-----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, KpAFVcXsJWSDMu2+w3u0RtSnBG1utqlulzZAXrPiolUwsEYXbrT3xidkjelYshiU 0328r1XBFNA83cSHDoP+gw== 0001047469-99-022354.txt : 19990624 0001047469-99-022354.hdr.sgml : 19990624 ACCESSION NUMBER: 0001047469-99-022354 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990527 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: 99635651 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 575 LEXINGTON AVENUE NEW YORK, NY 10022 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 575 Lexington Avenue Two World Financial Center New York, NY 10022 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 AND 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. 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-016-04 Emerging Markets Debt Portfolio Income Portfolio High Yield Total Return Portfolio Annual Report March 31, 1999 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO LETTER TO SHAREHOLDERS April 30, 1999 Dear Shareholders: We are pleased to present the annual report to shareholders for the Emerging Markets Debt Portfolio ("Debt Portfolio"), Income Portfolio and High Yield Total Return Portfolio ("High Yield Portfolio") for the fiscal year ended March 31, 1999. Detailed performance data for each class of shares of each Portfolio can be found in the "Financial Highlights" and line graph sections of this report. The fiscal year ended March 31, 1999, marked a period of extreme volatility in the fixed income markets. The watershed event was Russia's currency devaluation and debt default in August 1998, which precipitated an investor flight to the quality of U.S. Treasury bonds -- to the exclusion of virtually all other asset classes. Liquidity disappeared. With demand up, the yield on the 30-year Treasury bond hit an all-time low of just under 5% at the end of September, as spreads widened dramatically between Treasurys and all other fixed income sectors. Thanks to a series of interest rate reductions by the Federal Reserve Board and other major central banks, both the equity and fixed income markets recovered in the fourth quarter of last year. However, the recovery in non-Treasury bonds has been comparatively slow, and for calendar year 1998, Treasury bonds were the best-performing sector. It was only in the first three months of this year that non-Treasury securities began to turn around. With liquidity restored to the financial markets and the Federal Reserve's neutral stance on interest rates, these sectors staged a recovery, outperforming Treasury bonds in the quarter. While the total return for the 30-year Treasury bond declined, asset- and mortgage-backed securities had positive returns. Corporate bonds, while posting negative returns due to their longer maturities, outperformed Treasurys with comparable maturities by more than 100 basis points. The high yield market improved as well. As long as the economy stays on track and there are no surprises from abroad, we expect spreads to continue to narrow, although not as dramatically as they have in the first quarter of 1999. With the major stock indices hitting new highs, we do not expect to see a significant bond rally as credit fears abate and economies worldwide are beginning to show early signs of recovery. 1 EMERGING MARKETS DEBT PORTFOLIO* For the fiscal year ended March 31, 1999, the Debt Portfolio's Class A shares had a total return of (12.40)% (without giving effect to the sales charge) and Class B and C shares had a total return of (13.08)% and (12.99)%, respectively, (without giving effect to the contingent deferred sales charges)(1). The Debt Portfolio's benchmark index, the Salomon Smith Barney Emerging Markets Debt Mutual Fund Index, returned (9.73)% for the same period. For the fiscal year ended March 31, 1999, the Debt Portfolio ranked third of 43 emerging markets bond funds surveyed by Morningstar, Inc.** The Debt Portfolio ranked second of 28 such funds and first of 13 such funds for the three- and five-year periods, respectively, ending March 31, 1999. 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. Emerging markets debt was hit especially hard in the wake of the Russian default last August. However, the markets began to rebound in the fourth quarter of last year as central banks reduced interest rates, the International Monetary Fund ("IMF") was recapitalized and Brazil received a larger-than-expected assistance package. In addition, the yen strengthened, which took pressure off other Asian currencies and bonds. In this year's first quarter, investors became more optimistic about the outlook for emerging markets, and bond prices continued to rise. Sentiment has improved as the IMF continues to supply liquidity to key countries like Brazil, and the price of oil, a major export for many emerging countries, has increased. However, progress varies greatly from country to country, and the impact of economic contractions on banking systems and the credit supply may not yet be fully felt. RECOVERY BEGINS IN ASIA As a region, Asia is the farthest along in economic adjustment, led by Korea and the Philippines. The collapse of consumption and consumer spending has created current account surpluses in much of the region, building foreign reserves, supporting local currencies and allowing local interest rates to fall, which are a necessary prelude to a resumption of growth. But additional steps are required, including further dismantling of barriers to competition and reform of weak banking systems. In Latin America, the IMF has reiterated its commitment to aid Brazil, but serious problems remain. Argentina has suffered as Brazil's largest trading partner but has been more adept in adjusting its budget to reflect falling revenues, as has Mexico. Firming oil prices have been good news for many emerging countries, including Mexico, Russia, Ecuador, Nigeria and Indonesia. Higher oil prices have also helped Venezuela, but it is unclear whether the new president will tackle much-needed reforms. Political uncertainty in Ecuador threatens the implementation of changes that address its budget deficit. In Russia, modest signs of economic recovery, coupled with ongoing negotiations with potential lenders and higher oil prices, have supported its bond prices. We remain cautiously optimistic about the medium-term outlook for U.S. dollar-denominated emerging markets debt for several reasons. With signs of stability in certain regions, particularly Asia, we may see additional improvements in credit ratings for selected countries. In addition, multilateral institutions such as the IMF continue to provide financial incentives to deal with difficult issues, and most emerging nations continue to introduce market-oriented reforms to attract foreign direct investment. 2 As investors increasingly focus on the prospects for individual countries and companies, rather than on the market as a whole, the negative effects of problems in any one country or region should be more contained, and the potential to profit from meaningful reforms in individual countries will continue to rise. INCOME PORTFOLIO For the fiscal year ended March 31, 1999, the Income Portfolio's Class A shares had a total return of 5.77% (without giving effect to the sales charge) and Class B and C shares had a total return of 5.09% and 5.08%, respectively, (without giving effect to the contingent deferred sales charges)(2). The Income Portfolio's benchmark index, the Salomon Smith Barney Broad Investment Grade Bond Index, returned 6.50% for the same period. Effective October 16, 1998, the Total Return Bond Portfolio changed its name to the Income Portfolio and the portfolio adopted a new investment objective: to seek high current income consistent with preservation of capital. Prior to that date, its stated objective was to maximize total return consistent with preservation of capital. The Income Portfolio's new investment strategy allows us to purchase securities that are rated B or BB/Ba by Standard & Poor's and Moody's. However, we intend to manage the Income Portfolio so that the average investment quality remains investment grade. As a result of the strategy change, we began purchasing high yield securities last fall and continued to do so in the first quarter of 1999. As of March 31, 1999, our allocation to high yield issues was roughly 10%. We are focusing on issues rated BB/Ba, where we believe we will continue to find attractive values in a strong economy. AN EMPHASIS ON CORPORATE SECURITIES With liquidity restored to the financial markets and the Federal Reserve's neutral stance on interest rates, the most significant event in the bond markets has been the recovery in non-Treasury sectors, or "spread products," which dramatically outperformed Treasurys in the most recent calendar quarter. This benefited the Income Portfolio as we have been underweighted in Treasury and agency issues and found value elsewhere. For example, investment-grade corporate issues now represent more than 30% of the Income Portfolio, as U.S. companies have experienced unexpectedly strong earnings growth. In fact, corporate issues have been the best-performing sector so far in 1999 on a duration-adjusted basis. Given the recovery in spread products, mortgage- and asset-backed securities now represent roughly 44% of our investments. As the yield curve flattened, we reduced exposure to long-term corporate issues and shifted our concentration to the intermediate part of the yield curve, where we can get roughly the same yield with less volatility. As economies abroad have firmed, we have begun to add issues of commodity-based companies that do business globally in industries such as paper, forest products, steel and chemicals. As long as the economy stays on track and there are no surprises from abroad, we expect spreads to continue to narrow, although not as dramatically as they have recently. However, narrowing spreads generally mean enhanced returns, so we will continue to focus on corporate issues and mortgage- and asset-backed securities. We expect to maintain selective exposure in the below-investment grade area. 3 HIGH YIELD TOTAL RETURN PORTFOLIO*** For the fiscal year ended March 31, 1999, the High Yield Portfolio's Class A shares had a total return of (1.57)% (without giving effect to the sales charge) and both Class B and C shares had a total return of (2.21)% (without giving effect to the contingent deferred sales charges)(3). The High Yield Portfolio's benchmark index, the Lipper High Yield Bond Fund Index, returned (1.23)% for the same period. Its broad-based securities market index, the Credit Suisse First Boston Global High Yield Index, returned (0.75)% for the same period. During this turbulent period in the fixed income markets, the High Yield Portfolio benefited from our strict emphasis on strong credit fundamentals. In addition, our broad diversification helped the High Yield Portfolio generate competitive returns as we focused on individual securities, not sectors or industries. Nevertheless, our choice of securities was affected by economic conditions. As concerns about a worldwide economic slowdown grew in the first half of 1998, we reduced our positions in companies with international exposure and emphasized those with a domestic focus. Positions were added or increased in industries likely to do well in an uncertain environment or slowing economy, such as food, food processing and consumer nondurables. By the end of 1998, sentiment had improved significantly in response to interest rate cuts by central banks to bolster sluggish economies. In particular, the first signs of recovery were appearing in Asia. The U.S. economy, rather than slowing, was perking along at a faster rate than had been anticipated while inflation remained benign. In short, the financial markets' worst fears had failed to materialize. Having reached a high of 700 basis points over comparable Treasury bonds in October, high yield spreads narrowed to 600 basis points, where they have remained so far this year. A SHIFT TO COMPANIES WITH A GLOBAL ORIENTATION As global markets strengthened, we began looking at companies with international exposure. This group included companies in forest-paper products, technology, steel, chemicals and other commodities that are traded globally. We have reduced positions in some of the more defensive domestic sectors and increased exposure in previously battered sectors that appear to have greater relative strength and return potential. For example, media and telecommunications issues are now very attractively priced, and their outlook is positive given their growth prospects and the powerful wave of consolidation that is occurring. Given the improving environment, we will continue the transitioning process, increasing exposure to companies that derive revenues abroad and moving into issues with the greatest relative strength at home. As markets stabilize and the climate grows more positive, spreads are expected to narrow, which should enhance returns. Given the strength of the U.S. economy and more positive sentiment in markets overseas, we expect the number of high yield issues to increase and credit quality in general to improve -- all of which indicate a strengthening in the high yield market in the year ahead. 