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Registration Nos. 33-84842
811-8798
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 7 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 7 /x/
(Check appropriate box or boxes)
THE BEAR STEARNS FUNDS
(Exact Name of Registrant as Specified in Charter)
245 Park Avenue
New York, New York 10167
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 272-2000
Stephen A. Bornstein, Esq.
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
(Name and Address of Agent for Service)
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
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It is proposed that this filing will become effective (check
appropriate box)
____ immediately upon filing pursuant to paragraph (b)
X on November 10, 1995 pursuant to paragraph (b)
-------------------------
60 days after filing pursuant to paragraph (a)(i)
____ on (date) pursuant to paragraph (a)(i)
____ 75 days after filing pursuant to paragraph (a)(ii)
____ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Registrant has registered an indefinite number of shares of its beneficial
interest under the Securities Act of 1933 pursuant to Section 24(f) of the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for the
fiscal year ending March 31, 1996 will be filed on or about May 30, 1996.
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Cross-Reference Sheet Pursuant to Rule 495(a)
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The Insiders
Select
Items in Portfolio
Part A of Class A and
Form N-1A Caption Class C Shares
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<S> <C> <C>
1 Cover Cover
2 Synopsis 3
3 Condensed Financial
Information 4
4 General Description of
Registration 5
5 Management of the Fund 10
5(a) Management's Discussion of
Fund's Performance *
6 Capital Stock and Other 25
7 Purchase of Securities Being
Offering 15
8 Redemption or Repurchase 21
9 Pending Legal Proceedings *
<CAPTION>
The Insider
Items in Select
Part A of Portfolio
Form N-1A Caption Class Y Shares
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<S> <C> <C>
1 Cover Cover
2 Synopsis 3
3 Condensed Financial
Information 4
4 General Description of
Registrant 4
5 Management of the Fund 10
</TABLE>
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<TABLE>
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Items in The Insider
Part A of Select
Form N-1A Portfolio
- --------- Class Y Shares
Caption --------------
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<S> <C> <C>
5(a) Management's Discussion of
Fund's Performance *
6 Capital Stock and Other
Securities 19
7 Purchase of Securities Being
Offered 13
8 Redemption or Repurchase 16
9 Pending Legal Proceedings *
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The Insider
Items in Select
Part B of Portfolio All
Form N-1A Caption Classes
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<S> <C> <C>
10 Cover Page B-1
11 Table of Contents B-1
12 General Information and
History *
13 Investment Objectives and
Policies B-2
14 Management of the Fund B-12
15 Control Persons and Principal
Holders of Securities B-12, B-25
16 Investment Advisory and Other
Services B-16
17 Broker Allocation B-22
18 Capital Stock and Other
Securities B-25
19 Purchase, Redemption and
Pricing of Securities Being
Offered B-18, B-19
20 Tax Status B-20
</TABLE>
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<TABLE>
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Items in
Part B of The Insider
Form N-1A Select
- --------- Portfolio All
Caption Classes
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<S> <C> <C>
21 Underwriters B-25
22 Calculations of Performance
Data B-24
23 Financial Statements B-26
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Items in
Part C of All
Form N-1A Portfolios
- --------- ----------
<S> <C> <C>
24 Financial Statements and
Exhibits C-1
25 Persons Controlled by or Under
Common Control with Registrant C-3
26 Number of Holders of Securities C-3
27 Indemnification C-3
28 Business and Other connections
of Investment Adviser C-4
29 Principal Underwriter C-4
30 Location of Accounts and Records C-6
31 Management Services C-6
32 Undertakings C-6
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* Omitted since answer is negative or inapplicable
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T H E B E A R S T E A R N S F U N D S
2 4 5 P A R K A V E N U E N E W Y O R K, N Y 1 0 1 6 7
1 . 8 0 0 . 7 6 6 . 4 1 1 1
PROSPECTUS
The Insiders Select Portfolio
THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment com-
pany, known as a mutual fund. The Fund permits you to invest in separate port-
folios. By this Prospectus, shares of The Insiders Select Portfolio, a non-di-
versified portfolio (the "Portfolio") are offered. The Portfolio's investment
objective is capital appreciation. The Portfolio's sub-investment adviser uses
its proprietary IntelliVest(TM) Model to analyze transactions by corporate in-
siders, the behavior of financial analysts and the corporate finance activi-
ties of the companies themselves to determine which securities to purchase or
sell short.
By this Prospectus, the Portfolio is offering two Classes of shares. Class A
shares are subject to a sales charge imposed at the time of purchase and Class
C shares are subject to a 1% contingent deferred sales charge imposed on re-
demptions made within the first year of purchase. Other differences between
the Classes include the services offered to and the expenses borne by each
Class and certain voting rights, as described herein. These alternatives are
offered so an investor may choose the method of purchasing shares that is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. The Portfolio issues an-
other Class of shares which has different expenses which would affect perfor-
mance. Investors desiring to obtain information about this Class of shares
should call 1-800-766-4111 or ask their sales representative or the Portfo-
lio's distributor.
BEAR STEARNS FUNDS MANAGEMENT INC. ("BSFM"), a wholly-owned subsidiary of The
Bear Stearns Companies Inc., serves as the Portfolio's investment adviser.
BSFM has engaged Symphony Asset Management ("Symphony"), a subsidiary of
BARRA, Inc., as the Portfolio's sub-investment adviser to manage the Portfo-
lio's day-to-day investment activities. BSFM and Symphony are referred to
herein collectively as the "Advisers."
BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor.
----------------------
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE PORTFOLIO THAT YOU
SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE REFER-
ENCE.
Part B (also known as the Statement of Additional Information), dated November
10, 1995, which may be revised from time to time, provides a further discus-
sion of certain areas in this Prospectus and other matters which may be of in-
terest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. For a free copy, write to
the address or call one of the telephone numbers listed under "General Infor-
mation" in this Prospectus.
----------------------
Mutual fund shares are not deposits or obligations of, or guaranteed or en-
dorsed by, any bank, and are not federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board, or any other agency.
The net asset value of funds of this type will fluctuate.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NOVEMBER 10, 1995
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Table of Contents
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PAGE
<S> <C>
Fee Table.................................................................. 3
Condensed Financial Information............................................ 4
Alternative Purchase Methods............................................... 4
Description of the Fund.................................................... 5
Risk Factors.............................................................. 9
Management of the Fund..................................................... 10
How to Buy Shares.......................................................... 15
Shareholder Services....................................................... 19
How to Redeem Shares....................................................... 21
Dividends, Distributions and Taxes......................................... 23
Performance Information.................................................... 24
General Information........................................................ 25
Appendix................................................................... A-1
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2
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Fee Table
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CLASS A CLASS C
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<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price)........................................ 4.75% --
Maximum Deferred Sales Charge Imposed on Redemptions (as a
percentage of the amount subject to charge)............... * 1.00%
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Management Fees (after fee waiver)**...................... 0.00%*** 0.00%***
12b-1 Fees................................................ 0.50% 1.00%
Other Expenses (after expense reimbursement)**............ 1.15% 1.15%
Total Portfolio Operating Expenses (after fee waiver and
expense reimbursement)**.................................. 1.65% 2.15%
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 YEAR................................................... $63 $32
3 YEARS.................................................. $97 $68
EXAMPLE
You would pay the following expenses on the same
investment, assuming no redemption:
1 YEAR................................................... $63 $22
3 YEARS.................................................. $97 $68
</TABLE>
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*In certain situations, where no sales charge is assessed at the time of
purchase, a contingent deferred sales charge of 1.00% may be imposed on
redemptions within the first year after purchase. See "How to Buy Shares--
Class A Shares."
**Based on estimated expenses for the current fiscal year. BSFM has undertaken
to waive its investment advisory fee and assume certain expenses of the
Portfolio other than brokerage fees, extraordinary items and taxes to the
extent Total Portfolio Operating Expenses exceed 1.65% for Class A and 2.15%
for Class C. Without such waiver and expense reimbursement, Management Fees
stated above would be 1.00%, Other Expenses would be 1.77% and Total Portfolio
Operating Expenses would be 3.27% for Class A and 3.77% for Class C.
***The Management Fee is payable at an annual rate equal to 1% of the
Portfolio's average daily net assets, subject to increase or decrease by up to
0.50% annually depending on the Portfolio's performance. See "Management of
the Fund--Investment Adviser" and "--Sub-Investment Adviser."
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDI-
CATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE PORTFOLIO'S
ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR
LESS THAN 5%.
The purpose of the foregoing table is to assist you in understanding the vari-
ous costs and expenses that investors will bear, directly or indirectly, the
payment of which will reduce investors' return on an annual basis. Other Ex-
penses and Total Portfolio Operating Expenses are based on estimated amounts
for the current fiscal year. In addition to the expenses noted above, the Fund
will charge $7.50 for each wire redemption. See "How to Redeem Shares." Long-
term investors could pay more in 12b-1 fees than the economic equivalent of
paying a front-end sales charge. For a further description of the various
costs and expenses incurred in the Portfolio's operation, as well as expense
reimbursement or waiver arrangements, see "Management of the Fund."
3
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Condensed Financial Information
The table below sets forth certain information covering the Portfolio's in-
vestment results for the period indicated. Further financial data and related
notes are included in the Statement of Additional Information which is avail-
able upon request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment re-
turn, ratios to average net assets and other supplemental data for a Class A
and Class C share of the Portfolio for the period June 16, 1995 (commencement
of investment operations) to September 30, 1995. This information has been de-
rived from information provided in the Portfolio's financial statements (unau-
dited).
<TABLE>
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<CAPTION>
CLASS A CLASS C
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<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......................... $12.00 $12.00
Net investment income/(loss)+................................ 0.00 (0.01)
Net realized and unrealized gain on investments*............. 1.19 1.18
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Net increase in net assets from operations................... 1.19 1.17
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Net asset value, end of period............................... 13.19 13.17
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Total investment return++.................................... 9.92% 9.75%
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RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted).................... $11,113 $7,226
Ratio of expenses to average net assets+**................... 1.65% 2.15%
Ratio of net investment income to average net assets+**...... 0.19% 0.35%
Decrease reflected in above expense ratios and net investment
income/(loss) due to waivers and reimbursements*............. 1.69% 1.63%
Portfolio turnover rate***................................... 8.53% 8.53%
Average commission rate per share............................ $0.03 $0.03
</TABLE>
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+Reflects waivers and reimbursements.
++Total return does not consider the effects of sales loads or contingent de-
ferred sales charges. Total 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 re-
turns are not annualized.
*The amount shown for a share outstanding throughout the period is not in ac-
cord with the change in the aggregate gains and losses in investments during
the period because of the timing of sales and repurchases of Portfolio shares
in relation to fluctuating net asset value during the period.
**Annualized.
***Not annualized.
Further information about performance will be contained in the Portfolio's an-
nual report, which should be available on or about May 30, 1996, and which may
be obtained without charge by writing to the address or calling one of the
telephone numbers listed under "General Information."
Alternative Purchase Methods
BY THIS PROSPECTUS, THE PORTFOLIO OFFERS YOU TWO METHODS OF PURCHASING ITS
SHARES.
By this Prospectus, the Portfolio offers investors two methods of purchasing
its shares; investors may choose the Class of shares that best suits their
needs, given the amount of purchase, the length of time the investor expects
to hold the shares and any other relevant circumstances. Each Portfolio share
represents an identical pro rata interest in the Portfolio's investment port-
folio.
Class A shares of the Portfolio are sold at net asset value per share plus a
maximum initial sales charge of 4.75% of the public offering price imposed at
the time of purchase. The initial sales charge may be reduced or waived for
certain purchases. See "How to Buy Shares--Class A Shares."
4
<PAGE>
The Class A shares of the Portfolio are subject to an annual distribution and
shareholder servicing fee at the rate of .50 of 1% of the value of the average
daily net assets. See "Management of the Fund--Distribution and Shareholder
Servicing Plan."
Class C shares of the Portfolio are subject to a 1% contingent deferred sales
charge ("CDSC") which is assessed only if Class C shares are redeemed within
one year of purchase. See "How to Redeem Shares--Class C Shares." These shares
also are subject to an annual distribution and shareholder servicing fee at
the rate of 1% of the value of the average daily net assets of Class C. See
"Management of the Fund--Distribution and Shareholder Servicing Plan." The
distribution and shareholder servicing fee paid by Class C will cause such
Class to have a higher expense ratio and to pay lower dividends than Class A.
The decision as to which Class of shares is more beneficial to each investor
depends on the amount and the intended length of the investor's investment.
Each investor should consider whether, during the anticipated life of the in-
vestor's investment in the Fund, the accumulated distribution and shareholder
servicing fee and CDSC, if any, on Class C shares would be less than the ini-
tial sales charge on Class A shares purchased at the same time, and to what
extent, if any, such differential would be offset by the return of Class A.
Additionally, investors qualifying for reduced initial sales charges who ex-
pect to maintain their investment for an extended period of time might con-
sider purchasing Class A shares because the accumulated continuing distribu-
tion and shareholder servicing fees on Class C shares may exceed the initial
sales charge on Class A shares during the life of the investment. Finally,
each investor should consider the effect of the CDSC period in the context of
the investor's own investment time frame. Generally, Class A shares may be
more appropriate for investors who invest $1,000,000 or more in the Portfo-
lio's shares, but will not be appropriate for investors who invest less than
$50,000 in the Portfolio's shares, unless they intend to hold those shares for
more than 10 years.
Description of the Fund
GENERAL
THE FUND IS A "SERIES FUND."
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As described below, for certain matters
Fund shareholders vote together as a group; as to others they vote separately
by portfolio. By this Prospectus, shares of the Portfolio are being offered.
From time to time, other portfolios may be established and sold pursuant to
other offering documents. See "General Information."
INVESTMENT OBJECTIVE
THE PORTFOLIO SEEKS TO PROVIDE CAPITAL APPRECIATION.
The Portfolio's investment objective is capital appreciation. The Portfolio's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Portfolio's outstanding voting
shares. There can be no assurance that the Portfolio's investment objective
will be achieved.
INTELLIVEST(TM) MODEL
THE INTELLIVEST(TM) MODEL IS SYMPHONY'S PROPRIETARY METHODOLOGY FOR SELECTING
A COMPANY'S SECURITIES BY ANALYZING THE BEHAVIOR OF CORPORATE INSIDERS,
FINANCIAL ANALYSTS AND THE COMPANY ITSELF.
Symphony has developed a proprietary methodology (the "IntelliVest(TM) Model")
for analyzing the behavior of (i) corporate insiders--officers, directors and
significant stockholders--through an analysis of their publicly filed reports
of their trading activities in the equity securities of the companies for
which they are insiders, (ii) financial analysts, through an analysis of their
published reports about covered companies, including predicted earnings and
revisions to predicted earnings, and (iii) the company itself, through an
analysis of its behavior as to corporate finance matters, such as stock repur-
chase programs, dividend policies and new securities issuance.
5
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Corporate insiders are believed by Symphony to be in the best position to un-
derstand the near term prospects of their companies. Symphony believes that
insider behavior can be observed and analyzed since insiders are required to
disclose transactions in their company's equity securities to the Securities
and Exchange Commission generally no later than the tenth day of the month
following the transaction. Each month many thousands of these disclosures are
received. Symphony believes that the laborious process of collecting, classi-
fying and analyzing these transactions using the IntelliVest(TM) Model pro-
vides valuable investment management information.
These INSIDERS may have many reasons for transacting in company stock and
stock options. Many of these are entirely incidental to the future of the com-
pany. For example, an insider may sell stock to buy a home or finance a col-
lege education for his or her child. Likewise a new management team may wish
to signal confidence in the company by making token purchases of the company's
equity. Many other transactions, however, are related directly to the insid-
er's beliefs about the near-term price expectations for the company's stock.
An insider who exercises long-term options early for small profits likely be-
lieves the stock soon will decline. Insiders who exercise options, hold the
stock, and buy in the open market probably believe that the stock soon will
rise. Clusters of insiders making substantial buys or sells indicate broad
agreement within a firm as to the direction of the stock.
FINANCIAL ANALYSTS use a variety of means to learn more about the companies
they follow. Among these are visits to the company and in-depth discussions
with management. Successful analysts learn to interpret the words and actions
of management and the firm itself. Likewise, management uses its discussions
with certain analysts as a means of signaling their views to the marketplace.
Symphony has a computer model of analysts' predicted earnings and ratings.
This model tracks the behavior of analysts as they have revised predicted
earnings and the ratings of a company's prospects in the market. Symphony be-
lieves that analysts' revisions can be a valuable indicator of future returns
for the company's stock.
Part of the normal activity of EVERY PUBLIC COMPANY is its financing deci-
sions. A company must routinely decide whether to maintain or change its divi-
dend policy, whether to buy its own stock in the open market or whether to is-
sue new securities. From time to time the firm may decide that its stock is
undervalued. Many firms see undervaluation as an opportunity to purchase the
company's stock in the open market. Symphony believes that by monitoring
changes in shares outstanding (in the hands of the public), a useful signal
can be extracted relating to the firm's beliefs about its prospects. Similar-
ly, the company's decision to sell securities to the public or another firm
can be an indication that the company believes that its stock has reached a
near-term high, a potentially useful sell signal.
Insiders, analysts and the company each send signals that can be analyzed us-
ing the IntelliVest(TM) Model to produce valuable information about the pros-
pects for individual companies. Symphony believes that the most powerful anal-
ysis, however, comes from the interaction of all three sources. While no one
signal alone determines whether a security will be purchased or sold, no secu-
rity will be considered for purchase or sale using the IntelliVest(TM) Model
unless a positive or negative signal, as the case may be, is received from in-
sider behavior. In its analysis, the IntelliVest(TM) Model uses only data that
is available to the public. Symphony obtains the data on insider trading ac-
tivity from CDA/Investnet, which compiles this information from publicly
available Securities and Exchange Commission filings. Symphony's research team
has devoted three years of research to developing the framework necessary to
analyze the behavior of each of these sources and the interaction among them.
MANAGEMENT POLICIES
THE PORTFOLIO SEEKS TO INVEST PRIMARILY IN EQUITY SECURITIES THAT, AT THE TIME
OF PURCHASE, ARE BELIEVED BY SYMPHONY, USING DATA FROM THE INTELLIVEST(TM)
MODEL, TO PROVIDE OPPORTUNITIES FOR CAPITAL APPRECIATION OR GAINS THROUGH
SHORT SELLING.
Under normal market conditions, Symphony invests substantially all of the
Portfolio's assets in the equity securities of U.S. issuers. Using data from
the IntelliVest(TM) Model, Symphony selects equity securities believed by it
to provide opportunities for capital appreciation or gains through short sell-
ing. Issuers are selected without regard to market capitalization, although
Symphony anticipates that the issuers principally will be mid- to large capi-
talization companies; that is, those with market capitalizations exceeding $1
billion.
6
<PAGE>
Symphony seeks to use the IntelliVest(TM) Model to select all the Portfolio's
securities. The IntelliVest(TM) Model, however, should not be expected to pro-
vide data sufficient to permit the Portfolio's entire portfolio to be invested
in its selections. For its remaining assets invested in equity securities,
Symphony will use an analytic valuation model created by the active strategies
group of BARRA, Inc., Symphony's parent, to select from the universe of U.S.
equity securities those securities it believes, in the aggregate, will approx-
imate or exceed the total return performance of the Standard & Poor's 500
Stock Index* (the "S&P 500 Index"). The S&P 500 Index is composed of 500 se-
lected common stocks, most of which are listed on the New York Stock Exchange.
The composition of the S&P 500 Index is determined by Standard & Poor's Corpo-
ration based on such factors as the market capitalization and trading activity
of each stock and its adequacy as a representative of stocks in a particular
industry group, and may be changed from time to time. The weightings of stocks
in the S&P 500 Index are based on each stock's relative total market capital-
ization; that is, its market price per share times the number of shares out-
standing. Because of this weighting, as of September 30, 1995, approximately
46% of the S&P 500 Index was composed of the 50 largest companies. The Portfo-
lio will not invest in all or substantially all of the common stocks included
in the S&P 500 Index and may invest in stocks that are not included in the S&P
500 index. The Portfolio expects ordinarily to invest in approximately 60 to
150 stocks.
By investing in this manner--that is, using its IntelliVest(TM) Model and pur-
chasing other equity securities in a manner intended to approximate or exceed
the performance of the S&P 500 Index--Symphony seeks to exceed the total re-
turn of the S&P 500 Index.
Equity securities consist of common stocks, convertible securities and pre-
ferred stocks. The convertible securities and preferred stocks in which the
Portfolio may invest will be rated at least investment grade by a nationally
recognized statistical rating organization at the time of purchase. Convert-
ible securities rated in the lowest investment grade rating may be considered
to have speculative characteristics. Preferred stock generally receives divi-
dends before distributions are paid on common stock and ordinarily has a pri-
ority claim over common stockholders if the issuer of the stock is liquidated.
The Portfolio may invest, in anticipation of investing cash positions, in
money market instruments consisting of U.S. Government securities, certifi-
cates of deposit, time deposits, bankers' acceptances, short-term investment
grade corporate bonds and other short-term debt instruments, and repurchase
agreements, as set forth in the Appendix. Under normal market conditions, the
Portfolio expects to have less than 15% of its assets invested in money market
instruments. However, when Symphony determines that adverse market conditions
exist, the Portfolio may adopt a temporary defensive posture and invest all of
its assets in money market instruments.
INVESTMENT TECHNIQUES
THE PORTFOLIO MAY ENGAGE IN SHORT SELLING, LENDING PORTFOLIO SECURITIES AND
OPTIONS AND FUTURES TRANSACTIONS, EACH OF WHICH INVOLVES RISK.
The Portfolio may engage in various investment techniques, such as short sell-
ing, lending portfolio securities and options and futures transactions, each
of which involves risk. Options and futures transactions involve "derivative
securities." Short selling and futures transactions are discussed below. For a
discussion of these other investment techniques and their related risks, see
"Appendix--Investment Techniques" and "Risk Factors" below.
SHORT SELLING. Short sales are transactions in which the Portfolio sells a se-
curity it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, the Portfolio must borrow the
security to make delivery to the buyer. The Portfolio then is obligated to re-
place the security borrowed by purchasing it at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Portfolio. Until the security is replaced,
the Portfolio is required to pay to the lender amounts equal to any dividend
which accrues during the period of the loan. To borrow the security, the Port-
folio also may be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale will be retained by the bro-
ker, to the extent necessary to meet margin requirements, until the short po-
sition is closed out.
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*"Standard & Poor's," "S&P(R)" and "S&P 500(R)" are trademarks of Standard &
Poor's Corporation. The Portfolio is not sponsored, endorsed, sold or promoted
by Standard & Poor's Corporation.
7
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Until the Portfolio replaces a borrowed security in connection with a short
sale, the Portfolio will: (a) maintain daily a segregated account, containing
cash, cash equivalents or U.S. Government securities, at such a level that (i)
the amount deposited in the account plus the amount deposited with the broker
as collateral will equal the current value of the security sold short and (ii)
the amount deposited in the segregated account plus the amount deposited with
the broker as collateral will not be less than the market value of the secu-
rity at the time it was sold short; or (b) otherwise cover its short position
in accordance with positions taken by the Staff of the Securities and Exchange
Commission.
The Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on
which the Portfolio replaces the borrowed security. The Portfolio will realize
a gain if the security declines in price between those dates. This result is
the opposite of what one would expect from a cash purchase of a long position
in a security. The amount of any gain will be decreased, and the amount of any
loss increased, by the amount of any premium or amounts in lieu of interest
the Portfolio may be required to pay in connection with a short sale. The
Portfolio may purchase call options to provide a hedge against an increase in
the price of a security sold short by the Portfolio. See "Appendix--Investment
Techniques--Options Transactions."
The Portfolio anticipates that the frequency of short sales will vary substan-
tially in different periods, and it does not intend that any specified portion
of its assets, as a matter of practice, will be invested in short sales. How-
ever, no securities will be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed
25% of the value of the Portfolio's net assets. The Portfolio may not sell
short the securities of any single issuer listed on a national securities ex-
change to the extent of more than 5% of the value of its net assets. The Port-
folio may not sell short the securities of any class of an issuer to the ex-
tent, at the time of the transaction, of more than 2% of the outstanding secu-
rities of that class.
In addition to the short sales discussed above, the Portfolio may make short
sales "against the box," a transaction in which the Portfolio enters into a
short sale of a security which the Portfolio owns. The proceeds of the short
sale will be held by a broker until the settlement date at which time the
Portfolio delivers the security to close the short position. The Portfolio re-
ceives the net proceeds from the short sale. The Portfolio at no time will
have more than 15% of the value of its net assets in deposits on short sales
against the box. It currently is anticipated that the Portfolio will make
short sales against the box for purposes of protecting the value of the Port-
folio's net assets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may enter
into stock index futures contracts, and options with respect thereto, in U.S.
domestic markets. See "Appendix--Investment Techniques--Options Transactions."
These transactions will be entered into as a substitute for comparable market
positions in the underlying securities or for hedging purposes. Although the
Portfolio is not a commodity pool, it is subject to rules of the Commodity
Futures Trading Commission (the "CFTC") limiting the extent to which it may
engage in these transactions.
The Portfolio's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
CFTC. In addition, the Portfolio may not engage in such transactions if the
sum of the amount of initial margin deposits and premiums paid for unexpired
commodity options, other than for bona fide hedging transactions, would exceed
5% of the liquidation value of the Portfolio's assets, after taking into ac-
count unrealized profits and unrealized losses on such contracts it has en-
tered into; provided, however, that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be excluded in cal-
culating the 5%. To the extent the Portfolio engages in the use of futures and
options on futures for other than bona fide hedging purposes, the Portfolio
may be subject to additional risk.
Engaging in these transactions involves risk of loss to the Portfolio which
could adversely affect the value of a shareholder's investment. Although the
Portfolio intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid mar-
ket will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation permit-
ted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that
day at a price beyond that limit or trading may be suspended for specified pe-
riods during the trading day. Futures contract prices could move to the limit
for several consecutive trading days with little or no trading, thereby pre-
venting prompt liquidation of futures positions and potentially subject-
8
<PAGE>
ing the Portfolio to substantial losses. In addition, engaging in futures
transactions in foreign markets may involve greater risks than trading on do-
mestic exchanges.
Successful use of futures by the Portfolio also is subject to Symphony's abil-
ity to predict correctly movements in the direction of the market or foreign
currencies and, to the extent the transaction is entered into for hedging pur-
poses, to ascertain the appropriate correlation between the transaction being
hedged and the price movements of the futures contract. For example, if the
Portfolio has hedged against the possibility of a decline in the market ad-
versely affecting the value of securities held in its portfolio and prices in-
crease instead, the Portfolio will lose part or all of the benefit of the in-
creased value of securities which it has hedged because it will have offset-
ting losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not nec-
essarily, be at increased prices which reflect the rising market. The Portfo-
lio may have to sell securities at a time when it may be disadvantageous to do
so.
Pursuant to regulations and/or published positions of the Securities and Ex-
change Commission, the Portfolio may be required to segregate cash or high
quality money market instruments in connection with its commodities transac-
tions in an amount generally equal to the value of the underlying commodity.
The segregation of such assets will have the effect of limiting the Portfo-
lio's ability otherwise to invest those assets.
FUTURE DEVELOPMENTS. The Portfolio may take advantage of opportunities in the
area of options and futures contracts, options on futures contracts and any
other derivative investments which are not presently contemplated for use by
the Portfolio or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Portfolio's in-
vestment objective and legally permissible for the Portfolio. Before entering
into such transactions or making any such investment, the Portfolio will pro-
vide appropriate disclosure in its prospectus.
CERTAIN FUNDAMENTAL POLICIES
CERTAIN OF THE PORTFOLIO'S INVESTMENT POLICIES ARE FUNDAMENTAL POLICIES THAT
CAN BE CHANGED ONLY BY SHAREHOLDER VOTE.
The Portfolio may (i) borrow money to the extent permitted under the 1940 Act;
and (ii) invest up to 25% of the value of its total assets in the securities
of issuers in a single industry, provided that there is no such limitation on
investments in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. This paragraph describes fundamental policies
that cannot be changed as to the Portfolio without approval by the holders of
a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting
shares. See "Investment Objective and Management Policies--Investment Restric-
tions" in the Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
The Portfolio may (i) purchase securities of any company having less than
three years' continuous operation (including operations of any predecessors)
if such purchase does not cause the value of the Portfolio's investments in
all such companies to exceed 5% of the value of its total assets; (ii) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to secure
permitted borrowings; and (iii) invest up to 15% of the value of its net as-
sets in repurchase agreements providing for settlement in more than seven days
after notice and in other illiquid securities. See "Investment Objective and
Management Policies--Investment Restrictions" in the Statement of Additional
Information.
RISK FACTORS
NO INVESTMENT IS FREE FROM RISK. INVESTING IN THE PORTFOLIO WILL SUBJECT
INVESTORS TO CERTAIN RISKS WHICH SHOULD BE CONSIDERED.
NET ASSET VALUE FLUCTUATIONS
The Portfolio's net asset value per share is not fixed and should be expected
to fluctuate. Investors should purchase Portfolio shares only as a supplement
to an overall investment program and only if investors are willing to under-
take the risks involved.
EQUITY SECURITIES
Investors should be aware that equity securities fluctuate in value, often
based on factors unrelated to the value of the issuer of the securities, and
that fluctuations can be pronounced. Changes in the
9
<PAGE>
value of the equity securities in the Portfolio's portfolio will result in
changes in the value of the Portfolio's shares and thus the Portfolio's yield
and total return to investors.
CERTAIN INVESTMENT TECHNIQUES
The use of investment techniques such as short selling, lending portfolio se-
curities and engaging in options and futures transactions, involves greater
risk than that incurred by many other funds with a similar objective. Using
these techniques may produce higher than normal portfolio turnover and may af-
fect the degree to which the Portfolio's net asset value fluctuates. See "Ap-
pendix--Investment Techniques."
The Portfolio's ability to engage in certain short-term transactions may be
limited by the requirement that, to qualify as a regulated investment company,
it must earn less than 30% of its gross income from the disposition of securi-
ties held for less than three months. This 30% test limits the extent to which
the Portfolio may sell securities held for less than three months, effect
short sales of securities held for less than three months, write options ex-
piring in less than three months and invest in certain futures contracts,
among other strategies. With the exception of the above requirement, the
amount of portfolio activity will not be a limiting factor when making portfo-
lio decisions. Under normal market conditions, the Portfolio's portfolio turn-
over rate generally will not exceed 150%. Higher portfolio turnover rates are
likely to result in comparatively greater brokerage commissions or transaction
costs. Short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. See "Portfolio Transactions" in the Portfo-
lio's Statement of Additional Information.
NON-DIVERSIFIED STATUS
The Portfolio's classification as a "non-diversified" investment company means
that the proportion of its assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified" investment com-
pany is required by the 1940 Act generally, with respect to 75% of its total
assets, to invest not more than 5% of such assets in the securities of a sin-
gle issuer and to hold not more than 10% of the outstanding voting securities
of a single issuer. However, the Portfolio intends to conduct its operations
so as to qualify as a "regulated investment company" for purposes of the In-
ternal Revenue Code of 1986, as amended (the "Code"), which requires that, at
the end of each quarter of its taxable year, (i) at least 50% of the market
value of the Portfolio's total assets be invested in cash, U.S. Government se-
curities, the securities of other regulated investment companies and other se-
curities, with such other securities of any one issuer limited for the pur-
poses of this calculation to an amount not greater than 5% of the value of the
Portfolio's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets be in-
vested in the securities of any one issuer (other than U.S. Government securi-
ties or the securities of other regulated investment companies). Since a rela-
tively high percentage of the Portfolio's assets may be invested in the secu-
rities of a limited number of issuers, some of which may be within the same
industry or economic sector, the Portfolio's portfolio securities may be more
susceptible to any single economic, political or regulatory occurrence than
the portfolio securities of a diversified investment company.
SIMULTANEOUS INVESTMENTS
Investment decisions for the Portfolio are made independently from those of
other investment companies or accounts advised by the Advisers. However, if
such other investment companies or accounts are prepared to invest in, or de-
sire to dispose of, securities of the type in which the Portfolio invests at
the same time as the Portfolio, available investments or opportunities for
sales will be allocated equitably to each. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
Portfolio or the price paid or received by the Portfolio.
Management of the Fund
BOARD OF TRUSTEES
THE TRUSTEES ARE RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF THE
PORTFOLIO'S BUSINESS.
The Fund's business affairs are managed under the general supervision of its
Board of Trustees. The Portfolio's Statement of Additional Information con-
tains the name and general business experience of each Trustee.
10
<PAGE>
INVESTMENT ADVISER
THE PORTFOLIO'S INVESTMENT ADVISER IS BSFM; SYMPHONY PROVIDES DAY-TO-DAY
MANAGEMENT OF THE PORTFOLIO'S INVESTMENTS.
The Portfolio's investment adviser is BSFM, a wholly-owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York,
New York 10167. The Bear Stearns Companies Inc. is a holding company which,
through its subsidiaries including its principal subsidiary, Bear Stearns, is
a leading United States investment banking, securities trading and brokerage
firm serving United States and foreign corporations, governments and institu-
tional and individual investors. BSFM is a registered investment adviser and
offers, either directly or through affiliates, investment advisory and admin-
istrative services to open-end and closed-end investment funds and other man-
aged pooled investment vehicles with net assets at September 30, 1995 of over
$1.8 billion.
BSFM supervises and assists in the overall management of the Portfolio's af-
fairs under an Investment Advisory Agreement between BSFM and the Fund, sub-
ject to the overall authority of the Fund's Board of Trustees in accordance
with Massachusetts law.
THE PORTFOLIO PAYS BSFM AN ADVISORY FEE AT AN ANNUAL RATE EQUAL TO 1% OF THE
PORTFOLIO'S AVERAGE DAILY NET ASSETS WHICH WILL BE ADJUSTED MONTHLY DEPENDING
ON THE EXTENT TO WHICH THE INVESTMENT PERFORMANCE OF PORTFOLIO SHARES EXCEEDED
OR WAS EXCEEDED BY THE PERCENTAGE CHANGE IN THE INVESTMENT RECORD OF THE S&P
500 INDEX.
Under the terms of the Investment Advisory Agreement, the Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of 1% of the Portfolio's average
daily net assets (the "Basic Fee") which will be adjusted monthly (the
"Monthly Performance Adjustment") depending on the extent to which the invest-
ment performance of the Class of shares (currently, Class C) expected to bear
the highest total Portfolio operating expenses, after expenses, exceeded or
was exceeded by the percentage change in the investment record of the S&P 500
Index. The Monthly Performance Adjustment may increase or decrease the total
advisory fee payable to BSFM (the "Total Advisory Fee") by up to .50% per year
of the value of the Portfolio's average daily net assets.
The monthly Total Advisory Fee is calculated as follows: (a) one-twelfth of
the 1.0% annual Basic Fee rate (0.083%) is applied to the Portfolio's average
daily net assets over the most recent calendar month, giving a dollar amount
which is the Basic Fee for that month; (b) one-twelfth of the applicable per-
formance adjustment rate from the table below is applied to the Portfolio's
average daily net assets over the most recent calendar month, giving a dollar
amount which is the Monthly Performance Adjustment (for the first twelve-month
period, no performance adjustment will be made); and (c) the Monthly Perfor-
mance Adjustment is then added to or subtracted from the Basic Fee and the re-
sult is the amount payable by the Portfolio to BSFM as the Total Advisory Fee
for that month.
11
<PAGE>
The full range of Total Advisory Fees on an annualized basis is as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
PERCENTAGE POINT DIFFERENCE
BETWEEN DESIGNATED CLASS'
PERFORMANCE (NET OF
EXPENSES INCLUDING ADVISORY FEES) PERFORMANCE
AND PERCENTAGE CHANGE IN THE ADJUSTMENT
S&P 500 INDEX BASIC FEE (%) RATE (%) TOTAL FEE (%)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
+3.00 percentage points or more........ 1% .50% 1.50%
+2.75 percentage points or more but
less than +3.00 percentage points...... 1% .40% 1.40%
+2.50 percentage points or more but
less than +2.75 percentage points...... 1% .30% 1.30%
+2.25 percentage points or more but
less than +2.50 percentage points...... 1% .20% 1.20%
+2.00 percentage points or more but
less than +2.25 percentage points...... 1% .10% 1.10%
Less than +2.00 percentage points but
more than
- -2.00 percentage points................ 1% 0% 1.00%
- -2.00 percentage points or less but
more than -2.25 percentage points...... 1% -.10% .90%
- -2.25 percentage points or less but
more than -2.50 percentage points...... 1% -.20% .80%
- -2.50 percentage points or less but
more than -2.75 percentage points...... 1% -.30% .70%
- -2.75 percentage points or less but
more than -3.00 percentage points...... 1% -.40% .60%
- -3.00 percentage points or less........ 1% -.50% .50%
</TABLE>
The period over which performance is measured is a rolling twelve-month period
and the performance of the S&P 500 Index is calculated as the sum of the
change in the level of the S&P 500 Index during the period, plus the value of
any dividends or distributions made by the companies whose securities comprise
the S&P 500 Index. The investment advisory fee payable by the Portfolio is
higher than that paid by most other investment companies.
THE PORTFOLIO'S ADMINISTRATOR IS BSFM. THE PORTFOLIO PAYS BSFM AN
ADMINISTRATION FEE AT THE ANNUAL RATE OF .15 OF 1% OF ITS AVERAGE DAILY NET
ASSETS.
Under the terms of an Administration Agreement with the Fund, BSFM generally
supervises all aspects of the operation of the Portfolio, subject to the over-
all authority of the Fund's Board of Trustees in accordance with Massachusetts
law. For providing administrative services to the Portfolio, the Fund has
agreed to pay BSFM a monthly fee at the annual rate of .15 of 1% of the Port-
folio's average daily net assets. Under the terms of an Administrative Serv-
ices Agreement with the Fund, PFPC Inc. provides certain administrative serv-
ices to the Portfolio. For providing these services, the Fund has agreed to
pay PFPC Inc. an annual fee, with a minimum of $8,000 for the Portfolio pay-
able monthly, as set forth below:
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
First $200 million................................ .10 of 1%
Next $200 million up to $400 million.............. .075 of 1%
Next $200 million up to $600 million.............. .05 of 1%
Assets in excess of $600 million.................. .03 of 1%
</TABLE>
From time to time, BSFM may waive receipt of its fees and/or voluntarily as-
sume certain Portfolio expenses, which would have the effect of lowering the
Portfolio's expense ratio and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. The Portfolio will
12
<PAGE>
not pay BSFM at a later time for any amounts it may waive, nor will the Port-
folio reimburse BSFM for any amounts it may assume.
Brokerage commissions may be paid to Bear Stearns for executing transactions
if the use of Bear Stearns is likely to result in price and execution at least
as favorable as those of other qualified broker-dealers. The allocation of
brokerage transactions also may take into account a broker's sales of the
Portfolio's shares. See "Portfolio Transactions" in the Statement of Addi-
tional Information.
Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment Ad-
visory Agreement is in effect.
SUB-INVESTMENT ADVISER
THE PORTFOLIO'S SUB-INVESTMENT ADVISER, SYMPHONY, PROVIDES INVESTMENT ADVISORY
ASSISTANCE AND THE DAY-TO-DAY MANAGEMENT OF THE PORTFOLIO'S INVESTMENTS.
BSFM has engaged Symphony, located at 555 California Street, San Francisco,
California 94104, to serve as the Fund's sub-investment adviser. Symphony, a
registered investment adviser, was formed in 1994. Symphony is a wholly-owned
subsidiary of BARRA, Inc., a leading supplier of analytical financial soft-
ware. Symphony's principals are Jeffrey Skelton, Praveen Gottipalli, Michael
Henman and Neil Rudolph. Messrs. Skelton, Henman and Rudolph joined Symphony
in 1994 from Wells Fargo Nikko Investment Advisors where they were Managing
Directors. Mr. Gottipalli joined Symphony in 1994 from BARRA, Inc.
Symphony, subject to the supervision and approval of BSFM, provides investment
advisory assistance and the day-to-day management of the Portfolio's invest-
ments, as well as investment research and statistical information, under a
Sub-Investment Advisory Agreement with BSFM, subject to the overall authority
of the Fund's Board of Trustees in accordance with Massachusetts law.
BSFM PAYS SYMPHONY A SUB-ADVISORY FEE AT AN ANNUAL RATE EQUAL TO .45 OF 1% OF
THE PORTFOLIO'S AVERAGE DAILY NET ASSETS WHICH WILL BE ADJUSTED MONTHLY
DEPENDING ON THE EXTENT TO WHICH THE INVESTMENT PERFORMANCE OF PORTFOLIO
SHARES EXCEEDED OR WAS EXCEEDED BY THE PERCENTAGE CHANGE IN THE INVESTMENT
RECORD OF THE S&P 500 INDEX.
Under the Sub-Investment Advisory Agreement, BSFM has agreed to pay Symphony a
monthly fee at the annual rate of .45 of 1% of the Portfolio's average daily
net assets (the "Symphony Basic Fee") which will be adjusted by a Monthly Per-
formance Adjustment calculated as described above. The Monthly Performance Ad-
justment applicable to Symphony may increase or decrease the total advisory
fee payable to Symphony (the "Total Sub-Advisory Fee") by up to .25% per year
of the value of the Portfolio's average daily net assets. The monthly Total
Sub-Advisory fee is calculated in the same manner as the Total Advisory Fee.
13
<PAGE>
The full range of Total Sub-Advisory Fees on an annualized basis is as fol-
lows:
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PERCENTAGE POINT DIFFERENCE BETWEEN
DESIGNATED CLASS' PERFORMANCE PERFORMANCE
(NET OF EXPENSES INCLUDING ADVISORY FEES) BASIC ADJUSTMENT TOTAL
AND PERCENTAGE CHANGE IN THE S&P 500 INDEX FEE (%) RATE (%) FEE (%)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
+3.00 percentage points or more.................... .45% .25% .70%
+2.75 percentage points or more but less than +3.00
percentage points.................................. .45% .20% .65%
+2.50 percentage points or more but less than +2.75
percentage points.................................. .45% .15% .60%
+2.25 percentage points or more but less than +2.50
percentage points.................................. .45% .10% .55%
+2.00 percentage points or more but less than +2.25
percentage points.................................. .45% .05% .50%
Less than +2.00 percentage points but more than -
2.00 percentage points............................. .45% 0% .45%
- -2.00 percentage points or less but more than -2.25
percentage points.................................. .45% -.05% .40%
- -2.25 percentage points or less but more than -2.50
percentage points.................................. .45% -.10% .35%
- -2.50 percentage points or less but more than -2.75
percentage points.................................. .45% -.15% .30%
- -2.75 percentage points or less but more than -3.00
percentage points.................................. .45% -.20% .25%
- -3.00 percentage points or less.................... .45% -.25% .20%
</TABLE>
If for the 12-month period ended February 22, 1997, the Total Sub-Advisory Fee
exceeds .45%, without giving effect to any fee waivers by BSFM, then thereaf-
ter BSFM has agreed to pay Symphony a Basic Fee equal to .50 of 1% on an
annualized basis.
The Fund's primary investment officer is Praveen Gottipalli. Since May 1994,
he has been Symphony's Director of Investments. For more than five years prior
thereto, he was Director of the Active Strategies Group of BARRA, Inc.
DISTRIBUTOR
Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as
the Portfolio's principal underwriter and distributor of the Portfolio's
shares pursuant to an agreement which is renewable annually. Bear Stearns is
entitled to receive the sales load described under "How to Buy Shares" and
payments under the Portfolio's Distribution and Shareholder Servicing Plan de-
scribed below.
CUSTODIAN AND TRANSFER AGENT
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an
affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the
Portfolio's transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides certain administrative
services to the Portfolio.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
THE PORTFOLIO HAS ADOPTED A RULE 12B-1 PLAN UNDER WHICH THE PORTFOLIO PAYS
BEAR STEARNS AT THE ANNUAL RATE OF .50% OF CLASS A'S AVERAGE DAILY NET ASSETS
AND 1% OF CLASS C'S AVERAGE DAILY NET ASSETS.
Under a plan adopted by the Fund's Board of Trustees pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), the Portfolio pays Bear Stearns for distrib-
uting Portfolio shares and for providing personal services to, and/or main-
taining accounts of, Portfolio shareholders a fee at the annual rate of .50%
and 1% of the average daily net assets of Class A and Class C, respectively.
Under the Plan,
14
<PAGE>
Bear Stearns may pay third parties in respect of these services such amount as
it may determine. The fees paid to Bear Stearns under the Plan are payable
without regard to actual expenses incurred. The Fund understands that these
third parties also may charge fees to their clients who are beneficial owners
of Portfolio shares in connection with their client accounts. These fees would
be in addition to any amounts which may be received by them from Bear Stearns
under the Plan.
EXPENSES
All expenses incurred in the operation of the Fund will be borne by the Fund,
except to the extent specifically assumed by BSFM. The expenses to be borne by
the Fund will include: organizational costs, taxes, interest, loan commitment
fees, interest and distributions paid on securities sold short, brokerage fees
and commissions, if any, fees of board members who are not officers, direc-
tors, employees or holders of 5% or more of the outstanding voting securities
of BSFM, Symphony or their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory, administrative and fund ac-
counting fees, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees, outside auditing
and legal expenses, costs of maintaining the Fund's existence, costs of inde-
pendent pricing services, costs attributable to investor services (including,
without limitation, telephone and personnel expenses), costs of shareholders'
reports and meetings, costs of preparing and printing certain prospectuses and
statements of additional information, and any extraordinary expenses. Expenses
attributable to a particular portfolio are charged against the assets of that
portfolio; other expenses of the Fund are allocated among the portfolios on
the basis determined by the Board, including, but not limited to, proportion-
ately in relation to the net assets of each portfolio. See also "Management of
the Fund--Distribution and Shareholder Servicing Plan."
BSFM has undertaken until such time as it gives investors at least 60 days'
notice to the contrary that, if in any fiscal year, certain expenses, includ-
ing the investment advisory fee and fees under the Plan, exceed 1.65% of Class
A's average daily net assets and 2.15% of Class C's average daily net assets
for the fiscal year, BSFM may waive a portion of its investment advisory fee
or bear other expenses to the extent of the excess expense.
How to Buy Shares
GENERAL
AN INITIAL INVESTMENT IS $1,000, $500 FOR RETIREMENT PLANS; SUBSEQUENT
INVESTMENTS MUST BE AT LEAST $250, $100 FOR RETIREMENT PLANS.
The minimum initial investment is $1,000, or $500 if the investment is for
Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant.
Subsequent investments ordinarily must be at least $250 or $100 for retirement
plans. Share certificates are issued only upon written request. No certifi-
cates are issued for fractional shares. The Fund reserves the right to reject
any purchase order. The Fund reserves the right to vary the initial and subse-
quent investment minimum requirements at any time. Investments by employees of
Bear Stearns and its affiliates are not subject to minimum investment require-
ments.
Purchases of the Portfolio's shares may be made through a brokerage account
maintained with Bear Stearns or through certain investment dealers who are
members of the National Association of Securities Dealers, Inc. who have sales
agreements with Bear Stearns (an "Authorized Dealer"). Purchases of the Port-
folio's shares also may be made directly through the Transfer Agent. When pur-
chasing Portfolio shares, investors must specify which Class is being pur-
chased.
Purchases are effected at the public offering price next determined after a
purchase order is received by Bear Stearns, an Authorized Dealer or the Trans-
fer Agent (the "trade date"). Payment for Portfolio shares generally is due to
Bear Stearns or the Authorized Dealer on the third business day (the "settle-
ment date") after the trade date. Investors who make payment before the set-
tlement date may permit the payment to be held in their brokerage accounts or
may designate a temporary investment for payment until the settlement date. If
a temporary investment is not designated, Bear Stearns or the Authorized
Dealer will benefit from the temporary use of the funds if payment is made be-
fore the settlement date.
15
<PAGE>
PURCHASES CAN BE MADE THROUGH BEAR STEARNS ACCOUNT EXECUTIVES, AUTHORIZED
DEALERS OR THE TRANSFER AGENT.
Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be accept-
ed), Federal Reserve draft or by wiring Federal Funds with funds held in bro-
kerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--The Insiders
Select Portfolio" if purchased directly from the Portfolio, and should be di-
rected to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns Funds--
The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960.
Payment by check or Federal Reserve draft must be received within three busi-
ness days of receipt of the purchase order by Bear Stearns or an Authorized
Dealer. Orders placed directly with the Transfer Agent must be accompanied by
payment. Bear Stearns (or an investor's Authorized Dealer) is responsible for
forwarding payment promptly to the Fund. The Fund will charge $7.50 for each
wire redemption. The payment proceeds of a redemption of shares recently pur-
chased by check may be delayed as described under "How to Redeem Shares."
Investors who are not Bear Stearns clients may purchase Portfolio shares
through the Transfer Agent. To make an initial investment in the Portfolio, an
investor must establish an account with the Portfolio by furnishing necessary
information to the Fund. An account with the Portfolio may be established by
completing and signing the Account Information Form indicating which Class of
shares is being purchased, a copy of which is attached to this Prospectus, and
mailing it, together with a check to cover the purchase, to PFPC Inc., Atten-
tion: The Bear Stearns Funds--The Insiders Select Portfolio, P.O. Box 8960,
Wilmington, Delaware 19899-8960.
Subsequent purchases of shares may be made by checks made payable to the Fund
and directed to the address set forth in the preceding paragraph. The Portfo-
lio account number should appear on the check.
Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer
Agent before the close of regular trading on the New York Stock Exchange (cur-
rently 4:00 p.m., New York time) on any day the Portfolio calculates its net
asset value are priced according to the net asset value determined on that
date. Purchase orders received after the close of trading on the New York
Stock Exchange are priced as of the time the net asset value is next deter-
mined.
NET ASSET VALUE IS COMPUTED DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE
NEW YORK STOCK EXCHANGE.
Shares of the Portfolio are sold on a continuous basis. Net asset value per
share is determined as of the close of regular trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time) on each business day.
The net asset value per share of each Class of the Portfolio is computed by
dividing the value of the Portfolio's net assets represented by such Class
(i.e., the value of its assets less liabilities) by the total number of shares
of such Class outstanding. The Portfolio's investments are valued based on
market value or, where market quotations are not readily available, based on
fair value as determined in good faith by, or in accordance with procedures
established by, the Fund's Board of Trustees. For further information regard-
ing the methods employed in valuing the Portfolio's investments, see "Determi-
nation of Net Asset Value" in the Portfolio's Statement of Additional Informa-
tion.
Federal regulations require that investors provide a certified Taxpayer Iden-
tification Number (a "TIN") upon opening or reopening an account. See "Divi-
dends, Distributions and Taxes." Failure to furnish a certified TIN to the
Fund could subject the investor to a $50 penalty imposed by the Internal Reve-
nue Service (the "IRS").
16
<PAGE>
CLASS A SHARES
THE SALES CHARGE MAY VARY DEPENDING ON THE DOLLAR AMOUNT INVESTED IN THE
PORTFOLIO.
The public offering price for Class A shares of the Portfolio is the net asset
value per share of that Class plus a sales load, which is imposed in accor-
dance with the following schedule:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
TOTAL SALES LOAD
------------------------------
AS A % OF AS A % OF DEALER CONCESSIONS
OFFERING PRICE NET ASSET VALUE AS A % OF
AMOUNT OF TRANSACTION PER SHARE PER SHARE OFFERING PRICE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000............ 4.75% 4.99% 4.25%
$50,000 to less than
$100,000.................... 4.25 4.44 3.75
$100,000 to less than
$250,000.................... 3.75 3.90 3.25
$250,000 to less than
$500,000.................... 3.25 3.36 3.00
$500,000 to less than
$750,000.................... 2.75 2.83 2.50
$750,000 to less than
$1,000,000.................. 2.25 2.30 2.00
$1,000,000 and above......... 0.00 0.00 0.00
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more of Class A
shares. However, if an investor purchases Class A shares without an initial
sales charge as part of an investment of at least $1,000,000 and redeems those
shares within one year after purchase, a CDSC of 1.00% will be imposed at the
time of redemption. The terms contained in the section of the Fund's Prospec-
tus entitled "How to Redeem Shares--Contingent Deferred Sales Charge--Class C"
are applicable to the Class A shares subject to a CDSC. Letter of Intent and
Right of Accumulation apply to such purchases of Class A shares.
The dealer concession may be changed from time to time but will remain the
same for all dealers. From time to time, Bear Stearns may make or allow addi-
tional payments or promotional incentives to dealers that sell Class A shares.
In some instances, these incentives may be offered only to certain dealers who
have sold or may sell significant amounts of Class A shares. Dealers may re-
ceive a larger percentage of the sales load from Bear Stearns than they re-
ceive for selling most other funds.
Through September 30, 1996, Bear Stearns, at its expense, has agreed to pay
Authorized Dealers a fee in respect of the aggregate of all shares of the
Portfolio and each other investment company sponsored by Bear Stearns sold to
their customers through September 26, 1995. The fee paid is based on the ag-
gregate net asset value of all shares of the Portfolio and each other invest-
ment company sponsored by Bear Stearns purchased by customers of the Autho-
rized Dealer during the period ended September 26, 1995, reduced for redemp-
tions during the year ending September 30, 1996. For amounts greater than $1
million but less than $5 million, the fee is .05% of such amount; and for
amounts greater than $5 million, the fee is .10% of such amount. Any such
amount is expected to be paid, on a pro rata basis, quarterly.
Class A shares may be sold at net asset value to (a) each Adviser, its affili-
ates or their respective officers, directors or employees (including retired
employees), any partnership of which an Adviser is a general partner, any
Trustee or officer of the Fund and designated family members of any of the
above individuals; (b) qualified retirement plans of each Adviser; (c) any em-
ployee or registered representative of any Authorized Dealer or their respec-
tive spouses and minor children; (d) trustees or directors of investment com-
panies for which an Adviser or an affiliate acts as sponsor; (e) any state,
county or city, or any instrumentality, department, authority or agency there-
of, which is prohibited by applicable investment laws from paying a sales load
or commission in connection with the purchase of Portfolio shares; (f) any in-
stitutional investment clients including corporate sponsored pension and prof-
it-sharing plans and other benefit plans (excluding Keogh Plans, IRAs and SEP-
IRAs), and insurance companies; (g) any pension funds (excluding Keogh Plans,
IRAs and SEP-IRAs), state and municipal governments or funds, Taft-Hartley
plans and qualified non-profit organizations, foundations and endowments; (h)
trust institutions (including bank trust departments) investing on their own
behalf or on behalf of their clients; and (i) accounts as to which an Autho-
rized Dealer charges an asset management fee. To take advantage of these ex-
emptions, a purchaser must indicate its eligibility for an exemption to Bear
Stearns along with its Account Information Form. Such purchaser
17
<PAGE>
agrees to notify Bear Stearns if, at any time of any additional purchases, it
is no longer eligible for an exemption. Bear Stearns reserves the right to re-
quest certification or additional information from a purchaser in order to
verify that such purchaser is eligible for an exemption. Bear Stearns reserves
the right to limit the participation in Class A shares of the Portfolio of its
employees. Dividends and distributions reinvested in Class A shares of the
Portfolio will be made at the net asset value per share on the reinvestment
date.
Class A shares of the Portfolio also may be purchased at net asset value, with
the proceeds from the redemption of shares of an investment company sold with
a sales charge or commission and not distributed by Bear Stearns. However, if
such investor redeems those shares within one year after purchase, a CDSC of
.50% will be imposed at the time of redemption. This includes shares of a mu-
tual fund which were subject to a contingent deferred sales charge upon re-
demption. The purchase must be made within 60 days of the redemption, and Bear
Stearns must be notified by the investor in writing, or by the investor's in-
vestment professional, at the time the purchase is made. Bear Stearns will of-
fer to pay Authorized Dealers an amount up to .50% of the net asset value of
shares purchased by the dealers' clients or customers in this manner.
CLASS C SHARES
The public offering price for Class C shares is the next determined net asset
value per share of that Class. No initial sales charge is imposed at the time
of purchase. A CDSC is imposed, however, on redemptions of Class C shares made
within the first year of purchase. See "How to Redeem Shares."
RIGHT OF ACCUMULATION--CLASS A SHARES
INVESTORS IN CLASS A SHARES MAY QUALIFY FOR A REDUCED SALES CHARGE.
Pursuant to the Right of Accumulation, certain investors are permitted to pur-
chase Class A shares of the Portfolio at the sales charge applicable to the
total of (a) the dollar amount then being purchased plus (b) the current pub-
lic offering price of all Class A shares of the Portfolio, shares of the
Fund's other portfolios and shares of certain other funds sponsored or advised
by Bear Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns
Investment Trust, then held by the investor. The following purchases of Class
A shares may be aggregated for the purposes of determining the amount of pur-
chase and the corresponding sales load: (a) individual purchases on behalf of
a single purchaser, the purchaser's spouse and their children under the age of
21 years including shares purchased in connection with a retirement account
exclusively for the benefit of such individual(s), such as an IRA, and pur-
chases made by a company controlled by such individual(s); (b) individual pur-
chases by a trustee or other fiduciary account, including an employee benefit
plan (such as employer-sponsored pension, profit-sharing and stock bonus
plans, including plans under Section 401(k) of the Code, and medical, life and
disability insurance trusts); or (c) individual purchases by a trustee or
other fiduciary purchasing shares concurrently for two or more employee bene-
fit plans of a single employer or of employers affiliated with each other.
LETTER OF INTENT--CLASS A SHARES
By checking the appropriate box in the Letter of Intent section of the Account
Information Form, investors become eligible for the reduced sales load appli-
cable to the total number of Class A shares of the Portfolio, Class A shares
of the Fund's other portfolios and shares of certain other funds sponsored or
advised by Bear Stearns, including the Emerging Markets Debt Portfolio of Bear
Stearns Investment Trust, purchased in a 13-month period pursuant to the terms
and under the conditions set forth herein. A minimum initial purchase of
$1,000 is required. The Transfer Agent will hold in escrow 5% of the amount
indicated in the Account Information Form for payment of a higher sales load
if the investor does not purchase the full amount indicated in the Account In-
formation Form. The escrow will be released when the investor fulfills the
terms of the Letter of Intent by purchasing the specified amount. If an in-
vestor's purchases qualify for a further sales load reduction, the sales load
will be adjusted to reflect the total purchase at the end of 13 months. If to-
tal purchases are less than the amount specified, the investor will be re-
quested to remit an amount equal to the difference between the sales load ac-
tually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent,
as attorney-in-fact, will redeem an appropriate number of shares held in es-
crow to realize the difference. Checking a box in the Letter of Intent section
of the Account Information Form does not bind an investor to purchase, or the
Portfolio to sell, the full amount indicated at the sales load in effect
18
<PAGE>
at the time of signing, but the investor must complete the intended purchase
to obtain the reduced sales load. At the time an investor purchases shares of
any of the above-listed funds, the investor must indicate its intention to do
so under the Letter of Intent section of the Account Information Form.
SYSTEMATIC INVESTMENT PLAN
THE PORTFOLIO OFFERS SHAREHOLDERS CONVENIENT FEATURES AND BENEFITS, INCLUDING
THE SYSTEMATIC INVESTMENT PLAN.
The Systematic Investment Plan permits investors to purchase shares of the
Portfolio (minimum initial investment of $250 and minimum subsequent invest-
ments of $100 per transaction) at regular intervals selected by the investor.
Provided the investor's bank or other financial institution allows automatic
withdrawals, Portfolio shares may be purchased by transferring funds from the
account designated by the investor. At the investor's option, the account des-
ignated will be debited in the specified amount, and Portfolio shares will be
purchased once a month, on the twentieth day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House member may
be so designated. Investors desiring to participate in the Systematic Invest-
ment Plan should call the Transfer Agent at 1-800-447-1139 (in Delaware call
collect 302-791-1031) to obtain the appropriate forms. The Systematic Invest-
ment Plan does not assure a profit and does not protect against loss in de-
clining markets. Since the Systematic Investment Plan involves the continuous
investment in the Portfolio regardless of fluctuating price levels of the
Portfolio's shares, investors should consider their financial ability to con-
tinue to purchase through periods of low price levels. The Fund may modify or
terminate the Systematic Investment Plan at any time or charge a service fee.
No such fee currently is contemplated.
Shareholder Services
EXCHANGE PRIVILEGE
THE EXCHANGE PRIVILEGE PERMITS EASY PURCHASES OF OTHER FUNDS IN THE BEAR
STEARNS FAMILY.
The Exchange Privilege enables an investor to purchase, in exchange for shares
of a Class of the Portfolio, shares of the same Class of the Fund's other
portfolios or shares of certain other funds sponsored or advised by Bear
Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns Invest-
ment Trust, and the Money Market Portfolio of The RBB Fund, Inc., to the ex-
tent such shares are offered for sale in the investor's state of residence.
These funds have different investment objectives which may be of interest to
investors. To use this Privilege, investors should consult their account exec-
utive at Bear Stearns, their account executive at an Authorized Dealer or the
Transfer Agent to determine if it is available and whether any conditions are
imposed on its use.
To use this Privilege, exchange instructions must be given to the Transfer
Agent in writing or by telephone. A shareholder wishing to make an exchange
may do so by sending a written request to the Transfer Agent at the address
given above in "How to Buy Shares--General." Shareholders are automatically
provided with telephone exchange privileges when opening an account, unless
they indicate on the account application that they do not wish to use this
privilege. Shareholders holding share certificates are not eligible to ex-
change shares of the Portfolio by phone because share certificates must accom-
pany all exchange requests. To add this feature to an existing account that
previously did not provide for this option, a Telephone Exchange Authorization
Form must be filed with the Transfer Agent. This form is available from the
Transfer Agent. Once this election has been made, the shareholder may contact
the Transfer Agent by telephone at 1-800-447-1139 (in Delaware call collect
302-791-1031) to request the exchange. During periods of substantial economic
or market change, telephone exchanges may be difficult to complete and share-
holders may have to submit exchange requests to the Transfer Agent in writing.
If the exchanging shareholder does not currently own shares of the portfolio
or fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and Authorized
Dealer of record as the account from which shares are exchanged, unless other-
wise specified in writing by the shareholder with all signatures guaranteed by
an eligible guarantor institution as described below. To participate in the
Systematic Investment Plan or establish automatic withdrawal for the new ac-
count, however, an exchanging shareholder must file a spe-
19
<PAGE>
cific written request. The exchange privilege may be modified or terminated at
any time, or from time to time, by the Fund on 60 days' notice to the affected
portfolio or fund shareholders. The Fund, BSFM and Bear Stearns will not be
liable for any loss, liability, cost or expense for acting upon telephone in-
structions that are reasonably believed to be genuine. In attempting to con-
firm that telephone instructions are genuine, the Fund will use such proce-
dures as are considered reasonable, including recording those instructions and
requesting information as to account registration (such as the name in which
an account is registered, the account number, recent transactions in the ac-
count, and the account holder's Social Security number, address and/or bank).
Before any exchange, the investor must obtain and should review a copy of the
current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained free of charge from Bear Stearns, any Au-
thorized Dealer or the Transfer Agent. Except in the case of Personal Retire-
ment Plans, the shares being exchanged must have a current value of at least
$250; furthermore, when establishing a new account by exchange, the shares be-
ing exchanged must have a value of at least the minimum initial investment re-
quired for the portfolio or fund into which the exchange is being made; if
making an exchange to an existing account, the dollar value must equal or ex-
ceed the applicable minimum for subsequent investments. If any amount remains
in the investment portfolio from which the exchange is being made, such amount
must not be below the minimum account value required by the portfolio or fund.
Shares will be exchanged at the next determined net asset value; however, ex-
cept in the instances described below, a sales load may be charged with re-
spect to exchanges of Class A shares into portfolios or funds sold with a
sales load. Generally, a sales load will be charged if the shares being ex-
changed were subject to a sales load which is lower than the sales load to
which the shares being purchased are subject or were not subject to any sales
load. No CDSC will be imposed on Class C shares at the time of an exchange.
The CDSC applicable on redemption of the acquired Class C shares will be cal-
culated from the date of the initial purchase of the Class C shares exchanged.
If an investor is exchanging Class A into a portfolio or fund that charges a
sales load, the investor may qualify for share prices which do not include the
sales load or which reflect a reduced sales load, if the shares of the portfo-
lio or fund from which the investor is exchanging were: (a) purchased with a
sales load; (b) acquired by a previous exchange from shares purchased with a
sales load; or (c) acquired through reinvestment of dividends or distributions
paid with respect to the foregoing categories of shares. To qualify, at the
time of the exchange the investor must notify Bear Stearns, the Authorized
Dealer or the Transfer Agent. Any such qualification is subject to confirma-
tion of the investor's holdings through a check of appropriate records. No
fees currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written no-
tice, to charge shareholders a $5.00 fee in accordance with rules promulgated
by the Securities and Exchange Commission. The Fund reserves the right to re-
ject any exchange request in whole or in part. The Exchange Privilege may be
modified or terminated at any time upon notice to shareholders.
The exchange of shares of one portfolio or fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in ex-
change by the shareholder and, therefore, an exchanging shareholder may real-
ize a taxable gain or loss.
REDIRECTED DISTRIBUTION OPTION
THE REDIRECTED DISTRIBUTION OPTION PERMITS INVESTMENT OF INVESTORS' DIVIDENDS
AND DISTRIBUTIONS IN SHARES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY.
The Redirected Distribution Option enables a shareholder to invest automati-
cally dividends and/or capital gain distributions, if any, paid by the Portfo-
lio in shares of the same Class of another portfolio of the Fund or a fund ad-
vised or sponsored by Bear Stearns of which the shareholder is an investor, or
the Money Market Portfolio of The RBB Fund, Inc. Shares of the other portfolio
or fund will be purchased at the then-current net asset value. If an investor
is investing in a Class that charges a CDSC, the shares purchased will be sub-
ject on redemption to the CDSC, if any, applicable to the purchased shares.
This privilege is available only for existing accounts and may not be used to
open new accounts. Minimum subsequent investments do not apply. The Fund may
modify or terminate this privilege at any time or charge a service fee. No
such fee currently is contemplated.
20
<PAGE>
How to Redeem Shares
GENERAL
THE REDEMPTION PRICE WILL BE BASED ON THE NET ASSET VALUE NEXT COMPUTED AFTER
RECEIPT OF A REDEMPTION REQUEST; IN CERTAIN INSTANCES A CDSC WILL BE CHARGED.
Investors may request redemption of Portfolio shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, the Portfolio will redeem the shares at the next determined net asset
value. If the investor holds Portfolio shares of more than one Class, any re-
quest for redemption must specify the Class of shares being redeemed. If the
investor fails to specify the Class of shares to be redeemed or if the in-
vestor owns fewer shares of the Class than specified to be redeemed, the re-
demption request may be delayed until the Transfer Agent receives further in-
structions from the investor, the investor's Bear Stearns account executive or
the investor's Authorized Dealer. The Fund imposes no charges (other than any
applicable CDSC) when shares are redeemed directly through Bear Stearns.
The Portfolio ordinarily will make payment for all shares redeemed within
three days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. However, if an investor has purchased Portfolio shares by check
and subsequently submits a redemption request by mail, the redemption proceeds
will not be transmitted until the check used for investment has cleared, which
may take up to 15 days. The Fund will reject requests to redeem shares by tel-
ephone or wire for a period of 15 days after receipt by the Transfer Agent of
the purchase check against which such redemption is requested. This procedure
does not apply to shares purchased by wire payment.
