-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GzNIv8NOH9SFZ/5EEqWlr8UB95mtRBOEBW70k8ayDmpgRD/dBXknTLZAnoFHvpnW AcRHrCRrQI/rISTNvskvSA== 0001047469-98-042587.txt : 19981202 0001047469-98-042587.hdr.sgml : 19981202 ACCESSION NUMBER: 0001047469-98-042587 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEAR STEARNS FUNDS CENTRAL INDEX KEY: 0000931145 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08798 FILM NUMBER: 98761830 BUSINESS ADDRESS: STREET 1: 245 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10167 MAIL ADDRESS: STREET 2: 245 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10167 N-30D 1 N-30D [LOGO] The Bear Stearns Funds 245 PARK AVENUE NEW YORK, NY 10167 1.800.766.4111 INVESTMENT MANAGER/ADVISER TRANSFER AND DIVIDEND Bear Stearns Asset DISBURSEMENT AGENT Management Inc. PFPC Inc. 575 Lexington Avenue Bellevue Corporate Center New York, NY 10022 400 Bellevue Parkway ADMINISTRATOR Wilmington, DE 19809 Bear Stearns Funds INDEPENDENT AUDITORS Management Inc. Deloitte & Touche LLP 245 Park Avenue Two World Financial Center New York, NY 10167 New York, NY 10281 DISTRIBUTOR EMERGING MARKETS DEBT Bear, Stearns & Co. Inc. PORTFOLIO: 245 Park Avenue CUSTODIAN New York, NY 10167 Brown Brothers Harriman & INCOME PORTFOLIO & Co. HIGH YIELD TOTAL RETURN 40 Water Street PORTFOLIO: Boston, MA 02109 CUSTODIAN COUNSEL Custodial Trust Company Mayer, Brown & Platt 101 Carnegie Center 1675 Broadway Princeton, NJ 08540 New York, NY 10019 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 each Portfolio without examination by independent auditors who do not express an opinion thereon. It is not authorized for distribution to prospective investors in each Portfolio unless it is preceded or accompanied by a current prospectus which includes details regarding each Portfolio's objectives, policies, sales commissions and other information. Total investment return is based on historical results and is not intended to indicate future performance. The investment return and principal value of an investment in each Portfolio will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than original cost. BSF-R-016-03 Emerging Markets Debt Portfolio Income Portfolio High Yield Total Return Portfolio Semi-Annual Report September 30, 1998 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO LETTER TO SHAREHOLDERS October 26, 1998 Dear Shareholders: We are pleased to present the semi-annual report to shareholders for the Emerging Markets Debt Portfolio ("Debt Portfolio"), Income Portfolio (formerly the Total Return Bond Portfolio) and High Yield Total Return Portfolio ("High Yield Portfolio") for the six months ended September 30, 1998. Detailed performance data for each class of shares of each Portfolio can be found in the "Financial Highlights" and line graph (except for the High Yield Portfolio) sections of this report. At times of great stress in the markets, investors seek quality, and the past few months were no exception. After Russia devalued its currency and defaulted on its debt in mid-August, investors sought the safest investment they could find -- U.S. Treasury bonds ("Treasuries"). The surge in demand caused the yield on the bellwether 30-year Treasury bond to hit an all-time low of 4.97% on September 30, 1998, as risk premiums exploded across all other fixed income sectors. Even agency securities backed by the full faith and credit of the U.S. Government underperformed. Despite the unsettling events of the quarter, we do not believe that the U.S. is headed for a recession, although we believe that corporate profits and overall economic growth will continue to slow. Still, a high degree of uncertainty remains as major policy issues remain unresolved in many countries around the world. The fiscal failures in Russia were jolting, but economically not very significant in global terms. By contrast, what happens in Japan is significant, and the government there has only just begun to take steps to put its fiscal house in order. A lot depends, too, on what happens in Brazil and the rest of South America, which accounts for 20% of U.S. exports to developing countries. It remains to be seen whether coordinated efforts by key central banks and the International Monetary Fund ("IMF") will be able to help maintain fiscal stability in that region. Given the threat of a global slowdown washing onto U.S. shores and the extreme volatility in the markets, the Federal Reserve Board (the "Fed"), as expected, lowered short-term interest rates on September 29, 1998. We believe that this is just the first step in a gradual easing process, and, in fact, the Fed lowered rates again in mid-October. While market declines like the ones just experienced are certainly not pleasant, they create opportunities. Given the widening of spreads relative to Treasuries, we expect to continue to find excellent investment opportunities in other sectors of the fixed income markets. EMERGING MARKETS DEBT PORTFOLIO* For the six months ended September 30, 1998, the Debt Portfolio's Class A shares (without giving effect to the sales charge) had a total return of (22.96)%.(1) The Debt Portfolio's benchmark index, the Salomon Brothers Emerging Markets Debt Mutual Fund Index, returned (22.41)% for the same period. 1 Although we thought that the Russian leadership realized that a currency devaluation would have an extremely negative impact on the Russian economy, Russia devalued the ruble and effectively defaulted on its ruble-denominated debt in August. We had overestimated the government's ability to deliver on tax reform and underestimated both the political weakness of the Yeltsin administration and the willingness of the Communist opposition to stand in the way of reforms. Consequently, by the end of September, we took a complete write-off on the Debt Portfolio's 1.5% position in ruble-denominated sovereign debt. A FIRST-PLACE RANKING Nevertheless, the Debt Portfolio ranked first of 27 emerging markets bond funds surveyed by Morningstar, Inc.** for the twelve months ended September 30, 1998. The Debt Portfolio also ranked second of 24 such funds and first of six such funds for the three- and five-year periods, respectively, ending September 30, 1998. Morningstar's rankings are based on annualized total return and do not take into account sales charges. Of course, past performance is no guarantee of future results. The investment manager has voluntarily waived a portion of its investment management fee, without which the Debt Portfolio's performance, and possibly its ranking, would have been lower. SEEKING SELECTED INVESTMENT OPPORTUNITIES Our strategy has been to selectively take advantage of opportunities in local currencies of countries where we expect economic reforms to lower inflation and stabilize growth. In 1998, we have, at times, invested in local currency-denominated instruments in Indonesia, Korea, Turkey and Russia. All except our most recent investment in Russia added value. With increased market volatility and investor flight to "safe haven" investments, we are currently invested solely in dollar-denominated Brady bonds, which have always comprised the vast majority of the Debt Portfolio's investments. As we neared the end of September, it was feared that the financial fallout from Asia and Russia would engulf Latin America as well. Given the increasing vulnerability of Brazil to the lack of liquidity and growing concern about the country's ability to refinance its short-term debt, we started selling Brazilian Brady bonds late in the month and continued into early October. Although we believe that Brazil will receive assistance from the IMF, we are concerned that the amount of aid may be too little and/or too late. In addition, we sold the Debt Portfolio's dollar-denominated Korean bonds as reforms there moved more slowly than expected. We feel that most of the countries in which we are currently invested are reasonably well positioned to get financial assistance if they need it. However, future aid from the IMF will depend on the agency's willingness to lend and the severity of the conditions it will impose. At times like these, it is important to bear in mind that inflation in emerging economies has fallen from an average of 60% in 1990 to less than 10% in 1997, a level we broadly expect to hold this year despite severe foreign exchange problems. While it is premature to conclude that the market has bottomed, we are somewhat encouraged by the U.S. Government's decision to contribute to the IMF and by Japan's passage of a new bank rescue plan, developments that could mark a turning point in restoring investor confidence. INCOME PORTFOLIO For the six months ended September 30, 1998, the Income Portfolio's Class A shares (without giving effect to the sales charge) had a total return of 5.60% and Class C shares (without giving effect to the contingent deferred sales charge) had a total return of 5.26%.(2) The Income Portfolio's benchmark index, the Salomon Brothers Broad Investment Grade Bond Index, returned 6.56% for the same period. 2 Effective October 16, 1998, the Total Return Bond Portfolio's name was changed to the Income Portfolio, and the Portfolio also adopted a new investment objective: to seek high current income consistent with preservation of capital. Prior to that date, the Income Portfolio was known as the Total Return Bond Portfolio, and its stated objective was to maximize total return consistent with preservation of capital. Returns through September 30, 1998, reflect the objectives of the Total Return Bond Portfolio. During the third quarter of the year, investor flight to quality accelerated due to financial and political instability around the world and expectations for a slowdown in corporate earnings in the U.S. Investors sought the relative safety of U.S. Treasuries to the exclusion of virtually all other asset classes. As a result, 30-year Treasury bonds were the best performers in the six-month period, followed by agency issues, corporate bonds and mortgage-backed securities. In fact, August was the worst month on record for "spread products" in terms of both magnitude and timing. The degree of spread widening that occurred over only six weeks used to take six to twelve months. A large part of this divergence was due to a lack of liquidity. In the Treasury market, investor demand soared as new issuance was down; in other sectors, demand simply dried up. Given increasing concerns about a global economic slowdown, the yield curve steepened during the third quarter of the year on expectations that the Fed would shift its stance on interest rates. The yield on two-year issues fell 121 basis points from 5.48% at the end of June to 4.27% at the end of September, while the yield on 30-year bonds declined 66 basis points from 5.63% to 4.97%. Although the reduction of the Fed Funds rate by 25 basis points at the end of September disappointed the markets, we believe this is just the first in a series of steps the Fed will take to lower rates in response to slowing economic growth, and, in fact, it lowered rates again in mid-October by another 25 basis points. A FOCUS ON YIELD ENHANCEMENT AND HIGHER QUALITY In this environment, the Income Portfolio continued to be overweighted in corporate bonds, reflecting our belief that the U.S. will avoid recession and corporate profits will continue to grow, although more slowly than in the past few years. Given the relatively high corporate yields available, our focus will be on securities that allow us to enhance yield and upgrade the quality of the securities in the Income Portfolio without exposing it to sectors that might suffer in a period of slower economic growth. We expect to add issues rated "A" or higher in the telecommunications, consumer nondurables and utilities sectors. The Income Portfolio has also been overweighted in asset-backed and structured mortgage-backed issues, a positioning we also expect to maintain given the current values in the market. We are watching the mortgage markets closely as investors begin to factor in worst-case prepayment scenarios. As prices fall, we expect to begin to increase our exposure to this sector as well. HIGH YIELD TOTAL RETURN PORTFOLIO*** For the six months ended September 30, 1998, the High Yield Portfolio's Class A shares (without giving effect to the sales charge) had a total return of (5.43)% and both Class B and C shares (without giving effect to the contingent deferred sales charges) had a total return of (5.74)%.(3) The High Yield Portfolio's benchmark index, the Lipper High Current Yield Funds Index, and its broad-based securities market index, the C.S. First Boston High Yield Bond Index, returned (7.17)% and (4.96)%, respectively, for the same period. In the wake of Russia's devaluation and default in August, investors abandoned other asset classes and sought the relative safety of 30-year Treasury bonds, which resulted in a major correction in the high yield debt market. In this environment, our concerns about weakness in international markets and global deflation led us to underweight certain sectors that have severely underperformed, such as forest-paper products and technology. We also avoided companies that had significant exports and/or operations overseas. 3 On the other hand, we overweighted sectors that have fared better, such as television broadcasting and motion picture exhibition given their U.S. domestic market orientation. For example, we added Adelphia Communications Corporation (1.19% of net assets), one of the country's largest multiple-system cable operators, which initially benefited along with the whole cable sector from AT&T's announced acquisition of TCI in the second quarter of this year. A FOCUS ON DOMESTIC ISSUERS The High Yield Portfolio has no direct emerging markets exposure, with a relatively small percentage of assets invested in preferred stocks. We have adopted a defensive position for the High Yield Portfolio with a cash equivalent balance of approximately 8%, which we expect to use to buy undervalued securities that meet our investment criteria. Our outlook continues to be guardedly optimistic given our strategy of investing solely in the domestic high yield corporate bond market. The U.S. economy continues to grow at a 2%-3% rate and is expected to stay in positive territory for the next twelve months. This is still a healthy environment for highly leveraged companies. For example, the default rate continues to be about 1%, which is still low relative to the high yield market's historical average of 4%. Although risk premiums have widened more than 250 basis points to levels not seen since the '90-'91 recession, we believe that the risk/reward equation in the market has never been as attractive as it is now. In conclusion, we value the confidence you have placed in us and would be pleased to address any questions or concerns you may have. Please feel free to call us at 1-800-766-4111. Sincerely, [SIGNATURE] Robert S. Reitzes President Bear Stearns Investment Trust and The Bear Stearns Funds - ------- * International investing involves risks such as currency exchange-rate volatility, possible political, social, or economic instability and differences in taxation and other financial standards. ** Morningstar, Inc. is an independent fund performance monitor and its ratings may change monthly. *** 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) For the six months ended September 30, 1998, the Debt Portfolio's Class A shares had a total return of (26.43)%, including the initial 4.50% maximum sales charge. (2) For the six months ended September 30, 1998, the Income Portfolio's Class A shares had a total return of 0.87%, including the initial 4.50% maximum sales charge and Class C shares returned 4.18%, including the 1% CDSC. (3) For the six months ended September 30, 1998, the High Yield Portfolio's Class A shares had a total return of (9.69)%, including the initial 4.50% maximum sales charge, Class B shares returned (10.40)%, including the 5% CDSC and Class C shares returned (6.64)%, including the 1% CDSC. CDSC Contingent deferred sales charge. Bear Stearns Asset Management Inc. has waived a portion of its investment management/advisory fee and agreed voluntarily to reimburse a portion of each Portfolio's operating expenses, as necessary, to maintain the expense limitation as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. 4 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A SHARES(1)(2)(3) VS. VARIOUS INDICES (UNAUDITED) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
EMERGING MARKETS DEBT PORTFOLIO CLASS A SHARES SALOMON BROTHERS EMERGING CONSUMER PRICE MARKETS DEBT MUTUAL FUND INDEX INDEX May 4, 1995 $9,625 $10,000 $10,000 $10,203 $10,740 $10,046 Sept. 30, 1995 $10,805 $11,486 $10,092 $11,877 $12,633 $10,152 Mar. 31, 1996 $12,667 $13,314 $10,250 $14,107 $14,899 $10,323 Sept. 30, 1996 $15,590 $16,331 $10,402 $16,719 $17,799 $10,487 Mar. 31, 1997 $16,907 $18,013 $10,534 $18,651 $19,987 $10,560 Sept. 30, 1997 $19,966 $21,400 $10,626 $19,161 $20,847 $10,665 Mar. 31, 1998 $20,172 $21,960 $10,672 $19,109 $20,907 $10,738 Sept. 30, 1998 $15,544 $17,040 $10,777 Past performance is not predictive of future performance.
