<PAGE>
BEAR
STEARNS
The
Bear Stearns
Funds
245 PARK AVENUE
NEW YORK, NY 10167
1.800.766.4111
Robert S. Reitzes Chairman of the Board
Peter B. Fox President and Trustee
John R. McKernan, Jr Trustee
M.B. Oglesby, Jr Trustee
Peter M. Bren Trustee
Stephen A. Bornstein Vice President
Donalda L. Fordyce Vice President
Frank J. Maresca Vice President and Treasurer
Ellen T. Arthur Secretary
Vincent L. Pereira Assistant Treasurer
Eileen M. Coyle Assistant Secretary
INVESTMENT MANAGER DISTRIBUTOR
Bear Stearns Funds Bear, Stearns & Co. Inc.
Management Inc. 245 Park Avenue
245 Park Avenue New York, NY 10167
New York, NY 10167
CUSTODIAN TRANSFER AND DIVIDEND
Brown Brothers DISBURSEMENT AGENT
Harriman & Co. PFPC Inc.
40 Water Street Bellevue Corporate Center
Boston, MA 02109 400 Bellevue Parkway
Wilmington, DE 19809
COUNSEL INDEPENDENT AUDITORS
Mayer, Brown & Platt Deloitte & Touche LLP
1675 Broadway Two World Financial Center
New York, NY 10019 New York, NY 10281
This report is submitted for the general information of the shareholders of
the Portfolio. It is not authorized for distribution to prospective investors
in the Portfolio unless it is preceded or accompanied by a current prospectus
which includes details regarding the Portfolio's objectives, policies, sales
commissions and other information. Total 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 the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than original cost.
EMERGING MARKETS DEBT
PORTFOLIO
ANNUAL REPORT
MARCH 31, 1997
BSF-R-002-04
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
LETTER TO SHAREHOLDERS
April 21, 1997
Dear Shareholders:
We are pleased to present the annual report to shareholders for the Emerging
Markets Debt Portfolio (the "Portfolio")*. For the fiscal year ended March 31,
1997, the Portfolio's class A shares (without giving effect to the sales charge)
had a total return of 33.48%, and the class C shares had a total return of
32.97%(1). The Portfolio's benchmark, the Salomon Brothers Emerging Markets Debt
Mutual Fund Index, returned 35.30% for the period. Additional performance data
for each class of shares can be found in the "Financial Highlights" section of
this report.
Based on rankings by Morningstar, the Portfolio's class A shares were included
in several top-ten lists published during the past twelve months by THE DOW
JONES INVESTMENT ADVISOR. In addition, the Portfolio's class A shares were
ranked by Morningstar among the top 25 taxable bond funds published by MONEY
magazine for the one- and three-year periods ending January 1, 1997. In the DOW
JONES INVESTMENT ADVISOR, the Portfolio was ranked by Morningstar fourth out of
90 international bond funds for the twelve months ended March 31, 1997. In
MONEY, the Portfolio was ranked by Morningstar third out of 677 and ninth out of
575 taxable bond funds for the one- and three-year periods ending January 1,
1997, respectively. Rankings for both publications were based on total return
for the periods and did not take into account sales charges.
Over the fiscal year, the Portfolio continued to benefit from ongoing strength
in the fixed income markets of emerging economies. We continue to believe that
the medium-term outlook for emerging market debt remains positive. However, we
are cautious near term due to such factors as uncertainty over the outcome of
upcoming elections in a number of emerging countries worldwide; the recent drop
in oil prices, which could adversely affect commodity exporters such as
Venezuela; and a potential renewal of trade tensions in certain South American
countries.
Medium-term positives for the market remain, however. For example, economic
growth in Latin America, particularly Mexico (12% of the Portfolio's net assets)
and Argentina (15%), is likely to remain strong, which should contribute to
improved creditworthiness and capital appreciation. We expect that the sovereign
debt of selected countries, including Russia (7%), will continue to improve in
credit quality as a result of restructurings. In fact, we are increasingly
optimistic about the prospect for reforms in Russia due to a better political
climate -- for example, Yeltsin's new economic leaders are more likely to meet
with greater success in strengthening the economy in such areas as tax
collections and inter-company debts. As a result, we regarded the first
quarter's market sell-off in Russia as an opportunity to restructure our
positions in that market.
From a longer-term perspective, it is important to keep in mind that Brady
Bonds, on average, still offer a significant yield advantage over U.S.
Treasuries, recently about 350 basis points. Improvements in creditworthiness
continue: Panama's Brady debt was recently rated just below investment grade,
and the Philippines is being reviewed for a possible upgrade.
In addition, it is important to note that while the U.S. debt markets had
generally negative returns in this year's first quarter, returns for the
Portfolio and its benchmark remained positive -- a further indication that
market activity in the debt of emerging countries primarily reflects internal
developments rather than market movements in the U.S. Treasury bond market.
