BEAR STEARNS INVESTMENT TRUST
485APOS, 1997-09-26
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   As filed with the Securities and Exchange Commission on September 26, 1997

                                        Securities Act Registration No. 33-53368
                                   Investment Company Registration No. 811-07290


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM N-1A
           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933           |X|
                      Post-Effective Amendment No. 9  x                      |X|
                                     and/or
      REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940        |X|
                              Amendment No. 11                               |X|
                       (Check appropriate box or boxes) x

                          BEAR STEARNS INVESTMENT TRUST
                        (a Massachusetts Business Trust)
               (Exact Name of Registrant as Specified in Charter)

                                 245 Park Avenue
                            New York, New York 10167
                    (Address of principal executive offices)

                                 (212) 272-2000
               Registrant's telephone number, including area code
                            ------------------------

                              Ellen T. Arthur, Esq.
                       Bear Stearns Funds Management Inc.
                                 245 Park Avenue
                            New York, New York 10167
                     (Name and Address of Agent for Service)

                                    Copy to:

                              Beth R. Kramer, Esq.
                              Mayer, Brown & Platt
                                  1675 Broadway
                            New York, N.Y. 10019-5820


It is proposed that this filing will become effective: (check appropriate box).
               ___  immediately upon filing pursuant to paragraph (b)
               ___  on (date) pursuant to paragraph (b)
                x   60 days after filing pursuant to paragraph (a)(i)
               ___  on (date) pursuant to paragraph (a)(i)
               ___  75 days after filing pursuant to paragraph (a)(ii)
               ___  on (date) pursuant to paragraph (a)(ii) of Rule 485
               If appropriate, check the following box:
               __  this post-effective amendment designates a new effective
                   date for a previously filed post-effective amendment.

                       DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended, the
Registrant has registered an indefinite number or amount of securities under the
Securities  Act of 1933, as amended.  Registrant has filed the Rule 24f-2 Notice
for its fiscal year ended March 31, 1997 on May 27, 1997.




<PAGE>


                          BEAR STEARNS INVESTMENT TRUST

                              Cross Reference Sheet

                             Pursuant to Rule 495(a)


<TABLE>
<CAPTION>

Part A
         Location in Prospectus
<S>     <C>                                                           <C>

Item 1.  Cover Page................................................   Cover Page
Item 2.  Synopsis..................................................   Summary; Fee Table
Item 3.  Condensed Financial Information...........................   Not Applicable
Item 4.  General Description of Registrant.........................   Cover Page; General; Investment Objective;
                                                                      Investment Policies; Risk Factors and Special
                                                                      Considerations
Item 5.  Management of the Fund....................................   Fee Table; Management of the Portfolio
Item 5A. Management's Discussion of
         Fund Performance..........................................   Not Applicable
Item 6.  Capital Stock and Other Securities........................   Dividends, Distributions and Taxes; General
                                                                      Information
Item 7.  Purchase of Securities Being Offered......................   Cover Page; Fee Table; Management of the
                                                                      Portfolio; How to Buy Shares
Item 8.  Redemption or Repurchase..................................   How to Redeem Shares
Item 9.  Pending Legal Proceedings.................................   Not Applicable


Part B                                                                Location in Statement of Additional
                                                                      Information

Item 10. Cover Page................................................   Cover Page
Item 11. Table of Contents.........................................   Table of Contents
Item 12. General Information and History ..........................   Not Applicable
Item 13. Investment Objective and Policies.........................   Investment Objective and Policies; Risk
                                                                      Factors and Special Considerations;
                                                                      Investment Limitations; Portfolio
                                                                      Transactions
Item 14. Management of the Fund....................................   Management of the Portfolio
<PAGE>
Part B                                                                Location in Statement of Additional
                                                                      Information
Item 15. Control Persons and Principal Holders
         of Securities.............................................   Management of the Portfolio
Item 16. Investment Advisory and other Services....................   Management of the Portfolio; Distribution
                                                                      Plan
Item 17. Brokerage Allocation and Other Practices..................   Portfolio Transactions
Item 18. Capital Stock and Other Securities........................   Shares of the Portfolio
Item 19. Purchase, Redemption and Pricing of
         Securities Being Offered..................................   Shares of the Portfolio; Purchase and
                                                                      Redemption Information; Net Asset Value
Item 20. Tax Status................................................   Taxation
Item 21. Underwriters..............................................   Distribution Plan
Item 22. Calculation of Performance Data...........................   Performance and Yield Information
Item 23. Financial Statements......................................   Financial Statements
</TABLE>


Part C
                Information required to be included in Part C is set forth under
                the   appropriate   item,  so  numbered,   in  Part  C  to  this
                Post-Effective  Amendment No. 9 to the Registration Statement on
                Form N-1A.




                                       -2-

<PAGE>
       
PROSPECTUS

                         Emerging Markets Debt Portfolio

Emerging  Markets Debt Portfolio (the  "Portfolio")  is organized as a separate,
non-diversified  portfolio of Bear Stearns  Investment  Trust (the "Trust"),  an
open-end  management   investment  company  organized  under  the  laws  of  The
Commonwealth of  Massachusetts.  The Portfolio  seeks to provide  investors with
high  current  income by  investing  primarily  in Debt  Obligations  of issuers
located in Emerging Countries. The Portfolio's secondary objective is to provide
investors with capital  appreciation.  See "Investment  Objective and Policies."
There  can be no  assurance  that the  Portfolio  will  achieve  its  investment
objective.

   
Investments  in securities in Emerging  Countries and  investments in securities
denominated in foreign currencies,  as well as the active management  techniques
that the  Portfolio  may  employ,  entail  risks in  addition  to those that are
customarily   associated   with  investing  in   dollar-denominated   U.S.  debt
securities.  In addition, at any one time,  substantially all of the Portfolio's
assets may be invested in Debt  Obligations that are unrated or below investment
grade. Investments in below investment grade Debt Obligations, commonly known as
"JUNK  BONDS," and  certain  unrated  Debt  Obligations  may  involve  risks not
associated with investment  grade  securities,  including among others,  overall
greater risk of non-payment of principal and interest (default),  sensitivity to
general economic conditions and changes in interest rates,  greater market price
volatility and less liquid secondary market trading.  As a result, the Portfolio
is intended for long-term investors who can accept the risks associated with its
investments  and  may  not be  suitable  for  all  investors.  Investors  should
carefully  consider  these  risks  before  investing.  See  "Description  of the
Portfolio --  Investment  Objective,"  p. 10;  "Description  of the Portfolio --
Investment  Restrictions," p. 19; and "Risk Factors and Special Considerations,"
p. 19.
    

By this Prospectus,  the Portfolio is offering three classes of shares, Class A,
Class B and Class C shares  (each,  a  "Class")  of  shares.  Class A shares are
subject to a sales charge  imposed at the time of  purchase.  Class B shares are
subject to a contingent deferred sales charge of up to 5% imposed on redemptions
made within the first six years of purchase.  Class C shares are subject to a 1%
contingent  deferred sales charge  imposed on redemptions  made within the first
year of purchase.  Other  differences  between the Classes  include the services
offered to and the  expenses  borne by each Class,  as described  herein.  These
alternatives  are  offered so an  investor  may choose the method of  purchasing
shares that is most beneficial  given the amount of the purchase,  the length of
time the investor  expects to hold the shares and other relevant  circumstances.
The Portfolio issues other classes of shares which have different expenses which
would affect  performance.  Investors desiring to obtain information about these
other  classes  of  shares  should  call   1-800-766-4111  or  ask  their  sales
representatives or the Portfolio's distributor.

Bear Stearns Funds Management Inc.  ("BSFM"),  a wholly-owned  subsidiary of The
Bear Stearns Companies, Inc., serves as investment manager to the Portfolio.

                              -------------------

Bear,  Stearns & Co. Inc. ("Bear Stearns"),  an affiliate of BSFM, serves as the
Portfolio's distributor.

                              -------------------

This Prospectus sets forth concisely the information  about the Portfolio that a
prospective  investor  ought to know  before  investing.  It  should be read and
retained for future reference.

The Statement of Additional  Information,  dated November ___, 1997,  containing
further  information  about the Portfolio which may be of interest to investors,
has been filed with the Securities and Exchange Commission, which information is
incorporated herein by reference in its entirety.  For a free copy, write to the
address or call one of the telephone numbers listed under "General  Information"
in this Prospectus.

Mutual fund shares are not deposits or  obligations  of, or  guaranteed  by, any
bank, and are not federally  insured by the Federal Insurance  Corporation,  the
Federal Reserve Board, or any other agency; and are subject to investment risks,
including possible loss of the principal amount invested.

The net asset value of funds of this type will fluctuate.

THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE  COMMISSION OR ANY STATE  SECURITIES  COMMISSION NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                               November ___, 1997




<PAGE>




                                Table of Contents
                                                                            Page

Summary  ......................................................................3

Fee Table......................................................................6

Financial Highlights...........................................................8

Alternative Purchase Methods...................................................9

Description of the Portfolio..................................................10

Risk Factors and Special Considerations.......................................19

Management of the Portfolio...................................................27

How to Buy Shares.............................................................31

Shareholder Services..........................................................39

   
How to Redeem Shares......................................................... 41

Dividends, Distributions and Taxes........................................... 46
    

Performance Information.......................................................47

   
General Information.......................................................... 49
    

Appendix.....................................................................A-1




                                        2



<PAGE>



                                     Summary

General

The  Portfolio  is organized  as a separate,  non-diversified  portfolio of Bear
Stearns  Investment  Trust (the  "Trust"),  an open-end,  management  investment
company organized under the laws of The Commonwealth of  Massachusetts.  By this
Prospectus,  the  Portfolio  offers  Class A shares,  Class B shares and Class C
shares,  which  are  distinguished  by  their  fee  structures  and  shareholder
services,  as described  herein.  The  Portfolio  issues other classes of shares
which have different expenses which would affect performance.

Alternative Purchase Methods

By this  Prospectus,  the Portfolio offers investors three methods of purchasing
its  shares;  investors  may  choose the Class of shares  that best suits  their
needs, given the amount of purchase,  the length of time the investor expects to
hold the shares  and any other  relevant  circumstances.  Each  Portfolio  share
represents  an  identical  pro  rata  interest  in  the  Portfolio's  investment
portfolio. See "Alternative Purchase Methods".

The minimum  initial  investment in the Portfolio is currently  $1,000 ($500 for
retirement plans).  The minimum  subsequent  investment in the Portfolio is $250
($100 for  retirement  plans).  Shares may be purchased at the current net asset
value per share plus the  applicable  sales load, if any. The sales load is paid
at the time of  purchase  of shares of the  Portfolio.  The  Portfolio  and Bear
Stearns each reserve the right to modify the minimum investment requirement, the
subsequent  investment  requirement,  the manner in which shares are offered and
the sales load rates applicable to future  purchases of shares.  See "How to Buy
Shares."

Investment Objective

The  investment  objective of the  Portfolio is to provide  investors  with high
current income by investing primarily in Debt Obligations (as defined herein) of
issuers located in Emerging Countries. The Portfolio's secondary objective is to
provide investors with capital appreciation.  There can be no assurance that the
Portfolio will achieve its investment objective.

The  Portfolio  defines  "Debt  Obligations"  to include  fixed or floating rate
bonds,  notes,  debentures,  commercial paper, Loans (as defined herein),  Brady
Bonds, convertible securities, and other debt securities issued or guaranteed by
governments,  agencies or instrumentalities,  central banks, commercial banks or
private issuers,  including repurchase agreements with respect to obligations of
governments or central banks.  See  "Description  of the Portfolio -- Investment
Objective and Policies." The Portfolio considers "Emerging Countries" to include
any country that is generally considered to be an emerging or developing country
by the World Bank, the International  Finance  Corporation or the United Nations
and its authorities.  The Investment Manager may invest in Debt Obligations that
it determines to be proper  investments  for the Portfolio  notwithstanding  any
credit  ratings  that  may be  assigned  to such  securities.  At any one  time,
substantially all of the Portfolio's  assets may be invested in Debt Obligations
that are unrated or below investment grade.

Risk Factors

Investors  should  carefully  consider the risks of investing in  securities  of
issuers in Emerging Countries and non-dollar denominated securities.  Generally,
while the Portfolio  offers  potential  returns higher than those available from
U.S. government securities,  there is also a substantially greater risk of loss.
The  Portfolio  may not be  suitable  for all  investors,  and is  intended  for
long-term investors who can accept

                                        3



<PAGE>



the risks associated with its investments.  Investors should carefully  consider
these risks before  investing.  See  "Description of the Portfolio -- Investment
Objective" and "Risk Factors and Special Considerations."

Low Rated and Unrated Instruments
At any one time,  substantially all of the Portfolio's assets may be invested in
Debt  Obligations  that are unrated or below  investment  grade.  Low rated debt
instruments,   commonly  known  as  "JUNK  BONDS,"  and  certain   unrated  debt
instruments  generally  offer a higher  current yield than that  available  from
investment grade issues, but involve greater risk. Low rated and certain unrated
securities are especially subject to changes in the financial condition of their
issuers and to price fluctuation in response to changes in interest rates.

Discount Obligations
As a result of the Portfolio  holding  securities  purchased at a discount,  the
Portfolio  may  be  required  to  sell  securities  to  meet  required  dividend
distributions to Shareholders.  Under adverse market conditions, this may result
in  Shareholders  receiving  a portion  of their  original  purchase  price as a
taxable dividend and could further negatively impact net asset value.

Political and Economic Factors
Investing in Debt Obligations of Emerging Countries involves  considerations and
potential  risks  relating  to  political  and  economic   developments  abroad.
Governments  of many Emerging  Countries have exercised and continue to exercise
substantial  influence  over many  aspects of the private  sector.  Accordingly,
government  actions in the future  could have a  significant  effect on economic
conditions in Emerging Countries,  which could affect the value of securities in
the Portfolio's portfolio.

Foreign Exchange Risk
The value of non-dollar  denominated securities of issuers in Emerging Countries
is  affected  by  changes  in  currency   exchange  rates  or  exchange  control
regulations.  Foreign currency exchange rates are determined by forces of supply
and demand on the foreign  exchange  markets.  These  forces are affected by the
international balance of payments, economic and financial conditions, government
intervention,  speculation and other factors. Many of the currencies of Emerging
Countries have experienced significant  devaluations relative to the U.S. dollar
and major  adjustments  have been made in certain  of them at times.  Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the U.S.
dollar value of the Portfolio's  assets denominated in that currency and thereby
impact  upon the  Portfolio's  total  return on such  assets.  A decline  in the
exchange  rate  would  reduce  the value of  certain  portfolio  securities.  In
addition,  if the exchange rate for the currency in which the Portfolio receives
interest  payments declines against the U.S. dollar before such interest is paid
as dividends to  Shareholders,  the  Portfolio  may have to sell  securities  to
obtain sufficient cash to pay such dividends.

Sovereign Debt
Investments in sovereign 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 Portfolio may have limited recourse in the event
of a default.


Investing in Securities Markets of Emerging Countries
Certain of the risks  associated with  investments  generally are heightened for
investments in Emerging Countries.  For example,  securities markets in Emerging
Countries  may be less liquid,  more  volatile and less subject to  governmental
regulation than U.S.  securities  markets.  There may be less publicly available
information about issuers in Emerging Countries than about domestic issuers.


                                        4



<PAGE>




Investment Practices
The Portfolio may employ  investment  techniques  involving risks different from
those  associated  with  investing  solely in dollar  denominated  fixed  income
securities of U.S.  issuers.  Losses  resulting from the use of such  strategies
would reduce the  Portfolio's  net asset value,  and  possibly  income,  and the
losses can be greater than if the strategies had not been used.

Non-Diversification
Since the Portfolio is  "non-diversified"  under the  Investment  Company Act of
1940,  as amended (the  "Investment  Company Act") it is subject only to certain
tax  diversification  requirements.  The  Portfolio  may invest up to 25% of its
assets in the securities of any one issuer (except that this limitation does not
apply to U.S.  Government  securities).  With respect to 50% of its assets,  the
Portfolio may not invest more than 5% of its assets in the securities of any one
issuer  (except  the U.S.  Government).  To the  extent  that the  Portfolio  is
non-diversified under the Investment Company Act, it will be more susceptible to
adverse developments affecting any single issuer of portfolio securities.

Management of the Portfolio

Bear Stearns Funds Management Inc.  ("BSFM" or the "Investment  Manager") serves
as the  Portfolio's  investment  manager  pursuant to an  Investment  Management
Agreement.

For its investment  advisory and  management  services,  the Investment  Manager
receives  from  the  Portfolio  a  monthly  fee  equal on an  annual  basis to a
percentage of the Portfolio's  average daily net assets. The maximum fee payable
to the  Investment  Manager  is 1.15% of the  Portfolio's  net  assets up to $50
million,  1.0% 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. The investment  management fees paid by the
Portfolio  are greater  than those paid by most funds,  but are  believed by the
Investment  Manager  to be  appropriate  for fees  paid by  funds  with a global
investment  strategy.  See "Management of the Portfolio." Bear Stearns serves as
the distributor for the Portfolio in the sale of its shares.

Brown  Brothers  Harriman & Co. (the  "Custodian")  acts as the custodian of the
Portfolio's  assets  and may employ  subcustodians  outside  the  United  States
approved by the Trustees of the Portfolio in accordance with  regulations of the
Securities and Exchange Commission (the "Commission"). Under the Transfer Agency
Agreement  with  the  Portfolio,   PFPC  Inc.  (the  "Transfer   Agent"  or  the
"Administrator")  provides  transfer  agency  services and responds to inquiries
from the Shareholders.

The above is qualified in its  entirety by the  detailed  information  appearing
elsewhere in this Prospectus and in the Statement of Additional Information.



                                        5



<PAGE>

<TABLE>
<CAPTION>


                                                     Fee Table


                                                    Class A                Class B             Class C
- --------------------------------------------------- ---------------------  ------------------  ------------------------
<S>                                                 <C>                    <C>                  <C>

Shareholder Transaction Expenses
    Maximum Sales Load Imposed on Purchases
      (as a % of offering price)................... 4.50%*                 None                 None
    Maximum Sales Load Imposed on Reinvested
    Dividends ..................................... None                   None                 None
    Maximum Deferred Sales Charge Imposed on
    Redemptions
      (as a % of the amount subject to charge)**... None(a)                5.00%                1.00%
    Exchange Fees ................................. None                   None                 None

Annual Portfolio Operating Expenses
(as a percentage of average net assets)
    Management Fees (after waiver)***.............. 0.11%                  0.11%                0.11%
    Distribution (Rule 12b-1) Fees (after fee
      waiver)**** (b) ............................. 0.25%                  0.75%                0.75%
    Other Expenses (after expense
      reimbursements)***** ........................ 1.64%                  1.54%                1.54%
                                                    -----                  -----                -----
    Total Portfolio Operating Expenses
(after fee waiver and expense reimbursement)....... 2.00%***               2.40%***             2.40%***
                                                    =====                  =====                =====

Example:

    You would pay the following expenses on a
    hypothetical $1,000 investment (including the
    sales load), assuming (1) a 5% annual return
    and the reinvestment of dividends and (2)
    redemption of all shares at the end of each
    time period:
    1 Year.......................................        $64                $75                    $34
    3 Years......................................       $105               $107                    $75
    5 Years......................................       $148               $150                   $128
    10 Years.....................................       $267               $264******             $264******

    You would pay the  following  expenses on
    the same  investment,  assuming no redemption:
    1 Year.....................................          $64                $24                    $24
    3 Years....................................         $105                $75                    $75
    5 Years....................................         $148               $128                   $128
    10 Years...................................         $267               $264******             $264******
</TABLE>



- ------------------------------------


(a)  In certain  situations  where no sales  charge is  assessed  at the time of
     purchase,  a contingent deferred sales charge of up to 1.00% may be imposed
     on  redemptions  within  the first  year  after  purchase.  See "How to Buy
     Shares--Class A Shares."

(b)  See  "Distribution  Plan."  Long-term  shareholders  of the  Portfolio  may
     indirectly pay more than the economic  equivalent of the maximum  front-end
     sales charges permitted by the rules of the NASD.

*    The  sales  load  may  also  be  reduced  or   eliminated   under   certain
     circumstances. See "How to Buy Shares."


                                        6



<PAGE>



**        A  transaction  fee of $7.50 may be charged for payments of redemption
          proceeds by wire. See "How to Redeem Shares."

***       The expense  figures  have been  restated  from actual  expenses  paid
          during the fiscal year ended March 31, 1997 to reflect current expense
          levels.   The   Investment   Manager  has   undertaken  to  waive  its
          compensation  and assume its  expenses  (except  the  brokerage  fees,
          extraordinary  items and taxes) provided in the Investment  Management
          Agreement to maintain total operating expenses at 2.00%, and 2.40% and
          2.40% per annum of the average daily net assets of the Class A shares,
          Class B  shares  and  Class C  shares,  respectively.  The  waiver  of
          compensation will  automatically  expire at such time as the Portfolio
          has average net assets of $50 million or total  operating  expenses of
          the  Portfolio  are less than 2.00% per annum of the average daily net
          assets,   unless  the  Investment   Manager  in  its  sole  discretion
          determines  to  continue  the  waiver of  compensation.  Without  such
          waiver,  the  investment  management  fees would be equal on an annual
          basis to 1.15%,  of average  net  assets  for Class A shares,  Class B
          shares  and  Class C shares.  Without  such  waiver by the  Investment
          Manager,  total  operating  expenses  are  estimated to be equal on an
          annual basis to 2.80%, 3.04% and 3.04% of average net assets for Class
          A  shares,  Class B  shares  and  Class C  shares,  respectively.  See
          "Management of the Portfolio".

****      With  respect  to  Class  A  shares,  0.10%  of the  Rule  12b-1  fees
          attributable  to  distribution  related  expenses,  is currently being
          waived.  Without the fee waiver,  12b-1 fees would have been 0.35% for
          the Portfolio.

*****     With respect to the Class B and Class C shares of the Portfolio, other
          expenses  include a  shareholder  servicing  fee of 0.25% for personal
          service and  maintenance of accounts.  A service fee is reallocated to
          NASD member firms for continuous  personal  service by such members to
          investors  in  the  Portfolio,   such  as  responding  to  shareholder
          inquiries,  quoting  net asset  values,  providing  current  marketing
          material and attending to other shareholder  matters.  Pursuant to the
          rules of the NASD, the aggregate  initial sales charges,  any deferred
          sales charges and asset based sales charges on shares of the Portfolio
          may not  exceed  6.25%  of  total  gross  sales,  subject  to  certain
          exclusions.  This 6.25%  limitation is imposed on the Portfolio rather
          than on a per shareholder basis.

******    Class B shares  convert to Class A shares eight years after  purchase;
          therefore, Class A expenses are used in the hypothetical example after
          year eight.

The purpose of the foregoing table is to assist investors in  understanding  the
various  costs and expenses of the  Portfolio  that an investor in the Portfolio
will bear directly or  indirectly,  the payment of which will reduce  investors'
annual  return.  The example  assumes fees are paid at the rates provided in the
table.

Actual fees and expenses may be greater or less than those indicated.  Moreover,
while the example assumes a 5% annual return, the Portfolio's actual performance
will vary and may result in an actual return greater or less than 5%.



                                        7



<PAGE>



                              Financial Highlights

The following  information on financial highlights for (i) the fiscal year ended
March 31, 1997, March 31, 1996, March 31, 1995 and the period  commencing May 3,
1993  (commencement  of  investment  operations)  through March 31, 1994 for the
Class A Shares and (ii) for the fiscal  year  ended  March 31,  1997 and for the
period  commencing  July 26,  1995  (commencement  of initial  public  offering)
through  March 31,  1996 for the Class C Shares has been  audited by  Deloitte &
Touche LLP,  independent  auditors,  whose report thereon was unqualified.  This
information  should be read in  conjunction  with the financial  statements  and
notes  thereto and  auditor's  report  which  appear in the  Portfolio's  Annual
Reports to Shareholders for those periods. The Annual Report to Shareholders for
the year ended March 31, 1997, is incorporated by reference into the Portfolio's
Statement of Additional Information which is available upon request.

<TABLE>
<CAPTION>


                                                                                                   
                                                       For the        For the      For the         
                                                     Fiscal Year    Fiscal Year    Fiscal Year     
                                                        Ended          Ended       Ended           
                                                      March 31,      March 31,     March 31,       
                                                        1997            1997       1996            
                                                       Class A        Class C      Class A         
- --------------------------------------------------  -------------  --------------  --------------  
<S>                                                      <C>            <C>            <C>         

Per Share Operating Performance**
    Net asset value, beginning of period..........     $  9.02         $  9.04         $  6.90       
                                                       -------         -------         -------     
    Net investment income (1).....................        0.85            0.84            0.91     
    Net realized and unrealized gain/(loss) on                                                     
       investments, foreign currency contracts and                                                 
       translation of foreign currency related                                                     
       transactions(2)............................        2.10            2.07            2.13     
                                                       -------          ------          ------     
    Net increase/(decrease) in net assets                                                          
       from operations............................        2.95            2.91            3.04     
                                                       -------          ------          ------     
    Dividends and distributions to shareholders from                                               
    Net investment income.........................       (0.83)          (0.81)          (0.92)    
    Net realized capital gains....................         --             --              --       
                                                       -------          -------         -------    
                                                         (0.83)          (0.81)          (0.92)    
                                                       -------         --------         -------    
    Net asset value, end of period................      $11.14         $ 11.14          $ 9.02     
                                                       ========        ========         =======    
    Total investment return (3)(5)................       33.48%          32.97%          46.13%    
                                                       ========        ========         =======    
                                                                                                   
Ratios/Supplemental Data                                                                           
    Net assets, end of period (000's omitted).....   $  33,185        $  2,583        $ 28,860     
    Ratio of expenses to average net assets(1)....        2.00%           2.40%           2.00%    
    Ratio of net investment income to average net                                                  
       assets(1)..................................        7.95%           7.59%          10.64%    
    Decrease reflected in above expense ratios and                                                 
       net investment income due to waivers and                                                    
       reimbursements.............................        0.80%           0.64%           1.18%    
    Portfolio turnover rate.......................      223.41%         223.41%         266.46%    
<PAGE>


                                                                                     For the              
                                                   For the Period    For the         Period               
                                                   July 26, 1995*    Fiscal Year     May 3, 1993*         
                                                   Through           Ended           Through              
                                                   March 31,         March 31,       March 31,            
                                                   1996              1995            1994                 
                                                   Class C           Class A         Class A              
                                                   ----------------  --------------  ----------------     
 <C>            <C>                                    
                                                       
Per Share Operating Performance**                                                                           
    Net asset value, beginning of period..........    $  7.81         $  8.98          $  9.55           
                                                      -------         -------          -------           
    Net investment income (1).....................       0.59            0.79             0.66           
    Net realized and unrealized gain/(loss) on                                                           
       investments, foreign currency contracts and                                                       
       translation of foreign currency related                                                           
       transactions(2)............................       1.32           (1.85)           (0.55)          
                                                       ------          -------         --------          
    Net increase/(decrease) in net assets                                                                
       from operations............................       1.91           (1.06)            0.11           
                                                       ------          -------         --------          
    Dividends and distributions to shareholders from                                                     
    Net investment income.........................      (0.68)          (0.77)           (0.65)          
    Net realized capital gains....................       --             (0.25)           (0.03)          
                                                       -------         -------         --------          
                                                        (0.68)          (1.02)           (0.68)          
                                                       -------         -------         --------          
    Net asset value, end of period................     $ 9.04          $ 6.90           $ 8.98           
                                                       =======         ========        ========          
    Total investment return (3)(5)................      25.45%         (13.07)%           0.36%          
                                                       =======         ========        ========          
                                                                                                         
Ratios/Supplemental Data                                                                                 
    Net assets, end of period (000's omitted).....     $  202        $ 28,049          $45,691           
    Ratio of expenses to average net assets(1)....       2.40%(4)(5)     2.00%            2.00%(4)       
    Ratio of net investment income to average net                                                        
       assets(1)..................................       8.72%(4)(5)     8.86%            7.24%(4)       
    Decrease reflected in above expense ratios and                                                          
       net investment income due to waivers and                                                             
       reimbursements.............................       3.42%(4)(5)     0.53%               0.33%(4)       
    Portfolio turnover rate.......................     266.46%(6)       35.01%             100.85%(6)       
                                                     
</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 the  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 charges or
     contingent  deferred sales charges.  Total investment  return is calculated
     assuming a purchase  of shares on the first day and a sale of shares on the
     last day of each period reported and includes reinvestment of dividends and
     distributions, if any. Total investment return is not annualized.

(4)  Annualized.

(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.

                                        8



<PAGE>




                          Alternative Purchase Methods

[By this  Prospectus,  the Portfolio  offers you three methods of purchasing its
shares.]

By this  Prospectus,  the Portfolio offers investors three methods of purchasing
its  shares;  investors  may  choose the Class of shares  that best suits  their
needs, given the amount of purchase,  the length of time the investor expects to
hold the shares  and any other  relevant  circumstances.  Each  Portfolio  share
represents  an  identical  pro  rata  interest  in  the  Portfolio's  investment
portfolio.

Class A Shares

Class A shares of the  Portfolio  are sold at net asset  value per share  plus a
maximum  initial sales charge of 4.50% of the public  offering  price imposed at
the time of  purchase.  The  initial  sales  charge may be reduced or waived for
certain purchases. See "How to Buy Shares -- Class A Shares." The Class A shares
of the  Portfolio  are  subject  to an  annual  distribution  and a  shareholder
servicing fee at the rate of 0.35% of the value of the average daily net assets.
The  Portfolio  is  currently   waiving  0.10%  of  this  fee   attributable  to
distribution related expenses.

Class B Shares

Class B shares of the Portfolio  are sold without an initial  sales charge,  but
are subject to a Contingent  Deferred  Sales Charge  ("CDSC") of up to 5% if the
Class B shares are  redeemed  within six years of  purchase.  See "How to Redeem
Shares - Class B Shares." The Class B shares of the  Portfolio are subject to an
annual  distribution  fee at the  rate of 0.75 of 1%.  The  Class B  shares  are
subject to an annual shareholder  servicing fee at the rate of 0.25 of 1% of the
value of the average  daily net assets of Class B shares  incurred in connection
with the personal service and maintenance of accounts holding  Portfolio shares.
See "Management of the  Portfolio-Distribution  and Shareholder Servicing Plan".
Class B shares will convert to Class A shares, based on their relative net asset
values, eight years after the initial purchase. The distribution and shareholder
servicing  fee paid by Class B will cause  such  class to have a higher  expense
ratio and to pay lower dividends than Class A.

Class C Shares

   
Class C shares of the  Portfolio  are  subject to a 1.00% CDSC which is assessed
only if Class C shares are  redeemed  within one year of  purchase.  See "How to
Redeem Shares -- Contingent  Deferred  Sales Charge -- Class C Shares."  Class C
shares of the Portfolio  also are subject to an annual  distribution  fee at the
rate of 0.75% of the value of the  average  daily net  assets of Class C shares.
The Portfolio  has also The Class C shares are subject to an annual  shareholder
servicing  fee at a rate of 0.25% of 1% of the average daily net assets of Class
C  shares  for  fees  incurred  in  connection  with the  personal  service  and
maintenance  of  accounts  holding  Portfolio  shares.  See  "Management  of the
Portfolio - Distribution  and Shareholder  Servicing Plan". The distribution and
shareholder servicing fee paid by Class C will cause such class to have a higher
expense ratio and to pay lower dividends than Class A.
    

The  decision as to which class of shares is more  beneficial  to each  investor
depends on the amount and the intended length of the investor's investment. Each
investor should consider whether,  during the anticipated life of the investor's
investment  in the  Portfolio,  the  accumulated  distribution  and  shareholder
servicing  fee and CDSC,  if any, on Class B or C shares  would be less than the
initial sales charge on Class A shares  purchased at the same time,  and to what
extent, if any, such differential would be offset

                                        9



<PAGE>



by the return of Class A shares. Additionally,  investors qualifying for reduced
initial sales charges who expect to maintain  their  investment  for an extended
period of time might consider  purchasing Class A shares because the accumulated
continuing  distribution and shareholder  servicing fees on Class B and C shares
may exceed the  initial  sales  charge on Class A shares  during the life of the
investment. Finally, each investor should consider the effect of the CDSC period
in the context of the investor's own investment time frame.  Generally,  Class A
shares may be more  appropriate for investors who invest $500,000 or more in the
Portfolio's  shares,  but will not be appropriate  for investors who invest less
than $50,000 in the Portfolio's shares,  unless they intend to hold those shares
for a period  exceeding six years.  See "How to Buy Shares - Choosing a Class of
Shares".

                          Description of the Portfolio
General

[The Portfolio is a series of Bear Stearns Investment Trust.]

Emerging  Markets Debt Portfolio (the  "Portfolio")  is organized as a separate,
non-diversified  portfolio of Bear Stearns  Investment  Trust (the "Trust"),  an
open-end  management   investment  company  organized  under  the  laws  of  The
Commonwealth  of  Massachusetts  on October 15, 1992.  The  Portfolio  commenced
investment  operations on May 3, 1993. By this Prospectus,  the Portfolio offers
three  distinct  classes (each,  a "Class") of shares:  Class A shares,  Class B
shares  and  Class  C  shares.  The  Classes  are  distinguished  by  their  fee
structures,  as well as the services  offered to and the expenses  borne by each
Class,  as  described  herein.  From  time  to  time,  other  portfolios  may be
established and sold pursuant to other offering documents.

Investment Objective

[The Portfolio seeks to provide  investors with high current income by investing
primarily in Debt Obligations of issuers in Emerging Countries.]

The Portfolio  seeks to provide  investors with high current income by investing
primarily in Debt Obligations of issuers in Emerging Countries.  The Portfolio's
secondary  objective  is to provide  investors  with capital  appreciation.  The
Portfolio  considers  "Emerging  Countries"  to  include  any  country  that  is
generally  considered to be an emerging or developing country by the World Bank,
the International Finance Corporation or the United Nations and its authorities.
The countries that will not be considered  Emerging Countries include Australia,
Austria,  Belgium, Canada, Denmark,  Finland,  France, Germany,  Ireland, Italy,
Japan,  Netherlands,  New Zealand,  Norway, Spain, Sweden,  Switzerland,  United
Kingdom,  and United States. The Portfolio primarily invests in a combination of
(a) high-yield dollar-denominated instruments and (b) local currency instruments
in  Emerging  Countries  where  the  relationship  between  interest  rates  and
anticipated  foreign exchange  movements relative to the U.S. dollar is expected
to result in a high  dollar rate of return.  Although  the  Portfolio's  primary
investment  objective  is current  income,  the  Portfolio  also intends to take
advantage of opportunities to realize capital  appreciation from its investments
when   such   opportunities    arise.    Investing   in   local   currency   and
dollar-denominated  medium and long term debt in Emerging  Countries  offers the
potential for capital  appreciation  due to interest rate and currency  exchange
fluctuations  and improving  credit quality.  No assurance can be given that the
Portfolio's investment objective will be achieved.

The Portfolio's  investment objective may not be changed without the approval of
a majority (as defined in the Investment Company Act), of the outstanding voting
securities of the Portfolio.


                                       10



<PAGE>



Investment Policies

The investment  policies of the Portfolio are non-fundamental and may be changed
without a vote of the shareholders of the Portfolio.  The Portfolio's investment
policies  are  designed  to enable it to  capitalize  on  attractive  investment
opportunities  which  exist  in  Emerging  Countries  as a result  of  worldwide
economic integration and the rapidly changing political and economic environment
affecting the debt of Emerging Countries.

The  Portfolio  may invest at least 80% of its total assets in Debt  Obligations
(defined below) of issuers in Emerging Countries. The Portfolio intends to focus
its investments in countries in Asia, Eastern Europe,  Latin America and Africa.
The  Portfolio may invest up to 20% of its total assets in Debt  Obligations  of
issuers that are not considered to be issuers in Emerging Countries.

The Portfolio may invest at least 30% of its total assets in Debt Obligations of
issuers in Latin America. The Portfolio considers "Latin America" to include the
following countries:  Argentina,  Bolivia,  Brazil, Chile, Colombia, Costa Rica,
Dominican Republic,  Ecuador,  Guatemala,  Honduras, Mexico, Nicaragua,  Panama,
Paraguay, Peru, Uruguay and Venezuela.

At  least  70% of the  Portfolio's  total  assets  is  invested  in U.S.  dollar
denominated instruments.  Up to 30% of the Portfolio's assets may be invested in
Debt Obligations  denominated in local currencies provided that no more than 20%
of the  Portfolio's  assets are  expected  to be  invested  in Debt  Obligations
denominated  in the  currency of any one  country.  To the extent the  Portfolio
invests in non-dollar denominated  securities,  the Portfolio will be subject to
risks  relating to  fluctuations  in currency  exchange  rates and the  possible
imposition of exchange control  regulations  (e.g.,  currency blockage) or other
foreign or U.S. laws or restrictions  applicable to such investments.  See "Risk
Factors and Special Considerations."

Under  normal  circumstances,  the  Portfolio  invests at least 70% of its total
assets in Debt Obligations of issuers in at least three Emerging Countries.  The
Portfolio  may not  invest  more than 40% of its assets in Debt  Obligations  of
issuers  located  in any  one  country.  Investing  the  Portfolio's  assets  in
securities of issuers  located in Emerging  Countries will subject the Portfolio
to the risks of adverse social,  political or economic events which may occur in
such foreign countries.  See "Risk Factors and Special Considerations." When the
Investment Manager believes unusual  circumstances  warrant a defensive posture,
the  Portfolio  temporarily  may  invest up to all of its  assets in cash  (U.S.
dollars) or U.S. government securities.

The  Portfolio  considers an issuer to be located in an Emerging  Country if (i)
the issuer derives 50% or more of its total revenues from either goods produced,
sales made or services  performed in Emerging  Countries,  or (ii) the issuer is
organized  under  the laws of,  and with a  principal  office  in,  an  Emerging
Country.

The Investment  Manager may invest in Debt  Obligations that it determines to be
suitable  investments for the Portfolio  notwithstanding any credit ratings that
may be assigned to such  securities.  At any one time  substantially  all of the
Portfolio's assets may be invested in Debt Obligations that are unrated or below
investment grade. The Portfolio will purchase non-performing securities and some
of  these  securities  may be  comparable  to  securities  rated  as low as D by
Standard & Poor's Ratings Group, a division of the McGraw-Hill  Companies,  Inc.
("S&P") or C by Moody's Investors Service,  Inc.  ("Moody's") (the lowest credit
ratings of such agencies).  A substantial portion of the Portfolio's holdings of
Debt Obligations are expected to trade at substantial discounts from face value.
The ratings of Moody's and S&P  represent  their  respective  opinions as to the
quality of the obligations they undertake to rate. Ratings, however,

                                       11



<PAGE>



are  general  and are not  absolute  standards  of  quality.  The ratings do not
necessarily  reflect  the  current or future  composition  of the  Portfolio.  A
description of the ratings of the various  securities in which the Portfolio may
invest appears in Appendix A to this Prospectus.

Debt  Obligations  in which the Portfolio may invest may have stated  maturities
ranging  from  overnight  to 30 years and may have  floating  or fixed  interest
rates. The average maturity of the Portfolio's  investments will vary based upon
the Investment Manager's  assessment of economic and market conditions.  Because
the Portfolio  intends to hold  fixed-rate  instruments,  some of which may have
long maturities, the value of the securities held by the Portfolio, and thus the
net asset value of the shares of the Portfolio, generally will vary inversely to
changes in prevailing  interest  rates.  Thus, if interest  rates have increased
from  the  time a debt or  other  fixed  income  security  was  purchased,  such
security, if sold, might be sold at a price less than its cost.  Conversely,  if
interest rates have declined from the time such a security was  purchased,  such
security, if sold, might be sold at a price greater than its cost.

Debt  markets in  Emerging  Countries  presently  consist  of a wide  variety of
instruments issued by developing countries,  related institutions and companies.
The  Portfolio  intends  to invest in two broad  classes of  securities:  dollar
denominated  instruments  traded in  secondary  markets  outside of the Emerging
Countries  which  have  issued  the  securities,   and  non-dollar   denominated
securities  (as defined  herein) which are traded in the country of issue and/or
in secondary markets.

A substantial  portion of the dollar  denominated  Debt Obligations in which the
Portfolio  intends to invest had its origin in syndicated bank loans made during
the 1970s and early 1980s.  As a consequence  of the  substantial  volatility in
commodity  prices,  and the  dramatic  increase in  interest  rates in the early
1980s, many Emerging  Countries  defaulted on these loans. Much of the debt owed
by governments to commercial banks was subsequently restructured,  involving the
exchange of outstanding bank  indebtedness for Brady bonds (as described below).
Brady bonds, remaining outstanding bank loans and a relatively small but growing
number of newly issued government,  agency and corporate bond issues make up the
large and growing debt market in Emerging  Countries.  The  investment  vehicles
which the Investment  Manager is expected to acquire or utilize on behalf of the
Portfolio are described below.

Brady Bonds
"Brady  bonds"  are  debt  securities  issued  in  an  exchange  of  outstanding
commercial  bank loans to public and private  entities in Emerging  Countries in
connection  with  sovereign  debt  restructurings,  under a plan,  introduced by
former U.S.  Secretary  of the  Treasury  Nicholas F. Brady,  known as the Brady
Plan.  Agreements  implemented  under the Brady Plan are  designed to reduce the
debt service burden of heavily indebted  nations,  in exchange for various forms
of credit  enhancement  coupled with economic policy reforms designed to improve
the debtor country's ability to service its external obligations. The Brady Plan
only sets forth the guiding  principles for debt reduction and economic  reform,
emphasizing  that  solutions  must be negotiated on a case by case basis between
debtor nations and their creditors.  As a result, the financial packages offered
by each country differ.

Debt  reduction  is generally  carried out through the  exchange of  outstanding
commercial  bank debt for  various  types of bonds,  which may include (i) bonds
issued at 100% of face value of such debt,  (ii) bonds  issued at a discount  to
face  value of such  debt,  (iii)  bonds  offering  fixed or  floating  rates of
interest,  (iv) bonds  bearing a below market rate of interest  which  increases
over time, and (v) bonds issued in exchange for the  advancement of new money by
existing lenders.  Credit enhancement may take the form of  collateralizing  the
principal  with U.S.  Treasury  zero coupon  bonds with a maturity  equal to the
final  maturity  of  such  bonds.  Collateral  purchases  are  financed  by  the
International  Monetary  Fund  ("IMF"),  the World Bank and the debtor  nation's
reserves. In addition, the first two or three interest payments on certain types
of Brady  bonds  may be  collateralized  by cash or  securities  agreed  upon by
creditors.

                                       12



<PAGE>



As a pre-condition to issuing Brady bonds, debtor nations are generally required
to agree to the  implementation  of certain domestic  monetary and fiscal reform
measures  with the  World  Bank or the IMF.  Such  measures  have  included  the
liberalization   of  trade  and  foreign   investments,   the  privatization  of
state-owned  enterprises  and the  setting of targets  for public  spending  and
borrowing.  These policies and programs seek to improve the debtor's  ability to
service its external obligations and promote its growth and development.

Brady  bonds have been issued by a number of Emerging  Countries,  primarily  in
Latin  America.  Several other Emerging  Countries are currently  negotiating or
have reached agreement with their creditors in sovereign debt restructuring that
will result in the issuance of Brady bonds.  For purposes of applicable  tax and
Investment  Company Act rules and  regulations,  Brady bonds are not  considered
U.S. government securities.

The  Portfolio may invest in either  collateralized  or  uncollateralized  Brady
bonds. Brady bonds are issued in various currencies (primarily U.S. dollars) and
are actively traded in the over-the-counter ("OTC") secondary market for debt of
Emerging Country  issuers.  Because of the large size of most Brady bond issues,
Brady  bonds  are  generally  highly  liquid  instruments.  Brady  bonds  may be
collateralized  or  uncollateralized,  may  carry  floating  or  fixed  rates of
interest, and may have maturities of up to 30 years. The most common are 30-year
collateralized  fixed-rate "par bonds" and floating-rate "discount bonds," which
are collateralized as to principal by U.S. Treasury zero coupon bonds having the
same  maturity  as the  Brady  bonds,  and  carry at least  one  year's  rolling
interest-rate guarantee in the form of cash or marketable securities.

Investors should recognize that Brady bonds have been issued only recently,  and
accordingly they do not have a long payment  history.  There can be no assurance
that the Brady  bonds in which the  Portfolio  may invest will not be subject to
restructuring  arrangements  or to requests  for new credit  which may cause the
Portfolio to suffer a loss of interest or principal on any of its holdings.  For
a  discussion  of the risks  involved in  investing  in Brady  bonds,  see "Risk
Factors and Special Considerations -- Sovereign Debt."

Loans
The Portfolio  may invest up to 20% of its total assets in Loans.  The Portfolio
defines  "Loans" as fixed and  floating  rate  loans  arranged  through  private
negotiations  between one or more  financial  institutions  and an obligor in an
Emerging  Country.  Generally,  the Loans  purchased  by the  Portfolio  will be
floating-rate debts which have been outstanding for several years, may have been
restructured and trade at a substantial discount to face value. Such Loans trade
in the international OTC secondary market.

The  Portfolio  may  invest  in  Loans  in  the  form  of  participations  in or
assignments of Loans or portions of Loans from third parties.  A Loan assignment
results in the passing of title in the Loan to the Portfolio,  along with all of
its rights and  obligations.  In a participation,  a financial  institution will
generally  sell the  Portfolio  the  right to  receive  payments  of  principal,
interest and any fees due under the Loan.  Participations  typically will result
in the  Portfolio  having a contractual  relationship  only with lenders and not
with  borrowers.  As a result,  the  Portfolio  generally  will have no right to
enforce compliance by the borrower with the terms of the Loan, and the Portfolio
will assume the credit risk of both the  borrower and the lender that is selling
the participation.  The Portfolio will acquire participations only if the seller
of the participation is determined by the Investment Manager to be creditworthy.

Although  Loans are traded among  certain  financial  institutions,  some of the
Loans  the   Portfolio  may  invest  in  will  be   considered   illiquid.   The
characteristics  of the Loans are reviewed to  determine  their  liquidity.  The
Board of Trustees  reviews the  characteristics  of the Loans to determine their
liquidity.  The Trustees have adopted guidelines and delegated to the Investment
Manager the function of monitoring

                                       13



<PAGE>



and determining the liquidity of Loans,  although the Board of Trustees  retains
ultimate  responsibility for any determination regarding a liquid market for the
Loans.  The Portfolio will not invest in Loans  determined to be illiquid by the
Board of  Trustees  if any such  investment,  together  with any other  illiquid
assets held by the Portfolio, amounts to more than 15% of its net assets.

Non-Dollar Denominated Securities
The Portfolio may invest up to 30% of its total assets in non-dollar denominated
securities provided that no more than 20% of the Portfolio's assets are expected
to be  invested  in Debt  Obligations  denominated  in the  currency  of any one
country.  Investments in non-dollar  denominated  securities  will include fixed
and/or floating rate instruments,  including  discount notes,  commercial paper,
debentures  and  other  debt  securities  issued by  public  or  private  sector
entities. Such investments may also include debt securities which are payable in
local  currency in amounts  calculated  with reference to the U.S.  dollar.  The
Portfolio  will invest in short term or  floating  rate  non-dollar  denominated
securities when the Investment  Manager believes that the  relationship  between
local  interest  rates,  inflation and currency  exchange rates will result in a
high dollar return.

The relative performance of various countries' fixed income markets historically
has reflected wide  variations  relating to the unique  characteristics  of each
country's  economy.  Year-to-year  fluctuations  in  certain  markets  have been
significant,  and negative returns have been experienced in various markets from
time to time. In addition,  the performance of non-dollar denominated securities
will depend on, among other things, the strength of the foreign currency against
the U.S. dollar. Appreciation in the value of the foreign currency generally can
be  expected  to  increase,  and  declines  in the value of  foreign  currencies
relative  to the  U.S.  dollar  will  depress,  the  value  of  the  Portfolio's
non-dollar  denominated  securities.  Currently,  because of high  inflation and
other factors, the currencies of the countries in which the Portfolio intends to
invest are generally expected to depreciate against the U.S. dollar. However, to
the  extent  that  local  interest  rates in such  countries  exceed the rate of
currency  devaluation,  the potential for attractive  returns in dollars exists.
The Investment Manager evaluates currencies on the basis of fundamental economic
criteria (e.g.,  relative  inflation  levels and trends,  growth rate forecasts,
balance of payments  status and  economic  policies)  as well as  technical  and
political   data,  but  will  not  generally  be  involved  in  active  currency
forecasting.  The  Portfolio  may or may not hedge or cross  hedge  its  foreign
currency exposure. See "Description of the Portfolio -- Investment Practices."

Convertible Securities
The  Portfolio  may  invest  up to  10%  of  its  total  assets  in  convertible
securities.  A convertible security is a bond, debenture,  note, preferred stock
or other  security  that may be  converted  into or  exchanged  for a prescribed
amount of common  stock of the same or a different  issuer  within a  particular
period of time at a specified price or formula. Convertible debt securities have
characteristics  of both fixed  income and  equity  investments.  The value of a
convertible  security is a function of its "investment value" (determined by its
yield in  comparison  with the yields of other  debt  securities  of  comparable
maturity and quality that are not convertible)  and its "conversion  value" (the
value of the option to convert the security into the  underlying  common stock).
The Portfolio intends to invest only in convertible  securities which have a low
conversion  value and  which,  absent  any  potential  gain from  conversion  or
increase in conversion value, are expected to provide the Portfolio with returns
similar to those of  non-convertible  debt  securities  of similar  maturity and
quality. The Portfolio does not intend to convert any convertible  securities it
may  own  into  equity,  however,  it  may do so for  temporary  purposes.  If a
convertible  security  held by the  Portfolio  is  called  for  redemption,  the
Portfolio will be required to permit the issuer to redeem the security,  convert
it into the underlying  stock or sell it to a third party.  Any of these actions
could  have  an  adverse  effect  on the  Portfolio's  ability  to  achieve  its
investment objective.



                                       14



<PAGE>



Repurchase Agreements
The Portfolio  may enter into  repurchase  agreements,  which may be viewed as a
type of secured  lending by the  Portfolio,  and which  typically  involves  the
acquisition  by the  Portfolio  of  debt  securities  from a  selling  financial
institution, such as a bank, savings and loan association or broker-dealer. In a
repurchase  agreement,  the  Portfolio  purchases a debt  security from a seller
which  undertakes to repurchase  the security at a specified  resale price on an
agreed  future date  (ordinarily  a week or less).  The resale  price  generally
exceeds the purchase  price by an amount which  reflects an  agreed-upon  market
interest rate for the term of the  repurchase  agreement.  The principal risk is
that, if the seller  defaults,  the Portfolio  might suffer a loss to the extent
the proceeds from the sale of the  underlying  securities  and other  collateral
held by the Portfolio in connection  with the related  repurchase  agreement are
less than the  repurchase  price.  Repurchase  agreements  maturing in more than
seven days are considered by the Portfolio to be illiquid.

When-Issued  Securities;  When, As and If Issued Securities and Delayed Delivery
Transactions  The  Portfolio may purchase  securities  on a  when-issued  basis.
When-issued  transactions  arise when  securities are purchased by the Portfolio
with payment and delivery  taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Portfolio at the time of
entering into the transaction.  The Portfolio may also purchase  securities on a
forward  commitment basis. In a forward  commitment  transaction,  the Portfolio
contracts  to  purchase  securities  for a fixed  price at a future  date beyond
customary settlement time. The Portfolio may enter into offsetting contracts for
the forward sale of other securities that it owns.  Although the Portfolio would
generally purchase securities on a when-issued forward commitment basis with the
intention of actually acquiring securities for its portfolio,  the Portfolio may
dispose of a when-issued  security or forward  commitment prior to settlement if
the Investment Manager deems it appropriate to do so.

The issuance of some of the securities in which the Portfolio may invest depends
upon the  occurrence  of a  subsequent  event,  such as  approval  of a  merger,
corporate reorganization,  leveraged buyout or debt restructuring ("when, as and
if issued  securities").  As a result,  the  period  from the trade  date to the
issuance date may be considerably  longer than a typical when-issued trade. Each
when issued transaction specifies a date upon which the commitment to enter into
the relevant  transaction  will terminate if the securities have not been issued
on or before such date. In some cases,  however,  the  securities  may be issued
prior to such  termination  date, but may not be  deliverable  until a period of
time thereafter.  If the anticipated event does not occur and the securities are
not issued,  the Portfolio  would be entitled to receive any funds committed for
the  purchase,  but the Portfolio  may have  foregone  investment  opportunities
during the term of the commitment.

There is no overall limit on the percentage of the Portfolio's  assets which may
be committed to the purchase of securities on a when-issued basis,  however, the
Portfolio  may only  invest a maximum  of 15% of its  assets in when,  as and if
issued  securities.  An increase in the  percentage  of the  Portfolio's  assets
committed to such purchase of securities on a when-issued basis may increase the
volatility of its net asset value.

The  Portfolio  will  hold  and  maintain  in a  segregated  account  until  the
settlement date liquid assets in an amount sufficient to meet the purchase price
to the extent required by the Investment Company Act. The purchase of securities
on a when-issued  forward  commitment basis involves a risk of loss if the value
of the security to be purchased declines prior to the settlement date.

Investment in Other Funds
In  accordance  with the  Investment  Company  Act, the  Portfolio  may invest a
maximum  of up to 10% of the value of its total  assets in  securities  of other
investment companies, and the Portfolio may own up to

                                       15



<PAGE>



3% of the total  outstanding  voting  stock of any one  investment  company.  In
addition,  up to 5% of the  Portfolio's  total  assets  may be  invested  in the
securities  of any one  investment  company.  The  Portfolio  may invest in both
investment  companies  that are registered  under the Investment  Company Act as
well as those  that are not  required  to be so  registered.  As  stated  above,
investment  in other  investment  companies  or vehicles may be the sole or most
practical  means by which the Portfolio can  participate  in certain  securities
markets.  Such investment may involve the payment of substantial  premiums above
the value of such issuers' portfolio  securities,  and is subject to limitations
under  the  Investment  Company  Act and  market  availability.  There can be no
assurance  that  vehicles or funds for investing in certain  Emerging  Countries
will be  available  for  investment,  particularly  in the  early  stages of the
Portfolio's operations.  In addition,  special tax considerations may apply. The
Portfolio  does not intend to invest in such  vehicles or funds  unless,  in the
judgment of the Investment  Manager,  the potential  benefits of such investment
justify the payment of any applicable premium or sales charge. As an investor in
an  investment  company,  the  Portfolio  would bear its  ratable  share of that
investment  company's expenses,  including its administrative and advisory fees.
At the  same  time,  the  Portfolio  would  continue  to pay its own  investment
management fees and other expenses,  however,  the Investment Manager has agreed
to waive its fees to the extent  necessary to comply with state securities laws.
In addition,  the Investment  Manager has agreed to waive its fees to the extent
necessary to retain its current expense cap. See "Management of the Portfolio."