TOTAL RETURNS ONE YEAR ENDED AVERAGE SEPTEMBER 30, 1998 ANNUAL(4) ------------------- ------------------- Emerging Markets Debt Portfolio(2) Class A shares(5)............................. (25.08)% 13.79% Class C shares(3)............................. (22.62) 14.07 Salomon Brothers Emerging Markets Debt Mutual Fund Index(1)...................................... (20.37) 16.90 Consumer Price Index(1)........................... 1.43 2.22
- ---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Debt Portfolio and reflects all portfolio expenses. Investors should note that the Debt 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 correspond to the performance of Class A shares only. (2) Bear Stearns Asset Management Inc. waived a portion of its investment management fee and agreed to voluntarily reimburse a portion of the Debt 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 the expense limitations. (3) Assuming no redemption of shares at the end of the period, the return of Class C shares (for which July 26, 1995 was the initial public offering date) would have been higher than Class A 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 C shares. (4) Commencing May 4, 1995, Bear Stearns Asset Management Inc. assumed the daily portfolio management responsibility for the Debt Portfolio. Total returns for Class A shares are shown for the period May 4, 1995 through September 30, 1998. For the period May 3, 1993 (commencement of investment operations) through May 3, 1995 the Debt Portfolio's investment adviser was BEA Associates and those results are not shown. (5) Reflects the initial maximum sales charge in effect at the beginning of the period (3.75%). Without the applicable sales charge, the total returns would have been (22.17)% and 15.07%, respectively, for each period shown. 5 THE BEAR STEARNS FUNDS INCOME PORTFOLIO COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(3) VS. VARIOUS INDICES (UNAUDITED) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
INCOME PORTFOLIO SALOMON BROTHERS BROAD CLASS A SHARES CLASS C SHARES INVESTMENT GRADE BOND INDEX Apr. 5, 1995 $9,625 $10,000 $10,000 $10,027 $10,412 $10,568 Sept. 30, 1995 $10,260 $10,587 $10,767 $10,679 $11,064 $11,234 Mar. 31, 1996 $10,430 $10,797 $11,038 $10,467 $10,824 $11,092 Sept. 30, 1996 $10,644 $10,996 $11,300 $10,972 $11,332 $11,641 Mar. 31, 1997 $10,908 $11,245 $11,581 $11,308 $11,648 $11,998 Sept. 30, 1997 $11,659 $11,998 $12,397 $11,800 $12,130 $12,763 Mar. 31, 1998 $11,932 $12,247 $12,968 $12,202 $12,502 $13,268 Sept. 30, 1998 $12,601 $12,891 $13,818 Past performance is not predictive of future performance. INCOME PORTFOLIO CONSUMER PRICE INDEX Apr. 5, 1995 $10,000 $10,079 Sept. 30, 1995 $10,126 $10,185 Mar. 31, 1996 $10,284 $10,357 Sept. 30, 1996 $10,436 $10,522 Mar. 31, 1997 $10,568 $10,595 Sept. 30, 1997 $10,661 $10,701 Mar. 31, 1998 $10,707 $10,773 Sept. 30, 1998 $10,813
TOTAL RETURNS ONE YEAR ENDED AVERAGE SEPTEMBER 30, 1998 ANNUAL(4) ------------------- ------------------- Income Portfolio(2) Class A shares(5)................................... 3.98% 6.84% Class C shares...................................... 7.44 7.54 Class Y shares(3)................................... 8.45 7.62 Salomon Brothers Broad Investment Grade Bond Index(1)... 11.47 9.70 Consumer Price Index(1)................................. 1.43 2.26
- ---------- (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 correspond to the performance of Class A and C shares. Effective October 16, 1998, the Total Return Bond Portfolio's name was changed to the Income Portfolio, and the Portfolio also adopted a new investment objective: to seek high current income consistent with preservation of capital. Prior to that date, the Income Portfolio was known as the Total Return Bond Portfolio, and its stated objective was to maximize total return consistent with preservation of capital. Total returns through September 30, 1998, reflect the objectives of the Total Return Bond Portfolio. (2) Bear Stearns Asset Management Inc. waived its advisory fee and agreed to voluntarily 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 return of Class Y shares (for which September 8, 1995 was the initial public offering date) would have been higher than Class A and C shares if operations were commenced on the same day. The higher return is due to the fact that there is no sales load, contingent deferred sales charge or 12b-1 fee charged to Class Y shares. (4) For the period of April 5, 1995 (commencement of investment operations) through September 30, 1998. (5) Reflects the initial maximum sales charge in effect at the beginning of the period (3.75%). Without the applicable sales charge, the total returns would have been 8.07% and 8.02%, respectively, for each period shown. 6 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO SEPTEMBER 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- TOP TEN COUNTRY WEIGHTINGS - --------------------------------------------------------------------------------
PERCENT OF RANK COUNTRY NET ASSETS - ------------------------------------------------------ --------------- 1. Mexico............................................ 16.24 2. Argentina......................................... 15.28 3. Brazil............................................ 15.14 4. Morocco........................................... 4.87 5. Nigeria........................................... 4.64 6. Peru.............................................. 4.52 7. Panama............................................ 4.47 8. Bulgaria.......................................... 4.42 9. Ecuador........................................... 4.32 10. Philippines....................................... 4.07
- -------------------------------------------------------------------------------- TOP TEN ISSUERS* - --------------------------------------------------------------------------------
SECURITY PERCENT OF RANK ISSUER CURRENCY TYPE NET ASSETS - ------------------------------------------------------ ------------ ------------------ ---------- 1. United Mexican States............................. U.S. dollar Brady bond 16.24 2. Republic of Argentina............................. U.S. dollar Brady bond 15.28 3. Federal Republic of Brazil........................ U.S. dollar Brady bond 15.14 4. The Kingdom of Morocco............................ U.S. dollar Loan Participation 4.87 5. Central Bank of Nigeria........................... U.S. dollar Brady bond 4.64 6. The Republic of Peru.............................. U.S. dollar Brady bond 4.52 7. The Republic of Panama............................ U.S. dollar Brady bond 4.47 8. Republic of Bulgaria.............................. U.S. dollar Brady bond 4.42 9. The Republic of Ecuador........................... U.S. dollar Brady bond 4.32 10. Republic of the Philippines....................... U.S. dollar Brady bond 4.07
- ------- * The Portfolio's holdings will change over time. 7 THE BEAR STEARNS FUNDS INCOME PORTFOLIO SEPTEMBER 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- TOP INDUSTRY WEIGHTINGS - --------------------------------------------------------------------------------
PERCENT OF NET RANK INDUSTRY ASSETS - ------------------------------------------------------ --------------- 1. Finance........................................... 21.72 2. U.S. Government Agency Obligations................ 21.26 3. Asset-Backed...................................... 16.69 4. Industrial........................................ 10.18 5. U.S. Government Obligations....................... 9.30 6. Utilities......................................... 7.80 7. Telecommunications................................ 2.11
- -------------------------------------------------------------------------------- TOP TEN HOLDINGS* - --------------------------------------------------------------------------------
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS - ------------------------------------------------------ ------------------------- ---------- 1. Government National Mortgage Association.......... U.S. Government Agency 12.25 Obligations 2. Federal National Mortgage Association............. U.S. Government Agency 6.91 Obligations 3. U.S. Treasury Notes............................... U.S. Government 6.62 Obligations 4. Morgan Stanley Capital I Inc...................... Asset-Backed 4.71 5. IRT Property Company.............................. Finance 4.49 6. First Union Corp.................................. Finance 4.36 7. Western Resources Inc............................. Utilities 3.66 8. Aetna Services Inc................................ Finance 3.11 9. LG-Caltex Oil Corporation......................... Industrial 3.06 10. Washington Mutual Capital I....................... Asset-Backed 2.73
- ------- * The Portfolio's holdings will change over time. 8 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO SEPTEMBER 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- TOP TEN INDUSTRY WEIGHTINGS - --------------------------------------------------------------------------------
PERCENT OF RANK INDUSTRY NET ASSETS - ------------------------------------------------------ --------------- 1. Other Consumer Non-Cyclicals...................... 6.48 2. Industrial Products............................... 6.48 3. Competitive Local Exchange Companies.............. 5.44 4. Motion Picture Exhibition......................... 5.34 5. Long Distance Telephone Services.................. 5.03 6. Steel - Metals - Mining........................... 4.67 7. Other Consumer Cyclicals.......................... 4.65 8. Retailers......................................... 4.64 9. Forest - Paper Products........................... 4.13 10. Technology........................................ 3.96
- -------------------------------------------------------------------------------- TOP TEN HOLDINGS* - --------------------------------------------------------------------------------
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS - ------------------------------------------------------ ------------------------- --------------- 1. EchoStar Satellite Broadcasting Company........... Alternative Video 1.29 Providers 2. Adelphia Communications Corporation............... North American Cable 1.19 Services 3. The Interlake Corporation......................... Industrial Products 1.17 4. Outdoor Systems, Inc.............................. Outdoor Advertising 1.14 5. Cumulus Media Inc................................. Radio Broadcasting 1.11 6. Aurora Foods Inc.................................. Food, Beverage & Tobacco 1.11 7. Time Warner Telecom LLC and Time Warner Telecom Inc........................... Competitive Local 1.11 Exchange Companies 8. Windy Hill Pet Food Company, Inc.................. Other Consumer Cyclicals 1.10 9. Ball Corporation.................................. Fabricated Glass, 1.10 Plastics & Fibers 10. Lady Luck Gaming Corp............................. Gaming 1.10
- ------- * The Portfolio's holdings will change over time. 9 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S)+ RATE DATE VALUE - ---------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 85.54% ARGENTINA - 15.28% SOVEREIGN 1,970 Republic of Argentina, Discount Bond, Series L (a)(b).......................................... 6.625% 03/31/23 $ 1,330,981 2,584 Republic of Argentina, FRB Bearer (a)(b).......... 6.188 03/31/05 2,030,055 2,760 Republic of Argentina, Par Bond (b)(c)............ 5.750 03/31/23 1,863,000 ----------- Total Argentina (cost - $5,768,691)............... 5,224,036 ----------- BRAZIL - 15.14% SOVEREIGN 1,328 Federal Republic of Brazil, Capitalization Bond (b)(c)(d)....................................... 8.000 04/15/14 782,950 875 Federal Republic of Brazil, DCB, Bearer (a)(b).... 6.688 04/15/12 440,781 900 Federal Republic of Brazil, DCB, Registered (a)(b).......................................... 6.688 04/15/12 453,375 1,090 Federal Republic of Brazil, Discount Bond, Series Z-L (a)(b)...................................... 6.625 04/15/24 643,100 1,392 Federal Republic of Brazil, EI Bond (a)(b)........ 6.625 04/15/06 803,851 400 Federal Republic of Brazil, FLIRB Bearer (a)(b)... 5.000 04/15/09 173,000 1,065 Federal Republic of Brazil, NMB, Series L (a)(b).......................................... 6.688 04/15/09 532,500 2,320 Federal Republic of Brazil, Par Bond, Series Z-L (a)(c).......................................... 5.500 04/15/24 1,345,600 ----------- Total Brazil (cost - $7,013,926).................. 5,175,157 ----------- BULGARIA - 4.42% SOVEREIGN 985 Republic of Bulgaria, FLIRB, Series A (a)(b)...... 2.500 07/28/12 461,719 1,075 Republic of Bulgaria, IAB, Bearer (a)(b).......... 6.688 07/28/11 634,250 700 Republic of Bulgaria, IAB, Registered (a)(b)...... 6.688 07/28/11 413,000 ----------- Total Bulgaria (cost - $1,655,771)................ 1,508,969 ----------- ECUADOR - 4.32% SOVEREIGN 2,185 The Republic of Ecuador, Discount Bond (a)(b)..... 6.625 02/28/25 1,014,659 905 The Republic of Ecuador, PDI Bearer Bond (a)(b)... 6.625 02/27/15 298,758 498 The Republic of Ecuador, PDI Registered Bond (a)(b).......................................... 6.625 02/27/15 164,317 ----------- Total Ecuador (cost - $2,315,692)................. 1,477,734 ----------- MEXICO - 16.24% SOVEREIGN 2,425 United Mexican States, Par Bond, Series A (b)..... 6.250 12/31/19 1,791,469 5,090 United Mexican States, Par Bond, Series B (b)..... 6.250 12/31/19 3,760,237 ----------- Total Mexico (cost - $5,741,033).................. 5,551,706 -----------