* 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 fiscal year ended March 31, 1997, the Emerging Markets Debt
Portfolio's class A shares had a total return of 28.47% including the maximum
sales charge of 3.75%.
1
<PAGE>
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,
[SIG] [SIG]
Robert S. Reitzes Edward R. Vaimberg
Chairman of the Board Portfolio Manager
2
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Emerging Markets Debt Portfolio
Salomon Brothers
Emerging Markets
Debt Mutual Consumer
Class A Shares Fund Index Price Index
May 4, 1995 $9,625.00 $10,000.00 $10,000.00
June 30, 1995 10,203.47 11,016.75 10,039.50
Sep. 30,1995 10,805.17 11,487.64 10,085.58
Dec. 31, 1995 11,876.52 12,634.41 10,138.25
Mar. 31, 1996 12,669.28 13,314.98 10,243.58
June 30, 1996 14,110.10 14,299.00 10,322.58
Sep. 30, 1996 15,590.11 16,331.00 10,388.41
Dec. 31, 1996 16,718.00 17,799.00 10,481.00
Mar. 31, 1997 16,907.00 18,013.00 10,527.00
$9,625 investment
made on May 4, 1995
Past performance
is not predictive
of future
performance
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
--------------------- ---------------------
Emerging Markets Debt Portfolio(2)
Class A shares(4)........................................ 28.49 % 31.60 %
Salomon Brothers Emerging Markets Debt Mutual
Fund Index(1)............................................ 35.30 36.04
Consumer Price Index(1)...................................... 2.76 2.74
</TABLE>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the
Portfolio is a professionally managed mutual fund while the indices are
either unmanaged and do not incur sales charges or expenses and/or are not
available for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total return would have been lower had there been no
assumption of fees and expenses in excess of the expense limitations.
(3)Commencing May 4, 1995, Bear Stearns Funds Management Inc. assumed the daily
portfolio management responsibility for the Portfolio. Returns shown are for
the period May 4, 1995 through March 31, 1997. For the period May 3, 1993
(commencement of investment operations) through May 3, 1995 the Portfolio's
investment adviser was BEA Associates and those results are not shown.
(4)Reflects the initial maximum 3.75% sales charge. Without the applicable sales
charge, the total returns would have been 33.48% and 34.27%, respectively,
for each period shown.
3
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS C SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EMERGING MARKETS DEBT PORTFOLIO
<S> <C> <C> <C>
Salomon Brothers
Emerging Markets
Debt Mutual Consumer
Class C Shares Fund Index Price Index
July 26, 1995 $10,000 $10,000 $10,000
Sep. 30, 1995 10,685 10,712 10,039
Dec. 31, 1995 11,726 11,782 10,098
Mar. 31, 1996 12,545 12,416 10,196
June 30, 1996 13,963 13,894 10,269
Sep. 30, 1996 15,404 15,231 10,347
Dec. 31, 1996 16,515 16,599 10,432
Mar. 31, 1997 16,681 16,799 10,478
Past performance
is not predictive
of future
performance
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
Emerging Markets Debt Portfolio(2)
Class C shares........................................................ 32.97% 35.48%
Salomon Brothers Emerging Markets Debt Mutual
Fund Index(1)......................................................... 35.30 36.13
Consumer Price Index(1)................................................... 2.76 2.81
</TABLE>
- ---------
(1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the
Portfolio is a professionally managed mutual fund while the indices are
either unmanaged and do not incur sales charges or expenses and/or are not
available for investment.
(2) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses to
maintain the expense limitation, as set forth in the notes to the financial
statements. Total returns shown include fee waivers and expense
reimbursements; total return would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3) For the period July 26, 1995 (initial public offering date) through March
31, 1997.