The Fund reserves the right to redeem investor accounts at its option upon not
less than 60 days' written notice if the account's net asset value is $750 or
less, for reasons other than market conditions, and remains so during the no-
tice period. Shareholders who have redeemed Class A shares may reinstate their
Portfolio account without a sales charge up to the dollar amount redeemed by
purchasing Class A shares of the same Portfolio within 60 days of the redemp-
tion. To take advantage of this reinstatement privilege, shareholders must no-
tify their Bear Stearns account executive, Authorized Dealer or the Transfer
Agent at the time the privilege is exercised.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES
CLASS C SHARES OF THE PORTFOLIO ARE SUBJECT TO A CDSC OF 1% UPON REDEMPTION
WITHIN ONE YEAR OF PURCHASE.
A CDSC of 1% payable to Bear Stearns is imposed on any redemption of Class C
shares within one year of the date of purchase. No CDSC will be imposed to the
extent that the net asset value of the Class C shares redeemed does not exceed
(i) the current net asset value of Class C shares acquired through reinvest-
ment of dividends or capital gain distributions, plus (ii) increases in the
net asset value of an investor's Class C shares above the dollar amount of all
such investor's payments for the purchase of Class C shares held by the in-
vestor at the time of redemption.
If the aggregate value of Class C shares redeemed has declined below their
original cost as a result of the Portfolio's performance, the applicable CDSC
may be applied to the then-current net asset value rather than the purchase
price.
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares ac-
quired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value of Class C shares above
the total amount of payments for the purchase of Class C shares made during
the preceding year; then of amounts representing shares purchased more than
one year prior to the redemption; and finally, of amounts representing the
cost of shares purchased within one year prior to the redemption.
For example, assume an investor purchased 100 shares of the Portfolio at $10
per share for a cost of $1,000. Subsequently, the shareholder acquired five
additional shares through dividend reinvestment. During the first year after
the purchase the investor decided to redeem $500 of his or her investment. As-
suming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC
21
<PAGE>
would not be applied to the value of the reinvested dividend shares and the
amount which represents appreciation ($260). Therefore, $240 of the $500 re-
demption proceeds ($500 minus $260) would be charged at a rate of 1% for a to-
tal CDSC of $2.40.
The CDSC applicable to Class C shares will be waived in connection with (a)
redemptions made within one year after the death or disability, as defined in
Section 72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in Eligible Benefit Plans, (c) redemptions as a result of a com-
bination of any investment company with the Portfolio by merger, acquisition
of assets or otherwise, and (d) a distribution following retirement under a
tax-deferred retirement plan or upon attaining age 70 1/2 in the case of an
IRA or Keogh plan or custodial account pursuant to Section 403(b) of the Code.
If the Fund's Trustees determine to discontinue the waiver of the CDSC, the
disclosure in the Portfolio's prospectus will be revised appropriately. Any
Portfolio shares subject to a CDSC which were purchased prior to the termina-
tion of such waiver will have the CDSC waived as provided in the Portfolio's
prospectus at the time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption an investor
must notify the Transfer Agent or the investor's Bear Stearns account execu-
tive or the investor's Authorized Dealer must notify the Distributor. Any such
qualification is subject to confirmation of the investor's entitlement.
PROCEDURES
SHAREHOLDERS MAY REDEEM SHARES IN SEVERAL WAYS.
REDEMPTION THROUGH BEAR STEARNS OR AUTHORIZED DEALERS
Clients with a brokerage account may submit redemption requests to their ac-
count executives or Authorized Dealers in person or by telephone, mail or
wire. As the Fund's agent, Bear Stearns or Authorized Dealers may honor a re-
demption request by repurchasing Fund shares from a redeeming shareholder at
the shares' net asset value next computed after receipt of the request by Bear
Stearns or the Authorized Dealer. Under normal circumstances, within three
days, redemption proceeds will be paid by check or credited to the sharehold-
er's brokerage account at the election of the shareholder. Bear Stearns ac-
count executives or Authorized Dealers are responsible for promptly forwarding
redemption requests to the Transfer Agent.
If an investor authorizes telephone redemption, the Transfer Agent may act on
telephone instructions from any person representing himself or herself to be a
representative of Bear Stearns or the Authorized Dealer and reasonably be-
lieved by the Transfer Agent to be genuine. The Fund will require the Transfer
Agent to employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Transfer Agent or the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions reason-
ably believed to be genuine.
REDEMPTION THROUGH THE TRANSFER AGENT
Shareholders who are not clients with a brokerage account who wish to redeem
shares must redeem their shares through the Transfer Agent by mail; other
shareholders also may redeem Fund shares through the Transfer Agent. Mail re-
demption requests should be sent to the Transfer Agent at: PFPC Inc., Atten-
tion: The Bear Stearns Funds--The Insiders Select Portfolio, P.O. Box 8960,
Wilmington, Delaware 19899-8960.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
A shareholder may have redemption proceeds of $500 or more wired to the share-
holder's brokerage account or a commercial bank account designated by the
shareholder. A transaction fee of $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns account executive, to any Autho-
rized Dealer, or to the Transfer Agent if the shares are not held in a broker-
age account.
Written redemption instructions, indicating the Portfolio from which shares
are to be redeemed, and duly endorsed stock certificates, if previously is-
sued, must be received by the Transfer Agent in proper form and signed exactly
as the shares are registered. All signatures must be guaranteed. The Transfer
Agent has adopted standards and procedures pursuant to which signature-guaran-
tees in proper form generally will be accepted from domestic banks, brokers,
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from par-
ticipants in the New York Stock Exchange Medallion Signature Program, the
Stock Exchanges Medallion Program and the Securities Transfer Agents Medallion
Program
22
<PAGE>
("STAMP"). Such guarantees must be signed by an authorized signatory thereof
with "Signature Guaranteed" appearing with the shareholder's signature. If the
signature is guaranteed by a broker or dealer, such broker or dealer must be a
member of a clearing corporation and maintain net capital of at least
$100,000. Signature-guarantees may not be provided by notaries public. Redemp-
tion requests by corporate and fiduciary shareholders must be accompanied by
appropriate documentation establishing the authority of the person seeking to
act on behalf of the account. Investors may obtain from the Fund or the Trans-
fer Agent forms of resolutions and other documentation which have been pre-
pared in advance to assist compliance with the Portfolio's procedures. Any
questions with respect to signature-guarantees should be directed to the
Transfer Agent by calling 1-800-447-1139 (in Delaware call collect 302-791-
1031).
During times of drastic economic or market conditions, investors may experi-
ence difficulty in contacting Bear Stearns or Authorized Dealers by telephone
to request a redemption of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the redemption request being proc-
essed at a later time than it would have been if telephone redemption had been
used. During the delay, the Portfolio's net asset value may fluctuate.
AUTOMATIC WITHDRAWAL
Automatic withdrawal permits investors to request withdrawal of a specified
dollar amount (minimum of $25) on either a monthly or quarterly basis if the
investor has a $5,000 minimum account. An application for automatic withdrawal
can be obtained from Bear Stearns or the Transfer Agent. Automatic Withdrawal
may be ended at any time by the investor, the Fund or the Transfer Agent.
Shares for which certificates have been issued may not be redeemed through Au-
tomatic Withdrawal. Purchases of additional shares concurrently with withdraw-
als generally are undesirable.
Class C shares withdrawn pursuant to the Automatic Withdrawal will be subject
to any applicable CDSC. Purchases of additional Class A shares where the sales
load is imposed concurrently with withdrawals of Class A shares generally are
undesirable.
Dividends, Distributions and Taxes
DIVIDENDS WILL BE AUTOMATICALLY REINVESTED IN ADDITIONAL PORTFOLIO SHARES AT
NET ASSET VALUE, UNLESS PAYMENT IN CASH IS REQUESTED OR DIVIDENDS ARE
REDIRECTED INTO ANOTHER FUND PURSUANT TO THE REDIRECTED DISTRIBUTION OPTION.
The Portfolio ordinarily pays dividends from its net investment income and
distributes net realized securities gains, if any, once a year, but it may
make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the provi-
sions of the 1940 Act. The Portfolio will not make distributions from net re-
alized securities gains unless capital loss carryovers, if any, have been uti-
lized or have expired. Dividends are automatically reinvested in additional
Portfolio shares at net asset value, unless payment in cash is requested or
dividends are redirected into another fund pursuant to the Redirected Distri-
bution Option. All expenses are accrued daily and deducted before declaration
of dividends to investors. Dividends paid by each Class of each Portfolio will
be calculated at the same time and in the same manner and will be of the same
amount, except that the expenses attributable solely to a particular Class
will be borne exclusively by such Class. Class C shares will receive lower per
share dividends than Class A shares because of the higher expenses borne by
Class C. See "Fee Table."
Dividends derived from net investment income, together with distributions from
net realized short-term securities gains and all or a portion of any gains re-
alized from the sale or disposition of certain market discount bonds, paid by
the Portfolio will be taxable to U.S. shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Portfolio or redi-
rected into another portfolio or fund. Distributions from net realized long-
term securities gains of the Portfolio will be taxable to U.S. shareholders as
long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Portfolio shares and whether such distribu-
tions are received in cash or reinvested in, or redirected into other, shares.
The Code provides that the net capital gain of an individual generally will
not be subject to Federal income tax at a rate in excess of 28%. Dividends and
distributions may be subject to state and local taxes.
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<PAGE>
Dividends, together with distributions from net realized short-term securities
gains and all or a portion of any gains realized from the sale or other dispo-
sition of market discount bonds, paid by the Portfolio to a foreign investor
generally are subject to U.S. nonresident withholding taxes at the rate of
30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. Distributions from net realized long-term securities gains
paid by the Portfolio to a foreign investor as well as the proceeds of any re-
demptions from a foreign investor's account, regardless of the extent to which
gain or loss may be realized, generally will not be subject to U.S. nonresi-
dent withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of investors' dividends and distributions will be
mailed to them annually. Investors also will receive periodic summaries of
their accounts which will include information as to dividends and distribu-
tions from securities gains, if any, paid during the year.
The Code provides for the "carryover" of some or all of the sales load imposed
on the Portfolio's Class A shares if an investor exchanges such shares for
shares of another fund or portfolio advised or sponsored by BSFM or its affil-
iates within 91 days of purchase and such other fund reduces or eliminates its
otherwise applicable sales load for the purpose of the exchange. In this case,
the amount of the sales load charged the investor for such shares, up to the
amount of the reduction of the sales load charged on the exchange, is not in-
cluded in the basis of such shares for purposes of computing gain or loss on
the exchange, and instead is added to the basis of the fund shares received on
the exchange.
Federal regulations generally require the Fund to withhold ("backup withhold-
ing") and remit to the U.S. Treasury 31% of dividends, distributions from net
realized securities gains and the proceeds of any redemption, regardless of
the extent to which gain or loss may be realized, paid to a shareholder if
such shareholder fails to certify either that the TIN furnished in connection
with opening an account is correct or that such shareholder has not received
notice from the IRS of being subject to backup withholding as a result of a
failure to properly report taxable dividend or interest income on a Federal
income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or
if a shareholder has failed to properly report taxable dividend and interest
income on a Federal income tax return.
A TIN is either the Social Security number or employer identification number
of the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner
of the account, and may be claimed as a credit on the record owner's Federal
income tax return.
THE PORTFOLIO IS NOT EXPECTED TO HAVE ANY FEDERAL TAX LIABILITY; ALTHOUGH
INVESTORS SHOULD EXPECT TO BE SUBJECT TO FEDERAL, STATE OR LOCAL TAXES IN
RESPECT OF THEIR INVESTMENT IN PORTFOLIO SHARES.
It is expected that the Portfolio will qualify as a "regulated investment com-
pany" under the Code so long as such qualification is in the best interests of
its shareholders. Such qualification relieves the Portfolio of any liability
for Federal income tax to the extent its earnings are distributed in accor-
dance with applicable provisions of the Code. In addition, the Portfolio is
subject to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains.
Each investor should consult its tax adviser regarding specific questions as
to Federal, state or local taxes.
Performance Information
THE PORTFOLIO MAY ADVERTISE ITS PERFORMANCE IN A NUMBER OF WAYS.
For purposes of advertising, performance for each Class may be calculated on
the basis of average annual total return and/or total return. These total re-
turn figures reflect changes in the price of the shares and assume that any
income dividends and/or capital gains distributions made by the Portfolio dur-
ing the measuring period were reinvested in shares of the same Class. These
figures also take into account any applicable distribution and shareholder
servicing fees. As a result, at any given time, the performance of Class C
should be expected to be lower than that of Class A. Performance for each
Class will be calculated separately.
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<PAGE>
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Portfolio was purchased with an ini-
tial payment of $1,000 and that the investment was redeemed at the end of a
stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the re-
deemable value of the investment at the end of the period. Advertisements of
the Portfolio's performance will include the Portfolio's average annual total
return for one, five and ten year periods, or for shorter periods depending
upon the length of time during which the Portfolio has operated. Computations
of average annual total return for periods of less than one year represent an
annualization of the Portfolio's actual total return for the applicable peri-
od.
Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions. Total return generally is expressed as a percent-
age rate which is calculated by combining the income and principal changes for
a specified period and dividing by the net asset value (or maximum public of-
fering price in the case of Class A shares) per share at the beginning of the
period. Class C total return will reflect the deduction of the CDSC. Adver-
tisements may include the percentage rate of total return or may include the
value of a hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return. Total return for the Port-
folio also may be calculated by using the net asset value per share at the be-
ginning of the period instead of the maximum offering price per share at the
beginning of the period for Class A shares or without giving effect to any ap-
plicable CDSC at the end of the period for Class C shares. Calculations based
on the net asset value per share do not reflect the deduction of the sales
load on the Portfolio's Class A shares, which, if reflected, would reduce the
performance quoted.
Performance will vary from time to time and past results are not necessarily
representative of future results. Investors should remember that performance
is a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses. Performance infor-
mation, such as that described above, may not provide a basis for comparison
with other investments or other investment companies using a different method
of calculating performance.
Comparative performance information may be used from time to time in advertis-
ing or marketing the Portfolio's shares, including data from Lipper Analytical
Services, Inc., Standard & Poor's 500 Composite Stock Price Index, Wilshire
4500 Stock Index, Russell Small Cap Index, the Dow Jones Industrial Average
and other industry publications.
General Information
The Fund was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust (the "Trust Agreement") dated September 29, 1994. The Fund commenced op-
erations on or about April 3, 1995 in connection with the offer of shares of
certain of its other portfolios. The Fund is authorized to issue an unlimited
number of shares of beneficial interest, par value $.001 per share. The Port-
folio's shares are classified into three Classes--Class A, Class C and Class
Y. Each share has one vote and shareholders will vote in the aggregate and not
by Class, except as otherwise required by law.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Portfolio. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of the
Portfolio and requires that notice of such disclaimer be given in each agree-
ment, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Portfolio's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Portfolio. Thus, the risk of a shareholder incur-
ring financial loss on account of a shareholder liability is limited to cir-
cumstances in which the Portfolio itself would be unable to meet its obliga-
tions, a possibility which management believes is remote. Upon payment of any
liability incurred by the Portfolio, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Portfolio.
The Fund's Trustees intend to conduct the operations of the Portfolio in a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Portfolio. As discussed under "Management of the Fund" in
the Portfolio's Statement of Additional Information, the Portfolio ordinarily
will not hold shareholder meetings; however, shareholders under certain cir-
cumstances may have the right to call a meeting of shareholders for the pur-
pose of voting to remove Trustees.
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<PAGE>
To date, the Fund's Board has authorized the creation of five portfolios of
shares. All consideration received by the Fund for shares of one of the port-
folios and all assets in which such consideration is invested will belong to
that portfolio (subject only to the rights of creditors of the Fund) and will
be subject to the liabilities related thereto. The assets attributable to, and
the expenses of, one portfolio (and as to classes within a portfolio) are
treated separately from those of the other portfolios (and classes). The Fund
has the ability to create, from time to time, new portfolios of shares without
shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be submit-
ted under the provisions of the 1940 Act or applicable state law or otherwise
to the holders of the outstanding voting securities of an investment company,
such as the Fund, will not be deemed to have been effectively acted upon un-
less approved by the holders of a majority of the outstanding shares of each
portfolio affected by such matter. Rule 18f-2 further provides that a portfo-
lio shall be deemed to be affected by a matter unless it is clear that the in-
terests of such portfolio in the matter are identical or that the matter does
not affect any interest of such portfolio. However, the Rule exempts the se-
lection of independent accountants and the election of Trustees from the sepa-
rate voting requirements of the Rule.
The Transfer Agent maintains a record of share ownership and will send confir-
mations and statements of account.
Shareholder inquiries may be made by writing to the Fund at PFPC Inc., Atten-
tion: The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware
19899-8960, by calling 1-800-447-1139 (in Delaware call collect 302-791-1031)
or by calling Bear Stearns at 1-800-766-4111.
26
<PAGE>
Appendix
INVESTMENT TECHNIQUES
In connection with its investment objective and policies, the Portfolio may
employ, among others, the following investment techniques which may involve
certain risks. Options transactions involve "derivative securities."
OPTIONS TRANSACTIONS
THE PORTFOLIO MAY ENGAGE IN OPTIONS TRANSACTIONS.
The Portfolio is permitted to invest up to 5% of its assets, represented by
the premium paid, in the purchase of call and put options in respect of spe-
cific securities (or groups or "baskets" of specific securities) in which the
Portfolio may invest. The Portfolio may write and sell covered call option
contracts on securities owned by the Portfolio not exceeding 20% of the value
of its net assets at the time such option contracts are written. The Portfolio
also may purchase call options to enter into closing purchase transactions.
The Portfolio also may write covered put option contracts to the extent of 20%
of the value of its net assets at the time such option contracts are written.
A call option gives the purchaser of the option the right to buy, and obli-
gates the writer to sell, the underlying security at the exercise price at any
time during the option period. Conversely, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period. A covered
put option sold by the Portfolio exposes the Portfolio during the term of the
option to a decline in price of the underlying security or securities. A put
option sold by the Portfolio is covered when, among other things, cash or liq-
uid securities are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken.
The Portfolio may purchase and sell call and put options on stock indexes
listed on U.S. securities exchanges or traded in the over-the-counter market.
A stock index fluctuates with changes in the market values of the stocks in-
cluded in the index. Because the value of an index option depends upon move-
ments in the level of the index rather than the price of a particular stock,
whether the Portfolio will realize a gain or loss from the purchase or writing
of options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indexes, in an industry
or market segment, rather than movements in the price of a particular stock.
Successful use by the Portfolio of options will be subject to Symphony's abil-
ity to predict correctly movements in the direction of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent
Symphony's predictions are incorrect, the Portfolio may incur losses which
could adversely affect the value of a shareholder's investment.
LENDING PORTFOLIO SECURITIES
THE PORTFOLIO MAY EARN ADDITIONAL INCOME BY LENDING ITS PORTFOLIO SECURITIES.
From time to time, the Portfolio may lend securities from its portfolio to
brokers, dealers and other financial institutions needing to borrow securities
to complete certain transactions. Such loans may not exceed 33 1/3% of the
value of the Portfolio's total assets. In connection with such loans, the
Portfolio will receive collateral consisting of cash, U.S. Government securi-
ties or irrevocable letters of credit which will be maintained at all times in
an amount equal to at least 100% of the current market value of the loaned se-
curities. The Portfolio can increase its income through the investment of such
collateral. The Portfolio continues to be entitled to payments in amounts
equal to the interest, dividends and other distributions payable on the loaned
security and receives interest on the amount of the loan. Such loans will be
terminable at any time upon specified notice. The Portfolio might experience
risk of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Portfolio.
BORROWING MONEY
THE PORTFOLIO MAY BORROW MONEY.
As a fundamental policy, the Portfolio is permitted to borrow to the extent
permitted under the 1940 Act. The 1940 Act permits an investment company to
borrow in an amount up to 33 1/3% of the value of such company's total assets.
However, the Portfolio currently intends to borrow money only
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for temporary or emergency (not leveraging) purposes, in an amount up to 15%
of the value of its total assets (including the amount borrowed) valued at the
lesser of cost or market, less liabilities (not including the amount borrowed)
at the time the borrowing is made. While borrowings exceed 5% of the Portfo-
lio's total assets, the Portfolio will not make any additional investments.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES
THE PORTFOLIO MAY INVEST IN CONVERTIBLE SECURITIES.
Convertible securities are fixed-income securities that may be converted at
either a stated price or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar to both fixed-in-
come and equity securities. Although to a lesser extent than with fixed-income
securities generally, the market value of convertible securities tends to de-
cline as interest rates increase and, conversely, tends to increase as inter-
est rates decline. In addition, because of the conversion feature, the market
value of convertible securities tends to vary with fluctuations in the market
value of the underlying common stock, and, therefore, also will react to vari-
ations in the general market for equity securities. A unique feature of con-
vertible securities is that as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis,
and so may not experience market value declines to the same extent as the un-
derlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflec-
tion of the value of the underlying common stock. While no securities invest-
ments are without risk, investments in convertible securities generally entail
less risk than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are investments that pro-
vide for a stable stream of income with generally higher yields than common
stocks. Of course, like all fixed-income securities, there can be no assurance
of current income because the issuers of the convertible securities may de-
fault on their obligations. Convertible securities, however, generally offer
lower interest or dividend yields than non-convertible securities of similar
quality because of the potential for capital appreciation. A convertible secu-
rity, in addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to bene-
fit from increases in the market price of the underlying common stock. There
can be no assurance of capital appreciation, however, because securities
prices fluctuate.
Convertible securities generally are subordinated to other similar but non-
convertible securities of the same issuer, although convertible bonds, as cor-
porate debt obligations, enjoy seniority in right of payment to all equity se-
curities, and convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however, convertible secu-
rities typically have lower ratings than similar non-convertible securities.
MONEY MARKET INSTRUMENTS
THE PORTFOLIO MAY INVEST IN A VARIETY OF MONEY MARKET INSTRUMENTS.
The Portfolio may invest, in the circumstances described under "Description of
the Fund--Management Policies," in the following types of money market instru-
ments, each of which at the time of purchase must have or be deemed to have
under rules of the Securities and Exchange Commission remaining maturities of
13 months or less.
U.S. GOVERNMENT SECURITIES
The Portfolio may purchase securities issued or guaranteed by the U.S. Govern-
ment or its agencies or instrumentalities, which include U.S. Treasury securi-
ties that differ in their interest rates, maturities and times of issuance.
Treasury Bills have initial maturities of one year or less; Treasury Notes
have initial maturities of one to ten years; and Treasury Bonds generally have
initial maturities of greater than ten years. Some obligations issued or guar-
anteed by U.S. Government agencies and instrumentalities, for example, Govern-
ment National Mortgage Association pass-through certificates, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, by the right of the issuer to borrow from the U.S.
Treasury; others, such as those issued by the Federal National Mortgage Asso-
ciation, by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as those issued
by the Student Loan Marketing Association, only by the credit of the agency or
instrumentality. These securities bear fixed, floating or variable rates of
interest. Principal and interest may fluctuate based
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on generally recognized reference rates or the relationship of rates. While
the U.S. Government provides financial support to such U.S. Government-spon-
sored agencies or instrumentalities, no assurance can be given that it will
always do so, since it is not so obligated by law.
BANK OBLIGATIONS
The Portfolio may invest in bank obligations, including certificates of depos-
it, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign subsidi-
aries of domestic banks, and domestic and foreign branches of foreign banks,
the Portfolio may be subject to additional investment risks that are different
in some respects from those incurred by a fund which invests only in debt ob-
ligations of U.S. domestic issuers. Such risks include possible future politi-
cal and economic developments, the possible imposition of foreign withholding
taxes on interest income payable on the securities, the possible establishment
of exchange controls or the adoption of other foreign governmental restric-
tions which might adversely affect the payment of principal and interest on
these securities and the possible seizure or nationalization of foreign depos-
its.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by the Portfolio will not benefit from insurance from the Bank In-
surance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. The Portfolio will not invest more than
15% of the value of its net assets in time deposits maturing in more than
seven days and in other securities that are illiquid.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include unin-
sured, direct obligations bearing fixed, floating or variable interest rates.
REPURCHASE AGREEMENTS
Repurchase agreements involve the acquisition by the Portfolio of an under-
lying debt instrument, subject to an obligation of the seller to repurchase,
and the Portfolio to resell, the instrument at a fixed price usually not more
than one week after its purchase. Certain costs may be incurred by the Portfo-
lio in connection with the sale of the securities if the seller does not re-
purchase them in accordance with the repurchase agreement. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the securi-
ties, realization on the securities by the Portfolio may be delayed or limit-
ed.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS
Commercial paper consists of short-term, unsecured promissory notes issued to
finance short-term credit needs. The commercial paper purchased by the Portfo-
lio will consist only of direct obligations which, at the time of their pur-
chase, are (a) rated not lower than Prime-1 by Moody's Investors Service Inc.
("Moody's"), A-1 by Standard & Poor's Corporation ("S&P"), F-1 by Fitch In-
vestors Service, Inc. ("Fitch") or Duff-1 by Duff & Phelps, Inc. ("Duff"), (b)
issued by companies having an outstanding unsecured debt issue currently rated
not lower than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated,
determined by the Advisers to be of comparable quality to those rated obliga-
tions which may be purchased by the Portfolio. The Portfolio may purchase
floating and variable rate demand notes and bonds, which are obligations ordi-
narily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time or at specified intervals.
WARRANTS
THE PORTFOLIO MAY INVEST UP TO 5% OF ITS NET ASSETS IN WARRANTS.
The Portfolio may invest up to 5% of its net assets in warrants, except that
this limitation does not apply to warrants acquired in units or attached to
securities. Included in such amount, but not to exceed 2% of the value of the
Portfolio's net assets, may be warrants which are not listed on the New York
or American Stock Exchange. A warrant is an instrument issued by a corporation
which
A-3
<PAGE>
gives the holder the right to subscribe to a specified amount of the corpora-
tion's capital stock at a set price for a specified period of time.
INVESTMENT COMPANY SECURITIES
THE PORTFOLIO MAY INVEST IN SECURITIES OF OTHER INVESTMENT COMPANIES.
The Portfolio may invest in securities issued by other investment companies.
Under the 1940 Act, the Portfolio's investment in such securities currently is
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Portfolio's net assets with respect
to any one investment company and (iii) 10% of the Portfolio's net assets in
the aggregate. Investments in the securities of other investment companies
will involve duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES
THE PORTFOLIO MAY PURCHASE ILLIQUID SECURITIES.
The Portfolio may invest up to 15% of the value of its net assets in securi-
ties as to which a liquid trading market does not exist, provided such invest-
ments are consistent with the Portfolio's investment objective. Such securi-
ties may include securities that are not readily marketable, such as certain
securities that are subject to legal or contractual restrictions on resale,
repurchase agreements providing for settlement in more than seven days after
notice, and options traded in the over-the-counter market and securities used
to cover such options. As to these securities, the Portfolio is subject to a
risk that should the Portfolio desire to sell them when a ready buyer is not
available at a price the Portfolio deems representative of their value, the
value of the Portfolio's net assets could be adversely affected.
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T H E B E A R S T E A R N S F U N D S
2 4 5 P A R K A V E N U E N E W Y O R K, N Y 1 0 1 6 7
1 . 8 0 0 . 7 6 6 . 4 1 1 1
PROSPECTUS
The Insiders Select Portfolio
CLASS Y SHARES ONLY
THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment com-
pany, known as a mutual fund. The Fund permits you to invest in separate port-
folios. By this Prospectus, Class Y shares of The Insiders Select Portfolio, a
non-diversified portfolio (the "Portfolio"), are offered. The Portfolio's in-
vestment objective is capital appreciation. The Portfolio's sub-investment ad-
viser uses its proprietary IntelliVest(TM) Model to analyze transactions by
corporate insiders, the behavior of financial analysts and the corporate fi-
nance activities of the companies themselves to determine which securities to
purchase or sell short.
Class Y shares are sold at net asset value without a sales charge to investors
whose minimum investment is $2.5 million. The Portfolio issues other Classes
of shares which have sales charges and different expenses which would affect
performance. Investors desiring to obtain information about these other Clas-
ses of shares should call 1-800-766-4111 or ask their sales representative or
the Portfolio's distributor.
BEAR STEARNS FUNDS MANAGEMENT INC. ("BSFM"), a wholly-owned subsidiary of The
Bear Stearns Companies Inc., serves as the Portfolio's investment adviser.
BSFM has engaged Symphony Asset Management ("Symphony"), a subsidiary of
BARRA, Inc., as the Portfolio's sub-investment adviser to manage the Portfo-
lio's day-to-day investment activities. BSFM and Symphony are referred to
herein collectively as the "Advisers."
BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor.
----------------------
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE PORTFOLIO THAT YOU
SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE REFER-
ENCE.
Part B (also known as the Statement of Additional Information), dated November
10, 1995, which may be revised from time to time, provides a further discus-
sion of certain areas in this Prospectus and other matters which may be of in-
terest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. For a free copy, write to
the address or call one of the telephone numbers listed under "General Infor-
mation" in this Prospectus.
----------------------
Mutual fund shares are not deposits or obligations of, or guaranteed or en-
dorsed by, any bank, and are not federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board, or any other agency.
The net asset value of funds of this type will fluctuate.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NOVEMBER 10, 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Fee Table.................................................................. 3
Condensed Financial Information............................................ 4
Description of the Fund.................................................... 4
Risk Factors.............................................................. 9
Management of the Fund..................................................... 10
How to Buy Shares.......................................................... 13
Shareholder Services....................................................... 15
How to Redeem Shares....................................................... 16
Dividends, Distributions and Taxes......................................... 17
Performance Information.................................................... 18
General Information........................................................ 19
Appendix................................................................... A-1
</TABLE>
2
<PAGE>
Fee Table
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
CLASS Y
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................... None
Maximum Deferred Sales Charge Imposed on Redemptions (as a percentage
of the amount subject to charge)..................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Management Fees (after fee waiver)*.................................. 0.00%**
12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement)*........................ 1.15%
Total Portfolio Operating Expenses (after fee waiver and expense
reimbursement)*...................................................... 1.15%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:
1 YEAR.............................................................. $12
3 YEARS............................................................. $37
</TABLE>
- ------
*Based on estimated expenses for the current fiscal year. BSFM has undertaken
to waive its investment advisory fee and assume certain expenses of the Port-
folio other than brokerage fees, extraordinary items and taxes to the extent
Total Portfolio Operating Expenses exceed 1.15% for Class Y. Without such
waiver and expense reimbursement, Management Fees stated above would be 1.00%,
Other Expenses would be 1.77% and Total Portfolio Operating Expenses would be
2.77% for Class Y.
**The Management Fee is payable at an annual rate equal to 1% of the Portfo-
lio's average daily net assets, subject to increase or decrease by up to 0.50%
annually depending on the Portfolio's performance. See "Management of the
Fund-- Investment Adviser" and "--Sub-Investment Adviser."
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDI-
CATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE PORTFOLIO'S
ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR
LESS THAN 5%.
The purpose of the foregoing table is to assist you in understanding the vari-
ous costs and expenses that investors will bear, directly or indirectly, the
payment of which will reduce investors' return on an annual basis. Other Ex-
penses and Total Portfolio Operating Expenses are based on estimated amounts
for the current fiscal year. In addition to the expenses noted above, the Fund
will charge $7.50 for each wire redemption. See "How to Redeem Shares." For a
further description of the various costs and expenses incurred in the Portfo-
lio's operation, as well as expense reimbursement or waiver arrangements, see
"Management of the Fund."
3
<PAGE>
Condensed Financial Information
The table below sets forth certain information covering the Portfolio's in-
vestment results for the period indicated. Further financial data and related
notes are included in the Statement of Additional Information which is avail-
able upon request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data, total investment re-
turn, ratios to average net assets and other supplemental data for a Class Y
share of the Portfolio for the period June 20, 1995 (commencement of initial
public offering) to September 30, 1995. This information has been derived from
information provided in the Portfolio's financial statements (unaudited).
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................................... $12.12
Net investment income+................................................. 0.01
Net realized and unrealized gain on investments*....................... 1.07
------
Net increase in net assets from operations............................. 1.08
------
Net asset value, end of period......................................... 13.20
======
Total investment return++.............................................. 8.91%
======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted).............................. $484
Ratio of expenses to average net assets+**............................. 1.15%
Ratio of net investment income to average net assets+**................ 0.64%
Decrease reflected in above expense ratios and net investment income
due to waivers and reimbursements*.................................... 1.89%
Portfolio turnover rate***............................................. 8.53%
Average commission rate per share...................................... $0.03
</TABLE>
- ------
+Reflects waivers and reimbursements.
++Total 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 re-
investment of dividends and distributions, if any. Total return is not
annualized.
*The amount shown for a share outstanding throughout the period is not in ac-
cord with the change in the aggregate gains and losses in investments during
the period because of the timing of sales and repurchases of Portfolio shares
in relation to fluctuating net asset value during the period.
**Annualized.
***Not annualized.
Further information about performance will be contained in the Portfolio's an-
nual report, which should be available on or about May 30, 1996, and which may
be obtained without charge by writing to the address or calling one of the
telephone numbers listed under "General Information."
Description of the Fund
GENERAL
THE FUND IS A "SERIES FUND."
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As described below, for certain matters
Fund shareholders vote together as a group; as to others they vote separately
by portfolio. By this Prospectus, shares of the Portfolio are being offered.
From time to time, other portfolios may be established and sold pursuant to
other offering documents. See "General Information."
INVESTMENT OBJECTIVE
THE PORTFOLIO SEEKS TO PROVIDE CAPITAL APPRECIATION.
The Portfolio's investment objective is capital appreciation. The Portfolio's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Portfolio's outstanding voting
shares. There can be no assurance that the Portfolio's investment objective
will be achieved.
4
<PAGE>
INTELLIVEST(TM) MODEL
THE INTELLIVEST(TM) MODEL IS SYMPHONY'S PROPRIETARY METHODOLOGY FOR SELECTING
A COMPANY'S SECURITIES BY ANALYZING THE BEHAVIOR OF CORPORATE INSIDERS,
FINANCIAL ANALYSTS AND THE COMPANY ITSELF.
Symphony has developed a proprietary methodology (the "IntelliVest(TM) Model")
for analyzing the behavior of (i) corporate insiders--officers, directors and
significant stockholders--through an analysis of their publicly filed reports
of their trading activities in the equity securities of the companies for
which they are insiders, (ii) financial analysts, through an analysis of their
published reports about covered companies, including predicted earnings and
revisions to predicted earnings, and (iii) the company itself, through an
analysis of its behavior as to corporate finance matters, such as stock repur-
chase programs, dividend policies and new securities issuance.
Corporate insiders are believed by Symphony to be in the best position to un-
derstand the near term prospects of their companies. Symphony believes that
insider behavior can be observed and analyzed since insiders are required to
disclose transactions in their company's equity securities to the Securities
and Exchange Commission generally no later than the tenth day of the month
following the transaction. Each month many thousands of these disclosures are
received. Symphony believes that the laborious process of collecting, classi-
fying and analyzing these transactions using the IntelliVest(TM) Model pro-
vides valuable investment management information.
These INSIDERS may have many reasons for transacting in company stock and
stock options. Many of these are entirely incidental to the future of the com-
pany. For example, an insider may sell stock to buy a home or finance a col-
lege education for his or her child. Likewise a new management team may wish
to signal confidence in the company by making token purchases of the company's
equity. Many other transactions, however, are related directly to the insid-
er's beliefs about the near-term price expectations for the company's stock.
An insider who exercises long-term options early for small profits likely be-
lieves the stock soon will decline. Insiders who exercise options, hold the
stock, and buy in the open market probably believe that the stock soon will
rise. Clusters of insiders making substantial buys or sells indicate broad
agreement within a firm as to the direction of the stock.
FINANCIAL ANALYSTS use a variety of means to learn more about the companies
they follow. Among these are visits to the company and in-depth discussions
with management. Successful analysts learn to interpret the words and actions
of management and the firm itself. Likewise, management uses its discussions
with certain analysts as a means of signaling their views to the marketplace.
Symphony has a computer model of analysts' predicted earnings and ratings.
This model tracks the behavior of analysts as they have revised predicted
earnings and the ratings of a company's prospects in the market. Symphony be-
lieves that analysts' revisions can be a valuable indicator of future returns
for the company's stock.
Part of the normal activity of EVERY PUBLIC COMPANY is its financing deci-
sions. A company must routinely decide whether to maintain or change its divi-
dend policy, whether to buy its own stock in the open market or whether to is-
sue new securities. From time to time the firm may decide that its stock is
undervalued. Many firms see undervaluation as an opportunity to purchase the
company's stock in the open market. Symphony believes that by monitoring
changes in shares outstanding (in the hands of the public), a useful signal
can be extracted relating to the firm's beliefs about its prospects. Similar-
ly, the company's decision to sell securities to the public or another firm
can be an indication that the company believes that its stock has reached a
near-term high, a potentially useful sell signal.
Insiders, analysts and the company each send signals that can be analyzed us-
ing the IntelliVest(TM) Model to produce valuable information about the pros-
pects for individual companies. Symphony believes that the most powerful anal-
ysis, however, comes from the interaction of all three sources. While no one
signal alone determines whether a security will be purchased or sold, no secu-
rity will be considered for purchase or sale using the IntelliVest(TM) Model
unless a positive or negative signal, as the case may be, is received from in-
sider behavior. In its analysis, the IntelliVest(TM) Model uses only data that
is available to the public. Symphony obtains the data on insider trading ac-
tivity from CDA/Investnet, which compiles this information from publicly
available Securities and Exchange Commission filings. Symphony's research team
has devoted three years of research to developing the framework necessary to
analyze the behavior of each of these sources and the interaction among them.
5
<PAGE>
MANAGEMENT POLICIES
THE PORTFOLIO SEEKS TO INVEST PRIMARILY IN EQUITY SECURITIES THAT, AT THE TIME
OF PURCHASE, ARE BELIEVED BY SYMPHONY, USING DATA FROM THE INTELLIVEST(TM)
MODEL, TO PROVIDE OPPORTUNITIES FOR CAPITAL APPRECIATION OR GAINS THROUGH
SHORT SELLING.
Under normal market conditions, Symphony invests substantially all of the
Portfolio's assets in the equity securities of U.S. issuers. Using data from
the IntelliVest(TM) Model, Symphony selects equity securities believed by it
to provide opportunities for capital appreciation or gains through short sell-
ing. Issuers are selected without regard to market capitalization, although
Symphony anticipates that the issuers principally will be mid- to large capi-
talization companies; that is, those with market capitalizations exceeding $1
billion.
Symphony seeks to use the IntelliVest(TM) Model to select all the Portfolio's
securities. The IntelliVest(TM) Model, however, should not be expected to pro-
vide data sufficient to permit the Portfolio's entire portfolio to be invested
in its selections. For its remaining assets invested in equity securities,
Symphony will use an analytic valuation model created by the active strategies
group of BARRA, Inc., Symphony's parent, to select from the universe of U.S.
equity securities those securities it believes, in the aggregate, will approx-
imate or exceed the total return performance of the Standard & Poor's 500
Stock Index* (the "S&P 500 Index"). The S&P 500 Index is composed of 500 se-
lected common stocks, most of which are listed on the New York Stock Exchange.
The composition of the S&P 500 Index is determined by Standard & Poor's Corpo-
ration based on such factors as the market capitalization and trading activity
of each stock and its adequacy as a representative of stocks in a particular
industry group, and may be changed from time to time. The weightings of stocks
in the S&P 500 Index are based on each stock's relative total market capital-
ization; that is, its market price per share times the number of shares out-
standing. Because of this weighting, as of September 30, 1995, approximately
46% of the S&P 500 Index was composed of the 50 largest companies. The Portfo-
lio will not invest in all or substantially all of the common stocks included
in the S&P 500 Index and may invest in stocks that are not included in the S&P
500 index. The Portfolio expects ordinarily to invest in approximately 60 to
150 stocks.
By investing in this manner--that is, using its IntelliVest(TM) Model and pur-
chasing other equity securities in a manner intended to approximate or exceed
the performance of the S&P 500 Index--Symphony seeks to exceed the total re-
turn of the S&P 500 Index.
Equity securities consist of common stocks, convertible securities and pre-
ferred stocks. The convertible securities and preferred stocks in which the
Portfolio may invest will be rated at least investment grade by a nationally
recognized statistical rating organization at the time of purchase. Convert-
ible securities rated in the lowest investment grade rating may be considered
to have speculative characteristics. Preferred stock generally receives divi-
dends before distributions are paid on common stock and ordinarily has a pri-
ority claim over common stockholders if the issuer of the stock is liquidated.
The Portfolio may invest, in anticipation of investing cash positions, in
money market instruments consisting of U.S. Government securities, certifi-
cates of deposit, time deposits, bankers' acceptances, short-term investment
grade corporate bonds and other short-term debt instruments, and repurchase
agreements, as set forth in the Appendix. Under normal market conditions, the
Portfolio expects to have less than 15% of its assets invested in money market
instruments. However, when Symphony determines that adverse market conditions
exist, the Portfolio may adopt a temporary defensive posture and invest all of
its assets in money market instruments.
INVESTMENT TECHNIQUES
THE PORTFOLIO MAY ENGAGE IN SHORT SELLING, LENDING PORTFOLIO SECURITIES AND
OPTIONS AND FUTURES TRANSACTIONS, EACH OF WHICH INVOLVES RISK.
The Portfolio may engage in various investment techniques, such as short sell-
ing, lending portfolio securities and options and futures transactions, each
of which involves risk. Options and futures transactions involve "derivative
securities." Short selling and futures transactions are discussed below. For a
discussion of these other investment techniques and their related risks, see
"Appendix--Investment Techniques" and "Risk Factors" below.
- ------
*"Standard & Poor's," "S&P(R)" and "S&P 500(R)" are trademarks of Standard &
Poor's Corporation. The Portfolio is not sponsored, endorsed, sold or promoted
by Standard & Poor's Corporation.
6
<PAGE>
SHORT SELLING. Short sales are transactions in which the Portfolio sells a se-
curity it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, the Portfolio must borrow the
security to make delivery to the buyer. The Portfolio then is obligated to re-
place the security borrowed by purchasing it at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Portfolio. Until the security is replaced,
the Portfolio is required to pay to the lender amounts equal to any dividend
which accrues during the period of the loan. To borrow the security, the Port-
folio also may be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale will be retained by the bro-
ker, to the extent necessary to meet margin requirements, until the short po-
sition is closed out.
Until the Portfolio replaces a borrowed security in connection with a short
sale, the Portfolio will: (a) maintain daily a segregated account, containing
cash, cash equivalents or U.S. Government securities, at such a level that (i)
the amount deposited in the account plus the amount deposited with the broker
as collateral will equal the current value of the security sold short and (ii)
the amount deposited in the segregated account plus the amount deposited with
the broker as collateral will not be less than the market value of the secu-
rity at the time it was sold short; or (b) otherwise cover its short position
in accordance with positions taken by the Staff of the Securities and Exchange
Commission.
The Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on
which the Portfolio replaces the borrowed security. The Portfolio will realize
a gain if the security declines in price between those dates. This result is
the opposite of what one would expect from a cash purchase of a long position
in a security. The amount of any gain will be decreased, and the amount of any
loss increased, by the amount of any premium or amounts in lieu of interest
the Portfolio may be required to pay in connection with a short sale. The
Portfolio may purchase call options to provide a hedge against an increase in
the price of a security sold short by the Portfolio. See "Appendix--Investment
Techniques--Options Transactions."
The Portfolio anticipates that the frequency of short sales will vary substan-
tially in different periods, and it does not intend that any specified portion
of its assets, as a matter of practice, will be invested in short sales. How-
ever, no securities will be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed
25% of the value of the Portfolio's net assets. The Portfolio may not sell
short the securities of any single issuer listed on a national securities ex-
change to the extent of more than 5% of the value of its net assets. The Port-
folio may not sell short the securities of any class of an issuer to the ex-
tent, at the time of the transaction, of more than 2% of the outstanding secu-
rities of that class.
In addition to the short sales discussed above, the Portfolio may make short
sales "against the box," a transaction in which the Portfolio enters into a
short sale of a security which the Portfolio owns. The proceeds of the short
sale will be held by a broker until the settlement date at which time the
Portfolio delivers the security to close the short position. The Portfolio re-
ceives the net proceeds from the short sale. The Portfolio at no time will
have more than 15% of the value of its net assets in deposits on short sales
against the box. It currently is anticipated that the Portfolio will make
short sales against the box for purposes of protecting the value of the Port-
folio's net assets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may enter
into stock index futures contracts, and options with respect thereto, in U.S.
domestic markets. See "Appendix--Investment Techniques--Options Transactions."
These transactions will be entered into as a substitute for comparable market
positions in the underlying securities or for hedging purposes. Although the
Portfolio is not a commodity pool, it is subject to rules of the Commodity
Futures Trading Commission (the "CFTC") limiting the extent to which it may
engage in these transactions.
The Portfolio's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
CFTC. In addition, the Portfolio may not engage in such transactions if the
sum of the amount of initial margin deposits and premiums paid for unexpired
commodity options, other than for bona fide hedging transactions, would exceed
5% of the liquidation value of the Portfolio's assets, after taking into ac-
count unrealized profits and unrealized losses on such contracts it has en-
tered into; provided, however, that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be excluded in cal-
culating the 5%. To the extent the Portfolio engages in the use of futures and
options on futures for other than bona fide hedging purposes, the Portfolio
may be subject to additional risk.
7
<PAGE>
Engaging in these transactions involves risk of loss to the Portfolio which
could adversely affect the value of a shareholder's investment. Although the
Portfolio intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid mar-
ket will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation permit-
ted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that
day at a price beyond that limit or trading may be suspended for specified pe-
riods during the trading day. Futures contract prices could move to the limit
for several consecutive trading days with little or no trading, thereby pre-
venting prompt liquidation of futures positions and potentially subjecting the
Portfolio to substantial losses. In addition, engaging in futures transactions
in foreign markets may involve greater risks than trading on domestic ex-
changes.
Successful use of futures by the Portfolio also is subject to Symphony's abil-
ity to predict correctly movements in the direction of the market or foreign
currencies and, to the extent the transaction is entered into for hedging pur-
poses, to ascertain the appropriate correlation between the transaction being
hedged and the price movements of the futures contract. For example, if the
Portfolio has hedged against the possibility of a decline in the market ad-
versely affecting the value of securities held in its portfolio and prices in-
crease instead, the Portfolio will lose part or all of the benefit of the in-
creased value of securities which it has hedged because it will have offset-
ting losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not nec-
essarily, be at increased prices which reflect the rising market. The Portfo-
lio may have to sell securities at a time when it may be disadvantageous to do
so.
Pursuant to regulations and/or published positions of the Securities and Ex-
change Commission, the Portfolio may be required to segregate cash or high
quality money market instruments in connection with its commodities transac-
tions in an amount generally equal to the value of the underlying commodity.
The segregation of such assets will have the effect of limiting the Portfo-
lio's ability otherwise to invest those assets.
FUTURE DEVELOPMENTS. The Portfolio may take advantage of opportunities in the
area of options and futures contracts, options on futures contracts and any
other derivative investments which are not presently contemplated for use by
the Portfolio or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Portfolio's in-
vestment objective and legally permissible for the Portfolio. Before entering
into such transactions or making any such investment, the Portfolio will pro-
vide appropriate disclosure in its prospectus.
CERTAIN FUNDAMENTAL POLICIES
CERTAIN OF THE PORTFOLIO'S INVESTMENT POLICIES ARE FUNDAMENTAL POLICIES THAT
CAN BE CHANGED ONLY BY SHAREHOLDER VOTE.
The Portfolio may (i) borrow money to the extent permitted under the 1940 Act;
and (ii) invest up to 25% of the value of its total assets in the securities
of issuers in a single industry, provided that there is no such limitation on
investments in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. This paragraph describes fundamental policies
that cannot be changed as to the Portfolio without approval by the holders of
a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting
shares. See "Investment Objective and Management Policies--Investment Restric-
tions" in the Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
The Portfolio may (i) purchase securities of any company having less than
three years' continuous operation (including operations of any predecessors)
if such purchase does not cause the value of the Portfolio's investments in
all such companies to exceed 5% of the value of its total assets; (ii) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to secure
permitted borrowings; and (iii) invest up to 15% of the value of its net as-
sets in repurchase agreements providing for settlement in more than seven days
after notice and in other illiquid securities. See "Investment Objective and
Management Policies--Investment Restrictions" in the Statement of Additional
Information.
8
<PAGE>
RISK FACTORS
NO INVESTMENT IS FREE FROM RISK. INVESTING IN THE PORTFOLIO WILL SUBJECT IN-
VESTORS TO CERTAIN RISKS WHICH SHOULD BE CONSIDERED.
NET ASSET VALUE FLUCTUATIONS
The Portfolio's net asset value per share is not fixed and should be expected
to fluctuate. Investors should purchase Portfolio shares only as a supplement
to an overall investment program and only if investors are willing to under-
take the risks involved.
EQUITY SECURITIES
Investors should be aware that equity securities fluctuate in value, often
based on factors unrelated to the value of the issuer of the securities, and
that fluctuations can be pronounced. Changes in the value of the equity secu-
rities in the Portfolio's portfolio will result in changes in the value of the
Portfolio's shares and thus the Portfolio's yield and total return to invest-
ors.
CERTAIN INVESTMENT TECHNIQUES
The use of investment techniques such as short selling, lending portfolio se-
curities and engaging in options and futures transactions, involves greater
risk than that incurred by many other funds with a similar objective. Using
these techniques may produce higher than normal portfolio turnover and may af-
fect the degree to which the Portfolio's net asset value fluctuates. See "Ap-
pendix--Investment Techniques."
The Portfolio's ability to engage in certain short-term transactions may be
limited by the requirement that, to qualify as a regulated investment company,
it must earn less than 30% of its gross income from the disposition of securi-
ties held for less than three months. This 30% test limits the extent to which
the Portfolio may sell securities held for less than three months, effect
short sales of securities held for less than three months, write options ex-
piring in less than three months and invest in certain futures contracts,
among other strategies. With the exception of the above requirement, the
amount of portfolio activity will not be a limiting factor when making portfo-
lio decisions. Under normal market conditions, the Portfolio's portfolio turn-
over rate generally will not exceed 150%. Higher portfolio turnover rates are
likely to result in comparatively greater brokerage commissions or transaction
costs. Short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. See "Portfolio Transactions" in the Portfo-
lio's Statement of Additional Information.
NON-DIVERSIFIED STATUS
The Portfolio's classification as a "non-diversified" investment company means
that the proportion of its assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified" investment com-
pany is required by the 1940 Act generally, with respect to 75% of its total
assets, to invest not more than 5% of such assets in the securities of a sin-
gle issuer and to hold not more than 10% of the outstanding voting securities
of a single issuer. However, the Portfolio intends to conduct its operations
so as to qualify as a "regulated investment company" for purposes of the In-
ternal Revenue Code of 1986, as amended (the "Code"), which requires that, at
the end of each quarter of its taxable year, (i) at least 50% of the market
value of the Portfolio's total assets be invested in cash, U.S. Government se-
curities, the securities of other regulated investment companies and other se-
curities, with such other securities of any one issuer limited for the pur-
poses of this calculation to an amount not greater than 5% of the value of the
Portfolio's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets be in-
vested in the securities of any one issuer (other than U.S. Government securi-
ties or the securities of other regulated investment companies). Since a rela-
tively high percentage of the Portfolio's assets may be invested in the secu-
rities of a limited number of issuers, some of which may be within the same
industry or economic sector, the Portfolio's portfolio securities may be more
susceptible to any single economic, political or regulatory occurrence than
the portfolio securities of a diversified investment company.
SIMULTANEOUS INVESTMENTS
Investment decisions for the Portfolio are made independently from those of
other investment companies or accounts advised by the Advisers. However, if
such other investment companies or accounts are prepared to invest in, or de-
sire to dispose of, securities of the type in which the Portfolio invests at
the same time as the Portfolio, available investments or opportunities for
sales will be allocated equitably to each. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
Portfolio or the price paid or received by the Portfolio.
9
<PAGE>
Management of the Fund
BOARD OF TRUSTEES
THE TRUSTEES ARE RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF THE
PORTFOLIO'S BUSINESS.
The Fund's business affairs are managed under the general supervision of its
Board of Trustees. The Portfolio's Statement of Additional Information con-
tains the name and general business experience of each Trustee.
INVESTMENT ADVISER
THE PORTFOLIO'S INVESTMENT ADVISER IS BSFM; SYMPHONY PROVIDES DAY-TO-DAY MAN-
AGEMENT OF THE PORTFOLIO'S INVESTMENTS.
The Portfolio's investment adviser is BSFM, a wholly-owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York,
New York 10167. The Bear Stearns Companies Inc. is a holding company which,
through its subsidiaries including its principal subsidiary, Bear Stearns, is
a leading United States investment banking, securities trading and brokerage
firm serving United States and foreign corporations, governments and institu-
tional and individual investors. BSFM is a registered investment adviser and
offers, either directly or through affiliates, investment advisory and admin-
istrative services to open-end and closed-end investment funds and other man-
aged pooled investment vehicles with net assets at September 30, 1995 of over
$1.8 billion.
BSFM supervises and assists in the overall management of the Portfolio's af-
fairs under an Investment Advisory Agreement between BSFM and the Fund, sub-
ject to the overall authority of the Fund's Board of Trustees in accordance
with Massachusetts law.
THE PORTFOLIO PAYS BSFM AN ADVISORY FEE AT AN ANNUAL RATE EQUAL TO 1% OF THE
PORTFOLIO'S AVERAGE DAILY NET ASSETS WHICH WILL BE ADJUSTED MONTHLY DEPENDING
ON THE EXTENT TO WHICH THE INVESTMENT PERFORMANCE OF PORTFOLIO SHARES EXCEEDED
OR WAS EXCEEDED BY THE PERCENTAGE CHANGE IN THE INVESTMENT RECORD OF THE S&P
500 INDEX.
Under the terms of the Investment Advisory Agreement, the Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of 1% of the Portfolio's average
daily net assets (the "Basic Fee") which will be adjusted monthly (the
"Monthly Performance Adjustment") depending on the extent to which the invest-
ment performance of the Class of shares (currently, Class C) expected to bear
the highest total Portfolio operating expenses, after expenses, exceeded or
was exceeded by the percentage change in the investment record of the S&P 500
Index. The Monthly Performance Adjustment may increase or decrease the total
advisory fee payable to BSFM (the "Total Advisory Fee") by up to .50% per year
of the value of the Portfolio's average daily net assets.
The monthly Total Advisory Fee is calculated as follows: (a) one-twelfth of
the 1.0% annual Basic Fee rate (0.083%) is applied to the Portfolio's average
daily net assets over the most recent calendar month, giving a dollar amount
which is the Basic Fee for that month; (b) one-twelfth of the applicable per-
formance adjustment rate from the table below is applied to the Portfolio's
average daily net assets over the most recent calendar month, giving a dollar
amount which is the Monthly Performance Adjustment (for the first twelve-month
period, no performance adjustment will be made); and (c) the Monthly Perfor-
mance Adjustment is then added to or subtracted from the Basic Fee and the re-
sult is the amount payable by the Portfolio to BSFM as the Total Advisory Fee
for that month.
10
<PAGE>
The full range of Total Advisory Fees on an annualized basis is as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
PERCENTAGE POINT DIFFERENCE
BETWEEN DESIGNATED CLASS'
PERFORMANCE (NET OF
EXPENSES INCLUDING ADVISORY FEES) PERFORMANCE
AND PERCENTAGE CHANGE IN THE ADJUSTMENT
S&P 500 INDEX BASIC FEE (%) RATE (%) TOTAL FEE (%)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
+3.00 percentage points or more........ 1% .50% 1.50%
+2.75 percentage points or more but
less than +3.00 percentage points...... 1% .40% 1.40%
+2.50 percentage points or more but
less than +2.75 percentage points...... 1% .30% 1.30%
+2.25 percentage points or more but
less than +2.50 percentage points...... 1% .20% 1.20%
+2.00 percentage points or more but
less than +2.25 percentage points...... 1% .10% 1.10%
Less than +2.00 percentage points but
more than -2.00 percentage points...... 1% 0% 1.00%
- -2.00 percentage points or less but
more than -2.25 percentage points...... 1% -.10% .90%
- -2.25 percentage points or less but
more than -2.50 percentage points...... 1% -.20% .80%
- -2.50 percentage points or less but
more than -2.75 percentage points...... 1% -.30% .70%
- -2.75 percentage points or less but
more than -3.00 percentage points...... 1% -.40% .60%
- -3.00 percentage points or less........ 1% -.50% .50%
</TABLE>
The period over which performance is measured is a rolling twelve-month period
and the performance of the S&P 500 Index is calculated as the sum of the
change in the level of the S&P 500 Index during the period, plus the value of
any dividends or distributions made by the companies whose securities comprise
the S&P 500 Index. The investment advisory fee payable by the Portfolio is
higher than that paid by most other investment companies.
THE PORTFOLIO'S ADMINISTRATOR IS BSFM. THE PORTFOLIO PAYS BSFM AN
ADMINISTRATION FEE AT THE ANNUAL RATE OF .15 OF 1% OF ITS AVERAGE DAILY NET
ASSETS.
Under the terms of an Administration Agreement with the Fund, BSFM generally
supervises all aspects of the operation of the Portfolio, subject to the over-
all authority of the Fund's Board of Trustees in accordance with Massachusetts
law. For providing administrative services to the Portfolio, the Fund has
agreed to pay BSFM a monthly fee at the annual rate of .15 of 1% of the Port-
folio's average daily net assets. Under the terms of an Administrative Serv-
ices Agreement with the Fund, PFPC Inc. provides certain administrative serv-
ices to the Portfolio. For providing these services, the Fund has agreed to
pay PFPC Inc. an annual fee, with a minimum of $8,000 for the Portfolio pay-
able monthly, as set forth below:
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
First $200 million................................ .10 of 1%
Next $200 million up to $400 million.............. .075 of 1%
Next $200 million up to $600 million.............. .05 of 1%
Assets in excess of $600 million.................. .03 of 1%
</TABLE>
From time to time, BSFM may waive receipt of its fees and/or voluntarily as-
sume certain Portfolio expenses, which would have the effect of lowering the
Portfolio's expense ratio and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. The Portfolio will not pay
BSFM at a later time for any amounts it may waive, nor will the Portfolio re-
imburse BSFM for any amounts it may assume.
Brokerage commissions may be paid to Bear Stearns for executing transactions
if the use of Bear Stearns is likely to result in price and execution at least
as favorable as those of other qualified
11
<PAGE>
broker-dealers. The allocation of brokerage transactions also may take into
account a broker's sales of the Portfolio's shares. See "Portfolio Transac-
tions" in the Statement of Additional Information.
Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment Ad-
visory Agreement is in effect.
SUB-INVESTMENT ADVISER
THE PORTFOLIO'S SUB-INVESTMENT ADVISER, SYMPHONY, PROVIDES INVESTMENT ADVISORY
ASSISTANCE AND THE DAY-TO-DAY MANAGEMENT OF THE PORTFOLIO'S INVESTMENTS.
BSFM has engaged Symphony, located at 555 California Street, San Francisco,
California 94104, to serve as the Fund's sub-investment adviser. Symphony, a
registered investment adviser, was formed in 1994. Symphony is a wholly-owned
subsidiary of BARRA, Inc., a leading supplier of analytical financial soft-
ware. Symphony's principals are Jeffrey Skelton, Praveen Gottipalli, Michael
Henman and Neil Rudolph. Messrs. Skelton, Henman and Rudolph joined Symphony
in 1994 from Wells Fargo Nikko Investment Advisors where they were Managing
Directors. Mr. Gottipalli joined Symphony in 1994 from BARRA, Inc.
Symphony, subject to the supervision and approval of BSFM, provides investment
advisory assistance and the day-to-day management of the Portfolio's invest-
ments, as well as investment research and statistical information, under a
Sub-Investment Advisory Agreement with BSFM, subject to the overall authority
of the Fund's Board of Trustees in accordance with Massachusetts law.
BSFM PAYS SYMPHONY A SUB-ADVISORY FEE AT AN ANNUAL RATE EQUAL TO .45 OF 1% OF
THE PORTFOLIO'S AVERAGE DAILY NET ASSETS WHICH WILL BE ADJUSTED MONTHLY DE-
PENDING ON THE EXTENT TO WHICH THE INVESTMENT PERFORMANCE OF PORTFOLIO SHARES
EXCEEDED OR WAS EXCEEDED BY THE PERCENTAGE CHANGE IN THE INVESTMENT RECORD OF
THE S&P 500 INDEX.
Under the Sub-Investment Advisory Agreement, BSFM has agreed to pay Symphony a
monthly fee at the annual rate of .45 of 1% of the Portfolio's average daily
net assets (the "Symphony Basic Fee") which will be adjusted by a Monthly Per-
formance Adjustment calculated as described above. The Monthly Performance Ad-
justment applicable to Symphony may increase or decrease the total advisory
fee payable to Symphony (the "Total Sub-Advisory Fee") by up to .25% per year
of the value of the Portfolio's average daily net assets. The monthly Total
Sub-Advisory fee is calculated in the same manner as the Total Advisory Fee.
The full range of Total Sub-Advisory Fees on an annualized basis is as fol-
lows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
PERCENTAGE POINT DIFFERENCE
BETWEEN DESIGNATED CLASS'
PERFORMANCE (NET OF
EXPENSES INCLUDING ADVISORY FEES) PERFORMANCE
AND PERCENTAGE CHANGE IN THE ADJUSTMENT
S&P 500 INDEX BASIC FEE (%) RATE (%) TOTAL FEE (%)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
+3.00 percentage points or more........ .45% .25% .70%
+2.75 percentage points or more but
less than +3.00 percentage points...... .45% .20% .65%
+2.50 percentage points or more but
less than +2.75 percentage points...... .45% .15% .60%
+2.25 percentage points or more but
less than +2.50 percentage points...... .45% .10% .55%
+2.00 percentage points or more but
less than +2.25 percentage points...... .45% .05% .50%
Less than +2.00 percentage points but
more than -2.00 percentage points...... .45% 0% .45%
- -2.00 percentage points or less but
more than -2.25 percentage points...... .45% -.05% .40%
- -2.25 percentage points or less but
more than -2.50 percentage points...... .45% -.10% .35%
- -2.50 percentage points or less but
more than -2.75 percentage points...... .45% -.15% .30%
- -2.75 percentage points or less but
more than -3.00 percentage points...... .45% -.20% .25%
- -3.00 percentage points or less........ .45% -.25% .20%
</TABLE>
12
<PAGE>
If for the 12-month period ended February 22, 1997, the Total Sub-Advisory Fee
exceeds .45%, without giving effect to any fee waivers by BSFM, then thereaf-
ter BSFM has agreed to pay Symphony a Basic Fee equal to .50 of 1% on an
annualized basis.
The Fund's primary investment officer is Praveen Gottipalli. Since May 1994,
he has been Symphony's Director of Investments. For more than five years prior
thereto, he was Director of the Active Strategies Group of BARRA, Inc.
DISTRIBUTOR
Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as
the Portfolio's principal underwriter and distributor of the Portfolio's
shares pursuant to an agreement which is renewable annually.
CUSTODIAN AND TRANSFER AGENT
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an
affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the
Portfolio's transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides certain administrative
services to the Portfolio.
EXPENSES
All expenses incurred in the operation of the Fund will be borne by the Fund,
except to the extent specifically assumed by BSFM. The expenses to be borne by
the Fund will include: organizational costs, taxes, interest, loan commitment
fees, interest and distributions paid on securities sold short, brokerage fees
and commissions, if any, fees of board members who are not officers, direc-
tors, employees or holders of 5% or more of the outstanding voting securities
of BSFM, Symphony or their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory, administrative and fund ac-
counting fees, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees, outside auditing
and legal expenses, costs of maintaining the Fund's existence, costs of inde-
pendent pricing services, costs attributable to investor services (including,
without limitation, telephone and personnel expenses), costs of shareholders'
reports and meetings, costs of preparing and printing certain prospectuses and
statements of additional information, and any extraordinary expenses. Expenses
attributable to a particular portfolio are charged against the assets of that
portfolio; other expenses of the Fund are allocated among the portfolios on
the basis determined by the Board, including, but not limited to, proportion-
ately in relation to the net assets of each portfolio.
BSFM has undertaken until such time as it gives investors at least 60 days'
notice to the contrary that, if in any fiscal year, certain expenses, includ-
ing the investment advisory fee, exceed 1.15% of Class Y's average daily net
assets for the fiscal year, BSFM may waive a portion of its investment advi-
sory fee or bear other expenses to the extent of the excess expense.
How to Buy Shares
GENERAL
The minimum initial investment is $2.5 million. Subsequent investments may be
made in any amount. Share certificates are issued only upon written request.
The Fund reserves the right to re-ject any purchase order. The Fund reserves
the right to vary the initial and subsequent investment minimum requirements
at any time. Investments by employees of Bear Stearns and its affiliates are
not subject to the minimum investment requirement. In addition, accounts under
the discretionary management of Bear Stearns and its affiliates or Symphony
and its affiliates are not subject to the minimum investment requirement.
Purchases of the Portfolio's shares may be made through a brokerage account
maintained with Bear Stearns or through certain investment dealers who are
members of the National Association of Securities Dealers, Inc. who have sales
agreements with Bear Stearns (an "Authorized Dealer"). Purchases of the Port-
folio's shares also may be made directly through the Transfer Agent. Investors
must specify that Class Y is being purchased.
13
<PAGE>
Purchases are effected at Class Y's net asset value next determined after a
purchase order is received by Bear Stearns, an Authorized Dealer or the Trans-
fer Agent (the "trade date"). Payment for Portfolio shares generally is due to
Bear Stearns or the Authorized Dealer on the third business day (the "settle-
ment date") after the trade date. Investors who make payment before the set-
tlement date may permit the payment to be held in their brokerage accounts or
may designate a temporary investment for payment until the settlement date. If
a temporary investment is not designated, Bear Stearns or the Authorized
Dealer will benefit from the temporary use of the funds if payment is made be-
fore the settlement date.
PURCHASES CAN BE MADE THROUGH BEAR STEARNS ACCOUNT EXECUTIVES, AUTHORIZED
DEALERS OR THE TRANSFER AGENT.
Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be accept-
ed), Federal Reserve draft or by wiring Federal Funds with funds held in bro-
kerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--The Insiders
Select Portfolio--Class Y" if purchased directly from the Portfolio, and
should be directed to the Transfer Agent: PFPC Inc., Attention: The Bear
Stearns Funds--The Insiders Select Portfolio--Class Y, P.O. Box 8960, Wilming-
ton, Delaware 19899-8960. Payment by check or Federal Reserve draft must be
received within three business days of receipt of the purchase order by Bear
Stearns or an Authorized Dealer. Orders placed directly with the Transfer
Agent must be accompanied by payment. Bear Stearns (or an investor's Autho-
rized Dealer) is responsible for forwarding payment promptly to the Fund. The
Fund will charge $7.50 for each wire redemption. The payment proceeds of a re-
demption of shares recently purchased by check may be delayed as described un-
der "How to Redeem Shares."