Borrowing and Leverage
The Portfolio  may solely,  for  temporary or emergency  purposes,  borrow in an
amount  up to  10%  of  the  Portfolio's  total  assets  (including  the  amount
borrowed),  less all liabilities and indebtedness other than the borrowing.  The
Portfolio  may  not  purchase  securities  when  borrowings  exceed  5%  of  the
Portfolio's total assets. If market fluctuations in the value of the Portfolio's
portfolio  holdings or other  factors cause the ratio of the  Portfolio's  total
assets to  outstanding  borrowings to fall below 300%,  within three days of any
such event the Portfolio may be required to sell portfolio securities to restore
the 300% asset  coverage,  even though from an investment  standpoint such sales
might be  disadvantageous.  Borrowings may be utilized to meet share redemptions
of the Portfolio or to pay dividends and  distributions  to  Shareholders of the
Portfolio,  in instances  where the  Portfolio  does not desire to liquidate its
portfolio  holdings.  The Portfolio  expects that some of its  borrowings may be
made on a secured basis. In such situations, either the custodian will segregate
the pledged  assets for the benefit of the lender or  arrangements  will be made
with a suitable subcustodian, which may include the lender.

Borrowings  create  leverage,  a  speculative  factor.  To the extent the income
derived from the assets  obtained with  borrowed  funds exceeds the interest and
other expenses that the Portfolio will have to pay, the  Portfolio's  net income
will be greater than if borrowing were not used. Conversely,  if the income from
the assets  obtained with borrowed  funds is not sufficient to cover the cost of
borrowing,  the net income of the Portfolio  will be less than if borrowing were
not used, and therefore the amount available for distribution to Shareholders as
dividends will be reduced.

Restricted and Illiquid Securities
The Portfolio may purchase  securities that are not registered or are offered in
an exempt non-public offering ("restricted securities") under the Securities Act
of 1933, as amended (the "Securities  Act"),  including  securities  offered and
sold to "qualified  institutional  buyers" under Rule 144A under the  Securities
Act. The  Portfolio  will not invest more than 15% of its net assets in illiquid
investments,  which include  repurchase  agreements  maturing in more than seven
days,  securities that are not readily marketable and restricted securities that
are not eligible for sale under Rule 144A.  Restricted  securities  eligible for
sale under Rule 144A are also subject to this 15%  limitation,  unless the Board
of Trustees  (or the  Investment  Manager  pursuant  to a  delegated  authority)
determines,  based  upon a  continuing  review of the  trading  markets  for the
specific restricted securities sold under Rule 144A, that such restricted

                                       16



<PAGE>



securities  are  liquid.  The  Board of  Trustees  has  adopted  guidelines  and
delegated to the Investment  Manager the function of determining  and monitoring
the liquidity of Rule 144A  securities,  although the Board of Trustees  retains
ultimate  responsibility for any determination regarding whether a liquid market
exists for Rule 144A  securities.  The liquidity of Rule 144A securities will be
monitored by the Investment  Manager and, if as a result of changed  conditions,
it is determined that a Rule 144A security is no longer liquid,  the Portfolio's
holdings of illiquid  securities  will be reviewed to  determine  what,  if any,
action is required to assure that the Portfolio  does not exceed its  applicable
percentage  limitation  for  investments  in  illiquid  securities.  In reaching
liquidity  decisions,  the  Investment  Manager may  consider,  inter alia,  the
following  factors:  (1)  the  unregistered  nature  of the  security;  (2)  the
frequency  of trades  and  quotes  for the  security;  (3) the number of dealers
wishing to  purchase  or sell the  security  and the  number of other  potential
purchasers;  (4) dealer  undertakings to make a market in the security;  and (5)
the nature of the security and the nature of the marketplace  trades (e.g.,  the
time needed to dispose of the security,  the method of soliciting offers and the
mechanics of the  transfer).  Investing in Rule 144A  securities  could have the
effect of  increasing  the level of  portfolio  illiquidity  to the extent  that
qualified  institutional  buyers become, for a time,  uninterested in purchasing
these securities.

Lending of Portfolio Securities
The  Portfolio  may, in seeking to increase its income,  lend  securities in its
portfolio representing up to 33 1/3% of its total assets, taken at market value,
to  securities  firms and  financial  institutions  deemed  creditworthy  by the
Investment Manager. Securities loans are made to broker-dealers or institutional
investors  pursuant  to  agreements  requiring  that the loans  continuously  be
secured by collateral at least equal at all times to the value of the securities
lent plus any  accrued  interest,  "marked  to  market"  on a daily  basis.  The
collateral received will consist of cash, U.S. short term government securities,
bank letters of credit or such other  collateral  as may be permitted  under the
Portfolio's  investment  program and by regulatory  agencies and approved by the
Board of Trustees. While the securities loan is outstanding,  the Portfolio will
continue to receive the  equivalent  of the  interest or  dividends  paid by the
issuer  on  the  securities,  as  well  as  interest  on the  investment  of the
collateral  or a fee from the  borrower.  The Portfolio has a right to call each
loan and obtain the  securities  on five  business  days'  notice.  The risks in
lending  securities,  as with other  extensions  of secured  credit,  consist of
possible  delay  in  receiving  additional  collateral  or in  recovery  of  the
securities or possible loss of rights in the collateral should the borrower fail
financially.  The  creditworthiness  of firms to which the  Portfolio  lends its
portfolio  securities  will be monitored on an ongoing  basis by the  Investment
Manager  pursuant to procedures  adopted and reviewed on an ongoing basis by the
Board of Trustees.

Indexed Securities
The Portfolio may purchase  securities whose prices are indexed to the prices of
other  securities,  securities  indices,  currencies,  precious  metals or other
commodities,  or other financial indicators.  Indexed securities typically,  but
not always,  are debt  securities or deposits  whose value at maturity or coupon
rate  is  determined  by  reference  to  a  specific  instrument  or  statistic.
Gold-indexed securities,  for example,  typically,  provide for a maturity value
that depends on the price of gold,  resulting in a security whose price tends to
rise and fall together with gold prices.  Currency-indexed  securities typically
are short-term to  intermediate-term  debt  securities  whose maturity values or
interest  rates  are  determined  by  reference  to the  values  of one or  more
specified   foreign   currencies,   and  may  offer  higher   yields  than  U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively  or  negatively  indexed;  that is, their  maturity  value may
increase when the specified  currency value  increases,  resulting in a security
that performs similarly to a foreign-denominated  instrument,  or their maturity
value may decline  when  foreign  currencies  increase,  resulting in a security
whose price  characteristics  are similar to a put on the  underlying  currency.
Currency-indexed  securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.


                                       17



<PAGE>



The  performance  of  indexed  securities  depends  to a  great  extent  on  the
performance of the security,  currency,  or other  instruments to which they are
indexed,  and may also be  influenced  by interest  rate changes in the U.S. and
abroad.  At the same time,  indexed  securities  are subject to the credit risks
associated  with the  issuer of the  security,  and  their  values  may  decline
substantially if the issuer's creditworthiness  deteriorates.  Recent issuers of
indexed  securities  have  included  banks,   corporations,   and  certain  U.S.
government agencies.

Active Management
The Portfolio is designed to be actively managed.  The Portfolio will attempt to
maximize  returns by adjusting  the  portfolio  in response to numerous  factors
affecting  Debt  Obligations,  including  political  and economic  developments,
changing credit  quality,  interest rates,  currency  exchange rates,  and other
factors.  Because the  Portfolio  can  purchase  floating  rate  securities  and
securities with short to intermediate  term maturities,  the Investment  Manager
can adjust the Portfolio's  holdings in an effort to maximize  returns in almost
any interest rate environment. In addition, the Portfolio's ability to invest in
securities  with any  maturities  of up to thirty  years  allows its  Investment
Manager to adjust the  Portfolio's  investments as interest rates change to take
advantage of the most attractive segments of the yield curve.

Temporary Investments
Pending  investment  or for  temporary  defensive  purposes  (such  as when  the
Investment  Manager  believes  instability  or unfavorable  conditions  exist in
Emerging  Countries),  the Portfolio may make  investments  of up to 100% of its
total assets in U.S.  government  securities with maturities of less than a year
and certain short-term high quality debt instruments. The short-term instruments
in which  the  Portfolio  may  invest  include,  but are not  limited  to:  U.S.
government  securities,  money  market  funds  that  invest  primarily  in  U.S.
government  securities and repurchase agreements in respect of these securities,
to the extent possible.  The U.S.  government  securities in which the Portfolio
may invest  include direct  obligations  of the U.S.  Treasury (such as Treasury
bills, notes and bonds) and obligations issued by U.S.  government  agencies and
instrumentalities, including securities that are supported by the full faith and
credit of the United  States and  securities  that are  supported  primarily  or
solely by the  creditworthiness of the issuer (such as securities of the Federal
Home Loan Banks, the Student Loan Marketing Association and the Tennessee Valley
Authority).

Other
Certain of the  securities  in which the  Portfolio may invest may be considered
"derivative   securities."   See   "Description  of  the  Portfolio  --  Indexed
Securities" and "Investment  Practices." New forms of securities  continue to be
developed.  The Portfolio may invest in such securities to the extent consistent
with its investment  objectives and investment policies,  subject to Federal and
state law and regulatory requirements and prior shareholder notification.

Investment Practices

[The Portfolio may engage in a variety of investment practices to enhance income
or hedge its investments.]

The Portfolio may engage in certain forward,  futures,  options, forward foreign
exchange  contracts,  interest  rate  swaps and other  strategies  to attempt to
reduce the overall risk of its investments (hedge),  adjust investment exposure,
enhance  income,  or to replicate a fixed income return in markets which present
an attractive interest rate environment but which restrict foreign investment in
fixed income securities;  however,  the instruments  necessary to engage in such
investment practices may not generally be available or may not provide a perfect
hedge and also entail certain risks. See "Risk Factors."

                                       18



<PAGE>



The  Portfolio  may  engage  in  currency  management   strategies  and  hedging
strategies,  including among others,  proxy hedging,  cross hedging,  settlement
hedging,  transaction  hedging and position  hedging.  A detailed  discussion of
these  various  investment  practices,  the  limitations  on the  portion of the
Portfolio's assets that may be used in connection with the investment  practices
and the risks  associated  with  such  investment  practices  are  described  in
Appendix A to the Statement of Additional Information. There can be no assurance
that BSFM's use of currency  management  strategies  will be advantageous to the
Portfolio or that it will hedge at appropriate times. See "Risk Factors."

The Portfolio  intends to use such  investment  practices as a complement to its
fundamental investment practices based on the judgment of the Investment Manager
to  the  extent  that  they  are  consistent  with  the  Portfolio's  investment
objective.

Except as otherwise  stated under  "Investment  Restrictions,"  the  Portfolio's
investment policies and practices are not fundamental and may be changed without
a vote of the Shareholders.

Investment Restrictions

[Certain of the Portfolio's  investment  restrictions are fundamental and can be
changed only by shareholder vote.]

The Portfolio is subject to certain investment  restrictions which, as described
in more detail in the Statement of Additional Information,  have been adopted by
the Trust on behalf of the  Portfolio  as  fundamental  policies  that cannot be
changed  without the  approval of a majority  of the  outstanding  shares of the
Portfolio. Among other restrictions,  the Portfolio may not invest more than 25%
of its total  assets  in the  securities  of any one  issuer  (except  that this
limitation   will  not  be  applicable  to  the  purchase  of  U.S.   government
securities).  With respect to 50% of the Portfolio's  assets, no more than 5% of
its assets may be invested in the  securities  of any one issuer  other than the
U.S.  government at the end of any fiscal quarter and the Portfolio will not own
more than 10% of the outstanding voting securities of a single issuer. See "Risk
Factors and  Special  Considerations -- Non-Diversification."  In  addition, the
Portfolio  may not  invest  more than 10% of the  value of its  total  assets in
securities of issuers having a record, together with predecessors,  of less than
three  years  of  continuous  operation.  This  restriction  does  not  apply to
obligations  issued  or  guaranteed  by the U.S.  government,  its  agencies  or
instrumentalities.  For further  discussion  of investment  restrictions  of the
Portfolio,   see  "Investment   Limitations"  in  the  Statement  of  Additional
Information.


                     Risk Factors and Special Considerations

[No  investment  is free from risk.  Investing  in the  Portfolio  will  subject
investors to certain risks which should be considered.]

Investors  should  carefully  consider the risks of investing in  securities  of
issuers in Emerging Countries and non-dollar denominated securities.  Generally,
while the Portfolio  offers  potential  returns higher than those available from
U.S. government securities,  there is also a substantially greater risk of loss.
The  Portfolio  may not be  suitable  for all  investors,  and is  intended  for
long-term  investors who can accept the risks  associated with its  investments.
See "Description of the Portfolio -- Investment Practices."

Low Rated and Unrated Instruments
At any one time,  substantially all of the Portfolio's assets may be invested in
Debt  Obligations  that are unrated or below  investment  grade.  Investments in
lower-quality and comparable unrated obligations will

                                       19



<PAGE>



be more dependent on the Investment  Manager's credit analysis than would be the
case with  investments  in  investment-grade  debt  obligations.  The Investment
Manager  considers both  quantitative and qualitative  factors in evaluating the
creditworthiness  of individual  issuers and employs its own credit research and
analysis, which includes a study of existing debt, capital structure, ability to
service  debt  and  to pay  dividends,  the  issuer's  sensitivity  to  economic
conditions,  its  operating  history  and the  current  trend of  earnings.  The
Investment  Manager  also  relies,  in  part,  on  credit  ratings  compiled  by
internationally  recognized  statistical  rating  organizations.  The Investment
Manager continually monitors the Portfolio's investments and carefully evaluates
whether  to  dispose  of or  to  retain  lower-quality  and  comparable  unrated
securities whose credit ratings or credit quality may have changed.

Issuers of high-yield  securities are  vulnerable to real or perceived  economic
changes  (for  instance,  an  economic  downturn or  prolonged  period of rising
interest  rates),  political  changes or adverse  developments  specific  to the
issuer.  Adverse  economic,  political  or other  developments  may  impair  the
issuer's  ability  to  service  principal  and  interest  obligations,  to  meet
projected business goals and to obtain additional financing, particularly if the
issuer is highly  leveraged.  In the event of a  default,  the  Portfolio  would
experience  a reduction  of its income and could  expect a decline in the market
value of the defaulted securities.

The  market  prices  of  high-yield  securities  structured  as zero  coupon  or
pay-in-kind  securities  are generally  affected to a greater extent by interest
rate changes and tend to be more  volatile  than  securities  which pay interest
periodically.

The Portfolio  may have  difficulty  disposing of certain high yield,  high risk
securities  because there may be a thin trading market for such securities.  The
secondary  trading market for high yield,  high risk securities is generally not
as liquid as the secondary market for higher rated securities. Reduced secondary
market  liquidity may have an adverse impact on market price and the Portfolio's
ability to dispose of particular  issues when necessary to meet the  Portfolio's
liquidity  needs  or  in  response  to  a  specific  economic  event  such  as a
deterioration in the creditworthiness of the issuer.

Debt  Obligations of the type in which the Portfolio  will invest  substantially
all of its assets are generally  considered to have a credit quality rated below
investment grade by internationally  recognized credit rating organizations such
as Moody's and S&P. Securities below investment grade are the equivalent of high
yield,  high risk bonds,  commonly  known as "JUNK BONDS."  Investment  grade is
generally  considered to be debt securities rated BBB or higher by S&P or Baa or
higher by Moody's.  The highest rated debt securities  (securities  rated Aaa by
Moody's  or AAA by S&P) carry the  smallest  degree of  investment  risk and the
capacity to pay  interest and repay  principal  is very  strong.  Non-investment
grade debt securities  (securities rated Ba1 or lower by Moody's or BB+ or lower
by S&P) are regarded as  predominantly  speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligations  and involve major risk exposure to adverse  business,  financial or
economic  conditions.  Some of the Debt Obligations held by the Portfolio may be
comparable  to  securities  rated as low as C by Moody's or D by S&P, the lowest
rating  assigned by these  agencies.  These  securities  are  considered to have
extremely poor prospects of ever attaining any real  investment  grade standing,
and to have a current  identifiable  vulnerability  to default,  and the issuers
and/or  guarantors of these securities are considered to be unlikely to have the
capacity to pay  interest and repay  principal  when due in the event of adverse
business,  financial  or  economic  conditions  and/or to be in  default  or not
current in the payment of interest or principal. The lowest ratings will be used
when payments are not made on the date due even if the  applicable  grace period
has not expired,  unless such payments are expected to be made during such grace
period. Additionally, these ratings will be used upon the filing of a bankruptcy
petition if debt service payments are  jeopardized.  Debt obligations of issuers
outside  the United  States and its  territories  are rated on the same basis as
domestic corporate and

                                       20



<PAGE>



municipal issues. The ratings measure the creditworthiness of the obligor but do
not take into account  currency  exchange and related  uncertainties  that could
affect the market value of a security. A description of fixed-income  securities
ratings is contained in Appendix A to this Prospectus.

Of the Portfolio's  total net assets as of March 31, 1997,  91.10%  consisted of
portfolio  investments  and  8.90%  consisted  of  other  assets  in  excess  of
liabilities.   The  percentage  of  the  Portfolio's   investments  invested  in
securities rated by S&P and Moody's as of March 31, 1997 are as follows:

- --------------------------------------------------------------------------------
                                                   Percentage
                                                    of Total
   S&P                       Moody's               Investments
 Ratings                     Ratings                 Rated*
- --------------------------------------------------------------------------------
   BBB                         Baa                   4.92%
    B                          Ba                     -0-%
   BB                           B                   35.98%
   BB                          Ba                   23.70%
    B                           B                   35.40%
   NR                          NR                     -0-%

Based on the  weighted  average  ratings  of all  investments  held  during  the
Portfolio's  most recent  fiscal  period (the fiscal year ended March 31, 1997),
the percentage of the Portfolio's  total  investments in securities rated by S&P
or Moody's  applicable rating category (AAA, A, BB, or B by S&P or Aaa, A, Ba or
B by Moody's) by monthly  dollar-weighted  average is set forth below. It should
be  noted  that  this  information  reflects  the  average  composition  of  the
Portfolio's  assets  during  the  most  recent  period  and is  not  necessarily
representative  of the  Portfolio's  assets  as of the end of such  period,  the
current fiscal period or at any time in the future.

- --------------------------------------------------------------------------------
                                                   Percentage
                                                    of Total
   S&P                       Moody's               Investments
 Ratings                     Ratings                 Rated*
- --------------------------------------------------------------------------------
   BBB                         Baa                   5.08%
    B                          Ba                     -0-%
   BB                           B                   39.41%
   BB                          Ba                   27.10%
    B                           B                   28.41%
   NR                          NR                     -0-%



*    Equivalent  Unrated - This category  represents the  comparable  quality of
     unrated  securities as determined by the  Investment  Manager.  For foreign
     government   obligations  not  individually  rated  by  an  internationally
     recognized statistical rating organization,  the Portfolio assigns a rating
     based on the rating of the sovereign credit of the issuing government.


                                       21



<PAGE>



Debt  Obligations  in which the Portfolio may invest may have stated  maturities
ranging from overnight to 30 years and may have floating or fixed rates. Changes
in interest rates  generally will cause the value of debt securities held by the
Portfolio  to vary  inversely  to  changes in  prevailing  interest  rates.  The
Portfolio's  investments  in  fixed-rate  debt  securities  with longer terms to
maturity are subject to greater  volatility than the Portfolio's  investments in
short-term  obligations.  Brady bonds and other Debt  Obligations  acquired at a
discount  are  subject to greater  fluctuations  of market  value in response to
changing interest rates than Debt Obligations of comparable maturities which are
not subject to a discount.

Discount Obligations
The  Portfolio   expects  to  invest  in  both  short-term  and  long-term  Debt
Obligations purchased at a discount,  for example,  zero coupon securities.  The
amount  of  original  issue  discount  and/or  market  discount  on  obligations
purchased by the Portfolio may be significant,  and accretion of market discount
together  with  original  issue  discount,  will cause the  Portfolio to realize
income prior to the receipt of cash payments  with respect to these  securities.
See  "Taxation" in the Statement of Additional  Information  for a discussion of
original  issue  discount and market  discount.  In order to  distribute  income
realized by the Portfolio and thereby maintain its qualification as a "regulated
investment  company"  under the Internal  Revenue Code of 1986,  as amended (the
"Code"), the Portfolio may be required to liquidate portfolio securities that it
might otherwise have continued to hold, use its cash assets or borrow funds on a
temporary  basis  necessary to declare and pay a distribution  to  Shareholders.
Under adverse market  conditions,  this may result in  Shareholders  receiving a
portion of their original purchase price as a taxable dividend and could further
negatively impact net asset value.

Political and Economic Factors
Investing in Debt Obligations of Emerging  Countries  involves risks relating to
political  and  economic  developments  abroad.  The  value  of the  Portfolio's
investments  will be affected by commodity  prices,  inflation,  interest rates,
taxation,  social  instability,  and other  political,  economic  or  diplomatic
developments  in or affecting the Emerging  Countries in which the Portfolio has
invested. In many cases,  governments of Emerging Countries continue to exercise
a  significant  degree of  control  over the  economy,  and  government  actions
concerning  the economy  may  adversely  effect  issuers  within  that  country.
Government  actions  relative to the economy,  as well as economic  developments
generally,  may also effect a given  country's  international  foreign  currency
reserves.  Fluctuations  in the level of these  reserves  affect  the  amount of
foreign  exchange  readily  available  for external debt payments and thus could
have a bearing on the capacity of Emerging  Country  issuers to make payments on
their debt  obligations  regardless of their financial  condition.  In addition,
there is a possibility of expropriation or confiscatory taxation,  imposition of
withholding   taxes  on  dividend  or  interest   payments,   or  other  similar
developments  which  could  affect  investments  in those  countries.  While the
Investment  Manager  intends  to  manage  the  Portfolio  in a manner  that will
minimize  the  exposure to such risks,  there can be no  assurance  that adverse
political  changes will not cause the  Portfolio to suffer a loss of interest or
principal on any of its holdings.  The Portfolio  will treat  investments of the
Portfolio that are subject to  repatriation  restrictions of more than seven (7)
days as illiquid securities.

Foreign Exchange Risk
Many of the  currencies  of  Emerging  Countries  have  experienced  significant
devaluations  relative to the dollar,  and major  adjustments  have been made in
certain of them at times. To the extent the Portfolio had invested in non-dollar
denominated securities, a decline in the value of such currency would reduce the
value of certain portfolio  securities and the net asset value of the Portfolio.
The Portfolio may invest up to 30% of its assets in Debt Obligations denominated
in local currencies. In addition, if the exchange rate for the currency in which
the Portfolio receives interest payments declines against the U.S. dollar

                                       22



<PAGE>



before such  interest is paid as dividends to  Shareholders,  the  Portfolio may
have to  sell  portfolio  securities  to  obtain  sufficient  cash  to pay  such
dividends.

Currency  exchange  rates  generally are  determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different  countries,  actual or anticipated changes in interest rates and other
complex factors.  Currency exchange rates also can be affected  unpredictably by
intervention  or failure to intervene by U.S. or foreign  governments or central
banks or by currency  controls or political  developments in the U.S. or abroad.
To the extent  that a  substantial  portion  of the  Portfolio's  total  assets,
adjusted to reflect the Portfolio's net position after giving effect to currency
transactions,  is denominated in currencies of foreign countries,  the Portfolio
will  be  more  susceptible  to the  risk  of  adverse  economic  and  political
developments within those countries.

Sovereign Debt
Investing in Debt  Obligations  of  governmental  issuers in Emerging  Countries
involves economic and political risks.  While the Investment  Manager intends to
manage the  Portfolio in a manner that will minimize the exposure to such risks,
there can be no  assurance  that  adverse  political  changes will not cause the
Portfolio to suffer a loss of interest or principal on any of its holdings.  The
governmental  entity that controls the servicing of obligations of those issuers
may not be willing or able to repay the  principal  and/or  interest when due in
accordance  with  the  terms  of  the  obligations.   A  governmental   entity's
willingness  or ability to repay  principal  and  interest  when due in a timely
manner may be affected by, among other  factors,  its cash flow  situation,  the
market value of the debt,  the relative  size of the debt service  burden to the
economy  as  a  whole,   the  governmental   entity's   dependence  on  expected
disbursements  from third parties,  the governmental  entity's policy toward the
IMF and the  political  constraints  to which  the  governmental  entity  may be
subject.  As a result,  governmental  entities may default on their obligations.
Holders of  certain  Emerging  Country  Debt  Obligations  may be  requested  to
participate in the  restructuring  and rescheduling of these  obligations and to
extend  further  loans to their  issuers.  The  interests of holders of Emerging
Country  Debt  Obligations  could  be  adversely   affected  in  the  course  of
restructuring arrangements or by certain other factors referred to below.

Sovereign  obligors in developing  and Emerging  Countries are among the world's
largest debtors to commercial banks, other governments,  international financial
organizations  and other  financial  institutions.  The issuers of the sovereign
debt  securities  in which the  Portfolio  expects  to  invest  have in the past
experienced   substantial   difficulties   in  servicing   their  external  debt
obligations,  which led to defaults on certain obligations and the restructuring
of certain indebtedness.  Restructuring  arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting  outstanding principal and unpaid
interest to Brady bonds, and obtaining new credit to finance interest  payments.
Holders of  certain  foreign  sovereign  debt  securities  may be  requested  to
participate in the restructuring of such obligations and to extend further loans
to their  issuers.  There can be no  assurance  that the  Brady  Bonds and other
foreign  sovereign debt securities in which the Portfolio may invest will not be
subject to similar  restructuring  arrangements  or to  requests  for new credit
which may adversely affect the Portfolio's holdings.

Sovereign debt issued by issuers in many Emerging Countries  generally is deemed
to be the  equivalent in terms of quality to securities  rated below  investment
grade  by  Moody's  and S&P.  Such  securities  are  regarded  as  predominantly
speculative  with  respect to the  issuer's  capacity to pay  interest and repay
principal in accordance with the terms of the obligations and involve major risk
exposure to adverse conditions. Some of such sovereign debt may be comparable to
securities rated D by S&P or C by Moody's.


                                       23



<PAGE>



Investing in Securities Markets of Emerging Countries

Most securities markets in Emerging Countries may have substantially less volume
and are subject to less government  supervision than U.S. securities markets and
securities  of many  issuers in Emerging  Countries  may be less liquid and more
volatile than securities of comparable domestic issuers.  In addition,  there is
generally  less  government  regulation  of  securities  exchanges,   securities
dealers,  and listed and unlisted  companies in Emerging  Countries  than in the
United States.

Markets in Emerging  Countries  also have  different  clearance  and  settlement
procedures,  and in certain markets there have been times when  settlements have
been unable to keep pace with the volume of securities  transactions,  making it
difficult to conduct such  transactions.  Delays in  settlement  could result in
temporary  periods when a portion of the assets of the  Portfolio is  uninvested
and no return is earned thereon. The inability of the Portfolio to make intended
security purchases due to settlement  problems could cause the Portfolio to miss
attractive investment  opportunities.  Inability to dispose of securities due to
settlement  problems  could  result  either in losses  to the  Portfolio  due to
subsequent  declines in value of the security or, if the  Portfolio  has entered
into a contract to sell the security,  could result in possible liability to the
purchaser.   Costs  associated  with  transactions  in  foreign  securities  are
generally  higher than costs  associated with  transactions in U.S.  securities.
Such  transactions  also  involve  additional  costs for the purchase or sale of
foreign currency.

Foreign investment in certain Emerging Country Debt Obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign  investment in certain Emerging Country Debt Obligations and
increase the costs and expenses of the  Portfolio.  Certain  Emerging  Countries
require prior governmental approval of investments by foreign persons, limit the
amount of  investment  by foreign  persons in a  particular  company,  limit the
investment  by foreign  persons  only to a  specific  class of  securities  of a
company that may have less  advantageous  rights than the classes  available for
purchase by  domiciliaries  of the countries  and/or impose  additional taxes on
foreign  investors.  Certain  Emerging  Countries may also  restrict  investment
opportunities in issuers in industries deemed important to national interests.

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.

Throughout the last decade many Emerging Countries have experienced and continue
to experience  high rates of inflation.  In certain  countries  inflation has at
times  accelerated  rapidly  to  hyperinflationary  levels,  creating a negative
interest rate environment and sharply eroding the value of outstanding financial
assets in those  countries.  Increases in inflation could have an adverse affect
on the Portfolio's  non-dollar denominated securities and on the issuers of Debt
Obligations generally.

In addition, with respect to certain Emerging Countries,  there is a possibility
of expropriation or confiscatory  taxation,  imposition of withholding  taxes on
dividend  or  interest  payments,  limitations  on the removal of funds or other
assets of the  Portfolio,  and  political or social  instability  or  diplomatic
developments  which could  affect  investments  in those  countries.  Individual
foreign  economies may differ  favorably or  unfavorably  from the United States
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments

                                       24



<PAGE>



position.  The  securities  markets,  values  of  securities,  yields  and risks
associated   with   securities   markets  in  different   countries  may  change
independently of each other.

The risk  also  exists  that an  emergency  situation  may  arise in one or more
Emerging  Countries as a result of which trading of securities  may cease or may
be  substantially  curtailed and prices for the  Portfolio's  securities in such
markets may not be readily  available.  The Trust may suspend  redemption of its
shares for any period  during which an emergency  exists,  as  determined by the
Commission.   Accordingly,   if  the   Portfolio   believes   that   appropriate
circumstances   exist,   it  will  promptly   apply  to  the  Commission  for  a
determination  that an emergency is present.  During the period  commencing from
the  Portfolio's  identification  of  such  condition  until  the  date  of  the
Commission  action,  the Portfolio's  securities in the affected markets will be
valued at fair value  determined  in good faith by or under the direction of the
Board of Trustees.

Reporting Standards
It is likely that none of the Debt  Obligations  held by the  Portfolio  will be
registered  with the  Commission  or subject  to U.S.  regulatory  or  reporting
requirements. Disclosure requirements in Emerging Countries are generally not as
stringent as in the U.S. and there may be less  publicly  available  information
about  issuers in  Emerging  Countries  than about  domestic  issuers.  Emerging
Country issuers are not generally subject to accounting,  auditing and financial
reporting standards comparable to those applicable to domestic issuers.

Investment Practices
Certain of the investment practices in which the Portfolio may engage have risks
associated  with them,  including  possible  default  by the other  party to the
transaction, illiquidity and, to the extent the Investment Manager's views as to
certain market movements are incorrect, the risk that the use of such strategies
could  result  in  losses  greater  than if they had not been  used.  The  risks
associated with  illiquidity are  particularly  acute in situations in which the
Portfolio's  operations require cash, such as when the Portfolio redeems for its
shares of  beneficial  interests  or pays  distributions,  and may result in the
Portfolio  borrowing to meet short-term cash  requirements or incurring  capital
losses on the sale of such  investments.  A forward  foreign  currency  exchange
contract  involves an obligation  to purchase or sell a specified  currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties,  at the price set at the time of the  contract.  The
use of forward foreign  currency  exchange  contracts  entail certain risks. The
cost to the  Portfolio  of engaging in forward  currency  contracts  varies with
factors such as the currency involved, the length of the contract period and the
market  conditions  then  prevailing.  Because  forward  currency  contracts are
usually entered into on a principal  basis, no fees or commissions are involved.
When the Portfolio  enters into a forward  currency  contract,  it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract.  Failure by the  counterparty to do so would result in the loss
of any expected benefit of the transaction.  Secondary  markets generally do not
exist for forward currency contracts,  with the result that closing transactions
generally  can be made  for  forward  currency  contracts  only  by  negotiating
directly  with  the  counterparty.  Thus,  there  can be no  assurance  that the
Portfolio  will in fact be able to close out a forward  currency  contract  at a
favorable  price prior to maturity.  In addition,  in the event of insolvency of
the counterparty,  the Portfolio might be unable to close out a forward currency
contract at any time prior to maturity.  In either event,  the  Portfolio  would
continue to be subject to market risk with  respect to the  position,  and would
continue to be required to maintain a position in securities  denominated in the
foreign currency or to maintain cash or securities in a segregated account.


Use of put and call options could result in losses to the  Portfolio,  force the
purchase or sale of  portfolio  securities  at  inopportune  times or for prices
higher than (in the case of put options) or lower than (in the

                                       25



<PAGE>



case of call options)  current market values,  limit the amount of  appreciation
the Portfolio  could realize on its investments or cause the Portfolio to hold a
security it might otherwise sell. The use of currency  transactions could result
in the  Portfolio's  incurring  losses as a result of the imposition of exchange
controls,  suspension of  settlements,  or the inability to deliver or receive a
specified   currency.   The   Portfolio   depends  upon  the   reliability   and
creditworthiness  of the  counterparty  when it  enters  into  OTC  currency  or
securities options or other agreements.  Investments in indexed securities offer
the potential for an attractive rate of return, but also entail the risk of loss
of  principal.  The use of options  and  futures  transactions  entails  certain
special risks. In particular,  the variable degree of correlation  between price
movements of futures  contracts  and price  movements  in the related  portfolio
position  of the  Portfolio  could  create the  possibility  that  losses on the
hedging  instrument  will be greater than gains in the value of the  Portfolio's
position,  thereby  reducing the Portfolio's  net asset value.  Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged  securities  are  denominated.  With regards to the
Portfolio's  use of proxy  hedges,  there can be no  assurance  that  historical
correlations  between the movement of certain foreign currencies relating to the
U.S. dollar will continue.  Thus, at any time poor correlation may exist between
movements  in the  exchange  rates  of the  foreign  currencies  underlying  the
Portfolio's  proxy hedges and the movements in the exchange rates of the foreign
currencies  in  which  the  Portfolio  assets  that  are  the  subject  of  such
proxy-hedges are denominated.

Non-Diversification
The  Portfolio  is  classified  as  non-diversified  within  the  meaning of the
Investment  Company Act,  which means that the  Portfolio is not limited by such
Investment Company Act in the proportion of its assets that it may invest in the
securities of a single  issuer.  The  Portfolio's  investments  will be limited,
however, in order to qualify as a "regulated investment company" for purposes of
the Code. See "Dividends,  Distributions and Taxes." This means, at the close of
each quarter of its taxable year,  at least 50% of the value of the  Portfolio's
assets  must  consist  of cash  and  cash  items,  U.S.  government  securities,
securities of other  regulated  investment  companies,  and  securities of other
issuers (as to which the Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which the Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of the Portfolio's total assets may be invested in
the  securities of any one issuer  (other than U.S.  government  securities  and
securities of other regulated investment  companies),  or in two or more issuers
which the Portfolio controls and which are engaged in the same or similar trades
or businesses (the "Asset Diversification Requirement").

Investment in the Portfolio, which is classified as a non-diversified investment
company under the Investment Company Act, may present greater risks to investors
than  an  investment  in  a  diversified   fund.  The  investment  return  on  a
non-diversified  investment  company typically is dependent upon the performance
of a smaller number of securities relative to the number of securities held in a
diversified  fund.  The  Portfolio's   assumption  of  large  positions  in  the
obligations of a small number of issuers will affect the value of the securities
it holds to a greater  extent  than that of a  diversified  fund in the event of
changes  in the  financial  condition,  or in the  market's  assessment,  of the
issuers.



                                       26



<PAGE>



                           Management of the Portfolio

Board of Trustees

[The Trustees are responsible for the overall  management and supervision of the
Portfolio's business.]

The Board of Trustees of the Trust consists of five  individuals,  three of whom
are not  "interested  persons"  of the  Portfolio  as defined in the  Investment
Company  Act.  The Board of  Trustees is  responsible  for  deciding  matters of
general policy and reviewing actions of the Investment Manager,  Distributor and
Transfer Agent.  The officers of the Trust conduct and supervise the Portfolio's
daily business operations.  The Portfolio's Statement of Additional  Information
contains the name and general business experience of each Trustee.

Investment Manager and Administrator

[BSFM is the Portfolio's Investment Manager.]

The  Portfolio's  investment  manager is BSFM, a wholly-owned  subsidiary of The
Bear Stearns Companies Inc. The Bear Stearns Companies Inc. is a holding company
which,  through  its  subsidiaries  including  its  principal  subsidiary,  Bear
Stearns, is a leading United States investment  banking,  securities trading and
brokerage firm serving United States and foreign  corporations,  governments and
institutional and individual investors.  BSFM is a registered investment adviser
and offers  investment  advisory  and  administrative  services to open-end  and
closed-end  investment  funds  and  other  managed  pooled  investment  vehicles
generally with assets totaling approximately $___ billion at September 30, 1997.
BSFM has served as an investment adviser since April 3, 1995 and since that time
has  served as  investment  adviser to The Bear  Stearns  Funds.  The  principal
offices of BSFM are located at 245 Park Avenue, New York, New York 10167.

The principal portfolio manager responsible for the day-to-day management of the
Portfolio  is Edward R.  Vaimberg.  Mr.  Vaimberg,  a Managing  Director of Bear
Stearns,  joined Bear Stearns  Asset  Management,  an affiliate of BSFM, in July
1994 as an  Associate  Director and Global  Fixed  Income  Portfolio  Investment
Manager.  He was previously  employed by Fiduciary Trust Company  ("Fiduciary"),
where he served as Senior  Vice  President  and Global  Fixed  Income  Portfolio
Investment Manager from 1991 to 1994. At Fiduciary,  Mr. Vaimberg managed global
and international  fixed-income  portfolios for institutional  clients,  and was
responsible  for  interest  rate and  currency  exposures.  Prior  thereto,  Mr.
Vaimberg  served as Vice  President  and  International  Fixed Income  Portfolio
Investment  Manager at Merrill  Lynch Asset  Management  (1989-1991)  and Senior
Portfolio  and  Foreign  Exchange  Analyst at  General  Motors  (1985-1989).  Mr
Vaimberg received his B.S. from Cornell University (1981) and an M.B.A. from the
Wharton School (1985).

Under  the  Investment  Management  Agreement  between  the  Portfolio  and  the
Investment  Manager,  the Investment Manager has sole discretion to purchase and
sell portfolio securities for the Portfolio's investment portfolio and to select
brokers  for  the  execution  of  such  purchases  and  sales,  all  within  the
Portfolio's  objectives,  policies and  restrictions.  BSFM also  supervises and
assists in the overall  management of the  Portfolio's  affairs,  subject to the
general supervision of the Board of Trustees.

As  compensation  for the  services  rendered to the  Portfolio  by BSFM and the
assumption by BSFM of related  expenses,  pursuant to the Investment  Management
Agreement, the Portfolio pays BSFM a fee

                                       27



<PAGE>



computed  daily and  payable  monthly,  at 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. BSFM has agreed that if, in any fiscal year, the sum of the Portfolio's
expenses exceeds the expense limitations  applicable to the Portfolio imposed by
state  securities  administrators,  BSFM will  reimburse  the Portfolio its fees
under the Investment  Management  Agreement or make other  arrangements to limit
Portfolio expenses to the extent required by such expense limitations. From time
to time, the Investment Manager may waive receipt of its fees and/or voluntarily
assume certain Portfolio  expenses,  which would have the effect of lowering the
Portfolio's  expense  ratio and  increasing  yield to investors at the time such
amounts are waived or assumed,  as the case may be. The  Portfolio  will not pay
the  Investment  Manager at a later time for any amounts it may waive,  nor will
the  Portfolio  reimburse the  Investment  Manager for any amounts it may assume
respectively,  of the Portfolio until such time as the average net assets of the
Portfolio  exceed $50 million or the total  operating  expenses of the Portfolio
are less than 2.00%, 2.40% and 2.40% of the Class A shares,  Class B and Class C
shares,  respectively,  of the Portfolio. The investment management fees paid by
the Portfolio are greater than those paid by most funds, but are believed by the
Investment  Manager  to be  appropriate  for fees  paid by  funds  with a global
investment strategy.

The  Portfolio has engaged PFPC Inc. (the  "Administrator")  to provide  certain
administrative  services;  for example,  preparation of the Portfolio's Federal,
state and local  tax  returns,  maintenance  of the  books  and  records  of the
Portfolio  required under the Investment  Company Act, and qualifying the shares
under applicable  state  securities laws. Under the terms of the  Administrative
Services  Agreement between the Administrator and the Trust, as compensation for
the services  rendered to the Portfolio by the  Administrator and the assumption
by the  Administrator  of certain  related  expenses,  the Portfolio pays to the
Administrator  an annual fee,  subject to certain  minimum fees and exclusive of
certain  multi-class  account service  charges,  computed at the following rate:
0.10 of 1% per annum of the first $200 million of the Portfolio's  average daily
net  assets,  0.07 of 1% per annum of the next $200  million of the  Portfolio's
average  daily net assets,  0.05 of 1% per annum of the next $200 million of the
Portfolio's  average  daily net assets  and 0.03 of 1% per annum of any  amounts
over $600  million of the  Portfolio's  average  daily net  assets  subject to a
minimum fee of $108,000. From time to time, the Administrator may waive all or a
portion  of its  fees.  PFPC has  agreed  to  provide  the  services  under  the
Administrative  Services  Agreement for the period April 1, 1997 until September
30, 1997 for a minimum fee of $75,000 per annum. The Administrator  reserves the
right to revoke the  voluntary  fee waiver at any time.  The total costs for the
administrative  fees will be borne by each Class based on the  proportionate net
assets of each Class.

The Portfolio is responsible to the Investment Manager and the Administrator for
out-of-pocket expenses incurred on behalf of the Portfolio,  including,  but not
limited to,  postage and  mailing,  telephone,  telex,  overnight  and  delivery
service,  outside independent pricing services,  daily report transmissions,  if
any,  and  record  retention/storage  incurred  by  the  Investment  Manager  or
Administrator  in connection with their services.  All expenses  incurred in the
operation of the Portfolio will be borne by the Portfolio,  except to the extent
specifically  assumed by BSFM. See  "Management of the Portfolio -- Expenses" in
the Statement of Additional Information.

Bear  Stearns  has agreed to permit the Trust to use the name "Bear  Stearns" or
derivatives  thereof as part of the Portfolio name for as long as the Investment
Management Agreement is in effect.


                                       28



<PAGE>



Distributor

Bear  Stearns,  located at 245 Park Avenue,  New York,  New York 10167 serves as
distributor for the Portfolio in the sale of its shares pursuant to an agreement
which is renewable annually.  Bear Stearns is entitled to receive the sales load
described  under "How to Buy Shares" and payments  under the  Distribution  Plan
described below.

Custodian and Transfer Agent

Brown Brothers  Harriman & Co., 40 Water Street,  Boston,  Massachusetts  02109,
acts as the custodian for the Portfolio's  assets. PFPC Inc., Bellevue Corporate
Center,  400  Bellevue  Parkway,  Suite 108,  Wilmington,  Delaware  acts as the
Portfolio's administrator, transfer agent, dividend-paying agent and registrar.

Rules adopted under the Investment  Company Act permit the Portfolio to maintain
its securities and cash in the custody of certain  eligible banks and securities
depositories.  Pursuant to those rules, the Portfolio's  portfolio of securities
and  cash  invested  in  securities  of  foreign   countries  are  held  by  its
subcustodians,  who are approved by the Trustees of the  Portfolio in accordance
with the rules of the Commission.

Distribution Plan and Shareholder Servicing Plan - Class A and Class C Shares

[The Portfolio has adopted a Rule 12b-1 Plan under which it pays Bear Stearns at
the annual rate of 0.35% of Class A's average daily net assets and at the annual
rate of 0.75% of Class C's average daily net assets.]

The Trust,  on behalf of the  Portfolio's  Class A and C shares,  has adopted an
amended  and  restated  distribution  plan  pursuant  to Rule  12b-1  under  the
Investment  Company Act. Under the distribution plan, the Portfolio pays to Bear
Stearns a monthly distribution fee equal to, on an annual basis, 0.35% and 0.75%
of the  Portfolio's  average  daily net  assets  for Class A shares  and Class C
shares, respectively. With respect to Class A shares, the Portfolio is currently
waiving 0.10% of this fee  attributable to distribution  related  expenses.  The
Trust has  adopted a  shareholder  servicing  plan on behalf of the  Portfolio's
Class C shares. In accordance with the shareholder servicing plan, the Portfolio
may enter into shareholder  servicing  agreements under which the Portfolio pays
fees of up to 0.25% of the  average  daily net assets of Class C shares for fees
incurred in connection  with the personal  service and  maintenance  of accounts
holding  Portfolio  shares  for  responding  to  inquiries  of,  and  furnishing
assistance to, shareholders  regarding ownership of the shares or their accounts
or similar services not otherwise provided on behalf of the Portfolio.

Bear Stearns may use the  distribution  fee for services  performed and expenses
incurred by Bear Stearns in connection  with the  distribution  of shares by the
Portfolio  and  for  providing  certain  services  to  the  shareholders  of the
Portfolio.  Bear Stearns may pay third parties in respect of these services such
amount as it may determine.  The Portfolio  understands that these third parties
may also charge fees to their  clients who are  beneficial  owners of  Portfolio
shares in connection with their client accounts. These fees would be in addition
to any  amounts  which  may be  received  by them from  Bear  Stearns  under the
distribution plan.

Service  fees are  payments  to  broker-dealers  who are members of the NASD for
services  rendered to investors,  similar to account  maintenance fees. The NASD
limit on Rule 12b-1 fees paid by  investors of a fund that charges a service fee
is 6.25% of new sales, plus interest.  See  "Distribution  Plans and Shareholder
Servicing Plans" in the Statement of Additional Information for a listing of the
types of

                                       29



<PAGE>



expenses for which Bear Stearns and Authorized  Dealers may be compensated under
the Plan. If the fee received by Bear Stearns exceeds its expenses, Bear Stearns
may realize a profit from these arrangements.  The distribution plan is reviewed
and is subject to approval annually by the Board of Trustees. For the period May
3, 1993 (commencement of investment  operations)  through March 31, 1994 and the
fiscal year ended March 31, 1995,  the total fees paid to Bear Stearns under the
prior 12b-1 plan were $107,662 and $97,893, respectively,  pursuant to which the
12b-1 fees  thereunder  were 0.25% per annum of the average  daily net assets of
the Class A Shares of the  Portfolio.  For the fiscal years ended March 31, 1996
and March 31, 1997,  Bear  Stearns  earned  $99,038 and  $110,830  respectively,
pursuant to which the compensation payable thereunder was at a rate of 0.35% per
annum of the  average  daily net assets of the Class A shares of the  Portfolio.
For the period July 26, 1995  (commencement of initial public offering)  through
March 31, 1996 and for the fiscal year ended March 31, 1997, Bear Stearns earned
$452 and  $9,356,  respectively,  pursuant  to which  the  compensation  payable
thereunder  was at a rate of 0.75% per annum of the average  daily net assets of
the Class C shares of the Portfolio.

In addition,  as distributor of the Portfolio,  Bear Stearns  collects the sales
charges  imposed on sales of the Portfolio's  shares,  and reallows a portion of
such  charges to brokers  through  which the sales are made.  For the year ended
March 31, 1997,  Bear Stearns  retained  $110,800 of such charges.  In addition,
Bear Stearns has received  approximately $2,400 in CDSC upon certain redemptions
by Class C shareholders.

Distribution Plan and Shareholder Servicing Plan - Class B Shares

Under a distribution  plan adopted by the Portfolio's Board of Trustees pursuant
to Rule 12b-1 under the Investment Company Act for Class B shares, the Portfolio
will pay Bear  Stearns an annual fee of 0.75% per year of the average  daily net
assets of Class B shares.  Amounts paid under the  distribution  plan compensate
Bear  Stearns for  distributing  Portfolio  shares.  Bear  Stearns may pay third
parties  that  sell  Portfolio  shares  such  amount  as it may  determine.  The
Portfolio  understands  that these  third  parties may also charge fees to their
clients who are beneficial  owners of Portfolio  shares in connection with their
client  accounts.  These fees would be in addition  to any amounts  which may be
received by them from Bear Stearns under the distribution plan.

The Trust has adopted a shareholder  servicing plan on behalf of the Portfolio's
Class B shares. In accordance with the shareholder servicing plan, the Portfolio
may enter into  shareholder  service  agreements  under which the Portfolio pays
fees of up to 0.25% of the  average  daily net assets of Class B shares for fees
incurred in connection  with the personal  service and  maintenance  of accounts
holding   Portfolio  shares  for  responding  to  inquires  of,  and  furnishing
assistance to shareholders  regarding  ownership of the shares or their accounts
or similar services not otherwise provided on behalf of the Portfolio.

Expenses

All expenses  incurred in the  operation of the  Portfolio  will be borne by the
Portfolio, except to the extent specifically assumed by BSFM. See "Management of
the Portfolio-Expenses" in the Statement of Additional Information.

BSFM has undertaken that, if in any fiscal year, certain expenses, including the
investment  management fee and fees under the distribution plan, exceed 2.00% of
Class A's average daily net assets,  2.40% of Class B's average daily net assets
and 2.40% of Class C's average  daily net assets for the fiscal  year,  BSFM may
waive a portion of its  investment  management fee or bear other expenses to the
extent of the excess expense.


                                       30



<PAGE>



                                How to Buy Shares

General

[An  initial  investment  is  $1,000,  $500  for  retirement  plans;  subsequent
investments must be at least $250, $100 for retirement plans;  specify the Class
you wish to purchase.]

The  minimum  initial  investment  in the  Portfolio  is  $1,000  or $500 if the
investment is for Keogh Plans, IRAs,  SEP-IRAs and 403(b)(7) Plans with only one
participant.  The minimum subsequent  investment in the Portfolio is $250. Share
certificates  are issued only upon written request.  The Portfolio  reserves the
right to reject any purchase  order.  The Portfolio and Bear Stearns reserve the
right to modify the minimum investment  requirement,  the subsequent  investment
requirement,  the manner in which  shares are  offered  and the sales load rates
applicable to future purchases of shares.

Class A, Class B and Class C shares of the  Portfolio  may be  purchased  in any
amount (subject to then effective minimum investment  requirement)  through Bear
Stearns or through  certain  investment  dealers who are members of the NASD who
have  sales  agreements  with  Bear  Stearns  or who have  entered  into  dealer
agreements  directly with Bear Stearns (an "Authorized  Dealer") on any Business
Day (as  defined  under  "General  Information")  at the net  asset  value  next
determined after receipt of an order, plus the then applicable sales load in the
case of Class A shares.

If by 4:00 p.m.  New York time,  a  purchase  order  specifying  the Class to be
purchased is received and accepted by Bear Stearns or an Authorized  Dealer, the
price  will be based on the net asset  value  computed  on the day the  purchase
order is received.  The settlement date will be the third Business Day after the
trade date. Since Bear Stearns or Authorized Dealers forward investors' funds on
settlement  date,  they  will  benefit  from the  temporary  use of the funds if
payment is made prior  thereto.  Orders placed  directly with the Transfer Agent
must be  accompanied  by payment.  Investors  will be entitled to receive income
dividends  and  capital  gains  distributions  if their order is received by the
close of  business on the day prior to the record  date for such  dividends  and
distributions.

Choosing a Class of Shares

Determining  which class of shares best suits your  investment  needs depends on
several  factors.  Each  Class of shares has its own  operating  costs and sales
charges that will affect the results of your investment  over time.  Perhaps the
most  significant  factors  are how much you  intend to invest and the length of
time you expect to hold your  investment.  If your goals  change over time,  you
should review your investment to determine  whether a particular class of shares
best suits your needs.

Class A shares  are,  in  general,  the most  beneficial  for the  investor  who
qualifies  for a waiver or certain  reductions of the front end sales charges as
described  herein under "How to Buy Shares -- Class A Shares." Class B and Class
C shareholders  may pay a CDSC upon  redemption.  Investors who expect to redeem
during the eight year CDSC period  applicable  to Class B shares or the one year
CDSC  period  applicable  to  Class C  shares  should  consider  the cost of the
applicable  CDSC  plus  the  aggregate  annual  distribution  and  service  fees
applicable to Class B and Class C shares, as compared with the cost of the front
end sales charge plus the aggregate annual distribution fees applicable to Class
A  shares.  Because  Class B and  Class C  shareholders  pay no front  end sales
charge,  the entire  purchase  price is  immediately  invested  in shares of the
Portfolio.  Any return realized on the additional  funds initially  invested may
partially or wholly offset the ongoing  distribution  fees applicable to Class B
and Class C shares. There can be no assurance, however,

                                       31



<PAGE>



as to the investment  return,  if any, which will be realized on such additional
funds.  Over time, the cumulative  distribution  and service fees  applicable to
Class B and Class C shares will  approach and may exceed the 4.75% maximum front
end sales charge plus the distribution fee applicable to Class A shares.

The factors  discussed  below  assume the  expenses  that apply to each Class of
shares as described in this Prospectus.  In addition, they assume an annual rate
of return of approximately  5%. The actual amount of the return may be higher or
lower,  depending on actual investment returns over time. This discussion is not
intended to be investment  advice or  recommendations,  because each  investor's
goals, needs and circumstances are unique.

Maximum Purchase Amount

There is a maximum purchase limitation of $500,000 in the aggregate on purchases
of Class B  shares  and a  maximum  purchase  limitation  of  $1,000,000  in the
aggregate on purchases of Class C shares.  Investors  who purchase $1 million or
more may only  purchase  Class A shares  (as the  sales  charge  is  waived  for
purchases in excess of $1,000,000).  However, if you purchase over $1 million of
Class A shares,  and do not maintain your  investment for at least one year from
the date of purchase, you will be charged a CDSC of 1%.

Length of Investment

Knowing  the  approximate  time you plan to hold  your  investment  can help you
select the class of shares  that is most  appropriate  for you.  Generally,  the
amount of sales  charge you pay over time will  depend on the amount you invest.
If you plan to invest a large  amount  over  time,  the  reduced  sales  charges
available  for larger  purchases  of Class A shares may,  over time,  offset the
effect of paying an initial sales charge on your  investment  (the initial sales
charge of Class A Shares  effectively  reduces  the amount of your  investment),
compared to the higher  expenses  on Class B shares or Class C shares,  which do
not feature an initial sales charge. Your entire investment in Class B Shares is
available to work for you from the time you make your initial investment but the
higher  expenses  will cause your Class B shares  (until  conversion  to Class A
shares) to have a higher expense ratio and to pay lower dividends, to the extent
dividends  are paid,  than  Class A shares.  If you prefer not to pay an initial
sales charge on an investment you might consider purchasing Class B shares.

   
If you plan to invest less than $250,000 for a period of  approximately  8 years
or less, Class C shares might be more appropriate even though the class expenses
are higher,  because  there is no initial  sales  charge and no CDSC if held for
over 1 year.  If you plan to invest less than $250,000 for a period of between 9
and 12 years,  Class B shares may be more  apropriate.  If you plan to hold your
investment for more than 12 years,  then Class A shares may be more appropriate,
because  the effect of the higher  class  expenses of Class C shares and Class B
shares might be greater than the effect of the initial sales charge of the Class
A shares.
    

If you plan to invest more than  $250,000 but less then $500,000 for a period of
5 years or less,  than  Class C Shares may be more  appropriate.  If you plan to
hold your  investment  for  approximately  6 years or more you may find  Class A
shares more suitable.

If you plan to invest more than $500,000 but less than  $1,000,000  for a period
of 4 years or less, then Class C shares may be more appropriate.  If you plan to
hold your investment for

                                       32



<PAGE>



approximately  5 years or more, you may find Class A shares more  suitable.  For
investors  who  invest  $1  million  or more,  Class A  shares  will be the most
advantageous choice, no matter how long you intend to hold your shares.