4 RESULTS OF SPECIAL MEETING OF SHAREHOLDERS At a Special Meeting of Shareholders held on April 27, 1999, the shareholders of the Bear Stearns Investment Trust (the "Trust") approved the reorganization and liquidation of the Trust on behalf of the Debt Portfolio pursuant to the Agreement and Plan of Reorganization and Liquidation previously approved by the Board of Trustees. It provided for the transfer of the assets and liabilities of the Debt Portfolio to the Emerging Markets Debt Portfolio, a newly created separate series of The Bear Stearns Funds, with materially the same investment objective and policies as the Debt Portfolio. The proposal to reorganize and liquidate the Trust received the favorable vote of approximately 53% of the Debt Portfolio's outstanding shares. Approximately 1% of the outstanding shares were cast against reorganizing and liquidating the Trust. 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] Doni L. Fordyce 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 rankings 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 fiscal year ended March 31, 1999, the Debt Portfolio's Class A shares had a total return of (16.37)%, including the initial 4.50% maximum sales charge, Class B shares returned (16.92)% including the 5.00% CDSC and Class C shares returned (13.76)%, including the 1.00% CDSC. (2) For the fiscal year ended March 31, 1999, the Income Portfolio's Class A shares had a total return of 1.03%, including the initial 4.50% maximum sales charge, Class B shares returned 0.17%, including the 5.00% CDSC and Class C shares returned 4.10%, including the 1.00% CDSC. (3) For the fiscal year ended March 31, 1999, the High Yield Portfolio's Class A shares had a total return of (6.00)%, including the initial 4.50% maximum sales charge, Class B shares returned (6.67)%, including the 5.00% CDSC and Class C shares returned (3.10)%, including the 1.00% 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. 5 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A SHARES(1)(2)(3)(6) VS. ITS BROAD-BASED INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
EMERGING MARKETS DEBT PORTFOLIO SALOMON SMITH BARNEY EMERGING CLASS A SHARES MARKETS DEBT MUTUAL FUND INDEX 4-MAY-95 $9,625.00 $10,000.00 $10,203.47 $10,740.31 Sep. 30, 1995 $10,805.20 $11,486.47 $11,876.53 $12,633.24 Mar. 31, 1996 $12,666.70 $13,313.81 $14,107.20 $14,898.68 Sep. 30, 1996 $15,590.00 $16,331.26 $16,718.60 $17,798.99 Mar. 31, 1997 $16,907.10 $18,013.35 $18,650.60 $19,987.11 Sept. 30, 1997 $19,966.20 $21,399.79 $19,160.90 $20,846.90 Mar. 31, 1998 $20,172.00 $21,659.70 $19,108.94 $20,906.64 Sept. 30, 1998 $15,541.30 $17,039.94 $17,098.54 $18,851.00 Mar. 31, 1999 $17,671.34 $19,823.00 Past performance is not predictive of future performance. EMERGING MARKETS DEBT PORTFOLIO Class A Shares $17,671 Salomon Smith Barney Emerging Markets Debt Mutual Fund Index
TOTAL RETURNS ONE YEAR ENDED AVERAGE MARCH 31, 1999 ANNUAL(4) ------------------- ------------------- Emerging Markets Debt Portfolio(2) Class A shares(5)............................. (16.37)% 9.52% Class B shares(6)............................. (16.92) (8.04) Class C shares(3)............................. (13.76) 15.87 Salomon Smith Barney Emerging Markets Debt Mutual Fund Index(1)............................ (9.73) 19.11
- ---------- (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 index is unmanaged, does not incur sales charges or expenses and is not available for investment. Performance of the index corresponds 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. Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total return for the one year ended March 31, 1999 would have been (12.99)%. (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 March 31, 1999 for Class A shares. 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, 4.50% and 3.75%, respectively, for each period shown. Without the applicable sales charge, the total returns would have been (12.40)% and 10.22%, respectively, for each period shown. (6) Assuming no redemption of shares at the end of the period, the return of Class B shares (for which January 12, 1998 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 B shares. Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total returns would have been (13.08)% and (5.58)%, respectively, for each period shown. 6 THE BEAR STEARNS FUNDS INCOME PORTFOLIO COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A AND C SHARES(1)(2)(3)(6) VS. VARIOUS INDICES EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
INCOME PORTFOLIO LIPPER A - RATED SALOMON SMITH BARNEY BROAD CLASS A SHARES CLASS C SHARES BOND FUND INDEX INVESTMENT GRADE BOND INDEX APR. 5, 1995 $9,625.00 $10,000.00 $10,000.00 $10,000.00 $10,027.00 $10,412.00 $10,672.00 $10,568.00 Sept. 30, 1995 $10,260.00 $10,587.00 $10,883.31 $10,767.00 $10,679.00 $11,064.00 $11,408.97 $11,234.00 Mar. 31, 1996 $10,430.00 $10,797.00 $11,112.34 $11,038.00 $10,467.00 $10,824.00 $11,140.12 $11,092.00 Sept. 30, 1996 $10,644.00 $10,996.00 $11,343.98 $11,300.00 $10,972.00 $11,332.00 $11,726.27 $11,641.00 Mar. 31, 1997 $10,908.00 $11,245.00 $11,623.08 $11,581.00 $11,308.00 $11,648.00 $12,057.79 $11,998.00 Sept. 30, 1997 $11,659.00 $11,998.00 $12,497.89 $12,397.00 $11,799.60 $12,130.40 $12,852.83 $12,762.65 Mar. 31, 1998 $11,932.00 $12,247.00 $13,032.77 $12,968.31 $12,201.66 $12,501.96 $13,352.08 $13,268.16 Sept. 30, 1998 $12,600.65 $12,890.55 $13,774.00 $13,818.34 $12,659.87 $12,930.51 $13,791.91 $13,874.78 Mar. 31, 1999 $12,620.63 $12,869.77 $13,689.85 $13,810.83 Past performance is not predictive of future performance. INCOME PORTFOLIO Class A shares $12,621 Class C shares 12,870 Lipper A - Rated Bond Fund Index Corp. Debt Fund Index 13,690 Salomon Smith Barney Broad Investment Grade Bond Index 13,811
TOTAL RETURNS ONE YEAR ENDED AVERAGE MARCH 31, 1999 ANNUAL(4) ------------------- ------------------- Income Portfolio(2) Class A shares(5)................................... 1.03% 6.00% Class B shares(6)................................... 0.17 0.99 Class C shares(7)................................... 4.10 6.52 Class Y shares(3)................................... 6.13 6.62 Lipper A Rated Bond Fund Index(1)....................... 5.04 9.35 Salomon Smith Barney Broad Investment Grade Bond Index(1)............................................ 6.50 8.42
- ---------- (1) The chart assumes a hypothetical $10,000 initial investment in the Income Portfolio and reflects all portfolio expenses. Investors should note that the Income Portfolio is a professionally managed mutual fund while the indices are unmanaged, do not incur sales charges or expenses and are not available for investment. Performance of the indices corresponds to the performance of Class A and C shares. (2) Bear Stearns Asset Management Inc. waived its advisory fee and agreed to 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 March 31, 1999, for Class A and C shares. (5) Reflects the initial maximum sales charge in effect, 4.50% and 3.75%, respectively, for each period shown. Without the applicable sales charge, the total returns would have been 5.77% and 7.03%, respectively, for each period shown. (6) Assuming no redemption of shares at the end of the period, the return of Class B shares (for which February 2, 1998 was the initial public offering date) would have been higher than Class A shares and substantially the same as Class C shares if operations were commenced on the same day. The higher return is due to the fact that there is no initial sales charge on Class B shares. Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total returns would have been 5.09% and 4.35%, respectively, for each period shown. (7) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total return for the one year ended March 31, 1999 would have been 5.08%. 7 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CLASS A, B AND C SHARES(1)(2)(3) VS. VARIOUS INDICES EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
HIGH YIELD TOTAL RETURN PORTFOLIO CLASS A SHARES CLASS B SHARES CLASS C SHARES Jan. 2, 1998 $9,550 $10,000 $10,000 Mar. 31, 1998 $10,339 $10,813 $10,813 Sept. 30, 1998 $9,778 $10,193 $10,193 Mar. 31, 1999 $10,176 $10,195 $10,574 Past performance is not predictive of future performance. HIGH YIELD TOTAL RETURN PORTFOLIO Class A shares $10,176 Class B shares $10,195 Class C shares $10,574 Lipper High Yield Bond Fund Index $10,311 Credit Suisse First Boston Global High Yield Index $10,223 CREDIT SUISSE LIPPER HIGH FIRST BOSTON GLOBAL YIELD BOND FUND INDEX HIGH YIELD INDEX Jan. 2, 1998 $10,000 $10,000 Mar. 31, 1998 $10,440 $10,301 Sept. 30, 1998 $9,688 $9,790 Mar. 31, 1999 $10,311 $10,223 Past performance is not predictive of future performance. HIGH YIELD TOTAL RETURN PORTFOLIO Class A shares Class B shares Class C shares Lipper High Yield Bond Fund Index Credit Suisse First Boston Global High Yield Index
TOTAL RETURNS ONE YEAR ENDED AVERAGE MARCH 31, 1999 ANNUAL(3) ------------------- ------------------- High Yield Total Return Portfolio(2) Class A shares(4)................................... (6.00)% 1.40% Class B shares(5)................................... (6.67 ) 1.55 Class C shares(6)................................... (3.10 ) 4.55 Lipper High Yield Bond Fund Index(1).................... (1.23 ) 2.50 Credit Suisse First Boston Global High Yield Index(1)... (0.75 ) 1.79
- ---------- (1) The chart assumes a hypothetical $10,000 initial investment in the High Yield Portfolio and reflects all portfolio expenses. Investors should note that the High Yield Portfolio is a professionally managed mutual fund while the indices are either unmanaged, do not incur sales charges or expenses and are not available for investment. The Credit Suisse First Boston Global High Yield Index began in 1986 and is based on monthly returns. (2) Bear Stearns Asset Management Inc. waived a portion of its advisory fee and agreed to voluntarily reimburse a portion of the High Yield Portfolio's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements; total returns would have been lower had there been no assumption of fees and expenses in excess of expense limitations. (3) For the period January 2, 1998 (commencement of investment operations) through March 31, 1999. (4) Reflects the initial maximum sales charge (4.50%). Without the applicable sales charge, the total returns would have been (1.57)% and 5.22%, respectively, for each period shown. (5) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total returns would have been (2.21)% and 4.55%, respectively, for each period shown. (6) Reflects the applicable contingent deferred sales charge. Without the applicable sales charge, the total return for the one year ended March 31, 1999 would have been (2.21)%. 8 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO MARCH 31, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- TOP TEN COUNTRY WEIGHTINGS - --------------------------------------------------------------------------------
PERCENT OF RANK COUNTRY NET ASSETS - ------------------------------------------------------ --------------- 1. Brazil............................................ 20.54 2. Argentina......................................... 15.33 3. Mexico............................................ 14.27 4. Bulgaria.......................................... 4.85 5. Nigeria........................................... 4.84 6. Panama............................................ 4.75 7. Peru.............................................. 4.75 8. Venezuela......................................... 4.70 9. Morocco........................................... 4.62 10. Philippines....................................... 4.50
- -------------------------------------------------------------------------------- TOP TEN ISSUERS* - --------------------------------------------------------------------------------
SECURITY PERCENT OF RANK ISSUER CURRENCY TYPE NET ASSETS - ------------------------------------------------------ ------------ ------------------ ---------- 1. Federal Republic of Brazil........................ U.S. dollar Brady bonds 20.54 2. Republic of Argentina............................. U.S. dollar Brady bonds 15.33 3. United Mexican States............................. U.S. dollar Brady bonds 14.27 4. Republic of Bulgaria.............................. U.S. dollar Brady bonds 4.85 5. Central Bank of Nigeria........................... U.S. dollar Brady bond 4.84 6. The Republic of Panama............................ U.S. dollar Brady bonds 4.75 7. The Republic of Peru.............................. U.S. dollar Brady bonds 4.75 8. Republic of Venezuela............................. U.S. dollar Brady bonds 4.70 9. The Kingdom of Morocco............................ U.S. dollar Loan Participation 4.62 10. Republic of the Philippines....................... U.S. dollar Brady bonds 4.50
- ------- * The Portfolio's holdings will change over time. 9 THE BEAR STEARNS FUNDS INCOME PORTFOLIO MARCH 31, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- TOP INDUSTRY WEIGHTINGS - --------------------------------------------------------------------------------
