<PAGE>
EMERGING MARKETS
DEBT PORTFOLIO
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
THE
BEAR STEARNS
FUNDS
245 Park Avenue
New York, NY 10167
1.800.766.4111
Robert S. Reitzes . . . . . . . . . . . . . . Chairman of the Board
Peter B. Fox. . . . . . . . . . . . . . . . . President and Trustee
John R. McKernan, Jr. . . . . . . . . . . . . Trustee
M.B. Oglesby, Jr. . . . . . . . . . . . . . . Trustee
Peter M. Bren . . . . . . . . . . . . . . . . Trustee
Stephen A. Bornstein. . . . . . . . . . . . . Vice President
Frank J. Maresca. . . . . . . . . . . . . . . Vice President and Treasurer
Ellen T. Arthur . . . . . . . . . . . . . . . Secretary
Vincent L. Pereira. . . . . . . . . . . . . . Assistant Treasurer
Eileen M. Coyle . . . . . . . . . . . . . . . Assistant Secretary
INVESTMENT MANAGER DISTRIBUTOR
Bear Stearns Funds Bear, Stearns & Co. Inc.
Management Inc. 245 Park Avenue
245 Park Avenue New York, NY 10167
New York, NY 10167
CUSTODIAN TRANSFER & DIVIDEND
Brown Brothers DISBURSEMENT AGENT
Harriman & Co. PFPC Inc.
40 Water Street Bellevue Corporate Center
Boston, MA 02109 400 Bellevue Parkway
Wilmington, DE 19809
COUNSEL INDEPENDENT AUDITORS
Mayer, Brown & Platt Deloitte & Touche LLP
1675 Broadway Two World Financial Center
New York, NY 10019 New York, NY 10281
This report is submitted for the general information of the shareholders of
the Portfolio. It is not authorized for the distribution to prospective
investors in the Portfolio unless it is preceded or accompanied by a current
prospectus which includes details regarding the Portfolio's objectives,
policies, sales commissions, and other information. Total return is based on
historical results and is not intended to indicate future performance. The
investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than original cost.
BSF-R-002-04
[LOGO]
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
LETTER TO SHAREHOLDERS
November 12, 1996
Dear Shareholders,
The Emerging Markets Debt Portfolio (the "Portfolio") has continued to benefit
from a reduction in concerns surrounding developing countries and from generally
greater optimism regarding their future prospects. While uncertainties linger,
we remain cautiously optimistic on the prospects for emerging market debt, and
plan to continue emphasizing countries and securities that have lagged the
market's rise. All of our investments continue to be denominated in U.S. dollars
and represent obligations of sovereign governments.
From May 3, 1993 (commencement of investment operations) through September 30,
1996, the Portfolio gained 56.88% for class A shares (without giving effect to
sales charges and contingent deferred sales charges, if any). From May 4, 1995
(when Bear Stearns Funds Mangement Inc. commenced its management of the
Portfolio), class A shares returned 61.97% (without giving effect to sales
charges and contingent deferred sales charges, if any) compared to 63.31% for
the Salomon Brothers Emerging Markets Debt Mutual Fund ("EMMF") Index. The
average annual total return for the period May 4, 1995 through September 30,
1996, for class A shares was 40.65% (without giving effect to sales charges and
contingent deferred sales charges, if any) compared to 41.47% for the EMMF
Index. For the six months ended September 30, 1996, class A shares returned
23.05% (without giving effect to sales charges and contingent deferred sales
charges, if any) versus 22.66% for the EMMF Index.
From July 26, 1995 (commencement of initial public offering) through September
30, 1996, class C shares gained 54.04% (without giving effect to contingent
deferred sales charges, if any) compared to 52.31% for the EMMF Index. The
average annual total return at September 30, 1996 for class C shares was 44.08%
(without giving effect to contingent deferred sales charges, if any) compared to
42.57% for the EMMF Index. For the six months ended September 30, 1996, class C
shares returned 22.79% (without giving effect to contingent deferred sales
charges, if any) versus 22.66% for the EMMF Index. Further performance data for
each class of shares during the reporting period is available in the "Financial
Highlights" section of this report.
The Portfolio has benefited from rallies in most emerging debt markets since our
last report. Both Latin American and non-Latin American countries enjoyed gains,
fueled by generally favorable inflation results, further progress on reforms and
further evidence of economic recovery in Argentina and Mexico. The markets
returns were further fueled by rising oil prices, the re-election of Russian
President Boris Yeltsin, the completion of a Brady debt restructuring for
Panama, and further progress on debt restructurings for Russia and Peru. The
Portfolio benefited from significant positions in many of the best performing
markets and individual securities within these markets. Our best performer,
Russian loans, rose 44%; Russia, the best-performing market in the EMMF Index
over the last six months, rose in response to the election results, and to
progress on the debt restructuring and in reducing inflation.