4
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
MARCH 31, 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
Argentina 14.87%
Brazil 17.60%
Bulgaria 4.64%
Ecuador 4.19 %
Mexico 11.57%
Morocco 4.61%
Nigeria 4.51%
Panama 4.84%
Peru 4.19%
Philippines 4.08%
Poland 4.25%
Russia 7.06%
Venezuela 4.69%
Cash & Cash Equivalents 8.90%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Loan Participations 11.67%
Cash & Cash Equivalents 8.90%
Brady Bonds 79.43%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN ISSUERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK ISSUER CURRENCY SECURITY TYPE NET ASSETS
- ------------------------------------------------------ ----------- ------------- ---------------
<C> <S> <C> <C> <C>
1. Federal Republic of Brazil........................ U.S. Dollar Brady Bond 17.60
2. Republic of Argentina............................. U.S. Dollar Brady Bond 14.87
3. United Mexican States............................. U.S. Dollar Brady Bond 11.57
4. Vneshekonombank................................... U.S. Dollar Loan 7.06
Participation
5. The Republic of Panama............................ U.S. Dollar Brady Bond 4.84
6. Republic of Venezuela............................. U.S. Dollar Brady Bond 4.69
7. Republic of Bulgaria.............................. U.S. Dollar Brady Bond 4.64
8. The Kingdom of Morocco............................ U.S. Dollar Loan 4.61
Participation
9. Central Bank of Nigeria........................... U.S. Dollar Brady Bond 4.51
10. The Polish People's Republic...................... U.S. Dollar Brady Bond 4.25
</TABLE>
5
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM INVESTMENTS-91.10%
ARGENTINA - 14.87%
SOVEREIGN
1,200 Republic of Argentina, Discount Bond, Series L
(a)(b)............................................ 6.375% 03/31/23 $ 971,250
2,474 Republic of Argentina, FRB (a)(b)(e).............. 6.750 03/31/05 2,212,237
3,400 Republic of Argentina, Par Bond (b)(c)............ 5.500 03/31/23 2,133,500
-----------
Total Argentina (cost - $4,742,562)............... 5,316,987
-----------
BRAZIL - 17.60%
SOVEREIGN
1,500 Federal Republic of Brazil, DCB Bond (a)(b)....... 6.563 04/15/12 1,185,000
2,100 Federal Republic of Brazil, Discount Bond, Series
Z-L (a)(b)........................................ 6.500 04/15/24 1,686,562
1,475 Federal Republic of Brazil, EI Bond (a)(b)........ 6.500 04/15/06 1,315,516
1,100 Federal Republic of Brazil, NMB Bond, Series L
(a)(b)............................................ 6.563 04/15/09 926,750
1,600 Federal Republic of Brazil, FLIRB Bearer Bond
(a)(b)............................................ 4.500 04/15/09 1,180,000
-----------
Total Brazil (cost - $6,283,505).................. 6,293,828
-----------
BULGARIA - 4.64%
SOVEREIGN
650 Republic of Bulgaria, Discount Bond, Series A
(a)(b)............................................ 6.563 07/28/24 385,937
1,100 Republic of Bulgaria, IAB, Registered (a)(b)...... 6.563 07/28/11 630,438
1,125 Republic of Bulgaria, IAB, Bearer (a)(b).......... 6.563 07/28/11 644,766
-----------
Total Bulgaria (cost - $1,484,975)................ 1,661,141
-----------
ECUADOR - 4.19%
SOVEREIGN
1,150 The Republic of Ecuador, Par Bond, Registered
(b)(c)............................................ 3.500 02/28/25 474,375
1,776 The Republic of Ecuador, PDI Bearer Bond (a)(b)... 6.438 02/27/15 1,022,259
-----------
Total Ecuador (cost - $1,418,560)................. 1,496,634
-----------
MEXICO - 11.57%
SOVEREIGN
450 United Mexican States, Par Bond, Series A
(b)(g)............................................ 6.250 12/31/19 318,375
5,400 United Mexican States, Par Bond, Series B
(b)(g)............................................ 6.250 12/31/19 3,820,500
-----------
Total Mexico (cost - $4,198,184).................. 4,138,875
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
MOROCCO - 4.61%
SOVEREIGN
1,900 The Kingdom of Morocco, Tranche A, Loan
Participation (a)
(cost - $1,341,805)............................... 6.375% 01/01/09 $ 1,649,437
-----------
NIGERIA - 4.51%
SOVEREIGN
2,500 Central Bank of Nigeria, Par Bond (b)(c)(h)
(cost - $1,686,585)............................... 6.250 11/15/20 1,612,500
-----------
PANAMA - 4.84%
SOVEREIGN
2,475 The Republic of Panama, IRB Bond (a)(b)
(cost - $1,709,034)............................... 3.500 07/17/14 1,732,500
-----------
PERU - 4.19%
SOVEREIGN
1,400 The Republic of Peru, FLIRB (b)(c)................ 3.250 03/07/17 724,500
1,346 The Republic of Peru, PDI Bond (b)(c)............. 4.000 03/07/17 773,950
-----------
Total Peru (cost - $1,037,614).................... 1,498,450
-----------
PHILIPPINES - 4.08%
SOVEREIGN
1,550 Republic of the Philippines, FLIRB, Series B
(a)(b)
(cost - $1,458,830)............................... 5.000 06/01/08 1,460,875
-----------
POLAND - 4.25%
SOVEREIGN
1,900 The Polish People's Republic, PDI Bearer Bond
(b)(c)
(cost - $1,387,350)............................... 4.000 10/27/14 1,521,187
-----------
RUSSIA - 7.06%
SOVEREIGN
3,200 Vneshekonombank, Bank Loan Participation (d)(f)
(cost - $1,724,875)............................... -- 10/13/04 2,524,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY MARKET
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VENEZUELA - 4.69%
SOVEREIGN
1,000 Republic of Venezuela, DCB (a)(b)................. 6.500% 12/18/07 $ 867,500
1,150 Republic of Venezuela, Par Bond, Series A
(b)(i)............................................ 6.750 03/31/20 808,594
-----------
Total Venezuela (cost - $1,471,569)............... 1,676,094
-----------
Total Long-Term Investments (cost -
$29,945,448)...................................... 32,582,508
-----------
SHORT-TERM INVESTMENT-7.49%
GRAND CAYMAN - 7.49%
2,680 Brown Brothers Harriman & Co.