The accompanying notes are an integral part of the financial statements. 10 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S)+ RATE DATE VALUE - ---------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) MOROCCO - 4.87% SOVEREIGN 2,235 The Kingdom of Morocco, Tranche A, Loan Participation (a) (cost - $1,704,481)........... 6.563% 01/01/09 $ 1,665,075 ----------- NIGERIA - 4.64% SOVEREIGN 2,750 Central Bank of Nigeria, Par Bond (b)(c)(e) (cost - $1,886,097)................................... 6.250 11/15/20 1,584,687 ----------- PANAMA - 4.47% SOVEREIGN 620 The Republic of Panama, IRB (a)(b)................ 4.000 07/17/14 443,300 1,561 The Republic of Panama, PDI Bond (a)(b)........... 6.688 07/17/16 1,084,824 ----------- Total Panama (cost - $1,762,787).................. 1,528,124 ----------- PERU - 4.52% SOVEREIGN 437 The Republic of Peru, Discount Bond (a)(b)........ 6.500 03/08/27 270,940 1,130 The Republic of Peru, FLIRB (b)(c)................ 3.250 03/07/17 509,912 1,506 The Republic of Peru, PDI Bond (a)(b)............. 4.000 03/07/17 762,413 ----------- Total Peru (cost - $1,779,034).................... 1,543,265 ----------- PHILIPPINES - 4.07% SOVEREIGN 1,150 Republic of the Philippines, FLIRB, Series B (a)(b).......................................... 6.000 06/01/08 819,375 790 Republic of the Philippines, Par Bond, Series B (b)(c).......................................... 6.500 12/01/17 572,750 ----------- Total Philippines (cost - $1,775,595)............. 1,392,125 ----------- POLAND - 2.89% SOVEREIGN 1,150 The Polish People's Republic, PDI Bearer Bond (b)(c) (cost - $1,018,465)...................... 4.000 10/27/14 989,000 ----------- RUSSIA - 0.70% SOVEREIGN 4,089 Chase Manhattan Securities (C.I.) Limited, Master Russian Securities Linked (S Account) Note **... -- -- -- 909 Russia, IAN Series (a)............................ 6.625 12/15/15 70,448 2,825 Russia, Principal Loan (a)........................ 6.625 12/15/20 169,500 ----------- Total Russia (cost - $2,881,597).................. 239,948 -----------
The accompanying notes are an integral part of the financial statements. 11 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S)+ RATE DATE VALUE - ---------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) VENEZUELA - 3.98% SOVEREIGN 1,810 Republic of Venezuela, DCB (a)(b)(f).............. 6.625% 12/18/07 $ 1,029,166 607 Republic of Venezuela, FLIRB (a)(b)............... 6.125 03/31/07 331,650 ----------- Total Venezuela (cost - $1,385,031)............... 1,360,816 ----------- Total Long-Term Debt Investments (cost - $36,688,200).................................... 29,240,642 ----------- SHORT-TERM INVESTMENT -- 10.22% GRAND CAYMAN - 10.22% 3,494 Brown Brothers Harriman & Co. (cost - $3,494,000)..................................... 5.100 * 3,494,000 ----------- Total Investments -- 95.76% (cost - $40,182,200)............................ 32,734,642 Other assets in excess of liabilities -- 4.24%.... 1,447,428 ----------- Net Assets -- 100.00%............................. $34,182,070 ----------- -----------
- --------- + Denominated in United States dollars. * Variable rate call account. Rate resets on a daily basis, amounts available generally on the same business day. ** Instrument is currently in default and is being carried as worthless pending restructuring by the Russian government. (a) Adjustable rate; rate based on London Interbank Offered Rate (LIBOR). (b) Brady bond. (c) Step-up coupon; coupon increases at periodic intervals. (d) Payment-in-kind; of which all or a portion of the coupon is being capitalized at periodic intervals. (e) With additional 252,500 warrants attached, with no market value. (f) With additional 2,000 warrants attached, with no market value. DCB Debt Conversion Bond. EI Eligible Interest. FLIRB Front Loaded Interest Reduction Bond. FRB Floating Rate Bond. IAB Interest Arrears Bond. IAN Interest Arrears Note. IRB Interest Reduction Bond. NMB New Money Bond. PDI Past Due Interest. The accompanying notes are an integral part of the financial statements. 12 THE BEAR STEARNS FUNDS INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 89.06% CORPORATE OBLIGATIONS - 58.50% ASSET-BACKED - 16.69% $ 200 Aames Mortgage Trust, Series 1997-B, Class A4..... 6.950% 11/15/25 $ 212,330 294 AFC Home Equity Loan Trust, Asset-Backed Certificates, Series 1994-1, Class 1A........... 6.400 05/25/25 297,728 100 ContiMortgage Home Equity Loan Trust, Series 1998-1, Class A4................................ 6.280 01/15/13 103,321 163 Ford Credit Grantor Trust, Asset-Backed Certificates, Series 1995-B, Class A............ 5.900 10/15/00 164,219 200 Green Tree Home Improvement Loan Trust, Series 1998-D, Class HEA3.............................. 6.130 08/15/29 203,297 540 Morgan Stanley Capital I Inc., Series 1997-C1, Class A-1B, Commercial Mortgage Pass-Thru Certificates.................................... 7.460 02/15/20 570,375 125 UCFC Home Equity Loan, Series 1997-A1, Class A7... 7.660 06/15/28 139,816 300 Washington Mutual Capital I, Subordinated Capital Income Securities, Washington Mutual Inc. Guaranteed...................................... 8.375 06/01/27 330,375 ----------- 2,021,461 ----------- FINANCE - 21.72% 350 Aetna Services Inc., Aetna Inc. Guaranteed........ 6.970 08/15/36 376,688 300 Avalon Bay Communities, Senior Notes.............. 6.800 07/15/06 313,875 100 Chemical Master Credit Card Trust 1, Series 1996-2, Class A................................. 5.980 09/15/08 104,925 500 First Union Corp., Subordinated Notes............. 6.400 04/01/08 527,500 500 IRT Property Company, Senior Notes................ 7.250 08/15/07 543,750 300 Lehman Brothers Holdings.......................... 7.250 10/15/03 306,750 200 Markel Capital Trust I, Series B, Capital Securities, Markel Corporation Guaranteed*...... 8.710 01/01/46 231,750 200 W.R. Berkley, Capital Trust, W.R. Berkley, Inc. Guaranteed...................................... 8.197 12/15/45 224,250 ----------- 2,629,488 ----------- INDUSTRIAL - 10.18% 500 LG-Caltex Oil Corporation, Unsecured Notes*....... 7.500 07/15/07 370,677 200 MedPartners, Inc., Senior Subordinated Notes...... 6.875 09/01/00 162,000 250 Panamerican Beverages, Inc., Senior Notes*........ 7.250 07/01/09 246,563 225 Smith International Inc., Senior Notes............ 7.000 09/15/07 249,188 200 Time Warner Inc., Pass-Thru Certificates Asset Trust Securities*............................... 6.100 12/30/01 204,750 ----------- 1,233,178 ----------- TELECOMMUNICATIONS - 2.11% 250 US West Communications, Debentures................ 6.875 09/15/33 255,625 -----------
The accompanying notes are an integral part of the financial statements. 13 THE BEAR STEARNS FUNDS INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE - ------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) UTILITIES - 7.80% $ 250 Commonwealth Edison, 1st Mortgage................. 8.375% 09/15/22 $ 273,750 250 Empresa Electrica del Norte Grande S.A., Senior Loan Participation Certificates*................ 7.750 03/15/06 228,125 400 Western Resources Inc., Senior Notes.............. 7.125 08/01/09 443,000 ----------- 944,875 ----------- Total Corporate Obligations (cost - $6,936,293)............................. 7,084,627 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 21.26% FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.10% 250 Federal Home Loan Mortgage Corporation............ 6.500 11/15/10 254,156 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.91% 820 Federal National Mortgage Association............. 5.250-6.500 03/15/01-03/01/28 836,703 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 12.25% 1,447 Government National Mortgage Association.......... 6.000-7.000 12/06/05-06/15/28 1,483,513 ----------- Total U.S. Government Agency Obligations (cost - $2,515,647)............................. 2,574,372 ----------- U.S. GOVERNMENT OBLIGATIONS - 9.30% U.S. TREASURY BONDS - 2.68% 300 U.S. Treasury Bonds............................... 5.500 08/15/28 324,591 ----------- U.S. TREASURY NOTES - 6.62% 750 U.S. Treasury Notes............................... 5.625-6.375 05/15/00-05/15/08 801,057 ----------- Total U.S. Government Obligations (cost - $1,089,473)............................. 1,125,648 ----------- Total Long-Term Debt Investments (cost - $10,541,413)............................ 10,784,647 ----------- SHORT-TERM INVESTMENTS - 10.02% DISCOUNT COMMERCIAL PAPER - 9.70% 575 UBS Finance (Delaware) Inc., UBS AG Guaranteed.... 5.750 10/01/98 575,000 600 Washington Post Co. (The)......................... 5.700 10/01/98 600,000 ----------- 1,175,000 -----------
The accompanying notes are an integral part of the financial statements. 14 THE BEAR STEARNS FUNDS INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------- SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (CONTINUED) INVESTMENT COMPANIES - 0.32% 139 Federated Automated Government Money Trust **..... $ 139 37,899 Federated Investors, Trust for Short-Term U.S. Government Securities**......................... 37,899 ----------- 38,038 ----------- Total Short-Term Investments (cost - $1,213,038)............................. 1,213,038 ----------- Total Investments - 99.08% (cost - $11,754,451)............................ 11,997,685 Other assets in excess of liabilities -- 0.92%.... 111,808 ----------- Net Assets -- 100.00%............................. $12,109,493 ----------- -----------
- --------- * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Money market fund. The accompanying notes are an integral part of the financial statements. 15 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - -------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 87.29% UNITED STATES - 81.01% AEROSPACE - DEFENSE - 1.73% $ 750 Compass Aerospace Corp., Senior Subordinated Notes*.......................................... 10.125% 04/15/05 $ 733,125 500 Telecommunications Techniques Co., Senior Subordinated Notes*............................. 9.750 05/15/08 458,125 ----------- 1,191,250 ----------- ALTERNATIVE VIDEO PROVIDERS - 1.45% 250 21st Century Telecom Group, Inc., Senior Discount Notes (2)....................................... 12.250 02/15/08 113,125 1,000 EchoStar Satellite Broadcasting Company, Senior Discount Notes (2).............................. 13.125 03/15/04 885,000 ----------- 998,125 ----------- AUTOMOBILE MANUFACTURING RELATED - 2.46% 750 Motors and Gears, Inc., Senior Notes, Series D.... 10.750 11/15/06 735,000 500 Prestolite Electric Inc., Senior Notes, Company Guaranteed...................................... 9.625 02/01/08 470,000 500 Stanadyne Automotive Corp., Senior Subordinated Notes, Series B, Company Guaranteed............. 10.250 12/15/07 483,750 ----------- 1,688,750 ----------- BUILDING MATERIALS - 0.34% 250 American Architectural Products Corporation, Senior Notes, Company Guaranteed................ 11.750 12/01/07 233,750 ----------- CELLULAR COMMUNICATIONS - 0.89% 1,000 Crown Castle International Corp., Senior Discount Notes (2)....................................... 10.625 11/15/07 612,500 ----------- CHEMICALS - 0.71% 500 Great Lakes Carbon Corp., Senior Subordinated Notes*.......................................... 10.250 05/15/08 490,000 ----------- COMPETITIVE LOCAL EXCHANGE COMPANIES - 5.12% 500 Dobson Wireline Company, Senior Notes*............ 12.250 06/15/08 466,250 500 e.spire Communications Inc., Senior Discount Notes (2)............................................. 12.750 04/01/06 402,500 500 e.spire Communications Inc., Senior Discount Notes* (2)...................................... 10.625 07/01/08 257,500 500 GST USA, Inc., Senior Discount Notes, Company Guaranteed (2).................................. 13.875 12/15/05 371,250 750 KMC Telecom Holdings, Inc., Senior Discount Notes (2)............................................. 12.500 02/15/08 360,000 750 MGC Communications Inc., Senior Notes, Series B... 13.000 10/01/04 564,375 750 Time Warner Telecom LLC and Time Warner Telecom Inc., Senior Notes.............................. 9.750 07/15/08 759,375 500 WinStar Communications, Inc., Senior Subordinated Notes* (1)(2)................................... 11.000 03/15/08 330,944 ----------- 3,512,194 ----------- CONVENIENCE & DRUG RETAILERS - 1.49% 500 Duane Reade Inc., Senior Subordinated Notes....... 9.250 02/15/08 498,750 500 Phar-Mor, Inc., Senior Notes...................... 11.720 09/11/02 521,250 ----------- 1,020,000 -----------
The accompanying notes are an integral part of the financial statements. 16 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - -------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) ENHANCED SERVICE MOBILE RADIOS & PERSONAL COMMUNICATION SERVICES - 0.87% $ 1,300 Triton Communications LLC, Senior Discount Notes* (2)............................................. 11.000% 05/01/08 $ 598,000 ----------- EXPLORATION & PRODUCTION - 1.85% 500 Abraxas Petroleum Corporation and Canadian Abraxas Petroleum Limited, Senior Notes, Series D, Company Guaranteed.............................. 11.500 11/01/04 402,500 500 Chesapeake Energy Corporation, Senior Notes, Series B, Company Guaranteed.................... 9.625 05/01/05 451,250 500 Seven Seas Petroleum Inc., Senior Notes*.......... 12.500 05/15/05 415,000 ----------- 1,268,750 ----------- FABRICATED GLASS, PLASTICS, & FIBERS - 2.55% 750 Ball Corporation, Senior Subordinated Notes*...... 8.250 08/01/08 757,500 500 Graham Packaging Holdings Company and GPC Capital Corp. II, Senior Discount Notes, Series B (2)... 10.750 01/15/09 300,625 750 Moll Industries Inc., Senior Subordinated Notes*.......................................... 10.500 07/01/08 693,750 ----------- 1,751,875 ----------- FOOD, BEVERAGE & TOBACCO - 3.50% 750 Aurora Foods Inc., Senior Subordinated Notes, Series B........................................ 8.750 07/01/08 761,250 500 North Atlantic Trading Company, Inc., Senior Notes, Series B, Company Guaranteed............. 11.000 06/15/04 471,250 500 Packaged Ice Inc., Senior Notes*.................. 9.750 02/01/05 473,750 750 Richmont Marketing Specialists, Senior Subordinated Notes*............................. 10.125 12/15/07 699,375 ----------- 2,405,625 ----------- FOREST - PAPER PRODUCTS - 4.13% 500 Bear Island Paper Company, L.L.C. and Bear Island Finance Company II, Senior Notes, Series B...... 10.000 12/01/07 497,500 500 Crown Paper Company, Senior Subordinated Notes.... 11.000 09/01/05 370,000 500 Florida Coast Paper Company, L.L.C. and Florida Coast Paper Finance Corp., 1st Mortgage, Series B............................................... 12.750 06/01/03 476,250 500 MAXXAM Group Holdings Inc., Senior Notes, Series B............................................... 12.000 08/01/03 550,000 750 Republic Group Incorporated, Senior Subordinated Notes*.......................................... 9.500 07/15/08 723,750 500 SF Holdings Group Inc., Senior Discount Notes* (2)(5).......................................... 12.750 03/15/08 221,875 ----------- 2,839,375 ----------- GAMING - 1.77% 750 Lady Luck Gaming Corp., 1st Mortgage.............. 11.875 03/01/01 753,750 500 Las Vegas Sands, Inc. and Venetian Casino Resort, LLC............................................. 12.250 11/15/04 461,250 ----------- 1,215,000 ----------- HOME BUILDERS - 0.69% 500 Del Webb Corporation, Senior Subordinated Debentures...................................... 9.375 05/01/09 475,000 -----------
