAPER STORES - 0.52% 26,000 Asahi Glass Co., Ltd. 280,905 --------------- PRINTING - COMMERCIAL - 1.35% 57,000 Toppan Printing Co., Ltd. 734,724 ---------------
The accompanying notes are an integral part of the financial statements. 35
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) JAPAN (CONTINUED) REAL ESTATE - 2.03% 81,000 Mitsubishi Estate Co., Ltd. $ 1,098,582 --------------- SECURITY BROKERS & DEALERS - 1.68% 137,000 Nikko Cordial Corp. 908,637 --------------- SHORT TERM BUSINESS CREDIT - 0.80% 3,900 ORIX Corp. 431,480 --------------- Total Japan (cost - $10,639,287) 13,949,295 --------------- NETHERLANDS - 6.45% ELECTRONIC COMPONENTS & ACCESSORIES - 1.93% 57,100 ASML Holding N.V.* 1,046,237 --------------- INSURANCE CARRIERS - 1.26% 31,100 ING Groep N.V. 683,352 --------------- LIFE INSURANCE - 0.62% 26,200 AEGON N.V.* 334,851 --------------- RADIO & TELEVISION COMMUNICATIONS EQUIPMENT - 2.33% 43,700 Koninklijki (Royal) Philips Electronics N.V. 1,263,630 --------------- SURGICAL & MEDICAL INSTRUMENTS - 0.31% 12,600 QIAGEN N.V.* 164,906 --------------- Total Netherlands (cost - $3,199,760) 3,492,976 --------------- PORTUGAL - 1.72% FOREIGN BANKS, BRANCHES & AGENCIES - 0.67% 147,700 Banco Comercial Portugues, S.A.* 364,832 --------------- TELEPHONE COMMUNICATIONS - 1.05% 50,700 Portugal Telecom, SGPS, S.A. 566,978 --------------- Total Portugal (cost - $966,083) 931,810 --------------- RUSSIA - 2.16% NATURAL GAS DISTRIBUTION - 1.00% 14,300 Gazprom, ADR (a) 540,540 --------------- TELEPHONE COMMUNICATIONS - 1.16% 4,800 Mobile Telesystems, ADR 631,200 --------------- Total Russia (cost - $586,422) 1,171,740 --------------- SINGAPORE - 1.76% CIRCUIT BOARDS - 0.87% 27,400 Flextronics International Ltd.* $ 471,828 --------------- FOREIGN BANKS, BRANCHES & AGENCIES - 0.48% 30,000 DBS Group Holdings Ltd. 257,718 --------------- REAL ESTATE OPERATORS/DEVELOPERS - 0.41% 61,000 City Developments Ltd. 221,984 --------------- Total Singapore (cost - $845,635) 951,530 --------------- SOUTH KOREA - 1.60% ELECTRONIC COMPONENTS & ACCESSORIES - 1.60% 3,500 Samsung Electronics Co., Ltd., GDR (a) (cost - $600,120) 866,250 --------------- SPAIN - 2.13% TELEPHONE COMMUNICATIONS - 2.13% 76,198 Telefonica S.A. (cost - $800,745) 1,152,705 --------------- SWEDEN - 1.89% AIR & GAS COMPRESSORS - 0.31% 4,700 Atlas Copco AB, Class A 167,027 --------------- COMMUNICATIONS EQUIPMENT - 1.12% 220,100 Telefonaktiebolaget LM Ericsson* 609,986 --------------- SECURITY SERVICES - 0.46% 17,100 Securitas AB, Class B 247,159 --------------- Total Sweden (cost - $1,041,113) 1,024,172 --------------- SWITZERLAND - 6.20% FOREIGN BANKS, BRANCHES & AGENCIES - 3.90% 39,200 Credit Suisse Group 1,358,393 10,200 UBS AG 757,643 --------------- 2,116,036 --------------- INSURANCE CARRIERS - 2.30% 7,900 Zurich Financial Services AG* 1,245,629 --------------- Total Switzerland (cost - $2,527,651) 3,361,665 --------------- THAILAND - 0.85% FOREIGN BANKS, BRANCHES & AGENCIES - 0.43% 98,000 Bangkok Bank Public Co. Ltd.* 235,708 ---------------
The accompanying notes are an integral part of the financial statements. 36
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) THAILAND (CONTINUED) RADIO & TELEPHONE COMMUNICATIONS - 0.42% 106,000 Advanced Info Service Public Co., Ltd. $ 225,274 --------------- Total Thailand (cost - $286,337) 460,982 --------------- UNITED KINGDOM - 8.76% BANK HOLDING COMPANIES - 0.90% 32,400 HSBC Holdings plc, Ord 0.27p 488,634 --------------- COAL, OTHER MINERALS & ORES - 1.43% 58,000 Xstrata plc, Ord 0.27p 772,816 --------------- FIRE, MARINE & CASUALTY INSURANCE - 0.32% 18,100 Aviva plc, Ord 25p 175,640 --------------- FOREIGN BANKS, BRANCHES & AGENCIES - 2.59% 83,800 Standard Chartered plc, Ord 0.27p 1,403,048 --------------- GAS & OTHER SERVICES COMBINED - 0.39% 50,000 Centrica plc, Ord 5.55p 209,745 --------------- LUMBER & OTHER BUILDING PRODUCTS - 0.50% 51,262 Kingfisher plc, Ord 15.71p 271,801 --------------- MEDICAL - DRUGS - 0.49% 27,300 Shire Pharmaceuticals Group plc, Ord 5p* 266,420 --------------- MEDICAL INSTRUMENTS & SUPPLIES - 0.48% 26,500 Smith & Nephew plc, Ord 12.222p 260,805 --------------- RADIO & TELEPHONE COMMUNICATIONS - 0.97% 222,700 Vodafone Group plc, Ord 0.05p 526,960 --------------- TELEPHONE COMMUNICATIONS - 0.69% 216,700 COLT Telecom Group plc, Ord 2.5p* 370,384 --------------- Total United Kingdom (cost - $4,574,133) 4,746,253 --------------- Total Common Stocks (cost - $42,671,047) 53,490,974 --------------- SHORT-TERM INVESTMENT -- 1.08% UNITED STATES - 1.08% INVESTMENT COMPANY - 1.08% 587,050 Federated Government Obligations 0.90%** (cost - $587,050) $ 587,050 --------------- Total Investments -- 99.79% (cost - $43,258,097) 54,078,024 Other assets in excess of liabilities -- 0.21% 113,802 --------------- Net Assets -- 100.00% $ 54,191,826 ===============
---------- ADR American Depositary Receipts. GDR Global Depositary Receipts. * Non-income producing security. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. (a) SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. These securities have been determined to be liquid in accordance with procedures adopted by the Fund's Board. The accompanying notes are an integral part of the financial statements. 37 This page is intentionally left blank. THE BEAR STEARNS FUNDS STATEMENTS OF ASSETS & LIABILITIES MARCH 31, 2004
S&P STARS INTRINSIC S&P STARS OPPORTUNITIES THE INSIDERS VALUE PORTFOLIO PORTFOLIO SELECT FUND PORTFOLIO ---------------- ---------------- ---------------- ---------------- ASSETS Investments, at value (cost - $1,318,794,186, $50,276,818, $28,704,976, $93,507,382, $34,495,467, $162,039,310 and $43,258,097, respectively) $ 1,487,513,186 $ 55,446,147 $ 37,627,488 $ 109,565,600 Deposit with broker for securities sold short 27,823,764 -- -- -- Collateral received for securities loaned 45,234,068 -- -- -- Dividend, interest and reclaims receivable 974,299 20,644 42,174 156,392 Receivable for Portfolio shares sold 612,482 19,768 8,096 270,615 Receivable from investment adviser -- 1,132 -- -- Prepaid expenses and other assets 10,070 48,884 23,773 22,345 ---------------- ---------------- ---------------- ---------------- Total assets 1,562,167,869 55,536,575 37,701,531 110,014,952 ---------------- ---------------- ---------------- ---------------- LIABILITIES Securities sold short, at value (proceeds received - $27,696,773) 26,646,600 -- -- -- Loan payable 4,800,000 -- -- -- Payable upon return for securities loaned 45,234,068 -- -- -- Payable for Portfolio shares repurchased 3,830,672 137,489 128,262 98,384 Advisory fee payable 619,315 -- 6,137 33,306 Administration fee payable 175,744 5,017 4,750 14,239 Distribution and service fees payable (Class A, B, and C Shares) 2,832,157 112,786 71,806 162,616 Custodian fee payable 13,546 6,072 1,685 2,136 Trustees' fees payable 2,010 871 822 1,308 Accrued expenses 576,671 44,260 41,219 29,917 ---------------- ---------------- ---------------- ---------------- Total liabilities 84,730,783 306,495 254,681 341,906 ---------------- ---------------- ---------------- ---------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) 63,985 3,647 2,141 5,209 Paid-in capital 2,314,980,127 49,698,195 30,221,648 94,031,328 Undistributed net investment income/(loss) -- -- 8,801 357,628 Accumulated net realized gain/(loss) from investments, foreign currency related transactions and securities sold short, if any (1,007,376,199) 358,909 (1,708,252) (779,337) Net unrealized appreciation on investments, foreign currency related transactions and securities sold short, if any 169,769,173 5,169,329 8,922,512 16,058,218 ---------------- ---------------- ---------------- ---------------- Net assets $ 1,477,437,086 $ 55,230,080 $ 37,446,850 $ 109,673,046 ---------------- ---------------- ---------------- ---------------- SMALL CAP ALPHA INTERNATIONAL VALUE GROWTH EQUITY PORTFOLIO PORTFOLIO PORTFOLIO ---------------- ---------------- ---------------- ASSETS Investments, at value (cost - $1,318,794,186, $50,276,818, $28,704,976, $93,507,382, $34,495,467, $162,039,310 and $43,258,097, respectively) $ 46,436,452 $ 174,166,647 $ 54,078,024 Deposit with broker for securities sold short -- -- -- Collateral received for securities loaned -- -- -- Dividend, interest and reclaims receivable 32,659 162,113 173,418 Receivable for Portfolio shares sold 19,963 665,071 156,664 Receivable from investment adviser -- -- -- Prepaid expenses and other assets 12,660 30,172 14,677 ---------------- ---------------- ---------------- Total assets 46,501,734 175,024,003 54,422,783 ---------------- ---------------- ---------------- LIABILITIES Securities sold short, at value (proceeds received - $27,696,773) -- -- -- Loan payable 230,000 -- -- Payable upon return for securities loaned -- -- -- Payable for Portfolio shares repurchased 1,594,976 279,480 69,953 Advisory fee payable 14,693 46,813 23,107 Administration fee payable 6,560 21,352 6,845 Distribution and service fees payable (Class A, B, and C Shares) 67,315 282,009 75,924 Custodian fee payable 2,364 5,590 13,544 Trustees' fees payable 1,246 1,225 1,510 Accrued expenses 41,764 52,650 40,074 ---------------- ---------------- ---------------- Total liabilities 1,958,918 689,119 230,957 ---------------- ---------------- ---------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) 2,338 8,416 3,722 Paid-in capital 38,103,553 147,017,583 94,879,737 Undistributed net investment income/(loss) -- -- (679,696) Accumulated net realized gain/(loss) from investments, foreign currency related transactions and securities sold short, if any (5,504,060) 15,181,548 (50,843,545) Net unrealized appreciation on investments, foreign currency related transactions and securities sold short, if any 11,940,985 12,127,337 10,831,608 ---------------- ---------------- ---------------- Net assets $ 44,542,816 $ 174,334,884 $ 54,191,826 ---------------- ---------------- ----------------
The accompanying notes are an integral part of the financial statements. 39
S&P STARS INTRINSIC S&P STARS OPPORTUNITIES THE INSIDERS VALUE PORTFOLIO PORTFOLIO SELECT FUND PORTFOLIO ---------------- ---------------- ---------------- ---------------- CLASS A Net assets $ 580,543,443 $ 22,709,480 $ 18,530,076 $ 41,249,833 ---------------- ---------------- ---------------- ---------------- Shares of beneficial interest outstanding 24,804,285 1,486,462 1,036,093 1,951,488 ---------------- ---------------- ---------------- ---------------- Net asset value per share $ 23.40 $ 15.28 $ 17.88 $ 21.14 ================ ================ ================ ================ Maximum offering price per share (net asset value plus sales charge of 5.50%* of the offering price) $ 24.76 $ 16.17 $ 18.92 $ 22.37 ================ ================ ================ ================ CLASS B Net assets $ 420,693,957 $ 18,331,412 $ 11,651,256 $ 19,990,007 ---------------- ---------------- ---------------- ---------------- Shares of beneficial interest outstanding 18,633,598 1,218,668 681,425 967,278 ---------------- ---------------- ---------------- ---------------- Net asset value and offering price per share** $ 22.58 $ 15.04 $ 17.10 $ 20.67 ================ ================ ================ ================ CLASS C Net assets $ 305,175,725 $ 13,483,323 $ 6,884,520 $ 21,323,718 ---------------- ---------------- ---------------- ---------------- Shares of beneficial interest outstanding 13,526,257 895,724 402,860 1,025,633 ---------------- ---------------- ---------------- ---------------- Net asset value and offering price per share** $ 22.56 $ 15.05 $ 17.09 $ 20.79 ================ ================ ================ ================ CLASS Y Net assets $ 171,023,961 $ 705,865 $ 380,998 $ 27,109,488 ---------------- ---------------- ---------------- ---------------- Shares of beneficial interest outstanding 7,020,972 45,805 20,706 1,264,786 ---------------- ---------------- ---------------- ---------------- Net asset value, offering and redemption price per share $ 24.36 $ 15.41 $ 18.40 $ 21.43 ================ ================ ================ ================ SMALL CAP ALPHA INTERNATIONAL VALUE GROWTH EQUITY PORTFOLIO PORTFOLIO PORTFOLIO ---------------- ---------------- ---------------- CLASS A Net assets $ 15,572,276 $ 108,361,187 $ 11,011,935 ---------------- ---------------- ---------------- Shares of beneficial interest outstanding 808,726 5,171,583 753,050 ---------------- ---------------- ---------------- Net asset value per share $ 19.26 $ 20.95 $ 14.62 ================ ================ ================ Maximum offering price per share (net asset value plus sales charge of 5.50%* of the offering price) $ 20.38 $ 22.17 $ 15.47 ================ ================ ================ CLASS B Net assets $ 6,626,246 $ 31,840,068 $ 5,271,458 ---------------- ---------------- ---------------- Shares of beneficial interest outstanding 359,158 1,567,313 371,142 ---------------- ---------------- ---------------- Net asset value and offering price per share** $ 18.45 $ 20.32 $ 14.20 ================ ================ ================ CLASS C Net assets $ 10,595,872 $ 34,133,629 $ 17,251,356 ---------------- ---------------- ---------------- Shares of beneficial interest outstanding 573,377 1,676,921 1,212,399 ---------------- ---------------- ---------------- Net asset value and offering price per share** $ 18.48 $ 20.35 $ 14.23 ================ ================ ================ CLASS Y Net assets $ 11,748,422 -- $ 20,657,077 ---------------- ---------------- ---------------- Shares of beneficial interest outstanding 596,788 -- 1,385,147 ---------------- ---------------- ---------------- Net asset value, offering and redemption price per share $ 19.69 -- $ 14.91 ================ ================ ================
---------- * 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. 40 THE BEAR STEARNS FUNDS STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2004
S&P STARS INTRINSIC S&P STARS OPPORTUNITIES THE INSIDERS VALUE PORTFOLIO PORTFOLIO SELECT FUND PORTFOLIO ---------------- ---------------- ---------------- ---------------- INVESTMENT INCOME Dividends $ 10,326,387 $ 344,822 $ 643,116 $ 1,903,892 Interest 134,866 4,159 11,651 37,457 Securities lending income 68,827 -- 40 448 Less: Foreign taxes withheld -- -- -- -- ---------------- ---------------- ---------------- ---------------- 10,530,080 348,981 654,807 1,941,797 ---------------- ---------------- ---------------- ---------------- EXPENSES Advisory fees 10,585,546 412,405 193,004 695,563 Administration fees 1,993,704 82,482 51,215 139,114 Distribution and service fees - Class A 2,860,860 116,484 84,219 163,096 Distribution and service fees - Class B 3,959,099 175,149 103,534 155,543 Distribution and service fees - Class C 3,004,944 133,865 65,282 183,464 Transfer agent fees and expenses 3,089,514 183,010 163,539 182,627 Accounting fees 494,000 19,246 11,118 32,460 Legal and auditing fees 105,580 71,842 73,499 70,397 Custodian fees and expenses 161,704 39,493 9,615 20,339 Federal and state registration fees 53,197 45,563 42,919 43,634 Reports and notices to shareholders 223,677 9,000 4,599 15,724 Trustees' fees and expenses 18,300 14,279 14,198 15,190 Insurance expenses 10,239 1,512 7,290 7,303 Other 278,933 5,283 2,902 6,000 ---------------- ---------------- ---------------- ---------------- Total expenses before waivers and related reimbursements, if any 26,839,297 1,309,613 826,933 1,730,454 Less: waivers and related reimbursements (2,855,170) (333,323) (180,927) (299,785) ---------------- ---------------- ---------------- ---------------- Total expenses after waivers and related reimbursements, if any 23,984,127 976,290 646,006 1,430,669 ---------------- ---------------- ---------------- ---------------- Net investment income/(loss) (13,454,047) (627,309) 8,801 511,128 ---------------- ---------------- ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain/(loss) from: Investments 44,434,317 15,703,875 (70,186) 2,295,339 Foreign currency related transactions -- -- -- -- Securities sold short (7,591,949) (339,013) -- -- Net change in unrealized depreciation on: Investments and foreign currency related transactions, if any 505,157,801 5,340,960 12,222,828 26,788,726 Securities sold short 1,422,970 54,642 -- -- ---------------- ---------------- ---------------- ---------------- Net realized and unrealized gain on investments 543,423,139 20,760,464 12,152,642 29,084,065 ---------------- ---------------- ---------------- ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 529,969,092 $ 20,133,155 $ 12,161,443 $ 29,595,193 ================ ================ ================ ================ SMALL CAP ALPHA INTERNATIONAL VALUE GROWTH EQUITY PORTFOLIO PORTFOLIO PORTFOLIO ---------------- ---------------- ---------------- INVESTMENT INCOME Dividends $ 532,510 $ 1,523,833 $ 989,648 Interest 7,469 1,436 49 Securities lending income 2,339 60 -- Less: Foreign taxes withheld -- -- (81,119) ---------------- ---------------- ---------------- 542,318 1,525,329 908,578 ---------------- ---------------- ---------------- EXPENSES Advisory fees 420,753 768,292 624,348 Administration fees 84,151 177,299 93,653 Distribution and service fees - Class A 75,043 347,964 78,894 Distribution and service fees - Class B 63,372 251,259 48,740 Distribution and service fees - Class C 112,903 234,798 156,902 Transfer agent fees and expenses 167,269 180,680 158,611 Accounting fees 19,635 41,370 21,853 Legal and auditing fees 74,060 65,908 79,197 Custodian fees and expenses 15,309 45,738 100,670 Federal and state registration fees 43,699 50,720 41,206 Reports and notices to shareholders 8,428 21,409 8,980 Trustees' fees and expenses 15,002 14,651 13,917 Insurance expenses 7,434 7,293 7,644 Other 4,426 4,730 7,206 ---------------- ---------------- ---------------- Total expenses before waivers and related reimbursements, if any 1,111,484 2,212,111 1,441,821 Less: waivers and related reimbursements (221,960) (312,897) (375,742) ---------------- ---------------- ---------------- Total expenses after waivers and related reimbursements, if any 889,524 1,899,214 1,066,079 ---------------- ---------------- ---------------- Net investment income/(loss) (347,206) (373,885) (157,501) ---------------- ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain/(loss) from: Investments 4,784,363 17,013,630 9,423,139 Foreign currency related transactions -- -- (819,100) Securities sold short -- -- -- Net change in unrealized depreciation on: Investments and foreign currency related transactions, if any 17,591,457 14,332,976 13,603,783 Securities sold short -- -- -- ---------------- ---------------- ---------------- Net realized and unrealized gain on investments 22,375,820 31,346,606 22,207,822 ---------------- ---------------- ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 22,028,614 $ 30,972,721 $ 22,050,321 ================ ================ ================