Investors who are not Bear Stearns clients may purchase Portfolio shares
through the Transfer Agent. To make an initial investment in the Portfolio, an
investor must establish an account with the Portfolio by furnishing necessary
information to the Fund. An account with the Portfolio may be established by
completing and signing the Account Information Form indicating which Class of
shares is being purchased, a copy of which is attached to this Prospectus, and
mailing it, together with a check to cover the purchase, to PFPC Inc., Atten-
tion: The Bear Stearns Funds--The Insiders Select Portfolio--Class Y, P.O. Box
8960, Wilmington, Delaware 19899-8960.
Subsequent purchases of shares may be made by checks made payable to the Fund
and directed to the address set forth in the preceding paragraph. The Portfo-
lio account number should appear on the check.
Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer
Agent before the close of regular trading on the New York Stock Exchange (cur-
rently 4:00 p.m., New York time) on any day the Portfolio calculates its net
asset value are priced according to the net asset value determined on that
date. Purchase orders received after the close of trading on the New York
Stock Exchange are priced as of the time the net asset value is next deter-
mined.
NET ASSET VALUE IS COMPUTED DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE
NEW YORK STOCK EXCHANGE.
Shares of the Portfolio are sold on a continuous basis. Net asset value per
share is determined as of the close of regular trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time) on each business day.
The net asset value per share of Class Y of the Portfolio is computed by di-
viding the value of the Portfolio's net assets represented by Class Y (i.e.,
the value of its assets less liabilities) by the total number of shares of
Class Y outstanding. The Portfolio's investments are valued based on market
value or, where market quotations are not readily available, based on fair
value as determined in good faith by, or in accordance with procedures estab-
lished by, the Fund's Board of Trustees. For further information regarding the
methods employed in valuing the Portfolio's investments, see "Determination of
Net Asset Value" in the Portfolio's Statement of Additional Information.
Federal regulations require that investors provide a certified Taxpayer Iden-
tification Number (a "TIN") upon opening or reopening an account. See "Divi-
dends, Distributions and Taxes." Failure to furnish a certified TIN to the
Fund could subject the investor to a $50 penalty imposed by the Internal Reve-
nue Service (the "IRS").
14
<PAGE>
Shareholder Services
EXCHANGE PRIVILEGE
THE EXCHANGE PRIVILEGE PERMITS EASY PURCHASES OF OTHER FUNDS IN THE BEAR
STEARNS FAMILY.
The Exchange Privilege enables an investor to purchase, in exchange for Class
Y shares of the Portfolio, Class Y shares of the Fund's other portfolios or
shares of certain other funds sponsored or advised by Bear Stearns, including
the Emerging Markets Debt Portfolio of Bear Stearns Investment Trust, and the
Money Market Portfolio of The RBB Fund, Inc., to the extent such shares are
offered for sale in the investor's state of residence. These funds have dif-
ferent investment objectives which may be of interest to investors. To use
this Privilege, investors should consult their account executive at Bear
Stearns, their account executive at an Authorized Dealer or the Transfer Agent
to determine if it is available and whether any conditions are imposed on its
use.
To use this Privilege, exchange instructions must be given to the Transfer
Agent in writing or by telephone. A shareholder wishing to make an exchange
may do so by sending a written request to the Transfer Agent at the address
given above in "How to Buy Shares--General." Shareholders are automatically
provided with telephone exchange privileges when opening an account, unless
they indicate on the account application that they do not wish to use this
privilege. Shareholders holding share certificates are not eligible to ex-
change shares of the Portfolio by phone because share certificates must accom-
pany all exchange requests. To add this feature to an existing account that
previously did not provide for this option, a Telephone Exchange Authorization
Form must be filed with the Transfer Agent. This form is available from the
Transfer Agent. Once this election has been made, the shareholder may contact
the Transfer Agent by telephone at 1-800-447-1139 (in Delaware call collect
302-791-1031) to request the exchange. During periods of substantial economic
or market change, telephone exchanges may be difficult to complete and share-
holders may have to submit exchange requests to the Transfer Agent in writing.
If the exchanging shareholder does not currently own Class Y shares of the
portfolio or fund whose shares are being acquired, a new account will be es-
tablished with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as described below. The ex-
change privilege may be modified or terminated at any time, or from time to
time, by the Fund on 60 days' notice to the affected portfolio or fund share-
holders. The Fund, BSFM and Bear Stearns will not be liable for any loss, lia-
bility, cost or expense for acting upon telephone instructions that are rea-
sonably believed to be genuine. In attempting to confirm that telephone in-
structions are genuine, the Fund will use such procedures as are considered
reasonable, including recording those instructions and requesting information
as to account registration (such as the name in which an account is regis-
tered, the account number, recent transactions in the account, and the account
holder's Social Security number, address and/or bank).
Before any exchange, the investor must obtain and should review a copy of the
current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained free of charge from Bear Stearns, any Au-
thorized Dealer or the Transfer Agent. When establishing a new account by ex-
change, the Class Y shares being exchanged must have a value of at least the
minimum initial investment required for the portfolio or fund into which the
exchange is being made; if making an exchange to an existing account, the dol-
lar value must equal or exceed the applicable minimum for subsequent invest-
ments. If any amount remains in the investment portfolio from which the ex-
change is being made, such amount must not be below the minimum account value
required by the portfolio or fund.
Class Y Shares will be exchanged at the next determined net asset value. No
fees currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written no-
tice, to charge shareholders a $5.00 fee in accordance with rules promulgated
by the Securities and Exchange Commission. The Fund reserves the right to re-
ject any exchange request in whole or in part. The Exchange Privilege may be
modified or terminated at any time upon notice to shareholders.
The exchange of Class Y shares of one portfolio or fund for Class Y shares of
another is treated for Federal income tax purposes as a sale of the Class Y
shares given in exchange by the shareholder and, therefore, an exchanging
shareholder may realize a taxable gain or loss.
15
<PAGE>
REDIRECTED DISTRIBUTION OPTION
THE REDIRECTED DISTRIBUTION OPTION PERMITS INVESTMENT OF INVESTORS' DIVIDENDS
AND DISTRIBUTIONS IN SHARES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY.
The Redirected Distribution Option enables a shareholder to invest automati-
cally dividends and/or capital gain distributions, if any, paid by the Portfo-
lio in Class Y shares of another portfolio of the Fund or a fund advised or
sponsored by Bear Stearns of which the shareholder is an investor, or the
Money Market Portfolio of The RBB Fund, Inc. Shares of the other portfolio or
fund will be purchased at the then-current net asset value.
This privilege is available only for existing accounts and may not be used to
open new accounts. Minimum subsequent investments do not apply. The Fund may
modify or terminate this privilege at any time or charge a service fee. No
such fee currently is contemplated.
HOW TO REDEEM SHARES
GENERAL
THE REDEMPTION PRICE WILL BE BASED ON THE NET ASSET VALUE NEXT COMPUTED AFTER
RECEIPT OF A REDEMPTION REQUEST.
Investors may request redemption of Portfolio shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, the Portfolio will redeem the shares at the next determined net asset
value. If the investor holds Portfolio shares of more than one Class, any re-
quest for redemption must specify the Class of shares being redeemed. If the
investor fails to specify the Class of shares to be redeemed or if the in-
vestor owns fewer shares of the Class than specified to be redeemed, the re-
demption request may be delayed until the Transfer Agent receives further in-
structions from the investor, the investor's Bear Stearns account executive or
the investor's Authorized Dealer. The Fund imposes no charges when shares are
redeemed directly through Bear Stearns.
The Portfolio ordinarily will make payment for all shares redeemed within
three days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. However, if an investor has purchased Portfolio shares by check
and subsequently submits a redemption request by mail, the redemption proceeds
will not be transmitted until the check used for investment has cleared, which
may take up to 15 days. The Fund will reject requests to redeem shares by tel-
ephone or wire for a period of 15 days after receipt by the Transfer Agent of
the purchase check against which such redemption is requested. This procedure
does not apply to shares purchased by wire payment.
The Fund reserves the right to redeem investor accounts at its option upon not
less than 60 days' written notice if the account's net asset value is $750 or
less, for reasons other than market conditions, and remains so during the no-
tice period.
PROCEDURES
SHAREHOLDERS MAY REDEEM SHARES IN SEVERAL WAYS.
REDEMPTION THROUGH BEAR STEARNS OR AUTHORIZED DEALERS
Clients with a brokerage account may submit redemption requests to their ac-
count executives or Authorized Dealers in person or by telephone, mail or
wire. As the Fund's agent, Bear Stearns or Authorized Dealers may honor a re-
demption request by repurchasing Fund shares from a redeeming shareholder at
the shares' net asset value next computed after receipt of the request by Bear
Stearns or the Authorized Dealer. Under normal circumstances, within three
days, redemption proceeds will be paid by check or credited to the sharehold-
er's brokerage account at the election of the shareholder. Bear Stearns ac-
count executives or Authorized Dealers are responsible for promptly forwarding
redemption requests to the Transfer Agent.
If an investor authorizes telephone redemption, the Transfer Agent may act on
telephone instructions from any person representing himself or herself to be a
representative of Bear Stearns or the Authorized Dealer and reasonably be-
lieved by the Transfer Agent to be genuine. The Fund will re-
16
<PAGE>
quire the Transfer Agent to employ reasonable procedures, such as requiring a
form of personal identification, to confirm that instructions are genuine and,
if it does not follow such procedures, the Transfer Agent or the Fund may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Fund nor the Transfer Agent will be liable for following telephone in-
structions reasonably believed to be genuine.
REDEMPTION THROUGH THE TRANSFER AGENT
Shareholders who are not clients with a brokerage account who wish to redeem
shares must redeem their shares through the Transfer Agent by mail; other
shareholders also may redeem Fund shares through the Transfer Agent. Mail re-
demption requests should be sent to the Transfer Agent at: PFPC Inc., Atten-
tion: The Bear Stearns Funds--The Insiders Select Portfolio--Class Y, P.O. Box
8960, Wilmington, Delaware 19899-8960.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
A shareholder may have redemption proceeds of $500 or more wired to the share-
holder's brokerage account or a commercial bank account designated by the
shareholder. A transaction fee of $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns account executive, to any Autho-
rized Dealer, or to the Transfer Agent if the shares are not held in a broker-
age account.
Written redemption instructions, indicating the Portfolio from which shares
are to be redeemed, and duly endorsed stock certificates, if previously is-
sued, must be received by the Transfer Agent in proper form and signed exactly
as the shares are registered. All signatures must be guaranteed. The Transfer
Agent has adopted standards and procedures pursuant to which signature-guaran-
tees in proper form generally will be accepted from domestic banks, brokers,
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from par-
ticipants in the New York Stock Exchange Medallion Signature Program, the
Stock Exchanges Medallion Program and the Securities Transfer Agents Medallion
Program ("STAMP"). Such guarantees must be signed by an authorized signatory
thereof with "Signature Guaranteed" appearing with the shareholder's signa-
ture. If the signature is guaranteed by a broker or dealer, such broker or
dealer must be a member of a clearing corporation and maintain net capital of
at least $100,000. Signature-guarantees may not be provided by notaries pub-
lic. Redemption requests by corporate and fiduciary shareholders must be ac-
companied by appropriate documentation establishing the authority of the per-
son seeking to act on behalf of the account. Investors may obtain from the
Fund or the Transfer Agent forms of resolutions and other documentation which
have been prepared in advance to assist compliance with the Portfolio's proce-
dures. Any questions with respect to signature-guarantees should be directed
to the Transfer Agent by calling 1-800-447-1139 (in Delaware call collect 302-
791-1031).
During times of drastic economic or market conditions, investors may experi-
ence difficulty in contacting Bear Stearns or Authorized Dealers by telephone
to request a redemption of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the redemption request being proc-
essed at a later time than it would have been if telephone redemption had been
used. During the delay, the Portfolio's net asset value may fluctuate.
Dividends, Distributions and Taxes
DIVIDENDS WILL BE AUTOMATICALLY REINVESTED IN ADDITIONAL PORTFOLIO SHARES AT
NET ASSET VALUE, UNLESS PAYMENT IN CASH IS REQUESTED OR DIVIDENDS ARE
REDIRECTED INTO ANOTHER FUND PURSUANT TO THE REDIRECTED DISTRIBUTION OPTION.
The Portfolio ordinarily pays dividends from its net investment income and
distributes net realized securities gains, if any, once a year, but it may
make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the provi-
sions of the 1940 Act. The Portfolio will not make distributions from net re-
alized securities gains unless capital loss carryovers, if any, have been uti-
lized or have expired. Dividends are automatically reinvested in additional
Class Y shares of the Portfolio at net asset value, unless payment in cash is
requested or dividends are redirected into another fund pursuant to the Redi-
rected Distribution Option. All expenses are accrued daily and deducted before
declaration of dividends to investors.
Dividends derived from net investment income, together with distributions from
net realized short-term securities gains and all or a portion of any gains re-
alized from the sale or disposition of certain
17
<PAGE>
market discount bonds, paid by the Portfolio will be taxable to U.S. share-
holders as ordinary income, whether received in cash or reinvested in addi-
tional shares of the Portfolio or redirected into another portfolio or fund.
Distributions from net realized long-term securities gains of the Portfolio
will be taxable to U.S. shareholders as long-term capital gains for Federal
income tax purposes, regardless of how long shareholders have held their Port-
folio shares and whether such distributions are received in cash or reinvested
in, or redirected into other, shares. The Code provides that the net capital
gain of an individual generally will not be subject to Federal income tax at a
rate in excess of 28%. Dividends and distributions may be subject to state and
local taxes.
Dividends, together with distributions from net realized short-term securities
gains and all or a portion of any gains realized from the sale or other dispo-
sition of market discount bonds, paid by the Portfolio to a foreign investor
generally are subject to U.S. nonresident withholding taxes at the rate of
30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. Distributions from net realized long-term securities gains
paid by the Portfolio to a foreign investor as well as the proceeds of any re-
demptions from a foreign investor's account, regardless of the extent to which
gain or loss may be realized, generally will not be subject to U.S. nonresi-
dent withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of investors' dividends and distributions will be
mailed to them annually. Investors also will receive periodic summaries of
their accounts which will include information as to dividends and distribu-
tions from securities gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup withhold-
ing") and remit to the U.S. Treasury 31% of dividends, distributions from net
realized securities gains and the proceeds of any redemption, regardless of
the extent to which gain or loss may be realized, paid to a shareholder if
such shareholder fails to certify either that the TIN furnished in connection
with opening an account is correct or that such shareholder has not received
notice from the IRS of being subject to backup withholding as a result of a
failure to properly report taxable dividend or interest income on a Federal
income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or
if a shareholder has failed to properly report taxable dividend and interest
income on a Federal income tax return.
A TIN is either the Social Security number or employer identification number
of the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner
of the account, and may be claimed as a credit on the record owner's Federal
income tax return.
THE PORTFOLIO IS NOT EXPECTED TO HAVE ANY FEDERAL TAX LIABILITY; ALTHOUGH IN-
VESTORS SHOULD EXPECT TO BE SUBJECT TO FEDERAL, STATE OR LOCAL TAXES IN RE-
SPECT OF THEIR INVESTMENT IN PORTFOLIO SHARES.
It is expected that the Portfolio will qualify as a "regulated investment com-
pany" under the Code so long as such qualification is in the best interests of
its shareholders. Such qualification relieves the Portfolio of any liability
for Federal income tax to the extent its earnings are distributed in accor-
dance with applicable provisions of the Code. In addition, the Portfolio is
subject to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains.
Each investor should consult its tax adviser regarding specific questions as
to Federal, state or local taxes.
Performance Information
THE PORTFOLIO MAY ADVERTISE ITS PERFORMANCE IN A NUMBER OF WAYS.
For purposes of advertising, performance for Class Y may be calculated on the
basis of average annual total return and/or total return. These total return
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Portfolio during the
measuring period were reinvested in Class Y shares.
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Portfolio was purchased with an ini-
tial payment of $1,000 and that the investment was redeemed at the end of a
stated period of time, after giving effect to the reinvestment of divi-
18
<PAGE>
dends and distributions during the period. The return is expressed as a per-
centage rate which, if applied on a compounded annual basis, would result in
the redeemable value of the investment at the end of the period. Advertise-
ments of the Portfolio's performance will include the Portfolio's average an-
nual total return for one, five and ten year periods, or for shorter periods
depending upon the length of time during which the Portfolio has operated.
Computations of average annual total return for periods of less than one year
represent an annualization of the Portfolio's actual total return for the ap-
plicable period.
Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions. Total return generally is expressed as a percent-
age rate which is calculated by combining the income and principal changes for
a specified period and dividing by the net asset value per share at the begin-
ning of the period. Advertisements may include the percentage rate of total
return or may include the value of a hypothetical investment at the end of the
period which assumes the application of the percentage rate of total return.
Performance will vary from time to time and past results are not necessarily
representative of future results. Investors should remember that performance
is a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses. Performance infor-
mation, such as that described above, may not provide a basis for comparison
with other investments or other investment companies using a different method
of calculating performance.
Comparative performance information may be used from time to time in advertis-
ing or marketing the Portfolio's shares, including data from Lipper Analytical
Services, Inc., Standard & Poor's 500 Composite Stock Price Index, Wilshire
4500 Stock Index, Russell Small Cap Index, the Dow Jones Industrial Average
and other industry publications.
General Information
The Fund was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust (the "Trust Agreement") dated September 29, 1994. The Fund commenced op-
erations on or about April 3, 1995 in connection with the offer of shares of
certain of its other portfolios. The Fund is authorized to issue an unlimited
number of shares of beneficial interest, par value $.001 per share. The Port-
folio's shares are classified into three Classes--Class A, Class C and Class
Y. Each share has one vote and shareholders will vote in the aggregate and not
by Class, except as otherwise required by law.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Portfolio. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of the
Portfolio and requires that notice of such disclaimer be given in each agree-
ment, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Portfolio's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Portfolio. Thus, the risk of a shareholder incur-
ring financial loss on account of a shareholder liability is limited to cir-
cumstances in which the Portfolio itself would be unable to meet its obliga-
tions, a possibility which management believes is remote. Upon payment of any
liability incurred by the Portfolio, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Portfolio.
The Fund's Trustees intend to conduct the operations of the Portfolio in a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Portfolio. As discussed under "Management of the Fund" in
the Portfolio's Statement of Additional Information, the Portfolio ordinarily
will not hold shareholder meetings; however, shareholders under certain cir-
cumstances may have the right to call a meeting of shareholders for the pur-
pose of voting to remove Trustees.
To date, the Fund's Board has authorized the creation of five portfolios of
shares. All consideration received by the Fund for shares of one of the port-
folios and all assets in which such consideration is invested will belong to
that portfolio (subject only to the rights of creditors of the Fund) and will
be subject to the liabilities related thereto. The assets attributable to, and
the expenses of, one portfolio (and as to classes within a portfolio) are
treated separately from those of the other portfolios (and classes). The Fund
has the ability to create, from time to time, new portfolios of shares without
shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be submit-
ted under the provisions of the 1940 Act or applicable state law or otherwise
to the holders of the outstanding voting
19
<PAGE>
securities of an investment company, such as the Fund, will not be deemed to
have been effectively acted upon unless approved by the holders of a majority
of the outstanding shares of each portfolio affected by such matter. Rule 18f-
2 further provides that a portfolio shall be deemed to be affected by a matter
unless it is clear that the interests of such portfolio in the matter are
identical or that the matter does not affect any interest of such portfolio.
However, the Rule exempts the selection of independent accountants and the
election of Trustees from the separate voting requirements of the Rule.
The Transfer Agent maintains a record of share ownership and will send confir-
mations and statements of account.
Shareholder inquiries may be made by writing to the Fund at PFPC Inc., Atten-
tion: The Insiders Select Portfolio, P.O. Box 8960, Wilmington, Delaware
19899-8960, by calling 1-800-447-1139 (in Delaware call collect 302-791-1031)
or by calling Bear Stearns at 1-800-766-4111.
20
<PAGE>
Appendix
INVESTMENT TECHNIQUES
In connection with its investment objective and policies, the Portfolio may
employ, among others, the following investment techniques which may involve
certain risks. Options transactions involve "derivative securities."
OPTIONS TRANSACTIONS
THE PORTFOLIO MAY ENGAGE IN OPTIONS TRANSACTIONS.
The Portfolio is permitted to invest up to 5% of its assets, represented by
the premium paid, in the purchase of call and put options in respect of spe-
cific securities (or groups or "baskets" of specific securities) in which the
Portfolio may invest. The Portfolio may write and sell covered call option
contracts on securities owned by the Portfolio not exceeding 20% of the value
of its net assets at the time such option contracts are written. The Portfolio
also may purchase call options to enter into closing purchase transactions.
The Portfolio also may write covered put option contracts to the extent of 20%
of the value of its net assets at the time such option contracts are written.
A call option gives the purchaser of the option the right to buy, and obli-
gates the writer to sell, the underlying security at the exercise price at any
time during the option period. Conversely, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period. A covered
put option sold by the Portfolio exposes the Portfolio during the term of the
option to a decline in price of the underlying security or securities. A put
option sold by the Portfolio is covered when, among other things, cash or liq-
uid securities are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken.
The Portfolio may purchase and sell call and put options on stock indexes
listed on U.S. securities exchanges or traded in the over-the-counter market.
A stock index fluctuates with changes in the market values of the stocks in-
cluded in the index. Because the value of an index option depends upon move-
ments in the level of the index rather than the price of a particular stock,
whether the Portfolio will realize a gain or loss from the purchase or writing
of options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indexes, in an industry
or market segment, rather than movements in the price of a particular stock.
Successful use by the Portfolio of options will be subject to Symphony's abil-
ity to predict correctly movements in the direction of individual stocks or
the stock market generally, foreign currencies or interest rates. To the ex-
tent Symphony's predictions are incorrect, the Portfolio may incur losses
which could adversely affect the value of a shareholder's investment.
LENDING PORTFOLIO SECURITIES
THE PORTFOLIO MAY EARN ADDITIONAL INCOME BY LENDING ITS PORTFOLIO SECURITIES.
From time to time, the Portfolio may lend securities from its portfolio to
brokers, dealers and other financial institutions needing to borrow securities
to complete certain transactions. Such loans may not exceed 33 1/3% of the
value of the Portfolio's total assets. In connection with such loans, the
Portfolio will receive collateral consisting of cash, U.S. Government securi-
ties or irrevocable letters of credit which will be maintained at all times in
an amount equal to at least 100% of the current market value of the loaned se-
curities. The Portfolio can increase its income through the investment of such
collateral. The Portfolio continues to be entitled to payments in amounts
equal to the interest, dividends and other distributions payable on the loaned
security and receives interest on the amount of the loan. Such loans will be
terminable at any time upon specified notice. The Portfolio might experience
risk of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Portfolio.
BORROWING MONEY
THE PORTFOLIO MAY BORROW MONEY.
As a fundamental policy, the Portfolio is permitted to borrow to the extent
permitted under the 1940 Act. The 1940 Act permits an investment company to
borrow in an amount up to 33 1/3% of the value of such company's total assets.
However, the Portfolio currently intends to borrow money only
A-1
<PAGE>
for temporary or emergency (not leveraging) purposes, in an amount up to 15%
of the value of its total assets (including the amount borrowed) valued at the
lesser of cost or market, less liabilities (not including the amount borrowed)
at the time the borrowing is made. While borrowings exceed 5% of the Portfo-
lio's total assets, the Portfolio will not make any additional investments.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES
THE PORTFOLIO MAY INVEST IN CONVERTIBLE SECURITIES.
Convertible securities are fixed-income securities that may be converted at
either a stated price or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar to both fixed-in-
come and equity securities. Although to a lesser extent than with fixed-income
securities generally, the market value of convertible securities tends to de-
cline as interest rates increase and, conversely, tends to increase as inter-
est rates decline. In addition, because of the conversion feature, the market
value of convertible securities tends to vary with fluctuations in the market
value of the underlying common stock, and, therefore, also will react to vari-
ations in the general market for equity securities. A unique feature of con-
vertible securities is that as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis,
and so may not experience market value declines to the same extent as the un-
derlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflec-
tion of the value of the underlying common stock. While no securities invest-
ments are without risk, investments in convertible securities generally entail
less risk than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are investments that pro-
vide for a stable stream of income with generally higher yields than common
stocks. Of course, like all fixed-income securities, there can be no assurance
of current income because the issuers of the convertible securities may de-
fault on their obligations. Convertible securities, however, generally offer
lower interest or dividend yields than non-convertible securities of similar
quality because of the potential for capital appreciation. A convertible secu-
rity, in addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to bene-
fit from increases in the market price of the underlying common stock. There
can be no assurance of capital appreciation, however, because securities
prices fluctuate.
Convertible securities generally are subordinated to other similar but non-
convertible securities of the same issuer, although convertible bonds, as cor-
porate debt obligations, enjoy seniority in right of payment to all equity se-
curities, and convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however, convertible secu-
rities typically have lower ratings than similar non-convertible securities.
MONEY MARKET INSTRUMENTS
THE PORTFOLIO MAY INVEST IN A VARIETY OF MONEY MARKET INSTRUMENTS.
The Portfolio may invest, in the circumstances described under "Description of
the Fund--Management Policies," in the following types of money market instru-
ments, each of which at the time of purchase must have or be deemed to have
under rules of the Securities and Exchange Commission remaining maturities of
13 months or less.
U.S. GOVERNMENT SECURITIES
The Portfolio may purchase securities issued or guaranteed by the U.S. Govern-
ment or its agencies or instrumentalities, which include U.S. Treasury securi-
ties that differ in their interest rates, maturities and times of issuance.
Treasury Bills have initial maturities of one year or less; Treasury Notes
have initial maturities of one to ten years; and Treasury Bonds generally have
initial maturities of greater than ten years. Some obligations issued or guar-
anteed by U.S. Government agencies and instrumentalities, for example, Govern-
ment National Mortgage Association pass-through certificates, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, by the right of the issuer to borrow from the U.S.
Treasury; others, such as those issued by the Federal National Mortgage Asso-
ciation, by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as those issued
by the Student Loan Marketing Association, only by the credit of the agency or
instrumentality. These securities bear fixed, floating or variable rates of
interest. Principal and interest may fluctuate based
A-2
<PAGE>
on generally recognized reference rates or the relationship of rates. While
the U.S. Government provides financial support to such U.S. Government-spon-
sored agencies or instrumentalities, no assurance can be given that it will
always do so, since it is not so obligated by law.
BANK OBLIGATIONS
The Portfolio may invest in bank obligations, including certificates of depos-
it, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign subsidi-
aries of domestic banks, and domestic and foreign branches of foreign banks,
the Portfolio may be subject to additional investment risks that are different
in some respects from those incurred by a fund which invests only in debt ob-
ligations of U.S. domestic issuers. Such risks include possible future politi-
cal and economic developments, the possible imposition of foreign withholding
taxes on interest income payable on the securities, the possible establishment
of exchange controls or the adoption of other foreign governmental restric-
tions which might adversely affect the payment of principal and interest on
these securities and the possible seizure or nationalization of foreign depos-
its.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by the Portfolio will not benefit from insurance from the Bank In-
surance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. The Portfolio will not invest more than
15% of the value of its net assets in time deposits maturing in more than
seven days and in other securities that are illiquid.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include unin-
sured, direct obligations bearing fixed, floating or variable interest rates.
REPURCHASE AGREEMENTS
Repurchase agreements involve the acquisition by the Portfolio of an under-
lying debt instrument, subject to an obligation of the seller to repurchase,
and the Portfolio to resell, the instrument at a fixed price usually not more
than one week after its purchase. Certain costs may be incurred by the Portfo-
lio in connection with the sale of the securities if the seller does not re-
purchase them in accordance with the repurchase agreement. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the securi-
ties, realization on the securities by the Portfolio may be delayed or limit-
ed.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS
Commercial paper consists of short-term, unsecured promissory notes issued to
finance short-term credit needs. The commercial paper purchased by the Portfo-
lio will consist only of direct obligations which, at the time of their pur-
chase, are (a) rated not lower than Prime-1 by Moody's Investors Service Inc.
("Moody's"), A-1 by Standard & Poor's Corporation ("S&P"), F-1 by Fitch In-
vestors Service, Inc. ("Fitch") or Duff-1 by Duff & Phelps, Inc. ("Duff"), (b)
issued by companies having an outstanding unsecured debt issue currently rated
not lower than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated,
determined by the Advisers to be of comparable quality to those rated obliga-
tions which may be purchased by the Portfolio. The Portfolio may purchase
floating and variable rate demand notes and bonds, which are obligations ordi-
narily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time or at specified intervals.
WARRANTS
THE PORTFOLIO MAY INVEST UP TO 5% OF ITS NET ASSETS IN WARRANTS.
The Portfolio may invest up to 5% of its net assets in warrants, except that
this limitation does not apply to warrants acquired in units or attached to
securities. Included in such amount, but not to exceed 2% of the value of the
Portfolio's net assets, may be warrants which are not listed on the New York
or American Stock Exchange. A warrant is an instrument issued by a corporation
which
A-3
<PAGE>
gives the holder the right to subscribe to a specified amount of the corpora-
tion's capital stock at a set price for a specified period of time.
INVESTMENT COMPANY SECURITIES
THE PORTFOLIO MAY INVEST IN SECURITIES OF OTHER INVESTMENT COMPANIES.
The Portfolio may invest in securities issued by other investment companies.
Under the 1940 Act, the Portfolio's investment in such securities currently is
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Portfolio's net assets with respect
to any one investment company and (iii) 10% of the Portfolio's net assets in
the aggregate. Investments in the securities of other investment companies
will involve duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES
THE PORTFOLIO MAY PURCHASE ILLIQUID SECURITIES.
The Portfolio may invest up to 15% of the value of its net assets in securi-
ties as to which a liquid trading market does not exist, provided such invest-
ments are consistent with the Portfolio's investment objective. Such securi-
ties may include securities that are not readily marketable, such as certain
securities that are subject to legal or contractual restrictions on resale,
repurchase agreements providing for settlement in more than seven days after
notice, and options traded in the over-the-counter market and securities used
to cover such options. As to these securities, the Portfolio is subject to a
risk that should the Portfolio desire to sell them when a ready buyer is not
available at a price the Portfolio deems representative of their value, the
value of the Portfolio's net assets could be adversely affected.
A-4
<PAGE>
- --------------------------------------------------------------------------------
THE BEAR STEARNS FUNDS
THE INSIDERS SELECT PORTFOLIO
CLASS A, CLASS C AND CLASS Y
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
NOVEMBER 10, 1995
- --------------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current relevant
Prospectus dated November 10, 1995 of The Insiders Select Portfolio (the
"Portfolio") of The Bear Stearns Funds (the "Fund"), as each may be revised from
time to time. To obtain a free copy of such Prospectus, please write to the
Fund at PFPC Inc., Attention: The Insiders Select Portfolio, P.O. Box 8960,
Wilmington, Delaware 19899-8960, call 1-800-447-1139 (in Delaware call collect
302-791-1031) or call Bear, Stearns & Co. Inc. ("Bear Stearns") at
1-800-766-4111.
Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned subsidiary of
The Bear Stearns Companies Inc., serves as the Portfolio's investment adviser.
BSFM has engaged Symphony Asset Management ("Symphony"), a subsidiary of BARRA,
Inc., as the Portfolio's sub-investment adviser to manage the Portfolio's day-
to-day investment activities. BSFM and Symphony are referred to herein
collectively as the "Advisers."
Bear Stearns, an affiliate of BSFM, serves as distributor of the
Portfolio's shares.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objective and Management Policies........ B-2
Management of the Fund.............................. B-12
Management Arrangements............................. B-16
Purchase and Redemption of Shares................... B-18
Determination of Net Asset Value.................... B-19
Dividends, Distributions and Taxes.................. B-20
Portfolio Transactions.............................. B-22
Performance Information............................. B-24
Information About the Fund.......................... B-25
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors.................. B-25
Financial Statements................................ B-26
Report of Independent Auditors B-28
</TABLE>
B-1
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
-----------------------------------------------------------------------
with the section in the Portfolio's Prospectus entitled "Description of the
- ---------------------------------------------------------------------------
Fund."
- ----
Portfolio Securities
- --------------------
Bank Obligations. Domestic commercial banks organized under Federal
----------------
law are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to have their deposits
insured by the Federal Deposit Insurance Corporation (the "FDIC"). Domestic
banks organized under state law are supervised and examined by state banking
authorities but are members of the Federal Reserve System only if they elect to
join. In addition, state banks whose certificates of deposit ("CDs") may be
purchased by the Portfolio are insured by the FDIC (although such insurance may
not be of material benefit to the Portfolio, depending on the principal amount
of the CDs of each bank held by the Portfolio) and are subject to Federal
examination and to a substantial body of Federal law and regulation. As a
result of Federal or state laws and regulations, domestic branches of domestic
banks whose CDs may be purchased by the Portfolio generally are required, among
other things, to maintain specified levels of reserves, are limited in the
amounts which they can loan to a single borrower and are subject to other
regulation designed to promote financial soundness. However, not all of such
laws and regulations apply to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries
of domestic banks and domestic and foreign branches of foreign banks, such as
CDs and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
B-2
<PAGE>
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a
designated bank within the state, a certain percentage of their assets as fixed
from time to time by the appropriate regulatory authority; and (2) maintain
assets within the state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or through all of
its agencies or branches within the state. The deposits of Federal and State
Branches generally must be insured by the FDIC if such branches take deposits of
less than $100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, BSFM carefully evaluates such investments on a case-by-case
basis.
Repurchase Agreements. The Portfolio's custodian or sub-custodian will
---------------------
have custody of, and will hold in a segregated account, securities acquired by
the Portfolio under a repurchase agreement. Repurchase agreements are
considered by the staff of the Securities and Exchange Commission to be loans by
the Portfolio. In an attempt to reduce the risk of incurring a loss on a
repurchase agreement, the Portfolio will enter into repurchase agreements only
with domestic banks with total assets in excess of one billion dollars, or
primary government securities dealers reporting to the Federal Reserve Bank of
New York, with respect to securities of the type in which the Portfolio may
invest, and will require that additional securities be deposited with it if the
value of the securities purchased should decrease below the resale price. The
Advisers will monitor on an ongoing basis the value of the collateral to assure
that it always equals or exceeds the repurchase price. The Portfolio will
consider on an ongoing basis the credit worthiness of the institutions with
which it enters into repurchase agreements.
B-3
<PAGE>
Commercial Paper and Other Short-Term Corporate Obligations. Variable
-----------------------------------------------------------
rate demand notes include variable amount master demand notes, which are
obligations that permit the Portfolio to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Portfolio, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. As mutually agreed between the parties, the Portfolio may increase
the amount under the notes at any time up to the full amount provided by the
note agreement, or decrease the amount, and the borrower may repay up to the
full amount of the note without penalty. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are redeemable
at face value, plus accrued interest, at any time. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, the Portfolio's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. In connection with floating
and variable rate demand obligations, the Advisers will consider, on an ongoing
basis, earning power, cash flow and other liquidity ratios of the borrower, and
the borrower's ability to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies, and the
Portfolio may invest in them only if at the time of an investment the borrower
meets the criteria set forth in the Portfolio's Prospectus for other commercial
paper issuers.
Illiquid Securities. When purchasing securities that have not been
-------------------
registered under the Securities Act of 1933, as amended, and are not readily
marketable, the Portfolio will endeavor to obtain the right to registration at
the expense of the issuer. Generally, there will be a lapse of time between the
Portfolio's decision to sell any such security and the registration of the
security permitting sale. During any such period, the price of the securities
will be subject to market fluctuations. However, if a substantial market of
qualified institutional buyers develops pursuant to Rule 144A under the
Securities Act of 1933, as amended, for certain unregistered securities held by
the Portfolio, the Portfolio intends to treat them as liquid securities in
accordance with procedures approved by the Fund's Board of Trustees. Because it
is not possible to predict with assurance how the market for restricted
securities pursuant to Rule 144A will develop, the Fund's Board of Trustees has
directed the Advisers to monitor carefully the Portfolio's investments in such
securities with particular regard to trading activity, availability of reliable
price information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, the Portfolio's investing in
B-4
<PAGE>
such securities may have the effect of increasing the level of illiquidity in
the Portfolio during such period.
Management Policies
- -------------------
The Portfolio engages in the following practices in furtherance of its
objective.
Options Transactions. The Portfolio may engage in options
--------------------
transactions, such as purchasing or writing covered call or put options. The
principal reason for writing covered call options, which are call options with
respect to which the Portfolio owns the underlying security or securities, is to
realize, through the receipt of premiums, a greater return than would be
realized on the Portfolio's securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that the Portfolio may receive may be adversely affected as new
or existing institutions, including other investment companies, engage in or
increase their option-writing activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
time the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. The Portfolio may write (a) in-the-money call options when
Symphony expects that the price of the underlying security will remain stable or
decline moderately during the option period, (b) at-the-money call options when
Symphony expects that the price of the underlying security will remain stable or
advance moderately during the option period and (c) out-of-the-money call
options when Symphony expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-money put options (the
reverse of call options as to the relation of exercise price to
B-5
<PAGE>
market price) may be utilized in the same market environments that such call
options are used in equivalent transactions.
So long as the Portfolio's obligation as the writer of an option
continues, the Portfolio may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Portfolio to deliver, in the
case of a call, or take delivery of, in the case of a put, the underlying
security against payment of the exercise price. This obligation terminates when
the option expires or the Portfolio effects a closing purchase transaction. The
Portfolio can no longer effect a closing purchase transaction with respect to an
option once it has been assigned an exercise notice.
While it may choose to do otherwise, the Portfolio generally will
purchase or write only those options for which Symphony believes there is an
active secondary market so as to facilitate closing transactions. There is no
assurance that sufficient trading interest to create a liquid secondary market
on a securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may exist. A
liquid secondary market in an option may cease to exist for a variety of
reasons. In the past, for example, higher than anticipated trading activity or
order flow, or other unforeseen events, at times have rendered certain clearing
facilities inadequate and resulted in the institution of special procedures,
such as trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance that
similar events, or events that otherwise may interfere with the timely execution
of customers' orders, will not recur. In such event, it might not be possible
to effect closing transactions in particular options. If as a covered call
option writer the Portfolio is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise or it
otherwise covers its position.
Stock Index Options. The Portfolio may purchase and write put and call
-------------------
options on stock indexes listed on U.S. or foreign securities exchanges or
traded in the over-the-counter market. A stock index fluctuates with changes in
the market values of the stocks included in the index.
Options on stock indexes are similar to options on stock except that
(a) the expiration cycles of stock index options are generally monthly, while
those of stock options are currently quarterly, and (b) the delivery
requirements are different. Instead of giving the right to take or make
delivery of a stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (i) the
amount, if any, by which the
B-6
<PAGE>
fixed exercise price of the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the underlying index on the
date of exercise, multiplied by (ii) a fixed "index multiplier." Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. The amount of cash received
will be equal to such difference between the closing price of the index and the
exercise price of the option expressed in dollars times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
Futures Contracts and Options on Futures Contracts. The Portfolio may
--------------------------------------------------
trade futures contracts and options on futures contracts in U.S. domestic
markets, such as the Chicago Board of Trade and the International Monetary
Market of the Chicago Mercantile Exchange.
Initially, when purchasing or selling futures contracts the Portfolio
will be required to deposit with the Fund's custodian in the broker's name an
amount of cash or cash equivalents up to approximately 10% of the contract
amount. This amount is subject to change by the exchange or board of trade on
which the contract is traded and members of such exchange or board of trade may
impose their own higher requirements. This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Portfolio upon termination of the futures position,
assuming all contractual obligations have been satisfied. Subsequent payments,
known as "variation margin," to and from the broker will be made daily as the
price of the index or securities underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, the Portfolio may elect to close the position
by taking an opposite position, at the then prevailing price, which will operate
to terminate the Portfolio's existing position in the contract.
Although the Portfolio intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a
B-7
<PAGE>
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Portfolio to substantial losses. If it
is not possible, or the Portfolio determines not, to close a futures position in
anticipation of adverse price movements, the Portfolio will be required to make
daily cash payments of variation margin. In such circumstances, an increase in
the value of the portion of the portfolio being hedged, if any, may offset
partially or completely losses on the futures contract. However, no assurance
can be given that the price of the securities being hedged will correlate with
the price movements in a futures contract and thus provide an offset to losses
on the futures contract.
In addition, to the extent the Portfolio is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect correlation
between securities owned by the Portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is possible
that the hedge will not be fully effective in that, for example, losses on the
portfolio securities may be in excess of gains on the futures contract or losses
on the futures contract may be in excess of gains on the portfolio securities
that were the subject of the hedge. In futures contracts based on indexes, the
risk of imperfect correlation increases as the composition of the Portfolio's
investments varies from the composition of the index. In an effort to
compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of futures contracts, the
Portfolio may buy or sell futures contracts in a greater or lesser dollar amount
than the dollar amount of the securities being hedged if the historical
volatility of the futures contract has been less or greater than that of the
securities. Such "over hedging" or "under hedging" may adversely affect the
Portfolio's net investment results if market movements are not as anticipated
when the hedge is established.
Upon exercise of an option, the writer of the option will deliver to
the holder of the option the futures position and the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option does
B-8
<PAGE>
change daily and that change would be reflected in the net asset value of each
Portfolio.
Lending Portfolio Securities. To a limited extent, the Portfolio may
----------------------------
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, the Portfolio can
increase its income through the investment of the cash collateral. For purposes
of this policy, the Portfolio considers collateral consisting of U.S. Government
securities or irrevocable letters of credit issued by banks whose securities
meet the standards for investment by the Portfolio to be the equivalent of cash.
From time to time, the Portfolio may return to the borrower or a third party
which is unaffiliated with the Portfolio, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (1)
the Portfolio must receive at least 100% cash collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; (5) the Portfolio may pay only reasonable custodian fees in connection
with the loan; and (6) while voting rights on the loaned securities may pass to
the borrower, the Fund's Board of Trustees must terminate the loan and regain
the right to vote the securities if a material event adversely affecting the
investment occurs. These conditions may be subject to future modification.
Investment Restrictions. The Portfolio has adopted investment
-----------------------
restrictions numbered 1 through 8 as fundamental policies. These restrictions
cannot be changed, as to a Portfolio, without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Portfolio's outstanding voting shares. Investment
restrictions numbered 9 through 14 are not fundamental policies and may be
changed by vote of a majority of the Trustees at any time. The Portfolio may
not:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be no
limitation on the purchase of
B-9
<PAGE>
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Invest in commodities, except that the Portfolio may purchase and
sell options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
3. Purchase, hold or deal in real estate, real estate limited
partnership interests, or oil, gas or other mineral leases or exploration or
development programs, but the Portfolio may purchase and sell securities that
are secured by real estate or issued by companies that invest or deal in real
estate or real estate investment trusts.
4. Borrow money, except to the extent permitted under the 1940 Act.
The 1940 Act permits an investment company to borrow in an amount up to 33-1/3%
of the value of such company's total assets. For purposes of this Investment
Restriction, the entry into options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or indexes
shall not constitute borrowing.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Portfolio
may lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange Commission
and the Fund's Board of Trustees.
6. Act as an underwriter of securities of other issuers, except to the
extent the Portfolio may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
7. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act).
8. Purchase securities on margin, but the Portfolio may make margin
deposits in connection with transactions in options, forward contracts, futures
contracts, including those relating to indexes, and options on futures contracts
or indexes.
9. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) if such purchase
would cause the value of the Portfolio's investments in all such companies to
exceed 5% of the value of its total assets.
B-10
<PAGE>
10. Invest in the securities of a company for the purpose of
exercising management or control, but the Portfolio will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
12. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Portfolio's Prospectus and Statement of Additional
Information.
13. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of its net assets would be so
invested.
14. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of the Portfolio's shares in certain
states. Should the Fund determine that a commitment is no longer in the best
interest of the Portfolio and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
B-11
<PAGE>
MANAGEMENT OF THE FUND
----------------------
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years, are
shown below. Each Trustee who is an "interested person" of the Fund, as defined
in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION
(AND AGE) WITH FUND DURING PAST FIVE YEARS
- ---------------------------------- ------------ -------------------------------
<S> <C> <C>
Peter M. Bren (61) Trustee President of The Bren Co.;
2 East 70th Street President of Cole, Bren
New York, NY 10021 Realty Advisors and Senior
Partner for Lincoln Properties
prior thereto.
Alan J. Dixon* (68) Trustee Partner of Bryan Cave, a law
7535 Claymont Court firm in St. Louis since
Apt. #2 January 1993; United
Belleville, IL 62223 States Senator of Illinois from
1981 to 1993.
John R. McKernan, Jr. (47) Trustee Chairman and Chief Executive
114 Nottingham Road Officer of McKernan
Auburn, ME 04210 Enterprises since January 1995;
Governor of Maine prior
thereto.
M.B. Oglesby, Jr. (53) Trustee Senior Vice President of RJR
5300 Albemarle Street Nabisco, Inc. since April
Bethesda, MD 20816 1989; Former Deputy Chief of
Staff-White House from 1988 to
January 1989.
Robert S. Reitzes* (50) Chairman Director of Mutual Funds-
245 Park Avenue of the Board Bear Stearns Asset
New York, NY 10167 Management and Senior Managing
Director of Bear Stearns since
March 1994; Co-Director of
Research and Senior Chemical
Analyst of C.J.
Lawrence/Deutsche Bank
Securities Corp. from January
1991 to March 1994; Chief
Investment Officer and Chemical
Analyst of Mabon, Nugent & Co.
prior thereto.
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION
(AND AGE) WITH FUND DURING PAST FIVE YEARS
- ---------------------------------- ------------ -------------------------------
<S> <C> <C>
Peter B. Fox (43) Executive Senior Managing Director,
Three First National Vice President Bear Stearns, Public
Plaza Finance.
Chicago, IL 60602
William J. Montgoris (48) Executive Chief Financial Officer and
245 Park Avenue Vice President Chief Operating Officer,
New York, NY 10167 Bear Stearns.
Stephen A. Bornstein (52) Vice President Managing Director, Legal
245 Park Avenue and Secretary Department, Bear Stearns.
New York, NY 10167
Frank J. Maresca (37) Vice President Managing Director of Bear
245 Park Avenue and Treasurer Stearns since September
New York, NY 10167 1994; Associate Director of
Bear Stearns from September
1993 to September 1994;
Executive Vice President of
BSFM since March 1992; Vice
President of Bear Stearns from
March 1992 to September 1993;
First Vice President of
Mitchell Hutchins Asset
Management Inc. ("Mitchell
Hutchins") from June 1988 to
March 1992; Director of Funds
Administration Division of
Mitchell Hutchins from November
1991 to March 1992; and Chief
Financial Officer of the
Mitchell Hutchins Fund Group
(holding the position of Vice
President and Treasurer of
PaineWebber Mutual Funds) from
June 1988 to November 1990.
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION
(AND AGE) WITH FUND DURING PAST FIVE YEARS
- ---------------------------------- -------------- -------------------------------
<S> <C> <C>
Raymond D. DeAngelo (34) Vice President Associate Director of Bear
245 Park Avenue Stearns since October 1994;
New York, NY 10167 Vice President and Manager--
Mutual Fund Sales Support Group
of Kidder, Peabody & Co.
Incorporated ("Kidder Peabody")
from August 1994 to October
1994; Vice President and
Manager--Unit Investment Trust
Department of Kidder Peabody
from August 1992 to August
1994; Vice President and
Wholesaler of Nike Securities,
L.P. (formerly Clayton Brown &
Associates) from September 1991
to August 1992; Assistant Vice
President and Wholesaler of
Clayton Brown & Associates
prior thereto.
Vincent L. Pereira (30) Assistant Vice President of Bear
245 Park Avenue Treasurer Stearns and Vice President
New York, NY 10167 of BSFM since May 1993;
Assistant Vice President of
Mitchell Hutchins from October
1992 to May 1993; Senior
Relationship Manager of
Mitchell Hutchins from June
1988 to October 1992.
Eileen M. Coyle (29) Assistant Senior Fund Administrator
245 Park Avenue Secretary for BSFM since January
New York, NY 10167 1994; Accounting Supervisor and Senior
Accountant for Bear Stearns since 1990;
Senior Accountant for Deloitte & Touche
from 1988 to 1990.
</TABLE>
B-14
<PAGE>
The Fund intends to pay its non-interested Board members an annual
retainer of $5,000 and a per meeting fee of $500 and to reimburse them for their
expenses. The Fund does not compensate its officers. For its first fiscal year
following commencement of operations (the period ending March 31, 1996), the
aggregate compensation expected to be paid to each Board member by the Fund and
all other funds in the Bear Stearns Family of Funds for which such person is a
Board member (the number of which is set forth in parenthesis next to each Board
member's total compensation) is expected to be:
<TABLE>
<CAPTION>
(5)
(3) Total
(2) Pension or (4) Compensation from
(1) Aggregate Retirement Benefits Estimated Annual Fund and Fund
Name of Board Compensation Accrued as Part of Benefits Upon Complex Paid to
Member from Fund/*/ Fund's Expenses Retirement Board Members
- ----------------------- ------------ ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Peter M. Bren $7,000 None None $12,000(2)
Alan J. Dixon $7,000 None None $ 7,000(1)
John R. McKernan, Jr. $7,000 None None $12,000(2)
M.B. Oglesby, Jr. $7,000 None None $12,000(2)
Robert S. Reitzes None None None None(2)
</TABLE>
_____________________
/*/ Amount does not include reimbursed expenses for attending Board meetings,
which are estimated to be $8,000 for Board members of the Fund, as a group.
Board members and officers of the Fund, as a group, owned less than 1%
of the Portfolio's shares outstanding on October 15, 1995.
For so long as the Plan described in the section captioned "Management
Arrangements--Distribution and Shareholder Servicing Plan" remains in effect,
the Fund's Trustees who are not "interested persons" of the Fund, as defined in
the 1940 Act, will be selected and nominated by the Trustees who are not
"interested persons" of the Fund.
No meetings of shareholders of the Fund will be held for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Under the 1940 Act, shareholders of record of not less than two-
thirds of the outstanding shares of the Fund may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for that purpose. Under the Fund's Agreement and Declaration of Trust, the
Trustees are required to call a meeting of shareholders for the purpose of
voting upon the question of removal of any such Trustee when
B-15
<PAGE>
requested in writing to do so by the shareholders of record of not less than 10%
of the Fund's outstanding shares.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in conjunction
-----------------------------------------------------------------------
with the section in the Portfolio's Prospectus entitled "Management of the
- --------------------------------------------------------------------------
Fund."
- ------
Investment Advisory Agreement. BSFM provides investment advisory
-----------------------------
services to the Portfolio pursuant to the Investment Advisory Agreement (the
"Agreement") dated February 22, 1995, with the Fund. The Agreement is subject
to annual approval by (i) the Fund's Board of Trustees or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Portfolio, provided that in either event the continuance also is approved by
a majority of the Board of Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Fund or BSFM, by vote cast in person at a meeting called
for the purpose of voting on such approval. The Board of Trustees, including a
majority of the Trustees who are not "interested persons" of any party to the
Agreement, last approved the Agreement at a meeting as to the Portfolio, held on
February 22, 1995. The Agreement is terminable, as to the Portfolio, without
penalty, on 60 days' notice, by the Fund's Board of Trustees or by vote of the
holders of a majority of the Portfolio's shares, or, on not less than 90 days'
notice, by BSFM. As to the Portfolio, the Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
BSFM is a wholly owned subsidiary of The Bear Stearns Companies Inc.
The following persons are directors and/or senior officers of BSFM: Mark A.
Kurland, Chief Executive Officer, President, Chairman of the Board and Director;
Robert S. Reitzes, Executive Vice President and Director; Milton B. Rubin, Vice
Chairman of the Board and Director; Frank J. Maresca, Executive Vice President;
Neil T. Eigen, Executive Vice President, Vincent L. Pereira, Treasurer and
Secretary; Michael Minikes, Warren J. Spector and Robert M. Steinberg,
Directors.
Sub-Investment Advisory Agreement. Symphony provides investment
---------------------------------
advisory assistance and day-to-day management of the Fund's portfolio pursuant
to the Sub-Investment Advisory Agreement (the "Sub-Advisory Agreement") dated
February 22, 1995 between Symphony and BSFM. The Sub-Advisory Agreement is
subject to annual approval by (i) the Fund's Board of Trustees or (ii) vote of a
majority (as defined in the Act) of the outstanding voting securities of the
Portfolio, provided that in either event the continuance also is approved by a
majority of the Board of
B-16
<PAGE>
Trustees who are not "interested persons" (as defined in the Act) of the Fund or
Symphony, by vote cast in person at a meeting called for the purpose of voting
on such approval. The Board of Trustees, including a majority of the Trustees
who are not "interested persons" of any party to the Sub-Advisory Agreement,
last approved the Sub-Advisory Agreement at a meeting held on February 22, 1995.
The Sub-Advisory Agreement is terminable without penalty (i) by BSFM on 60 days'
notice, (ii) by the Fund's Board of Trustees, on 60 days' notice, or by vote of
the holders of a majority of the Fund's shares or (iii) on not less than 90
days' notice, by Symphony. The Sub-Advisory Agreement will terminate
automatically in the event of its assignment (as defined in the Act) or upon
termination of the Agreement for any reason.
Symphony provides day-to-day management of the Portfolio's portfolio of
investments in accordance with the stated policies of the Fund, subject to the
supervision of BSFM and the approval of the Fund's Board of Trustees. BSFM and
Symphony provide the Fund with Investment Officers who are authorized by the
Board of Trustees to execute purchases and sales of securities. All purchases
and sales are reported for the Board of Trustees' review at the meeting
subsequent to such transactions.
Distribution and Shareholder Servicing Plan. Rule 12b-1 (the "Rule")
-------------------------------------------
adopted by the Securities and Exchange Commission under the 1940 Act provides,
among other things, that an investment company may bear expenses of distributing
its shares only pursuant to a plan adopted in accordance with the Rule. The
Fund's Trustees have adopted such a plan with respect to Class A and Class C
shares (the "Plan"). The Fund's Trustees believe that there is a reasonable
likelihood that the Plan will benefit the Portfolio and the holders of its Class
A and Class C shares. In some states, banks or other institutions effecting
transactions in Portfolio shares may be required to register as dealers pursuant
to state law.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the Trustees
for their review. In addition, the Plan provides that it may not be amended to
increase materially the costs which holders of a Class of shares may bear
pursuant to the Plan without approval of such shareholders and that other
material amendments of the Plan must be approved by the Board of Trustees, and
by the Trustees who are neither "interested persons" (as defined in the 1940
Act) of the Fund nor have any direct or indirect financial interest in the
operation of the Plan or in the related Plan agreements, by vote cast in person
at a meeting called for the purpose of considering such amendments. The Plan
and related agreements are subject to annual approval by such vote cast in
person at a meeting called for the purpose of
B-17
<PAGE>
voting on the Plan. The Plan was so approved on February 22, 1995. The Plan is
terminable at any time by vote of a majority of the Trustees who are not
"interested persons" and who have no direct or indirect financial interest in
the operation of the Plan or in the Plan agreements or by vote of holders of a
majority of the Portfolio's relevant Class of shares. A Plan agreement is
terminable, as to the Portfolio, without penalty, at any time, by such vote of
the Trustees, upon not more than 60 days' written notice to the parties to such
agreement or by vote of the holders of a majority of the Portfolio's Class A and
Class C shares. A Plan agreement will terminate automatically, as to the
Portfolio, in the event of its assignment (as defined in the 1940 Act).
Expense Limitation. BSFM agreed that if, in any fiscal year, the
------------------
aggregate expenses of the Portfolio, exclusive of taxes, brokerage, interest on
borrowings and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, exceed the expense limitation of any state
having jurisdiction over the Portfolio, the Fund may deduct from the payment to
be made to BSFM, such excess expense to the extent required by state law. Such
deduction or payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements and should be read in
-----------------------------------------------------------
conjunction with the sections in the Portfolio's Prospectus entitled "How to Buy
- --------------------------------------------------------------------------------
Shares" and "How to Redeem Shares."
- ---------------------------------
Sales Loads--Class A. Set forth below is an example of the method of
--------------------
computing the offering price of the Class A shares of the Portfolio. The
example assumes a purchase of Class A shares aggregating less than $50,000
subject to the schedule of sales charges set forth in the Prospectus at a price
based upon the net asset value of the Class A shares.
<TABLE>
<S> <C>
Net Asset Value per Share $12.00
Per Share Sales Charge - 4.75%
of offering price (4.99% of
net asset value per share) $ 0.60
Per Share Offering Price to
the Public $12.60
</TABLE>
Redemption Commitment. The Portfolio has committed itself to pay in
---------------------
cash all redemption requests by any shareholder
B-18
<PAGE>
of record, limited in amount during any 90-day period to the lesser of $250,000
or 1% of the value of the Portfolio's net assets at the beginning of such
period. Such commitment is irrevocable without the prior approval of the
Securities and Exchange Commission. In the case of requests for redemption in
excess of such amount, the Board of Trustees reserves the right to make payments
in whole or in part in securities or other assets in case of an emergency or any
time a cash distribution would impair the liquidity of the Portfolio to the
detriment of the existing shareholders. In this event, the securities would be
valued in the same manner as the Portfolio is valued. If the recipient sold such
securities, brokerage charges would be incurred. Were the Portfolio to redeem
securities in kind, it first would seek to distribute readily marketable
securities.
Suspension of Redemptions. The right of redemption may be suspended or
-------------------------
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b) when
trading in the markets the Portfolio ordinarily utilizes is restricted, or when
an emergency exists as determined by the Securities and Exchange Commission so
that disposal of the Portfolio's investments or determination of its net asset
value is not reasonably practicable, or (c) for such other periods as the
Securities and Exchange Commission by order may permit to protect Portfolio
shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
-----------------------------------------------------------------------
with the section in the Portfolio's Prospectus entitled "How to Buy Shares."
- --------------------------------------------------------------------------
Valuation of Portfolio Securities. Portfolio securities, including
---------------------------------
covered call options written by the Portfolio, are valued at the last sale price
on the securities exchange or national securities market on which such
securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no transactions,
are valued at the average of the most recent bid and asked prices, except in the
case of open short positions where the asked price is used for valuation
purposes. Bid price is used when no asked price is available. Short-term
investments are carried at amortized cost, which approximates value. Any
securities or other assets for which recent market quotations are not readily
available are valued at fair value as determined in good faith by the Fund's
Board of Trustees. Expenses and fees, including the management fee and
distribution and service 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.
B-19
<PAGE>
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Board of Trustees, are valued at fair value as
determined in good faith by the Board of Trustees. The Board of Trustees will
review the method of valuation on a current basis. In making their good faith
valuation of restricted securities, the Trustees generally will take the
following factors into consideration: restricted securities which are, or are
convertible into, securities of the same class of securities for which a public
market exists usually will be valued at market value less the same percentage
discount at which purchased. This discount will be revised periodically by the
Board of Trustees if the Trustees believe that it no longer reflects the value
of the restricted securities. Restricted securities not of the same class as
securities for which a public market exists usually will be valued initially at
cost. Any subsequent adjustment from cost will be based upon considerations
deemed relevant by the Board of Trustees.
New York Stock Exchange Closings. The holidays (as observed) on which
--------------------------------
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
-----------------------------------------------------------------------
with the section in the Portfolio's Prospectus entitled "Dividends,
- -------------------------------------------------------------------
Distributions and Taxes."
- -----------------------
It is expected that the Portfolio will qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interests of its
shareholders. Qualification as a regulated investment company relieves the
Portfolio from any liability for Federal income taxes on net investment income
and net realized securities gains to the extent that such income and gains are
distributed to shareholders in accordance with applicable provisions of the
Code. The term "regulated investment company" does not imply the supervision of
management or investment practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the cost
of the investment. Such a dividend or distribution would be a return of
investment in an economic sense, although taxable as stated above. In addition,
the Code provides that if a shareholder holds shares of the regulated investment
company for six months or less and has received a capital gain distribution with
respect to such shares, any loss incurred on the sale of such shares will be
treated as
B-20
<PAGE>
long-term capital loss to the extent of the capital gain distribution received.
Depending on the composition of a regulated investment company's
income, dividends paid by the regulated investment company from net investment
income may qualify for the dividends received deduction allowable to certain
U.S. corporate shareholders ("dividends received deduction"). In general,
dividend income of the regulated investment company distributed to qualifying
corporate shareholders will be eligible for the dividends received deduction
only to the extent that (i) the regulated investment company's income consists
of dividends paid by U.S. corporations and (ii) the regulated investment company
would have been entitled to the dividends received deduction with respect to
such dividend income if the regulated investment company were not a regulated
investment company under the Code. The dividends received deduction for
qualifying corporate shareholders may be further reduced if the shares of the
regulated investment company held by such shareholders with respect to which
dividends are received are treated as debt-financed or deemed to have been held
for less than 46 days. In addition, the Code provides other limitations with
respect to the ability of a qualifying corporate shareholder to claim the
dividends received deduction in connection with holding shares of a regulated
investment company.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain and loss. However, a portion of the gain or loss
from the disposition of non-U.S. dollar denominated securities (including debt
instruments, certain financial forward futures and option contracts and certain
preferred stock) may be treated as ordinary income or loss under Section 988 of
the Code. In addition, all or a portion of any gain realized from the sale or
other disposition of certain market discount bonds will be treated as ordinary
income under Section 1276. Finally, all or a portion of the gain realized from
engaging in "conversion transactions" may be treated as ordinary income under
Section 1258. "Conversion transactions" are defined to include certain forward,
futures, option and straddle transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulations to be
issued in the future.
Under Section 1256 of the Code, any gain or loss realized by a
regulated investment company from certain futures and forward contracts and
options transactions will be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. Gain or loss will arise upon exercise or
lapse of such contracts and options as well as from closing transactions. In
addition, any such contracts or options remaining unexercised at the end of a
regulated investment company's taxable year will be treated as sold for their
then fair market value, resulting in additional gain or loss to such regulated
investment company characterized in the manner described above.
B-21
<PAGE>
Offsetting positions held by a regulated investment company involving
certain contracts or options may constitute "straddles." "Straddles" are defined
to include "offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, overrides or modifies the provisions of Section
1256 and 988. If a regulated investment company were treated as entering into
"straddles" by reason of its engaging in certain forward contracts or options
transactions, such "straddles" would be characterized as "mixed straddles" if
the contracts or options transactions comprising a part of such "straddles" were
governed by Section 1256 of the Code. A regulated investment company may make
one or more elections with respect to "mixed straddles." Depending on which
election is made, if any, the results to a regulated investment company may
differ. If no election is made to the extent the "straddle" and conversion
transactions rules apply to positions established by a regulated investment
company, losses realized by the regulated investment company will be deferred to
the extent of unrealized gain in the offsetting position. Moreover, as a result
of the "straddle" rules, short-term capital loss on "straddle" positions may be
recharacterized as long-term capital loss, and long-term capital gains may be
treated as short-term capital gains or ordinary income.
Investment by a regulated investment company in securities issued or
acquired at a discount, or providing for deferred interest or for payment of
interest in the form of additional obligations could under special tax rules
affect the amount, timing and character of distributions to shareholders by
causing a regulated investment company to recognize income prior to the receipt
of cash payments. For example, a regulated investment company could be required
to accrue a portion of the discount (or deemed discount) at which the securities
were issued and to distribute such income in order to maintain its qualification
as a regulated investment company. In such case, the regulated investment
company may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.
PORTFOLIO TRANSACTIONS
Symphony assumes general supervision over placing orders on behalf of
the Portfolio for the purchase or sale of investment securities. Allocation of
brokerage transactions, including their frequency, is made in Symphony's best
judgment and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders at the most favorable net
price. Subject to this consideration, the brokers selected will include those
that supplement Symphony's research facilities with statistical data, investment
information, economic facts and opinions. Information so received is in
B-22
<PAGE>
addition to and not in lieu of services required to be performed by Symphony and
Symphony's fees are not reduced as a consequence of the receipt of such
supplemental information.
Such information may be useful to Symphony in serving both the
Portfolio and the other funds which it advises and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to Symphony in carrying out its obligations to the Portfolio. Sales of
Portfolio shares by a broker may be taken into consideration, and brokers also
will be selected because of their ability to handle special executions such as
are involved in large block trades or broad distributions, provided the primary
consideration is met. Large block trades may, in certain cases, result from two
or more funds advised or administered by Symphony being engaged simultaneously
in the purchase or sale of the same security. Certain of Symphony's
transactions in securities of foreign issuers may not benefit from the
negotiated commission rates available to the Portfolio for transactions in
securities of domestic issuers. When transactions are executed in the over-the-
counter market, the Portfolio will deal with the primary market makers unless a
more favorable price or execution otherwise is obtainable.
Portfolio turnover may vary from year to year as well as within a year.
It is anticipated that in any fiscal year the turnover rate may approach the
150% level for the Portfolio; however, in periods in which extraordinary market
conditions prevail, Symphony will not be deterred from changing investment
strategy as rapidly as needed, in which case higher turnover rates can be
anticipated which would result in greater brokerage expenses. The overall
reasonableness of brokerage commissions paid is evaluated by Symphony based upon
its knowledge of available information as to the general level of commissions
paid by other institutional investors for comparable services.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the Securities and Exchange Commission
thereunder, the Board of Trustees has determined that transactions for the
Portfolio may be executed through Bear Stearns if, in the judgment of BSFM, the
use of Bear Stearns is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers, and if, in the
transaction, Bear Stearns charges the Portfolio a rate consistent with that
charged to comparable unaffiliated customers in similar transactions. In
addition, under rules recently adopted by the Securities and Exchange
Commission, Bear Stearns may directly execute such transactions for the
Portfolio on the floor of any national securities exchange, provided (i) the
Board of Trustees has expressly authorized Bear Stearns to effect such
transactions, and (ii) Bear Stearns annually advises the Board of Trustees of
the aggregate compensation it earned on such transactions. Over-the-counter
purchases and sales are transacted directly with principal market makers except
in those
B-23
<PAGE>
cases in which better prices and executions may be obtained elsewhere.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
-----------------------------------------------------------------------
with the section in the Portfolio's Prospectus entitled "Performance
- --------------------------------------------------------------------
Information."
- -----------
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value (maximum offering
price in the case of Class A) per share with a hypothetical $1,000 payment made
at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result. A Class' average annual total return figures
calculated in accordance with such formula assume that in the case of Class A
the maximum sales load has been deducted from the hypothetical initial
investment at the time of purchase or in the case of Class C the maximum
applicable CDSC has been paid upon redemption at the end of the period.
The total return for Class A for the period June 16, 1995 (commencement
of investment operations) to September 30, 1995 was 4.68%. Based on net asset
value per share, the total return for Class A was 9.92% for this period. The
total return for Class C for the same period was 8.67%. Without giving effect
to the applicable CDSC, the total return for Class C was 9.75% for this period.
The total return for Class Y for the period June 20, 1995 (commencement of
initial public offering) to September 30, 1995 was 8.91%.