PERCENT OF NET RANK INDUSTRY ASSETS - ------------------------------------------------------ --------------- 1. U.S. Government Agency Obligations................ 26.37 2. Finance........................................... 21.38 3. Asset-Backed...................................... 17.76 4. Industrial........................................ 13.16 5. Utilities......................................... 8.65 6. U.S. Government Obligations....................... 6.64 7. Telecommunications................................ 2.95
- -------------------------------------------------------------------------------- TOP TEN HOLDINGS* - --------------------------------------------------------------------------------
PERCENT OF RANK HOLDINGS INDUSTRY NET ASSETS - ------------------------------------------------------ ------------------------- ---------- 1. Government National Mortgage Association.......... U.S. Government Agency 18.92 Obligations 2. Fannie Mae........................................ U.S. Government Agency 5.40 Obligations 3. Lehman Brothers Holdings.......................... Finance 4.56 4. Morgan Stanley Capital I Inc...................... Asset-Backed 4.51 5. U.S. Treasury Notes............................... U.S. Government 4.31 Obligations 6. IRT Property Company.............................. Finance 4.17 7. Western Resources, Inc............................ Utilities 3.25 8. Aetna Services Inc................................ Finance 2.90 9. Washington Mutual Capital I....................... Finance 2.65 10. U.S. Treasury Bonds............................... U.S. Government 2.33 Obligations
- ------- * The Portfolio's holdings will change over time. 10 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO MARCH 31, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- TOP TEN INDUSTRY WEIGHTINGS - --------------------------------------------------------------------------------
PERCENT OF NET RANK INDUSTRY ASSETS - ------------------------------------------------------ --------------- 1. Competitive Local Exchange Companies.............. 6.44 2. Steel - Metals - Mining........................... 6.17 3. Other Consumer Non-Cyclicals...................... 5.51 4. Long Distance Telephone Services.................. 5.27 5. Retailers......................................... 5.13 6. Industrial Products............................... 4.73 7. Gaming............................................ 4.54 8. Radio Broadcasting................................ 3.84 9. Technology........................................ 3.07 10. Television Broadcasting........................... 3.04
- -------------------------------------------------------------------------------- TOP TEN HOLDINGS* - --------------------------------------------------------------------------------
RANK HOLDINGS INDUSTRY - --------- ---------------------------------------------------------------- --------------------------------------------- 1. Charter Communications Holdings LLC and Charter Communications Holdings Capital Corp......................................... North American Cable Services 2. Emmis Communications Corp....................................... Radio Broadcasting 3. Global Crossing Holdings Ltd.................................... Long Distance Telephone Services 4. Citadel Broadcasting Company.................................... Radio Broadcasting 5. Fairchild Semiconductor Corp.................................... Technology 6. PSINet Inc...................................................... Data & Internet Services 7. Team Health Inc................................................. Healthcare 8. Intermedia Communications Inc................................... Competitive Local Exchange Companies 9. Rent-A-Center, Inc.............................................. Retailers 10. R&B Falcon Corporation.......................................... Oil Services PERCENT OF RANK NET ASSETS - --------- ------------- 1. 1.29 2. 1.26 3. 1.12 4. 1.02 5. 1.02 6. 1.02 7. 1.01 8. 1.00 9. 1.00 10. 1.00
- ------- * The Portfolio's holdings will change over time. 11 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- ---------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S)+ RATE DATE VALUE - ---------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 93.06% ARGENTINA - 15.33% SOVEREIGN 1,970 Republic of Argentina, Discount Bond, Series L (a)(b).......................................... 6.063% 03/31/23 $ 1,455,337 2,021 Republic of Argentina, FRB Bearer (a)(b).......... 6.188 03/31/05 1,734,271 207 Republic of Argentina, FRB Registered (a)(b)...... 6.188 03/31/05 177,460 2,460 Republic of Argentina, Par Bond (b)(c)............ 5.750 03/31/23 1,715,850 ----------- Total Argentina (cost - $5,182,647)............... 5,082,918 ----------- BRAZIL - 20.54% SOVEREIGN 2,149 Federal Republic of Brazil, Capitalization Bond (b)(c)(d)....................................... 8.000 04/15/14 1,368,739 2,025 Federal Republic of Brazil, DCB (a)(b)............ 6.188 04/15/12 1,183,359 3,790 Federal Republic of Brazil, Discount Bond, Series Z-L (a)(b)...................................... 6.125 04/15/24 2,375,856 1,243 Federal Republic of Brazil, EI Bond (a)(b)........ 6.125 04/15/06 905,982 400 Federal Republic of Brazil, FLIRB Bearer (a)(b)... 5.000 04/15/09 223,000 443 Federal Republic of Brazil, IDU Bond (a)(b)....... 6.063 01/01/01 407,652 540 Federal Republic of Brazil, NMB, Series L (a)(b).......................................... 6.188 04/15/09 343,237 ----------- Total Brazil (cost - $7,404,194).................. 6,807,825 ----------- BULGARIA - 4.85% SOVEREIGN 950 Republic of Bulgaria, Discount Bond, Series A (a)(b).......................................... 5.875 07/28/24 646,000 810 Republic of Bulgaria, FLIRB, Series A (a)(b)...... 2.500 07/28/12 463,725 40 Republic of Bulgaria, IAB Bearer (a)(b)........... 5.875 07/28/11 26,925 700 Republic of Bulgaria, IAB Registered (a)(b)....... 5.875 07/28/11 471,188 ----------- Total Bulgaria (cost - $1,470,403)................ 1,607,838 ----------- COLOMBIA - 1.51% SOVEREIGN 560 Republic of Colombia, Global Bond (b) (cost - $488,010)....................................... 8.625 04/01/08 501,200 ----------- ECUADOR - 0.96% SOVEREIGN 978 The Republic of Ecuador, PDI Bond, Registered (a)(b) (cost - $307,063)........................ 6.000 02/27/15 317,955 -----------
The accompanying notes are an integral part of the financial statements. 12 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- ---------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S)+ RATE DATE VALUE - ---------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) MEXICO - 14.27% SOVEREIGN 395 United Mexican States, Par Bond, Series A (b)..... 6.250% 12/31/19 $ 310,322 5,625 United Mexican States, Par Bond, Series B (b)..... 6.250 12/31/19 4,419,141 ----------- Total Mexico (cost - $4,641,523).................. 4,729,463 ----------- MOROCCO - 4.62% SOVEREIGN 1,879 The Kingdom of Morocco, Tranche A, Loan Participation (a) (cost - $1,473,711)........... 6.063 01/01/09 1,531,036 ----------- NETHERLANDS - 0.57% CORPORATE 260 Tjiwi Kimia International Financial Company (cost - $183,863)..................................... 13.250 08/01/01 189,800 ----------- NIGERIA - 4.84% SOVEREIGN 2,500 Central Bank of Nigeria, Par Bond (b)(c)(e) (cost - $1,729,981)................................... 6.250 11/15/20 1,604,688 ----------- PANAMA - 4.75% SOVEREIGN 880 The Republic of Panama, IRB (a)(b)................ 4.000 07/17/14 695,750 1,101 The Republic of Panama, PDI Bond (a)(b)........... 5.938 07/17/16 878,354 ----------- Total Panama (cost - $1,566,330).................. 1,574,104 ----------- PERU - 4.75% SOVEREIGN 437 The Republic of Peru, Discount Bond (a)(b)........ 6.000 03/08/27 266,570 880 The Republic of Peru, FLIRB (b)(c)................ 3.750 09/07/17 521,950 1,231 The Republic of Peru, PDI Bond (a)(b)............. 4.500 03/07/17 785,532 ----------- Total Peru (cost - $1,523,264).................... 1,574,052 ----------- PHILIPPINES - 4.50% SOVEREIGN 1,150 Republic of the Philippines, FLIRB, Series B (a)(b).......................................... 6.000 06/01/08 1,017,750 540 Republic of the Philippines, Par Bond, Series B (b)(c).......................................... 6.500 12/01/17 472,500 ----------- Total Philippines (cost - $1,556,472)............. 1,490,250 -----------
The accompanying notes are an integral part of the financial statements. 13 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- ---------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S)+ RATE DATE VALUE - ---------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) POLAND - 2.75% SOVEREIGN 650 The Polish People's Republic, PDI Bearer Bond (b)(c).......................................... 5.000% 10/27/14 $ 600,844 450 The Polish People's Republic, RSTA Bond, Registered (b)(c)............................... 4.000 10/27/24 311,625 ----------- Total Poland (cost - $890,497).................... 912,469 ----------- RUSSIA - 4.12% SOVEREIGN 4,089 Chase Manhattan Securities (C.I.) Limited, Master Russian Securities Linked (S Account) Note*..... -- -- -- 3,706 Russia, IAN Series (a)............................ 5.969 12/15/15 282,546 16,075 Russia, Principal Loan (a)........................ 5.969 12/15/20 1,085,065 ----------- Total Russia (cost - $3,816,504).................. 1,367,611 ----------- VENEZUELA - 4.70% SOVEREIGN 1,286 Republic of Venezuela, DCB (a)(b)................. 5.938 12/18/07 904,821 607 Republic of Venezuela, FLIRB (a)(b)............... 6.125 03/31/07 409,440 350 Republic of Venezuela, Par Bond, Series W-A (b)... 6.750 03/31/20 243,031 ----------- Total Venezuela (cost - $1,220,277)............... 1,557,292 ----------- Total Long-Term Debt Investments (cost - $33,454,739).................................... 30,848,501 -----------
The accompanying notes are an integral part of the financial statements. 14 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- ---------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S)+ RATE DATE VALUE - ---------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 2.06% TURKEY - 0.76% SOVEREIGN TRl 168,000,000 Turkish Treasury Bill (cost - $252,003)........... 108.800%** 02/09/00 $ 252,335 ----------- GRAND CAYMAN - 1.30% 431 Brown Brothers Harriman & Co. (cost - $431,000)... 4.000 *** 431,000 ----------- Total Short-Term Investments (cost - $683,003).... 683,335 ----------- Total Investments -- 95.12% (cost - $34,137,742)............................ 31,531,836 Other assets in excess of liabilities -- 4.88%.... 1,618,489 ----------- Net Assets -- 100.00%............................. $33,150,325 ----------- -----------
- --------- + Denominated in United States dollars unless otherwise indicated. * Instrument is currently in default and is being carried as worthless pending restructuring by the Russian government. ** Compounded effective yield on the date of purchase in Turkish lire. *** Variable rate call account. Rate resets on a daily basis, amounts available generally on the same business day. (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 2,500 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. IDU Interest Due and Unpaid. IRB Interest Reduction Bond. NMB New Money Bond. PDI Past Due Interest. RSTA Revolving Trade Facility. TRl Turkish lire. The accompanying notes are an integral part of the financial statements. 15 THE BEAR STEARNS FUNDS INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- ------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - ------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 96.91% CORPORATE OBLIGATIONS - 63.90% ASSET-BACKED - 17.76% $ 200 Aames Mortgage Trust, Series 1997-B, Class A4..... 6.950% 11/15/25 $ 204,073 100 Chemical Master Credit Card Trust 1, Series 1996-2, Class A................................. 5.980 09/15/08 100,826 100 Conti-Mortgage Home Equity Loan Trust, Series 1998-1, Class A4................................ 6.280 01/15/13 101,323 200 Delta Funding Home Equity Loan Trust, Series 1999-1, Class A4F............................... 6.390 02/15/28 199,956 95 Ford Credit Grantor Trust, Asset-Backed Certificates, Series 1995-B, Class A............ 5.900 10/15/00 94,858 100 Green Tree Home Improvement Loan Trust, Series 1997-A, Class HEA6.............................. 7.160 03/15/28 106,033 200 Green Tree Home Improvement Loan Trust, Series 1998-D, Class HEA3.............................. 6.130 08/15/29 195,328 200 Key Auto Finance Trust, Series 1999-1, Class A3... 5.630 07/15/03 200,938 540 Morgan Stanley Capital I Inc., Series 1997-C1, Class A-1B, Commercial Mortgage Pass-Thru Certificates...... 7.460 02/15/20 558,309 150 Residential Asset Securities Corp., Series 1998-KS2, Class A13............................. 6.240 02/25/17 149,940 150 Sawgrass Finance L.L.C., Series 1993-1, Class A... 6.450 01/20/06 151,925 125 UCFC Home Equity Loan, Series 1997-A1, Class A7... 7.660 06/15/28 133,398 ----------- 2,196,907 ----------- FINANCE - 21.38% 350 Aetna Services Inc., Aetna Inc. Guaranteed........ 6.970 08/15/36 358,312 100 Capital One Financial Corporation, Notes.......... 7.125 08/01/08 96,875 500 IRT Property Company, Senior Notes................ 7.250 08/15/07 515,625 550 Lehman Brothers Holdings.......................... 7.250 10/15/03 564,437 200 Mack-Cali Realty, L.P., Notes..................... 7.000 03/15/04 200,000 200 Markel Capital Trust I, Series B, Capital Securities, Markel Corporation Guaranteed*...... 8.710 01/01/46 191,250 200 NationsBank Credit Card Master Trust, Series 1995-1, Class A................................. 6.450 04/15/03 204,293 300 Washington Mutual Capital I, Subordinated Capital Income Securities, Washington Mutual Inc. Guaranteed...................................... 8.375 06/01/27 327,750 200 W.R. Berkley, Capital Trust, W.R. Berkley, Inc. Guaranteed...................................... 8.197 12/15/45 186,250 ----------- 2,644,792 ----------- INDUSTRIAL - 13.16% 150 Boyd Gaming Corporation, Senior Subordinated Notes........................................... 9.500 07/15/07 154,500 150 Lady Luck Gaming Corp., 1st Mortgage.............. 11.875 03/01/01 152,625 250 LG-Caltex Oil Corporation, Unsecured Notes*....... 7.500 07/15/07 230,312 200 MedPartners, Inc., Senior Subordinated Notes...... 6.875 09/01/00 186,250 250 Panamerican Beverages, Inc., Senior Notes*........ 7.250 07/01/09 226,250 250 Safeway Inc., Notes............................... 5.875 11/15/01 250,937 225 Smith International Inc., Senior Notes............ 7.000 09/15/07 224,438 200 Time Warner Inc., Pass-Thru Certificates, Asset Trust Securities*............................... 6.100 12/30/01 201,750 ----------- 1,627,062 -----------