The accompanying notes are an integral part of the financial statements. 41 THE BEAR STEARNS FUNDS STATEMENTS OF CHANGES IN NET ASSETS
S&P STARS PORTFOLIO S&P STARS OPPORTUNITIES PORTFOLIO ---------------------------------- ---------------------------------- FOR THE FOR THE FISCAL YEARS FISCAL YEARS ENDED MARCH 31, ENDED MARCH 31, ---------------------------------- ---------------------------------- 2004 2003 2004 2003 --------------- --------------- --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income/(loss) $ (13,454,047) $ (18,437,027) $ (627,309) $ (690,819) Net realized gain/(loss) from investments, foreign currency related transactions and securities sold short, if any 36,842,368 (534,691,972) 15,364,862 (14,094,234) Net change in unrealized appreciation/(depreciation) on investments, foreign currency related transactions and securities sold short, if any 506,580,771 (349,377,257) 5,395,602 (4,665,677) --------------- --------------- --------------- --------------- Net increase/(decrease) in net assets, resulting from operations 529,969,092 (902,506,256) 20,133,155 (19,450,730) --------------- --------------- --------------- --------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares -- -- -- -- Class B shares -- -- -- -- Class C shares -- -- -- -- Class Y shares -- -- -- -- --------------- --------------- --------------- --------------- -- -- -- -- --------------- --------------- --------------- --------------- Net realized capital gains Class A shares -- -- -- (358,229) Class B shares -- -- -- (258,797) Class C shares -- -- -- (203,086) Class Y shares -- -- -- (16,521) --------------- --------------- --------------- --------------- -- -- -- (836,633) --------------- --------------- --------------- --------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares 123,594,414 163,983,729 5,801,219 24,602,311 Cost of shares repurchased (347,027,437) (687,251,200) (18,405,028) (27,421,582) Shares issued in reinvestment of dividends and distributions -- -- -- 775,281 --------------- --------------- --------------- --------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions (223,433,023) (523,267,471) (12,603,809) (2,043,990) --------------- --------------- --------------- --------------- Total increase/(decrease) in net assets 306,536,069 (1,425,773,727) 7,529,346 (22,331,353) NET ASSETS Beginning of year 1,170,901,017 2,596,674,744 47,700,734 70,032,087 --------------- --------------- --------------- --------------- End of year* $ 1,477,437,086 $ 1,170,901,017 $ 55,230,080 $ 47,700,734 =============== =============== =============== =============== THE INSIDERS SELECT FUND ---------------------------------- FOR THE FISCAL YEARS ENDED MARCH 31, ---------------------------------- 2004 2003 --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income/(loss) $ 8,801 $ 53,550 Net realized gain/(loss) from investments, foreign currency related transactions and securities sold short, if any (70,186) (1,496,027) Net change in unrealized appreciation/(depreciation) on investments, foreign currency related transactions and securities sold short, if any 12,222,828 (9,619,724) --------------- --------------- Net increase/(decrease) in net assets, resulting from operations 12,161,443 (11,062,201) --------------- --------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares (50,676) -- Class B shares -- -- Class C shares -- -- Class Y shares (2,672) -- --------------- --------------- (53,348) -- --------------- --------------- Net realized capital gains Class A shares -- (25,126) Class B shares -- (15,796) Class C shares -- (11,229) Class Y shares -- (640) --------------- --------------- -- (52,791) --------------- --------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares 6,625,445 13,299,638 Cost of shares repurchased (8,703,429) (13,545,245) Shares issued in reinvestment of dividends and distributions 45,985 48,418 --------------- --------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions (2,031,999) (197,189) --------------- --------------- Total increase/(decrease) in net assets 10,076,096 (11,312,181) NET ASSETS Beginning of year 27,370,754 38,682,935 --------------- --------------- End of year* $ 37,446,850 $ 27,370,754 =============== ===============
---------- * Includes undistributed net investment income as follows:
FOR THE FISCAL YEARS ENDED ------------------------------- MARCH 31, 2004 MARCH 31, 2003 -------------- -------------- The Insiders Select Fund $ 8,801 $ 53,348 Intrinsic Value Portfolio 357,628 368,133 Small Cap Value Portfolio -- 185,345
The accompanying notes are an integral part of the financial statements. 42
INTRINSIC VALUE PORTFOLIO SMALL CAP VALUE PORTFOLIO ---------------------------------- ---------------------------------- FOR THE FOR THE FISCAL YEARS FISCAL YEARS ENDED MARCH 31, ENDED MARCH 31, ---------------------------------- ---------------------------------- 2004 2003 2004 2003 --------------- --------------- --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income/(loss) $ 511,128 $ 591,558 $ (347,206) $ 185,699 Net realized gain/(loss) from investments, foreign currency related transactions and securities sold short, if any 2,295,339 (2,993,556) 4,784,363 (10,169,674) Net change in unrealized appreciation/(depreciation) on investments, foreign currency related transactions and securities sold short, if any 26,788,726 (17,383,948) 17,591,457 (16,055,862) --------------- --------------- --------------- --------------- Net increase/(decrease) in net assets, resulting from operations 29,595,193 (19,785,946) 22,028,614 (26,039,837) --------------- --------------- --------------- --------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares (211,744) (124,710) (26,135) -- Class B shares (29,005) (26,585) -- -- Class C shares (39,765) (30,467) -- -- Class Y shares (241,119) (252,926) (159,210) -- --------------- --------------- --------------- --------------- (521,633) (434,688) (185,345) -- --------------- --------------- --------------- --------------- Net realized capital gains Class A shares -- -- -- (1,262,957) Class B shares -- -- -- (427,272) Class C shares -- -- -- (826,472) Class Y shares -- -- -- (1,639,686) --------------- --------------- --------------- --------------- -- -- -- (4,156,387) --------------- --------------- --------------- --------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares 45,343,332 31,578,358 9,366,152 17,139,387 Cost of shares repurchased (25,478,203) (18,042,549) (34,503,342) (24,768,254) Shares issued in reinvestment of dividends and distributions 457,163 406,998 160,549 3,708,819 --------------- --------------- --------------- --------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions 20,322,292 13,942,807 (24,976,641) (3,920,048) --------------- --------------- --------------- --------------- Total increase/(decrease) in net assets 49,395,852 (6,277,827) (3,133,372) (34,116,272) NET ASSETS Beginning of year 60,277,194 66,555,021 47,676,188 81,792,460 --------------- --------------- --------------- --------------- End of year* $ 109,673,046 $ 60,277,194 $ 44,542,816 $ 47,676,188 =============== =============== =============== =============== ALPHA GROWTH PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO ---------------------------------- ---------------------------------- FOR THE FOR THE FISCAL YEARS FISCAL YEARS ENDED MARCH 31, ENDED MARCH 31, ---------------------------------- ---------------------------------- 2004 2003 2004 2003 --------------- --------------- --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income/(loss) $ (373,885) $ (177,537) $ (157,501) $ 347,940 Net realized gain/(loss) from investments, foreign currency related transactions and securities sold short, if any 17,013,630 2,029,943 8,604,039 (17,232,117) Net change in unrealized appreciation/(depreciation) on investments, foreign currency related transactions and securities sold short, if any 14,332,976 (11,016,230) 13,603,783 (6,833,766) --------------- --------------- --------------- --------------- Net increase/(decrease) in net assets, resulting from operations 30,972,721 (9,163,824) 22,050,321 (23,717,943) --------------- --------------- --------------- --------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares -- -- -- -- Class B shares -- -- -- -- Class C shares -- -- -- -- Class Y shares -- -- -- -- --------------- --------------- --------------- --------------- -- -- -- -- --------------- --------------- --------------- --------------- Net realized capital gains Class A shares -- -- -- -- Class B shares -- -- -- -- Class C shares -- -- -- -- Class Y shares -- -- -- -- --------------- --------------- --------------- --------------- -- -- -- -- --------------- --------------- --------------- --------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares 100,443,859 60,680,183 24,910,907 18,424,391 Cost of shares repurchased (26,194,071) (21,187,371) (47,230,469) (22,089,897) Shares issued in reinvestment of dividends and distributions -- -- -- -- --------------- --------------- --------------- --------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions 74,249,788 39,492,812 (22,319,562) (3,665,506) --------------- --------------- --------------- --------------- Total increase/(decrease) in net assets 105,222,509 30,328,988 (269,241) (27,383,449) NET ASSETS Beginning of year 69,112,375 38,783,387 54,461,067 81,844,516 --------------- --------------- --------------- --------------- End of year* $ 174,334,884 $ 69,112,375 $ 54,191,826 $ 54,461,067 =============== =============== =============== ===============
43 THE BEAR STEARNS FUNDS FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for each class of shares outstanding, total investment returns, ratios to average net assets and other supplemental data for each year indicated. This information has been derived from information provided in the financial statements.
NET NET ASSET REALIZED AND DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON REALIZED OF YEAR LOSS*(1) INVESTMENTS*(2) CAPITAL GAINS ------------------ ------------------ ------------------ ------------------ S&P STARS PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 15.81 $ (0.17) $ 7.76 -- For the fiscal year ended March 31, 2003 25.11 (0.21) (9.09) -- For the fiscal year ended March 31, 2002 27.85 (0.30) (2.44) -- For the fiscal year ended March 31, 2001 36.42 (0.27) (7.82) $ (0.48) For the fiscal year ended March 31, 2000 24.39 (0.21) 12.53 (0.29) CLASS B For the fiscal year ended March 31, 2004 15.32 (0.27) 7.53 -- For the fiscal year ended March 31, 2003 24.46 (0.29) (8.85) -- For the fiscal year ended March 31, 2002 27.26 (0.41) (2.39) -- For the fiscal year ended March 31, 2001 35.83 (0.37) (7.72) (0.48) For the fiscal year ended March 31, 2000 24.11 (0.27) 12.28 (0.29) CLASS C For the fiscal year ended March 31, 2004 15.31 (0.28) 7.53 -- For the fiscal year ended March 31, 2003 24.45 (0.31) (8.83) -- For the fiscal year ended March 31, 2002 27.25 (0.42) (2.38) -- For the fiscal year ended March 31, 2001 35.82 (0.38) (7.71) (0.48) For the fiscal year ended March 31, 2000 24.10 (0.30) 12.31 (0.29) CLASS Y For the fiscal year ended March 31, 2004 16.37 (0.05) 8.04 -- For the fiscal year ended March 31, 2003 25.82 (0.09) (9.36) -- For the fiscal year ended March 31, 2002 28.49 (0.16) (2.51) -- For the fiscal year ended March 31, 2001 37.05 (0.14) (7.94) (0.48) For the fiscal year ended March 31, 2000 24.68 (0.12) 12.78 (0.29)
---------- * Calculated based on shares outstanding on the first and last day of the respective years, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. (1) Reflects waivers and related reimbursements, if any. (2) The amounts shown for a share outstanding throughout the respective years are not in accord with the changes in the aggregate gains and losses on investments during the respective years because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective years. Net realized and unrealized gain/(loss) on investments include short sale transactions, if any. The accompanying notes are an integral part of the financial statements. 44
NET ASSET VALUE, TOTAL NET ASSETS, RATIO OF END OF INVESTMENT END OF YEAR EXPENSES TO YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1) ------------------ ------------------ ------------------ --------------------- S&P STARS PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 23.40 48.01% $ 580,543 1.50% For the fiscal year ended March 31, 2003 15.81 (37.06) 484,873 1.50 For the fiscal year ended March 31, 2002 25.11 (9.80) 1,151,482 1.50 For the fiscal year ended March 31, 2001 27.85 (22.36) 1,173,464 1.50 For the fiscal year ended March 31, 2000 36.42 50.82 673,550 1.50 CLASS B For the fiscal year ended March 31, 2004 22.58 47.39 420,694 2.00 For the fiscal year ended March 31, 2003 15.32 (37.37) 323,425 2.00 For the fiscal year ended March 31, 2002 24.46 (10.27) 672,833 2.00 For the fiscal year ended March 31, 2001 27.26 (22.73) 620,784 2.00 For the fiscal year ended March 31, 2000 35.83 50.13 300,693 2.00 CLASS C For the fiscal year ended March 31, 2004 22.56 47.35 305,176 2.00 For the fiscal year ended March 31, 2003 15.31 (37.38) 253,391 2.00 For the fiscal year ended March 31, 2002 24.45 (10.28) 568,726 2.00 For the fiscal year ended March 31, 2001 27.25 (22.74) 540,150 2.00 For the fiscal year ended March 31, 2000 35.82 50.15 314,794 2.00 CLASS Y For the fiscal year ended March 31, 2004 24.36 48.81 171,024 1.00 For the fiscal year ended March 31, 2003 16.37 (36.60) 109,212 1.00 For the fiscal year ended March 31, 2002 25.82 (9.37) 203,633 1.00 For the fiscal year ended March 31, 2001 28.49 (21.95) 176,235 1.00 For the fiscal year ended March 31, 2000 37.05 51.61 154,015 1.00 INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET INVESTMENT NET INVESTMENT LOSS RATIOS PORTFOLIO LOSS TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE -------------------------- -------------------------- --------- S&P STARS PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 (0.76)% 0.20% 127.25% For the fiscal year ended March 31, 2003 (0.95) 0.16 122.29 For the fiscal year ended March 31, 2002 (1.12) 0.08 110.80 For the fiscal year ended March 31, 2001 (1.04) 0.10 42.93 For the fiscal year ended March 31, 2000 (1.12) 0.18 54.67 CLASS B For the fiscal year ended March 31, 2004 (1.26) 0.20 127.25 For the fiscal year ended March 31, 2003 (1.44) 0.16 122.29 For the fiscal year ended March 31, 2002 (1.65) 0.08 110.80 For the fiscal year ended March 31, 2001 (1.58) 0.10 42.93 For the fiscal year ended March 31, 2000 (1.63) 0.18 54.67 CLASS C For the fiscal year ended March 31, 2004 (1.26) 0.20 127.25 For the fiscal year ended March 31, 2003 (1.44) 0.16 122.29 For the fiscal year ended March 31, 2002 (1.65) 0.08 110.80 For the fiscal year ended March 31, 2001 (1.58) 0.10 42.93 For the fiscal year ended March 31, 2000 (1.63) 0.18 54.67 CLASS Y For the fiscal year ended March 31, 2004 (0.26) 0.20 127.25 For the fiscal year ended March 31, 2003 (0.43) 0.16 122.29 For the fiscal year ended March 31, 2002 (0.65) 0.08 110.80 For the fiscal year ended March 31, 2001 (0.47) 0.10 42.93 For the fiscal year ended March 31, 2000 (0.56) 0.18 54.67
---------- (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 year reported and includes reinvestment of dividends and distributions, if any. 45
NET NET ASSET REALIZED AND DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON REALIZED OF PERIOD LOSS**(1) INVESTMENTS**(2) CAPITAL GAINS --------- ---------- --------------- --------------- S&P STARS OPPORTUNITIES PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 10.49 $ (0.14) $ 4.93 -- For the fiscal year ended March 31, 2003 14.27 (0.12) (3.49) $ (0.17) For the period October 1, 2001* through March 31, 2002 12.00 (0.04) 2.31 -- CLASS B For the fiscal year ended March 31, 2004 10.40 (0.20) 4.84 -- For the fiscal year ended March 31, 2003 14.23 (0.18) (3.48) (0.17) For the period October 1, 2001* through March 31, 2002 12.00 (0.06) 2.29 -- CLASS C For the fiscal year ended March 31, 2004 10.40 (0.20) 4.85 -- For the fiscal year ended March 31, 2003 14.23 (0.18) (3.48) (0.17) For the period October 1, 2001* through March 31, 2002 12.00 (0.06) 2.29 -- CLASS Y For the fiscal year ended March 31, 2004 10.56 (0.06) 4.91 -- For the fiscal year ended March 31, 2003 14.30 (0.08) (3.49) (0.17) For the period October 1, 2001* through March 31, 2002 12.00 (0.02) 2.32 --
---------- * Commencement of operations. ** Calculated based on shares outstanding on the first and last day of the respective periods, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. (1) Reflects waivers and related reimbursements, if any. (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. Net realized and unrealized gain/(loss) on investments include short sale transactions, if any. The accompanying notes are an integral part of the financial statements. 46
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) ------- ---------- -------------- --------------------- S&P STARS OPPORTUNITIES PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 15.28 45.66% $ 22,710 1.50% For the fiscal year ended March 31, 2003 10.49 (25.36) 20,521 1.50 For the period October 1, 2001* through March 31, 2002 14.27 18.92 30,004 1.50(4) CLASS B For the fiscal year ended March 31, 2004 15.04 44.62 18,331 2.00 For the fiscal year ended March 31, 2003 10.40 (25.79) 14,784 2.00 For the period October 1, 2001* through March 31, 2002 14.23 18.58 21,094 2.00(4) CLASS C For the fiscal year ended March 31, 2004 15.05 44.71 13,483 2.00 For the fiscal year ended March 31, 2003 10.40 (25.79) 11,638 2.00 For the period October 1, 2001* through March 31, 2002 14.23 18.58 16,412 2.00(4) CLASS Y For the fiscal year ended March 31, 2004 15.41 45.93 706 1.00 For the fiscal year ended March 31, 2003 10.56 (25.03) 758 1.00 For the period October 1, 2001* through March 31, 2002 14.30 19.17 2,522 1.00(4) INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET NET INVESTMENT INVESTMENT LOSS RATIOS PORTFOLIO LOSS TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- ---------------------- ----------- S&P STARS OPPORTUNITIES PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 (0.86)% 0.61% 225.79% For the fiscal year ended March 31, 2003 (0.92) 0.44 174.82 For the period October 1, 2001* through March 31, 2002 (0.90)(4) 0.85(4) 66.89 CLASS B For the fiscal year ended March 31, 2004 (1.36) 0.61 225.79 For the fiscal year ended March 31, 2003 (1.42) 0.44 174.82 For the period October 1, 2001* through March 31, 2002 (1.48)(4) 0.85(4) 66.89 CLASS C For the fiscal year ended March 31, 2004 (1.36) 0.61 225.79 For the fiscal year ended March 31, 2003 (1.42) 0.44 174.82 For the period October 1, 2001* through March 31, 2002 (1.43)(4) 0.85(4) 66.89 CLASS Y For the fiscal year ended March 31, 2004 (0.36) 0.61 225.79 For the fiscal year ended March 31, 2003 (0.45) 0.44 174.82 For the period October 1, 2001* through March 31, 2002 (0.40)(4) 0.85(4) 66.89