We remain cautiously optimistic on the outlook for emerging market debt. Yields
remain high; as of the end of September, Brady bonds, on average, still yielded
more than 400 basis points over U.S. Treasury bonds. In addition, the potential
for capital gains continues to be substantial. Inflation in most of the major
emerging countries generally remains within expectations, and is likely to be
significantly below them in some countries. Economic growth appears to be
returning to those countries plagued by recessions in 1995. While the pace of
political and economic reforms has been disappointing in some respects, we
remain mindful of the fact that such reforms continue to be introduced, and that
the international financial community remains supportive. The World Bank and the
International Monetary Fund continue to oversee the development and
implementation of international support packages. As in 1995, the major credit
rating agencies are likely to reward such reforms with higher credit ratings.
Finally, we expect to see the completion of Brady debt programs in Russia and
Peru in the near future.
1
<PAGE>
We thank you for your continued interest in the Portfolio, and would be pleased
to respond to your questions or comments. If you have any questions concerning
the Portfolio, please call 1-800-766-4111.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
Robert S. Reitzes Edward R. Vaimberg
Chairman of the Board Portfolio Manager
</TABLE>
2
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A SHARES(1)(2)(3)(4) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Class A Shares Salomon Bros. National
Emerging Mkts Consumer
Debt Mutual Price Index
Fund Index
May 4, 1995 9,625.00 10,000.00 10,000.00
May 31, 1995 10,115.04 10,737.96 10,026.33
June 30, 1995 10,203.47 11,016.75 10,039.50
July 31, 1995 10,151.68 10,715.71 10,059.25
Aug. 31, 1995 10,410.65 11,006.21 10,072.42
Sep. 30,1995 10,805.17 11,487.64 10,085.58
Oct. 31, 1995 10,751.88 11,443.13 10,118.50
Nov. 30, 1995 11,098.28 11,796.88 10,118.50
Dec. 31, 1995 11,876.52 12,634.41 10,138.25
Jan. 31, 1996 12,907.47 13,826.87 10,184.33
Feb. 29, 1996 12,357.63 13,071.34 10,204.08
Mar. 31, 1996 12,669.28 13,314.98 10,243.58
Apr. 30, 1996 13,455.85 13,797.00 10,283.08
May 31, 1996 13,722.72 14,012.00 10,316.00
June 30, 1996 14,110.10 14,299.00 10,322.58
July 31, 1996 14,296.32 14,471.00 10,348.25
Aug. 31, 1996 14,683.09 14,774.00 10,362.08
Sep. 30, 1996 15,590.11 16,331.00 10,388.41
$9,625 investment
made on May 4, 1995
Past performance
is not predictive
of future
performance.
</TABLE>
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
INCLUDING EXCLUDING
FEE FEE
WAIVERS AND WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
----------- -----------
Emerging Markets Debt Portfolio(4)
Class A shares(5)............................. 36.90% 35.14%
Class C shares(2)............................. 44.08 34.66
Salomon Brothers Emerging Markets Debt Mutual
Fund Index(3)................................. 41.47 --
National Consumer Price Index(3).................. 2.73 --
</TABLE>
- ----------
(1) Commencing May 4, 1995, Bear Stearns Funds Management Inc. assumed the daily
portfolio management responsibility for the Portfolio.For the period May 3,
1993 (commencement of investment operations) through May 3, 1995, the
Portfolio's investment adviser was BEA Associates and those results are not
shown.
(2) 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 load charged to class C shares.
(3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects Portfolio expenses. Investors should note that the Portfolio is
a professionally managed mutual fund while the indices are either unmanaged
and do not incur sales charges or expenses and/or are not available for
investment.The Portfolio changed the comparable index from the Salomon
Brothers Brady Bond Mutual Fund Index included in the Annual Report for the
year ended March 31, 1995 to the Salomon Brothers Emerging Markets Debt
Mutual Fund Index ("EMMF Index") because Bear Stearns Funds Management Inc.
believes that the EMMF Index provides shareholders with a more accurate
comparison. The average annual total return for the EMMF Index corresponding
to class C shares is 42.57%.
(4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses to
maintain the expense limitation, as set forth in the notes to the financial
statements.
(5) Reflects the initial maximum 3.75% sales load. Without applicable sales
load, the average annual total returns would have been 40.65% including fee
waivers and expense reimbursements and 38.84% excluding fee waivers and
expense reimbursements.
CDSC -- Contingent Deferred Sales Charge.