Total return is calculated by subtracting the amount of the Portfolio's
net asset value (maximum offering price in the case of Class A) per share at the
beginning of a stated period from the net asset value per share at the end of
the period (after giving effect to the reinvestment of dividends and
distributions during the period and any applicable CDSC), and dividing the
result by the net asset value (maximum offering price in the case of Class A)
per share at the beginning of the period. Total return also may be calculated
based on the net asset value per share at the beginning of the period instead of
the maximum offering price per share at the beginning of the period for Class A
shares or without giving effect to any applicable CDSC at the end of the period
for Class C shares. In such cases, the calculation would not reflect the
deduction of the sales load with respect to Class A shares or any applicable
CDSC with respect to Class C shares, which, if reflected would reduce the
performance quoted.
B-24
<PAGE>
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
-----------------------------------------------------------------------
with the section in the Portfolio's Prospectus entitled "General Information."
- ----------------------------------------------------------------------------
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Portfolio shares have no preemptive, subscription or conversion rights and are
freely transferable.
The Fund will send annual and semi-annual financial statements to all
its shareholders.
As of October 31, 1995, the following shareholders owned, directly or
indirectly, 5% or more of the Portfolio's outstanding shares.
Percent of Class Y
Name and Address Shares Outstanding
- ---------------- ------------------
Master Works 401 (K) 20.7%
c/o Wells Fargo Bank
420 Montgomery Street
8th Floor
San Francisco, California 94104
Bear Stearns Securities Corp. 5.1%
FBO 048-79821-18
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. 5.3%
FBO 722-90322-19
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. 5.0%
FBO 048-33878-17
1 Metrotech Center North
Brooklyn, NY 11201-3859
A shareholder who beneficially owns, directly or indirectly, more than
25% of a Portfolio's voting securities may be deemed a "control person" (as
defined in the 1940 Act) of the Portfolio.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey
08540, an affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc.,
Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is
the Portfolio's transfer agent, dividend disbursing agent and registrar.
Neither of them has any part in determining the investment policies of the
Portfolio or which securities are to be purchased or sold by the Portfolio.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
of beneficial interest being sold pursuant to the Portfolio's Prospectus.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281-1434, independent auditors, have been selected as auditors of the Fund.
BSF-S-003-04
B-25
<PAGE>
FINANCIAL STATEMENTS
The Insiders Select Portfolio
of The Bear Stearns Funds
STATEMENT OF ASSETS AND LIABILITIES
MAY 5, 1995
<TABLE>
<S> <C>
Assets:
Cash in Bank..................................... $ 24
Deferred organization expenses (Note 3).......... $193,950
--------
Total Assets......................................... $193,974
Liabilities -- deferred organization expenses payable $193,950
--------
Net Assets (equivalent to $12.00 per share on one
Class A share of beneficial interest and
one Class C share of beneficial interest (par
value $0.001) outstanding with an indefinite
number of authorized shares of beneficial
interest) (Notes 1 and 2)..................... $ 24
========
Calculation of Offering Price
Class A Shares
Net Asset Value and Redemption Price............... $ 12.00
Maximum Sales Charge - 4.75% Offering Price........ $ 0.60
--------
Offering Price to Public............................. $ 12.60
========
Class C
Net Asset Value and Redemption Price............... $ 12.00
- --------------------------
</TABLE>
(1) The Bear Stearns Funds (the "Fund") was organized as a Massachusetts
business trust on September 29, 1994. To date, The Insiders Select
Portfolio (the "Portfolio") has not had any transactions other than those
relating to organizational matters and the sale of one Class A share and one
Class C share of beneficial interest to Bear, Stearns & Co. Inc. (the
"Distributor"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
(2) The Fund has entered into a Distribution Agreement with the Distributor on
behalf of the Portfolio. Certain officers and/or Trustees of the Fund are
officers and/or directors of the Distributor.
(3) Deferred organization expenses will be amortized over a period from the date
the Portfolio commences operations not exceeding five years. In the event
that the Portfolio's initial shareholder or any transferee of the
Portfolio's
B-26
<PAGE>
initial shareholder redeems any of its original shares prior to the end of
the five-year 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 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 five-year
period, the Fund's initial shareholder or the transferee of the Portfolio's
initial shareholder shall bear the unamortized deferred organization
expenses.
B-27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholder of
The Bear Stearns Funds
We have audited the statement of assets and liabilities of The Insiders
Select Portfolio of The Bear Stearns Funds as of May 5, 1995. This financial
statement is the responsibility of The Bear Stearns Funds' management. Our
responsibility is to express an opinion on the financial statement based on our
audits.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities presents fairly, in
all material respects, the financial position of The Insiders Select Portfolio
of The Bear Stearns Funds at May 5, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
May 5, 1995
B-28
<PAGE>
T H E B E A R S T E A R N S F U N D S
THE INSIDERS SELECT PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------- ----------------------------------------------------------
MARKET
SHARES VALUE SHARES VALUE
- --------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - 98.50%
Aerospace & Defense - 1.69% Electrical Equipment - 0.70%
1,500 Boeing Co. ................... $102,375 3,400 Belden, Inc. ........................ $89,250
3,200 General Dynamics Corp. ....... 175,600 600 Emerson Electric Co. ................ 42,900
600 Lockheed Martin Corp. ........ 40,275 -----------
----------- 132,150
318,250 -----------
-----------
Electronics - 8.50%
Automobiles - 0.78% 4,600 Applied Materials, Inc.*............. 470,350
2,800 Consolidated Freightways, Inc. 69,300 1,700 Arrow Electronics, Inc.*............. 92,438
1,100 Dana Corp. ................... 31,762 1,930 Harman International Industries, Inc. 94,570
100 Goodyear Tire & Rubber Co. ... 3,938 6,600 LSI Logic Corp. ..................... 381,150
900 PACCAR Inc. ................. 42,075 3,100 National Service Industries, Inc. ... 90,675
----------- 5,900 Texas Instruments Inc. .............. 471,262
147,075 -----------
----------- 1,600,445
-----------
Building Materials - 1.15%
5,200 Lone Star Industries, Inc. ... 124,150 Entertainment & Leisure - 2.97%
3,300 USG Corp.*.................... 92,400 5,900 Callaway Golf Co. .................. 91,450
----------- 1,600 Capital Cities/ABC, Inc. ........... 188,200
216,550 200 Comcast Corp. Class A............... 4,000
----------- 5,600 Mirage Resorts, Inc.*............... 184,100
1,600 The Walt Disney Co. ................ 91,800
Chemicals & Fertilizers - 6.47% -----------
3,600 Cytec Industries, Inc.*....... 208,350 559,550
1,100 Dow Chemical Co. ............. 81,950 -----------
1,500 DuPont (E.I.) De Nemours & Co. 103,125 Environmental Controls - 1.50%
6,100 Eastman Chemical Co. ......... 390,400 9,300 Browning-Ferris Industries Inc. .... 282,487
3,600 Georgia Gulf Corp. ........... 124,200 -----------
1,100 Grace (W.R.) & Co. ........... 73,425
2,800 Lubrizol Corp. ............... 91,350 Financial Services - 15.00%
3,200 Mallinckrodt Group, Inc. ..... 126,800 100 Aetna Life & Casualty Co. .......... 7,338
400 PPG Industries Inc. .......... 18,600 10,800 AFLAC Inc. ......................... 448,200
----------- 12,100 Allstate Corp. ..................... 428,037
1,218,200 900 American General Corp. ............. 33,638
----------- 4,000 American International Group, 340,000
1,800 BankAmerica Corp. .................. 107,775
Computers & Office Equipment - 7.83% 4,100 Bank of Boston Corp. ............... 195,262
3,300 Ceridian Corp.*............... 146,437 300 Bank of New York Co. Inc. .......... 13,950
10,350 Computer Associates International Inc. 437,288 2,200 Central Fidelity Banks, Inc. ....... 71,500
7,600 Computervision Corp.*......... 92,150 500 CIGNA Corp. ........................ 52,063
3,700 International Business 33,600 City National Corp. ................ 445,200
Machines Corp. ............ 349,188 2,200 First Virginia Banks, Inc. ......... 90,750
200 Microsoft Corp.*.............. 18,100 100 General Reinsurance Corp. .......... 15,100
2,000 Oak Technology, Inc.*......... 84,000 2,500 Jefferson-Pilot Corp. .............. 160,625
7,600 3Com Corp. ................... 345,800 2,700 J.P. Morgan & Co. .................. 208,912
----------- 500 Merrill Lynch & Co. ................ 31,250
1,472,963 5,300 Provident Bankshares Corp. ......... 159,000
----------- 400 Salomon Inc ........................ 15,300
Cosmetics & Soaps - 1.74% -----------
2,300 Alberto-Culver Co. Class B.... 70,150 2,823,900
5,400 Gillette Co. ................. 257,175 -----------
----------- Food & Beverages - 8.30%
327,325 6,800 CPC International, Inc. ......... 448,800
----------- 200 Fleming Cos., Inc. .............. 4,800
3,000 Pepsico, Inc. ................... 153,000
Drug & Hospital Supplies - 9.40% 3,600 Philip Morris Cos., Inc. ........ 300,600
700 Abbott Laboratories. ......... 29,837 7,800 The Coca-Cola Co. ............... 538,200
5,000 Boston Scientific Corp.*...... 213,125 900 Unilever N.V. ................... 117,000
3,600 Bristol-Myers Squibb Co. ..... 262,350 -----------
7,600 Johnson & Johnson. ........... 563,350 1,562,400
6,300 Merck & Co., Inc. ........... 352,800 -----------
1,400 Schering-Plough............... 72,100
6,200 Upjohn Co. ................... 276,675
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-29
<PAGE>
T H E B E A R S T E A R N S F U N D S
THE INSIDERS SELECT PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------ -------------------------------------------------
MARKET MARKET
SHARES VALUE SHARES VALUE
- ------------------------------------------------ -------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (continued)
Forest Products & Paper - 4.44% Packaging & Containers - 1.61%
2,300 Boise Cascade Corp. .......... $92,863 5,500 Sealed Air Corp.*............. $303,187
1,900 Kimberly-Clark Corp. ......... 127,537 -----------
7,500 Mead Corp. ................... 439,688
2,300 Scott Paper Co. .............. 111,550 Publishing & Broadcasting - 1.98%
1,400 Weyerhauser Co. .............. 63,875 4,100 Jostens, Inc. ............... 96,350
--------- 4,500 Meredith Corp. ............... 178,875
835,513 1,400 New York Times Co. Class A.... 38,325
--------- 900 Tribune Co. .................. 59,738
-----------
Holding Companies - 3.23% 373,288
4,400 Eastern Enterprises........... 141,350 -----------
3,000 ITT Corp. .................... 372,000
3,500 Teledyne, Inc. ............... 94,937
--------- Retailing - 1.75%
608,287 200 Harcourt General, Inc. ...... 8,375
--------- 9,400 Kroger Co.*.................. 320,775
-----------
329,150
Metal Fabricate & Hardware - 0.69% -----------
3,600 Kennametal Inc. ............. 130,500
---------
Telecommunications - 4.15%
Mining - 0.14% 10,100 Equifax Inc. .............. 422,938
2,100 Santa Fe Pacific Gold Corp. .. 26,513 6,500 SBC Communications Inc. .... 357,500
--------- -----------
780,438
-----------
Miscellaneous Manufacturing - 6.52%
2,400 AGCO Corp. ................... 109,200 Total Common Stocks
12,600 Dover Corp. .................. 481,950 (cost $17,510,653)........ 18,539,358
800 Eastman Kodak Co. ............ 47,400 -----------
3,000 Leggett & Platt, Inc. ........ 73,875
4,300 Maytag Corp. ................. 75,250 PREFERRED STOCK - 0.00%
5,700 Procter & Gamble Co. ......... 438,900 29 Holding Companies - 0.00%
--------- Teledyne, Inc., Cumulative Preferred,
1,226,575 Principal Series E, 6.00% (cost $435) 402
--------- Amount -----------
(000's) SHORT-TERM INVESTMENT - 1.42%
Miscellaneous Services - 0.50% 268 Investment Company - 1.42%
2,400 Service Corp. International .. 93,900 Federated Trust for Short-term
--------- U.S. Government Securities**
(cost $267,734)............ 267,734
Oil & Gas - 7.44% -----------
13,500 Baker Hughes, Inc. ........... 275,062
500 Louisiana Land & Exploration C 17,813
5,600 Mobil Corp. .................. 557,900 Total Investments
4,200 Oneok, Inc. .................. 97,650 (cost $17,778,822) - 99.92% 18,897,494
2,000 Panhandle Eastern Corp. ...... 54,500
2,800 Phillips Petroleum Co. ....... 91,000 Other assets in excess of
1,700 Royal Dutch Petroleum Co.*.... 208,675 liabilities - 0.08%....... 15,057
1,500 Schlumberger, Ltd. ........... 97,875 -----------
--------- Net Assets - 100.00%.......... $18,822,551
1,400,475 ===========
--------- ----------
* Non-income producing security.
** Money market fund.
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-30
<PAGE>
T H E B E A R S T E A R N S F U N D S
THE INSIDERS SELECT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
(unaudited)
Assets
Investments, at value (cost - $17,778,822).............. $18,807,494
Receivable for Fund shares sold......................... 624,807
Receivable from investment adviser...................... 31,284
Dividends and interest receivable....................... 27,577
Deferred organization expenses and other assets......... 228,189
---------------
Total assets............................. 19,719,351
---------------
Liabilities
Payable for securities purchased........................ 634,183
Distribution fee payable................................ 22,781
Payable for Fund shares repurchased..................... 19,090
Administration fee payable ............................ 5,135
Accrued expenses........................................ 35,068
Organization expenses payable........................... 180,543
---------------
Total liabilities........................... 896,800
---------------
Net Assets
Capital stock, $0.001 par value (unlimited shares of
beneficial interest authorized)...................... 1,428
Paid-in capital......................................... 17,803,886
Accumulated net investment loss......................... (1,423)
Accumulated net realized loss from investments.......... (10,011)
Net unrealized appreciation of investments.............. 1,028,671
---------------
Net assets applicable to shares outstanding.. $18,822,551
===============
Class A:
Net assets.............................................. $11,112,583
---------------
Shares of beneficial interest outstanding............... 842,646
---------------
Net asset value per share............................... $13.19
---------------
Maximum offering price per share (net asset value
plus sales charge of 4.75%* of the offering price)... $13.85
---------------
Class C:
Net assets.............................................. $7,226,413
---------------
Shares of beneficial interest outstanding............... 548,596
---------------
Net asset value and offering price per share**.......... $13.17
---------------
Class Y:
Net assets.............................................. $483,555
Shares of beneficial interest outstanding............... 36,636
Net asset value, offering and redemption ---------------
value per share...................................... $13.20
---------------
- ----------
* 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.
B-31
<PAGE>
T H E B E A R S T E A R N S F U N D S
THE INSIDERS SELECT PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 16, 1995* THROUGH SEPTEMBER 30, 1995
(unaudited)
Investment income
Dividends............................................... $59,122
Interest................................................ 3,350
---------------
62,472
---------------
Expenses
Advisory fees........................................... 25,674
Distribution fees - Class C............................. 15,293
Amortization of organization expenses................... 14,056
Accounting fees......................................... 13,500
Distribution fees - Class A............................. 9,168
Federal registration fees............................... 6,508
Reports and notices to shareholders..................... 5,846
Custodian fees and expenses............................. 5,402
Insurance expenses...................................... 5,274
Legal and auditing fees................................. 5,263
Transfer agent fees and expenses........................ 5,185
Administration fees..................................... 5,135
Trustees' fees and expenses............................. 2,728
Other................................................... 1,821
---------------
Total expenses before waivers and reimbursements.. 120,853
Less: Waivers and reimbursements................. (56,958)
---------------
Total expenses after waivers and reimbursements.. 63,895
---------------
Net investment loss..................................... (1,423)
---------------
Net realized and unrealized gain/(loss) on investments
Net realized loss from investments...................... (10,011)
Net change in unrealized appreciation on investments.... 1,028,671
---------------
Net realized and unrealized gain from investments....... 1,018,660
---------------
Net increase in net assets resulting from operations............ $1,017,237
===============
- ----------------
*Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
B-32
<PAGE>
T H E B E A R S T E A R N S F U N D S
THE INSIDERS SELECT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 16, 1995* THROUGH SEPTEMBER 30, 1995
(unaudited)
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income............................. ($1,423)
Net realized loss on investments.................. (10,011)
Net change in unrealized appreciation on
investments..................................... 1,028,671
-------------
Net increase in net assets resulting from
operations...................................... 1,017,237
-------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares of
beneficial interest ............................ 18,068,706
Cost of shares of beneficial interest
repurchased..................................... (263,416)
-------------
Net increase in net assets derived from shares of
beneficial interest transactions.............. 17,805,290
-------------
Total increase in net assets...................... 18,822,527
NET ASSETS
Beginning of period............................... 24
-------------
End of period..................................... $18,822,551
=============
- ----------
* Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
B-33
<PAGE>
T H E B E A R S T E A R N S F U N D S
THE INSIDERS SELECT PORTFOLIO
FINANCIAL HIGHLIGHTS
For Class A and Class C shares, reference is made to page four of the Prospectus
dated November 10, 1995.
For Class Y shares, reference is made to page four of the Prospectus dated
November 10, 1995.
B-34
<PAGE>
T H E B E A R S T E A R N S F U N D S
THE INSIDERS SELECT PORTFOLIO
Notes to Financial Statements--(unaudited)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business
trust on September 29, 1994 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 Fund currently has five Portfolios in operation; three diversified
Portfolios, Large Cap Value Portfolio, Small Cap Value Portfolio and Total
Return Bond Portfolio and two non-diversified Portfolios, The Insiders Select
Portfolio ("Insiders" or the "Portfolio") and S&P STARS Portfolio
(collectively, the "Portfolios"). As of the date hereof, the Portfolios offer
three classes of shares, which have been designated as class A, C and Y shares.
ORGANIZATIONAL MATTERS--Prior to commencing operations on June 15, 1995, the
Portfolio did not have any transactions other than those relating to
organizational matters and the sale of one class A share and one class C share
of beneficial interest of the Portfolio to Bear, Stearns & Co. Inc. (the
"Distributor"). Costs of approximately $240,000 which were incurred by the
Portfolio in connection with the organization, registration with the Commission
and with various states, 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. The Portfolio commenced investment
operations on June 16, 1995. In the event that the Distributor or any
transferee of the Distributor redeems any of its original shares in the
Portfolio 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 Distributor or the transferee of the Distributor
shall bear the unamortized deferred organization expenses.
PORTFOLIO VALUATION--The Portfolio calculates the net asset value of and
completes orders to purchase or repurchase its shares of beneficial interest on
each business day, with the exception of those days on which the New York Stock
Exchange is closed.
Portfolio securities, including covered call options written by the Portfolio,
are valued at the last sale price on the securities exchange or national
securities market on which such securities primarily are traded. Securities not
listed on an exchange or national securities market, or securities in which
there were no transactions, are valued at the average of the most recent bid and
asked prices, except in the case of open short positions where the asked price
is used for valuation purposes. Bid price is used when no asked price is
available. Short-term investments are carried at amortized cost, which
approximates market value. Any securities or other assets for which recent
market quotations are not readily available are valued at fair value as
determined in good faith by the Portfolio's Board of Trustees. Expenses and
fees, including the investment advisory, 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 securities are calculated on the
identified cost basis. Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis. 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).
B-35
<PAGE>
U.S. FEDERAL TAX STATUS--The Portfolio intends to distribute substantially all
of its taxable income and to comply with the other requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing during each calendar year substantially all of its
ordinary income and capital gains, if any, the Portfolio intends not to be
subject to a U.S. federal excise tax.
DIVIDENDS AND DISTRIBUTIONS--The Portfolio intends to distribute at least
annually to shareholders substantially all of its net investment income.
Distribution of net realized gains, if any, will be declared and paid at least
annually for the 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.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
During the period ended September 30, 1995, Bear Stearns Funds Management Inc.
("BSFM" or "Adviser"), a wholly-owned subsidiary of The Bear Stearns Companies
Inc., served as the investment adviser pursuant to an Investment Advisory
Agreement with the Portfolio. BSFM has engaged Symphony Asset Management
("Symphony"), a subsidiary of BARRA, Inc. as the Portfolio's sub-investment
adviser to manage the Portfolio's day-to-day investment activities. BSFM and
Symphony are referred to herein collectively as the "Advisers." BSFM is entitled
to receive from the Portfolio a monthly fee equal to an annual rate of 1.00% of
the Portfolio's average daily net assets of which BSFM pays Symphony a monthly
fee equal to an annual rate of 0.45% of the Portfolio's average daily net
assets. In addition, starting in the thirteenth month of operation, BSFM is
entitled to a monthly performance adjustment fee which may increase or decrease
the total advisory fee by up to 0.50% per year of the value of the Portfolio's
average daily net assets.
During the period ended September 30, 1995, BSFM (or the "Administrator") served
as administrator to the Portfolio pursuant to an Administration Agreement. The
Administrator is entitled to receive from the Portfolio a monthly fee equal to
an annual rate of 0.15% of the Portfolio's average daily net assets. Under the
terms of an Administrative Services Agreement with the Portfolio, PFPC Inc.
provides certain administrative services to the Portfolio. For providing these
services, the Portfolio has agreed to pay PFPC Inc. an annual fee equal to an
annual rate of 0.10% of the 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
$8,000 for the Portfolio, payable monthly.
These fees are computed daily and paid monthly, and are subject to reduction in
any year to the extent that the Portfolio's expenses (exclusive of brokerage
commissions, distribution fees, taxes, interest and extraordinary items) exceed
the most stringent limits prescribed by the laws or regulations of any state in
which the Portfolio's shares are offered for sale based on the average total net
asset value of the Portfolio. The Portfolio will not pay BSFM at a later time
for any amounts it may waive, nor will the Portfolio reimburse BSFM for any
amounts it may assume.
During the period ended September 30, 1995, the Adviser has voluntarily
undertaken to limit the Portfolio's total operating expenses (exclusive of
brokerage commissions, taxes and extraordinary items) to a maximum annual level
of 1.65% of the average daily net assets of its class A shares, 2.15% of the
average daily net assets of its class C shares and 1.15% of the average daily
net assets of its class Y shares. As necessary, this limitation is effected by
waivers by the Adviser of its advisory fees and reimbursements of expenses
exceeding the advisory fee. For the period ended September 30, 1995, the
Adviser waived its advisory fee of $25,674. In addition, the Adviser reimbursed
$31,284, in order to maintain the voluntary expense limitation.
For the period ended September 30, 1995, Bear, Stearns Securities Corp., an
affiliate of the Adviser, earned approximately $11,400 brokerage commissions
from Portfolio transactions executed on behalf of the Portfolio.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc. and an affiliate of the Adviser, serves as custodian to the Portfolio.
B-36
<PAGE>
DISTRIBUTION PLAN
The Fund, on behalf of the Portfolio, has entered into a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the Plan
in effect for the period ended September 30, 1995, the Portfolio paid Bear,
Stearns & Co. Inc. ("Bear Stearns" or the "Distributor") a fee at an annual rate
of 0.50% for class A shares and 1.00% for class C shares. Such fees are based on
the average daily net assets in each class of the Portfolio and are paid
monthly. The fees paid to Bear Stearns under the Plan are payable without regard
to actual expenses incurred. For the period June 15, 1995 (commencement of
operations) through September 30, 1995, Bear Stearns earned $24,763 in
distribution fees. Bear Stearns uses these fees to pay brokers whose clients
hold Portfolio 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 brokers through which the sales are made. For the
period June 15, 1995 (commencement of operations) through September 26, 1995, as
a result of an undertaking by the Distributor, it reallowed all of the sales
charges to brokers selling Portfolio shares. In addition, Bear Stearns advanced
1.00% in sales commissions on the sale of class C shares to the dealer at the
time of such sales.
For the period ended September 30, 1995, Bear Stearns has advised the Portfolio
that it received approximately $224,000 in front-end sales charges resulting
from sales of class A shares of the Portfolio. From these fees, Bear Stearns
paid such sales charges to dealers which in turn paid commissions to sales
persons. In addition, Bear Stearns has advised the Portfolio that during the
period, it received $165 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, 1995 was $17,778,822. Accordingly, the net unrealized appreciation of
investments of $1,028,671 was composed of gross appreciation of $1,213,808 for
those investments having an excess of value over cost and $185,137 of gross
depreciation for those investments having an excess of cost over value.
For the period June 16, 1995 (commencement of investment operations) through
September 30, 1995, aggregate purchases and sales of investment securities
(excluding short-term securities) for the Portfolio were $18,590,528 and
$1,069,429, respectively. There were no purchases and sales of investment
securities of U.S. government obligations by the Portfolio other than short-term
investments represented by U.S. Treasury bills.
SHARES OF BENEFICIAL INTEREST
Each Portfolio offers class A, class C and class Y shares. Class A shares are
sold with a front-end sales charge of up to 4.75%. Class C shares are sold with
a contingent deferred sales charge of 1% during the first year. There is no
sales charge on class Y shares which are offered primarily to institutional
investors.
At September 30, 1995, there was an unlimited amount of $0.001 par value shares
of beneficial interest authorized for the Portfolio, of which Bear Stearns owned
one class A share and one class C share of the Portfolio.
B-37
<PAGE>
Transactions in the classes of shares of beneficial interest for the period June
15, 1995 (commencement of operations) through September 30, 1995 were as
follows:
<TABLE>
<CAPTION>
Shares Sold Shares Repurchased
- ---------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Class A 854,928 $10,727,091 12,283 $156,058
- ---------------------------------------------------
Class C 556,949 6,873,104 8,354 107,358
- ---------------------------------------------------
Class Y 36,636 468,511 -- --
- ---------------------------------------------------
</TABLE>
CREDIT AGREEMENT
The Fund, on behalf of the Portfolio, has entered into a credit agreement with
The First National Bank of Boston. S&P STARS Fund, S&P STARS Portfolio, Large
Cap Value Portfolio, Small Cap Value Portfolio, Total Return Bond Portfolio and
Bear Stearns Investment Trust, which consists of the Emerging Markets Debt
Portfolio, are also parties to the credit agreement. The agreement provides
that each Portfolio as a party to the credit agreement is permitted to borrow in
an amount up to 15% of the value of its total assets. Subject to Board approval
and upon making necessary disclosure in its prospectus, each Portfolio may, in
accordance with the provisions of the credit agreement, borrow up to 25% of the
value of its total assets, less all liabilities other than liabilities for
borrowed money outstanding at the time. However, at no time is the aggregate
outstanding principal amount of all loans to any of the Portfolios to exceed
$25,000,000. The line of credit will bear interest at the greater of: (i) the
annual rate of interest announced from time to time from the bank at its head
office as its Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or
at the borrower's option, the rate quoted by The First National Bank of Boston.
The Portfolios use the facility to borrow money only for temporary or emergency
(not leveraging) purposes.
Each loan is payable on demand or upon termination of this credit agreement on
January 23, 1996 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.
B-38
<PAGE>
THE BEAR STEARNS FUNDS
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements for the Large Cap Value Portfolio,
Small Cap Value Portfolio, Total Return Bond Portfolio, S&P
STARS Portfolio, S&P STARS Master Series and The Insiders
Select Portfolio.
(1) Statements of Assets and Liabilities as of February 22,
1995 are incorporated by reference to Post-Effective
Amendment No. 5 to the Registration Statement on Form
N-1A, filed September 1, 1995.
(2) Report of Deloitte & Touche LLP, Independent
Accountants, dated February 28, 1995 is incorporated by
reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A, filed September 1,
1995.
(3) Statement of Investments as of June 30, 1995 (excluding
S&P STARS Portfolio) (unaudited) is incorporated by
reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A, filed September 1,
1995.
(4) Statement of Assets and Liabilities as of June 30, 1995
(unaudited) is incorporated by reference to Post-
Effective Amendment No. 5 to the Registration Statement
on Form N-1A, filed September 1, 1995.
(5) Statement of Operations as of June 30, 1995 (unaudited)
is incorporated by reference to Post-Effective
Amendment No. 5 to the Registration Statement on Form
N-1A, filed September 1, 1995.
(6) Statement of Changes in Net Assets as of June 30, 1995
(unaudited) is incorporated by reference to Post-
Effective Amendment No. 5 to the Registration Statement
on Form N-1A, filed September 1, 1995.
(7) Statement of Assets and Liabilities as of May 5, 1995.
(8) Report of Deloitte & Touche LLP, Independent
Accountants, dated May 5, 1995.
(9) Statement of Investments as of September 30, 1995
(unaudited).
C-1
<PAGE>
(10) Statement of Assets and Liabilities as of September 30,
1995 (unaudited).
(11) Statement of Operations as of September 30, 1995
(unaudited).
(12) Statement of Changes in Net Assets as of September 30,
1995 (unaudited).
(b) Exhibits:
(1)(a) Agreement and Declaration of Trust.
(1)(b) Amendment to Agreement and Declaration of Trust.
(2) By-Laws.
(5)(a) Investment Advisory Agreement, between the
Registrant and Bear Stearns Funds Management Inc.
("BSFM").
(5)(b) Administration Agreement, between the Registrant
and BSFM.
(5)(c) Administrative Services Agreement, as amended,
between the Registrant and PFPC Inc.
(5)(d) Sub-Investment Advisory Agreement.
(6)(a) Distribution Agreement.
(6)(b) Form of Dealer Agreement.
(8) Custody Agreements between the Registrant and
Custodial Trust Company.
(10) Opinion (including consent) of Stroock & Stroock &
Lavan.
(11) Consent of Independent Auditors.
(15) Distribution and Shareholder Servicing Plan.
(16) Schedules of Computation of Performance Data.
(17) Financial Data Schedule.
(18) Rule 18f-3 Plan, as revised.
Other Exhibit: (a) Certificate of Corporate Secretary.
(b) Powers of attorney.
C-2
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
- ------- -------------------------------------------------------------
Not Applicable
Item 26. Number of Holders of Securities
- ------- -------------------------------
(1) (2)
Number of Record
Title of Class Holders*
-------------- ----------------
Shares of beneficial
interest, $.001 par value
per share, of the following
portfolios:
S&P STARS Portfolio--Class A 2,401
S&P STARS Portfolio--Class C 1,184
S&P STARS Portfolio--Class Y 8
Large Cap Value Portfolio--Class A 127
Large Cap Value Portfolio--Class C 84
Large Cap Value Portfolio--Class Y 6
Small Cap Value Portfolio--Class A 307
Small Cap Value Portfolio--Class C 177
Small Cap Value Portfolio--Class Y 20
Total Return Bond Portfolio--Class A 110
Total Return Bond Portfolio--Class C 31
Total Return Bond Portfolio--Class Y 6
The Insiders Select Portfolio--Class A 892
The Insiders Select Portfolio--Class C 451
The Insiders Select Portfolio--Class Y 11
______________
* As of September 30, 1995.
Item 27. Indemnification
---------------
Reference is made to Article VIII of the Registrant's
Declaration of Trust previously filed as Exhibit 1(b). The application
of these provisions is limited by Article 10 of the Registrant's By-
Laws filed as Exhibit 2 and by the following undertaking set forth in
the rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in such Act and is, therefore, unenforce-
able. In the event that a claim for indemnification
against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a
trustee, officer or controlling person of the
registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee,
C-3
<PAGE>
officer or controlling person in connection with the
securities being registered, the registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in such Act and will be governed
by the final adjudication of such issue.
Reference also is made to the Distribution Agreement filed as
Exhibit 6(a).
Item 28(a). Business and Other Connections of Investment Adviser
- ---------- ----------------------------------------------------
Registrant is fulfilling the requirement of this Item 28(a) to
provide a list of the officers and directors of Bear Stearns Funds
Management Inc. ("BSFM"), the investment adviser of the Registrant,
together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by BSFM or
those of its officers and directors during the past two years, by
incorporating by reference the information contained in the Form ADV
filed with the SEC pursuant to the Investment Advisers Act of 1940 by
BSFM (SEC File No. 801-29862).
Item 28(b). Business and Other Connections of Sub-Investment Adviser
- ---------- --------------------------------------------------------
Registrant is fulfilling the requirement of this Item 28(b) to
provide a list of the officers and directors of Symphony Asset
Management ("Symphony"), the sub-investment adviser of the Registrant's
The Insiders Select Portfolio, together with information as to any
other business, profession, vocation or employment of a substantial
nature engaged in by Symphony or those of its officers and directors
during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to
the Investment Advisers Act of 1940 by Symphony (SEC File No. 801-
46388).
Item 29. Principal Underwriters
- ------- ----------------------
(a) Bear, Stearns & Co. Inc. ("Bear Stearns") acts as
principal underwriter or depositor for the following investment
companies:
. A Corporate Trust, Series 1 (and Subsequent Series)
. New York Municipal Trust, Series 1 (and Subsequent
Series)
. New York Discount & Zero Coupon Fund -- 1st Series (and
Subsequent Series)
. Municipal Securities Trust, Series 1 (and Subsequent
Series)
. Municipal Securities Trust, 1st Discount Series (and
Subsequent Series)
. Municipal Securities Trust, High Income Series 1 (and
Subsequent Series)
C-4
<PAGE>
. Municipal Securities Trust, Multi-State Series 1 (and
Subsequent Series)
. Municipal Securities Trust, Short-Intermediate Term
Series 1 (and Subsequent Series)
. Insured Municipal Securities Trust, Series 1 (and
Subsequent Series) and 5th Discount Series (and
Subsequent Series)
. Mortgage Securities Trust CMO Series 1 (and Subsequent
Series)
. Equity Securities Trust Series 1 (and Subsequent Series)
. Bear Stearns Investment Trust -- Emerging Markets Debt
Fund
(b) Set forth below is a list of each executive officer and
director of Bear Stearns. The principal business address of each such
person is 245 Park Avenue, New York, New York 10167 except as set forth
below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name Bear Stearns Registrant
- ---- -------------- --------------
<S> <C> <C>
Directors
- ---------
Alan C. Greenberg Chairman
James E. Cayne
John L. Knight
Mark E. Lehman
Michael L. Tarnopol
Alan D. Schwartz
John H. Slade Director Emeritus
Warren J. Spector Acting Secretary
Executive Officers
- ------------------
Alan C. Greenberg Chairman of Board
James E. Cayne Chief Executive Officer/
President
William J. Montgoris Chief Operating Officer/
Chief Financial Officer/
Chief Operations
Officer (designation)
Michael L. Tarnopol Executive Vice President
Alan D. Schwartz Executive Vice President
Warren J. Spector Executive Vice President
Kenneth L. Edlow Secretary
Michael Minikes Treasurer
Michael J. Abatemarco Controller/Assistant
Secretary
</TABLE>
- --------------
(1) Michael J. Abatemarco's principal business address is
1 Metrotech, Center North, Brooklyn, New York 11201-3859.
C-5
<PAGE>
Mark E. Lehman Executive Vice President-
General Counsel
Chief Legal Officer
(designation)
Samuel L. Molinaro, Jr. Senior Vice President -
Finance
Frederick B. Casey Assistant Treasurer
Item 30. Location of Accounts and Records
- ------- --------------------------------
1. Bear Stearns Funds Management Inc.
245 Park Avenue
New York, New York 10167
2. The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
3. Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540
4. PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, Delaware 19809
Item 31. Management Services
- ------- -------------------
Not Applicable
Item 32. Undertakings
- ------- ------------
Registrant hereby undertakes
(1) to call a meeting of shareholders for the purpose of
voting upon the question of removal of a trustee or
trustees when requested in writing to do so by the
holders of at least 10% of the Registrant's outstanding
shares of beneficial interest and in connection with
such meeting to comply with the provisions of Section
16(c) of the Investment Company Act of 1940 relating to
shareholder communications; and
(2) to furnish each person to whom a prospectus is
delivered with a copy of its most current annual
report to shareholders, upon request and without
charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies that
it meets all of the requirements for effectiveness of the Amendment to
the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New
York on the 10th day of November, 1995.
THE BEAR STEARNS FUNDS
(Registrant)
By: /s/ Frank J. Maresca
------------------------
Frank J. Maresca, Acting
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
/s/ Frank J. Maresca Vice President November 10, 1995
- -------------------- and Treasurer
Frank J. Maresca (Acting Principal Executive
Officer, Principal Financial
and Accounting Officer)
/s/ Peter M. Bren* Trustee November 10, 1995
- ------------------
Peter M. Bren
/s/ Alan J. Dixon* Trustee November 10, 1995
- ------------------
Alan J. Dixon
/s/ John R. McKernan, Jr.* Trustee November 10, 1995
- --------------------------
John R. McKernan, Jr.
C-7
<PAGE>
/s/ M.B. Oglesby, Jr.* Trustee November 10, 1995
- ----------------------
M.B. Oglesby, Jr.
/s/ Robert S. Reitzes* Trustee November 10, 1995
- ----------------------
Robert S. Reitzes
* By: /s/ Frank J. Maresca
------------------------
Frank J. Maresca,
Attorney-in-Fact
C-8
<PAGE>
THE BEAR STEARNS FUNDS
Post-Effective Amendment No. 7 to
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
---------------
EXHIBITS
---------------
<PAGE>
INDEX TO EXHIBITS
-----------------
Page
----
(1)(a) Agreement and Declaration of Trust ..................
(1)(b) Amendment to Agreement and
Declaration of Trust ................................
(2) By-Laws .............................................
(5)(a) Investment Advisory Agreement .......................
(5)(b) Administrative Agreement ............................
(5)(c) Administrative Services Agreement,
as amended ..........................................
(5)(d) Sub-Investment Advisory Agreement ...................
(6)(a) Distribution Agreement ..............................
(6)(b) Form of Dealer Agreement ............................
(8) Custody Agreements ..................................
(10) Opinion (including consent) of
Stroock & Stroock & Lavan ..........................
(11) Consent of Independent Auditors .....................
(15) Distribution and Shareholder
Servicing Plan .....................................
(16) Schedules of Computation
Performance Data ...................................
(17) Financial Data Schedule .............................
(18) Rule 18f-3 Plan, as revised .........................
Other Exhibit: (a) Secretary's Certificate .................
(b) Powers of Attorney ......................
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUN-15-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 17,778,822
<INVESTMENTS-AT-VALUE> 18,807,494
<RECEIVABLES> 683,668
<ASSETS-OTHER> 228,189
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,719,351
<PAYABLE-FOR-SECURITIES> 634,183
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 262,617
<TOTAL-LIABILITIES> 896,800
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,570,203
<SHARES-COMMON-STOCK> 842
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (1,423)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,011)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,028,671
<NET-ASSETS> 18,822,551
<DIVIDEND-INCOME> 59,122
<INTEREST-INCOME> 3,350
<OTHER-INCOME> 0
<EXPENSES-NET> 63,895
<NET-INVESTMENT-INCOME> (1,423)
<REALIZED-GAINS-CURRENT> (10,011)
<APPREC-INCREASE-CURRENT> 1,028,671
<NET-CHANGE-FROM-OPS> 1,017,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 854,929
<NUMBER-OF-SHARES-REDEEMED> 12,283
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18,822,527
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,674
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120,853
<AVERAGE-NET-ASSETS> 6,272,279
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.19
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUN-15-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 17,708,882
<INVESTMENTS-AT-VALUE> 18,807,494
<RECEIVABLES> 683,668
<ASSETS-OTHER> 228,189
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,719,351
<PAYABLE-FOR-SECURITIES> 634,183
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 262,617
<TOTAL-LIABILITIES> 896,800
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,765,209
<SHARES-COMMON-STOCK> 549
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (1,423)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,011)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,028,671
<NET-ASSETS> 18,822,551
<DIVIDEND-INCOME> 59,122
<INTEREST-INCOME> 3,350
<OTHER-INCOME> 0
<EXPENSES-NET> 63,895
<NET-INVESTMENT-INCOME> (1,423)
<REALIZED-GAINS-CURRENT> (10,011)
<APPREC-INCREASE-CURRENT> 1,028,671
<NET-CHANGE-FROM-OPS> 1,017,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 556,950
<NUMBER-OF-SHARES-REDEEMED> 8,354
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18,822,527
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,674
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120,853
<AVERAGE-NET-ASSETS> 5,230,932
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.18
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.17
<EXPENSE-RATIO> 2.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> CLASS Y
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUN-15-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 17,778,822
<INVESTMENTS-AT-VALUE> 18,807,494
<RECEIVABLES> 683,668
<ASSETS-OTHER> 228,189
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,719,351
<PAYABLE-FOR-SECURITIES> 634,183
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 262,617
<TOTAL-LIABILITIES> 896,800
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 468,474
<SHARES-COMMON-STOCK> 37
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (1,423)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,011)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,028,671
<NET-ASSETS> 18,822,551
<DIVIDEND-INCOME> 59,122
<INTEREST-INCOME> 3,350
<OTHER-INCOME> 0
<EXPENSES-NET> 63,895
<NET-INVESTMENT-INCOME> (1,423)
<REALIZED-GAINS-CURRENT> (10,011)
<APPREC-INCREASE-CURRENT> 1,028,671
<NET-CHANGE-FROM-OPS> 1,017,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36,636
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18,822,527
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,674
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120,853
<AVERAGE-NET-ASSETS> 216,302
<PER-SHARE-NAV-BEGIN> 12.12
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.07
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.20
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT (1)(a)
SSL-1994-1
Agreement and Declaration of Trust
THIS AGREEMENT AND DECLARATION OF TRUST is made this 29th day of September,
1994 at Boston, Massachusetts by the Trustee hereunder (hereinafter with any
additional and successor trustees referred to as the "Trustees") and by the
holders of shares of beneficial interest to be issued hereunder as hereinafter
provided.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of Shares, whether or not certificated, in this Trust as hereinafter set
forth.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as "SSL-1994-1."
--------- ----
Section 2. Definitions. Whenever used herein, unless otherwise required
--------- -----------
by the context or specifically provided:
(a) The term "Commission" shall have the meaning provided in the 1940 Act;
(b) The "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(c) "Shareholder" means a record owner of Shares of the Trust;
<PAGE>
(d) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time to
time or, if more than one series or class of Shares is authorized by the
Trustees, the equal proportionate transferable units into which each series or
class of Shares shall be divided from time to time, and includes a fraction of a
Share as well as a whole Share;
(e) The "1940 Act" refers to the Investment Company Act of 1940, and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The term "Manager" is defined in Article IV, Section 5;
(g) The term "Person" shall mean an individual or any corporation,
partnership, joint venture, trust or other enterprise;
(h) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(i) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time;
(j) The term "series" or "series of Shares" refers to the one or more
separate investment portfolios of the Trust into which the assets and
liabilities of the Trust may be divided and the Shares of the Trust representing
the beneficial interest of Shareholders in such respective portfolios; and
(k) The term "class" or "class of Shares" refers to the division of Shares
representing any series into two or more classes as provided in Article III,
Section 1 hereof.
ARTICLE II
Purposes of Trust
This Trust is formed for the following purpose or purposes:
(a) to conduct, operate and carry on the business of an investment
company;
(b) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, lend, write options on, exchange,
distribute or otherwise dispose of and deal in and with securities of every
nature, kind, character, type and form, including, without limitation of the
generality of the foregoing, all types of stocks, shares, futures contracts,
bonds, debentures, notes, bills and other negotiable or non-negotiable
-2-
<PAGE>
instruments, obligations, evidences of interest, certificates of interest,
certificates of participation, certificates, interests, evidences of ownership,
guarantees, warrants, options or evidences of indebtedness issued or created by
or guaranteed as to principal and interest by any state or local government or
any agency or instrumentality thereof, by the United States Government or any
agency, instrumentality, territory, district or possession thereof, by any
foreign government or any agency, instrumentality, territory, district or
possession thereof, by any corporation organized under the laws of any state,
the United States or any territory or possession thereof or under the laws of
any foreign country, bank certificates of deposit, bank time deposits, bankers'
acceptances and commercial paper; to pay for the same in cash or by the issue of
stock, including treasury stock, bonds or notes of the Trust or otherwise; and
to exercise any and all rights, powers and privileges of ownership or interest
in respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more persons, firms,
associations or corporations to exercise any of said rights, powers and
privileges in respect of any said instruments;
(c) to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust;
(d) to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in, Shares including
Shares in fractional denominations, and to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or other
assets of the appropriate series or class of Shares, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted by the laws of The
Commonwealth of Massachusetts;
(e) to conduct its business, promote its purposes, and carry on its
operations in any and all of its branches and maintain offices both within and
without The Commonwealth of Massachusetts, in any and all States of the United
States of America, in the District of Columbia, and in any other parts of the
world; and
(f) to do all and everything necessary, suitable, convenient, or proper
for the conduct, promotion, and attainment of any of the businesses and purposes
herein specified or which at any time may be incidental thereto or may appear
conducive to or expedient for the accomplishment of any of such businesses and
purposes and which might be engaged in or carried on by a Trust organized under
the Massachusetts General Laws, and to have and
-3-
<PAGE>
exercise all of the powers conferred by the laws of The Commonwealth of
Massachusetts upon a Massachusetts business trust.
The foregoing provisions of this Article II shall be construed both as
purposes and powers and each as an independent purpose and power.
ARTICLE III
Beneficial Interest
Section 1. Shares of Beneficial Interest. The Shares of the Trust shall
--------- -----------------------------
be issued in one or more series as the Trustees may, without Shareholder
approval, authorize. Each series shall be preferred over all other series in
respect of the assets allocated to that series and shall represent a separate
investment portfolio of the Trust. The beneficial interest in each series at
all times shall be divided into Shares, with or without par value as the
Trustees may from time to time determine, each of which shall, except as
provided in the following sentence, represent an equal proportionate interest in
the series with each other Share of the same series, none having priority or
preference over another. The Trustees may, without Shareholder approval, divide
Shares of any series into two or more classes, Shares of each such class having
such preferences and special or relative rights and privileges (including
conversion rights, if any) as the Trustees may determine. The number of Shares
authorized shall be unlimited, and the Shares so authorized may be represented
in part by fractional shares. From time to time, the Trustees may divide or
combine the Shares of any series or class into a greater or lesser number
without thereby changing the proportionate beneficial interests in the series or
class.
Section 2. Ownership of Shares. The ownership of Shares will be recorded
--------- -------------------
in the books of the Trust or a transfer agent. The record books of the Trust or
any transfer agent, as the case may be, shall be conclusive as to who are the
holders of Shares of each series and class and as to the number of Shares of
each series and class held from time to time by each. No certificates
certifying the ownership of Shares need be issued except as the Trustees may
otherwise determine from time to time.
Section 3. Issuance of Shares. The Trustees are authorized, from time to
--------- ------------------
time, to issue or authorize the issuance of Shares at not less than the par
value thereof, if any, and to fix the price or the minimum price or the
consideration (in cash and/or such other property, real or personal, tangible or
intangible, as from time to time they may determine) or minimum consideration
for such Shares. Anything herein to the contrary notwithstanding, the Trustees
may issue Shares pro rata to the Shareholders of a series at any time as a stock
dividend, except to the extent otherwise required or permitted by the
preferences
-4-
<PAGE>
and special or relative rights and privileges of any classes of Shares of that
series, and any stock dividend to the Shareholders of a particular class of
Shares shall be made to such Shareholders pro rata in proportion to the number
of Shares of such class held by each of them.
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall belong irrevocably to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Trust and are herein referred to as "assets of" such series.
Shares may be issued in fractional denominations to the same extent as
whole Shares, and Shares in fractional denominations shall be Shares having
proportionately to the respective fractions represented thereby all the rights
of whole Shares, including, without limitation, the right to vote, the right to
receive dividends and distributions, and the right to participate upon
liquidation of the Trust or of a particular series of Shares.
Section 4. No Preemptive Rights; Derivative Suits. Shareholders shall
--------- --------------------------------------
have no preemptive or other right to subscribe for any additional Shares or
other securities issued by the Trust. No action may be brought by a Shareholder
on behalf of the Trust or a series unless a prior demand regarding such matter
has been made on the Trustees and the Shareholders of the Trust or such series.
Section 5. Status of Shares and Limitation of Personal Liability. Shares
--------- -----------------------------------------------------
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the same nor entitle the representative of
any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the rights of said
decedent under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an accounting, nor
shall the ownership of Shares constitute the Shareholders partners. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind any Shareholder or Trustee personally or to call upon any
Shareholder for the payment of any sum of money or
-5-
<PAGE>
assessment whatsoever other than such as the Shareholder at any time personally
may agree to pay by way of subscription for any Shares or otherwise. Every note,
bond, contract or other undertaking issued by or on behalf of the Trust shall
include a recitation limiting the obligation represented thereby to the Trust
and its assets or the assets of a particular series (but the omission of such a
recitation shall not operate to bind any Shareholder or Trustee personally).
ARTICLE IV
Trustees
Section 1. Election. A Trustee may be elected either by the Trustees or
--------- --------
the Shareholders. The Trustees named herein shall serve until the first meeting
of the Shareholders or until the election and qualification of their successors.
Prior to the first meeting of Shareholders the initial Trustees hereunder may
elect additional Trustees to serve until such meeting and until their successors
are elected and qualified. The Trustees also at any time may elect Trustees to
fill vacancies in the number of Trustees. The number of Trustees shall be fixed
from time to time by the Trustees and, at or after the commencement of the
business of the Trust, shall be not less than three. Each Trustee, whether
referred to hereinafter or hereafter becoming a Trustee, shall serve as a
Trustee during the lifetime of this Trust, until such Trustee dies, resigns,
retires, or is removed, or, if sooner, until the next meeting of Shareholders
called for the purpose of electing Trustees and the election and qualification
of his successor. Subject to Section 16(a) of the 1940 Act, the Trustees may
elect their own successors and, pursuant to this Section, may appoint Trustees
to fill vacancies.
Section 2. Powers. The Trustees shall have all powers necessary or
--------- ------
desirable to carry out the purposes of the Trust, including, without limitation,
the powers referred to in Article II hereof. Without limiting the generality of
the foregoing, the Trustees may adopt By-Laws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that they do not reserve that right to
the Shareholders; they may fill vacancies in their number, including vacancies
resulting from increases in their own number, and may elect and remove such
officers and employ, appoint and terminate such employees or agents as they
consider appropriate; they may appoint from their own number and terminate any
one or more committees; they may employ one or more custodians of the assets of
the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities, retain a transfer agent and a Shareholder servicing
agent, or both, provide for the distribution of Shares through a
-6-
<PAGE>
principal underwriter or otherwise, set record dates, and in general delegate
such authority as they consider desirable (including, without limitation, the
authority to purchase and sell securities and to invest funds, to determine the
net income of the Trust for any period, the value of the total assets of the
Trust and the net asset value of each Share, and to execute such deeds,
agreements or other instruments either in the name of the Trust or the names of
the Trustees or as their attorney or attorneys or otherwise as the Trustees from
time to time may deem expedient) to any officer of the Trust, committee of the
Trustees, any such employee, agent, custodian or underwriter or to any Manager.
Without limiting the generality of the foregoing, the Trustees shall have
full power and authority:
(a) To invest and reinvest cash and to hold cash uninvested;
(b) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(c) To hold any security or property in a form not indicating any trust
whether in bearer, unregistered or other negotiable form or in the name of the
Trust or a custodian, subcustodian or other depository or a nominee or nominees
or otherwise;
(d) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or concern, and to pay calls or subscriptions
with respect to any security held in the Trust;
(e) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(f) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited to,
claims for taxes;
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<PAGE>
(g) Subject to the provisions of Article III, Section 3, to allocate
assets, liabilities, income and expenses of the Trust to a particular series of
Shares or to apportion the same among two or more series, provided that any
liabilities or expenses incurred by a particular series of Shares shall be
payable solely out of the assets of that series; and to the extent necessary or
appropriate to give effect to the preferences and special or relative rights and
privileges of any classes of Shares, to allocate assets, liabilities, income and
expenses of a series to a particular class of Shares of that series or to
apportion the same among two or more classes of Shares of that series;
(h) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(i) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust and payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers or Managers, principal underwriters, or independent
contractors of the Trust individually against all claims and liabilities of
every nature arising by reason of holding, being or having held any such office
or position, or by reason of any action alleged to have been taken or omitted by
any such person as Shareholder, Trustee, officer, employee, agent, investment
adviser or Manager, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
such liability; and
(j) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust.
Further, without limiting the generality of the foregoing, the Trustees
shall have full power and authority to incur and pay out of the principal or
income of the Trust such expenses and liabilities as may be deemed by the
Trustees to be necessary or proper for the purposes of the Trust; provided,
--------
however, that all expenses and liabilities incurred by or arising in connection
- -------
with a particular series of Shares, as determined by the Trustees, shall be
payable solely out of the assets of that series.
-8-
<PAGE>
Any determination made in good faith and, so far as accounting matters are
involved, in accordance with generally accepted accounting principles by or
pursuant to the authority granted by the Trustees, as to the amount of the
assets, debts, obligations or liabilities of the Trust or a particular series or
class of Shares; the amount of any reserves or charges set up and the propriety
thereof; the time of or purpose for creating such reserves or charges; the use,
alteration or cancellation of any reserves or charges (whether or not any debt,
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged); the price or closing bid or asked price of
any investment owned or held by the Trust or a particular series; the market
value of any investment or fair value of any other asset of the Trust or a
particular series; the number of Shares outstanding; the estimated expense to
the Trust or a particular series in connection with purchases of its Shares; the
ability to liquidate investments in an orderly fashion; and the extent to which
it is practicable to deliver a cross-section of the portfolio of the Trust or a
particular series in payment for any such Shares, or as to any other matters
relating to the issue, sale, purchase and/or other acquisition or disposition of
investments or Shares of the Trust or a particular series, shall be final and
conclusive, and shall be binding upon the Trust or such series and its
Shareholders, past, present and future, and Shares are issued and sold on the
condition and understanding that any and all such determinations shall be
binding as aforesaid.
Section 3. Meetings. At any meeting of the Trustees, a majority of the
--------- --------
Trustees then in office shall constitute a quorum. Any meeting may be adjourned
from time to time by a majority of the votes cast upon the question, whether or
not a quorum is present, and the meeting may be held as adjourned without
further notice.
When a quorum is present at any meeting, a majority of the Trustees present
may take any action, except when a larger vote is required by this Declaration
of Trust, the By-Laws or the 1940 Act.
Any action required or permitted to be taken at any meeting of the Trustees
or of any committee thereof may be taken without a meeting, if a written consent
to such action is signed by a majority of the Trustees or members of any such
committee then in office, as the case may be, and such written consent is filed
with the minutes of proceedings of the Trustees or any such committee.
The Trustees or any committee designated by the Trustees may participate in
a meeting of the Trustees or such committee by means of a conference telephone
or similar communications
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<PAGE>
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 4. Ownership of Assets of the Trust. Title to all of the assets
--------- --------------------------------
of each series of Shares of the Trust at all times shall be considered as vested
in the Trustees.
Section 5. Investment Advice and Management Services. The Trustees shall
--------- -----------------------------------------
not in any way be bound or limited by any present or future law or custom in
regard to investments by trustees. The Trustees from time to time may enter
into a written contract or contracts with any person or persons (herein called
the "Manager"), including any firm, corporation, trust or association in which
any Trustee or Shareholder may be interested, to act as investment advisers
and/or managers of the Trust and to provide such investment advice and/or
management as the Trustees from time to time may consider necessary for the
proper management of the assets of the Trust, including, without limitation,
authority to determine from time to time what investments shall be purchased,
held, sold or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's investments. Any
such contract shall be subject to the requirements of the 1940 Act with respect
to its continuance in effect, its termination and the method of authorization
and approval of such contract, or any amendment thereto or renewal thereof.
Any Trustee or any organization with which any Trustee may be associated
also may act as broker for the Trust in making purchases and sales of securities
for or to the Trust for its investment portfolio, and may charge and receive
from the Trust the usual and customary commission for such service. Any
organization with which a Trustee may be associated in acting as broker for the
Trust shall be responsible only for the proper execution of transactions in
accordance with the instructions of the Trust and shall be subject to no further
liability of any sort whatever.
The Manager, or any affiliate thereof, also may be a distributor for the
sale of Shares by separate contract or may be a person controlled by or
affiliated with any Trustee or any distributor or a person in which any Trustee
or any distributor is interested financially, subject only to applicable
provisions of law. Nothing herein contained shall operate to prevent any
Manager, who also acts as such a distributor, from also receiving compensation
for services rendered as such distributor.
Section 6. Removal and Resignation of Trustees. The Trustees or the
--------- -----------------------------------
Shareholders (by vote of 66-2/3% of the outstanding Shares entitled to vote
thereon) may remove at any time any Trustee with or without cause, and any
Trustee may resign
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<PAGE>
at any time as Trustee, without penalty by written notice to the Trust; provided
that sixty days' advance written notice shall be given in the event that there
are only three or fewer Trustees at the time a notice of resignation is
submitted.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote only
--------- -------------
(i) for the election of Trustees as provided in Article IV, Section 1, of this
Declaration of Trust; provided, however, that no meeting of Shareholders is
-------- -------
required to be called for the purpose of electing Trustees unless and until such
time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) for the removal of Trustees as provided in Article IV,
Section 6, (iii) with respect to any Manager as provided in Article IV, Section
5, (iv) with respect to any amendment of this Declaration of Trust as provided
in Article IX, Section 8, (v) with respect to the termination of the Trust or a
series of Shares as provided in Article IX, Section 5, and (vi) with respect to
such additional matters relating to the Trust as may be required by law, by this
Declaration of Trust, or the By-Laws of the Trust or any registration of the
Trust with the Commission or any state, or as the Trustees may consider
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote (except that in the election of Trustees said vote
may be cast for as many persons as there are Trustees to be elected), and each
fractional Share shall be entitled to a proportionate fractional vote.
Notwithstanding any other provision of this Declaration of Trust, on any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall be voted in the aggregate as a single class without regard to series
or classes of Shares, except (i) when required by the 1940 Act or when the
Trustees shall have determined that the matter affects one or more series or
classes differently Shares shall be voted by individual series or class and (ii)
when the Trustees have determined that the matter affects only the interests of
one or more series or classes then only Shareholders of such series or classes
shall be entitled to vote thereon. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them, unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Whenever no Shares of any
series or class are issued and outstanding, the Trustees may exercise with
respect to such series or class all rights of Shareholders and may take any
action required by law, this Declaration
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<PAGE>
of Trust or any By-Laws of the Trust to be taken by Shareholders.
Section 2. Meetings. Meetings of the Shareholders may be called by the
--------- --------
Trustees or such other person or persons as may be specified in the By-Laws and
shall be called by the Trustees upon the written request of Shareholders owning
at least 30% of the outstanding Shares entitled to vote. Shareholders shall be
entitled to at least ten days' prior notice of any meeting.
Section 3. Quorum and Required Vote. Thirty percent (30%) of the
--------- ------------------------
outstanding Shares shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of this
Declaration of Trust permits or requires that holders of any series or class
shall vote as a series or class, then thirty percent (30%) of the aggregate
number of Shares of that series or class entitled to vote shall be necessary to
constitute a quorum for the transaction of business by that series or class.
Any lesser number, however, shall be sufficient for adjournment and any
adjourned session or sessions may be held within 90 days after the date set for
the original meeting without the necessity of further notice. Except when a
larger vote is required by any provision of this Declaration of Trust or the By-
Laws of the Trust and subject to any applicable requirements of law, a majority
of the Shares voted shall decide any question and a plurality shall elect a
Trustee, provided that where any provision of law or of this Declaration of
Trust permits or requires that the holders of any series or class shall vote as
a series or class, then a majority of the Shares of that series or class voted
on the matter (or a plurality with respect to the election of a Trustee) shall
decide that matter insofar as that series or class is concerned.
Section 4. Action by Written Consent. Any action required or permitted to
--------- -------------------------
be taken at any meeting may be taken without a meeting if a consent in writing,
setting forth such action, is signed by a majority of Shareholders entitled to
vote on the subject matter thereof (or such larger proportion thereof as shall
be required by any express provision of this Declaration of Trust) and such
consent is filed with the records of the Trust.
Section 5. Additional Provisions. The By-Laws may include further
--------- ---------------------
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions and Redemptions
Section 1. Distributions. The Trustees shall distribute periodically to
--------- -------------
the Shareholders of each series of Shares an amount approximately equal to the
net income of that
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<PAGE>
series, determined by the Trustees or as they may authorize and as herein
provided. Distributions of income may be made in one or more payments, which
shall be in Shares, cash or otherwise, and on a date or dates and as of a record
date or dates determined by the Trustees. At any time and from time to time in
their discretion, the Trustees also may cause to be distributed to the
Shareholders of any one or more series as of a record date or dates determined
by the Trustees, in Shares, cash or otherwise, all or part of any gains realized
on the sale or disposition of the assets of the series or all or part of any
other principal of the Trust attributable to the series. Each distribution
pursuant to this Section 1 shall be made ratably according to the number of
Shares of the series held by the several Shareholders on the record date for
such distribution, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any classes of
Shares of that series, and any distribution to the Shareholders of a particular
class of Shares shall be made to such Shareholders pro rata in proportion to the
number of Shares of such class held by each of them. No distribution need be
made on Shares purchased pursuant to orders received, or for which payment is
made, after such time or times as the Trustees may determine.
Section 2. Determination of Net Income. In determining the net income of
--------- ---------------------------
each series or class of Shares for any period, there shall be deducted from
income for that period (a) such portion of all charges, taxes, expenses and
liabilities due or accrued as the Trustees shall consider properly chargeable
and fairly applicable to income for that period or any earlier period and (b)
whatever reasonable reserves the Trustees shall consider advisable for possible
future charges, taxes, expenses and liabilities which the Trustees shall
consider properly chargeable and fairly applicable to income for that period or
any earlier period. The net income of each series or class for any period may
be adjusted for amounts included on account of net income in the net asset value
of Shares issued or redeemed or repurchased during that period. In determining
the net income of a series or class for a period ending on a date other than the
end of its fiscal year, income may be estimated as the Trustees shall deem fair.
Gains on the sale or disposition of assets shall not be treated as income, and
losses shall not be charged against income unless appropriate under applicable
accounting principles, except in the exercise of the discretionary powers of the
Trustees. Any amount contributed to the Trust which is received as income
pursuant to a decree of any court of competent jurisdiction shall be applied as
required by the said decree.
Section 3. Redemptions. Any Shareholder shall be entitled to require the
--------- -----------
Trust to redeem and the Trust shall be obligated to redeem at the option of such
Shareholder all or any part of the Shares owned by said Shareholder, at the
redemption
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<PAGE>
price, pursuant to the method, upon the terms and subject to the conditions
hereinafter set forth:
(a) Certificates for Shares, if issued, shall be presented for redemption
in proper form for transfer to the Trust or the agent of the Trust appointed for
such purpose, and these shall be presented with a written request that the Trust
redeem all or any part of the Shares represented thereby.
(b) The redemption price per Share shall be the net asset value per Share
when next determined by the Trust at such time or times as the Trustees shall
designate, following the time of presentation of certificates for Shares, if
issued, and an appropriate request for redemption, or such other time as the
Trustees may designate in accordance with any provision of the 1940 Act, or any
rule or regulation made or adopted by any securities association registered
under the Securities Exchange Act of 1934, as determined by the Trustees, less
any applicable charge or fee imposed from time to time as determined by the
Trustees.
(c) Net asset value of each series or class of Shares (for the purpose of
issuance of Shares as well as redemptions thereof) shall be determined by
dividing:
(i) the total value of the assets of such series or class
determined as provided in paragraph (d) below less, to the extent
determined by or pursuant to the direction of the Trustees in
accordance with generally accepted accounting principles, all debts,
obligations and liabilities of such series or class (which debts,
obligations and liabilities shall include, without limitation of the
generality of the foregoing, any and all debts, obligations,
liabilities, or claims, of any and every kind and nature, fixed,
accrued and otherwise, including the estimated accrued expenses of
management and supervision, administration and distribution and any
reserves or charges for any or all of the foregoing, whether for
taxes, expenses, or otherwise, and the price of Shares redeemed but
not paid for) but excluding the Trust's liability upon its Shares and
its surplus, by
(ii) the total number of Shares of such series or class
outstanding.
The Trustees are empowered, in their absolute discretion, to establish
other methods for determining such net asset value whenever such other methods
are deemed by them to be necessary to enable the Trust to comply with applicable
law, or are deemed by them to be desirable, provided they are not inconsistent
with any provision of the 1940 Act.
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<PAGE>
(d) In determining for the purposes of this Declaration of Trust the
total value of the assets of each series or class of Shares at any time,
investments and any other assets of such series or class shall be valued in such
manner as may be determined from time to time by or pursuant to the order of the
Trustees.
(e) Payment of the redemption price by the Trust may be made either
in cash or in securities or other assets at the time owned by the Trust or
partly in cash and partly in securities or other assets at the time owned by the
Trust. The value of any part of such payment to be made in securities or other
assets of the Trust shall be the value employed in determining the redemption
price. Payment of the redemption price shall be made on or before the seventh
day following the day on which the Shares are properly presented for redemption
hereunder, except that delivery of any securities included in any such payment
shall be made as promptly as any necessary transfers on the books of the issuers
whose securities are to be delivered may be made and, except as postponement of
the date of payment may be permissible under the 1940 Act.
Pursuant to resolution of the Trustees, the Trust may deduct from the
payment made for any Shares redeemed a liquidating charge not in excess of an
amount determined by the Trustees from time to time.
(f) The right of any holder of Shares redeemed by the Trust as
provided in this Article VI to receive dividends or distributions thereon and
all other rights of such Shareholder with respect to such Shares shall terminate
at the time as of which the redemption price of such Shares is determined,
except the right of such Shareholder to receive (i) the redemption price of such
Shares from the Trust in accordance with the provisions hereof, and (ii) any
dividend or distribution to which such Shareholder previously had become
entitled as the record holder of such Shares on the record date for such
dividend or distribution.
(g) Redemption of Shares by the Trust is conditional upon the Trust
having funds or other assets legally available therefor.
(h) The Trust, either directly or through an agent, may repurchase
its Shares, out of funds legally available therefor, upon such terms and
conditions and for such consideration as the Trustees shall deem advisable, by
agreement with the owner at a price not exceeding the net asset value per Share
as determined by or pursuant to the order of the Trustees at such time or times
as the Trustees shall designate, less any applicable charge, if and as fixed by
the Trustees from time to time, and to take all other steps deemed necessary or
advisable in connection therewith.
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<PAGE>
(i) Shares purchased or redeemed by the Trust shall be cancelled or
held by the Trust for reissue, as the Trustees from time to time may determine.
(j) The obligations set forth in this Article VI may be suspended or
postponed, (1) for any period (i) during which the New York Stock Exchange is
closed other than for customary weekend and holiday closings, or (ii) during
which trading on the New York Stock Exchange is restricted, (2) for any period
during which an emergency exists as a result of which (i) the disposal by the
Trust of investments owned by it is not reasonably practicable, or (ii) it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (3) for such other periods as the Commission or any successor
governmental authority by order may permit.
Notwithstanding any other provision of this Section 3 of Article VI,
if certificates representing such Shares have been issued, the redemption or
repurchase price need not be paid by the Trust until such certificates are
presented in proper form for transfer to the Trust or the agent of the Trust
appointed for such purpose; however, the redemption or repurchase shall be
effective, in accordance with the resolution of the Trustees, regardless of
whether or not such presentation has been made.