---------- (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, if any. Total investment return is not annualized. (4) Annualized. 47
NET NET ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED OF YEAR INCOME/(LOSS)*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS ---------- ----------------- --------------- ---------- ------------- THE INSIDERS SELECT FUND CLASS A For the fiscal year ended March 31, 2004 $ 12.33 $ 0.05 $ 5.55 $ (0.05) -- For the fiscal year ended March 31, 2003 16.87 0.06 (4.58) -- $ (0.02) For the fiscal year ended March 31, 2002 17.84 (0.01) 0.73 -- (1.69) For the fiscal year ended March 31, 2001 16.90 0.01 3.05 -- (2.12) For the fiscal year ended March 31, 2000 17.02 -- 0.07 -- (0.19) CLASS B For the fiscal year ended March 31, 2004 11.82 (0.03) 5.31 -- -- For the fiscal year ended March 31, 2003 16.24 (0.01) (4.39) -- (0.02) For the fiscal year ended March 31, 2002 17.32 (0.07) 0.68 -- (1.69) For the fiscal year ended March 31, 2001 16.54 (0.05) 2.95 -- (2.12) For the fiscal year ended March 31, 2000 16.75 (0.05) 0.03 -- (0.19) CLASS C For the fiscal year ended March 31, 2004 11.80 (0.03) 5.32 -- -- For the fiscal year ended March 31, 2003 16.24 (0.01) (4.41) -- (0.02) For the fiscal year ended March 31, 2002 17.32 (0.08) 0.69 -- (1.69) For the fiscal year ended March 31, 2001 16.54 (0.07) 2.97 -- (2.12) For the fiscal year ended March 31, 2000 16.74 (0.05) 0.04 -- (0.19) CLASS Y For the fiscal year ended March 31, 2004 12.73 0.16 5.63 (0.12) -- For the fiscal year ended March 31, 2003 17.27 0.14 (4.66) -- (0.02) For the fiscal year ended March 31, 2002 18.13 0.07 0.76 -- (1.69) For the fiscal year ended March 31, 2001 17.09 0.09 3.07 -- (2.12) For the fiscal year ended March 31, 2000 17.33 -- 0.13 (0.18) (0.19)
---------- * Calculated based on shares outstanding on the first and last day of the respective years, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. (1) Reflects waivers and related reimbursements, if any. (2) The amounts shown for a share outstanding throughout the respective years are not in accord with the changes in the aggregate gains and losses on investments during the respective years because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective years. The accompanying notes are an integral part of the financial statements. 48
NET ASSET VALUE, TOTAL NET ASSETS, RATIO OF END OF INVESTMENT END OF YEAR EXPENSES TO YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1) ---------- ---------- --------------- --------------------- THE INSIDERS SELECT FUND CLASS A For the fiscal year ended March 31, 2004 $ 17.88 45.41% $ 18,530 1.65% For the fiscal year ended March 31, 2003 12.33 (26.80) 13,049 1.65 For the fiscal year ended March 31, 2002 16.87 4.62 19,060 1.65 For the fiscal year ended March 31, 2001 17.84 17.92 17,372 1.65 For the fiscal year ended March 31, 2000 16.90 0.40 15,187 1.65 CLASS B For the fiscal year ended March 31, 2004 17.10 44.67 11,651 2.15 For the fiscal year ended March 31, 2003 11.82 (27.10) 8,392 2.15 For the fiscal year ended March 31, 2002 16.24 4.11 10,357 2.15 For the fiscal year ended March 31, 2001 17.32 17.32 7,378 2.15 For the fiscal year ended March 31, 2000 16.54 (0.13) 5,469 2.15 CLASS C For the fiscal year ended March 31, 2004 17.09 44.83 6,885 2.15 For the fiscal year ended March 31, 2003 11.80 (27.22) 5,543 2.15 For the fiscal year ended March 31, 2002 16.24 4.11 8,566 2.15 For the fiscal year ended March 31, 2001 17.32 17.32 7,328 2.15 For the fiscal year ended March 31, 2000 16.54 (0.07) 6,908 2.15 CLASS Y For the fiscal year ended March 31, 2004 18.40 45.51 381 1.15 For the fiscal year ended March 31, 2003 12.73 (26.18) 387 1.15 For the fiscal year ended March 31, 2002 17.27 5.17 701 1.15 For the fiscal year ended March 31, 2001 18.13 18.30 805 1.15 For the fiscal year ended March 31, 2000 17.09 0.72 796 1.15 INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET NET INVESTMENT INVESTMENT INCOME/(LOSS) RATIOS PORTFOLIO INCOME TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- ------------------------------- --------- THE INSIDERS SELECT FUND CLASS A For the fiscal year ended March 31, 2004 0.27% 0.53% 22.52% For the fiscal year ended March 31, 2003 0.40 0.52 30.81 For the fiscal year ended March 31, 2002 (0.04) 1.23 57.26 For the fiscal year ended March 31, 2001 0.08 1.14 99.36 For the fiscal year ended March 31, 2000 0.10 0.81 76.06 CLASS B For the fiscal year ended March 31, 2004 (0.23) 0.53 22.52 For the fiscal year ended March 31, 2003 (0.08) 0.52 30.81 For the fiscal year ended March 31, 2002 (0.49) 1.23 57.26 For the fiscal year ended March 31, 2001 (0.42) 1.14 99.36 For the fiscal year ended March 31, 2000 (0.40) 0.81 76.06 CLASS C For the fiscal year ended March 31, 2004 (0.23) 0.53 22.52 For the fiscal year ended March 31, 2003 (0.10) 0.52 30.81 For the fiscal year ended March 31, 2002 (0.52) 1.23 57.26 For the fiscal year ended March 31, 2001 (0.42) 1.14 99.36 For the fiscal year ended March 31, 2000 (0.40) 0.81 76.06 CLASS Y For the fiscal year ended March 31, 2004 0.77 0.53 22.52 For the fiscal year ended March 31, 2003 0.88 0.52 30.81 For the fiscal year ended March 31, 2002 0.39 1.23 57.26 For the fiscal year ended March 31, 2001 0.58 1.14 99.36 For the fiscal year ended March 31, 2000 0.60 0.81 76.06
---------- (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 year reported and includes reinvestment of dividends and distributions, if any. 49
NET NET ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED OF YEAR INCOME/(LOSS)*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS ---------- ----------------- --------------- ---------- ------------- INTRINSIC VALUE PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 14.81 $ 0.09 $ 6.35 $ (0.11) -- For the fiscal year ended March 31, 2003 20.04 0.14 (5.26) (0.11) -- For the fiscal year ended March 31, 2002 19.63 0.04 0.87 (0.01) $ (0.49) For the fiscal year ended March 31, 2001 16.71 0.11 3.85 (0.13) (0.91) For the fiscal year ended March 31, 2000 19.74 0.11 (0.94) (0.10) (2.10) CLASS B For the fiscal year ended March 31, 2004 14.50 -- 6.20 (0.03) -- For the fiscal year ended March 31, 2003 19.65 0.05 (5.16) (0.04) -- For the fiscal year ended March 31, 2002 19.35 (0.02) 0.81 -- (0.49) For the fiscal year ended March 31, 2001 16.49 0.03 3.78 (0.04) (0.91) For the fiscal year ended March 31, 2000 19.51 0.01 (0.93) -- (2.10) CLASS C For the fiscal year ended March 31, 2004 14.58 0.01 6.24 (0.04) -- For the fiscal year ended March 31, 2003 19.74 0.06 (5.18) (0.04) -- For the fiscal year ended March 31, 2002 19.43 (0.01) 0.81 -- (0.49) For the fiscal year ended March 31, 2001 16.55 0.02 3.80 (0.03) (0.91) For the fiscal year ended March 31, 2000 19.57 0.01 (0.93) -- (2.10) CLASS Y For the fiscal year ended March 31, 2004 14.97 0.16 6.47 (0.17) -- For the fiscal year ended March 31, 2003 20.17 0.22 (5.23) (0.19) -- For the fiscal year ended March 31, 2002 19.67 0.11 0.91 (0.03) (0.49) For the fiscal year ended March 31, 2001 16.73 0.26 3.80 (0.21) (0.91) For the fiscal year ended March 31, 2000 19.78 0.22 (0.97) (0.20) (2.10)
---------- * Calculated based on shares outstanding on the first and last day of the respective years, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. (1) Reflects waivers and related reimbursements, if any. (2) The amounts shown for a share outstanding throughout the respective years are not in accord with the changes in the aggregate gains and losses on investments during the respective years because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective years. The accompanying notes are an integral part of the financial statements. 50
NET ASSET VALUE, TOTAL NET ASSETS, RATIO OF END OF INVESTMENT END OF YEAR EXPENSES TO YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1) ---------- ---------- --------------- --------------------- INTRINSIC VALUE PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 21.14 43.53% $ 41,250 1.50% For the fiscal year ended March 31, 2003 14.81 (25.60) 17,734 1.50 For the fiscal year ended March 31, 2002 20.04 4.72 20,953 1.50 For the fiscal year ended March 31, 2001 19.63 23.79 11,983 1.50 For the fiscal year ended March 31, 2000 16.71 (4.91) 7,950 1.50 CLASS B For the fiscal year ended March 31, 2004 20.67 42.79 19,990 2.00 For the fiscal year ended March 31, 2003 14.50 (26.02) 10,489 2.00 For the fiscal year ended March 31, 2002 19.65 4.17 9,733 2.00 For the fiscal year ended March 31, 2001 19.35 23.19 3,687 2.00 For the fiscal year ended March 31, 2000 16.49 (5.41) 1,379 2.00 CLASS C For the fiscal year ended March 31, 2004 20.79 42.86 21,324 2.00 For the fiscal year ended March 31, 2003 14.58 (25.95) 11,123 2.00 For the fiscal year ended March 31, 2002 19.74 4.20 13,528 2.00 For the fiscal year ended March 31, 2001 19.43 23.16 5,675 2.00 For the fiscal year ended March 31, 2000 16.55 (5.39) 3,359 2.00 CLASS Y For the fiscal year ended March 31, 2004 21.43 44.41 27,109 1.00 For the fiscal year ended March 31, 2003 14.97 (24.92) 20,931 1.00 For the fiscal year ended March 31, 2002 20.17 5.28 22,341 1.00 For the fiscal year ended March 31, 2001 19.67 24.38 7,038 1.00 For the fiscal year ended March 31, 2000 16.73 (4.51) 3,438 1.00 INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET INVESTMENT NET INVESTMENT INCOME/(LOSS) RATIOS PORTFOLIO INCOME/(LOSS) TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- ----------------------------------- --------- INTRINSIC VALUE PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 0.59% 0.32% 53.78% For the fiscal year ended March 31, 2003 0.93 0.43 52.98 For the fiscal year ended March 31, 2002 0.38 0.75 20.60 For the fiscal year ended March 31, 2001 0.72 1.50 60.46 For the fiscal year ended March 31, 2000 0.56 1.78 55.66 CLASS B For the fiscal year ended March 31, 2004 0.09 0.32 53.78 For the fiscal year ended March 31, 2003 0.45 0.43 52.98 For the fiscal year ended March 31, 2002 (0.07) 0.75 20.60 For the fiscal year ended March 31, 2001 0.15 1.50 60.46 For the fiscal year ended March 31, 2000 0.03 1.75 55.66 CLASS C For the fiscal year ended March 31, 2004 0.09 0.32 53.78 For the fiscal year ended March 31, 2003 0.44 0.43 52.98 For the fiscal year ended March 31, 2002 0.02 0.75 20.60 For the fiscal year ended March 31, 2001 0.11 1.50 60.46 For the fiscal year ended March 31, 2000 0.03 1.75 55.66 CLASS Y For the fiscal year ended March 31, 2004 1.09 0.32 53.78 For the fiscal year ended March 31, 2003 1.44 0.43 52.98 For the fiscal year ended March 31, 2002 0.92 0.75 20.60 For the fiscal year ended March 31, 2001 1.65 1.50 60.46 For the fiscal year ended March 31, 2000 0.98 1.77 55.66
---------- (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 year reported and includes reinvestment of dividends and distributions, if any. 51
NET NET ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED OF YEAR INCOME/(LOSS)*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS ---------- ----------------- --------------- ---------- ------------- SMALL CAP VALUE PORTFOLIO CLASS A For the fiscal year ended March 31, 2004** $ 12.90 $ (0.12) $ 6.51 $ (0.03) -- For the fiscal year ended March 31, 2003 20.39 0.04 (6.47) -- $ (1.06) For the fiscal year ended March 31, 2002 18.13 (0.04) 3.30 -- (1.00) For the fiscal year ended March 31, 2001 23.10 (0.14) (2.61) -- (2.22) For the fiscal year ended March 31, 2000 17.93 (0.15) 6.69 -- (1.37) CLASS B For the fiscal year ended March 31, 2004** 12.40 (0.20) 6.25 -- -- For the fiscal year ended March 31, 2003 19.82 (0.04) (6.32) -- (1.06) For the fiscal year ended March 31, 2002 17.76 (0.12) 3.18 -- (1.00) For the fiscal year ended March 31, 2001 22.80 (0.20) (2.62) -- (2.22) For the fiscal year ended March 31, 2000 17.71 (0.24) 6.60 -- (1.27) CLASS C For the fiscal year ended March 31, 2004** 12.42 (0.19) 6.25 -- -- For the fiscal year ended March 31, 2003 19.83 (0.04) (6.31) -- (1.06) For the fiscal year ended March 31, 2002 17.77 (0.12) 3.18 -- (1.00) For the fiscal year ended March 31, 2001 22.80 (0.22) (2.59) -- (2.22) For the fiscal year ended March 31, 2000 17.70 (0.26) 6.62 -- (1.26) CLASS Y For the fiscal year ended March 31, 2004** 13.20 (0.02) 6.62 (0.11) -- For the fiscal year ended March 31, 2003 20.73 0.12 (6.59) -- (1.06) For the fiscal year ended March 31, 2002 18.34 0.05 3.34 -- (1.00) For the fiscal year ended March 31, 2001 23.23 (0.03) (2.64) -- (2.22) For the fiscal year ended March 31, 2000 18.03 (0.05) 6.72 -- (1.47)
---------- * Calculated based on shares outstanding on the first and last day of the respective years, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. ** Calculated based on shares outstanding. (1) Reflects waivers and related reimbursements, if any. (2) The amounts shown for a share outstanding throughout the respective years are not in accord with the changes in the aggregate gains and losses on investments during the respective years because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective years. The accompanying notes are an integral part of the financial statements. 52
NET ASSET VALUE, TOTAL NET ASSETS, RATIO OF END OF INVESTMENT END OF YEAR EXPENSES TO YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1) ---------- ---------- --------------- --------------------- SMALL CAP VALUE PORTFOLIO CLASS A For the fiscal year ended March 31, 2004** $ 19.26 49.55% $ 15,572 1.64% For the fiscal year ended March 31, 2003 12.90 (31.94) 12,771 1.50 For the fiscal year ended March 31, 2002 20.39 18.51 23,902 1.50 For the fiscal year ended March 31, 2001 18.13 (11.64) 17,194 1.50 For the fiscal year ended March 31, 2000 23.10 38.21 24,086 1.50 CLASS B For the fiscal year ended March 31, 2004** 18.45 48.79 6,626 2.14 For the fiscal year ended March 31, 2003 12.40 (32.52) 4,975 2.00 For the fiscal year ended March 31, 2002 19.82 17.76 6,944 2.00 For the fiscal year ended March 31, 2001 17.76 (12.12) 4,301 2.00 For the fiscal year ended March 31, 2000 22.80 37.53 4,030 2.00 CLASS C For the fiscal year ended March 31, 2004** 18.48 48.79 10,596 2.14 For the fiscal year ended March 31, 2003 12.42 (32.45) 9,204 2.00 For the fiscal year ended March 31, 2002 19.83 17.75 16,112 2.00 For the fiscal year ended March 31, 2001 17.77 (12.07) 11,460 2.00 For the fiscal year ended March 31, 2000 22.80 37.54 13,399 2.00 CLASS Y For the fiscal year ended March 31, 2004** 19.69 50.08 11,748 1.14 For the fiscal year ended March 31, 2003 13.20 (31.59) 20,726 1.00 For the fiscal year ended March 31, 2002 20.73 19.02 34,834 1.00 For the fiscal year ended March 31, 2001 18.34 (11.22) 33,449 1.00 For the fiscal year ended March 31, 2000 23.23 38.86 31,091 1.00 INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET INVESTMENT NET INVESTMENT INCOME/(LOSS) RATIOS PORTFOLIO INCOME/(LOSS) TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- ----------------------------------- --------- SMALL CAP VALUE PORTFOLIO CLASS A For the fiscal year ended March 31, 2004** (0.72)% 0.39% 61.30% For the fiscal year ended March 31, 2003 0.23 0.48 92.42 For the fiscal year ended March 31, 2002 (0.24) 0.53 75.76 For the fiscal year ended March 31, 2001 (0.63) 1.02 65.32 For the fiscal year ended March 31, 2000 (0.75) 0.65 65.85 CLASS B For the fiscal year ended March 31, 2004** (1.22) 0.39 61.30 For the fiscal year ended March 31, 2003 (0.26) 0.48 92.42 For the fiscal year ended March 31, 2002 (0.74) 0.53 75.76 For the fiscal year ended March 31, 2001 (1.14) 1.02 65.32 For the fiscal year ended March 31, 2000 (1.24) 0.65 65.85 CLASS C For the fiscal year ended March 31, 2004** (1.22) 0.39 61.30 For the fiscal year ended March 31, 2003 (0.27) 0.48 92.42 For the fiscal year ended March 31, 2002 (0.74) 0.53 75.76 For the fiscal year ended March 31, 2001 (1.14) 1.02 65.32 For the fiscal year ended March 31, 2000 (1.24) 0.65 65.85 CLASS Y For the fiscal year ended March 31, 2004** (0.12) 0.39 61.30 For the fiscal year ended March 31, 2003 0.74 0.48 92.42 For the fiscal year ended March 31, 2002 0.26 0.53 75.76 For the fiscal year ended March 31, 2001 (0.13) 1.02 65.32 For the fiscal year ended March 31, 2000 (0.24) 0.65 65.85
---------- (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 year reported and includes reinvestment of dividends and distributions, if any. 53
NET NET NET ASSET REALIZED AND ASSET VALUE, NET UNREALIZED VALUE, BEGINNING INVESTMENT GAIN/(LOSS) ON END OF OF YEAR LOSS*(1) INVESTMENTS*(2) YEAR ---------- ---------- --------------- ---------- ALPHA GROWTH PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 15.57 $ (0.02) $ 5.40 $ 20.95 For the fiscal year ended March 31, 2003 18.84 (0.02) (3.25) 15.57 For the fiscal year ended March 31, 2002 16.75 (0.03) 2.12 18.84 For the fiscal year ended March 31, 2001 21.21 (0.09) (4.37) 16.75 For the fiscal year ended March 31, 2000 17.32 (0.07) 3.96 21.21 CLASS B For the fiscal year ended March 31, 2004 15.17 (0.10) 5.25 20.32 For the fiscal year ended March 31, 2003 18.41 (0.08) (3.16) 15.17 For the fiscal year ended March 31, 2002 16.46 (0.06) 2.01 18.41 For the fiscal year ended March 31, 2001 20.93 (0.17) (4.30) 16.46 For the fiscal year ended March 31, 2000 17.18 (0.16) 3.91 20.93 CLASS C For the fiscal year ended March 31, 2004 15.19 (0.09) 5.25 20.35 For the fiscal year ended March 31, 2003 18.42 (0.06) (3.17) 15.19 For the fiscal year ended March 31, 2002 16.46 (0.06) 2.02 18.42 For the fiscal year ended March 31, 2001 20.94 (0.17) (4.31) 16.46 For the fiscal year ended March 31, 2000 17.19 (0.18) 3.93 20.94
---------- * Calculated based on shares outstanding on the first and last day of the respective years, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. (1) Reflects waivers and related reimbursements, if any. (2) The amounts shown for a share outstanding throughout the respective years are not in accord with the changes in the aggregate gains and losses on investments during the respective years because of the timing of the sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective years. The accompanying notes are an integral part of the financial statements. 54