Payments to Brokers

Your broker may be entitled to receive different compensation for selling shares
of one class of shares than for selling  another class.  The purpose of both the
CDSC and the  asset-based  sales  charge is to  compensate  Bear Stearns and the
brokers who sell the shares.

Consult Your Financial Advisor

You should  consult your financial  adviser to assist you in  determining  which
class of shares is most appropriate for you.

[Purchases  can be made  through  Bear Stearns  account  executives,  Authorized
Dealers or the Transfer Agent.]

Purchases through Bear Stearns account  executives or Authorized  Dealers may be
made by check (except that checks drawn on foreign banks and checks made payable
to persons or entities other than the Portfolio  will not be accepted),  Federal
Reserve drafts or by wiring Federal funds with funds held in brokerage  accounts
at Bear Stearns or its  Authorized  Dealers.  Checks or Federal  Reserve  drafts
should  be made  payable  as  follows:  (i) to  Bear  Stearns  or an  investor's
Authorized  Dealer or (ii) to "Bear Stearns  Investment Trust - Emerging Markets
Debt  Portfolio,"  if  purchased  directly  from the  Portfolio,  and  should be
directed to the Transfer Agent: PFPC Inc., Attn: Bear Stearns Investment Trust -
Emerging Markets Debt Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960.
Payment by check or Federal Reserve draft must be received within three business
days of receipt of the  purchase  order by the  Portfolio  or Bear Stearns or an
Authorized  Dealer.  Orders  placed  directly  with the  Transfer  Agent must be
accompanied  by payment.  Shareholders  may not purchase  shares of the Emerging
Markets Debt Portfolio with a check issued by a third party and endorsed over to
the  Portfolio.  Checks for  investment  must be made  payable  to the  Emerging
Markets Debt  Portfolio.  Bear Stearns (or an investor's  Authorized  Dealer) is
responsible for forwarding payment promptly to the Portfolio.  A transaction fee
of $7.50  may be  charged  for  payments  by wire.  The  payment  proceeds  of a
redemption of shares recently  purchased by check may be delayed for a period of
time described under "How to Redeem Shares."

Investors who are not Bear Stearns  clients may purchase shares of the Portfolio
through  the  Transfer  Agent.  In order to make an  initial  investment  in the
Portfolio,  an  investor  must  establish  an  account  with  the  Portfolio  by
furnishing necessary information to the Portfolio. An account with the Portfolio
may be  established,  by  completing  and signing the Account  Information  Form
indicating which Class of shares is being purchased, a copy of which is attached
to this  Prospectus,  and mailing it,  together with a check made payable to the
Portfolio  to cover the  purchase  and/or  subsequent  purchases to the Transfer
Agent:  PFPC Inc.,  Attn: Bear Stearns  Investment Trust - Emerging Markets Debt
Portfolio,  P.O.  Box 8960,  Wilmington,  Delaware  19899-8960.  With respect to
Shareholder's  subsequent  purchases,  the  Shareholder's  account number should
appear on the check.


                                       33



<PAGE>



A  Shareholder  of the  Portfolio  may  request  redemptions  of  shares  of the
Portfolio  by  telephone  if the  optional  telephone  transaction  privilege is
elected on the Account Information Form accompanying this Prospectus.  It may be
difficult to implement  redemptions by telephone in times of drastic economic or
market changes.  In an effort to prevent  unauthorized or fraudulent  redemption
requests by telephone,  the Portfolio employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine.  Telephone  transaction
procedures include the following measures:  requiring the appropriate  telephone
transaction  election be made on the Account  Information  Form;  requiring  the
caller to provide the names of the account  owners,  the account  owner's social
security  number  and name of fund,  all of which  must  match  the  Portfolio's
records;  requiring that the Transfer Agent's service representative  complete a
telephone  transaction  form  listing  all of the  above  caller  identification
information;  requiring  that  redemption  proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; sending a written confirmation for each
telephone  transaction  to the owners of record at the address of record  within
three  (3)  business  days of the  call;  and  maintaining  tapes  of  telephone
transactions  for six  months,  if the  Portfolio  elects to record  shareholder
telephone transactions.

For  accounts  held of  record  by a  broker-dealer,  trustee,  custodian  or an
attorney-in-fact  (under  a power  of  attorney),  additional  documentation  or
information  regarding the scope of a caller's  authority is required.  Finally,
for telephone  transactions  in accounts held  jointly,  additional  information
regarding  other  account  holders is required.  The Trust may  implement  other
procedures from time to time. If reasonable procedures are not implemented,  the
Trust may be liable for any loss due to unauthorized or fraudulent transactions.
In all other cases,  neither the  Portfolio,  the Trust nor Bear Stearns will be
responsible for the authenticity of redemption or exchange instructions received
by telephone.

Information  concerning purchases through Bear Stearns (or an Authorized Dealer)
should be obtained directly from Bear Stearns,  Bear Stearns account  executives
or the Authorized Dealer. In the case of purchases made through Bear Stearns (or
the investor's  Authorized  Dealer), it is the responsibility of Bear Stearns or
such Authorized  Dealer to promptly  forward payment to the Portfolio for shares
being purchased.

Brokers that do not have dealer  agreements  with Bear Stearns also may offer to
place orders for the purchase of the shares. Purchases made through such brokers
will be effected at the public offering price next determined after the order is
received by the Transfer Agent.  Brokers are responsible for promptly forwarding
the orders to the  Transfer  Agent.  Such a broker  may  charge  the  investor a
transaction fee as determined by the broker.  The fee will be in addition to the
sales charge  payable by the investor and may be avoided if shares are purchased
through Bear Stearns, an Authorized Dealer that has a dealer agreement with Bear
Stearns or through the Transfer Agent.

The  Portfolio  and Bear Stearns each  reserves the right to reject any specific
purchase order or to restrict  purchases by a particular  purchaser (or group of
related  purchasers).  The Portfolio,  Bear Stearns and  Authorized  Dealers may
reject or restrict  purchases of shares by a particular  purchaser or group, for
example  when a  pattern  of  frequent  purchases  and  sales of  shares  of the
Portfolio  is evident,  or if the  purchase and sale orders are, or a subsequent
abrupt  redemption  might be, of a size that  would  disrupt  management  of the
Portfolio.


                                       34



<PAGE>



[Net asset value is computed daily as of the close of regular trading on the New
York Stock Exchange.]

Shares of the Portfolio are sold on a continuous  basis. The net asset value per
share  of  each  Class  of  the  Portfolio  is  calculated  by  the  Portfolio's
Administrator  as of the close of regular trading of the New York Stock Exchange
("NYSE")  (normally  4:00 p.m.,  New York time) on each  Business Day. Net asset
value per share is  calculated  by  dividing  the value of the  Portfolio's  net
assets   represented  by  such  Class  (i.e.,  the  value  of  its  assets  less
liabilities) by the total number of shares of such Class outstanding.  Portfolio
securities  are valued  based on market  quotations  or, if  quotations  are not
readily  available,  at fair value as determined in good faith under  procedures
established by the Board of Trustees.

Class A Shares

[Class A shares  include a sales  load  which may vary  depending  on the dollar
amount invested.]

Class A shares  include a sales  load  which may vary  depending  on the  dollar
amount  invested.  The  Portfolio  receives the net asset value and Bear Stearns
receives  the sales load.  Bear  Stearns  collects  or remits the sales  charges
imposed on purchases of shares and reallows a portion of such charges to brokers
and dealers that have sold such shares in accordance with the schedule set forth
below.

<TABLE>
<CAPTION>


                                                   TOTAL SALES LOAD
                                                                                                   DEALER
                                                    AS A % OF           AS A % OF NET         COMMISSION AS A
           AMOUNT OF PURCHASE AT THE                 OFFERING          ASSET VALUE PER            % OF THE
             PUBLIC OFFERING PRICE                    PRICE                 SHARE              OFFERING PRICE
            -----------------------                 ---------          ---------------        ---------------
<S>                                                    <C>                  <C>                     <C>
Less than $50,000..........................          4.50%                 4.71%                   4.25%
$50,000 but less than $100,000 ............          4.25%                 4.44%                   4.00%
$100,000 but less than $250,000............          3.25%                 3.36%                   3.00%
$250,000 but less than $500,000 ...........          2.50%                 2.56%                   2.25%
$500,000 but less than $1,000,000..........          2.00%                 2.04%                   1.75%
$1,000,000 or more.........................          0.00%*                0.00%                   1.25%

</TABLE>
The terms  contained in the section of this  Prospectus  entitled "How to Redeem
Shares -- Contingent  Deferred Sales Charge -- Class C Shares" are applicable to
the  Class  A  shares  subject  to a CDSC.  Letters  of  Intent  and  Rights  of
Accumulation apply to such purchases of Class A shares.

The dealer  concession may be changed from time to time but will remain the same
for all  dealers.  From time to time Bear  Stearns may make or allow  additional
payments or promotional  incentives to dealers that sell Class A shares. In some
instances, these incentives may be offered only to certain dealers who have sold
or may sell significant amounts of Class A shares.  Dealers may receive a larger
percentage  of the sales load from Bear  Stearns  than they  receive for selling
most other funds.



- ----------

*    There is no initial  sales  charge on purchases  of  $1,000,000  or more of
     Class A shares. However, if an investor purchases Class A shares without an
     initial sales charge as part of an investment  of at least  $1,000,000  and
     redeems those shares within one year after  purchase,  a CDSC of 0.50% will
     be imposed at the time of redemption.


                                       35



<PAGE>




Class A  shares  of the  Portfolio  may be sold at net  asset  value to (a) Bear
Stearns,  its affiliates or their  respective  officers,  directors or employees
(including  retired  employees),  any  partnership  of which  Bear  Stearns is a
general  partner,  any  Trustee or officer  of the Trust and  designated  family
members of any of the above individuals;  (b) qualified retirement plans of Bear
Stearns; (c) any employee or registered  representative of any Authorized Dealer
or their  respective  spouses and minor  children;  (d) trustees or directors of
investment companies for which Bear Stearns or an affiliate acts as sponsor; (e)
any state,  county or city,  or any  instrumentality,  department,  authority or
agency thereof,  which is prohibited by applicable investment laws from paying a
sales load or commission in  connection  with the purchase of Portfolio  shares;
(f) any institutional  investment clients including  corporate sponsored pension
and profit-sharing  plans, other benefit plans and insurance companies;  (g) any
pension funds, state and municipal governments or funds,  Taft-Hartley plans and
qualified  non-profit  organizations,  foundations  and  endowments;  (h)  trust
institutions (including bank trust departments) investing on their own behalf or
on behalf of their  clients;  and (i) accounts as to which an Authorized  Dealer
charges an asset management fee. In order to take advantage of these exemptions,
a purchaser must certify its eligibility for an exemption to Bear Stearns on its
Account  Information Form and must certify on such form that it will notify Bear
Stearns if, at the time of any additional  purchases,  it is no longer  eligible
for an  exemption.  Bear  Stearns  reserves  the  right  to  request  additional
certification  or  information  from a  purchaser  in order to verify  that such
purchaser is eligible for an exemption. Bear Stearns reserves the right to limit
the participation in Class A shares of the Portfolio of its employees. Dividends
and distributions  reinvested in Class A shares of the Portfolio will be made at
the net asset value per share on the reinvestment date.

Class A shares of the  Portfolio  may be purchased at net asset value,  with the
proceeds  from the  redemption  of shares of an  investment  company sold with a
sales charge or commission and not distributed by Bear Stearns. However, if such
investor  redeems those shares within one year after  purchase,  a CDSC of 1.00%
will be imposed at the time of redemption. This includes shares of a mutual fund
which were subject to a CDSC upon  redemption.  The purchase must be made within
60 days of the redemption,  and Bear Stearns must be notified by the investor in
writing, or by the investor's investment professional,  at the time the purchase
is made. Bear Stearns will offer to pay Authorized Dealers an amount up to 1.25%
of the net asset value of shares  purchased by the dealers' clients or customers
in this manner.

Class A shares of the  Portfolio  may be  purchased  at net  asset  value by the
following  customers of a broker that operates a master  account for  purchasing
and redeeming, and otherwise providing shareholder services in respect of, Trust
shares  pursuant to agreements  with the Trust or Bear Stearns:  (i)  investment
advisers and  financial  planners who place trades for their own accounts or for
the accounts of their clients and who charge a  management,  consulting or other
fee, (ii) clients of such  investment  advisers and  financial  planners if such
clients  place  trades  through  accounts  linked  to  master  accounts  of such
investment  advisers  or  financial  planners  on the books and  records of such
broker and (iii) retirement and deferred  compensation plans, and trusts used to
fund such  plans,  including,  but not limited  to,  plans or trusts  defined in
Section 401(a), 403(b) or 457 of the Code, and "rabbi trusts", provided, in each
case, the purchase  transaction is effected through such broker.  The broker may
charge a fee for transactions in the Portfolio shares.

Class B Shares

The public  offering  price for Class B shares is the next  determined net asset
value per share of that class. No initial sales charge is imposed at the time of
purchase. A CDSC is imposed, however, on

                                       36



<PAGE>



redemptions  of Class B shares  made within six years of  purchase.  See "How to
Redeem Shares -- Contingent Deferred Sales Charge -- Class B Shares". The amount
of the CDSC, if any, will vary depending on the number of years from the time of
purchase  until the time of  redemption  of Class B shares.  For the  purpose of
determining  the number of years  from the time of any  purchase,  all  payments
during a month will be aggregated  and deemed to have been made on the first day
of that month. In processing  redemptions of Class B shares,  the Portfolio will
first redeem shares not subject to any CDSC, and then shares held longest during
the eight-year  period,  resulting in the shareholder paying the lowest possible
CDSC. The amount of the CDSC charged upon redemption is as follows:


                                        CDSC as a Percentage of
             Year Since                      Dollar Amount
             Purchase                       Subject to CDSC
             --------                       ---------------
             First                                5%
             Second                               4%
             Third                                3%
             Fourth                               3%
             Fifth                                2%
             Sixth                                1%
             Seventh                              0%
             Eighth*                              0%

Class B shares of the Portfolio will  automatically  convert into Class A shares
of the  Portfolio at the end of the  calendar  quarter that is eight years after
the initial purchase of the Class B shares.  Class B shares acquired by exchange
from Class B shares of another portfolio will convert into Class A shares of the
Portfolio  based on the date of the initial  purchase.  Class B shares  acquired
through  reinvestment of distributions will convert into Class A shares based on
the date of the  initial  purchase of the shares on which the  distribution  was
paid.  The  conversion of Class B shares to Class A shares will not occur at any
time the  Portfolio  is advised that such  conversions  may  constitute  taxable
events for federal tax purposes,  which the Portfolio  believes is unlikely.  If
conversions  do not occur as a result  of  possible  taxability,  Class B shares
would  continue  to be  subject  to higher  expenses  than Class A shares for an
indeterminate period.

The  purpose of the  conversion  feature is to  relieve  the  holders of Class B
shares from most of the burden of distribution-related  expenses when the shares
have been  outstanding  for a duration  sufficient for Bear Stearns to have been
substantially   compensated  for   distribution-related   expenses  incurred  in
connection with Class B shares.

Class C Shares

The public  offering  price for Class C shares is the next  determined net asset
value per shares of that Class.  No initial  sales charge is imposed at the time
of purchase.  A CDSC is imposed,  however, on redemptions of Class C shares made
within  the first  year of  purchase.  See "How to Redeem  Shares --  Contingent
Deferred Sales Charge -- Class C Shares."

- --------

*    As discussed below, Class B shares automatically  convert to Class A shares
     after the eighth year following purchase.

                                       37



<PAGE>



       
Right of Accumulation -- Class A Shares

[Investors in Class A shares may qualify for a reduced sales charge.]

Pursuant  to the Right of  Accumulation,  certain  investors  are  permitted  to
purchase  Class A shares of the Portfolio at the sales charge  applicable to the
total of (a) the dollar amount then being  purchased plus (b) the current public
offering  price of all Class A shares of the  Portfolio  and  shares of  certain
other funds  sponsored  or advised by Bear  Stearns  then held by the  investor,
including The Bear Stearns Funds and the Money Market Portfolio of The RBB Fund,
Inc.,  then held by the investor.  The following  purchases of Portfolio Class A
shares may be aggregated for the purposes of determining  the amount of purchase
and the corresponding sales load: (a) individual purchases on behalf of a single
purchaser,  the purchaser's  spouse and their children under the age of 21 years
including shares purchased in connection with a retirement  account  exclusively
for the benefit of such  individual(s),  such as an IRA, and purchases made by a
company controlled by such individual(s);  (b) individual purchases by a trustee
or  other  fiduciary  account,  including  an  employee  benefit  plan  (such as
employer-sponsored  pension,  profit-sharing  and stock bonus  plans,  including
plans  under  Section  401(k)  of the Code,  and  medical,  life and  disability
insurance  trusts);  (c)  individual  purchases by a trustee or other  fiduciary
purchasing  shares  concurrently  for two or more  employee  benefit  plans of a
single employer or of employers affiliated with each other. Subsequent purchases
made  under the  conditions  set forth  above  will be  subject  to the  minimum
subsequent investment of $250 and will be entitled to the Right of Accumulation.

Letter of Intent -- Class A Shares

By checking the  appropriate  box in the Letter of Intent section of the Account
Information  Form,   investors  become  eligible  for  the  reduced  sales  load
applicable to the total number of Class A shares of the Portfolio, and shares of
certain  other funds  sponsored or advised by Bear  Stearns,  including The Bear
Stearns Funds and the Money Market Portfolio of The RBB Fund, Inc., purchased in
a 13-month  period  pursuant to the terms and under the  conditions set forth in
the Letter of Intent.  A minimum  initial  purchase of $1,000 is  required.  The
Transfer  Agent will hold in escrow 5% of the amount  indicated  in the  Account
Information  Form for payment of a higher  sales load if the  investor  does not
purchase the full amount indicated in the Account  Information  Form. The escrow
will be released when the investor fulfills the terms of the Letter of Intent by
purchasing  the  specified  amount.  If an  investor's  purchases  qualify for a
further  sales load  reduction,  the sales load will be  adjusted to reflect the
total  purchase at the end of 13 months.  If total  purchases  are less than the
amount specified, the investor will be requested to remit an amount equal to the
difference between the sales load actually paid and the sales load applicable to
the aggregate purchases actually made. If such remittance is not received within
20 days, the Transfer  Agent, as  attorney-in-fact  pursuant to the terms of the
Letter of Intent,  will redeem an appropriate number of shares held in escrow to
realize the  difference.  Checking a box in the Letter of Intent  Section of the
Account  Information Form does not bind an investor to purchase,  or a Portfolio
to

                                       38



<PAGE>



sell,  the full  amount  indicated  at the  sales  load in effect at the time of
signing,  but the investor  must  complete  the intended  purchase to obtain the
reduced  sales  load.  At the time an  investor  purchases  shares of any of the
applicable  funds,  an investor  must  indicate its intention to do so under the
Letter of Intent Section of the Account Information Form.

Systematic Investment Plan

[The  Portfolio  offers  shareholders  many  convenient  features and  benefits,
including the Systematic Investment Plan.]

The  Systematic  Investment  Plan permits  investors  to purchase  shares of the
Portfolio   (minimum  initial   investment  of  $1,000  and  minimum  subsequent
investments  of $100 per  transaction)  at  regular  intervals  selected  by the
investor.  Provided the investor's  bank or other financial  institution  allows
automatic  withdrawals,  Portfolio shares may be purchased by transferring funds
from the account  designated  by the investor.  At the  investor's  option,  the
account designated will be debited in the specified amount, and Portfolio shares
will be purchased  once a month,  on or about the twentieth day. Only an account
maintained at a domestic  financial  institution which is an Automated  Clearing
House member may be so  designated.  Investors  desiring to  participate  in the
Systematic  Investment Plan should call the Transfer Agent at  1-800-447-1139 to
obtain the appropriate  forms. The Systematic  Investment Plan does not assure a
profit  and does not  protect  against  loss in  declining  markets.  Since  the
Systematic  Investment Plan involves the continuous  investment in the Portfolio
regardless of  fluctuating  price levels of the  Portfolio's  shares,  investors
should consider their financial  ability to continue to purchase through periods
of low price  levels.  The  Portfolio  may modify or  terminate  the  Systematic
Investment  Plan at any time or charge a service  fee. No such fee is  currently
contemplated.


                              Shareholder Services

Exchange Privilege

[The Exchange  Privilege permits easy purchases of certain other funds sponsored
or advised by Bear Stearns.]

The Exchange  Privilege enables an investor to purchase,  in exchange for shares
of a Class of the  Portfolio,  shares of the same Class of certain  other  funds
sponsored or advised by Bear  Stearns,  including The Bear Stearns Funds and the
Money  Market  Portfolio  of The RBB Fund Inc.,  to the extent  such  shares are
offered  for  sale in the  investor's  state  of  residence.  These  funds  have
different  investment  objectives which may be of interest to investors.  To use
this  Privilege,  investors  should  consult  their  account  executive  at Bear
Stearns,  their account  executive,  Authorized  Dealer or the Transfer Agent to
determine if it is available and whether any conditions are imposed on its use.

To use this Privilege, exchange instructions must be given to the Transfer Agent
in writing or by telephone.  A shareholder wishing to make an exchange may do so
by sending a written request to the Transfer Agent at the address given above in
"How to Buy Shares -- General."  Shareholders  are  automatically  provided with
telephone exchange  privileges when opening an account,  unless they indicate on
the  account   application  that  they  do  not  wish  to  use  this  privilege.
Shareholders holding share certificates are not eligible to exchange shares of a
Portfolio  by phone  because  share  certificates  must  accompany  all exchange
requests.  To add this feature to an existing  account that  previously  did not
provide for this option, a Telephone  Exchange  Authorization Form must be filed
with the Transfer Agent.

                                       39



<PAGE>



This form is available  from the  Transfer  Agent.  Once this  election has been
made,  the   Shareholder   may  contact  the  Transfer  Agent  by  telephone  at
1-800-447-1139 to request the exchange.  During periods of substantial  economic
or  market  change,  telephone  exchanges  may  be  difficult  to  complete  and
shareholders  may have to submit  exchange  requests  to the  Transfer  Agent in
writing.

If the exchanging  shareholder does not currently own shares of the portfolio or
fund whose shares are being acquired, a new account will be established with the
same  registration,  dividend and capital gain options and Authorized  Dealer of
record  as the  account  from  which  shares  are  exchanged,  unless  otherwise
specified in writing by the  Shareholder  with all  signatures  guaranteed by an
eligible  guarantor   institution  as  defined  above.  To  participate  in  the
Systematic  Investment  Plan  or  establish  automatic  withdrawal  for  the new
account,  however,  an  exchanging  shareholder  must  file a  specific  written
request.  The Exchange  Privilege  may be modified or terminated at any time, or
from time to time, by the Portfolio on 60 days' notice to the affected portfolio
or fund  shareholders.  The Portfolio,  BSFM and Bear Stearns will not be liable
for any loss, liability,  cost or expense for acting upon telephone instructions
that are  reasonably  believed  to be genuine.  In  attempting  to confirm  that
telephone  instructions  are genuine,  the Portfolio will use such procedures as
are considered reasonable, including recording those instructions and requesting
information as to account  registration (such as the name in which an account is
registered,  the account number,  recent  transactions  in the account,  and the
account holder's Social Security number, address and/or bank).

Before any  exchange,  the investor  must obtain and should review a copy of the
current  prospectus  of the  portfolio  or fund into which the exchange is being
made.  Prospectuses  may be  obtained  free of charge  from Bear  Stearns or the
Transfer Agent.  Except in the case of qualified  retirement  plans,  the shares
being  exchanged must have a current value of at least $250;  furthermore,  when
establishing a new account by exchange,  the shares being  exchanged must have a
value of at least the minimum initial  investment  required for the portfolio or
fund into which the exchange is being made; if making an exchange to an existing
account,  the  dollar  value must equal or exceed  the  applicable  minimum  for
subsequent  investments.  If any amount remains in the investment portfolio from
which the  exchange  is being  made,  such  amount must not be below the minimum
account value required by the portfolio or fund.

Shares will be exchanged at the next  determined net asset value. If an investor
is  exchanging  all or a portion of his or her Class A shares into shares of the
same Class of any  portfolio  of The Bear  Stearns  Funds or shares of the Money
Market  Portfolio,  no  additional  sales load will be paid by the  investor  in
connection with the exchange.  No CDSC will be imposed on Class B or C shares at
the time of an exchange.  The charge  applicable  on  redemption of the acquired
Class B or C shares will be calculated from the date of the initial  purchase of
the Class B or C shares exchanged.  To qualify,  at the time of the exchange the
investor must notify Bear Stearns,  the Authorized Dealer or the Transfer Agent.
Any such  qualification  is subject to confirmation  of the investor's  holdings
through  a  check  of  appropriate   records.  No  fees  currently  are  charged
shareholders  directly in  connection  with  exchanges,  although the  Portfolio
reserves  the  right,  upon not less  than 60 days'  written  notice,  to charge
Shareholders a $5.00 fee in accordance with rules promulgated by the Commission.
The Portfolio  reserves the right to reject any exchange  request in whole or in
part.  The Exchange  Privilege  may be modified or  terminated  at any time upon
notice to Shareholders.

The exchange of shares of one portfolio or fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.


                                       40



<PAGE>



Redirected Distribution Option

[The Redirected  Distribution Option permits investment of investors'  dividends
and distributions in shares of other funds in the Bear Stearns family.]

The Redirected Distribution Option enables a Shareholder to invest automatically
dividends  or  dividends  and capital gain  distributions,  if any,  paid by the
Portfolio  in shares of the same Class of another  portfolio  or fund advised or
sponsored by Bear Stearns of which the Shareholder is an investor, including The
Bear Stearns Funds and the Money Market  Portfolio of The RBB Fund,  Inc. Shares
of the other portfolio or fund will be purchased at the  then-current  net asset
value.  If an investor is investing in a Class that charges a CDSC,  then shares
purchased will be subject upon  redemption to the CDSC, if any,  applicable,  to
the purchased shares.

This  privilege is available  only for existing  accounts and may not be used to
open new accounts.  Minimum  subsequent  investments do not apply. The Portfolio
may modify or terminate  this  privilege at any time or charge a service fee. No
such fee currently is contemplated.

                                       41



<PAGE>




                              How to Redeem Shares

General

[The  redemption  price will be based on the net asset value next computed after
receipt of a redemption request; in certain instances a CDSC will be charged.]

Investors  may request  redemption of Portfolio  shares at any time.  Redemption
requests  may be made as described  below.  When a request is received in proper
form,  the  Portfolio  will redeem the shares at the next  determined  net asset
value.  If the  investor  holds  Portfolio  shares of more than one  Class,  any
request for redemption must specify the Class of shares being  redeemed.  If the
investor  fails to specify the Class of shares to be redeemed or if the investor
owns fewer shares of the Class than  specified to be  redeemed,  the  redemption
request may be delayed until the Transfer  Agent receives  further  instructions
from  the  investor,  the  investor's  Bear  Stearns  account  executive  or the
investor's  Authorized  Dealer. The Portfolio imposes no charges (other than any
applicable CDSC) when shares are redeemed directly through the Distributor.

The Portfolio  redeems its shares upon request of a Shareholder  on any Business
Day at the net asset value next determined  after the receipt of such request in
proper form. Except in certain extraordinary  circumstances  permitted under the
Investment  Company  Act,  redemption  proceeds  will  be  mailed  by  check  to
Shareholders within three (3) days of receipt of a properly executed request. If
shares  to be  redeemed  were  purchased  by  check,  the  Portfolio  may  delay
transmittal of redemption proceeds until such time as it has assured itself that
good funds have been collected for the purchase of such shares. This may take up
to fifteen (15) days.  Additional  documentation  regarding a redemption  by any
means may be required to effect a  redemption  when deemed  appropriate  by Bear
Stearns,  any  Authorized  Dealer or the  Transfer  Agent.  The request for such
redemption  will not be  considered  to have been  received in proper form until
such additional  documentation has been received. A Shareholder of the Portfolio
may request  redemption  of shares of the Portfolio by telephone if the optional
telephone  transaction  privilege  is elected on the  Account  Information  Form
accompanying this Prospectus. See "How to Buy Shares."

The Portfolio may suspend redemption  privileges or postpone the date of payment
for more than three days after a redemption  order is received during any period
(i) when the NYSE is closed other than customary  weekend and holiday  closings,
or trading on the NYSE is restricted as determined by the Commission,  (ii) when
an emergency exists, as defined by the Commission, which makes it not reasonably
practicable for the Portfolio to dispose of securities  owned by it or fairly to
determine  the value of its assets,  or (iii) as the  Commission  may  otherwise
permit.

The Portfolio  reserves the right to redeem the shares of any Shareholder  whose
account  balance  is less  than $750 as a result of  earlier  redemptions.  Such
redemptions  will not be  implemented  if the value of a  Shareholder's  account
falls below the minimum account balance solely as a result of market conditions.
The Trust will give sixty (60) days prior written notice to  Shareholders  whose
shares are being redeemed to allow them to purchase sufficient additional shares
of the  Portfolio or of any other Bear  Stearns  fund to avoid such  redemption.
Shareholders  should obtain and read the applicable  prospectuses  of such other
funds and  consider  their  objectives,  policies  and  applicable  fees  before
investing in any of such funds.


                                       42



<PAGE>



Contingent Deferred Sales Charge -- Class B Shares

A CDSC of up to 5% payable to Bear Stearns is imposed on any redemption of Class
B shares  within six years of the date of  purchase.  No CDSC will be imposed to
the  extent  that the net asset  value of the Class B shares  redeemed  does not
exceed  (i) the  current  net  asset  value of Class B shares  acquired  through
reinvestment of dividends or capital gain distributions,  plus (ii) increases in
the net asset value of an  investor's  Class B shares above the dollar amount of
all such  investor's  payments  for the  purchase  of Class B shares held by the
investor at the time of redemption.

If the  aggregate  value of Class B shares  redeemed  has  declined  below their
original cost as a result of the  Portfolio's  performance,  the applicable CDSC
may be applied to the then-  current  net asset value  rather than the  purchase
price.

In  determining  whether a CDSC is applicable to a redemption,  the  calculation
will be made in a manner that results in the lowest  possible  rate.  It will be
assumed  that the  redemption  is made  first  of  amounts  representing  shares
acquired  pursuant to the reinvestment of dividends and  distributions;  then of
amounts representing the increase in net asset value of Class B shares above the
total  amount of  payments  for the  purchase  of Class B shares made during the
preceding year; then of amounts representing shares purchased more than one year
prior to the  redemption;  and,  finally,  of amounts  representing  the cost of
shares purchased within one year prior to the redemption.

For example, assume an investor purchased 100 shares of the Portfolio at $10 per
share for a cost of $1,000. Subsequently,  the shareholder acquired 5 additional
shares through dividend  reinvestment.  During the first year after the purchase
the investor  decided to redeem $500 of his or her  investment.  Assuming at the
time of the redemption the net asset value had appreciated to $12 per share, the
value of the  investor's  shares  would be $1,260 (105 shares at $12 per share).
The CDSC would not be applied to the value of the reinvested dividend shares and
the amount which represents  appreciation  ($260).  Therefore,  $240 of the $500
redemption  proceeds  ($500  minus  $256) would be charged at a rate of 5% for a
total CDSC of $12.00.

Waiver of CDSC

The CDSC  applicable  to Class B shares  will be waived in  connection  with (a)
redemptions  made within one year after the death or  disability,  as defined in
Section  72(m)(7) of the Internal Revenue Code of 1986, as amended (the "Code"),
of the  shareholder,  (b)  redemptions  by employees  participating  in eligible
benefit  plans,  (c)  redemptions as a result of a combination of any investment
company with a Portfolio by merger,  acquisition  of assets or otherwise,  (d) a
distribution  following retirement under a tax-deferred  retirement plan or upon
attaining  age 70 1/2 in the case of an IRA or Keogh plan or  custodial  account
pursuant  to  Section  403(b) of the Code,  and (e) to the  extent  that  shares
redeemed have been withdrawn from the Automatic Withdrawal Plan, up to a maximum
amount  of 12% per year  from a  shareholder  account  based on the value of the
account at the time the automatic withdrawal is established.  If the Portfolio's
Trustees  determine to discontinue the waiver of the CDSC, the disclosure in the
Portfolios'  prospectus  will be revised  appropriately.  The  Portfolio  shares
subject to a CDSC that were  purchased  prior to the  termination of such waiver
will have the CDSC waived as provided in the Portfolio's  prospectus at the time
of the purchase of such shares.

To qualify for a waiver of the CDSC,  at the time of redemption an investor must
notify the Transfer Agent or the investor's  Bear Stearns  account  executive or
the   investor's   Authorized   Dealer  must  notify  Bear  Stearns.   Any  such
qualification is subject to confirmation of the investor's entitlement.


                                       43



<PAGE>



Contingent Deferred Sales Charge -- Class C Shares

[Class C shares of the Portfolio are subject to a CDSC of 1.00% upon  redemption
within one year of purchase.]

A CDSC of 1.00% payable to the Distributor is imposed on any redemption of Class
C shares within one year of the date of purchase. No CDSC will be imposed to the
extent that the net asset value of the Class C shares  redeemed  does not exceed
(i) the current net asset value of Class C shares acquired through  reinvestment
of dividends or capital gain distributions, plus (ii) increases in the net asset
value of an  investor's  Class C shares  above  the  dollar  amount  of all such
investor's  payments  for the purchase of Class C shares held by the investor at
the time of redemption.

If the  aggregate  value of Class C shares  redeemed  has  declined  below their
original cost as a result of the  Portfolio's  performance,  the applicable CDSC
may be applied to the  then-current  net asset value  rather  than the  purchase
price.

In  determining  whether a CDSC is applicable to a redemption,  the  calculation
will be made in a manner that results in the lowest  possible  rate.  It will be
assumed  that the  redemption  is made  first  of  amounts  representing  shares
acquired  pursuant to the reinvestment of dividends and  distributions;  then of
amounts representing the increase in net asset value of Class C shares above the
total  amount of  payments  for the  purchase  of Class C shares made during the
preceding year; then of amounts representing shares purchased more than one year
prior to the redemption; and finally, of amounts representing the cost of shares
purchased within one year prior to the redemption.

For example, assume an investor purchased 100 shares of the Portfolio at $10 per
share  for a  cost  of  $1,000.  Subsequently,  the  shareholder  acquired  five
additional shares through dividend reinvestment. During the first year after the
purchase the investor decided to redeem $500 of his or her investment.  Assuming
at the time of the  redemption  the net asset value had  appreciated  to $12 per
share, the value of the investor's shares would be $1,260 (105 shares at $12 per
share).  The CDSC would not be applied to the value of the  reinvested  dividend
shares and the amount which represents appreciation ($260).  Therefore,  $240 of
the $500  redemption  proceeds  ($500  minus $260) would be charged at a rate of
1.00% for a total CDSC of $2.40.

The CDSC  applicable  to Class C shares  will be waived in  connection  with (a)
redemptions  made within one year after the death or  disability,  as defined in
Section 72(m)(7) of the Code, of the  shareholder,  (b) redemptions by employees
participating  in  eligible  benefit  plans,  (c)  redemptions  as a result of a
combination of any investment company with the Portfolio by merger,  acquisition
of  assets  or  otherwise,  (d) a  distribution  following  retirement  under  a
tax-deferred  retirement plan or upon attaining age 70 1/2 in the case of an IRA
or Keogh plan or custodial  account  pursuant to Section 403(b) of the Code, and
(e)  redemptions by such  shareholders as the Commission or its staff may permit
and (f) to the  extent  that  shares  redeemed  have  been  withdrawn  from  the
Automatic  Withdrawal  Plan,  up to a  maximum  amount  of 12% per  year  from a
shareholder  account based on the value of the account at the time the automatic
withdrawal is established.  If the Trustees  determine to discontinue the waiver
of the CDSC,  the  disclosure  in the  Portfolio's  prospectus  will be  revised
appropriately. Any Portfolio shares subject to a CDSC which were purchased prior
to the  termination  of such waiver will have the CDSC waived as provided in the
Portfolio's prospectus at the time of the purchase of such shares.

To qualify for a waiver of the CDSC,  at the time of redemption an investor must
notify the Transfer Agent or the investor's  Bear Stearns  account  executive or
the   investor's   Authorized   Dealer  must  notify  Bear  Stearns.   Any  such
qualification is subject to confirmation of an investor's entitlement.

                                       44



<PAGE>



Procedures

[Shareholders may redeem shares in several ways.]

Redemption Through Bear Stearns or Authorized Dealers

Clients with a brokerage account may submit redemption requests to their account
executives or Authorized Dealers in person or by telephone, mail or wire. As the
Portfolio's  agent,  Bear Stearns or  Authorized  Dealers may honor a redemption
request by  repurchasing  Portfolio  shares from a redeeming  Shareholder at the
shares'  net asset  value next  computed  after  receipt of the  request by Bear
Stearns or any Authorized Dealer. Under normal  circumstances,  within three (3)
days, redemption proceeds will be paid by check or credited to the Shareholder's
brokerage  account at the  election of the  Shareholder.  Bear  Stearns  account
executives  or  Authorized  Dealers  are  responsible  for  promptly  forwarding
redemption  requests to the Transfer Agent. The telephone  redemption  privilege
may be  terminated  or  modified  at any time upon  thirty  (30) days  notice to
Shareholders.

If an investor authorizes  telephone  redemption,  the Transfer Agent may act on
telephone  instructions from any person representing  himself or herself to be a
representative of Bear Stearns or the Authorized Dealer and reasonably  believed
by the Transfer  Agent to be genuine.  The  Portfolio  will require the Transfer
Agent to employ  reasonable  procedures,  such as  requiring  a form of personal
identification,  to confirm  that  instructions  are genuine and, if it does not
follow such  procedures,  the Transfer  Agent or the Portfolio may be liable for
any losses due to unauthorized or fraudulent instructions. Neither the Portfolio
nor the  Transfer  Agent will be liable  for  following  telephone  instructions
reasonably believed to be genuine.

Redemption Through the Transfer Agent

Portfolio  Shareholders who are not clients with a brokerage account who wish to
redeem shares must redeem their shares through the Transfer Agent by mail; other
Shareholders  also may redeem  Portfolio  shares  through  the  Transfer  Agent.
Shareholders  should mail  redemption  requests  directly to the Transfer Agent:
PFPC  Inc.,  Attn:  Bear  Stearns  Investment  Trust --  Emerging  Markets  Debt
Portfolio, P.O. Box 8960, Wilmington,  Delaware 19899-8960. A redemption request
will be executed at the net asset  value next  computed  after it is received in
"good  order."  "Good order" means that the request must be  accompanied  by the
following: (1) a letter of instruction specifying the number of shares or amount
of investment to be redeemed (or that all shares credited to a Portfolio account
be redeemed),  signed by all registered  owners of the shares in the exact names
in  which  they  are  registered,  (2) a  guarantee  of the  signature  of  each
registered owner by any commercial bank, trust company or member of a recognized
stock exchange as described  below, and (3) other supporting legal documents for
estates, trusts, guardianships, custodianships, partnerships and corporations if
any.  Shareholders are responsible for ensuring that a request for redemption is
received in "good order."

Signature Guarantees

A signature  guarantee required in the case of redemptions  greater than $25,000
is designed to protect the  shareholders and the Portfolios  against  fraudulent
transactions by unauthorized persons. In certain instances,  such as transfer of
ownership  or  when  the  registered  shareholder(s)  requests  that  redemption
proceeds be sent to a different  name of address  than the  registered  name and
address of record on the  shareholder  account,  the Portfolio will require that
the  shareholder's  signature  be  guaranteed.  When a  signature  guarantee  is
required, each signature must be guaranteed by a domestic bank or trust company,

                                       45



<PAGE>



credit  union,  broker,   dealer,   national  securities  exchange,   registered
securities  association,  clearing  agency or savings  association as defined by
federal law. The  institution  providing the guarantee  must see a signature ink
stamp or medallion which states  "Signature(s)  Guaranteed" and be signed in the
name of the guarantor by an authorized  person with that person's  title and the
date.  The Portfolio may reject a signature  guarantee if the guarantor is not a
member of or participant in a signature  guarantee  program.  Please note that a
notary public stamp or seal is not acceptable.  The Portfolio reserves the right
to amend or  discontinue  its signature  guarantee  policy at any time and, with
regard to a particular redemption transaction,  to require a signature guarantee
at its discretion.

Additional Information about Redemptions

A  Shareholder  may  have  redemption  proceeds  of $500 or  more  wired  to the
Shareholder's  brokerage account or a commercial bank account  designated by the
Shareholder.  A  transaction  fee of $7.50 may be charged for  payments by wire.
Questions about this option,  or redemption  requirements  generally,  should be
referred to the Shareholder's Bear Stearns account executive,  to any Authorized
Dealer,  or to the  Transfer  Agent if the  shares  are not held in a  brokerage
account.  If a Shareholder  requests  redemption of shares which were  purchased
recently,  the Portfolio may delay payment until it is assured that good payment
has been  received.  In the case of purchases  by check,  this can take up to 15
days.

Because the  Portfolio  incurs  certain fixed costs in  maintaining  Shareholder
accounts, the Portfolio reserves the right to redeem all Portfolio shares in any
Shareholder  account with an aggregate net asset value of less than $750. If the
Portfolio  elects to do so, it will  notify  the  Shareholder  and  provide  the
Shareholder  the  opportunity  to increase  the amount  invested to $750 or more
within sixty (60) days of the notice.  The  Portfolio  will not redeem  accounts
that fall below $750  solely as a result of a  reduction  in net asset value per
share.

Shareholders  who have redeemed  shares may reinstate  their  Portfolio  account
without a sales charge up to the dollar amount redeemed by purchasing  shares of
the same Portfolio  within sixty (60) days of the redemption.  To take advantage
of this  reinstatement  privilege,  Shareholders  must notify their Bear Stearns
account executive or Authorized Dealer at the time the privilege is exercised.

Automatic Withdrawal

Automatic  withdrawal  permits  investors to request  withdrawal  of a specified
dollar  amount  (minimum of $25) on either a monthly or  quarterly  basis if the
investor has a $5,000 minimum account.  An application for automatic  withdrawal
can be obtained from Bear Stearns or the Transfer  Agent.  Automatic  Withdrawal
may be ended at any time by the investor,  the Portfolio or the Transfer  Agent.
Shares  for which  certificates  have been  issued may not be  redeemed  through
Automatic   Withdrawal.   Purchases  of  additional  shares   concurrently  with
withdrawals generally are undesirable.

Class C shares withdrawn pursuant to the Automatic Withdrawal will be subject to
any applicable CDSC. Purchases of additional Class A shares where the sales load
is  imposed  concurrently  with  withdrawals  of  Class A shares  generally  are
undesirable.




                                       46



<PAGE>



                       Dividends, Distributions and Taxes

[Dividends will be  automatically  reinvested in additional  Portfolio shares at
net asset value unless  payment in cash is requested or dividends are redirected
into another fund pursuant to the Redirected Distribution Option.]

The  Portfolio  declares  and  pays  as  dividends   quarterly  to  Shareholders
substantially all of its net investment income (i.e., its income, including both
original  issue  discount  and market  discount  accretions,  other than its net
realized long and  short-term  capital gains and net realized  foreign  exchange
gains).  Substantially  all of the Portfolio's  net realized  capital gains (net
realized  long-term capital gains in excess of net realized  short-term  capital
losses, including any capital loss carryovers),  net realized short-term capital
gains and net  realized  foreign  exchange  gains,  if any,  are  expected to be
distributed each year by the Portfolio.

Each  dividend  and  distribution,  if any,  declared  by the  Portfolio  on its
outstanding shares will, at the election of each Shareholder, be paid in cash or
in additional  shares of the Portfolio or redirected  into another fund pursuant
to the Redirected Distribution Option. This election should initially be made on
a Shareholder's  Account Information Form and may be changed upon written notice
to either Bear Stearns,  an Authorized  Dealer or the Transfer Agent at any time
prior to the  record  date for a  particular  dividend  or  distribution.  If no
election is made,  all  dividends  and  distributions  will be reinvested in the
Portfolio. The Portfolio distributes net realized securities gains, if any, once
a year,  but it may make  distributions  on a more frequent basis to comply with
the distribution  requirements of the Code, in all events in a manner consistent
with the provisions of the  Investment  Company Act. The Portfolio will not make
distributions from net realized securities gains unless capital loss carryovers,
if  any,  have  been  utilized  or have  expired.  Dividends  are  automatically
reinvested  in  additional  shares  of the  Portfolio  at net asset  value.  All
expenses  are accrued  daily and  deducted  before  declaration  of dividends to
investors.

All income dividends and capital gains  distributions are automatically  paid in
full and fractional  shares of the Portfolio,  unless the  Shareholder  requests
that they be paid in cash. Each purchase of shares of the Portfolio is made upon
the  condition  that the Transfer  Agent is thereby  automatically  appointed as
agent of the investor to receive all dividends  and capital gains  distributions
on shares owned by the investor.  Such dividends and distributions will be paid,
at the net asset value per share,  in shares of the Portfolio (or in cash if the
Shareholder  so requests) as of the close of business on the record date. At any
time an investor may request the Transfer Agent, in writing,  to have subsequent
dividends and/or capital gains  distributions  paid to him or her in cash rather
than shares.  In order to provide  sufficient  time to process the change,  such
request should be received by the Transfer Agent at least five (5) business days
prior  to the  record  date of the  dividend  or  distribution.  In the  case of
recently  purchased  shares for which  registration  instructions  have not been
received on the record date,  cash  payments will be made to Bear Stearns or the
Authorized  Dealer which will be forwarded to the Shareholder,  upon the receipt
of proper instructions.

At the time of an investor's  purchase of shares of the Portfolio,  a portion of
the price per share may be represented by undistributed  income of the Portfolio
or unrealized appreciation of the Portfolio's securities.  Therefore, subsequent
distributions (or portions  thereof)  attributable to such items, may be taxable
to the  investor  even if the  distributions  (or  portions  thereof) in reality
represent a return of a portion of the purchase price.

If a Shareholder buys shares immediately prior to the Portfolio's deduction of a
distribution  from its net asset value,  the Shareholder will pay the full price
for the  shares  and then  receive a portion  of the price back in the form of a
taxable distribution.

                                       47



<PAGE>



The  Portfolio  is not  expected  to have any federal  tax  liability;  although
investors  should  expect to be  subject  to  federal,  state or local  taxes in
respect of their investments in Portfolio shares.

The Portfolio will be treated as a separate  entity for tax purposes and intends
to continue to qualify and elect to be treated as a regulated investment company
under  Subchapter M of the Code. To qualify as such,  the Portfolio must satisfy
certain requirements  relating to the sources of its income,  diversification of
its  assets  and  distribution  of its income to  Shareholders.  As a  regulated
investment  company,  the  Portfolio  will not be subject  to Federal  income or
excise tax on any net investment  income and net realized capital gains that are
distributed to its  Shareholders in accordance with certain timing  requirements
of the Code.

The Code  provides for the carryover or some of all of the sales load imposed on
the Portfolio's  Class A shares if an investor  exchanges such shares for shares
of  another  fund or  portfolio  advised  or  sponsored  by Bear  Stearns or its
affiliates  within 91 days of purchase and such other fund reduces or eliminates
its otherwise  applicable  sales load for the purpose of the  exchange.  In this
case,  the amount of the sales load  charged the  investor for such shares up to
the amount of the  reduction  of the sales load charge on the  exchange,  is not
included in the basis of such shares for purposes of  computing  gain or loss on
the exchange,  and instead is added to the basis of the fund shares  received on
the exchange.

Investors who purchase  shares shortly before the record date for a distribution
will  pay a  per  share  price  that  includes  the  value  of  the  anticipated
distribution and will be taxed on the distribution when received even though the
distribution represents a return of a portion of the purchase price. Redemptions
of shares are  taxable  events on which a  Shareholder  may  recognize a gain or
loss.

Individuals  and certain  other  classes of  Shareholders  may be subject to 31%
withholding of Federal income tax on distributions  and redemptions if they fail
to furnish the Portfolio with their correct taxpayer  identification  number and
certain  certifications  regarding  their tax  status  or if they are  otherwise
subject to withholding.  Individuals,  corporations and other  Shareholders that
are not U.S. persons under the Code are generally  subject to withholding at the
rate of 30% (or lower rate  provided by an  applicable  tax treaty) on dividends
and certain other payments from the Portfolio.

In addition to Federal  taxes, a Shareholder  may be subject to state,  local or
foreign taxes on payments received from the Portfolio. A state tax exemption may
be  available  to the extent  distributions  of the  Portfolio  are derived from
interest on certain U.S. government securities.

For a detailed  discussion of certain Federal,  state and local tax consequences
of investing in shares of the  Portfolio,  see  "Taxation"  in the  Statement of
Additional Information. Shareholders are urged to consult their own tax advisers
regarding specific questions as to Federal,  state and local taxes as well as to
any foreign taxes.


                             Performance Information

[The Portfolio may advertise its performance in a number of ways.]

For  purposes  of  advertising,  performance  for each  Class of  shares  may be
calculated  on the basis of average  annual  total return  and/or total  return.
These total return figures reflect changes in the price of the shares and assume
that  any  income  dividends  and/or  capital  gains  distributions  made by the
Portfolio  during the  measuring  period were  reinvested  in shares of the same
Class.  These  figures also take into account any  applicable  distribution  and
shareholder servicing fees. As a result, at any given time, the

                                       48



<PAGE>



performance  of Class B and Class C shares  should be  expected to be lower than
that  of  Class  A  shares.  Performance  for  each  class  will  be  calculated
separately.

Average  annual total return is calculated  pursuant to a  standardized  formula
which assumes that an investment in the Portfolio was purchased  with an initial
payment of $1,000 and that the  investment  was  redeemed at the end of a stated
period  of time,  after  giving  effect to the  reinvestment  of  dividends  and
distributions  during the period.  The return is expressed as a percentage  rate
which, if applied on a compounded  annual basis,  would result in the redeemable
value  of the  investment  at  the  end of  the  period.  Advertisements  of the
Portfolio's  performance  will include its average  annual total return for one,
five and ten year periods,  or for shorter periods  depending upon the length of
time during which the  Portfolio has operated.  Computations  of average  annual
total return for periods of less than one year represent an annualization of the
Portfolio's actual total return for the applicable period.

Total  return is computed on a per share basis and assumes the  reinvestment  of
dividends and distributions. Total return generally is expressed as a percentage
rate which is calculated  by combining  the income and  principal  changes for a
specified period and dividing by the net asset value (or maximum public offering
price in the case of Class A shares) per share at the  beginning  of the period.
Class B or C shares total return  advertisements  will reflect the  deduction of
the CDSC, as  appropriate.  Advertisements  may include the  percentage  rate of
total return or may include the value of a hypothetical investment at the end of
the period which assumes the application of the percentage rate of total return.
Total return for the  Portfolio  also may be  calculated  by using the net asset
value per share at the beginning of the period  instead of the maximum  offering
price per share at the  beginning  of the  period  for Class A shares or without
giving effect to any  applicable  CDSC at the end of the period for Class B or C
shares.  Calculations  based on the net asset value per share do not reflect the
deduction  of the  sales  load on the  Portfolio's  Class A  shares,  which,  if
reflected, would reduce the performance quoted.

Quotations  of  distribution  rates are  calculated by analyzing the most recent
distribution of net investment income for a monthly, quarterly or other relevant
period and dividing this amount by the average net asset value during the period
for which the distribution rates are being calculated.

The Portfolio may also from time to time advertise total return on a cumulative,
average,  year-by-year or other basis for various  specified periods by means of
quotations, charts, graphs or schedules. In addition to the above, the Portfolio
may from time to time advertise its performance  relative to certain performance
rankings and indices.

The  investment  results of the  Portfolio  will  fluctuate  over time,  and any
presentation of investment results for any prior period should not be considered
a  representation  of what an  investment  in the Portfolio may earn or what the
Portfolio's  performance may be in any future period. In addition to information
provided in  Shareholder  reports,  the  Portfolio may from time to time, in its
discretion,  make a list of the Portfolio's holdings available to investors upon
request.  A discussion of the  Portfolio's  performance  will be included in the
Portfolio's  annual  report to  Shareholders  which  will be made  available  to
Shareholders upon request and without charge. Performance will vary from time to
time and past  results are not  necessarily  representative  of future  results.
Investors should remember that performance is a function of portfolio management
in  selecting  the type and quality of portfolio  securities  and is affected by
operating expenses.  Performance information,  such as that described above, may
not provide a basis for comparison with other  investments or other  investments
companies using a different method of calculating performance.

Comparative performance information may be used from time to time in advertising
or marketing  the  Portfolio's  shares,  including  data from Lipper  Analytical
Services, Inc., Morningstar, Inc., Moody's

                                       49



<PAGE>



Bond  Survey  Index and  components  thereof,  Mutual Fund  Values,  Mutual Fund
Forecaster, Mutual Fund Investing and other industry publications.

                               General Information

Shares of the Portfolio

The Portfolio is a series of Bear Stearns  Investment Trust, which was organized
under the laws of The  Commonwealth  of  Massachusetts  on October 15, 1992 as a
Massachusetts  business  trust under an Agreement and  Declaration of Trust (the
"Trust  Agreement").  The Portfolio  commenced  investment  operations on May 3,
1993.  Under  the Trust  Agreement,  the  Trustees  are  authorized  to issue an
unlimited number of shares of beneficial  interest,  $0.001 par value per share.
The  Portfolio's  shares are  classified  into four distinct  classes of shares;
Class A,  Class B,  Class C and  Class Y  shares.  Each  share  has one vote and
shareholders  will vote in the aggregate  and not by Class,  except as otherwise
required by law. Additional series may be added in the future from time to time.
Each share when issued and paid for as  described in this  Prospectus,  is fully
paid and non-assessable.

Under  Massachusetts law, there is a possibility that shareholders of a business
trust could, under certain circumstances,  be held personally liable as partners
for the  obligations  of such trust.  The Trust  Agreement  contains  provisions
intended to limit such  liability  and to provide  indemnification  out of Trust
property of any Shareholder charged or held personally liable for obligations or
liabilities  of the Trust solely by reason of being or having been a Shareholder
of the Trust and not because of such Shareholder's acts or omissions or for some
other  reason.  Thus,  the risk of a  Shareholder  incurring  financial  loss on
account of Shareholder  liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations.

Unless otherwise required by the Investment Company Act,  ordinarily it will not
be necessary for the Trust to hold annual meetings of Shareholders. As a result,
Trust  Shareholders  may not consider  each year the election of Trustees or the
appointment  of  independent  accountants.  However,  pursuant  to  the  Trust's
By-Laws,  the  record  holders  of at least 20% of the  shares  outstanding  and
entitled to vote at a special meeting may require the Trust to hold such special
meeting of  Shareholders  for any purpose  except that the record  holders of at
least 10% of the shares  outstanding  may call a special meeting for the purpose
of  voting  upon  the  question  of  removal  of any  Trustee  or  Trustees  and
Shareholders  may,  under certain  circumstances  as permitted by the Investment
Company Act,  communicate with other Shareholders in connection with requiring a
special  meeting of  Shareholders.  In  addition,  the  Portfolio is required to
assist  Shareholder  communication  in  connection  with calling of  Shareholder
meetings  to  consider  removal of a Trustee.  Trust  Shareholders  may remove a
Trustee by the affirmative vote of a majority of the Trust's outstanding shares.
The Board of  Trustees,  however,  will call a meeting of  Shareholders  for the
purpose of electing  Trustees if, at any time,  less than a majority of Trustees
holding office at the time were elected by Shareholders.