The accompanying notes are an integral part of the financial statements. 16 THE BEAR STEARNS FUNDS INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- ------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE(S) DATE(S) VALUE - ------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) TELECOMMUNICATIONS - 2.95% $ 125 Sprint Capital Corp., Sprint Capital Corp. Guaranteed...................................... 5.700% 11/15/03 $ 123,750 250 US West Communications, Debentures................ 6.875 09/15/33 241,563 ----------- 365,313 ----------- UTILITIES - 8.65% 250 Cleveland Electric Illuminating Co., Senior Notes, Series D........................................ 7.880 11/01/17 266,875 250 Commonwealth Edison, 1st Mortgage................. 8.375 09/15/22 263,750 250 Empresa Electrica del Norte Grande S.A., Senior Loan Participation Certificates*................ 7.750 03/15/06 137,500 400 Western Resources, Inc., Senior Notes............. 6.250 08/15/03 402,000 ----------- 1,070,125 ----------- Total Corporate Obligations (cost - $7,992,180)............................. 7,904,199 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 26.37% FANNIE MAE - 5.40% 673 Fannie Mae........................................ 5.250-6.500 01/15/03-02/01/29 668,130 ----------- FREDDIE MAC - 2.05% 250 Freddie Mac....................................... 6.500 11/15/10 252,954 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 18.92% 2,336 Government National Mortgage Association.......... 6.000-7.000 12/06/05-06/15/28 2,340,939 ----------- Total U.S. Government Agency Obligations (cost - $3,271,835)............................. 3,262,023 ----------- U.S. GOVERNMENT OBLIGATIONS - 6.64% U.S. TREASURY BONDS - 2.33% 300 U.S. Treasury Bonds............................... 5.500 08/15/28 287,354 ----------- U.S. TREASURY NOTES - 4.31% 500 U.S. Treasury Notes............................... 6.500 10/15/06 533,041 ----------- Total U.S. Government Obligations (cost - $838,011)............................... 820,395 ----------- Total Long-Term Debt Investments (cost - $12,102,026)............................ 11,986,617 -----------
The accompanying notes are an integral part of the financial statements. 17 THE BEAR STEARNS FUNDS INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- ------------------------------------------------------------------------------------------------------------------- SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 0.79% INVESTMENT COMPANIES - 0.79% 21 Federated Automated Government Money Trust **..... $ 21 98,079 Federated Investors, Trust for Short-Term U.S. Government Securities**......................... 98,079 ----------- Total Short-Term Investments (cost - $98,100)................................ 98,100 ----------- Total Investments -- 97.70% (cost - $12,200,126)............................ 12,084,717 Other assets in excess of liabilities -- 2.30%.... 284,609 ----------- Net Assets -- 100.00%............................. $12,369,326 ----------- -----------
- --------- * 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. 18 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS -- 90.41% UNITED STATES - 83.29% AEROSPACE - DEFENSE - 1.68% $ 500 BE Aerospace, Inc., Senior Subordinated Notes..... 9.500% 11/01/08 $ 535,000 750 Compass Aerospace Corp., Senior Subordinated Notes*.......................................... 10.125 04/15/05 730,312 500 Telecommunications Techniques Co., LLC, Senior Subordinated Notes, Company Guaranteed.......... 9.750 05/15/08 498,750 ------------ 1,764,062 ------------ AIRLINES - 0.95% 1,000 Amtran, Inc., Senior Notes, Company Guaranteed.... 9.625 12/15/05 1,000,000 ------------ ALTERNATIVE VIDEO PROVIDERS - 1.08% 250 21st Century Telecom Group, Inc., Senior Discount Notes (2)....................................... 12.250 02/15/08 93,125 1,000 EchoStar DBS Corporation, Senior Notes*........... 9.375 02/01/09 1,040,000 ------------ 1,133,125 ------------ AUTOMOBILE MANUFACTURING RELATED - 2.12% 750 Motors and Gears, Inc., Senior Notes, Series D.... 10.750 11/15/06 771,562 500 Prestolite Electric Incorporated, Senior Notes, Company Guaranteed.............................. 9.625 02/01/08 492,500 1,000 Stanadyne Automotive Corp., Senior Subordinated Notes, Series B, Company Guaranteed............. 10.250 12/15/07 955,000 ------------ 2,219,062 ------------ BUILDING MATERIALS - 0.95% 1,000 Formica Corporation, Senior Subordinated Notes*... 10.875 03/01/09 997,500 ------------ BUSINESS SERVICES - 0.49% 500 Mail-Well Corp., Senior Subordinated Notes*....... 8.750 12/15/08 517,500 ------------ CELLULAR COMMUNICATIONS - 0.68% 1,000 Crown Castle International Corp., Senior Discount Notes (2)....................................... 10.625 11/15/07 707,500 ------------ CHEMICALS - 0.49% 500 Great Lakes Carbon Corporation, Senior Subordinated Notes, Series B, Company Guaranteed (3)............................................. 10.250 05/15/08 518,125 ------------
The accompanying notes are an integral part of the financial statements. 19 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) COMPETITIVE LOCAL EXCHANGE COMPANIES - 6.25% $ 500 e.spire Communications, Inc., Senior Discount Notes (2)....................................... 12.750% 04/01/06 $ 325,000 500 e.spire Communications, Inc., Senior Discount Notes (2)....................................... 10.625 07/01/08 241,250 500 GST USA, Inc., Senior Discount Exchange Notes, Company Guaranteed (2).......................... 13.875 12/15/05 367,500 1,000 Hyperion Telecommunications, Inc., Senior Subordinated Notes*............................. 12.000 11/01/07 1,045,000 1,000 Intermedia Communications Inc., Senior Notes*..... 9.500 03/01/09 1,052,500 1,750 KMC Telecom Holdings, Inc., Senior Discount Notes (2)............................................. 12.250 02/15/08 953,750 500 Logix Communications Enterprises, Inc., Senior Notes........................................... 12.250 06/15/08 461,250 1,000 McLeodUSA Incorporated, Senior Notes*............. 8.125 02/15/09 1,000,000 750 Time Warner Telecom LLC and Time Warner Telecom Inc., Senior Notes.............................. 9.750 07/15/08 802,500 500 WinStar Communications, Inc., Senior Subordinated Cash-Pay Exchange Notes......................... 11.000 03/15/08 302,403 ------------ 6,551,153 ------------ CONVENIENCE & DRUG RETAILERS - 1.00% 500 Duane Reade Inc., Senior Subordinated Notes, Company Guaranteed.............................. 9.250 02/15/08 520,000 500 Phar-Mor, Inc., Senior Notes...................... 11.720 09/11/02 522,500 ------------ 1,042,500 ------------ DATA & INTERNET SERVICES - 1.97% 1,000 Covad Communications Group, Inc., Senior Notes*... 12.500 02/15/09 1,002,500 1,000 PSINet Inc., Senior Notes, Series B............... 10.000 02/15/05 1,065,000 ------------ 2,067,500 ------------ ENHANCED SERVICE MOBILE RADIOS & PERSONAL COMMUNICATION SERVICES - 1.60% 1,300 Nextel Communications, Inc., Senior Serial Redeemable Discount Notes (2)................... 9.950 02/15/08 919,750 1,300 Triton PCS, Inc., Senior Subordinated Discount Notes, Company Guaranteed (2)................... 11.000 05/01/08 760,500 ------------ 1,680,250 ------------ EQUIPMENT RENTAL - 0.71% 750 Anthony Crane Rental, L.P. and Anthony Crane Capital Corporation, Senior Notes, Series B, Company Guaranteed.............................. 10.375 08/01/08 746,250 ------------ EXPLORATION & PRODUCTION - 1.23% 500 Abraxas Petroleum Corporation and Canadian Abraxas Petroleum Limited, Senior Notes, Series D, Company Guaranteed.............................. 11.500 11/01/04 300,000 1,000 Ocean Energy, Inc., Senior Subordinated Notes, Series B, Company Guaranteed.................... 8.875 07/15/07 992,500 ------------ 1,292,500 ------------
The accompanying notes are an integral part of the financial statements. 20 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) FABRICATED GLASS, PLASTICS & FIBERS - 1.40% $ 1,000 Globe Holdings, Inc., Senior Discount Notes, Series B (2).................................... 14.000% 08/01/09 $ 350,000 500 Graham Packaging Company and GPC Capital Corp. I, Senior Discount Notes, Series B (2)............. 10.750 01/15/09 341,875 750 Moll Industries, Inc., Senior Subordinated Notes........................................... 10.500 07/01/08 652,500 500 SF Holdings Group, Inc., Senior Secured Discount Notes, Series B (2)(5).......................... 12.750 03/15/08 123,750 ------------ 1,468,125 ------------ FOOD, BEVERAGE & TOBACCO - 2.33% 500 North Atlantic Trading Company, Inc., Senior Notes, Series B, Company Guaranteed............. 11.000 06/15/04 511,250 500 Packaged Ice, Inc., Senior Notes, Series B, Company Guaranteed.............................. 9.750 02/01/05 512,500 1,050 Purina Mills, Inc., Senior Subordinated Notes..... 9.000 03/15/10 871,500 750 Richmont Marketing Specialists, Senior Subordinated Notes*............................. 10.125 12/15/07 547,500 ------------ 2,442,750 ------------ FOREST - PAPER PRODUCTS - 2.12% 500 Bear Island Paper Company, L.L.C. and Bear Island Finance Company II, Senior Secured Notes, Series B............................................... 10.000 12/01/07 499,375 500 MAXXAM Group Holdings Inc., Senior Secured Notes, Series B, Company Guaranteed.................... 12.000 08/01/03 536,250 425 Packaging Corp. of America, Senior Subordinated Notes*.......................................... 9.625 04/01/09 425,000 750 Republic Group Incorporated, Senior Subordinated Notes........................................... 9.500 07/15/08 760,312 ------------ 2,220,937 ------------ GAMING - 4.54% 1,000 Boyd Gaming Corporation, Senior Subordinated Notes........................................... 9.500 07/15/07 1,030,000 1,000 Hollywood Park, Inc., Senior Subordinated Notes*.......................................... 9.250 02/15/07 1,027,500 750 Lady Luck Gaming Corp., 1st Mortgage.............. 11.875 03/01/01 763,125 1,000 Mohegan Tribal Gaming Authority, Senior Subordinated Notes*............................. 8.750 01/01/09 1,043,750 1,000 Trump Atlantic City Associates and Trump Atlantic City Funding, Inc., 1st Mortgage Notes, Company Guaranteed...................................... 11.250 05/01/06 895,000 ------------ 4,759,375 ------------ HEALTHCARE - 1.01% 1,050 Team Health Inc., Senior Subordinated Notes*...... 12.000 03/15/09 1,060,500 ------------ HOME BUILDERS - 1.18% 500 Del Webb Corporation, Senior Subordinated Debentures...................................... 9.375 05/01/09 485,000 750 Toll Corp., Senior Subordinated Notes, Company Guaranteed...................................... 8.125 02/01/09 753,750 ------------ 1,238,750 ------------