3
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
COUNTRY INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED
GRAPHIC
Argentina 14.0%
Brazil 13.5%
Bulgaria 3.4%
Ecuador 4.1%
Mexico 20.2%
Morocco 4.4%
Panama 4.3%
Peru 4.6%
Philippines 2.2%
Poland 3.9%
Russia 4.5%
Venezuela 2.4%
Cash & Cash Equivalents 18.5%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Bank Loans 13.5%
Brady Bonds 63.6%
Global Bond 4.4%
Cash & Cash Equivalents 18.5%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING CURRENCY SECURITY TYPE NET ASSETS
- ------------------------------------------------------ ----------- ------------- ---------------
<C> <S> <C> <C> <C>
1. United Mexican States, Discount Bond, Series B,
6.39%, due December 31, 2019...................... U.S. Dollar Brady Bond 8.64
2. Federal Republic of Brazil, Capitalization Bond,
Euro, 8.00%, due April 15, 2014................... U.S. Dollar Brady Bond 6.91
3. Federal Republic of Brazil, Front-Loaded Interest
Reduction Bond, Bearer Bond, 4.50%, due April 15,
2009.............................................. U.S. Dollar Brady Bond 6.56
4. Republic of Argentina, Par Bond, Series L, 5.25%,
due March 31, 2023................................ U.S. Dollar Brady Bond 5.90
5. Republic of Argentina, Floating Rate Bond, 6.31%,
due March 31, 2005................................ U.S. Dollar Brady Bond 5.49
6. United Mexican States, Par Bond, Series B, 6.25%,
due December 31, 2019............................. U.S. Dollar Brady Bond 4.73
7. The Republic of Peru, Citibank, Bank Loan
Participation..................................... U.S. Dollar Bank Loan 4.57
8. Vneshekonombank, Bank Loan Participation.......... U.S. Dollar Bank Loan 4.47
9. The Kingdom of Morocco, Tranche A, Bank Loan
Participation, 6.44%, due January 1, 2009......... U.S. Dollar Bank Loan 4.44
10. United Mexican States, Global Bond, 11.50%, due
May 15, 2026...................................... U.S. Dollar Global Bond 4.42
</TABLE>
4
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM INVESTMENTS-81.47%
ARGENTINA - 14.02%
SOVEREIGN
1,200 Republic of Argentina, Discount Bond, Series L
(a)(b)............................................ 6.438% 03/31/23 $ 888,000
2,250 Republic of Argentina, FRB (a)(b)(c).............. 6.313 03/31/05 1,849,444
3,400 Republic of Argentina, Par Bond, Series L
(b)(d)............................................ 5.250 03/31/23 1,989,000
-----------
Total Argentina (cost - $4,437,400)............... 4,726,444
-----------
BRAZIL - 13.47%
SOVEREIGN
3,301 Federal Republic of Brazil, Capitalization Bond,
Euro (b).......................................... 8.000 04/15/14 2,327,497
3,200 Federal Republic of Brazil, FLIRB Bearer Bond
(a)(b)............................................ 4.500 04/15/09 2,212,000
-----------
Total Brazil (cost - $4,139,266).................. 4,539,497
-----------
BULGARIA - 3.39%
SOVEREIGN
900 Republic of Bulgaria, Discount Bond, Series A
(a)(b)............................................ 6.688 07/28/24 457,875
1,100 Republic of Bulgaria, IAB, Registered (a)(b)...... 6.688 07/28/11 503,250
400 Republic of Bulgaria, IAB, Bearer (a)(b).......... 6.688 07/28/11 183,000
-----------
Total Bulgaria (cost - $1,175,091)................ 1,144,125
-----------
ECUADOR - 4.07%
SOVEREIGN
850 The Republic of Ecuador, Discount Bond (a)(b)..... 6.500 02/28/25 530,187
1,639 The Republic of Ecuador, PDI Bearer Bond (a)(b)... 6.500 02/27/15 842,013
-----------
Total Ecuador (cost - $1,138,402)................. 1,372,200
-----------
MEXICO - 20.21%
SOVEREIGN
3,450 United Mexican States, Discount Bond, Series B
(a)(b)(e)......................................... 6.391 12/31/19 2,910,938
600 United Mexican States, Discount Bond, Series D
(a)(b)(e)......................................... 6.453 12/31/19 506,250
1,500 United Mexican States, Global Bond (f)............ 11.500 05/15/26 1,488,750
450 United Mexican States, Par Bond, Series A
(b)(g)............................................ 6.250 12/31/19 311,625
2,300 United Mexican States, Par Bond, Series B
(b)(g)............................................ 6.250 12/31/19 1,592,750
-----------
Total Mexico (cost - $6,557,872).................. 6,810,313
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
MOROCCO - 4.44%
SOVEREIGN
1,900 The Kingdom of Morocco, Tranche A, Bank Loan
Participation (a)
(cost - $1,318,140)............................... 6.438% 01/01/09 $ 1,496,250
-----------
PANAMA - 4.29%
SOVEREIGN
800 The Republic of Panama, IRB Bond (a)(b)........... 3.500 07/17/14 504,000
1,366 The Republic of Panama, PDI Bond (a)(b)........... 6.750 07/17/16 942,816
-----------
Total Panama (cost - $1,065,489).................. 1,446,816
-----------
PERU - 4.57%
SOVEREIGN
1,400 The Republic of Peru, Citibank, Bank Loan
Participation (h)(i)
(cost - $1,120,500)............................... -- -- 1,540,000
-----------
PHILIPPINES - 2.20%
SOVEREIGN
800 Republic of the Philippines, FLIRB Series B (a)(b)
(cost - $744,170)................................. 5.000 06/01/08 743,000
-----------
POLAND - 3.88%
SOVEREIGN
1,650 The Polish People's Republic, PDI Bond (b)(d)
(cost - $1,164,326)............................... 3.750 10/27/14 1,307,625
-----------
RUSSIA - 4.47%
SOVEREIGN
2,150 Vneshekonombank, Bank Loan Participation (h)(i)
(cost - $834,625)................................. -- -- 1,505,000
-----------
VENEZUELA - 2.46%
SOVEREIGN
1,000 Republic of Venezuela, DCB (a)(b)
(cost - $588,930)................................. 6.625 12/18/07 830,000
-----------
Total Long-Term Investments (cost -
$24,284,211)...................................... 27,461,270
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT-8.99%
GRAND CAYMAN - 8.99%
3,031 Brown Brothers Harriman & Co.