The Trust issues  certificates  representing  the  Portfolio's  shares,  and the
Transfer  Agent  maintains  a  record  of  each  Shareholder's  ownership.  Each
Shareholder  receives  confirmation  of purchase and redemption  orders from the
Transfer  Agent,  or  directly  from  Bear  Stearns  or any  Authorized  Dealer.
Portfolio shares and any dividends and  distributions  paid by the Portfolio are
reflected in statements  from the Transfer  Agent, or directly from Bear Stearns
or any Authorized Dealer.

Rule 18f-2 under the Investment Company Act provides that any matter required to
be submitted  under the provisions of the  Investment  Company Act or applicable
state law or otherwise to the holders of the outstanding voting securities of an
investment company, such as the Trust, will not be deemed to have

                                       50



<PAGE>



been effectively  acted upon unless approved by the holders of a majority of the
outstanding shares of each portfolio affected by such matter. Rule 18f-2 further
provides  that a portfolio  shall be deemed to be affected by a matter unless it
is clear that the  interests of such  portfolio  in the matter are  identical or
that the matter does not affect any interest of such  portfolio.  However,  Rule
18f-2  exempts the  selection  of  independent  accountants  and the election of
Trustees from the separate voting requirements of Rule 18f-2.

The  Transfer  Agent  maintains  a record  of  share  ownership  and  will  send
confirmations and statements of account.


Shareholder Inquiries

Shareholder  inquiries may be addressed to Bear Stearns at 245 Park Avenue,  New
York,  New York 10167,  your Bear Stearns  account  executive or any  Authorized
Dealer or by calling Bear Stearns  toll-free at  1-800-766-4111 or by writing to
the Portfolio at PFPC Inc., Attention: Emerging Markets Debt Portfolio, P.O. Box
8960, Wilmington, Delaware 19899-8960 or by calling the Transfer Agent toll-free
at 1-800-447-1139.

Portfolio Turnover

The  Portfolio  is free to  dispose  of its  portfolio  securities  at any time,
subject to compliance with the Code and the Investment Company Act, when changes
in  circumstances  or conditions  make such  turnover  desirable in light of the
Portfolio's  investment  objective.  Although it is the policy of the  Portfolio
generally  not to engage in trading for  short-term  gains,  the  Portfolio  may
engage in active  short-term  trading to benefit  from yield  disparities  among
different issues of securities or among the markets for fixed income  securities
of different countries, to seek short-term profits during periods of fluctuating
interest  rates,  or for other  reasons.  The  portfolio  turnover  rate for the
Portfolio  may vary greatly from year to year. A high rate of turnover  involves
correspondingly  greater expenses,  increased aggregate  brokerage  commissions,
which must be borne by the Portfolio and its Shareholders,  and the incidence of
short-term  capital gain (which is taxable to  Shareholders  as ordinary  income
upon  distribution  to them) and may under  certain  circumstances  make it more
difficult for the Portfolio to qualify as a regulated  investment  company under
the Code. It may also be affected by sales of portfolio  securities necessary to
meet  cash  requirements  for  redemptions  of  shares.  The  turnover  rate  is
calculated  by dividing the lesser of the dollar amount of sales or purchases of
portfolio  securities  by the average  monthly  market value of the  Portfolio's
securities,  excluding  securities  having a maturity at the date of purchase of
one year or less.  For the period May 3, 1993 to March 31, 1994,  for the fiscal
year ended March 31, 1995 and for the fiscal year ended March 31, 1996,  and for
the fiscal year ended March 31, 1997, the portfolio  turnover rate for the Class
A shares was 100.85%,  35.01%, and 266.46%, and 223.41%,  respectively.  For the
period July 26, 1995 through March 31, 1996, and for the fiscal year ended March
31, 1997,  for the Class C shares,  the portfolio  turnover rate was 266.46% and
223.41%,  respectively.  The annual portfolio turnover rate for the Portfolio is
expected  to be  between  250% and  325%.  However,  the  Portfolio's  portfolio
turnover  rate  may  exceed  325%  when  the  Investment  Manager  believes  the
anticipated  benefits  of  short-term   investments  outweigh  any  increase  in
transaction  costs or  increase  in capital  gains.  These  rates  should not be
considered as limiting factors.

Reports To Shareholders

Each  Shareholder  is  sent  an  annual  report  containing   audited  financial
statements  and a semiannual  report.  Each  Shareholder is also provided with a
printed confirmation for each transaction in the Shareholder's

                                       51



<PAGE>



account and an individual  monthly  statement.  The Portfolio does not generally
provide sub-accounting services.

Additional Information

The term "majority of the outstanding shares" of the Portfolio means the vote of
the  lesser  of (i) 67% or more of the  shares  of the  Portfolio  present  at a
meeting,  if the  holders  of more  than 50% of the  outstanding  shares  of the
Portfolio  are  present or  represented  by proxy,  or (ii) more than 50% of the
outstanding shares of the Portfolio.

As used in this  Prospectus,  the term  "Business Day" refers to those days when
the NYSE is open for business.  Currently, the NYSE is closed on New Year's Day,
President's Day, Good Friday, Martin Luther King's Day, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

No  person  has  been  authorized  to  give  any  information  or  to  make  any
representations  other  than  those  contained  in  this  Prospectus  and in the
Portfolio's  official  sales  literature  in  connection  with the  offer of the
Portfolio's   shares,   and,  if  given  or  made,  such  other  information  or
representations  must  not be  relied  upon as  having  been  authorized  by the
Portfolio.  This  Prospectus does not constitute an offer in any State in which,
or to any person to whom, such offering may not lawfully be made.



                                       52


<PAGE>


THE BEAR STEARNS FUNDS



Account Information Form

Please  Note:  Do not use  this  form to open a  retirement  plan  account.  For
pretirement  plan forms call  1-800-766-4111.  For assistance in completing this
form, contact PFPC at 1-800-447-1139.

1   Account Type (Please print; indicate only one registration type)

    o  Individual                           o  Joint Tenant


- -------------------------------------------------------------------------------
NAME


- -------------------------------------------------------------------------------
JOINT REGISTRANT, IF ANY (SEE NOTES 1 AND 2)


_________-_____-__________                     _________-______________________
SOCIAL SECURITY NUMBER OF PRIMARY OWNER        TAXPAYER
IDENTIFICATION NUMBER


(1)  Use only the Social  Security number or Taxpayer  Identification  Number of
     the first listed joint tenant.

(2)  For joint registrations, the account registrants will be joint tenants with
     right of survivorship and not tenants in common unless tenants in common or
     community property registrations are requested.

- -------------------------------------------------------------------------------
o    Uniform Gift to Minors, or         o   Uniform Transfer to Minors
                                            (where allowed by law)

- -------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)


- -------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)


Under the ________________________________  Uniform Gift/Transfers to Minors Act
            STATE RESIDENCE OF MINOR

________/_______/________                        _______-_____-__________
MINOR'S DATE OF BIRTH                            MINOR'S SOCIAL SECURITY NUMBER
                                                 (REQUIRED TO OPEN ACCOUNT)
- -------------------------------------------------------------------------------
o    Corporation      o  Partnership          o  Trust*                o  Other


- -------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER


- -------------------------------------------------------------------------------
NAME(S) OF TRUSTEE(S)                               DATE OF THE TRUST AGREEMENT

_________-_____-__________                        __________-__________________



SOCIAL SECURITY NUMBER                       TAXPAYER IDENTIFICATION NUMBER
(REQUIRED TO OPEN AN ACCOUNT)                (REQUIRED TO OPEN AN ACCOUNT)



*    If a Trust,  include date of trust  instrument and list of trustees if they
     are to be named in the registration.

<PAGE>

2   Mailing Address


- -------------------------------------------------------------------------------
STREET OR P.O. BOX                                       APARTMENT NUMBER


- -------------------------------------------------------------------------------
CITY                              STATE                            ZIP CODE

(       )                                  (         )
- ------------------------------------------------------------------------------
DAY TELEPHONE                                     EVENING TELEPHONE


3   Investment Information

    Method of Investment

o   I have enclosed a check for a minimum initial investment of $1,000 per Fund.
o   I have enclosed a check for a minimum subsequent investment of $250 per Fund
    or completed the Systematic Investment Plan
    information in Section 13.
o   I purchased _____________________ shares  _________________________________
    through my broker on  ____/____/____.
    Confirm # _______________.


Please make my investment in the Funds designated below:


<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
    CLASS A                 CLASS C             BEAR STEARNS FUNDS
INVESTMENT AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S>                      <C>                    <C>                                      <C>

____________________     ____________________   S&P STARS Portfolio
$____________________
____________________     ____________________   Large Cap Value Portfolio
$____________________
____________________     ____________________   Small Cap Value Portfolio
$____________________
____________________     ____________________   Total Return Bond Portfolio
$____________________
____________________     ____________________   The Insiders Select Fund
$____________________
____________________     ____________________   Emerging Markets Debt Portfolio
$____________________
____________________     ____________________   Money Market Portfolio
$____________________
____________________     _______N/A__________   Focus List Portfolio
$____________________

                         TOTAL INVESTMENT AMOUNT                                         $
                                                                                         =====================
</TABLE>

Note:  All  shares  purchased  will  be held in a  shareholder  account  for the
investor at the Transfer  Agent.  Checks drawn on foreign  banks and checks made
payable to persons or entities other than the Fund will not be accepted.  Checks
should be made  payable to the Fund which you are  investing  in. If no class is
designated, your investment will be made in Class A shares.



                   N O T   P A R T   O F   T H E   P R O S P E C T U S


<PAGE>
4   Reduced Sales Charge (Available for Class A Shares Only)

Method of Investment

Are you a shareholder in another Bear Stearns Fund?         o Yes          o No

o  I apply  for  Right  of  Accumulation  reduced  sales  charges  based  on the
   following Bear Stearns Fund Accounts (excluding Class C Shares).


- -------------------------------------------------------------------------------
FUND                                   ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER


- -------------------------------------------------------------------------------
FUND                                   ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER


- -------------------------------------------------------------------------------
FUND                                   ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER


Letter of Intent

o  I am already investing under an existing Letter of Intent.

o  I agree to the Letter of Intent provision in the Fund's current prospectus.
   During a 13-month period, I plan to invest a dollar amount of at least :
   o $50,000   o $100,000   o $250,000   o $500,000    o $750,000   o $1,000,000

Net Asset Value Purchase

o  I qualify for an exemption  from the sales  charge by meeting the  conditions
   set forth in the prospectus. (Please attach certification to this form.)

o  I qualify to purchase shares at net asset value,  with proceeds received from
   a mutual fund or closed-end  fund not  distributed  by Bear Stearns.  (Please
   attach proof of fund share redemption.)

5   Distribution Options

Dividends and capital  gains may be  reinvested or paid by check.  If no options
are selected  below,  both  dividends  and capital  gains will be  reinvested in
additional Fund shares.

Dividends             o Pay by check.   o Reinvest.
Capital Gains         o Pay by check.   o Reinvest.

The Redirected  Distribution Option allows an investor to have dividends and any
other  distributions  from a Fund  automatically  used to purchase shares of the
same class of any other Fund. The receiving  account must be in the same name as
your existing account.


o Please reinvest dividends and capital gains from
  the ____________________________ to the ________________________________ .
             (NAME OF FUND)                       (NAME OF FUND)

If you elect to have distributions paid by check,  distributions will be sent to
the address of record. Distributions may also be sent to another payee:


- -------------------------------------------------------------------------------
NAME


- -------------------------------------------------------------------------------
STREET OR P.O. BOX                                             APARTMENT NUMBER


- -------------------------------------------------------------------------------
CITY                                STATE                              ZIP CODE

- -------------------------------------------------------------------------------
Optional Features

<PAGE>
6   Automatic Withdrawal Plan

o Fund Name _________________________________    o Amount _________________

o Startup month ___________________

Frequency option:
o Monthly   o Every other month    o Quarterly     o Semiannually     o Annually

o  A  minimum  account  value of  $5,000  in a single  account  is  required  to
   establish an automatic withdrawal plan.
o  Payments will be made on or near the 25th of the month.
o  Shareholders  holding share  certificates  are not eligible for the Automatic
   Withdrawal Plan.
o  Please mail check to Address of Record (named in Section 2.)
o  Please electronically credit my Bank of Record (named in Section 9.)
o  Special payee as specified below:


- --------------------------------------------------------------------------------
NAME


- --------------------------------------------------------------------------------


STREET OR P.O. BOX                                              APARTMENT NUMBER


- --------------------------------------------------------------------------------
CITY                          STATE                                     ZIP CODE


7   Telephone Exchange Privilege

Unless indicated  below, I authorize the Transfer Agent to accept  instructions
from any persons to exchange shares in my account(s) by telephone, in accordance
with the procedures and conditions set forth in the Fund's current prospectus.

o I DO NOT want the Telephone Exchange Privilege.



                   N O T   P A R T   O F   T H E   P R O S P E C T U S



8    Telephone Redemption Privilege

o I  authorize  the  Transfer  Agent to accept  instructions  from any person to
redeem shares in my account(s) by telephone,  in accordance  with the procedures
and conditions set forth in the Fund's current prospectus.

Checks for  redemption  of proceeds  will be sent by check via U.S.  Mail to the
address  of  record,  unless  the  information  in  Section 9 is  completed  for
redemption by wire of $500 or more.

9     Bank of Record (for Telephone  Redemptions  and/or  Systematic  Investment
      Plans)

      Please  attach a voided  check  (for  electronic  credit to your  checking
      account) in the space provided in Section 13.

- --------------------------------------------------------------------------------
BANK NAME


- --------------------------------------------------------------------------------
STREET OR P.O. BOX                                             APARTMENT NUMBER


- --------------------------------------------------------------------------------
CITY                               STATE                               ZIP CODE


- --------------------------------------------------------------------------------
BANK ABA NUMBER                                              BANK ACCOUNT NUMBER


- --------------------------------------------------------------------------------
ACCOUNT NAME
<PAGE>
10  Signature and Taxpayer Certification

The  undersigned  warrants  that I (we) have full  authority  and,  if a natural
person, I (we) am (are) of legal age to purchase shares pursuant to this Account
Information  Form,  and have received a current  prospectus for the Bear Stearns
Fund(s) in which I (we) am (are) investing.  The undersigned  acknowledges  that
the Telephone  Exchange  Privilege is automatic and that I(we) may bear the risk
of loss in event of fraudulent use of the  Privilege.  If I (we) do not want the
Telephone  Exchange   Privilege,   I(we)  have  so  indicated  on  this  Account
Information Form.

Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required
to have the following certification:

Under penalty of perjury, I certify that:

(1) The number shown on this form is my correct taxpayer  identification  number
(or I am waiting  for a number to be issued to me),  and (2) I am not subject to
backup withholding because (a) I am exempt from backup withholding or (b) I have
not been  notified  by the  Internal  Revenue  Service  that I am subject to 31%
backup  withholding as a result of a failure to report all interest or dividends
or  (c)  the  IRS  has  notified  me  that  I am no  longer  subject  to  backup
withholding.

Certification  Instructions - You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of  underreporting  of interest  or  dividends  on your tax return.  Mutual fund
shares are not deposits of, or guaranteed  by, any depository  institution,  nor
are they insured by the FDIC. Investment in the funds involves investment risks,
including possible loss of principal.


o Exempt from backup withholding  o Nonresident alien     _____________________
                                   (Form W-8 attached)    COUNTRY OF CITIZENSHIP

- -------------------------------------------------------------------------------
AUTHORIZED SIGNATURE                 TITLE                                 DATE


- -------------------------------------------------------------------------------
AUTHORIZED SIGNATURE                 TITLE                                 DATE


11   For Authorized Dealer Use Only (Please Print)

We hereby  authorize the Transfer  Agent to act as our agent in connection  with
the transactions  authorized by the Account Information Form and agree to notify
the Transfer  Agent of any  purchases  made under a Letter of Intent or Right of
Accumulation.  If this Account  Information  Form includes a Telephone  Exchange
Privilege authorization,  a Telephone Redemption Privilege authorization request
or an Automatic Withdrawal Plan request, we guarantee the signature(s) above.


- --------------------------------------------------------------------------------
DEALER'S NAME                                                      DEALER NUMBER


- --------------------------------------------------------------------------------
MAIN OFFICE ADDRESS                                                BRANCH NUMBER


- -------------------------------------------------------------------------------
REPRESENTATIVE'S NAME                                                REP. NUMBER

                                                 (       )
- --------------------------------------           -------------------------------
BRANCH ADDRESS                                   TELEPHONE NUMBER



- -------------------------------------------------------------------------------
AUTHORIZED SIGNATURE                 TITLE                                 DATE



12   Additional Account Statements (Please Print)

In  addition to myself and my  representative,  please send copies of my account
statements to:


- ---------------------------------     -----------------------------------------
NAME                                  NAME

- ---------------------------------     -----------------------------------------
ADDRESS                               ADDRESS

- ---------------------------------     -----------------------------------------
CITY, STATE, ZIP CODE                 CITY, STATE, ZIP CODE


                   N O T   P A R T   O F   T H E   P R O S P E C T U S
<PAGE>

13   Systemic Investment Plan

The Systematic  Investment  Plan, which is available to shareholders of the Bear
Stearns Funds,  makes possible  regularly  scheduled  monthly  purchases of Fund
shares to allow dollar-cost averaging. The Funds' Transfer Agent can arrange for
an amount of money  selected  by you ($100  minimum)  to be  deducted  from your
checking account and used to purchase shares of a specified Bear Stearns Fund. A
$250 minimum initial investment is required. This may not be used in conjunction
with the Automatic Withdrawal Plan.

Please debit $ ___________  from my checking  account (named in Section 9) on or
about the 20th of the month. Depending on the Application receipt date, the Plan
may take 10 to 20 days to be in effect.

o Monthly             o Every alternate month
o Quarterly           o Other ___________________________

$_____________  into the_____________________  Fund  ______________  Start Month
 $100 minimum

$_____________  into the_____________________  Fund  ______________  Start Month
 $100 minimum

$_____________  into the_____________________  Fund  ______________  Start Month
 $100 minimum


If you are  applying  for  the  Telephone  Redemption  Privilege  or  Systematic
Investment Plan, please tape your voided check on top of our sample below.

==============================CHECK FORMAT======================================

      John Smith                                                           000
      123 First Avenue
      Anytown, USA 12345

      --------------------------------------------------------------$[         ]

      --------------------------------------------------------------------------
                                       VOID
      ------------------------------         -----------------------------------

==============================CHECK FORMAT======================================

Service Assistance       `                      Mailing Instructions

our knowledgeable Client                        Mail your completed Account
Services Representatives are                    Information Form and check to:
available to assist you between
8:30 a.m. and 5:00 p.m.
Eastern Time at:                                The Bear Stearns Funds
1-800-447-1139                                  c/o PFPC Inc.
                                                P.O. Box 8960
                                                Wilmington, DE 19899-8960






Bear, Stearns & Co. Inc.



                   N O T  P A R T  O F   T H E   P R O S P E C T U S

<PAGE>



                                   APPENDIX A

RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")

FIXED-INCOME SECURITY
RATINGS

Aaa      Fixed-income  securities  which are  rated Aaa are  judged to be of the
         best quality. They carry the smallest degree of investment risk and are
         generally  referred to as "gilt edge." Interest  payments are protected
         by a large  or by an  exceptionally  stable  margin  and  principal  is
         secure.  While the various  protective  elements  are likely to change,
         such  changes  as can be  visualized  are most  unlikely  to impair the
         fundamentally strong position of such issues.

Aa       Fixed-income  securities  which are  rated Aa are  judged to be of high
         quality by all  standards.  Together  with the Aaa group they  comprise
         what are generally known as high grade  fixed-income  securities.  They
         are rated lower than the best fixed-income  securities  because margins
         of protection  may not be as large as in Aaa  securities or fluctuation
         of  protective  elements  may be of greater  amplitude  or there may be
         other elements  present which make the long-term  risks appear somewhat
         larger than in Aaa securities.

A        Fixed-income  securities  which  are  rated A  possess  many  favorable
         investment  attributes  and are to be  considered as upper medium grade
         obligations.  Factors  giving  security to  principal  and interest are
         considered  adequate,  but  elements  may be  present  which  suggest a
         susceptibility to impairment sometime in the future.

Baa      Fixed-income  securities  which are rated Baa are  considered as medium
         grade  obligations:  i.e., they are neither highly protected nor poorly
         secured.  Interest payments and principal  security appear adequate for
         the present but certain  protective  elements  may be lacking or may be
         characteristically  unreliable  over any  great  length  of time.  Such
         fixed-income securities lack outstanding investment characteristics and
         in fact have speculative characteristics as well.

         Fixed-income  securities  rated  Aaa,   Aa,  A and Baa  are  considered
         investment grade.

Ba       Fixed-income   securities  which  are  rated  Ba  are  judged  to  have
         speculative  elements;  their  future  cannot  be  considered  as  well
         assured. Often the protection of interest and principal payments may be
         very moderate,  and therefore not well safeguarded during both good and
         bad times in the future. Uncertainty of position characterizes bonds in
         this class.

B        Fixed-income    securities   which   are   rated   B   generally   lack
         characteristics of the desirable investment.  Assurance of interest and
         principal  payments or of  maintenance  of other terms of the  contract
         over any long period of time may be small.

Caa      Fixed-income  securities which are rated Caa are of poor standing. Such
         issues may be in default  or there may be  present  elements  of danger
         with respect to principal or interest.

Ca       Fixed-income  securities which are rated Ca present  obligations  which
         are  speculative in a high degree.  Such issues are often in default or
         have other marked shortcomings.


                                       A-1



<PAGE>



C        Fixed-income securities which are rated C are the lowest rated class of
         fixed-income securities,  and issues so rated can be regarded as having
         extremely  poor  prospects  of  ever  attaining  any  real   investment
         standing.

Rating Refinements:  Moody's may apply numerical  modifiers,  1, 2 and 3 in each
generic rating  classification  from Aa through B in its municipal  fixed-income
security rating system.  The modifier 1 indicates that the security ranks in the
higher end of its generic rating category;  the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

COMMERCIAL PAPER RATINGS

Moody's Commercial Paper ratings are opinions of the ability to repay punctually
promissory obligations not having an original maturity in excess of nine months.
The ratings apply to Municipal  Commercial  Paper as well as taxable  Commercial
Paper.  Moody's  employs  the  following  three  designations,  all judged to be
investment grade, to indicate the relative  repayment capacity of rated issuers:
Prime-l, Prime-2, Prime-3.

Issuers  rated  Prime-1  have a superior  capacity for  repayment of  short-term
promissory  obligations.  Issuers  rated  Prime-2  have a  strong  capacity  for
repayment of short-term promissory  obligations;  and Issuers rated Prime-3 have
an  acceptable  capacity for  repayment of  short-term  promissory  obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.



                                       A-2



<PAGE>



STANDARD & POOR'S RATINGS GROUP, a division of The
   McGraw-Hill Companies, Inc.  ("STANDARD & POOR'S")

FIXED-INCOME SECURITY
RATINGS

A Standard & Poor's fixed-income  security rating is a current assessment of the
creditworthiness  of an obligor  with  respect to a  specific  obligation.  This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers  reliable.  The ratings are
based, in varying degrees,  on the following  considerations:  (1) likelihood of
default-capacity  and  willingness  of the  obligor as to the timely  payment of
interest  and  repayment  of  principal  in  accordance  with  the  terms of the
obligations;  (2) nature of and provisions of the obligation; and (3) protection
afforded  by,  and  relative  position  of,  the  obligation  in  the  event  of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

Standard & Poor's  does not perform an audit in  connection  with any rating and
may, on occasion,  rely on unaudited financial  information.  The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.

AAA      Fixed-income securities rated "AAA" have the highest rating assigned by
         Standard & Poor's.  Capacity to pay  interest  and repay  principal  is
         extremely strong.

AA       Fixed-income  securities  rated "AA" have a very strong capacity to pay
         interest and repay principal and differs from the highest-rated  issues
         only in small degree.

A        Fixed-income  securities  rated  "A"  have  a  strong  capacity  to pay
         interest  and  repay   principal   although   they  are  somewhat  more
         susceptible  to the  adverse  effects of changes in  circumstances  and
         economic  conditions  than  fixed-income   securities  in  higher-rated
         categories.

BBB      Fixed-income  securities rated "BBB" are regarded as having an adequate
         capacity to pay interest  and repay  principal.  Whereas they  normally
         exhibit adequate protection parameters,  adverse economic conditions or
         changing  circumstances  are more likely to lead to a weakened capacity
         to pay interest and repay principal for fixed-income securities in this
         category than for fixed-income securities in higher-rated categories.

         Fixed-income  securities  rated  AAA,  AA,  A and  BBB  are  considered
         investment grade.

BB       Fixed-income securities rated "BB" have less near-term vulnerability to
         default than other speculative grade fixed-income securities.  However,
         they face major ongoing  uncertainties or exposure to adverse business,
         financial  or  economic  conditions  which  could  lead  to  inadequate
         capacity or willingness to pay interest and repay principal.

B        Fixed-income  securities  rated  "B" have a  greater  vulnerability  to
         default but presently  have the capacity to meet interest  payments and
         principal   repayments.   Adverse   business,   financial  or  economic
         conditions  would likely impair capacity or willingness to pay interest
         and repay principal.

                                       A-3



<PAGE>



CCC      Fixed-income   securities  rated  "CCC"  have  a  current  identifiable
         vulnerability  to default,  and are dependent upon favorable  business,
         financial and economic  conditions to meet timely  payments of interest
         and  repayments  of  principal.  In  the  event  of  adverse  business,
         financial  or  economic  conditions,  they are not  likely  to have the
         capacity to pay interest and repay principal.

CC       The  rating  "CC"  is  typically  applied  to  fixed-income  securities
         subordinated  to senior  debt  which is  assigned  an actual or implied
         "CCC" rating.

C        The  rating  "C"  is  typically  applied  to  fixed-income   securities
         subordinated  to senior  debt  which is  assigned  an actual or implied
         "CCC" rating.

CI The rating "CI" is reserved for fixed-income  securities on which no interest
is being paid.

D        In payment  default.  The "D" rating is used when payments are not made
         on the date due even if the  applicable  grace  period has not expired,
         unless S&P believes  that such  payments will be made during such grace
         period.  The "D"  rating  also  will  be  used  upon  the  filing  of a
         bankruptcy petition if debt service payments are jeopardized.

NR       Indicates that no rating has been requested, that there is insufficient
         information  on which to base a rating or that  Standard & Poor's  does
         not rate a particular type of obligation as a matter of policy.

Fixed-income  securities  rated "BB", "B",  "CCC",  "CC" and "C" are regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest degree of speculation.  While such fixed-income  securities will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.

Plus (+) or minus (-):  The  rating  from "AA" to "CCC" may be  modified  by the
addition  of a plus or minus  sign to show  relative  standing  with  the  major
ratings categories.



                                       A-4



<PAGE>



COMMERCIAL PAPER RATINGS

Standard  and Poor's  commercial  paper  rating is a current  assessment  of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The  commercial  paper rating is not a  recommendation  to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable.  The ratings
may  be  changed,  suspended,  or  withdrawn  as  a  result  of  changes  in  or
unavailability  of such  information.  Ratings are graded into group categories,
ranging  from "A" for the  highest  quality  obligations  to "D" for the lowest.
Ratings are  applicable to both taxable and  tax-exempt  commercial  paper.  The
categories are as follows:

Issues  assigned A ratings are  regarded  as having the  greatest  capacity  for
timely payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety.

A-1      indicates  that  the  degree of safety regarding timely payment is very
         strong.

A-2      indicates  capacity for timely payment on issues with this  designation
         is  strong.   However,   the  relative  degree  of  safety  is  not  as
         overwhelming as for issues designated "A-l".

A-3      indicates  a  satisfactory  capacity  for timely  payment.  Obligations
         carrying this designation are, however, somewhat more vulnerable to the
         adverse effects of changes in circumstances  than obligations  carrying
         the higher designations.

                                       A-5



<PAGE>




THE
BEAR STEARNS
FUNDS

245 Park Avenue

New York, NY  10167

1.800.766.4111


Distributor
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY  10167

Investment Manager
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY  10167

Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA  02109

Transfer & Dividend
Disbursement Agent
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE  19809

Counsel
Mayer, Brown & Platt
1675 Broadway
New York, NY  10019

Independent Auditors
Deloitte & Touche LLP
2 World Financial Center
New York, NY  10281

NO  PERSON  HAS  BEEN  AUTHORIZED  TO  GIVE  ANY  INFORMATION  OR  TO  MAKE  ANY
REPRESENTATIONS  OTHER  THAN  THOSE  CONTAINED  IN  THE  EMERGING  MARKETS  DEBT
PORTFOLIO'S  PROSPECTUS  AND IN THE EMERGING  MARKET DEBT  PORTFOLIO'S  OFFICIAL
SALES  LITERATURE  IN  CONNECTION  WITH THE OFFER OF THE  EMERGING  MARKETS DEBT
PORTFOLIO'S   SHARES,   AND,  IF  GIVEN  OR  MADE,  SUCH  OTHER  INFORMATION  OR
REPRESENTATIONS  MUST  NOT BE  RELIED  UPON AS  HAVING  BEEN  AUTHORIZED  BY THE
PORTFOLIO.  THE EMERGING MARKETS DEBT PORTFOLIO'S PROSPECTUS DOES NOT CONSTITUTE
AN OFFER IN ANY STATE IN WHICH,  OR TO ANY  PERSON TO WHOM,  SUCH  OFFER MAY NOT
LAWFULLY BE MADE.




<PAGE>





                         Emerging Markets Debt Portfolio
   
                      a separate portfolio of Bear Stearns
                    Investment Trust Class A, Class B, Class
                                  C and Class Y


                       STATEMENT OF ADDITIONAL INFORMATION
                               (November __, 1997)
    

         Emerging  Markets Debt Portfolio (the  "Portfolio"),  formerly known as
Emerging  Markets  Debt  Fund,  is  organized  as  a  separate,  non-diversified
portfolio of Bear Stearns Investment Trust (the "Trust"), an open-end management
investment company. The Portfolio's investment objective is to seek high current
income by  investing  primarily in a portfolio  of Debt  Obligations  of issuers
located in Emerging Countries. The Portfolio's secondary objective is to provide
investors with capital appreciation.

   
         This  Statement of  Additional  Information  is not a  Prospectus.  The
information  contained herein supplements and should be read only in conjunction
with the current relevant Prospectus for the Portfolio, dated November ___, 1997
(the  "Prospectus").  A copy of such  Prospectus may be obtained  without charge
from Bear,  Stearns & Co. Inc. ("Bear Stearns"),  245 Park Avenue, New York, New
York 10167,  or at  1-800-766-4111,  your Bear Stearns  account  executive,  any
Authorized  Dealer or the Transfer  Agent at  1-800-447-1139.  This Statement of
Additional  Information has been incorporated  into the Prospectus.  Capitalized
terms used herein and not otherwise  defined have the same meanings as are given
to such terms in the Prospectus.
    

                                TABLE OF CONTENTS
                                                                      Prospectus
                                                              Page          Page


   
GENERAL.........................................................1          9,6
INVESTMENT OBJECTIVE AND POLICIES...............................1         10,6
INVESTMENT PRACTICES............................................7        17,13
RISK FACTORS AND SPECIAL CONSIDERATIONS.........................7        18,14
INVESTMENT  LIMITATIONS........................................14        17,13
MANAGEMENT OF THE PORTFOLIO....................................16        23,20
DISTRIBUTION  PLANS AND SHAREHOLDER SERVICING PLANS............23       25,---
PORTFOLIO TRANSACTIONS.........................................25           --
PURCHASE AND REDEMPTION INFORMATION............................26        26,22
SHARES OF THE PORTFOLIO........................................29        38,29
NET ASSET VALUE................................................30        28,23
PERFORMANCE AND YIELD INFORMATION..............................31        37,29
CODE OF ETHICS.................................................32           --
TAXATION.......................................................33        35,27
SPECIAL TAX CONSIDERATIONS.....................................38        35,27
MISCELLANEOUS..................................................42        38,29
FINANCIAL STATEMENTS...........................................42
APPENDIX A - INVESTMENT PRACTICES..............................A-1
    

         NO PERSON HAS BEEN  AUTHORIZED TO GIVE ANY  INFORMATION  OR TO MAKE ANY
REPRESENTATIONS  NOT CONTAINED IN THIS  STATEMENT OF ADDITIONAL  INFORMATION  IN
CONNECTION  WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE  PORTFOLIO OR ITS  DISTRIBUTOR.  THE  PROSPECTUS  DOES NOT  CONSTITUTE AN
OFFERING BY THE PORTFOLIO OR BY THE  DISTRIBUTOR  IN ANY  JURISDICTION  IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.


   
     This Statement of Additional Information is dated November ___, 1997.
    


<PAGE>


                                     GENERAL

         Emerging  Markets Debt Portfolio (the  "Portfolio"),  formerly known as
Emerging  Markets  Debt  Fund,  is  organized  as  a  separate,  non-diversified
portfolio of Bear Stearns Investment Trust (the "Trust"), an open-end management
investment company organized under the laws of The Commonwealth of Massachusetts
on October 15, 1992.  The Portfolio  commenced  investment  operations on May 3,
1993.


                        INVESTMENT OBJECTIVE AND POLICIES

         The following  supplements the information  contained in the Prospectus
concerning  the investment  objectives and policies of, and techniques  used by,
the  Portfolio and should be read in  conjunction  with the  Prospectus  section
entitled "Investment Objective and Policies."

         General.  The Portfolio  seeks to provide  investors  with high current
income by  investing  primarily in a portfolio  of Debt  Obligations  of issuers
located in Emerging Countries. The Portfolio's secondary objective is to provide
investors with capital  appreciation.  The following  information relates to and
supplements the description of the Portfolio's  investment policies contained in
its Prospectus.

         Investments.  The investment vehicles which the Portfolio's  investment
manager, Bear Stearns Funds Management Inc. ("BSFM" or the "Investment Manager")
is  expected  to acquire or utilize  on behalf of the  Portfolio  are  described
below:

   
         Brady bonds.  "Brady bonds" are debt  securities  issued in exchange of
outstanding  commercial  bank loans to  Emerging  Countries  public and  private
entities  in  connection  with  sovereign  debt  restructurings   under  a  plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady, known as
the  Brady  Plan.  The  Portfolio  may  invest  in  either   collateralized   or
uncollateralized  Brady bonds.  U.S.  dollar-denominated,  collateralized  Brady
bonds,  which  generally have maturities of up to 30 years and may be fixed rate
"par" bonds or floating rate "discount" bonds, are  collateralized in full as to
principal by U.S.  Treasury  zero coupon  bonds having the same  maturity as the
Brady bonds.  Interest  payments on such bonds generally are  collateralized  by
cash or securities in an amount that, in the case of fixed rate bonds,  is equal
to at least one year of rolling  interest  payments  or, in the case of floating
rate bonds,  initially is equal to at least one year's rolling interest payments
based on the  applicable  interest  rate at that time and is adjusted at regular
intervals  thereafter.  Brady  bonds  are often  viewed as having  three or four
valuation  components:  the  collateralized  repayment  of  principal  at  final
maturity; the collateralized  interest payments;  the uncollateralized  interest
payments;  and any  uncollateralized  repayment of principal at maturity  (these
uncollateralized  amounts  constituting  the "residual  risk").  In light of the
residual  risk of Brady bonds and the history of defaults by Emerging  Countries
public and  private  entities  with  respect  to their  commercial  bank  loans,
investments  in  Brady  bonds  may be  viewed  as  speculative.  In the  case of
"discount  bonds," the collateral for interest is adjusted at regular  intervals
to allow for changes in interest  rates.  For purposes of applicable tax and the
Investment Company Act of 1940, as amended (the "Investment Company Act"), rules
and regulations, Brady bonds are not considered U.S. government securities.

         The  Portfolio  is not limited with  respect to the  percentage  of its
Brady bond investments that may be issued by any specific country, except to the
extent  necessary  to satisfy the Asset  Diversification  Requirement  described
under   "Taxation  -  General  Tax   Consequences   to  the  Portfolio  and  its
Shareholders."
    

         Loans. The Portfolio may invest up to 20% of its total assets in Loans.
The  Portfolio  may invest in  dollar-denominated  fixed and floating rate loans
("Loans")  arranged through private  negotiations  between one or more financial
institutions  and an  obligor  in  the  Emerging  Country.  In  connection  with
purchasing participations, the Portfolio generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement  relating to the
Loan ("Loan Agreement"), nor any rights of setoff against the borrower,

                                       -1-



<PAGE>



and the Portfolio may not directly  benefit from any  collateral  supporting the
Loan in which it has purchased  the  participation.  As a result,  the Portfolio
will assume the credit risk of both the  borrower and the lender that is selling
the  participation.  In the  event of the  insolvency  of the  lender  selling a
participation,  the Portfolio may be treated as a general creditor of the lender
and may not benefit from any set-off  between the lender and the  borrower.  The
Portfolio will acquire participations only if the lender interpositioned between
the Portfolio and the borrower is  determined  by the  Investment  Manager to be
creditworthy.  When  the  Portfolio  purchases  assignments  from  lenders,  the
Portfolio will acquire direct rights against the borrower of the Loan.  However,
since  assignments are arranged through private  negotiations  between potential
assignees and potential  assignors,  the rights and obligations  acquired by the
Portfolio as the purchaser of an assignment may differ from, and be more limited
than, those held by the assigning lender.

         In addition,  certain of the Loans in which the  Portfolio may purchase
participations  may be or may become  subject to agreements to  restructure  the
obligations. These agreements occasionally require the owners of the obligations
to contribute additional capital. In such cases, the Portfolio as a participant,
may be required to contribute  its pro-rata  portion of the funds  demanded even
though it may have insufficient  assets to make such contribution.  If this were
to occur,  the Portfolio  could be forced to liquidate  loan  participations  or
sub-participations at unfavorable prices to avoid the new money obligations.

         Non-Dollar Denominated  Securities.  The Portfolio may invest up to 30%
of its total assets in non-dollar  denominated  securities provided that no more
than  20%  of the  Portfolio's  assets  are  expected  to be  invested  in  Debt
Obligations denominated in the local currency of any one country.

         Convertible Securities. The Portfolio may invest up to 10% of its total
assets in convertible securities.  A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible  security matures or is redeemed,  converted or exchanged.
Before  conversion,  convertible  securities  have  characteristics  similar  to
non-convertible  debt securities in that they ordinarily provide a stable stream
of income with  generally  higher yields than those of common stocks of the same
or similar  issuers.  Convertible  securities  rank senior to common  stock in a
corporation's  capital  structure  but are usually  subordinated  to  comparable
non-convertible securities. While no securities investment is completely without
risk,  investments in convertible securities generally entail less risk than the
corporation's  common  stock,  although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.  Convertible  securities have unique
investment  characteristics  in that they  generally (1) have higher yields than
common stocks, but lower yields than comparable non-convertible  securities, (2)
are less subject to fluctuation  in value than the  underlying  stock since they
have fixed  income  characteristics  and (3) provide the  potential  for capital
appreciation if the market price of the underlying  common stock increases.  The
investment value of a convertible  security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline.  The credit  standing of the issuer and other factors
also may have an effect on the  convertible  security's  investment  value.  The
conversion value of a convertible  security is determined by the market price of
the  underlying  common stock.  If the  conversion  value is low relative to the
investment value, the price of the convertible  security is governed principally
by its  investment  value.  Generally,  the  conversion  value  decreases as the
convertible security approaches maturity.  To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price of
the  convertible  security will be  increasingly  influenced  by its  conversion
value.  A  convertible  security  generally  will  sell at a  premium  over  its
conversion  value by the extent to which  investors  place value on the right to
acquire the underlying  common stock while holding a fixed income security.  The
Portfolio  only intends to invest in convertible  securities  where the value of
the option is minimal and the  convertible  security  trades on the basis of its
coupon.

         Repurchase  Agreements.  The Portfolio may agree to purchase securities
from a bank or recognized  securities dealer and simultaneously commit to resell
the securities to the bank or dealer at an agreed-upon date and price reflecting
a market  rate of  interest  unrelated  to the coupon  rate or  maturity  of the
purchased  securities  ("Repurchase  Agreements").  The Portfolio would maintain
custody  of the  underlying  securities  prior to their  repurchase;  thus,  the
obligation of the bank or dealer to pay the repurchase  price on the date agreed
to would

                                       -2-



<PAGE>



be, in effect, secured by such securities.  If the value of such securities were
less than the repurchase price, plus interest, the other party to the Repurchase
Agreement  would be required  to provide  additional  collateral  so that at all
times the  collateral  is at least equal to the  repurchase  price plus  accrued
interest.  The Investment Manager will consider the creditworthiness of a seller
in determining whether to have the Portfolio enter into a Repurchase  Agreement.
There  are no  percentage  limits  on the  Portfolio's  ability  to  enter  into
Repurchase  Agreements.  The Portfolio  will not invest more than 15% of its net
assets in Repurchase Agreements maturing in more than seven (7) days. Repurchase
Agreements carry certain risks associated with direct investments in securities,
including possible declines in the market value of the underlying securities and
delays and costs to the Portfolio if the other party to the Repurchase Agreement
becomes  bankrupt  or  otherwise  fails to deliver  the  securities.  Repurchase
Agreements  are  considered  to be loans by the Portfolio  under the  Investment
Company Act.

         Reverse  Repurchase  Agreements.  The  Portfolio  may also  enter  into
reverse repurchase  agreements with the same parties with whom it may enter into
Repurchase  Agreements.  Reverse  repurchase  agreements  involve  the  sale  of
securities  held by the  Portfolio  pursuant  to the  Portfolio's  agreement  to
repurchase them at a mutually agreed upon date,  price and rate of interest.  At
the time the  Portfolio  enters  into a reverse  repurchase  agreement,  it will
establish  and  maintain  a  segregated   account  with  an  approved  custodian
containing cash or liquid  high-grade  debt  securities  having a value not less
than the repurchase  price  (including  accrued  interest).  Reverse  repurchase
agreements involve the risk that the market value of the securities  retained in
lieu of sale may decline  below the price of the  securities  the  Portfolio has
sold but is obligated to repurchase.  In the event the buyer of securities under
a reverse repurchase  agreement files for bankruptcy or becomes insolvent,  such
buyer or its trustee or receiver  may receive an  extension of time to determine
whether to enforce the Portfolio's obligation to repurchase the securities,  and
the  Portfolio's  use of the proceeds of the reverse  repurchase  agreement  may
effectively be restricted  pending such  decision.  The Portfolio also may enter
into "dollar  rolls," in which the Portfolio  sells fixed income  securities for
delivery  in the  current  month  and  simultaneously  contracts  to  repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date.  During the roll period,  the Portfolio  would forgo  principal and
interest paid on such  securities.  The Portfolio  would be  compensated  by the
difference  between the current sales price and the forward price for the future
purchase,  as well as by the interest earned on the cash proceeds of the initial
sale.  Reverse  repurchase  agreements are considered to be borrowings under the
Investment  Company Act and may be entered into only for  temporary or emergency
purposes.

         When-Issued Securities;  When, As and If Issued Securities; and Delayed
Delivery  Transactions.  The Portfolio may purchase  securities on a when-issued
basis,  and it may  purchase  or sell  securities  for delayed  delivery.  These
transactions  occur when  securities are purchased or sold by the Portfolio with
payment and delivery  taking place in the future to secure what is considered an
advantageous  yield and price to the  Portfolio at the time of entering into the
transaction.  The issuance of some of the  securities in which the Portfolio may
invest depends upon the occurrence of a subsequent  event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring ("when,
as and if issued  securities").  If the anticipated event does not occur and the
securities are not issued,  the Portfolio would be entitled to receive any funds
committed  for the purchase,  but the  Portfolio  may have  foregone  investment
opportunities  during the term of the  commitment.  There is no overall limit on
the percentage of the  Portfolio's  assets that may be committed to the purchase
of securities on a when issued basis,  however,  the Portfolio may only invest a
maximum of 15% of its assets in when, as and if issued securities. The Portfolio
will  maintain a segregated  account with its custodian of cash or liquid assets
in an aggregate amount, equal to the amount of its commitment in connection with
such purchase transactions to the extent required by the Investment Company Act.
If necessary,  additional assets will be placed in the account daily so that the
value of the account will equal or exceed the amount of the Portfolio's purchase
commitment.  The Portfolio's liquidity and ability to manage its assets might be
affected when it sets aside cash or assets to cover such  commitments.  When the
Portfolio  engages  in  when-issued  transactions,  it relies  on the  seller to
consummate the trade. Failure of the seller to do so may result in the Portfolio
incurring a loss or missing an  opportunity  to obtain a price  considered to be
advantageous.  An increase in the percentage of the Portfolio's assets committed
to the  purchase  of  securities  on a  "when-issued"  basis  may  increase  the
volatility of its net asset value.

                                       -3-



<PAGE>



         Investment in Other Funds.  In accordance  with the Investment  Company
Act, the  Portfolio  may invest a maximum of up to 10% of the value of its total
assets in securities of other investment companies, and the Portfolio may own up
to 3% of the total outstanding  voting stock of any one investment  company.  In
addition,  up to 5% of the value of the Portfolio's total assets may be invested
in the securities of any one investment company.

         Standby  Commitment  Agreements.  The  Portfolio  may from time to time
enter into standby commitment agreements.  Such agreements commit the Portfolio,
for a stated  period of time,  to  purchase  a stated  amount of a fixed  income
security  which may be issued  and sold to the  Portfolio  at the  option of the
issuer.  The  price  and  coupon  of the  security  is  fixed at the time of the
commitment.  At the time of entering  into the agreement the Portfolio is paid a
commitment fee,  regardless of whether or not the security is ultimately issued,
which is typically  approximately  0.5% of the aggregate  purchase  price of the
security that the Portfolio has committed to purchase.  The Portfolio will enter
into  such  agreements  only  for  the  purpose  of  investing  in the  security
underlying the  commitment at a yield and price that is considered  advantageous
to the Portfolio.  The Portfolio will not enter into a standby commitment with a
remaining  term in  excess  of 45 days and will  limit  its  investment  in such
commitments so that the aggregate  purchase  price of the securities  subject to
such  commitments,  together with the value of portfolio  securities  subject to
legal restriction on resale, will not exceed 10% of its assets taken at the time
of the  acquisition  of such  commitment or security.  The Portfolio will at all
times maintain a segregated  account with its custodian of cash or liquid assets
in U.S.  dollars or non-U.S.  currencies  in an  aggregate  amount  equal to the
purchase price of the securities underlying the commitment.

         There can be no  assurance  that the  securities  subject  to a standby
commitment  will be issued  and the value of the  security,  if  issued,  on the
delivery date may be more or less than its purchase price.  Because the issuance
of the security  underlying the  commitment is at the option of the issuer,  the
Portfolio  may bear the risk of a decline in the value of such  security and may
not  benefit  from an  appreciation  in the  value of the  security  during  the
commitment period.

         The purchase of a security  subject to a standby  commitment  agreement
and the  related  commitment  fee will be  recorded  on the  date on  which  the
security can reasonably be expected to be issued,  and the value of the security
will be adjusted by the amount of the commitment  fee. In the event the security
is not issued,  the  commitment fee will be recorded as income on the expiration
date of the standby commitment.

         Restricted and Illiquid  Securities.  The Portfolio may not invest more
than  15% of  its  net  assets  in  illiquid  securities  (including  repurchase
agreements  which have a  maturity  of longer  than  seven (7) days),  including
securities  that are  illiquid by virtue of the  absence of a readily  available
market or legal or  contractual  restrictions  on resale.  Securities  that have
legal or contractual  restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation.

         Historically,  illiquid  securities have included securities subject to
contractual  or  legal  restrictions  on  resale  because  they  have  not  been
registered under the Securities Act of 1933, as amended (the "Securities  Act"),
securities which are otherwise not readily marketable and repurchase  agreements
having a maturity of longer than seven (7) days.  Securities which have not been
registered  under the  Securities  Act are  referred to as  privately  placed or
restricted  securities  and are  purchased  directly  from the  issuer or in the
secondary  market.  Mutual funds do not typically  hold a significant  amount of
these  restricted  or other  illiquid  securities  because of the  potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the  marketability  of portfolio  securities and a mutual fund
might be unable to dispose of restricted or other illiquid  securities  promptly
or at  reasonable  prices and might  thereby  experience  difficulty  satisfying
redemptions  within  seven (7) days.  A mutual  fund might also have to register
such  restricted  securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

         Restricted  securities  include those that are subject to  restrictions
contained in the securities laws of other  countries.  However,  securities that
are freely marketable in the country in which they are principally

                                       -4-



<PAGE>



traded would not be considered illiquid. The Portfolio will treat any securities
that are held in countries with  restrictions on repatriation of more than seven
(7) days, as well as any securities  issued in connection  with debt  conversion
programs  that are  restricted  as to the  remittance  of  invested  capital  or
profits,  as  illiquid  securities  for  purposes of the 15%  limitation.  Where
registration  is required,  the Portfolio may be obligated to pay all or part of
the  registration  expenses,  and a  considerable  period may  elapse  after the
decision to dispose of the  securities is made and the date the Portfolio may be
permitted  to sell a security  under an  effective  registration  statement.  In
addition, such transaction may entail greater transaction costs. If, during such
a period,  adverse market conditions were to develop, the Portfolio might obtain
a  less  favorable  price  than  the  one  that  prevailed  at the  date  of the
determination to make a disposition.

         In recent years,  however, a large  institutional  market has developed
for  certain  securities  that are not  registered  under  the  Securities  Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes.  Institutional  investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment.  The fact that
there are  contractual or legal  restrictions on resale to the general public or
to  certain  institutions  may  not be  indicative  of  the  liquidity  of  such
investments.

         Rule 144A under the Securities Act establishes a "safe harbor" from the
registration  requirements  of the  Securities  Act  for  resales  to  qualified
institutional  buyers of certain securities  otherwise subject to restriction on
resale to the general public. The Investment Manager anticipates that the market
for  certain  restricted  securities  will expand  further  under Rule 144A as a
result of the  development of automated  systems for the trading,  clearance and
settlement of unregistered  securities of domestic and foreign issuers,  such as
the PORTAL System sponsored by the National  Association of Securities  Dealers,
Inc. (the "NASD").

         The Portfolio may purchase Rule 144A  securities  without regard to the
limitation on investment in illiquid  securities,  provided a  determination  is
made  that  such  securities  have  a  readily  available  trading  market.  The
Investment  Manager will determine the liquidity of Rule 144A  securities  under
the supervision of the Board of Trustees.  The liquidity of Rule 144A securities
will be  monitored  by the  Investment  Manager,  and, if as a result of changed
conditions,  it is determined that a Rule 144A security is no longer liquid, the
Portfolio's  holdings of illiquid securities will be reviewed to determine what,
if any,  action is  required to assure  that the  Portfolio  does not exceed the
applicable 15 percent  limitation  for  investments in illiquid  securities.  In
reaching liquidity decisions,  the Investment Manager may consider,  inter alia,
the following  factors:  (1) the  unregistered  nature of the security;  (2) the
frequency  of trades  and  quotes  for the  security;  (3) the number of dealers
wishing to  purchase  or sell the  security  and the  number of other  potential
purchasers;  (4) dealer  undertakings to make a market in the security;  and (5)
the nature of the security and the nature of the marketplace  trades (e.g.,  the
time needed to dispose of the security,  the method of soliciting offers and the
mechanics of the transfer).

         Borrowing  and  Leverage.  The  Portfolio  may solely for  temporary or
emergency  purposes  borrow  in an  amount  equal  to  approximately  10% of the
Portfolio's  total assets  (including the amount  borrowed) less all liabilities
and  indebtedness  other than the  borrowing  and may use the  proceeds  of such
borrowings.  The Portfolio may not purchase securities when borrowings exceed 5%
of the  Portfolio's  total assets.  If market  fluctuations  in the value of the
Portfolio's  holdings or other factors cause the ratio of the Portfolio's  total
assets to  outstanding  borrowings to fall below 300%,  within three days of any
such event the Portfolio may be required to sell  securities to restore the 300%
asset  coverage,  even though from an investment  standpoint such sales might be
disadvantageous.  Borrowings  may be utilized to meet share  redemptions  of the
Portfolio or to pay distributions and dividends to the Portfolio's  Shareholders
in instances  where the  Portfolio  does not desire to liquidate  its  holdings.
Borrowing by the Portfolio will create an  opportunity  for increased net income
but, at the same time,  will involve special risk  considerations.  For example,
leveraging might  exaggerate  changes in the net asset value of Portfolio shares
and in the yield on the Portfolio's investments.  Although the principal of such
borrowing will be fixed,  the Portfolio's  assets may change in value during the
time the borrowing is outstanding.


                                       -5-



<PAGE>



         Lending of  Portfolio  Securities.  The  Portfolio  may,  in seeking to
increase its income,  lend securities in its holdings  representing up to 331/3%
of its total assets,  taken at market value,  to securities  firms and financial
institutions deemed  creditworthy by the Investment Manager.  The Portfolio will
not  lend  its  securities  if such  loans  are  not  permitted  by the  laws or
regulations  of any state in which its shares are qualified for sale.  The risks
in lending  securities,  as with other extensions of secured credit,  consist of
possible  delay  in  receiving  additional  collateral  or in  recovery  of  the
securities or possible loss of rights in the collateral should the borrower fail
financially.  The  creditworthiness  of firms to which the  Portfolio  lends its
securities  will be  monitored  on an ongoing  basis by the  Investment  Manager
pursuant to procedures  adopted and reviewed on an ongoing basis by the Board of
Trustees.

   
         Indexed Securities.  The Portfolio may purchase securities whose prices
are indexed to the prices of other securities,  securities indices,  currencies,
precious  metals  or other  commodities,  or  other  financial  indicators.  The
performance of indexed  securities  depends to a great extent on the performance
of the security,  currency,  or other instruments to which they are indexed, and
may also be influenced by interest rate changes in the United States and abroad.
At the same time,  indexed securities are subject to the credit risks associated
with the issuer of the security,  and their values may decline  substantially if
the issuer's creditworthiness deteriorates. Recent issuers of indexed securities
have included banks,  corporations,  and certain U.S. government  agencies.  New
forms of such securities  continue to be developed.  The Portfolio may invest in
such securities to the extent consistent with its investment objectives.
    

Other Investment Policies And Practices of The Portfolio

         Non-Diversified  Status. The Portfolio is classified as non-diversified
within the meaning of the Investment Company Act, which means that the Portfolio
is not limited by such  Investment  Company Act in the  proportion of its assets
that it may invest in securities of a single issuer. The Portfolio's investments
will be  limited,  however,  in  order to  qualify  as a  "regulated  investment
company" for the purposes of Subchapter M of the Internal  Revenue Code of 1986,
as amended (the "Code").  See "Taxation." To qualify,  the Portfolio will comply
with certain  requirements,  including  limiting its  investments so that at the
close of each  quarter of the  taxable  year (i) not more than 25% of the market
value of the  Portfolio's  total assets will be invested in the  securities of a
single  issuer,  and (ii) with  respect to 50% of the market  value of its total
assets,  not more than 5% of the market  value of the  Portfolio's  total assets
will be invested in the securities of a single issuer and the Portfolio will not
own more than 10% of the outstanding  voting securities of single issuer. To the
extent that the Portfolio  assumes large  positions in the securities of a small
number of issuers, the Portfolio's return may fluctuate to a greater extent than
that of a diversified  company as a result of changes in the financial condition
or in the market's assessment of the issuers.