The accompanying notes are an integral part of the financial statements. 17 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - -------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) INDUSTRIAL PRODUCTS - 5.81% $ 750 AMTROL, Inc., Senior Subordinated Notes........... 10.625% 12/31/06 $ 716,250 750 Aqua-Chem Inc., Senior Subordinated Notes*........ 11.250 07/01/08 723,750 250 Grove Holdings LLC and Grove Holdings Capital, Inc., Senior Discount Debentures* (2)........... 11.625 05/01/09 100,000 500 Grove Worldwide LLC and Grove Holdings Capital, Inc., Senior Subordinated Notes*................ 9.250 05/01/08 445,000 800 Interlake Corporation (The), Senior Subordinated Debentures (1).................................. 12.125 03/01/02 802,000 750 Roller Bearing Co. of America, Senior Subordinated Notes, Series B, Company Guaranteed............. 9.625 06/15/07 723,750 500 Thermadyne Holdings Corp. and Thermadyne Capital Corp., Senior Discount Debentures (2)........... 12.500 06/01/08 248,125 250 Thermadyne Mfg. LLC and Thermadyne Capital Corp., Senior Subordinated Notes, Company Guaranteed... 9.875 06/01/08 227,500 ----------- 3,986,375 ----------- LODGING & LEISURE - 0.68% 750 Premier Parks Inc., Senior Discount Notes (2)..... 10.000 04/01/08 466,875 ----------- LONG DISTANCE TELEPHONE SERVICES - 3.30% 750 Facilicom International, Inc., Senior Notes, Series B........................................ 10.500 01/15/08 656,250 500 Global TeleSystems Group, Inc., Senior Notes...... 9.875 02/15/05 431,250 750 Primus Telecom Group, Senior Notes, Series B...... 9.875 05/15/08 654,375 500 Viatel, Inc., Senior Notes*....................... 11.250 04/15/08 524,375 ----------- 2,266,250 ----------- MOTION PICTURE EXHIBITION - 4.85% 750 Clearview Cinema Group, Inc., Senior Notes*....... 10.875 06/01/08 733,125 500 Production Resource Group, L.L.C. and PRG Finance Corporation, Senior Subordinated Notes*......... 11.500 01/15/08 475,625 750 Px Escrow Corp., Senior Discount Notes* (2)....... 9.625 02/01/06 432,187 500 Regal Cinemas Inc., Senior Subordinated Notes*.... 9.500 06/01/08 506,250 750 SFX Entertainment, Inc., Senior Subordinated Notes, Series B, Company Guaranteed............. 9.125 02/01/08 712,500 500 United Artist Theatres Co., Senior Subordinated Notes, Series B................................. 9.750 04/15/08 467,500 ----------- 3,327,187 ----------- NORTH AMERICAN CABLE SERVICES - 0.78% 500 Adelphia Communications Corporation, Senior Notes, Series B........................................ 9.875 03/01/07 537,500 ----------- OTHER CONSUMER CYCLICALS - 4.65% 500 Anthony Crane Rental LP, Senior Notes*............ 10.375 08/01/08 475,000 750 Boyds Collection Ltd., Senior Subordinated Notes*.......................................... 9.000 05/15/08 720,937 500 Comforce Operating Inc., Senior Notes, Series B... 12.000 12/01/07 528,125 750 Hedstrom Corporation, Senior Subordinated Notes, Hedstrom Holdings, Inc. Guaranteed.............. 10.000 06/01/07 712,500 750 Windy Hill Pet Food Company, Inc., Senior Subordinated Notes.............................. 9.750 05/15/07 757,500 ----------- 3,194,062 -----------
The accompanying notes are an integral part of the financial statements. 18 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - -------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) OTHER CONSUMER NON-CYCLICALS - 6.48% $ 750 Aki Inc., Senior Notes*........................... 10.500% 07/01/08 $ 720,937 750 Albecca Inc., Senior Subordinated Notes*.......... 10.750 08/15/08 718,125 750 AP Holdings Inc., Senior Discount Notes* (2)...... 11.250 03/15/08 405,937 750 Bell Sports Inc., Senior Subordinated Notes*...... 11.000 08/15/08 714,375 500 Evenflo Company, Inc., Senior Notes*.............. 11.750 08/15/06 485,625 750 Styling Technology Corporation, Senior Subordinated Notes*............................. 10.875 07/01/08 733,125 750 Windmere-Durable Holdings, Inc., Senior Subordinated Notes.............................. 10.000 07/31/08 675,000 ----------- 4,453,124 ----------- OTHER FINANCE - 2.43% 750 Delta Financial Corporation, Senior Notes, Company Guaranteed...................................... 9.500 08/01/04 502,500 750 Metris Companies Inc., Senior Notes, Metris Direct Guaranteed...................................... 10.000 11/01/04 752,812 500 Ocwen Asset Investment Corp., Senior Notes*....... 11.500 07/01/05 412,500 ----------- 1,667,812 ----------- OUTDOOR ADVERTISING - 1.14% 750 Outdoor Systems, Inc., Senior Subordinated Notes, Company Guaranteed.............................. 8.875 06/15/07 780,000 ----------- PAGING SERVICES - 0.61% 750 PageMart Wireless, Inc., Senior Discount Notes (2)............................................. 11.250 02/01/08 417,187 ----------- PUBLISHING - 1.28% 500 Liberty Group Operating, Inc., Senior Subordinated Notes, Company Guaranteed....................... 9.375 02/01/08 480,625 250 Liberty Group Publishing, Inc., Senior Discount Debentures (2).................................. 11.625 02/01/09 140,000 250 Sullivan Graphics Inc., Senior Subordinated Notes........................................... 12.750 08/01/05 255,938 ----------- 876,563 ----------- RADIO BROADCASTING - 0.36% 250 Cumulus Media Inc., Senior Subordinated Notes, Company Guaranteed.............................. 10.375 07/01/08 250,000 ----------- RESTAURANTS - 0.66% 500 Fresh Foods Inc., Senior Notes*................... 10.750 06/01/06 450,000 ----------- RETAILERS - 3.98% 500 Advance Holdings Corp., Senior Discount Debentures* (2)................................. 12.875 04/15/09 290,000 500 Advance Stores Co., Inc., Senior Subordinated Notes*.......................................... 10.250 04/15/08 490,000 750 Big 5 Corp., Senior Notes, Series B............... 10.875 11/15/07 747,188 750 CEX Holdings Inc., Senior Subordinated Notes*..... 9.625 06/01/08 716,250 500 Renters Choice, Inc., Senior Subordinated Notes*.......................................... 11.000 08/15/08 486,250 ----------- 2,729,688 ----------- SATELLITES - 0.42% 500 AMSC Acquisition Co., Inc., Senior Notes, Series B, Company Guaranteed........................... 12.250 04/01/08 290,000 -----------
The accompanying notes are an integral part of the financial statements. 19 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - -------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) STEEL - METALS - MINING - 4.67% $ 500 Anker Coal Group Inc., Senior Notes, Series B..... 9.750% 10/01/07 $ 320,000 500 Geneva Steel Company, Senior Notes................ 9.500 01/15/04 300,000 750 Metal Management Inc., Senior Subordinated Notes*.......................................... 10.000 05/15/08 487,500 500 P&L Coal Holdings Corp., Senior Subordinated Notes*.......................................... 9.625 05/15/08 492,500 750 Renco Steel Holdings, Inc., Senior Notes, Series B............................................... 10.875 02/01/05 698,438 500 Steel Heddle Manufacturing Co., Senior Subordinated Notes*............................. 10.625 06/01/08 450,000 500 WHX Corporation, Senior Notes..................... 10.500 04/15/05 460,000 ----------- 3,208,438 ----------- SUPERMARKETS & DISTRIBUTORS - 0.74% 500 Jitney-Jungle Stores of America, Inc., Senior Subordinated Notes, Company Guaranteed.......... 10.375 09/15/07 507,500 ----------- TECHNOLOGY - 3.96% 750 American Banknote Corporation, Senior Subordinated Notes, Series B, Company Guaranteed............. 11.250 12/01/07 585,000 500 Anacomp, Inc., Senior Subordinated Notes*......... 10.875 04/01/04 502,500 500 Fairchild Semiconductor Corp., Senior Subordinated Notes (1)....................................... 10.125 03/15/07 450,000 750 IPC Informations Systems, Inc., Senior Discount Notes (2)....................................... 10.875 05/01/08 540,000 750 Viasystems, Inc., Senior Subordinated Notes....... 9.750 06/01/07 641,250 ----------- 2,718,750 ----------- TELEVISION BROADCASTING - 2.22% 710 ACME Television, LLC and ACME Finance Corporation, Senior Discount Notes, Series B, Company Guaranteed (2).................................. 10.875 09/30/04 550,250 500 Sinclair Broadcast Group, Inc., Senior Subordinated Notes, Company Guaranteed.......... 8.750 12/15/07 491,250 500 Young Broadcasting Inc., Senior Subordinated Notes, Series B, Company Guaranteed............. 8.750 06/15/07 486,250 ----------- 1,527,750 ----------- TEXTILES - APPAREL - 2.44% 450 Consoltex Group Inc., Senior Subordinated Notes, Series B........................................ 11.000 10/01/03 466,875 1,000 Globe Holdings, Inc., Senior Discount Notes (2)... 14.000 08/01/09 470,000 750 Pillowtex Corporation, Senior Subordinated Notes, Series B, Company Guaranteed.................... 9.000 12/15/07 738,750 ----------- 1,675,625 ----------- Total United States (cost - $61,078,710).......... 55,630,880 ----------- CANADA--1.85% AEROSPACE - DEFENSE - 1.04% 750 Derlan Manufacturing, Senior Yankee Notes......... 10.000 01/15/07 712,500 ----------- INDUSTRIAL PRODUCTS - 0.32% 250 International Utility Structures Inc., Senior Subordinated Yankee Notes....................... 10.750 02/01/08 218,125 -----------
The accompanying notes are an integral part of the financial statements. 20 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - -------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) MOTION PICTURE EXHIBITION - 0.49% $ 500 Livent, Inc., Senior Yankee Notes................. 9.375% 10/15/04 $ 341,250 ----------- Total Canada (cost - $1,536,891).................. 1,271,875 ----------- ISRAEL - 0.73% LONG DISTANCE TELEPHONE SERVICES - 0.73% 1,000 Barak I.T.C., Senior Discount Yankee Notes, Series B (2) (cost - $625,083)......................... 12.500 11/15/07 500,000 ----------- SWEDEN - 0.99% FREIGHT - CONTAINERS - SHIPPING - 0.99% 750 Stena Line AB, Senior Yankee Notes (cost - $752,770)....................................... 10.625 06/01/08 676,875 ----------- UNITED KINGDOM - 2.71% LONG DISTANCE TELEPHONE SERVICES - 0.98% 750 Esprit Telecom Group plc, Senior Notes*........... 10.875 06/15/08 675,000 ----------- PUBLISHING - 1.07% 750 Regional Independent Media Group plc, Senior Notes*.......................................... 10.500 07/01/08 733,125 ----------- RETAILERS - 0.66% 500 HMV Media Group plc, Senior Subordinated Notes*... 10.250 05/15/08 450,000 ----------- Total United Kingdom (cost - $2,009,306).......... 1,858,125 ----------- Total Long-Term Debt Investments (cost - $66,002,760)............................ 59,937,755 ----------- SHARES - ---------- LONG-TERM EQUITY INVESTMENTS - 5.11% PREFERRED STOCK - UNITED STATES - 4.76% ALTERNATIVE VIDEO PROVIDERS - 0.31% 268 21st Century Telecom Group, Inc. (3).............. 13.750 -- 209,984 ----------- CELLULAR COMMUNICATIONS - 0.36% 265 Dobson Communications Corp. (3)................... 12.250 -- 248,522 ----------- COMPETITIVE LOCAL EXCHANGE COMPANIES - 0.31% 250 WinStar Communications, Inc., Series C............ 14.250 -- 209,313 ----------- LONG DISTANCE TELEPHONE SERVICES - 0.02% 248 Viatel, Inc., Series A (3)........................ 10.000 -- 14,880 ----------- NORTH AMERICAN CABLE SERVICES - 0.41% 2,500 Adelphia Communications Corporation, Series B (3)............................................. 13.000 -- 283,125 ----------- RADIO BROADCASTING - 0.75% 500 Cumulus Media Inc., Series A...................... 13.750 -- 515,187 ----------- SUPERMARKETS & DISTRIBUTORS - 0.74% 792 Nebco Evans Holdings Co. (3)...................... 11.250 -- 507,089 -----------
The accompanying notes are an integral part of the financial statements. 21 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------- INTEREST MATURITY SHARES RATE DATE VALUE - -------------------------------------------------------------------------------------------------- LONG-TERM EQUITY INVESTMENTS (CONTINUED) TELEVISION BROADCASTING - 0.91% 750 Benedek Communications Corp.* (3)................. 11.500% -- $ 626,953 0 Paxson Communications Corporation (3)............. 12.500 -- 227 ----------- 627,180 ----------- TEXTILES - APPAREL - 0.95% 7,500 Cluett American Corp.*............................ 12.500 -- 654,779 ----------- Total Preferred Stock - United States (cost - $3,885,635)............................. 3,270,059 ----------- PREFERRED STOCK - CANADA - 0.35% INDUSTRIAL PRODUCTS - 0.35% 16 International Utility Structures Inc., Units* (3)............................................. 13.000 -- 14,517 250 International Utility Structures Inc., Units* (3)............................................. 13.000 -- 226,821 ----------- Total Preferred Stock - Canada (cost - $266,000)............................... 241,338 ----------- Total Long-Term Equity Investments (cost - $4,151,635)............................. 3,511,397 ----------- WARRANTS -- 0.01% UNITED STATES - 0.01% ALTERNATIVE VIDEO PROVIDERS - 0.00% 250 21st Century Telecom Group, Inc.* (4)............. -- 02/15/10 1,375 ----------- COMPETITIVE LOCAL EXCHANGE COMPANIES - 0.01% 750 KMC Telecom Holdings, Inc.* (4)................... -- 04/15/08 3,750 250 MGC Communications Inc.* (4)...................... -- 10/01/04 375 ----------- 4,125 ----------- SATELLITES - 0.00% 500 American Mobile Satellite Corporation* (4)........ -- 04/01/08 2,355 ----------- TECHNOLOGY - 0.00% 750 American Banknote Corporation* (4)................ -- 12/01/02 1,875 ----------- Total Warrants (cost - $10,000)................... 9,730 -----------