The accompanying notes are an integral part of the financial statements. 21 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) INDUSTRIAL PRODUCTS - 4.73% $ 1,000 Allied Waste North America, Inc., Senior Notes, Series B, Company Guaranteed.................... 7.875% 01/01/09 $ 977,500 750 AMTROL Inc., Senior Subordinated Notes............ 10.625 12/31/06 730,312 750 Aqua-Chem, Inc., Senior Subordinated Notes........ 11.250 07/01/08 660,000 250 Grove Holdings LLC and Grove Holdings Capital, Inc., Senior Discount Debentures (2)............ 11.625 05/01/09 91,250 500 Grove Worldwide LLC and Grove Holdings Capital, Inc., Senior Subordinated Notes................. 9.250 05/01/08 416,250 750 Roller Bearing Company of America, Inc., Senior Subordinated Notes, Series B, Company Guaranteed...................................... 9.625 06/15/07 718,125 500 Steel Heddle Mfg. Co., Senior Subordinated Notes, Series B, Company Guaranteed.................... 10.625 06/01/08 350,000 500 Thermadyne Holdings Corporation, Senior Discount Debentures (2).................................. 12.500 06/01/08 245,000 250 Thermadyne Mfg. LLC and Thermadyne Capital Corp., Senior Subordinated Notes, Company Guaranteed... 9.875 06/01/08 235,000 500 Tokheim Corporation, Senior Subordinated Notes*... 11.375 08/01/08 531,250 ------------ 4,954,687 ------------ INTERNATIONAL CABLE - 0.65% 1,000 NTL Incorporated, Senior Notes* (2)............... 12.375 10/01/08 685,000 ------------ LONG DISTANCE TELEPHONE SERVICES - 3.94% 750 FaciliCom International, Inc., Senior Notes, Series B........................................ 10.500 01/15/08 581,250 1,050 Global Crossing Holdings Ltd., Senior Notes, Company Guaranteed.............................. 9.625 05/15/08 1,173,375 500 Global TeleSystems Group, Inc., Senior Notes...... 9.875 02/15/05 485,000 1,050 Level 3 Communications, Inc., Senior Discount Notes* (2)...................................... 10.500 12/01/08 661,500 750 Primus Telecommunications Group, Incorporated, Senior Notes, Series B.......................... 9.875 05/15/08 716,250 500 Viatel, Inc., Senior Notes........................ 11.250 04/15/08 517,500 ------------ 4,134,875 ------------ MOTION PICTURE EXHIBITION - 1.86% 1,000 Loews Cineplex Entertainment Corporation, Senior Subordinated Notes.............................. 8.875 08/01/08 998,750 500 Regal Cinemas, Inc., Senior Subordinated Notes.... 9.500 06/01/08 511,250 500 United Artists Theatre Company, Senior Subordinated Notes, Series B.................... 9.750 04/15/08 435,000 ------------ 1,945,000 ------------ NORTH AMERICAN CABLE SERVICES - 1.82% 500 Adelphia Communications Corporation, Senior Notes, Series B........................................ 9.875 03/01/07 552,500 500 Charter Communications Holdings LLC and Charter Communications Holdings Capital Corp., Senior Discount Notes* (2)............................. 9.920 04/01/11 323,125 1,000 Charter Communications Holdings LLC and Charter Communications Holdings Capital Corp., Senior Notes*.......................................... 8.625 04/01/09 1,028,750 ------------ 1,904,375 ------------
The accompanying notes are an integral part of the financial statements. 22 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) OIL SERVICES - 2.30% $ 1,000 Parker Drilling Company, Senior Notes, Series D, Company Guaranteed.............................. 9.750% 11/15/06 $ 832,500 1,000 R&B Falcon Corporation, Senior Notes*............. 12.250 03/15/06 1,050,000 500 RBF Finance Co., Company Guaranteed*.............. 11.000 03/15/06 528,750 ------------ 2,411,250 ------------ OTHER CONSUMER CYCLICALS - 1.85% 750 Boyds Collection Ltd., Senior Subordinated Notes*.......................................... 9.000 05/15/08 801,562 500 Comforce Operating Inc., Senior Notes, Series B... 12.000 12/01/07 497,500 750 Hedstrom Corporation and Hedstrom Holdings, Inc., Senior Subordinated Notes, Company Guaranteed... 10.000 06/01/07 637,500 ------------ 1,936,562 ------------ OTHER CONSUMER NON-CYCLICALS - 5.51% 750 AKI, Inc., Senior Notes........................... 10.500 07/01/08 714,375 750 AP Holdings, Inc., Senior Discount Notes (2)...... 11.250 03/15/08 420,938 750 Bell Sports, Inc., Senior Subordinated Notes, Series B, Company Guaranteed.................... 11.000 08/15/08 772,500 500 Evenflo Company, Inc., Senior Notes*.............. 11.750 08/15/06 510,000 750 French Fragrances, Inc., Senior Notes, Series B... 10.375 05/15/07 757,500 250 French Fragrances, Inc., Senior Notes, Series D, Company Guaranteed.............................. 10.375 05/15/07 252,500 750 Styling Technology Corporation, Senior Subordinated Notes, Company Guaranteed.......... 10.875 07/01/08 730,313 1,000 True Temper Sports Inc., Senior Subordinated Notes*.......................................... 10.875 12/01/08 930,000 750 Windmere-Durable Holdings, Inc., Senior Subordinated Notes.............................. 10.000 07/31/08 683,438 ------------ 5,771,564 ------------ OTHER FINANCE - 2.79% 1,000 Capital One Financial Corporation, Notes.......... 7.125 08/01/08 968,750 750 Delta Financial Corporation, Senior Notes, Company Guaranteed...................................... 9.500 08/01/04 547,500 1,000 Metris Companies Inc., Senior Notes, Company Guaranteed...................................... 10.000 11/01/04 1,012,500 500 Ocwen Asset Investment Corp., Senior Redeemable Notes........................................... 11.500 07/01/05 395,000 ------------ 2,923,750 ------------ OTHER MEDIA - 1.63% 500 Production Resource Group, L.L.C. and PRG Finance Corporation, Senior Subordinated Notes.......... 11.500 01/15/08 500,000 750 Px Escrow Corp., Senior Discount Notes (2)........ 9.625 02/01/06 444,375 750 SFX Entertainment, Inc., Senior Subordinated Notes, Series B, Company Guaranteed............. 9.125 02/01/08 766,875 ------------ 1,711,250 ------------ OUTDOOR ADVERTISING - 0.77% 750 Outdoor Systems, Inc., Senior Subordinated Notes, Company Guaranteed.............................. 8.875 06/15/07 804,375 ------------
The accompanying notes are an integral part of the financial statements. 23 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) PAGING SERVICES - 0.27% $ 750 PageMart Wireless, Inc., Senior Subordinated Discount Exchange Notes* (2).................... 11.250% 02/01/08 $ 285,000 ------------ PUBLISHING - 1.82% 1,000 Big Flower Press Holdings, Senior Subordinated Notes*.......................................... 8.625 12/01/08 1,010,000 500 Liberty Group Operating, Inc., Senior Subordinated Notes, Company Guaranteed....................... 9.375 02/01/08 506,250 250 Liberty Group Publishing, Inc., Senior Discount Debentures (2).................................. 11.625 02/01/09 134,688 250 Sullivan Graphics Inc., Senior Subordinated Notes........................................... 12.750 08/01/05 257,500 ------------ 1,908,438 ------------ RADIO BROADCASTING - 3.28% 750 Chancellor Media Corp., Senior Notes*............. 8.000 11/01/08 783,750 1,000 Citadel Broadcasting Company, Senior Subordinated Notes, Company Guaranteed....................... 9.250 11/15/08 1,072,500 250 Cumulus Media Inc., Senior Subordinated Notes, Company Guaranteed.............................. 10.375 07/01/08 270,000 1,300 Emmis Communications Corp., Senior Subordinated Notes*.......................................... 8.125 03/15/09 1,316,250 ------------ 3,442,500 ------------ RECREATIONAL SERVICES - 0.50% 750 Premier Parks Inc., Senior Discount Notes (2)..... 10.000 04/01/08 522,187 ------------ RETAILERS - 4.14% 500 Advance Holding Corporation, Senior Discount Debentures, Series B (2)........................ 12.875 04/15/09 307,500 500 Advance Store Company, Incorporated, Senior Subordinated Notes, Series B, Company Guaranteed...................................... 10.250 04/15/08 510,000 750 Big 5 Corp., Senior Notes, Series B............... 10.875 11/15/07 761,250 750 CEX Holdings, Inc., Senior Subordinated Notes, Series B, Company Guaranteed.................... 9.625 06/01/08 705,000 1,000 Hollywood Entertainment Corporation, Senior Subordinated Notes, Series B.................... 10.625 08/15/04 1,002,500 1,000 Rent-A-Center, Inc., Senior Subordinated Notes, Company Guaranteed.............................. 11.000 08/15/08 1,050,000 ------------ 4,336,250 ------------ SATELLITES - 0.24% 500 AMSC Acquisition Company, Inc., Senior Notes, Series B, Company Guaranteed.................... 12.250 04/01/08 250,000 ------------ STEEL - METALS - MINING - 3.66% 500 Anker Coal Group Inc., Senior Notes, Series B..... 9.750 10/01/07 265,000 900 California Steel Industries, Senior Notes*........ 8.500 04/01/09 913,500 750 Metal Management Inc., Senior Subordinated Notes, Company Guaranteed.............................. 10.000 05/15/08 487,500 500 P&L Coal Holdings Corporation, Senior Subordinated Notes, Series B................................. 9.625 05/15/08 524,375 750 Renco Steel Holdings, Inc., Senior Secured Notes, Series B........................................ 10.875 02/01/05 677,813 1,000 WHX Corporation, Senior Exchange Notes............ 10.500 04/15/05 970,000 ------------ 3,838,188 ------------ SUPERMARKETS & DISTRIBUTORS - 0.97% 1,000 Jitney-Jungle Stores of America, Inc., Senior Subordinated Notes, Company Guaranteed.......... 10.375 09/15/07 1,020,000 ------------
The accompanying notes are an integral part of the financial statements. 24 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) TECHNOLOGY - 3.07% $ 750 American Banknote Corporation, Senior Subordinated Notes, Series B, Company Guaranteed............. 11.250% 12/01/07 $ 435,000 500 Anacomp, Inc., Senior Subordinated Notes, Series D............................................... 10.875 04/01/04 522,500 1,050 Fairchild Semiconductor Corp., Senior Subordinated Notes*.......................................... 10.375 10/01/07 1,065,750 750 IPC Information Systems, Inc., Senior Discount Notes (2)....................................... 10.875 05/01/08 472,500 750 Viasystems, Inc., Senior Subordinated Notes....... 9.750 06/01/07 718,125 ------------ 3,213,875 ------------ TELEVISION BROADCASTING - 2.54% 710 ACME Television, LLC and ACME Finance Corporation, Senior Discount Notes, Series B, Company Guaranteed (2).................................. 10.875 09/30/04 605,275 1,000 Sinclair Broadcast Group, Inc., Senior Subordinated Notes, Company Guaranteed.......... 8.750 12/15/07 1,020,000 1,000 Young Broadcasting Inc., Senior Subordinated Notes, Series B, Company Guaranteed............. 8.750 06/15/07 1,032,500 ------------ 2,657,775 ------------ TEXTILES - APPAREL - 1.17% 450 Consoltex Group Inc., Senior Subordinated Notes, Series B........................................ 11.000 10/01/03 464,063 750 Pillowtex Corporation, Senior Subordinated Notes, Series B, Company Guaranteed.................... 9.000 12/15/07 759,375 ------------ 1,223,438 ------------ Total United States (cost - $91,420,681).......... 87,307,803 ------------ AUSTRALIA - 1.58% STEEL - METALS - MINING - 1.58% 1,000 Great Central Mines Ltd., Senior Notes............ 8.875 04/01/08 980,000 750 Murrin Murrin Holdings PTY, Senior Yankee Notes (1)............................................. 9.375 08/31/07 677,812 ------------ Total Australia (cost - $1,726,369)............... 1,657,812 ------------ CANADA - 1.97% AEROSPACE - DEFENSE - 0.64% 750 Derlan Manufacturing, Senior Yankee Notes......... 10.000 01/15/07 675,000 ------------ FOREST - PAPER PRODUCTS - 0.40% 500 Repap New Brunswick, Senior Yankee Notes.......... 10.625 04/15/05 417,500 ------------ STEEL - METALS - MINING - 0.93% 1,000 Algoma Steel Inc., 1st Mortgage Yankee Notes...... 12.375 07/15/05 975,000 ------------ Total Canada (cost - $2,149,148).................. 2,067,500 ------------ ISRAEL - 0.54% LONG DISTANCE TELEPHONE SERVICES - 0.54% 1,000 Barak I.T.C., Senior Discount Yankee Notes, Series B (2) (cost - $662,977)......................... 12.500 11/15/07 561,250 ------------
The accompanying notes are an integral part of the financial statements. 25 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT INTEREST MATURITY (000'S) RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM DEBT INVESTMENTS (CONTINUED) SWEDEN - 0.55% FREIGHT - CONTAINERS - SHIPPING - 0.55% $ 750 Stena Line AB, Senior Yankee Notes (cost - $752,688)....................................... 10.625% 06/01/08 $ 578,437 ------------ UNITED KINGDOM - 2.48% LONG DISTANCE TELEPHONE SERVICES - 0.75% 750 Esprit Telecom Group plc, Senior Yankee Notes..... 10.875 06/15/08 791,250 ------------ PUBLISHING - 0.74% 750 Regional Independent Media Group plc, Senior Yankee Notes.................................... 10.500 07/01/08 778,125 ------------ RETAILERS - 0.99% 1,000 HMV Media Group plc, Senior Subordinated Yankee Notes, Series B................................. 10.250 05/15/08 1,035,000 ------------ Total United Kingdom (cost - $2,504,200).......... 2,604,375 ------------ Total Long-Term Debt Investments (cost - $99,216,063).................................... 94,777,177 ------------ SHARES - ---------- LONG-TERM EQUITY INVESTMENTS -- 3.12% PREFERRED STOCKS - UNITED STATES - 3.12% ALTERNATIVE VIDEO PROVIDERS - 0.12% 287 21st Century Telecom Group, Inc., Senior Cumulative Exchangeable Preferred Stock (3)..... 13.750 -- 124,490 ------------ CELLULAR COMMUNICATIONS - 0.25% 280 Dobson Communications Corporation, Senior Exchangeable Preferred Stock (3)................ 12.250 -- 258,650 ------------ COMPETITIVE LOCAL EXCHANGE COMPANIES - 0.18% 250 WinStar Communications, Inc., Senior Cumulative Exchangeable Preferred Stock, Series C........................................ 14.250 -- 188,026 ------------ FOREST - PAPER PRODUCTS - 0.29% 300 Packaging Corp. of America* (3)................... 12.375 -- 300,000 ------------ LONG DISTANCE TELEPHONE SERVICES - 0.04% 260 Viatel, Inc., Series A (3)........................ 10.000 -- 41,600 ------------ NORTH AMERICAN CABLE SERVICES - 0.27% 2,500 Adelphia Communications Corporation, Cumulative Exchangeable Preferred Stock, Series B (3)...... 13.000 -- 281,964 ------------