Call Account
(cost - $2,680,000)............................... 4.750 * 2,680,000
-----------
Total Investments (cost - $32,625,448) - 98.59%... 35,262,508
Other assets in excess of liabilities - 1.41%..... 505,100
-----------
Net Assets - 100.00%.............................. $35,767,608
-----------
-----------
</TABLE>
- ---------
+ Denominated in United States dollars.
* Variable rate account. Rate resets on a daily basis, amounts available
generally on the same business day.
(a) Adjustable rate; rate based on London Interbank Offered Rate (LIBOR).
(b) Brady Bond.
(c) Step-up coupon; coupon increases at periodic intervals.
(d) In the process of converting to Brady Bond issue, the conversion date has
not been finalized.
(e) Pro-rata sinking fund will be established. The first and second
amortization of principal have been at a rate of 1%.
(f) Non-income producing security.
(g) With additional 450,000 and 5,400,000 value recovery rights attached,
respectively, with no market value.
(h) With additional 2,500 warrants attached, with no market value.
(i) With additional 5,750 warrants attached, with no market value.
DCB Debt Conversion Bond.
EI Eligible Interest Bond.
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.
8
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $32,625,448)...... $ 35,262,508
Cash............................................ 254
Receivable for investments sold................. 3,136,435
Interest receivable............................. 614,967
Deferred organization expenses and other
assets......................................... 99,013
Receivable for Portfolio shares sold............ 45,848
-------------
Total assets.............................. 39,159,025
-------------
LIABILITIES
Payable for investments purchased............... 3,112,075
Payable for Portfolio shares repurchased........ 114,558
Investment management fee payable............... 58,269
Distribution fee payable (class A and C
shares)........................................ 35,642
Accrued expenses................................ 70,873
-------------
Total liabilities......................... 3,391,417
-------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 3,303
Paid-in capital................................. 35,194,180
Undistributed net investment income............. 17,930
Accumulated net realized loss from
investments.................................... (2,084,865)
Net unrealized appreciation on investments...... 2,637,060
-------------
Net assets................................ $ 35,767,608
-------------
-------------
CLASS A
Net assets...................................... $ 33,184,663
-------------
Shares of beneficial interest outstanding....... 2,978,876
-------------
Net asset value per share....................... $11.14
-------------
-------------
Maximum offering price per share (net asset
value plus sales charge of 3.75%* of the
offering price)................................ $11.57
-------------
-------------
CLASS C
Net assets...................................... $ 2,582,945
-------------
Shares of beneficial interest outstanding....... 231,912
-------------
Net asset value and offering price per
share**........................................ $11.14
-------------
-------------
</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.
9
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................ $ 3,276,499
------------
EXPENSES
Investment management fees...................... 378,501
Distribution fees - class A..................... 110,830
Distribution fees - class C..................... 9,356
Accounting fees................................. 85,124
Transfer agent fees and expenses................ 68,683
Amortization of organization expenses........... 54,732
State registration fees......................... 52,895
Legal and auditing fees......................... 49,069
Custodian fees and expenses..................... 43,201
Reports and notices to shareholders............. 36,002
Trustees' fees and expenses..................... 18,002
Insurance expenses.............................. 14,983
Other........................................... 3,270
------------
Total expenses before waivers and
reimbursements.............................. 924,648
Less: waivers and reimbursements............ (260,294)
------------
Total expenses after waivers and
reimbursements.............................. 664,354
------------
Net investment income........................... 2,612,145
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments................ 3,718,432
Net realized loss on foreign currency
transactions................................... (45,625)
Net change in unrealized depreciation on
investments.................................... 2,855,740
------------
Net realized and unrealized gain on investments
and foreign currency transactions.............. 6,528,547
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $ 9,140,692
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MARCH 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income........................... $ 2,612,145 $ 3,092,386
Net realized gain/(loss) on investments......... 3,718,432 (1,813,581)
Net realized loss on foreign currency
transactions................................... (45,625) --
Net change in unrealized depreciation on
investments.................................... 2,855,740 9,666,626
-------------- --------------
Net increase in net assets resulting from
operations..................................... 9,140,692 10,945,431