         Limitations on Futures and Options Transactions.  The Trust has filed a
notice of eligibility  for exclusion from the definition of the term  "commodity
pool operator" with the Commodity  Futures Trading  Commission  ("CFTC") and the
National  Futures  Association,  which regulate  trading in the futures markets.
Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act, the
notice of eligibility includes the following representations:

         (a) The  Portfolio  will use  commodity  futures  contracts and options
solely for bona fide hedging  purposes  within the meaning of CFTC  regulations;
provided  that the  Portfolio  may hold  long  positions  in  commodity  futures
contracts or options that do not fall within the definition of bona fide hedging
transactions  if the  positions  are  used as part of the  Portfolio  management
strategy and are incidental to the Portfolio's activities in the underlying cash
market,  and the underlying  commodity  value of the positions at all times will
not exceed the sum of (i) cash or U.S.  dollar-denominated  high quality,  short
term money market instruments set aside in an identifiable  manner,  plus margin
deposits, (ii) cash proceeds from existing investments due in 30 days, and (iii)
accrued profits on the positions held by a futures commission merchant; and


                                       -6-



<PAGE>



         (b) The Portfolio will not enter into any commodity  futures  contracts
or options if, as a result,  the sum of initial  margin  deposits  on  commodity
futures  contracts or options the  Portfolio  has  purchased,  after taking into
account unrealized profits and losses on such contracts,  would exceed 5% of the
Portfolio's total assets.

         Temporary  Investments.  Pending investment or for temporary  defensive
purposes  (such  as  when  the  Investment   Manager  believes   instability  or
unfavorable conditions exist in Emerging Countries), the Portfolio may invest up
to 100% of its total assets in U.S.  government  securities  with  maturities of
less than one year and certain  short-term  high quality debt  instruments.  The
short-term  instruments in which the Portfolio may invest  include,  but are not
limited to: U.S. government securities, money market funds that invest primarily
in U.S.  government  securities  and  repurchase  agreements in respect of these
securities.  The U.S.  government  securities  in which the Portfolio may invest
include direct  obligations of the U.S. Treasury (such as Treasury bills,  notes
and  bonds)   and   obligations   issued  by  U.S.   government   agencies   and
instrumentalities, including securities that are supported by the full faith and
credit of the United  States and  securities  that are  supported  primarily  or
solely by the  creditworthiness of the issuer (such as securities of the Federal
Home Loan Banks, the Student Loan Marketing Association and the Tennessee Valley
Authority).


                              INVESTMENT PRACTICES

         The Portfolio may engage in certain forward,  futures, options, forward
foreign exchange contracts,  interest rate swaps and other strategies to attempt
to  reduce  the  overall  risk of its  investments  (hedge),  adjust  investment
exposure, enhance income, or to replicate a fixed income return in markets which
present an  attractive  interest rate  environment  but which  restrict  foreign
investment in fixed income  securities;  however,  the instruments  necessary to
engage in such  investment  practices  may not generally be available or may not
provide a perfect hedge and also entail certain risks.

         The Portfolio intends to use such investment  practices as a complement
to its fundamental investment strategies based on the judgment of the Investment
Manager.  The Investment  Manager may utilize these investment  practices to the
extent that they are consistent  with the Portfolio's  investment  objective and
permitted by the Portfolio's  investment  limitations and applicable  regulatory
authorities.  A detailed discussion of these various investment  practices,  the
limitations  on the  portion  of the  Portfolio's  assets  that  may be  used in
connection  with the  investment  practices and the risks  associated  with such
investment practices are described in Appendix A to this Statement of Additional
Information.


                     RISK FACTORS AND SPECIAL CONSIDERATIONS

         Investment  in  the   Portfolio   involves  risk  factors  and  special
considerations, such as those described below:

         Low Rated and Unrated Instruments.  At any one time,  substantially all
of the Portfolio's  assets may be invested in Debt  Obligations that are unrated
or below investment  grade.  Debt Obligations of the type in which the Portfolio
will invest  substantially all of its assets are generally  considered to have a
credit quality rated below investment grade by internationally recognized credit
rating  organizations such as Moody's and S&P. Securities below investment grade
are the  equivalent  of high  yield,  high risk bonds,  commonly  known as "JUNK
BONDS." Investment grade is generally considered to be debt securities rated BBB
by S&P or Baa or higher by Moody's.  Non-investment  grade debt securities (that
is,  securities  rated  Ba1 or  lower  by  Moody's  or BB+ or  lower by S&P) are
regarded as predominantly  speculative with respect to the issuer's  capacity to
pay interest and repay principal in accordance with the terms of the obligations
and  involve  major  risk  exposure  to  adverse  conditions.  Some of the  Debt
Obligations  held by the Portfolio may be comparable to securities  rated as low
as C by Moody's or D by S&P,  the lowest  ratings  assigned  by these  agencies.
These  securities  are  considered  to have  extremely  poor  prospects  of ever
attaining any real investment grade standing, and to have a current identifiable
vulnerability to default,  and the issuers and/or guarantors of these securities
are considered

                                       -7-



<PAGE>



to be unlikely to have the capacity to pay interest and repay principal when due
in the event of adverse business,  financial or economic conditions and/or to be
in default or not current in the payment of interest or principal.

         Low rated and unrated Debt Obligations generally offer a higher current
yield than that  available from higher grade issues,  but involve  greater risk.
Low rated and unrated  securities are especially  subject to adverse  changes in
general  economic  conditions,  to changes in the  financial  condition of their
issuers and to price  fluctuation  in  response  to changes in  interest  rates.
During periods of economic  downturn or rising  interest  rates,  issuers of low
rated and  unrated  instruments  may  experience  financial  stress  that  could
adversely  affect their ability to make  payments of principal and interest,  to
meet projected business goals and to obtain additional financing.  If the issuer
of a bond  defaults,  the  Portfolio  may  incur  additional  expenses  to  seek
recovery.  The foreign  issuer may not be willing or able to repay the principal
interest of such obligations  and/or when it becomes due, due to factors such as
debt service, cash flow situation,  the extent of its foreign reserves,  and the
availability  of sufficient  foreign  exchange on the date a payment is due. The
risk of loss due to  default  by the  issuer is  significantly  greater  for the
holders of low rated and unrated debt securities  because such securities may be
unsecured and may be subordinated to other creditors of the issuer. In addition,
in recent  years some of the Latin  American  countries  in which the  Portfolio
expects to invest have defaulted on their sovereign debt.

         The Portfolio may have difficulty disposing of certain high yield, high
risk securities  because there may be a thin trading market for such securities.
The secondary  trading market for high yield,  high risk securities is generally
not as liquid as the  secondary  market for  higher  rated  securities.  Reduced
secondary  market  liquidity may have an adverse  impact on market price and the
Portfolio's  ability to dispose of particular  issues when necessary to meet the
Portfolio's  liquidity needs or in response to a specific economic event such as
a deterioration in the creditworthiness of the issuer.

         Low  rated  and  unrated  Debt  Obligations  frequently  have  call  or
redemption features which would permit an issuer to repurchase the security from
the  Portfolio.  If a call  were  exercised  by the  issuer  during a period  of
declining interest rates, the Portfolio likely would have to replace such called
security with a lower  yielding  security,  thus  decreasing  the net investment
income to the Portfolio and dividends to Shareholders.

         Adverse  publicity  and investor  perceptions,  whether or not based on
fundamental  analysis,  may also  decrease the values and liquidity of low rated
and unrated securities  especially in a market  characterized by a low volume of
trading.  Factors adversely  affecting the market value of high yield, high risk
securities are likely to adversely  affect the  Portfolio's  net asset value. In
addition,  the  Portfolio  may incur  additional  expenses  to the  extent it is
required to seek recovery upon a default on a portfolio  holding or  participate
in the restructuring of the obligation.

   
         The  Portfolio is subject to  restrictions  on the  maturities  of Debt
Obligations  it holds,  those  maturities  may range from overnight to 30 years.
Changes in interest rates generally will cause the value of debt securities held
by the Portfolio to vary inversely to changes in prevailing  interest rates. The
Portfolio's  investments  in  fixed-rate  debt  securities  with longer terms to
maturity are subject to greater  volatility than the Portfolio's  investments in
short-term  obligations.  Brady bonds and other Debt  Obligations  acquired at a
discount  are  subject to greater  fluctuations  of market  value in response to
changing interest rates than Debt Obligations of comparable maturities which are
not subject to a discount.
    

         Discount  Obligations.  The Portfolio may invest in certain zero coupon
securities and other  obligations  purchased with market  discount.  Zero coupon
securities  pay no  interest  to  holders  prior to  maturity.  A portion of the
original  issue discount on zero coupon  securities  and the market  discount on
market  discount  obligations  will be  included  currently  in the  Portfolio's
income.  Accordingly,  for the  Portfolio  to  qualify  for tax  treatment  as a
regulated  investment  company  under Part I of  Subchapter  M of the Code,  see
"Taxation," the Portfolio may be required to distribute  currently as a dividend
an amount that is greater than the total  amount of cash it  currently  actually
receives.  As a result, the Portfolio may be required to sell securities to make
such  distributions.  Under  adverse  market  conditions,  this  may  result  in
Shareholders  receiving a portion of their original  purchase price as a taxable
dividend and could further negatively impact net asset value. Also, the

                                       -8-



<PAGE>



Portfolio will be unable to purchase additional income producing securities with
cash used to make such  distributions  and its current income  ultimately may be
reduced as a result.  Zero coupon securities and other Debt Obligations in which
the Portfolio may invest usually trade at a deep discount from their face or par
value and will be subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities that make
current distributions of interest in cash.

         Political  and  Economic  Factors.  Investing  in Debt  Obligations  of
Emerging   Countries   involves   risks   relating  to  political  and  economic
developments  abroad. The value of the Portfolio's  investments will be affected
by commodity prices,  inflation,  interest rates, taxation,  social instability,
and other  political,  economic or diplomatic  developments  in or affecting the
Emerging  Countries  in  which  the  Portfolio  has  invested.  In  many  cases,
governments of Emerging  Countries  continue to exercise a significant degree of
control over the economy,  and  government  actions  concerning  the economy may
adversely affect issuers within that country. Government actions relative to the
economy,  as well as economic  developments  generally,  may also affect a given
country's international foreign currency reserves.  Fluctuations in the level of
these  reserves  affect the amount of foreign  exchange  readily  available  for
external debt payments and thus could have a bearing on the capacity of Emerging
Country issuers to make payments on their debt  obligations  regardless of their
financial  condition.  In addition,  there is a possibility of  expropriation or
confiscatory  taxation,  imposition of withholding taxes on dividend or interest
payments,  or other similar developments which could affect investments in those
countries.  While the  Investment  Manager  intends to manage the Portfolio in a
manner that will minimize the exposure to such risks,  there can be no assurance
that adverse  political changes will not cause the Portfolio to suffer a loss of
interest  or  principal  on  any of  its  holdings.  The  Portfolio  will  treat
investments of the Portfolio that are subject to  repatriation  restrictions  of
more than seven (7) days as illiquid securities.

         Foreign  Exchange  Risk.  Up to 30% of the  Portfolio's  assets  may be
invested in non-dollar denominated Debt Obligations, and the value of the assets
of the  Portfolio  as measured in U.S.  dollars  will  therefore  be affected by
changes in foreign currency  exchange rates.  Many of the currencies of Emerging
Countries have experienced significant  devaluations relative to the dollar, and
major  adjustments have been made in certain of them at times. To the extent the
Portfolio has invested in non-dollar  denominated  securities,  a decline in the
value of such currency  would reduce the value of certain  portfolio  securities
and the net asset value of the Portfolio.  In addition, if the exchange rate for
the currency in which the Portfolio  receives interest payments declines against
the U.S. dollar before such interest is paid as dividends to  Shareholders,  the
Portfolio may have to sell portfolio securities to obtain sufficient cash to pay
such dividends.

         If non-U.S.  dollar-denominated securities are not hedged, a decline in
the value of currencies in which such  securities are denominated or on which an
issuer's   revenues  are  based  against  the  U.S.  dollar  will  result  in  a
corresponding  decline in the U.S. dollar value of the Portfolio's assets. These
declines will in turn affect the  Portfolio's  income and credit.  The Portfolio
will  compute  its  income on the date of its  receipt by the  Portfolio  at the
exchange  rate in effect with respect to the relevant  currency on that date. If
the value of a currency  declines  relative to the U.S.  dollar between the date
income is received and the date the Portfolio  makes  distributions,  the amount
available for distributions to the Portfolio's Shareholders could be reduced. If
the  exchange  rate  against the U.S.  dollar of a currency in which a portfolio
security of the Portfolio is denominated declines between the time the Portfolio
incurs  expenses in U.S.  dollars and the time expenses are paid,  the amount of
the currency required to be converted into U.S. dollars in order to pay expenses
in U.S.  dollars would be greater than the equivalent  amount in the currency of
the expenses at the time they are  incurred.  A decline in the value of non-U.S.
currencies  relative  to the U.S.  dollar may also  result in  foreign  currency
losses that reduce distributable net investment income.

         Currency  exchange  rates  generally  are  determined  by the forces of
supply and demand in the foreign  exchange  markets and the  relative  merits of
investments in different  countries,  actual or anticipated  changes in interest
rates and other complex  factors.  Currency  exchange rates also can be affected
unpredictably  by  intervention  or  failure  to  intervene  by U.S.  or foreign
governments or central banks or by currency  controls or political  developments
in the U.S. or abroad. The Portfolio may employ certain investment  practices to
hedge

                                       -9-



<PAGE>



its foreign currencies exposure; however, the instruments necessary to engage in
such practices may not generally be available or may not provide a perfect hedge
and may also entail certain risks.

         To the  extent  that a  substantial  portion of the  Portfolio's  total
assets,  adjusted to reflect the Portfolio's net position after giving effect to
currency  transactions,  is denominated in currencies of foreign countries,  the
Portfolio will be more susceptible to the risk of adverse economic and political
developments within those countries.

         Sovereign  Debt.  Investments in sovereign 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 Portfolio may have
limited legal recourse in the event of a default.

         Investing  in Debt  Obligations  of  governmental  issuers in  Emerging
Countries  involves  economic and political risks. The governmental  entity that
controls the  servicing of  obligations  of those  issuers may not be willing or
able to repay the principal  and/or  interest  when due in  accordance  with the
terms of the  obligations.  A  governmental  entity's  willingness or ability to
repay  principal  and interest  when due in a timely  manner may be affected by,
among other factors, its cash flow situation,  the market value of the debt, the
relative  size of the  debt  service  burden  to the  economy  as a  whole,  the
governmental  entity's dependence on expected  disbursements from third parties,
the governmental entity's policy toward the International  Monetary Fund and the
political  constraints  to which the  governmental  entity may be subject.  As a
result,  governmental  entities  may  default on their  obligations.  Holders of
certain Emerging Country Debt Obligations may be requested to participate in the
restructuring  and rescheduling of these obligations and to extend further loans
to their issuers.  The interests of holders of Emerging Country Debt Obligations
could be adversely  affected in the course of  restructuring  arrangements or by
certain other factors referred to below.

         Sovereign debt differs from debt obligations issued by private entities
in that,  generally,  remedies for defaults must be pursued in the courts of the
defaulting  party.  Legal  recourse is  therefore  somewhat  limited.  Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt  obligations,  are of  considerable  significance.  Also,  there  can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not  contest  payments  to the  holders  of  sovereign  debt in the event of
default under commercial bank loan agreements.

         A sovereign debtor's  willingness or ability to repay principal and pay
interest in a timely  manner may be affected by, among other  factors,  its cash
flow  situation,  the  extent  of its  foreign  reserves,  the  availability  of
sufficient  foreign  exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal  international lenders and the political constraints to which a
sovereign  debtor  may be  subject.  Increased  protectionism  on the  part of a
country's trading partners, or political changes in those countries,  could also
adversely  affect its  exports.  Such events  could  diminish a country's  trade
account surplus, if any, or the credit standing of a particular local government
or agency.

         The  occurrence  of political,  social or diplomatic  changes in one or
more  of the  countries  issuing  sovereign  debt  could  adversely  affect  the
Portfolio's  investments.  Political  changes or a deterioration  of a country's
domestic  economy or balance of trade may affect the willingness of countries to
service their sovereign debt. While the Investment Manager intends to manage the
Portfolio in a manner that will  minimize the exposure to such risks,  there can
be no assurance that adverse  political  changes will not cause the Portfolio to
suffer a loss of interest or principal on any of its holdings.

         Investors should also be aware that certain  sovereign debt instruments
in which the Portfolio may invest  involve great risk.  Sovereign debt issued by
issuers in many Emerging  Countries  generally is deemed to be the equivalent in
terms of quality to securities  rated below investment grade by Moody's and S&P.
Such securities are regarded as  predominantly  speculative  with respect to the
issuer's capacity to pay interest and repay

                                      -10-



<PAGE>



principal in accordance with the terms of the obligations and involve major risk
exposure to adverse conditions. Some of such sovereign debt may be comparable to
securities  rated D by S&P or C by Moody's.  The Portfolio  may have  difficulty
disposing of certain  sovereign debt obligations  because there may be a limited
trading market for such securities.  Because there is no liquid secondary market
for many of these  securities,  the Portfolio  anticipates  that such securities
could be sold only to a limited  number of dealers or  institutional  investors.
The lack of a liquid  secondary  market may have an adverse impact on the market
price of such  securities and the  Portfolio's  ability to dispose of particular
issues when necessary to meet the Portfolio's  liquidity needs or in response to
a specific  economic event, such as a deterioration in the  creditworthiness  of
the issuer.  The lack of a liquid secondary  market for certain  securities also
may  make  it more  difficult  for  the  Portfolio  to  obtain  accurate  market
quotations for purposes of valuing the  Portfolio's  investments and calculating
its net asset  value.  When and if  available,  fixed income  securities  may be
purchased by the Portfolio at a discount from face value. However, the Portfolio
does not intend to hold such securities to maturity for the purpose of achieving
potential  capital  gains,  unless  current  yields on these  securities  remain
attractive.  From time to time the Portfolio may purchase  securities not paying
interest at the time acquired if, in the opinion of the Investment Manager, such
securities have the potential for future income or capital appreciation.

         Investing in Securities Markets of Emerging Countries.  Most securities
markets in Emerging Countries may have substantially less volume and are subject
to less government supervision than U.S. securities markets.  Securities of many
issuers  in  Emerging  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 Countries than in the United States.

         Markets  in  Emerging  Countries  also  have  different  clearance  and
settlement  procedures,  and in  certain  markets  there  have been  times  when
settlements  have  been  unable  to keep  pace  with the  volume  of  securities
transactions.  Delays in  settlement  could result in  temporary  periods when a
portion  of the  assets of the  Portfolio  is  uninvested  and no cash is earned
thereon.  The inability of the Portfolio to make intended security purchases due
to settlement  problems could cause the Portfolio to miss attractive  investment
opportunities.  Inability to dispose of portfolio  securities  due to settlement
problems  could  result  either  in losses to the  Portfolio  due to  subsequent
declines in value of the  portfolio  security or, if the  Portfolio  has entered
into a contract to sell the security,  could result in possible liability to the
purchaser.   Costs  associated  with  transactions  in  foreign  securities  are
generally  higher than costs  associated with  transactions in U.S.  securities.
Such  transactions  also  involve  additional  costs for the purchase or sale of
foreign currency.

         Foreign  investment in certain  Emerging  Country Debt  Obligations  is
restricted or controlled to varying degrees.  These restrictions or controls may
at times limit or preclude  foreign  investment in certain Emerging Country Debt
Obligations  and  increase  the costs and  expenses  of the  Portfolio.  Certain
Emerging Countries require prior governmental approval of investments by foreign
persons,  limit the  amount of  investment  by foreign  persons in a  particular
company,  limit the  investment by foreign  persons only to a specific  class of
securities of a company that may have less advantageous  rights than the classes
available  for  purchase  by   domiciliaries  of  the  countries  and/or  impose
additional  taxes on foreign  investors.  Certain  Emerging  Countries  may also
restrict  investment  opportunities in issuers in industries deemed important to
national interests.

         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.

         In the course of investment in Emerging Country Debt  Obligations,  the
Portfolio will be exposed to the direct or indirect  consequences  of political,
social and economic changes in one or more Emerging Countries. Political changes
in  Emerging  Countries  may  affect  the  willingness  of an  Emerging  Country
governmental  issuer to make or provide for timely payments of its  obligations.
The country's economic status, as reflected, among

                                      -11-



<PAGE>



other  things,  in its inflation  rate,  the amount of its external debt and its
gross domestic product, also affects its ability to honor its obligations. While
the Portfolio  will manage its assets in a manner that will seek to minimize the
exposure to such risks, there can be no assurance that adverse political, social
or economic  changes  will not cause the  Portfolio to suffer a loss of value in
respect of the securities in the Portfolio's portfolio.

         The risk also exists that an  emergency  situation  may arise in one or
more Emerging  Countries as a result of which trading of securities may cease or
may be substantially curtailed and prices for the Portfolio's securities in such
markets may not be readily  available.  The Trust may suspend  redemption of its
shares for any period  during which an emergency  exists,  as  determined by the
Securities  and Exchange  Commission  (the  "Commission").  Accordingly,  if the
Portfolio believes that appropriate  circumstances exist, it will promptly apply
to the Commission for a determination  that an emergency is present.  During the
period  commencing from the Portfolio's  identification  of such condition until
the date of the Commission  action,  the Portfolio's  securities in the affected
markets  will be valued at fair value  determined  in good faith by or under the
direction of the Board of Trustees.

         Volume and  liquidity in most foreign bond markets are less than in the
United States and securities of many foreign  companies are less liquid and more
volatile than  securities of comparable  U.S.  companies.  Fixed  commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S.  exchanges,  although the Portfolio endeavors to achieve the most favorable
net results on its portfolio  transactions.  There is generally less  government
supervision and regulation of securities exchanges,  brokers, dealers and listed
companies than in the United States.  Mail service between the United States and
foreign  countries may be slower or less reliable than within the United States,
thus  increasing the risk of delayed  settlements of portfolio  transactions  or
loss of  certificates  for portfolio  securities.  In addition,  with respect to
certain  Emerging  Countries,  there  is the  possibility  of  expropriation  or
confiscatory   taxation,   political  or  social   instability,   or  diplomatic
developments which could affect the Portfolio's  investments in those countries.
Moreover,   individual  Emerging  Country  economics  may  differ  favorably  or
unfavorably  from the U.S.  economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment,  resource self-sufficiency and
balance of payments position.

         The Portfolio may have limited legal recourse in the event of a default
with  respect  to  certain  Debt  Obligations  it  holds.  If  the  issuer  of a
fixed-income  security owned by the Portfolio defaults,  the Portfolio may incur
additional  expenses  to seek  recovery.  Debt  Obligations  issued by  Emerging
Country  governments differ from debt obligations of private entities;  remedies
from defaults on Debt Obligations issued by Emerging Country governments, unlike
those on private  debt,  must be pursued in the courts of the  defaulting  party
itself.  The  Portfolio's  ability to enforce its rights against private issuers
may be limited.  Notwithstanding the fact that most loan agreements are governed
by New York or English law,  the ability to attach  assets to enforce a judgment
may be limited.  Legal recourse is therefore  somewhat  diminished.  Bankruptcy,
moratorium  and  other  similar  laws  applicable  to  private  issuers  of Debt
Obligations may be substantially  different from those of other  countries.  The
political  context,  expressed  as an  Emerging  Country  governmental  issuer's
willingness  to meet the  terms  of the  debt  obligation,  for  example,  is of
considerable importance. In addition, no assurance can be given that the holders
of  commercial  bank  debt  may not  contest  payments  to the  holders  of Debt
Obligations in the event of default under commercial bank loan agreements.

         Income  from  securities  held by the  Portfolio  could be reduced by a
withholding  tax at the source or other taxes imposed by the Emerging  Countries
in which the Portfolio  makes its  investments.  The Portfolio's net asset value
may also be affected  by changes in the rates or methods of taxation  applicable
to the  Portfolio  or to  entities  in which the  Portfolio  has  invested.  The
Investment Manager will consider the cost of any taxes in determining whether to
acquire any particular investments,  but can provide no assurance that the taxes
will not be subject to change.

         Most  Emerging  Countries  have  experienced  substantial,  and in some
periods  extremely  high rates of inflation for many years.  Inflation and rapid
fluctuations in inflation rates have had and may continue to have

                                      -12-



<PAGE>



adverse  effects on the economies  and  securities  markets of certain  Emerging
Countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries.

         Emerging Country  governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain Emerging Country governmental issuers have
not been able to make  payments of interest on or principal of Debt  Obligations
as those  payments have come due.  Obligations  arising from past  restructuring
agreements  may  affect  the  economic  performance  and  political  and  social
stability of those issuers.

         Governments  of many Emerging  Countries have exercised and continue to
exercise  substantial  influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given  country.  As a result,  government  actions  in the  future  could have a
significant effect on economic conditions in Emerging Countries,  which in turn,
may adversely affect companies in the private sector,  general market conditions
and  prices  and  yields  of  certain  of  the  securities  in  the  Portfolio's
investments. Expropriation,  confiscatory taxation, nationalization,  political,
economic or social  instability  or other  similar  developments  have  occurred
frequently  over the history of certain  Emerging  Countries and could adversely
affect the Portfolio's assets should these conditions recur.

         The ability of  Emerging  Country  governmental  issuers to make timely
payments  on their  obligations  is  likely  to be  influenced  strongly  by the
issuer's balance of payments,  including export  performance,  and its access to
international  credits and  investments.  An Emerging  Country whose exports are
concentrated  in a few  commodities  could be  vulnerable  to a  decline  in the
international   prices   of  one  or  more  of  those   commodities.   Increased
protectionism on the part of an Emerging  Country's  trading partners could also
adversely  affect the country's  exports and diminish its trade account surplus,
if any. To the extent that Emerging  Countries receive payment for their exports
in currencies  other than dollars or non-Emerging  Countries  currencies,  their
ability to make debt payments  denominated in dollars or non-Emerging  Countries
currencies could be affected.

         To the extent that an Emerging Country cannot generate a trade surplus,
it must  depend on  continuing  loans  from  foreign  governments,  multilateral
organizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment.  The access of Emerging Countries to these
forms of  external  funding  may not be certain,  and a  withdrawal  of external
funding could  adversely  affect the capacity of Emerging  Country  governmental
issuers  to make  payments  on  their  obligations.  In  addition,  the  cost of
servicing  Emerging  Country  Debt  Obligations  can be  affected by a change in
international  interest  rates  since the  majority of these  obligations  carry
interest rates that are adjusted periodically based upon international rates.

         Another  factor  bearing on the ability of Emerging  Countries to repay
Debt  Obligations  is the  level  of  international  reserves  of  the  country.
Fluctuations  in the  level of these  reserves  affect  the  amount  of  foreign
exchange  readily  available  for external  debt  payments and thus could have a
bearing on the  capacity of Emerging  Countries  to make  payments on these debt
obligations.

         Reporting  Standards.  It is likely  that none of the Debt  Obligations
held by the Portfolio will be registered  with the Commission or subject to U.S.
regulatory  or  reporting  requirements.  Disclosure  requirements  in  Emerging
Countries are  generally not as stringent as in the U.S.,  and there may be less
publicly  available  information about issuers in Emerging  Countries than about
domestic  issuers.  Emerging  Country  issuers  are  not  generally  subject  to
accounting,  auditing and  financial  reporting  standards  comparable  to those
applicable domestic issuers.

         Since foreign companies are not subject to uniform accounting, auditing
and financial  reporting  standards,  practices and  requirements  comparable to
those  applicable  to  U.S.  companies,  there  may be less  publicly  available
information  about a foreign company than about a U.S.  company.  In addition to
the relative lack of publicly  available  information  about issuers in Emerging
Countries,  the national  income  accounting,  auditing and financial  reporting
standards  and  practices of Emerging  Countries  may not be equivalent to those
employed in the U.S. and may differ in fundamental areas, such as accounting for
inflation. For instance,

                                      -13-



<PAGE>



inflation  accounting rules in some Emerging Countries,  require,  for companies
that keep accounting records in the local currency,  for both tax and accounting
purposes,  that  certain  assets and  liabilities  be restated on the  company's
balance  sheet in order to  express  items  in  terms of  currency  of  constant
purchasing power. Thus,  inflation  accounting may indirectly generate losses or
profits for certain Emerging Country companies.

         Investment Practices.  Certain of the investment practices in which the
Portfolio may engage have risks associated with them, including possible default
by the other  party to the  transaction,  illiquidity  and,  to the  extent  the
Investment  Manager's  views as to certain market  movements are incorrect,  the
risk that the use of such strategies could result in losses greater than if they
had not been used.  Use of put and call  options  could  result in losses to the
Portfolio,  force the sale or purchase of portfolio  securities  at  inopportune
times or for prices  higher than (in the case of put  options) or lower than (in
the  case  of  call  options)  current  market  values,   limit  the  amount  of
appreciation  the  Portfolio  could  realize  on its  investments  or cause  the
Portfolio  to hold a  security  it might  otherwise  sell.  The use of  currency
transactions could result in the Portfolio's incurring losses as a result of the
imposition of exchange controls,  suspension of settlements, or the inability to
deliver  or  receive  a  specified  currency.  The  Portfolio  depends  upon the
reliability and  creditworthiness  of the  counterparty  when it enters into OTC
currency  or  securities  options or other  agreements.  The use of options  and
futures transactions entails certain special risks. In particular,  the variable
degree of  correlation  between price  movements of futures  contracts and price
movements in the related  portfolio  position of the Portfolio  could create the
possibility that losses on the hedging  instrument will be greater than gains in
the value of the Portfolio's position. In addition,  futures and options markets
could not be liquid in all  circumstances and certain  over-the-counter  options
could have no markets. As a result, in certain markets,  the Portfolio might not
be able to close out a transaction  without incurring  substantial losses, if at
all.  Although the use of futures and options  transactions  for hedging  should
tend to  minimize  the risk of loss due to a decline  in the value of the hedged
position,  at the same time it will tend to limit any potential  gain that might
result from an increase in value of the position.  Finally,  the daily variation
margin  requirements  for  futures  contracts  would  create a  greater  ongoing
potential  financial  risk than  would  purchases  of  options in which case the
exposure is limited to the cost of the initial  premium.  Losses  resulting from
the use of such strategies  would reduce the  Portfolio's  net asset value,  and
possibly  income,  and the losses can be greater than if the  strategies had not
been used.  The use of  forward  foreign  currency  exchange  contracts  entails
certain  risks.  See  "Investment  Practices"  described  in  Appendix A to this
Statement of Additional Information.

         Non-Diversification.  Investment in the Portfolio,  which is classified
as a non-diversified  investment  company under the Investment  Company Act, may
present greater risks to investors than an investment in a diversified fund. The
investment return on a non-diversified investment company typically is dependent
upon the performance of a smaller number of securities relative to the number of
securities  held in a  diversified  fund.  The  Portfolio's  assumption of large
positions in the  obligations of a small number of issuers will affect the value
of the securities it holds to a greater  extent than that of a diversified  fund
in  the  event  of  changes  in the  financial  condition,  or in  the  market's
assessment, of the issuers.

         Illiquid and  Restricted  Securities.  Investments  of the  Portfolio's
assets in "illiquid  securities," i.e.,  securities that are restricted in their
transfer or for which market  quotations are otherwise not readily  available or
repurchase  agreements  over seven (7) days,  may  restrict  the  ability of the
Portfolio to dispose of its  investments in a timely fashion and for a favorable
price.  The  risks  associated  with  illiquidity  are  particularly   acute  in
situations in which the  Portfolio's  operations  require cash, such as when the
Portfolio redeems for shares of beneficial interests or pays distributions,  and
may result in the Portfolio  borrowing to meet short-term  cash  requirements or
incurring capital losses on the sale of such investments.

         Clearance and Settlement  Procedures.  Emerging  Countries'  securities
exchange  transactions  may be  subject  to  difficulties  associated  with  the
settlement of such transactions. Delays in clearance and settlement could result
in temporary  periods when assets of the Portfolio are  uninvested and no return
is earned thereon.  Foreign markets also have different clearance and settlement
procedures,  and in certain markets there have been times when  settlements have
been unable to keep pace with the volume of securities  transactions,  making it
difficult to conduct such  transactions.  The inability of the Portfolio to make
intended security purchases due to

                                      -14-



<PAGE>



settlement  problems  could cause the  Portfolio to miss  attractive  investment
opportunities.  Inability to dispose of a Portfolio  security due to  settlement
problems  could  result  either  in losses to the  Portfolio  due to  subsequent
declines in the value of the Portfolio security or, if the Portfolio has entered
into a contract to sell the security,  could result in possible liability to the
purchaser.

         Operating  Expenses.  The costs  attributable to foreign investing that
the  Portfolio  must bear  frequently  are  higher  than those  attributable  to
domestic  investing.  For example,  the cost of  maintaining  custody of foreign
securities exceeds custodian costs for domestic securities. Investment income on
certain  foreign  securities in which the Portfolio may invest may be subject to
foreign  withholding  or other  taxes  that  could  reduce  the  return on those
securities.  Tax  treaties  between  the United  States and  foreign  countries,
however,  may  reduce  or  eliminate  the  amount  of  foreign  tax to which the
Portfolio would be subject. See "Taxation."

         Other Factors. The net asset value of the shares of beneficial interest
will change with changes in the value of the Portfolio's  holdings.  Because the
Portfolio will invest primarily in debt  securities,  the net asset value of the
shares of beneficial  interest  could be expected to change as general levels of
interest rates fluctuate.  Generally, when interest rates increase, the value of
debt  securities  held by the  Portfolio  can be expected  to decrease  and when
interest rates decrease,  the value of the debt securities held by the Portfolio
can be expected to increase.


                             INVESTMENT LIMITATIONS

         The Trust has adopted the following  investment  restrictions,  none of
which may be changed with respect to the  Portfolio  without the approval of the
holders of a majority of the outstanding voting securities of the Portfolio.  As
defined in the  Investment  Company Act, "a majority of the  outstanding  voting
securities"  of the  Portfolio  means the vote (a) of 67% or more of the  shares
present at a meeting of  Shareholders  of the Portfolio,  if the holders of more
than 50% of the Portfolio's outstanding shares are present or voting by proxy at
the meeting, or (b) of more than 50% of the outstanding shares of the Portfolio,
whichever is less. For the purposes of the  limitations,  any  limitation  which
involves a maximum percentage shall not be considered  violated unless an excess
over the percentage occurs  immediately  after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Portfolio.

         The Portfolio may not:

         (1) Borrow money,  except from banks,  and only if after such borrowing
there is asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage,  pledge or  hypothecate  its  assets  except in  connection  with such
borrowings.  This restriction shall not prevent the Portfolio from entering into
reverse repurchase  agreements,  provided that reverse repurchase agreements and
any other  transactions  constituting  borrowing by the Portfolio may not exceed
10% of the  Portfolio's  total assets.  In the event that the asset coverage for
the  Portfolio's  borrowings  falls below 300%, the Portfolio will reduce within
three  days the  amount of its  borrowings  in order to  provide  for 300% asset
coverage.  (For the purpose of this  restriction,  collateral  arrangements with
respect to the writing of options,  and, if applicable,  futures contracts,  and
collateral  arrangements  with respect to initial and  variation  margin are not
deemed to be a pledge of assets and neither such  arrangements  nor the purchase
or sale of  futures  are  deemed to be the  issuance  of a senior  security  for
purposes of Investment Limitation No. 8.)

         (2)  Invest  more  than 25% of the  value of its  total  assets  in the
securities of one or more issuers conducting their principal business activities
in the same  industry.  This  limitation  is not  applicable to  investments  in
obligations of the U.S. Government or any of its agencies or instrumentalities.

         (3) Make short sales of securities, except short sales against-the-box,
or maintain a short position.  (The Portfolio does not currently  intend to make
short sales against-the-box.)


                                      -15-



<PAGE>



         (4)  Underwrite  securities  of other  issuers,  except  insofar as the
Portfolio may be deemed to be an underwriter under the Securities Act in selling
portfolio securities.

         (5)  Purchase,   hold  or  deal  in  real  estate,   including  limited
partnership  interests,  or oil,  gas or  other  mineral  leases,  although  the
Portfolio  may purchase and sell  securities  that are secured by real estate or
interests therein and may purchase mortgage-related  securities and may hold and
sell real  estate  acquired by the  Portfolio  as a result of the  ownership  of
securities.

         (6) Purchase or sell  commodities or commodity  contracts,  except that
the  Portfolio  may (a)  purchase and sell futures  contracts,  including  those
relating to  securities,  currencies  and  indices,  and (b)  purchase  and sell
currencies or securities on a forward commitment or delayed-delivery basis.

         (7) Make loans,  except that the  Portfolio  may (a)  purchase and hold
debt  instruments  (including  bonds,  debentures or other debt  instruments  or
interests  therein,   government   obligations,   short-term  commercial  paper,
certificates  of  deposit  and  bankers  acceptances)  in  accordance  with  its
investment  objectives  and policies,  (b) invest in Loans,  participations  and
assignments,  (c) enter into  repurchase  agreements  with  respect to portfolio
securities, and (d) make loans of portfolio securities.

         (8) Issue any senior security (as such term is defined in Section 18(f)
of the  Investment  Company  Act) except as otherwise  permitted  in  Investment
Limitations  Nos.  (1), (3) and (7); and in the case of  Investment  Limitations
Nos. (3) and (7) provided the coverage  requirements  enunciated  by the SEC are
followed.

         (9) Invest more than 10% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less then three years
of continuous operation.

         (10)  Make  investments  for  the  purpose  of  exercising  control  or
management.  Investments by the Portfolio in  wholly-owned  investment  entities
created  under the laws of  certain  countries  will not be deemed the making of
investments for the purpose of exercising control or management.

         Except for the percentage  restrictions  applicable to the borrowing of
money,  if a percentage  restriction is adhered to at the time of investment,  a
later  increase  or  decrease in  percentage  resulting  from a change in market
values of  portfolio  securities  or amount of total or net  assets  will not be
considered a violation of any of the foregoing restrictions.

         For  purposes of the  Portfolio's  concentration  policy  contained  in
limitation  (2)  above,  for so long as the  staff of the  Commission  considers
securities  issued or  guaranteed  as to  principal  and  interest by any single
foreign  government  or any  supranational  organization  in the aggregate to be
securities of issuers in the same industry, the Portfolio intends to comply with
such Commission staff position.

         In order to  permit  the sale of  shares of the  Portfolio  in  certain
states,  the Portfolio may make commitments more restrictive than the investment
policies  and  limitations  above.  If the  Portfolio  determines  that any such
commitment is no longer in its best interests,  it will revoke the commitment by
terminating  sales  of its  shares  in the  state  involved.  In  addition,  the
Portfolio  may be subject to  investment  restrictions  imposed by  countries in
which it invests directly or indirectly.

         The staff of the  Commission  has taken the position that purchased OTC
options  and the assets  used as cover for  written  OTC  options  are  illiquid
securities.  Therefore,  the Portfolio has adopted an investment policy pursuant
to which it will  not  purchase  or sell OTC  options  if,  as a result  of such
transaction,  the market value of the underlying  securities covered by OTC call
options  currently  outstanding  which  were sold by the  Portfolio  and  margin
deposits on the Portfolio's existing OTC options on futures contracts exceed 15%
of the total assets of the Portfolio,  taken at market value,  together with all
other assets of the  Portfolio  which are illiquid or are  otherwise not readily
marketable.  However,  if the OTC option is sold by the  Portfolio  to a primary
U.S. Government  securities dealer recognized by the Federal Reserve Bank of New
York and the Portfolio has the

                                      -16-



<PAGE>



unconditional contractual right to repurchase such OTC option from the dealer at
a predetermined  price,  the Portfolio will treat as illiquid such amount of the
underlying securities equal to the repurchase price less the amount by which the
option is "in-the-money"  (i.e., current market value of the underlying security
minus the option's strike price).  The repurchase price with the primary dealers
is  typically  a formula  price  which is  generally  based on a multiple of the
premium  received  for the  option,  plus the  amount  by which  the  option  is
"in-the-money." This policy as to OTC options is not a fundamental policy of the
Portfolio  and may be amended  by the  Trustees  of the  Portfolio  without  the
approval of the Portfolio's Shareholders. However, the Portfolio will not change
or modify  this policy  prior to the change or  modification  by the  Commission
staff of its position.

         Securities  held by the Portfolio  generally may not be purchased from,
sold or loaned  to the  Investment  Manager  or its  affiliates  or any of their
directors, officers or employees, acting as principal, unless pursuant to a rule
or exemptive order under the Investment Company Act.


                           MANAGEMENT OF THE PORTFOLIO

         The  following  information  supplements  and  should  be read with the
section in the Prospectus entitled "Management of the Portfolio."

         Information pertaining to the Trustees and officers of the Trust is set
forth below together with their  respective  positions and a brief  statement of
their principal  occupations  during the past five years.  Trustees deemed to be
"interested persons" of the Trust for purposes of the Investment Company Act are
indicated by an asterisk.

                                      -17-



<PAGE>





<TABLE>
<CAPTION>

                                      Position(s)          Principal Occupation(s)
Name and Address           Age       with Portfolio        During Past Five Years
- ----------------           ---       --------------        ----------------------
<S>                         <C>      <C>                  <C>  
Peter M. Bren               63       Trustee              President of The Bren Co. since 1969,
126 East 56th Street                                      President of Koll, Bren Realty
New York, NY 10022                                        Advisors and Senior Partner for
                                                          Lincoln Properties prior thereto.
   
Donalda L. Fordyce          38       Vice President       Senior Managing Director, Bear
245 Park Avenue                                           Stearns Asset Management since
New York, NY 10167                                        March, 1996; previously Vice
                                                          President, Asset Management Group,
                                                          Goldman, Sachs from 1986 to 1996.
    
   
Peter B. Fox*               45       [President]1/        Managing Director - Emeritus -
Three First National Plaza           and Trustee          February 1997, Bear Stearns, Senior
Chicago, IL 60602                                         Managing Director, Public Finance
                                                          since September 1987.

Michael Minikes             52       Trustee              Director of BSFM since March 1992,
245 Park Avenue                      and Chairman         Senior Managing Director of Bear
New York, NY 10167                                        Stearns since September 1985,
                                                          Treasurer of Bear Stearns since
                                                          January 1986, Treasurer of The Bear
                                                          Stearns Companies Inc. since
                                                          September 1985, Director of The Bear
                                                          Stearns Companies Inc. since October 1989.
    

M.B. Oglesby, Jr.          55        Trustee              Vice Chairman of Cassidy Associates
700 13th Street, N.W.                                     since February 1996, Senior Vice
Suite 400                                                 President of RJR Nabisco, Inc. from
Washington, D.C.  20005                                   April 1989 to February 1996, Former
                                                          Deputy Chief of Staff-White House
                                                          from 1988 to January 1989.

John R. McKernan, Jr.      49        Trustee              Chairman and Chief Executive Officer
P.O. Box 15213                                            of McKernan Enterprises Inc. since
Portland, ME 04112                                        January 1995; Governor of Maine prior
                                                          thereto.

<FN>
- --------

1/       Assuming  approval by the Board of Trustees on November 4, 1997, Robert
         Reitzes will be elected  President prior to the  effectiveness  of this
         Registration Statement.
</FN>
</TABLE>

                                      -18-



<PAGE>


<TABLE>
<CAPTION>
                                      Position(s)          Principal Occupation(s)
Name and Address           Age       with Portfolio        During Past Five Years
- ----------------           ---       --------------        ----------------------
<S>                        <C>       <C>                  <C>

   
Robert S. Reitzes*         53        [President] 1/       Director of Mutual Funds - Bear
245 Park Avenue                                           Stearns Asset Management, Senior
New York, NY 10167                                        Managing Director, Bear Stearns, since
                                                          March 1994, Co- Director of
                                                          Research, C.J. Lawrence/Deutsche
                                                          Bank Securities from January 1991 to
                                                          March 1994, Chief Investment Officer,
                                                          Mabon & Nugent & Co. from
                                                          December 1984 to January 1991.
    

Stephen A. Bornstein       54        Vice President       Managing Director, Legal Department,
245 Park Avenue                                           Bear Stearns since September 1990.
New York, NY  10167

Frank J. Maresca           39        Vice President and   Managing Director of Bear Stearns
245 Park Avenue                      Treasurer            since September 1994, Associate
New York, NY 10167                                        Director of Bear Stearns September
                                                          1993 to September 1994, Executive
                                                          Vice President of BSFM since March
                                                          1992, Vice President of Bear Stearns
                                                          from March 1992 to September 1993,
                                                          First Vice President of Mitchell
                                                          Hutchins Asset Management Inc. from
                                                          June 1988 to March 1992.

Ellen T. Arthur            44       Secretary             Associate Director, Legal Department
245 Park Avenue                                           of Bear Stearns since January 1996,
New York, NY 10167                                        Senior Counsel - Corporate Vice
   
                                                          President, Paine Webber Incorporated
                                                          from April 1989 through September
                                                          1995.
    
Vincent L. Pereira         32       Assistant Treasurer   Associate Director of Bear Stearns
245 Park Avenue                                           since September 1995, Vice President
New York, NY 10167                                        of BSFM since May 1993, Vice President
                                                          of Bear Stearns from May 1993 to September
                                                          1995, Assistant Vice President of Mitchell
                                                          Hutchins Asset Management from October 1992
                                                          to May 1993.
   
Christina LaMastro         27      Assistant Secretary    Legal Assistant of Bear Stearns 
245 Park Avenue                                           Asset Management, a division of 
New York, NY 10167                                        Bear Stearns since  May 1997,
                                                          Compliance Assistant at Reich & Tang
                                                          L.P. from April 1996 through April
                                                          1997, Legal Assistant at Fulbright &
                                                          Jaworski L.P. from April 1993 through
                                                          April 1996, student at Drexel
                                                          University prior thereto.
    
</TABLE>


                                      -19-



<PAGE>

- ----------
   
         Certain of the  Trustees  and  officers  of the Trust  hold  comparable
positions with certain other investment companies of which Bear Stearns, BSFM or
an affiliate thereof is the investment adviser, administrator or distributor. As
of March 31,  1997,  the Trustees and officers as a group owned less than 1/2 of
1% of the outstanding shares of beneficial interest of the Portfolio.
    


                                      -20-


<PAGE>



                               Compensation Table

         The  following  table shows the  compensation  paid by the Trust to the
Trustees during the fiscal year ended March 31, 1997:

<TABLE>
<CAPTION>
                                                                                           Total
                           Aggregate      Pension or Retirement      Estimated          Compensation
                          Compensation       Benefits Accrued          Annual        from Portfolio and
                            from the            as part of          Benefits upon     Fund Complex Paid
Name of Trustee            Portfolio*       Portfolio Expenses       Retirement          to Trustees
- ---------------            ----------       ------------------       ----------          -----------
<S>                          <C>                   <C>                  <C>                <C> 
Peter M. Bren                $5,000                None                 None               $12,000

Peter B. Fox                  None                 None                 None                None

John R. McKernan, Jr.        $5,000                None                 None               $12,000

M.B. Oglesby, Jr.            $5,000                None                 None               $12,000

Robert S. Reitzes             None                 None                 None                None

<FN>
         *        Amount does not include  reimbursable  expenses for  attending
                  board meetings.
</FN>
</TABLE>


         The Trust pays  $5,000 in fees per annum to each  Trustee  who is not a
director,  officer,  employee or affiliate of BEA or Bear Stearns, together with
such Trustees'  out-of-pocket  expenses related to attendance at meetings of the
Board of Trustees.  Executive officers of the Trust receive no compensation from
the Trust for  their  services  as such.  The Trust  does not have a pension  or
retirement plan applicable to Trustees or officers of the Trust.

         Investment  Manager  and  Administrator.  As stated in the  Portfolio's
Prospectus,  BSFM, with principal business offices at 245 Park Avenue, New York,
New York 10167,  serves as Investment Manager of the Portfolio.  See "Management
of the Portfolio" in the Portfolio's  Prospectus for a description of the duties
of BSFM as Investment Manager of the Portfolio.

   
         The Portfolio's  investment manager is BSFM, a wholly-owned  subsidiary
of The Bear Stearns  Companies  Inc.,  which is located at 245 Park Avenue,  New
York,  New York 10167.  The Bear  Stearns  Companies  Inc. is a holding  company
which,  through  its  subsidiaries  including  its  principal  subsidiary,  Bear
Stearns, is a leading United States investment  banking,  securities trading and
brokerage firm serving United States and foreign  corporations,  governments and
institutional and individual investors.  BSFM is a registered investment adviser
and offers  advisory  and  administrative  services to open-end  and  closed-end
investment funds and other managed pooled  investments  vehicles  generally with
net assets at September 30, 1997 totaling approximately $___ billion.
    

         The Investment Manager provides  administrative services which include,
subject to the general  supervision of the Trustees of the Trust,  (a) providing
supervision of all aspects of the Portfolio's  non-investment  operations (other
than certain  operations  performed by others  pursuant to  agreements  with the
Portfolio),  (b) providing the Portfolio, to the extent not provided pursuant to
such agreements, the agreement with the Trust's custodian, transfer and dividend
disbursing  agent or  agreements  with other  institutions,  with  personnel  to
perform such executive,  administrative  and clerical services as are reasonably
necessary to provide effective  administration of the Portfolio,  (c) arranging,
to the extent not provided pursuant to such agreements, for the preparation,  at
the Portfolio's  expense,  of reports to Shareholders,  periodic updating of the
Prospectus and this Statement of Additional Information,  and reports filed with
the  Commission,  (d) arranging for and  overseeing  the  calculation of the net
asset value of the  Portfolio's  shares,  (e)  providing the  Portfolio,  to the
extent not provided pursuant to such agreements,  with adequate office space and
certain related office equipment

                                      -21-



<PAGE>



and services, and (f) arranging for and overseeing the maintenance of all of the
Portfolio's records other than those maintained pursuant to such agreements.

         The  Investment  Manager  also  furnishes  the  Portfolio  with  office
facilities  and provides it with  corporate  management and performs or arranges
for the performance of the following  services for the Portfolio:  arranging for
and  overseeing  the  maintenance  of the books  and  records  of the  Portfolio
required under the Investment Company Act; preparation of financial  information
for the  Portfolio's  proxy  statements  and  semiannual  and annual  reports to
Shareholders;   periodic  updating  of  the  Prospectus  and  the  Statement  of
Additional  Information  and reports  filed with the  Commission;  responding to
inquiries  from  Portfolio  Shareholders;   arranging  for  and  overseeing  the
calculation of the net asset value of the Portfolio's  shares;  oversight of the
performance  of  administrative  and  professional   services  rendered  to  the
Portfolio by others, including its custodian, registrar, transfer agent, as well
as  accounting,  auditing  and other  services;  providing  the  Portfolio  with
administrative  office space and preparation of the  Portfolio's  reports to the
Commission.

         The Investment Manager has sole investment discretion for the Portfolio
and will  make  all  decisions  affecting  assets  in the  Portfolio  under  the
supervision  of the Board of Trustees  and in  accordance  with the  Portfolio's
stated  policies.  The  Investment  Manager  will  select  investments  for  the
Portfolio and will place purchase and sale orders on behalf of the Portfolio.

         Purchase and sale orders for the Portfolio's portfolio  transactions in
securities  may be  directed to any broker  including,  to the extent and in the
manner permitted by applicable law, Bear Stearns or its affiliates. Although the
Investment Manager's activities are subject to general oversight by the Trustees
and  officers  of the  Portfolio,  neither  the  Trustees  nor  officers  of the
Portfolio evaluate the investment merits of the Investment  Manager's selections
of individual securities.

   
         The Portfolio bears all of its own expenses not specifically assumed by
the Investment  Manager.  Expenses borne by the Portfolio  include,  but are not
limited to, the following:  (a) the cost  (including  brokerage  commissions) of
securities  purchased  or  sold by the  Portfolio  and any  losses  incurred  in
connection therewith; (b) fees payable to and expenses incurred on behalf of the
Portfolio by the  Investment  Manager;  (c) expenses of organizing the Portfolio
that are not attributable to a class of the Portfolio; (d) certain of the filing
fees  and  expenses  relating  to  the  registration  and  qualification  of the
Portfolio  under  Federal  and/or state  securities  laws and  maintaining  such
registrations  and  qualifications;   (e)  fees  and  salaries  payable  to  the
Portfolio's trustees and officers;  (f) taxes (including any income or franchise
taxes) and governmental  fees; (g) costs of any liability and other insurance or
fidelity bonds; (h) any costs,  expenses or losses arising out of a liability of
or claim  for  damages  or other  relief  asserted  against  the  Portfolio  for
violation of any law; (i) legal,  accounting  and auditing  expenses,  including
legal fees of special  counsel  for the  independent  trustees;  (j)  charges of
custodians  and other  agents;  (k)  expenses  of setting  in type and  printing
prospectuses,  statements of additional  information and supplements thereto for
existing Shareholders,  reports,  statements,  and confirmations to Shareholders
and proxy material that are not attributable to a class;  (l) any  extraordinary
expenses;  (m) fees,  voluntary  assessments  and  other  expenses  incurred  in
connection with  membership in investment  company  organizations;  (n) costs of
mailing  and  tabulating  proxies  and  costs  of  Shareholders'  and  Trustees'
meetings;   and  (o)  the  cost  of  investment  company  literature  and  other
publications  provided by the Portfolio to its Trustees and  officers.  Transfer
agency  expenses,  expenses of preparation,  printing and mailing  prospectuses,
statements  of  additional   information,   proxy   statements  and  reports  to
Shareholders,  organizational  expenses  and  registration  fees and other costs
identified as belonging to a particular  class of the Portfolio are allocated to
such class.
    

         Under the Investment Management Agreement,  BSFM will not be liable for
and will be indemnified  by the Portfolio  relative to, any error of judgment or
mistake of law or for any loss suffered by the Portfolio in connection  with the
performance of the Investment Management Agreement, except a loss resulting from
willful  misfeasance,  reckless disregard,  bad faith or gross negligence on the
part of  BSFM.  The  Investment  Management  Agreement  also  provides  that the
Portfolio will indemnify BSFM against certain liabilities, including liabilities
under the Federal  securities  laws,  or, in lieu  thereof,  that  contribute to
resulting losses.


                                      -22-



<PAGE>



         The  Investment  Management  Agreement  between  BSFM and the  Trust on
behalf of the Portfolio was approved by the Trustees of the Trust, including all
of  the  disinterested  Trustees  of  the  Trust,  on  March  24,  1995  and  by
Shareholders of the Portfolio at a Special  Meeting of Shareholders  held on May
4, 1995. The Portfolio's  Investment  Management  Agreement renewal was approved
January 28, 1997 and then  continues in effect from year to year  provided  each
continuance  is  specifically  approved at least  annually  (a) by the vote of a
majority of the outstanding  voting securities of the Portfolio or by a majority
of the Trustees of the Trust,  and (b) by the vote of a majority of the Trustees
of the Trust who are not parties to such Agreement or  "interested  persons" (as
such term is defined in the Investment Company Act) of any party thereto cast in
person at a meeting called for the purpose of voting on such approval.