The accompanying notes are an integral part of the financial statements. 26 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- INTEREST MATURITY SHARES RATE DATE VALUE - --------------------------------------------------------------------------------------------------- LONG-TERM EQUITY INVESTMENTS (CONTINUED) RADIO BROADCASTING - 0.56% 534 Cumulus Media Inc., Cumulative Exchangeable Redeemable Preferred Stock, Series A............ 13.750% -- $ 584,217 ------------ SUPERMARKETS & DISTRIBUTORS - 0.27% 836 Nebco Evans Holding Company, Senior Redeemable Exchangeable Preferred Stock (3)................ 11.250 -- 284,621 ------------ TELEVISION BROADCASTING - 0.50% 750 Benedek Communications Corporation, Senior Exchangeable Preferred Stock (3)................ 11.500 -- 530,625 0 Paxson Communications Corporation (3)............. 12.500 -- 227 ------------ 530,852 ------------ TEXTILES - APPAREL - 0.64% 7,960 Cluett American Corp., Senior Exchangeable Preferred Stock, Series B....................... 12.500 -- 672,298 ------------ Total Long-Term Equity Investments (cost - $4,344,795)..................................... 3,266,718 ------------ WARRANTS -- 0.01% UNITED STATES - 0.01% ALTERNATIVE VIDEO PROVIDERS - 0.00% 250 21st Century Telecom Group, Inc.* (4)............. -- 02/15/10 500 ------------ COMPETITIVE LOCAL EXCHANGE COMPANIES - 0.01% 750 KMC Telecom Holdings, Inc.* (4)................... -- 04/15/08 3,750 250 MGC Communications Inc.* (4)...................... -- 10/01/04 188 ------------ 3,938 ------------ FABRICATED GLASS, PLASTICS & FIBERS - 0.00% 1,000 Globe Holdings, Inc.* (4)......................... -- 08/01/09 1,000 ------------ SATELLITES - 0.00% 500 American Mobile Satellite Corporation* (4)........ -- 04/01/08 1,645 ------------ TECHNOLOGY - 0.00% 750 American Banknote Corporation* (4)................ -- 12/01/02 8 ------------ Total Warrants (cost - $10,000)................... 7,091 ------------
The accompanying notes are an integral part of the financial statements. 27 THE BEAR STEARNS FUNDS HIGH YIELD TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS MARCH 31, 1999
- --------------------------------------------------------------------------------------------------- SHARES VALUE - --------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.89% INVESTMENT COMPANIES - 1.89% 255 Federated Automated Government Money Trust **..... $ 255 1,986,773 Federated Investors, Trust for Short-Term U.S. Government Securities**......................... 1,986,773 ------------ Total Short-Term Investments (cost - $1,987,028)..................................... 1,987,028 ------------ Total Investments -- 95.43% (cost - $105,557,886)........................... 100,038,014 Other assets in excess of liabilities -- 4.57%.... 4,788,258 ------------ Net Assets -- 100.00%............................. $104,826,272 ------------ ------------
- --------- * 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; of which all or a portion of the coupon is being capitalized at periodic intervals. (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. 28 THE BEAR STEARNS FUNDS STATEMENTS OF ASSETS AND LIABILITIES MARCH 31, 1999
EMERGING MARKETS INCOME HIGH YIELD TOTAL DEBT PORTFOLIO PORTFOLIO RETURN PORTFOLIO ---------------- -------------- ---------------- ASSETS Investments, at value (cost - $34,137,742, $12,200,126 and $105,557,886, respectively)... $ 31,531,836 $ 12,084,717 $100,038,014 Receivable for investments sold................. 525,028 282,839 5,866,102 Interest and dividends receivable............... 1,222,118 141,002 2,376,155 Receivable for Portfolio shares sold............ 17,575 46,438 993,324 Receivable from investment manager/adviser...... 152,398 29,477 15,212 Receivable for open forward foreign currency exchange contracts............................ 20,093 -- -- Deferred organization expenses and other assets........................................ 24,025 44,276 79,448 ---------------- -------------- ---------------- Total assets.............................. 33,493,073 12,628,749 109,368,255 ---------------- -------------- ---------------- LIABILITIES Payable for investments purchased............... 22,000 151,645 3,668,625 Dividends payable............................... 102,035 14,114 312,512 Payable for Portfolio shares repurchased........ 60,135 17,965 285,231 Distribution and service fee payable (Class A, B and C shares)................................. 35,500 11,918 157,292 Custodian fee payable........................... 19,732 726 3,232 Administration fee payable...................... -- 1,712 13,028 Accrued expenses................................ 103,346 61,343 102,063 ---------------- -------------- ---------------- Total liabilities......................... 342,748 259,423 4,541,983 ---------------- -------------- ---------------- NET ASSETS Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized)..... 3,580 1,018 9,229 Paid-in capital................................. 39,763,935 12,490,703 111,890,845 Undistributed net investment income............. 78,308 -- 15,000 Accumulated net realized loss from investments and foreign currency related transactions, if any........................................... (4,109,691) (6,986) (1,568,930) Net unrealized depreciation on investments and foreign currency related transactions, if any........................................... (2,585,807) (115,409) (5,519,872) ---------------- -------------- ---------------- Net assets................................ $ 33,150,325 $ 12,369,326 $104,826,272 ---------------- -------------- ---------------- ---------------- -------------- ---------------- CLASS A Net assets...................................... $ 29,526,404 $ 4,774,503 $ 55,367,316 ---------------- -------------- ---------------- Shares of beneficial interest outstanding....... 3,186,243 393,057 4,874,843 ---------------- -------------- ---------------- Net asset value per share....................... $9.27 $12.15 $11.36 ---------------- -------------- ---------------- ---------------- -------------- ---------------- Maximum offering price per share (net asset value plus sales charge of 4.50%* of the offering price)............................... $9.71 $12.72 $11.90 ---------------- -------------- ---------------- ---------------- -------------- ---------------- CLASS B Net assets...................................... $ 1,458,986 $ 1,121,450 $ 23,394,950 ---------------- -------------- ---------------- Shares of beneficial interest outstanding....... 158,688 92,317 2,059,107 ---------------- -------------- ---------------- Net asset value and offering price per share**....................................... $9.19 $12.15 $11.36 ---------------- -------------- ---------------- ---------------- -------------- ---------------- CLASS C Net assets...................................... $ 2,164,935 $ 2,067,054 $ 26,064,006 ---------------- -------------- ---------------- Shares of beneficial interest outstanding....... 235,244 170,161 2,295,340 ---------------- -------------- ---------------- Net asset value and offering price per share**....................................... $9.20 $12.15 $11.36 ---------------- -------------- ---------------- ---------------- -------------- ---------------- CLASS Y Net assets...................................... -- $ 4,406,319 -- ---------------- -------------- ---------------- Shares of beneficial interest outstanding....... -- 362,731 -- ---------------- -------------- ---------------- Net asset value, offering and redemption price per share..................................... -- $12.15 -- ---------------- -------------- ---------------- ---------------- -------------- ----------------
- ---------- * On investments of $50,000 or more, the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. The accompanying notes are an integral part of the financial statements. 29 THE BEAR STEARNS FUNDS STATEMENTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 1999
EMERGING MARKETS INCOME HIGH YIELD TOTAL DEBT PORTFOLIO PORTFOLIO RETURN PORTFOLIO ---------------- -------------- ---------------- INVESTMENT INCOME Interest........................................ $ 4,499,978 $ 753,344 $ 7,131,016 Dividends....................................... -- -- 480,183 ---------------- -------------- ---------------- 4,499,978 753,344 7,611,199 ---------------- -------------- ---------------- EXPENSES Investment management/advisory fees............. 423,832 50,882 441,823 Legal and auditing fees......................... 239,174 46,497 59,550 Accounting fees................................. 92,305 103,612 105,728 Distribution and service fees - Class A......... 113,931 15,836 138,476 Distribution and service fees - Class B......... 12,295 4,599 148,999 Distribution and service fees - Class C......... 33,433 17,360 183,211 Transfer agent fees and expenses................ 66,759 103,461 86,700 Federal and state registration fees............. 72,004 41,504 101,514 Administration fees............................. -- 16,960 110,456 Reports and notices to shareholders............. 31,208 3,834 49,331 Custodian fees and expenses..................... 36,801 9,501 26,985 Amortization of organization expenses........... 4,887 12,961 12,515 Trustees' fees and expenses..................... 15,700 3,809 4,475 Insurance expenses.............................. 6,319 6,798 6,298 Other........................................... 3,100 1,066 10,704 ---------------- -------------- ---------------- Total expenses before waivers and related reimbursements............................ 1,151,748 438,680 1,486,765 Less: waivers and related reimbursements.... (472,343) (349,943) (538,078) ---------------- -------------- ---------------- Total expenses after waivers and related reimbursements............................ 679,405 88,737 948,687 ---------------- -------------- ---------------- Net investment income........................... 3,820,573 664,607 6,662,512 ---------------- -------------- ---------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized gain/(loss) from: Investments................................... (4,070,025) 13,596 (1,568,005) Foreign currency related transactions......... 5,674 -- -- Net change in unrealized appreciation/(depreciation) on: Investments................................... (5,260,760) (96,146) (6,079,729) Foreign currency related transactions......... (103,039) -- -- ---------------- -------------- ---------------- Net realized and unrealized loss on investments................................... (9,428,150) (82,550) (7,647,734) ---------------- -------------- ---------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................. $ (5,607,577) $ 582,057 $ (985,222) ---------------- -------------- ---------------- ---------------- -------------- ----------------
The accompanying notes are an integral part of the financial statements. 30 THE BEAR STEARNS FUNDS STATEMENTS OF CHANGES IN NET ASSETS
EMERGING MARKETS INCOME DEBT PORTFOLIO PORTFOLIO HIGH YIELD --------------------------- --------------------------- TOTAL RETURN PORTFOLIO ----------------------------- FOR THE FOR THE FOR THE FOR THE PERIOD FISCAL YEARS FISCAL YEARS FISCAL YEAR JANUARY 2, ENDED MARCH 31, ENDED MARCH 31, ENDED 1998* --------------------------- --------------------------- MARCH 31, THROUGH 1999 1998 1999 1998 1999 MARCH 31, 1998 ------------ ------------ ------------ ------------ ------------ -------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income............ $ 3,820,573 $ 2,901,116 $ 664,607 $ 1,288,539 $ 6,662,512 $ 380,947 Net realized gain/(loss) from investments and foreign currency related transactions, if any......................... (4,064,351) 3,624,769 13,596 268,245 (1,568,005) 382,337 Net change in unrealized appreciation/ (depreciation) on investments and foreign currency related transactions, if any......................... (5,363,799) 140,932 (96,146) 281,692 (6,079,729) 559,857 ------------ ------------ ------------ ------------ ------------ -------------- Net increase/(decrease) in net assets resulting from operations..................... (5,607,577) 6,666,817 582,057 1,838,476 (985,222) 1,323,141 ------------ ------------ ------------ ------------ ------------ -------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A shares................. (3,336,429) (2,590,726) (266,618) (194,516) (3,726,455) (213,477) Class B shares................. (137,132) (9,337) (24,193) (111) (1,313,414) (58,135) Class C shares................. (321,807) (281,260) (91,424) (70,620) (1,607,643) (109,335) Class Y shares................. -- -- (282,372) (1,023,292) -- -- ------------ ------------ ------------ ------------ ------------ -------------- (3,795,368) (2,881,323) (664,607) (1,288,539) (6,647,512) (380,947) ------------ ------------ ------------ ------------ ------------ -------------- Net realized capital gains Class A shares................. (555,419) (833,408) (80,365) (4,235) (192,941) -- Class B shares................. (27,661) -- (13,288) -- (86,843) -- Class C shares................. (57,010) (96,366) (29,333) (2,042) (103,478) -- Class Y shares................. -- -- (69,012) (25,301) -- -- ------------ ------------ ------------ ------------ ------------ -------------- (640,090) (929,774) (191,998) (31,578) (383,262) -- ------------ ------------ ------------ ------------ ------------ -------------- SHARES OF BENEFICIAL INTEREST Net proceeds from the sale of shares......................... 16,138,678 10,697,786 11,220,359 6,734,676 100,285,539 35,248,122 Cost of shares repurchased....... (14,152,454) (13,467,125) (7,794,237) (17,586,264) (26,732,714) (754,186) Shares issued in reinvestment of dividends...................... 2,875,768 2,477,379 531,644 1,148,623 3,677,043 176,234 ------------ ------------ ------------ ------------ ------------ -------------- Net increase/(decrease) in net assets derived from shares of beneficial interest transactions................... 4,861,992 (291,960) 3,957,766 (9,702,965) 77,229,868 34,670,170 ------------ ------------ ------------ ------------ ------------ -------------- Total increase/(decrease) in net assets......................... (5,181,043) 2,563,760 3,683,218 (9,184,606) 69,213,872 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**.................. $ 33,150,325 $ 38,331,368 $ 12,369,326 $ 8,686,108 $104,826,272 $35,612,400 ------------ ------------ ------------ ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------ --------------
