<PAGE>
[LOGO]
The
Bear Stearns
Funds
245 Park Avenue
New York, NY 10167
1.800.766.4111
<TABLE>
<S> <C>
INVESTMENT MANAGER/ADVISER
AND ADMINISTRATOR TRANSFER AND DIVIDEND
Bear Stearns Funds DISBURSEMENT AGENT
Management Inc. PFPC Inc.
245 Park Avenue Bellevue Corporate Center
New York, NY 10167 400 Bellevue Parkway
DISTRIBUTOR Wilmington, DE 19809
Bear, Stearns & Co. Inc. INDEPENDENT AUDITORS
245 Park Avenue Deloitte & Touche LLP
New York, NY 10167 Two World Financial Center
TOTAL RETURN BOND New York, NY 10281
PORTFOLIO: EMERGING MARKETS DEBT
CUSTODIAN PORTFOLIO:
Custodial Trust Company CUSTODIAN
101 Carnegie Center Brown Brothers Harriman & Co.
Princeton, NJ 08540 40 Water Street
COUNSEL Boston, MA 02109
Kramer, Levin, Naftalis & COUNSEL
Frankel Mayer, Brown & Platt
919 Third Avenue 1675 Broadway
New York, NY 10022 New York, NY 10019
</TABLE>
The financial information included herein is taken from the records of each
Portfolio without examination by independent auditors who do not express an
opinion thereon.
This report is submitted for the general information of the shareholders of each
Portfolio. It is not authorized for distribution to prospective investors in
each Portfolio unless it is proceded or accompanied by a current prospectus
which includes details regarding each Portfolio's objectives, policies, sales
commissions and other information. Total investment return is based on
historical results and is not intended to indicate future performance. The
investment return and principal value of an investment in each Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than original cost.
BSF-R-016-01
Emerging
Markets Debt
Portfolio
Total Return
Bond Portfolio
Semi-Annual Report
September 30, 1997
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
Total Return Bond Portfolio
LETTER TO SHAREHOLDERS
October 20, 1997
Dear Shareholders,
We are pleased to present the semi-annual report to shareholders for the
Emerging Markets Debt Portfolio ("Debt Portfolio")* and Total Return Bond
Portfolio ("Bond Portfolio") for the six months ended September 30, 1997.
Detailed performance data for each class of shares of each Portfolio can be
found in the "Financial Highlights" and in the line graph sections of this
report.
EMERGING MARKETS DEBT PORTFOLIO
For the six months ended September 30, 1997, the Debt Portfolio's class A shares
(without giving effect to the sales charge) had a total return of 18.09%, and
class C shares (without giving effect to the contingent deferred sales charge)
had a total return of 17.83%.(1)(2) The Debt Portfolio's benchmark, the Salomon
Brothers Emerging Markets Debt Mutual Fund Index, returned 18.78% for the
period.
The strong performance of emerging market debt over the last six months
primarily reflects continuing improvements in the credit quality of emerging
regions outside Asia. For example, in the third calendar quarter, five countries
received an initial rating from one of the two major credit rating agencies, two
of which were investment grade.
The markets were further supported by the continuation of stronger-than-expected
economic growth and ongoing efforts to introduce economic reforms. In Latin
America, for example, year-to-date economic growth appears to be up more than
5%, up from 3.5% in 1996. The prospects for faster progress in privatization of
state-owned enterprises have generally risen. Russia continues to make progress
in introducing meaningful fiscal reforms and is likely to complete the
restructuring of its commercial bank debt before year-end. Countries such as
Argentina, Ecuador, Panama, Brazil and Venezuela have issued new debt to retire
higher-cost Brady bonds.
The best-performing markets during the quarter were Ecuador (up 17.0%), due to
the receipt of a higher-than-expected credit rating and the issuance of new
debt; Bulgaria (up 15.1%), as inflation fell and expectations grew that
higher-cost debt will be retired; and Russia (up 13.6%), as the imminent
completion of its debt restructuring appeared likely. The worst-performer was
the Philippines (up 0.2%), due to a downward revision in economic growth
forecasts and regional currency weakness.
1
<PAGE>
POSITIVE OUTLOOK FOR MEXICO AND RUSSIA
Currently, we are most optimistic on the Mexican and Russian markets. In Mexico,
there are growing signs of a revival in domestic demand and an increasing
likelihood of a credit rating upgrade over the next 12 months, although the pace
of reform may slow due to the integration of new political forces in the
government. In Russia, we expect passage of tax reform legislation, a return to
positive economic growth and a rating upgrade.
The Debt Portfolio was invested solely in dollar-denominated instruments over
the past six months. As a result, there was no direct exposure to volatility in
local currencies. The recent turbulence in the Southeast Asian currency markets,
therefore, had only a modest effect on our Philippine holdings (representing 4%
of the Debt Portfolio's net assets).
As before, we remain cautiously optimistic about the prospects for emerging
market debt. We are confident that progress on reforms will continue, though at
a slower pace than we would like. Consistent with our focus on relative value,
we are assessing whether the underperformance of selected Asian markets presents
a buying opportunity and are considering increasing our allocation to this
region.
TOTAL RETURN BOND PORTFOLIO
For the six months ended September 30, 1997, the Bond Portfolio's class A shares
(without giving effect to the sales charge) had a total return of 6.92%, class C
shares (without giving effect to the contingent deferred sales charge) had a
total return of 6.71% and class Y shares returned 7.11%.(2)(3) The Bond
Portfolio's benchmark, the Salomon Brothers Broad Investment Grade Bond Index,
returned 7.05% for the period.
While the impact of positive economic conditions has been most dramatic in the
equity markets, they have helped strengthen the fixed income markets as well.
After a shaky first quarter, in which investors feared sustained, above-average
growth and higher inflation, bonds rallied during the following six months as
both the economy and labor market pressures eased.
In late summer, economic and currency turmoil in the Asian markets lent further
support to dollar markets. While intermediate- and long-term rates fell, this
occurred in an atmosphere of rising volatility as the market participants
continued to be divided into two camps: the stronger-growth, Fed-tightening
proponents vs. the low-inflation, moderate-growth camp. For the time being, the
low-inflation side has won out due to recent economic reports indicating a
moderation in the pace of economic growth. Inflation is now running at a rate
below 2% for the year, which translates to a real rate of return of more than
3.75% on five-year Treasuries as of the end of September 1997.
SELECTED OPPORTUNITIES IN ASIA
All sectors performed well during the period, with mortgage-backed issues
providing the highest risk-adjusted returns, followed closely by corporate
bonds, then Treasuries. Corporate and asset-backed securities account for
approximately 56% of the Bond Portfolio's net assets for three reasons: they
have the potential to enhance yield, the outlook for corporate profits remains
solid, and they allow us to take advantage of dislocations in the Yankee
securities market. (Yankee issues are U.S. dollar-denominated bonds issued by
foreign sovereign and corporate entities in the U.S.)
2
<PAGE>
The Bond Portfolio continues to emphasize corporate securities since the outlook
for corporate profits remains solid, which bodes well for both credit quality
and credit spreads vs. Treasuries, notwithstanding the increased supply at these
lower interest-rate levels.
In general, our outlook for the fixed income market continues to be positive
given high real rates of return and the relative attractiveness of U.S. rates
vs. the rest of the G-7 markets.
In conclusion, we value the confidence you have placed in us and would be
pleased to address any questions or concerns you may have. Please feel free to
call us at 1-800-766-4111.
Sincerely,
<TABLE>
<S> <C> <C>
[LOGO] [LOGO] [LOGO]
Robert S. Reitzes Edward R. Vaimberg Peter E. Mahoney
President Portfolio Manager Portfolio Manager
Bear Stearns Investment Trust and Emerging Markets Debt Portfolio Total Return Bond Portfolio
The Bear Stearns Funds
</TABLE>
- -------
* International investing involves risks such as currency exchange
rate-volatility, possible political, social, or economic instability and
differences in taxation and other financial standards.
(1)For the six months ended September 30, 1997, the Debt Portfolio's class A
shares had a total return of 13.67%, including the initial 3.75% maximum
sales charge, and class C shares returned 16.80%, including the 1.00%
contingent deferred sales charge.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the operating expenses of each Portfolio,
as necessary, to maintain the expense limitations, as set forth in the notes
of the financial statements. Total returns shown include fee waivers and
expense reimbursements, if any; total returns would have been lower had there
been no assumption of such fees and expenses in excess of the expense
limitations.