TOTAL NET ASSETS, RATIO OF INVESTMENT END OF YEAR EXPENSES TO RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1) ---------- --------------- --------------------- ALPHA GROWTH PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 34.55% $ 108,361 1.40% For the fiscal year ended March 31, 2003 (17.36) 39,817 1.40 For the fiscal year ended March 31, 2002 12.48 23,176 1.40 For the fiscal year ended March 31, 2001 (21.03) 17,316 1.40 For the fiscal year ended March 31, 2000 22.46 22,580 1.40 CLASS B For the fiscal year ended March 31, 2004 33.95 31,840 1.90 For the fiscal year ended March 31, 2003 (17.60) 16,059 1.90 For the fiscal year ended March 31, 2002 11.85 9,061 1.90 For the fiscal year ended March 31, 2001 (21.36) 7,441 1.90 For the fiscal year ended March 31, 2000 21.83 9,124 1.90 CLASS C For the fiscal year ended March 31, 2004 33.97 34,134 1.90 For the fiscal year ended March 31, 2003 (17.54) 13,236 1.90 For the fiscal year ended March 31, 2002 11.91 6,546 1.90 For the fiscal year ended March 31, 2001 (21.40) 4,973 1.90 For the fiscal year ended March 31, 2000 21.81 6,398 1.90 INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET INVESTMENT NET INVESTMENT LOSS RATIOS PORTFOLIO LOSS TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- -------------------------- --------- ALPHA GROWTH PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 (0.11)% 0.27% 92.58% For the fiscal year ended March 31, 2003 (0.15) 0.56 185.33 For the fiscal year ended March 31, 2002 (0.42) 1.06 82.40 For the fiscal year ended March 31, 2001 (0.46) 0.97 81.37 For the fiscal year ended March 31, 2000 (0.63) 1.33 56.26 CLASS B For the fiscal year ended March 31, 2004 (0.61) 0.27 92.58 For the fiscal year ended March 31, 2003 (0.65) 0.56 185.33 For the fiscal year ended March 31, 2002 (0.92) 1.06 82.40 For the fiscal year ended March 31, 2001 (0.96) 0.97 81.37 For the fiscal year ended March 31, 2000 (1.11) 1.33 56.26 CLASS C For the fiscal year ended March 31, 2004 (0.61) 0.27 92.58 For the fiscal year ended March 31, 2003 (0.63) 0.56 185.33 For the fiscal year ended March 31, 2002 (0.92) 1.06 82.40 For the fiscal year ended March 31, 2001 (0.96) 0.97 81.37 For the fiscal year ended March 31, 2000 (1.09) 1.33 56.26
---------- (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 year reported and includes reinvestment of dividends and distributions, if any. 55
NET NET ASSET REALIZED AND DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON REALIZED OF PERIOD INCOME/(LOSS)**(1) INVESTMENTS**(2) CAPITAL GAINS ---------- ------------------ ---------------- -------------- INTERNATIONAL EQUITY PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 10.31 $ (0.07) $ 4.38 -- For the fiscal year ended March 31, 2003 14.64 0.07 (4.40) -- For the fiscal year ended March 31, 2002 17.55 (0.04) (2.87) -- For the fiscal year ended March 31, 2001 27.84 (0.06) (9.92) $ (0.31) For the fiscal year ended March 31, 2000 15.14 (0.05) 12.98 (0.23) CLASS B For the fiscal year ended March 31, 2004 10.02 (0.10) 4.28 -- For the fiscal year ended March 31, 2003 14.32 0.01 (4.31) -- For the fiscal year ended March 31, 2002 17.26 (0.12) (2.82) -- For the fiscal year ended March 31, 2001 27.52 (0.18) (9.77) (0.31) For the fiscal year ended March 31, 2000 15.05 (0.10) 12.80 (0.23) CLASS C For the fiscal year ended March 31, 2004 10.03 (0.10) 4.30 -- For the fiscal year ended March 31, 2003 14.32 0.01 (4.30) -- For the fiscal year ended March 31, 2002 17.25 (0.10) (2.83) -- For the fiscal year ended March 31, 2001 27.52 (0.15) (9.81) (0.31) For the fiscal year ended March 31, 2000 15.05 (0.09) 12.79 (0.23) CLASS Y For the fiscal year ended March 31, 2004 10.42 0.03 4.46 -- For the fiscal year ended March 31, 2003 14.69 0.12 (4.39) -- For the period July 5, 2001* through March 31, 2002 16.75 0.06 (2.12) --
---------- * Commencement of initial public offering. ** Calculated based on shares outstanding on the first and last day of the respective periods, except for dividends and distributions, if any, which are based on the actual shares outstanding on the dates of distributions. (1) Reflects waivers and related reimbursements, if any. (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. 56
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) ---------- ---------- --------------- --------------------- INTERNATIONAL EQUITY PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 $ 14.62 41.80% $ 11,012 1.75% For the fiscal year ended March 31, 2003 10.31 (29.58) 20,518 1.75 For the fiscal year ended March 31, 2002 14.64 (16.58) 31,455 1.75 For the fiscal year ended March 31, 2001 17.55 (35.99) 54,096 1.75 For the fiscal year ended March 31, 2000 27.84 85.67 61,508 1.75 CLASS B For the fiscal year ended March 31, 2004 14.20 41.72 5,272 2.25 For the fiscal year ended March 31, 2003 10.02 (30.03) 4,218 2.25 For the fiscal year ended March 31, 2002 14.32 (17.03) 7,751 2.25 For the fiscal year ended March 31, 2001 17.26 (36.30) 11,754 2.25 For the fiscal year ended March 31, 2000 27.52 84.66 15,656 2.25 CLASS C For the fiscal year ended March 31, 2004 14.23 41.87 17,251 2.25 For the fiscal year ended March 31, 2003 10.03 (29.96) 13,257 2.25 For the fiscal year ended March 31, 2002 14.32 (16.99) 21,025 2.25 For the fiscal year ended March 31, 2001 17.25 (36.34) 25,833 2.25 For the fiscal year ended March 31, 2000 27.52 84.65 18,238 2.25 CLASS Y For the fiscal year ended March 31, 2004 14.91 43.09 20,657 1.25 For the fiscal year ended March 31, 2003 10.42 (29.07) 16,468 1.25 For the period July 5, 2001* through March 31, 2002 14.69 (12.30)(4) 21,614 1.25(4)(5) INCREASE/(DECREASE) REFLECTED IN RATIO OF EXPENSE AND NET INVESTMENT NET INVESTMENT INCOME/(LOSS) RATIOS PORTFOLIO INCOME/(LOSS) TO DUE TO WAIVERS AND TURNOVER AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE --------------------- ----------------------------------- --------- INTERNATIONAL EQUITY PORTFOLIO CLASS A For the fiscal year ended March 31, 2004 (0.30)% 0.60% 155.68% For the fiscal year ended March 31, 2003 0.55 0.57 147.32 For the fiscal year ended March 31, 2002 (0.09) 0.57 168.32 For the fiscal year ended March 31, 2001 (0.31) 0.53 168.04 For the fiscal year ended March 31, 2000 (0.77) 1.12 96.36 CLASS B For the fiscal year ended March 31, 2004 (0.80) 0.60 155.68 For the fiscal year ended March 31, 2003 0.07 0.57 147.32 For the fiscal year ended March 31, 2002 (0.59) 0.57 168.32 For the fiscal year ended March 31, 2001 (0.81) 0.53 168.04 For the fiscal year ended March 31, 2000 (1.27) 1.12 96.36 CLASS C For the fiscal year ended March 31, 2004 (0.80) 0.60 155.68 For the fiscal year ended March 31, 2003 0.05 0.57 147.32 For the fiscal year ended March 31, 2002 (0.59) 0.57 168.32 For the fiscal year ended March 31, 2001 (0.81) 0.53 168.04 For the fiscal year ended March 31, 2000 (1.27) 1.12 96.36 CLASS Y For the fiscal year ended March 31, 2004 0.20 0.60 155.68 For the fiscal year ended March 31, 2003 1.05 0.57 147.32 For the period July 5, 2001* through March 31, 2002 0.55(4)(5) 0.51(4)(5) 168.32
---------- (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, if any. 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. 57 THE BEAR STEARNS FUNDS S&P STARS Portfolio S&P STARS Opportunities Portfolio The Insiders Select Fund Intrinsic Value Portfolio Small Cap Value Portfolio Alpha Growth Portfolio International Equity Portfolio NOTES TO FINANCIAL STATEMENTS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business trust on September 29, 1994 and is registered with the Securities and Exchange Commission (the "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 ("Intrinsic Value"), Small Cap Value Portfolio ("Small Cap"), International Equity Portfolio ("International Equity"), Income Portfolio and High Yield Total Return Portfolio, and four non-diversified portfolios, The Insiders Select Fund ("Insiders Select"), Alpha Growth Portfolio ("Alpha Growth"), S&P STARS Portfolio ("S&P STARS") and S&P STARS Opportunities Portfolio ("S&P STARS Opportunities") (each a "Portfolio" and collectively, the "Portfolios"). As of the date hereof, each Portfolio offers four classes of shares, which have been designated as Class A, B, C and Y shares (except the Prime Money Market Portfolio which only offers shares designated as Y). Class Y shares of Alpha Growth have not commenced its initial public offering. Each Portfolio is treated as a separate entity for certain matters under the Investment Company Act, and for other purposes, and a shareholder of one Portfolio is not deemed to be a shareholder of any other Portfolio. Under the Fund's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with their vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote. MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), 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, Inc. (the "Exchange") (generally 4:00 p.m. Eastern time) on each day that the Exchange is open for trading. 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 independent pricing services ("Pricing Services") approved by the Board of Trustees (the "Board"). 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. 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 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, 58 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. 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. 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 and foreign currency related transactions, if any, are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Each Portfolio's 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 net assets of each class at the beginning of the day. Expenses and fees, including the respective investment advisory, administration, 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. SHORT SELLING--When the Portfolio makes a short sale, an amount equal to the proceeds received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the short sale. Until the Portfolio replaces the borrowed security, the Portfolio will maintain a segregated account with cash, U.S. government securities or other liquid securities sufficient to cover its short position on a daily basis. Short sales represent obligations of the Portfolio to make future delivery of specific securities and correspondingly creates an obligation to purchase the security at market prices prevailing at the later delivery date (or to deliver the security if already owned by the Portfolio). Upon the termination of a short sale, the Portfolio will recognize a gain, limited to the price at which the Portfolio sold the security short, if the market price is less than the proceeds originally received. The Portfolio will recognize a loss, unlimited in magnitude, if the market price at termination is greater than the proceeds originally received. As a result, short sales create the risk that the Portfolio's ultimate obligation to satisfy the delivery requirements may exceed the amount of the proceeds initially received or the liability recorded in the financial statements. S&P STARS and S&P STARS Opportunities are the only Portfolios that have engaged in short sales for the fiscal year ended March 31, 2004. S&P STARS has segregated sufficient liquid assets in a separate account as collateral for open short sales. Securities sold short at March 31, 2004 for S&P STARS were as follows:
SECURITY PROCEEDS MARKET VALUE UNREALIZED GAIN/(LOSS) -------------------------------- ------------- ------------- ---------------------- Extreme Networks, Inc. $ 4,558,977 $ 4,686,500 $ (127,523) Goodyear Tire & Rubber Co. (The) 2,341,438 2,562,000 (220,562) Interstate Bakeries Corp. 15,450,870 12,848,100 2,602,770 Monster Worldwide Inc. 5,345,488 6,550,000 (1,204,512) ------------- ------------- ------------- Total $ 27,696,773 $ 26,646,600 $ 1,050,173 ============= ============= =============
S&P STARS Opportunities had no securities sold short at March 31, 2004. SECURITIES LENDING--Loans of securities are required to be initially secured by collateral at least equal to 100% of the market value of the securities on loan and maintained at a level at least equal to the value of loaned securities. However, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. In the event that the borrower fails to return securities, and cash collateral being maintained by the borrower is insufficient to cover the value of loaned securities and provided such collateral insufficiency is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Portfolios. The market value of securities on loan to brokers at March 31, 2004, was as follows:
MARKET VALUE OF PORTFOLIO SECURITIES ON LOAN --------- ------------------ S&P STARS $ 43,751,026
59 In addition, Insider Select, Intrinsic Value, Small Cap and Alpha Growth engaged in security lending transactions during the fiscal year ended March 31, 2004, although none were outstanding at March 31, 2004. All such income is included in the Statements of Operations. No other Portfolios had security lending transactions during the fiscal year ended March 31, 2004. Pursuant to an exemptive order received from the Securities and Exchange Commission (the "Order"), Custodial Trust Company ("CTC"), a wholly-owned subsidiary of The Bear Stearns Companies Inc. and custodian to each of the Portfolios, and an affiliate of BSAM, Bear Stearns Funds Management Inc. ("BSFM" or the "Administrator") and Bear, Stearns & Co. Inc., ("Bear Stearns" or the "Distributor") served as the securities lending agent for the Portfolios and, subject to the Order, participated in the lending income earned by the Portfolios. For the fiscal year ended March 31, 2004, CTC has been compensated approximately $16,955, $7, $109, $526 and $15 from S&P STARS, Insider Select, Intrinsic Value, Small Cap and Alpha Growth, respectively. In addition, the Order permits (subject to limitations) a Portfolio to loan securities to its affiliates. For the fiscal year ended March 31, 2004, Bear, Stearns Securities Corp., an affiliate to the Portfolios, received rebates in connection with such loans amounting to $80,517, $79, $19 and $2,597 for S&P STARS, Insiders Select, Intrinsic Value and Small Cap, respectively. FOREIGN CURRENCY TRANSLATION--The books and records of the Portfolios are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. The resulting exchange gains and losses are included in the Statements of Operations. The Portfolios do not generally isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of investments. However, the Portfolios do isolate the effect of fluctuations in foreign exchange rates when determining the gain or loss upon the sale or maturity of foreign currency-denominated debt obligations pursuant to U.S. federal income tax regulations; such amount is categorized as foreign exchange gain or loss for both financial reporting and income tax reporting purposes. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Portfolios may enter into forward foreign currency exchange contracts ("forward currency contracts") to hedge against adverse changes in the relationship of the U.S. dollar to foreign currencies. The Portfolios may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Portfolios may also use these contracts to hedge the U.S. dollar value of securities it already owns denominated in foreign currencies. Forward currency contracts are valued at the forward rate, and are marked-to-market daily. The change in market value is recorded by the Portfolio as an unrealized gain or loss. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the current contract at the time it was opened and the value at the time it was closed. The use of forward currency contracts does not eliminate fluctuations in the underlying prices of the Portfolio's securities, but it does establish a rate of exchange that can be achieved in the future. Although forward currency contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of currency increase. In addition, the Portfolio could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. For the fiscal year ended March 31, 2004, only International Equity entered into such forward currency contracts. There were no open forward currency contracts at March 31, 2004 in the International Equity Portfolio. 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. 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. The tax character of dividends paid during the fiscal year ended March 31, 2004 were as follows:
ORDINARY TOTAL PORTFOLIO INCOME DISTRIBUTIONS -------------------- -------------- -------------- Insiders Select $ 53,348 $ 53,348 Intrinsic Value 521,633 521,633 Small Cap 185,345 185,345
60 The tax character of dividends and distributions paid during the fiscal year ended March 31, 2003 were as follows:
ORDINARY LONG-TERM TOTAL PORTFOLIO INCOME CAPITAL GAIN DISTRIBUTIONS ------------------------- -------------- -------------- -------------- S&P STARS Opportunites $ 836,305 -- $ 836,305 Insiders Select 202 $ 52,589 52,791 Intrinsic Value 424,797 9,891 434,688 Small Cap 1,608,679 2,547,708 4,156,387
At March 31, 2004, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED TOTAL ORDINARY LONG-TERM CAPITAL AND UNREALIZED ACCUMULATED PORTFOLIO INCOME CAPITAL GAINS OTHER LOSSES APPRECIATION EARNINGS/(DEFICIT) ----------------------- ----------------- ----------------- ----------------- ----------------- ------------------ S&P STARS -- -- $ (979,519,265) $ 141,912,239 $ (837,607,026) S&P STARS Opportunities -- $ 494,750 -- 5,033,488 5,528,238 Insiders Select $ 8,801 -- (1,655,166) 8,869,426 7,223,061 Intrinsic Value 439,819 -- -- 15,196,690 15,636,509 Small Cap -- -- (5,434,886) 11,871,811 6,436,925 Alpha Growth 3,241,601 11,953,969 -- 12,113,315 27,308,885 International Equity -- -- (51,468,673) 10,777,040 (40,691,633)
The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales. At March 31, 2004, the Portfolios indicated below 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 2012. 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 which had capital loss carryforwards at March 31, 2004 were as follows:
AMOUNT EXPIRING IN GROSS CAPITAL LOSS -------------------------------------------------------------------------- PORTFOLIO CARRYFORWARD 2009 2010 2011 2012 ----------------------- ------------------ ----------------- ----------------- ----------------- ----------------- S&P STARS $ 970,433,128 $ 75,578,721 $ 224,199,591 $ 545,785,145 $ 124,869,671 Insiders Select 802,777 -- -- 802,777 -- Small Cap 5,434,886 -- -- 5,434,886 -- International Equity 50,826,186 7,762,201 22,469,555 20,594,430 --
For U.S. federal income tax purposes, net realized capital losses or foreign exchange losses incurred after October 31, 2003, within the current fiscal year are deemed to arise on the first day of the following fiscal year. S&P STARS, Insiders Select, and International Equity incurred and elected to defer such losses of $9,086,137, $852,389 and $642,487, respectively. For U.S. federal income tax purposes, the cost of securities owned, gross appreciation, gross depreciation and net unrealized appreciation of investments at March 31, 2004 for each Portfolio were as follows:
GROSS GROSS NET PORTFOLIO COST APPRECIATION DEPRECIATION APPRECIATION ------------------------------ --------------- --------------- --------------- --------------- S&P STARS $ 1,318,954,347 $ 206,024,140 $ (64,111,901) $ 141,912,239 S&P STARS Opportunities 50,412,659 5,860,657 (827,169) 5,033,488 Insiders Select 28,758,062 8,962,612 (93,186) 8,869,426 Intrinsic Value 94,368,910 16,428,121 (1,231,431) 15,196,690 Small Cap 34,564,641 12,105,300 (233,489) 11,871,811 Alpha Growth 162,053,332 19,551,110 (7,437,795) 12,113,315 International Equity 43,312,665 11,334,455 (569,096) 10,765,359
61 DIVIDENDS AND DISTRIBUTIONS--Each Portfolio intends to distribute at least annually to shareholders substantially all of its net investment income. Distributions of net realized gains, if any, will be declared and paid at least annually. 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 GAAP. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within capital accounts based on their U.S. federal tax-basis treatment; temporary differences do not require reclassification. At March 31, 2004, the reclassifications within the composition of net assets were as follows: S&P STARS and Small Cap reclassified from net investment losses of $13,454,047 and $347,206, respectively, to paid-in capital. In addition, Alpha Growth reclassified net investment loss of $373,885 to accumulated net realized losses. International Equity reclassified foreign exchange losses of $819,100 to net investment losses. In addition, International reclassified net investment losses of $1,300,050 to paid-in capital. S&P STARS Opportunities reclassified net investment loss of $627,309 to accumulated net realized losses of $11,248 and to paid-in capital of $616,061. FOREIGN WITHHOLDING TAXES--Income received from sources outside of the United States may be subject to withholding and other taxes imposed by countries other than the United States. OTHER--Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates. Some countries in which the Portfolios invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is a deterioration in a country's balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES For the fiscal year ended March 31, 2004, BSAM, a wholly owned subsidiary of The Bear Stearns Companies Inc., served as the investment adviser pursuant to an Investment Advisory Agreement with respect to each Portfolio. Under the terms of the Investment Advisory Agreement, each Portfolio, except Insiders Select, has agreed to pay BSAM a monthly fee at the annual rate of 0.75% of average daily net assets for S&P STARS, S&P STARS Opportunities, Intrinsic Value and Small Cap, 0.65% of average daily net assets for Alpha Growth, and 1.00% of average daily net assets for International Equity. For Insiders Select, BSAM is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 1.00% of the Portfolio's average daily net assets. In addition, BSAM is entitled to a monthly performance adjustment fee which may increase or decrease the total advisory fee by up to 0.50% per year of the value of Insiders Select's average daily net assets. For the fiscal year ended March 31, 2004, the performance adjustment fee decreased the total advisory fee by $152,741 or 0.45% based on the value of Insider Select's average daily net assets due to underperformance of such Portfolio on a trailing 12-month basis in comparison to the performance of the S&P MidCap 400 Index, the Portfolio's benchmark index, for the year ended March 31, 2004. As a result the annual rate was adjusted to 0.55% before any reduction for fee waivers or expense reimbursements. BSAM has engaged Marvin & Palmer Associates, Inc. ("Marvin & Palmer") as International Equity's sub-investment adviser to manage the Portfolio's day-to-day investment activities. Marvin & Palmer is entitled to receive a monthly fee from BSAM (and not the Portfolio) calculated on an annual basis equal to 0.20% of the Portfolio's total average daily net assets to the extent the International Equity's average daily net assets are in excess of $25 million and below $50 million at the relevant month end, 0.45% of the International Equity's total average daily net assets to the extent the International Equity's average daily net assets are in excess of $50 million and below $65 million at the relevant month end and 0.60% of the International Equity's total average daily net assets to the extent the International Equity's net assets in excess of $65 million at the relevant month end. For the fiscal year ended March 31, 2004, Marvin & Palmer earned a fee of $107,512. For the fiscal year ended March 31, 2004, BSFM served as administrator to each Portfolio pursuant to an Administration Agreement. The Administrator is entitled to receive from each Portfolio a monthly fee equal to an annual rate of 0.15% of each Portfolio's average daily net assets up to $1 billion, 0.12% of the next $1 billion, 0.10% of the next $3 billion and 0.08% of the average daily net assets above $5 billion. 62 Effective August 1, 2003, 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 SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES ------------------------------ --------------- --------------- --------------- --------------- S&P STARS 1.50% 2.00% 2.00% 1.00% S&P STARS Opportunities 1.50 2.00 2.00 1.00 Insiders Select 1.65 2.15 2.15 1.15 Intrinsic Value 1.50 2.00 2.00 1.00 Small Cap* 1.70 2.20 2.20 1.20 Alpha Growth 1.40 1.90 1.90 -- International Equity 1.75 2.25 2.25 1.25
---------- *Prior to August 1, 2003 the expense limitations were 1.50%, 2.00%, 2.00% and 1.00% for Class A, B, C and Y shares, respectively. As necessary, these limitations were effected by waivers by the Adviser of its advisory fees and reimbursements of expenses exceeding the advisory fee. For the fiscal year ended March 31, 2004, the advisory fee waivers and reimbursements of expenses (in order to maintain the expense limitation) were as follows:
PORTFOLIO ADVISORY FEE WAIVERS EXPENSE REIMBURSEMENTS ------------------------------ -------------------- ---------------------- S&P STARS $ 2,855,170 -- S&P STARS Opportunities 332,191 $ 1,132 Insiders Select 169,573 11,354 Intrinsic Value 299,785 -- Small Cap 221,960 -- Alpha Growth 312,897 -- International Equity 375,742 --
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. For the fiscal year ended March 31, 2004, Bear Stearns, an affiliate of the Adviser and the Administrator, earned approximately $1,091,374, $74,491, $12,399, $11,451, $7,137 and $93,350 in brokerage commissions from portfolio transactions executed on behalf of S&P STARS, S&P STARS Opportunities, Insiders Select, Intrinsic Value, Small Cap and Alpha Growth, respectively. 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 and a Shareholder Servicing Plan which are as follows:
CLASS A CLASS B CLASS C --------------------------- --------------------------- --------------------------- DISTRIBUTION SHAREHOLDER DISTRIBUTION SHAREHOLDER DISTRIBUTION SHAREHOLDER PORTFOLIO PLAN SERVICING PLAN SERVICING PLAN SERVICING ----------------------- ------------ ------------ ------------ ------------ ------------ ------------ S&P STARS 0.25% 0.25% 0.75% 0.25% 0.75% 0.25% S&P STARS Opportunities 0.25 0.25 0.75 0.25 0.75 0.25 Insiders Select 0.25 0.25 0.75 0.25 0.75 0.25 Intrinsic Value 0.25 0.25 0.75 0.25 0.75 0.25 Small Cap 0.25 0.25 0.75 0.25 0.75 0.25 Alpha Growth 0.25 0.25 0.75 0.25 0.75 0.25 International Equity 0.25 0.25 0.75 0.25 0.75 0.25
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 may determine. The fees paid to Bear Stearns under the Distribution Plan are payable 63 without regard to actual expenses incurred. Bear Stearns uses the distribution fees 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 services in connection with the maintenance of shareholder accounts. For the fiscal year ended March 31, 2004, the distribution and shareholder servicing fees paid to Bear Stearns under each Plan were as follows:
PORTFOLIO DISTRIBUTION FEES SHAREHOLDER SERVICING FEES ------------------------------ ----------------- -------------------------- S&P STARS $ 6,653,464 $ 3,171,439 S&P STARS Opportunities 290,004 135,494 Insiders Select 168,655 84,380 Intrinsic Value 335,807 166,296 Small Cap 169,731 81,587 Alpha Growth 538,526 295,495 International Equity 193,682 90,854
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 fiscal year ended March 31, 2004, 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 SHARES CLASS A SHARES CLASS B SHARES CLASS C SHARES ------------------------- ------------------------- -------------- -------------- -------------- S&P STARS $ 756,538 $ 28,671 $ 1,815,355 $ 35,649 S&P STARS Opportunities 75,739 312 128,457 681 Insiders Select 42,899 -- 42,464 1,436 Intrinsic Value 88,804 1,995 40,575 4,858 Small Cap 11,899 -- 27,856 1,180 Alpha Growth 397,707 14,030 109,181 6,216 International Equity 5,864 -- 21,202 1,044
INVESTMENTS IN SECURITIES For the fiscal year ended March 31, 2004, aggregate purchases and sales of investment securities (excluding short-term investments) for each Portfolio were as follows:
PORTFOLIO PURCHASES SALES ------------------------------ --------------- --------------- S&P STARS $ 1,806,441,945 $ 2,067,622,023 S&P STARS Opportunities 122,884,250 135,119,260 Insiders Select 7,234,526 12,083,348 Intrinsic Value 66,482,142 46,793,306 Small Cap 32,506,638 51,947,546 Alpha Growth 180,878,619 108,644,113 International Equity 93,056,683 115,511,516
64 INVESTMENTS IN AFFILIATES A summary of transactions for each issuer, which is or was an affiliate at or during the fiscal year ended March 31, 2004, were as follows:
NUMBER OF CAPITAL UNREALIZED PORTFOLIO AFFILIATE SHARES LOSS LOSS VALUE --------- ------------------------------------ --------- ----------- ------------ ------------ S&P STARS America West Holdings Corp., Class B 2,510,000 $ 1,133,357 $ 8,826,581 $ 23,920,300 SportsLine.com, Inc. 3,870,000 -- 32,249,211 5,147,100
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 5.50% 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. Transactions in shares of beneficial interest for each Portfolio were as follows:
S&P STARS S&P STARS OPPORTUNITIES ------------------------------------------- ------------------------------------------- SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS ------------- ------------- ------------- ------------- ------------- ------------- CLASS A FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 2,125,429 7,993,517 -- 228,881 699,175 -- Value $ 42,295,179 $ 164,470,578 -- $ 3,025,451 $ 9,464,825 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 3,895,224 19,073,752 -- 878,968 1,055,372 30,110 Value $ 76,281,246 $ 347,895,463 -- $ 10,928,634 $ 12,146,430 $ 339,034 CLASS B FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 1,105,451 3,578,297 -- 122,581 325,609 -- Value $ 21,589,177 $ 71,379,887 -- $ 1,625,322 $ 4,429,223 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 1,674,642 8,079,666 -- 546,134 627,113 20,418 Value $ 31,438,483 $ 143,765,252 -- $ 6,865,066 $ 7,170,373 $ 228,272 CLASS C FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 1,008,420 4,032,071 -- 81,575 304,575 -- Value $ 19,829,027 $ 80,634,055 -- $ 1,050,086 $ 4,057,957 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 1,707,019 8,417,201 -- 532,785 584,820 17,250 Value $ 32,256,708 $ 149,851,445 -- $ 6,672,259 $ 6,669,475 $ 193,031 CLASS Y FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 1,794,154 1,446,600 -- 8,025 34,024 -- Value $ 39,881,031 $ 30,542,917 -- $ 100,360 $ 453,023 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 1,265,616 2,478,336 -- 11,479 117,341 1,320 Value $ 24,007,292 $ 45,739,040 -- $ 136,352 $ 1,435,304 $ 14,944
65
INSIDERS SELECT INTRINSIC VALUE ------------------------------------------- ------------------------------------------- SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS ------------- ------------- ------------- ------------- ------------- ------------- CLASS A FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 227,670 252,194 2,619 1,188,300 442,336 8,297 Value $ 3,556,622 $ 4,076,028 $ 43,367 $ 22,161,212 $ 8,560,095 $ 162,794 FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 381,563 455,090 1,714 513,159 368,820 7,061 Value $ 5,369,724 $ 6,163,183 $ 22,765 $ 8,715,103 $ 6,017,945 $ 114,948 CLASS B FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 126,281 155,033 -- 365,467 123,112 1,335 Value $ 1,917,398 $ 2,308,056 -- $ 6,871,491 $ 2,289,984 $ 25,643 FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 383,024 311,664 1,163 496,503 269,735 1,505 Value $ 5,327,083 $ 3,978,471 $ 14,814 $ 8,340,638 $ 4,238,099 $ 23,997 CLASS C FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 67,615 134,297 -- 491,633 230,527 1,840 Value $ 1,051,425 $ 2,048,564 -- $ 9,104,627 $ 4,542,192 $ 35,547 FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 191,683 250,383 802 298,748 223,304 1,770 Value $ 2,601,331 $ 3,264,497 $ 10,211 $ 5,076,626 $ 3,561,759 $ 28,400 CLASS Y FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 5,519 15,336 153 357,139 502,732 11,753 Value $ 100,000 $ 270,781 $ 2,618 $ 7,206,002 $ 10,085,932 $ 233,179 FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 115 10,358 46 537,624 261,360 14,640 Value $ 1,500 $ 139,094 $ 628 $ 9,445,991 $ 4,224,746 $ 239,653
SMALL CAP ALPHA GROWTH ------------------------------------------- ------------------------------------------- SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS ------------- ------------- ------------- ------------- ------------- ------------- CLASS A FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 60,227 243,179 1,345 3,461,369 847,239 -- Value $ 1,003,814 $ 4,041,515 $ 24,004 $ 66,609,400 $ 16,278,827 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 364,832 625,507 78,806 2,127,629 800,655 -- Value $ 6,037,964 $ 9,671,143 $ 1,102,665 $ 35,129,114 $ 13,225,130 -- CLASS B FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 73,497 115,491 -- 821,415 312,939 -- Value $ 1,185,010 $ 1,915,533 -- $ 14,846,850 $ 5,709,547 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 230,356 208,957 29,431 893,338 326,659 -- Value $ 3,875,019 $ 3,154,162 $ 396,144 $ 14,555,453 $ 5,201,059 -- CLASS C FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 65,916 233,548 -- 1,028,108 222,799 -- Value $ 1,050,324 $ 3,963,220 -- $ 18,987,609 $ 4,205,697 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 165,696 289,911 52,759 686,358 170,113 -- Value $ 2,592,228 $ 4,318,724 $ 711,205 $ 10,995,616 $ 2,761,182 -- CLASS Y FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 350,046 1,330,890 7,490 -- -- -- Value $ 6,127,004 $ 24,583,074 $ 136,545 -- -- -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 291,446 507,414 105,401 -- -- -- Value $ 4,634,176 $ 7,624,225 $ 1,498,805 -- -- --
66
INTERNATIONAL EQUITY ------------------------------------------- SALES REPURCHASES REINVESTMENTS ------------- ------------- ------------- CLASS A FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 792,064 2,029,909 -- Value $ 9,089,145 $ 24,304,681 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 950,740 1,108,654 -- Value $ 11,728,521 $ 13,680,368 -- CLASS B FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 54,163 103,794 -- Value $ 639,952 $ 1,248,466 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 38,380 158,816 -- Value $ 492,186 $ 1,947,580 -- CLASS C FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 67,612 176,869 -- Value $ 805,269 $ 2,169,937 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 101,211 247,980 -- Value $ 1,369,054 $ 2,869,518 -- CLASS Y FOR THE FISCAL YEAR ENDED MARCH 31, 2004 Shares 1,236,517 1,431,422 -- Value $ 14,376,541 $ 19,507,385 -- FOR THE FISCAL YEAR ENDED MARCH 31, 2003 Shares 396,376 287,464 -- Value $ 4,834,630 $ 3,592,431 --
67 REDEMPTION FEES The International Equity Portfolio imposes a redemption fee of 1.00% of the total redemption amount (calculated at market value) if a shareholder sells their shares 60 days or less after the purchase date. The redemption fee will not apply to shares purchased through reinvested distributions (dividends and capital gains), shares held in retirement plans or shares redeemed through designated systematic withdrawal plans. The redemption fee is recorded as an increase to paid-in-capital. The redemption fees paid to the portfolio for the fiscal year ended March 31, 2004 were $26,716. 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. Each Portfolio as a fundamental policy is permitted to borrow in an amount up to 33 1/3% of the value of each Portfolio's total assets. However, each Portfolio intends to borrow money only for temporary or emergency (not leveraging) purposes and only in amounts not to exceed 15% of its net assets. Each loan is payable on demand or upon termination of this credit facility or on the last day of the interest period and, in any event, not later than 14 days from the date the loan was advanced. Amounts outstanding under the credit facility during the fiscal year ended March 31, 2004, were as follows:
MAXIMUM LOAN AMOUNT NUMBER OF DAYS PORTFOLIO AVERAGE LOAN BALANCE OUTSTANDING AVERAGE INTEREST RATE BORROWED ------------------------------ ---------------------- ---------------------- ---------------------- ---------------------- S&P STARS $ 15,025,519 $ 56,232,600 1.59% 313 S&P STARS Opportunities 81,472 1,600,000 1.53 68 Small Cap 61,035 3,000,000 1.51 15 Alpha Growth 1,205 200,000 1.53 8 International Equity 142,652 6,000,000 1.52 19
S&P STARS and Small Cap had loan balances of $4,800,000 and $230,000, respectively, outstanding under the line of credit facility at March 31, 2004. None of the other Portfolios had any amounts outstanding under the line of credit facility at or during March 31, 2004. RESULTS OF SPECIAL SHAREHOLDER MEETINGS (UNAUDITED) On November 18, 2003, BSAM and The Dreyfus Corporation, with its relevant affiliates ("Dreyfus"), announced a strategic arrangement in which the Portfolios will merge with new or existing Dreyfus funds that have the same or similar investment objectives (the "Transaction"). The Transaction has received the approvals of the Board of Trustees of the Fund and the Boards of the relevant Dreyfus funds. A special joint meeting of each Portfolio's shareholders was held on March 11, 2004 at the offices of Bear Stearns, 383 Madison Avenue, New York, New York, to seek shareholder approval for the merger of each Portfolio into a new or existing Dreyfus fund with the same or similar investment objectives, as set forth in the following table.