Call Account
(cost - $3,031,000)............................... 5.000% * $ 3,031,000
-----------
Total Investments (cost - $27,315,211) - 90.46%... 30,492,270
Other assets in excess of liabilities - 9.54%..... 3,213,903
-----------
Net Assets - 100.00%.............................. $33,706,173
-----------
-----------
</TABLE>
- ---------
+ Denominated in United States dollars.
* Variable rate 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) Pro-rata sinking fund established.The first amortization of principal is
currently paid at a rate of 1%.
(d) Step-up coupon; coupon increases at periodic intervals.
(e) With additional 5,307,000 and 922,000 value recovery rights attached,
respectively, with no market value.
(f) Global Bond.
(g) With additional 450,000 and 2,300,000 value recovery rights attached,
respectively, with no market value.
(h) In the process of converting to a Brady bond issue. The conversion date
has not been finalized.
(i) Non-income producing security.
DCB Debt Conversion Bond.
FLIRB Front-Loaded Interest Reduction Bond.
FRB Floating Rate Bond.
IAB Interest Arrears Bond.
IRB Interest Reduction Bond.
PDI Past Due Interest.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $27,315,211)...... $ 30,492,270
Cash............................................ 850
Receivable for investments sold................. 2,013,125
Receivable for Portfolio shares sold............ 652,550
Interest receivable............................. 630,551
Deferred organization expenses and other
assets......................................... 137,000
-------------
Total assets.............................. 33,926,346
-------------
LIABILITIES
Payable for Portfolio shares repurchased........ 81,530
Distribution fee payable........................ 28,491
Accrued expenses................................ 110,152
-------------
Total liabilities......................... 220,173
-------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 3,254
Paid-in capital................................. 34,586,188
Undistributed net investment income............. 10,334
Accumulated net realized loss from
investments.................................... (4,070,662)
Net unrealized appreciation on investments...... 3,177,059
-------------
Net assets................................ $ 33,706,173
-------------
-------------
CLASS A
Net assets...................................... $ 32,297,989
-------------
Shares of beneficial interest outstanding....... 3,029,486
-------------
Net asset value per share....................... $10.66
-------------
-------------
Maximum offering price per share (net asset
value plus sales charge of 3.75%* of the
offering price)................................ $11.08
-------------
-------------
CLASS C
Net assets...................................... $ 1,408,184
-------------
Shares of beneficial interest outstanding....... 131,922
-------------
Net asset value and offering price per
share**........................................ $10.67
-------------
-------------
</TABLE>
- --------
* 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.