(3)For the six months ended September 30, 1997, the Bond Portfolio's class A
shares had a total return of 2.90%, including the initial 3.75% maximum sales
charge, and class C shares returned 5.68%, including the 1.00% contingent
deferred sales charge.
3
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A SHARES(1)(2)(3) VS. VARIOUS INDICES
(UNAUDITED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS A SHARES SALOMON BROTHERS CONSUMER
<S> <C> <C> <C>
Emerging Markets Price
Debt Mutual Fund Index Index
May 04, 1995 $9,625 $10,000 $10,013
Jun 30, 1995 $10,203 $10,950 $10,040
Sept. 30, 1995 $10,805 $11,450 $10,086
Dec. 31, 1995 $11,877 $12,600 $10,138
Mar. 31, 1996 $12,667 $13,400 $10,244
Jun 30, 1996 $14,107 $14,300 $10,323
Sept. 30, 1996 $15,590 $16,331 $10,388
Dec. 31, 1996 $16,719 $17,799 $10,481
Mar. 31, 1997 $16,907 $18,013 $10,527
Jun 30, 1997 $18,651 $19,987 $10,560
Sept. 30, 1997 $19,966 $21,400 $10,626
Past performance is not predictive of future performance.
Emerging Markets Debt Portfolio
Class A shares $19,996
Salomon Brothers Emerging Markets Debt Mutual Fund Index $21,400
Consumer Price Index $10,626
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL RETURNS
<CAPTION>
ONE YEAR ENDED AVERAGE
SEPTEMBER 30, 1997 ANNUAL(4)
------------------- -------------------
<S> <C> <C>
Emerging Markets Debt Portfolio(2)
Class A shares(5)................................... 23.29% 33.18%
Class C shares(3)................................... 27.61 36.22
Salomon Brothers Emerging Markets Debt Mutual Fund
Index(1)............................................ 31.04 37.05
Consumer Price Index(1)................................. 2.15 2.55
</TABLE>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the Debt
Portfolio and reflects all portfolio expenses. Investors should note that
the Debt Portfolio is a professionally managed mutual fund while the indices
are either unmanaged and do not incur sales charges or expenses and/or are
not available for investment. Performance of the indices corresponds to the
performance of class A shares only.
(2) Bear Stearns Funds Management Inc. waived its investment management fee and
agreed to voluntarily reimburse a portion of the Debt Portfolio's operating
expenses, as necessary, to maintain the expense limitation, as set forth in
the notes to the financial statements. Total returns shown include fee
waivers and expense reimbursements, if any; total returns would have been
lower had there been no assumption of fees and expenses in excess of the
expense limitations.
(3) Assuming no redemption of shares at the end of the period, the return of
class C shares (for which July 26, 1995 was the initial public offering
date) would have been higher than class A shares if operations were
commenced on the same day. The higher return is due to the fact that there
is no initial sales charge on class C shares.
(4) Commencing May 4, 1995, Bear Stearns Funds Management Inc. assumed the daily
portfolio management responsibility for the Debt Portfolio. Total returns
for class A shares shown are for the period May 4, 1995 through September
30, 1997. For the period May 3, 1993 (commencement of investment operations)
through May 3, 1995 the Debt Portfolio's investment adviser was BEA
Associates and those results are not shown.
(5) Reflects the initial maximum 3.75% sales charge. Without the applicable
sales charge, the total returns would have been 28.10% and 35.31%,
respectively, for each period shown.
4
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(3) VS. VARIOUS INDICES
(UNAUDITED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS A SHARES CLASS C SHARES SALOMON BROTHERS
<S> <C> <C> <C>
Broad Investment
Grade Bond Index
Apr 5, 1995 $9,625 $10,000 $10,000
Jun 30, 1995 $10,027 $10,412 $10,568
Sept. 30, 1995 $10,260 $10,587 $10,767
Dec. 31, 1995 $10,679 $11,064 $11,234
Mar. 31, 1996 $10,430 $10,797 $11,038
Jun 30, 1996 $10,467 $10,824 $11,092
Sept. 30, 1996 $10,644 $10,996 $11,300
Dec. 31, 1996 $10,972 $11,332 $11,641
Mar. 31, 1997 $10,908 $11,245 $11,581
Jun 30, 1997 $11,308 $11,648 $11,998
Sept. 30, 1997 $11,659 $11,998 $12,397
Past performance is not predictive of future performance.
Total Return Bond Portfolio
Class A shares
Class C shares
Salomon Brothers Broad Investment Grade Bond Index
Consumer Price Index
<CAPTION>
CONSUMER PRICE INDEX
<S> <C>
Apr 5, 1995 $10,000
Jun 30, 1995 $10,079
Sept. 30, 1995 $10,126
Dec. 31, 1995 $10,185
Mar. 31, 1996 $10,284
Jun 30, 1996 $10,357
Sept. 30, 1996 $10,436
Dec. 31, 1996 $10,522
Mar. 31, 1997 $10,568
Jun 30, 1997 $10,595
Sept. 30, 1997 $10,661
Past performance is not predictive of future performance.
Total Return Bond Portfolio
Class A shares $11,659
Class C shares $11,998
Salomon Brothers Broad Investment Grade Bond Index $12,397
Consumer Price Index $10,661
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL RETURNS
<CAPTION>
ONE YEAR ENDED
SEPTEMBER 30, AVERAGE
1997 ANNUAL(4)
----------------- -----------------
<S> <C> <C>
Total Return Bond Portfolio(2)
Class A shares(5).................... 5.34% 6.35%
Class C shares....................... 8.99 7.58
Class Y shares(3).................... 9.80 7.22
Salomon Brothers Broad Investment Grade
Bond Index(1)........................ 9.71 9.00
Consumer Price Index(1).................. 2.15 2.60
</TABLE>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the Bond
Portfolio and reflects all portfolio expenses. Investors should note that
the Bond Portfolio is a professionally managed mutual fund while the indices
are either unmanaged and do not incur sales charges or expenses and/or are
not available for investment. Performance of the indices corresponds to the
performance of class A and C shares only.
(2) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Bond Portfolio's operating expenses
to maintain the expense limitation, as set forth in the notes to the
financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of the expense limitations.
(3) The return of class Y shares (for which September 8, 1995 was the initial
public offering date) would have been higher than class A and C shares if
operations were commenced on the same day. The higher return is due to the
fact that there is no sales charge, contingent deferred sales charge or
12b-1 fee charged to class Y shares.
(4) For the period of April 5, 1995 (commencement of investment operations)
through September 30, 1997.
(5) Reflects the initial maximum 3.75% sales charge. Without the applicable
sales charge, the total returns would have been 9.42% and 8.00%,
respectively, for each period shown.