PORTFOLIO CORRESPONDING DREYFUS FUND --------------------------------- ------------------------------------------- S&P STARS Portfolio Dreyfus Premier S&P STARS Fund S&P STARS Opportunities Portfolio Dreyfus Premier S&P STARS Opportunities Fund Insiders Select Fund Dreyfus Premier Intrinsic Value Fund Intrinsic Value Portfolio Dreyfus Premier Intrinsic Value Fund Small Cap Value Portfolio Dreyfus Premier Future Leaders Fund Alpha Growth Portfolio Dreyfus Premier Alpha Growth Fund International Equity Portfolio Dreyfus Premier International Value Fund
68 The following table shows the number of shares of each Portfolio that, as of the record date of January 2, 2004, were outstanding and entitled to vote.
PORTFOLIO NUMBER OF SHARES OUTSTANDING AND ENTITLED TO VOTE --------------------------------- ------------------------------------------------- S&P STARS Portfolio 67,255,244 S&P STARS Opportunities Portfolio 4,055,964 Insiders Select Fund 2,242,192 Intrinsic Value Portfolio 5,340,850 Small Cap Value Portfolio 3,245,331 Alpha Growth Portfolio 7,111,235 International Equity Portfolio 4,106,007
Each reorganization required the affirmative vote of a majority of the relevant Portfolio's shares outstanding and entitled to vote. As of March 11, 2004, of the Portfolios listed above, only the Small Cap Value and International Equity Portfolios had received sufficient votes to determine whether to approve the reorganization. As a result, each other Portfolio's meeting was adjourned until April 8, 2004. The results of the voting at the March 11th meeting for the Small Cap Value and International Equity Portfolios, are shown in the following table. Management Information Services has independently certified the voting results for both Portfolios. As indicated, each of these reorganizations received shareholder approval at the March 11th meeting.
FOR AGAINST ABSTAIN ---------------------- ---------------------- ---------------------- PORTFOLIO NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE ------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- Small Cap Value Portfolio 1,624,219 50.04% 56,983 1.76% 50,533 1.56% International Equity Portfolio 2,182,966 53.17% 15,276 0.37% 27,181 0.66%
SUBSEQUENT EVENT (UNAUDITED) On April 8, 2004, each of the S&P STARS, S&P STARS Opportunities, Insiders Select Fund, Intrinsic Value and Alpha Growth Portfolios reconvened a shareholder meeting to vote on whether to approve the relevant reorganizations. The results of the voting at the April 8th meeting for these Portfolios, as independently certified by Management Information Services, are shown in the following table. As indicated, each of these reorganizations received shareholder approval at the April 8th meeting.
FOR AGAINST ABSTAIN ---------------------- ---------------------- ---------------------- PORTFOLIO NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE ------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- S&P STARS Portfolio 33,723,898 50.14% 1,687,112 2.51% 1,864,550 2.77% S&P STARS Opportunities Portfolio 2,072,929 51.11% 79,145 1.95% 142,005 3.50% Insiders Select Fund 1,133,454 50.55% 84,661 3.78% 83,369 3.72% Intrinsic Value Portfolio 2,976,276 55.73% 93,799 1.76% 132,109 2.47% Alpha Growth Portfolio 3,677,469 51.71% 136,596 1.92% 165,099 2.32%
Each reorganization that was approved on either March 11th or April 8th closed after the close of business on April 30, 2004. Immediately after such date, the assets of each Portfolio were transferred to its corresponding Dreyfus fund in exchange for shares of that Dreyfus fund and those Dreyfus fund shares were then distributed pro rata to each Portfolio shareholder, in complete liquidation of the Portfolio. 69 THE BEAR STEARNS FUNDS S&P STARS Portfolio S&P STARS Opportunities Portfolio The Insiders Select Fund Intrinsic Value Portfolio Small Cap Value Portfolio Alpha Growth Portfolio International Equity Portfolio INDEPENDENT AUDITORS' REPORT To Board of Trustees and Shareholders, S&P STARS Portfolio S&P STARS Opportunities Portfolio The Insiders Select Fund Intrinsic Value Portfolio Small Cap Value Portfolio Alpha Growth Portfolio International Equity Portfolio (Series of The Bear Stearns Funds): We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of S&P STARS Portfolio, S&P STARS Opportunities Portfolio, The Insiders Select Fund, Intrinsic Value Portfolio, Small Cap Value Portfolio, Alpha Growth Portfolio, and International Equity Portfolio (collectively, the "Portfolios") as of March 31, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Portfolios as of March 31, 2004, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania April 28, 2004 70 THE BEAR STEARNS FUNDS The Insiders Select Fund Intrinsic Value Portfolio Small Cap Value Portfolio SHAREHOLDER TAX INFORMATION - (UNAUDITED) Each Portfolio is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of each Portfolio's fiscal year end (March 31, 2004) as to the U.S. federal tax status of distributions received by the Portfolio's shareholders in respect of such fiscal year. During the fiscal year ended March 31, 2004, the following dividends and distributions per share were paid by each of the Portfolios:
THE INSIDERS INTRINSIC SMALL CAP SELECT FUND VALUE PORTFOLIO VALUE PORTFOLIO ------------ --------------- --------------- Payment Date: 12/19/03 12/19/03 12/19/03 Net Investment Income: Class A $ 0.0457 $ 0.1088 $ 0.0296 Class B -- 0.0323 -- Class C -- 0.0365 -- Class Y 0.1150 0.1741 0.1119 QDI percentage 37.6472% 55.7582% --
Of the per share ordinary income dividend from December 19, 2003, a portion represents qualifying dividend income ("QDI"), which is subject to a maximum rate of 15%. The percentage of QDI per fund is listed in the table above. Please note that to utilize the lower tax rate for QDI, shareholders must have held their shares in the Fund for 60 days or more. Ordinary income dividends, which include short-term capital gain distributions, should be reported as dividend income on Form 1040. Income dividends are taxable as ordinary income, as are short-term capital gain distributions. Because each Portfolio's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2004. The second notification, which will reflect the amount to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2005. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their actual ordinary dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Portfolios, if any. In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Portfolios. 71 TRUSTEES AND OFFICERS The following information is provided for each Trustee, Officer and the Advisory Trustee of The Bear Stearns Funds (the "Trust") as of March 31, 2004. Each Trustee oversees all 10 portfolios of the Trust. The mailing address of the Trustees and Officers is 383 Madison Avenue, New York, New York 10179.
POSITION(S) WITH THE NAME AND TRUST AND LENGTH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS AGE OF TIME SERVED(1) IN THE PAST 5 YEARS HELD BY TRUSTEE -------------------------- ---------------------------- --------------------------------------------------- ------------------------ INDEPENDENT TRUSTEES John S. Levy - 68 Trustee, since 2000 Managing Partner, Fayerweather Capital Partners SL Green Realty Corp. (private investment partnership) M.B. Oglesby, Jr. - 61 Trustee, since 1995 Consultant; Vice Chairman, BKSH & Associates, None Washington DC (government lobbyists) (2002- present); Formerly, Chief of Staff to United States Trade Representative, Executive Office of the President (2001-2002); Consultant, Chairman, Oglesby Properties, Inc.; President and Chief Executive Officer, Association of American Railroads; Vice Chairman, Cassidy & Associates Robert E. Richardson - 62 Trustee, since 2000 Retired; Formerly, Vice President, Broker/Dealer None Department, Mellon Bank (1991-1999) "INTERESTED" TRUSTEE(2) Michael Minikes - 60 Chairman of the Board, Treasurer, The Bear Stearns Companies Inc. and None and Trustee, since 1999 Bear, Stearns& Co. Inc. ("Bear Stearns"); Senior Managing Director, Bear Stearns; Co-President, Bear, Stearns Securities Corporation (1999-present); Director, Custodial Trust Company and Bear Stearns Bank plc
(1) The term of office for a Trustee is indefinite, until he or she resigns, is removed or a successor is elected and qualified. (2) The Interested Trustee and Officer is considered to be "interested person" (as defined by the Investment Company Act of 1940, as amended), because of his employment with the Trust's adviser or principal underwriter. 72
POSITION(S) WITH THE NAME AND TRUST AND LENGTH AGE OF TIME SERVED(1) PRINCIPAL OCCUPATION(S) IN THE PAST 5 YEARS -------------------------- ------------------------------------ ------------------------------------------------------------------ ADVISORY TRUSTEE Alan J. Dixon - 77 Advisory Trustee, since 1995 Partner - Corporate Business and Legislative Law, Bryan Cave (law firm); Formerly, United States Senator (1981-1992) OFFICERS WHO ARE NOT TRUSTEES Barry Sommers - 34 President, since November 2003; Senior Managing Director (since 2000); Head of Marketing and Sales Executive Vice President, from for the Trust (since 1997) and Managing Director (1997-2000), Bear 1998 to November 2003 Stearns. Stephen A. Bornstein - 60 Vice President and Secretary, General Counsel, Managing Director/Principal and Executive Vice since 1995 President, Bear Stearns Asset Management Inc. ("BSAM"); Managing Director/Principal, Bear Stearns; Vice President, General Counsel and Secretary, Bear Stearns Funds Management Inc. ("BSFM") Frank J. Maresca - 45 Vice President and Treasurer, President and Chief Executive Officer, BSFM; Senior Managing since 1995 Director, Bear Stearns (since 2001); Managing Director, Bear Stearns Vincent L. Pereira - 38 Assistant Treasurer, since 1995 Executive Vice President, BSFM; Managing Director, (since 1999) and Associate Director (1997-1999), Bear Stearns Alaina V. Metz - 36 Assistant Secretary, since 2002 Chief Administrative Officer of BISYS Fund Services
(1) The term of the office for a Trustee or Officer is indefinite, until he or she resigns, is removed or a successor is elected and qualified. 73 THE BEAR STEARNS FUNDS S&P STARS Portfolio S&P STARS Opportunities Portfolio The Insiders Select Fund Intrinsic Value Portfolio Small Cap Value Portfolio Alpha Growth Portfolio International Equity Portfolio PRIVACY NOTICE While information is the cornerstone of our ability to provide superior service, our most important assets are our shareholders and the trust that they place in us. Keeping shareholder information secure and using it only as our shareholders would want us to are top priorities at The Bear Stearns Funds. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information on investment goals and risk tolerance. We do not disclose any information about you or about former customers to anyone except as permitted by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and mailers that assist us in the distribution of shareholder materials. This allows us to continue to meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information. You may have received communications regarding information privacy on policies from other financial institutions that gave you the opportunity to "opt-out" of certain information sharing with companies that are not affiliated with that financial institution. The Bear Stearns Funds does not share information with other companies for purposes of marketing solicitations. Therefore, The Bear Stearns Funds does not provide opt-out options to its shareholders. We reserve the right to change our privacy policy at any time. The examples contained within this notice are illustrations; they are not intended to be exclusive. This notice complies with a recently enacted Federal law and SEC regulations regarding privacy. You may have additional rights under foreign or other domestic laws that may apply to you. 74 The Bear Stearns Funds 383 MADISON AVENUE, NEW YORK, NY 10179 1.800.766.4111 Michael Minikes Chairman of the Board and Trustee Barry Sommers President John S. Levy Trustee M. B. Oglesby, Jr. Trustee Robert E. Richardson Trustee Stephen A. Bornstein Vice President and Secretary Frank J. Maresca Vice President and Treasurer Vincent L. Pereira Assistant Treasurer Alaina V. Metz Assistant Secretary INVESTMENT ADVISER DISTRIBUTOR Bear Stearns Asset Bear, Stearns & Co. Inc. Management Inc. 383 Madison Avenue 383 Madison Avenue New York, NY 10179 New York, NY 10179 COUNSEL SUB-ADVISER Kramer Levin INTERNATIONAL EQUITY Naftalis & Frankel LLP PORTFOLIO 919 Third Avenue Marvin & Palmer New York, NY 10022 Associates, Inc. 1201 N. Market Street TRANSFER AND DIVIDEND Suite 2300 DISBURSEMENT AGENT Wilmington, DE 19801 PFPC Inc. 301 Bellevue Parkway ADMINISTRATOR Wilmington, DE 19809 Bear Stearns Funds Management Inc. INDEPENDENT AUDITORS 383 Madison Avenue Deloitte & Touche LLP New York, NY 10179 1700 Market Street Philadelphia, PA 19103 CUSTODIAN Custodial Trust Company 101 Carnegie Center Princeton, NJ 08540 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. "Standard & Poor's(R)" and "S&P(R)" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Bear, Stearns & Co. Inc. S&P STARS Portfolio and S&P STARS Opportunities Portfolio are not sponsored, managed, advised, sold or promoted by Standard & Poor's. THE BEAR STEARNS FUNDS - PRIME MONEY - MARKET PORTFOLIO ANNUAL REPORT MARCH 31, 2004 [BEAR STEARNS LOGO] BSF-R-017-14 THE BEAR STEARNS FUNDS Prime Money Market Portfolio LETTER TO SHAREHOLDERS April 8, 2004 Dear Shareholders: We are pleased to present the annual report for the Prime Money Market Portfolio (the "Portfolio") for the fiscal year ended March 31, 2004. The Portfolio's performance for the fiscal year ranked in the 28th percentile of its peer group (a universe of 258 tier-one institutional money market funds) as represented by iMoneyNet. The start of the fiscal year was marked by a great deal of uncertainty. Concerns about the war with Iraq and the SARS epidemic weighed heavily on the economy. Unemployment was on the rise and consumer confidence was just beginning to recover from very low levels preceding the beginning of the Iraqi campaign. Furthermore, concerns about disinflation and deflation had begun to take root in the financial markets. The Federal Reserve confirmed this at its May 2003 meeting, stating that economic conditions were more weighted toward disinflation than inflation, but that the economy's growth remained balanced. While investors' expectation that the Fed would begin to buy back Treasury securities in the open market in order to stave off deflation proved incorrect, the Fed did reduce the targeted Federal Funds rate by 25 basis points, to 1.0%, at its June meeting. Economic activity began to pick up with the conclusion of full scale hostilities in Iraq. Historically low interest rates on mortgages drove a refinancing boom that, when combined with additional tax cuts, helped keep consumer spending levels strong. This, coupled with a long-awaited return to business spending, fueled a very robust annualized GDP growth rate of 8.2% for the third quarter -- the fastest rate of growth since 1983. This positive impetus carried over to the fourth quarter as GDP grew at a solid annualized rate of 4.1%. Strong corporate profits toward the end of 2003 led to increased equity valuations, and consumer confidence was further boosted by rising real estate values -- the result of continued strength in demand for housing. As the economic recovery became more entrenched and the U.S. federal budget deficit soared, investors came to expect the Fed to raise short-term rates in the early spring of 2004. However, with inflation at very low levels, excess capacity remaining in the economy, and a notable absence of new jobs growth, the Fed continued to maintain its accommodative stance. Sincerely, /s/ Barry Sommers Barry Sommers President The Bear Stearns Funds 1 THE BEAR STEARNS FUNDS Prime Money Market Portfolio PORTFOLIO OF INVESTMENTS MARCH 31, 2004
PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000'S) RATE(S) DATE(S) VALUE ------------------------------------------------------------------------------------------------------------------------------- BANKERS ACCEPTANCE -- 0.32% BANKS - DOMESTIC - 0.32% $ 5,222 JPMorgan Chase [A-1+, P-1] (cost - $5,219,012) 1.031% 04/21/04 $ 5,219,012 ---------------- CERTIFICATES OF DEPOSIT -- 30.65% BANKS - DOMESTIC - 0.56% 9,000 Bank of America N.A. [A-1+, P-1] 1.130 05/10/04 9,000,000 ---------------- BANKS - EURO - AUSTRALIA - 0.81% 13,000 National Australia Bank [A-1+, P-1] 1.170 10/13/04 13,005,434 ---------------- BANKS - EURO - FRANCE - 2.62% 15,000 Credit Agricole Indosuez [A-1+, P-1] 1.270 12/31/04 15,004,009 27,000 Societe Generale [A-1+, P-1] 1.080 - 1.130 04/06/04 - 12/20/04 26,999,382 ---------------- 42,003,391 ---------------- BANKS - EURO - GERMANY - 1.00% 8,000 Deutsche Bank [A-1+, P-1] 1.120 12/14/04 7,999,974 8,000 Landesbank Hessen-Thuringen Girozentrale [A-1+, P-1] 1.270 09/13/04 7,998,787 ---------------- 15,998,761 ---------------- BANKS - EURO - UNITED KINGDOM - 6.87% 43,000 Barclays Bank plc [A-1+, P-1] 1.095 - 1.170 04/12/04 - 12/09/04 43,001,280 39,000 HBOS Treasury Services plc [A-1+, P-1] 1.060 - 1.210 04/22/04 - 06/11/04 39,001,184 16,000 HSBC Bank plc [A-1+, P-1] 1.230 06/14/04 16,002,275 12,000 Lloyds TSB Bank plc [A-1+, P-1] 1.400 08/05/04 12,000,207 ---------------- 110,004,946 ---------------- BANKS - YANKEE - CANADA - 2.50% 32,000 Canadian Imperial Bank of Commerce [A-1, P-1] 1.240 - 1.310 05/17/04 - 08/13/04 32,002,599 8,000 Toronto Dominion Bank NY [A-1, P-1] 1.380 08/27/04 7,999,341 ---------------- 40,001,940 ---------------- BANKS - YANKEE - FRANCE - 2.34% 22,250 BNP Paribas [A-1+, P-1] 1.390 08/05/04 22,258,958 15,250 Societe Generale [A-1+, P-1] 1.300 04/15/04 15,250,678 ---------------- 37,509,636 ---------------- BANKS - YANKEE - GERMANY - 6.99% 34,500 Bayerische Landesbank Girozentrale* [A-1+, P-1] 1.050 - 1.090 04/26/04 - 06/21/04 34,500,424 36,000 Norddeutsche Landesbank Girozentrale [A-1+, P-1] 1.100 - 1.170 07/06/04 - 08/20/04 35,990,214 21,000 Westdeutsche Landesbank Girozentrale [A-1+, P-1] 1.320 - 1.400 04/15/04 - 08/05/04 21,004,315 20,500 Westdeutsche Landesbank Girozentrale* [A-1+, P-1] 1.055 04/01/04 20,500,000 ---------------- 111,994,953 ----------------
The accompanying notes are an integral part of the financial statements. 2
PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000'S) RATE(S) DATE(S) VALUE ------------------------------------------------------------------------------------------------------------------------------- CERTIFICATES OF DEPOSIT (CONTINUED) BANKS - YANKEE - NETHERLANDS - 1.00% $ 16,000 Rabobank Nederland N.V. [A-1+, P-1] 1.310 - 1.370% 08/06/04 - 08/27/04 $ 16,001,163 ---------------- BANKS - YANKEE - SWEDEN - 2.12% 34,000 Svenska Handelsbanken [A-1, P-1] 1.120 - 1.250 04/07/04 - 12/10/04 34,001,051 ---------------- BANKS - YANKEE - SWITZERLAND - 2.69% 12,000 Credit Suisse First Boston [A-1, P-1] 1.050 05/04/04 12,000,000 6,500 Credit Suisse First Boston* [A-1, P-1] 1.190 04/06/04 6,502,965 24,500 UBS A.G. [A-1+, P-1] 1.315 - 1.410 08/03/04 - 01/07/05 24,515,888 ---------------- 43,018,853 ---------------- BANKS - YANKEE - UNITED KINGDOM - 1.15% 7,500 HSBC Bank plc [A-1+, P-1] 1.090 07/06/04 7,499,766 11,000 Royal Bank of Scotland plc [A-1+, P-1] 1.340 09/30/04 10,996,694 ---------------- 18,496,460 ---------------- Total Certificates of Deposit (cost - $491,036,588) 491,036,588 ---------------- COMMERCIAL PAPER -- 15.79% BANKS - YANKEE - SWITZERLAND - 1.19% 19,000 Credit Suisse First Boston [A-1, P-1] 1.031 - 1.041 04/12/04 - 04/29/04 18,990,561 ---------------- COMMERCIAL FINANCE - 0.62% 10,000 UBS Finance LLC [A-1+, P-1] 1.031 04/05/04 9,998,856 ---------------- DIVERSIFIED RECEIVABLES CONDUIT - 12.13% 18,000 Alpine Securitization Corp. [A-1, P-1] 1.031 04/01/04 - 04/15/04 17,995,994 19,441 Barton Capital Corp. [A-1+, P-1] 1.031 - 1.051 04/12/04 - 04/26/04 19,431,002 33,500 Blue Ridge Asset Corp. [A-1, P-1] 1.030 - 1.041 04/07/04 - 04/26/04 33,487,283 9,000 Delaware Funding Corp. [A-1+, P-1] 1.031 04/28/04 8,993,048 4,000 Govco, Inc. [A-1+, P-1] 1.031 04/26/04 3,997,139 16,000 Liberty Street Funding [A-1, P-1] 1.060 04/01/04 15,999,999 14,360 Mont Blanc Capital Corp. [A-1+, P-1] 1.031 04/15/04 - 04/26/04 14,351,416 19,274 Old Line Funding Corp. [A-1+, P-1] 1.031 - 1.051 04/19/04 - 04/26/04 19,262,197 7,000 Park Avenue Receivables Corp. [A-1, P-1] 1.031 04/15/04 6,997,196 20,500 Preferred Receivables Funding [A-1, P-1] 1.030 - 1.031 04/06/04 - 04/21/04 20,491,488 33,422 Sheffield Receivables Corp. [A-1+, P-1] 1.031 - 1.041 04/13/04 - 04/23/04 33,406,017 ---------------- 194,412,779 ---------------- GAS & OIL - 0.75% 12,000 Koch Industries, Inc. [A-1+, P-1] 1.020 04/12/04 11,996,260 ----------------