8
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................ $ 1,547,718
------------
EXPENSES
Investment management fees...................... 174,771
Distribution fees - class A..................... 52,176
Distribution fees - class C..................... 2,175
Legal and auditing fees......................... 43,367
Reports and notices to shareholders............. 41,072
Accounting fees................................. 38,493
Transfer agent fees and expenses................ 35,096
Amortization of organization expenses........... 27,441
Custodian fees and expenses..................... 21,660
State registration fees......................... 18,429
Trustees' fees and expenses..................... 9,026
Insurance expenses.............................. 7,512
Other........................................... 2,314
------------
Total expenses before waivers and
reimbursements.............................. 473,532
Less: waivers and reimbursements............ (167,309)
------------
Total expenses after waivers and
reimbursements.............................. 306,223
------------
Net investment income........................... 1,241,495
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments.............. 1,732,635
Net change in unrealized depreciation on
investments.................................... 3,395,739
------------
Net realized and unrealized gain on
investments.................................... 5,128,374
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $ 6,369,869
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
SEPTEMBER 30, FOR THE
1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996
-------------- --------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income........................... $ 1,241,495 $ 3,092,386
Net realized gain/(loss) from investments....... 1,732,635 (1,813,581)
Net change in unrealized depreciation on
investments.................................... 3,395,739 9,666,626
-------------- --------------
Net increase in net assets resulting from
operations..................................... 6,369,869 10,945,431
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income
Class A shares................................ (1,210,777) (3,173,751)
Class C shares................................ (29,261) (7,284)
-------------- --------------
(1,240,038) (3,181,035)
-------------- --------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares............ 3,446,654 1,767,410
Cost of shares repurchased...................... (4,777,265) (10,679,919)
Shares issued in reinvestment of dividends...... 845,079 2,161,217
-------------- --------------
Net decrease in net assets derived from shares
of beneficial interest transactions............ (485,532) (6,751,292)
-------------- --------------
Total increase in net assets.................... 4,644,299 1,013,104
-------------- --------------
NET ASSETS
Beginning of period............................. 29,061,874 28,048,770
-------------- --------------
End of period (including undistributed net
investment income of $10,334 and $8,877,
respectively).................................. $ 33,706,173 $ 29,061,874
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD FOR THE
JULY 26, PERIOD MAY
FOR THE SIX FOR THE YEAR 1995* FOR THE YEAR 3, 1993*
MONTHS ENDED ENDED THROUGH ENDED THROUGH
SEPTEMBER 30, 1996 MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1996 1996 1995 1994
--------------------------- ------------ ------------ ------------ ------------
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS A
---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period.......................... $ 9.02 $ 9.04 $ 6.90 $ 7.81 $ 8.98 $ 9.55
---------- ------------ ------------ ------------ ------------ ------------
Net investment income (1)........ 0.45 0.43 0.91 0.59 0.79 0.66
Net realized and unrealized
gain/(loss) on investments,
forward foreign currency
contracts and translation of
foreign currency related
transactions (2)................ 1.60 1.60 2.13 1.32 (1.85) (0.55)
---------- ------------ ------------ ------------ ------------ ------------
Net increase/(decrease) in net
assets resulting from
operations...................... 2.05 2.03 3.04 1.91 (1.06) 0.11
---------- ------------ ------------ ------------ ------------ ------------
Dividends and distributions to
shareholders from
Net investment income.......... (0.41) (0.40) (0.92) (0.68) (0.77) (0.65)
Net realized capital gains..... -- -- -- -- (0.25) (0.03)
---------- ------------ ------------ ------------ ------------ ------------
(0.41) (0.40) (0.92) (0.68) (1.02) (0.68)
---------- ------------ ------------ ------------ ------------ ------------
Net asset value, end of
period........................ $ 10.66 $ 10.67 $ 9.02 $ 9.04 $ 6.90 $ 8.98
---------- ------------ ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------ ------------
Total investment return (3)(5)... 23.05% 22.79% 46.13% 25.45% (13.07)% 0.36%
---------- ------------ ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------ ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)........................ $ 32,298 $ 1,408 $ 28,860 $ 202 $ 28,049 $ 45,691
Ratio of expenses to average net
assets (1)...................... 2.00%(4) 2.40%(4) 2.00% 2.40%(4)(5) 2.00% 2.00%(4)
Ratio of net investment income to
average net assets (1).......... 8.18%(4) 7.99%(4) 10.64% 8.72%(4)(5) 8.86% 7.24%(4)
Decrease reflected in above
expense ratios and net
investment income due to waivers
and reimbursements.............. 1.25%(4) 1.29%(4) 1.18% 3.42%(4)(5) 0.53% 0.33%(4)
Portfolio turnover rate (6)...... 130.04% 130.04% 266.46% 266.46% 35.01% 100.85%
</TABLE>
- ---------
* Commenced investment operations on May 3, 1993. Class C shares commenced its
initial public offering on July 26, 1995.
**Calculated based on the shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which are
based on the actual shares outstanding on the dates of distributions.
(1)Reflects waivers and reimbursements.
(2)
The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in aggregate gains and losses in
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.
(3)
Total investment return does not consider the effects of sales loads 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 returns are not annualized.
(4)Annualized.
(5)
The total investment return and ratios for class C shares are not necessarily
comparable to those of class A shares, due to timing differences in the
commencement of the initial public offering of class C shares.