5
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
SEPTEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COUNTRY INVESTMENT
<S> <C>
EDGAR REPRESENTATION OF DATA
POINTS USED IN PRINTED GRAPHIC
Russia 4.71
Panama 4.61
Brazil 17.16
Bulgaria 4.89
Cash & cash equivalents 7.99
Mexico 17.14
Morocco 4.38
Poland 3.62
Venezuela 3.45
Argentina 14.20
Philippines 4.00
Ecuador 4.67
Peru 4.62
Nigeria 4.56
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Global/Euro bonds 3.61
Cash & cash equivalents 7.99
Loan participants 9.10
Brady bonds 79.30
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN ISSUERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF NET
RANK ISSUER CURRENCY SECURITY TYPE ASSETS
- ------------------------------------------------------ ----------- ------------- ---------------
<C> <S> <C> <C> <C>
1. Federal Republic of Brazil........................ U.S. dollar Brady bond 17.16
2. United Mexican States............................. U.S. dollar Brady/Global 17.14
bond
3. Republic of Argentina............................. U.S. dollar Brady bond 14.20
4. Republic of Bulgaria.............................. U.S. dollar Brady bond 4.89
5. Vneshekonombank................................... U.S. dollar Loan 4.71
Participation
6. The Republic of Ecuador........................... U.S. dollar Brady bond 4.67
7. The Republic of Peru.............................. U.S. dollar Brady bond 4.62
8. The Republic of Panama............................ U.S. dollar Brady bond 4.61
9. Central Bank of Nigeria........................... U.S. dollar Brady bond 4.56
10. The Kingdom of Morocco............................ U.S. dollar Loan 4.38
Participation
</TABLE>
6
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
SEPTEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Total Return Salomon Brothers
Bond Portfolio Broad Investment
Grade Bond Index
Treasury/Government securities 15.25% 49.55%
Corporates 55.64% 21.10%
Mortgage-backed Securities 15.19% 29.35%
Preferred Stock 2.38% 0.00%
Cash & cash equivalents 11.51% 0.00%
</TABLE>
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN SALOMON BROTHERS BROAD
BOND PORTFOLIO INVESTMENT GRADE BOND INDEX
-------------- ---------------------------
<S> <C> <C>
Average Maturity.................................. 10.92 years 8.45 years
Average Duration.................................. 4.80 years 4.55 years
Average Coupon.................................... 7.15% 7.19%
Yield to Maturity................................. 6.80% 6.52%
</TABLE>
7
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM INVESTMENTS -- 92.01%
ARGENTINA - 14.20%
SOVEREIGN
1,200 Republic of Argentina, Discount Bond, Series L
(a)(b).......................................... 6.875% 03/31/23 $ 1,087,500
6,200 Republic of Argentina, Par Bond (b)(c)............ 5.500 03/31/23 4,688,750
-----------
Total Argentina (cost - $4,953,210)............... 5,776,250
-----------
BRAZIL - 17.16%
SOVEREIGN
2,353 Federal Republic of Brazil, Capitalization Bond
(b)(c).......................................... 8.000 04/15/14 2,003,303
900 Federal Republic of Brazil, DCB (a)(b)............ 6.937 04/15/12 762,795
1,955 Federal Republic of Brazil, EI Bond (a)(b)........ 6.875 04/15/06 1,834,122
400 Federal Republic of Brazil, FLIRB, Bearer
(a)(b).......................................... 4.500 04/15/09 326,500
2,300 Federal Republic of Brazil, NMB, Series L
(a)(b).......................................... 6.937 04/15/09 2,055,625
-----------
Total Brazil (cost - $6,684,879).................. 6,982,345
-----------
BULGARIA - 4.89%
SOVEREIGN
900 Republic of Bulgaria, FLIRB, Series A (a)(b)...... 2.250 07/28/12 592,312
625 Republic of Bulgaria, IAB, Bearer (a)(b).......... 6.687 07/28/11 505,859
1,100 Republic of Bulgaria, IAB, Registered (a)(b)...... 6.687 07/28/11 890,312
-----------
Total Bulgaria (cost - $1,442,301)................ 1,988,483
-----------
ECUADOR - 4.67%
SOVEREIGN
1,000 The Republic of Ecuador, Discount Bond (a)(b)..... 6.687 02/28/25 820,850
1,476 The Republic of Ecuador, PDI, Bearer Bond
(a)(b).......................................... 6.687 02/27/15 1,080,287
-----------
Total Ecuador (cost - $1,495,083)................. 1,901,137
-----------
MEXICO - 17.14%
SOVEREIGN
1,000 Petroleos Mexicanos, Corporate Bond (e)(i)........ 9.500 09/15/27 1,019,403
2,100 United Mexican States, Discount Bond, Series B
(a)(b)(g)....................................... 6.835 12/31/19 2,008,125
450 United Mexican States, Par Bond, Series A
(b)(g).......................................... 6.250 12/31/19 374,062
4,300 United Mexican States, Par Bond, Series B
(b)(g).......................................... 6.250 12/31/19 3,574,375
-----------
Total Mexico (cost - $6,307,346).................. 6,975,965
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
MOROCCO - 4.38%
SOVEREIGN
1,900 The Kingdom of Morocco, Tranche A, Loan
Participation (a)
(cost - $1,365,599)............................. 6.812% 01/01/09 $ 1,783,625
-----------
NIGERIA - 4.56%
SOVEREIGN
2,500 Central Bank of Nigeria, Par Bond (b)(c)(h)
(cost - $1,703,836)............................. 6.250 11/15/20 1,853,125
-----------
PANAMA - 4.61%
SOVEREIGN
1,925 The Republic of Panama, IRB (a)(b)................ 3.750 07/17/14 1,499,094
437 The Republic of Panama, PDI Bond (a)(b)........... 6.687 07/17/16 377,872
-----------
Total Panama (cost - $1,756,505).................. 1,876,966
-----------
PERU - 4.62%
SOVEREIGN
400 The Republic of Peru, Discount Bond (a)(b)........ 6.687 03/08/27 349,000
250 The Republic of Peru, FLIRB (b)(c)................ 3.250 03/07/17 154,063
2,046 The Republic of Peru, PDI Bond (b)(c)............. 4.000 03/07/17 1,374,656
-----------
Total Peru (cost - $1,340,699).................... 1,877,719
-----------
PHILIPPINES - 4.00%
SOVEREIGN
1,050 Republic of the Philippines, FLIRB, Series B
(a)(b).......................................... 5.000 06/01/08 987,000
725 Republic of the Philippines, Par Bond, Series B
(b)(c).......................................... 6.250 12/01/17 640,719
-----------
Total Philippines (cost - $1,642,631)............. 1,627,719
-----------
POLAND - 3.62%
SOVEREIGN
1,700 The Polish People's Republic, PDI, Bearer Bond
(b)(c)
(cost - $1,456,870)............................. 4.000 10/27/14 1,474,750
-----------
RUSSIA - 4.71%
SOVEREIGN
1,850 Vneshekonombank, Loan Participation (d)(f)
(cost - $1,214,500)............................. -- 10/13/04 1,918,450
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
VENEZUELA - 3.45%
SOVEREIGN
1,000 Republic of Venezuela, DCB (a)(b)................. 6.750% 12/18/07 $ 953,450
475 Republic of Venezuela, Series A (i)............... 9.250 09/15/27 451,598
-----------
Total Venezuela (cost - $1,073,053)............... 1,405,048
-----------
Total Long-Term Investments
(cost - $32,436,512)............................ 37,441,582
-----------
SHORT-TERM INVESTMENT -- 6.40%
GRAND CAYMAN - 6.40%
2,605 Brown Brothers Harrriman & Co. (cost -
$2,605,000)..................................... 4.750 * 2,605,000
-----------
Total Investments -- 98.41%
(cost -- $35,041,512)........................... 40,046,582
Other assets in excess of liabilities -- 1.59%.... 648,703
-----------
Net Assets -- 100.00%............................. $40,695,285
-----------
-----------
</TABLE>
- ---------
+ Denominated in United States dollars.
* Variable rate call account. Rate resets on a daily basis, amounts
available generally on the same business day.
(a) Adjustable rate; rate based on London Interbank Offered Rate (LIBOR).
(b) Brady bond.
(c) Step-up coupon; coupon increases at periodic intervals.
(d) In the process of converting to a Brady bond issue, the conversion date
has not been finalized.
(e) Fully collateralized by the United Mexican States.
(f) Non-income producing security.
(g) With additional 3,230,000, 450,000, and 4,300,000 warrants attached
respectively, with no market value.
(h) With additional 2,500 warrants attached, with no market value.
(i) Global/Euro bond.
DCB Debt Conversion Bond.
EI Eligible Interest.
FLIRB Front Loaded Interest Reduction Bond.
FRB Floating Rate Bond.
IAB Interest Arrears Bond.
IRB Interest Reduction Bond.
NMB New Money Bond.
PDI Past Due Interest.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS -- 86.06%
CORPORATE OBLIGATIONS - 55.64%
ASSET-BACKED - 10.20%
$ 429 AFC Mortgage Loan Asset-Backed Certificates,
Series 1994-1, Class 1A......................... 6.400% 03/25/24 $ 423,403
400 First Union-Lehman Brothers Commercial Mortgage
Trust, Commercial Mortgage Pass-Through
Certificates, Series 1997-C1, Class A-2......... 7.300 04/18/29 415,891
350 Ford Credit 1995-B Grantor Trust, Asset-Backed
Certificates, Class A........................... 5.900 10/15/00 350,457
540 Morgan Stanley Capital I Inc., Series 1997-C1,
Class A-1B, Commercial Mortgage Pass-Through
Certificates.................................... 7.460 03/01/04 562,950
300 Washington Mutual Capital I, Subordinated Capital
Income Securities, Washington Mutual Inc.