- --------- * Commencement of investment operations. ** Emerging Markets Debt Portfolio, includes undistributed net investment income of $78,308 and $37,723, respectively. High Yield Total Return Portfolio, includes undistributed net investment income of $15,000 for the fiscal year ended March 31, 1999. The accompanying notes are an integral part of the financial statements. 31 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 fiscal year ended March 31, 1999................. $12.00 $1.05 $(2.60) $(1.01) $(0.17) 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 fiscal year ended March 31, 1999................. 11.95 0.98 (2.60) (0.97) (0.17) For the period January 12, 1998*** through March 31, 1998....... 11.33 0.21 0.61 (0.20) -- CLASS C For the fiscal year ended March 31, 1999................. 11.95 0.98 (2.59) (0.97) (0.17) 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 fiscal year ended March 31, 1999................. 12.37 0.74 (0.03) (0.74) (0.19) For the fiscal year ended March 31, 1998................. 12.03 0.76 0.36 (0.76) (0.02) 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 fiscal year ended March 31, 1999................. 12.37 0.65 (0.03) (0.65) (0.19) For the period February 2, 1998*** through March 31, 1998....... 12.47 0.10 (0.10) (0.10) -- CLASS C For the fiscal year ended March 31, 1999................. 12.37 0.65 (0.03) (0.65) (0.19) For the fiscal year ended March 31, 1998................. 12.03 0.70 0.36 (0.70) (0.02) 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 fiscal year ended March 31, 1999................. 12.37 0.78 (0.03) (0.78) (0.19) For the fiscal year ended March 31, 1998................. 12.03 0.80 0.36 (0.80) (0.02) 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 fiscal year ended March 31, 1999................. 12.73 1.11 (1.32) (1.11) (0.05) For the period January 2, 1998** through March 31, 1998....... 12.00 0.26 0.73 (0.26) -- CLASS B For the fiscal year ended March 31, 1999................. 12.73 1.04 (1.32) (1.04) (0.05) For the period January 2, 1998** through March 31, 1998....... 12.00 0.24 0.73 (0.24) -- CLASS C For the fiscal year ended March 31, 1999................. 12.73 1.04 (1.32) (1.04) (0.05) For the period January 2, 1998** through March 31, 1998....... 12.00 0.24 0.73 (0.24) --
- ---------- * 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 related reimbursements. (2) The amounts shown for a share outstanding throughout the respective periods are not in accord with the changes in the aggregate gains and losses on investments during the respective periods because of the timing of 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. The accompanying notes are an integral part of the financial statements. 32
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 fiscal year ended March 31, 1999................. $ 9.27 (12.40)% $29,526 1.75% 10.38% 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 fiscal year ended March 31, 1999................. 9.19 (13.08) 1,459 2.40 9.73 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 fiscal year ended March 31, 1999................. 9.20 (12.99) 2,165 2.40 9.73 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 fiscal year ended March 31, 1999................. 12.15 5.77 4,775 0.80 5.83 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 0.80(5) 5.76(5) CLASS B For the fiscal year ended March 31, 1999................. 12.15 5.09 1,121 1.45 5.16 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 fiscal year ended March 31, 1999................. 12.15 5.08 2,067 1.45 5.28 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 fiscal year ended March 31, 1999................. 12.15 6.13 4,406 0.45 6.27 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 fiscal year ended March 31, 1999................. 11.36 (1.57) 55,367 1.00 9.37 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 fiscal year ended March 31, 1999................. 11.36 (2.21) 23,395 1.65 8.76 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 fiscal year ended March 31, 1999................. 11.36 (2.21) 26,064 1.65 8.73 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 fiscal year ended March 31, 1999................. 1.28% 82.47% 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 fiscal year ended March 31, 1999................. 1.43 82.47 For the period January 12, 1998*** through March 31, 1998....... 2.25(4)(5) 128.91 CLASS C For the fiscal year ended March 31, 1999................. 1.16 82.47 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 fiscal year ended March 31, 1999................. 2.98 107.21 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 fiscal year ended March 31, 1999................. 2.81 107.21 For the period February 2, 1998*** through March 31, 1998....... 0.48(4)(5) 244.78 CLASS C For the fiscal year ended March 31, 1999................. 3.18 107.21 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 fiscal year ended March 31, 1999................. 3.23 107.21 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 fiscal year ended March 31, 1999................. 0.74 101.75 For the period January 2, 1998** through March 31, 1998....... 1.67(5) 139.61 CLASS B For the fiscal year ended March 31, 1999................. 0.73 101.75 For the period January 2, 1998** through March 31, 1998....... 1.68(5) 139.61 CLASS C For the fiscal year ended March 31, 1999................. 0.73 101.75 For the period January 2, 1998** through March 31, 1998....... 1.67(5) 139.61
- ---------- (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. 33 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS 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. 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, 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 Debt Portfolio and High Yield Portfolio have yet to commence their 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 changed its name to the Income Portfolio and also adopted a new investment objective: to seek high current income consistent with preservation of capital. Prior to that date 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. 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. 34 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 generally 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 may differ. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions are recorded on the trade date (the date on which the order to buy or sell is executed). Realized gains and losses from 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 Portfolios' net investment income (other than distribution fees) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of 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 isolate the effect of fluctuations in foreign exchange rates when determining the gain or loss upon the sale or maturity of foreign currency-denominated debt obligations pursuant to U.S. federal income tax regulations; such amount is categorized as foreign exchange gain or loss for both financial reporting and income tax reporting purposes. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Portfolios are permitted to enter into forward foreign currency exchange contracts solely for purposes of protecting against adverse changes in foreign currency exchange rates. The Portfolios 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 35 U.S. dollar. When a 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 a 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 each Portfolio. The Portfolios had no open forward foreign currency exchange contracts at March 31, 1999, except the Debt Portfolio which were as follows:
DELIVERY VALUE SETTLEMENT CURRENCY (LOCAL CURRENCY) DATE COST - ---------------------------------------------------------------- -------------------- ------------- ---------------- SALE: European Euro................................................... 110,515 05/26/99 $ 121,080 Japanese Yen.................................................... 175,612,500 04/19/99 1,500,000 UNREALIZED CURRENCY VALUE GAIN - ---------------------------------------------------------------- ---------------- ------------- SALE: European Euro................................................... $ 119,311 $ 1,769 Japanese Yen.................................................... 1,482,952 17,048 ------------- $ 18,817 ------------- -------------
U.S. FEDERAL TAX STATUS -- Each Portfolio intends to distribute substantially all of its taxable income and to comply with the other requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required. In addition, by distributing during each calendar year substantially all of its ordinary income and capital gains, if any, each Portfolio intends not to be subject to a U.S. federal excise tax. At March 31, 1999, the Debt Portfolio and High Yield Portfolio had capital loss carryforwards of $780,615 and $175,885, respectively, available as a reduction to the extent provided in regulations of any future net capital gains realized before the end of fiscal year 2007. To the extent that the capital loss carryforward are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders. For U.S. federal income tax purposes, net realized capital losses incurred after October 31, 1998, within the fiscal year, are deemed to arise on the first day of the following fiscal year. The Debt Portfolio, Income Portfolio and High Yield Portfolio incurred and elected to defer net realized capital losses of $2,952,624, $8,565 and $1,393,045, respectively. 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 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. Prior to January 4, 1999, the Debt Portfolio declared and paid as quarterly dividends to shareholders, substantially all of its net investment income. On November 5, 1998, the Board of Trustees of the Trust approved a change in the dividend policy of the Debt Portfolio to conform its policy to that of the dividend policies followed by the Income Portfolio and High Yield Portfolio. Such policy change was effective January 4, 1999. 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. 36 At March 31, 1999, the Income Portfolio reclassified $2,008 within the composition of net assets from accumulated net realized losses to paid-in capital. In addition, the Debt Portfolio reclassified $15,380 of net realized foreign currency gains within the composition of net assets from accumulated net realized losses to undistributed net investment income. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES For the fiscal year ended March 31, 1999, 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 average daily net assets up to $50 million, 1.00% of average daily net assets of more than $50 million but not in excess of $100 million and 0.70% of average daily net assets above $100 million. For the fiscal year ended March 31, 1999, BSAM served as the Income Portfolio's and High Yield Portfolio's investment adviser pursuant to an Investment Advisory Agreement. 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 fiscal year ended March 31, 1999, 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 Inc. provides certain accounting and administrative services to each Portfolio. For providing these services, PFPC Inc. is entitled to receive from each Portfolio a monthly fee equal to an annual rate of 0.10% of 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 fiscal year ended March 31, 1999, PFPC Inc. has voluntarily waived a portion of its fee. For the fiscal year ended March 31, 1999, 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 fiscal year ended March 31, 1999, 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 fiscal year ended March 31, 1999, BSAM waived advisory fees of $335,209, $50,882 and $416,687 for the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively. In addition, BSAM reimbursed $137,134, $299,061 and $121,391 for the Debt Portfolio, 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. For the fiscal year ended March 31, 1999, the High Yield Portfolio paid $900 in brokerage commissions to Bear Stearns, an affiliate of BSAM and BSFM. DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN The Trust and the Fund, on behalf of the Portfolios, have entered into a Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act. Under the Distribution Plan, the Portfolios paid Bear Stearns a fee at an annual rate of 0.10% for Class A shares and 0.75% for both Class B and C shares. The Trust and the Fund, on behalf of the Portfolios, has adopted a Shareholder Servicing Plan whereby the Portfolios paid fees of up to 0.25% of its Class A, B and C shares. 