Section 4. Redemptions at the Option of the Trust. The Trust shall
--------- --------------------------------------
have the right at its option and at any time to redeem Shares of any Shareholder
at the net asset value thereof as determined in accordance with Section 3 of
Article VI of this Declaration of Trust: (i) if at such time such Shareholder
owns fewer Shares than, or Shares having an aggregate net asset value of less
than, an amount determined from time to time by the Trustees; or (ii) to the
extent that such Shareholder owns Shares of a particular series or class of
Shares equal to or in excess of a percentage of the outstanding Shares of that
series or class determined from time to time by the Trustees; or (iii) to the
extent that such Shareholder owns Shares of the Trust representing a percentage
equal to or in excess of such percentage of the aggregate number of outstanding
Shares of the Trust or the aggregate net asset value of the Trust determined
from time to time by the Trustees.
Section 5. Dividends, Distributions, Redemptions and Repurchases. No
--------- -----------------------------------------------------
dividend or distribution (including, without limitation, any distribution paid
upon termination of the Trust or of any series) with respect to, nor any
redemption or repurchase of, the Shares of any series shall be effected by the
Trust other than from the assets of such series.
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<PAGE>
ARTICLE VII
Compensation and Limitation of
Liability of Trustees
Section 1. Compensation. The Trustees shall be entitled to
--------- ------------
reasonable compensation from the Trust and may fix the amount of their
compensation.
Section 2. Limitation of Liability. The Trustees shall not be
--------- -----------------------
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee or Manager of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee, but nothing herein contained shall
protect any Trustee against any liability to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, share, or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust,
shall be deemed conclusively to have been executed or done only in their or his
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
ARTICLE VIII
Indemnification
Section 1. Indemnification of Trustees, Officers, Employees and
--------- ----------------------------------------------------
Agents. Each person who is or was a Trustee, officer, employee or agent of the
- ------
Trust or who serves or has served at the Trust's request as a director, officer
or trustee of another entity in which the Trust has or had any interest as a
shareholder, creditor or otherwise shall be entitled to indemnification out of
the assets of the Trust to the extent provided in, and subject to the provisions
of, the By-Laws, provided that no indemnification shall be granted by the Trust
in contravention of the 1940 Act.
Section 2. Merged Corporations. For the purposes of this Article
--------- -------------------
VIII references to "the Trust" include any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents as well as the resulting
or surviving entity; so that any person who is or was a director, officer,
employee or agent of such a constituent corporation or is or was serving at the
request
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<PAGE>
of such a constituent corporation as a trustee, director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Article
VIII with respect to the resulting or surviving entity as he would have with
respect to such a constituent corporation if its separate existence had
continued.
Section 3. Shareholders. In case any Shareholder or former
--------- ------------
Shareholder shall be held to be personally liable solely by reason of his being
or having been a Shareholder and not because of his acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets of the particular series of Shares of which he is or
was a Shareholder to be held harmless from and indemnified against all losses
and expenses arising from such liability. Upon request, the Trust shall cause
its counsel to assume the defense of any claim which, if successful, would
result in an obligation of the Trust to indemnify the Shareholder as aforesaid.
ARTICLE IX
Status of the Trust and Other General Provisions
Section 1. Trust Not a Partnership. It is hereby expressly declared
--------- -----------------------
that a trust and not a partnership is created hereby. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any power
to bind personally either the Trust's Trustees or officers or any Shareholders.
All persons extending credit to, contracting with or having any claim against
the Trust or a particular series of Shares shall look only to the assets of the
Trust or the assets of that particular series for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such Trustee otherwise would be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee hereunder.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
--------- ------------------------------------------------------
Surety. The exercise by the Trustees of their powers and discretion hereunder
- ------
under the circumstances then prevailing, shall be binding upon everyone
interested. A Trustee shall be liable for his or her own willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
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<PAGE>
conduct of the office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law. The Trustees may take advice
of counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and subject to the provisions of Section 1 of this Article
IX shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No
--------- ------------------------------------------------
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees pursuant
hereto or to see to the application of any payments made or property transferred
to the Trust or upon its order.
Section 4. Trustees, Shareholders, etc. Not Personally Liable;
--------- ----------------------------------------------------
Notice. All persons extending credit to, contracting with or having any claim
- ------
against the Trust or a particular series of Shares shall look only to the assets
of the Trust or the assets of that particular series of Shares for payment under
such credit, contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.
Section 5. Termination of Trust. Unless terminated as provided
--------- --------------------
herein, the Trust shall continue without limitation of time. The Trust may be
terminated at any time by vote of Shareholders holding at least a majority of
the Shares of each series entitled to vote or by the Trustees by written notice
to the Shareholders. Any series of Shares may be terminated at any time by vote
of Shareholders holding at least a majority of the Shares of such series
entitled to vote or by the Trustees by written notice to the Shareholders of
such series.
Upon termination of the Trust or of any one or more series of Shares,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated as may be determined by the
Trustees, the Trust shall reduce, in accordance with such procedures as the
Trustees consider appropriate, the remaining assets to distributable form in
cash or shares or other securities, or any combination thereof, and distribute
the proceeds to the Shareholders of the series involved, ratably according to
the number of Shares of such series held by the several Shareholders of such
series on the date of termination, except to the extent otherwise required or
permitted by the preferences and special or relative rights and privileges of
any classes of Shares of that series, provided that any distribution to the
Shareholders of a particular class of Shares shall be made to such Shareholders
pro rata in proportion to the number of Shares of such class held by each of
them.
-19-
<PAGE>
Section 6. Filing of Copies, References, Headings. The original or a
--------- --------------------------------------
copy of this instrument and of each amendment hereto and of each Declaration of
Trust supplemental hereto shall be kept at the office of the Trust where it may
be inspected by any Shareholder. A copy of this instrument and of each such
amendment and supplemental Declaration of Trust shall be filed by the Trust with
the Secretary of State of The Commonwealth of Massachusetts and the Boston City
Clerk, as well as any other governmental office where such filing may from time
to time be required. Anyone dealing with the Trust may rely on a certificate by
an officer of the Trust as to whether or not any such amendments or supplemental
Declarations of Trust have been made and as to matters in connection with the
Trust hereunder; and, with the same effect as if it were the original, may rely
on a copy certified by an officer of the Trust to be a copy of this instrument
or of any such amendment or supplemental Declaration of Trust. In this
instrument or in any such amendment or supplemental Declaration of Trust,
references to this instrument, and all expressions like "herein," "hereof," and
"hereunder," shall be deemed to refer to this instrument as amended or affected
by any such amendment or supplemental Declaration of Trust. Headings are placed
herein for convenience of reference only and in case of any conflict, the text
of this instrument, rather than the headings, shall control. This instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
Section 7. Applicable Law. The Trust set forth in this instrument is
--------- --------------
made in The Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 8. Amendments. This Declaration of Trust may be amended at
--------- ----------
any time by an instrument in writing signed by a majority of the then Trustees
when authorized so to do by a vote of Shareholders holding a majority of the
Shares outstanding and entitled to vote, except that an amendment which shall
affect the holders of one or more series or class of Shares but not the holders
of all outstanding series or classes of Shares shall be authorized by vote of
the Shareholders holding a majority of the Shares entitled to vote of the series
or classes affected and no vote of Shareholders of a series or class not
affected shall be required. Amendments having the purpose of changing the name
of the Trust or of supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent provision contained
herein shall not require authorization by Shareholder vote.
-20-
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustee has hereunto set his hand
and seal for himself and him assigns as of the day and year first above written.
/s/ Bryan Chegwidden
--------------------------------
Bryan Chegwidden, Trustee
Address of Trust
- ----------------
c/o Stroock & Stroock & Lavan
7 Hanover Square
19th Floor
New York, New York 10004-2696
Address of Trustee
- ------------------
c/o Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
-21-
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
: ss.:
COUNTY OF SUFFOLK )
On this 29th day of September, 1994, before me personally came the
above-named Trustee of the Fund, to me known, and known to me to be the person
described in and who executed the foregoing instrument, and who duly
acknowledged to me that he had executed the same.
/s/ Frances E. DeFiore
-----------------------------
Notary Public
<PAGE>
Exhibit (1)(b)
SSL-1994-1
ARTICLES OF AMENDMENT
SSL-1994-1, a business trust formed by an Agreement and Declaration of
Trust dated September 29, 1994 pursuant to the laws of the Commonwealth of
Massachusetts (the "Trust"), hereby certifies to the Secretary of State of the
Commonwealth of Massachusetts and to the City Clerk of the City of Boston that:
FIRST: The Agreement and Declaration of Trust of the Trust is hereby
amended by striking out Article I, Section 1 and inserting in lieu thereof the
following:
"Section 1. Name. This Trust shall be known as 'The Bear
--------- ----
Stearns Funds.'"
SECOND: The amendment to the Agreement and Declaration of Trust
herein made was duly approved by the written consent of the Sole Trustee of the
Trust dated as of October 5, 1994 pursuant to Article IX, Section 8 of the
Agreement and Declaration of Trust.
<PAGE>
IN WITNESS WHEREOF, SSL-1994-1 has caused these Articles to be signed
in its name and on its behalf by its Sole Trustee.
SSL-1994-1
By: /s/ David Stephens
----------------------------
David Stephens, Sole Trustee
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
Then personally appeared the above-named David Stephens and
acknowledged the foregoing instrument to be his free act and deed, before me.
/s/ John J. Petrofsky
---------------------------
Notary Public
Address of Trust
- ----------------
c/o Stroock & Stroock & Lavan
7 Hanover Square, 19th Floor
New York, New York 10004-2696
Address of Trustee
- ------------------
c/o Stroock & Stroock & Lavan
7 Hanover Square, 19th Floor
New York, New York 10004-2696
Address of Registered Agent
- ---------------------------
CT Corporation
2 Oliver Street
Boston, Massachusetts 02109
<PAGE>
Exhibit (2)
BY-LAWS
OF
THE BEAR STEARNS FUNDS
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1. Agreement and Declaration of Trust. These By-Laws shall be subject
----------------------------------
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of the above-captioned Massachusetts business trust
established by the Declaration of Trust (the "Trust").
1.2. Principal Office of the Trust. The principal office of the Trust
-----------------------------
shall be located in New York, New York. Its resident agent in Massachusetts
shall be CT Corporation System, 2 Oliver Street, Boston, Massachusetts, or such
other person as the Trustees from time to time may select.
ARTICLE 2
Meetings of Trustees
2.1. Regular Meetings. Regular meetings of the Trustees may be held
----------------
without call or notice at such places and at such times as the Trustees from
time to time may determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2. Special Meetings. Special meetings of the Trustees may be held at
----------------
any time and at any place designated in the call of the meeting when called by
the President or the Treasurer or by two or more Trustees, sufficient notice
thereof being given to each Trustee by the Secretary or an Assistant Secretary
or by the officer or the Trustees calling the meeting.
2.3. Notice of Special Meetings. It shall be sufficient notice to a
--------------------------
Trustee of a special meeting to send notice by mail at least forty-eight hours
or by telegram at least twenty-four hours before the meeting addressed to the
Trustee at his or her usual or last known business or residence address or to
give notice to him or her in person or by telephone at least twenty-four hours
before the meeting. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice
<PAGE>
to him or her. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
2.4. Notice of Certain Actions by Consent. If in accordance with the
------------------------------------
provisions of the Declaration of Trust any action is taken by the Trustees by a
written consent of less than all of the Trustees, then prompt notice of any such
action shall be furnished to each Trustee who did not execute such written
consent, provided that the effectiveness of such action shall not be impaired by
any delay or failure to furnish such notice.
ARTICLE 3
Officers
3.1. Enumeration; Qualification. The officers of the Trust shall be a
--------------------------
President, a Treasurer, a Secretary, and such other officers, if any, as the
Trustees from time to time may in their discretion elect. The Trust also may
have such agents as the Trustees from time to time may in their discretion
appoint. Officers may be but need not be a Trustee or shareholder. Any two or
more offices may be held by the same person.
3.2. Election. The President, the Treasurer and the Secretary shall be
--------
elected by the Trustees upon the occurrence of any vacancy in any such office.
Other officers, if any, may be elected or appointed by the Trustees at any time.
Vacancies in any such other office may be filled at any time.
3.3. Tenure. The President, Treasurer and Secretary shall hold office in
------
each case until he or she sooner dies, resigns, is removed or becomes
disqualified. Each other officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.4. Powers. Subject to the other provisions of these By-Laws, each
------
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as commonly are incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation or such other duties and powers as the
Trustees may from time to time designate.
3.5. President. Unless the Trustees otherwise provide, the President
---------
shall preside at all meetings of the shareholders and of the Trustees. Unless
the Trustees otherwise provide, the President shall be the chief executive
officer.
3.6. Treasurer. The Treasurer shall be the chief financial and accounting
---------
officer of the Trust, and, subject to the provisions of the Declaration of Trust
and to any arrangement made
-2-
<PAGE>
by the Trustees with a custodian, investment adviser or manager, or transfer,
shareholder servicing or similar agent, shall be in charge of the valuable
papers, books of account and accounting records of the Trust, and shall have
such other duties and powers as may be designated from time to time by the
Trustees or by the President.
3.7. Secretary. The Secretary shall record all proceedings of the
---------
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an Assistant
Secretary, or if there be none or if he or she is absent, a temporary Secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.8. Resignations and Removals. Any Trustee or officer may resign at any
-------------------------
time by written instrument signed by him or her and delivered to the President
or Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time. The
Trustees may remove any officer elected by them with or without cause. Except
to the extent expressly provided in a written agreement with the Trust, no
Trustee or officer resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.
ARTICLE 4
Committees
4.1. Appointment. The Trustees may appoint from their number an executive
-----------
committee and other committees. Except as the Trustees otherwise may determine,
any such committee may make rules for conduct of its business.
4.2. Quorum; Voting. A majority of the members of any Committee of the
--------------
Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present).
ARTICLE 5
Reports
The Trustees and officers shall render reports at the time and in the
manner required by the Declaration of Trust or any applicable law. Officers and
Committees shall render such
-3-
<PAGE>
additional reports as they may deem desirable or as may from time to time be
required by the Trustees.
ARTICLE 6
Fiscal Year
The fiscal year of the Trust shall be fixed, and shall be subject to
change, by the Board of Trustees.
ARTICLE 7
Seal
The seal of the Trust shall consist of a flat-faced die with the word
"Massachusetts," together with the name of the Trust and the year of its
organization cut or engraved thereon but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and in its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
Except as the Trustees generally or in particular cases may authorize the
execution thereof in some other manner, all deeds, leases, contracts, notes and
other obligations made by the Trustees shall be signed by the President, any
Vice President, or by the Treasurer and need not bear the seal of the Trust.
ARTICLE 9
Issuance of Share Certificates
9.1. Sale of Shares. Except as otherwise determined by the Trustees, the
--------------
Trust will issue and sell for cash or securities from time to time, full and
fractional shares of its shares of beneficial interest, such shares to be issued
and sold at a price of not less than net asset value per share as from time to
time determined in accordance with the Declaration of Trust and these By-Laws
and, in the case of fractional shares, at a proportionate reduction in such
price. In the case of shares sold for securities, such securities shall be
valued in accordance with the provisions for determining value of assets of the
Trust as stated in the Declaration of Trust and these By-Laws. The officers of
-4-
<PAGE>
the Trust are severally authorized to take all such actions as may be necessary
or desirable to carry out this Section 9.1.
9.2. Share Certificates. In lieu of issuing certificates for shares, the
------------------
Trustees or the transfer agent either may issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case, for all purposes hereunder, be deemed to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees at any time may authorize the issuance of share certificates.
In that event, each shareholder shall be entitled to a certificate stating the
number of shares owned by him, in such form as shall be prescribed from time to
time by the Trustees. Such certificate shall be signed by the President or Vice
President and by the Treasurer or Assistant Treasurer. Such signatures may be
facsimile if the certificate is signed by a transfer agent, or by a registrar,
other than a Trustee, officer or employee of the Trust. In case any officer who
has signed or whose facsimile signature has been placed on such certificate
shall cease to be such officer before such certificate is issued, it may be
issued by the Trust with the same effect as if he or she were such officer at
the time of its issue.
9.3. Loss of Certificates. The Trust, or if any transfer agent is
--------------------
appointed for the Trust, the transfer agent with the approval of any two
officers of the Trust, is authorized to issue and countersign replacement
certificates for the shares of the Trust which have been lost, stolen or
destroyed subject to the deposit of a bond or other indemnity in such form and
with such security, if any, as the Trustees may require.
9.4. Discontinuance of Issuance of Certificates. The Trustees at any time
------------------------------------------
may discontinue the issuance of share certificates and by written notice to each
shareholder, may require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
shares in the Trust.
ARTICLE 10
Indemnification
10.1. Trustees, Officers, etc. The Trust shall indemnify each of its
-----------------------
Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses, including
-5-
<PAGE>
but not limited to amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and counsel fees reasonably incurred by any Covered
Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Trustee or officer, except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in a decision on the
merits in any such action, suit or other proceeding not to have acted in good
faith in the reasonable belief that such Covered Person's action was in the best
interests of the Trust and except that no Covered Person shall be indemnified
against any liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office. Expenses, including counsel fees so incurred by
any such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid from time to
time by the Trust in advance of the final disposition or any such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article, provided
--------
that (a) such Covered Person shall provide security for his undertaking, (b) the
- ----
Trust shall be insured against losses arising by reason of such Covered Person's
failure to fulfill his undertaking, or (c) a majority of the Trustees who are
disinterested persons and who are not Interested Persons (as that term is
defined in the Investment Company Act of 1940) (provided that a majority of such
Trustees then in office act on the matter), or independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts
(but not a full trial-type inquiry), that there is reason to believe such
Covered Person ultimately will be entitled to indemnification.
10.2. Compromise Payment. As to any matter disposed of (whether by a
------------------
compromise payment, pursuant to a consent decree or otherwise) without an
adjudication in a decision on the merits by a court, or by any other body before
which the proceeding was brought, that such Covered Person either (a) did not
act in good faith in the reasonable belief that such Covered Person's action was
in the best interests of the Trust or (b) is liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office, indemnification shall be provided if (a) approved as in the
best interest of the Trust, after notice that it involves such indemnification,
by at least a majority of the Trustees who are
-6-
<PAGE>
disinterested persons and are not Interested Persons (provided that a majority
of such Trustees then in office act on the matter), upon a determination, based
upon a review of readily available facts (but not a full trial-type inquiry)
that such Covered Person acted in good faith in the reasonable belief that such
Covered Person's action was in the best interests of the Trust and is not liable
to the Trust or its Shareholders by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office, or (b) there has been obtained an opinion in
writing of independent legal counsel, based upon a review of readily available
facts (but not a full trial-type inquiry) to the effect that such Covered Person
appears to have acted in good faith in the reasonable belief that such Covered
Person's action was in the best interests of the Trust and that such
indemnification would not protect such Covered Person against any liability to
the Trust to which such Covered Person would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Any approval pursuant to this
Section shall not prevent the recovery from any Covered Person of any amount
paid to such Covered Person in accordance with this Section as indemnification
if such Covered Person is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interests of the Trust or to have been
liable to the Trust or its shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
10.3. Indemnification Not Exclusive. The right of indemnification hereby
-----------------------------
provided shall not be exclusive of or affect any other rights to which any such
Covered Person may be entitled. As used in this Article 10, the term "Covered
Person" shall include such person's heirs, executors and administrators, and a
"disinterested person" is a person against whom none of the actions, suits or
other proceedings in question or another action, suit, or other proceeding on
the same or similar grounds is then or has been pending. Nothing contained in
this article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of such person.
10.4. Limitation. Notwithstanding any provisions in the Declaration of
----------
Trust and these By-Laws pertaining to indemnification, all such provisions are
limited by the following undertaking set forth in the rules promulgated by the
Securities and Exchange Commission:
-7-
<PAGE>
In the event that a claim for indemnification is asserted by a
Trustee, officer or controlling person of the Trust in connection with
the registered securities of the Trust, the Trust will not make such
indemnification unless (i) the Trust has submitted, before a court or
other body, the question of whether the person to be indemnified was
liable by reason of wilful misfeasance, bad faith, gross negligence,
or reckless disregard of duties, and has obtained a final decision on
the merits that such person was not liable by reason of such conduct
or (ii) in the absence of such decision, the Trust shall have obtained
a reasonable determination, based upon a review of the facts, that
such person was not liable by virtue of such conduct, by (a) the vote
of a majority of Trustees who are neither interested persons as such
term is defined in the Investment Company Act of 1940, nor parties to
the proceeding or (b) an independent legal counsel in a written
opinion.
The Trust will not advance attorneys' fees or other expenses
incurred by the person to be indemnified unless the Trust shall have
(i) received an undertaking by or on behalf of such person to repay
the advance unless it is ultimately determined that such person is
entitled to indemnification and one of the following conditions shall
have occurred: (x) such person shall provide security for his
undertaking, (y) the Trust shall be insured against losses arising by
reason of any lawful advances or (z) a majority of the disinterested,
non-party Trustees of the Trust, or an independent legal counsel in a
written opinion, shall have determined that based on a review of
readily available facts there is reason to believe that such person
ultimately will be found entitled to indemnification.
-8-
<PAGE>
ARTICLE 11
Shareholders
11.1. Meetings. A meeting of the shareholders shall be called by the
--------
Secretary whenever ordered by the Trustees, or requested in writing by the
holder or holders of at least 10% of the outstanding shares entitled to vote at
such meeting. The ability of the holder or holders of at least 10% of the
outstanding shares entitled to vote to call a meeting of the shareholders shall
remain in effect at all times that any resident of the State of California owns
shares of the Trust. If the meeting is a meeting of the shareholders of one or
more series or class of shares, but not a meeting of all shareholders of the
Trust, then only the shareholders of such one or more series or classes shall be
entitled to notice of and to vote at the meeting. If the Secretary, when so
ordered or requested, refuses or neglects for more than five days to call such
meeting, the Trustees, or the shareholders so requesting may, in the name of the
Secretary, call the meeting by giving notice thereof in the manner required when
notice is given by the Secretary.
11.2. Access to Shareholder List. Shareholders of record may apply
--------------------------
to the Trustees for assistance in communicating with other shareholders for the
purpose of calling a meeting in order to vote upon the question of removal of a
Trustee. When ten or more shareholders of record who have been such for at
least six months preceding the date of application and who hold in the aggregate
shares having a net asset value of at least $25,000 or at least 1% of the
outstanding shares, whichever is less, so apply, the Trustees shall within five
business days either:
(i) afford to such applicants access to a list of names and addresses
of all shareholders as recorded on the books of the Trust; or
(ii) inform such applicants of the approximate number of shareholders
of record and the approximate cost of mailing material to them and, within a
reasonable time thereafter, mail, materials submitted by the applicants, to all
such shareholders of record. The Trustees shall not be obligated to mail
materials which they believe to be misleading or in violation of applicable law.
11.3. Record Dates. For the purpose of determining the shareholders
------------
of any series or class who are entitled to vote or act at any meeting or any
adjournment thereof, or who are entitled to receive payment of any dividend or
of any other distribution, the Trustees from time to time may fix a time, which
shall be not more than 90 days before the date of any meeting of shareholders or
the date of payment of any dividend or of any other distribution, as the record
date for determining the shareholders
-9-
<PAGE>
of such series or class having the right to notice of and to vote at such
meeting and any adjournment thereof or the right to receive such dividend or
distribution, and in such case only shareholders of record on such record date
shall have such right notwithstanding any transfer of shares on the books of the
Trust after the record date; or without fixing such record date the Trustees may
for any such purposes close the register or transfer books for all or part of
such period.
11.4. Place of Meetings. All meetings of the shareholders shall be
-----------------
held at the principal office of the Trust or at such other place within the
United States as shall be designated by the Trustees or the President of the
Trust.
11.5. Notice of Meetings. A written notice of each meeting of
------------------
shareholders, stating the place, date and hour and the purposes of the meeting,
shall be given at least ten days before the meeting to each shareholder entitled
to vote thereat by leaving such notice with him or at his residence or usual
place of business or by mailing it, postage prepaid, and addressed to such
shareholder at his address as it appears in the records of the Trust. Such
notice shall be given by the Secretary or an Assistant Secretary or by an
officer designated by the Trustees. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of notice, executed before or
after the meeting by such shareholder or his attorney thereunto duly authorized,
is filed with the records of the meeting.
11.6. Ballots. No ballot shall be required for any election unless
-------
requested by a shareholder present or represented at the meeting and entitled to
vote in the election.
11.7. Proxies. Shareholders entitled to vote may vote either in
-------
person or by proxy in writing dated not more than six months before the meeting
named therein, which proxies shall be filed with the Secretary or other person
responsible to record the proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall not be
valid after the final adjournment of such meeting.
ARTICLE 12
Amendments to the By-Laws
These By-Laws may be amended or repealed, in whole or in part, by a
majority of the Trustees then in office at any meeting of the Trustees, or by
one or more writings signed by such a majority.
Dated: October 5, 1994, As Revised, March 24, 1995
-10-
<PAGE>
Exhibit (5)(a)
INVESTMENT ADVISORY AGREEMENT
THE BEAR STEARNS FUNDS
245 Park Avenue
New York, New York 10167
February 22, 1995
As Revised May 4, 1995
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, New York 10167
Dear Sirs:
The above-named investment company (the "Fund"), with respect to the
series named on Schedule 1 hereto, as such Schedule may be revised from time to
time (each, a "Series"), herewith confirms its agreement with you as follows:
The Fund desires to employ its capital by investing and reinvesting the
same in investments of the type and in accordance with the limitations specified
in its charter documents and in its Prospectus and Statement of Additional
Information as from time to time in effect, copies of which have been or will be
submitted to you, and in such manner and to such extent as from time to time may
be approved by the Fund's Board. The Fund desires to employ you to act as its
investment adviser.
In this connection it is understood that from time to time you will
employ or associate with yourself such person or persons as you may believe to
be particularly fitted to assist you in the performance of this Agreement. Such
person or persons may be officers or employees who are employed by both you and
the Fund. The compensation of such person or persons shall be paid by you and
no obligation may be incurred on the Fund's behalf in any such respect. We have
discussed and concur in your employing on this basis each sub-investment adviser
indicated on Schedule 1 (each, a "Sub-Investment Adviser") for the Series
indicated thereon, as such Schedule may be revised from time to time.
Subject to the supervision and approval of the Fund's Board, you will
provide investment management of each Series' portfolio in accordance with such
Series' investment objectives and policies as stated in the Fund's Prospectus
and Statement of Additional Information as from time to time in effect. In
<PAGE>
connection therewith, you will obtain and provide investment research and will
supervise each Series' investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of such
Series' assets. You will furnish to the Fund such statistical information, with
respect to the investments which a Series may hold or contemplate purchasing, as
the Fund may reasonably request. The Fund wishes to be informed of important
developments materially affecting any Series' portfolio and shall expect you, on
your own initiative, to furnish to the Fund from time to time such information
as you may believe appropriate for this purpose.
You shall exercise your best judgment in rendering the services to be
provided to the Fund hereunder, and the Fund agrees as an inducement to your
undertaking the same that neither you nor the Sub-Investment Adviser shall be
liable hereunder for any error of judgment or mistake of law or for any loss
suffered by one or more Series, provided that nothing herein shall be deemed to
protect or purport to protect you or any Sub-Investment Adviser against any
liability to the Fund or a Series or to its security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence in the performance of your duties hereunder or by reason of your
reckless disregard of your obligations or duties hereunder (hereinafter
"Disabling Conduct") or to which any Sub-Investment Adviser would otherwise be
subject by reason of Disabling Conduct.
In consideration of services rendered pursuant to this Agreement, the
Fund will pay you on the first business day of each month a fee at the rate set
forth opposite each Series' name on Schedule 1 hereto or will pay you in
accordance with the methodology described on additional Schedules hereto. Net
asset value shall be computed on such days and at such time or times as
described in the Fund's then-current Prospectus and Statement of Additional
Information. The fee for the period from the date of the commencement of sales
of a Series' shares to the end of the month during which such sales shall have
been commenced shall be pro-rated according to the proportion which such period
bears to the full monthly period, and upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be pro-rated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to you, the value of each
Series' net assets shall be computed in the manner specified in the Fund's
charter documents for the computation of the value of each Series' net assets.
You will bear all expenses in connection with the performance of your
services under this Agreement and will pay
<PAGE>
all fees of each Sub-Investment Adviser in connection with its duties in respect
of the Series. All other expenses to be incurred in the operation of the Fund
(other than those borne by a Sub-Investment Adviser) will be borne by the Fund,
except to the extent specifically assumed by you. The expenses to be borne by
the Fund include, without limitation, the following: organizational costs,
taxes, interest, loan commitment fees, interest and distributions paid on
securities sold short, brokerage fees and commissions, if any, fees of Board
members, Securities and Exchange Commission fees, state Blue Sky qualification
fees, advisory, administration and fund accounting fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
independent pricing services, costs of maintaining the Series' existence, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing stockholders, costs of stockholders' reports and meetings, and any
extraordinary expenses.
As to each Series, if in any fiscal year the aggregate expenses of a
Series (including fees pursuant to this Agreement, but excluding interest,
taxes, brokerage and, with the prior written consent of the necessary state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over such Series, the Fund may deduct from the
fees to be paid hereunder, or you will bear, such excess expense to the extent
required by state law. Your obligation pursuant hereto will be limited to the
amount of your fees hereunder. Such deduction or payment, if any, will be
estimated daily, and reconciled and effected or paid, as the case may be, on a
monthly basis.
The Fund understands that you now act, and that from time to time
hereafter you may act, as investment adviser to one or more other investment
companies and fiduciary or other managed accounts, and the Fund has no objection
to your so acting, provided that when the purchase or sale of securities of the
same issuer is suitable for the investment objectives of two or more companies
or accounts managed by you which have available funds for investment, the
available securities will be allocated in a manner believed by you to be
equitable to each company or account. It is recognized that in some cases this
procedure may adversely affect the price paid or received by one or more Series
or the size of the position obtainable for or disposed of by one or more Series.
In addition, it is understood that the persons employed by you to
assist in the performance of your duties hereunder will not devote their full
time to such service and nothing
-3-
<PAGE>
contained herein shall be deemed to limit or restrict your right or the right of
any of your affiliates to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
Any person, even though also your officer, director, partner, employee
or agent, who may be or become an officer, Board member, employee or agent of
the Fund, shall be deemed, when rendering services to the Fund or acting on any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as your officer, director, partner, employee, or agent or one under
your control or direction even though paid by you.
The Fund will indemnify you and each Sub-Investment Adviser (each, an
"indemnitee") against, and hold each indemnitee harmless from, any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) not resulting from Disabling Conduct by the indemnitee.
Indemnification shall be made only following: (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
indemnitee was not liable by reason of Disabling Conduct or (ii) in the absence
of such a decision, a reasonable determination, based upon a review of the
facts, that the indemnitee was not liable by reason of Disabling Conduct by (a)
the vote of a majority of a quorum of Board members who are neither "interested
persons" of the Fund nor parties to the proceeding ("disinterested non-party
Board members") or (b) an independent legal counsel in a written opinion. Each
indemnitee shall be entitled to advances from the Fund for payment of the
reasonable expenses incurred by it in connection with the matter as to which it
is seeking indemnification in the manner and to the fullest extent permissible
under the New York Business Corporation Law. Each indemnitee shall provide to
the Fund a written affirmation of its good faith belief that the standard of
conduct necessary for indemnification by the Fund has been met and a written
undertaking to repay any such advance if it should ultimately be determined that
the standard of conduct has not been met. In addition, at least one of the
following additional conditions shall be met: (a) the indemnitee shall provide
security in form and amount acceptable to the Fund for its undertaking; (b) the
Fund is insured against losses arising by reason of the advance; or (c) a
majority of a quorum of disinterested non-party Board members, or independent
legal counsel, in a written opinion, shall have determined, based on a review of
facts readily available to the Fund at the time the advance is proposed to be
made, that there is reason to believe that the indemnitee will ultimately be
found to be entitled to indemnification. No provision of this Agreement shall
be construed to protect any Board member or officer of the Fund, or any
indemnitee, from
-4-
<PAGE>
liability in violation of Sections 17(h) and (i) of the Investment Company Act
of 1940, as amended (the "1940 Act").
As to each Series, this Agreement shall continue until the date set
forth opposite such Series' name on Schedule 1 hereto (the "Reapproval Date")
and thereafter shall continue automatically for successive annual periods ending
on the day of each year set forth opposite the Series' name on Schedule 1 hereto
(the "Reapproval Day"), provided such continuance is specifically approved at
least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in
the 1940 Act) of such Series' outstanding voting securities, provided that in
either event its continuance also is approved by a majority of the Fund's Board
members who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. As to each Series, this Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board or by vote
of holders of a majority of such Series' shares or, upon not less than 90 days'
notice, by you. This Agreement also will terminate automatically, as to the
relevant Series, in the event of its assignment (as defined in the 1940 Act).
The Fund recognizes that from time to time your directors, officers and
employees may serve as trustees, directors, partners, officers and employees of
other business trusts, corporations, partnerships or other entities (including
other investment companies), and that such other entities may include the name
"Bear Stearns" as part of their name, and that your corporation or its
affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Fund's investment adviser, the Fund
agrees that, at your request, the Fund will take all necessary action to change
the name of the Fund to a name not including "Bear Stearns" in any form or
combination of words.
The Fund is agreeing to the provisions of this Agreement that limit a
Sub-Investment Adviser's liability and other provisions relating to the Sub-
Investment Adviser so as to induce the Sub-Investment Adviser to enter into its
Sub-Investment Advisory Agreement with you and to perform its obligations
thereunder. Each Sub-Investment Adviser is expressly made a third party
beneficiary of this Agreement with rights as respects the Fund to the same
extent as if it had been a party hereto.
This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and property
of the relevant Series and shall not be binding upon any Board member, officer
or shareholder of the Fund individually.
-5-
<PAGE>
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE BEAR STEARNS FUNDS
By: /s/ Frank J. Maresca
----------------------
Accepted:
BEAR STEARNS FUNDS MANAGEMENT INC.
By: /s/ Robert S. Reitzes
------------------------------
-6-
<PAGE>
SCHEDULE 1
Annual Fee as
a Percentage
of Average
Name of Series Assets Reapproval Date Reapproval Day
- -------------- ------------- --------------- --------------
Large Cap Value
Portfolio .75 of 1% February 22, 1997 February 22
Small Cap Value
Portfolio .75 of 1% February 22, 1997 February 22
Total Return Bond
Portfolio .45 of 1% February 22, 1997 February 22
The Insiders Select
Portfolio * February 22, 1997 February 22
- ------------------------
* See Schedule 2; the Sub-Investment Adviser is Symphony Asset Management.
<PAGE>
SCHEDULE 2
For the period beginning with the day on which the Fund commences
investment operations and ending with the last day of the twelfth full calendar
month thereafter, the Fund will pay you, at the end of each month, a monthly
advisory fee calculated at an annual rate of 1.0% of the Series' average daily
net assets during such month (the "Basic Fee"). Beginning with the thirteenth
month, the Basic Fee will be adjusted each month (the "Monthly Performance
Adjustment") depending on the extent to which the investment performance of the
Class of shares expected to bear the highest total Series operating expenses (as
such Class from time to time may be designated by the Fund's Board, the
"Designated Class"), reflecting the deduction of expenses, exceeds or is
exceeded by the percentage change in the investment record of the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500") for the immediately
preceding twelve calendar months on a rolling basis. The rate of the Monthly
Performance Adjustment may increase or decrease the fee payable to you by up to
.50% per annum of the Series' average daily net assets.
The performance of the Designated Class during a performance period
will be calculated by first determining the change in the Class' net asset value
per share during the period, assuming the reinvestment of distributions during
that period, and then expressing this amount as a percentage of the net asset
value per share at the beginning of the period. The performance of the S&P 500
during a performance period is calculated as the sum of the change in the level
of the index during the period, plus the value of any dividends or distributions
made by the companies whose securities comprise the index accumulated to the end
of the period.
After the Monthly Performance Adjustment is effective, the total
advisory fee, payable by the Fund to you at the end of each calendar month, will
be equal to the Basic Fee for the month adjusted upward or downward for the
month by the Monthly Performance Adjustment for the month. The monthly advisory
fee will be calculated as follows: (1) one-twelfth of the 1% annual basic fee
rate will be applied to the Series' average daily net assets over the most
recent calendar month, giving a dollar amount which will be the Basic Fee for
that month; (2) one-twelfth of the applicable performance adjustment fee rate
from the table below will be applied to the Series' average daily net assets
over the most recent month, giving a dollar amount which will be the Monthly
Performance Adjustment; and (3) the Monthly Performance Adjustment will then be
added to or subtracted from the Basic Fee and the result will be the amount
payable by the Fund to you as the total advisory fee for that month.
<PAGE>
The full range of permitted fees on an annualized basis is as follows:
<TABLE>
<CAPTION>
Percentage Point Difference Between
Designated Class' Performance (Net
of Expenses Including Advisory Fees) Performance
and Percentage Change in the Adjustment
S&P 500 Investment Record Basic Fee (%) Rate (%) Total Fee (%)
- --------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
+3.00 percentage points or more........ 1% .50% 1.50%
+2.75 percentage points or more but
less than +3.00 percentage points.... 1% .40% 1.40%
+2.50 percentage points or more but
less than +2.75 percentage points.... 1% .30% 1.30%
+2.25 percentage points or more but
less than +2.50 percentage points.... 1% .20% 1.20%
+2.00 percentage points or more but
less than +2.25 percentage points.... 1% .10% 1.10%
Less than +2.00 percentage points but
more than -2.00 percentage points.... 1% 0% 1.00%
- -2.00 percentage points or less but
more than -2.25 percentage points.... 1% -.10% .90%
- -2.25 percentage points or less but
more than -2.50 percentage points.... 1% -.20% .80%
- -2.50 percentage points or less but
more than -2.75 percentage points.... 1% -.30% .70%
- -2.75 percentage points or less but
more than -3.00 percentage points.... 1% -.40% .60%
- -3.00 percentage points or less........ 1% -.50% .50%
</TABLE>
The period over which performance will be measured is a rolling 12-
month period.
<PAGE>
Exhibit (5)(b)
ADMINISTRATION AGREEMENT
THE BEAR STEARNS FUNDS
245 Park Avenue
New York, New York 10167
February 22, 1995
As Revised April 11, 1995
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, New York 10167
Dear Sirs:
The Bear Stearns Funds, a Massachusetts business trust (the "Fund")
consisting of the series named on Schedule 1 hereto, as such Schedule may be
revised from time to time (each, a "Series"), herewith confirms its agreement
with you ("BSFM") as follows:
The Fund desires to employ its capital by investing in investments of
the type and in accordance with the limitations specified in its charter
documents and in its Prospectus and Statement of Additional Information as from
time to time in effect, copies of which have been or will be submitted to BSFM,
and in such manner and to such extent as from time to time may be approved by
the Fund's Board. The Fund desires to employ BSFM to act as its administrator.
In this connection it is understood that from time to time BSFM will
employ or associate with itself such person or persons as BSFM may believe to be
particularly fitted to assist it in the performance of this Agreement. Such
person or persons may be officers or employees who are employed by both BSFM and
the Fund. The compensation of such person or persons shall be paid by BSFM and
no obligation may be incurred on the Fund's behalf in any such respect.
Subject to the supervision and control of the Fund's Board, BSFM will
assist in supervising all aspects of each Series' operations. BSFM will supply
office facilities (which may be in BSFM's own offices), data processing
services, clerical, accounting and bookkeeping services, internal auditing and
legal services, internal executive and administrative services, and stationery
and office supplies; prepare reports to each Series' stockholders, tax returns,
reports to and filings with the Securities and Exchange Commission and state
Blue Sky authorities; and calculate the net asset value of each Series' shares.
<PAGE>
BSFM shall exercise its best judgment in rendering the services to be
provided to the Fund hereunder, and the Fund agrees as an inducement to BSFM's
undertaking the same that BSFM shall not be liable hereunder for any error of
judgment or mistake of law or for any loss suffered by one or more Series,
provided that nothing herein shall be deemed to protect or purport to protect
BSFM against any liability to the Fund or a Series or to its security holders to
which BSFM would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence in the performance of its duties hereunder or by reason
of BSFM's reckless disregard of its obligations or duties hereunder (hereinafter
"Disabling Conduct").
In consideration of services rendered pursuant to this Agreement, the
Fund will pay you on the first business day of each month a fee at the rate set
forth opposite each Series' name on Schedule 1 hereto. Net asset value shall be
computed on such days and at such time or times as described in the Fund's then-
current Prospectus and Statement of Additional Information. The fee for the
period from the date of the commencement of sales of a Series' shares to the end
of the month during which such sales shall have been commenced shall be pro-
rated according to the proportion which such period bears to the full monthly
period, and upon any termination of this Agreement before the end of any month,
the fee for such part of a month shall be pro-rated according to the proportion
which such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement.
For the purpose of determining fees payable to you, the value of each
Series' net assets shall be computed in the manner specified in the Fund's
charter documents for the computation of the value of each Series' net assets.
BSFM will bear all expenses in connection with the performance of its
services under this Agreement. All other expenses to be incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by BSFM. The expenses to be borne by the Fund include,
without limitation, the following: organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
brokerage fees and commissions, if any, fees of Board members, Securities and
Exchange Commission fees, state Blue Sky qualification fees, advisory,
administration and fund accounting fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of independent
pricing services, costs of maintaining the Series' existence, costs attributable
to investor services (including, without limitation, telephone and personnel
expenses), costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
<PAGE>
stockholders, costs of stockholders' reports and meetings, and any extraordinary
expenses.
The Fund understands that BSFM now acts and will continue to act as
administrator of various investment companies and fiduciary or other managed
accounts, and the Fund has no objection to BSFM's so acting. In addition, it is
understood that the persons employed by BSFM to assist in the performance of its
duties hereunder will not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of BSFM or the
right of any affiliate of BSFM to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.
Any person, even though also an officer, director, partner, employee or
agent of BSFM, who may be or become an officer, Board member, employee or agent
of the Fund, shall be deemed, when rendering services to the Fund or acting on
any business of the Fund, to be rendering such services to or acting solely for
the Fund and not as an officer, director, partner, employee, or agent or one
under the control or direction of BSFM even though paid by it.
The Fund will indemnify you against, and hold you harmless from, any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) not resulting from Disabling Conduct by you.
Indemnification shall be made only following: (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that you
were not liable by reason of Disabling Conduct or (ii) in the absence of such a
decision, a reasonable determination, based upon a review of the facts, that you
were not liable by reason of Disabling Conduct by (a) the vote of a majority of
a quorum of Board members of the Fund who are neither "interested persons" of
the Fund nor parties to the proceeding ("disinterested non-party Board members")
or (b) an independent legal counsel in a written opinion. You shall be entitled
to advances from the Fund for payment of the reasonable expenses incurred by you
in connection with the matter as to which you are seeking indemnification in the
manner and to the fullest extent permissible under the New York Business
Corporation Law. You shall provide to the Fund a written affirmation of your
good faith belief that the standard of conduct necessary for indemnification by
the Fund has been met and a written undertaking to repay any such advance if it
should ultimately be determined that the standard of conduct has not been met.
In addition, at least one of the following additional conditions shall be met:
(a) you shall provide security in form and amount acceptable to the Fund for its
undertaking; (b) the Fund is insured against losses arising by reason of the
advance; or (c) a majority of a quorum of disinterested non-party Board members,
or independent legal counsel, in a written opinion, shall
-3-
<PAGE>
have determined, based on a review of facts readily available to the Fund at the
time the advance is proposed to be made, that there is reason to believe that
you will ultimately be found to be entitled to indemnification. No provision of
this Agreement shall be construed to protect any Board member or officer of the
Fund, or you, from liability in violation of Sections 17(h) and (i) of the
Investment Company Act of 1940, as amended (the "1940 Act").
As to each Series, this Agreement shall continue until the date set
forth opposite such Series' name on Schedule 1 hereto (the "Reapproval Date")
and thereafter shall continue automatically for successive annual periods ending
on the day of each year set forth opposite the Series' name on Schedule 1 hereto
(the "Reapproval Day"), provided such continuance is specifically approved at
least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in
the 1940 Act) of such Series' outstanding voting securities, provided that in
either event its continuance also is approved by a majority of the Fund's Board
members who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. As to each Series, this Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board or by vote
of holders of a majority of such Series' shares or, upon not less than 90 days'
notice, by you. This Agreement also will terminate automatically, as to the
relevant Series, in the event of its assignment (as defined in the 1940 Act).
The Fund recognizes that from time to time your directors, officers and
employees may serve as trustees, directors, partners, officers and employees of
other business trusts, corporations, partnerships or other entities (including
other investment companies) and that such other entities may include the name
"Bear Stearns" as part of their name, and that your corporation or its
affiliates may enter into investment advisory, administration or other
agreements with such other entities. If you cease to act as the Fund's
administrator, the Fund agrees that, at your request, the Fund will take all
necessary action to change the name of the Fund to a name not including "Bear
Stearns" in any form or combination of words.
This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and property
of the relevant Series, and shall not be binding upon any Board member, officer
or shareholder of the Fund individually.
-4-
<PAGE>
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE BEAR STEARNS FUNDS
By: /s/ Frank J. Maresca
-----------------------------
Accepted:
BEAR STEARNS FUNDS MANAGEMENT INC.
By: /s/ Robert S. Reitzes
-------------------------------
-5-
<PAGE>
SCHEDULE 1
Annual Fees as
a Percentage of
Average Daily
Name of Series Net Assets Reapproval Date Reapproval Day
- -------------- ---------- --------------- --------------
S&P STARS Portfolio .15 of 1% February 22, 1998 February 22nd
Large Cap Value
Portfolio .15 of 1% February 22, 1998 February 22nd
Small Cap Value
Portfolio .15 of 1% February 22, 1998 February 22nd
Total Return Bond
Portfolio .15 of 1% February 22, 1998 February 22nd
The Insiders Select
Portfolio .15 of 1% February 22, 1998 February 22nd
<PAGE>
Exhibit (5)(c)
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS AGREEMENT is made as of February 22, 1995 by and between THE BEAR
STEARNS FUNDS, a Massachusetts business trust (the "Fund") and PFPC INC., a
Delaware corporation ("PFPC"), which is an indirect wholly owned subsidiary of
PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to provide administration and
accounting services to its portfolios listed on Exhibit A attached hereto, as
amended from time to time (each a "Portfolio"), and PFPC wishes to furnish such
services.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
---------------------------------------
(a) "1933 Act" means the Securities Act of 1933, as amended.
----------
(b) "1934 Act" means the Securities Exchange Act of 1934, as
----------
amended.
(c) "Authorized Person" means any officer of the Fund and any
-------------------
other person duly authorized by the Fund's Board of Trustees to give Oral and
Written Instructions on behalf of the Fund and listed on the Authorized Persons
Appendix attached hereto
<PAGE>
and made a part hereof or any amendment thereto as may be received by PFPC. An
Authorized Person's scope of authority may be limited by the Fund by setting
forth such limitation in the Authorized Persons Appendix.
(d) "CEA" mean the Commodities Exchange Act, as amended.
-----
(e) "Oral Instructions" mean oral instructions received by PFPC
-------------------
from an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
-----
(g) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940
-----------------
Act and the CEA.
(h) "Shares" mean the shares of beneficial interest of any series
--------
or class of the Fund.
(i) "Written Instructions" mean written instructions signed by an
----------------------
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to provide
-----------
administration and accounting services to the each of the Portfolios, in
accordance with the terms set forth in this Agreement. PFPC accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
---------------------
will provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the
Fund's Board of Trustees, approving the appointment of PFPC or
its affiliates to provide services to each Portfolio and
approving this Agreement;
-2-
<PAGE>
(b) A copy of the Fund's most recent effective regis-
tration statement;
(c) A copy of each Portfolio's advisory agreement or agreements;
(d) A copy of the distribution agreement with respect to each class
of Shares representing an interest in a Portfolio;
(e) A copy of any additional administration agreement with respect to
a Portfolio;
(f) A copy of any shareholder servicing agreement
made in respect of the Fund or a Portfolio; and
(f) Copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS.
-------------------------------------
PFPC undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC
hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS.
------------
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person reasonably
believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC
may assume that any Oral or Written Instruction received hereunder is not in any
way inconsistent with the provisions of organizational documents or this
Agreement
-3-
<PAGE>
or of any vote, resolution or proceeding of the Fund's Board of Trustees or of
the Fund's shareholders, unless and until PFPC receives Written Instructions to
the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PFPC or its affiliates) so that PFPC receives the Written Instructions by the
close of business on the same day that such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such Oral or Written Instructions
provided that PFPC's actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
-----------------------
(a) Advice of the Fund. If PFPC is in doubt as to any
------------------
action it should or should not take, PFPC may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question
-----------------
of law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict
------------------
between directions, advice or Oral or Written Instructions PFPC
-4-
<PAGE>
receives from the Fund and the advice PFPC receives from counsel, PFPC may rely
upon and follow the advice of counsel. In the event PFPC so relies on the advice
of counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it
------------------
takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which PFPC believes,
in good faith, to be consistent with those directions, advice or Oral or Written
Instructions. Nothing in this section shall be construed so as to impose an
obligation upon PFPC (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PFPC's properly taking or not taking such
action. Nothing in this subsection shall excuse PFPC when an action or omission
on the part of PFPC constitutes willful misfeasance, bad faith, gross negligence
or reckless disregard by PFPC of any duties, obligations or responsibilities set
forth in this Agreement.
7. RECORDS; VISITS.
---------------
(a) The books and records pertaining to the Fund and the Portfolios
which are in the possession or under the control of PFPC
-5-
<PAGE>
shall be the property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws,
rules and regulations. The Fund and Authorized Persons shall have access to such
books and records at all times during PFPC's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by PFPC to the Fund or to an Authorized Person, at the Fund's expense.
(b) PFPC shall keep the following records:
(i) All books and records with respect to each Portfolio's books
of account;
(ii) Records of each Portfolio's securities transactions; and
(iii) All other books and records as PFPC is required to maintain
pursuant to Rule 31a-1 of the 1940 Act in connection with
the services provided hereunder.
8. CONFIDENTIALITY. PFPC agrees on its own behalf and that of its
---------------
employees to keep confidential all records of the Fund and information relating
to the Fund and its shareholders (past, present and future), unless the release
of such records or information is otherwise consented to, in writing, by the
Fund. The Fund agrees that such consent shall not be unreasonably withheld and
may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
------------------------
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules with respect to each Portfolio.
PFPC shall take all reasonable
-6-
<PAGE>
action in the performance of its duties under this Agreement to assure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
-----------------
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions. PFPC shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure, provided such loss or
interruption is not caused by PFPC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during
------------
the term of this Agreement, the Fund, on behalf of each Portfolio, will pay to
PFPC a fee or fees as may be agreed to from time to time in writing by the Fund
and PFPC.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
---------------
indemnify and hold harmless PFPC and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Laws and any state and foreign
securities and blue sky laws, and amendments thereto), and expenses, including
(without limitation) attorneys' fees and disbursements arising directly or
-7-
<PAGE>
indirectly from any action or omission to act which PFPC takes (i) at the
request or on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral or Written Instructions. Neither PFPC, nor any of its affiliates',
shall be indemnified against any liability (or any expenses incident to such
liability) arising out of PFPC's or its affiliates' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement. Any amounts payable by the Fund hereunder shall be
satisfied only against the relevant Portfolio's assets and not against the
assets of any other investment portfolio of the Fund.
13. RESPONSIBILITY OF PFPC.
----------------------
(a) PFPC shall be under no duty to take any action on behalf of the
Fund or any Portfolio except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise
care and diligence in the performance of its duties hereunder, to act in good
faith and to use its best efforts, within reasonable limits, in performing
services provided for under this Agreement. PFPC shall be liable for any
damages arising out of PFPC's failure to perform its duties under this Agreement
to the extent such damages arise out of PFPC's willful misfeasance, bad faith,
gross negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses beyond its
control, provided that PFPC has acted
-8-
<PAGE>
in accordance with the standard of care set forth above; and (ii) PFPC shall not
be liable for (A) the validity or invalidity or authority or lack thereof of any
Oral or Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PFPC reasonably believes to
be genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Fund or to any Portfolio
for any consequential, special or indirect losses or damages which the Fund or
any Portfolio may incur or suffer by or as a consequence of PFPC's or its
affiliate's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PFPC or its affiliates.
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.
--------------------------------------------------------
PFPC will perform the following accounting services with respect to each
Portfolio:
(i) Journalize investment, capital share and income and expense
activities;
(ii) Verify investment buy/sell trade tickets when received from
the investment adviser for a Portfolio (the "Adviser") and
transmit trades to the Fund's custodian (the "Custodian")
for proper settlement;
-9-
<PAGE>
(iii) Maintain individual ledgers for investment
securities;
(iv) Maintain historical tax lots for each
security;
(v) Reconcile cash and investment balances of the Fund with the
Custodian, and provide the Adviser with the beginning cash
balance available for investment purposes;
(vi) Update the cash availability throughout the day as required
by the Adviser;
(vii) Post to and prepare the Statement of Assets and Liabilities
and the Statement of Operations;
(viii) Calculate various contractual expenses
(e.g., advisory and custody fees);
----
(ix) Monitor the expense accruals and notify an officer of the
Fund of any proposed adjustments;
(x) Control all disbursements and authorize such disbursements
upon Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Obtain security market quotes from independent pricing
services approved by the Adviser, or if such quotes are
unavailable, then obtain such prices from the Adviser, and
in either case calculate the market value of each
Portfolio's Investments;
(xiv) Transmit or mail a copy of the daily portfolio valuation to
the Adviser;
(xv) Compute net asset value;
(xvi) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required, portfolio
average dollar-weighted maturity; and
-10-
<PAGE>
(xvii) Prepare a monthly financial statement, which will include
the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. DESCRIPTION OF ADMINISTRATION SERVICES ON A
--------------------------------------------
CONTINUOUS BASIS.
----------------
PFPC will perform the following administration services with respect
to each Portfolio:
(i) Prepare quarterly broker security transactions summaries;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Portfolio and Fund
statistical data as requested on an ongoing basis;
(iv) Prepare for execution and file the Fund's Federal and state
tax returns;
(v) Prepare and file the Fund's Semi-Annual Reports with the SEC
on Form N-SAR;
(vi) Prepare and file with the SEC the Fund's annual, semi-
annual, and quarterly shareholder reports;
(vii) Assist in the preparation of registration statements and
other filings relating to the registration of Shares;
(viii) Monitor each Portfolio's status as a regulated investment
company under Sub-chapter M of the Internal Revenue Code of
1986, as amended;
(ix) Coordinate contractual relationships and communications
between the Fund and its contractual service providers; and
(x) Monitor the Fund's compliance with the amounts and
conditions of each state qualification.
-11-
<PAGE>
16. DURATION AND TERMINATION. This Agreement shall continue until
------------------------
terminated by either party on sixty (60) days' prior written notice to the other
party.
17. NOTICES. All notices and other communications, including Written
-------
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable,
telex or facsimile sending device, it shall be deemed to have been given
immediately. If notice is sent by first-class mail, it shall be deemed to have
been given three days after it has been mailed. If notice is sent by messenger,
it shall be deemed to have been given on the day it is delivered. Notices shall
be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware
19809; (b) if to the Fund, at 245 Park Avenue, New York, NY 10167, Attn: Frank
J. Maresca; or (c) if to neither of the foregoing, at such other address as
shall have been provided by like notice to the sender of any such notice or
other communication by the other party.
18. AMENDMENTS. This Agreement, or any term thereof, may be changed or
----------
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
----------------------
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Fund to comply with all relevant provisions of the
-12-
<PAGE>
1940 Act; and (iii) PFPC and such delegate (or assignee) promptly provide such
information as the Fund may request, and respond to such questions as the Fund
may ask, relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
22. MISCELLANEOUS.
-------------
(a) Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
--------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
-------------
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be
------------------
held or made invalid by a court decision,
-13-
<PAGE>
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to
--------------------
this Agreement shall constitute the valid and binding execution hereof by such
party.
(g) Capacity. This Agreement has been executed on behalf of the Fund
--------
by the undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the assets
and property of the relevant Portfolio and shall not be binding upon any Board
member, officer or shareholder of the Fund individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ Stephen M. Wynne
----------------------------
Title: Executive Vice President
-------------------------
THE BEAR STEARNS FUNDS
By: /s/ Frank J. Maresca
--------------------------------
Title: Vice President and Treasurer
-----------------------------
-14-
<PAGE>
EXHIBIT A
* This Exhibit A is dated May 4, 1995 and adds The Insiders Select Portfolio to
the Administrative Services Agreement.
PORTFOLIOS
----------
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
S&P STARS Portfolio
The Insiders Select Portfolio
<PAGE>
AUTHORIZED PERSONS APPENDIX
Set forth below are the names of the persons, whose specimen signatures are
on file with PFPC, that are authorized to give Oral and Written Instructions on
behalf of the Fund.
Name
- ----
Frank J. Maresca
Vincent L. Pereira
Eileen M. Coyle
<PAGE>
The Bear Stearns Funds
245 Park Avenue
New York, New York 10067
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, Delaware 19809
Dear Sirs:
Reference is made to the Administrative Services Agreement (the "Agreement")
dated as of February 22, 1995 between The Bear Stearns Funds and PFPC Inc. We
wish to amend the Agreement as follows:
1. Exhibit A hereby is amended by adding to the end thereof: "The Insiders
Select Portfolio."
2. In all other respects, the Agreement shall remain in full force and effect
in accordance with its terms.
Kindly sign and return the enclosed duplicate hereof, whereupon this letter
agreement shall be binding between us in accordance with its terms.
Very truly yours,
THE BEAR STEARNS FUNDS
By: /s/ Frank J. Maresca
----------------------
Accepted and Agreed to as
of the date first written above:
PFPC INC.
By: /s/ Stephen M. Wynne
----------------------
<PAGE>
Exhibit (5)(d)
SUB-INVESTMENT ADVISORY AGREEMENT
BEAR STEARNS FUNDS MANAGEMENT INC.
245 Park Avenue
New York, New York 10167
February 22, 1995
As Revised May 4, 1995
Symphony Asset Management
50 California Street, Suite 420
San Francisco, California 94111
Dear Sirs:
As you are aware, each Series of The Bear Stearns Funds (the "Fund")
desires to employ its capital by investing and reinvesting the same in
investments of the type and in accordance with the limitations specified in its
charter documents and in its Prospectus and Statement of Additional Information
as from time to time in effect, copies of which have been or will be submitted
to you, and in such manner and to such extent as from time to time may be
approved by the Fund's Board. The Fund intends to employ us (the "Adviser") to
act as its investment adviser pursuant to a written agreement (the "Investment
Advisory Agreement"), a copy of which has been furnished to you. The Adviser
desires to employ you to act as the sub-investment adviser to The Insiders
Select Portfolio (the "Series").
In this connection, it is understood that from time to time you will
employ or associate with yourself such person or persons as you may believe to
be particularly fitted to assist you in the performance of this Agreement. Such
person or persons may be officers or employees who are employed by both you and
the Fund. The compensation of such person or persons shall be paid by you and
no obligation may be incurred on the Fund's behalf in any such respect.
Subject to the supervision and approval of the Adviser, you will
provide investment management of the Series' portfolio in accordance with the
Series' investment objectives and policies as stated in its Prospectus and
Statement of Additional Information as from time to time in effect. In
connection therewith, you will supervise the Series' investments and conduct a
continuous program of investment, evaluation and, if appropriate, sale and
reinvestment of the Series' assets. You will furnish to the Adviser or the Fund
such statistical information, with respect to
<PAGE>
the investments which the Series may hold or contemplate purchasing, as the
Adviser or the Fund may reasonably request. The Fund and the Adviser wish to be
informed of important developments materially affecting the Series' portfolio
and shall expect you, on your own initiative, to furnish to the Fund or the
Adviser from time to time such information as you may believe appropriate for
this purpose.
You shall exercise your best judgment in rendering the services to be
provided hereunder, and, to the extent provided in the Investment Advisory
Agreement, the Fund has agreed as an inducement to your undertaking the same
that you shall not be liable hereunder for any error of judgment or mistake of
law or for any loss suffered by the Fund, provided that nothing herein shall be
deemed to protect or purport to protect you against any liability to the
Adviser, the Fund or the Fund's security holders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
In consideration of services rendered pursuant to this Agreement, the
Adviser will pay you, by the twentieth day of each month, out of the investment
advisory fee it receives pursuant to the Investment Advisory Agreement and only
to the extent thereof, a fee calculated as set forth on Schedule 1 hereto.
Net asset value shall be computed on such days and at such time or
times as described in the Series' then-current Prospectus and Statement of
Additional Information. The fee for the period from the date following the
commencement of sales of the Series' shares to the end of the month during which
such sales shall have been commenced shall be pro-rated according to the
proportion which such period bears to the full monthly period, and upon any
termination of this Agreement before the end of any month, the fee for such part
of a month shall be pro-rated according to the proportion which such period
bears to the full monthly period and shall be payable within 10 business days of
date of termination of this Agreement.
For the purpose of determining fees payable to you, the value of the
Series' net assets shall be computed in the manner specified in the Fund's
charter documents for the computation of the value of the Series' net assets.
You will bear all expenses in connection with the performance of your
services under this Agreement. All other expenses to be incurred in the
operation of the Series (other than those borne by the Adviser) will be borne by
the Series, except to the extent specifically assumed by you. The expenses to
be borne by the Series include, without limitation, the following:
organizational costs, taxes, interest, loan commitment fees,
-2-
<PAGE>
interest and distributions paid on securities sold short, brokerage fees and
commissions, if any, fees of Board members, Securities and Exchange Commission
and state Blue Sky qualification fees, advisory, administration and fund
accounting fees, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees, outside auditing
and legal expenses, costs of independent pricing services, costs of maintaining
the Series' existence, costs attributable to investor services (including,
without limitation, telephone and personnel expenses), costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, costs of shareholders'
reports and meetings, and any extraordinary expenses.
If in any fiscal year the aggregate expenses of the Series (including
fees pursuant to the Fund's Investment Advisory Agreement, but excluding
interest, taxes, brokerage and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Series, the Adviser may
deduct from the fees to be paid hereunder, or you will bear such excess expense
on a pro-rata basis with the Adviser, in the proportion that the sub-advisory
fee payable to you pursuant to this Agreement bears to the fee payable to the
Adviser pursuant to the Investment Advisory Agreement (the "Proportion"), to the
extent required by state law. Your obligation pursuant hereto will be limited
to the amount of your fees hereunder. Such deduction or payment, if any, will
be estimated daily, and reconciled and effected or paid, as the case may be, on
a monthly basis.
The Adviser understands that you now act, and that from time to time
hereafter you may act, as investment adviser to one or more other investment
companies and fiduciary or other managed accounts, and the Adviser has no
objection to your so acting, provided that when purchase or sale of securities
of the same issuer is suitable for the investment objectives of two or more
companies or accounts managed by you which have available funds for investment,
the available securities will be allocated in a manner believed by you to be
equitable to each company or account. It is recognized that in some cases this
procedure may adversely affect the price paid or received by the Series or the
size of the position obtainable for or disposed of by the Series.
In addition, it is understood that the persons employed by you to
assist in the performance of your duties hereunder will not devote their full
time to such services and nothing contained herein shall be deemed to limit or
restrict your right or the right of any of your affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
-3-
<PAGE>
Any person, even though also your officer, director, partner, employee
or agent, who may be or become an officer, Board member, employee or agent of
the Fund, shall be deemed, when rendering services to the Fund or acting on any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as your officer, director, partner, employee, or agent or one under
your control or direction even though paid by you.
This Agreement shall continue until February 22, 1997, and thereafter
shall continue automatically for successive annual periods ending on February
22nd of each year, provided such continuance is specifically approved at least
annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the
Investment Company Act of 1940, as amended) of the Fund's outstanding voting
securities, provided that in either event its continuance also is approved by a
majority of the Fund's Board members who are not "interested persons" (as
defined in said Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable without penalty (i) by the Adviser upon 60 days' notice to you, (ii)
by the Fund's Board or by vote of the holders of a majority of the Fund's shares
upon 60 days' notice to you, or (iii) by you upon not less than 90 days' notice
to the Fund and the Adviser. This Agreement also will terminate automatically
in the event of its assignment (as defined in said Act). In addition,
notwithstanding anything herein to the contrary, if the Investment Advisory
Agreement terminates for any reason, this Agreement shall terminate effective
upon the date the Investment Advisory Agreement terminates.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
BEAR STEARNS FUNDS MANAGEMENT INC.
By: /s/ Frank J. Maresca
-------------------------------
Accepted:
SYMPHONY ASSET MANAGEMENT
By: /s/ Neil Rudolph
----------------------
-4-
<PAGE>
SCHEDULE 1
For the period beginning with the day on which the Fund commences
investment operations and ending with the last day of the twelfth full calendar
month thereafter, the Adviser will pay you, at the end of each month, a monthly
advisory fee calculated at an annual rate of .45% of the Series' average daily
net assets during such month (the "Basic Fee"). Beginning with the thirteenth
month, the Basic Fee will be adjusted each month (the "Monthly Performance
Adjustment") depending on the extent to which the investment performance of the
Class of shares expected to bear the highest total Series operating expenses (as
such Class from time to time may be designated by the Fund's Board, the
"Designated Class"), reflecting the deduction of expenses, exceeds or is
exceeded by the percentage change in the investment record of the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500") for the immediately
preceding twelve calendar months on a rolling basis. The rate of the Monthly
Performance Adjustment may increase or decrease the fee payable to you by up to
.25% per annum of the Series' average daily net assets.
The performance of the Designated Class during a performance period
will be calculated by first determining the change in the Class' net asset value
per share during the period, assuming the reinvestment of distributions during
that period, and then expressing this amount as a percentage of the net asset
value per share at the beginning of the period. The performance of the S&P 500
during a performance period is calculated as the sum of the change in the level
of the index during the period, plus the value of any dividends or distributions
made by the companies whose securities comprise the index accumulated to the end
of the period.
After the Monthly Performance Adjustment is effective, the total
advisory fee, payable by the Adviser to you at the end of each calendar month,
will be equal to the Basic Fee for the month adjusted upward or downward for the
month by the Monthly Performance Adjustment for the month. The monthly advisory
fee will be calculated as follows: (1) one-twelfth of the .45% annual basic fee
rate will be applied to the Series' average daily net assets over the most
recent calendar month, giving a dollar amount which will be the Basic Fee for
that month; (2) one-twelfth of the applicable performance adjustment fee rate
from the table below will be applied to the Series' average daily net assets
over the most recent month, giving a dollar amount which will be the Monthly
Performance Adjustment; and (3) the Monthly Performance Adjustment will then be
added to or subtracted from the Basic Fee and the result will be the amount
payable by the Adviser to you as the total advisory fee for that month.