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income
Class A shares................................ (2,452,281) (3,173,751)
Class C shares................................ (105,187) (7,284)
-------------- --------------
(2,557,468) (3,181,035)
-------------- --------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares............ 8,277,741 1,767,410
Cost of shares repurchased...................... (9,849,056) (10,679,919)
Shares issued in reinvestment of dividends...... 1,693,825 2,161,217
-------------- --------------
Net increase/(decrease) in net assets derived
from shares of beneficial interest
transactions................................... 122,510 (6,751,292)
-------------- --------------
Total increase in net assets.................... 6,705,734 1,013,104
NET ASSETS
Beginning of year............................... 29,061,874 28,048,770
-------------- --------------
End of year (including undistributed net
investment income of $17,930 and $8,877,
respectively).................................. $ 35,767,608 $ 29,061,874
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below is per share operating performance data for a 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
FOR THE JULY 26, FOR THE PERIOD
FISCAL 1995* FISCAL MAY 3, 1993*
FOR THE FISCAL YEAR ENDED THROUGH YEAR ENDED THROUGH
YEAR ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31,
MARCH 31, 1997 1996 1996 1995 1994
--------------------------- ------------ ------------ ------------ ------------
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS A
---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period.......................... $ 9.02 $ 9.04 $ 6.90 $ 7.81 $ 8.98 $ 9.55
---------- ------------ ------------ ------------ ------------ ------------
Net investment income (1)........ 0.85 0.84 0.91 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)........ 2.10 2.07 2.13 1.32 (1.85) (0.55)
---------- ------------ ------------ ------------ ------------ ------------
Net increase/(decrease) in net
assets from operations.......... 2.95 2.91 3.04 1.91 (1.06) 0.11
---------- ------------ ------------ ------------ ------------ ------------
Dividends and distributions to
shareholders from
Net investment income.......... (0.83) (0.81) (0.92) (0.68) (0.77) (0.65)
Net realized capital gains..... -- -- -- -- (0.25) (0.03)
---------- ------------ ------------ ------------ ------------ ------------
(0.83) (0.81) (0.92) (0.68) (1.02) (0.68)
---------- ------------ ------------ ------------ ------------ ------------
Net asset value, end of
period........................ $ 11.14 $ 11.14 $ 9.02 $ 9.04 $ 6.90 $ 8.98
---------- ------------ ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------ ------------
Total investment return (3)(5)... 33.48% 32.97% 46.13% 25.45% (13.07)% 0.36%
---------- ------------ ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------ ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)........................ $ 33,185 $ 2,583 $ 28,860 $ 202 $ 28,049 $ 45,691
Ratio of expenses to average net
assets (1)...................... 2.00% 2.40% 2.00% 2.40%(4)(5) 2.00% 2.00%(4)
Ratio of net investment income to
average net assets (1).......... 7.95% 7.59% 10.64% 8.72%(4)(5) 8.86% 7.24%(4)
Decrease reflected in above
expense ratios and net
investment income due to waivers
and reimbursements.............. 0.80% 0.64% 1.18% 3.42%(4)(5) 0.53% 0.33%(4)
Portfolio turnover rate.......... 223.41% 223.41% 266.46% 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 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.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Bear Stearns Investment Trust (the "Trust") was organized as a Massachusetts
business trust on October 15, 1992 and is registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end management investment
company. The Trust currently has one fund in operation, the Emerging Markets
Debt Portfolio (the "Portfolio"), a non-diversified portfolio. On February 22,
1995, the Portfolio changed its name from the Emerging Markets Debt Fund. As of
the date hereof, the Portfolio offers two classes of shares, which have been
designated as class A and C shares. The initial public offering for the class C
shares commenced on July 26, 1995.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on May 3,
1993, the Portfolio 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" or the "Investment
Manager"). Costs of $273,667 incurred by the Trust in connection with the
organization, its 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 the Portfolio. In
the event that the Investment Manager or any transferee of the Investment
Manager redeems any of its original shares prior to the end of the sixty month
period, the proceeds of the redemption payable in respect of such shares shall
be reduced by the pro rata share (based on the proportionate share of the
original shares redeemed to the total number of original shares outstanding at
the time of the redemption) of the unamortized deferred organization expenses as
of the date of such redemption. In the event that the Portfolio is liquidated
prior to the end of the sixty month period, the Investment Manager or the
transferee of the Investment Manager shall bear the unamortized deferred
organization expenses.
PORTFOLIO VALUATION--The Portfolio calculates the net asset value of and
completes orders to purchase or repurchase Portfolio shares of beneficial
interest on each business day, with the exception of those days on which the New
York Stock Exchange is closed.