   
         Pursuant to its  Investment  Management  Agreement,  for its investment
management  and certain  administrative  services,  BSFM receives a fee computed
daily and payable  monthly at 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 daily net assets above $100 million. BSFM has agreed to
waive its fees to the extent  necessary to maintain total operating costs of the
Portfolio at 2.00% per annum of the average  daily net assets of the  Portfolio.
The current Investment  Management  Agreement became effective upon the approval
of the  Shareholders of the Portfolio at a Special Meeting of Shareholders  held
on May 4, 1995.  Prior  thereto,  BEA  Associates  ("BEA")  served as investment
adviser to the Portfolio under the Investment Advisory Agreement and BSFM served
as manager to the Portfolio  under the  Management  Agreement.  BEA tendered its
resignation  on March 24,  1995.  For the  period May 3, 1993  (commencement  of
investment  operations) through March 31, 1994, BSFM and BEA earned $141,588 and
$251,459  (after  fee  waivers),   respectively,  which  was  0.33%  and  0.59%,
respectively,  of the  Portfolio's  average total net assets on an annual basis.
For the fiscal  year ended  March 31,  1995,  BSFM and BEA earned  $101,993  and
$181,319 (after fee waivers),  which was 0.26% and 0.46%,  respectively,  of the
Portfolio's  average  total net assets on an annual  basis.  For the fiscal year
ended  March 31,  1996,  BSFM and BEA  earned  $17,788  and  $7,222  (after  fee
waivers),  respectively,  which  was  0.06%  and  0.02%,  respectively,  of  the
Portfolio's  average  total net assets on an annual  basis.  For the fiscal year
ended March 31, 1997, BSFM earned  $118,207 (after fee waivers),  which was .36%
of the Portfolio's average total net assets on an annual basis.
    

         The Investment  Management  Agreement will terminate  automatically  if
assigned  (as  defined in the  Investment  Company  Act) and such  agreement  is
terminable  at any time without  penalty by the Trustees of the Trust or by vote
of a majority of the outstanding  voting securities of the Portfolio on 60 days'
written notice.

         As stated in the  Prospectus,  the  Portfolio  is  responsible  for the
payment of its  expenses  other than those  assumed by its  Investment  Manager.
However, BSFM has agreed that if, in any fiscal year, the sum of the Portfolio's
expenses  (including the fees payable to the Investment  Manager,  but excluding
taxes, interest, brokerage expenses and, where permitted, extraordinary expenses
such as for  litigation)  exceeds  the  expense  limitations  applicable  to the
Portfolio imposed by state securities administrators, as such limitations may be
lowered or raised from time to time,  BSFM will  reimburse the Portfolio or make
other  arrangements to limit  Portfolio  expenses to the extent required by such
expense  limitations.  The most restrictive  expense limitation imposed by state
securities  administrators  provides  that annual  expenses (as defined) may not
exceed  2.50% of the first $30 million of the average  value of the  Portfolio's
net  assets,  plus 2.00% of the next $70  million,  plus 1.50% of such assets in
excess of $100 million.  Whether expense  limitations apply to the Portfolio and
in what amounts depends upon the particular  regulations of such states. For the
period May 3, 1993  (commencement  of investment  operations)  through March 31,
1994,  the fiscal  year ended March 31, 1995 and the fiscal year ended March 31,
1996,  BEA  subsidized  expenses  of the  Portfolio  in the  amounts of $89,460,
$131,939 and $28,291, respectively, and for the period May 3, 1993 (commencement
of investment  operations)  through March 31, 1994,  the fiscal year ended March
31, 1995 and the fiscal year ended March 31, 1996, BSFM  subsidized  expenses of
the  Portfolio in the amounts of $50,350,  $74,215 and  $249,429,  respectively,
pursuant  to a  voluntary  undertaking  and  not  as a  result  of  any  expense
limitations imposed by state securities administrators.

         Bear  Stearns  has  agreed  to permit  the Trust to use the name  "Bear
Stearns"  or  derivatives  thereof  as part of the Trust name for as long as the
Investment Management Agreement is in effect.

                                      -23-



<PAGE>



   
         The  Investment  Manager  seeks  to  allocate  portfolio   transactions
equitably whenever concurrent  decisions are made to purchase or sell securities
by the Portfolio and another  advisory  account.  In some cases,  this procedure
could have an adverse effect on the price or the amount of securities  available
to the Portfolio. Pursuant to procedures adopted by the Investment Manager, if a
particular  security is deemed  suitable for the  Portfolio  and other  advisory
accounts, allocations between accounts will be pro rata based: (i) 50 % upon the
relative  sizes of such accounts and (ii) 50 % upon the relative  dollar amounts
of commissions paid by such accounts during the preceding twelve month period to
the  member  of the  underwriting  syndicate  from  whom  the  shares  would  be
purchased.  Notwithstanding the foregoing, an account shall be accorded priority
in allocation to the extent receipt of securities is directly  attributable to a
representation that such account will hold the security for investment.

         Activities of BSFM and its  Affiliates  and Other  Accounts  Managed by
BSFM.  The  involvement  of BSFM,  Bear  Stearns  and  their  affiliates  in the
management of, or their interest in, other accounts and other activities of BSFM
and Bear Stearns may present conflicts of interest with respect to the Portfolio
or limit the  Portfolio's  investment  activities.  BSFM,  Bear  Stearns and its
affiliates  engage in  proprietary  trading and advise  accounts and funds which
have investment objectives similar to those of the Portfolio and/or which engage
in and compete for transactions in the same types of securities,  currencies and
instruments as the  Portfolio.  BSFM,  Bear Stearns and its affiliates  will not
have  any  obligation  to  make  available  any   information   regarding  their
proprietary  activities or strategies,  or the activities or strategies used for
other  accounts  managed  by them,  for the  benefit  of the  management  of the
Portfolio. The results of the Portfolio's investment activities,  therefore, may
differ from those of Bear Stearns and its affiliates and it is possible that the
Portfolio  could sustain losses during  periods in which BSFM,  Bear Stearns and
its affiliates and other accounts achieve  significant  profits on their trading
for proprietary or other accounts. From time to time, the Portfolio's activities
may be limited because of regulatory restrictions applicable to Bear Stearns and
its  affiliates,  and/or their  internal  policies  designed to comply with such
restrictions.

         Administrator.    The    Portfolio   has   engaged   PFPC   Inc.   (the
"Administrator")  to provide  certain  administrative  services  pursuant to the
Administrative Services Agreement.  The Portfolio pays out of its own assets the
fee paid to the  Administrator  computed  at the rate of 0.10%  per annum of the
first $200 million of the Portfolio's average daily net assets,  0.07% per annum
of the next $200 million of the Portfolio's average daily net assets,  0.05% per
annum of the next $200 million of the  Portfolio's  average daily net assets and
0.03% per annum of any amounts over $600  million  with a minimum  annual fee of
$108,000.  PFPC has  agreed to provide  the  services  under the  Administrative
Services  Agreement for a minimum  annual fee of $75,000 for the period April 1,
1997 to September 30, 1997.  PFPC charges an additional  fee of $1,500 per month
for services provided with respect to Class C shares.
    

         The  Portfolio  is  responsible  to  the  Investment  Manager  and  the
Administrator  for  out-of-pocket  expenses incurred on behalf of the Portfolio,
including, but not limited to, postage and mailing,  telephone, telex, overnight
and  delivery  service,  outside  independent  pricing  services,  daily  report
transmissions,  if any, and record retention/storage  incurred by the Investment
Manager or Administrator in connection with their services.

         Certain  Emerging  Market  countries  require a local entity to provide
administrative services for direct investments by foreigners.  Where required by
local  law,  the  Portfolio  intends to retain a local  entity to  provide  such
administrative  services.  In such event, the local administrator will be paid a
fee by the Portfolio for its services.

   
         Distributor.  Bear Stearns  serves as the  distributor of shares of the
Portfolio  pursuant to a  Distribution  Agreement  with the Trust dated March 1,
1993 which is renewable annually.  The Distribution Agreement provides that Bear
Stearns may render similar services to others so long as its services under such
Agreement  are not  impaired  thereby  and that the Trust  will  indemnify  Bear
Stearns  against  certain  liabilities.  The  continuation  of the  Distribution
Agreement   was  approved  by  the   Trustees,   including  a  majority  of  the
disinterested  Trustees,  at the  meeting of the Board of  Trustees  convened on
January 28, 1997.
    

                                      -24-



<PAGE>



         Pursuant  to the  Distribution  Agreement,  after  the  Prospectus  and
periodic  reports have been  prepared,  set in type and mailed to  Shareholders,
Bear Stearns will pay for the printing and  distribution  of copies thereof used
in connection  with offering the shares to prospective  investors.  Bear Stearns
will also pay for other supplementary sales literature and advertising costs.

   
         Expenses.  Except  as set  forth in the  Portfolio's  Prospectus  under
"Management  of the  Portfolio,"  the  Trust,  on  behalf of the  Portfolio,  is
responsible  for the payment of the  Portfolio's  expenses.  The  expenses to be
borne by the Portfolio will include: organizational costs, taxes, interest, loan
commitment  fees,  interest and  distributions  paid on  securities  sold short,
brokerage  fees  and  commissions,  if any,  fees of board  members  who are not
officers,  directors,  employees  or  holders  of 5% or more of the  outstanding
voting  securities of BSFM, or its affiliates,  Commission  fees, state Blue Sky
qualification fees,  advisory,  administrative and fund accounting fees, charges
of custodians,  transfer and dividend disbursing agents' fees, certain insurance
premiums,  industry association fees, outside auditing and legal expenses, costs
of maintaining the Portfolio's existence, costs of independent pricing services,
costs  attributable  to  investor  services   (including,   without  limitation,
telephone and personnel expenses),  costs of shareholders' reports and meetings,
costs  of  preparing  and  printing  certain   prospectuses  and  statements  of
additional information, and any extraordinary expenses.

         Transfer  Agent.  Under a Transfer  Agency  Agreement with the Trust on
behalf of the Portfolio,  PFPC Inc.,  Bellevue  Corporate  Center,  400 Bellevue
Parkway,  Wilmington,  Delaware 19809 serves as transfer and dividend disbursing
agent  for  the  Portfolio  (the  "Transfer  Agent").  The  Transfer  Agent  has
undertaken  with the Trust  with  respect  to the  Portfolio  to (i)  record the
issuance,  transfer and  redemption  of shares,  (ii) provide  confirmations  of
purchases  and  redemptions,  and monthly  statements,  as well as certain other
statements,  (iii)  provide  certain  information  to the Trust's  custodian  in
connection  with  redemptions,  (iv)  provide  dividend  crediting  and  certain
disbursing  agent  services,  (v) maintain  Shareholder  accounts,  (vi) provide
certain state Blue Sky and other  information,  (vii) provide  Shareholders  and
certain regulatory  authorities with tax related information,  (viii) respond to
Shareholder inquiries, and (ix) render certain other miscellaneous services.

         Custodian.  Brown Brothers Harriman & Co. (the  "Custodian"),  40 Water
Street,  Boston,  Massachusetts  02109,  is the  custodian  of  the  Portfolio's
securities and cash and also maintains the Portfolio's  accounting records.  The
Custodian  has  appointed  sub-custodians  from  time to  time  to hold  certain
securities  purchased by the Portfolio in foreign countries and to hold cash and
currencies for the Portfolio.

         Independent  Auditors.  The Board of Trustees have selected  Deloitte &
Touche LLP as independent auditors of the Trust for the fiscal year ending March
31,  1998.  In  addition  to audit  services,  Deloitte & Touche LLP reviews the
Portfolio's  Federal  and  state  tax  returns  and  provides  consultation  and
assistance on accounting, internal control and related matters.

               DISTRIBUTION PLANS AND SHAREHOLDER SERVICING PLANS

         As  described  in  its   Prospectus,   the   Portfolio  has  adopted  a
distribution  plan  with  respect  to the  Class  A and  Class C  shares  of the
Portfolio  pursuant  to  Rule  12b-1  under  the  Investment  Company  Act and a
distribution plan with respect to the Class B shares of Portfolio (collectively,
the  "Distribution  Plans").  In addition,  the Portfolio  has adopted  separate
shareholder servicing plans (the "Shareholder  Servicing Plans") for the Class B
and C shares as described in the Prospectus.

         The  Distribution  Plans have been  approved  by a vote of the Board of
Trustees  with  respect  to Class A,  Class B and  Class C shares,  including  a
majority of the Trustees who are not interested persons of the Trust and have no
direct or indirect  financial  interest  in the  operation  of the  Distribution
Plans,  cast in person  at a meeting  called  for the  purpose  of voting on the
Distribution Plans. The annual compensation payable under the Distribution Plans
are 0.35%,  0.75% and 0.75% per annum of the  average  daily net asset  value of
Class A  shares,  Class  B  shares  and  Class C  shares,  respectively,  of the
Portfolio.  The Portfolio's Board of Trustees believe that there is a reasonable
likelihood that the Distribution Plans and the Shareholder Servicing
    

                                      -25-



<PAGE>



   
Plans,  as applicable  will benefit the Portfolio and the holders of its Class A
shares, Class B shares and Class C shares.

         As set forth above, the Portfolio pays 0.35%, 0.75% and 0.75% per annum
of the average daily net asset value of Class A shares, Class B shares and Class
C shares,  respectively,  of the  Portfolio  to Bear  Stearns  for  distribution
activities on behalf of the Portfolio in connection with the sale of its shares.
Bear Stearns may use the  distribution  fee for services  performed and expenses
incurred by Bear Stearns in connection  with the  distribution  of shares by the
Portfolio  and  for  providing  certain  services  to  the  Shareholders  of the
Portfolio.  Bear Stearns may pay third parties in respect of these services such
amount as it may determine.  The Portfolio  understands that these third parties
may also charge fees to their  clients who are  beneficial  owners of  Portfolio
shares in connection with their client accounts. These fees would be in addition
to any  amounts  which  may be  received  by them from  Bear  Stearns  under the
Distribution Plans.

         Under the Shareholder  Servicing Plans, the Class B and C shares of the
Portfolio  will pay fees of up to 0.25% of the average daily net assets of Class
B shares or Class C shares for fees  incurred in  connection  with the  personal
service and maintenance of accounts holding Portfolio  shares.  Service fees are
payments to broker-dealers  who are members of the NASD for services rendered to
investors,  similar to account  maintenance  fees.  The NASD limit on Rule 12b-1
fees  paid by  investors  of a fund that  charges a service  fee is 6.25% of new
sales, plus interest.  To the extent such fee is not paid to such dealers,  Bear
Stearns may retain such fee as  compensation  for its  services  and expenses of
distributing  the  Portfolio's  shares.  If such fee exceeds its expenses,  Bear
Stearns may realize a profit from these arrangements.

         The  Distribution  Plans are  compensation  plans which provide for the
payment of a  specified  distribution  fee  without  regard to the  distribution
expenses  actually  incurred by Bear  Stearns.  If the  Distribution  Plans were
terminated  by the Board of Trustees and no  successor  plan were  adopted,  the
Trustees  would cease to make  distribution  payments  to Bear  Stearns and Bear
Stearns  would be  unable  to  recover  the  amount  of any of its  unreimbursed
distribution  expenditures.  However,  Bear  Stearns  does  not  intend  to make
distribution  expenditures  at a  rate  that  materially  exceeds  the  rate  of
compensation received under the Distribution Plans.

         The types of expenses for which Bear Stearns and Authorized Dealers may
be compensated  under the Distribution  Plans include  compensation  paid to and
expenses   incurred  by  their   respective   officers,   employees   and  sales
representatives, allocable overhead, telephone and travel expenses, the printing
of prospectuses  and reports for other than existing  Shareholders,  preparation
and  distribution  of sales  literature,  advertising  of any type and all other
expenses incurred in connection with activities  primarily intended to result in
the sale of shares of the Portfolio. Under the Distribution Plans, Bear Stearns,
as distributor of the Portfolio's  shares, will provide to the Board of Trustees
for its review,  and the Board will review at least quarterly,  a written report
of the services provided and amounts expended by Bear Stearns under the Plan and
the purposes for which such services were performed and expenditures were made.

         The Distribution Plan with respect to the Class A and Class C shares in
its amended and restated  form was approved by the Board of Trustees,  including
the  "non-interested"  Trustees,  on January  28,  1997.  Under its  terms,  the
Distribution Plan remains in effect from year to year, provided such continuance
is approved annually by a vote of the Board of Trustees, including a majority of
the Trustees who are not interested  persons of the Trust and who have no direct
or indirect financial interest in the operation of the Plan (the "non-interested
Trustees").  The Distribution Plan may not be amended to increase materially the
amount  to be spent  for the  services  described  therein  as to the  Portfolio
without  approval  of a majority of the  outstanding  voting  securities  of the
Portfolio.  The  Distribution  Plan and the  Shareholder  Servicing  Plan,  with
respect to the Class B shares,  and the Shareholder  Servicing Plan with respect
to the Class C shares,  were  approved on  September 8, 1997.  However,  because
Class B shares automatically  convert into Class A shares after eight years, the
Portfolio is required by a Securities and Exchange Commission rule to obtain the
approval of Class B as well as Class A Shareholders for a proposed  amendment to
each  Plan  that  would  materially  increase  the  amount to be paid by Class A
Shareholders under such Plans. Such approval must be by a "majority" of the
    

                                      -26-



<PAGE>



   
Class A and Class B shares (as defined in the 1940 Act),  voting  separately  by
class.  Each  Distribution  Plan,   Shareholder  Servicing  Plans,  and  related
agreements  is  subject  to  annual  approval  by such  vote cast in person at a
meeting called for the purpose of voting on such Plan.  All material  amendments
of the Distribution Plans and Shareholder  Servicing Plans must also be approved
by the Board of Trustees of the Trust in the manner  described  above. The Plans
may be  terminated  at any time  without  payment of any  penalty by a vote of a
majority  of the  "non-interested"  Trustees  or by  vote of a  majority  of the
outstanding  voting  securities of the shares of the  Portfolio.  So long as the
Plans are in effect, the selection and nomination of  "non-interested"  Trustees
shall be committed to the discretion of the "non-interested" Trustees. The Board
of  Trustees  has  determined  that in  their  judgment  there  is a  reasonable
likelihood  that the Plans will  benefit  the  Portfolio  and the holders of its
Class A and Class C shares.  For the period  from May 3, 1993  (commencement  of
investment  operations)  through  March 31, 1994 and the fiscal year ended March
31, 1995,  Bear Stearns  earned  $107,662 and $97,893,  respectively,  under the
prior 12b-1 plan, pursuant to which the compensation payable thereunder was at a
rate of 0.25% per annum of the average daily net assets of Class A shares of the
Portfolio.  For the fiscal years ended March 31, 1996, and March 31, 1997,  Bear
Stearns  earned  $99,038  and  $110,830,  respectively,  pursuant  to which  the
compensation  payable thereunder was at a rate of 0.35% per annum of the average
daily net assets of the Class A shares of the Portfolio. For the period July 26,
1995  (commencement of initial public  offering)  through March 31, 1996 and for
the fiscal  year ended  March 31,  1997,  Bear  Stearns  earned $452 and $9,356,
respectively,  pursuant to which the  compensation  payable  thereunder was at a
rate of 0.75% per annum of the average daily net assets of the Class C shares of
the Portfolio.
    


                             PORTFOLIO TRANSACTIONS

         Subject  to  policies  established  by  the  Board  of  Trustees,   the
Investment   Manager  is  responsible  for  the  execution  of  the  Portfolio's
transactions and the allocation of brokerage transactions for the Portfolio.  In
executing  portfolio  transactions,  the Investment  Manager seeks to obtain the
best net results for the  Portfolio,  taking into  account  such  factors as the
price (including the applicable brokerage commission or dealer spread),  size of
the order,  difficulty  of  execution  and  operational  facilities  of the firm
involved.  While the Investment  Manager generally seeks reasonably  competitive
commission rates,  payment of the lowest commission or spread is not necessarily
consistent  with  obtaining  the best results in  particular  transactions.  The
Portfolio  paid no  brokerage  commissions  for the fiscal  year ended March 31,
1997.

         Commission rates for brokerage  transactions on foreign stock exchanges
are generally fixed. The reasonableness of any negotiated commission paid by the
Portfolio  will  be  evaluated  on the  basis  of  the  difficulty  involved  in
execution,  the time  taken to  conclude  the  transaction,  the  extent  of the
broker's  commitment,  if any, of its own capital and the amount involved in the
transaction.  It should  be noted  that  commission  rates in U.S.  markets  are
negotiated.

         In the case of  over-the-counter  issues,  there is generally no stated
commission,  but the price usually includes an undisclosed commission or markup,
and the Portfolio will normally deal with the principal  market makers unless it
can obtain better terms elsewhere.

         The Portfolio  does not have any  obligation to deal with any broker or
group of brokers in the  execution of  portfolio  transactions.  The  Investment
Manager may,  consistent  with the interests of the Portfolio and subject to the
approval of the Board of Trustees,  select brokers on the basis of the research,
statistical and pricing services they provide to the Portfolio and other clients
of the Investment  Manager.  Information and research received from such brokers
will be in  addition  to,  and not in  lieu  of,  the  services  required  to be
performed by the Investment  Manager.  A commission  paid to such brokers may be
higher than that which another qualified broker would have charged for effecting
the same  transaction,  provided that the  Investment  Manager,  as  applicable,
determines  in good faith that such  commission is reasonable in terms either of
the transaction or the overall  responsibility of the Investment  Manager to the
Portfolio and its other clients and that

                                      -27-



<PAGE>



the total  commissions  paid by the Portfolio  will be reasonable in relation to
the benefits to the Portfolio over the long-term.

         Most of the Debt Obligations to be purchased by the Portfolio generally
trade  on  the  over-the-counter  market  on a  "net"  basis  without  a  stated
commission, through dealers acting for their own account and not as brokers. The
Portfolio  will  primarily  engage in  transactions  with these  dealers or deal
directly with the issuer unless a better price or execution could be obtained by
using a  broker.  Prices  paid to a dealer  in debt  securities  will  generally
include a  "spread,"  which is the  difference  between  the prices at which the
dealer is willing to purchase  and sell the specific  security at the time,  and
includes the dealer's normal profit.

         Investment  decisions  for  the  Portfolio  and  for  other  investment
accounts managed by the Investment  Manager are made independently of each other
in the light of differing conditions.  However, the same investment decision may
occasionally  be  made  for  two or  more  of  such  accounts.  In  such  cases,
simultaneous  transactions are inevitable.  Purchases or sales are then averaged
as to price and allocated as to amount  according to a formula deemed  equitable
to each such account. While in some cases this practice could have a detrimental
effect  upon  the  price or value of the  security  as far as the  Portfolio  is
concerned, in other cases it is believed to be beneficial to the Portfolio.  The
Portfolio will not purchase  securities during the existence of any underwriting
or selling group relating to such security of which Bear Stearns, the Investment
Manager or any  affiliated  person (as defined in the  Investment  Company  Act)
thereof is a member  except  pursuant to procedures  adopted by the  Portfolio's
Board of Trustees pursuant to Rule 10f-3 under the Investment Company Act. Among
other things, these procedures, which will be reviewed by the Trustees annually,
require  that  the  commission  paid  in  connection  with  such a  purchase  be
reasonable and fair,  that the purchase be at not more than the public  offering
price  prior to the end of the first  business  day after the date of the public
offering and that Bear Stearns,  the Investment Manager or any affiliate thereof
not  participate  in or benefit from the sale to the  Portfolio.  In no instance
will portfolio  securities be purchased  from or sold to the  Distributor or the
Investment  Manager or any affiliated person of the foregoing entities except as
permitted by the exemptive order or by applicable law.

   
         A high rate of  portfolio  turnover  involves  correspondingly  greater
brokerage  commission  expenses and other transaction costs, which must be borne
directly by the  Portfolio.  Current  federal  income tax laws may  restrict the
extent to which the  Portfolio  may engage in short term trading of  securities.
However, recent changes in the laws have eliminated those restrictions beginning
with the  Portfolio's  first  tax year  beginning  after  August  5,  1997.  See
"Taxation." The Portfolio  anticipates that its annual  portfolio  turnover rate
will  vary from year to year.  The  portfolio  turnover  rate is  calculated  by
dividing  the lesser of the  Portfolio's  annual sales or purchases of portfolio
securities  (exclusive of purchases or sales of securities  whose  maturities at
the time of acquisition  were one year or less) by the monthly  average value of
the securities in the Portfolio during the year.
    


                       PURCHASE AND REDEMPTION INFORMATION

   
         Payment and Terms of Offering.  Shares of the  Portfolio are sold at an
offering  price  equal to the net asset  value  per  share.  Class A shares  are
subject to a sale load based on the amount of purchase (for  purchases less than
$1,000,000,  which sales charge may be reduced under the Right of  Accumulation.
Purchases of Class A shares in the amount of $1,000,000 or more are subject to a
CDSC of 0.50% on  redemptions  made within the first year of  purchase.  Class B
shares are subject to a contingent  deferred sales charge of up to 5% imposed on
redemptions  made  within  the first six years of  purchase.  Class C shares are
subject  to a CDSC of  1.00%  on  redemptions  made  within  the  first  year of
purchase.  Payment for shares  purchased  should accompany the purchase order as
described in the Prospectus.  Payment must be made by check or money order drawn
on a U.S. bank. Checks or money orders must be payable in U.S. dollars.

         As a condition of this offering,  if an order to purchase the shares is
cancelled due to  non-payment  (for example,  on account of a check returned for
"not sufficient funds"), the person who made the order will be
    

                                      -28-



<PAGE>



responsible   for  any  loss  incurred  by  the  Portfolio  by  reason  of  such
cancellation,  and if such purchaser is a shareholder,  the Portfolio shall have
the authority as agent of the shareholder to redeem shares in his or her account
at their  then-current  net asset value per share to reimburse the Portfolio for
the loss incurred.  Investors  whose purchase  orders have been cancelled due to
nonpayment may be prohibited from placing future orders.

         An order to purchase  shares is not binding on the  Portfolio  until it
has been confirmed in writing by the Transfer Agent (or other  arrangements made
with the Portfolio,  in the case of orders  utilizing wire transfer of funds, as
described   above)  and  payment  has  been   received.   To  protect   existing
shareholders,  the  Portfolio  reserves  the  right to  reject  any  offer for a
purchase of shares by any individual.

         Upon the purchase of shares of the Portfolio,  a shareholder investment
account is opened for the investor on the books of the Portfolio and  maintained
by the  Transfer  Agent.  This is an open  account in which  shares owned by the
investor  are  credited  by the  Transfer  Agent in lieu of  issuance of a share
certificate.

         Class A shares of the  Portfolio  may be  purchased  at net asset value
with the proceeds from the  redemption  of shares of an investment  company sold
with a sales charge or commission and not distributed by Bear Stearns.  See "How
to Buy  Shares - Class A Shares" in the  Prospectus.  Bear  Stearns  may make or
allow additional  payments or offer promotional  incentives to dealers that sell
Class A  shares.  Frequently,  in  connection  with  promotional  incentives  to
Authorized Dealers,  Bear Stearns will offer to pay Authorized Dealers an amount
up to 1% of the net asset value of shares  purchased by the dealer's  clients or
customers  with such  proceeds.  The current  promotional  incentive  offered to
Authorized  Dealers from April 15, 1996  through  June 28, 1996 is  indefinitely
extended.

         Under certain  circumstances  set forth in the Prospectus under "How to
Buy Shares - Class A Shares"  the  purchaser's  front-end  sales  charges can be
waived.  In these instances  where the front-end sales charges are waived,  Bear
Stearns requires documentation, certification or information from the Authorized
Dealer.  Any such  waiver  will be subject to  confirmation  of the  purchaser's
holdings  through a check of these  records  to verify  that such  purchaser  is
eligible for the applicable exemption from the front-end sales charges.

   
         Alternative Sales  Arrangements - Class A, Class B, Class C and Class Y
Shares.  The  availability  of three classes of shares to  individual  investors
permits  an  investor  to choose the method of  purchasing  shares  that is more
beneficial to the investor  depending on the amount of the purchase,  the length
of time the investor  expects to hold shares and other  relevant  circumstances.
Investors should  understand that the purpose and function of the deferred sales
charge and  asset-based  sales charge with respect to Class B and Class C shares
are the  same as those of the  initial  sales  charge  with  respect  to Class A
shares.  Any  salesperson or other person entitled to receive  compensation  for
selling Portfolio shares may receive different  compensation with respect to one
class of shares  than the  other.  Bear  Stearns  will not  accept  any order of
$500,000  or more of Class B shares or $1 million or more of Class C shares,  on
behalf of a single  investor  (not  including  dealer  "street  name" or omnibus
accounts)  because  generally it will be more  advantageous for that investor to
purchase Class A shares of a Portfolio  instead. A fourth class of shares may be
purchased only by certain  institutional  investors at net asset value per share
(the "Class Y shares").

         The four  classes of shares  each  represent  an  interest  in the same
portfolio  investments  of the  Portfolio.  However,  each  class has  different
shareholder  privileges and features. The net income attributable to Class B and
Class C shares and the  dividends  payable on Class B and Class C shares will be
reduced by  incremental  expenses  borne  solely by that  class,  including  the
asset-based sales charge to which Class B and Class C shares are subject.

         The  methodology  for  calculating  the net asset value,  dividends and
distributions  of each  Portfolio's  Class A, B, C and Y shares  recognizes  two
types of expenses.  General expenses that do not pertain specifically to a class
are allocated pro rata to the shares of each class,  based on the  percentage of
the net assets of such class to the Portfolio's  total assets,  and then equally
to each  outstanding  share within a given class.  Such general expenses include
(i) management fees, (ii) legal,  bookkeeping and audit fees, (iii) printing and
mailing
    

                                      -29-



<PAGE>



   
costs of shareholder reports, Prospectuses, Statements of Additional Information
and other materials for current shareholders, (iv) fees to independent trustees,
(v) custodian  expenses,  (vi) share  issuance  costs,  (vii)  organization  and
start-up  costs,  (viii)  interest,  taxes and brokerage  commissions,  and (ix)
non-recurring  expenses,  such as  litigation  costs.  Other  expenses  that are
directly attributable to a class are allocated equally to each outstanding share
within that  class.  Such  expenses  include (a)  Distribution  and  Shareholder
Servicing Plan fees, (b) incremental  transfer and  shareholder  servicing agent
fees and expenses,  (c) registration fees and (d) shareholder  meeting expenses,
to the extent that such expenses  pertain to a specific class rather than to the
Portfolio as a whole.

         None of the  instructions  described  elsewhere  in the  Prospectus  or
Statement of Additional Information for the purchase, redemption,  reinvestment,
exchange,  or transfer of shares of a  Portfolio,  the  selection  of classes of
shares, or the reinvestment of dividends apply to Class Y shares.
    

         Transfer of Shares.  In the event a Shareholder  requests a transfer of
any shares to a new registration,  such shares will be transferred without sales
charge at the time of transfer.

         Redemption. The Portfolio reserves the right, if conditions exist which
make cash  payments  undesirable,  to honor any  request for  redemption  of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Portfolio and valued in the same way as they would be valued for purposes of
computing the Portfolio's  net asset value. If payment is made in securities,  a
Shareholder  may incur  transaction  costs in converting  these  securities into
cash.  The Portfolio has selected,  however,  to be governed by Rule 18f-1 under
the  Investment  Company Act so that the  Portfolio  is  obligated to redeem its
shares  solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one Shareholder of the Portfolio.

         Under the  Investment  Company Act, the Portfolio may suspend the right
to  redemption  or postpone the date of payment upon  redemption  for any period
during  which the New York Stock  Exchange  (the  "NYSE") is closed  (other than
customary  weekend  and  holiday  closings),  or during  which  trading  on said
Exchange is restricted, or during which (as determined by the Commission by rule
or regulation) an emergency exists as a result of which disposal or valuation of
the  Portfolio's  securities is not  reasonably  practicable,  or for such other
periods as the Commission may permit. The Portfolio may also suspend or postpone
the  recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.

         A Shareholder of the Portfolio may request redemptions of shares of the
Portfolio  by  telephone  if the  optional  telephone  transaction  privilege is
elected on the Account Information Form accompanying the Portfolio's Prospectus.
It may be difficult to  implement  redemptions  by telephone in times of drastic
economic or market changes.  In an effort to prevent  unauthorized or fraudulent
redemption  requests by telephone,  the Portfolio employs reasonable  procedures
specified by the Trust to confirm that such instructions are genuine.  Telephone
transaction procedures include the following measures: requiring the appropriate
telephone  transaction  election be made on the Portfolios'  Account Information
Form  requiring  the  caller to provide  the names of the  account  owners,  the
account owner's social security number and name of fund, all of which must match
the   Portfolio's   records;   requiring  that  the  Transfer   Agent's  service
representative  complete a telephone  transaction  form listing all of the above
caller  identification  information;  requiring that redemption proceeds be sent
only by check to the account  owners of record at the  address of record,  or by
wire  only to the  owners of record at the bank  account  of  record;  sending a
written  confirmation for each telephone  transaction to the owners of record at
the address of record within five (5) business days of the call; and maintaining
tapes of  telephone  transactions  for six months,  if the  Portfolio  elects to
record shareholder telephone transactions.

         For accounts held of record by a broker-dealer,  trustee,  custodian or
an  attorney-in-fact  (under a power of attorney),  additional  documentation or
information  regarding the scope of a caller's  authority is required.  Finally,
for telephone  transactions  in accounts held  jointly,  additional  information
regarding  other  account  holders is required.  The Trust may  implement  other
procedures from time to time. If reasonable procedures are not implemented,  the
Trust may be liable for any loss due to unauthorized or fraudulent transactions.
In all

                                      -30-



<PAGE>



other  cases,  neither  the  Portfolio,  the  Trust  nor  Bear  Stearns  will be
responsible for the authenticity of redemption or exchange instructions received
by telephone.

   
         Written  redemption  instructions  which  are  given  directly  to  the
Transfer   Agent  require   signature   guarantees,   and  duly  endorsed  stock
certificates,  if previously  issued,  must be received by the Transfer Agent in
proper form and signed exactly as the shares are registered.  The Transfer Agent
has adopted standards and procedures pursuant to which  signature-guarantees  in
proper form generally will be accepted from domestic  banks,  brokers,  dealers,
credit   unions,   national   securities   exchanges,    registered   securities
associations,  clearing  agencies  and  savings  associations,  as  well as from
participants in the New York Stock Exchange  Medallion  Signature  Program,  the
Stock Exchanges  Medallion Program and the Securities  Transfer Agents Medallion
Program ("STAMP").  Signature-guarantees  which are not a part of these programs
will not be accepted.  Such guarantees must be signed by an authorized signatory
thereof with "Signature Guaranteed" appearing with the Shareholder's  signature.
If the signature is guaranteed by a broker or dealer, such broker or dealer must
be a member of a  clearing  corporation  and  maintain  net  capital of at least
$100,000.   Signature-guarantees   may  not  be  provided  by  notaries  public.
Redemption requests by corporate and fiduciary  shareholders must be accompanied
by appropriate documentation establishing the authority of the person seeking to
act on behalf of the account. Investors may obtain from the Fund or the Transfer
Agent forms of resolutions and other  documentation  which have been prepared in
advance to assist compliance with the Portfolio's procedures. Any questions with
respect to  signature-guarantees  should be  directed to the  Transfer  Agent by
calling 1-800-477- 1139.
    

         The Portfolio may suspend redemption privileges or postpone the date of
payment for more than seven days after a redemption order is received during any
period (i) when the NYSE is closed  other than  customary  weekend  and  holiday
closings,  or trading on the NYSE is restricted as determined by the Commission,
(ii) when an emergency exists, as defined by the Commission,  which makes it not
reasonably practicable for the Portfolio to dispose of securities owned by it or
fairly to  determine  the value of its assets,  or (iii) as the  Commission  may
otherwise permit.


                             SHARES OF THE PORTFOLIO

         The Trust's  Agreement and  Declaration of Trust dated October 15, 1992
(the "Trust  Agreement")  permits the Trustees to issue an  unlimited  number of
full and  fractional  shares  of  beneficial  interest  of one or more  separate
series,  provided each share has a par value of $0.001 per share,  represents an
equal  proportionate  interest  in that  series  with  each  other  share and is
entitled to such  dividends  out of the income  belonging  to such series as are
declared by the Trustees.

   
         The Trustees  have  authority  under the Trust  Agreement to create and
classify  shares of beneficial  interest in separate series of the Trust without
further action by  Shareholders.  As of the date of this Statement of Additional
Information, the Trustees have authorized unlimited shares of the Portfolio. The
Trust  Agreement  further  authorizes  the  Board of  Trustees  to  classify  or
reclassify any series or portfolio of unlimited shares into one or more classes.
Pursuant  thereto,  the Board of Trustees  has  authorized  the  issuance of one
series with four classes of shares of the Portfolio:  Class A , Class B, Class C
and Class Y shares.
    

         Shareholders  of the Trust have certain  rights with respect to calling
special  meetings of  Shareholders,  provided  that certain terms of the Trust's
By-Laws are met. Pursuant to the By-Laws,  the record holders of at least 20% of
the shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of  Shareholders  for any purpose except that
the record holders of at least 10% of the shares  outstanding may call a special
meeting for the purpose of voting upon the question of removal of any Trustee or
Trustees and Shareholders  may, under certain  circumstances as permitted by the
Investment  Company Act,  communicate with other Shareholders in connection with
requiring a special  meeting of  Shareholders.  In  addition,  the  Portfolio is
required to assist  Shareholder  communication in connection with the calling of
Shareholder meetings to consider removal of a Trustee.

                                      -31-



<PAGE>



         Each share of the Portfolio represents an equal proportionate  interest
in the assets belonging to the Portfolio.  All Portfolio expenses are based on a
percentage  of the  Portfolio's  aggregate  average net assets,  except that the
respective distribution and account administration fees relating to a particular
class will be borne exclusively by that class.

         Certain  aspects of the shares may be altered,  after advance notice to
Shareholders,  if it is  deemed  necessary  in  order  to  satisfy  certain  tax
regulatory requirements.

         When issued, shares are fully paid and non-assessable.  In the event of
liquidation,  Shareholders  are  entitled to share pro rata in the net assets of
the  Portfolio  available  for  distribution  to such  Shareholders.  All shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights.

         BSFM  provided  the initial  capital for the  Portfolio  by  purchasing
10,472 shares of the Portfolio for $100,007.60 on January 5, 1993.

         Under   Massachusetts   law,  there  is  a  remote   possibility   that
Shareholders  of a business trust could,  under certain  circumstances,  be held
personally  liable as partners  for the  obligations  of such  trust.  The Trust
Agreement  contains an express  disclaimer of Shareholder  liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement,  obligation or instrument  entered into or executed by the Trust
or the Trustees.  The Trust Agreement provides for  indemnification out of Trust
property of any Shareholder charged or held personally liable for obligations or
liabilities  of the Trust solely by reason of being or having been a Shareholder
of the Trust and not because of such Shareholder's acts or omissions or for some
other reason.  The Trust  Agreement  also  provides  that the Trust shall,  upon
proper and timely  request,  assume the defense of any charge  made  against any
Shareholder as such for any obligation or liability of the Trust and satisfy any
judgment thereon.  Thus, the risk of a Shareholder  incurring  financial loss on
account of Shareholder  liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations.



                                 NET ASSET VALUE

   
         The net  asset  value  per  share  of each  Class of the  Portfolio  is
calculated by the Portfolio's  Administrator  as of the close of regular trading
of the NYSE (normally 4:00 p.m., New York time) on each Business Day.  "Business
Day" means each weekday when the NYSE is open for business.  Net asset value per
share of each Class is calculated by dividing the value of the  Portfolio's  net
assets  represented  by such  Class  (i.e.,  the  value of its  assets  less its
liabilities) by the total number of shares of such Class outstanding. Currently,
the NYSE is closed on New Year's  Day,  Presidents'  Day,  Good  Friday,  Martin
Luther  King's  Day,  Memorial  Day  (observed),  Independence  Day,  Labor Day,
Thanksgiving  Day and  Christmas  Day.  Securities  which  are  listed  on stock
exchanges, whether U.S. or foreign, are valued at the last sale price on the day
the  securities are valued or, lacking any sales on such day, at the mean of the
bid and asked prices available prior to the valuation.  If on any Business Day a
foreign  securities  exchange or foreign market is closed, the securities traded
on such  exchange  or in such  market  will be  valued  at the last  sale  price
reported on the previous  business day of such  foreign  exchange or market.  In
cases where securities are traded on more than one exchange,  the securities are
generally  valued on the  exchange  designated  by the Board of  Trustees or its
delegates  as the  primary  market.  Securities  traded in the  over-the-counter
market and listed on the National  Association of Securities  Dealers  Automatic
Quotation  System  ("NASDAQ")  are valued at the last trade price  listed on the
NASDAQ at 4:00 pm;  securities listed on NASDAQ for which there were no sales on
that day and other over-the-counter securities are valued at the mean of the bid
and asked  prices  available  prior to  valuation.  Securities  for which market
quotations  are not readily  available are valued at fair value as determined in
good faith by or under the  direction of the Board of  Trustees.  In making this
determination the Board of Trustees 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
    

                                      -32-



<PAGE>



represent fair market value, the price is determined in such manner as the Board
may  prescribe.  The  amortized  cost method of valuation  may also be used with
respect to debt obligations  with sixty days or less remaining to maturity.  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.  The  Portfolio's  obligation to pay any local taxes on remittances  from
Emerging  Countries  will become a  liability  on the record date for a dividend
payment and will have the effect of reducing  the  Portfolio's  net asset value.
Because of the differences in operating expenses incurred by each Class, the per
share net asset value of each Class will differ.

         Foreign currency  exchange rates are generally  determined prior to the
close  of  the  NYSE.  Occasionally,  events  affecting  the  value  of  foreign
securities  and such  exchange  rates  occur  between the time at which they are
determined  and the close of the NYSE,  which  events will not be reflected in a
computation of the Portfolio's net asset value. If events  materially  affecting
the value of such  securities  or assets or  currency  exchange  rates  occurred
during such time period,  the securities or assets would be valued at their fair
value as  determined  in good  faith by or under the  direction  of the Board of
Trustees.  The foreign currency exchange transactions of the Portfolio conducted
on a spot  basis  will be  valued  at the spot rate for  purchasing  or  selling
currency  prevailing  on  the  foreign  exchange  market.  Under  normal  market
conditions  this rate differs  from the  prevailing  exchange  rate by an amount
generally less than one-tenth of one percent due to the costs of converting from
one  currency  to  another.  In  determining  the  approximate  market  value of
portfolio investments, the Portfolio may employ outside organizations, which may
use a matrix or formula  method that takes into  consideration  market  indices,
matrices,  yield curves and other specific  adjustments.  This may result in the
securities being valued at a price different from the price that would have been
determined had the matrix or formula method not been used. All cash, receivables
and current  payables are carried on the Portfolio's  books at their face value.
Other  assets,  if any, are valued at fair value as  determined in good faith by
the Board of Trustees.


                        PERFORMANCE AND YIELD INFORMATION

         The following information supplements and should be read in conjunction
with  the  section  in  the   Portfolio's   Prospectus   entitled   "Performance
Information."

         Total Return.  For purposes of quoting and comparing the performance of
the  Portfolio  to that of other  mutual  funds  and to stock or other  relevant
indices in  advertisements  or in reports to  Shareholders,  performance  may be
stated  in terms of total  return.  Under  the  rules of the  Commission,  funds
advertising performance must include total return quotes calculated according to
the following formula:

                 P(1 + T)n      =     ERV

     Where:      P              =     a hypothetical initial payment of $1,000

                 T              =     average annual total return

                 n              =     number of years (1, 5 or 10)

                 ERV            =     ending  redeemable  value at the
                                      end of the 1, 5 or 10 year periods
                                      (or fractional portion thereof) of
                                      a hypothetical $1,000 payment made
                                      at the beginning of the 1, 5 or 10
                                      year periods.

   
         Under the foregoing formula,  the time periods used in advertising will
be based  on  rolling  calendar  quarters,  updated  to the last day of the most
recent quarter prior to submission of the  advertisement  for  publication,  and
will  cover  1, 5 and 10 year  periods  or a  shorter  period  dating  from  the
effectiveness  of the  Portfolio's  registration  statement.  In calculating the
ending  redeemable  value,  the maximum  sales load is deducted from the initial
$1,000 payment and all dividends and  distributions by the Portfolio are assumed
to
    

                                      -33-



<PAGE>



   
have been reinvested at net asset value, as described in the Prospectus,  on the
reinvestment dates during the period. Total return, or "T" in the formula above,
is computed by finding the average annual compounded rates of return over the 1,
5 and 10 year  periods (or  fractional  portion  thereof)  that would equate the
initial amount  invested to the ending  redeemable  value.  Any sales loads that
might in the future be made  applicable  at the time to  reinvestments  would be
included as would any  recurring  account  charges  that might be imposed by the
Portfolio. The Portfolio may also from time to time include in such advertising,
an aggregate total return figure or a total return figure that is not calculated
according to the formula set forth above in order to compare more accurately the
Portfolio's  performance with other measures of investment  return. For example,
in  comparing  the  Portfolio's  total  return  with  data  published  by Lipper
Analytical  Services,  Inc., CDA Investment  Technologies,  Inc. or Weisenberger
Investment Company Service, or with the performance of the Standard & Poor's 500
Stock Index or the Dow Jones Industrial Average,  as appropriate,  the Portfolio
may calculate its aggregate and/or average annual total return for the specified
periods of time by assuming the  investment  of $1,000 in  Portfolio  shares and
assuming the  reinvestment  of each dividend or other  distribution at net asset
value on the  reinvestment  date.  The Portfolio  does not, for these  purposes,
deduct from the initial  value  invested any amount  representing  sales charges
with respect to Class A shares and any amount  representing  any applicable CDSC
with respect to Class B and C shares. The Portfolio will, however,  disclose the
maximum  sales charge and will also disclose  that the  performance  data do not
reflect  sales  charges and that  inclusion  of sales  charges  would reduce the
performance  quoted.  Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under the
Commission  rules,  and all  advertisements  containing  performance  data  will
include  a  legend   disclosing  that  such   performance  data  represent  past
performance and that the investment  return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.

         The total return  calculated using the above method for the fiscal year
ended March 31, 1997 was 28.49%  total  return for the Class A shares and 32.97%
for the Class C shares respectively [insert from inception].
    

         Yield. The Portfolio may also advertise their yield. Under the rules of
the Commission,  the Portfolio  advertising yield must calculate yield using the
following formula:

                   YIELD = 2[(a-b +1)6 - 1]
                              ---
                               cd

   Where:    a     =   dividends and interest earned during the period.

             b     =   expenses accrued for the period (net of reimbursement).

             c     =   the average  daily number of shares  outstanding  during
                       the period that were entitled to receive dividends.

             d     =   the maximum  offering price per share on the last day of
                       the period.

         Under  the  foregoing   formula,   yield  is  computed  by  compounding
semi-annually, the net investment income per share earned during a 30 day period
divided by the maximum  offering  price per share on the last day of the period.
For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by the Portfolio,  the formula generally
calls for  amortization of the discount or premium;  the  amortization  schedule
will be  adjusted  monthly to reflect  changes in the market  values of the debt
obligations.

         Yield may fluctuate  daily and does not provide a basis for determining
future yields.  Because the yields will fluctuate,  they cannot be compared with
yields on savings  accounts or other  investment  alternatives  that  provide an
agreed to or a  guaranteed  fixed  yield for a stated  period of time.  However,
yield information may be useful to an investor considering temporary investments
in money market instruments. In comparing the

                                      -34-



<PAGE>



yield of one money market fund to another, consideration should be given to each
fund's investment policies,  including the types of investments made, lengths of
maturities of the Portfolio  securities  (the method used by the fund to compute
the yield methods may differ) and whether there are any special  account charges
which may reduce the effective yield.

         The  yields on  certain  obligations  are  dependent  on a  variety  of
factors, including general money market conditions, conditions in the particular
market for the obligation,  the financial  condition of the issuer,  the size of
the offering,  the maturity of the obligation and the ratings of the issue.  The
ratings of Moody's and S&P represent their respective opinions as to the quality
of the absolute  standards of quality.  Consequently,  obligations with the same
rating,  maturity  and  interest  rate  may have  different  market  prices.  In
addition,  subsequent to its purchase by the Portfolio, an issue may cease to be
rated or may have its rating reduced below the minimum required for purchase. In
such an event,  the  Portfolio's  Investment  Manager will consider  whether the
Portfolio should continue to hold the obligation.

                                 CODE OF ETHICS

         The Trust,  on behalf of the  Portfolio,  has  adopted  an amended  and
restated Code of Ethics (the "Code of Ethics"),  which established  standards by
which  certain  access  persons  of the Trust must abide  relating  to  personal
securities  trading  conduct.  Under the Code of Ethics,  access  persons  which
include,  among others,  trustees and officers of the Trust and employees of the
Trust and BSFM, are prohibited from engaging in certain conduct,  including: (1)
the  purchase  or sale  of any  security  being  purchased  or  sold,  or  being
considered for purchase or sale, by the Portfolio, without prior approval by the
Trust or without the applicability of certain exemptions; (2) the recommendation
of a  securities  transaction  without  disclosing  his or her  interest  in the
security or issuer of the  security;  (3) the  commission of fraud in connection
with  the  purchase  or sale of a  security  held  by or to be  acquired  by the
Portfolio;  (4) the purchase of any securities in an initial public  offering or
private  placement  transaction  eligible for purchase or sale by the  Portfolio
without  prior  approval by the Trust;  and (5) the  acceptance of gifts of more
than a de  minimus  value  from those  doing  business  with or on behalf of the
Portfolio.  Certain  transactions  are  exempt  from  item  (1) of the  previous
sentence,  including:  (1) purchases or sales on the account of an access person
that are not under the  control of or that are  non-volitional  with  respect to
that person;  (2) purchases or sales of securities  not eligible for purchase or
sale by the  Portfolio;  (3) purchases or sales  relating to rights issued by an
issuer  pro  rata to all  holders  of a  class  of its  securities;  and (4) any
securities  transaction,  or series of related  transactions,  involving  500 or
fewer  shares  of an  issuer  having a  market  capitalization  greater  than $1
billion.

   
         The Code of  Ethics  specifies  that  access  persons  shall  place the
interests of the shareholders of the Portfolio  first,  shall avoid potential or
actual  conflicts  of  interest  with the  Portfolio,  and shall not take unfair
advantage of their relationship with the Portfolio. Under certain circumstances,
the Investment Manager to the Portfolio may aggregate or bunch trades with other
clients provided that no client is materially disadvantaged.  Access persons are
required by the Code of Ethics to file quarterly reports of personal  securities
investment  transactions.  However, an access person is not required to report a
transaction over which he or she had no control.  Furthermore,  a trustee of the
Trust who is not an "interested  person" (as defined in the  Investment  Company
Act) of the Trust is not required to report a transaction if such person did not
know or, in the ordinary course of his duties as a trustee of the Trust,  should
have known, at the time of the transaction,  that, within a 15 day period before
or after such  transaction,  the security that such person purchased or sold was
either  purchased or sold, or was being  considered for purchase or sale, by the
Portfolio.  The Code of Ethics  specifies  that certain  designated  supervisory
persons and/or designated compliance officers shall supervise implementation and
enforcement of the Code of Ethics and shall, at their sole discretion,  grant or
deny approval of transactions required by the Code of Ethics.
    


                                      -35-



<PAGE>



                                    TAXATION

         GENERAL TAX CONSEQUENCES TO THE PORTFOLIO AND ITS SHAREHOLDERS

         The   following   is  only  a  summary   of  certain   additional   tax
considerations  generally  affecting the Portfolio and its Shareholders that are
not  described in the  Portfolio's  Prospectus.  No attempt is made to present a
detailed  explanation of the tax treatment of the Portfolio or its Shareholders,
and the  discussion  in this  Statement  of  Additional  Information  and in the
Portfolio's Prospectus is not intended as a substitute for careful tax planning.
Investors are urged to consult  their tax advisers  with  specific  reference to
their own tax situation.

   
         The Portfolio has elected to be taxed as a regulated investment company
under Part I of Subchapter M of the Code. As a regulated investment company, the
Portfolio is exempt from  Federal  income tax on its net  investment  income and
realized  capital gains which it distributes to  Shareholders,  provided that it
distributes  an amount equal to at least 90% of its investment  company  taxable
income  (the sum of the net  taxable  investment  income  and the  excess of net
short-term  capital gain over net long-term  capital loss), if any, for the year
(the "Distribution Requirement") and satisfies certain other requirements of the
Code that are  described  below.  Distributions  of investment  company  taxable
income made during the taxable year or, under  specified  circumstances,  within
twelve months after the close of the taxable year will satisfy the  Distribution
Requirement.  The  Distribution  Requirement  for any  year may be  waived  if a
regulated  investment  company  establishes to the  satisfaction of the Internal
Revenue  Service that it is unable to satisfy the  Distribution  Requirement  by
reason of  distributions  previously made for the purpose of avoiding  liability
for Federal excise tax (discussed  below).  In addition to  satisfaction  of the
Distribution  Requirement  the  Portfolio  must derive at least 90% of its gross
income from  dividends,  interest,  certain  payments with respect to securities
loans and gains from the sale or other  disposition  of stock or  securities  or
foreign currencies, or from other income derived with respect to its business of
investing in such stock, securities,  or currencies (the "Income Requirement") .
In  addition,  until  the  beginning  of the  Portfolio's  next term  year,  the
Portfolio  must derive less than 30% of its gross  income from the sale or other
disposition of any of the following  investments,  if such investments were held
for less than three months:  (a) stock or securities (as defined in Section 2(a)
(36) of the Investment Company Act); (b) options,  futures, or forward contracts
(other than options,  futures or forward contracts on foreign  currencies);  and
(c) foreign  currencies  (or  options,  futures or forward  contracts on foreign
currencies)  but  only  if such  currencies  (or  options,  futures  or  forward
contracts)  are not  directly  related  to the  regulated  investment  company's
principal  business  of  investing  in stock or  securities  (or in options  and
futures with respect to stocks or securities) (the "Short-Short Gain Test"). The
Short-Short  Gain Test is  eliminated  for tax years  beginning  after August 5,
1997.  Interest  (including  accrued original issue discount and, in the case of
debt securities  bearing taxable  interest  income,  "accrued market  discount")
received by the Portfolio at maturity or on  disposition  of a security held for
less than three months will not be treated as gross income derived from the sale
or other disposition of such security for purposes of the Short-Short Gain Test.
However,  any other income which is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose.
    

         Income derived by a regulated  investment company from a partnership or
trust  (including a foreign  entity that is classified as a partnership or trust
for U.S.  federal income tax purposes) will satisfy the Income  Requirement only
to the extent such income is  attributable to items of income of the partnership
or trust that would  satisfy the Income  Requirement  if they were realized by a
regulated  investment  company in the same manner as realized by the partnership
or trust.