<PAGE>
The full range of permitted fees on an annualized basis is as follows:
<TABLE>
<CAPTION>
Percentage Point Difference Between
Designated Class' Performance (Net
of Expenses Including Advisory Fees) Performance
and Percentage Change in the Basic Adjustment Total
S&P 500 Investment Record Fee/*/ (%) Rate (%) Fee (%)
- ------------------------------------ ---------- ----------- -----
<S> <C> <C> <C>
+3.00 percentage points or more........ .45% .25% .70%
+2.75 percentage points or more but
less than +3.00 percentage points.... .45% .20% .65%
+2.50 percentage points or more but
less than +2.75 percentage points.... .45% .15% .60%
+2.25 percentage points or more but
less than +2.50 percentage points.... .45% .10% .55%
+2.00 percentage points or more but
less than +2.25 percentage points.... .45% .05% .50%
Less than +2.00 percentage points but
more than -2.00 percentage points.... .45% 0% .45%
- -2.00 percentage points or less but
more than -2.25 percentage points.... .45% -.05% .40%
- -2.25 percentage points or less but
more than -2.50 percentage points.... .45% -.10% .35%
- -2.50 percentage points or less but
more than -2.75 percentage points.... .45% -.15% .30%
- -2.75 percentage points or less but
more than -3.00 percentage points.... .45% -.20% .25%
- -3.00 percentage points or less........ .45% -.25% .20%
</TABLE>
The period over which performance will be measured is a rolling 12-
month period.
You acknowledged that, from time to time, the Adviser may waive
receipt of all or a portion of its fee. You agree that, in such circumstance,
the Total Fee payable to you shall be reduced by an amount determined by
multiplying the amount of such waiver by the Proportion, provided that the
amount of such reduction shall not exceed an annual rate of .075%.
- ---------------
/*/ If for the 12-month period ended February 22, 1997, your Total Fee exceeds
.45%, without giving effect to any fee waivers by the Adviser, then
thereafter, so long as this Agreement remains in effect, the Basic Fee
shall be increased to .50% on an annualized basis.
<PAGE>
Exhibit (6)(a)
DISTRIBUTION AGREEMENT
THE BEAR STEARNS FUNDS
245 Park Avenue
New York, New York 10167
February 22, 1995
As Revised April 11, 1995
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this agreement, the distributor of (a) shares of
each Series of the Fund set forth on Schedule 1 hereto, as such Schedule may be
revised from time to time (each, a "Series") or (b) if no Series are set forth
on such Schedule, shares of the Fund. For purposes of this agreement the term
"Shares" shall mean the authorized shares of the relevant Series, if any, and
otherwise shall mean the Fund's authorized shares.
1. Services as Distributor
1.1 You will act as agent for the distribution of Shares covered by,
and in accordance with, the registration statement and prospectus then in effect
under the Securities Act of 1933, as amended, and will transmit promptly any
orders received by you for purchase or redemption of Shares to the Transfer and
Dividend Disbursing Agent for the Fund of which the Fund has notified you in
writing.
1.2 You agree to use your best efforts to solicit orders for the sale
of Shares. It is contemplated that you will enter into sales or servicing
agreements with securities dealers, financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms, and in so doing you will act only on your own behalf as principal.
<PAGE>
1.3 You shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitation, all rules
and regulations made or adopted pursuant to the Investment Company Act of 1940,
as amended, by the Securities and Exchange Commission or any securities
association registered under the Securities Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted by market,
economic or political conditions, or by abnormal circumstances of any kind, the
Fund's officers may decline to accept any orders for, or make any sales of, any
Shares until such time as they deem it advisable to accept such orders and to
make such sales and the Fund shall advise you promptly of such determination.
1.5 The Fund agrees to pay all costs and expenses in connection with
the registration of Shares under the Securities Act of 1933, as amended, and all
expenses in connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be furnished by
the Fund hereunder, and all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders; provided however, that
nothing contained herein shall be deemed to require the Fund to pay any of the
costs of advertising the sale of Shares.
1.6 The Fund agrees to execute any and all documents and to furnish
any and all information and otherwise to take all actions which may be
reasonably necessary in the discretion of the Fund's officers in connection with
the qualification of Shares for sale in such states as you may designate to the
Fund and the Fund may approve, and the Fund agrees to pay all expenses which may
be incurred in connection with such qualification. You shall pay all expenses
connected with your own qualification as a dealer under state or Federal laws
and, except as otherwise specifically provided in this agreement, all other
expenses incurred by you in connection with the sale of Shares as contemplated
in this agreement.
1.7 The Fund shall furnish you from time to time, for use in
connection with the sale of Shares, such information with respect to the Fund or
any relevant Series and the Shares as you may reasonably request, all of which
shall be signed by one or more of the Fund's duly authorized officers; and the
Fund warrants that the statements contained in any such information, when so
signed by the Fund's officers, shall be true and correct. The Fund also shall
furnish you upon request with: (a) semi-annual reports and annual audited
reports of the Fund's books and accounts made by independent public accountants
regularly retained by the Fund, (b) quarterly earnings
-2-
<PAGE>
statements prepared by the Fund, (c) a monthly itemized list of the securities
in the Fund's or, if applicable, each Series' portfolio, (d) monthly balance
sheets as soon as practicable after the end of each month, and (e) from time to
time such additional information regarding the Fund's financial condition as you
may reasonably request.
1.8 The Fund represents to you that all registration statements and
prospectuses filed by the Fund with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, with respect to the Shares have been carefully prepared in
conformity with the requirements of said Acts and rules and regulations of the
Securities and Exchange Commission thereunder. As used in this agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and prospectus, including the statement of additional information
incorporated by reference therein, filed with the Securities and Exchange
Commission and any amendments and supplements thereto which at any time shall
have been filed with said Commission. The Fund represents and warrants to you
that any registration statement and prospectus, when such registration statement
becomes effective, will contain all statements required to be stated therein in
conformity with said Acts and the rules and regulations of said Commission; that
all statements of fact contained in any such registration statement and
prospectus will be true and correct when such registration statement becomes
effective; and that neither any registration statement nor any prospectus when
such registration statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The Fund
may but shall not be obligated to propose from time to time such amendment or
amendments to any registration statement and such supplement or supplements to
any prospectus as, in the light of future developments, may, in the opinion of
the Fund's counsel, be necessary or advisable. If the Fund shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
days after receipt by the Fund of a written request from you to do so, you may,
at your option, terminate this agreement or decline to make offers of the Fund's
securities until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus without
giving you reasonable notice thereof in advance; provided, however, that nothing
contained in this agreement shall in any way limit the Fund's right to file at
any time such amendments to any registration statement and/or supplements to any
prospectus, of whatever character, as the Fund may deem advisable, such right
being in all respects absolute and unconditional.
-3-
<PAGE>
1.9 The Fund authorizes you to use any prospectus in the form
furnished to you from time to time, in connection with the sale of Shares. The
Fund agrees to indemnify, defend and hold you, your several officers and
directors, and any person who controls you within the meaning of Section 15 of
the Securities Act of 1933, as amended, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which you, your officers and directors,
or any such controlling person, may incur under the Securities Act of 1933, as
amended, or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact contained in
any registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Fund's
agreement to indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement or prospectus in reliance
upon and in conformity with written information furnished to the Fund by you
specifically for use in the preparation thereof. The Fund's agreement to
indemnify you, your officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Fund's being notified of any action
brought against you, your officers or directors, or any such controlling person,
such notification to be given by letter or by telegram addressed to the Fund at
its address set forth above within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund of any
such action shall not relieve the Fund from any liability which the Fund may
have to the person against whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or alleged omission, otherwise
than on account of the Fund's indemnity agreement contained in this paragraph
1.9. The Fund will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such case, such defense
shall be conducted by counsel of good standing chosen by the Fund and approved
by you. In the event the Fund elects to assume the defense of any such suit and
retain counsel of good standing approved by you, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Fund does not elect to assume the defense of any
such suit, or in case you do not approve of counsel chosen by the Fund, the Fund
will reimburse you, your officers and directors, or the controlling person or
persons named as defendant or defendants in such suit, for the fees and expenses
of any counsel retained by you or
-4-
<PAGE>
them. The Fund's indemnification agreement contained in this paragraph 1.9 and
the Fund's representations and warranties in this agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of you, your officers and directors, or any controlling person, and
shall survive the delivery of any Shares. This agreement of indemnity will inure
exclusively to your benefit, to the benefit of your several officers and
directors, and their respective estates, and to the benefit of any controlling
persons and their successors. The Fund agrees promptly to notify you of the
commencement of any litigation or proceedings against the Fund or any of its
officers or Board members in connection with the issue and sale of Shares.
1.10 You agree to indemnify, defend and hold the Fund, its several
officers and Board members, and any person who controls the Fund within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Fund, its officers or Board members, or any such controlling person, may incur
under the Securities Act of 1933, as amended, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the Fund, its
officers or Board members, or such controlling person resulting from such claims
or demands, shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished in writing by
you to the Fund specifically for use in the Fund's registration statement and
used in the answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such information not
misleading. Your agreement to indemnify the Fund, its officers and Board
members, and any such controlling person, as aforesaid, is expressly conditioned
upon your being notified of any action brought against the Fund, its officers or
Board members, or any such controlling person, such notification to be given by
letter or telegram addressed to you at your address set forth above within ten
days after the summons or other first legal process shall have been served. You
shall have the right to control the defense of such action, with counsel of your
own choosing, satisfactory to the Fund, if such action is based solely upon such
alleged misstatement or omission on your part, and in any other event the Fund,
its officers or Board members, or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any such
action. The failure so to notify you of any such action shall not relieve you
from any liability which
-5-
<PAGE>
you may have to the Fund, its officers or Board members, or to such controlling
person by reason of any such untrue, or alleged untrue, statement or omission,
or alleged omission, otherwise than on account of your indemnity agreement
contained in this paragraph 1.10. This agreement of indemnity will inure
exclusively to the Fund's benefit, to the benefit of the Fund's officers and
Board members, and their respective estates, and to the benefit of any
controlling persons and their successors. You agree promptly to notify the Fund
of the commencement of any litigation or proceedings against you or any of your
officers or directors in connection with the issue and sale of Shares.
1.11 No Shares shall be offered by either you or the Fund under any of
the provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.11 shall in any way restrict or have an application to or
bearing upon the Fund's obligation to repurchase any Shares from any shareholder
in accordance with the provisions of the Fund's prospectus or charter documents.
1.12 The Fund agrees to advise you immediately in writing:
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect
or for additional information;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event which makes
untrue any statement of a material fact made in the registration
statement or prospectus then in effect or which requires the making of
a change in such registration statement or prospectus in order to make
the statements therein not misleading; and
(d) of all actions of the Securities and
Exchange Commission with respect to any amendments to any registration
statement or prospectus which may from
-6-
<PAGE>
time to time be filed with the Securities and Exchange Commission.
2. Offering Price
Shares of any class of the Fund offered for sale by you shall be
offered for sale at a price per share (the "offering price") approximately equal
to (a) their net asset value (determined in the manner set forth in the Fund's
charter documents) plus (b) a sales charge, if any and except to those persons
set forth in the then-current prospectus, which shall be the percentage of the
offering price of such Shares as set forth in the Fund's then-current
prospectus. The offering price, if not an exact multiple of one cent, shall be
adjusted to the nearest cent. In addition, Shares of any class of the Fund
offered for sale by you may be subject to a contingent deferred sales charge as
set forth in the Fund's then-current prospectus. You shall be entitled to
receive any sales charge or contingent deferred sales charge in respect of the
Shares. Any payments to dealers shall be governed by a separate agreement
between you and such dealer and the Fund's then-current prospectus.
3. Term
Subject to the provisions of Paragraph 1.8, this agreement shall
continue until the date (the "Reapproval Date") set forth on Schedule 1 hereto
(and, if the Fund has Series, a separate Reapproval Date shall be specified on
Schedule 1 hereto for each Series), and thereafter shall continue automatically
for successive annual periods ending on the day (the "Reapproval Day") of each
year set forth on Schedule 1 hereto, provided such continuance is specifically
approved at least annually by (i) the Fund's Board or (ii) vote of a majority
(as defined in the Investment Company Act of 1940) of the Shares of the Fund or
the relevant Series, as the case may be, provided that in either event its
continuance also is approved by a majority of the Board members who are not
"interested persons" (as defined in said Act) of any party to this agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This agreement is terminable without penalty, on 60 days' notice, by
vote of holders of a majority of the Fund's shares, and, as to each Series, by
the Fund's Board of Trustees or by you. This agreement also will terminate
automatically, as to the relevant Series, in the event of its assignment (as
defined in said Act).
4. Miscellaneous
This agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the Fund. The
obligations of this agreement shall only be binding upon the assets and property
of the Fund and
-7-
<PAGE>
shall not be binding upon any Board member, officer or shareholder of the Fund
individually.
Please confirm that the foregoing is in accordance with your
understanding and indicate your acceptance hereof by signing below, whereupon it
shall become a binding agreement between us.
Very truly yours,
THE BEAR STEARNS FUNDS
By: /s/ Frank J. Maresca
-------------------------------
Accepted:
BEAR, STEARNS & CO. INC.
By: /s/ Robert S. Reitzes
-------------------------
-8-
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Name of Series Reapproval Date Reapproval Day
- -------------- --------------- --------------
<S> <C> <C>
S&P STARS Portfolio February 22, 1997 February 22nd
Large Cap Value Portfolio February 22, 1997 February 22nd
Small Cap Value Portfolio February 22, 1997 February 22nd
Total Return Bond Portfolio February 22, 1997 February 22nd
The Insiders Select
Portfolio February 22, 1997 February 22nd
</TABLE>
-9-
<PAGE>
Exhibit (6)(b)
THE BEAR STEARNS FUNDS
Shares of Beneficial Interest
DEALER AGREEMENT
, 199
------------ -
Ladies and Gentlemen:
Bear, Stearns & Co. Inc. ("Bear Stearns") has entered into a distribution
------------
agreement (the "Distribution Agreement"), dated February 22, 1995 with The Bear
----------------------
Stearns Funds (the "Trust"), pursuant to which Bear Stearns has agreed to act as
-----
distributor (the "Distributor") of shares of each Class of each Series of the
-----------
Trust set forth on Schedule 1 hereto, as such Schedule may be revised from time
to time (each, a "Series"). For purposes of this Agreement, the term "Shares"
shall mean the authorized shares of the relevant Series or Class of the Trust,
as the case may be.
This Dealer Agreement shall herein be referred to as the "Agreement." For
---------
purposes of this Agreement, "Bear Stearns" shall mean Bear, Stearns & Co. Inc.
------------
in our capacity as Distributor.
1. The Offering. The Shares will be offered initially during an
------------
initial offering period (the "Initial Offering Period") for those Series set
forth as having an Initial Offering Period on Schedule 1. The Initial Offering
Period, for each Series subject to one, will end on the date specified in the
relevant Prospectus. After the Initial Offering Period terminates, the Trust
intends to commence the continuous offering period (the "Continuous Offering
Period") referred to in the Prospectus relating to such Shares. Shares of the
other Series will be sold on a continuous basis.
2. Role of Bear Stearns. Pursuant to the Distribution Agreement, we
--------------------
have agreed to use our best efforts to make arrangements for securities dealers
which can make the representation set forth in Section 7(b) of this Agreement to
solicit from the public orders to purchase Shares. You are hereby invited to
become one of such securities dealers (each such securities dealer, an
"Authorized Dealer"). This will confirm our mutual agreement as to the terms
- ------------------
and conditions applicable to your participation as an Authorized Dealer, such
agreement to be effective on your confirmation hereof. You understand (a) that
we may, at any time at our option, act as an
<PAGE>
Authorized Dealer, (b) that we are seeking to enter into this Agreement in
counterparts with you and certain other securities dealers, which also may act
as Authorized Dealers, (c) that, except as we may otherwise agree with you, we
may enter into agreements (which may or may not be the same as this Agreement)
with Authorized Dealers, (d) that the Trust and we may modify, suspend,
terminate or withdraw entirely the offering of Shares at any time without giving
notice to you pursuant to Section 11 and without incurring any liability or
obligation to you, (e) that we may, upon notice, change the public offering
price, sales load, or dealer allowance or modify, cancel or change the terms of
this Agreement, and (f) we shall be under no liability to you except for lack of
good faith and for obligations expressly assumed by us herein. All purchases of
Shares from, and redemptions of Shares by, the Trust shall be effected through
us acting on behalf of the Trust. You understand that we shall have no
obligation to sell Shares to you at such times as we are not acting as
Distributor for the Shares.
3. Role of Authorized Dealers. (a) As an Authorized Dealer, you
--------------------------
shall have no obligation to purchase or sell or to solicit the purchase or sale
of Shares. As, when and if you determine to purchase Shares or you receive a
customer order for the purchase of Shares and you determine to accept such
order, you shall comply with the procedures for the purchase of Shares set forth
in the relevant Prospectus and Statement of Additional Information as most
currently amended or supplemented (the "SAI"). The procedure relating to the
---
handling of orders shall be subject to such further instructions as we shall
forward to you in writing from time to time.
(b) You agree to offer Shares to the public at the then applicable
public offering price and subject to the minimum investment amount set forth in
the relevant Prospectus and SAI, subject to any waivers or reductions of sales
load (the "Sales Load") or dealer allowances (the "Dealer Allowances") as
---------- -----------------
described in the Prospectus as amended from time to time. Any amendment to a
Prospectus which affects the Sales Load, Dealer Allowances, waivers or discounts
shall not affect Sales Load, Dealer Allowances, discounts or waivers with
respect to sales on which orders have been accepted by us prior to the date of
notice of such amendment. Your placement of an order for Shares after the date
of any notice of such amendment shall conclusively evidence your agreement to be
bound thereby. The Trust and Bear Stearns reserve the right to modify the
minimum investment requirement, the subsequent investment requirement, the
manner in which Shares are offered and the Sales Load rates applicable to future
purchases of Shares. You also acknowledge that the amounts charged to the
public for Shares may include such transaction fees ("Transaction Fees") as may
----------------
be described in the relevant Prospectus and SAI. Bear Stearns shall make a
reasonable effort to notify you of any redetermination or
-2-
<PAGE>
suspension of the public offering price, but Bear Stearns shall be under no
liability for failure to do so. Reduced Sales Loads also may be available as a
result of a cumulative discount or pursuant to a right of accumulation as set
forth in the relevant Prospectus. You agree to advise us promptly as to the
amounts of any sales made by you to the public qualifying for reduced Sales
Loads.
(c) You agree to purchase Shares from us only to cover purchase
orders already received from your customers, or for your own bona fide
investment. Any order of Shares from us as part of an initial distribution for
those Series set forth as having an Initial Offering Period on Schedule 1 must
be received by Bear Stearns on or before the close of business on the last day
of the Initial Offering Period (the "Closing Date"); after the Closing Date and
prior to the commencement of the Continuous Offering Period, orders for Shares
may be made by you only in respect of orders from your customers who have
purchased Shares as a part of the initial distribution. You will not withhold
placing with us orders received from your customers so as to profit yourself as
a result of such withholding.
All orders for Shares are subject to acceptance or rejection by Bear
Stearns or the Trust in the sole discretion of either.
(d) In purchasing Shares through us, you shall rely solely on the
representations contained in the relevant Prospectus, relevant SAI and the
registration statement, as most recently amended (the "Registration Statement"),
relating to the Shares. You will not furnish to any person any information
relating to the Shares, the Trust, any Series or us that is inconsistent with
information contained in the relevant Prospectus, relevant SAI, the Registration
Statement or any printed information issued by the Trust or us as information
supplemental to such Prospectus or cause any advertisement to be published or
posted in any public place without our consent and the consent of the Trust.
(e) In all sales of Shares to the public, you shall act as dealer for
your own account, whether as agent or principal. Nothing herein shall be deemed
to constitute you or any other Authorized Dealer as agent for the Trust, us, or
any other Authorized Dealer. You agree not to act as our agent and not to claim
to act as our agent or as agent of any of the foregoing. You shall be deemed an
independent contractor and you shall have no authority to act for or represent
the Trust. You will not act as an "underwriter" or "distributor" of Shares, as
those terms are used in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the Securities Act of 1933, as amended (the
- -----------------------
"Securities Act"), and the rules and regulations thereunder.
- ---------------
-3-
<PAGE>
You agree to buy Shares only through us and not from any other sources
and to sell Shares only to us, as the Trust's redemption agent, and not to any
other purchasers.
(f) You agree to accept orders for the redemption of Shares and to
transmit to the Trust such orders and all additional material, as may be
required to complete the redemption as described in the relevant Prospectus and
SAI.
(g) You agree that we shall have full authority to act upon your
express instructions to repurchase or exchange Shares through us on behalf of
your customers under the terms and conditions provided in the relevant
Prospectus and SAI. You agree to hold us harmless as a result of any action
taken with respect to authorized repurchases or exchanges upon your express
instructions.
4. Compensation. (a) You will be entitled to receive that portion
------------
of the Sales Load allocated to Authorized Dealers as set forth in the relevant
Prospectus in connection with purchases of Shares effected to or through you.
You acknowledge that the Prospectuses will set forth a description of waivers or
reduction of the Sales Load in certain cases and you hereby waive such portion
of the Sales Load otherwise allocated to you. We will promptly remit or cause
to be remitted to you, by wire transfer of same day funds to an account you
shall designate, that portion of the Sales Load or Transaction Fees, if any, to
which you are entitled, after deduction of the portion allocated to us, which
was received by us and not yet paid to you.
(b) If payment in Federal Funds is not received by the fifth business
day after the Subscription Date or, in case of orders during the Continuous
Offering Period, within five business days after the execution of the order,
Bear Stearns reserves the right, without any notice, to cancel the sale and to
hold you responsible for any loss, including loss of profits, suffered by Bear
Stearns or by the Trust resulting from such failure.
5. Orders and Payment for Shares. Upon receipt from you of any order
-----------------------------
to purchase Shares and, if a new account, an Account Information Form, we shall
confirm such order to you in writing or by wire to be followed by a confirmation
in writing. Additional instructions may be forwarded to you from time to time.
Payment for Shares ordered from us shall be made in Federal Funds and
must be received by the Trust's agent, PFPC Inc., within five business days of a
receipt and acceptance by us of an order.
-4-
<PAGE>
6. Blue Sky and Other Qualifications. The Trust has registered an
---------------------------------
indefinite number of Shares under the Securities Act. Upon application by you,
we shall inform you as to any advice received by us concerning the jurisdictions
in which the Shares have been qualified for offer or sale or are exempt under
the securities or blue sky laws of such jurisdictions, but we assume no
obligation or responsibility as to your right to offer or sell Shares in any
jurisdiction (other than under the federal laws of the United States). If you
propose to offer or sell Shares outside the United States, its territories or
its possessions, you will take, at your expense, such action, if any, as may be
necessary to comply with the laws of such foreign jurisdictions.
7. Representations, Warranties and Undertakings. You represent and
--------------------------------------------
warrant to and undertake that:
(a) You are familiar with Rule 15c2-8 under the Securities Exchange
Act of 1934 (the "Exchange Act"), Section 4(3) of Securities Act and Section
------------
24(d) of the Investment Company Act relating to the distribution and delivery of
preliminary and final prospectuses and agree that you will comply therewith.
You agree to deliver thereafter to any purchaser whose Shares you are holding as
record holder copies of the annual and interim reports and proxy solicitation
materials relating to the Shares. You further agree to make reasonable efforts
to endeavor to obtain proxies from such purchasers whose Shares you are holding
as record holder. Additional copies of the Trust's Prospectuses, SAI, annual or
interim reports, proxy solicitation materials and any other printed information
supplemental to such material will be supplied to you as you reasonably request.
(b) You are a member of good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or, if you are not such a member, you are
----
a foreign bank, dealer or institution not eligible for membership in the NASD
which agrees to make no sales within the United States, its territories or its
possessions or to persons who are citizens thereof or residents therein, and in
making other sales to comply, as though you were a member of NASD, with the
provisions of Sections 8, 24 and 36 of Article III of the Rules of Fair Practice
of the NASD and with Section 25 thereof as that Section applies to a non-NASD
member broker or dealer in a foreign country.
(c) You undertake to comply with respect to your offering of Shares
to the public pursuant to this Agreement with all applicable provisions of the
Securities Act, the Exchange Act and the Investment Company Act and the rules
and regulations thereunder and with the applicable rules of the NASD.
-5-
<PAGE>
(d) You represent that any compensation payable to you hereunder (i)
will be disclosed to your customers; (ii) will be authorized by your customers;
and (iii) will not result in an excessive fee to you. In addition, if an issue
relating to a Class' 12b-1 Plan (as defined below) is submitted for shareholder
approval, you will vote any Shares held for your own account in the same
proportion as the vote of the Shares held by your customers on such issue. You
further represent that in effecting the purchase or redemption of Shares in
accordance with the terms of this Agreement, you represent as follows: (i) you
shall act solely as agent for the account of your customer; (ii) purchases or
redemptions of Shares shall be initiated solely upon the instruction and order
of your customer; (iii) the customer will have full beneficial ownership of any
Shares purchased upon its authorization and order; and (iv) all transactions
shall be for the account of the customer and under no circumstances for your
account, and shall be without recourse to you. Under no circumstances will you
make any oral or written representations to the contrary.
8. 12b-1 Plan. Those Series or Classes set forth as having a 12b-1
----------
Plan on Schedule 1 have adopted a plan under Rule 12b-1 of the Investment
Company Act (a "12b-1 Plan") as described in the Prospectuses. To the extent
you provide services of the type contemplated by the 12b-1 Plan, you may be
entitled to receive compensation from us as set forth in the 12b-1 Plan. All
compensation, including fees under the 12b-1 Plan, shall be payable to you only
to the extent that funds are received and in the possession of the Distributor.
9. Indemnification. The parties to this Agreement hereby agree to
---------------
indemnify and hold harmless each other, their officers and directors, and any
person who is or may be deemed to be a controlling person of each other, from
and against any losses, claims, damages, liabilities or expenses (including
reasonable fees of counsel) to which any such person or entity may become
subject insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) arise out of or are based upon (a) any untrue
statement or alleged untrue statement of material fact, or any omission or
alleged omission to state a material fact made or omitted by it herein, or (b)
any willful misfeasance or gross misconduct by it in the performance of its
duties and obligations hereunder.
10. NSCC Indemnity - Shareholder and House Accounts. In
-----------------------------------------------
consideration of the Distributor liquidating, exchanging and/or transferring
unissued Shares for your customers without the use of original or underlying
documentation supporting such instruction (e.g. a signed stock power or
signature guarantees), you hereby agree to indemnify the Distributor and the
Trust against any losses, including reasonable attorney's fees, that may arise
from such liquidation, exchange and/or transfer of
-6-
<PAGE>
unissued Shares upon your direction. This indemnification shall apply only to
the liquidation, exchange and/or transfer of unissued Shares in shareholder and
house accounts executed as wire orders transmitted via NSCC's Fund/SERV system.
You represent and warrant to the Trust and the Distributor that all such
transactions shall be authorized by your customers.
This indemnification shall not apply to any losses (including
attorneys fees) caused by the Distributor or the Trust to comply with any of
your instructions governing any of the above transactions, or any negligent act
or omission of the Distributor or the Trust, or any of their directors,
officers, employees or agents. All transactions shall be settled upon your
confirmation through NSCC transmission to the Distributor.
The Distributor or the Trust may revoke the indemnity contained in
this Section 10 upon written notice to each of the other parties hereto, and in
the case of such revocation, this indemnity agreement shall remain effective as
to trades made prior to such revocation.
11. Termination. Either party to this Agreement may cancel this
-----------
Agreement, as to any Series or Class, as the case may be, by written notice to
the other party. Such cancellation shall be effective upon receipt of such
notice. Bear Stearns agrees to cancel this Agreement upon instruction by a
majority of the Trustees who are not "interested persons" of the Trust (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of this Agreement or by a vote of a majority
of the relevant Series' or Class' outstanding voting securities.
12. Representations to Survive. The agreements, representations,
--------------------------
warranties and other statements set forth in or made pursuant to this Agreement
will remain in full force and effect, to the extent permitted by applicable law,
regardless of any investigation made by or on behalf of us or any Authorized
Dealer. The provisions of Sections 7 and 9 of this Agreement shall survive the
offer and sale of the Shares, to the extent permitted by applicable law, and the
termination or cancellation of this Agreement.
13. No Association. Nothing herein contained constitutes an
--------------
agreement to become partners with you or with any other Authorized Dealer, but
you shall be liable for your proportionate share of any tax, liability or
expense based on any claim arising from the sale of Shares under this Agreement.
We shall not be under any liability to you, except for obligations expressly
assumed by us in this Agreement and liabilities under Section 11(f) of the
Securities Act of 1933, as amended, and no obligations on our part shall be
implied or inferred herefrom. We and you hereby elect to be excluded from
-7-
<PAGE>
the application of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue
Code of 1986, as amended, and agree not to take any position inconsistent with
that election.
14. Recordkeeping. You will maintain all records required by law to
-------------
be kept by you relating to transactions in the Shares and, upon request by the
Trust, promptly make such of these records available to the Trust as the Trust
may reasonably request in connection with its operations.
15. Notices. Notices hereunder shall be deemed to have been duly
-------
given if delivered by hand or facsimile (a) if to you, at your address or
facsimile number set forth below and (b) if to us, to Bear, Stearns & Co. Inc.,
245 Park Avenue, New York, New York 10167, Attention: Frank J. Maresca or, in
each case, such other address as may be notified to the other party.
16. Amendments. We may modify this Agreement at any time by written
----------
notice to you. The first order placed by you subsequent to the giving of such
notice shall be deemed acceptance by you of the modification described in such
notice.
17. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of New York.
18. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement, or any breach thereof, shall be settled by arbitration in
accordance with the Rules of the New York Stock Exchange, Inc. Such arbitration
shall be commenced within one year after the cause of action forming the basis
of the controversy or claim accrued. The arbitration shall be conducted in New
York, New York before three arbitrators, all of whom shall be from the
securities industry. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
-8-
<PAGE>
Please confirm your agreement by signing and returning to us the two
enclosed duplicate copies of this Agreement. Upon our acceptance hereof, the
Agreement shall constitute a valid and binding contract between us. After our
acceptance, we will deliver to you one fully executed copy of this Agreement.
Very truly yours,
BEAR, STEARNS & CO. INC.
By:
____________________________
Name:
Title:
Confirmed: ___________, 199_
________________________________
(Name of Authorized Dealer)
By: ____________________________
(Authorized Signature)
Name:
Title:
________________________________
Street Address
________________________________
City State Zip
________________________________
Fax No.
________________________________
Telephone No.
________________________________
Telex No.
________________________________
Firm Taxpayer Identification No.
-9-
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Name of Series Offering Type 12b-1 Plan
- ------------------------------- ---------------- ----------
<S> <C> <C>
S&P STARS Portfolio
Class A Continuous Basis Yes
Class C Continuous Basis Yes
Class Y Continuous Basis No
Large Cap Value Portfolio
Class A Continuous Basis Yes
Class C Continuous Basis Yes
Class Y Continuous Basis No
Small Cap Value Portfolio
Class A Continuous Basis Yes
Class C Continuous Basis Yes
Class Y Continuous Basis No
Total Return Bond Portfolio
Class A Continuous Basis Yes
Class C Continuous Basis Yes
Class Y Continuous Basis No
The Insiders Select Portfolio
Class A Continuous Basis Yes
Class C Continuous Basis Yes
Class Y Continuous Basis No
</TABLE>
-10-
<PAGE>
EXHIBIT (8)
CUSTODY AGREEMENT
This AGREEMENT, dated as of February 22, 1995, by and between LARGE CAP
VALUE PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the
"Company"), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and
existing under the laws of the State of New Jersey (the "Custodian").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund desires that its Securities, cash and other assets be
held and administered by Custodian pursuant to this Agreement;
WHEREAS, the Fund is an investment portfolio represented by a series of
Shares constituting part of the capital stock of the Company, an open-end
management investment company registered under the 1940 Act (as hereinafter
defined);
WHEREAS, Custodian represents that it is a bank having the qualifications
prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following terms, unless the context
otherwise requires, shall mean:
<PAGE>
1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized
-----------------
by resolution of the Board of Directors to give Oral Instructions and Written
Instructions on behalf of the Fundand identified, by name or by office, in
Exhibit A hereto or any person duly designated to do so by an investment adviser
of the Fund specified by the Fund in Exhibit B hereto.
1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when
------------------
permitted under the 1940 Act, the Executive Committee thereof, if any.
1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal
-----------------
Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR
306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of
federal agencies as are substantially in the form of such Subpart O.
1.4 "BUSINESS DAY" means any day recognized as a settlement day by The
------------
New York Stock Exchange, Inc. and on which banks in the State of New Jersey are
open for business.
1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is
---------------
provided for in Section 3.2 below.
1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust
--------------------------
company or other entity organized under the laws of a country other than the
United States which is eligible under Rule 17f-5 under the 1940 Act to act as a
sub-custodian for Foreign Securities and other assets of the Fund held outside
the United States.
1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1)
------------------
of Rule 17f-5 under the 1940 Act.
-2-
<PAGE>
1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or
-----------------------------
clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5
under the 1940 Act.
1.9 "1940 ACT" means the Investment Company Act of 1940, as amended.
--------
1.10 "OFFICER" means the President, any Vice President, the Secretary, any
-------
Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund.
1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and
-----------------
accepted by Custodian which are (a) reasonably believed by Custodian to have
been given by an Authorized Person, (b) recorded and kept among the records of
Custodian made in the ordinary course of business, and (c) orally confirmed by
Custodian.
1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written
-------------------
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.13 "SECURITIES" includes, without limitation, common and preferred
----------
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, forward contracts, futures contracts (including those related to
indexes), options on futures contracts or indexes, bankers' acceptances,
mortgage-backed securities or other obligations, and any certificates, receipts,
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that Custodian
has the facilities to clear and to service.
1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and
---------------------
(provided that Custodian has received a copy of a
-3-
<PAGE>
resolution of the Board of Directors of the Fund, certified by an Officer,
specifically approving the use thereof as a depository for the Fund) any other
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts
as a system for the central handling and deposit of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities.
1.15 "SHARES" means the shares into which the capital stock of the Fund is
------
divided.
1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by
--------------------
Custodian and signed by two persons reasonably believed by Custodian to be
Authorized Persons, or (b) communications by telex or any other such system from
two persons reasonably believed by Custodian to be Authorized Persons, or (c)
communications between electro-mechanical or electronic devices.
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all
-----------
such Securities, cash and other assets as may be acceptable to Custodian and
from time to time delivered to it by the Fund or others for the account of the
Fund.
2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian
----------
and agrees to perform the duties thereof as hereinafter set forth.
-4-
<PAGE>
ARTICLE III
CUSTODY OF CASH AND SECURITIES
------------------------------
3.1 SEGREGATION. All Securities and non-cash property of the Fund in the
-----------
possession of Custodian (other than Securities maintained by Custodian in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of Custodian and shall
be identified as belonging to the Fund.
3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust
---------------
department a custody account in the name of the Fund, subject only to draft or
order of Custodian, in which Custodian shall enter and carry all Securities,
cash and other assets of the Fund which are delivered to Custodian and accepted
by it. Custodian shall not be under any duty or obligation to require the Fund
to deliver to it any Securities or funds owned by the Fund and shall have no
responsibility or liability for or on account of Securities or funds not so
delivered.
(b) If Custodian at any time fails to receive any of the documents
referred to in Section 3.5(a) below, then, until such time as it receives such
document, it shall not be obligated to receive any Securities of the Fund into
the Custody Account and shall be entitled to return to the Fund any Securities
of the Fund that it is holding.
(c) Custodian may, but shall not be obligated to, hold Securities
that may be held only in physical form.
(d) Custodian is authorized to disclose the name, address and
securities positions of the Fund to the issuers of such securities when
requested by them to do so.
-5-
<PAGE>
3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents,
---------------------
which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or
Bear, Stearns Securities Corp., both of which are registered broker-dealers.
The appointment of any agent pursuant to this Section 3.3(a) shall not relieve
Custodian of any of its obligations or liabilities under this Agreement.
However, no Book-Entry System, Securities Depository, Foreign Securities
Depository or other securities depository or clearing agency (whether foreign or
domestic) which it is or may become standard market practice to use for the
comparison and settlement of trades in securities shall be an agent or sub-
contractor of Custodian for purposes of this Section 3.3(a) or otherwise.
(b) In its discretion, Custodian may appoint, and at any time remove,
any domestic bank or trust company which is qualified to act as a custodian
under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and
to carry out such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of Custodian and subject only
to its draft or order), provided, however, that the appointment of any such
agent or opening and maintenance of any such accounts shall be at Custodian's
expense and shall not relieve Custodian of any of its obligations or liabilities
under this Agreement.
(c) Upon receipt of Written Instructions to do so and at the Fund's
expense, Custodian shall appoint as sub-custodian such domestic bank or trust
company as is named therein, provided that (i) such bank or trust company is
qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding
anything to the contrary in Section 7.1 below or elsewhere in this Agreement,
Custodian shall have no greater liability to the Fund for the actions or
omissions of any such sub-custodian than any such sub-custodian has to
Custodian, and Custodian shall not be required
-6-
<PAGE>
to discharge any such liability which may be imposed on it unless and until such
sub-custodian has effectively indemnified Custodian against it or has otherwise
discharged its liability to Custodian in full.
3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian
-------------------------------
the Fund's Securities, cash and other assets, which are acceptable to Custodian,
including (a) payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the term of this Agreement,
and (b) cash received by the Fund for the issuance, at any time during such
term, of Shares. Custodian shall not be responsible for such Securities, cash
or other assets until actually received by it.
3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may
----------------------------------------------
deposit and/or maintain Securities of the Fund in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Fund shall deliver to Custodian a
resolution of the Board of Directors of the Fund, certified by an Officer,
authorizing and instructing Custodian (and any sub-custodian appointed pursuant
to Section 3.3 above) on an on-going basis to deposit in such Securities
Depository or Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance hereunder (or under
the applicable sub-custody agreement in the case of such sub-custodian),
including, without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns of
collateral consisting of Securities.
-7-
<PAGE>
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of Custodian in
such Book-Entry System or Securities Depository which includes only assets held
by Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of Custodian with respect to Securities of the Fund
maintained in a Book-Entry System or Securities Depository shall at all times
identify such Securities as belonging to the Fund.
(d) If Securities purchased by the Fund are to be held in a Book-Entry
System or Securities Depository, Custodian shall pay for such Securities upon
(i) receipt of advice from the Book-Entry System or Securities Depository that
such Securities have been transferred to the Depository Account, and (ii) the
making of an entry on the records of Custodian to reflect such payment and
transfer for the account of the Fund. If Securities sold by the Fund are held
in a Book-Entry System or Securities Depository, Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System or Securities
Depository that payment for such Securities has been transferred to the
Depository Account, and (ii) the making of an entry on the records of Custodian
to reflect such transfer and payment for the account of the Fund.
(e) Custodian shall provide the Fund with copies of any report
obtained by Custodian from a Book-Entry System or Securities Depository in which
Securities of the Fund are kept on the internal accounting controls and
procedures for safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) At its election, the Fund shall be subrogated to the rights of
Custodian with respect to any claim against a Book-Entry System or Securities
Depository or any other person for any loss or
-8-
<PAGE>
damage to the Fund arising from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Fund has not been made whole for any
such loss or damage.
3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall disburse moneys from the Custody Account,
but only in the following cases:
(a) For the purchase of Securities for the Fund but only (i) in the
case of Securities (other than options on Securities, futures contracts and
options on futures contracts), against the delivery to Custodian (or any sub-
custodian appointed pursuant to Section 3.3 above) of such Securities registered
as provided in Section 3.9 below or in proper form for transfer or, if the
purchase of such Securities is effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section
3.5 above; (ii) in the case of options on Securities, against delivery to
Custodian (or such sub-custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii) in the case of futures
contracts and options on futures contracts, against delivery to Custodian (or
such sub-custodian) of evidence of title thereto in favor of the Fund, the
Custodian, any such sub-custodian or any nominee referred to in Section 3.9
below; and (iv) in the case of repurchase or reverse repurchase agreements
entered into by the Fund, against delivery of the purchased Securities either in
certificate form or through an entry crediting Custodian's account at a Book-
Entry System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
-9-
<PAGE>
(d) In payment of the redemption price of Shares as provided in
Article VI below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the Fund:
interest, taxes, administration, investment management, investment advisory,
accounting, auditing, transfer agent, custodian, trustee and legal fees; and
other operating expenses of the Fund; in all cases, whether or not such expenses
are to be in whole or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with rules
of The Options Clearing Corporation and of any registered national securities
exchange (or of any similar organization or organizations) regarding escrow or
other arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including Custodian), but
only if the payment instructions to Custodian detail specific Securities to be
acquired;
(i) For the purchase from a bank or other financial institution of
loan participations, but only if Custodian has in its possession a copy of the
agreement between the Fund and such bank or other financial institution with
respect to the purchase of
-10-
<PAGE>
such loan participations and the payment instructions to Custodian detail
specific assets to be acquired;
(j) For the purchase and sale of foreign currencies or options to
purchase and sell foreign currencies for spot and future delivery on behalf and
for the account of the Fund pursuant to contracts with such banks and other
financial institutions, including Custodian, any sub-custodian and any affiliate
of Custodian, as principal, as are approved and authorized by the Fund, but only
if the payment instructions to Custodian detail specific assets to be acquired;
(k) For transfer to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement among the Fund, Custodian and
such a broker-dealer as margin for a short sale of Securities;
(l) For the payment of the amounts of dividends received with respect
to Securities sold short; and
(m) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the amount and purpose of such payment,
declaring such purpose to be a proper purpose of the Fund, and naming the person
or persons to whom such payment is to be made.
3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall release and deliver Securities of the Fund
from the Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but,
subject to Section 5.3 below, only against receipt of
-11-
<PAGE>
payment therefor in cash, by certified or cashiers' check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided that, in any such
case, the cash or other consideration is to be delivered to Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name
of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for
exchange for a different number of certificates or other evidence representing
the same aggregate face amount or number of units; provided that, in any such
case, the new Securities are to be delivered to Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such Securities, or pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase
agreement entered into by the Fund;
-12-
<PAGE>
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities and cash,
if any, are to be delivered to Custodian;
(i) For delivery in connection with any loans of Securities pursuant
to any securities loan agreement entered into by the Fund, but only against
receipt of such collateral as is required under such securities loan agreement;
(j) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against receipt by
Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(l) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or organizations) regarding
escrow or other arrangements in connection with transactions by the Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(n) For delivery to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement
-13-
<PAGE>
among the Fund, Custodian and such a broker-dealer as margin for a short sale of
Securities;
(o) For delivery (by a Foreign Sub-custodian or an agent of Custodian)
to the depository used by an issuer of American Depositary Receipts or
International Depositary Receipts (hereinafter collectively referred to as
"ADRs") for such Securities against a written receipt therefor adequately
describing such Securities and written evidence satisfactory to the Foreign Sub-
custodian or agent that the depository has acknowledged receipt of instructions
to issue with respect to such Securities ADRs in the name of the Custodian, or a
nominee of the Custodian, for delivery to the Custodian;
(p) To deliver ADRs to the issuer thereof against a written receipt
therefor adequately describing the ADR's delivered and written evidence
satisfactory to the Custodian that the issuer of the ADRs has acknowledged the
receipt of instructions to cause its depository to deliver the Securities
underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or
(q) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the Securities to be delivered, setting
forth the purpose for which such delivery is to be made, declaring such purpose
to be a proper purpose of the Fund, and naming the person or persons to whom
delivery of such Securities is to be made.
3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
-----------------------------------------
instructed by the Fund, Custodian shall with respect to all Securities held for
the Fund:
-14-
<PAGE>
(a) Subject to Section 8.4 below, collect on a timely basis all income
and other payments to which the Fund is entitled either by law or pursuant to
custom in the securities business;
(b) Subject to Section 8.4 below, collect on a timely basis the amount
payable upon or with respect to all Securities and other assets which may mature
or be called, redeemed, retired or otherwise become payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect, and prepare and submit
reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in
such manner and containing such information as is prescribed by the IRS;
(f) Hold for the Fund all rights and similar securities issued with
respect to Securities of the Fund; and
(g) In general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with Securities and assets of the Fund.
3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the
---------------------------------------
Fund that are issuable only in bearer form shall be held by Custodian in that
form, provided that any such Securities shall be held in a Book-Entry System if
eligible therefor. All other Securities held for the Fund may be registered in
the name of Custodian as agent, any sub-custodian appointed pursuant to Section
3.3 above, any Securities Depository, any Foreign Sub-custodian or
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Foreign Securities Depository (in the case of Foreign Securities), or any
nominee or agent of any of them. The Fund shall furnish to Custodian
appropriate instruments to enable Custodian to hold or deliver in proper form
for transfer, or to register as in this Section 3.9 provided, any Securities
delivered to Custodian which are registered in the name of the Fund.
3.10 RECORDS. (a) Custodian shall maintain complete and accurate records
-------
with respect to Securities, cash or other property held for the Fund, including
(i) journals or other records of original entry containing an itemized daily
record in detail of all receipts and deliveries of Securities and all receipts
and disbursements of cash; (ii) ledgers (or other records) reflecting (A)
Securities in transfer, if any, (B) Securities in physical possession, (C)
monies and Securities borrowed and monies and Securities loaned (together with a
record of the collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. Custodian
shall keep such other books and records with respect to Securities, cash and
other property of the Fund which is held hereunder as the Fund may reasonably
request.
(b) All such books and records maintained by Custodian shall (i) be
maintained in a form acceptable to the Fund and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Fund and at all times during the regular business hours of Custodian be made
available upon request for inspection by duly authorized officers, employees or
agents of the Fund and employees or agents of the Securities and Exchange
Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940
Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
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<PAGE>
3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily
--------------------
activity statement, including a summary of all transfers to or from the Custody
Account, on the day following such transfers. At least monthly and from time to
time, Custodian shall furnish the Fund with a detailed statement of the
Securities and moneys held for the Fund under this Agreement.
3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with
--------------------------
such reports as the Fund may reasonably request from time to time on the
internal accounting controls and procedures for safeguarding Securities which
are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3
above.
3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the
---------------------------
Fund, Custodian shall promptly deliver to the Fund (at the address set forth in
Article XV below) all notices of meetings, proxies and proxy materials which it
receives regarding Securities held in the Custody Account. Before delivering
them to the Fund, Custodian shall cause all proxies relating to such Securities
which are not registered in the name of the Fund, or a nominee thereof, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted. Unless otherwise
instructed by the Fund, neither Custodian nor any of its agents shall exercise
any voting rights with respect to Securities held hereunder.
3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit
--------------------------------
to the Fund (at the address set forth in Article XV below) all written
information received by Custodian from issuers of Securities held in the Custody
Account. With respect to tender or exchange offers for such Securities,
Custodian shall promptly transmit to the Fund all written information received
by it from the issuers of the Securities whose tender or exchange is sought and
by the party (or its agents) making the tender or exchange offer. If the Fund
desires to take action with respect to
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any tender offer, exchange offer or other similar transaction, the Fund shall
notify Custodian (a) in the case of Foreign Securities, such number of Business
Days prior to the date on which Custodian is to take such action (which number
of days is in the Custodian's sole discretion) as will allow Custodian to take
such action in the relevant local market in a timely fashion, and (b) in the
case of all other Securities, at least five Business Days prior to the date on
which Custodian is to take such action.
3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary
------------
information to the entity or entities appointed by the Fund to keep the books of
account of the Fund and/or to compute the value of the assets of the Fund.
ARTICLE IV
DUTIES OF CUSTODIAN WITH
RESPECT TO PROPERTY OF
THE FUND HELD OUTSIDE THE UNITED STATES
---------------------------------------
4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub-
-------------------------------------
custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in
accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians
hereunder for the Fund's Securities and other assets maintained outside the
United States. Upon receipt of Written Instructions from the Fund to do so, the
Custodian shall cease the employment of any Foreign Sub-custodian for
maintaining custody of the Fund's assets.
4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and
-----------------
other assets maintained in the custody of an Eligible Foreign Custodian to: (a)
Foreign Securities, and (b) cash and cash equivalents in such amounts as the
Fund may determine.
4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub-
-------------------------------
custodian employed by it may maintain assets of the
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Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the
1940 Act.
4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in
--------------------------------------
writing (a) the appointment of each Foreign Sub-custodian and the agreement
pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for
the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian,
the country or countries in which such Foreign Sub-custodian is authorized to
hold Securities, cash and other property of the Fund.
4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians
-------------------------------
and the countries where and the Foreign Securities Depositories through which
they or the Custodian may hold Securities, cash and other property of the Fund
which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit
D shall be amended from time to time as Foreign Sub-custodians, countries and/or
Foreign Securities Depositories are changed, added or deleted. The Fund shall
be responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country not listed in Exhibit E in order to
allow the Fund to give the approval required by Section 4.4 hereof and for
Custodian to put the appropriate arrangements in place with a Foreign Sub-
custodian.
(b) If the Fund invests in a Security to be held pursuant to this
Article before the foregoing procedures have been completed, such Security may
be held by such agent as Custodian may select, and Custodian shall bear no
liability to Fund for the actions of such agent, except to the extent Custodian
shall have recovered from such agent for any damages caused to Fund by such
agent.
4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time
--------------------
to time, as mutually agreed upon, reports in respect
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of the safekeeping of the Securities and other assets of the Fund held by
Foreign Sub-custodians, including, but not limited to, advices or notifications
of transfers of Securities to or from the accounts maintained by Foreign Sub-
custodians for the Custodian on behalf of the Fund.
4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper
---------------------------------------
Instructions given in any of the cases specified in Section 3.7 above, Custodian
shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign
Securities owned by the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market; and
(b) Upon receipt of Proper Instructions given in any of the cases
specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians
to pay out monies of the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market.
4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which
-----------------------------------
the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub-
custodian to exercise reasonable care in the performance of its duties and shall
hold such Foreign sub-custodian responsible for any direct loss or damage
arising out of any willful misfeasance, bad faith or negligence of such Foreign
Sub-custodian in the performance of its obligations under such agreement or out
of its reckless disregard of such obligations. At its election, the Fund shall
be subrogated to the rights of Custodian with respect to any claims against a
Foreign Sub-custodian as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or damage.
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<PAGE>
4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in
----------------------
Section 8.1 below or elsewhere in this Agreement, Custodian shall have no
greater liability to the Fund for the actions or omissions of any Foreign Sub-
custodian than any such Foreign Sub-custodian has to Custodian, and Custodian
shall not be required to discharge any such liability which may be imposed on it
unless and until such Foreign Sub-custodian has effectively indemnified
Custodian against it or has otherwise discharged its liability to Custodian in
full. Custodian shall have no liability for any loss or damage resulting from
acts or omissions of any Foreign Sub-custodian arising out of or caused,
directly or indirectly, by circumstances beyond such Foreign Sub-custodian's
reasonable control, including, without limitation, sovereign risk, as described
in Section 8.7, or "force majeure", as covered in Article X.
4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian
---------------------------
shall annually furnish to the Fund information concerning all Foreign Sub-
custodians hereunder which shall be similar in kind and scope to that furnished
to the Fund in connection with the initial approval by the Fund of the
agreements pursuant to which Custodian employs such Foreign Sub-custodians or as
otherwise required by Rule 17f-5 under the 1940 Act.
4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall
------------
exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in
connection with Foreign Securities in the Custody Account.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities
----------------------
for the Fund, Written Instructions shall be delivered to Custodian, specifying
(a) the name of the issuer or writer of such
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Securities, and the title or other description thereof, (b) the number of
shares, principal amount (and accrued interest, if any), or other units
purchased, (c) the date of purchase and settlement, (d) the purchase price per
unit, (e) the total amount payable upon such purchase, and (f) the name of the
person to whom such amount is payable. Custodian shall upon receipt of such
Securities purchased by the Fund (or, if the Securities are transferred by means
of a private placement transaction, upon the receipt of such Securities or
payment instructions to Custodian which detail specific Securities to be
acquired) pay out of the moneys held for the account of the Fund the total
amount specified in such Written Instructions to the person named therein.
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities or other assets for the Fund if there is
insufficient cash available in the Custody Account.
5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the
------------------
Fund, Written Instructions shall be delivered to Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions,
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or
---------------------------
any other provision of this Agreement and subject, in the case of Foreign
Securities, to all local laws, regulations,
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<PAGE>
customs, procedures and practices applicable in the relevant local market,
Custodian, when instructed to deliver Securities against payment, shall be
entitled, but only if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor and,
exclusively in the case of Securities in physical form, to deliver such
Securities prior to receipt of payment. In any such case, the Fund shall bear
the risk that final payment for such Securities may not be made or that such
Securities may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and Custodian shall have no liability for
any of the foregoing.
5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from
---------------------------------
time to time, Custodian may credit the Custody Account, prior to actual receipt
of final payment thereof, with (a) proceeds from the sale of Securities which it
has been instructed to deliver against payment, (b) proceeds from the redemption
of Securities or other assets of the Fund, and (c) income from cash, Securities
or other assets of the Fund. Any such credit shall be conditional upon actual
receipt by Custodian of final payment and may be reversed if final payment is
not actually received in full. Custodian may, in its sole discretion and from
time to time, permit the Fund to use funds so credited to the Custody Account in
anticipation of actual receipt of final payment. Any such funds shall be
repayable immediately upon demand made by Custodian at any time prior to the
actual receipt of all final payments in anticipation of which funds were
credited to the Custody Account.
5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means
-------------
payment in funds which are (or have become) immediately available, under
applicable law are irreversible, and are not subject to any security interest,
levy, lien or other encumbrance.
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<PAGE>
ARTICLE VI
REDEMPTION OF FUND SHARES
-------------------------
6.1 TRANSFER OF FUNDS. From such funds as may be available for the
-----------------
purpose in the Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares on account of the Fund,
Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Fund may designate therein with respect to such amount.
6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible
------------------------------
for the payment or distribution by any bank designated in Proper Instructions
given pursuant to Section 6.1 above of any amount paid by Custodian to such bank
in accordance with such Proper Instructions.
ARTICLE VII
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, Custodian shall establish and maintain
a segregated account or accounts for and on behalf of the Fund, into which
account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account:
(a) in accordance with the provisions of any agreement among the Fund,
Custodian and a broker-dealer (or any futures commission merchant), relating to
compliance with the rules of The Options Clearing Corporation or of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund,
-24-
<PAGE>
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in connection with
financial futures contracts (or options thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under the
1940 Act for the maintenance of segregated accounts by registered investment
companies in connection with reverse repurchase agreements, when-issued, delayed
delivery and firm commitment transactions, and short sales of securities, and
(e) for other proper purposes, but only upon receipt of, in addition
to Proper Instructions, a copy of a resolution of the Board of Directors,
certified by an Officer, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper purposes of the
Fund.
ARTICLE VIII
CONCERNING THE CUSTODIAN
------------------------
8.1 STANDARD OF CARE. Custodian shall be held to the exercise of
----------------
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Fund for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim which does not arise from
willful misfeasance, bad faith or negligence on the part of Custodian or
reckless disregard by Custodian of its obligations under this Agreement.
Custodian shall be entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. In no event shall Custodian be liable for
special or consequential damages or be liable in any manner whatsoever for any
-25-
<PAGE>
action taken or omitted upon instructions from the Fund or any agent of the
Fund. Custodian shall not be under any obligation at any time to ascertain
whether the Fund is in compliance with the 1940 Act, the regulations thereunder,
the provisions of its charter documents or by-laws, or its investment
objectives, policies and limitations as in effect from time to time.
8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or
--------------------------
considered to be the custodian of, any cash belonging to the Fund or any money
represented by a check, draft or other instrument for the payment of money,
until Custodian or its agents actually receive such cash or collect on such
instrument.
8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
---------------------------------
it is in the exercise of reasonable care, Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of title thereto
received or delivered by it or its agents.
8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the
-----------------------------
Fund whenever any money or property due and payable from or on account of any
Securities held hereunder for the Fund is not timely received by it. Custodian
shall not, however, be required to enforce collection, by legal means or
otherwise, of any such money or other property not paid when due, but shall
receive the proceeds of such collections as may be effected by it or its agents
in the ordinary course of Custodian's custody and safekeeping business or of the
custody and safekeeping business of such agents.
8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations
-------------------
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against Custodian. Custodian shall have no discretion whatsoever with respect to
the
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<PAGE>
management, disposition or investment of the Custody Account and is not a
fiduciary to the Fund.
8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all
--------------------
applicable requirements of the Securities Act of 1933, the Securities Exchange
Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules
and regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by Custodian hereunder. Except as specifically set
forth herein, Custodian assumes no responsibility for such compliance by the
Fund.
8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for
-------------------------------
any loss involving any Securities, currencies, deposits or other property of the
Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities
Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for
any loss arising from a foreign currency transaction or contract, where the loss
results from a sovereign risk or where the entity maintaining such Securities,
currencies, deposits or other property of the Fund, whether Custodian, a Foreign
Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a
Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such
property or in connection with the transaction involving such property. For
purposes of this Agreement, "sovereign risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism, insurrection or revolution; or any other act or event beyond the
control of the Foreign Sub-custodian, the Foreign Securities Depository or the
agent of any of them.
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<PAGE>
ARTICLE IX
INDEMNIFICATION
---------------
9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless
---------------
Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian,
from and against any loss, damages, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal,
state or foreign securities and/or banking laws) or claim arising directly or
indirectly (a) from the fact that Securities are registered in the name of any
such nominee, or (b) from any action or inaction by Custodian or such sub-
custodian or other agent (i) at the request or direction of or in reliance on
the advice of the Fund or any of its agents, or (ii) upon Proper Instructions,
or (c) generally, from the performance of its obligations under this Agreement,
provided that Custodian, any sub-custodian or any nominee of either of them
shall not be indemnified and held harmless from and against any such loss,
damage, cost, expense, liability or claim arising from Custodian's willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
under this Agreement or, in the case of any sub-custodian or its nominee, from
such sub-custodian's willful misfeasance, bad faith, negligence or reckless
disregard of its obligations under the Agreement under which it is acting.
9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any
------------------------
action with respect to Securities, which may, in the opinion of Custodian,
result in Custodian or its nominee becoming liable for the payment of money or
incurring liability of some other form, Custodian shall not be required to take
such action until the Fund shall have provided indemnity therefor to Custodian
in an amount and form satisfactory to Custodian.
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<PAGE>
9.3 SECURITY. As security for the payment of any present or future
--------
obligation or liability of any kind which the Fund may have to Custodian with
respect to or in connection with the Custody Account or this Agreement, the Fund
hereby pledges to Custodian all cash, Securities and other property of every
kind which is in the Custody Account or otherwise held for the Fund pursuant to
this Agreement, and hereby grants to Custodian a lien, right of set-off and
continuing security interest in such cash, Securities and other property.
ARTICLE X
FORCE MAJEURE
-------------
Neither Custodian nor the Fund shall be liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Fund and Custodian represents and warrants for itself that (a)
it has all necessary power and authority to perform its obligations hereunder,
(b) the execution and delivery by it of this Agreement, and the performance by
it of its obligations under this Agreement, have been duly authorized by all
necessary action and will not violate any law, regulation, charter, by-law, or
other
-29-
<PAGE>
instrument, restriction or provision applicable to it or by which it is bound,
and (c) this Agreement constitutes a legal, valid and binding obligation of it,
enforceable against it in accordance with its terms.
ARTICLE XII
COMPENSATION OF CUSTODIAN
-------------------------
The Fund shall pay Custodian such fees and charges as are set forth in the
fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to
time be revised by Custodian upon 14 days' prior written notice to the Fund.
Any annual fee or other charges payable by the Fund shall be paid monthly by
automatic deduction from the Custody Account. Expenses incurred by Custodian in
the performance of its services hereunder, and all other proper charges and
disbursements of the Custody Account, shall be charged to the Custody Account by
Custodian and paid therefrom.
ARTICLE XIII
TAXES
-----
Any and all taxes, including any interest and penalties with respect
thereto, which may be levied or assessed under present or future laws or in
respect of the Custody Account or any income thereof shall be charged to the
Custody Account by Custodian and paid therefrom.
ARTICLE XIV
AUTHORIZED PERSONS
------------------
14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance
------------------
with any notice, confirmation, instruction or other communication received by it
from the Fund which is reasonably believed by Custodian to have been given or
signed on behalf of the Fund by one of the Authorized Persons designated by the
Fund in Exhibit A hereto, as it may from time to time be revised. The Fund
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<PAGE>
may revise Exhibit A hereto at any time by notice in writing to Custodian given
in accordance with Article XV below, but no revision of Exhibit A hereto shall
be effective until Custodian actually receives such notice.
14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any
-------------------
Written or Oral Instructions which are reasonably believed by Custodian to have
been given or signed by one of the persons designated from time to time by any
of the investment advisers of the Fund specified in Exhibit B hereto (if any) as
it may from time to time be revised. The Fund may revise Exhibit B hereto at
any time by notice in writing to Custodian given in accordance with Article XV
below, and each investment adviser specified in Exhibit B hereto (if any) may at
any time by like notice designate an Authorized Person or remove an Authorized
Person previously designated by it, but no revision of Exhibit B hereto (if any)
and no designation or removal by such investment adviser shall be effective
until Custodian actually receives such notice.
14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance
-----------------
with Oral Instructions (as defined in Section 1.11 above). If Written
Instructions confirming Oral Instructions are not received by Custodian prior to
a transaction, it shall in no way affect the validity of the transaction
authorized by such Oral Instructions or the authorization of the Fund to effect
such transaction. Custodian shall incur no liability to the Fund in acting upon
Oral Instructions (as defined in Section 1.11 above). To the extent such Oral
Instructions vary from any confirming Written Instructions, Custodian shall
advise the Fund of such variance but unless confirming Written Instructions are
timely received, such Oral Instructions will govern. Either Custodian or Fund
may electronically record any instructions given by telephone and any other
telephone discussions with respect to the account of the Fund.
-31-
<PAGE>
ARTICLE XV
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be sent, delivered or given to
the recipient at the address set forth after its name hereinbelow:
IF TO THE FUND:
Large Cap Value Portfolio - The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Attention: Frank J. Maresca
----------------
Telephone: (212) 272-2093
Facsimile: (212) 272-3098
IF TO CUSTODIAN:
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540-6231
Attention: Vice President - Trust Operations
---------------------------------
Telephone: (609) 951-2320
Facsimile: (609) 951-2327
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XV. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XVI
TERMINATION
-----------
Either party hereto may terminate this Agreement by giving to the other
party a notice in writing specifying the date of such termination, which shall
be not less than sixty (60) days after the date of the giving of such notice.
Upon the date set forth in such notice this Agreement shall terminate, and
Custodian shall, upon receipt of a notice of acceptance by the successor
custodian, on
-32-
<PAGE>
that date (a) deliver directly to the successor custodian or its agents all
Securities (other than Securities held in a Book-Entry System, Securities
Depository or Foreign Securities Depository) and cash then owned by the Fund and
held by Custodian as custodian, and (b) transfer any Securities held in a Book-
Entry System, Securities Depository or Foreign Securities Depository to an
account of or for the benefit of the Fund, provided that the Fund shall have
paid to Custodian all fees, expenses and other amounts to the payment or
reimbursement of which it shall then be entitled.
ARTICLE XVII
MISCELLANEOUS
-------------
17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require
-------------
Custodian to perform any function or duties on a day other than a Business Day.
17.2 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to the
conflict of law principles thereof.
17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed
-----------------------
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for the Fund and such other printed matter
as merely identifies Custodian as custodian for the Fund. The Fund shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
17.4 NO WAIVER. No failure by either party hereto to exercise, and no
---------
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise
-33-
<PAGE>
of any other right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment
----------
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
17.6 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
17.7 SEVERABILITY. If any provision of this Agreement shall be invalid,
------------
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
-------- -------
either party hereto without the written consent of the other party. Any
purported assignment in violation of this Section 17.8 shall be void.
17.9 HEADINGS. The headings of sections in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
-34-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its representative thereunto duly
authorized, all as of the day and year first above written.
LARGE CAP VALUE PORTFOLIO - CUSTODIAL TRUST COMPANY
THE BEAR STEARNS FUNDS
By /s/ Frank J. Maresca By /s/ Ronald D. Watson
----------------------- -----------------------
Authorized Officer Authorized Officer
-35-
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS/*/
Set forth below are the names of the persons, whose specimen signatures are
on file with the Custodian, authorized by the Board of Trustees of The Bear
Stearns Funds to have access to the Large Cap Portfolio's (the "Fund")
investments.
Name
----
Neil T. Eigen
Richard S. Rosen
Frank J. Maresca
Vincent L. Pereira
Eileen M. Coyle
_____________________
/*/Nothing herein shall prohibit any person designated as an Authorized Person
from giving Oral Instructions or Written Instructions to the Custodian, so long
as it does not result in delivery of or access to securities and similar
investments of the Fund by such person.
<PAGE>
EXHIBIT B
---------
INVESTMENT ADVISERS
Bear Stearns Funds Management Inc.
<PAGE>
EXHIBIT C
---------
CUSTODY FEES AND TRANSACTION CHARGES
DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges
-------------
for assets in the United States ("Domestic Assets") and transactions in the
United States, all such fees and charges to be payable monthly:
(1) an annual fee of the greater of 0.015% (one and one-half basis points)
per annum of the value of the Domestic Assets in the Custody Account or $5,000,
such fee to be payable monthly based upon the total market value of such
Domestic Assets as determined on the last Business Day of the month for which
such fee is charged;
(2) a transaction charge of $18 for each buy, sell or redemption
transaction executed in the Custody Account with respect to such Domestic Assets
as are book-entry Securities (but not for any such buy or sell in a repurchase
transaction representing a cash sweep investment for the Fund's account or the
investment by the Fund of collateral for a loan of Securities);
(3) a transaction charge of $50 for each receipt or delivery into or from
the Custody Account of such Domestic Assets as are Securities in physical form;
(4) a transaction charge for each repurchase transaction in the Custody
Account which represents a cash sweep investment for the Fund's account,
computed at a rate of 0.10% (ten basis points) per annum on the amount of the
purchase price paid or received by the Fund in such repurchase transaction;
(5) a charge of $10 for each funds transfer; and
<PAGE>
(6) a service charge for each holding of Domestic Assets consisting of
Securities or other property sold by way of private placement or in such other
manner as to require services by Custodian which in the reasonable judgment of
Custodian are materially in excess of those ordinarily required for the holding
of publicly traded Securities in the United States.
INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside
------------------
the United States ("Foreign Assets") and transaction charges and other charges
(including, without limitation, charges for funds transfers, tax reclaims, and
foreign exchange services) outside the United States, all such fees and charges
to be payable monthly, according to a schedule of such fees and charges specific
to each country in which Foreign Assets are held, such schedule to be provided
from time to time upon request.
Fees shall be based upon the total market value of the applicable Foreign
Assets as determined on the last Business Day of the month for which such fees
are charged.
<PAGE>
EXHIBIT D
---------
APPROVED FOREIGN SUB-CUSTODIANS
Foreign Sub-custodian Country(ies) Securities Depositories
- --------------------- ------------ -----------------------
(See Attached)
<PAGE>
CITIBANK, N.A.
SEC RULE 17F-5 INFORMATION PACKAGE
AUGUST 1994
SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES
SECTION 2:
OVERVIEW OF CITIBANK'S
FOREIGN SUBCUSTODIAN AND
DEPOSITORY ARRANGEMENTS
<TABLE>
<C> <S> <C> <C>
Colombia: Cititrust Colombia S.A.