The accompanying notes are an integral part of the financial statements. 22 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - -------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 7.64% DISCOUNT COMMERCIAL PAPER - 7.57% $ 2,600 UBS Finance (Delaware) Inc., UBS AG Guaranteed.... 5.750% 10/01/98 $ 2,600,000 2,600 Washington Post Co. (The)......................... 5.700 10/01/98 2,600,000 ----------- 5,200,000 ----------- SHARES - ---------- INVESTMENT COMPANIES - 0.07% 823 Federated Automated Government Money Trust**...... -- -- 823 45,960 Federated Investors, Trust for Short-Term U.S. Government Securities**......................... -- -- 45,960 ----------- 46,783 ----------- Total Short-Term Investments (cost - $5,246,783)............................. 5,246,783 ----------- Total Investments -- 100.05% (cost - $75,411,178)............................ 68,705,665 Liabilities in excess of other assets -- (0.05)%......................................... (36,761) ----------- Net Assets -- 100.00%............................. $68,668,904 ----------- -----------
- --------- * SEC Rule 144A security. Such securities are traded only among qualified institutional buyers. ** Money market fund. (1) Pro-rata sinking fund has been established. (2) Coupon rate is zero until step-up date. Step-up rate is provided. (3) Payment-in-kind. (4) Non-income producing security. (5) The Portfolio owns 1,000 Class C shares of common stock with no market value. The accompanying notes are an integral part of the financial statements. 23 THE BEAR STEARNS FUNDS STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1998 (UNAUDITED)
EMERGING MARKETS INCOME HIGH YIELD TOTAL DEBT PORTFOLIO PORTFOLIO RETURN PORTFOLIO ---------------- -------------- ---------------- ASSETS Investments, at value (cost - $40,182,200, $11,754,451 and $75,411,178, respectively).... $ 32,734,642 $ 11,997,685 $ 68,705,665 Interest and dividends receivable............... 1,093,385 123,146 1,752,735 Receivable for investments sold................. 1,330,309 338,347 -- Receivable for Portfolio shares sold............ -- 44,158 505,022 Receivable from investment adviser.............. -- -- 28,570 Deferred organization expenses and other assets........................................ 31,108 41,039 95,277 ---------------- -------------- ---------------- Total assets.............................. 35,189,444 12,544,375 71,087,269 ---------------- -------------- ---------------- LIABILITIES Payable for Portfolio shares repurchased........ 34,892 -- 2,009,288 Payable for investments purchased............... 795,563 334,311 -- Dividends payable............................... -- 13,581 177,650 Distribution and services fee payable (Class A, B and C shares)............................... 51,568 9,543 107,345 Investment management fee payable............... 27,963 -- -- Custodian fee payable........................... 10,018 3,026 5,602 Administration fee payable...................... -- 1,667 8,731 Accrued expenses................................ 87,370 72,754 109,749 ---------------- -------------- ---------------- Total liabilities......................... 1,007,374 434,882 2,418,365 ---------------- -------------- ---------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized)..... 3,878 955 5,970 Paid-in capital................................. 42,247,327 11,674,055 75,015,621 Undistributed net investment income............. 198,514 -- -- Accumulated net realized gain/(loss) from investments and foreign currency related transactions, if any.......................... (820,091) 191,249 352,826 Net unrealized appreciation/(depreciation) on investments and foreign currency related transactions, if any.......................... (7,447,558) 243,234 (6,705,513) ---------------- -------------- ---------------- Net assets................................ $ 34,182,070 $ 12,109,493 $ 68,668,904 ---------------- -------------- ---------------- ---------------- -------------- ---------------- CLASS A Net assets...................................... $ 29,785,422 $ 5,454,741 $ 37,322,158 ---------------- -------------- ---------------- Shares of beneficial interest outstanding....... 3,376,191 430,108 3,244,949 ---------------- -------------- ---------------- Net asset value per share....................... $8.82 $12.68 $11.50 ---------------- -------------- ---------------- ---------------- -------------- ---------------- Maximum offering price per share (net asset value plus sales charge of 4.50%* of the offering price)............................... $9.24 $13.28 $12.04 ---------------- -------------- ---------------- ---------------- -------------- ---------------- CLASS B Net assets...................................... $ 1,433,730 $ 360,321 $ 14,953,849 ---------------- -------------- ---------------- Shares of beneficial interest outstanding....... 163,602 28,411 1,300,120 ---------------- -------------- ---------------- Net asset value and offering price per share**....................................... $8.76 $12.68 $11.50 ---------------- -------------- ---------------- ---------------- -------------- ---------------- CLASS C Net assets...................................... $ 2,962,918 $ 1,684,615 $ 16,392,897 ---------------- -------------- ---------------- Shares of beneficial interest outstanding....... 337,891 132,833 1,425,244 ---------------- -------------- ---------------- Net asset value and offering price per share**....................................... $8.77 $12.68 $11.50 ---------------- -------------- ---------------- ---------------- -------------- ---------------- CLASS Y Net assets...................................... -- $ 4,609,816 -- ---------------- -------------- ---------------- Shares of beneficial interest outstanding....... -- 363,486 -- ---------------- -------------- ---------------- Net asset value, offering and redemption price per share..................................... -- $12.68 -- ---------------- -------------- ---------------- ---------------- -------------- ----------------
- ---------- * 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. 24 THE BEAR STEARNS FUNDS STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
EMERGING MARKETS INCOME HIGH YIELD TOTAL DEBT PORTFOLIO PORTFOLIO RETURN PORTFOLIO ---------------- -------------- ---------------- INVESTMENT INCOME Interest........................................ $ 2,185,779 $ 326,894 $ 2,807,523 Dividends....................................... -- -- 236,201 ---------------- -------------- ---------------- 2,185,779 326,894 3,043,724 ---------------- -------------- ---------------- EXPENSES Investment management/advisory fees............. 223,135 22,046 183,743 Distribution and services fees - Class A........ 60,817 6,405 60,955 Distribution and services fees - Class B........ 4,799 618 53,031 Distribution and services fees - Class C........ 19,121 7,328 73,913 Accounting fees................................. 48,872 55,724 39,359 Transfer agent fees and expenses................ 28,658 46,894 33,720 Federal and state registration fees............. 31,358 17,824 51,803 Legal and auditing fees......................... 42,418 13,004 31,084 Administration fees............................. -- 7,349 45,936 Reports and notices to shareholders............. 17,568 531 26,032 Custodian fees and expenses..................... 17,210 5,766 14,994 Amortization of organization expenses........... 5,248 6,498 6,395 Trustees' fees and expenses..................... 7,692 1,514 2,231 Insurance expenses.............................. 3,574 3,441 3,175 Other........................................... 1,552 1,299 8,199 ---------------- -------------- ---------------- Total expenses before waivers and related reimbursements............................ 512,022 196,241 634,570 Less: waivers and related reimbursements.... (150,530) (160,107) (246,071) ---------------- -------------- ---------------- Total expenses after waivers and related reimbursements............................ 361,492 36,134 388,499 ---------------- -------------- ---------------- Net investment income........................... 1,824,287 290,760 2,655,225 ---------------- -------------- ---------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS Net realized gain/(loss) from: Investments................................... (1,441,312) 17,843 (29,511) Foreign currency related transactions......... 11,091 -- -- Net change in unrealized appreciation/(depreciation) on: Investments................................... (9,735,084) 262,497 (7,265,370) Foreign currency related transactions......... (490,466) -- -- ---------------- -------------- ---------------- Net realized and unrealized gain/(loss) on investments................................... (11,655,771) 280,340 (7,294,881) ---------------- -------------- ---------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................. $ (9,831,484) $ 571,100 $ (4,639,656) ---------------- -------------- ---------------- ---------------- -------------- ----------------
The accompanying notes are an integral part of the financial statements. 25 THE BEAR STEARNS FUNDS STATEMENT OF CHANGES IN NET ASSETS
EMERGING MARKETS INCOME HIGH YIELD DEBT PORTFOLIO PORTFOLIO TOTAL RETURN PORTFOLIO --------------------------- --------------------------- ----------------------------- FOR THE SIX FOR THE FOR THE SIX FOR THE FOR THE SIX FOR THE PERIOD MONTHS ENDED FISCAL YEAR MONTHS ENDED FISCAL YEAR MONTHS ENDED JANUARY 2, SEPTEMBER ENDED SEPTEMBER ENDED SEPTEMBER 1998* 30, 1998 MARCH 31, 30, 1998 MARCH 31, 30, 1998 THROUGH (UNAUDITED) 1998 (UNAUDITED) 1998 (UNAUDITED) MARCH 31, 1998 ------------ ------------ ------------ ------------ ------------ -------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income............ $ 1,824,287 $ 2,901,116 $ 290,760 $ 1,288,539 $ 2,655,225 $ 380,947 Net realized gain/(loss) from investments and foreign currency related transactions, if any......................... (1,430,221) 3,624,769 17,843 268,245 (29,511) 382,337 Net change in unrealized appreciation/(depreciation) on investments and foreign currency related transactions, if any......................... (10,225,550) 140,932 262,497 281,692 (7,265,370) 559,857 ------------ ------------ ------------ ------------ ------------ -------------- Net increase/(decrease) in net assets resulting from operations..................... (9,831,484) 6,666,817 571,100 1,838,476 (4,639,656) 1,323,141 ------------ ------------ ------------ ------------ ------------ -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares................. (1,464,732) (2,590,726) (107,985) (194,516) (1,582,949) (213,477) Class B shares................. (48,775) (9,337) (3,202) (111) (448,334) (58,135) Class C shares................. (149,989) (281,260) (38,793) (70,620) (623,942) (109,335) Class Y shares................. -- -- (140,798) (1,023,292) -- -- ------------ ------------ ------------ ------------ ------------ -------------- (1,663,496) (2,881,323) (290,778) (1,288,539) (2,655,225) (380,947) ------------ ------------ ------------ ------------ ------------ -------------- Net realized capital gains Class A shares................. -- (833,408) -- (4,235) -- -- Class C shares................. -- (96,366) -- (2,042) -- -- Class Y shares................. -- -- -- (25,301) -- -- ------------ ------------ ------------ ------------ ------------ -------------- -- (929,774) -- (31,578) -- -- ------------ ------------ ------------ ------------ ------------ -------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares......................... 11,914,446 10,697,786 5,694,710 6,734,676 53,544,417 35,248,122 Cost of shares repurchased....... (5,775,032) (13,467,125) (2,725,909) (17,586,264) (14,597,985) (754,186) Shares issued in reinvestment of dividends...................... 1,206,268 2,477,379 174,262 1,148,623 1,404,953 176,234 ------------ ------------ ------------ ------------ ------------ -------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions................... 7,345,682 (291,960) 3,143,063 (9,702,965) 40,351,385 34,670,170 ------------ ------------ ------------ ------------ ------------ -------------- Total increase/(decrease) in net assets......................... (4,149,298) 2,563,760 3,423,385 (9,184,606) 33,056,504 35,612,364 NET ASSETS Beginning of period.............. 38,331,368 35,767,608 8,686,108 17,870,714 35,612,400 36 ------------ ------------ ------------ ------------ ------------ -------------- End of period**.................. $34,182,070 $38,331,368 $12,109,493 $ 8,686,108 $68,668,904 $35,612,400 ------------ ------------ ------------ ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------ --------------
- --------- * Commencement of investment operations. ** Emerging Markets Debt Portfolio includes undistributed net investment income of $198,514 and $37,723, respectively. The accompanying notes are an integral part of the financial statements. 26 (This page has been left blank intentionally.) 27 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 period indicated. This information has been derived from information provided in the financial statements. - --------------------------------------------------------------------------------