(6)Not annualized.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Bear Stearns Investment Trust (the "Trust") was organized as a Massachusetts
business trust on October 15, 1992 and is registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end management investment
company. The Trust currently has one fund in operation, the Emerging Markets
Debt Portfolio (the "Portfolio"), a non-diversified portfolio. On February 22,
1995, the Portfolio changed its name from the Emerging Markets Debt Fund. As of
the date hereof, the Portfolio offers two classes of shares, which have been
designated as class A and C shares. The initial public offering for the class C
shares commenced on July 26, 1995.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on May 3,
1993, the Portfolio had no transactions other than those relating to
organizational matters and the sale of 10,472 shares of beneficial interest of
the Trust to Bear Stearns Funds Management Inc. ("BSFM" or the "Investment
Manager"). Costs of $273,667 incurred by the Trust in connection with its
organization, registration with the Commission and initial public offering of
shares, have been deferred and are being amortized, using the straight-line
method over the period of benefit not exceeding sixty months, beginning with the
commencement of investment operations of the Portfolio. In the event that the
Investment Manager or any transferee of the Investment Manager 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 the Portfolio is liquidated prior to the end of
the sixty month period, the Investment Manager or the transferee of the
Investment Manager shall bear the unamortized deferred organization expenses.
PORTFOLIO VALUATION--The Portfolio calculates the net asset value of and
completes orders to purchase or repurchase Portfolio 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 Portfolio are not listed on security exchanges or traded on
other regulated markets, therefore, in the absence of reported sales prices on a
valuation date, assets generally will be valued at the mean of the last bid and
offer quotations. In the absence of reported bid and offer quotations on such
valuation date, such assets will be valued from the broker bids of at least one
market maker. In the absence of current broker bids or if PFPC Inc. (the
"Administrator"), in consultation with the Valuation Committee, concludes that
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 Administrator after consultation with the Valuation Committee. In
making this determination the Valuation Committee will consider, among other
things, publicly available information regarding the issuer, market conditions
and values ascribed to comparable companies. In instances where the price
determined above is deemed not to represent fair market value, the price is
determined in such manner as the Board of Trustees may prescribe. The amortized
cost method of valuation may also be used with respect to debt obligations with
60 days or less remaining to maturity, unless this method does not represent
fair value. 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. Expenses and fees, including the investment management,
administration and distribution fees, are accrued daily and taken into account
for the purpose of determining the net asset value of the Portfolio's shares.
Because of the differences in operating expenses incurred by each class, the per
share net asset value of each class will differ.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from security and foreign currency
transactions are calculated on the identified cost basis. Interest income is
recorded on an accrual basis. Discounts are treated as adjustments to interest
income and
12
<PAGE>
identified costs of investments over the lives of the respective investments.
The Portfolio's net investment income (other than distribution fees) and
unrealized and realized gains or losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes).
FOREIGN CURRENCY TRANSLATION--The books and records of the 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 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 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.
There were no foreign exchange gains or losses for the six months ended
September 30, 1996.
FORWARD FOREIGN CURRENCY CONTRACTS--The Portfolio is permitted to enter into
forward foreign currency exchange contracts solely for purposes of protecting
against adverse changes in foreign currency exchange rates. The Portfolio may
enter into contracts to purchase foreign currencies to protect against a rise in
the U.S. dollar price of securities it has purchased pending final settlement,
or it may enter into contracts to sell foreign currencies to protect against the
decline in value of its non-dollar denominated securities due to a decline in
the value of foreign currencies against the U.S. dollar. When the 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 of the Portfolio in an amount equal to the value of the Portfolio's
total assets committed to the consummation of the forward contract. If the value
of the securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Portfolio's commitment with respect to the contract.
Investors should be aware that the forward currency market for the purchase of
U.S. dollars in many emerging countries is not highly developed and that in
certain emerging countries no forward market for foreign currencies currently
exists or that such market may be closed to investment by the Portfolio. At
September 30, 1996, the Portfolio held no such contracts.
U.S. FEDERAL TAX STATUS--The Portfolio intends to distribute substantially all
of its taxable income and to comply with the other requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing during each calendar year substantially all of its
ordinary income and capital gains, if any, the Portfolio intends not to be
subject to a U.S. federal excise tax. At March 31, 1996, the Portfolio had
capital loss carryforwards of $463,150 and $5,340,147 available as a reduction,
to the extent provided in regulations, of any future net capital gains realized
before the end of fiscal years 2003 and 2004, respectively. To the extent that
the loss is used to offset future capital gains, it is probable that the gains
so offset will not be distributed to shareholders.
FOREIGN WITHHOLDING TAXES--Income received by the Portfolio 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 Portfolio declares and pays as quarterly
dividends to shareholders substantially all of its net investment income.
Distribution of net realized gains, if any, will be declared and paid at least
annually. Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
INVESTMENT MANAGER
Bear Stearns Funds Management Inc., a wholly-owned subsidiary of The Bear
Stearns Companies Inc., serves as the Portfolio's investment manager pursuant to
the Investment Management Agreement adopted by the shareholders of the Portfolio
on May 4, 1995. For its investment management and administrative services, the
Investment Manager receives from the Portfolio a monthly fee at
13
<PAGE>
an annual rate equal to 1.15% of the Portfolio's average daily net assets up to
$50 million, 1.00% of the Portfolio's average daily net assets of more than $50
million but not in excess of $100 million and 0.70% of the Portfolio's average
daily net assets above $100 million.