Carrera 9A, No. 99-02,
Bogota, Colombia
2-01.0 SUBCUSTODIAN NETWORK
Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank
Bartolome Mitre 502/30 2-12 Holmens Kanal
1036 Buenos Aires, Argentina DK-1092 Copenhagen K.
Denmark
Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki
101 Collins Street Aleksanterinkatu 42
Melbourne, VIC 3000 Australia 00100 Helsinki, Finland
Austria: Citibank (Austria) A.G. France: Citibank S.A. (France)
Postfach 90 Cedex 36
Lothringerstrasse 7 92073 Paris la Defense, France
A-1015 Vienna, Austria
Banque Paribas
Belgium: Generale Bank 3 Rue D'Antim
Montagne du Parc 3 75002 Paris, France
1000 Brussels, Belgium
Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft
Avenida Paulista 1111 Neue Mainzer Str. 75,
Sao Paulo, Brazil 60311, Frankfurt/Main,
Germany
Canada: Citibank Canada Greece: Citibank, N.A. (Greece)
123 Front Street West Athens Branch
Toronto, Ontario Othonos 8
M5J2M3, Canada Athens 10557, Greece
Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong)
Ahumada 40 Citicorp Tower
Santiago, Chile Citicorp Plaza
3 Garden Road
Central, Hong Kong
China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt.
c/o Citibank, N.A., 1052 Budapest V19-21.
Hong Kong, Citicorp Tower, Vaci Utca
Citicorp Plaza, 3 Garden Road, Hungary
Central, Hong Kong
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C>
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New
Sakhar Bhavan Zealand) Ltd.
230 Backbay Reclamation 23 Customs Street East
Nariman Point Auckland 1, New Zealand
Bombay 400 021
Indonesia: Citibank, N.A. (Jakarta)
Jalan Jend. Sudirman No. 1 Norway: Christiania Bank
Jakarta 12910, Indonesia P.O. Box 1166 Sentrum
0107 Oslo 1, Norway
Ireland: Citibank, N.A. (Ireland)
IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan)
Quay, Dublin 2 P.O. Box 4889
Ireland 11 Chundrigar Road
Karachi 74200
Italy: Citibank, N.A. (Italy) Pakistan
Foro Buonaparte N. 16
Casella Postale 10932
20121 Milan, Italy
Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima)
Citicorp Center, Av. Camino Real 456,
2-314 Higashi Shinagawa, Torre Real 5t 0 Piso,
Shinagawa - ku, Lima 27
Tokyo, Japan Peru
Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines)
3rd Circle Citibank Center
Jordan Insurance Building 8741 Paseo de Roxas
Prince Mohammad Street Makati Metro
Amman, Jordan Manila, Philippines
Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A.
89-29 Shinmun-Ro, Sentorska 12,
Chongro-ku 00-082 Warsaw,
Seoul, Korea Poland
Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A.
67 Boulevard Rua Barat, Salgueiro 30,
Grande-Duchesse Charlotte 4th floor, 1200 Lisbon,
L-1010, Luxembourg Portugal
Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A.
28-30 Medan Pasar 252 Ponce De Leon Avenue
50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936
Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore)
Paseo de la Reforma 390 UIC Building #01-00
Mexico City DF, 06695 Mexico 5 Shenton Way
Singapore 0106
Netherlands: Citibank, N.A. (Netherlands)
"Europlaza", South Africa: First National Bank
Hoogoorddreef 54 B, Mezzanine floor,
1101 BE Amsterdam z.o., 3 First Place,
The Netherlands Post Box 7713
Johannesburg, 2000
South Africa
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Spain: Citibank, N.A. (Spain)
Jose Ortega Y Gasset 29
28006 Madrid, Spain
Sri Lanka: Citibank, N.A. (Sri Lanka)
67 Dharmapala Mawatha
P.O. Box 888
Colombo 7, Sri Lanka
Sweden: Skandinaviska Enskilda Banken
Sergels Torg 2
Stockholm, Sweden
Switzerland: Citibank (Switzerland)
Bahnhofstrass 63,
Post Office Box 24
8021 Zurich, Switzerland
Taiwan: Citibank, N.A. (Taiwan)
Taipei Branch
No. 52 Ming Sheng East Road
Sec. 4
Taipei, Taiwan
Thailand: Citibank, N.A. (Thailand)
127 South Sathom Road
Bangkok 10120, Thailand
Turkey: Citibank, N.A. (Turkey)
Buyukedere Caddesi,
No. 100, Eseutepe 80280
Istanbul, Turkey
United Kingdom: Citibank, N.A.
25 Molesworth St,
Lewisham, London SE 13 7EX
United Kingdom
The First National Bank of
Chicago
27 Leadenhall Street
London EC3A 1AA, England
Uruguay: Citibank, N.A. (Uruguay)
Cerrito 455
P.O. Box 690
Montevideo
Uruguay
Venezuela: Citibank, N.A. (Caracas)
Carmelitas a Altagracia
Edificio Citibank
Caracas 1010, Venezuela
</TABLE>
<PAGE>
2-01.1 STATUS AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS'
EQUITY
<S> <C> <C> <C>
Argentina Citibank, N.A. Branch NA
Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption
Austria Citibank (Austria) A.G. Subsidiary SEC Exemption
Belgium Generale Bank Correspondent US$ 2,260 MM
Brazil Citibank, N.A. Branch NA
Canada Citibank Canada Subsidiary US$ 299.9 MM
Chile Citibank, N.A. Branch NA
China Citibank, N.A. Branch NA
Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption
Sociedad Fiduciary
Denmark Den Danske Bank Correspondent US$ 2,975 MM
Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM
France Citibank S.A. Subsidiary SEC Exemption
France Banque Paribas Correspondent US$ 2,998 MM
Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM
Greece Citibank, N.A. Branch NA
Hong Kong Citibank, N.A. Branch NA
Hungary Citibank Budapest Rt. Subsidiary SEC Exemption
India Citibank, N.A. Branch NA
Indonesia Citibank, N.A. Branch NA
Ireland Citibank, N.A. Branch NA
Italy Citibank, N.A. Branch NA
Japan Citibank, N.A. Branch NA
Jordan Citibank, N.A. Branch NA
Korea Citibank, N.A. Branch NA
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Luxembourg Cedel S.A. Depository NA
Malaysia Citibank Berhad Subsidiary US$ 145MM
Mexico Citibank, N.A. Branch NA
Netherlands Citibank, N.A. Branch NA
New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption
Norway Christiania Bank Correspondent US$ 512MM
Pakistan Citibank, N.A. Branch NA
Peru Citibank, N.A. Branch NA
Philippines Citibank, N.A. Branch NA
Poland Citibank Poland S.A. Subsidiary SEC Exemption
Portugal Citibank Portugal S.A. Subsidiary SEC Exemption
Singapore Citibank, N.A. Branch NA
South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM
Spain Citibank, N.A. Branch NA
Sri Lanka Citibank, N.A. Branch NA
Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM
Switzerland Citibank (Switzerland) Affiliate US$ 198MM
Taiwan Citibank, N.A. Branch NA
Thailand Citibank, N.A. Branch NA
Turkey Citibank, N.A. Branch NA
U.K. Citibank, N.A. Branch NA
Uruguay Citibank, N.A. Branch NA
Venezuela Citibank, N.A. Branch NA
</TABLE>
<PAGE>
2-02.0 DEPOSITORIES
<TABLE>
<S> <C> <C> <C>
Argentina: Caja de Valores ("CDV") Finland: Central Share Registry
The Helsinki Money Market Center
Australia: The Reserve Bank Information France: Societe Interprofessionnelle
and Transfer System ("RITS") pour la Compensation de
Valeurs Mobilieres
Austraclear ("SICOVAM")
Austria: Wertpapiersammelbank Banque de France
bei der Oesterreichische
Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G.
("DKV")
Belgium: Caisse Interprofessionelle
de Depots et de Virements Greece: Central Securities Depository,
de Titres S.A. ("CIK") S.A. ("CSD")
Banque Nationale Hong Kong: Central Clearing and
de Belgique ("BNB") Settlement System
("CCASS")
Brazil: BOVESPA's Registered
Shares Fungible Custody Hungary: The Central Depository and
("BOVESPA") Clearing House ("CDCH")
Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO")
Securities Limited ("CDS")
Italy: Monte Titoli Instituto per la
China: The Shanghai Securities Custodia e l'Amministrazione
Central Clearing and Accentrata di Valori Mibiliar
Registration Corporation ("Monte Titoli")
("SSCCRC")
The Bank of Italy
The Shenzhen Securities
Registrars Co. Ltd. - registrar Japan: Japan Securities Depository
for three banks forming a Center ("JASDEC")
decentralized depository
structure The Bank of Japan ("BOJ")
Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities
Depository ("KSD")
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Luxembourg: CEDEL, S.A.
Malaysia: Malaysian Central
Depository Sdn. Bhd.
("MCD")
Mexico: Instituto para el Deposito de
Valores ("S.D. Indeval")
Netherlands: Nederlands Centraal Instituut
voor Giraal Effectenverkeer
B.V. ("Necigef")
New Zealand: Austraclear
Norway: The Norwegian Registry of
Securities -
Verdipapirsentralen ("VPS")
Peru: Caja de Valores ("CAVAL")
Poland: The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)
Portugal: Central de Registo e Valores Mobiliarios
Singapore: Central Depository (PTE) Ltd.
South Africa: The Central Depository (Pty) Ltd.
Spain: Servico de Compensacion y
Liquidacion de Valores ("SCLV")
Sri Lanka: Central Depository System (Pvt) Limited
Sweden: Vardepapperscentralen VPC AB ("VPC")
Switzerland: Schwerzerische Effekten-Giro AG ("SEGA")
Taiwan: Taiwan Securities Central
Depository Co., Ltd. ("TSCD")
Thailand: Share Depository Center ("SDC")
Turkey: Istanbul Stock Exchange Settlement
and Custody Company Inc.
United Kingdom: Central Gilts Office ("CGO")
</TABLE>
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK,
COUNTRY DATE SUBCUSTODIAN IF APPLICABLE.
<S> <C> <C> <C>
Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores
N.Y. - Buenos Aires
Office
Australia 1982 ANZ Banking Group Austraclear
Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der
Oesterreichischen
Kontrollbank AG)
Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de
N.Y. - Brussels Office Depots et de Virements de Titres)
Euroclear Clearance
System Limited
Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo;
N.Y. - Sao Paulo Office equities)
BVRJ (Bolsa de Valores
de Rio de Janeiro,
equities)
CETIP (Central de
Custodia e Liquidacao
Financeira de Titulos;
corporate bonds)
SELEC (Sistema Especial
de Liquidacao e
Custodia; gov't
securities)
Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for
Securities) Commerce
Chile 1993 Citibank, N.A.
People's Republic 1992 Hongkong and Shanghai Banking
of China- Corporation
Shanghai and
Shenzhen
Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S.
Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish
Securities Centre)
Finland 1985 Union Bank of Finland
France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle Pour La
N.Y. - Paris Office Compensation des Valeurs Mobilieres)
Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein)
N.Y. - Frankfurt Office
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Greece 1989 National Bank of Greece S.A.
Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement
Corporation System)
Hungary 1993 Citibank N.A.
India 1993 Hongkong and Shanghai Banking
Corporation
Indonesia 1990 Hongkong and Shanghai Banking
Corporation
Ireland 1988 Allied Irish Banks PLC
Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange)
Clearing House Ltd.
Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A.
Milan Office
Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center)
JSA (Japan Securities Agent)
Jordan 1994 Citibank, N.A.
Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement
Corporation)
Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Valeurs
Luxembourg, S.A. Mobilieres)
Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated
Corporation Network Services)
Mexico 1990 Citibank, N.A. Indeval
Morocco 1994 Banque Commerciale du Maroc
Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor
Giraal Effectenverkeer BV)
New Zealand 1982 ANZ Banking Group Ltd.
Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian
Registry of Securities)
Pakistan 1994 Citibank, N.A.
Peru 1994 Citibank, N.A. CAVAL (Caja de Valores)
Philippines 1990 Hongkong and Shanghai Banking
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Poland 1993 Bank Handlowy
Portugal 1988 Banco Espirito Santo E
Comercial de Lisboa
Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte
South Africa 1993 First National Bank of Southern
Africa
Spain 1977 Morgan Guaranty Trust Co. of
N.Y. - Madrid Office
Sri Lanka 1992 Hongkong and Shanghai Banking
Corporation
Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities
Register Centre)
Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro
AG)
Taiwan 1992 Hongkong and Shanghai Banking
Corporation
Thailand 1988 Hongkong and Shanghai Banking
Corporation
Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and
Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve
Saklama A.S.)
United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and
London Office Lodgement for Investors, Stock Management
for Jobbers)
CGO (Central Gilts Office)
CMS (Central Money Market Office)
United States of 1977 Morgan Guaranty Trust Co. of The Federal Reserve Bank of New York
America N.Y. The Depository Trust Co.
The Participants Trust Co.
Venezuela 1991 Citibank, N.A.
</TABLE>
<PAGE>
EXHIBIT (8)
CUSTODY AGREEMENT
This AGREEMENT, dated as of February 22, 1995, by and between SMALL CAP
VALUE PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the
"Company"), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and
existing under the laws of the State of New Jersey (the "Custodian").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund desires that its Securities, cash and other assets be
held and administered by Custodian pursuant to this Agreement;
WHEREAS, the Fund is an investment portfolio represented by a series of
Shares constituting part of the capital stock of the Company, an open-end
management investment company registered under the 1940 Act (as hereinafter
defined);
WHEREAS, Custodian represents that it is a bank having the qualifications
prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following terms, unless the context
otherwise requires, shall mean:
<PAGE>
1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized
-----------------
by resolution of the Board of Directors to give Oral Instructions and Written
Instructions on behalf of the Fund and identified, by name or by office, in
Exhibit A hereto or any person duly designated to do so by an investment adviser
of the Fund specified by the Fund in Exhibit B hereto.
1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when
------------------
permitted under the 1940 Act, the Executive Committee thereof, if any.
1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal
-----------------
Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR
306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of
federal agencies as are substantially in the form of such Subpart O.
1.4 "BUSINESS DAY" means any day recognized as a settlement day by The
------------
New York Stock Exchange, Inc. and on which banks in the State of New Jersey are
open for business.
1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is
---------------
provided for in Section 3.2 below.
1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust
--------------------------
company or other entity organized under the laws of a country other than the
United States which is eligible under Rule 17f-5 under the 1940 Act to act as a
sub-custodian for Foreign Securities and other assets of the Fund held outside
the United States.
1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1)
------------------
of Rule 17f-5 under the 1940 Act.
-2-
<PAGE>
1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or
-----------------------------
clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5
under the 1940 Act.
1.9 "1940 ACT" means the Investment Company Act of 1940, as amended.
--------
1.10 "OFFICER" means the President, any Vice President, the Secretary, any
-------
Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund.
1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and
-----------------
accepted by Custodian which are (a) reasonably believed by Custodian to have
been given by an Authorized Person, (b) recorded and kept among the records of
Custodian made in the ordinary course of business, and (c) orally confirmed by
Custodian.
1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written
-------------------
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.13 "SECURITIES" includes, without limitation, common and preferred
----------
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, forward contracts, futures contracts (including those related to
indexes), options on futures contracts or indexes, bankers' acceptances,
mortgage-backed securities or other obligations, and any certificates, receipts,
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that Custodian
has the facilities to clear and to service.
1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and
---------------------
(provided that Custodian has received a copy of a
-3-
<PAGE>
resolution of the Board of Directors of the Fund, certified by an Officer,
specifically approving the use thereof as a depository for the Fund) any other
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts
as a system for the central handling and deposit of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities.
1.15 "SHARES" means the shares into which the capital stock of the Fund is
------
divided.
1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by
--------------------
Custodian and signed by two persons reasonably believed by Custodian to be
Authorized Persons, or (b) communications by telex or any other such system from
two persons reasonably believed by Custodian to be Authorized Persons, or (c)
communications between electro-mechanical or electronic devices.
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all
-----------
such Securities, cash and other assets as may be acceptable to Custodian and
from time to time delivered to it by the Fund or others for the account of the
Fund.
2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian
----------
and agrees to perform the duties thereof as hereinafter set forth.
-4-
<PAGE>
ARTICLE III
CUSTODY OF CASH AND SECURITIES
------------------------------
3.1 SEGREGATION. All Securities and non-cash property of the Fund in the
-----------
possession of Custodian (other than Securities maintained by Custodian in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of Custodian and shall
be identified as belonging to the Fund.
3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust
---------------
department a custody account in the name of the Fund, subject only to draft or
order of Custodian, in which Custodian shall enter and carry all Securities,
cash and other assets of the Fund which are delivered to Custodian and accepted
by it. Custodian shall not be under any duty or obligation to require the Fund
to deliver to it any Securities or funds owned by the Fund and shall have no
responsibility or liability for or on account of Securities or funds not so
delivered.
(b) If Custodian at any time fails to receive any of the documents
referred to in Section 3.5(a) below, then, until such time as it receives such
document, it shall not be obligated to receive any Securities of the Fund into
the Custody Account and shall be entitled to return to the Fund any Securities
of the Fund that it is holding.
(c) Custodian may, but shall not be obligated to, hold Securities
that may be held only in physical form.
(d) Custodian is authorized to disclose the name, address and
securities positions of the Fund to the issuers of such securities when
requested by them to do so.
-5-
<PAGE>
3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents,
---------------------
which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or
Bear, Stearns Securities Corp., both of which are registered broker-dealers.
The appointment of any agent pursuant to this Section 3.3(a) shall not relieve
Custodian of any of its obligations or liabilities under this Agreement.
However, no Book-Entry System, Securities Depository, Foreign Securities
Depository or other securities depository or clearing agency (whether foreign or
domestic) which it is or may become standard market practice to use for the
comparison and settlement of trades in securities shall be an agent or sub-
contractor of Custodian for purposes of this Section 3.3(a) or otherwise.
(b) In its discretion, Custodian may appoint, and at any time remove,
any domestic bank or trust company which is qualified to act as a custodian
under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and
to carry out such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of Custodian and subject only
to its draft or order), provided, however, that the appointment of any such
agent or opening and maintenance of any such accounts shall be at Custodian's
expense and shall not relieve Custodian of any of its obligations or liabilities
under this Agreement.
(c) Upon receipt of Written Instructions to do so and at the Fund's
expense, Custodian shall appoint as sub-custodian such domestic bank or trust
company as is named therein, provided that (i) such bank or trust company is
qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding
anything to the contrary in Section 7.1 below or elsewhere in this Agreement,
Custodian shall have no greater liability to the Fund for the actions or
omissions of any such sub-custodian than any such sub-custodian has to
Custodian, and Custodian shall not be required
-6-
<PAGE>
to discharge any such liability which may be imposed on it unless and until such
sub-custodian has effectively indemnified Custodian against it or has otherwise
discharged its liability to Custodian in full.
3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian
-------------------------------
the Fund's Securities, cash and other assets, which are acceptable to Custodian,
including (a) payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the term of this Agreement,
and (b) cash received by the Fund for the issuance, at any time during such
term, of Shares. Custodian shall not be responsible for such Securities, cash
or other assets until actually received by it.
3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may
----------------------------------------------
deposit and/or maintain Securities of the Fund in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Fund shall deliver to Custodian a
resolution of the Board of Directors of the Fund, certified by an Officer,
authorizing and instructing Custodian (and any sub-custodian appointed pursuant
to Section 3.3 above) on an on-going basis to deposit in such Securities
Depository or Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance hereunder (or under
the applicable sub-custody agreement in the case of such sub-custodian),
including, without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns of
collateral consisting of Securities.
-7-
<PAGE>
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of Custodian in
such Book-Entry System or Securities Depository which includes only assets held
by Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of Custodian with respect to Securities of the Fund
maintained in a Book-Entry System or Securities Depository shall at all times
identify such Securities as belonging to the Fund.
(d) If Securities purchased by the Fund are to be held in a Book-Entry
System or Securities Depository, Custodian shall pay for such Securities upon
(i) receipt of advice from the Book-Entry System or Securities Depository that
such Securities have been transferred to the Depository Account, and (ii) the
making of an entry on the records of Custodian to reflect such payment and
transfer for the account of the Fund. If Securities sold by the Fund are held
in a Book-Entry System or Securities Depository, Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System or Securities
Depository that payment for such Securities has been transferred to the
Depository Account, and (ii) the making of an entry on the records of Custodian
to reflect such transfer and payment for the account of the Fund.
(e) Custodian shall provide the Fund with copies of any report
obtained by Custodian from a Book-Entry System or Securities Depository in which
Securities of the Fund are kept on the internal accounting controls and
procedures for safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) At its election, the Fund shall be subrogated to the rights of
Custodian with respect to any claim against a Book-Entry System or Securities
Depository or any other person for any loss or
-8-
<PAGE>
damage to the Fund arising from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Fund has not been made whole for any
such loss or damage.
3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall disburse moneys from the Custody Account,
but only in the following cases:
(a) For the purchase of Securities for the Fund but only (i) in the
case of Securities (other than options on Securities, futures contracts and
options on futures contracts), against the delivery to Custodian (or any sub-
custodian appointed pursuant to Section 3.3 above) of such Securities registered
as provided in Section 3.9 below or in proper form for transfer or, if the
purchase of such Securities is effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section
3.5 above; (ii) in the case of options on Securities, against delivery to
Custodian (or such sub-custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii) in the case of futures
contracts and options on futures contracts, against delivery to Custodian (or
such sub-custodian) of evidence of title thereto in favor of the Fund, the
Custodian, any such sub-custodian or any nominee referred to in Section 3.9
below; and (iv) in the case of repurchase or reverse repurchase agreements
entered into by the Fund, against delivery of the purchased Securities either in
certificate form or through an entry crediting Custodian's account at a Book-
Entry System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
-9-
<PAGE>
(d) In payment of the redemption price of Shares as provided in
Article VI below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the Fund:
interest, taxes, administration, investment management, investment advisory,
accounting, auditing, transfer agent, custodian, trustee and legal fees; and
other operating expenses of the Fund; in all cases, whether or not such expenses
are to be in whole or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with rules
of The Options Clearing Corporation and of any registered national securities
exchange (or of any similar organization or organizations) regarding escrow or
other arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including Custodian), but
only if the payment instructions to Custodian detail specific Securities to be
acquired;
(i) For the purchase from a bank or other financial institution of
loan participations, but only if Custodian has in its possession a copy of the
agreement between the Fund and such bank or other financial institution with
respect to the purchase of
-10-
<PAGE>
such loan participations and the payment instructions to Custodian detail
specific assets to be acquired;
(j) For the purchase and sale of foreign currencies or options to
purchase and sell foreign currencies for spot and future delivery on behalf and
for the account of the Fund pursuant to contracts with such banks and other
financial institutions, including Custodian, any sub-custodian and any affiliate
of Custodian, as principal, as are approved and authorized by the Fund, but only
if the payment instructions to Custodian detail specific assets to be acquired;
(k) For transfer to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement among the Fund, Custodian and
such a broker-dealer as margin for a short sale of Securities;
(l) For the payment of the amounts of dividends received with respect
to Securities sold short; and
(m) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the amount and purpose of such payment,
declaring such purpose to be a proper purpose of the Fund, and naming the person
or persons to whom such payment is to be made.
3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall release and deliver Securities of the Fund
from the Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but,
subject to Section 5.3 below, only against receipt of
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<PAGE>
payment therefor in cash, by certified or cashiers' check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided that, in any such
case, the cash or other consideration is to be delivered to Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name
of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for
exchange for a different number of certificates or other evidence representing
the same aggregate face amount or number of units; provided that, in any such
case, the new Securities are to be delivered to Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such Securities, or pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase
agreement entered into by the Fund;
-12-
<PAGE>
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities and cash,
if any, are to be delivered to Custodian;
(i) For delivery in connection with any loans of Securities pursuant
to any securities loan agreement entered into by the Fund, but only against
receipt of such collateral as is required under such securities loan agreement;
(j) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against receipt by
Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(l) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or organizations) regarding
escrow or other arrangements in connection with transactions by the Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(n) For delivery to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement
-13-
<PAGE>
among the Fund, Custodian and such a broker-dealer as margin for a short sale of
Securities;
(o) For delivery (by a Foreign Sub-custodian or an agent of Custodian)
to the depository used by an issuer of American Depositary Receipts or
International Depositary Receipts (hereinafter collectively referred to as
"ADRs") for such Securities against a written receipt therefor adequately
describing such Securities and written evidence satisfactory to the Foreign Sub-
custodian or agent that the depository has acknowledged receipt of instructions
to issue with respect to such Securities ADRs in the name of the Custodian, or a
nominee of the Custodian, for delivery to the Custodian;
(p) To deliver ADRs to the issuer thereof against a written receipt
therefor adequately describing the ADR's delivered and written evidence
satisfactory to the Custodian that the issuer of the ADRs has acknowledged the
receipt of instructions to cause its depository to deliver the Securities
underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or
(q) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the Securities to be delivered, setting
forth the purpose for which such delivery is to be made, declaring such purpose
to be a proper purpose of the Fund, and naming the person or persons to whom
delivery of such Securities is to be made.
3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
-----------------------------------------
instructed by the Fund, Custodian shall with respect to all Securities held for
the Fund:
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<PAGE>
(a) Subject to Section 8.4 below, collect on a timely basis all income
and other payments to which the Fund is entitled either by law or pursuant to
custom in the securities business;
(b) Subject to Section 8.4 below, collect on a timely basis the amount
payable upon or with respect to all Securities and other assets which may mature
or be called, redeemed, retired or otherwise become payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect, and prepare and submit
reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in
such manner and containing such information as is prescribed by the IRS;
(f) Hold for the Fund all rights and similar securities issued with
respect to Securities of the Fund; and
(g) In general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with Securities and assets of the Fund.
3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the
---------------------------------------
Fund that are issuable only in bearer form shall be held by Custodian in that
form, provided that any such Securities shall be held in a Book-Entry System if
eligible therefor. All other Securities held for the Fund may be registered in
the name of Custodian as agent, any sub-custodian appointed pursuant to Section
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<PAGE>
3.3 above, any Securities Depository, any Foreign Sub-custodian or Foreign
Securities Depository (in the case of Foreign Securities), or any nominee or
agent of any of them. The Fund shall furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register as in this Section 3.9 provided, any Securities delivered to
Custodian which are registered in the name of the Fund.
3.10 RECORDS. (a) Custodian shall maintain complete and accurate records
-------
with respect to Securities, cash or other property held for the Fund, including
(i) journals or other records of original entry containing an itemized daily
record in detail of all receipts and deliveries of Securities and all receipts
and disbursements of cash; (ii) ledgers (or other records) reflecting (A)
Securities in transfer, if any, (B) Securities in physical possession, (C)
monies and Securities borrowed and monies and Securities loaned (together with a
record of the collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. Custodian
shall keep such other books and records with respect to Securities, cash and
other property of the Fund which is held hereunder as the Fund may reasonably
request.
(b) All such books and records maintained by Custodian shall (i) be
maintained in a form acceptable to the Fund and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Fund and at all times during the regular business hours of Custodian be made
available upon request for inspection by duly authorized officers, employees or
agents of the Fund and employees or agents of the Securities and Exchange
Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940
Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
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<PAGE>
3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily
--------------------
activity statement, including a summary of all transfers to or from the Custody
Account, on the day following such transfers. At least monthly and from time to
time, Custodian shall furnish the Fund with a detailed statement of the
Securities and moneys held for the Fund under this Agreement.
3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with
--------------------------
such reports as the Fund may reasonably request from time to time on the
internal accounting controls and procedures for safeguarding Securities which
are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3
above.
3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the
---------------------------
Fund, Custodian shall promptly deliver to the Fund (at the address set forth in
Article XV below) all notices of meetings, proxies and proxy materials which it
receives regarding Securities held in the Custody Account. Before delivering
them to the Fund, Custodian shall cause all proxies relating to such Securities
which are not registered in the name of the Fund, or a nominee thereof, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted. Unless otherwise
instructed by the Fund, neither Custodian nor any of its agents shall exercise
any voting rights with respect to Securities held hereunder.
3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit
--------------------------------
to the Fund (at the address set forth in Article XV below) all written
information received by Custodian from issuers of Securities held in the Custody
Account. With respect to tender or exchange offers for such Securities,
Custodian shall promptly transmit to the Fund all written information received
by it from the issuers of the Securities whose tender or exchange is sought and
by the party (or its agents) making the tender or exchange offer. If the Fund
desires to take action with respect to
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<PAGE>
any tender offer, exchange offer or other similar transaction, the Fund shall
notify Custodian (a) in the case of Foreign Securities, such number of Business
Days prior to the date on which Custodian is to take such action (which number
of days is in the Custodian's sole discretion) as will allow Custodian to take
such action in the relevant local market in a timely fashion, and (b) in the
case of all other Securities, at least five Business Days prior to the date on
which Custodian is to take such action.
3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary
------------
information to the entity or entities appointed by the Fund to keep the books of
account of the Fund and/or to compute the value of the assets of the Fund.
ARTICLE IV
DUTIES OF CUSTODIAN WITH
RESPECT TO PROPERTY OF
THE FUND HELD OUTSIDE THE UNITED STATES
---------------------------------------
4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub-
-------------------------------------
custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in
accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians
hereunder for the Fund's Securities and other assets maintained outside the
United States. Upon receipt of Written Instructions from the Fund to do so, the
Custodian shall cease the employment of any Foreign Sub-custodian for
maintaining custody of the Fund's assets.
4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and
-----------------
other assets maintained in the custody of an Eligible Foreign Custodian to: (a)
Foreign Securities, and (b) cash and cash equivalents in such amounts as the
Fund may determine.
4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub-
-------------------------------
custodian employed by it may maintain assets of the
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<PAGE>
Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the
1940 Act.
4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in
--------------------------------------
writing (a) the appointment of each Foreign Sub-custodian and the agreement
pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for
the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian,
the country or countries in which such Foreign Sub-custodian is authorized to
hold Securities, cash and other property of the Fund.
4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians
-------------------------------
and the countries where and the Foreign Securities Depositories through which
they or the Custodian may hold Securities, cash and other property of the Fund
which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit
D shall be amended from time to time as Foreign Sub-custodians, countries and/or
Foreign Securities Depositories are changed, added or deleted. The Fund shall
be responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country not listed in Exhibit E in order to
allow the Fund to give the approval required by Section 4.4 hereof and for
Custodian to put the appropriate arrangements in place with a Foreign Sub-
custodian.
(b) If the Fund invests in a Security to be held pursuant to this
Article before the foregoing procedures have been completed, such Security may
be held by such agent as Custodian may select, and Custodian shall bear no
liability to Fund for the actions of such agent, except to the extent Custodian
shall have recovered from such agent for any damages caused to Fund by such
agent.
4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time
--------------------
to time, as mutually agreed upon, reports in respect
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of the safekeeping of the Securities and other assets of the Fund held by
Foreign Sub-custodians, including, but not limited to, advices or notifications
of transfers of Securities to or from the accounts maintained by Foreign Sub-
custodians for the Custodian on behalf of the Fund.
4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper
---------------------------------------
Instructions given in any of the cases specified in Section 3.7 above, Custodian
shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign
Securities owned by the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market; and
(b) Upon receipt of Proper Instructions given in any of the cases
specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians
to pay out monies of the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market.
4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which
-----------------------------------
the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub-
custodian to exercise reasonable care in the performance of its duties and shall
hold such Foreign sub-custodian responsible for any direct loss or damage
arising out of any willful misfeasance, bad faith or negligence of such Foreign
Sub-custodian in the performance of its obligations under such agreement or out
of its reckless disregard of such obligations. At its election, the Fund shall
be subrogated to the rights of Custodian with respect to any claims against a
Foreign Sub-custodian as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or damage.
-20-
<PAGE>
4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in
----------------------
Section 8.1 below or elsewhere in this Agreement, Custodian shall have no
greater liability to the Fund for the actions or omissions of any Foreign Sub-
custodian than any such Foreign Sub-custodian has to Custodian, and Custodian
shall not be required to discharge any such liability which may be imposed on it
unless and until such Foreign Sub-custodian has effectively indemnified
Custodian against it or has otherwise discharged its liability to Custodian in
full. Custodian shall have no liability for any loss or damage resulting from
acts or omissions of any Foreign Sub-custodian arising out of or caused,
directly or indirectly, by circumstances beyond such Foreign Sub-custodian's
reasonable control, including, without limitation, sovereign risk, as described
in Section 8.7, or "force majeure", as covered in Article X.
4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian
---------------------------
shall annually furnish to the Fund information concerning all Foreign Sub-
custodians hereunder which shall be similar in kind and scope to that furnished
to the Fund in connection with the initial approval by the Fund of the
agreements pursuant to which Custodian employs such Foreign Sub-custodians or as
otherwise required by Rule 17f-5 under the 1940 Act.
4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall
------------
exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in
connection with Foreign Securities in the Custody Account.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities
----------------------
for the Fund, Written Instructions shall be delivered to Custodian, specifying
(a) the name of the issuer or writer of such
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<PAGE>
Securities, and the title or other description thereof, (b) the number of
shares, principal amount (and accrued interest, if any), or other units
purchased, (c) the date of purchase and settlement, (d) the purchase price per
unit, (e) the total amount payable upon such purchase, and (f) the name of the
person to whom such amount is payable. Custodian shall upon receipt of such
Securities purchased by the Fund (or, if the Securities are transferred by means
of a private placement transaction, upon the receipt of such Securities or
payment instructions to Custodian which detail specific Securities to be
acquired) pay out of the moneys held for the account of the Fund the total
amount specified in such Written Instructions to the person named therein.
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities or other assets for the Fund if there is
insufficient cash available in the Custody Account.
5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the
------------------
Fund, Written Instructions shall be delivered to Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions,
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or
---------------------------
any other provision of this Agreement and subject, in the case of Foreign
Securities, to all local laws, regulations,
-22-
<PAGE>
customs, procedures and practices applicable in the relevant local market,
Custodian, when instructed to deliver Securities against payment, shall be
entitled, but only if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor and,
exclusively in the case of Securities in physical form, to deliver such
Securities prior to receipt of payment. In any such case, the Fund shall bear
the risk that final payment for such Securities may not be made or that such
Securities may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and Custodian shall have no liability for
any of the foregoing.
5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from
---------------------------------
time to time, Custodian may credit the Custody Account, prior to actual receipt
of final payment thereof, with (a) proceeds from the sale of Securities which it
has been instructed to deliver against payment, (b) proceeds from the redemption
of Securities or other assets of the Fund, and (c) income from cash, Securities
or other assets of the Fund. Any such credit shall be conditional upon actual
receipt by Custodian of final payment and may be reversed if final payment is
not actually received in full. Custodian may, in its sole discretion and from
time to time, permit the Fund to use funds so credited to the Custody Account in
anticipation of actual receipt of final payment. Any such funds shall be
repayable immediately upon demand made by Custodian at any time prior to the
actual receipt of all final payments in anticipation of which funds were
credited to the Custody Account.
5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means
-------------
payment in funds which are (or have become) immediately available, under
applicable law are irreversible, and are not subject to any security interest,
levy, lien or other encumbrance.
-23-
<PAGE>
ARTICLE VI
REDEMPTION OF FUND SHARES
-------------------------
6.1 TRANSFER OF FUNDS. From such funds as may be available for the
-----------------
purpose in the Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares on account of the Fund,
Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Fund may designate therein with respect to such amount.
6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible
------------------------------
for the payment or distribution by any bank designated in Proper Instructions
given pursuant to Section 6.1 above of any amount paid by Custodian to such bank
in accordance with such Proper Instructions.
ARTICLE VII
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, Custodian shall establish and maintain
a segregated account or accounts for and on behalf of the Fund, into which
account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account:
(a) in accordance with the provisions of any agreement among the Fund,
Custodian and a broker-dealer (or any futures commission merchant), relating to
compliance with the rules of The Options Clearing Corporation or of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund,
-24-
<PAGE>
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in connection with
financial futures contracts (or options thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under the
1940 Act for the maintenance of segregated accounts by registered investment
companies in connection with reverse repurchase agreements, when-issued, delayed
delivery and firm commitment transactions, and short sales of securities, and
(e) for other proper purposes, but only upon receipt of, in addition
to Proper Instructions, a copy of a resolution of the Board of Directors,
certified by an Officer, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper purposes of the
Fund.
ARTICLE VIII
CONCERNING THE CUSTODIAN
------------------------
8.1 STANDARD OF CARE. Custodian shall be held to the exercise of
----------------
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Fund for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim which does not arise from
willful misfeasance, bad faith or negligence on the part of Custodian or
reckless disregard by Custodian of its obligations under this Agreement.
Custodian shall be entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. In no event shall Custodian be liable for
special or consequential damages or be liable in any manner whatsoever for any
-25-
<PAGE>
action taken or omitted upon instructions from the Fund or any agent of the
Fund. Custodian shall not be under any obligation at any time to ascertain
whether the Fund is in compliance with the 1940 Act, the regulations thereunder,
the provisions of its charter documents or by-laws, or its investment
objectives, policies and limitations as in effect from time to time.
8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or
--------------------------
considered to be the custodian of, any cash belonging to the Fund or any money
represented by a check, draft or other instrument for the payment of money,
until Custodian or its agents actually receive such cash or collect on such
instrument.
8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
---------------------------------
it is in the exercise of reasonable care, Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of title thereto
received or delivered by it or its agents.
8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the
-----------------------------
Fund whenever any money or property due and payable from or on account of any
Securities held hereunder for the Fund is not timely received by it. Custodian
shall not, however, be required to enforce collection, by legal means or
otherwise, of any such money or other property not paid when due, but shall
receive the proceeds of such collections as may be effected by it or its agents
in the ordinary course of Custodian's custody and safekeeping business or of the
custody and safekeeping business of such agents.
8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations
-------------------
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against Custodian. Custodian shall have no discretion whatsoever with respect to
the
-26-
<PAGE>
management, disposition or investment of the Custody Account and is not a
fiduciary to the Fund.
8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all
--------------------
applicable requirements of the Securities Act of 1933, the Securities Exchange
Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules
and regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by Custodian hereunder. Except as specifically set
forth herein, Custodian assumes no responsibility for such compliance by the
Fund.
8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for
-------------------------------
any loss involving any Securities, currencies, deposits or other property of the
Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities
Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for
any loss arising from a foreign currency transaction or contract, where the loss
results from a sovereign risk or where the entity maintaining such Securities,
currencies, deposits or other property of the Fund, whether Custodian, a Foreign
Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a
Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such
property or in connection with the transaction involving such property. For
purposes of this Agreement, "sovereign risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism, insurrection or revolution; or any other act or event beyond the
control of the Foreign Sub-custodian, the Foreign Securities Depository or the
agent of any of them.
-27-
<PAGE>
ARTICLE IX
INDEMNIFICATION
---------------
9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless
---------------
Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian,
from and against any loss, damages, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal,
state or foreign securities and/or banking laws) or claim arising directly or
indirectly (a) from the fact that Securities are registered in the name of any
such nominee, or (b) from any action or inaction by Custodian or such sub-
custodian or other agent (i) at the request or direction of or in reliance on
the advice of the Fund or any of its agents, or (ii) upon Proper Instructions,
or (c) generally, from the performance of its obligations under this Agreement,
provided that Custodian, any sub-custodian or any nominee of either of them
shall not be indemnified and held harmless from and against any such loss,
damage, cost, expense, liability or claim arising from Custodian's willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
under this Agreement or, in the case of any sub-custodian or its nominee, from
such sub-custodian's willful misfeasance, bad faith, negligence or reckless
disregard of its obligations under the Agreement under which it is acting.
9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any
------------------------
action with respect to Securities, which may, in the opinion of Custodian,
result in Custodian or its nominee becoming liable for the payment of money or
incurring liability of some other form, Custodian shall not be required to take
such action until the Fund shall have provided indemnity therefor to Custodian
in an amount and form satisfactory to Custodian.
-28-
<PAGE>
9.3 SECURITY. As security for the payment of any present or future
--------
obligation or liability of any kind which the Fund may have to Custodian with
respect to or in connection with the Custody Account or this Agreement, the Fund
hereby pledges to Custodian all cash, Securities and other property of every
kind which is in the Custody Account or otherwise held for the Fund pursuant to
this Agreement, and hereby grants to Custodian a lien, right of set-off and
continuing security interest in such cash, Securities and other property.
ARTICLE X
FORCE MAJEURE
-------------
Neither Custodian nor the Fund shall be liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Fund and Custodian represents and warrants for itself that (a)
it has all necessary power and authority to perform its obligations hereunder,
(b) the execution and delivery by it of this Agreement, and the performance by
it of its obligations under this Agreement, have been duly authorized by all
necessary action and will not violate any law, regulation, charter, by-law, or
other
-29-
<PAGE>
instrument, restriction or provision applicable to it or by which it is bound,
and (c) this Agreement constitutes a legal, valid and binding obligation of it,
enforceable against it in accordance with its terms.
ARTICLE XII
COMPENSATION OF CUSTODIAN
-------------------------
The Fund shall pay Custodian such fees and charges as are set forth in the
fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to
time be revised by Custodian upon 14 days' prior written notice to the Fund.
Any annual fee or other charges payable by the Fund shall be paid monthly by
automatic deduction from the Custody Account. Expenses incurred by Custodian in
the performance of its services hereunder, and all other proper charges and
disbursements of the Custody Account, shall be charged to the Custody Account by
Custodian and paid therefrom.
ARTICLE XIII
TAXES
-----
Any and all taxes, including any interest and penalties with respect
thereto, which may be levied or assessed under present or future laws or in
respect of the Custody Account or any income thereof shall be charged to the
Custody Account by Custodian and paid therefrom.
ARTICLE XIV
AUTHORIZED PERSONS
------------------
14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance
------------------
with any notice, confirmation, instruction or other communication received by it
from the Fund which is reasonably believed by Custodian to have been given or
signed on behalf of the Fund by one of the Authorized Persons designated by the
Fund in Exhibit A hereto, as it may from time to time be revised. The Fund
-30-
<PAGE>
may revise Exhibit A hereto at any time by notice in writing to Custodian given
in accordance with Article XV below, but no revision of Exhibit A hereto shall
be effective until Custodian actually receives such notice.
14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any
-------------------
Written or Oral Instructions which are reasonably believed by Custodian to have
been given or signed by one of the persons designated from time to time by any
of the investment advisers of the Fund specified in Exhibit B hereto (if any) as
it may from time to time be revised. The Fund may revise Exhibit B hereto at
any time by notice in writing to Custodian given in accordance with Article XV
below, and each investment adviser specified in Exhibit B hereto (if any) may at
any time by like notice designate an Authorized Person or remove an Authorized
Person previously designated by it, but no revision of Exhibit B hereto (if any)
and no designation or removal by such investment adviser shall be effective
until Custodian actually receives such notice.
14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance
-----------------
with Oral Instructions (as defined in Section 1.11 above). If Written
Instructions confirming Oral Instructions are not received by Custodian prior to
a transaction, it shall in no way affect the validity of the transaction
authorized by such Oral Instructions or the authorization of the Fund to effect
such transaction. Custodian shall incur no liability to the Fund in acting upon
Oral Instructions (as defined in Section 1.11 above). To the extent such Oral
Instructions vary from any confirming Written Instructions, Custodian shall
advise the Fund of such variance but unless confirming Written Instructions are
timely received, such Oral Instructions will govern. Either Custodian or Fund
may electronically record any instructions given by telephone and any other
telephone discussions with respect to the account of the Fund.
-31-
<PAGE>
ARTICLE XV
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be sent, delivered or given to
the recipient at the address set forth after its name hereinbelow:
IF TO THE FUND:
Small Cap Value Portfolio - The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Attention: Frank J. Maresca
----------------
Telephone: (212) 272-2093
Facsimile: (212) 272-3098
IF TO CUSTODIAN:
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540-6231
Attention: Vice President - Trust Operations
---------------------------------
Telephone: (609) 951-2320
Facsimile: (609) 951-2327
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XV. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XVI
TERMINATION
-----------
Either party hereto may terminate this Agreement by giving to the other
party a notice in writing specifying the date of such termination, which shall
be not less than sixty (60) days after the date of the giving of such notice.
Upon the date set forth in such notice this Agreement shall terminate, and
Custodian shall, upon receipt of a notice of acceptance by the successor
custodian, on
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<PAGE>
that date (a) deliver directly to the successor custodian or its agents all
Securities (other than Securities held in a Book-Entry System, Securities
Depository or Foreign Securities Depository) and cash then owned by the Fund and
held by Custodian as custodian, and (b) transfer any Securities held in a Book-
Entry System, Securities Depository or Foreign Securities Depository to an
account of or for the benefit of the Fund, provided that the Fund shall have
paid to Custodian all fees, expenses and other amounts to the payment or
reimbursement of which it shall then be entitled.
ARTICLE XVII
MISCELLANEOUS
-------------
17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require
-------------
Custodian to perform any function or duties on a day other than a Business Day.
17.2 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to the
conflict of law principles thereof.
17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed
-----------------------
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for the Fund and such other printed matter
as merely identifies Custodian as custodian for the Fund. The Fund shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
17.4 NO WAIVER. No failure by either party hereto to exercise, and no
---------
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise
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<PAGE>
of any other right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment
----------
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
17.6 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
17.7 SEVERABILITY. If any provision of this Agreement shall be invalid,
------------
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
-------- -------
either party hereto without the written consent of the other party. Any
purported assignment in violation of this Section 17.8 shall be void.
17.9 HEADINGS. The headings of sections in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
-34-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its representative thereunto duly
authorized, all as of the day and year first above written.
SMALL CAP VALUE PORTFOLIO - CUSTODIAL TRUST COMPANY
THE BEAR STEARNS FUNDS
By /s/ Frank J. Maresca By /s/ Ronald D. Watson
-------------------- --------------------
Authorized Officer Authorized Officer
-35-
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS*
Set forth below are the names of the persons, whose specimen signatures are
on file with the Custodian, authorized by the Board of Trustees of The Bear
Stearns Funds to have access to the Small Cap Portfolio's (the "Fund")
investments.
Name
----
Neil T. Eigen
Richard S. Rosen
Frank J. Maresca
Vincent L. Pereira
Eileen M. Coyle
_____________________
*Nothing herein shall prohibit any person designated as an Authorized Person
from giving Oral Instructions or Written Instructions to the Custodian, so long
as it does not result in delivery of or access to securities and similar
investments of the Fund by such person.
<PAGE>
EXHIBIT B
---------
INVESTMENT ADVISERS
Bear Stearns Funds Management Inc.
<PAGE>
EXHIBIT C
---------
CUSTODY FEES AND TRANSACTION CHARGES
DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges
-------------
for assets in the United States ("Domestic Assets") and transactions in the
United States, all such fees and charges to be payable monthly:
(1) an annual fee of the greater of 0.015% (one and one-half basis points)
per annum of the value of the Domestic Assets in the Custody Account or $5,000,
such fee to be payable monthly based upon the total market value of such
Domestic Assets as determined on the last Business Day of the month for which
such fee is charged;
(2) a transaction charge of $18 for each buy, sell or redemption
transaction executed in the Custody Account with respect to such Domestic Assets
as are book-entry Securities (but not for any such buy or sell in a repurchase
transaction representing a cash sweep investment for the Fund's account or the
investment by the Fund of collateral for a loan of Securities);
(3) a transaction charge of $50 for each receipt or delivery into or from
the Custody Account of such Domestic Assets as are Securities in physical form;
(4) a transaction charge for each repurchase transaction in the Custody
Account which represents a cash sweep investment for the Fund's account,
computed at a rate of 0.10% (ten basis points) per annum on the amount of the
purchase price paid or received by the Fund in such repurchase transaction;
<PAGE>
(5) a charge of $10 for each funds transfer; and
(6) a service charge for each holding of Domestic Assets consisting of
Securities or other property sold by way of private placement or in such other
manner as to require services by Custodian which in the reasonable judgment of
Custodian are materially in excess of those ordinarily required for the holding
of publicly traded Securities in the United States.
INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside
------------------
the United States ("Foreign Assets") and transaction charges and other charges
(including, without limitation, charges for funds transfers, tax reclaims, and
foreign exchange services) outside the United States, all such fees and charges
to be payable monthly, according to a schedule of such fees and charges specific
to each country in which Foreign Assets are held, such schedule to be provided
from time to time upon request.
Fees shall be based upon the total market value of the applicable Foreign
Assets as determined on the last Business Day of the month for which such fees
are charged.
<PAGE>
EXHIBIT D
---------
APPROVED FOREIGN SUB-CUSTODIANS
Foreign Sub-custodian Country(ies) Securities Depositories
- --------------------- ------------ -----------------------
(See Attached)
<PAGE>
CITIBANK, N.A.
SEC RULE 17F-5 INFORMATION PACKAGE
AUGUST 1994
SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES
<TABLE>
<S> <C> <C> <C>
SECTION 2:
OVERVIEW OF CITIBANK'S
FOREIGN SUBCUSTODIAN AND
DEPOSITORY ARRANGEMENTS Colombia: Cititrust Colombia S.A.
Carrera 9A, No. 99-02,
Bogota, Colombia
2-01.0 SUBCUSTODIAN NETWORK
Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank
Bartolome Mitre 502/30 2-12 Holmens Kanal
1036 Buenos Aires, Argentina DK-1092 Copenhagen K.
Denmark
Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki
101 Collins Street Aleksanterinkatu 42
Melbourne, VIC 3000 Australia 00100 Helsinki, Finland
Austria: Citibank (Austria) A.G. France: Citibank S.A. (France)
Postfach 90 Cedex 36
Lothringerstrasse 7 92073 Paris la Defense, France
A-1015 Vienna, Austria
Banque Paribas
Belgium: Generale Bank 3 Rue D'Antim
Montagne du Parc 3 75002 Paris, France
1000 Brussels, Belgium
Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft
Avenida Paulista 1111 Neue Mainzer Str. 75,
Sao Paulo, Brazil 60311, Frankfurt/Main,
Germany
Canada: Citibank Canada Greece: Citibank, N.A. (Greece)
123 Front Street West Athens Branch
Toronto, Ontario Othonos 8
M5J2M3, Canada Athens 10557, Greece
Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong)
Ahumada 40 Citicorp Tower
Santiago, Chile Citicorp Plaza
3 Garden Road
Central, Hong Kong
China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt.
c/o Citibank, N.A., 1052 Budapest V19-21.
Hong Kong, Citicorp Tower, Vaci Utca
Citicorp Plaza, 3 Garden Road, Hungary
Central, Hong Kong
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New
Sakhar Bhavan Zealand) Ltd.
230 Backbay Reclamation 23 Customs Street East
Nariman Point Auckland 1, New Zealand
Bombay 400 021
Indonesia: Citibank, N.A. (Jakarta)
Jalan Jend. Sudirman No. 1 Norway: Christiania Bank
Jakarta 12910, Indonesia P.O. Box 1166 Sentrum
0107 Oslo 1, Norway
Ireland: Citibank, N.A. (Ireland)
IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan)
Quay, Dublin 2 P.O. Box 4889
Ireland 11 Chundrigar Road
Karachi 74200
Italy: Citibank, N.A. (Italy) Pakistan
Foro Buonaparte N. 16
Casella Postale 10932
20121 Milan, Italy
Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima)
Citicorp Center, Av. Camino Real 456,
2-314 Higashi Shinagawa, Torre Real 5t 0 Piso,
Shinagawa - ku, Lima 27
Tokyo, Japan Peru
Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines)
3rd Circle Citibank Center
Jordan Insurance Building 8741 Paseo de Roxas
Prince Mohammad Street Makati Metro
Amman, Jordan Manila, Philippines
Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A.
89-29 Shinmun-Ro, Sentorska 12,
Chongro-ku 00-082 Warsaw,
Seoul, Korea Poland
Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A.
67 Boulevard Rua Barat, Salgueiro 30,
Grande-Duchesse Charlotte 4th floor, 1200 Lisbon,
L-1010, Luxembourg Portugal
Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A.
28-30 Medan Pasar 252 Ponce De Leon Avenue
50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936
Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore)
Paseo de la Reforma 390 UIC Building #01-00
Mexico City DF, 06695 Mexico 5 Shenton Way
Singapore 0106
Netherlands: Citibank, N.A. (Netherlands)
"Europlaza", South Africa: First National Bank
Hoogoorddreef 54 B, Mezzanine floor,
1101 BE Amsterdam z.o., 3 First Place,
The Netherlands Post Box 7713
Johannesburg, 2000
South Africa
</TABLE>
<PAGE>
Spain: Citibank, N.A. (Spain)
Jose Ortega Y Gasset 29
28006 Madrid, Spain
Sri Lanka: Citibank, N.A. (Sri Lanka)
67 Dharmapala Mawatha
P.O. Box 888
Colombo 7, Sri Lanka
Sweden: Skandinaviska Enskilda Banken
Sergels Torg 2
Stockholm, Sweden
Switzerland: Citibank (Switzerland)
Bahnhofstrass 63,
Post Office Box 24
8021 Zurich, Switzerland
Taiwan: Citibank, N.A. (Taiwan)
Taipei Branch
No. 52 Ming Sheng East Road
Sec. 4
Taipei, Taiwan
Thailand: Citibank, N.A. (Thailand)
127 South Sathom Road
Bangkok 10120, Thailand
Turkey: Citibank, N.A. (Turkey)
Buyukedere Caddesi,
No. 100, Eseutepe 80280
Istanbul, Turkey
United Kingdom: Citibank, N.A.
25 Molesworth St,
Lewisham, London SE 13 7EX
United Kingdom
The First National Bank of
Chicago
27 Leadenhall Street
London EC3A 1AA, England
Uruguay: Citibank, N.A. (Uruguay)
Cerrito 455
P.O. Box 690
Montevideo
Uruguay
Venezuela: Citibank, N.A. (Caracas)
Carmelitas a Altagracia
Edificio Citibank
Caracas 1010, Venezuela
<PAGE>
2-01.1 STATUS AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS'
EQUITY
<S> <C> <C> <C>
Argentina Citibank, N.A. Branch NA
Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption
Austria Citibank (Austria) A.G. Subsidiary SEC Exemption
Belgium Generale Bank Correspondent US$ 2,260 MM
Brazil Citibank, N.A. Branch NA
Canada Citibank Canada Subsidiary US$ 299.9 MM
Chile Citibank, N.A. Branch NA
China Citibank, N.A. Branch NA
Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption
Sociedad Fiduciary
Denmark Den Danske Bank Correspondent US$ 2,975 MM
Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM
France Citibank S.A. Subsidiary SEC Exemption
France Banque Paribas Correspondent US$ 2,998 MM
Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM
Greece Citibank, N.A. Branch NA
Hong Kong Citibank, N.A. Branch NA
Hungary Citibank Budapest Rt. Subsidiary SEC Exemption
India Citibank, N.A. Branch NA
Indonesia Citibank, N.A. Branch NA
Ireland Citibank, N.A. Branch NA
Italy Citibank, N.A. Branch NA
Japan Citibank, N.A. Branch NA
Jordan Citibank, N.A. Branch NA
Korea Citibank, N.A. Branch NA
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Luxembourg Cedel S.A. Depository NA
Malaysia Citibank Berhad Subsidiary US$ 145MM
Mexico Citibank, N.A. Branch NA
Netherlands Citibank, N.A. Branch NA
New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption
Norway Christiania Bank Correspondent US$ 512MM
Pakistan Citibank, N.A. Branch NA
Peru Citibank, N.A. Branch NA
Philippines Citibank, N.A. Branch NA
Poland Citibank Poland S.A. Subsidiary SEC Exemption
Portugal Citibank Portugal S.A. Subsidiary SEC Exemption
Singapore Citibank, N.A. Branch NA
South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM
Spain Citibank, N.A. Branch NA
Sri Lanka Citibank, N.A. Branch NA
Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM
Switzerland Citibank (Switzerland) Affiliate US$ 198MM
Taiwan Citibank, N.A. Branch NA
Thailand Citibank, N.A. Branch NA
Turkey Citibank, N.A. Branch NA
U.K. Citibank, N.A. Branch NA
Uruguay Citibank, N.A. Branch NA
Venezuela Citibank, N.A. Branch NA
</TABLE>
<PAGE>
2-02.0 DEPOSITORIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Argentina: Caja de Valores ("CDV") Finland: Central Share Registry
The Helsinki Money
Market Center
Australia: The Reserve Bank Information France: Societe Interprofessionnelle
and Transfer System ("RITS") pour la Compensation de
Valeurs Mobilieres
Austraclear ("SICOVAM")
Austria: Wertpapiersammelbank Banque de France
bei der Oesterreichische
Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G.
("DKV")
Belgium: Caisse Interprofessionelle
de Depots et de Virements Greece: Central Securities Depository,
de Titres S.A. ("CIK") S.A. ("CSD")
Banque Nationale Hong Kong: Central Clearing and
de Belgique ("BNB") Settlement System
("CCASS")
Brazil: BOVESPA's Registered
Shares Fungible Custody Hungary: The Central Depository and
("BOVESPA") Clearing House ("CDCH")
Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO")
Securities Limited ("CDS")
Italy: Monte Titoli Instituto per la
China: The Shanghai Securities Custodia e l'Amministrazione
Central Clearing and Accentrata di Valori Mibiliar
Registration Corporation ("Monte Titoli")
("SSCCRC")
The Bank of Italy
The Shenzhen Securities
Registrars Co. Ltd. - Japan: Japan Securities Depository
registrar for three banks Center ("JASDEC")
forming a decentralized
depository structure
The Bank of Japan ("BOJ")
Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities
Depository ("KSD")
</TABLE>
<PAGE>
Luxembourg: CEDEL, S.A.
Malaysia: Malaysian Central
Depository Sdn. Bhd.
("MCD")
Mexico: Instituto para el Deposito de
Valores ("S.D. Indeval")
Netherlands: Nederlands Centraal Instituut
voor Giraal Effectenverkeer
B.V. ("Necigef")
New Zealand: Austraclear
Norway: The Norwegian Registry of
Securities -
Verdipapirsentralen ("VPS")
Peru: Caja de Valores ("CAVAL")
Poland: The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)
Portugal: Central de Registo e Valores Mobiliarios
Singapore: Central Depository (PTE) Ltd.
South Africa: The Central Depository (Pty) Ltd.
Spain: Servico de Compensacion y
Liquidacion de Valores ("SCLV")
Sri Lanka: Central Depository System (Pvt) Limited
Sweden: Vardepapperscentralen VPC AB ("VPC")
Switzerland: Schwerzerische Effekten-Giro AG ("SEGA")
Taiwan: Taiwan Securities Central
Depository Co., Ltd. ("TSCD")
Thailand: Share Depository Center ("SDC")
Turkey: Istanbul Stock Exchange Settlement
and Custody Company Inc.
United
Kingdom: Central Gilts Office ("CGO")
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK,
COUNTRY DATE SUBCUSTODIAN IF APPLICABLE.
<S> <C> <C> <C>
Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores
N.Y. - Buenos Aires Office
Australia 1982 ANZ Banking Group Austraclear
Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der
Oesterreichischen Kontrollbank AG)
Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de
N.Y. - Brussels Office Depots et de Virements de Titres)
Euroclear Clearance System Limited
Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo;
N.Y. - Sao Paulo Office equities)
BVRJ (Bolsa de Valores de Rio de Janeiro,
equities)
CETIP (Central de Custodia e Liquidacao
Financeira de Titulos; corporate bonds)
SELEC (Sistema Especial de Liquidacao e
Custodia; gov't securities)
Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities)
Commerce
Chile 1993 Citibank, N.A.
People's Republic 1992 Hongkong and Shanghai Banking
of China- Corporation
Shanghai and
Shenzhen
Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S.
Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish Securities Centre)
Finland 1985 Union Bank of Finland
France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle Pour La
N.Y. - Paris Office Compensation des Valeurs Mobilieres)
Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein)
N.Y. - Frankfurt Office
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Greece 1989 National Bank of Greece S.A.
Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement System)
Corporation
Hungary 1993 Citibank N.A.
India 1993 Hongkong and Shanghai Banking
Corporation
Indonesia 1990 Hongkong and Shanghai Banking
Corporation
Ireland 1988 Allied Irish Banks PLC
Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange) Clearing House Ltd.
Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A.
Milan Office
Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center)
JSA (Japan Securities Agent)
Jordan 1994 Citibank, N.A.
Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement
Corporation)
Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Valeurs
Luxembourg, S.A. Mobilieres)
Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated
Corporation Network Services)
Mexico 1990 Citibank, N.A. Indeval
Morocco 1994 Banque Commerciale du Maroc
Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor
Giraal Effectenverkeer BV)
New Zealand 1982 ANZ Banking Group Ltd.
Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian
Registry of Securities)
Pakistan 1994 Citibank, N.A.
Peru 1994 Citibank, N.A. CAVAL (Caja de Valores)
Philippines 1990 Hongkong and Shanghai Banking
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Poland 1993 Bank Handlowy
Portugal 1988 Banco Espirito Santo E
Comercial de Lisboa
Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte
South Africa 1993 First National Bank of Southern
Africa
Spain 1977 Morgan Guaranty Trust Co. of
N.Y. - Madrid Office
Sri Lanka 1992 Hongkong and Shanghai Banking
Corporation
Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities Register Centre)
Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG)
Taiwan 1992 Hongkong and Shanghai Banking
Corporation
Thailand 1988 Hongkong and Shanghai Banking
Corporation
Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and
Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve Saklama A.S.)
United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and
London Office Lodgement for Investors, Stock Management for Jobbers)
CGO (Central Gilts Office)
CMS (Central Money Market Office)
United States of 1977 Morgan Guaranty Trust Co. of The Federal Reserve Bank of New York
America N.Y. The Depository Trust Co.
The Participants Trust Co.
Venezuela 1991 Citibank, N.A.
</TABLE>
<PAGE>
EXHIBIT (8)
CUSTODY AGREEMENT
This AGREEMENT, dated as of February 22, 1995, by and between TOTAL RETURN
BOND PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the
"Company"), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and
existing under the laws of the State of New Jersey (the "Custodian").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund desires that its Securities, cash and other assets be
held and administered by Custodian pursuant to this Agreement;
WHEREAS, the Fund is an investment portfolio represented by a series of
Shares constituting part of the capital stock of the Company, an open-end
management investment company registered under the 1940 Act (as hereinafter
defined);
WHEREAS, Custodian represents that it is a bank having the qualifications
prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following terms, unless the context
otherwise requires, shall mean:
<PAGE>
1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized
-----------------
by resolution of the Board of Directors to give Oral Instructions and Written
Instructions on behalf of the Fund and identified, by name or by office, in
Exhibit A hereto or any person duly designated to do so by an investment adviser
of the Fund specified by the Fund in Exhibit B hereto.
1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when
------------------
permitted under the 1940 Act, the Executive Committee thereof, if any.
1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal
-----------------
Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR
306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of
federal agencies as are substantially in the form of such Subpart O.
1.4 "BUSINESS DAY" means any day recognized as a settlement day by The
------------
New York Stock Exchange, Inc. and on which banks in the State of New Jersey are
open for business.
1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is
---------------
provided for in Section 3.2 below.
1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust
--------------------------
company or other entity organized under the laws of a country other than the
United States which is eligible under Rule 17f-5 under the 1940 Act to act as a
sub-custodian for Foreign Securities and other assets of the Fund held outside
the United States.
1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1)
------------------
of Rule 17f-5 under the 1940 Act.
-2-
<PAGE>
1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or
-----------------------------
clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5
under the 1940 Act.
1.9 "1940 ACT" means the Investment Company Act of 1940, as amended.
--------
1.10 "OFFICER" means the President, any Vice President, the Secretary, any
-------
Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund.
1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and
-----------------
accepted by Custodian which are (a) reasonably believed by Custodian to have
been given by an Authorized Person, (b) recorded and kept among the records of
Custodian made in the ordinary course of business, and (c) orally confirmed by
Custodian.
1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written
-------------------
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.13 "SECURITIES" includes, without limitation, common and preferred
----------
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, forward contracts, futures contracts (including those related to
indexes), options on futures contracts or indexes, bankers' acceptances,
mortgage-backed securities or other obligations, and any certificates, receipts,
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that Custodian
has the facilities to clear and to service.
1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and
---------------------
(provided that Custodian has received a copy of a
-3-
<PAGE>
resolution of the Board of Directors of the Fund, certified by an Officer,
specifically approving the use thereof as a depository for the Fund) any other
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts
as a system for the central handling and deposit of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities.
1.15 "SHARES" means the shares into which the capital stock of the Fund is
------
divided.
1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by
--------------------
Custodian and signed by two persons reasonably believed by Custodian to be
Authorized Persons, or (b) communications by telex or any other such system from
two persons reasonably believed by Custodian to be Authorized Persons, or (c)
communications between electro-mechanical or electronic devices.
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all
-----------
such Securities, cash and other assets as may be acceptable to Custodian and
from time to time delivered to it by the Fund or others for the account of the
Fund.
2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian
----------
and agrees to perform the duties thereof as hereinafter set forth.
-4-
<PAGE>
ARTICLE III
CUSTODY OF CASH AND SECURITIES
------------------------------
3.1 SEGREGATION. All Securities and non-cash property of the Fund in the
-----------
possession of Custodian (other than Securities maintained by Custodian in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of Custodian and shall
be identified as belonging to the Fund.
3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust
---------------
department a custody account in the name of the Fund, subject only to draft or
order of Custodian, in which Custodian shall enter and carry all Securities,
cash and other assets of the Fund which are delivered to Custodian and accepted
by it. Custodian shall not be under any duty or obligation to require the Fund
to deliver to it any Securities or funds owned by the Fund and shall have no
responsibility or liability for or on account of Securities or funds not so
delivered.
(b) If Custodian at any time fails to receive any of the documents
referred to in Section 3.5(a) below, then, until such time as it receives such
document, it shall not be obligated to receive any Securities of the Fund into
the Custody Account and shall be entitled to return to the Fund any Securities
of the Fund that it is holding.
(c) Custodian may, but shall not be obligated to, hold Securities
that may be held only in physical form.
(d) Custodian is authorized to disclose the name, address and
securities positions of the Fund to the issuers of such securities when
requested by them to do so.
-5-
<PAGE>
3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents,
---------------------
which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or
Bear, Stearns Securities Corp., both of which are registered broker-dealers.
The appointment of any agent pursuant to this Section 3.3(a) shall not relieve
Custodian of any of its obligations or liabilities under this Agreement.
However, no Book-Entry System, Securities Depository, Foreign Securities
Depository or other securities depository or clearing agency (whether foreign or
domestic) which it is or may become standard market practice to use for the
comparison and settlement of trades in securities shall be an agent or sub-
contractor of Custodian for purposes of this Section 3.3(a) or otherwise.
(b) In its discretion, Custodian may appoint, and at any time remove,
any domestic bank or trust company which is qualified to act as a custodian
under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and
to carry out such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of Custodian and subject only
to its draft or order), provided, however, that the appointment of any such
agent or opening and maintenance of any such accounts shall be at Custodian's
expense and shall not relieve Custodian of any of its obligations or liabilities
under this Agreement.