The assets of the Portfolio are not listed on security exchanges or traded on
other regulated markets, therefore, in the absence of reported sales prices on a
valuation date, assets generally will be valued at the mean of the last bid and
offer quotations. In the absence of reported bid and offer quotations on such
valuation date, such assets will be valued from the broker bids of at least one
market maker. In the absence of current broker bids or if PFPC Inc. (the
"Administrator"), in consultation with the Valuation Committee, concludes that
such broker bids are not indicative of the fair value for such assets by reason
of the illiquidity of a particular security or investment, or other factors, the
value of such assets will be recorded at their fair value determined in good
faith by the Administrator after consultation with the Valuation Committee. In
making this determination the Valuation Committee will consider, among other
things, publicly available information regarding the issuer, market conditions
and values ascribed to comparable companies. In instances where the price
determined above is deemed not to represent fair market value, the price is
determined in such manner as the Board of Trustees may prescribe. The amortized
cost method of valuation may also be used with respect to debt obligations with
60 days or less remaining to maturity, unless this method does not represent
fair value. Any assets which are denominated in a foreign currency are converted
into U.S. dollars at the prevailing market rates for purposes of calculating net
asset value. Expenses and fees, including the investment management,
administration and distribution fees, are accrued daily and taken into account
for the purpose of determining the net asset value of the Portfolio's shares.
Because of the differences in operating expenses incurred by each class, the per
share net asset value of each class will differ.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from security and foreign currency
transactions are calculated on the identified cost basis. Interest income is
recorded on an accrual basis. Discounts are treated as adjustments to interest
income and
13
<PAGE>
identified costs of investments over the lives of the respective investments.
The Portfolio's net investment income (other than distribution fees) and
unrealized and realized gains or losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes).
FOREIGN CURRENCY TRANSLATION--The books and records of the Portfolio are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities and other assets and liabilities stated in foreign
currencies are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the rate
of exchange prevailing on the respective dates of such transactions. The
resulting exchange gains and losses are included in the Statement of Operations.
The Portfolio does not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
investments. However, the Portfolio does isolate the effect of fluctuations in
foreign exchange rates when determining the gain or loss upon the sale or
maturity of foreign currency-denominated debt obligations pursuant to U.S.
federal income tax regulations; such amount is categorized as foreign exchange
gain or loss for both financial reporting and income tax reporting purposes.
FORWARD FOREIGN CURRENCY CONTRACTS--The Portfolio is permitted to enter into
forward foreign currency exchange contracts solely for purposes of protecting
against adverse changes in foreign currency exchange rates. The Portfolio may
enter into contracts to purchase foreign currencies to protect against a rise in
the U.S. dollar price of securities it has purchased pending final settlement,
or it may enter into contracts to sell foreign currencies to protect against the
decline in value of its non-dollar denominated securities due to a decline in
the value of foreign currencies against the U.S. dollar. When the Portfolio
enters into a forward foreign currency exchange contract to buy a foreign
currency, it will place cash or readily marketable securities in a segregated
account of the Portfolio in an amount equal to the value of the Portfolio's
total assets committed to the consummation of the forward contract. If the value
of the securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Portfolio's commitment with respect to the contract.
Investors should be aware that the forward currency market for the purchase of
U.S. dollars in many emerging countries is not highly developed and that in
certain emerging countries no forward market for foreign currencies currently
exists or that such market may be closed to investment by the Portfolio. At
March 31, 1997, the Portfolio held no such contracts.
U.S. FEDERAL TAX STATUS--The Portfolio intends to distribute substantially all
of its taxable income and continue to comply with the other requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies. Accordingly, no provision for U.S. federal income taxes is required.
In addition, by distributing during each calendar year substantially all of its
ordinary income and capital gains, if any, the Portfolio intends not to be
subject to a U.S. federal excise tax. At March 31, 1997, the Portfolio had a
capital loss carryforward of $2,082,264 available as a reduction, to the extent
provided in regulations, of any future net capital gains realized before the end
of fiscal year 2004. To the extent that the loss is used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders.
FOREIGN WITHHOLDING TAXES--Income received by the Portfolio from sources outside
of the United States may be subject to withholding and other taxes imposed by
countries other than the United States.
DIVIDENDS AND DISTRIBUTIONS--The Portfolio declares and pays as quarterly
dividends to shareholders substantially all of its net investment income.
Distribution of net realized gains, if any, will be declared and paid at least
annually. Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. 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. At March 31, 1997, the Portfolio reclassified $45,625 of net
realized losses from foreign currency transactions to undistributed net
investment income.
INVESTMENT MANAGER
Bear Stearns Funds Management Inc., a wholly-owned subsidiary of The Bear
Stearns Companies Inc., serves as the Portfolio's investment manager pursuant to
the Investment Management Agreement adopted by the shareholders of the Portfolio
on May 4,
14
<PAGE>
1995. For its investment management and administrative services, the Investment
Manager receives from the Portfolio a monthly fee 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.
Prior to the adoption of the Investment Management Agreement with BSFM, BEA
Associates ("BEA" or the "Adviser") served as investment adviser to the
Portfolio pursuant to an Investment Advisory Agreement, and BSFM served as
manager of the Portfolio pursuant to the Investment Management Agreement. BEA
received from the Portfolio a monthly fee equal to 0.80% of the Portfolio's
average daily net assets up to $50 million, 0.70% of the Portfolio's average
daily net assets of more than $50 million but not in excess of $100 million and
0.50% of the Portfolio's average daily net assets above $100 million. BSFM
received from the Portfolio a monthly fee at an annual rate equal to 0.45% of
the Portfolio's average daily net assets up to $50 million, 0.40% of the
Portfolio's average daily net assets of more than $50 million but not in excess
of $100 million and 0.30% of the Portfolio's average daily net assets above $100
million.