NET NET ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS VALUE, NET UNREALIZED FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED OF PERIOD INCOME *(1) INVESTMENTS *(2) INCOME CAPITAL GAINS ----------------------- ----------- ----------------- ----------- -------------- EMERGING MARKETS DEBT PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... $12.00 $0.52 $(3.25) $(0.45) $ -- For the fiscal year ended March 31, 1998................. 11.14 0.91 1.17 (0.92) (0.30) For the fiscal year ended March 31, 1997................. 9.02 0.85 2.10 (0.83) -- For the fiscal year ended March 31, 1996................. 6.90 0.91 2.13 (0.92) -- For the fiscal year ended March 31, 1995................. 8.98 0.79 (1.85) (0.77) (0.25) For the period May 3, 1993** through March 31, 1994............. 9.55 0.66 (0.55) (0.65) (0.03) CLASS B For the six months ended September 30, 1998 (unaudited)..... 11.95 0.41 (3.16) (0.44) -- For the period January 12, 1998*** through March 31, 1998....... 11.33 0.21 0.61 (0.20) -- CLASS C For the six months ended September 30, 1998 (unaudited)..... 11.95 0.50 (3.24) (0.44) -- For the fiscal year ended March 31, 1998................. 11.14 0.97 1.04 (0.90) (0.30) For the fiscal year ended March 31, 1997................. 9.04 0.84 2.07 (0.81) -- For the period July 26, 1995*** through March 31, 1996............. 7.81 0.59 1.32 (0.68) -- INCOME PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... 12.37 0.37 0.31 (0.37) -- For the fiscal year ended March 31, 1998................. 12.03 0.76 0.36 (0.76) (0.02) For the fiscal year ended March 31, 1997................. 12.26 0.73 (0.20) (0.73) (0.03) For the period April 5, 1995** through March 31, 1996............. 12.00 0.71 0.30 (0.71) (0.04) CLASS B For the six months ended September 30, 1998 (unaudited)..... 12.37 0.33 0.31 (0.33) -- For the period February 2, 1998*** through March 31, 1998....... 12.47 0.10 (0.10) (0.10) -- CLASS C For the six months ended September 30, 1998 (unaudited)..... 12.37 0.33 0.31 (0.33) -- For the fiscal year ended March 31, 1998................. 12.03 0.70 0.36 (0.70) (0.02) For the fiscal year ended March 31, 1997................. 12.26 0.68 (0.20) (0.68) (0.03) For the period April 5, 1995** through March 31, 1996............. 12.00 0.67 0.30 (0.67) (0.04) CLASS Y For the six months ended September 30, 1998 (unaudited)..... 12.37 0.39 0.31 (0.39) -- For the fiscal year ended March 31, 1998................. 12.03 0.80 0.36 (0.80) (0.02) For the fiscal year ended March 31, 1997................. 12.26 0.77 (0.20) (0.77) (0.03) For the period September 8, 1995*** through March 31, 1996................. 12.35 0.41 (0.05) (0.41) (0.04) HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... 12.73 0.57 (1.23) (0.57) -- For the period January 2, 1998** through March 31, 1998....... 12.00 0.26 0.73 (0.26) -- CLASS B For the six months ended September 30, 1998 (unaudited)..... 12.73 0.53 (1.23) (0.53) -- For the period January 2, 1998** through March 31, 1998....... 12.00 0.24 0.73 (0.24) -- CLASS C For the six months ended September 30, 1998 (unaudited)..... 12.73 0.53 (1.23) (0.53) -- For the period January 2, 1998** through March 31, 1998....... 12.00 0.24 0.73 (0.24) --
- ---------- * 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. ** Commencement of investment operations. *** Commencement of initial public offering. (1) Reflects waivers and reimbursments. The accompanying notes are an integral part of the financial statements. 28
NET ASSET NET ASSETS, RATIO OF VALUE, TOTAL END OF PERIOD RATIO OF NET INVESTMENT END OF INVESTMENT (000'S EXPENSES TO INCOME TO PERIOD RETURN(3) OMITTED) AVERAGE NET ASSETS(1) AVERAGE NET ASSETS(1) ---------- -------------- -------------- --------------------- --------------------- EMERGING MARKETS DEBT PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... $ 8.82 (22.96)% $29,785 1.75%(5) 9.31%(5) For the fiscal year ended March 31, 1998................. 12.00 19.31 33,448 1.75 7.70 For the fiscal year ended March 31, 1997................. 11.14 33.48 33,185 2.00 7.95 For the fiscal year ended March 31, 1996................. 9.02 46.13 28,860 2.00 10.64 For the fiscal year ended March 31, 1995................. 6.90 (13.07) 28,049 2.00 8.86 For the period May 3, 1993** through March 31, 1994............. 8.98 0.36 45,691 2.00(5) 7.24(5) CLASS B For the six months ended September 30, 1998 (unaudited)..... 8.76 (23.25) 1,434 2.40(5) 8.66(5) For the period January 12, 1998*** through March 31, 1998....... 11.95 7.29(4) 566 2.40(5) 7.13(4)(5) CLASS C For the six months ended September 30, 1998 (unaudited)..... 8.77 (23.16) 2,963 2.40(5) 8.66(5) For the fiscal year ended March 31, 1998................. 11.95 18.66 4,317 2.40 7.31 For the fiscal year ended March 31, 1997................. 11.14 32.97 2,583 2.40 7.59 For the period July 26, 1995*** through March 31, 1996............. 9.04 25.45(4) 202 2.40(5) 8.72(4)(5) INCOME PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... 12.68 5.60 5,455 0.80(5) 5.94(5) For the fiscal year ended March 31, 1998................. 12.37 9.43 2,926 0.80 6.13 For the fiscal year ended March 31, 1997................. 12.03 4.40 3,367 0.80 5.99 For the period April 5, 1995** through March 31, 1996............. 12.26 8.54 4,467 0.85(5) 5.76(5) CLASS B For the six months ended September 30, 1998 (unaudited)..... 12.68 5.26 360 1.45(5) 5.29(5) For the period February 2, 1998*** through March 31, 1998....... 12.37 (0.04)(4) 18 1.45(5) 5.22(4)(5) CLASS C For the six months ended September 30, 1998 (unaudited)..... 12.68 5.26 1,685 1.45(5) 5.29(5) For the fiscal year ended March 31, 1998................. 12.37 8.92 1,403 1.28 5.60 For the fiscal year ended March 31, 1997................. 12.03 3.99 1,018 1.20 5.57 For the period April 5, 1995** through March 31, 1996............. 12.26 8.13 1,775 1.25(5) 5.38(5) CLASS Y For the six months ended September 30, 1998 (unaudited)..... 12.68 5.78 4,610 0.45(5) 6.29(5) For the fiscal year ended March 31, 1998................. 12.37 9.81 4,339 0.45 6.39 For the fiscal year ended March 31, 1997................. 12.03 4.77 13,486 0.45 6.34 For the period September 8, 1995*** through March 31, 1996................. 12.26 2.92(4) 12,199 0.45(5) 5.93(4)(5) HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... 11.50 (5.43) 37,322 1.00(5) 8.98(5) For the period January 2, 1998** through March 31, 1998....... 12.73 8.30 18,301 1.00(5) 9.14(5) CLASS B For the six months ended September 30, 1998 (unaudited)..... 11.50 (5.74) 14,954 1.65(5) 8.34(5) For the period January 2, 1998** through March 31, 1998....... 12.73 8.13 6,013 1.65(5) 8.46(5) CLASS C For the six months ended September 30, 1998 (unaudited)..... 11.50 (5.74) 16,393 1.65(5) 8.35(5) For the period January 2, 1998** through March 31, 1998....... 12.73 8.13 11,298 1.65(5) 8.46(5) INCREASE/(DECREASE) REFLECTED IN EXPENSE RATIOS AND NET INVESTMENT INCOME PORTFOLIO DUE TO WAIVERS AND TURNOVER RELATED REIMBURSEMENTS RATE ---------------------- --------- EMERGING MARKETS DEBT PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... 0.76%(5) 47.98% For the fiscal year ended March 31, 1998................. 1.01 128.91 For the fiscal year ended March 31, 1997................. 0.80 223.41 For the fiscal year ended March 31, 1996................. 1.18 266.46 For the fiscal year ended March 31, 1995................. 0.53 35.01 For the period May 3, 1993** through March 31, 1994............. 0.33(5) 100.85 CLASS B For the six months ended September 30, 1998 (unaudited)..... 0.76(5) 47.98 For the period January 12, 1998*** through March 31, 1998....... 2.25(4)(5) 128.91 CLASS C For the six months ended September 30, 1998 (unaudited)..... 0.76(5) 47.98 For the fiscal year ended March 31, 1998................. 1.05 128.91 For the fiscal year ended March 31, 1997................. 0.64 223.41 For the period July 26, 1995*** through March 31, 1996............. 3.42(4)(5) 266.46 INCOME PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... 3.28(5) 58.13 For the fiscal year ended March 31, 1998................. 1.86 244.78 For the fiscal year ended March 31, 1997................. 1.73 262.95 For the period April 5, 1995** through March 31, 1996............. 2.87(5) 107.35 CLASS B For the six months ended September 30, 1998 (unaudited)..... 3.28(5) 58.13 For the period February 2, 1998*** through March 31, 1998....... 0.48(4)(5) 244.78 CLASS C For the six months ended September 30, 1998 (unaudited)..... 3.28(5) 58.13 For the fiscal year ended March 31, 1998................. 1.80 244.78 For the fiscal year ended March 31, 1997................. 1.74 262.95 For the period April 5, 1995** through March 31, 1996............. 2.95(5) 107.35 CLASS Y For the six months ended September 30, 1998 (unaudited)..... 3.28(5) 58.13 For the fiscal year ended March 31, 1998................. 1.78 244.78 For the fiscal year ended March 31, 1997................. 1.73 262.95 For the period September 8, 1995*** through March 31, 1996................. 2.89(4)(5) 107.35 HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A For the six months ended September 30, 1998 (unaudited)..... 0.81(5) 97.82 For the period January 2, 1998** through March 31, 1998....... 1.67(5) 139.61 CLASS B For the six months ended September 30, 1998 (unaudited)..... 0.81(5) 97.82 For the period January 2, 1998** through March 31, 1998....... 1.68(5) 139.61 CLASS C For the six months ended September 30, 1998 (unaudited)..... 0.81(5) 97.82 For the period January 2, 1998** through March 31, 1998....... 1.67(5) 139.61
- ---------- (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 sales and repurchases of Portfolio shares in relation to fluctuating net asset values during the respective periods. For Emerging Markets Debt Portfolio net realized and unrealized gain/(loss) on investments include forward foreign currency exchange contracts and translation of foreign currency related transactions. (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 timing differences in the commencement of the intial public offerings. (5) Annualized. 29 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Bear Stearns Investment Trust (the "Trust") and The Bear Stearns Funds (the "Fund") were organized as Massachusetts business trusts on October 15, 1992 and September 29, 1994, respectively, and are registered with the Securities and Exchange Commission (the "Commission") under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as open-end management investment companies. The Trust currently has one fund in operation, the Emerging Markets Debt Portfolio ("Debt Portfolio"), a non-diversified portfolio. As of the date hereof, the Debt Portfolio offers four classes of shares, which have been designated as Class A, B, C and Y shares. Class Y shares of the Debt Portfolio has yet to commence its initial public offering. The Fund currently consists of ten separate portfolios: seven diversified portfolios, Prime Money Market Portfolio, Large Cap Value Portfolio, Small Cap Value Portfolio, International Equity Portfolio, Balanced Portfolio, High Yield Total Return Portfolio ("High Yield Portfolio") and Income Portfolio (formerly the Total Return Bond Portfolio), and three non-diversified portfolios, The Insiders Select Fund, Focus List Portfolio and S&P STARS Portfolio. As of the date hereof, the Income Portfolio and High Yield Portfolio offer four classes of shares, which have been designated as Class A, B, C and Y shares. Class Y shares of the High Yield Portfolio has yet to commence 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. Effective October 16, 1998, the Total Return Bond Portfolio's name was changed to the Income Portfolio, and the Portfolio also adopted a new investment objective: to seek high current income consistent with preservation of capital. Prior to that date, the Income Portfolio was known as the Total Return Bond Portfolio, and its stated objective was to maximize total return consistent with preservation of capital. ORGANIZATIONAL MATTERS -- Prior to commencing investment operations on May 3, 1993, April 5, 1995 and January 2, 1998, the Debt Portfolio, Income Portfolio and High Yield Portfolio (each a "Portfolio" and collectively, the "Portfolios"), respectively, did not have any transactions other than those relating to organizational matters and the sale of shares of beneficial interest of the Income Portfolio and High Yield Portfolio to Bear, Stearns & Co. Inc. ("Bear Stearns" or the "Distributor") as follows:
PORTFOLIOS CLASS A CLASS B CLASS C - ---------------------------------------- ------------ ------------ ------------ Income Portfolio........................ 1,041 -- 1,041 High Yield Portfolio.................... 1 1 1