Prior to the adoption of the Investment Management Agreement with BSFM, BEA
Associates ("BEA" or the "Adviser") served as investment adviser to the
Portfolio pursuant to an Investment Advisory Agreement, and BSFM served as
manager of the Portfolio pursuant to the Investment Management Agreement. BEA
received from the Portfolio a monthly fee equal to 0.80% of the Portfolio's
average daily net assets up to $50 million, 0.70% of the Portfolio's average
daily net assets of more than $50 million but not in excess of $100 million and
0.50% of the Portfolio's average daily net assets above $100 million. BSFM
received from the Portfolio a monthly fee at an annual rate equal to 0.45% of
the Portfolio's average daily net assets up to $50 million, 0.40% of the
Portfolio's average daily net assets of more than $50 million but not in excess
of $100 million and 0.30% of the Portfolio's average daily net assets above $100
million. The Portfolio will not pay BSFM or BEA at a later time for any amounts
they waived nor will the Portfolio reimburse BSFM or BEA for any amounts they
may have assumed.
The Investment Manager has voluntarily undertaken to limit the total operating
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
items) to a maximum annual level of 2.00% of the average daily net assets of the
Portfolio's class A shares and 2.40% for class C shares, as did BEA and BSFM in
their respective capacities prior to May 4, 1995. As necessary, this limitation
is effected by waivers by the Investment Manager of its investment management
fees and reimbursements of expenses exceeding the manager's fee. Accordingly,
for the six months ended September 30, 1996, BSFM reimbursed $167,309 of its
investment management fees.
The fees are computed daily and paid monthly, and are subject to reduction in
any year to the extent that the Portfolio's expenses (exclusive of brokerage
commissions, taxes, interest, distribution-related expenses and extraordinary
items) exceed the most stringent limits prescribed by the laws or regulations of
any state in which the Portfolio's shares are offered for sale, based on the
average total net assets of the Portfolio.
DISTRIBUTION PLAN
The Trust, on behalf of the Portfolio, has entered into an amended and restated
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act. Upon adoption of the Plan by the shareholders of the Portfolio on
May 4, 1995, the Plan has increased the amount of 12b-1 fees on the Portfolio's
current shares, which have been designated class A shares, from an annual rate
of 0.25% of the average daily net asset value of the Portfolio to an annual rate
of 0.35% of the average daily net assets of the class A shares of the Portfolio.
The Plan provides for 12b-1 fees on the class C shares at an annual rate of
0.75% of the average daily net assets of the class C shares. Despite the
increase in fees under the amended and restated 12b-1 plan, the total operating
expenses of the Portfolio have remained constant, as the Investment Manager
agreed to waive its fees to the extent necessary to maintain the total operating
expenses at 2.00% per annum of the daily net assets of the class A shares of the
Portfolio (until such time as the average net assets of the Portfolio exceed $50
million or the total operating expenses are less than 2.00% per annum of the
daily net assets of the class A shares of the Portfolio; 2.40% per annum for
class C shares). In addition, a higher level of 12b-1 fees enables the Portfolio
to offer improved shareholder services, such as lower investment minimums and
the ability to exchange shares of the Portfolio with shares of the same class of
certain other funds and portfolios affiliated with Bear, Stearns & Co. Inc.
("Bear Stearns" or "Distributor"). The initial public offering for the class C
shares commenced on July 26, 1995. Such fees are based on the average daily net
assets in each class of the Portfolio and are accrued daily and paid monthly or
at such other intervals as the Board of Trustees may determine. For the six
months ended September 30, 1996, Bear Stearns, as distributor, earned $54,351 in
distribution fees under the Plan and the 12b-1 plan in effect thereto. Bear
Stearns uses these fees to pay dealers whose clients hold the Portfolio's shares
and other distribution-related activities.
In addition, as Distributor of the Portfolio, Bear Stearns collects the sales
charges imposed on sales of the Portfolio's class A shares, and reallows a
portion of such charges to dealers through which the sales are made. As a result
of an undertaking by the Distributor, it reallowed or will reallow all of the
sales charges to its dealers selling Portfolio shares for the period April 3,
1995 through September 26, 1995 and the period February 15, 1996 through June
30, 1996. Furthermore, the Distributor has increased the compensation paid to
its dealers selling Portfolio shares on net asset value transfers (purchases
made by investors with the proceeds
14
<PAGE>
from a redemption of shares of an investment company sold with a sales charge or
commission and not distributed by Bear Stearns) from 0.50% to 1.00% for the
period April 15, 1996 until further notice. In addition, Bear Stearns advanced
1.00% in sales commissions on the sale of class C shares to dealers at the time
of such sales.