The accompanying notes are an integral part of the financial statements. 3
PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000'S) RATE(S) DATE(S) VALUE ------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (CONTINUED) INVESTMENT STRUCTURE - 0.10% $ 1,600 Sigma Finance, Inc. [A-1+, P-1] 1.041% 04/20/04 $ 1,599,122 ---------------- SECURITY BROKERS & DEALERS - 1.00% 16,000 Goldman Sachs Group, Inc. (The) [A-1, P-1] 1.050 04/13/04 15,994,400 ---------------- Total Commercial Paper (cost - $252,991,978) 252,991,978 ---------------- CORPORATE OBLIGATIONS -- 13.64% BANKS - DOMESTIC - 6.33% 15,500 American Express Centurion* [A-1, P-1] 1.040 04/13/04 15,500,000 8,000 Bank One N.A.* [A-1, P-1] 1.120 04/19/04 8,005,331 12,000 First USA Bank* [A-1, P-1] 1.295 - 1.350 04/21/04 - 05/06/04 12,010,291 23,750 Southtrust Bank N.A.* [A-1, P-1] 1.190 - 1.200 05/24/04 - 06/21/04 23,755,789 20,070 US Bank N.A.* [A-1+, P-1] 1.290 - 1.340 04/05/04 - 04/13/04 20,077,003 22,000 Wells Fargo Bank N.A.* [A-1+, P-1] 1.040 04/01/04 21,999,999 ---------------- 101,348,413 ---------------- COMMERCIAL FINANCE - 1.73% 27,650 General Electric Capital Corp.* [A-1+, P-1] 1.170 - 1.250 04/19/04 - 06/15/04 27,673,482 ---------------- INSURANCE - 2.18% 35,000 Travelers Insurance Co.* (2) [A-1+, P-1] 1.160 - 1.190 04/28/04 35,000,000 ---------------- INVESTMENT STRUCTURE - 2.03% 32,500 Sigma Finance, Inc.* (1) [A-1+, P-1] 1.050 - 1.051 04/01/04 - 04/19/04 32,498,772 ---------------- SECURITY BROKERS & DEALERS - 1.37% 11,500 Goldman Sachs Group, Inc. (The)* (2) [A-1, P-1] 1.120 04/16/04 11,500,000 10,500 Merrill Lynch & Co., Inc.* [A-1, P-1] 1.350 04/28/04 10,507,159 ---------------- 22,007,159 ---------------- Total Corporate Obligations (cost - $218,527,826) 218,527,826 ---------------- SHARES ----------- INVESTMENT COMPANY -- 0.00% 1,153 Federated Trust Prime Obligations Fund** [AAAm/Aaa] (cost - $1,153) 0.930 -- 1,153 ----------------
The accompanying notes are an integral part of the financial statements. 4
PRINCIPAL INTEREST/ AMOUNT DISCOUNT MATURITY (000'S) RATE(S) DATE(S) VALUE ------------------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS*** -- 34.80% $ 77,663 ABN-AMRO Inc. [A-1+, P-1] 1.070% 04/01/04 $ 77,663,000 151,000 Goldman Sachs Group, Inc. (The) [A-1, P-1] 1.080 04/01/04 151,000,000 127,000 JPMorgan Securities Inc. [A-1, P-1] 1.080 04/01/04 127,000,000 202,000 Wachovia Securities Inc. [A-1, P-1] 1.080 04/01/04 202,000,000 ---------------- Total Repurchase Agreements (cost - $557,663,000) 557,663,000 ---------------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 5.12% FANNIE MAE - 2.59% 41,500 Unsecured Notes 1.080 - 1.400 07/23/04 - 02/25/05 41,500,000 ---------------- FEDERAL HOME LOAN BANK - 2.53% 40,500 Unsecured Bonds 1.300 - 1.470 02/23/05 - 04/29/05 40,500,000 ---------------- Total U.S. Government Agency Obligations (cost - $82,000,000) 82,000,000 ---------------- Total Investments -- 100.32% (cost - $1,607,439,557)**** 1,607,439,557 Liabilities in excess of other assets -- (0.32)% (5,184,432) ---------------- Net Assets -- 100.00% $ 1,602,255,125 ================
---------- (1) SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. These securities have been determined to be liquid in accordance with procedures adopted by the Fund's Board. (2) SEC Rule 144A security. These securities have been determined to be illiquid and can only be sold to the issuer. * Variable Rate Obligations -- The rate shown is the rate as of March 31, 2004 and the maturity date as shown is the date the interest rate resets. ** Money market fund; interest rate reflects SEC seven-day yield at March 31, 2004. *** See notes to financial statements for description of underlying collateral. **** The cost of investments for federal income tax purposes is substantially the same for financial reporting purposes. The accompanying notes are an integral part of the financial statements. 5 THE BEAR STEARNS FUNDS Prime Money Market Portfolio STATEMENT OF ASSETS & LIABILITIES MARCH 31, 2004 ASSETS Investments, at amortized cost which approximates market value (identified and tax cost - $1,607,439,557) $ 1,607,439,557 Interest receivable 3,204,746 Prepaid expenses 86,540 --------------- Total assets 1,610,730,843 --------------- LIABILITIES Payable for investments purchased 7,000,000 Dividends payable 1,190,587 Advisory fee payable 121,162 Administration fee payable 68,823 Custodian fee payable 22,505 Accrued expenses 72,641 --------------- Total liabilities 8,475,718 --------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) 1,602,282 Paid-in capital 1,600,679,773 Accumulated net realized loss from investments (26,930) --------------- Net assets $ 1,602,255,125 =============== CLASS Y Net Assets $ 1,602,255,125 --------------- Shares of beneficial interest outstanding 1,602,282,055 --------------- Net asset value, offering and redemption price per share $ 1.00 ===============
The accompanying notes are an integral part of the financial statements. 6 STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2004 INVESTMENT INCOME Interest $ 24,284,625 --------------- EXPENSES Advisory fees 4,150,143 Administration fees 1,037,517 Accounting fees 341,357 Custodian fees and expenses 230,700 Legal and auditing fees 106,908 Federal and state registration fees 49,623 Transfer agent fees and expenses 41,499 Reports and notices to shareholders 22,900 Trustees' fees and expenses 18,213 Insurance expenses 9,194 Other 56,317 --------------- Total expenses before waivers 6,064,371 Less: waivers (1,904,930) --------------- Total expenses after waivers 4,159,441 --------------- Net investment income 20,125,184 --------------- NET REALIZED GAIN FROM INVESTMENTS 4,352 --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 20,129,536 ===============
The accompanying notes are an integral part of the financial statements. 7 STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FISCAL YEARS ENDED MARCH 31, ------------------------------------ 2004 2003 ---------------- ---------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income $ 20,125,184 $ 38,051,689 Net realized gain from investments 4,352 4,464 ---------------- ---------------- Net increase in net assets resulting from operations 20,129,536 38,056,153 ---------------- ---------------- DIVIDENDS TO SHAREHOLDERS FROM Net investment income (20,125,184) (38,051,689) ---------------- ---------------- SHARES OF BENEFICIAL INTEREST* Net proceeds from the sale of shares 7,554,322,920 8,240,980,188 Cost of shares repurchased (8,390,744,571) (8,491,253,839) Shares issued in reinvestment of dividends 17,104,179 34,116,859 ---------------- ---------------- Net decrease in net assets derived from shares of beneficial interest transactions (819,317,472) (216,156,792) ---------------- ---------------- Total decrease in net assets (819,313,120) (216,152,328) NET ASSETS Beginning of year 2,421,568,245 2,637,720,573 ---------------- ---------------- End of year $ 1,602,255,125 $ 2,421,568,245 ================ ================
---------- * Share transactions at net asset value of $1.00 per share. The accompanying notes are an integral part of the financial statements. 8 THE BEAR STEARNS FUNDS Prime Money Market Portfolio FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for each share outstanding, total investment return, ratios to average net assets and other supplemental data for each year indicated. This information has been derived from information provided in the financial statements.
FOR THE FISCAL YEARS ENDED MARCH 31, ---------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 Net investment income(1) 0.0096 0.0158 0.0308 0.0622 0.0526 ------------ ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations 0.0096 0.0158 0.0308 0.0622 0.0526 ------------ ------------ ------------ ------------ ------------ Dividends to shareholders from net investment income (0.0096) (0.0158) (0.0308) (0.0622) (0.0526) ------------ ------------ ------------ ------------ ------------ Net asset value, end of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ============ ============ ============ ============ ============ Total investment return(2) 0.97% 1.59% 3.13% 6.40% 5.39% ============ ============ ============ ============ ============ RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's omitted) $ 1,602,255 $ 2,421,568 $ 2,637,721 $ 1,963,646 $ 913,907 Ratio of expenses to average net assets(1) 0.20% 0.20% 0.20% 0.20% 0.20% Ratio of net investment income to average net assets(1) 0.97% 1.57% 2.95% 6.15% 5.36% Increase/(decrease) reflected in above expense and net investment income ratios due to waivers and related reimbursements 0.09% 0.09% 0.10% 0.13% 0.17%
---------- (1) Reflects waivers and related reimbursements. (2) 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 year reported and includes reinvestment of dividends. The accompanying notes are an integral part of the financial statements. 9 THE BEAR STEARNS FUNDS Prime Money Market Portfolio NOTES TO FINANCIAL STATEMENTS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business trust on September 29,1994, and is registered with the Securities and Exchange Commission (the "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 (the "Portfolio"), Intrinsic Value Portfolio, Small Cap Value Portfolio, International Equity Portfolio, Income Portfolio and High Yield Total Return Portfolio, and four non-diversified portfolios, The Insiders Select Fund, Alpha Growth Portfolio, S&P STARS Portfolio and S&P STARS Opportunities Portfolio. As of the date hereof, the Portfolio offers one class of shares, which has been designated as Class 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. Under the Fund's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with their vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote. MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") 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--Portfolio securities are valued under the amortized cost method, which approximates current market value. Securities are valued at cost when purchased, and thereafter a constant proportionate amortization of any discount or premium is recorded until maturity of the security. Regular review and monitoring of the valuations are performed in an attempt to avoid dilution or other unfair results to shareholders. The Portfolio seeks to maintain a net asset value of $1.00 per share, although there is no assurance that it will be able to do so on a continuing basis. 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 for both financial reporting and income tax purposes. Interest income and expenses are recorded on the accrual basis. U.S. FEDERAL TAX STATUS--The Portfolio intends to distribute substantially all of its taxable income and to comply with the other requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. income taxes is required. In addition, by distributing during each calendar year substantially all of its ordinary income and capital gains, if any, the Portfolio intends not to be subject to a U.S. federal excise tax. The tax character of dividends paid during the fiscal years ended March 31, 2004 and March 31, 2003 were entirely from ordinary income. At March 31, 2004, the components of distributable earnings on a tax basis were equal to that shown on the Statement of Assets and Liabilities. At March 31, 2004, the Portfolio had capital loss carryforwards available as a reduction, to the extent provided in regulations, of any future net capital gains realized before the end of fiscal year 2009. To the extent that the capital loss carryforward is used to 10 offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders. The Portfolio had capital loss carryforwards at March 31, 2004 as follows:
AMOUNT EXPIRING IN GROSS CAPITAL LOSS ------------------------------------- CARRYFORWARD 2007 2008 2009 ------------------ --------- --------- --------- $ 26,930 $ 25,610 $ 1,279 $ 41
DIVIDENDS AND DISTRIBUTIONS--Dividends from net investment income are declared daily and paid monthly. Any net realized capital gains are distributed at least annually if not offset by capital loss carryforwards. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. 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. REPURCHASE AGREEMENTS--The Portfolio may purchase securities from financial institutions subject to the seller's agreement to repurchase and the Portfolio's agreement to resell the securities at par. The investment adviser only enters into repurchase agreements with financial institutions that are primary dealers and deemed to be creditworthy by the investment adviser in accordance with procedures adopted by the Board of Trustees. Securities purchased subject to repurchase agreements are maintained with the custodian of the Portfolio and must have, at all times, an aggregate market value greater than or equal to the repurchase price plus accrued interest. If the value of the underlying securities falls below 102% of the value of the repurchase price plus accrued interest, the Portfolio will require the seller to deposit additional collateral by the next Portfolio business day. In the event that the seller under the agreement defaults on its repurchase obligation or fails to deposit sufficient collateral, the Portfolio has the contractual right, subject to the requirements of applicable bankruptcy and insolvency laws, to sell the underlying securities and may claim any resulting loss from the seller. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES For the fiscal year ended March 31, 2004, Bear Stearns Asset Management Inc. ("BSAM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns Companies Inc., served as investment adviser pursuant to an Investment Advisory Agreement with the Portfolio. Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 0.20% of the Portfolio's average daily net assets. For the fiscal year ended March 31, 2004, Bear Stearns Funds Management Inc. ("BSFM" or the "Administrator") served as administrator to the Portfolio pursuant to an Administration Agreement. The Administrator is entitled to receive from the Portfolio a monthly fee equal to an annual rate of 0.05% of the Portfolio's average daily net assets. For the fiscal year ended March 31, 2004, the Adviser has undertaken to limit the Portfolio's total operating expenses (exclusive of brokerage commissions, taxes, interest and extraordinary items) to a maximum annual level of no more than 0.20% of its average daily net assets. As necessary, this limitation is effected by waivers by the Adviser of its advisory fees. For the fiscal year ended March 31, 2004, the Adviser waived advisory fees of $1,904,930 in order to maintain the expense limitation. The Portfolio will not pay BSAM at a later time for any amounts BSAM may waive, nor will the Portfolio 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"), serves as custodian to the Portfolio. SHARES OF BENEFICIAL INTEREST The Portfolio currently offers Class Y shares. There is no sales charge or contingent deferred sales charge on Class Y shares, which are offered primarily to institutional investors. 11 At March 31, 2004, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized for the Portfolio, of which Bear Stearns and its affiliates owned 267,273,511 of Class Y shares or approximately 17% of the shares outstanding. COLLATERAL FOR REPURCHASE AGREEMENTS Listed below is the collateral associated with the repurchase agreements outstanding at March 31, 2004:
PRINCIPAL ACCRUED ISSUER AMOUNT MATURITY DATE(S) INTEREST RATE(S) MARKET VALUE INTEREST TOTAL VALUE ------ -------------- ------------------- --------------- -------------- ------------ -------------- ABN-AMRO INC. Freddie Mac, Pass-through Pools $ 78,081,000 11/01/05 - 12/16/10 2.41 - 4.50% $ 78,440,020 $ 776,422 $ 79,216,442 ============== ============ ============== GOLDMAN SACHS GROUP, INC. (THE) Fannie Mae, Pass-through Pools $ 153,454,406 11/01/33 - 02/01/34 5.50% $ 153,333,662 $ 686,338 $ 154,020,000 ============== ============ ============== JPMORGAN SECURITIES INC. Fannie Mae, Pass-through Pools $ 85,915,000 02/01/19 - 03/01/34 5.00 - 5.50% $ 85,689,946 $ 344,125 $ 86,034,071 Gold, Pass-through Pools 50,000,000 03/01/18 4.50 43,355,796 155,136 43,510,932 -------------- ------------ -------------- $ 129,045,742 $ 499,261 $ 129,545,003 ============== ============ ============== WACHOVIA SECURITES INC. Fannie Mae, Pass-through Pools $ 240,414,086 12/01/16 - 10/01/32 5.00 - 9.00% $ 173,029,080 $ 645,110 $ 173,674,190 Freddie Mac, Pass-through Pools 28,908,304 01/01/32 - 10/01/32 5.50 - 6.00 32,238,539 127,271 32,365,810 -------------- ------------ -------------- $ 205,267,619 $ 772,381 $ 206,040,000 ============== ============ ==============
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 the 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. The Portfolio, as a fundamental policy, is permitted to borrow in an amount up to 33 1/3 % of its total assets. Loans are payable on demand or upon termination of this credit facility or; for money market loans, on the last day of the interest period and, in any event, not later than 14 days from the date the loan is advanced. The Portfolio had no amounts outstanding under the credit facility at or for the fiscal year ended March 31, 2004. RESULTS OF THE SPECIAL SHAREHOLDER MEETING (UNAUDITED) On November 18, 2003, BSAM and The Dreyfus Corporation (with its relevant affiliates, "Dreyfus") announced a strategic arrangement in which the Portfolio will merge with new or existing Dreyfus funds that have the same or similar investment objectives (the "Transaction"). The Transaction has received the approvals of the Board of Trustees of the Fund and the Boards of the relevant Dreyfus funds. A special meeting of the Portfolio's shareholders was held on March 11, 2004 at the offices of Bear Stearns, 383 Madison Avenue, New York, New York, to seek shareholder approval for the merger of the Portfolio into the Bear Stearns Prime Money Market Fund (the "New Dreyfus Fund"), a newly formed series of Dreyfus Premier Manager Funds I, a newly formed investment company. The New Dreyfus Fund has the same investment objective as the Portfolio. 12 The Portfolio had 1,789,140,096 shares outstanding and entitled to vote as of record date January 2, 2004. The reorganization requires the affirmative vote of a majority of the Portfolio's shares outstanding and entitled to vote. The results of the voting at the shareholder meeting, as independently certified by Management Information Services, are shown below.