The Investment Manager has voluntarily undertaken to limit the total operating
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
items) to a maximum annual level of 2.00% of the average daily net assets of the
Portfolio's class A shares and 2.40% for class C shares, as did BEA and BSFM in
their respective capacities prior to May 4, 1995. As necessary, this limitation
is effected by waivers by the Investment Manager of its investment management
fees and reimbursements of expenses exceeding the manager's fee. Accordingly,
for the fiscal year ended March 31, 1997, the Investment Manager waived $260,294
of its investment management fees. The Portfolio will not pay BSFM at a later
time for any amounts it waived nor will the Portfolio reimburse BSFM for any
amounts it may have assumed.
DISTRIBUTION PLAN
The Trust, on behalf of the Portfolio, has entered into an amended and restated
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act. Upon adoption of the Plan by the shareholders of the Portfolio on
May 4, 1995, the Plan has increased the amount of 12b-1 fees on the Portfolio's
current shares, which have been designated class A shares, from an annual rate
of 0.25% of the average daily net assets of the Portfolio to an annual rate of
0.35% of the average daily net assets of the class A shares of the Portfolio.
The Plan provides for 12b-1 fees on the class C shares at an annual rate of
0.75% of the average daily net assets of the class C shares. Despite the
increase in fees under the amended and restated 12b-1 plan, the total operating
expenses of the Portfolio have remained constant, as the Investment Manager
agreed to waive its fees to the extent necessary to maintain the total operating
expenses at 2.00% per annum of the daily net assets of the class A shares of the
Portfolio (until such time as the average net assets of the Portfolio exceed $50
million or the total operating expenses are less than 2.00% per annum of the
daily net assets of the class A shares of the Portfolio; 2.40% per annum for
class C shares). In addition, a higher level of 12b-1 fees enables the Portfolio
to offer improved shareholder services, such as lower investment minimums and
the ability to exchange shares of the Portfolio with shares of the same class of
certain other funds and portfolios affiliated with Bear, Stearns & Co. Inc.
("Bear Stearns" or "Distributor"). The initial public offering for the class C
shares commenced on July 26, 1995. Such fees are based on the average daily net
assets in each class of the Portfolio and are accrued daily and paid monthly or
at such other intervals as the Board of Trustees may determine. For the fiscal
year ended March 31, 1997, Bear Stearns, as distributor, earned $120,186 in
distribution fees under the Plan and the 12b-1 plan in effect thereto. Bear
Stearns uses these fees to pay dealers whose clients hold the Portfolio's shares
and other distribution-related activities.
In addition, as Distributor of the Portfolio, Bear Stearns collects the sales
charges imposed on sales of the Portfolio's class A shares, and reallows a
portion of such charges to dealers through which the sales are made. As a result
of an undertaking by the Distributor, it reallowed all of the sales charges to
its dealers selling Portfolio shares for the period April 3, 1995 through
September 26, 1995 and the period February 15, 1996 through June 30, 1996.
Furthermore, the Distributor has increased the compensation paid to its dealers
selling Portfolio shares on net asset value transfers (purchases made by
investors with the proceeds 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 further notice. In addition, Bear
Stearns advanced 1.00% in sales commissions on the sale of class C shares to
dealers at the time of such sales.
15
<PAGE>
For the fiscal year ended March 31, 1997, Bear Stearns has advised the Portfolio
that it received approximately $110,800 in front-end sales charges resulting
from sales of class A shares in the Portfolio. From these fees, Bear Stearns
paid such sales charges to dealers which in turn paid commissions to
salespersons. In addition, Bear Stearns has advised the Portfolio that during
the year, it received approximately $2,400 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 March 31,
1997, was $32,628,049. Accordingly, the net unrealized appreciation on
investments of $2,634,459 was composed of gross appreciation of $2,968,497 for
those securities having an excess of value over cost and gross depreciation of
$334,038 for those investments having an excess of cost over value.
For the fiscal year ended March 31, 1997, aggregate purchases and sales of
portfolio securities (excluding short-term investments) were $67,140,124 and
$67,665,499, respectively.
SHARES OF BENEFICIAL INTEREST
The Portfolio offers class A and C shares. Class A shares are sold with a
front-end sales charge of up to 3.75%. Class C shares are sold with a contingent
deferred sales charge ("CDSC") of 1.00% during the first year.