For the six months ended September 30, 1996, Bear Stearns has advised the
Portfolio that it received approximately $47,600 in front-end sales charges
resulting from sales of class A shares in the Portfolio. From these fees, Bear
Stearns paid such sales charges to dealers which in turn paid commissions to
salespersons. In addition, Bear Stearns has advised the Portfolio that during
the period, it received approximately $100 in contingent deferred sales charges
upon certain redemptions by class C shareholders.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at September
30, 1996, was $27,319,538. Accordingly, the net unrealized depreciation on
investments of $3,172,732 was composed of gross appreciation of $3,222,111 for
those securities having an excess of value over cost and gross depreciation of
$49,379 for those investments having an excess of cost over value.
For the period ended September 30, 1996, aggregate purchases and sales of
portfolio securities (excluding short-term securities) were $35,226,826 and
$39,040,401, respectively.
SHARES OF BENEFICIAL INTEREST
The Portfolio offers class A and C shares. Class A shares are sold with a
front-end sales charge of up to 3.75%. Class C shares are sold with a contingent
deferred sales charge ("CDSC") of 1.00% during the first year.
At September 30, 1996, there was an unlimited amount of $0.001 par value shares
of beneficial interest authorized of which Bear Stearns Funds Management Inc.
owned 12,645 class A shares (including 2,173 shares acquired through dividends
reinvested). Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1996
------------------------------
CLASS A
------------------------------
SHARES AMOUNT
------------ ----------------
<S> <C> <C>
Sales........................................................................................ 223,927 $ 2,265,000
Repurchases.................................................................................. (475,654) (4,674,135)
Reinvestments................................................................................ 81,601 820,355
------------ ----------------
Net increase/(decrease)...................................................................... (170,126) $ (1,588,780)
------------ ----------------
------------ ----------------
<CAPTION>
CLASS C
----------------------------
SHARES AMOUNT
----------- ---------------
<S> <C> <C>
Sales........................................................................................ 117,554 $ 1,181,654
Repurchases.................................................................................. (10,318) (103,130)
Reinvestments................................................................................ 2,378 24,724
----------- ---------------
Net increase/(decrease)...................................................................... 109,614 $ 1,103,248
----------- ---------------
----------- ---------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31, 1996
CLASS A
---------------------------------
SHARES AMOUNT
-------------- -----------------
<S> <C> <C>
Sales........................................................................................ 187,769 $ 1,560,594
Repurchases.................................................................................. (1,315,721) (10,659,478)
Reinvestments................................................................................ 265,067 2,154,823
-------------- -----------------
Net increase/(decrease)...................................................................... (862,885) $ (6,944,061)
-------------- -----------------
-------------- -----------------
<CAPTION>
FOR THE PERIOD
JULY 26, 1995* THROUGH
MARCH 31, 1996
CLASS C
-----------------------
SHARES AMOUNT
--------- ------------
<S> <C> <C>
Sales........................................................................................ 23,786 $ 206,816
Repurchases.................................................................................. (2,227) (20,441)
Reinvestments................................................................................ 749 6,394
--------- ------------
Net increase/(decrease)...................................................................... 22,308 $ 192,769
--------- ------------
--------- ------------
</TABLE>
- --------
* Commencement of initial public offering.
CREDIT AGREEMENT
The Trust, on behalf of the Portfolio, has entered into a credit agreement with
The First National Bank of Boston. The Bear Stearns Funds, which consists of the
Total Return Bond Portfolio, Small Cap Value Portfolio, Large Cap Value
Portfolio, The Insiders Select Fund,
15
<PAGE>
and S&P STARS Portfolio, and S&P STARS Fund are also parties to the credit
agreement. The agreement provides that each party to the credit agreement is
permitted to borrow in an amount up to 15% of the value of its total assets.
Subject to Board approval and upon making necessary disclosure in its
prospectus, each portfolio may, in accordance with the provisions of the credit
agreement, borrow up to 25% of the value of its total assets, less all
liabilities other than liabilities for borrowed money outstanding at the time.
However, at no time is the aggregate outstanding principal amount of all loans
to any of the portfolios to exceed $25,000,000. The line of credit will bear
interest at the greater of: (i) the annual rate of interest announced from time
to time from the bank at its head office as its Base Rate, or (ii) the Federal
Funds Effective Rate plus 0.50%, or at the borrower's option, the rate quoted by
The First National Bank of Boston.
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.
The Portfolio uses the facility to borrow money only for temporary or emergency
(not leveraging) purposes. The Portfolio had no amounts outstanding under the
line of credit agreement at September 30, 1996.
CONCENTRATION OF RISK
Investments in emerging markets debt involve special risks. The issuer of the
debt of the governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and the 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 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 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.
CREDIT RISK
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
Portfolio of unrealized profits, the benefits of a currency hedge, increase
transaction costs or force the Portfolio to cover its purchase or sale
commitments, if any, at the current market price. The 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 BSFM.
16