         In addition to the foregoing requirements, at the close of each quarter
of its taxable  year, at least 50% of the value of the  Portfolio's  assets must
consist of cash and cash items, U.S. government securities,  securities of other
regulated investment companies, and securities of other issuers (as to which the
Portfolio  has not  invested  more than 5% of the  value of its total  assets in
securities of such issuer and as to which the Portfolio  does not hold more than
10% of the outstanding  voting securities of such issuer),  and no more than 25%
of the value of the  Portfolio's  total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which

                                      -36-



<PAGE>



the  Portfolio  controls and which are engaged in the same or similar  trades or
businesses  (the "Asset  Diversification  Requirement").  The  Internal  Revenue
Service has taken the position,  in informal  rulings issued to other taxpayers,
that the  issuer of a  repurchase  agreement  is the bank or dealer  from  which
securities  are  purchased.   The  Portfolio  will  not  enter  into  repurchase
agreements with any one bank or dealer if entering into such  agreements  would,
under the informal position expressed by the Internal Revenue Service,  cause it
to fail to satisfy the Asset Diversification Requirement.

         Distributions  of investment  company taxable income will be taxable to
Shareholders as ordinary income,  regardless of whether such  distributions  are
paid  in  cash  or  are  reinvested  in  shares.   Shareholders   receiving  any
distribution from the Portfolio in the form of additional shares will be treated
as receiving a taxable  distribution in an amount equal to the fair market value
of the shares received, determined as of the reinvestment date.

         The Portfolio  intends to distribute to Shareholders  its excess of net
long-term capital gain over net short-term capital loss ("net capital gain"), if
any, for each taxable year.  Such gain is distributed as a capital gain dividend
and is taxable to  Shareholders  as long-term  capital  gain,  regardless of the
length  of time the  Shareholder  has held his  shares,  whether  such  gain was
recognized  by the Portfolio  prior to the date on which a Shareholder  acquired
shares  of the  Portfolio  and  whether  the  distribution  was  paid in cash or
reinvested in shares.  The aggregate amount of  distributions  designated by the
Portfolio as capital gain  dividends  may not exceed the net capital gain of the
Portfolio  for any taxable  year,  determined  by  excluding  any net  long-term
capital loss  attributable  to  transactions  occurring after October 31 of such
year and by  treating  any such  loss as if it  arose  on the  first  day of the
following  taxable year. Such  distributions  will be designated as capital gain
dividends in a written notice mailed by the Portfolio to Shareholders  not later
than 60 days after the close of the  Portfolio's  respective  taxable year.  The
Portfolio would incur a federal income tax liability under the Code with respect
to retained net capital gains.  Investors should be aware that any loss realized
upon the sale, exchange or redemption of shares held for six months or less will
be treated as a long-term  capital loss to the extent any capital gain dividends
have been paid with respect to such shares.

   
         The recently  enacted Taxpayer Relief Act of 1997 (the "Taxpayer Relief
Act") made  certain  changes to the Code with  respect to  taxation of long term
capital  gains  earned by  taxpayers  other than a  corporation.  In general and
subject  to  certain  transition  rules,  the  maximum  tax rate for  individual
taxpayers on net  long-term  capital  gains (i.e.,  the excess of net  long-term
capital gain over net short-term capital loss) is lowered to 20% for most assets
held for more than 18 months at the time of  disposition.  Capital  gains on the
disposition  of  assets  held for more  than one year and up to 18 months at the
time of disposition will be taxed as "mid-term gain" at a maximum rate of 28%. A
lower rate of 18% will apply  after  December  31, 2000 for assets held for more
than 5 years.  However,  the 18% rate  applies  only to  assets  acquired  after
December  31,  2000 unless the  taxpayer  elects to treat an asset held prior to
such date as sold for fair  market  value on  January  1,  2001.  In the case of
individuals  whose  ordinary  income  is taxed at a 15%  rate,  the 20% rate for
assets  held for more  than 18  months  is  reduced  to 10% and the 10% rate for
assets held for more than 5 years is reduced to 8%.  Certain  aspects of the new
legislation are currently unclear, including how the reduced rates will apply to
gains earned by regulated investment companies such as the Portfolio.  Until the
Internal Revenue Service issues some guidance,  it is unclear whether or how the
20% or 10% rates will apply to  distributions  of long term capital gains by the
Portfolio.
    

         If for any taxable year the  Portfolio  does not qualify as a regulated
investment company,  all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to Shareholders, and all
distributions  will be  taxable  as  ordinary  dividends  to the  extent  of the
Portfolio's current and accumulated earning and profits. Such distributions will
be  eligible  for the  dividends  received  deduction  in the case of  corporate
Shareholders  regardless of the source of the Portfolio's income, subject to the
limitations  which apply to the  dividends  received  deduction,  including  the
requirement that the dividends be received on shares held for more than 45 days.
Investors  should  be aware  that any loss  realized  on a sale of shares of the
Portfolio will be disallowed to the extent an investor repurchases shares of the
Portfolio  within a period of 61 days  (beginning  30 days  before and ending 30
days after the day of  disposition of the shares).  Dividends  reinvested by the
Portfolio in shares  within the 61-day period would be treated as a purchase for
this purpose.

                                      -37-



<PAGE>



         The Code imposes a non-deductible 4% excise tax on regulated investment
companies  that do not  distribute  with respect to each calendar year an amount
equal to 98% of their  ordinary  income for the calendar  year plus 98% of their
capital  gain net  income  for the  1-year  period  ending on October 31 of such
calendar year.  The balance of such income must be  distributed  during the next
calendar  year.  For the  foregoing  purposes,  a company  is  treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. Because the Portfolio intends to distribute all of
its taxable income  currently,  the Portfolio does not anticipate  incurring any
liability for this excise tax. However, investors should note that the Portfolio
may in certain  circumstances  be required to liquidate  investments in order to
make sufficient distributions to avoid excise tax liability.

   
         The  Portfolio is expected to invest in both  short-term  and long-term
emerging  markets Debt  Obligations  with original issue discount  and/or market
discount. Original issue discount generally is the excess (if any) of the stated
redemption price of an obligation over its original issue price. Market discount
generally is the excess (if any) of the stated redemption price of an obligation
(or in the case of an  obligation  issued  with  original  issue  discount,  its
original issue price plus accreted  original  issue  discount) over the price at
which it is purchased  subsequent to original issuance.  Original issue discount
is generally  required to be included in income on a periodic  basis by a holder
as ordinary income. Income attributable to market discount generally is ordinary
income (as  opposed to capital  gain).  A taxpayer  may elect to include  market
discount in income on a periodic basis as opposed to including  market  discount
in income upon payment or sale of the obligation.  In some cases,  the amount of
original issue discount and/or market  discount on obligations  purchased by the
Portfolio  may be  significant.  The  Portfolio  has  elected to include  market
discount  in  income  currently,  for both book and tax  purposes.  Accordingly,
accretion of market discount  together with original issue discount,  will cause
the  Portfolio  to realize  income  prior to the receipt of cash  payments  with
respect to these securities. In order to distribute this income and maintain its
qualification  as a regulated  investment  company and avoid becoming subject to
federal  income or excise  tax,  the  Portfolio  may be  required  to  liquidate
portfolio  securities  that it might  otherwise  have continued to hold, use its
cash assets or borrow funds on a temporary  basis necessary to declare and pay a
distribution to Shareholders.  The Portfolio may realize capital gains or losses
from those sales,  which would increase or decrease the  Portfolio's  investment
company  taxable income or net capital gain. In addition,  any such gains may be
realized  on the  disposition  of  securities  held for less than three  months.
Because of the Short-Short  Gain Test, prior to the beginning of the Portfolio's
first tax year  beginning  after August 5, 1997, any such gains would reduce the
Portfolio's  ability to sell other  securities,  or certain options,  futures or
forward contracts, held for less than three months that it might wish to sell in
the ordinary course of its portfolio management.
    

         Because  distributions made in respect of accreted market discount will
be taxable to  Shareholders  currently  as  ordinary  income,  Shareholders  may
realize  income  attributable  to market  discount on an obligation  held by the
Portfolio earlier than if the Shareholder had directly owned such obligation. In
the case of such direct ownership, absent an election by the holder to currently
include market discount in income, market discount income generally would not be
realized by the holder until  payment or other  disposition  of the  obligation.
Original issue discount on an obligation held directly by a Shareholder,  on the
other hand,  generally  would have to be included in income on a periodic basis.
In general,  distributions  by the  Portfolio  of amounts in respect of accreted
discount  should reduce the net asset value of the Portfolio by a  corresponding
amount. Therefore, distributions in respect of accreted discount would result in
current income to Shareholders,  but in general may also reduce taxable gain (or
increase  loss)  to a  holder  by a  similar  amount  in  case  of a  subsequent
disposition  by a holder of his or her interest in the  Portfolio.  In the event
the Portfolio has to liquidate  portfolio  securities  earlier than it otherwise
would have in order to make distributions of accreted discount and the Portfolio
realizes net capital gains from such transactions,  the Shareholders may receive
a larger capital gain  distribution  than they would have in the absence of such
transactions.

         The  Portfolio  will be required in certain cases to withhold and remit
to the United States  Treasury 31% of dividends paid to any  Shareholder (1) who
has provided either an incorrect tax identification  number or no number at all,
(2) who is subject to backup  withholding  for  failure to report the receipt of
interest or dividend  income  properly,  or (3) who has failed to certify to the
Portfolio that he is not subject to backup withholding or

                                      -38-



<PAGE>



that  he is an  "exempt  recipient."  The  backup  withholding  tax  is  not  an
additional  tax and may be  credited  against a  Shareholders'  regular  federal
income tax liability.

         The foregoing general  discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of  this   Statement  of   Additional   Information.   Future   legislative   or
administrative   changes  or  court  decisions  may  significantly   change  the
conclusions  expressed  herein,  and any such  changes or  decisions  may have a
retroactive effect with respect to the transactions contemplated herein.

         Although the  Portfolio  expects to continue to qualify as a "regulated
investment  company"  and to be  relieved  of all or  substantially  all Federal
income  taxes,  depending  upon the  extent  of its  activities  in  states  and
localities  in which  its  offices  are  maintained,  in  which  its  agents  or
independent  contractors  are located or in which it is  otherwise  deemed to be
conducting business, the Portfolio may be subject to the tax laws of such states
or localities.

         Certain states exempt from state income  taxation,  dividends paid by a
regulated  investment company that are derived from interest on U.S.  government
obligations.  The Portfolio will accordingly inform its Shareholders annually of
the percentage,  if any, of its ordinary dividends that is derived from interest
on U.S.  government  obligations.  Shareholders  should  consult  with their tax
advisers as to the  availability  and extent of any applicable  state income tax
exemption.

   
         Income received by the Portfolio from sources outside the United States
may be subject to  withholding  and other taxes imposed by countries  other than
the United States. If the Portfolio qualifies as a regulated investment company,
if certain  distribution  requirements are satisfied and if more than 50% of the
value of the  Portfolio's  assets at the close of the taxable  year  consists of
stocks or securities of foreign corporations,  the Portfolio will be eligible to
elect for  federal  income  tax  purposes  and if  eligible,  intends to file an
election  with the Internal  Revenue  Service to treat any foreign  income taxes
paid by the  Portfolio  that can be treated as income taxes under United  States
income  tax  principles  as  paid  by its  Shareholders.  However,  there  is no
guarantee  that  the  Portfolio  will be able to do so.  For any  year  that the
Portfolio  makes such an election,  an amount equal to the foreign  income taxes
paid by the  Portfolio  that can be treated as income taxes under United  States
income tax  principles  will be included in the income of its  Shareholders  and
each Shareholder may be entitled (subject to certain  limitations) to credit the
amount  included in his income  against  such  Shareholder's  United  States tax
liabilities,  if any, or to deduct such  amount from such  Shareholder's  United
States taxable income,  if any.  Shareholders  will not be entitled to credit or
deduct their  allocable  share of foreign taxes imposed on the Portfolio if they
have not held their  shares in the  Portfolio  for 16 days or more at the end of
the  Portfolio's tax year. The holding period will be extended if the taxpayer's
risk of loss with  respect  to such  shares is  reduced  by reason of holding an
offsetting position.
    

         Generally,  a credit for foreign taxes may not exceed the United States
Shareholder's United States tax attributable to its total foreign source taxable
income. If a regulated  investment  company makes the election  described in the
previous  paragraph,  the source of the Portfolio's  income flows through to its
Shareholders.  Thus, dividends and interest received by the Portfolio in respect
of  foreign   securities  will  give  rise  to  foreign  source  income  to  the
Shareholders. However, certain items of the Portfolio's income, including income
and gains  from  securities  transactions  as well as certain  foreign  currency
gains,   may  be  treated  as  United  States  source  income  to  Shareholders.
Accordingly, if the Portfolio recognizes capital gain income which is subject to
foreign income or withholding tax, as described more fully below,  United States
Shareholders  may not be deemed to receive  foreign  source income against which
the foreign tax credit could be applied. The overall limitation on a foreign tax
credit is also  applied  separately  to specific  categories  of foreign  source
income. Furthermore, the foreign tax credit is allowed to offset only 90% of any
alternative  minimum tax to which a United States Shareholder may be subject. As
a result of these rules,  certain  United States  Shareholders  may be unable to
claim a credit for the full amount of their  proportionate  share of the foreign
taxes  paid by the  Portfolio.  If a United  States  Shareholder  is not able to
credit the foreign tax paid because of the application of

                                      -39-



<PAGE>



the foreign tax credit limitation described herein, double taxation of such gain
could only be mitigated by deducting  the tax paid,  which may be subject to the
limitations described above.

         Taxation of a Shareholder  who, as to the United  States,  is a foreign
investor (such as a nonresident alien  individual,  a foreign trust or estate, a
foreign  corporation or foreign  partnership)  depends,  in part, on whether the
Shareholder's income from the Portfolio is "effectively connected" with a United
States trade or business carried on by the Shareholder.  If the foreign investor
is not a resident  alien and the income from the  Portfolio  is not  effectively
connected  with a United  States  trade or  business  carried on by the  foreign
investor,  distributions  of net investment  income and net realized  short-term
capital  gains will be subject to a 30% (or lower  treaty  rate)  United  States
withholding tax.  Furthermore,  foreign investors may be subject to an increased
United  States  tax on their  income  resulting  from the  Portfolio's  election
(described  above)  to "pass  through"  amounts  of  foreign  taxes  paid by the
Portfolio,  but may not be able to claim a credit or  deduction  with respect to
the  foreign  taxes  treated as having been paid by them.  Distributions  of net
realized  long-term  capital gains,  amounts retained by the Portfolio which are
designated as  undistributed  capital gains and gains  realized upon the sale of
shares of the  Portfolio  will not be  subject  to United  States  tax  unless a
foreign investor who is an individual is physically present in the United States
for  more  than 182 days  during  the  taxable  year,  and,  in the case of gain
realized upon the sale of shares of the Portfolio, (i) such gain is attributable
to an office or fixed  place of  business  in the  United  States,  or (ii) such
nonresident  alien  individual has a tax home in the United States and such gain
is not attributable to an office or place of business located outside the United
States.  The Portfolio  intends to distribute  to  Shareholders  its net capital
gain, if any, for each taxable year.  However,  a determination by the Portfolio
not to  distribute  long-term  capital  gains may  reduce a  foreign  investor's
overall  return from an investment in the  Portfolio,  since the Portfolio  will
incur a United States federal tax liability  with respect to retained  long-term
capital gains, thereby reducing the amount of cash held by the Portfolio that is
available for distribution,  and the foreign investor may not be able to claim a
credit or deduction with respect to such taxes.

         In general,  if a foreign  investor is a resident alien or if dividends
or  distributions  from the Portfolio are  effectively  connected  with a United
States trade or business carried on by the foreign  investor,  then dividends of
net investment  income,  distributions  of net short-term and long-term  capital
gains,  amounts  retained by the Portfolio that are designated as  undistributed
capital  gains and any gains  realized  upon the sale of shares of the Portfolio
will be subject to United  States  income tax at the rates  applicable to United
States  citizens or domestic  corporations.  If the income from the Portfolio is
effectively  connected  with a United  States trade or business  carried on by a
foreign  investor that is a corporation,  then such foreign investor may also be
subject to the 30% (or lower treaty rate) branch profits tax.

         The tax  consequences  to a foreign  Shareholder  entitled to claim the
benefits of an applicable  tax treaty may be different  from those  described in
this section.  Under  regulations  proposed to be effective  for dividends  paid
after  1997,  foreign  shareholders  may  be  required  to  provide  appropriate
documentation  to establish their  entitlement to the benefits of such a treaty.
Foreign  investors are advised to consult their own tax advisers with respect to
(a) whether their income from the Portfolio is or is not  effectively  connected
with a United States trade or business  carried on by them, (b) whether they may
claim  the  benefits  of  an  applicable  tax  treaty  and  (c)  any  other  tax
consequences to them of an investment in the Portfolio.

         Shareholders  will be  notified  annually  by the  Portfolio  as to the
United States  federal  income tax status of the  dividends,  distributions  and
deemed  distributions  made by the Portfolio to its  Shareholders.  Furthermore,
Shareholders  will also receive,  if appropriate,  various written notices after
the close of the  Portfolio's  taxable year  regarding the United States federal
income tax status of certain dividends,  distributions and deemed  distributions
that were paid (or that are treated as having been paid) by the Portfolio to its
Shareholders during the preceding taxable year.

         Distributions  also may be  subject  to  additional  state,  local  and
foreign taxes depending on each Shareholder's particular situation.


                                      -40-



<PAGE>



                           SPECIAL TAX CONSIDERATIONS

         The following  discussion  relates to the particular Federal income tax
consequences  of the investment  policies of the  Portfolio.  The ability of the
Portfolio  to engage in  options,  short  sale and  futures  activities  will be
somewhat  limited  by the  requirements  for their  continued  qualification  as
regulated  investment  companies under the Code, in particular the  Distribution
Requirement,   the   Short-Short   Gain  Test  and  the  Asset   Diversification
Requirement.

         Straddles.  The options transactions that the Portfolio enters into may
result in "straddles" for Federal income tax purposes. The straddle rules of the
Code may affect the character of gains and losses realized by the Portfolio.  In
addition,  losses  realized by the  Portfolio  on  positions  that are part of a
straddle may be deferred under the straddle rules,  rather than being taken into
account in  calculating  the investment  company  taxable income and net capital
gain of the  Portfolio  for the taxable year in which such losses are  realized.
Losses realized prior to October 31 of any year may be similarly  deferred under
the straddle rules in determining the "required distribution" that the Portfolio
must make in order to avoid Federal excise tax. Furthermore,  in determining its
investment  company  taxable  income and ordinary  income,  the Portfolio may be
required to capitalize,  rather than deduct  currently,  any interest expense on
indebtedness  incurred or continued to purchase or carry any positions  that are
part of a straddle.  The tax  consequences to the Portfolio of holding  straddle
positions may be further affected by various  elections  provided under the Code
and Treasury  regulations,  but at the present  time the  Portfolio is uncertain
which (if any) of these elections it will make.

         Because only a few  regulations  implementing  the straddle  rules have
been promulgated by the U.S. Treasury,  the tax consequences to the Portfolio of
engaging in options  transactions  are not entirely clear.  Nevertheless,  it is
evident that  application  of the straddle rules may  substantially  increase or
decrease the amount which must be distributed to Shareholders in satisfaction of
the Distribution  Requirement (or to avoid Federal excise tax liability) for any
taxable  year  in   comparison  to  a  fund  that  did  not  engage  in  options
transactions.  For  purposes  of the  Short-Short  Gain Test,  current  Treasury
regulations  provide  that  (except  to the  extent  that the short  sale  rules
discussed below would otherwise apply) the straddle rules will have no effect on
the holding  period of any straddle  position.  However,  the U.S.  Treasury has
announced  that it is continuing to study the  application of the straddle rules
for this purpose.

   
         Options and Section 1256 Contracts. The writer of a covered put or call
option  generally does not recognize  income upon receipt of the option premium.
If the  option  expires  unexercised  or is closed on an  exchange,  the  writer
generally  recognizes  short-term capital gain. If the option is exercised,  the
premium is included in the  consideration  received by the writer in determining
the capital gain or loss  recognized in the  resultant  sale.  However,  options
transactions that the Portfolio enters into, as well as futures transactions and
transactions  in  forward  foreign  currency  contracts  that are  traded in the
interbank  market entered into by the Portfolio,  will be subject to special tax
treatment as "Section 1256 contracts."  Section 1256 contracts are treated as if
they  are sold for  their  fair  market  value on the last  business  day of the
taxable  year  (i.e.,  marked-to-market),  regardless  of  whether a  taxpayer's
obligations  (or rights)  under such  contracts  have  terminated  (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss  recognized as a consequence of the year-end  marking-to-market  of
Section 1256 contracts is combined (after application of the straddle rules that
are described above) with any other gain or loss that was previously  recognized
upon the termination of Section 1256 contracts during that taxable year. The net
amount  of such  gain or loss for the  entire  taxable  year is  treated  as 60%
long-term  capital gain or loss and 40% short-term  capital gain or loss, except
in the case of  marked-to-market  forward foreign  currency  contracts for which
such  gain or loss may be  treated  as  ordinary  income or loss.  See  "Foreign
Currency  Transactions" below. Such short-term capital gain (and, in the case of
marked-to-market forward foreign currency contracts, such ordinary income) would
be  included  in  determining  the  investment  company  taxable  income  of the
Portfolio for purposes of the Distribution  Requirement,  even if it were wholly
attributable  to the year-end  marking-to-market  of Section 1256 contracts that
the Portfolio  continued to hold.  Investors  should also note that Section 1256
contracts will be treated as having been sold on October 31 in  calculating  the
"required distribution" that the Portfolio must make to avoid Federal excise tax
liability.
    

                                      -41-



<PAGE>



         The Portfolio may elect not to have the year-end marking-to-market rule
apply to Section 1256 contracts  that are part of a "mixed  straddle" with other
investments  of the Portfolio  that are not Section 1256  contracts  (the "Mixed
Straddle  Election").  It is unclear under present law how certain gain that the
Portfolio  may derive from trading in Section 1256  contracts  for which a Mixed
Straddle  Election is not made will be treated for purposes of the  "Short-Short
Gain Test."

   
         Foreign  Currency   Transactions.   In  general,  gains  from  "foreign
currencies" and from foreign  currency  options,  foreign  currency  futures and
forward foreign exchange contracts relating to investments in stock,  securities
or foreign  currencies  will be  qualifying  income for purposes of  determining
whether  the  Portfolio  qualifies  as a  regulated  investment  company.  It is
currently  unclear,  however,  who will be  treated  as the  issuer of a foreign
currency instrument or how foreign currency options,  futures or forward foreign
currency  contracts  will be valued for  purposes  of the Asset  Diversification
Requirement.
    

         Under  Code  Section  988  special   rules  are  provided  for  certain
transactions in a foreign currency other than the taxpayer's functional currency
(i.e.,  unless  certain  special  rules  apply,  currencies  other than the U.S.
dollar).  In general,  foreign  currency  gains or losses from  certain  forward
contracts,  from futures contracts that are not "regulated  futures  contracts",
and from unlisted options will be treated as ordinary income or loss. In certain
circumstances where the transaction is not undertaken as part of a straddle, the
Portfolio  may  elect  capital  gain or loss  treatment  for such  transactions.
Alternatively,  the Portfolio may elect  ordinary  income or loss  treatment for
transactions  in futures  contracts  and options on foreign  currency that would
otherwise  produce  capital  gain or loss.  In  general,  gains or losses from a
foreign  currency  transaction  subject to Code  Section  988 will  increase  or
decrease  the  amount  of the  Portfolio's  investment  company  taxable  income
available to be  distributed to  Shareholders  as ordinary  income,  rather than
increasing  or  decreasing  the  amount of the  Portfolio's  net  capital  gain.
Additionally,  if losses  from a foreign  currency  transaction  subject to Code
Section 988 exceed other  investment  company  taxable  income  during a taxable
year,   the  Portfolio   will  not  be  able  to  make  any  ordinary   dividend
distributions, and any distributions made before the losses were realized but in
the same taxable year would be accreted as a return of capital to  Shareholders,
thereby reducing each Shareholder's basis in his shares.

   
         Conversion Transactions.  All or a portion of the capital gain from the
disposition or other  termination of any position that was part of a "conversion
transaction"  will  generally  be  accreted  as ordinary  income.  A  conversion
transaction  is a  transaction,  generally  consisting of two or more  positions
taken with regard to the same or similar  property,  where  substantially all of
the taxpayer's  return is  attributable  to the time value of the taxpayer's net
investment  in the  transaction.  A  transaction,  however,  is not a conversion
transaction unless it also satisfies one of the following four criteria: (1) the
transaction  consists  of the  acquisition  of property  by the  taxpayer  and a
substantially  contemporaneous  agreement  to sell  the  same  or  substantially
identical property in the future; (2) the transaction is a straddle,  within the
meaning  of  Section  1092  (treating  stock  as  personal  property);  (3)  the
transaction  is one that was  marketed or sold to the taxpayer on the basis that
it  would  have the  economic  characteristics  of a loan but the  interest-like
return would be taxed as capital gain; or (4) the  transaction is described as a
conversion  transaction in regulations to be promulgated on a prospective  basis
by the Secretary of the Treasury.
    

         Subject  to  regulations  to be  promulgated  by the  Secretary  of the
Treasury,  the amount of gain accreted as ordinary  income  generally  shall not
exceed the amount of interest  that would have  accrued on the  Portfolio's  net
investment  in the  conversion  transaction  for the relevant  period at a yield
equal to 120% of the  applicable  federal  rate as defined  in Section  1274(d).
Thus,  to the  extent  that the  Portfolio  recognizes  income  from  conversion
transactions,  Shareholders  will be  taxed on all or a part of this  income  at
ordinary rates.

   
         Constructive  Sales of Certain  Appreciated  Financial  Positions.  The
recently  enacted Taxpayer Relief Act added new Code Section 1259 which provides
for  constructive  sale  treatment for  appreciated  financial  positions.  Code
Section 1259 provides that if there is a "constructive  sale" of an "appreciated
financial position," the taxpayer recognizes gain as if such position were sold,
assigned or  otherwise  terminated  at its fair market value on the date of such
constructive sale. The holding period of such position is deemed to begin on
    

                                      -42-



<PAGE>



   
the date of such constructive  sale and any gain or loss  subsequently  realized
with respect to such  position is to be adjusted for any gain taken into account
by reason of the earlier constructive sale of such position.

         An appreciated  financial  position for this purpose means an interest,
including a futures or forward  contract,  short sale, or option with respect to
any stock,  debt  instrument or  partnership  interest if there would be gain if
such  position  were sold,  assigned or otherwise  terminated at its fair market
value.  A forward  contract  for this  purpose  means a  contract  to  deliver a
substantially  fixed amount of property  for a  substantially  fixed  price.  An
offsetting  notional  principal contract for this purpose means, with respect to
any property, an agreement which includes a requirement to pay or provide credit
for all or substantially all of the investment yield (including appreciation) on
such property for a specified period and a right to be reimbursed for or receive
credit  for  all or  substantially  all of any  decline  in the  value  of  such
property.  An  appreciated  financial  position,  however,  does not include any
position which is marked to market for federal income tax purposes,  nor does it
include  any  position  with  respect  to debt if (1) the  debt  unconditionally
entitles the holder to receive a specified  principal  amount,  (2) the interest
payments  (or other  similar  amounts)  with respect to such debt are based on a
fixed  rate or certain  variable  rates or  consist  of a  specified  portion of
interest payments on a pool of mortgages, which portion does not vary during the
period the debt is outstanding,  and (3) the debt is not convertible directly or
indirectly into stock of the issuer or of any related person.

         A  taxpayer  is  treated  as  having  made a  constructive  sale  of an
appreciated  financial  position if the taxpayer or a related  person (1) enters
into a short sale of the same or substantially  identical  property,  (2) enters
into an  offsetting  notional  principal  contract  with  respect to the same or
substantially  identical property, (3) enters into a futures or forward contract
to deliver the same or substantially  identical property,  (4) in the case of an
appreciated  financial  position  that is a short  sale,  a  notional  principal
contract or a futures or forward contract with respect to any property, acquires
the same or substantially  identical property,  or (5) to the extent provided in
regulations,  enters  into  one or more  transactions  or  acquires  one or more
positions that have substantially the same effect as a transaction  described in
the  preceding  clauses (1) through  (4). A person is related to another  person
with respect to a transaction if the  relationship  is described in Code Section
267(b) or Code Section  707(b) and such  transaction is entered into with a view
toward avoiding the purposes of Code Section 1259. A constructive sale, however,
does  not  include  any  contract  for sale of any  stock,  debt  instrument  or
partnership  interest  for  which  there  is  not a  market  on  an  established
securities market or otherwise if the contract settles within one year after the
date the contract was entered into. Also, a transaction which would otherwise be
treated  as a  constructive  sale in a taxable  year is  disregarded  if (1) the
transaction  is  closed  before  the end of the 30th day after the close of such
taxable  year,  (2)  the  taxpayer  holds  the  appreciated  financial  position
throughout  the 60 day period  beginning on the date such  transaction is closed
and (3) at no time during such 60 day period is the taxpayer's risk of loss with
respect to such position  reduced by reason of the taxpayer (x) having an option
to sell, having a contractual  obligation to sell, or having made and not closed
a short sale of, substantially  identical property,  (y) being the grantor of an
option to buy substantially identical property or (z) under regulations,  having
diminished  his risk of loss by holding one or more  positions  with  respect to
substantially  similar or related property.  This exception to constructive sale
treatment  applies even if the transaction which is closed is reestablished by a
substantially  similar  transaction  (which would also be a constructive sale of
the  position)  entered into during the 60 day period  beginning on the date the
first transaction is closed, provided that the conditions in clauses (1) through
(3) in the preceding  sentence are satisfied  with respect to the  substantially
similar transaction.

         In general,  Code Section 1259 applies to any  constructive  sale after
June 8, 1997.  However,  if before June 9, 1997 the  taxpayer  entered  into any
transaction which is a constructive sale of any appreciated  financial  position
and before the close of the 30 day period beginning on the date of the enactment
of the Taxpayer  Relief Act or before such later date as may be specified by the
Secretary of the Treasury,  such transaction and position are clearly identified
in the taxpayer's records as offsetting, such transaction and position shall not
be taken into account in determining  whether any other  constructive sale after
June 8, 1997 has occurred.  This  transition rule ceases to apply as of the date
such transaction is closed or the taxpayer ceases to hold such position.
    


                                      -43-



<PAGE>



   
         It is  possible  that the  Portfolio  may enter into some  transactions
which could constitute  constructive  sales of certain  appreciated  investments
held by the  Portfolio,  which  could  have  the  affect  of  accelerating  gain
recognition with respect to such investments.

         Passive Foreign Investment Companies.  If the Portfolio acquires shares
in certain  foreign  investment  entities,  called "passive  foreign  investment
companies" (a "PFIC"),  the  Portfolio  may be subject to United States  federal
income tax on a portion of any "excess  distribution"  received  with respect to
such shares or on a portion of any gain  recognized  upon a disposition  of such
shares,  notwithstanding  the distribution of such income to the Shareholders of
the Portfolio.  Additional charges in the nature of interest may also be imposed
on the Portfolio in respect of such federal  income taxes.  However,  in lieu of
sustaining the foregoing tax  consequences,  the Portfolio may elect to have its
investment in any PFIC taxed as an investment in a "qualified  electing fund" (a
"QEF"). By making a QEF election,  the Portfolio would be required to include in
its  income  each year a ratable  portion,  whether or not  distributed,  of the
ordinary earnings and net capital gain of the QEF. Any such QEF inclusions would
have to be taken into account by the Portfolio  for purposes of  satisfying  the
Distribution Requirement and the excise tax distribution requirement.

         The Taxpayer Relief Act enacted a rule which permits taxpayers to elect
to mark  to  market  interests  in a PFIC  each  year if  stock  in the  PFIC is
regularly traded on a national  securities exchange which is registered with the
Securities  and Exchange  Commission or the national  market system  established
pursuant to section 11A of the  Securities and Exchange Act of 1934, as amended.
The Internal  Revenue Service has the authority to write  regulations to include
other  exchanges  and to apply the mark to market rules to options and interests
in foreign corporations that are comparable to regulated  investment  companies.
Any gain or loss  recognized  under these rules will be ordinary  income  rather
than capital gain. It is uncertain at this time whether the Portfolio  will make
the mark to market election permitted under these rules.

         The Internal Revenue Service previously had issued proposed regulations
that would  permit the  Portfolio  to elect (in lieu of paying  deferred  tax or
making a QEF election) to mark-to-market  annually any PFIC shares that it owned
and to  include  any gains  (but not  losses)  that it was  deemed to realize as
ordinary  income.  The  Portfolio  generally  would not be subject  to  deferred
Federal  income tax on any gains that it was deemed to realize as a  consequence
of making a mark-to-market  election, but such gains would be taken into account
by the Portfolio for purposes of satisfying the Distribution Requirement and the
excise tax distribution requirement. The proposed regulations indicate that they
would apply only prospectively, to taxable years ending after their promulgation
as  final  regulations.  It is  unclear  how the  proposed  regulations  will be
modified  following  the  enactment of the rules in the  Taxpayer  Relief Act of
1997.

         Short-Short  Gain Test.  Because  of the  Short-Short  Gain Test,  will
continue  to apply  during  the  Portfolio's  1997  tax  year,  before  1998 the
Portfolio  may  have to  limit  the sale of  appreciated  (but not  depreciated)
securities  that it has held for less  than  three  months.  The  short  sale of
(including  for this purpose the  acquisition of a put option on) (1) securities
held on the date of the short  sale or  acquired  after the short sale and on or
before the date of closing  thereof or (2) securities  which are  "substantially
identical"  to securities  held on the date of the short sale or acquired  after
the short sale and on or before the date of the  closing  thereof may reduce the
holding period of such securities for purposes of the Short-Short Gain Test.
    

         Any  increase  in value  of a  position  that is part of a  "designated
hedge" will be offset by any decrease in value (whether  realized or not) of the
offsetting  hedging position during the period of such hedge for purposes of the
Short-Short  Gain  Test.  Thus,  only the net gain (if any) from the  designated
hedge will be included in gross  income for  purposes  of the  Short-Short  Gain
Test. The Portfolio anticipates engaging in hedging transactions that qualify as
designated  hedges.  However,  because of the  failure of the U.S.  Treasury  to
promulgate regulations as authorized by the Code, it is not clear at the present
time whether this treatment will be available to all of the Portfolio's  hedging
transactions.  To the  extent the  Portfolio's  transactions  do not  qualify as
designated hedges, the Portfolio's  investments in short sales, options or other
transactions may be limited.


                                      -44-



<PAGE>



         THE  FOREGOING IS ONLY A SUMMARY OF CERTAIN  MATERIAL TAX  CONSEQUENCES
AFFECTING  THE  PORTFOLIO  AND ITS  SHAREHOLDERS.  SHAREHOLDERS  ARE  ADVISED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR  TAX  CONSEQUENCES
TO THEM OF AN INVESTMENT IN THE PORTFOLIO.

                                  MISCELLANEOUS

         Counsel. Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019,
serves as counsel to the Portfolio, the Investment Manager and the Distributor.

         Independent  Auditors.  Deloitte  & Touche  LLP,  Two  World  Financial
Center,  New  York,  New  York  10281,  serves  as the  Portfolio's  independent
auditors.

         The  Prospectus  and this  Statement of Additional  Information  do not
contain all of the information set forth in the  Registration  Statement and the
exhibits relating thereto, which the Portfolio has filed with the Securities and
Exchange  Commission,  Washington,  D.C.,  under  the  Securities  Act  and  the
Investment Company Act to which reference is hereby made.

                              FINANCIAL STATEMENTS

         The Portfolio's Annual Report to Shareholders for the fiscal year ended
March 31, 1997,  including  the  financial  statements,  accompanying  notes and
report  of  independent  auditors  appearing  therein,  is a  separate  document
supplied with this  Statement of Additional  Information  and is available  upon
request by calling 1-800- 447-1139.

BSF-S-004-02

                                      -45-



<PAGE>





APPENDIX A

                              INVESTMENT PRACTICES

         A detailed  discussion of various  hedging and fixed income  strategies
that may be pursued by the Investment Manager on behalf of the Portfolio follows
below.  The  Portfolio  will not be obligated to pursue any of these  investment
strategies  and  makes  no  representation  as  to  the  availability  of  these
techniques at this time or at any time in the future. The Investment Manager may
utilize these  investment  practices to the extent that they are consistent with
the Portfolio's investment objective and permitted by the Portfolio's investment
limitations and applicable regulatory authorities.

         The Portfolio may engage in certain forward,  futures, options, forward
foreign exchange contracts,  interest rate swaps and other strategies to attempt
to  reduce  the  overall  risk of its  investments  (hedge),  adjust  investment
exposure, enhance income, or to replicate a fixed income return in markets which
present an  attractive  interest rate  environment  but which  restrict  foreign
investment in fixed income  securities;  however,  the instruments  necessary to
engage in such  investment  practices  may not generally be available or may not
provide a perfect hedge and also entail certain risks.

         The Portfolio may engage in certain options  strategies  involving debt
securities and may enter into forward currency  contracts in order to attempt to
enhance income or to hedge the Portfolio's  investments.  The Portfolio also may
use bond index  futures  contracts,  interest  rate futures  contracts,  foreign
currency futures contracts (collectively,  "futures contracts" or "futures") and
forward currency  contracts,  and use options and futures  contracts for hedging
purposes  or in  other  circumstances  permitted  by  the  CFTC.  The  foregoing
instruments are sometimes referred to collectively as "Hedging  Instruments" and
certain  special  characteristics  of and risks  associated  with using  Hedging
Instruments  are  discussed  below.  In  addition to the  investment  guidelines
(described  below)  adopted by the Board of  Trustees  to govern  investment  in
Hedging  Instruments,  use of these instruments may be subject to the applicable
regulations of the Securities and Exchange  Commission (the  "Commission"),  the
several options and futures  exchanges upon which options and futures  contracts
are traded,  and other  regulatory  authorities.  In  addition to the  products,
strategies and risks described below, the Investment Manager may become aware of
additional opportunities in connection with options, futures contracts,  forward
currency  contracts and other hedging  techniques.  These new  opportunities may
become  available  as  the  Investment  Manager  develops  new  techniques,   as
regulatory  authorities  broaden the range of permitted  transactions and as new
options,  futures contracts,  forward currency contracts or other techniques are
developed.  The Investment Manager may utilize these opportunities to the extent
that  they  are  consistent  with  the  Portfolio's  investment  objectives  and
permitted by the Portfolio's  investment  limitations and applicable  regulatory
authorities.

         The following  discussion  summarizes the principal currency management
strategies  involving forward  contracts that may be used by the Portfolio.  The
Portfolio may engage in hedging strategies,  including among others,  settlement
hedging, transaction hedging, position hedging, proxy hedging and cross-hedging.
A "settlement hedge" or "transaction hedge" is designed to protect the Portfolio
against an adverse change in foreign currency values between the date a security
is purchased or sold and the date on which payment is made or received. Entering
into a forward  contract  for the  purchase  or sale of the  amount  of  foreign
currency  involved in an underlying  security  transaction for a fixed amount of
U.S. dollars "locks in" the U.S. dollar price of the security. Forward contracts
to  purchase or sell a foreign  currency  may also be used by the  Portfolio  in
anticipation of future  purchases or sales of securities  denominated in foreign
currency, even if the specific investments have not yet been selected by BSFM.

         The Portfolio may also use forward contracts to hedge against a decline
in the value of existing  investments  denominated  in a foreign  currency.  For
example, if the Portfolio owns securities  denominated in a particular currency,
it could  enter into a forward  contract  to sell that  particular  currency  in
return for U.S.

                                       A-1



<PAGE>



dollars to hedge against possible  declines in the particular  currency's value.
Such a hedge,  sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency  fluctuations,  but would not offset changes
in security  values caused by other factors.  The Portfolio could also hedge the
position  by selling  another  currency  (or basket of  currencies)  expected to
perform  similarly  to a  particular  currency.  This type of  hedge,  sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost,  yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a direct  hedge  into U.S.  dollars.  Proxy  hedges  may result in losses if the
currency  used to hedge does not perform  similarly to the currency in which the
hedged  securities are denominated.  With regard to the Portfolio's use of proxy
hedges,  there can be no  assurance  that  historical  correlations  between the
movement  of  certain  foreign  currencies  relating  to the  U.S.  dollar  will
continue.  Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying the Portfolio's proxy hedges
and the movements in the exchange  rates of the foreign  currencies in which the
Portfolio assets that are the subject of such proxy-hedges are denominated.

         The Portfolio may enter into forward  contracts to shift its investment
exposure from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency. This type of strategy,  sometimes known as a
"cross-hedge," will tend to reduce or eliminate exposure to the currency that is
sold,  and increase  exposure to the currency that is purchased,  much as if the
Portfolio  had sold a security  denominated  in one  currency  and  purchased an
equivalent security denominated in another.  Cross-hedges protect against losses
resulting from a decline in the hedged currency, but will cause the Portfolio to
assume the risk of fluctuations in the value of the currency it purchases.

         Successful use of currency management  strategies will depend on BSFM's
skill  in  analyzing  currency  values.   Currency  management   strategies  may
substantially change the Portfolio's  investment exposure to changes in currency
exchange  rates and could result in losses to the Portfolio if currencies do not
perform as BSFM anticipates.  For example,  if a currency's value rose at a time
when BSFM had hedged the  Portfolio  by selling  that  currency in exchange  for
dollars, the Portfolio would not participate in the currency's appreciation.  If
BSFM hedges currency exposure through proxy hedges,  the Portfolio could realize
currency  losses  from  both the  hedge  and the  security  position  if the two
currencies do not move in tandem.  Similarly,  if BSFM increases the Portfolio's
exposure to a foreign currency and that currency's value declines, the Portfolio
will  realize  a  loss.  There  is no  assurance  that  BSFM's  use of  currency
management  strategies  will be  advantageous  to the  Portfolio or that it will
hedge at appropriate times.

         Foreign  Currency  Transactions.  A forward foreign  currency  exchange
contract  involves an  obligation  to purchase or sell a specific  currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties,  at a price set at the time of the  contract.  These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit  requirement,  and no commissions are generally charged
at any stage for trades.

         At the maturity of a forward contract,  the Portfolio may either accept
or make  delivery of the  currency  specified in the contract or, at or prior to
maturity,  enter into a closing purchase  transaction  involving the purchase or
sale of an offsetting  contract.  Closing purchase  transactions with respect to
forward  contracts are usually  effected with the currency trader who is a party
to the original forward contract.

         The Portfolio may enter into forward currency  contracts to purchase or
sell foreign  currencies for a fixed amount of U.S.  dollars or another  foreign
currency for any lawful  purpose.  For  example,  the  Portfolio  may purchase a
forward  currency  contract  to lock in the  U.S.  dollar  price  of a  security
denominated  in a foreign  currency  that the Portfolio  intends to acquire.  In
addition, the Portfolio may sell a forward currency contract to lock in the U.S.
dollar  equivalent  of the  proceeds  from the  anticipated  sale of a  security
denominated in a foreign currency.

         The cost to the  Portfolio  of engaging in forward  currency  contracts
varies with factors such as the  currency  involved,  the length of the contract
period and the market conditions then prevailing. Because forward

                                       A-2



<PAGE>



currency  contracts are usually  entered into on a principal  basis,  no fees or
commissions  are  involved.  When the Portfolio  enters into a forward  currency
contract,  it  relies  on the  counterparty  to  make or  take  delivery  of the
underlying currency at the maturity of the contract. Failure by the counterparty
to do so would result in the loss of any expected benefit of the transaction.

         Settlement of hedging  transactions  involving foreign currencies might
be required to take place within the country  issuing the  underlying  currency.
Thus,  the  Portfolio  might be  required  to  accept  or make  delivery  of the
underlying  foreign currency in accordance with any U.S. or foreign  regulations
regarding the maintenance of foreign banking  arrangements by U.S. residents and
might be  required  to pay any fees,  taxes  and  charges  associated  with such
delivery assessed in the issuing country.

         The Portfolio may also create non-speculative  "synthetic" positions. A
synthetic position is deemed not to be speculative if the position is covered by
segregation  of  short-term  liquid  assets.  A  "synthetic   position"  is  the
duplication  of a  cash  market  transaction  when  deemed  advantageous  by the
Investment  Manager for cost liquidity or transactional  efficiency  reasons.  A
cash market transaction is the purchase or sale of a security or other asset for
cash.  For example,  from time to time,  the  Portfolio  experiences  large cash
inflows which may be redeemed  from the Portfolio in a relatively  short period.
In this case,  the  Portfolio  currently  can leave the  amounts  uninvested  in
anticipation  of the  redemption or the Portfolio can invest in securities for a
relatively  short  period,  incurring  transaction  costs  on the  purchase  and
subsequent sale. Alternatively, the Portfolio may create a synthetic position by
investing in a futures contract on a security, such as a deutschemark bond or on
a securities  index  gaining  investment  exposure to the relevant  market while
incurring  lower  overall  transaction  costs.  Since the  financial  markets in
emerging countries are not as developed as in the United States, these financial
investments  may not be  available to the  Portfolio  and the  Portfolio  may be
unable to hedge certain risks or enter into certain transactions.  The Portfolio
would enter into such  transactions  if the markets for these  instruments  were
sufficiently  liquid and there was an acceptable  degree of  correlation  to the
cash market.  By segregating  cash, the Portfolio's  features  contract position
would  generally be no more  leveraged or riskier than if it had invested in the
cash market i.e., purchased securities.

         As is the case with futures  contracts,  holders and writers of forward
currency  contracts can enter into offsetting closing  transactions,  similar to
closing  transactions  on futures,  by selling or purchasing,  respectively,  an
instrument  identical  to the  instrument  held or  written.  Secondary  markets
generally  do not exist for  forward  currency  contracts,  with the result that
closing  transactions  generally can be made for forward currency contracts only
by negotiating  directly with the counterparty.  Thus, there can be no assurance
that the Portfolio will in fact be able to close out a forward currency contract
at a favorable price prior to maturity.  In addition, in the event of insolvency
of the  counterparty,  the  Portfolio  might be  unable  to close  out a forward
currency contract at any time prior to maturity.  In either event, the Portfolio
would  continue to be subject to market risk with respect to the  position,  and
would  continue to be required to maintain a position in securities  denominated
in the foreign  currency  or to  maintain  cash or  securities  in a  segregated
account.

         The precise matching of forward currency contract amounts and the value
of the securities  involved  generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the foreign
currency  contract  has been  established.  Thus,  the  Portfolio  might need to
purchase or sell foreign currencies in the spot (cash) market to the extent such
foreign  currencies  are not covered by forward  contracts.  The  projection  of
short-term currency market movements is extremely difficult,  and the successful
execution of a short-term hedging strategy is highly uncertain.

         Unless the Portfolio engages in currency hedging transactions,  it will
be subject to the risk of changes in relation to the U.S. dollar of the value of
the  Emerging  Country  currencies  in which its  assets  are  denominated.  The
Portfolio may from time to time seek to protect,  during the period prior to the
remittance,  the value of the amount of  interest,  dividends  and net  realized
capital gains  received or to be received in a local currency that it intends to
remit out of an Emerging  Country by investing in  high-quality  short-term U.S.
dollar-denominated  debt securities of such country and/or  participating in the
forward currency market for the purchase of U.S.  dollars in the country.  There
can be no guarantee that suitable U.S. dollar-denominated

                                       A-3



<PAGE>



investments  will be available at the time the Investment  Manager wishes to use
them to hedge amounts to be remitted.  Moreover,  investors should be aware that
dollar-denominated  securities  may not be  available  in  some or all  Emerging
Countries,  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.

         A separate account of the Portfolio consisting of cash or liquid assets
equal  to the  amount  of the  Portfolio's  assets  that  could be  required  to
consummate  forward  contracts,  when required under  applicable  laws,  will be
established with the Portfolio's  custodian.  For the purpose of determining the
adequacy of the assets in the account,  the  deposited  assets will be valued at
market or fair  value.  If the  market or fair  value of such  assets  declines,
additional  cash or assets will be placed in the account daily so that the value
of the account will equal the amount of such  commitments by the Portfolio.  The
segregated  account  will be  marked-to-market  on a daily  basis.  Although the
contracts  are not presently  regulated by the CFTC,  the CFTC may in the future
assert  authority to regulate these  contracts.  In such event,  the Portfolio's
ability  to  utilize  forward  foreign  currency   exchange   contracts  may  be
restricted.

         The precise  matching of the forward  contract amounts and the value of
the securities  involved will not generally be possible because the future value
of such securities in foreign  currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures.  Accordingly,  it may be necessary  for
the Portfolio to purchase  additional  foreign currency on the spot (i.e., cash)
market  (and bear the  expense  of such  purchase)  if the  market  value of the
security is less than the amount of foreign  currency the Portfolio is obligated
to deliver and if a decision is made to sell the security  and make  delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the Portfolio security if
its market  value  exceeds  the  amount of foreign  currency  the  Portfolio  is
obligated to deliver.  The projection of short-term currency market movements is
extremely  difficult,  and the  successful  execution  of a  short-term  hedging
strategy  is  highly   uncertain.   Forward  contracts  involve  the  risk  that
anticipated  currency  movements will not be accurately  predicted,  causing the
Portfolio  to sustain  losses on these  contracts  and  transaction  costs.  The
Portfolio may enter into a forward  contract and maintain a net exposure on such
contract  only if (1) the  consummation  of the contract  would not obligate the
Portfolio to deliver an amount of foreign currency in excess of the value of the
Portfolio's fund securities or other assets  denominated in that currency or (2)
the  Portfolio  maintains  cash or liquid  assets in a segregated  account in an
amount not less than the value of the Portfolio's  total assets committed to the
consummation  of the contract  which value must be marked to market  daily.  The
Portfolio will comply with guidelines established by the Commission with respect
to coverage of forward  contracts  entered  into by the  Portfolio  and, if such
guidelines so require, will set aside liquid assets in a segregated account with
its   custodian  in  the  amount   prescribed.   Under   normal   circumstances,
consideration  of the prospect for currency  parities will be incorporated  into
the longer term investment decisions made with regard to overall diversification
strategies.  However,  the Investment  Manager  believes that it is important to
have the  flexibility  to enter into such forward  contracts  when it determines
that the best interests of the Portfolio will be served.

         At or before the  maturity  date of a forward  contract  requiring  the
Portfolio  to sell a  currency,  the  Portfolio  may either  sell the  portfolio
security  and use the sale  proceeds to make  delivery of the currency or retain
the security and offset its  contractual  obligation  to deliver the currency by
purchasing a second contract pursuant to which the Portfolio will obtain, on the
same  maturity  date,  the same amount of the  currency  that it is obligated to
deliver.  Similarly, the Portfolio may close out a forward contract requiring it
to purchase a specified currency by entering into a second contract entitling it
to sell the same amount of the same  currency on the maturity  date of the first
contract.  The  Portfolio  would  realize a gain or loss as a result of entering
into such an offsetting  forward currency contract under either  circumstance to
the extent the exchange  rate or rates  between the  currencies  involved  moved
between the execution dates of the first contract and the offsetting contract.


                                       A-4



<PAGE>



         The cost to the  Portfolio  of engaging in forward  currency  contracts
will  vary with  factors  such as the  currencies  involved,  the  length of the
contract  period and the market  conditions  then  prevailing.  Because  forward
currency  contracts are usually  entered into on a principal  basis,  no fees or
commissions  are  involved.  The use of  forward  currency  contracts  will  not
eliminate  fluctuations in the prices of the underlying securities the Portfolio
owns or intends to acquire,  but it will fix a rate of  exchange in advance.  In
addition,  although forward  currency  contracts limit the risk of loss due to a
decline in the value of the hedged  currencies,  at the same time they limit any
potential gain that might result should the value of the currencies increase.

         Although  the  Portfolio  will value its assets  daily in terms of U.S.
dollars,  the  Portfolio  does not intend to  convert  its  holdings  of foreign
currencies into U.S. dollars on a daily basis. The Portfolio may convert foreign
currency  from  time to time,  and  investors  should  be aware of the  costs of
currency  conversion.  Although foreign exchange dealers do not charge a fee for
conversion,  they do realize a profit based on the difference between the prices
at which they are buying and  selling  various  currencies.  Thus,  a dealer may
offer to sell a foreign  currency to the Portfolio at one rate, while offering a
lesser rate of exchange  should the Portfolio  desire to resell that currency to
the dealer.

         The Portfolio  generally will not enter into a forward  contract with a
term of greater than one year.

         Cover for Options and Futures Strategies.  The Portfolio generally will
not use  leverage  in its  options  and  futures  strategies.  In the  case of a
transaction  entered  into as a  hedge,  the  Portfolio  will  hold  securities,
currencies  or other options or futures  positions  whose values are expected to
offset ("cover") its obligations  under the transaction.  The Portfolio will not
enter into an option or a futures  strategy  that  exposes the  Portfolio  to an
obligation  to  another  party  unless  it owns  (1) an  offsetting  ("covered")
position in securities,  currencies or other options or futures contracts or (2)
cash or  liquid  assets  with a value  sufficient  at all  times  to  cover  its
potential obligations.  The Portfolio will comply with guidelines established by
the  Commission  with  respect to coverage of option and futures  strategies  by
mutual funds and, if such guidelines so require, will set aside liquid assets in
a segregated  account with its custodian in the amount  prescribed.  Securities,
currencies or other options or futures  positions  used for cover and securities
held in a  segregated  account  cannot be sold or closed out while the option or
futures  strategy is outstanding,  unless they are replaced with similar assets.
As a  result,  there is a  possibility  that  the use of  cover  or  segregation
involving  a large  percentage  of the  Portfolio's  assets  could  impede  fund
management or the Portfolio's ability to meet current obligations.

         Option  Income and Hedging  Strategies.  The Portfolio may purchase and
write  (sell)  both OTC and  exchange-traded  options.  Exchange-traded  options
generally are issued by a clearing organization  affiliated with the exchange on
which the option is listed,  which,  in effect,  guarantees  completion of every
exchange-traded  option  transaction.  In  contrast,  OTC options are  contracts
between  the  Portfolio  and its  counter-party  with no  clearing  organization
guarantee. Thus, when the Portfolio purchases an OTC option, it will rely on the
dealer from which it has  purchased  the OTC option to make or take  delivery of
the  securities  underlying  the  option.  Failure  by the dealer to do so would
result in the loss of the premium paid by the Portfolio,  as well as the loss of
the expected benefit of the transaction.  Currently,  options on debt securities
and most foreign currencies are primarily traded on the OTC market.

         The  Portfolio  may  purchase  call  options  on  securities  that  the
Investment  Manager intends to include in the Portfolio's  portfolio in order to
fix the cost of a future purchase. Call options also may be purchased as a means
of enhancing  returns by, for example,  participating  in an  anticipated  price
increase  of a security on a more  limited  risk basis than would be possible if
the security  itself were  purchased.  In the event of a decline in the price of
the  underlying  security,  use of  this  strategy  would  serve  to  limit  the
Portfolio's potential loss to the option premium paid; conversely, if the market
price of the  underlying  security  increases  above the exercise  price and the
Portfolio either sells or exercises the option,  any profit eventually  realized
will be reduced by the premium paid.

         The  Portfolio  may  purchase  put  options on  securities  in order to
attempt to hedge against a decline in the market value of securities held in its
portfolio or to enhance return. A put option would enable the Portfolio

                                       A-5



<PAGE>



to sell the underlying  security at a  predetermined  exercise  price;  thus the
potential for loss to the Portfolio below the exercise price would be limited to
the option  premium  paid. If the market price of the  underlying  security were
higher  than the  exercise  price of the put  option,  any profit the  Portfolio
realizes on the sale of the  security  would be reduced by the premium  paid for
the put option less any amount for which the put option may be sold.