FOR AGAINST ABSTAIN -------------------------- ------------------------- -------------------------- NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE ----------- ------------ ---------- ------------ ---------- ------------ 973,700,177 54.42% 2,441,784 0.14% 53,219,871 2.98%
SUBSEQUENT EVENT (UNAUDITED) The reorganization described above closed after the close of business on April 30, 2004. Immediately after such date, the assets of the Portfolio were transferred to the New Dreyfus Fund in exchange for shares of that New Dreyfus Fund and those New Dreyfus Fund shares were then distributed pro rata to the Portfolio's shareholders, in complete liquidation of the Portfolio. 13 THE BEAR STEARNS FUNDS Prime Money Market Portfolio INDEPENDENT AUDITORS' REPORT The Board of Trustees and Shareholders, Prime Money Market Portfolio (Series of The Bear Stearns Funds): We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Prime Money Market Portfolio (the "Portfolio") as of March 31, 2004, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2004, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Portfolio as of March 31, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania April 28, 2004 14 THE BEAR STEARNS FUNDS TRUSTEES AND OFFICERS The following information is provided for each Trustee, Officer and the Advisory Trustee of The Bear Stearns Funds (the "Trust") as of March 31, 2004. Each Trustee oversees all 10 portfolios of the Trust. The mailing address of the Trustees and Officers is 383 Madison Avenue, New York, New York 10179.
POSITION(S) WITH THE NAME AND TRUST AND LENGTH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS AGE OF TIME SERVED(1) IN THE PAST 5 YEARS HELD BY TRUSTEE ------------------------- ----------------------- ----------------------------------------------------- --------------------- INDEPENDENT TRUSTEES John S. Levy - 68 Trustee, since 2000 Managing Partner, Fayerweather Capital Partners SL Green Realty Corp. (private investment partnership) M.B. Oglesby, Jr. - 61 Trustee, since 1995 Consultant; Vice Chairman, BKSH & Associates, None Washington DC (government lobbyists) (2002- present); Formerly, Chief of Staff to United States Trade Representative, Executive Office of the President (2001-2002); Consultant, Chairman, Oglesby Properties, Inc.; President and Chief Executive Officer, Association of American Railroads; Vice Chairman, Cassidy & Associates Robert E. Richardson - 62 Trustee, since 2000 Retired; Formerly, Vice President, Broker/Dealer None Department, Mellon Bank (1991-1999) "INTERESTED" TRUSTEE(2) Michael Minikes - 60 Chairman of the Board Treasurer, The Bear Stearns Companies Inc. and None and Trustee, since 1999 Bear, Stearns & Co. Inc. ("Bear Stearns"); Senior Managing Director, Bear Stearns; Co-President, Bear Stearns Securities Corporation (1999-present); Director, Custodial Trust Company and Bear Stearns Bank plc
(1) The term of office for a Trustee is indefinite, until he or she resigns, is removed or a successor is elected and qualified. (2) The Interested Trustee is considered to be an "interested person" (as defined by the Investment Company Act of 1940, as amended) because of his employment with the Trust's adviser or principal underwriter. 15
POSITION(S) WITH THE NAME AND TRUST AND LENGTH AGE OF TIME SERVED(1) PRINCIPAL OCCUPATION(S) IN THE PAST 5 YEARS ------------------------- -------------------------- --------------------------------------------------------------------------- ADVISORY TRUSTEE Alan J. Dixon - 77 Advisory Trustee, since Partner - Corporate Business and Legislative Law, Bryan Cave (law firm); 1995 Formerly, United States Senator (1981-1992) OFFICERS WHO ARE NOT TRUSTEES Barry Sommers - 34 President, since Senior Managing Director (since 2000); Head of Marketing and Sales for the November 2003; Trust (since 1997) and Managing Director (1997-2000), Bear Stearns Executive Vice President, from 1998 to November 2003 Stephen A. Bornstein - 60 Vice President and General Counsel, Managing Director/Principal and Executive Vice President, Secretary, since 1995 Bear Stearns Asset Management Inc. ("BSAM"); Managing Director/Principal, Bear Stearns; Vice President, General Counsel and Secretary, Bear Stearns Funds Management Inc. ("BSFM") Frank J. Maresca - 45 Vice President and President and Chief Executive Officer, BSFM; Senior Managing Director, Treasurer, since 1995 Bear Stearns (since 2001); Managing Director, Bear Stearns Vincent L. Pereira - 38 Assistant Treasurer, since Executive Vice President, BSFM; Managing Director (since 1999) and 1995 Associate Director (1997-1999), Bear Stearns Alaina V. Metz - 36 Assistant Secretary, since Chief Administrative Officer of BISYS Fund Services 2002
(1) The term of office for a Trustee or Officer is indefinite, until he or she resigns, is removed or a successor is elected and qualified. 16 THE BEAR STEARNS FUNDS Prime Money Market Portfolio PRIVACY NOTICE While information is the cornerstone of our ability to provide superior service, our most important assets are our shareholders and the trust that they place in us. Keeping shareholder information secure and using it only as our shareholders would want us to are top priorities at The Bear Stearns Funds. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. This is the information we collect from you on applications or other forms, and from the transactions you make with us or third parties. It may include your name, address, social security number, account transactions and balances, and information investment goals and risk tolerance. We do not disclose any information about you or about former customers to anyone except as permitted by law. Specifically, we may disclose the information we collect to companies that perform services on our behalf, such as the transfer agent that processes shareholder accounts and mailers that assist us in the distribution of shareholder materials. This allows us to continue to meet your investing needs, and to effect transactions that you request or authorize. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your personal information internally, we permit access only by authorized employees and maintain physical, electronic and procedural safeguards to guard your personal information. You may have received communications regarding information privacy on policies from other financial institutions that gave you the opportunity to "opt-out" of certain information sharing with companies that are not affiliated with that financial institution. The Bear Stearns Funds does not share information with other companies for purposes of marketing solicitations. Therefore, The Bear Stearns Funds does not provide opt-out options to its shareholders. We reserve the right to change our privacy policy at any time. The examples contained within this notice are illustrations; they are not intended to be exclusive. This notice complies with a recently enacted Federal law and SEC regulations regarding privacy. You may have additional rights under foreign or other domestic laws that may apply to you. 17 THE BEAR STEARNS FUNDS 383 MADISON AVENUE, NEW YORK, NY 10179 1.800.766.4111 Michael Minikes Chairman of the Board and Trustee Barry Sommers President John S. Levy Trustee M.B. Oglesby, Jr. Trustee Robert E. Richardson Trustee Stephen A. Bornstein Vice President and Secretary Frank J. Maresca Vice President and Treasurer Vincent L. Pereira Assistant Treasurer Alaina V. Metz Assistant Secretary INVESTMENT ADVISER DISTRIBUTOR Bear Stearns Asset Bear, Stearns & Co. Inc. Management Inc. 383 Madison Avenue 383 Madison Avenue New York, NY 10179 New York, NY 10179 TRANSFER AND DIVIDEND DISBURSEMENT AGENT ADMINISTRATOR PFPC Inc. Bear Stearns Funds 301 Bellevue Parkway Management Inc. Wilmington, DE 19809 383 Madison Avenue New York, NY 10179 INDEPENDENT AUDITORS Deloitte & Touche LLP CUSTODIAN 1700 Market Street Custodial Trust Company Philadelphia, PA 19103 101 Carnegie Center Princeton, NJ 08540 COUNSEL Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, NY 10022 This report is submitted for the general information of the shareholders of the Portfolio. It is not authorized for distribution to prospective investors in the Portfolio unless it is preceded or accompanied by a current prospectus which includes details regarding the Portfolio's objectives, policies, and other information. Total investment return is based on historical results and is not intended to indicate future performance. Prime Money Market Portfolio is neither insured nor guaranteed by the U.S. Government, and there can be no assurance that the Prime Money Market Portfolio will be able to maintain a stable net asset value of $1.00 per share. ITEM 2. CODE OF ETHICS. Disclose whether, as of the end of the period covered by the report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, explain why it has not done so. THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR FUNCTIONS. THIS CODE OF ETHICS IS INCLUDED AS EXHIBIT 11 (a)(1). EXHIBIT A OF THIS CODE OF ETHICS WAS REVISED ON MAY 13, 2004 TO REFLECT THE APPOINTMENT OF BARRY SOMMERS AS PRESIDENT PRINCIPAL EXECUTIVE OFFICER OF REGISTRANT. The registrant must briefly describe the nature of any amendment, during the period covered by the report, to a provision of its code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item. The registrant must file a copy of any such amendment as an exhibit pursuant to Item 11(a)(1), unless the registrant has elected to satisfy pargraph (f) of this Item by posting its code of ethics on its website pursuant to paragraph (f)(2) of this Item, or by undertaking to provide its code of ethics to any person without charge, upon request, pursuant to paragraph (f)(3) of this Item. If the registrant has, during the period covered by the report, granted a waiver, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more items set forth in paragraph (b) of this Item, the registrant must briefly describe the nature of the waiver, the name of the person to whom the waiver was granted, and the date of the waiver. DURING THE PERIOD COVERED BY THE REPORT, WITH RESPECT TO THE REGISTRANT'S CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR FUNCTIONS; THERE HAVE BEEN NO AMENDMENTS TO, NOR ANY WAIVERS GRANTED FROM, A PROVISION THAT RELATES TO ANY ELEMENT OF THE CODE OF ETHICS DEFINITION ENUMERATED IN PARAGRAPH (b) OF THIS ITEM 2. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a) (1) Disclose that the registrant's board of directors has determined that the registrant either: (i) Has at least one audit committee financial expert serving on its audit committee; or (ii) Does not have an audit committee financial expert serving on its audit committee. (2) If the registrant provides the disclosure required by paragraph (a)(1)(i) of this Item, it must disclose the name of the audit committee financial expert and whether that person is "independent." In order to be considered "independent" for purposes of this Item, a member of an audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (i) Accept directly or indirectly any consulting, advisory, or other compensatory fee from the issuer; or (ii) Be an "interested person" of the investment company as defined in Section 2(a)(19) of the Act (15 U.S.C. 80a-2(a)(19)). (3) If the registrant provides the disclosure required by paragraph (a)(1)(ii) of this Item, it must explain why it does not have an audit committee financial expert. THE BOARD OF TRUSTEES OF THE REGISTRANT HAS DETERMINED THAT THE REGISTRANT DOES NOT HAVE AN AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS AUDIT COMMITTEE. IN THIS REGARD, NO MEMBER OF THE AUDIT COMMITTEE WAS IDENTIFIED AS HAVING ALL OF THE REQUIRED TECHNICAL ATTRIBUTES IDENTIFIED IN INSTRUCTION 2(b) TO ITEM 3 OF FORM N-CSR TO QUALIFY AS AN "AUDIT COMMITTEE FINANCIAL EXPERT," WHETHER THROUGH THE TYPE OF SPECIALIZED EDUCATION OR EXPERIENCE REQUIRED BY THAT INSTRUCTION. AT THIS TIME, THE BOARD BELIEVES THAT THE EXPERIENCE PROVIDED BY EACH MEMBER OF THE AUDIT COMMITTEE COLLECTIVELY OFFERS THE REGISTRANT ADEQUATE OVERSIGHT BY ITS AUDIT COMMITTEE GIVEN THE REGISTRANT'S LEVEL OF FINANCIAL COMPLEXITY. THE BOARD WILL FROM TIME TO TIME REEXAMINE SUCH BELIEF. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Disclose, under the caption AUDIT FEES, the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. 2003 - $222,000 2004 - $237,300 (b) Disclose, under the caption AUDIT-RELATED FEES, the aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. 2003 - $30,000 (17f-2 security counts) 2004 - $33,000 (17f-2 security counts) (c) Disclose, under the caption TAX FEES, the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category. 2003 - $28,000 (tax compliance services) 2004 - $30,000 (tax compliance services) (d) Disclose, under the caption ALL OTHER FEES, the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. 2003 - none 2004 - none (e) (1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. Pursuant to the registrant's Audit Committee charter, periodically, as the Audit Committee deems appropriate, the Committee considers and approves any non-audit services to be provided to the registrant by the independent accountants and the fees to be charged for the non-audit services. (2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. 2003 - 0% 2004 - 0% (f) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. 0% (g) Disclose the aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant. 2003 - $4,125,000 2004 - $7,175,000 (h) Disclose whether the registrant's audit committee of the board of directors has considered whether the provision of nonaudit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. The Registrant's audit committee has considered that the provision of non-audited related services that were rendered is compatible with maintaining the auditor's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. (a) If the registrant is a listed issuer as defined in Rule 10A-3 under the Exchange Act (17CFR 240.10A-3), state whether or not the registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). If the registrant has such a committee, however designated, identify each committee member. If the entire board of directors is acting as the registrant's audit committee as specified in Section 3(a)(58)(B) of the Exchange Act (15 U.S.C. 78c(a)(58)(B)), so state. (b) If applicable, provide the disclosure required by Rule 10A-3(d) under the Exchange Act (17CFR 240.10A-3(d)) regarding an exemption from the listing standards for all audit committees. NOT APPLICABLE. ITEM 6. SCHEDULE OF INVESTMENTS. File Schedule I - Investments in securities of unaffiliated issuers as of the close of the reporting period as set forth in Section 210.12-12 of Regulation S-X, unless the schedule is included as part of the report to shareholders filed under Item 1 of this Form. NOT APPLICABLE. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. A closed-end management investment company that is filing an annual report on this Form N-CSR must, unless it invests exclusively in non-voting securities, describe the policies and procedures that it uses to determine how to vote proxies relating to portfolio securities, including the procedures that the company uses when a vote presents a conflict between the interests of its shareholders, on the one hand, and those of the company's investment adviser; principal underwriter; or any affiliated person (as defined in Section 2(a)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules thereunder) of the company, its investment adviser, or its principal underwriter, on the other. Include any policies and procedures of the company's investment adviser, or any other third party, that the company uses, or that are used on the company's behalf, to determine how to vote proxies relating to portfolio securities. NOT APPLICABLE. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. (a) If the registrant is a closed-end management investment company, provide the information specified in paragraph (b) of this Item with respect to any purchase made by or on behalf of the registrant or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares or other units of any class of the registrant's equity securities that is registered by the registrant pursuant to Section 12 of the Exchange Act (15 U.S.C. 781). NOT APPLICABLE. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Describe any material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or this Item. NOT APPLICABLE ITEM 10. CONTROLS AND PROCEDURES. (a) Disclose the conclusions of the registrant's principal executive and principal financial officers, or persons performing similar functions, regarding the effectiveness of the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)). THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER HAVE CONCLUDED, BASED ON THEIR EVALUATION OF THE REGISTRANT'S DISCLOSURE CONTROLS AND PROCEDURES AS CONDUCTED WITHIN 90 DAYS OF THE FILING DATE OF THIS REPORT, THAT THESE DISCLOSURE CONTROLS AND PROCEDURES ARE ADEQUATELY DESIGNED AND ARE OPERATING EFFECTIVELY TO ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED BY THE REGISTRANT ON FORM N-CSR IS (i) ACCUMULATED AND COMMUNICATED TO THE INVESTMENT COMPANY'S MANAGEMENT, INCLUDING ITS CERTIFYING OFFICERS, TO ALLOW TIMELY DECISIONS REGARDING REQUIRED DISCLOSURE; AND (ii) RECORDED, PROCESSED, SUMMARIZED AND REPORTED WITHIN THE TIME PERIODS SPECIFIED IN THE SECURITIES AND EXCHANGE COMMISSION'S RULES AND FORMS. (b) Disclose any change in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. THERE WERE NO CHANGES IN THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING THAT OCCURRED DURING THE REGISTRANT'S MOST RECENT FISCAL HALF-YEAR (THE REGISTRANT'S SECOND FISCAL HALF-YEAR IN THE CASE OF AN ANNUAL REPORT) THAT HAVE MATERIALLY AFFECTED OR ARE REASONABLY LIKELY TO MATERIALLY AFFECT, THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING. ITEM 11. EXHIBITS. (a) File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. THE CODE OF ETHICS THAT IS THE SUBJECT OF THE DISCLOSURE REQUIRED BY ITEM 2 IS ATTACHED HERETO. (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2). CERTIFICATIONS PURSUANT TO RULE 30A-2(a) ARE ATTACHED HERETO. (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. NOT APPLICABLE. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by rule 30a-2(b) under the Act as an exchibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant incorporates it by reference. CERTIFICATIONS PURSUANT TO RULE 30A-2(b) ARE FURNISHED HEREWITH. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) The Bear Stearns Funds -------------------------------------------------------------------- Frank J. Maresca, By (Signature and Title)* /s/ Frank J. Maresca Vice President and Treasurer ------------------------------------------------------- Date May 12, 2004 --------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Frank J. Maresca, By (Signature and Title)* /s/ Frank J. Maresca Vice President and Treasurer ------------------------------------------------------- Date May 12, 2004 --------------------------------- By (Signature and Title)* /s/ Barry Sommers Barry Sommers, President ------------------------------------------------------- Date May 12, 2004 --------------------------------- * Print the name and title of each signing officer under his or her signature.