Guaranteed...................................... 8.375 06/01/27 313,875
-----------
2,066,576
-----------
FINANCE - 25.52%
350 Aetna Services Inc., Aetna Inc. Guaranteed........ 6.970 08/15/36 359,625
150 Associates Corp. N.A., Senior Notes............... 7.500 05/15/99 153,375
700 Berkley, W.R. Capital Trust, Berkley, W.R. Inc.
Guaranteed...................................... 8.197 12/15/45 714,000
250 CIT Group Holdings, Inc. (The), Senior Notes,
MTN............................................. 6.750 05/14/01 254,062
500 Guangdong Enterprises, Senior Notes, Yankee
Issue*.......................................... 8.875 05/22/07 509,375
700 Hutchison Whampoa Financial, Hutchison Whampoa
Ltd. Guaranteed*................................ 7.500 08/01/27 692,125
250 Industrial Financial Corp. - Thailand, Notes*+.... 7.000 08/04/07 245,937
500 Industrial Financial Corp. - Thailand, Notes*+.... 7.125 08/04/02 498,125
500 IRT Property Company, Senior Notes................ 7.250 08/15/07 505,000
500 Lehman Brothers Holdings Inc., Series E, MTN...... 6.650 01/28/00 504,375
200 Markel Capital Trust I, Markel Corporation
Guaranteed*..................................... 8.710 01/01/46 211,500
500 Paine Webber Group Inc., Subordinated Notes....... 7.750 09/01/02 525,000
-----------
5,172,499
-----------
GOVERNMENT -- NATIONAL - 2.53%
500 The Polish People's Republic, Yankee Notes........ 7.750 07/01/17 511,875
-----------
INDUSTRIAL - 8.26%
250 Hyundai Motor Co., Senior Notes................... 7.600 07/15/07 248,750
500 LG-Caltex Oil Corporation, Unsecured Notes*....... 7.500 07/15/07 499,916
200 MedPartners, Inc., Senior Subordinated Notes...... 6.875 09/01/00 199,750
475 Panamerican Beverages, Inc., Senior Notes*........ 7.250 07/01/09 473,813
250 Smith International Inc., Senior Notes............ 7.000 09/15/07 252,813
-----------
1,675,042
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S) RATE(S) DATE(S) VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION -- RAIL - 3.33%
$ 650 Norfolk Southern Corporation, Bonds............... 7.050% 05/01/37 $ 676,000
-----------
UTILITIES - 5.80%
250 Empresa Electrica del Norte Grande S.A., Senior
Loan Participation Certificates*................ 7.750 03/15/06 248,125
500 Ras Laffan Liquified Natural Gas Company Limited,
Secured Bonds*.................................. 7.628 09/15/06 525,625
400 Western Resources Inc............................. 7.125 08/01/09 402,000
-----------
1,175,750
-----------
Total Corporate Obligations
(cost - $11,075,635)............................ 11,277,742
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 15.18%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.92%
802 Federal Home Loan Mortgage Corporation............ 6.000 10/01/00-05/01/02 795,563
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.22%
248 Federal National Mortgage Association............. 6.500-7.000 01/01/26-04/01/26 246,841
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 10.04%
472 Government National Mortgage Association.......... 7.000 08/15/10-08/15/25 474,709
1,560 Government National Mortgage Association, TBA..... 7.000 03/15/27 1,560,975
-----------
2,035,684
-----------
Total U.S. Government Agency Obligations
(cost - $3,031,343)............................. 3,078,088
-----------
U.S. GOVERNMENT OBLIGATIONS -- 15.24%
U.S. TREASURY NOTES - 15.24%
3,050 U.S. Treasury Notes
(cost - $3,063,823)............................. 5.750-7.750 08/15/98-06/30/02 3,088,642
-----------
Total Long-Term Debt Investments
(cost - $17,170,801)............................ 17,444,472
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM EQUITY INVESTMENTS -- 2.38%
PREFERRED STOCK - 2.38%
500 1585 Broadway Corporation, Step-Down Preferred
Stock, 13.83%, 12/30/06*++ (cost - $501,275).... $ 482,063
-----------
SHORT-TERM INVESTMENTS -- 17.44%
INVESTMENT COMPANY - 0.42%
86,313 The Milestone Funds Treasury Obligations
Portfolio,
Institutional Shares**.......................... 86,313
-----------
<CAPTION>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE
- --------------- -------- --------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTE - 17.02%
$3,450 Federal Home Loan Bank, Discount Note***.......... 5.920% 10/01/97 3,450,000
-----------
Total Short-Term Investments
(cost - $3,536,313)............................. 3,536,313
-----------
Total Investments -- 105.88%
(cost - $21,208,389)............................ 21,462,848
Liabilities in excess of other assets --
(5.88)%......................................... (1,192,876)
-----------
Net Assets -- 100.00%............................. $20,269,972
-----------
-----------
</TABLE>
- ---------
MTN Medium-Term Notes.
TBA To Be Announced. TBA securities are purchased on a firm commitment basis
with an approximate principal and maturity. The actual principal and
maturity date is determined upon settlement.
* SEC Rule 144A Security. Such securities are traded only among "qualified
institutional buyers."
** Money market fund.
*** A portion of which was segregated as collateral for TBA securities.
+ Coupon steps up if issuer is downgraded. Notes may be repurchased by issuer
at par, if downgraded below investment grade.
++ Security was called on October 1, 1997 at $964.86 per share.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
EMERGING MARKETS TOTAL RETURN
DEBT PORTFOLIO BOND PORTFOLIO
---------------- --------------
<S> <C> <C>
ASSETS
Investments, at value (cost - $35,041,512 and
$21,208,389, respectively).................... $ 40,046,582 $ 21,462,848
Receivable for Portfolio shares sold............ 79,556 204,032
Receivable for investments sold................. 956,451 --
Receivable from investment adviser.............. -- 51,405
Interest and dividend receivable................ 737,151 228,590
Deferred organization expenses and other
assets........................................ 70,322 55,102
---------------- --------------
Total assets.............................. 41,890,062 22,001,977
---------------- --------------
LIABILITIES
Payable for investments purchased............... 1,021,653 1,545,375
Payable for Portfolio shares repurchased........ 20,791 31,304
Distribution fee payable (class A and C
shares)....................................... 39,026 4,871
Dividends payable............................... -- 26,285
Investment management fee payable............... 10,277 --
Custodian fee payable........................... 12,571 6,906
Administration fee payable...................... -- 2,542
Accrued expenses................................ 90,459 114,722
---------------- --------------
Total liabilities......................... 1,194,777 1,732,005
---------------- --------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)..... 3,200 1,626
Paid-in capital................................. 35,062,881 19,975,337
Undistributed net investment income............. 36,335 --
Accumulated net realized gain from
investments................................... 587,799 38,550
Net unrealized appreciation on investments...... 5,005,070 254,459
---------------- --------------
Net assets................................ $ 40,695,285 $ 20,269,972
---------------- --------------
---------------- --------------
CLASS A
Net assets...................................... $ 36,568,945 $ 3,083,790
---------------- --------------
Shares of beneficial interest outstanding....... 2,875,133 247,417
---------------- --------------
Net asset value per share....................... $12.72 $12.46
---------------- --------------
---------------- --------------
Maximum offering price per share (net asset
value plus sales charge of
3.75%* of the offering price)................. $13.22 $12.95
---------------- --------------
---------------- --------------
CLASS C
Net assets...................................... $ 4,126,340 $ 1,274,897
---------------- --------------
Shares of beneficial interest outstanding....... 324,921 102,288
---------------- --------------
Net asset value and offering price per
share**....................................... $12.70 $12.46
---------------- --------------
---------------- --------------
---------------- --------------
---------------- --------------
CLASS Y
Net assets...................................... $ 15,911,285
--------------
Shares of beneficial interest outstanding....... 1,276,593
--------------
Net asset value, offering and redemption price
per share..................................... $12.46
</TABLE>
- --------
* On investments of $50,000 or more, the offering price is reduced.
**Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
EMERGING MARKETS TOTAL RETURN
DEBT PORTFOLIO BOND PORTFOLIO
---------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Interest........................................ $ 1,740,987 $ 620,185
Dividends....................................... -- 53,164
---------------- --------------
1,740,987 673,349
---------------- --------------
EXPENSES
Investment management/advisory fees............. 221,802 42,277
Transfer agent fees and expenses................ 25,435 59,894
Accounting fees................................. 36,102 48,024
Legal and auditing fees......................... 50,064 20,004
Distribution fees - class A..................... 61,914 5,679
Distribution fees - class C..................... 12,778 4,111
Federal and state registration fees............. 36,062 24,586
Reports and notices to shareholders............. 31,526 11,531
Amortization of organization expenses........... 27,441 6,498
Custodian fees and expenses..................... 21,808 5,766
Trustees' fees and expenses..................... 10,264 5,014
Administration fees............................. -- 14,092
Insurance expenses.............................. 6,951 6,795
Other........................................... 1,955 1,534
---------------- --------------
Total expenses before waivers and related
reimbursements............................ 544,102 255,805
Less: waivers and related reimbursements.... (149,008) (203,524)
---------------- --------------
Total expenses after waivers and related
reimbursements............................ 395,094 52,281
---------------- --------------
Net investment income........................... 1,345,893 621,068
---------------- --------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments.............. 2,672,664 101,793
Net change in unrealized
appreciation/(depreciation) on investments.... 2,368,010 555,414
---------------- --------------
Net realized and unrealized gain on
investments................................... 5,040,674 657,207
---------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $ 6,386,567 $ 1,278,275
---------------- --------------
---------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING MARKETS TOTAL RETURN
DEBT PORTFOLIO BOND PORTFOLIO
----------------------------------- -----------------------------------
FOR THE SIX FOR THE FOR THE SIX FOR THE
MONTHS ENDED FISCAL YEAR MONTHS ENDED FISCAL YEAR
SEPTEMBER 30, 1997 ENDED SEPTEMBER 30, 1997 ENDED
(UNAUDITED) MARCH 31, 1997 (UNAUDITED) MARCH 31, 1997
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income........................... $ 1,345,893 $ 2,612,145 $ 621,068 $ 1,366,916
Net realized gain/(loss) from investments....... 2,672,664 3,718,432 101,793 (61,189)
Net realized loss on foreign currency
transactions.................................. -- (45,625) -- --
Net change in unrealized
appreciation/(depreciation) on investments.... 2,368,010 2,855,740 555,414 (148,563)
------------------ -------------- ------------------ --------------
Net increase in net assets resulting from
operations.................................... 6,386,567 9,140,692 1,278,275 1,157,164
------------------ -------------- ------------------ --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares................................ (1,208,874) (2,452,281) (103,810) (262,042)
Class C shares................................ (118,614) (105,187) (32,722) (92,135)
Class Y shares................................ -- -- (484,536) (1,012,739)
------------------ -------------- ------------------ --------------
(1,327,488) (2,557,468) (621,068) (1,366,916)
------------------ -------------- ------------------ --------------
Net realized capital gains
Class A shares................................ -- -- -- (10,555)
Class C shares................................ -- -- -- (4,155)
Class Y shares................................ -- -- -- (38,149)
------------------ -------------- ------------------ --------------
-- -- -- (52,859)
------------------ -------------- ------------------ --------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares............ 4,418,616 8,277,741 2,730,046 11,283,204
Cost of shares repurchased...................... (5,387,919) (9,849,056) (1,530,727) (12,702,583)
Shares issued in reinvestment of dividends...... 837,901 1,693,825 542,732 1,111,988
------------------ -------------- ------------------ --------------
Net increase/(decrease) in net assets derived
from shares of beneficial interest
transactions.................................. (131,402) 122,510 1,742,051 (307,391)
------------------ -------------- ------------------ --------------
Total increase/(decrease) in net assets......... 4,927,677 6,705,734 2,399,258 (570,002)
NET ASSETS
Beginning of period............................. 35,767,608 29,061,874 17,870,714 18,440,716
------------------ -------------- ------------------ --------------
End of period*.................................. $ 40,695,285 $ 35,767,608 $ 20,269,972 $ 17,870,714
------------------ -------------- ------------------ --------------
------------------ -------------- ------------------ --------------
</TABLE>
- --------
* Emerging Markets Debt Portfolio, includes undistributed net investment income
of $36,335 and $17,930 respectively.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
Emerging Markets Debt Portfolio
--------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE JULY 26,
FOR THE SIX FISCAL 1995*
MONTHS ENDED FOR THE FISCAL YEAR ENDED THROUGH
SEPTEMBER 30, 1997 YEAR ENDED MARCH 31, MARCH 31,
(UNAUDITED) MARCH 31, 1997 1996 1996
--------------------------- --------------------------- ------------ ------------
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period......................... $ 11.14 $ 11.14 $ 9.02 $ 9.04 $ 6.90 $ 7.81
---------- ------------ ---------- ------------ ------------ ------------
Net investment income(1)......... 0.43 0.41 0.85 0.84 0.91 0.59
Net realized and unrealized
gain/(loss) on investments,
foreign currency contracts and
translation of foreign currency
related transactions(2)........ 1.57 1.56 2.10 2.07 2.13 1.32
---------- ------------ ---------- ------------ ------------ ------------
Net increase/(decrease) in net
assets resulting from
operations..................... 2.00 1.97 2.95 2.91 3.04 1.91
---------- ------------ ---------- ------------ ------------ ------------
Dividend and distributions to
shareholders from
Net investment income.......... (0.42) (0.41) (0.83) (0.81) (0.92) (0.68)
Net realized capital gains..... -- -- -- -- -- --
---------- ------------ ---------- ------------ ------------ ------------
(0.42) (0.41) (0.83) (0.81) (0.92) (0.68)
---------- ------------ ---------- ------------ ------------ ------------
Net asset value, end of period... $ 12.72 $ 12.70 $ 11.14 $ 11.14 $ 9.02 $ 9.04
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
Total investment return(3)....... 18.09% 17.83% 33.48% 32.97% 46.13% 25.45%(4)
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)....................... $ 36,569 $ 4,126 $ 33,185 $ 2,583 $ 28,860 $ 202
Ratio of expenses to average net
assets(1)...................... 2.00%(5) 2.40%(5) 2.00% 2.40% 2.00% 2.40%(5)
Ratio of net investment income to
average net assets(1).......... 6.98%(5) 6.57%(5) 7.95% 7.59% 10.64% 8.72%(4)(5)
Decrease reflected in above
expense ratios and net
investment income due to
waivers and related
reimbursements................. 0.77%(5) 0.77%(5) 0.80% 0.64% 1.18% 3.42%(4)(5)
Portfolio turnover rate.......... 67.39% 67.39% 223.41% 223.41% 266.46% 266.46%
<CAPTION>
FOR THE
FOR THE PERIOD
FISCAL MAY 3, 1993*
YEAR ENDED THROUGH
MARCH 31, MARCH 31,
1995 1994
------------ ------------
CLASS A CLASS A
------------ ------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period......................... $ 8.98 $ 9.55
------------ ------------
Net investment income(1)......... 0.79 0.66
Net realized and unrealized
gain/(loss) on investments,
foreign currency contracts and
translation of foreign currency
related transactions(2)........ (1.85) (0.55)
------------ ------------
Net increase/(decrease) in net
assets resulting from
operations..................... (1.06) 0.11
------------ ------------
Dividend and distributions to
shareholders from
Net investment income.......... (0.77) (0.65)
Net realized capital gains..... (0.25) (0.03)
------------ ------------
(1.02) (0.68)
------------ ------------
Net asset value, end of period... $ 6.90 $ 8.98
------------ ------------
------------ ------------
Total investment return(3)....... (13.07)% 0.36%
------------ ------------
------------ ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)....................... $ 28,049 $ 45,691
Ratio of expenses to average net
assets(1)...................... 2.00% 2.00%(5)
Ratio of net investment income to
average net assets(1).......... 8.86% 7.24%(5)
Decrease reflected in above
expense ratios and net
investment income due to
waivers and related
reimbursements................. 0.53% 0.33%(5)
Portfolio turnover rate.......... 35.01% 100.85%
</TABLE>
- ------------
* Commenced investment operations on May 3, 1993. Class C shares commenced its
intial public offering on July 26, 1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, which are based
on the actual shares outstanding on the dates of distributions.
(1) Reflects waivers and related reimbursements.
(2) The amounts shown for a share outstanding throughout the respective 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) 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.
(5) Annualized.
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
Total Return Bond Portfolio
--------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 1997 FOR THE FISCAL YEAR
(UNAUDITED) ENDED MARCH 31, 1997
---------------------------------------- ----------------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period......................... $12.03 $ 12.03 $ 12.03 $12.26 $ 12.26 $ 12.26
---------- ------------ ---------- ---------- ------------ ----------
Net investment income(1)......... 0.39 0.37 0.41 0.73 0.68 0.77
Net realized and unrealized
gain/(loss) on
investments(2)................. 0.43 0.43 0.43 (0.20) (0.20) (0.20)
---------- ------------ ---------- ---------- ------------ ----------
Net increase in net assets
resulting from operations...... 0.82 0.80 0.84 0.53 0.48 0.57
---------- ------------ ---------- ---------- ------------ ----------
Dividends and distributions to
shareholders from..............