         The  Portfolio may write covered call options on securities in which it
may invest for hedging  purposes  or to increase  income in the form of premiums
received from the  purchasers of the options.  Because it can be expected that a
call option will be  exercised if the market  value of the  underlying  security
increases  to a level  greater  than the  exercise  price,  the  Portfolio  will
generally write covered call options on securities  when the Investment  Manager
believes  that  the  premium   received  by  the  Portfolio,   plus  anticipated
appreciation  in the market price of the underlying  security up to the exercise
price of the option, will be greater than the total appreciation in the price of
the  security.  The  strategy  may also be used to  provide  limited  protection
against a decrease in the market price of the security in an amount equal to the
premium received for writing the call option less any transaction  costs.  Thus,
in the  event  that the  market  price of the  underlying  security  held by the
Portfolio declines,  the amount of such decline will be offset wholly or in part
by the amount of the premium received by the Portfolio. If, however, there is an
increase  in the  market  price of the  underlying  security  and the  option is
exercised,  the  Portfolio  would be obligated to sell the security at less than
its market value.  The Portfolio would give up the ability to sell the portfolio
securities  used to cover the call option while the call option is  outstanding.
In the case of OTC options written by the Portfolio,  such securities would also
be considered illiquid. Similarly, assets used to "cover" OTC options written by
the  Portfolio  will be treated as  illiquid  unless the OTC options are sold to
qualified dealers who agree that the Portfolio may repurchase any OTC options it
writes for a maximum price to be calculated by a formula set forth in the option
agreement. The "cover" for an OTC option written subject to this procedure would
be  considered  illiquid  only to the extent that the maximum  repurchase  price
under the formula  exceeds the intrinsic value of the option.  In addition,  the
Portfolio  could lose the ability to  participate in an increase in the value of
such  securities  above the  exercise  price of the call option  because such an
increase  would  likely be offset by an  increase in the cost of closing out the
call option (or could be negated if the buyer chose to exercise  the call option
at an exercise price below the securities' current market value).

         The Portfolio  may write put options.  A put option gives the purchaser
of the option the right to sell, and the writer  (seller) the obligation to buy,
the underlying  security at the exercise price during the option period. So long
as the  obligation  of the  writer  continues,  the writer  may be  assigned  an
exercise notice by the purchaser of options requiring the writer to make payment
of the  exercise  price  against  delivery  of the  underlying  security or take
delivery.  The  operation  of put  options in other  respects,  including  their
related risks and rewards,  is substantially  identical to that of call options.
If the put option is not  exercised,  the Portfolio  will realize  income in the
amount of the premium received.  This technique could be used to enhance current
return during periods when the Investment  Manager expects that the price of the
security will not  fluctuate  greatly.  The risk in such a transaction  would be
that the  market  price of the  underlying  security  would  decline  below  the
exercise  price less the premium  received,  in which case the  Portfolio  would
expect to suffer a loss.

         The  Portfolio  may  purchase  put and call  options  and write put and
covered  call  options  on bond  indices  in much  the same  manner  as the more
traditional  securities options discussed above,  except that bond index options
may serve as a hedge against overall fluctuations in the debt securities markets
(or a market sector) rather than anticipated increases or decreases in the value
of a  particular  security.  A bond  index  assigns  a value  to the  securities
included in the index and fluctuates with changes in such values.  Settlement of
bond index  options  are  effected  with cash  payments  and do not  involve the
delivery of  securities.  Thus,  upon  settlement  of a bond index  option,  the
purchaser  will  realize,  and the  writer  will  pay,  an  amount  based on the
difference  between the exercise  price and the closing price of the bond index.
The effectiveness of hedging  techniques using bond index options will depend on
the extent to which price  movements in the bond index  selected  correlate with
price movements of the securities in which the Portfolio invests.


                                       A-6



<PAGE>



         The Portfolio may purchase and write covered straddles on securities or
bond  indices.  A long  straddle  is a  combination  of a call and a put  option
purchased on the same security  where the exercise price of the put is less than
or equal to the exercise  price of the call.  The  Portfolio  would enter into a
long straddle when the  Investment  Manager  believes that it is likely that the
price of the  underlying  security will be more volatile  during the term of the
options than the option pricing implies.  A short straddle is a combination of a
call and a put written on the same security  where the exercise price of the put
is less than or equal to the exercise price of the call and where the same issue
of security or currency is considered  cover for both the put and the call.  The
Portfolio would enter into a short straddle when the Investment Manager believes
that it is unlikely  the price of the  underlying  security  will be as volatile
during the term of the options as the option pricing implies.

         Special Characteristics and Risks of Options Trading. The Portfolio may
effectively terminate its right or obligation under an option by entering into a
closing  transaction.  If the Portfolio  wishes to terminate  its  obligation to
purchase  or sell  securities  under a put or call  option it has  written,  the
Portfolio may purchase a put or call option of the same series (i.e.,  an option
identical  in its terms to the option  previously  written);  this is known as a
closing  purchase  transaction.  Conversely,  in order to terminate its right to
purchase or sell specified  securities or currencies  under a call or put option
it has  purchased,  the  Portfolio may write an option of the same series as the
option held; this is known as a closing sale transaction.  Closing  transactions
essentially  permit  the  Portfolio  to realize  profits or limit  losses on its
options  positions prior to the exercise or expiration of the option.  Whether a
profit or loss is  realized  from a  closing  transaction  depends  on the price
movement of the  underlying  security or  currency  and the market  value of the
option.

         In  considering  the use of options  to enhance  income or to hedge the
Portfolio's investments, particular note should be taken of the following:

         (1) The value of an option  position will reflect,  among other things,
the current market price of the  underlying  security,  or bond index,  the time
remaining until expiration, the relationship of the exercise price to the market
price, the historical price volatility of the underlying security, or bond index
and general market conditions. For this reason, the successful use of options as
a hedging strategy depends upon the Investment Manager's ability to forecast the
direction of price fluctuations in the underlying  securities or, in the case of
bond  index  options,  fluctuations  in the  market  sector  represented  by the
selected index.

         (2)  Options  normally  have  expiration  dates of up to 90  days.  The
exercise price of the options may be below, equal to or above the current market
value of the underlying securities, bond index or currencies.  Purchased options
that  expire  unexercised  have no  value.  Unless an  option  purchased  by the
Portfolio is exercised or unless a closing  transaction is effected with respect
to that position, the Portfolio will realize a loss in the amount of the premium
paid and any transaction costs.

         (3) A position in an  exchange-listed  option may be closed out only on
an exchange that provides a secondary market for identical options. Although the
Portfolio  intends  to  purchase  or write only those  options  for which  there
appears to be an active  secondary  market,  there is no assurance that a liquid
secondary  market will exist for any  particular  option at any  specific  time.
Closing  transactions  may be effected with respect to options traded in the OTC
markets  (currently the primary markets for options on debt  securities) only by
negotiating  directly  with the  other  party to the  option  contract,  or in a
secondary market for the option if such a market exists.  Although the Portfolio
will enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with the Portfolio, there can be no assurance
that the Portfolio will be able to liquidate an OTC option at a favorable  price
at  any  time  prior  to   expiration.   In  the  event  of  insolvency  of  the
counter-party,  the  Portfolio  may  be  unable  to  liquidate  an  OTC  option.
Accordingly,  it may not be possible to effect closing transactions with respect
to certain  options,  with the result that the Portfolio  would have to exercise
those  options  which it has  purchased  in order to realize  any  profit.  With
respect  to options  written by the  Portfolio,  the  inability  to enter into a
closing transaction may result in material losses to the Portfolio. For example,
because the Portfolio must maintain a covered  position with respect to any call
option it writes on a security,  bond index or currency,  the  Portfolio may not
sell the  underlying  security  or  currency  (or  invest  any cash,  government
securities or short-term debt securities used to cover a bond index

                                       A-7



<PAGE>



option) during the period it is obligated under the option. This requirement may
impair  the  Portfolio's  ability  to sell  the  Portfolio  security  or make an
investment at a time when such a sale or investment might be advantageous.

         (4)  Bond  index  options  are  settled  exclusively  in  cash.  If the
Portfolio  writes a call  option on an  index,  the  Portfolio  will not know in
advance the  difference,  if any,  between the closing value of the index on the
exercise date and the exercise price of the call option itself and thus will not
know the amount of cash payable upon settlement. In addition, a holder of a bond
index  option who  exercises  it before the closing  index value for that day is
available runs the risk that the level of the underlying  index may subsequently
change.

         (5) The  Portfolio's  activities  in the options  markets may result in
higher  fund  turnover  rates  and  additional  brokerage  costs;  however,  the
Portfolio may also save on  commissions  by using options as a hedge rather than
buying or selling individual securities in anticipation or as a result of market
movements.

         Futures  Strategies.  The Portfolio may engage in futures strategies to
attempt to reduce the overall investment risk that would normally be expected to
be associated  with  ownership of the  securities in which it invests.  This may
involve,  among other  things,  using  futures  strategies to manage the average
duration of the Portfolio's debt securities. If the Investment Manager wishes to
shorten the average  duration of the Portfolio's  securities,  the Portfolio may
sell a futures  contract.  If the  Investment  Manager  wishes to  lengthen  the
average duration of the Portfolio's securities,  the Portfolio may buy a futures
contract.

         The Portfolio may use interest rate futures contracts to hedge its fund
against   changes  in  the  general  level  of  interest   rates  and  in  other
circumstances permitted by the CFTC. The Portfolio may purchase an interest rate
futures  contract  when it intends to purchase debt  securities  but has not yet
done so. This  strategy may minimize the effect of all or part of an increase in
the market price of the debt securities  that the Portfolio  intends to purchase
in the  future.  A rise in the  price  of the  debt  securities  prior  to their
purchase  may be  either  offset  by an  increase  in the  value of the  futures
contract  purchased by the  Portfolio or avoided by taking  delivery of the debt
securities under the futures contract. Conversely, a fall in the market price of
the underlying  debt  securities may result in a  corresponding  decrease in the
value of the futures  position.  The Portfolio may sell an interest rate futures
contract in order to continue to receive the income from a debt security,  while
endeavoring to avoid part or all of the decline in market value of that security
that would accompany an increase in interest rates.

         The Portfolio may sell bond index futures  contracts in anticipation of
a general market or market sector decline that could adversely affect the market
value  of the  Portfolio's  securities.  To the  extent  that a  portion  of the
Portfolio's  portfolio  correlates  with a given  index,  the  sale  of  futures
contracts on that index could reduce the risks  associated with a market decline
and thus provide an alternative to the liquidation of securities positions.  For
example,  if the Portfolio  correctly  anticipates a general  market decline and
sells bond index  futures to hedge  against  this risk,  the gain in the futures
position should offset some or all of the decline in the value of the Portfolio.
The Portfolio may purchase bond index futures contracts if a significant  market
or market sector advance is anticipated.  Such a purchase of a futures  contract
would serve as a  temporary  substitute  for the  purchase  of  individual  debt
securities,  which debt securities may then be purchased in an orderly  fashion.
This  strategy  may  minimize  the effect of all or part of an  increase  in the
market price of securities that the Portfolio intends to purchase. A rise in the
price of the  securities  should  be  partly  or  wholly  offset by gains in the
futures position.

         The Portfolio may also purchase and write covered straddles on interest
rate,  foreign  currency or bond index futures  contracts.  A long straddle is a
combination of a call and a put purchased on the same futures contract where the
exercise  price of the put  option is less than the  exercise  price of the call
option.  The Portfolio would enter into a long straddle when it believes that it
is likely that interest  rates or foreign  currency  exchange rates will be more
volatile during the term of the options than the option pricing implies. A short
straddle is a combination of a call and put written on the same futures contract
where the exercise  price of the put option is less than the  exercise  price of
the call option and where the same security or futures contract is

                                       A-8



<PAGE>



considered for both the put and the call. The Portfolio would enter into a short
straddle when it believes  that it is unlikely  that  interest  rates or foreign
currency  exchange  rates will be as volatile  during the term of the options as
the option pricing implies.

         The settlement  price of a futures  contract is generally a function of
the  spot  market  price of the  underlying  security  and a cost of  financing,
adjusted for any interest,  dividends or other income received on the underlying
instrument  over the life of the  contract.  It is therefore  possible to earn a
return  approximating  that of debt  securities  of a similar tenor to that of a
forward  contract  by  security  or basket of  securities  and selling a futures
contract for such  security or basket.  The Portfolio may enter into such future
strategies,  using  securities other than Debt  Obligations,  in cases where (a)
government  regulations  restrict foreign  investment in fixed income securities
but not in other securities,  such as common stocks, or commodities;  and (b) in
the  Investment  Manager's  opinion  both  the  cash  and  futures  markets  are
sufficiently liquid.

         Special  Characteristics and Risks of Futures Trading. No price is paid
upon entering  into a futures  contract.  Instead,  upon entering into a futures
contract,  the  Portfolio  will be required to deposit  with its  custodian in a
segregated  account  in  the  name  of  the  futures  broker  through  whom  the
transaction  will be effected an amount of liquid assets  generally equal to 10%
or less of the contract value.  This amount is known as "initial margin." Unlike
margin in securities transactions, margin on futures contracts the Portfolio has
written does not involve borrowing to finance the futures transactions.  Rather,
initial  margin on futures  contracts  or on such  options is in the nature of a
performance bond or good-faith  deposit on the contract that will be returned to
the Portfolio upon  termination  of the  transaction,  assuming all  contractual
obligations have been satisfied. Under certain circumstances, such as periods of
high  volatility,  the  Portfolio may be required by an exchange to increase the
level of its initial margin payment.  Additionally,  initial margin requirements
may be  increased  generally  in the  future by  regulatory  action.  Subsequent
payments, called "variation margin," to and from the broker, are made on a daily
basis as the value of the  futures  varies,  a process  known as "marking to the
market." For example, if the Portfolio purchases a contract and the value of the
contract  rises,  the Portfolio will receive from the broker a variation  margin
payment equal to that increase in value. Conversely, if the value of the futures
or written option position  declines,  the Portfolio would be required to make a
variation margin payment to the broker equal to the decline in value.  Variation
margin does not involve borrowing to finance the futures,  but rather represents
a  daily  settlement  of the  Portfolio's  obligations  to or  from  a  clearing
organization.

         Holders  and  writers of futures  positions  can enter into  offsetting
closing transactions,  similar to closing transactions on options on securities,
by selling or purchasing,  respectively,  a futures position with the same terms
as the position  held or written.  Positions in futures  contracts may be closed
only on an  exchange or board of trade  providing  a  secondary  market for such
futures.  The Portfolio will incur brokerage fees and related  transaction costs
when it purchases or sells futures contracts and premiums.

         Under certain  circumstances,  futures  exchanges  may establish  daily
limits on the amount that the price of a futures  contract may vary either up or
down from the previous  day's  settlement  price.  Once the daily limit has been
reached  in a  particular  contract,  no trades  may be made that day at a price
beyond  that  limit.  The daily  limit  governs  only price  movements  during a
particular trading day and,  therefore,  does not limit potential losses because
futures  prices  could move to the daily limit for several  consecutive  trading
days with  little or no  trading  and  thereby  prevent  prompt  liquidation  of
positions.  In such event,  it may not be possible for the  Portfolio to close a
position and, in the event of adverse price movements,  the Portfolio would have
to make daily cash payments of variation margin (except in the case of purchased
options).  However,  in the event futures contracts have been used to hedge fund
securities,  such  securities  will  not be  sold  until  the  contracts  can be
terminated.  In such circumstances,  an increase in the price of the securities,
if any,  may  partially or  completely  offset  losses on the futures  contract.
However,  there is no guarantee that the price of the securities  will, in fact,
correlate  with the price  movements in the contracts and thus provide an offset
to losses on the contracts.

         In considering  the Portfolio's  use of futures  contracts,  particular
note should be taken of the following:

                                       A-9



<PAGE>



         (1)  Successful  use by the Portfolio of futures  contracts will depend
upon the Investment  Manager's  ability to predict movements in the direction of
the overall  securities,  currency and interest  rate  markets,  which  requires
different  skills  and  techniques  than  predicting  changes  in the  prices of
individual  securities.  Moreover,  futures  contracts relate not to the current
price level of the  underlying  instrument  or currency  but to the  anticipated
levels at some point in the  future.  There is, in  addition,  the risk that the
movements  in the price of the  futures  contract  will not  correlate  with the
movements in prices of the securities or currencies  being hedged.  For example,
if the price of the futures contract moves less than the price of the securities
or  currencies  that are the  subject of the hedge,  the hedge will not be fully
effective;  however,  if the price of securities or currencies  being hedged has
moved in an unfavorable  direction,  the Portfolio would be in a better position
than if it had not hedged at all. If the price of the  securities  being  hedged
has moved in a favorable  direction,  the advantage  may be partially  offset by
losses on the futures position.  In addition,  if the Portfolio has insufficient
cash,  it may have to sell assets  from its  portfolio  to meet daily  variation
margin  requirements.  Any such sale of assets  may or may not be made at prices
that reflect the rising  market.  Consequently,  the  Portfolio may need to sell
assets at a time when such sales are  disadvantageous  to the Portfolio.  If the
price of the  futures  contract  moves  more  than the  price of the  underlying
securities or currencies,  the Portfolio will experience either a loss or a gain
on the futures contract that may or may not be completely offset by movements in
the price of the securities or currencies that are the subject of the hedge.

         (2) In  addition  to the  possibility  that  there may be an  imperfect
correlation,  or no correlation at all,  between price  movements in the futures
position and the securities or currencies being hedged,  movements in the prices
of futures contracts may not correlate perfectly with movements in the prices of
the hedged  securities or  currencies  due to price  distortions  in the futures
market.  There may be several  reasons  unrelated to the value of the underlying
securities or currencies  that cause this  situation to occur.  First,  as noted
above,  all  participants  in the  futures  market are  subject  to initial  and
variation margin  requirements.  If, to avoid meeting  additional margin deposit
requirements  or for other  reasons,  investors  choose  to close a  significant
number of futures contracts through offsetting transactions,  distortions in the
normal price  relationship  between the securities or currencies and the futures
markets  may occur.  Second,  because  the margin  deposit  requirements  in the
futures  market are less  onerous  than margin  requirements  in the  securities
market,  there may be  increased  participation  by  speculators  in the futures
market; such speculative activity in the futures market also may cause temporary
price  distortions.  Third,  participants  could  make or take  delivery  of the
underlying securities or currencies instead of closing out their contracts. As a
result, a correct forecast of general market trends may not result in successful
hedging  through the use of futures  contracts over the short term. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage  and  other  investment  strategies  may  result  in  temporary  price
distortions.

         (3)  Positions  in  futures  contracts  may be  closed  out  only on an
exchange  or board of trade that  provides a secondary  market for such  futures
contracts.  Although the  Portfolio  intends to purchase or sell futures only on
exchanges  or boards of trade  where  there  appears  to be an active  secondary
market,  there is no assurance that a liquid  secondary market on an exchange or
board of trade will exist for any particular contract at any particular time. In
such event, it may not be possible to close a futures position, and in the event
of adverse price movements,  the Portfolio would continue to be required to make
variation margin payments.

         (4) As is the case with  options,  the  Portfolio's  activities  in the
futures  markets  may  result  in higher  fund  turnover  rates  and  additional
transaction  costs in the  form of added  brokerage  commissions;  however,  the
Portfolio may save on commissions by using futures  contracts or options thereon
as a hedge rather than buying or selling individual  securities or currencies in
anticipation or as a result of market movements.

         Guideline for Futures.  The Portfolio will not purchase or sell futures
contracts if,  immediately  thereafter,  the sum of the amount of initial margin
deposits on the  Portfolio's  existing  futures  positions  and  initial  margin
deposits  would exceed 5% of the market value of the  Portfolio's  total assets.
This guideline may be modified by the board without  Shareholder vote.  Adoption
of this  guideline will not limit the  percentage of the  Portfolio's  assets at
risk to 5%.


                                      A-10



<PAGE>



         Interest  Rate Swaps.  The Portfolio may enter into interest rate swaps
for hedging  purposes and  non-hedging  purposes.  Inasmuch as swaps are entered
into for good faith  hedging  purposes or are offset by a segregated  account as
described below, the Portfolio and the Investment  Manager believe that swaps do
not constitute senior  securities as defined in the Investment  Company Act and,
accordingly,  will not treat them as being subject to the Portfolio's  borrowing
restrictions.  The  net  amount  of the  excess,  if  any,  of  the  Portfolio's
obligations over its  entitlements  with respect to each interest rate swap will
be  accrued  on a daily  basis and an amount of cash or liquid  high  grade debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's  or S&P,  or, if  unrated,  deemed by the  Investment  Manager  to be of
comparable credit quality) having an aggregate net asset value at least equal to
such  accrued  excess  will  be  maintained  in  a  segregated  account  by  the
Portfolio's custodian.  The Portfolio will not enter into any interest rate swap
unless the credit  quality of the  unsecured  senior  debt or the  claims-paying
ability of the other party thereto is  considered to be investment  grade by the
Investment  Manager.  If  there  is a  default  by the  other  party  to  such a
transaction,  the  Portfolio  will have  contractual  remedies  pursuant  to the
agreements related to the transaction.  The swap market has grown  substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result,  the swap market has become  relatively  liquid in  comparison  with the
markets for other similar instruments which are traded in the interbank market.


                                      A-11
<PAGE>

                                     PART C.

                                OTHER INFORMATION

                          BEAR STEARNS INVESTMENT TRUST

ITEM 24.          Financial Statements and Exhibits.

         (a)      Financial Statements:

                  The   Financial   Statements   included  in  Part  A  of  this
                  Registration Statement:

   
                  (i)    Financial    Highlights    (Per    Share    Data    and
                  Ratios/Supplemental Data).

                  (ii)  Annual  Report  to   Shareholders   is  incorporated  by
                  reference.
    

                  The   Financial   Statements   included  in  Part  B  of  this
                  Registration Statement:

   
                   None.
    


         (b)      Exhibits:

         Exhibit
         Number           Description


         1.               Agreement and Declaration of Trust of Registrant(a)
 
         2.               By-Laws of Registrant(a)

         3.               None

         4.               None

         5.               Form of Investment  Management  Agreement between Bear
                          Stearns   Investment  Trust  (on  behalf  of  Emerging
                          Markets Debt  Portfolio  (the  "Portfolio"))  and Bear
                          Stearns Funds Management Inc.(d)

         6.               Form of Distribution  Agreement between Registrant and
                          Bear, Stearns & Co. Inc.(a)

         7.               None

         8.1.(a)          Form of Custodian  Agreement between the Portfolio and
                          Brown Brothers Harriman & Co.(b)

         8.1.(b)          Form of Transfer  Agency  Services  Agreement  between
                          Bear Stearns Investment Trust and Provident  Financial
                          Processing Corporation(b)





<PAGE>



         9.1.             Form of Management Agreement between the Portfolio and
                          Bear Stearns Funds Management Inc.(a)

         9.2.             Form  of  Administrative  Services  Agreement  by  and
                          between PFPC Inc. and Bear  Stearns  Investment  Trust
                          (on behalf of the Portfolio)(d)

   
         10.              Opinion and consent of Mayer, Brown & Platt (h)
    

         11.              Consent of Deloitte & Touche LLP, independent auditors

         12.              None

         13.              Form of Investment Letter(a)

         14.              Forms  of  Individual  Retirement  Account  Forms  and
                          Agreements (c)

         15.              Form  of   First   Amended   and   Restated   Plan  of
                          Distribution Pursuant to Rule 12b-1(d)

   
         15.1             Plan of Distribution pursuant to Rule 12b-1

         16.              Schedule of Computation of Performance Data (e)
    

         17.              Financial Data Schedule(h)

   
         18.              Rule 18f-3  Plan(f)

         18.1             Amended Rule 18f-3 Plan(g)

         18.2             Amended Rule 18f-3 Plan

    

- ----------
(a)      Incorporated by reference to the  Registration  Statement on Form N-1A,
         filed previously on October 16, 1992.
(b)      Incorporated  by  reference  to  Pre-Effective  Amendment  No. 1 to the
         Registration  Statement on Form N-1A,  filed previously on December 28,
         1992.
(c)      Incorporated  by reference  to  Post-Effective  Amendment  No. 1 to the
         Registration  Statement on Form N-1A, filed previously on September 13,
         1993.
(d)      Incorporated  by reference  to  Post-Effective  Amendment  No. 3 to the
         Registration  Statement  on Form N-1A,  filed  previously  on March 30,
         1995.

   
(e)      Incorporated  by reference  to  Post-Effective  Amendment  No. 6 to the
         Registration Statement on Form N-1A, filed previously on May 31, 1996.
(f)      Incorporated  by reference  to  Post-Effective  Amendment  No. 5 to the
         Registration  Statement  on Form N-1A,  filed  previously  on April 12,
         1996.
(g)      Incorporated  by reference  to  Post-Effective  Amendment  No. 7 to the
         Registration  Statement  on Form N-1A,  filed  previously  on March 31,
         1997.
(h)      Incorporated  by reference  to  Post-Effective  Amendment  No. 8 to the
         Registration Statement on Form N-1A, filed previously on May 30, 1997.
    

ITEM 25.          Persons Controlled by or Under Common Control with Registrant.

                  Prior to the effectiveness of this Registration Statement, the
         Registrant sold

                                       -2-



<PAGE>



   
10,472 of its shares of  beneficial  interest to Bear Stearns  Funds  Management
Inc.  ("BSFM"),  a New York  corporation.  As of September  2, 1997,  BSFM owned
10,472 shares of beneficial  interest.  BSFM is a wholly owned subsidiary of The
Bear Stearns Companies Inc. The Bear Stearns Companies Inc. is a holding company
which,  through its  subsidiaries  including  its  principal  subsidiary,  Bear,
Stearns & Co. Inc., is a leading United States  investment  banking,  securities
trading and  brokerage  firm  serving  United  States and foreign  corporations,
governments and institutional and individual investors.
    


ITEM 26.          Number of Holders of Securities.

                           (1)                                     (2)
   
                      Title of Class                    Number of Record Holders
              Shares of Beneficial Interest              at  September 11, 1997
    
           SERIES 1: The Emerging Markets Debt
                        Portfolio
   
Class A Shares.......................................               1,161 
Class B Shares.......................................                   0
Class C Shares.......................................                 255 
Class Y Shares.......................................                   0
    

ITEM 27.          Indemnification.

         Indemnification  provisions for each of the  Registrant's  Trustees and
officers and persons who serve at the Trust's request as directors,  officers or
trustees  of other  organizations  in which  the  Trust  has any  interest  as a
shareholder,  creditor  or  otherwise  (thereinafter  referred  to  as  "Covered
Person") are set forth in Article VI, Section 6.4 of the Registrant's  Agreement
and  Declaration  of Trust.  See Item 24(b)1  above.  Under this  Article,  such
persons will not be indemnified for any acts for which  indemnification would be
prohibited by the Investment Company Act of 1940 (the "Investment Company Act").

         Pursuant to Article VI, Section 6.4 of the  Registrant's  Agreement and
Declaration  of Trust and  Section 11 of the  Investment  Management  Agreement,
neither  the  Investment  Manager nor  Covered  Persons  shall be liable for any
action or failure to act except in the case of bad faith,  willful  misfeasance,
gross  negligence or reckless  disregard of duties to the Registrant.  See Items
24(b)1 and 24(b)5.

         "Director and Officer" liability policies purchased by the Trust insure
the Trust's Trustees and officers,  subject to the policy's  coverage limits and
exclusions and deductibles, against loss resulting from claims by reason of act,
error, omission, misstatement, misleading statement, neglect or breach of duty.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to trustees,  officers and
controlling  persons of the Registrant  pursuant to the foregoing  provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and  Exchange  Commission  such  indemnification  is  against  public  policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for  indemnification  against  such  liabilities  (other than the payment by the
Registrant of expenses  incurred or paid by a trustee,  officer,  or controlling
person of the  Registrant  in  connection  with the  successful  defense  of any
action,  suit or proceeding) is asserted against the Registrant by such trustee,
officer or controlling  person in connection  with the shares being  registered,
the  Registrant  will,  unless in the opinion of its counsel the matter has been
settled by controlling precedent,  submit to a court of appropriate jurisdiction
the

                                       -3-



<PAGE>



question  whether  such  indemnification  by  it is  against  public  policy  as
expressed  in the Act,  and will be governed by the final  adjudication  of such
issue.

         The Registrant hereby undertakes that it will apply the indemnification
provision of its Agreement and Declaration of Trust in a manner  consistent with
Release 11330 of the  Securities  and Exchange  Commission  under the Investment
Company Act, so long as the  interpretation  of Sections 17(h) and 17(i) of such
Act remains in effect.

ITEM 28.          Business and Other Connections of Investment Manager.

   
         See  "Management  of the  Portfolio" in the Prospectus and Statement of
Additional  Information  regarding the business of the investment  manager.  For
information  as  to  the  business,  profession,  vocation  or  employment  of a
substantial  nature engaged in by Bear Stearns Funds  Management  Inc. or any of
its respective  officers and directors  during the past two years,  reference is
made to the information  contained in and to Form ADV, filed with the Securities
and Exchange  Commission under the Investment  Advisers Act of 1940, as amended,
by Bear Stearns Funds Management Inc. (SEC File No. 801-29862).
    

ITEM 29.          Principal Underwriters.

         (a)  Bear,  Stearns  & Co.  Inc.  ("Bear  Stearns")  acts as  principal
underwriter or depositor for the following investment companies:
   
    

         o        The Bear Stearns Funds
   
         o        Managed Income Securities Plus Fund, Inc.
    

         (b) Set forth below is a list of each executive officer and director of
Bear  Stearns.  The principal  business  address of each such person is 245 Park
Avenue, New York, New York 10167, except as set forth below.

Positions and Offices      Positions and
Name                      with Bear Stearns             Offices with Registrant
- ----                      -----------------             -----------------------

Directors
- ---------
   
    

James E. Cayne
   
Alan C. Greenberg          Chairman of the Board
John L. Knight 
Mark E. Lehman
Alan D. Schwartz
Warren J. Spector
John H. Slade              Director Emeritus
    

Executive Officers
- ------------------

   
Alan C. Greenberg          Chairman of the Board
James E. Cayne             Chief Executive Officer/President
William J. Montgoris       Chief Operating Officer/
    
                           Chief Financial Officer/
                           Chief Operations Officer(designation)
   
Mark Lehman                Executive Vice President/
                           General Counsel/Chief Legal Officer
    


                                       -4-



<PAGE>



Positions and Offices      Positions and
Name                      with Bear Stearns             Offices with Registrant
- ----                      -----------------             -----------------------

   
Executive Officers
- ------------------

Alan D. Schwartz           Executive Vice President
Warren J. Spector          Executive Vice President
    


Directors
- ---------
   

Michael J. Abatemarco1     Controller/Assistant Secretary
Frederick  B. Casey        Assistant Treasurer
Kenneth L. Edlow           Secretary
Mark E. Lehman             Executive Vice President/
                           General Counsel/Chief  Legal Officer
    
                           (designation)
   
Michael Minikes            Treasurer                       Chairman of the Board
Samuel L. Molinaro, Jr.    Chief Financial Officer/
                           Senior Vice President - Finance

ITEM 30.          Location of Accounts and Records.
    

         All accounts,  books and other  documents  required to be maintained by
Section 31(a) of the Investment Company Act and Rules 31a-1 to 31a-3 promulgated
thereunder are maintained pursuant to the following arrangement:

         Bear Stearns Funds Management Inc., the Portfolio's Investment Manager,
shall  maintain  such records  pertaining  to the  Portfolio as are set forth in
Schedule  C of the  Investment  Management  Agreement.  Such  records  shall  be
maintained by Bear Stearns Funds  Management Inc. at 245 Park Avenue,  New York,
New York 10167. See Item 24(b)5.

         Records  relating to the holders of the shares issued by Registrant are
maintained  by  the  Registrant's  Transfer  Agent,  at  103  Bellevue  Parkway,
Wilmington, Delaware 19809.

         Brown  Brothers  Harriman  &  Co.,  the  Portfolio's  Custodian,  shall
maintain  such  records as set forth in the  Custodian  Agreement.  Such records
shall be maintained by Brown Brothers Harriman & Co. at 40 Water Street, Boston,
Massachusetts 02109.


ITEM 31.          Management Services.

         Registrant is not a party to any management  related  service  contract
not discussed in Part A or Part B of this Form.


- --------
1/       Michael J.  Abatemarco's  principal  business  address  is 1  Metrotech
         Center North, Brooklyn, New York 11201- 3859.

                                       -5-


<PAGE>


ITEM 32.          Undertakings.

         The undersigned Registrant hereby undertakes to include a discussion of
the  Portfolio's  performance in the  Portfolio's  annual report to Shareholders
which will be made available to Shareholders upon request and without charge.

                                   SIGNATURES

   
         Pursuant  to the  requirements  of the  Securities  Act of 1933 and the
Investment   Company  Act  of  1940,   the   Registrant  has  duly  caused  this
Post-Effective Amendment No. 9 to its Registration Statement to be signed on its
behalf by the undersigned,  thereto duly authorized, in the City of Chicago, and
the State of Illinois, on this 25th day of September, 1997.
    

                                    Bear Stearns Investment Trust
                                    (Registrant)


                                    By:   /s/ Peter B. Fox
                                         -------------------
   
                                          Peter B. Fox
                                          President and Trustee
    


         Each person whose signature  appears below hereby  authorizes  Frank J.
Maresca  his  true  and  lawful  attorney-in-fact,   with  full  power  of  such
attorney-in-fact to sign on his behalf, individually and in each capacity stated
below,  any and all  amendments  (including  post-effective  amendments) to this
Registration Statement and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.

   
         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
Registration  Statement  has been signed below by the  following  persons in the
capacities indicated on this 25th day of September, 1997.
    


Signatures                                Title


   
 By:   /s/ Peter B. Fox
       ----------------
    
       Peter B. Fox                       President and Trustee
                                          (Chief Executive Officer)


   
 By:  /s/ Michael Minikes
      -------------------
       Michael Minikes                    Chairman of the Board
    
                                          and Trustee



*By:   /s/ M.B. Oglesby, Jr.
      ---------------------
       M.B. Oglesby, Jr.                  Trustee




                                       -6-



<PAGE>



   
Signatures                                Title
    



*By:   /s/ Peter M. Bren
       -----------------
       Peter M. Bren                      Trustee

   
    




 By:
       ----------------- 
       John R. McKernan, Jr.              Trustee



 By:   /s/ Frank J. Maresca
       -----------------
       Frank J. Maresca                   Vice President
                                          and Treasurer
                                          (Chief Financial Officer
                                          and Chief Accounting Officer)




*        Signed by Frank J. Maresca as  attorney-in-fact  pursuant to a power of
         attorney  contained in the  Registration  Statement  dated  October 16,
         1992,  Pre-Effective  Amendment No. 1 thereto dated  December 28, 1992,
         Post-Effective  Amendment  No. 1 thereto  dated  September 13, 1993 and
         Post- Effective Amendment No. 3 thereto dated March 30, 1995.



                                       -7-

<PAGE>

                          BEAR STEARNS INVESTMENT TRUST

                                  EXHIBIT INDEX
                                       TO
                         POST-EFFECTIVE AMENDMENT NO. 9
                                       TO
                             REGISTRATION STATEMENT
                                  ON FORM N-1A


                                                                   Page Number
                                                                   In Sequential
                                                                   Numbering
Exhibit No.       Description of Document                          System
- -----------       -----------------------                          -------------

    11.           Consent of Independent Auditors

    15.1          Plan of Distribution

    18.2          Amended Rule 18f-3 Plan




<PAGE>


                                                            EXHIBIT 11





                         CONSENT OF INDEPENDENT AUDITORS

The Bear Stearns Investment Trust:

We consent to the incorporation by reference in  Post-Effective  Amendment No. 9
to Registration  Statement No. 33-53368 of our report dated May 9, 1997 relating
to Emerging Markets Debt Portfolio of Bear Stearns  Investment Trust included in
the  Annual  Report to  Shareholders  for the year ended  March 31,  1997 in the
Statement of  Additional  Information.  We also consent to the  references to us
under the caption  "Financial  Highlights" in the  Prospectus,  which also are a
part of such Registration Statement.




Deloitte & Touche LLP
New York, New York
September 25, 1997

<PAGE>

                                                          EXHIBIT 15.1



                          BEAR STEARNS INVESTMENT TRUST

                                DISTRIBUTION PLAN

         WHEREAS,  Bear  Stearns  Investment  Trust  (the  "Trust")  engages  in
business as an open-end management  investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");

         WHEREAS,  the Trust has a series,  the Emerging  Markets Debt Portfolio
and the Trust may establish from time to time  additional  portfolios  each with
different  investment  objectives and policies (a "Portfolio")  and, in turn the
Portfolio  is divided  into  separate  classes  and  additional  classes  may be
established from time to time (a "Class");

         WHEREAS, the Trust desires to adopt this Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act (the  "Rule")  with respect to the Class of
the Portfolio listed on Schedule 1 annexed hereto;

         WHEREAS,  the Trust's Board has  determined  that there is a reasonable
likelihood  that  adoption  of this  Plan will  benefit  the  Portfolio  and its
shareholders; and

         WHEREAS, the Trust employs Bear, Stearns & Co. Inc. (the "Distributor")
as  Distributor  of  the  Portfolio's   shares  (the  "Shares")  pursuant  to  a
Distribution Agreement dated March 1, 1993.

         NOW,  THEREFORE,  the Trust hereby adopts,  and the Distributor  hereby
agrees to the terms of, this Plan in accordance with Rule 12b-1 under the Act on
the following terms and conditions:

         1.       (a)      The Portfolio or Class, as the case may be, shall pay
                           the Distributor for distributing its Shares a monthly
                           fee at the annual rate set forth on Schedule 1.

                  (b)      The  Distributor  may pay one or more third parties a
                           fee in respect of any Shares owned by  investors  for
                           whom the  third  party is the  dealer  or  holder  of
                           record.  The Distributor  shall determine the amounts
                           to be paid to such  third  parties  and the  basis on
                           which such payments will be made. Payments to a third
                           party are  subject to  compliance  by the third party
                           with the terms of any related Plan agreement  between
                           the third party and the Distributor.


                                        1



<PAGE>



                  (c)      For the  purposes  of  determining  the fees  payable
                           under  this  Plan,  the value of the  Portfolio's  or
                           Class' net  assets  shall be  computed  in the manner
                           specified in the Trust's charter documents as then in
                           effect  for  the  computation  of  the  value  of the
                           Portfolio's, or Class' net assets.

         2.       The terms and provision of this Plan shall be interpreted  and
                  defined  in  a  manner  consistent  with  the  provisions  and
                  definitions  contained in (i) the 1940 Act,  (ii) the Rule and
                  (iii) Section 2830 of the National  Association  of Securities
                  Dealers, Inc. Business Conduct Rules or its successor.

         3.       As respects the  Portfolio or Class,  as the case may be, this
                  Plan shall not take effect until it, together with any related
                  agreement, has been approved by vote of a majority of both (a)
                  the  Trust's  Board  and  (b)  those   Trustees  who  are  not
                  "interested  persons" of the Trust (as defined by the Act) and
                  who have no  direct  or  indirect  financial  interest  in the
                  operation  of this Plan or any  agreements  related to it (the
                  "Rule  12b-1  Trustees")  cast  in  person  at a  meeting  (or
                  meetings)  called  for the  purpose of voting on this Plan and
                  such related agreements.

         4.       As respects the  Portfolio or Class,  as the case may be, this
                  Plan shall  remain in effect until  September,  1998 and shall
                  continue in effect  thereafter so long as such  continuance is
                  specifically approved at least annually in the manner provided
                  for approval of this Plan in paragraph 3.

         5.       The  Distributor  shall  provide to the Trust's  Board and the
                  Board shall review,  at least  quarterly,  a written report of
                  amounts  paid  hereunder  and the purposes for which they were
                  made.

         6.       As respects the  Portfolio or Class,  as the case may be, this
                  Plan may be  terminated  at any time by vote of a majority  of
                  the Rule  12b-1  Trustees  or by a vote of a  majority  of its
                  outstanding voting securities.

         7.       This Plan may not be amended to increase materially the amount
                  of compensation  payable pursuant to paragraph 1 hereof unless
                  such  amendment  is  approved by a vote of at least a majority
                  (as defined in the Act) of the outstanding  voting  securities
                  of the Portfolio or Class.  No material  amendment to the Plan
                  shall  be made  unless  approved  in the  manner  provided  in
                  paragraph 3 hereof.

         8.       While this Plan is in effect,  the selection and nomination of
                  the Trustees who are not interested persons (as defined in the
                  Act) of the Trust shall be committed to the  discretion of the
                  Trustees who are not such interested persons.

         9.       The Trust shall  preserve  copies of this Plan and any related
                  agreements  and all  reports  made  pursuant  to  paragraph  5
                  hereof, for a period of not less than six

                                       2



<PAGE>



                  years from the date of this Plan,  any such  agreement  or any
                  such  report,  as the case may be,  the  first two years in an
                  easily accessible place.

         10.      The name Bear Stearns  Investment  Trust is the designation of
                  the  Trustees  for the  time  being  under  an  Agreement  and
                  Declaration  of Trust dated  October 15, 1992, as amended from
                  time to time, and all persons dealing with the Trust must look
                  solely to the  property  of the Trust for  enforcement  of any
                  claims  against the Trust as neither the  Trustees,  officers,
                  agents or  shareholders  assume  any  personal  liability  for
                  obligations entered into on behalf of the Trust.

         IN WITNESS  WHEREOF,  the Trust, on behalf of the Portfolio and Class',
and the Distributor have executed this Plan as of the date set forth below.

September 8, 1997


                                       BEAR STEARNS INVESTMENT TRUST


                                       By:__________________________


                                       BEAR, STEARNS & CO. INC.


                                       By:__________________________



                                        3



<PAGE>



                                   SCHEDULE 1

   Name of Series           Class A*           Class B*         Class C*
   --------------           --------           --------         --------

Emerging Markets              N/A                .75%             N/A
Debt Portfolio


- ----------

*    Annual Fee as a Percentage of Average Daily Net Assets.




                                        4



<PAGE>
                                                       EXHIBIT 18.2



                          BEAR STEARNS INVESTMENT TRUST
                                 Rule 18f-3 Plan

         Rule l8f-3 under the  Investment  Company Act of 1940,  as amended (the
"1940 "Act"), requires that the Board of an investment company desiring to offer
multiple  classes  pursuant to said Rule adopt a plan setting forth the separate
distribution arrangements and expense allocations of each class, and any related
conversion features or exchange privileges.


         The Board, including a majority of the non-interested Board members, of
Bear Stearns  Investment  Trust (the  "Fund")  which  desires to offer  multiple
classes for the series set forth on  Schedule A (the  "Series")  has  determined
that the following plan is in the best interests of each class  individually and
the Fund as a whole:


         1. Class  Designation:  Each series' shares shall be divided into Class
A, Class B, Class C and Class Y.

         2.  Differences in Services:  The services  offered to  shareholders of
each Class shall be  substantially  the same,  except that Right of Accumulation
and Letter of Intent shall be available only to holders of Class A shares.


         3.  Differences in Distribution  Arrangements:  Class A shares shall be
offered with a front-end  sales charge,  as such term is defined in Article III,
Section  2830,  of the Business  Conduct  Rules of the National  Association  of
Securities Dealers, Inc., and a

                                       -1-




<PAGE>



contingent  deferred  sales  charge (a "CDSC"),  as such term is defined in said
Section  26(b),  may be  assessed  on  certain  redemptions  of  Class A  shares
purchased without an initial sales charge as part of an investment of $1 million
or more.  The  amount  of the sales  charge  and the  amount  of and  provisions
relating to the CDSC  pertaining to the Class A shares are set forth on Schedule
B hereto.


         Class B shares shall not be subject to a front-end  sales  charge,  but
shall be subject to a CDSC.  The amount of and  provisions  relating to the CDSC
pertaining to Class B shares are set forth on Schedule C hereto.


         Class C shares shall not be subject to a front-end  sales  charge,  but
shall be subject to a CDSC.  The amount of and  provisions  relating to the CDSC
pertaining to Class C shares are set forth on Schedule D hereto.


         Class A and  Class C  shares  shall  be  charged  a fee  pursuant  to a
Distribution  Plan adopted  under Rule 12b-1 under the 1940 Act.  Class C shares
shall be charged a fee pursuant to a Shareholder  Servicing Plan. Class B shares
shall be charged a fee pursuant to a Distribution  Plan adopted under Rule 12b-1
under the 1940 Act and a  Shareholder  Servicing  Plan.  The  amount of the fees
under the relevant Distribution Plan or Shareholder Servicing Plan are set forth
on Schedule E hereto.


         Class Y shares  shall be offered at net asset  value with no  front-end
sales

                                       -2-




<PAGE>



charge, CDSC or distribution and shareholder  servicing fees. Class Y shares are
available to investors whose minimum initial  purchase is at least $2.5 million,
subject to such waivers or variations as from time to may be in effect.


         4. Expense Allocation: The following expenses will be allocated, to the
extent practicable,  on a Class-by-Class  basis: (a) fees under the Distribution
Plan or  Shareholder  Servicing  Plan (as  relevant);  (b)  printing and postage
expenses related to preparing and distributing  materials,  shareholder reports,
prospectuses  and  proxies  to  current  shareholders  of a special  Class;  (c)
Securities and Exchange  Commission and Blue Sky registration fees incurred by a
specific  Class;  (d) the expense of  administrative  personnel  and services as
required to support the  shareholders  of a specific  Class;  (e)  litigation or
other legal expenses  relating  solely to a specific  Class;  and Board members'
fees incurred as a result of issues relating to a specific Class.

         5.  Conversion  Features:  On January 15, 1997,  Class A Shares held by
investors  who are  eligible to purchase  Class Y Shares  shall be  converted to
Class Y shares,  based on the relative net value of such Classes as of the close
of business on such date,  without the  imposition of any sales  charge,  fee or
other charge. If a holder of Class A shares notifies the Fund's distributor that
it desires to have its Class A Shares  converted to Class Y Shares because it is
eligible to  purchase  Class Y Shares,  the shares  which are the subject of the
notice shall be converted to Class Y shares, without the imposition of any sales
charge, fee or other charge, on the third business day following confirmation of
the investor's

                                       -3-




<PAGE>



eligibility to own Class Y Shares, at the relative net value of such Class as of
the close of  business  on such date.  Eight years after the date of the initial
purchase,  Class B shares will automatically  convert into Class A shares, based
on the  relative  net value of such  Class as of the close of  business  on such
date, without the imposition of any sales charge, fee or other charge.

         6. Exchange Privileges: Shares of a Class are exchangeable only for (a)
shares of the same  Class of  another  Series or of other  investment  companies
sponsored by the Fund's distributor and (b) shares of the Money Market Portfolio
of The RBB Fund, Inc.

         7. Board  Review:  The Board shall review this Plan as frequently as it
deems  necessary.  Prior to any material  amendment(s)  to this Plan, the Board,
including a majority of the Board members that are not interested persons of the
Fund,  shall  find that the Plan,  as  proposed  to be  amended  (including  any
proposed amendments to the method of allocating class and/or fund expenses),  is
in the best  interest of each class of shares of a Series  individually  and the
Series as a whole. In considering  whether to approve any proposed  amendment(s)
to the Plan,  the Board shall  request and  evaluate  such  information  as they
consider reasonably necessary to evaluate the proposed amendment(s) to the Plan.
Such   information   shall   address   the  issue  of  whether  any  waivers  or
reimbursements of fees or expenses could be considered a cross-subsidization  of
one class by another, and other potential conflicts of interest between classes.

Dated:  May 4, 1995, as revised April 12, 1996, as revised  October 29, 1996 and
        August 11, 1997.

                                       -4-




<PAGE>



                                   SCHEDULE A


Emerging Markets Debt Portfolio



                                       A-1



<PAGE>



                                   SCHEDULE B


Front-End Sales  Charge--Class  A Shares--The  public offering price for Class A
shares shall be the net asset value per share of that Class plus a sales load as
shown below:



                                                Total Sales Load
                                                ----------------
Amount of Transaction                     As a % of           As a % of
                                          offering            net asset
                                          price per           value per
                                            share               share
                                          ---------           ---------

Less than $50,000....................       4.50                4.71
$50,000 to less than $100,000........       4.25                4.44
$100,000 to less than $250,000.......       3.25                3.36
$250,000 to less than $500,000.......       2.50                2.56
$500,000 to less than $1,000,000.....       2.00                2.04
$1,000,000 and above.................       0.00                0.00


Contingent  Deferred  Sales  Charge--Class  A  Shares--A  CDSC of 1.00% shall be
assessed  at the  time of  redemption  of Class A shares  purchased  without  an
initial  sales  charge  as part of an  investment  of at  least  $1,000,000  and
redeemed within one year after purchase. A CDSC of .50% shall be assessed at the
time of redemption of Class A shares  purchased  without a sales charge with the
proceeds  from the  redemption  of shares of an  investment  company sold with a
sales charge or commission  and not  distributed by the Fund's  Distributor,  if
such  shares are  within  one year of their  purchase.  The terms  contained  in
Schedule D pertaining  to the CDSC  assessed on  redemptions  of Class C shares,
including the provisions for waiving the CDSC,  shall be applicable to the Class
A shares  subject to a CDSC.  Letter of Intent and Right of  Accumulation  shall
apply to such purchases of Class A shares.



                                       B-1



<PAGE>



                                   SCHEDULE C


Contingent  Deferred  Sales  Charge--Class  B Shares--A  CDSC of up to 5% may be
imposed on  redemptions of Class B shares made within the first six years of the
date of  purchase.  The CSDC will be imposed in  accordance  with the  following
table:

                              Year Since
                            Initial Purchase
                            of Class B Shares          CDSC
                            -----------------          ----

                First                                   5%
               Second                                   4%
                Third                                   3%
               Fourth                                   3%
                Fifth                                   2%
                Sixth                                   1%
               Seventh                                  0%
               Eighth                                   0%

         No CDSC  shall be imposed  to the  extent  that the net asset  value of
Class B shares redeemed does not exceed (i) the current net asset value of Class
B  shares   acquired   through   reinvestment   of  dividends  on  capital  gain
distributions,  plus (ii) increases in the net asset value of the  shareholder's
Class B shares above the dollar amount of all payments for the purchase of Class
B shares of the Fund held by such shareholder at the time of redemption.

         If the  aggregate  value of the Class B shares  redeemed  has  declined
below their original cost as a result of the Fund's  performance,  a CDSC may be
applied to the then-current net asset value, rather than the purchase price.

         In  determining  whether  a CDSC is  applicable  to a  redemption,  the
calculation  shall be made in a manner that results in the lowest possible rate.
Therefore,  it shall be  assumed  that the  redemption  is made first of amounts
representing  shares  acquired  pursuant to the  reinvestment  of dividends  and
distributions;  then of amounts  representing the increase in net asset value of
Class B shares  above the total  amount of payments  for the purchase of Class B
shares made during the preceding year; then of amounts  representing the cost of
shares purchased more than one year prior to the redemption; finally, of amounts
representing the cost of shares purchased within one year prior to redemption.

Waiver of CDSC--The CDSC shall be waived in connection with (a) redemptions made
within one year after the death or  disability,  defined in Section  72(m)(7) of
the Internal Revenue Code of 1986, as amended (the "Code"),  of the shareholder,
(b)  redemptions  by employees  participating  in Eligible  Benefit  Plans,  (c)
redemptions as a result of a combination

                                       C-1



<PAGE>



of any investment  company with a Portfolio or Series by merger,  acquisition of
assets  or  otherwise,  and  (d) a  distribution  following  retirement  under a
tax-deferred  retirement plan or upon attaining age 70-1/2 in the case of an IRA
or Keogh plan or custodial  account  pursuant to Section 403(b) of the Code, and
(e) to the extent that shares  redeemed have been  withdrawn  from the Automatic
Withdrawal  Plan,  up to a maximum  amount  of 12% per year  from a  shareholder
account based on the value of the account at the time the  automatic  withdrawal
is  established.  Any shares subject to a CDSC which were purchased prior to the
termination  of such waiver shall have the CDSC waived as provided in the Fund's
prospectus at the time of the purchase of such shares.


                                       C-2



<PAGE>



                                   SCHEDULE D


Contingent Deferred Sales Charge--Class C Shares--A CDSC of 1.00% payable to the
Fund's  Distributor  shall be imposed on any  redemption  of Class C shares made
within one year of the date of purchase.  No CDSC shall be imposed to the extent
that the net asset value of the Class C shares  redeemed does not exceed (i) the
current  net asset  value of Class C shares  acquired  through  reinvestment  of
dividends or capital gain  distributions,  plus (ii)  increases in the net asset
value of the  shareholder's  Class C  shares  above  the  dollar  amount  of all
payments for the purchase of Class C shares of the Fund held by such shareholder
at the time of redemption.

         If the  aggregate  value of the Class C shares  redeemed  has  declined
below their original cost as a result of the Fund's  performance,  a CDSC may be
applied to the then-current net asset value rather than the purchase price.

         In  determining  whether  a CDSC is  applicable  to a  redemption,  the
calculation  shall be made in a manner that results in the lowest possible rate.
Therefore,  it shall be  assumed  that the  redemption  is made first of amounts
representing  shares  acquired  pursuant to the  reinvestment  of dividends  and
distributions;  then of amounts  representing the increase in net asset value of
Class C shares  above the total  amount of payments  for the purchase of Class C
shares made during the preceding year; then of amounts  representing the cost of
shares purchased more than one year prior to the redemption; finally, of amounts
representing the cost of shares purchased within one year prior to redemption.

Waiver of CDSC--The CDSC shall be waived in connection with (a) redemptions made
within one year after the death or  disability,  defined in Section  72(m)(7) of
the Internal Revenue Code of 1986, as amended (the "Code"),  of the shareholder,
(b)  redemptions  by employees  participating  in Eligible  Benefit  Plans,  (c)
redemptions  as a result of a  combination  of any  investment  company with the
Portfolio or Series by merger,  acquisition  of assets or  otherwise,  and (d) a
distribution  following retirement under a tax-deferred  retirement plan or upon
attaining  age 70-1/2 in the case of an IRA or Keogh plan or  custodial  account
pursuant to Section 403(b) of the Code,  and to the extent that shares  redeemed
have been withdrawn from the Automatic  Withdrawal  Plan, up to a maximum amount
of 12% per year from a shareholder  account based on the value of the account at
the time the automatic  withdrawal is established.  Any shares subject to a CDSC
which were purchased prior to the termination of such waiver shall have the CDSC
waived as provided in the Fund's  prospectus at the time of the purchase of such
shares.


                                       D-1



<PAGE>


                                   SCHEDULE E


Amount of Distribution  Plan--Each  Series shall pay a fee based on the value of
the average daily net assets of the respective Class as follows:

Name of Series                     Class A          Class B           Class C

Emerging Markets Debt Portfolio     .35%             .75%              .75%




Amount of Shareholder  Servicing  Plan--Each Series shall pay a fee based on the
value of the average daily net assets of the respective Class as follows:

Name of Series                     Class A          Class B            Class C

Emerging Markets Debt Portfolio      N/A             .25%               .25%




                                       E-1




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