At March 31, 1997, there was an unlimited amount of $0.001 par value shares of
beneficial interest authorized of which Bear Stearns Funds Management Inc. owned
12,645 class A shares (including 2,713 shares acquired through dividends
reinvested). Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MARCH 31, 1997
------------------------------------------
CLASS A CLASS C
--------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sales................................... 530,036 $ 5,729,161 236,617 $2,548,580
Repurchases............................. (902,360) (9,458,425) (35,448) (390,631)
Reinvestments........................... 151,588 1,601,260 8,435 92,565
-------- ----------- ------- ----------
Net increase/(decrease)................. (220,736) $(2,128,004) 209,604 $2,250,514
-------- ----------- ------- ----------
-------- ----------- ------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR JULY 26, 1995*
ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1996
------------------------ ----------------
CLASS A CLASS C
------------------------ ----------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ------ --------
<S> <C> <C> <C> <C>
Sales................................... 187,769 $ 1,560,594 23,786 $206,816
Repurchases............................. (1,315,721) (10,659,478) (2,227) (20,441)
Reinvestments........................... 265,067 2,154,823 749 6,394
---------- ------------ ------ --------
Net increase/(decrease)................. (862,885) $ (6,944,061) 22,308 $192,769
---------- ------------ ------ --------
---------- ------------ ------ --------
</TABLE>
- --------
* Commencement of initial public offering.
CREDIT AGREEMENT
The Trust (on behalf of the Portfolio) has entered into a credit agreement with
The First National Bank of Boston. The Bear Stearns Funds, which consists of the
Total Return Bond Portfolio, Small Cap Value Portfolio, Large Cap Value
Portfolio, The Insiders Select Fund, S&P STARS Portfolio and S&P STARS Fund are
also parties to the credit agreement. The agreement provides that each party to
the credit agreement is permitted to borrow in an amount up to 15% of the value
of its total assets. Subject to Board approval and upon making necessary
disclosure in its prospectus, each portfolio may, in accordance with the
provisions of the credit agreement, borrow up to 25% of the value of its total
assets, less all liabilities other than liabilities for borrowed money
outstanding at the time. However, at
16
<PAGE>
no time is the aggregate outstanding principal amount of all loans to any of the
portfolios to exceed $25,000,000. The line of credit will bear interest at the
greater of: (i) the annual rate of interest announced from time to time from the
bank at its head office as its Base Rate, or (ii) the Federal Funds Effective
Rate plus 0.50%, or at the borrower's option, the rate quoted by The First
National Bank of Boston.
Each loan is payable on demand or upon termination of the credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced.
The Portfolio uses the facility to borrow money only for temporary or emergency
(not leveraging) purposes. The Portfolio had no amounts outstanding under the
line of credit agreement during the fiscal year ended March 31, 1997.
CONCENTRATION OF RISK
Investments in emerging markets debt involve special risks. The issuer of the
debt of the governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and the Portfolio may have limited legal recourse
in the event of a default.
Certain emerging countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging country's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Portfolio
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Portfolio of any restrictions on investments.
Most securities markets in emerging market countries may have substantially less
volume and are subject to less government supervision than U.S. securities
markets. Securities of many issuers in emerging market countries may be less
liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging market countries than in the
United States.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in exchange rates.
CREDIT RISK
Forward contracts are subject to the risk that the counterparty to the contract
will default on its obligations. A default on the contract would deprive the
Portfolio of unrealized profits, the benefits of a currency hedge, increase
transaction costs or force the Portfolio to cover its purchase or sale
commitments, if any, at the current market price. The Portfolio will not enter
into such transactions unless the credit quality of the unsecured senior debt or
the claims-paying ability of the counterparty is considered to be investment
grade by BSFM.
17
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders,
Emerging Markets Debt Portfolio
(A Series of Bear Stearns Investment Trust):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Emerging Markets Debt Portfolio (the
"Portfolio") as of March 31, 1997, and the related statements of operations for
the year then ended and of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion of these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Emerging Markets
Debt Portfolio at March 31, 1997, the results of its operations, the changes in
its net assets and the financial highlights for each of the periods presented in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
May 9, 1997
18
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
SHAREHOLDER TAX INFORMATION
MARCH 31, 1997
(UNAUDITED)
The Portfolio is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of the Portfolio's fiscal
year end (March 31, 1997) as to the U.S. federal tax status of distributions
received by the Portfolio's shareholders in respect of such fiscal year.
During the fiscal year ended March 31, 1997, the following ordinary income
dividends per share were paid by the Portfolio:
<TABLE>
<CAPTION>
ORDINARY INCOME
--------------------
CLASS A CLASS C
--------- ---------
<S> <C> <C>
$ 0.830 $ 0.814
--------- ---------
--------- ---------
</TABLE>
There were no dividends which would qualify for the dividends received deduction
available to corporate shareholders. All Portfolio dividends were derived from
income on foreign obligations; however they were not subject to foreign
withholding taxes.
Because the Porfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 1997. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns, will be made in conjunction
with Form 1099-DIV and will be mailed in January 1998.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend.
In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income for U.S. federal income tax purposes.
However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may
need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Portfolio.
19