37 Prior to February 10, 1999, Class A shares of the Debt Portfolio and Income Portfolio paid its shareholder servicing fees through its distribution plan. 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 fiscal year ended March 31, 1999, Bear Stearns earned $66,847, $20,991 and $288,723 for the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively, in distribution fees. The fees paid to Bear Stearns under the Distribution Plan are payable without regard to actual expenses incurred. 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 $92,812, $16,804 and $181,963 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. Effective December 24, 1997, the Distributor has 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 fiscal year ended March 31, 1999, Bear Stearns has advised each Portfolio that it received approximately $46,300, $35,200 and $525,500 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 sales charges to dealers which in turn paid commissions to salespersons. In addition, Bear Stearns has advised the Debt Portfolio, Income Portfolio and High Yield Portfolio that during the fiscal year ended March 31, 1999, it received approximately $9,000 from the High Yield Portfolio in contingent deferred sales charges ("CDSC") upon certain redemptions by Class A shareholders, approximately $13,000, $600 and $58,800 from each Portfolio, respectively, in CDSC upon certain redemptions by Class B shareholders and approximately $2,200, $2,000 and $33,700 from each 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 March 31, 1999, were $34,514,194, $12,200,126 and $105,557,886 for the Debt Portfolio, Income Portfolio and High Yield Portfolio, respectively. Accordingly, the net unrealized depreciation on investments for each Portfolio were as follows:
PORTFOLIO APPRECIATION DEPRECIATION NET DEPRECIATION - ------------------------------ ------------ ------------ ------------------ Debt Portfolio................ $ 813,425 $(3,795,783) $(2,982,358) Income Portfolio.............. 118,943 (234,352) (115,409) High Yield Portfolio.......... 1,594,343 (7,114,215) (5,519,872)
For the fiscal year ended March 31, 1999, aggregate purchases and sales of portfolio securities (excluding short-term investments) for each Portfolio were as follows:
PORTFOLIO PURCHASES SALES - ------------------------------ ----------- ----------- Debt Portfolio................ $33,549,045 $27,873,681 Income Portfolio.............. 15,660,555 11,329,961 High Yield Portfolio.......... 134,123,389 68,190,103
38 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 March 31, 1999, there was an unlimited amount of $0.001 par value shares of beneficial interest authorized for each Portfolio, of which Bear Stearns owned 1,135 of Class A shares and 1,126 of Class C shares of the Income Portfolio and 2 each of Class A, B and C shares of the High Yield Portfolio. The Income Portfolio's shares owned by Bear Stearns include 94 Class A shares and 85 Class C shares which were acquired through dividend reinvestment. Transactions in shares of beneficial interest for each Portfolio were as follows:
DEBT PORTFOLIO -------------------------------------- SALES REPURCHASES REINVESTMENTS ---------- ----------- ------------- FOR THE FISCAL YEARS ENDED: CLASS A MARCH 31, 1999 Shares...................................................... 1,353,990 1,217,322 262,381 Value....................................................... $13,884,104 $11,562,827 $2,415,066 MARCH 31, 1998 Shares...................................................... 664,133 1,036,380 180,565 Value....................................................... $7,891,033 $12,380,642 $2,128,341 CLASS B* MARCH 31, 1999 Shares...................................................... 134,300 36,459 13,490 Value....................................................... $1,458,377 $ 329,735 $ 119,962 MARCH 31, 1998 Shares...................................................... 46,940 -- 417 Value....................................................... $ 546,764 -- $ 4,933 CLASS C MARCH 31, 1999 Shares...................................................... 77,215 240,138 37,052 Value....................................................... $ 796,197 $ 2,259,892 $ 340,740 MARCH 31, 1998 Shares...................................................... 189,824 89,837 29,316 Value....................................................... $2,259,989 $ 1,086,483 $ 344,105 CLASS Y** MARCH 31, 1999 Shares...................................................... -- -- -- Value....................................................... -- -- -- MARCH 31, 1998 Shares...................................................... -- -- -- Value....................................................... -- -- -- INCOME PORTFOLIO -------------------------------------- SALES REPURCHASES REINVESTMENTS ---------- ----------- ------------- FOR THE FISCAL YEARS ENDED: CLASS A MARCH 31, 1999 Shares...................................................... 652,813 512,338 16,075 Value....................................................... $8,140,024 $ 6,375,966 $199,578 MARCH 31, 1998 Shares...................................................... 55,103 110,591 12,087 Value....................................................... $ 681,376 $ 1,369,024 $149,576 CLASS B* MARCH 31, 1999 Shares...................................................... 95,133 6,176 1,917 Value....................................................... $1,180,901 $ 75,940 $ 23,739 MARCH 31, 1998 Shares...................................................... 1,442 -- 1 Value....................................................... $ 18,014 -- $ 13 CLASS C MARCH 31, 1999 Shares...................................................... 125,661 76,187 7,293 Value....................................................... $1,564,198 $ 942,593 $ 90,493 MARCH 31, 1998 Shares...................................................... 56,500 32,601 4,869 Value....................................................... $ 702,888 $ 406,228 $ 60,310 CLASS Y** MARCH 31, 1999 Shares...................................................... 27,127 32,617 17,555 Value....................................................... $ 335,236 $ 399,738 $217,834 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 ----------- ----------- --------------- FOR THE FISCAL YEARS ENDED: CLASS A MARCH 31, 1999 Shares...................................................... 4,591,690 1,328,105 173,523 Value....................................................... $55,352,368 $15,720,812 $2,039,096 MARCH 31, 1998 Shares...................................................... 1,466,227 36,611 8,118 Value....................................................... $18,130,818 $ 450,922 $ 102,477 CLASS B* MARCH 31, 1999 Shares...................................................... 1,698,449 172,814 61,079 Value....................................................... $20,280,591 $2,036,035 $ 709,943 MARCH 31, 1998 Shares...................................................... 481,123 10,726 1,995 Value....................................................... $ 6,075,621 $ 235,284 $ 25,196 CLASS C MARCH 31, 1999 Shares...................................................... 2,098,034 769,764 79,488 Value....................................................... $24,652,580 $8,975,867 $ 928,004 MARCH 31, 1998 Shares...................................................... 897,573 13,841 3,849 Value....................................................... $11,041,683 $ 67,980 $ 48,561 CLASS Y** MARCH 31, 1999 Shares...................................................... -- -- -- Value....................................................... -- -- -- 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 initial 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 a 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 39 Portfolio currently intends to borrow money only for temporary or emergency (not leveraging) purposes in an amount up to 15% 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 fiscal year ended March 31, 1999, were as follows:
MAXIMUM AVERAGE LOAN AVERAGE LOAN AMOUNTS INTEREST PORTFOLIO BALANCE OUTSTANDING RATE - ------------------------------ -------- ----------- -------- Income Portfolio.............. $ 9,261 $ 208,400 6.10% High Yield Portfolio.......... 68,540 4,803,800 7.14
The Portfolios had no amounts outstanding under the line of credit agreement at March 31, 1999. The Debt Portfolio had no amounts outstanding under the line of credit agreement during the fiscal year ended March 31, 1999. 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 of 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 or 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. 40 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO REPORT OF INDEPENDENT AUDITORS The Board of Trustees and Shareholders, Emerging Markets Debt Portfolio (A series of the Bear Stearns Investment Trust) Income Portfolio High Yield Total Return Portfolio (Series of The Bear Stearns Funds): We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Emerging Markets Debt Portfolio, Income Portfolio (formerly Total Return Bond Portfolio) and High Yield Total Return Portfolio (collectively, the "Portfolios") as of March 31, 1999, and the related statements of operations, changes in net assets and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 1999 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Emerging Markets Debt Portfolio, Income Portfolio and High Yield Total Return Portfolio as of March 31, 1999, the results of their operations, the changes in their net assets and the financial highlights for each of the periods presented in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York May 14, 1999 41 THE BEAR STEARNS FUNDS EMERGING MARKETS DEBT PORTFOLIO INCOME PORTFOLIO HIGH YIELD TOTAL RETURN PORTFOLIO SHAREHOLDER TAX INFORMATION -- (UNAUDITED) Each Portfolio is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of each Portfolio's fiscal year end (March 31, 1999) as to the U.S. federal tax status of distributions received by each Portfolio's shareholders in respect of such fiscal year. During the fiscal year ended March 31, 1999, the following dividends and distributions per share were paid by each of the Portfolios: EMERGING MARKETS DEBT PORTFOLIO
NET INVESTMENT INCOME 20 PERCENT RATE GAINS --------------------------- ------------------------- Class A $ 1.011035395 $ 0.1659 Class B 0.971741918 0.1659 Class C 0.972017106 0.1659
There were no ordinary income dividends from the Emerging Markets Debt Portfolio which would qualify for the dividends received deduction available to corporate shareholders. All dividends and distributions were derived from income and capital gains on foreign obligations; however they were not subject to foreign withholding taxes. INCOME PORTFOLIO
SHORT-TERM LONG-TERM NET INVESTMENT INCOME CAPITAL GAINS CAPITAL GAINS --------------------------- ---------------- ---------------- Class A $ 0.733524135 $ 0.1306 $ 0.0558 Class B 0.653217415 0.1306 0.0558 Class C 0.652995105 0.1306 0.0558 Class Y 0.776879477 0.1306 0.0558
There were no ordinary income dividends from the Income Portfolio which would qualify for the dividends received deduction available to corporate shareholders. HIGH YIELD TOTAL RETURN PORTFOLIO
NET INVESTMENT INCOME SHORT-TERM CAPITAL GAINS --------------------------- ----------------------------- Class A $ 1.108089730 $ 0.0519 Class B 1.030808091 0.0519 Class C 1.030805163 0.0519
There were no ordinary income dividends from the High Yield Total Return Portfolio which would qualify for the dividends received deduction available to corporate shareholders. Because each Portfolio's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 1999. The second notification, which will reflect the amount to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2000. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their dividend. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Portfolios, if any. In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult with their own tax advisers with respect to the tax consequences of their investment in the Portfolios. 42 TRUSTEES AND OFFICERS Michael Minikes Chairman of the Board Doni L. Fordyce President Barry Sommers Executive Vice President 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 Frank J. Maresca Vice President and Treasurer Vincent L. Pereira Assistant Treasurer
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