Net investment income.......... (0.39) (0.37) (0.41) (0.73) (0.68) (0.77)
Net realized capital gains..... -- -- -- (0.03) (0.03) (0.03)
---------- ------------ ---------- ---------- ------------ ----------
(0.39) (0.37) (0.41) (0.76) (0.71) (0.80)
---------- ------------ ---------- ---------- ------------ ----------
Net asset value, end of period... $12.46 $ 12.46 $ 12.46 $12.03 $ 12.03 $ 12.03
---------- ------------ ---------- ---------- ------------ ----------
---------- ------------ ---------- ---------- ------------ ----------
Total investment return(3)....... 6.92% 6.71% 7.11% 4.40% 3.99% 4.77%
---------- ------------ ---------- ---------- ------------ ----------
---------- ------------ ---------- ---------- ------------ ----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)....................... $3,084 $ 1,275 $ 15,911 $3,367 $ 1,018 $ 13,486
Ratio of expenses to average net
assets(1)...................... 0.80%(5) 1.20%(5) 0.45%(5) 0.80% 1.20% 0.45%
Ratio of net investment income to
average net assets(1).......... 6.41%(5) 5.96%(5) 6.71%(5) 5.99% 5.57% 6.34%
Decrease reflected in above
expense ratios and net
investment income due to
waivers and reimbursements..... 2.19%(5) 2.17%(5) 2.17%(5) 1.73% 1.74% 1.73%
Portfolio turnover rate.......... 135.96% 135.96% 135.96% 262.95% 262.95% 262.95%
<CAPTION>
FOR THE PERIOD
APRIL 5, 1995*
THROUGH
MARCH 31, 1996
----------------------------------------
CLASS A CLASS C CLASS Y
---------- ------------ ----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period......................... $12.00 $ 12.00 $ 12.35
---------- ------------ ----------
Net investment income(1)......... 0.71 0.67 0.41
Net realized and unrealized
gain/(loss) on
investments(2)................. 0.30 0.30 (0.05)
---------- ------------ ----------
Net increase in net assets
resulting from operations...... 1.01 0.97 0.36
---------- ------------ ----------
Dividends and distributions to
shareholders from..............
Net investment income.......... (0.71) (0.67) (0.41)
Net realized capital gains..... (0.04) (0.04) (0.04)
---------- ------------ ----------
(0.75) (0.71) (0.45)
---------- ------------ ----------
Net asset value, end of period... $12.26 $ 12.26 $ 12.26
---------- ------------ ----------
---------- ------------ ----------
Total investment return(3)....... 8.54% 8.13% 2.92%(4)
---------- ------------ ----------
---------- ------------ ----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)....................... $4,467 $ 1,775 $ 12,199
Ratio of expenses to average net
assets(1)...................... 0.85%(5) 1.25%(5) 0.45%(5)
Ratio of net investment income to
average net assets(1).......... 5.76%(5) 5.38%(5) 5.93%(4)(5)
Decrease reflected in above
expense ratios and net
investment income due to
waivers and reimbursements..... 2.87%(5) 2.95%(5) 2.89%(4)(5)
Portfolio turnover rate.......... 107.35% 107.35% 107.35%
</TABLE>
- ------------
* Commencement of investment operations. Class Y shares commenced its intial
public offering on September 8, 1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, 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) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
Total Return Bond Portfolio
NOTES TO FINANCIAL STATEMENTS --(UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Bear Stearns Investment Trust (the "Trust") and The Bear Stearns Funds (the
"Fund") were organized as Massachusetts business trusts on October 15, 1992 and
September 29, 1994, respectively, and are registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as open-end management investment
companies. The Trust currently has one fund in operation, the Emerging Markets
Debt Portfolio ("Debt Portfolio"), a non-diversified portfolio. On February 22,
1995, the Debt Portfolio changed its name from the Emerging Markets Debt Fund.
As of the date hereof, the Debt Portfolio offers three classes of shares, which
have been designated as class A, C and Y shares. The initial public offering for
the class C shares commenced on July 26, 1995. Class Y shares has yet to
commence its initial public offering. The Fund currently consists of seven
separate portfolios: four diversified portfolios, Prime Money Market Portfolio,
Large Cap Value Portfolio, Small Cap Value Portfolio and Total Return Bond
Portfolio ("Bond Portfolio"), and three non-diversified portfolios, The Insiders
Select Fund, S&P STARS Portfolio and Focus List Portfolio (which has not yet
commenced the public offering of its shares). The Bond Portfolio offers three
classes of shares, which have been designated as class A, C, and Y shares. The
initial public offering for the class Y shares commenced on September 8, 1995.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on May 3,
1993, the Debt Portfolio did not have any transactions other than those relating
to organizational matters and the sale of 10,472 shares of beneficial interest
of the Trust to Bear Stearns Funds Management Inc. ("BSFM"). Prior to commencing
investment operations on April 5, 1995, the Bond Portfolio did not have any
transactions other than those relating to organizational matters and the sale of
1,041 class A shares and 1,041 class C shares of beneficial interest to Bear,
Stearns & Co. Inc. ("Bear Stearns" or the "Distributor"). Costs of $273,667 and
$76,571 which were incurred by the Debt Portfolio and the Bond Portfolio
(collectively, the "Portfolios"), respectively, in connection with the
organization, registration with the Commission and initial public offering of
its shares, have been deferred and are being amortized using the straight-line
method over the period of benefit not exceeding sixty months, beginning with the
commencement of investment operations of each Portfolio. In the event that BSFM
or Bear Stearns or any transferee thereof redeems any of its original shares
prior to the end of the sixty month period, the proceeds of the redemption
payable in respect of such shares shall be reduced by the pro rata share (based
on the proportionate share of the original shares redeemed to the total number
of original shares outstanding at the time of the redemption) of the unamortized
deferred organization expenses as of the date of such redemption. In the event
that any of the Portfolios are liquidated prior to the end of the sixty month
period, BSFM or Bear Stearns or any transferee thereof shall bear the
unamortized deferred organization expenses.
MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
PORTFOLIO VALUATION--Each Portfolio calculates the net asset value of and
completes orders to purchase or repurchase Portfolio shares of beneficial
interest on each business day, with the exception of those days on which the New
York Stock Exchange is closed.
The assets of the Debt Portfolio are not listed on security exchanges or traded
on other regulated markets, therefore, in the absence of reported sales prices
on a valuation date, assets generally will be valued at the mean of the last bid
and offer quotations. In the absence of reported bid and offer quotations on
such valuation date, such assets will be
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<PAGE>
valued from the broker bids of at least one market maker. In the absence of
current broker bids or if PFPC Inc. ("PFPC"), in consultation with the Valuation
Committee, concludes that such broker bids are not indicative of the fair value
for such assets by reason of the illiquidity of a particular security or
investment, or other factors, the value of such assets will be recorded at their
fair value determined in good faith by the Administrator after consultation with
the Valuation Committee. In making this determination the Valuation Committee
will consider, among other things, publicly available information regarding the
issuer, market conditions and values ascribed to comparable companies. In
instances where the price determined above is deemed not to represent fair
market value, the price is determined in such manner as the Board of Trustees
may prescribe. Any assets which are denominated in a foreign currency are
converted into U.S. dollars at the prevailing market rates for purposes of
calculating net asset value.
For the Bond Portfolio, substantially all of the investments (including
short-term investments) are valued at each business day by one or more
independent pricing services (the "Service") approved by the Fund's Board of
Trustees. Securities valued by the Service for which quoted bid prices in the
judgment of the Service are readily available and are representative of the bid
side of the market, are valued at the mean between the quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities).
The amortized cost method of valuation is used with respect to debt obligations
with 60 days or less remaining to maturity, unless this method does not
represent fair value. Expenses and fees, including the investment
management/advisory, administration and distribution fees, are accrued daily and
taken into account for the purpose of determining the net asset value of each
Portfolio's shares. Because of the differences in operating expenses incurred by
each class, the per share net asset value of each class will differ.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from security and foreign currency
transactions are calculated on the identified cost basis. Interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. Discounts are treated as adjustments to interest income and identified
costs of investments over the lives of the respective investments. The Debt
Portfolio's net investment income (other than distribution fees) and unrealized
and realized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). The Bond Portfolio's net investment income (other than distribution
fees) and unrealized and realized gains or losses are allocated daily to each
class of shares based upon the relative proportion of the settled shares value
of each class at the beginning of the day.