Costs of $76,571 and $56,234 which were incurred by the Income Portfolio and High Yield Portfolio, respectively, in connection with the organization of its shares, have been deferred and are being amortized using the straight-line method over the period of benefit not exceeding sixty months, beginning with the commencement of investment operations of each Portfolio. In the event that Bear Stearns or any transferee thereof redeems any of its original shares prior to the end of the sixty month period, the proceeds of the redemption payable in respect of such shares shall be reduced by the pro rata share (based on the proportionate share of the original shares redeemed to the total number of original shares outstanding at the time of the redemption) of the unamortized deferred organization expenses as of the date of such redemption. In the event that any of the Portfolios are liquidated prior to the end of the sixty month period, Bear Stearns or any transferee thereof shall bear the unamortized deferred organization expenses. 30 MANAGEMENT ESTIMATES -- The preparation of financial statements in accordance with generally accepted accounting principles 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 on each business day, with the exception of those days on which the New York Stock Exchange is closed. The assets of the Debt Portfolio are not listed on security exchanges or traded on other regulated markets, therefore, in the absence of reported sales prices on a valuation date, assets generally will be valued at the mean of the last bid and offer quotations. In the absence of reported bid and offer quotations on such valuation date, such assets will be valued from the broker bids of at least one market maker. Any assets which are denominated in a foreign currency are converted into U.S. dollars at the prevailing market rates for purposes of calculating net asset value. For the Income Portfolio and High Yield Portfolio, substantially all of the investments (including short-term investments) are valued at each business day by one or more independent pricing services (the "Service") approved by the Fund's Board of Trustees. Securities valued by the Service for which quoted bid prices in the judgment of the Service are readily available and are representative of the bid side of the market are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). In the absence of current broker bids or if such broker bids are not indicative of the fair value for such assets by reason of the illiquidity of a particular security or investment, or other factors, the value of such assets will be recorded at their fair value determined in good faith by the Valuation Committee. In making this determination the Valuation Committee will follow procedures adopted by the Board of Trustees, such procedures are among other things, publicly available information regarding the issuer, market conditions and values ascribed to comparable companies. The amortized cost method of valuation is used with respect to debt obligations with 60 days or less remaining to maturity, unless this method does not represent fair value. Expenses and fees, including the respective investment management and advisory, administration and distribution fees, are accrued daily and taken into account for the purpose of determining the net asset value of each Portfolio's shares. Because of the differences in operating expenses incurred by each class, the per share net asset value of each class will differ. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions are recorded on the trade date (the date on which the order to buy or sell is executed). Realized gains and losses from security and foreign currency transactions are calculated on the identified cost basis. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date. Discounts are treated as adjustments to interest income and identified costs of investments over the lives of the respective investments. The Debt Portfolio's net investment income (other than distribution fees) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class at the beginning of the day (after adjusting for current capital share activity of the respective classes). For the Income Portfolio and High Yield Portfolio, net investment income (other than distribution fees) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of the settled shares value of each class at the beginning of the day. FOREIGN CURRENCY TRANSLATION -- The books and records of the Debt Portfolio 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 Statement of Operations. The Debt Portfolio does not generally isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of investments. However, the Debt Portfolio does 31 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 Debt Portfolio is permitted to enter into forward foreign currency exchange contracts solely for purposes of protecting against adverse changes in foreign currency exchange rates. The Debt Portfolio may enter into contracts to purchase foreign currencies to protect against a rise in the U.S. dollar price of securities it has purchased pending final settlement, or it may enter into contracts to sell foreign currencies to protect against the decline in value of its non-dollar denominated securities due to a decline in the value of foreign currencies against the U.S. dollar. When the Debt Portfolio enters into a forward foreign currency exchange contract to buy a foreign currency, it will place cash or readily marketable securities in a segregated account in an amount equal to the value of its total assets committed to the consummation of the forward contract. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account so that the value of the account will equal the amount of the Debt Portfolio's commitment with respect to the contract. Investors should be aware that the forward currency market for the purchase of U.S. dollars in many emerging countries is not highly developed and that in certain emerging countries no forward market for foreign currencies currently exists or that such market may be closed to investment by the Debt Portfolio. The Debt Portfolio had no open forward foreign currency exchange contracts at September 30, 1998. U.S. FEDERAL TAX STATUS -- Each Portfolio intends to distribute substantially all of its taxable income and to comply with the other requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required. In addition, by distributing during each calendar year substantially all of its ordinary income and capital gains, if any, each Portfolio intends not to be subject to a U.S. federal excise tax. 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. DIVIDENDS AND DISTRIBUTIONS -- The Debt Portfolio declares and pays as quarterly dividends to shareholders substantially all of its net investment income. The Income Portfolio and High Yield Portfolio declare dividends from net investment income on each day the New York Stock Exchange is open for business. These dividends on the Income Portfolio and High Yield Portfolio are paid usually on or about the twentieth day of each month. Distribution of net realized gains, if any, will be declared and paid at least annually by each Portfolio. Dividends and distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within capital accounts based on their U.S. federal tax-basis treatment; temporary differences do not require reclassification. On November 5, 1998, the Board of Trustees of the Trust approved a change in the dividend policy of the Debt Portfolio. It is expected that on or about January 4, 1999, the Debt Portfolio will declare dividends from net investment income daily and generally follow the dividend policy of the Income Portfolio and High Yield Portfolio. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES For the six months ended September 30, 1998, Bear Stearns Asset Management Inc. ("BSAM" or the "Adviser") served as the Debt Portfolio's investment manager pursuant to the Investment Management Agreement. For its investment management and administrative services, BSAM receives from the Debt Portfolio a monthly fee at an annual rate equal to 1.15% of the Debt Portfolio's average daily net assets up to $50 million, 1.00% of the Debt Portfolio's average daily net assets of more than $50 million but not in excess of $100 million and 0.70% of the Debt Portfolio's average daily net assets above $100 million. For the six months ended September 30, 1998, BSAM served as the Income Portfolio's and High Yield Portfolio's investment adviser pursuant to an Investment Advisory Agreement with the Income Portfolio and High Yield Portfolio. 32 Under the terms of the Investment Advisory Agreement, BSAM is entitled to receive from the Income Portfolio and High Yield Portfolio a monthly fee equal to an annual rate of 0.45% and 0.60%, respectively, of each Portfolio's average daily net assets. For the six months ended September 30, 1998, Bear Stearns Funds Management Inc. ("BSFM" or the "Administrator") served as administrator to the Income Portfolio and High Yield Portfolio pursuant to an Administration Agreement. BSFM is entitled to receive from the Income Portfolio and High Yield Portfolio a monthly fee equal to an annual rate of 0.15% of each Portfolio's average daily net assets. Under the terms of an Administrative Services Agreement with the Portfolios, PFPC provides certain accounting and administrative services to each Portfolio. For providing these services, PFPC is entitled to receive from the Portfolios a monthly fee equal to an annual rate of 0.10% of each Portfolio's average daily net assets up to $200 million, 0.075% of the next $200 million, 0.05% of the next $200 million, and 0.03% of the net assets above $600 million, subject to a minimum annual fee of $150,000 for each Portfolio. During the six months ended September 30, 1998, PFPC has voluntarily waived a portion of its fee. For the six months ended September 30, 1998, BSAM has voluntarily undertaken to limit the total operating expenses to a maximum annual level of 1.75%, 0.80% and 1.00% of the average daily net assets of Class A shares, 2.40%, 1.45% and 1.65% of the average daily net assets of both Class B and C shares of the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively. For the six months ended September 30, 1998, BSAM has voluntarily undertaken to limit the total operating expenses to a maximum annual level of 0.45% of the average daily net assets of Class Y shares of the Income Portfolio. As necessary, this limitation is effected by waivers by BSAM of its investment management/advisory fees and reimbursements of expenses exceeding the investment management/advisory fees. For the six months ended September 30, 1998, BSAM waived advisory fees of $150,530, $22,046 and $183,743 for the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively. In addition, BSAM reimbursed $138,061 and $62,328 for the Income Portfolio and High Yield Portfolio, respectively, in order to maintain the voluntary expense limitation. The Portfolios will not pay BSAM at a later time for any amounts BSAM may waive, nor will the Portfolios reimburse BSAM for any amounts BSAM may assume. Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies Inc. and an affiliate of BSAM and BSFM, serves as custodian to the Income Portfolio and High Yield Portfolio. DISTRIBUTION PLAN The Trust, on behalf of the Debt Portfolio, has adopted an amended and restated Distribution Plan (the "New Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the New Plan, the Debt Portfolio pays Bear Stearns a fee at an annual rate of 0.35% for Class A shares and 0.75% for both Class B and C shares. With respect to the Debt Portfolio's Class A shares, up to 0.25% will compensate institutions for personal service and maintenance of accounts holding such shares. The Trust, on behalf of Class B and C shares of the Debt Portfolio, has adopted a Shareholder Servicing Plan whereby the Debt Portfolio pays a fee at an annual rate of 0.25% of its Class B and C shares. The Fund, on behalf of the Income Portfolio, has adopted a Distribution Plan (the "New Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the New Distribution Plan, the Income Portfolio pays Bear Stearns a fee at an annual rate of 0.35% for Class A shares and 0.75% for both Class B and C shares. With respect to the Income Portfolio's Class A shares, up to 0.25% will compensate institutions for personal service and maintenance of accounts holding such shares. The Fund, on behalf of Class B and C shares of the Income Portfolio has adopted a Shareholder Servicing Plan whereby the Income Portfolio pays a fee at an annual rate of 0.25% of its Class B and C shares. The Fund, on behalf of Class A, B and C shares of the High Yield Portfolio, has entered into a Distribution Plan (the "Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the Distribution Plan, the High Yield Portfolio pays 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 Class A, B and C shares of the High Yield Portfolio, has adopted a Shareholder Servicing Plan whereby the High Yield Portfolio pays a fee at an annual rate of 0.25% of its Class A, B and C shares. 33 Such fees are based on the average daily net assets in each class of each Portfolio and are accrued daily and paid quarterly or at such other intervals as the Board of Trustees may determine. For the six months ended September 30, 1998, Bear Stearns earned $35,315, $7,789 and $112,623 for the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively, in distribution fees. Bear Stearns uses these fees to pay broker/dealers whose clients hold each Portfolio's shares and other distribution-related activities. For the same period, Bear Stearns earned $49,422, $6,562 and $75,276 for the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively, in shareholder servicing fees. Bear Stearns pays broker/dealers and other financial institutions whose clients hold Portfolio shares primarily for shareholder liaison and other account maintenance services. In addition, as Distributor of the Portfolios, Bear Stearns collects the sales charges imposed on sales of each Portfolio's Class A shares, and reallows a portion of such charges to dealers through which the sales are made. As a result of an undertaking by the Distributor, it reallowed all of the sales charges to its dealers selling Portfolio shares for the period April 3, 1995 through September 26, 1995 and the period February 15, 1996 through June 30, 1996. Furthermore, the Distributor increased the compensation paid to its dealers selling Portfolio shares on net asset value transfers (purchases made by investors with the proceeds from a redemption of shares of an investment company sold with a sales charge or commission and not distributed by Bear Stearns) from 0.50% to 1.00% from April 15, 1996 until December 23, 1997. Effective December 24, 1997, the Distributor increased the reallowance to all authorized dealers on net asset value transfers from 1.00% to 1.25%. In addition, Bear Stearns advanced 4.25% and 1.00% in sales commissions on the sale of Class B and C shares, respectively, to dealers at the time of such sales. For the six months ended September 30, 1998, Bear Stearns has advised each Portfolio that it received $22,096, $21,427 and $279,287 in front-end sales charges resulting from sales of Class A shares of the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively. From these fees, Bear Stearns paid such sales charges to dealers which in turn paid commissions to salespersons. In addition, Bear Stearns has advised the Portfolios that during the period, it received $192 and $13,980 from the Debt Portfolio and High Yield Portfolio, respectively, in contingent deferred sales charges ("CDSC") upon certain redemptions by Class B shareholders, and $1,603, $695 and $12,258 from the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively, in CDSC upon certain redemptions by Class C shareholders. INVESTMENTS IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at September 30, 1998, were $41,044,067, $11,754,451 and $75,424,928 for the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively. Accordingly, the net unrealized appreciation/(depreciation) on investments for each Portfolio were as follows:
NET APPRECIATION/ PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------ ------------ ------------ ------------------ Debt Portfolio................ $ 37,208 $(8,346,633) $(8,309,425) Income Portfolio.............. 433,163 (189,929) 243,234 High Yield Portfolio.......... 101,030 (6,820,293) (6,719,263)
For the six months ended September 30, 1998, aggregate purchases and sales of portfolio securities (excluding short-term investments) for each Portfolio were as follows:
PORTFOLIO PURCHASES SALES - ------------------------------ ----------- ----------- Debt Portfolio................ $22,434,136 $16,762,147 Income Portfolio.............. 7,177,561 5,285,150 High Yield Portfolio.......... 85,280,458 54,124,012
34 SHARES OF BENEFICIAL INTEREST Each Portfolio offers Class A, B, C and Y shares. Class A shares are sold with a front-end sales charge of up to 4.50% for each Portfolio. Class B shares are sold with a CDSC of up to 5.00% within six years of purchase. Class C shares are sold with a CDSC of 1.00% within the first year of purchase. There is no sales charge or CDSC on Class Y shares, which are offered primarily to institutional investors. At September 30, 1998, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized for each Portfolio, Bear Stearns owned 1,091 of Class A shares and 1,085 of Class C shares of the Income Portfolio and 1 each of Class A, B and C shares of the High Yield Portfolio, including reinvestment of dividends and distributions, if any. Transactions in shares of beneficial interest for each Portfolio were as follows:
DEBT PORTFOLIO -------------------------------------- SALES REPURCHASES REINVESTMENTS ---------- ----------- ------------- CLASS A FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 954,412 474,872 109,457 Value....................................................... $10,146,977 $ 4,896,825 $1,027,735 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... 664,133 1,036,380 180,565 Value....................................................... $7,891,033 $12,380,642 $2,128,341 CLASS B FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 113,410 1,354 4,189 Value....................................................... $1,268,348 $ 14,721 $ 36,229 FOR THE FISCAL YEAR ENDED MARCH 31, 1998* Shares...................................................... 46,940 -- 417 Value....................................................... $ 546,764 -- $ 4,933 CLASS C FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 45,578 83,816 15,014 Value....................................................... $ 499,121 $ 863,486 $ 142,304 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... 189,824 89,937 29,316 Value....................................................... $2,259,989 $ 1,086,483 $ 344,105 CLASS Y** FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... -- -- -- Value....................................................... -- -- -- FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... -- -- -- Value....................................................... -- -- -- INCOME PORTFOLIO -------------------------------------- SALES REPURCHASES REINVESTMENTS ---------- ----------- ------------- CLASS A FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 391,690 202,610 4,521 Value....................................................... $4,890,377 $ 2,543,249 $ 56,422 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... 55,103 110,591 12,087 Value....................................................... $ 681,376 $ 1,369,024 $149,576 CLASS B FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 26,809 -- 159 Value....................................................... $ 334,559 -- $ 1,987 FOR THE FISCAL YEAR ENDED MARCH 31, 1998* Shares...................................................... 1,442 -- 1 Value....................................................... $ 18,014 -- $ 13 CLASS C FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 27,470 10,457 2,426 Value....................................................... $ 343,073 $ 129,847 $ 30,216 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... 56,500 32,601 4,869 Value....................................................... $ 702,888 $ 406,228 $ 60,310 CLASS Y** FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 10,199 4,254 6,875 Value....................................................... $ 126,701 $ 52,813 $ 85,637 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... 429,021 1,275,562 75,743 Value....................................................... $5,332,398 $15,811,012 $938,724 HIGH YIELD PORTFOLIO (1) ---------------------------------------- SALES REPURCHASES REINVESTMENTS ----------- ----------- ------------- CLASS A FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 2,590,019 853,088 70,283 Value....................................................... $32,686,490 $10,332,505 $869,891 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... 1,466,227 36,611 8,118 Value....................................................... $18,130,818 $ 450,922 $102,477 CLASS B FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 871,871 61,909 17,765 Value....................................................... $10,927,751 $ 776,550 $219,032 FOR THE FISCAL YEAR ENDED MARCH 31, 1998* Shares...................................................... 481,123 10,726 1,995 Value....................................................... $ 6,075,621 $ 235,284 $ 25,196 CLASS C FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... 790,764 278,619 25,517 Value....................................................... $ 9,930,176 $3,488,930 $316,030 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... 897,573 13,841 3,849 Value....................................................... $11,041,683 $ 67,980 $ 48,561 CLASS Y** FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 Shares...................................................... -- -- -- Value....................................................... -- -- -- FOR THE FISCAL YEAR ENDED MARCH 31, 1998 Shares...................................................... -- -- -- Value....................................................... -- -- --
- ---------- * Class B shares commenced its initial public offering for the Debt Portfolio, Income Portfolio and High Yield Portfolio on January 12, 1998, February 2, 1998 and December 29, 1997, respectively. ** Class Y shares has yet to commence its public offering for the Debt Portfolio and High Yield Portfolio. (1) Commencement of investment operations on January 2, 1998. CREDIT AGREEMENT The Trust (on behalf of the Debt Portfolio) and the Fund (on behalf of the Income Portfolio and High Yield Portfolio) have entered into a credit agreement with BankBoston, N.A. Small Cap Value Portfolio, Large Cap Value Portfolio, The Insiders Select Fund, S&P STARS Portfolio, Prime Money Market Portfolio, Balanced Portfolio, International Equity Portfolio and Focus List Portfolio are also parties to the credit agreement. The agreement provides that each party to the credit agreement is permitted to borrow in an amount equal to the lesser of $25 million or 25% of the net assets of each Portfolio. At no time shall the aggregate outstanding principal amount of all loans to any of the Portfolios exceed $25 million. Each Portfolio as a fundamental policy is permitted to borrow in an amount up to 33 1/3% of the value of such Portfolio's assets. However, each Portfolio currently intends to borrow money only for temporary or emergency (not leveraging) purposes in an amount up to 35 15% (10% for the Debt Portfolio) of its net assets. The line of credit will bear interest at the greater of: (i) the annual rate of interest announced from time to time from the bank at its head office as its Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or at the borrower's option, the rate quoted by BankBoston, N.A. Each loan is payable on demand or upon termination of this credit agreement or, for money market loans, on the last day of the interest period and, in any event, not later than 14 days from the date the loan was advanced. Amounts outstanding under the line of credit agreement during the six months ended September 30, 1998 were as follows:
MAXIMUM AVERAGE LOAN AVERAGE LOAN AMOUNTS INTEREST PORTFOLIO BALANCE OUTSTANDING RATE - ------------------------------ -------- ----------- -------- Income Portfolio.............. $ 5,213 $ 190,300 8.62% High Yield Portfolio.......... 136,949 4,803,800 7.11
The Portfolios had no amounts outstanding under the line of credit agreement at September 30, 1998. The Debt Portfolio had no amounts outstanding under the line of credit agreement during the six months ended September 30, 1998. CONCENTRATION OF RISK -- HIGH YIELD PORTFOLIO Lower-rated debt securities (commonly known as "junk bonds"), possess speculative characteristics and are subject to greater market fluctuations and risk of lost income and principal than higher-rated debt securities for a variety of reasons. Also, during an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress which would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals and to obtain additional financing. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of lower-rated debt securities and the High Yield Portfolio's net asset value. CONCENTRATION OF RISK -- DEBT PORTFOLIO Investments in emerging markets debt involve special risks. The issuer of the debt of the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and the Debt Portfolio may have limited legal recourse in the event of a default. Certain emerging countries may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging country's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. The Debt Portfolio could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Debt Portfolio of any restrictions on investments. Most securities markets in emerging market countries may have substantially less volume and are subject to less government supervision than U.S. securities markets. Securities of many issuers in emerging market countries may be less liquid and more volatile than securities of comparable domestic issuers. In addition, there is less regulation of securities exchanges, securities dealers, and listed and unlisted companies in emerging market countries than in the United States. Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates. In addition, forward contracts are subject to the risk that the counterparty to the contract will default on its obligations. A default on the contract would deprive the Debt Portfolio of unrealized profits, the benefits of a currency hedge, increase transaction costs or force the Debt Portfolio to cover its purchase or sale commitments, if any, at the current market price. The Debt Portfolio will not enter into such transactions unless the credit quality of the unsecured senior debt or the claims-paying ability of the counterparty is considered to be investment grade by BSAM. 36 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO RESULTS OF SPECIAL MEETING OF SHAREHOLDERS -- (UNAUDITED) TOTAL RETURN BOND PORTFOLIO On July 14, 1998, a special meeting of the shareholders of the Total Return Bond Portfolio (the "Bond Portfolio"), a separate diversified portfolio of The Bear Stearns Funds (the "Fund"), was held and the following matters were voted upon: (1) Vote on proposal to approve an amendment to the Bond Portfolio's fundamental investment objective.
FOR AGAINST ABSTAIN NON-VOTES ------------ ------------ ------------ ------------ 479,181 5,451 212 221,248
(2) Vote on proposal to ratify the selection of Deloitte & Touche LLP as independent auditors of the Bond Portfolio.
FOR AGAINST ABSTAIN NON-VOTES ------------ ------------ ------------ ------------ 688,178 -- -- 17,914
No other Portfolios of the Fund or the Trust held shareholder meetings during the six months ended September 30, 1998. In addition, effective October 16, 1998, the Bond Portfolio's name was changed to the Income Portfolio. 37 TRUSTEES AND OFFICERS Michael Minikes Chairman of the Board Robert S. Reitzes President William J. Montgoris Executive Vice President - Income Portfolio and High Yield Total Return Portfolio Peter M. Bren Trustee Alan J. Dixon Trustee - Income Portfolio and High Yield Total Return Portfolio John R. McKernan, Jr. Trustee M.B. Oglesby, Jr. Trustee Stephen A. Bornstein Vice President and Secretary Donalda L. Fordyce Vice President Frank J. Maresca Vice President and Treasurer Vincent L. Pereira Assistant Treasurer Christina P. LaMastro Assistant Secretary
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