FOREIGN CURRENCY TRANSLATION--The books and records of the Debt Portfolio are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities and other assets and liabilities stated in foreign
currencies are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the rate
of exchange prevailing on the respective dates of such transactions. The
resulting exchange gains and losses are included in the Statement of Operations.
The Debt Portfolio does not generally isolate the effect of fluctuations in
foreign exchange rates from the effect of fluctuations in the market prices of
investments. However, the Debt Portfolio does isolate the effect of fluctuations
in foreign exchange rates when determining the gain or loss upon the sale or
maturity of foreign currency-denominated debt obligations pursuant to U.S.
federal income tax regulations; such amount is categorized as foreign exchange
gain or loss for both financial reporting and income tax reporting purposes.
FORWARD FOREIGN CURRENCY CONTRACTS--The Debt Portfolio is permitted to enter
into forward foreign currency exchange contracts solely for purposes of
protecting against adverse changes in foreign currency exchange rates. The Debt
Portfolio may enter into contracts to purchase foreign currencies to protect
against a rise in the U.S. dollar price of securities it has purchased pending
final settlement, or it may enter into contracts to sell foreign currencies to
protect against the decline in value of its non-dollar denominated securities
due to a decline in the value of foreign currencies against the U.S. dollar.
When the Debt Portfolio enters into a forward foreign currency exchange contract
to
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<PAGE>
buy a foreign currency, it will place cash or readily marketable securities in a
segregated account in an amount equal to the value of its total assets committed
to the consummation of the forward contract. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the account so that the value of the account will equal the amount of
the Debt Portfolio's commitment with respect to the contract. Investors should
be aware that the forward currency market for the purchase of U.S. dollars in
many emerging countries is not highly developed and that in certain emerging
countries no forward market for foreign currencies currently exists or that such
market may be closed to investment by the Debt Portfolio. The Debt Portfolio
held no such contracts during the six months ended September 30, 1997.
U.S. FEDERAL TAX STATUS--Each Portfolio intends to distribute substantially all
of its taxable income and to comply with the other requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing during each calendar year substantially all of its
ordinary income and capital gains, if any, each Portfolio intends not to be
subject to a U.S. federal excise tax.
At March 31, 1997, the Debt Portfolio and the Bond Portfolio had a capital loss
carryforward of $2,082,264 and $60,955, respectively, available as a reduction,
to the extent provided in regulations of any future net capital gains realized
before the end of fiscal year 2004 and 2005, respectively. To the extent that
the loss is used to offset future capital gains, it is probable that the gains
so offset will not be distributed to shareholders.
FOREIGN WITHHOLDING TAXES--Income received by the Debt Portfolio from sources
outside of the United States may be subject to withholding and other taxes
imposed by countries other than the United States.
DIVIDENDS AND DISTRIBUTIONS--The Debt Portfolio declares and pays as quarterly
dividends to shareholders substantially all of its net investment income. The
Bond Portfolio declares from net investment income on each day the New York
Stock Exchange is open for business. These dividends on the Bond Portfolio are
paid usually on or about the twentieth day of each month. Distribution of net
realized gains, if any, will be declared and paid at least annually by each
Portfolio. Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within capital accounts based on their
U.S. federal tax-basis treatment; temporary differences do not require
reclassification.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
For the six months ended September 30, 1997, BSFM, a wholly-owned subsidiary of
The Bear Stearns Companies Inc., serves as the Debt Portfolio's investment
manager pursuant to the Investment Management Agreement. For its investment
management and administrative services, BSFM receives from the Debt Portfolio a
monthly fee at an annual rate equal to 1.15% of the Debt Portfolio's average
daily net assets up to $50 million, 1.00% of the Debt Portfolio's average daily
net assets of more than $50 million but not in excess of $100 million and 0.70%
of the Debt Portfolio's average daily net assets above $100 million. Prior to
May 4, 1995, BEA Associates ("BEA") served as investment adviser to the Debt
Portfolio.
For the six months ended September 30, 1997, BSFM served as the Bond Portfolio's
investment adviser pursuant to an Investment Advisory Agreement. BSFM is
entitled to receive from the Bond Portfolio a monthly fee equal to an annual
rate of 0.45% of the Bond Portfolio's average daily net assets.
For the six months ended September 30, 1997, BSFM served as administrator to the
Bond Portfolio pursuant to an Administrative Agreement. BSFM is entitled to
receive from the Bond Portfolio a monthly fee equal to an annual rate of 0.15%
of the Bond Portfolio's average daily net assets.
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<PAGE>
Under the terms of an Administrative Services Agreement with the Portfolios,
PFPC provides certain administrative services to each Portfolio. For providing
these services, PFPC is entitled to receive from the Portfolios a monthly fee
equal to an annual rate of 0.10% of each Portfolio's average daily net assets up
to $200 million, 0.075% of the next $200 million, 0.05% of the next $200
million, and 0.03% of net assets above $600 million, subject to a minimum annual
fee of $132,000 for each Portfolio. During the six months ended September 30,
1997, PFPC has voluntarily waived a portion of its fee.
For the six months ended September 30, 1997, BSFM voluntarily undertook to limit
the total operating expenses (exclusive of brokerage commissions, taxes,
interest, and extraordinary items) to a maximum annual level of 2.00% and 2.40%
of the average daily net assets of the Debt Portfolio's class A and C shares,
respectively, as did BEA and BSFM in their respective capacities prior to May 4,
1995. Effective September 1, 1995, BSFM further undertook to reduce the total
operating expenses (exclusive of brokerage commissions, taxes, interest, and
extraordinary items) with respect to the Bond Portfolio, to a maximum annual
level of 0.80%, 1.20%, an 0.45% of the Bond Portfolio's average daily net assets
for class A, C, and Y shares, respectively. As necessary, these limitations are
effected by waivers by BSFM of its investment management/advisory fees and
reimbursement of expenses exceeding the investment management/advisory fees. For
the six months ended September 30, 1997, BSFM waived investment
management/advisory fees of $149,008 and $42,277 for the Debt Portfolio and the
Bond Portfolio, respectively. In addition, BSFM reimbursed $161,247 for the Bond
Portfolio in order to maintain the voluntary expense limitation. The Portfolios
will not pay BSFM at a later time for any amounts BSFM may waive, nor will the
Portfolios reimburse BSFM for any amounts BSFM may assume.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc. and an affiliate of BSFM, serves as custodian to the Bond Portfolio.
DISTRIBUTION PLAN
The Trust, on behalf of the Debt Portfolio, has entered into an amended and
restated Distribution and Servicing Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act. Upon adoption of the Plan by the shareholders
of the Debt Portfolio on May 4, 1995, the Plan has increased the amount of 12b-1
fees on the Debt Portfolio's current shares, which have been designated class A
shares, from an annual rate of 0.25% of the average daily net assets of the Debt
Portfolio to an annual rate of 0.35% (of which 0.25% was attributable to
shareholder servicing) of the average daily net assets of the class A shares of
the Debt Portfolio. The Plan provides for 12b-1 fees on the class C shares at an
annual rate of 0.75% of the average daily net assets of the class C shares.
Despite the increase in fees under the amended and restated 12b-1 plan, the
total operating expenses of the Debt Portfolio have remained constant due to the
expense limitation. In addition, a higher level of 12b-1 fees enables the Debt
Portfolio to offer improved shareholder services, such as lower investment
minimums and the ability to exchange shares of the Debt Portfolio with shares of
the same class of certain other funds and portfolios affiliated with Bear
Stearns.
The Fund, on behalf of the Bond Portfolio, has entered into a Distribution and
Servicing Plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
Investment Company Act. Under the Distribution Plan in effect for the six months
ended September 30, 1997, the Bond Portfolio paid Bear Stearns a fee at an
annual rate of 0.35% for class A shares (of which 0.25% was attributable to
shareholder servicing) and 0.75% for class C shares.
Such fees are based on the average daily net assets in each class of each
Portfolio and are accrued daily and paid quarterly or at such other intervals as
the Board of Trustees may determine. For the six months ended September 30,
1997, Bear Stearns, as distributor, earned $30,733 and $5,758 for the Debt
Portfolio and the Bond Portfolio, respectively, in distribution fees. Bear
Stearns uses these fees to pay broker/dealers whose clients hold each
Portfolio's shares and other distribution-related activities. For the same
period, Bear Stearns, earned $43,959 and $4,032 for the Debt Portfolio and the
Bond Portfolio, respectively, in shareholder servicing fees. Bear Stearns pays
broker/dealers and other financial institutions whose clients hold Portfolio
shares primarily for shareholder liaison and other account maintenance services.
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In addition, as Distributor of the Portfolios, Bear Stearns collects the sales
charges imposed on sales of each Portfolio's class A shares, and reallows a
portion of such charges to dealers through which the sales are made. As a result
of an undertaking by the Distributor, it reallowed or will reallow all of the
sales charges to its dealers selling Portfolio shares for the period February
15, 1996 through June 30, 1996. Furthermore, the Distributor has increased the
compensation paid to its dealers selling Portfolio shares on net asset value
transfers (purchases made by investors with the proceeds from a redemption of
shares of an investment company sold with a sales charge or commission and not
distributed by Bear Stearns) from 0.50% to 1.00% beginning April 15, 1996 until
the new pricing structure is implemented later this year. In addition, Bear
Stearns advanced 1.00% in sales commissions on the sale of class C shares to
dealers at the time of such sales.
For the six months ended September 30, 1997, Bear Stearns has advised each
Portfolio that it received approximately $39,700 and $4,000 in front-end sales
charges resulting from sales of class A shares of the Debt Portfolio and the
Bond Portfolio, respectively. From these fees, Bear Stearns paid such sales
charges to brokers/dealers which in turn paid commissions to salespersons. In
addition, Bear Stearns has advised the Debt Portfolio and the Bond Portfolio
that during the period, it received approximately $600 and $100, respectively,
in contingent deferred sales charges upon certain redemptions by class C
shareholders.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at September
30, 1997, were $35,083,067 and $21,208,623 for the Debt Portfolio and the Bond
Portfolio, respectively. Accordingly, the net unrealized appreciation on
investments were as follows:
<TABLE>
<CAPTION>
NET
PORTFOLIO APPRECIATION DEPRECIATION APPRECIATION
- ---------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Debt Portfolio.......................... $ 4,978,427 $(14,912) $ 4,963,515
Bond Portfolio.......................... 283,623 (29,398) 254,225
</TABLE>
For the six months ended September 30, 1997, aggregate purchases and sales of
portfolio securities (excluding short-term investments) for each Portfolio were
as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ---------------------------------------- ----------- -----------
<S> <C> <C>
Debt Portfolio.......................... $24,634,510 $25,144,349
Bond Portfolio.......................... 23,927,525 24,079,749
</TABLE>
SHARES OF BENEFICIAL INTEREST
Each Portfolio offers class A, C and Y shares. Class A shares are sold with a
front-end sales charge of up to 3.75%. Class C shares are sold with a contingent
deferred sales charge ("CDSC") of 1.00% within the first year. There is no sales
charge or CDSC on class Y shares, which are offered primarily to institutional
investors.
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At September 30, 1997, there was an unlimited amount of $0.001 par value shares
of beneficial interest authorized for each Portfolio, of which BSFM owned 10,472
class A shares of the Debt Portfolio and Bear Stearns owned 1,041 each of class
A and C shares of the Bond Portfolio. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
DEBT PORTFOLIO BOND PORTFOLIO
---------------------- ----------------------------------
CLASS A CLASS C CLASS A CLASS C CLASS Y
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
SALES:
Shares.................................. 266,884 98,259 24,759 27,993 167,535
Amount.................................. $3,233,816 $1,184,800 $ 302,380 $ 347,873 $2,079,793
REPURCHASES:
Shares.................................. 429,742 13,880 63,759 12,682 47,611
Amount.................................. $5,216,015 $ 171,904 $ 785,090 $ 157,543 $ 588,094
REINVESTMENTS:
Shares.................................. 59,115 8,630 6,509 2,351 35,205
Amount.................................. $ 731,220 $ 106,681 $ 80,079 $ 28,946 $ 433,707
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
SALES:
Shares.................................. 530,036 236,617 124,771 24,694 777,105
Amount.................................. $5,729,161 $2,548,580 $1,526,794 $ 301,360 $9,455,050
REPURCHASES:
Shares.................................. 902,360 35,448 223,376 89,493 723,355
Amount.................................. $9,458,425 $ 390,631 $2,719,344 $1,098,501 $8,884,738
REINVESTMENTS:
Shares.................................. 151,588 8,435 14,003 4,620 72,402
Amount.................................. $1,601,260 $ 92,565 $ 171,130 $ 56,453 $ 884,405
</TABLE>
CREDIT AGREEMENT
The Trust (on behalf of the Debt Portfolio) and the Fund (on behalf of the Bond
Portfolio) have entered into a credit agreement with The First National Bank of
Boston. Small Cap Value Portfolio, Large Cap Value Portfolio, The Insiders
Select Fund, S&P STARS Portfolio, Prime Money Market Portfolio and Focus List
Portfolio are also parties to the credit agreement. The agreement provides that
each party to the credit agreement is permitted to borrow in an amount equal to
the lesser of $25 million or 25% of the net assets of a Portfolio. At no time
shall the aggregate outstanding principal amount of all loans to any of the
Portfolios exceed $25 million. Each Portfolio as a fundamental policy is
permitted to borrow in an amount up to 33 1/3% of the value of such Portfolio's
assets. However, each Portfolio currently intends to borrow money only for
temporary or emergency (not leveraging) purposes in an amount up to 15% (10% for
the Debt Portfolio) of its net assets. The line of credit will bear interest at
the greater of: (i) the annual rate of interest announced from time to time from
the bank at its head office as its Base Rate, or (ii) the Federal Funds
Effective Rate plus 0.50%, or at the borrower's option, the rate quoted by The
First National Bank of Boston.
Each loan is payable on demand or upon termination of this credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced.
Amounts outstanding under the line of credit agreement for the Bond Portfolio
averaged $6,311 during the six months ended September 30, 1997. The maximum
amounts outstanding at any month-end under such line of credit agreement during
six months ended September 30, 1997, for the Bond Portfolio was $53,000. The
average interest rates during 1997, on amounts outstanding under such line of
credit agreement was 7.38% for the Bond Portfolio. The Bond Portfolio had no
amounts outstanding under the line of credit agreement at September 30, 1997.
The Debt Portfolio had no amounts outstanding under the line of credit agreement
during the six months ended September 30, 1997.
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<PAGE>
CONCENTRATION OF RISK--DEBT PORTFOLIO
Investments in emerging markets debt involve special risks. The issuer of the
debt of the governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and the Debt Portfolio may have limited legal
recourse in the event of a default.
Certain emerging countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging country's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Debt Portfolio
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Debt Portfolio of any restrictions on investments.
Most securities markets in emerging market countries may have substantially less
volume and are subject to less government supervision than U.S. securities
markets. Securities of many issuers in emerging market countries may be less
liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging market countries than in the
United States.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in exchange rates.
CREDIT RISK--DEBT PORTFOLIO
Forward contracts are subject to the risk that the counterparty to the contract
will default on its obligations. A default on the contract would deprive the
Debt Portfolio of unrealized profits, the benefits of a currency hedge, increase
transaction costs or force the Debt Portfolio to cover its purchase or sale
commitments, if any, at the current market price. The Debt Portfolio will not
enter into such transactions unless the credit quality of the unsecured senior
debt or the claims-paying ability of the counterparty is considered to be
investment grade by BSFM.
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TRUSTEES AND CORPORATE OFFICERS
<TABLE>
<S> <C>
Michael Minikes Chairman of the Board
Robert S. Reitzes President
Peter B. Fox Trustee - Emerging Markets Debt Portfolio
Executive Vice President - Total Return Bond Portfolio
William J. Executive Vice President - Total Return Bond Portfolio
Montgoris
Peter M. Bren Trustee
Alan J. Dixon Trustee - Total Return Bond Portfolio
John R. McKernan, Trustee
Jr.
M.B. Oglesby, Jr. Trustee
Stephen A. Vice President
Bornstein
Donalda L. Fordyce Vice President
Frank J. Maresca Vice President and Treasurer
Ellen T. Arthur Secretary
Vincent L. Pereira Assistant Treasurer
Christina P. La Assistant Secretary
Mastro
</TABLE>