(c) Upon receipt of Written Instructions to do so and at the Fund's
expense, Custodian shall appoint as sub-custodian such domestic bank or trust
company as is named therein, provided that (i) such bank or trust company is
qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding
anything to the contrary in Section 7.1 below or elsewhere in this Agreement,
Custodian shall have no greater liability to the Fund for the actions or
omissions of any such sub-custodian than any such sub-custodian has to
Custodian, and Custodian shall not be required
-6-
<PAGE>
to discharge any such liability which may be imposed on it unless and until such
sub-custodian has effectively indemnified Custodian against it or has otherwise
discharged its liability to Custodian in full.
3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian
-------------------------------
the Fund's Securities, cash and other assets, which are acceptable to Custodian,
including (a) payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the term of this Agreement,
and (b) cash received by the Fund for the issuance, at any time during such
term, of Shares. Custodian shall not be responsible for such Securities, cash
or other assets until actually received by it.
3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may
----------------------------------------------
deposit and/or maintain Securities of the Fund in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Fund shall deliver to Custodian a
resolution of the Board of Directors of the Fund, certified by an Officer,
authorizing and instructing Custodian (and any sub-custodian appointed pursuant
to Section 3.3 above) on an on-going basis to deposit in such Securities
Depository or Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance hereunder (or under
the applicable sub-custody agreement in the case of such sub-custodian),
including, without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns of
collateral consisting of Securities.
-7-
<PAGE>
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of Custodian in
such Book-Entry System or Securities Depository which includes only assets held
by Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of Custodian with respect to Securities of the Fund
maintained in a Book-Entry System or Securities Depository shall at all times
identify such Securities as belonging to the Fund.
(d) If Securities purchased by the Fund are to be held in a Book-Entry
System or Securities Depository, Custodian shall pay for such Securities upon
(i) receipt of advice from the Book-Entry System or Securities Depository that
such Securities have been transferred to the Depository Account, and (ii) the
making of an entry on the records of Custodian to reflect such payment and
transfer for the account of the Fund. If Securities sold by the Fund are held
in a Book-Entry System or Securities Depository, Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System or Securities
Depository that payment for such Securities has been transferred to the
Depository Account, and (ii) the making of an entry on the records of Custodian
to reflect such transfer and payment for the account of the Fund.
(e) Custodian shall provide the Fund with copies of any report
obtained by Custodian from a Book-Entry System or Securities Depository in which
Securities of the Fund are kept on the internal accounting controls and
procedures for safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) At its election, the Fund shall be subrogated to the rights of
Custodian with respect to any claim against a Book-Entry System or Securities
Depository or any other person for any loss or
-8-
<PAGE>
damage to the Fund arising from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Fund has not been made whole for any
such loss or damage.
3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall disburse moneys from the Custody Account,
but only in the following cases:
(a) For the purchase of Securities for the Fund but only (i) in the
case of Securities (other than options on Securities, futures contracts and
options on futures contracts), against the delivery to Custodian (or any sub-
custodian appointed pursuant to Section 3.3 above) of such Securities registered
as provided in Section 3.9 below or in proper form for transfer or, if the
purchase of such Securities is effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section
3.5 above; (ii) in the case of options on Securities, against delivery to
Custodian (or such sub-custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii) in the case of futures
contracts and options on futures contracts, against delivery to Custodian (or
such sub-custodian) of evidence of title thereto in favor of the Fund, the
Custodian, any such sub-custodian or any nominee referred to in Section 3.9
below; and (iv) in the case of repurchase or reverse repurchase agreements
entered into by the Fund, against delivery of the purchased Securities either in
certificate form or through an entry crediting Custodian's account at a Book-
Entry System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
-9-
<PAGE>
(d) In payment of the redemption price of Shares as provided in
Article VI below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the Fund:
interest, taxes, administration, investment management, investment advisory,
accounting, auditing, transfer agent, custodian, trustee and legal fees; and
other operating expenses of the Fund; in all cases, whether or not such expenses
are to be in whole or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with rules
of The Options Clearing Corporation and of any registered national securities
exchange (or of any similar organization or organizations) regarding escrow or
other arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including Custodian), but
only if the payment instructions to Custodian detail specific Securities to be
acquired;
(i) For the purchase from a bank or other financial institution of
loan participations, but only if Custodian has in its possession a copy of the
agreement between the Fund and such bank or other financial institution with
respect to the purchase of
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<PAGE>
such loan participations and the payment instructions to Custodian detail
specific assets to be acquired;
(j) For the purchase and sale of foreign currencies or options to
purchase and sell foreign currencies for spot and future delivery on behalf and
for the account of the Fund pursuant to contracts with such banks and other
financial institutions, including Custodian, any sub-custodian and any affiliate
of Custodian, as principal, as are approved and authorized by the Fund, but only
if the payment instructions to Custodian detail specific assets to be acquired;
(k) For transfer to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement among the Fund, Custodian and
such a broker-dealer as margin for a short sale of Securities;
(l) For the payment of the amounts of dividends received with respect
to Securities sold short; and
(m) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the amount and purpose of such payment,
declaring such purpose to be a proper purpose of the Fund, and naming the person
or persons to whom such payment is to be made.
3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall release and deliver Securities of the Fund
from the Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but,
subject to Section 5.3 below, only against receipt of
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<PAGE>
payment therefor in cash, by certified or cashiers' check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided that, in any such
case, the cash or other consideration is to be delivered to Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name
of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for
exchange for a different number of certificates or other evidence representing
the same aggregate face amount or number of units; provided that, in any such
case, the new Securities are to be delivered to Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such Securities, or pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase
agreement entered into by the Fund;
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<PAGE>
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities and cash,
if any, are to be delivered to Custodian;
(i) For delivery in connection with any loans of Securities pursuant
to any securities loan agreement entered into by the Fund, but only against
receipt of such collateral as is required under such securities loan agreement;
(j) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against receipt by
Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(l) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or organizations) regarding
escrow or other arrangements in connection with transactions by the Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(n) For delivery to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement
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<PAGE>
among the Fund, Custodian and such a broker-dealer as margin for a short sale of
Securities;
(o) For delivery (by a Foreign Sub-custodian or an agent of Custodian)
to the depository used by an issuer of American Depositary Receipts or
International Depositary Receipts (hereinafter collectively referred to as
"ADRs") for such Securities against a written receipt therefor adequately
describing such Securities and written evidence satisfactory to the Foreign Sub-
custodian or agent that the depository has acknowledged receipt of instructions
to issue with respect to such Securities ADRs in the name of the Custodian, or a
nominee of the Custodian, for delivery to the Custodian;
(p) To deliver ADRs to the issuer thereof against a written receipt
therefor adequately describing the ADR's delivered and written evidence
satisfactory to the Custodian that the issuer of the ADRs has acknowledged the
receipt of instructions to cause its depository to deliver the Securities
underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or
(q) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the Securities to be delivered, setting
forth the purpose for which such delivery is to be made, declaring such purpose
to be a proper purpose of the Fund, and naming the person or persons to whom
delivery of such Securities is to be made.
3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
-----------------------------------------
instructed by the Fund, Custodian shall with respect to all Securities held for
the Fund:
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<PAGE>
(a) Subject to Section 8.4 below, collect on a timely basis all income
and other payments to which the Fund is entitled either by law or pursuant to
custom in the securities business;
(b) Subject to Section 8.4 below, collect on a timely basis the amount
payable upon or with respect to all Securities and other assets which may mature
or be called, redeemed, retired or otherwise become payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect, and prepare and submit
reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in
such manner and containing such information as is prescribed by the IRS;
(f) Hold for the Fund all rights and similar securities issued with
respect to Securities of the Fund; and
(g) In general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with Securities and assets of the Fund.
3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the
---------------------------------------
Fund that are issuable only in bearer form shall be held by Custodian in that
form, provided that any such Securities shall be held in a Book-Entry System if
eligible therefor. All other Securities held for the Fund may be registered in
the name of Custodian as agent, any sub-custodian appointed pursuant to Section
-15-
<PAGE>
3.3 above, any Securities Depository, any Foreign Sub-custodian or Foreign
Securities Depository (in the case of Foreign Securities), or any nominee or
agent of any of them. The Fund shall furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register as in this Section 3.9 provided, any Securities delivered to
Custodian which are registered in the name of the Fund.
3.10 RECORDS. (a) Custodian shall maintain complete and accurate records
-------
with respect to Securities, cash or other property held for the Fund, including
(i) journals or other records of original entry containing an itemized daily
record in detail of all receipts and deliveries of Securities and all receipts
and disbursements of cash; (ii) ledgers (or other records) reflecting (A)
Securities in transfer, if any, (B) Securities in physical possession, (C)
monies and Securities borrowed and monies and Securities loaned (together with a
record of the collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. Custodian
shall keep such other books and records with respect to Securities, cash and
other property of the Fund which is held hereunder as the Fund may reasonably
request.
(b) All such books and records maintained by Custodian shall (i) be
maintained in a form acceptable to the Fund and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Fund and at all times during the regular business hours of Custodian be made
available upon request for inspection by duly authorized officers, employees or
agents of the Fund and employees or agents of the Securities and Exchange
Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940
Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
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<PAGE>
3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily
--------------------
activity statement, including a summary of all transfers to or from the Custody
Account, on the day following such transfers. At least monthly and from time to
time, Custodian shall furnish the Fund with a detailed statement of the
Securities and moneys held for the Fund under this Agreement.
3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with
--------------------------
such reports as the Fund may reasonably request from time to time on the
internal accounting controls and procedures for safeguarding Securities which
are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3
above.
3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the
---------------------------
Fund, Custodian shall promptly deliver to the Fund (at the address set forth in
Article XV below) all notices of meetings, proxies and proxy materials which it
receives regarding Securities held in the Custody Account. Before delivering
them to the Fund, Custodian shall cause all proxies relating to such Securities
which are not registered in the name of the Fund, or a nominee thereof, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted. Unless otherwise
instructed by the Fund, neither Custodian nor any of its agents shall exercise
any voting rights with respect to Securities held hereunder.
3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit
--------------------------------
to the Fund (at the address set forth in Article XV below) all written
information received by Custodian from issuers of Securities held in the Custody
Account. With respect to tender or exchange offers for such Securities,
Custodian shall promptly transmit to the Fund all written information received
by it from the issuers of the Securities whose tender or exchange is sought and
by the party (or its agents) making the tender or exchange offer. If the Fund
desires to take action with respect to
-17-
<PAGE>
any tender offer, exchange offer or other similar transaction, the Fund shall
notify Custodian (a) in the case of Foreign Securities, such number of Business
Days prior to the date on which Custodian is to take such action (which number
of days is in the Custodian's sole discretion) as will allow Custodian to take
such action in the relevant local market in a timely fashion, and (b) in the
case of all other Securities, at least five Business Days prior to the date on
which Custodian is to take such action.
3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary
------------
information to the entity or entities appointed by the Fund to keep the books of
account of the Fund and/or to compute the value of the assets of the Fund.
ARTICLE IV
DUTIES OF CUSTODIAN WITH
RESPECT TO PROPERTY OF
THE FUND HELD OUTSIDE THE UNITED STATES
---------------------------------------
4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub-
-------------------------------------
custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in
accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians
hereunder for the Fund's Securities and other assets maintained outside the
United States. Upon receipt of Written Instructions from the Fund to do so, the
Custodian shall cease the employment of any Foreign Sub-custodian for
maintaining custody of the Fund's assets.
4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and
-----------------
other assets maintained in the custody of an Eligible Foreign Custodian to: (a)
Foreign Securities, and (b) cash and cash equivalents in such amounts as the
Fund may determine.
4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub-
-------------------------------
custodian employed by it may maintain assets of the
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<PAGE>
Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the
1940 Act.
4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in
--------------------------------------
writing (a) the appointment of each Foreign Sub-custodian and the agreement
pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for
the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian,
the country or countries in which such Foreign Sub-custodian is authorized to
hold Securities, cash and other property of the Fund.
4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians
-------------------------------
and the countries where and the Foreign Securities Depositories through which
they or the Custodian may hold Securities, cash and other property of the Fund
which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit
D shall be amended from time to time as Foreign Sub-custodians, countries and/or
Foreign Securities Depositories are changed, added or deleted. The Fund shall
be responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country not listed in Exhibit E in order to
allow the Fund to give the approval required by Section 4.4 hereof and for
Custodian to put the appropriate arrangements in place with a Foreign Sub-
custodian.
(b) If the Fund invests in a Security to be held pursuant to this
Article before the foregoing procedures have been completed, such Security may
be held by such agent as Custodian may select, and Custodian shall bear no
liability to Fund for the actions of such agent, except to the extent Custodian
shall have recovered from such agent for any damages caused to Fund by such
agent.
4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time
--------------------
to time, as mutually agreed upon, reports in respect
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<PAGE>
of the safekeeping of the Securities and other assets of the Fund held by
Foreign Sub-custodians, including, but not limited to, advices or notifications
of transfers of Securities to or from the accounts maintained by Foreign Sub-
custodians for the Custodian on behalf of the Fund.
4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper
---------------------------------------
Instructions given in any of the cases specified in Section 3.7 above, Custodian
shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign
Securities owned by the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market; and
(b) Upon receipt of Proper Instructions given in any of the cases
specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians
to pay out monies of the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market.
4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which
-----------------------------------
the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub-
custodian to exercise reasonable care in the performance of its duties and shall
hold such Foreign sub-custodian responsible for any direct loss or damage
arising out of any willful misfeasance, bad faith or negligence of such Foreign
Sub-custodian in the performance of its obligations under such agreement or out
of its reckless disregard of such obligations. At its election, the Fund shall
be subrogated to the rights of Custodian with respect to any claims against a
Foreign Sub-custodian as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or damage.
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<PAGE>
4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in
----------------------
Section 8.1 below or elsewhere in this Agreement, Custodian shall have no
greater liability to the Fund for the actions or omissions of any Foreign Sub-
custodian than any such Foreign Sub-custodian has to Custodian, and Custodian
shall not be required to discharge any such liability which may be imposed on it
unless and until such Foreign Sub-custodian has effectively indemnified
Custodian against it or has otherwise discharged its liability to Custodian in
full. Custodian shall have no liability for any loss or damage resulting from
acts or omissions of any Foreign Sub-custodian arising out of or caused,
directly or indirectly, by circumstances beyond such Foreign Sub-custodian's
reasonable control, including, without limitation, sovereign risk, as described
in Section 8.7, or "force majeure", as covered in Article X.
4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian
---------------------------
shall annually furnish to the Fund information concerning all Foreign Sub-
custodians hereunder which shall be similar in kind and scope to that furnished
to the Fund in connection with the initial approval by the Fund of the
agreements pursuant to which Custodian employs such Foreign Sub-custodians or as
otherwise required by Rule 17f-5 under the 1940 Act.
4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall
------------
exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in
connection with Foreign Securities in the Custody Account.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities
----------------------
for the Fund, Written Instructions shall be delivered to Custodian, specifying
(a) the name of the issuer or writer of such
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<PAGE>
Securities, and the title or other description thereof, (b) the number of
shares, principal amount (and accrued interest, if any), or other units
purchased, (c) the date of purchase and settlement, (d) the purchase price per
unit, (e) the total amount payable upon such purchase, and (f) the name of the
person to whom such amount is payable. Custodian shall upon receipt of such
Securities purchased by the Fund (or, if the Securities are transferred by means
of a private placement transaction, upon the receipt of such Securities or
payment instructions to Custodian which detail specific Securities to be
acquired) pay out of the moneys held for the account of the Fund the total
amount specified in such Written Instructions to the person named therein.
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities or other assets for the Fund if there is
insufficient cash available in the Custody Account.
5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the
------------------
Fund, Written Instructions shall be delivered to Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions,
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or
---------------------------
any other provision of this Agreement and subject, in the case of Foreign
Securities, to all local laws, regulations,
-22-
<PAGE>
customs, procedures and practices applicable in the relevant local market,
Custodian, when instructed to deliver Securities against payment, shall be
entitled, but only if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor and,
exclusively in the case of Securities in physical form, to deliver such
Securities prior to receipt of payment. In any such case, the Fund shall bear
the risk that final payment for such Securities may not be made or that such
Securities may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and Custodian shall have no liability for
any of the foregoing.
5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from
---------------------------------
time to time, Custodian may credit the Custody Account, prior to actual receipt
of final payment thereof, with (a) proceeds from the sale of Securities which it
has been instructed to deliver against payment, (b) proceeds from the redemption
of Securities or other assets of the Fund, and (c) income from cash, Securities
or other assets of the Fund. Any such credit shall be conditional upon actual
receipt by Custodian of final payment and may be reversed if final payment is
not actually received in full. Custodian may, in its sole discretion and from
time to time, permit the Fund to use funds so credited to the Custody Account in
anticipation of actual receipt of final payment. Any such funds shall be
repayable immediately upon demand made by Custodian at any time prior to the
actual receipt of all final payments in anticipation of which funds were
credited to the Custody Account.
5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means
-------------
payment in funds which are (or have become) immediately available, under
applicable law are irreversible, and are not subject to any security interest,
levy, lien or other encumbrance.
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<PAGE>
ARTICLE VI
REDEMPTION OF FUND SHARES
-------------------------
6.1 TRANSFER OF FUNDS. From such funds as may be available for the
-----------------
purpose in the Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares on account of the Fund,
Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Fund may designate therein with respect to such amount.
6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible
------------------------------
for the payment or distribution by any bank designated in Proper Instructions
given pursuant to Section 6.1 above of any amount paid by Custodian to such bank
in accordance with such Proper Instructions.
ARTICLE VII
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, Custodian shall establish and maintain
a segregated account or accounts for and on behalf of the Fund, into which
account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account:
(a) in accordance with the provisions of any agreement among the Fund,
Custodian and a broker-dealer (or any futures commission merchant), relating to
compliance with the rules of The Options Clearing Corporation or of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund,
-24-
<PAGE>
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in connection with
financial futures contracts (or options thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under the
1940 Act for the maintenance of segregated accounts by registered investment
companies in connection with reverse repurchase agreements, when-issued, delayed
delivery and firm commitment transactions, and short sales of securities, and
(e) for other proper purposes, but only upon receipt of, in addition
to Proper Instructions, a copy of a resolution of the Board of Directors,
certified by an Officer, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper purposes of the
Fund.
ARTICLE VIII
CONCERNING THE CUSTODIAN
------------------------
8.1 STANDARD OF CARE. Custodian shall be held to the exercise of
----------------
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Fund for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim which does not arise from
willful misfeasance, bad faith or negligence on the part of Custodian or
reckless disregard by Custodian of its obligations under this Agreement.
Custodian shall be entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. In no event shall Custodian be liable for
special or consequential damages or be liable in any manner whatsoever for any
-25-
<PAGE>
action taken or omitted upon instructions from the Fund or any agent of the
Fund. Custodian shall not be under any obligation at any time to ascertain
whether the Fund is in compliance with the 1940 Act, the regulations thereunder,
the provisions of its charter documents or by-laws, or its investment
objectives, policies and limitations as in effect from time to time.
8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or
--------------------------
considered to be the custodian of, any cash belonging to the Fund or any money
represented by a check, draft or other instrument for the payment of money,
until Custodian or its agents actually receive such cash or collect on such
instrument.
8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
---------------------------------
it is in the exercise of reasonable care, Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of title thereto
received or delivered by it or its agents.
8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the
-----------------------------
Fund whenever any money or property due and payable from or on account of any
Securities held hereunder for the Fund is not timely received by it. Custodian
shall not, however, be required to enforce collection, by legal means or
otherwise, of any such money or other property not paid when due, but shall
receive the proceeds of such collections as may be effected by it or its agents
in the ordinary course of Custodian's custody and safekeeping business or of the
custody and safekeeping business of such agents.
8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations
-------------------
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against Custodian. Custodian shall have no discretion whatsoever with respect to
the
-26-
<PAGE>
management, disposition or investment of the Custody Account and is not a
fiduciary to the Fund.
8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all
--------------------
applicable requirements of the Securities Act of 1933, the Securities Exchange
Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules
and regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by Custodian hereunder. Except as specifically set
forth herein, Custodian assumes no responsibility for such compliance by the
Fund.
8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for
-------------------------------
any loss involving any Securities, currencies, deposits or other property of the
Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities
Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for
any loss arising from a foreign currency transaction or contract, where the loss
results from a sovereign risk or where the entity maintaining such Securities,
currencies, deposits or other property of the Fund, whether Custodian, a Foreign
Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a
Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such
property or in connection with the transaction involving such property. For
purposes of this Agreement, "sovereign risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism, insurrection or revolution; or any other act or event beyond the
control of the Foreign Sub-custodian, the Foreign Securities Depository or the
agent of any of them.
-27-
<PAGE>
ARTICLE IX
INDEMNIFICATION
---------------
9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless
---------------
Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian,
from and against any loss, damages, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal,
state or foreign securities and/or banking laws) or claim arising directly or
indirectly (a) from the fact that Securities are registered in the name of any
such nominee, or (b) from any action or inaction by Custodian or such sub-
custodian or other agent (i) at the request or direction of or in reliance on
the advice of the Fund or any of its agents, or (ii) upon Proper Instructions,
or (c) generally, from the performance of its obligations under this Agreement,
provided that Custodian, any sub-custodian or any nominee of either of them
shall not be indemnified and held harmless from and against any such loss,
damage, cost, expense, liability or claim arising from Custodian's willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
under this Agreement or, in the case of any sub-custodian or its nominee, from
such sub-custodian's willful misfeasance, bad faith, negligence or reckless
disregard of its obligations under the Agreement under which it is acting.
9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any
------------------------
action with respect to Securities, which may, in the opinion of Custodian,
result in Custodian or its nominee becoming liable for the payment of money or
incurring liability of some other form, Custodian shall not be required to take
such action until the Fund shall have provided indemnity therefor to Custodian
in an amount and form satisfactory to Custodian.
-28-
<PAGE>
9.3 SECURITY. As security for the payment of any present or future
--------
obligation or liability of any kind which the Fund may have to Custodian with
respect to or in connection with the Custody Account or this Agreement, the Fund
hereby pledges to Custodian all cash, Securities and other property of every
kind which is in the Custody Account or otherwise held for the Fund pursuant to
this Agreement, and hereby grants to Custodian a lien, right of set-off and
continuing security interest in such cash, Securities and other property.
ARTICLE X
FORCE MAJEURE
-------------
Neither Custodian nor the Fund shall be liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Fund and Custodian represents and warrants for itself that (a)
it has all necessary power and authority to perform its obligations hereunder,
(b) the execution and delivery by it of this Agreement, and the performance by
it of its obligations under this Agreement, have been duly authorized by all
necessary action and will not violate any law, regulation, charter, by-law, or
other
-29-
<PAGE>
instrument, restriction or provision applicable to it or by which it is bound,
and (c) this Agreement constitutes a legal, valid and binding obligation of it,
enforceable against it in accordance with its terms.
ARTICLE XII
COMPENSATION OF CUSTODIAN
-------------------------
The Fund shall pay Custodian such fees and charges as are set forth in the
fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to
time be revised by Custodian upon 14 days' prior written notice to the Fund.
Any annual fee or other charges payable by the Fund shall be paid monthly by
automatic deduction from the Custody Account. Expenses incurred by Custodian in
the performance of its services hereunder, and all other proper charges and
disbursements of the Custody Account, shall be charged to the Custody Account by
Custodian and paid therefrom.
ARTICLE XIII
TAXES
-----
Any and all taxes, including any interest and penalties with respect
thereto, which may be levied or assessed under present or future laws or in
respect of the Custody Account or any income thereof shall be charged to the
Custody Account by Custodian and paid therefrom.
ARTICLE XIV
AUTHORIZED PERSONS
------------------
14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance
------------------
with any notice, confirmation, instruction or other communication received by it
from the Fund which is reasonably believed by Custodian to have been given or
signed on behalf of the Fund by one of the Authorized Persons designated by the
Fund in Exhibit A hereto, as it may from time to time be revised. The Fund
-30-
<PAGE>
may revise Exhibit A hereto at any time by notice in writing to Custodian given
in accordance with Article XV below, but no revision of Exhibit A hereto shall
be effective until Custodian actually receives such notice.
14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any
-------------------
Written or Oral Instructions which are reasonably believed by Custodian to have
been given or signed by one of the persons designated from time to time by any
of the investment advisers of the Fund specified in Exhibit B hereto (if any) as
it may from time to time be revised. The Fund may revise Exhibit B hereto at
any time by notice in writing to Custodian given in accordance with Article XV
below, and each investment adviser specified in Exhibit B hereto (if any) may at
any time by like notice designate an Authorized Person or remove an Authorized
Person previously designated by it, but no revision of Exhibit B hereto (if any)
and no designation or removal by such investment adviser shall be effective
until Custodian actually receives such notice.
14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance
-----------------
with Oral Instructions (as defined in Section 1.11 above). If Written
Instructions confirming Oral Instructions are not received by Custodian prior to
a transaction, it shall in no way affect the validity of the transaction
authorized by such Oral Instructions or the authorization of the Fund to effect
such transaction. Custodian shall incur no liability to the Fund in acting upon
Oral Instructions (as defined in Section 1.11 above). To the extent such Oral
Instructions vary from any confirming Written Instructions, Custodian shall
advise the Fund of such variance but unless confirming Written Instructions are
timely received, such Oral Instructions will govern. Either Custodian or Fund
may electronically record any instructions given by telephone and any other
telephone discussions with respect to the account of the Fund.
-31-
<PAGE>
ARTICLE XV
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be sent, delivered or given to
the recipient at the address set forth after its name hereinbelow:
IF TO THE FUND:
Total Return Bond Portfolio - The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Attention: Frank J. Maresca
----------------
Telephone: (212) 272-2093
Facsimile: (212) 272-3098
IF TO CUSTODIAN:
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540-6231
Attention: Vice President - Trust Operations
---------------------------------
Telephone: (609) 951-2320
Facsimile: (609) 951-2327
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XV. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XVI
TERMINATION
-----------
Either party hereto may terminate this Agreement by giving to the other
party a notice in writing specifying the date of such termination, which shall
be not less than sixty (60) days after the date of the giving of such notice.
Upon the date set forth in such notice this Agreement shall terminate, and
Custodian shall, upon receipt of a notice of acceptance by the successor
custodian, on
-32-
<PAGE>
that date (a) deliver directly to the successor custodian or its agents all
Securities (other than Securities held in a Book-Entry System, Securities
Depository or Foreign Securities Depository) and cash then owned by the Fund and
held by Custodian as custodian, and (b) transfer any Securities held in a Book-
Entry System, Securities Depository or Foreign Securities Depository to an
account of or for the benefit of the Fund, provided that the Fund shall have
paid to Custodian all fees, expenses and other amounts to the payment or
reimbursement of which it shall then be entitled.
ARTICLE XVII
MISCELLANEOUS
-------------
17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require
-------------
Custodian to perform any function or duties on a day other than a Business Day.
17.2 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to the
conflict of law principles thereof.
17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed
-----------------------
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for the Fund and such other printed matter
as merely identifies Custodian as custodian for the Fund. The Fund shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
17.4 NO WAIVER. No failure by either party hereto to exercise, and no
---------
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise
-33-
<PAGE>
of any other right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment
----------
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
17.6 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
17.7 SEVERABILITY. If any provision of this Agreement shall be invalid,
------------
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
-------- -------
either party hereto without the written consent of the other party. Any
purported assignment in violation of this Section 17.8 shall be void.
17.9 HEADINGS. The headings of sections in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
-34-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its representative thereunto duly
authorized, all as of the day and year first above written.
TOTAL RETURN BOND PORTFOLIO - CUSTODIAL TRUST COMPANY
THE BEAR STEARNS FUNDS
By /s/ Frank J. Maresca By /s/ Ronald D. Watson
-------------------- -----------------------
Authorized Officer Authorized Officer
-35-
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS/*/
Set forth below are the names of the persons, whose specimen signatures are
on file with the Custodian, authorized by the Board of Trustees of The Bear
Stearns Funds to have access to the Total Return Bond Portfolio's (the "Fund")
investments.
Name
----
John D. Knox
Mark R. Valkenburg
Frank J. Maresca
Vincent L. Pereira
Eileen M. Coyle
_____________________
/*/Nothing herein shall prohibit any person designated as an Authorized Person
from giving Oral Instructions or Written Instructions to the Custodian, so long
as it does not result in delivery of or access to securities and similar
investments of the Fund by such person.
<PAGE>
EXHIBIT B
---------
INVESTMENT ADVISERS
Bear Stearns Funds Management Inc.
<PAGE>
EXHIBIT C
---------
CUSTODY FEES AND TRANSACTION CHARGES
DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges
-------------
for assets in the United States ("Domestic Assets") and transactions in the
United States, all such fees and charges to be payable monthly:
(1) an annual fee of the greater of 0.015% (one and one-half basis points)
per annum of the value of the Domestic Assets in the Custody Account or $5,000,
such fee to be payable monthly based upon the total market value of such
Domestic Assets as determined on the last Business Day of the month for which
such fee is charged;
(2) a transaction charge of $18 for each buy, sell or redemption
transaction executed in the Custody Account with respect to such Domestic Assets
as are book-entry Securities (but not for any such buy or sell in a repurchase
transaction representing a cash sweep investment for the Fund's account or the
investment by the Fund of collateral for a loan of Securities);
(3) a transaction charge of $50 for each receipt or delivery into or from
the Custody Account of such Domestic Assets as are Securities in physical form;
(4) a transaction charge for each repurchase transaction in the Custody
Account which represents a cash sweep investment for the Fund's account,
computed at a rate of 0.10% (ten basis points) per annum on the amount of the
purchase price paid or received by the Fund in such repurchase transaction;
(5) a charge of $10 for each funds transfer; and
<PAGE>
(6) a service charge for each holding of Domestic Assets consisting of
Securities or other property sold by way of private placement or in such other
manner as to require services by Custodian which in the reasonable judgment of
Custodian are materially in excess of those ordinarily required for the holding
of publicly traded Securities in the United States.
INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside
------------------
the United States ("Foreign Assets") and transaction charges and other charges
(including, without limitation, charges for funds transfers, tax reclaims, and
foreign exchange services) outside the United States, all such fees and charges
to be payable monthly, according to a schedule of such fees and charges specific
to each country in which Foreign Assets are held, such schedule to be provided
from time to time upon request.
Fees shall be based upon the total market value of the applicable Foreign
Assets as determined on the last Business Day of the month for which such fees
are charged.
<PAGE>
EXHIBIT D
---------
APPROVED FOREIGN SUB-CUSTODIANS
Foreign Sub-custodian Country(ies) Securities Depositories
- --------------------- ------------
(See Attached)
<PAGE>
CITIBANK, N.A.
SEC RULE 17F-5 INFORMATION PACKAGE
AUGUST 1994
SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES
SECTION 2:
OVERVIEW OF CITIBANK'S
FOREIGN SUBCUSTODIAN AND
DEPOSITORY ARRANGEMENTS
<TABLE>
<C> <S> <C> <C>
Colombia: Cititrust Colombia S.A.
Carrera 9A, No. 99-02,
Bogota, Colombia
2-01.0 SUBCUSTODIAN NETWORK
Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank
Bartolome Mitre 502/30 2-12 Holmens Kanal
1036 Buenos Aires, Argentina DK-1092 Copenhagen K.
Denmark
Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki
101 Collins Street Aleksanterinkatu 42
Melbourne, VIC 3000 Australia 00100 Helsinki, Finland
Austria: Citibank (Austria) A.G. France: Citibank S.A. (France)
Postfach 90 Cedex 36
Lothringerstrasse 7 92073 Paris la Defense, France
A-1015 Vienna, Austria
Banque Paribas
Belgium: Generale Bank 3 Rue D'Antim
Montagne du Parc 3 75002 Paris, France
1000 Brussels, Belgium
Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft
Avenida Paulista 1111 Neue Mainzer Str. 75,
Sao Paulo, Brazil 60311, Frankfurt/Main,
Germany
Canada: Citibank Canada Greece: Citibank, N.A. (Greece)
123 Front Street West Athens Branch
Toronto, Ontario Othonos 8
M5J2M3, Canada Athens 10557, Greece
Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong)
Ahumada 40 Citicorp Tower
Santiago, Chile Citicorp Plaza
3 Garden Road
Central, Hong Kong
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C>
China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt.
c/o Citibank, N.A., 1052 Budapest V19-21.
Hong Kong, Citicorp Tower, Vaci Utca
Citicorp Plaza, 3 Garden Road, Hungary
Central, Hong Kong
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New
Sakhar Bhavan Zealand) Ltd.
230 Backbay Reclamation 23 Customs Street East
Nariman Point Auckland 1, New Zealand
Bombay 400 021
Indonesia: Citibank, N.A. (Jakarta)
Jalan Jend. Sudirman No. 1 Norway: Christiania Bank
Jakarta 12910, Indonesia P.O. Box 1166 Sentrum
0107 Oslo 1, Norway
Ireland: Citibank, N.A. (Ireland)
IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan)
Quay, Dublin 2 P.O. Box 4889
Ireland 11 Chundrigar Road
Karachi 74200
Italy: Citibank, N.A. (Italy) Pakistan
Foro Buonaparte N. 16
Casella Postale 10932
20121 Milan, Italy
Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima)
Citicorp Center, Av. Camino Real 456,
2-314 Higashi Shinagawa, Torre Real 5t 0 Piso,
Shinagawa - ku, Lima 27
Tokyo, Japan Peru
Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines)
3rd Circle Citibank Center
Jordan Insurance Building 8741 Paseo de Roxas
Prince Mohammad Street Makati Metro
Amman, Jordan Manila, Philippines
Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A.
89-29 Shinmun-Ro, Sentorska 12,
Chongro-ku 00-082 Warsaw,
Seoul, Korea Poland
Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A.
67 Boulevard Rua Barat, Salgueiro 30,
Grande-Duchesse Charlotte 4th floor, 1200 Lisbon,
L-1010, Luxembourg Portugal
Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A.
28-30 Medan Pasar 252 Ponce De Leon Avenue
50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936
Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore)
Paseo de la Reforma 390 UIC Building #01-00
Mexico City DF, 06695 Mexico 5 Shenton Way
Singapore 0106
Netherlands: Citibank, N.A. (Netherlands)
"Europlaza", South Africa: First National Bank
Hoogoorddreef 54 B, Mezzanine floor,
1101 BE Amsterdam z.o., 3 First Place,
The Netherlands Post Box 7713
Johannesburg, 2000
South Africa
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Spain: Citibank, N.A. (Spain)
Jose Ortega Y Gasset 29
28006 Madrid, Spain
Sri Lanka: Citibank, N.A. (Sri Lanka)
67 Dharmapala Mawatha
P.O. Box 888
Colombo 7, Sri Lanka
Sweden: Skandinaviska Enskilda Banken
Sergels Torg 2
Stockholm, Sweden
Switzerland: Citibank (Switzerland)
Bahnhofstrass 63,
Post Office Box 24
8021 Zurich, Switzerland
Taiwan: Citibank, N.A. (Taiwan)
Taipei Branch
No. 52 Ming Sheng East Road
Sec. 4
Taipei, Taiwan
Thailand: Citibank, N.A. (Thailand)
127 South Sathom Road
Bangkok 10120, Thailand
Turkey: Citibank, N.A. (Turkey)
Buyukedere Caddesi,
No. 100, Eseutepe 80280
Istanbul, Turkey
United Kingdom: Citibank, N.A.
25 Molesworth St,
Lewisham, London SE 13 7EX
United Kingdom
The First National Bank of
Chicago
27 Leadenhall Street
London EC3A 1AA, England
Uruguay: Citibank, N.A. (Uruguay)
Cerrito 455
P.O. Box 690
Montevideo
Uruguay
Venezuela: Citibank, N.A. (Caracas)
Carmelitas a Altagracia
Edificio Citibank
Caracas 1010, Venezuela
</TABLE>
<PAGE>
2-01.1 STATUS AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS'
EQUITY
<S> <C> <C> <C>
Argentina Citibank, N.A. Branch NA
Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption
Austria Citibank (Austria) A.G. Subsidiary SEC Exemption
Belgium Generale Bank Correspondent US$ 2,260 MM
Brazil Citibank, N.A. Branch NA
Canada Citibank Canada Subsidiary US$ 299.9 MM
Chile Citibank, N.A. Branch NA
China Citibank, N.A. Branch NA
Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption
Sociedad Fiduciary
Denmark Den Danske Bank Correspondent US$ 2,975 MM
Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM
France Citibank S.A. Subsidiary SEC Exemption
France Banque Paribas Correspondent US$ 2,998 MM
Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM
Greece Citibank, N.A. Branch NA
Hong Kong Citibank, N.A. Branch NA
Hungary Citibank Budapest Rt. Subsidiary SEC Exemption
India Citibank, N.A. Branch NA
Indonesia Citibank, N.A. Branch NA
Ireland Citibank, N.A. Branch NA
Italy Citibank, N.A. Branch NA
Japan Citibank, N.A. Branch NA
Jordan Citibank, N.A. Branch NA
Korea Citibank, N.A. Branch NA
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Luxembourg Cedel S.A. Depository NA
Malaysia Citibank Berhad Subsidiary US$ 145MM
Mexico Citibank, N.A. Branch NA
Netherlands Citibank, N.A. Branch NA
New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption
Norway Christiania Bank Correspondent US$ 512MM
Pakistan Citibank, N.A. Branch NA
Peru Citibank, N.A. Branch NA
Philippines Citibank, N.A. Branch NA
Poland Citibank Poland S.A. Subsidiary SEC Exemption
Portugal Citibank Portugal S.A. Subsidiary SEC Exemption
Singapore Citibank, N.A. Branch NA
South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM
Spain Citibank, N.A. Branch NA
Sri Lanka Citibank, N.A. Branch NA
Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM
Switzerland Citibank (Switzerland) Affiliate US$ 198MM
Taiwan Citibank, N.A. Branch NA
Thailand Citibank, N.A. Branch NA
Turkey Citibank, N.A. Branch NA
U.K. Citibank, N.A. Branch NA
Uruguay Citibank, N.A. Branch NA
Venezuela Citibank, N.A. Branch NA
</TABLE>
<PAGE>
2-02.0 DEPOSITORIES
<TABLE>
<S> <C> <C> <C>
Argentina: Caja de Valores ("CDV") Finland: Central Share Registry
The Helsinki Money Market Center
Australia: The Reserve Bank Information France: Societe Interprofessionnelle
and Transfer System ("RITS") pour la Compensation de
Valeurs Mobilieres
Austraclear ("SICOVAM")
Austria: Wertpapiersammelbank Banque de France
bei der Oesterreichische
Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G.
("DKV")
Belgium: Caisse Interprofessionelle
de Depots et de Virements Greece: Central Securities Depository,
de Titres S.A. ("CIK") S.A. ("CSD")
Banque Nationale Hong Kong: Central Clearing and
de Belgique ("BNB") Settlement System
("CCASS")
Brazil: BOVESPA's Registered
Shares Fungible Custody Hungary: The Central Depository and
("BOVESPA") Clearing House ("CDCH")
Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO")
Securities Limited ("CDS")
Italy: Monte Titoli Instituto per la
China: The Shanghai Securities Custodia e l'Amministrazione
Central Clearing and Accentrata di Valori Mibiliar
Registration Corporation ("Monte Titoli")
("SSCCRC")
The Bank of Italy
The Shenzhen Securities
Registrars Co. Ltd. - registrar Japan: Japan Securities Depository
for three banks forming a Center ("JASDEC")
decentralized depository
structure The Bank of Japan ("BOJ")
Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities
Depository ("KSD")
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Luxembourg: CEDEL, S.A.
Malaysia: Malaysian Central
Depository Sdn. Bhd.
("MCD")
Mexico: Instituto para el Deposito de
Valores ("S.D. Indeval")
Netherlands: Nederlands Centraal Instituut
voor Giraal Effectenverkeer
B.V. ("Necigef")
New Zealand: Austraclear
Norway: The Norwegian Registry of
Securities -
Verdipapirsentralen ("VPS")
Peru: Caja de Valores ("CAVAL")
Poland: The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)
Portugal: Central de Registo e Valores Mobiliarios
Singapore: Central Depository (PTE) Ltd.
South Africa: The Central Depository (Pty) Ltd.
Spain: Servico de Compensacion y
Liquidacion de Valores ("SCLV")
Sri Lanka: Central Depository System (Pvt) Limited
Sweden: Vardepapperscentralen VPC AB ("VPC")
Switzerland: Schwerzerische Effekten-Giro AG ("SEGA")
Taiwan: Taiwan Securities Central
Depository Co., Ltd. ("TSCD")
Thailand: Share Depository Center ("SDC")
Turkey: Istanbul Stock Exchange Settlement
and Custody Company Inc.
United
Kingdom: Central Gilts Office ("CGO")
</TABLE>
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK,
COUNTRY DATE SUBCUSTODIAN IF APPLICABLE.
<S> <C> <C> <C>
Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores
N.Y. - Buenos Aires Office
Australia 1982 ANZ Banking Group Austraclear
Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der
Oesterreichischen
Kontrollbank AG)
Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de
N.Y. - Brussels Office Depots et de Virements de Titres)
Euroclear Clearance System Limited
Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo;
N.Y. - Sao Paulo Office equities)
BVRJ (Bolsa de Valores de Rio de Janeiro,
equities)
CETIP (Central de Custodia e Liquidacao
Financeira de Titulos; corporate bonds)
SELEC (Sistema Especial de Liquidacao e
Custodia; gov't securities)
Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities)
Commerce
Chile 1993 Citibank, N.A.
People's Republic 1992 Hongkong and Shanghai Banking
of China- Corporation
Shanghai and
Shenzhen
Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S.
Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish
Securities Centre)
Finland 1985 Union Bank of Finland
France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle Pour La
N.Y. - Paris Office Compensation des Valeurs Mobilieres)
Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein)
N.Y. - Frankfurt Office
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Greece 1989 National Bank of Greece S.A.
Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement System)
Corporation
Hungary 1993 Citibank N.A.
India 1993 Hongkong and Shanghai Banking
Corporation
Indonesia 1990 Hongkong and Shanghai Banking
Corporation
Ireland 1988 Allied Irish Banks PLC
Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange) Clearing House Ltd.
Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A.
Milan Office
Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center)
JSA (Japan Securities Agent)
Jordan 1994 Citibank, N.A.
Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement Corporation)
Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Valeurs
Luxembourg, S.A. Mobilieres)
Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated
Corporation Network Services)
Mexico 1990 Citibank, N.A. Indeval
Morocco 1994 Banque Commerciale du Maroc
Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor
Giraal Effectenverkeer BV)
New Zealand 1982 ANZ Banking Group Ltd.
Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian
Registry of Securities)
Pakistan 1994 Citibank, N.A.
Peru 1994 Citibank, N.A. CAVAL (Caja de Valores)
Philippines 1990 Hongkong and Shanghai Banking
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Poland 1993 Bank Handlowy
Portugal 1988 Banco Espirito Santo E
Comercial de Lisboa
Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte
South Africa 1993 First National Bank of Southern
Africa
Spain 1977 Morgan Guaranty Trust Co. of
N.Y. - Madrid Office
Sri Lanka 1992 Hongkong and Shanghai Banking
Corporation
Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities
Register Centre)
Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG)
Taiwan 1992 Hongkong and Shanghai Banking
Corporation
Thailand 1988 Hongkong and Shanghai Banking
Corporation
Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and
Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve Saklama
A.S.)
United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and
London Office Lodgement for Investors, Stock Management for
Jobbers)
CGO (Central Gilts Office)
CMS (Central Money Market Office)
United States of 1977 Morgan Guaranty Trust Co. of The Federal Reserve Bank of New York
America N.Y. The Depository Trust Co.
The Participants Trust Co.
Venezuela 1991 Citibank, N.A.
</TABLE>
<PAGE>
EXHIBIT (8)
CUSTODY AGREEMENT
This AGREEMENT, dated as of February 22, 1995, by and between the S&P STARS
PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the "Company"),
an unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and existing under
the laws of the State of New Jersey (the "Custodian").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund desires that its Securities, cash and other assets be
held and administered by Custodian pursuant to this Agreement;
WHEREAS, the Fund is an investment portfolio represented by a series of
Shares constituting part of the capital stock of the Company, an open-end
management investment company registered under the 1940 Act (as hereinafter
defined);
WHEREAS, Custodian represents that it is a bank having the qualifications
prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following terms, unless the context
otherwise requires, shall mean:
<PAGE>
1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized
-----------------
by resolution of the Board of Directors to give Oral Instructions and Written
Instructions on behalf of the Fund and identified, by name or by office, in
Exhibit A hereto or any person duly designated to do so by an investment adviser
of the Fund specified by the Fund in Exhibit B hereto.
1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when
------------------
permitted under the 1940 Act, the Executive Committee thereof, if any.
1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal
-----------------
Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR
306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of
federal agencies as are substantially in the form of such Subpart O.
1.4 "BUSINESS DAY" means any day recognized as a settlement day by The
------------
New York Stock Exchange, Inc. and on which banks in the State of New Jersey are
open for business.
1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is
---------------
provided for in Section 3.2 below.
1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust
--------------------------
company or other entity organized under the laws of a country other than the
United States which is eligible under Rule 17f-5 under the 1940 Act to act as a
sub-custodian for Foreign Securities and other assets of the Fund held outside
the United States.
1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1)
------------------
of Rule 17f-5 under the 1940 Act.
-2-
<PAGE>
1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or
-----------------------------
clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5
under the 1940 Act.
1.9 "1940 ACT" means the Investment Company Act of 1940, as amended.
--------
1.10 "OFFICER" means the President, any Vice President, the Secretary, any
-------
Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund.
1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and
-----------------
accepted by Custodian which are (a) reasonably believed by Custodian to have
been given by an Authorized Person, (b) recorded and kept among the records of
Custodian made in the ordinary course of business, and (c) orally confirmed by
Custodian.
1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written
-------------------
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.13 "SECURITIES" includes, without limitation, common and preferred
----------
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, forward contracts, futures contracts (including those related to
indexes), options on futures contracts or indexes, bankers' acceptances,
mortgage-backed securities or other obligations, and any certificates, receipts,
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that Custodian
has the facilities to clear and to service.
1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and
---------------------
(provided that Custodian has received a copy of a
-3-
<PAGE>
resolution of the Board of Directors of the Fund, certified by an Officer,
specifically approving the use thereof as a depository for the Fund) any other
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts
as a system for the central handling and deposit of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities.
1.15 "SHARES" means the shares into which the capital stock of the Fund is
------
divided.
1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by
--------------------
Custodian and signed by two persons reasonably believed by Custodian to be
Authorized Persons, or (b) communications by telex or any other such system from
two persons reasonably believed by Custodian to be Authorized Persons, or (c)
communications between electro-mechanical or electronic devices.
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all
-----------
such Securities, cash and other assets as may be acceptable to Custodian and
from time to time delivered to it by the Fund or others for the account of the
Fund.
2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian
----------
and agrees to perform the duties thereof as hereinafter set forth.
-4-
<PAGE>
ARTICLE III
CUSTODY OF CASH AND SECURITIES
------------------------------
3.1 SEGREGATION. All Securities and non-cash property of the Fund in the
-----------
possession of Custodian (other than Securities maintained by Custodian in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of Custodian and shall
be identified as belonging to the Fund.
3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust
---------------
department a custody account in the name of the Fund, subject only to draft or
order of Custodian, in which Custodian shall enter and carry all Securities,
cash and other assets of the Fund which are delivered to Custodian and accepted
by it. Custodian shall not be under any duty or obligation to require the Fund
to deliver to it any Securities or funds owned by the Fund and shall have no
responsibility or liability for or on account of Securities or funds not so
delivered.
(b) If Custodian at any time fails to receive any of the documents
referred to in Section 3.5(a) below, then, until such time as it receives such
document, it shall not be obligated to receive any Securities of the Fund into
the Custody Account and shall be entitled to return to the Fund any Securities
of the Fund that it is holding.
(c) Custodian may, but shall not be obligated to, hold Securities
that may be held only in physical form.
(d) Custodian is authorized to disclose the name, address and
securities positions of the Fund to the issuers of such securities when
requested by them to do so.
-5-
<PAGE>
3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents,
---------------------
which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or
Bear, Stearns Securities Corp., both of which are registered broker-dealers.
The appointment of any agent pursuant to this Section 3.3(a) shall not relieve
Custodian of any of its obligations or liabilities under this Agreement.
However, no Book-Entry System, Securities Depository, Foreign Securities
Depository or other securities depository or clearing agency (whether foreign or
domestic) which it is or may become standard market practice to use for the
comparison and settlement of trades in securities shall be an agent or sub-
contractor of Custodian for purposes of this Section 3.3(a) or otherwise.
(b) In its discretion, Custodian may appoint, and at any time remove,
any domestic bank or trust company which is qualified to act as a custodian
under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and
to carry out such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of Custodian and subject only
to its draft or order), provided, however, that the appointment of any such
agent or opening and maintenance of any such accounts shall be at Custodian's
expense and shall not relieve Custodian of any of its obligations or liabilities
under this Agreement.
(c) Upon receipt of Written Instructions to do so and at the Fund's
expense, Custodian shall appoint as sub-custodian such domestic bank or trust
company as is named therein, provided that (i) such bank or trust company is
qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding
anything to the contrary in Section 7.1 below or elsewhere in this Agreement,
Custodian shall have no greater liability to the Fund for the actions or
omissions of any such sub-custodian than any such sub-custodian has to
Custodian, and Custodian shall not be required
-6-
<PAGE>
to discharge any such liability which may be imposed on it unless and until such
sub-custodian has effectively indemnified Custodian against it or has otherwise
discharged its liability to Custodian in full.
3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian
-------------------------------
the Fund's Securities, cash and other assets, which are acceptable to Custodian,
including (a) payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the term of this Agreement,
and (b) cash received by the Fund for the issuance, at any time during such
term, of Shares. Custodian shall not be responsible for such Securities, cash
or other assets until actually received by it.
3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may
----------------------------------------------
deposit and/or maintain Securities of the Fund in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Fund shall deliver to Custodian a
resolution of the Board of Directors of the Fund, certified by an Officer,
authorizing and instructing Custodian (and any sub-custodian appointed pursuant
to Section 3.3 above) on an on-going basis to deposit in such Securities
Depository or Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance hereunder (or under
the applicable sub-custody agreement in the case of such sub-custodian),
including, without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns of
collateral consisting of Securities.
-7-
<PAGE>
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of Custodian in
such Book-Entry System or Securities Depository which includes only assets held
by Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of Custodian with respect to Securities of the Fund
maintained in a Book-Entry System or Securities Depository shall at all times
identify such Securities as belonging to the Fund.
(d) If Securities purchased by the Fund are to be held in a Book-Entry
System or Securities Depository, Custodian shall pay for such Securities upon
(i) receipt of advice from the Book-Entry System or Securities Depository that
such Securities have been transferred to the Depository Account, and (ii) the
making of an entry on the records of Custodian to reflect such payment and
transfer for the account of the Fund. If Securities sold by the Fund are held
in a Book-Entry System or Securities Depository, Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System or Securities
Depository that payment for such Securities has been transferred to the
Depository Account, and (ii) the making of an entry on the records of Custodian
to reflect such transfer and payment for the account of the Fund.
(e) Custodian shall provide the Fund with copies of any report
obtained by Custodian from a Book-Entry System or Securities Depository in which
Securities of the Fund are kept on the internal accounting controls and
procedures for safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) At its election, the Fund shall be subrogated to the rights of
Custodian with respect to any claim against a Book-Entry System or Securities
Depository or any other person for any loss or
-8-
<PAGE>
damage to the Fund arising from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Fund has not been made whole for any
such loss or damage.
3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall disburse moneys from the Custody Account,
but only in the following cases:
(a) For the purchase of Securities for the Fund but only (i) in the
case of Securities (other than options on Securities, futures contracts and
options on futures contracts), against the delivery to Custodian (or any sub-
custodian appointed pursuant to Section 3.3 above) of such Securities registered
as provided in Section 3.9 below or in proper form for transfer or, if the
purchase of such Securities is effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section
3.5 above; (ii) in the case of options on Securities, against delivery to
Custodian (or such sub-custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii) in the case of futures
contracts and options on futures contracts, against delivery to Custodian (or
such sub-custodian) of evidence of title thereto in favor of the Fund, the
Custodian, any such sub-custodian or any nominee referred to in Section 3.9
below; and (iv) in the case of repurchase or reverse repurchase agreements
entered into by the Fund, against delivery of the purchased Securities either in
certificate form or through an entry crediting Custodian's account at a Book-
Entry System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
-9-
<PAGE>
(d) In payment of the redemption price of Shares as provided in
Article VI below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the Fund:
interest, taxes, administration, investment management, investment advisory,
accounting, auditing, transfer agent, custodian, trustee and legal fees; and
other operating expenses of the Fund; in all cases, whether or not such expenses
are to be in whole or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with rules
of The Options Clearing Corporation and of any registered national securities
exchange (or of any similar organization or organizations) regarding escrow or
other arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including Custodian), but
only if the payment instructions to Custodian detail specific Securities to be
acquired;
(i) For the purchase from a bank or other financial institution of
loan participations, but only if Custodian has in its possession a copy of the
agreement between the Fund and such bank or other financial institution with
respect to the purchase of
-10-
<PAGE>
such loan participations and the payment instructions to Custodian detail
specific assets to be acquired;
(j) For the purchase and sale of foreign currencies or options to
purchase and sell foreign currencies for spot and future delivery on behalf and
for the account of the Fund pursuant to contracts with such banks and other
financial institutions, including Custodian, any sub-custodian and any affiliate
of Custodian, as principal, as are approved and authorized by the Fund, but only
if the payment instructions to Custodian detail specific assets to be acquired;
(k) For transfer to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement among the Fund, Custodian and
such a broker-dealer as margin for a short sale of Securities;
(l) For the payment of the amounts of dividends received with respect
to Securities sold short; and
(m) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the amount and purpose of such payment,
declaring such purpose to be a proper purpose of the Fund, and naming the person
or persons to whom such payment is to be made.
3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall release and deliver Securities of the Fund
from the Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but,
subject to Section 5.3 below, only against receipt of
-11-
<PAGE>
payment therefor in cash, by certified or cashiers' check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided that, in any such
case, the cash or other consideration is to be delivered to Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name
of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for
exchange for a different number of certificates or other evidence representing
the same aggregate face amount or number of units; provided that, in any such
case, the new Securities are to be delivered to Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such Securities, or pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase
agreement entered into by the Fund;
-12-
<PAGE>
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities and cash,
if any, are to be delivered to Custodian;
(i) For delivery in connection with any loans of Securities pursuant
to any securities loan agreement entered into by the Fund, but only against
receipt of such collateral as is required under such securities loan agreement;
(j) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against receipt by
Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(l) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or organizations) regarding
escrow or other arrangements in connection with transactions by the Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(n) For delivery to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement
-13-
<PAGE>
among the Fund, Custodian and such a broker-dealer as margin for a short sale of
Securities;
(o) For delivery (by a Foreign Sub-custodian or an agent of Custodian)
to the depository used by an issuer of American Depositary Receipts or
International Depositary Receipts (hereinafter collectively referred to as
"ADRs") for such Securities against a written receipt therefor adequately
describing such Securities and written evidence satisfactory to the Foreign Sub-
custodian or agent that the depository has acknowledged receipt of instructions
to issue with respect to such Securities ADRs in the name of the Custodian, or a
nominee of the Custodian, for delivery to the Custodian;
(p) To deliver ADRs to the issuer thereof against a written receipt
therefor adequately describing the ADR's delivered and written evidence
satisfactory to the Custodian that the issuer of the ADRs has acknowledged the
receipt of instructions to cause its depository to deliver the Securities
underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or
(q) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the Securities to be delivered, setting
forth the purpose for which such delivery is to be made, declaring such purpose
to be a proper purpose of the Fund, and naming the person or persons to whom
delivery of such Securities is to be made.
3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
-----------------------------------------
instructed by the Fund, Custodian shall with respect to all Securities held for
the Fund:
-14-
<PAGE>
(a) Subject to Section 8.4 below, collect on a timely basis all income
and other payments to which the Fund is entitled either by law or pursuant to
custom in the securities business;
(b) Subject to Section 8.4 below, collect on a timely basis the amount
payable upon or with respect to all Securities and other assets which may mature
or be called, redeemed, retired or otherwise become payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect, and prepare and submit
reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in
such manner and containing such information as is prescribed by the IRS;
(f) Hold for the Fund all rights and similar securities issued with
respect to Securities of the Fund; and
(g) In general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with Securities and assets of the Fund.
3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the
---------------------------------------
Fund that are issuable only in bearer form shall be held by Custodian in that
form, provided that any such Securities shall be held in a Book-Entry System if
eligible therefor. All other Securities held for the Fund may be registered in
the name of Custodian as agent, any sub-custodian appointed pursuant to Section
-15-
<PAGE>
3.3 above, any Securities Depository, any Foreign Sub-custodian or Foreign
Securities Depository (in the case of Foreign Securities), or any nominee or
agent of any of them. The Fund shall furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register as in this Section 3.9 provided, any Securities delivered to
Custodian which are registered in the name of the Fund.
3.10 RECORDS. (a) Custodian shall maintain complete and accurate records
-------
with respect to Securities, cash or other property held for the Fund, including
(i) journals or other records of original entry containing an itemized daily
record in detail of all receipts and deliveries of Securities and all receipts
and disbursements of cash; (ii) ledgers (or other records) reflecting (A)
Securities in transfer, if any, (B) Securities in physical possession, (C)
monies and Securities borrowed and monies and Securities loaned (together with a
record of the collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. Custodian
shall keep such other books and records with respect to Securities, cash and
other property of the Fund which is held hereunder as the Fund may reasonably
request.
(b) All such books and records maintained by Custodian shall (i) be
maintained in a form acceptable to the Fund and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Fund and at all times during the regular business hours of Custodian be made
available upon request for inspection by duly authorized officers, employees or
agents of the Fund and employees or agents of the Securities and Exchange
Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940
Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
-16-
<PAGE>
3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily
--------------------
activity statement, including a summary of all transfers to or from the Custody
Account, on the day following such transfers. At least monthly and from time to
time, Custodian shall furnish the Fund with a detailed statement of the
Securities and moneys held for the Fund under this Agreement.
3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with
--------------------------
such reports as the Fund may reasonably request from time to time on the
internal accounting controls and procedures for safeguarding Securities which
are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3
above.
3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the
---------------------------
Fund, Custodian shall promptly deliver to the Fund (at the address set forth in
Article XV below) all notices of meetings, proxies and proxy materials which it
receives regarding Securities held in the Custody Account. Before delivering
them to the Fund, Custodian shall cause all proxies relating to such Securities
which are not registered in the name of the Fund, or a nominee thereof, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted. Unless otherwise
instructed by the Fund, neither Custodian nor any of its agents shall exercise
any voting rights with respect to Securities held hereunder.
3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit
--------------------------------
to the Fund (at the address set forth in Article XV below) all written
information received by Custodian from issuers of Securities held in the Custody
Account. With respect to tender or exchange offers for such Securities,
Custodian shall promptly transmit to the Fund all written information received
by it from the issuers of the Securities whose tender or exchange is sought and
by the party (or its agents) making the tender or exchange offer. If the Fund
desires to take action with respect to
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<PAGE>
any tender offer, exchange offer or other similar transaction, the Fund shall
notify Custodian (a) in the case of Foreign Securities, such number of Business
Days prior to the date on which Custodian is to take such action (which number
of days is in the Custodian's sole discretion) as will allow Custodian to take
such action in the relevant local market in a timely fashion, and (b) in the
case of all other Securities, at least five Business Days prior to the date on
which Custodian is to take such action.
3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary
------------
information to the entity or entities appointed by the Fund to keep the books of
account of the Fund and/or to compute the value of the assets of the Fund.
ARTICLE IV
DUTIES OF CUSTODIAN WITH
RESPECT TO PROPERTY OF
THE FUND HELD OUTSIDE THE UNITED STATES
---------------------------------------
4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub-
-------------------------------------
custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in
accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians
hereunder for the Fund's Securities and other assets maintained outside the
United States. Upon receipt of Written Instructions from the Fund to do so, the
Custodian shall cease the employment of any Foreign Sub-custodian for
maintaining custody of the Fund's assets.
4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and
-----------------
other assets maintained in the custody of an Eligible Foreign Custodian to: (a)
Foreign Securities, and (b) cash and cash equivalents in such amounts as the
Fund may determine.
4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub-
-------------------------------
custodian employed by it may maintain assets of the
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<PAGE>
Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the
1940 Act.
4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in
--------------------------------------
writing (a) the appointment of each Foreign Sub-custodian and the agreement
pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for
the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian,
the country or countries in which such Foreign Sub-custodian is authorized to
hold Securities, cash and other property of the Fund.
4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians
-------------------------------
and the countries where and the Foreign Securities Depositories through which
they or the Custodian may hold Securities, cash and other property of the Fund
which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit
D shall be amended from time to time as Foreign Sub-custodians, countries and/or
Foreign Securities Depositories are changed, added or deleted. The Fund shall
be responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country not listed in Exhibit E in order to
allow the Fund to give the approval required by Section 4.4 hereof and for
Custodian to put the appropriate arrangements in place with a Foreign Sub-
custodian.
(b) If the Fund invests in a Security to be held pursuant to this
Article before the foregoing procedures have been completed, such Security may
be held by such agent as Custodian may select, and Custodian shall bear no
liability to Fund for the actions of such agent, except to the extent Custodian
shall have recovered from such agent for any damages caused to Fund by such
agent.
4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time
--------------------
to time, as mutually agreed upon, reports in respect
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<PAGE>
of the safekeeping of the Securities and other assets of the Fund held by
Foreign Sub-custodians, including, but not limited to, advices or notifications
of transfers of Securities to or from the accounts maintained by Foreign Sub-
custodians for the Custodian on behalf of the Fund.
4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper
---------------------------------------
Instructions given in any of the cases specified in Section 3.7 above, Custodian
shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign
Securities owned by the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market; and
(b) Upon receipt of Proper Instructions given in any of the cases
specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians
to pay out monies of the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market.
4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which
-----------------------------------
the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub-
custodian to exercise reasonable care in the performance of its duties and shall
hold such Foreign sub-custodian responsible for any direct loss or damage
arising out of any willful misfeasance, bad faith or negligence of such Foreign
Sub-custodian in the performance of its obligations under such agreement or out
of its reckless disregard of such obligations. At its election, the Fund shall
be subrogated to the rights of Custodian with respect to any claims against a
Foreign Sub-custodian as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or damage.
-20-
<PAGE>
4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in
----------------------
Section 8.1 below or elsewhere in this Agreement, Custodian shall have no
greater liability to the Fund for the actions or omissions of any Foreign Sub-
custodian than any such Foreign Sub-custodian has to Custodian, and Custodian
shall not be required to discharge any such liability which may be imposed on it
unless and until such Foreign Sub-custodian has effectively indemnified
Custodian against it or has otherwise discharged its liability to Custodian in
full. Custodian shall have no liability for any loss or damage resulting from
acts or omissions of any Foreign Sub-custodian arising out of or caused,
directly or indirectly, by circumstances beyond such Foreign Sub-custodian's
reasonable control, including, without limitation, sovereign risk, as described
in Section 8.7, or "force majeure", as covered in Article X.
4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian
---------------------------
shall annually furnish to the Fund information concerning all Foreign Sub-
custodians hereunder which shall be similar in kind and scope to that furnished
to the Fund in connection with the initial approval by the Fund of the
agreements pursuant to which Custodian employs such Foreign Sub-custodians or as
otherwise required by Rule 17f-5 under the 1940 Act.
4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall
------------
exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in
connection with Foreign Securities in the Custody Account.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities
----------------------
for the Fund, Written Instructions shall be delivered to Custodian, specifying
(a) the name of the issuer or writer of such
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<PAGE>
Securities, and the title or other description thereof, (b) the number of
shares, principal amount (and accrued interest, if any), or other units
purchased, (c) the date of purchase and settlement, (d) the purchase price per
unit, (e) the total amount payable upon such purchase, and (f) the name of the
person to whom such amount is payable. Custodian shall upon receipt of such
Securities purchased by the Fund (or, if the Securities are transferred by means
of a private placement transaction, upon the receipt of such Securities or
payment instructions to Custodian which detail specific Securities to be
acquired) pay out of the moneys held for the account of the Fund the total
amount specified in such Written Instructions to the person named therein.
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities or other assets for the Fund if there is
insufficient cash available in the Custody Account.
5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the
------------------
Fund, Written Instructions shall be delivered to Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions,
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or
---------------------------
any other provision of this Agreement and subject, in the case of Foreign
Securities, to all local laws, regulations,
-22-
<PAGE>
customs, procedures and practices applicable in the relevant local market,
Custodian, when instructed to deliver Securities against payment, shall be
entitled, but only if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor and,
exclusively in the case of Securities in physical form, to deliver such
Securities prior to receipt of payment. In any such case, the Fund shall bear
the risk that final payment for such Securities may not be made or that such
Securities may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and Custodian shall have no liability for
any of the foregoing.
5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from
---------------------------------
time to time, Custodian may credit the Custody Account, prior to actual receipt
of final payment thereof, with (a) proceeds from the sale of Securities which it
has been instructed to deliver against payment, (b) proceeds from the redemption
of Securities or other assets of the Fund, and (c) income from cash, Securities
or other assets of the Fund. Any such credit shall be conditional upon actual
receipt by Custodian of final payment and may be reversed if final payment is
not actually received in full. Custodian may, in its sole discretion and from
time to time, permit the Fund to use funds so credited to the Custody Account in
anticipation of actual receipt of final payment. Any such funds shall be
repayable immediately upon demand made by Custodian at any time prior to the
actual receipt of all final payments in anticipation of which funds were
credited to the Custody Account.
5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means
-------------
payment in funds which are (or have become) immediately available, under
applicable law are irreversible, and are not subject to any security interest,
levy, lien or other encumbrance.
-23-
<PAGE>
ARTICLE VI
REDEMPTION OF FUND SHARES
-------------------------
6.1 TRANSFER OF FUNDS. From such funds as may be available for the
-----------------
purpose in the Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares on account of the Fund,
Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Fund may designate therein with respect to such amount.
6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible
------------------------------
for the payment or distribution by any bank designated in Proper Instructions
given pursuant to Section 6.1 above of any amount paid by Custodian to such bank
in accordance with such Proper Instructions.
ARTICLE VII
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, Custodian shall establish and maintain
a segregated account or accounts for and on behalf of the Fund, into which
account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account:
(a) in accordance with the provisions of any agreement among the Fund,
Custodian and a broker-dealer (or any futures commission merchant), relating to
compliance with the rules of The Options Clearing Corporation or of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund,
-24-
<PAGE>
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in connection with
financial futures contracts (or options thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under the
1940 Act for the maintenance of segregated accounts by registered investment
companies in connection with reverse repurchase agreements, when-issued, delayed
delivery and firm commitment transactions, and short sales of securities, and
(e) for other proper purposes, but only upon receipt of, in addition
to Proper Instructions, a copy of a resolution of the Board of Directors,
certified by an Officer, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper purposes of the
Fund.
ARTICLE VIII
CONCERNING THE CUSTODIAN
------------------------
8.1 STANDARD OF CARE. Custodian shall be held to the exercise of
----------------
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Fund for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim which does not arise from
willful misfeasance, bad faith or negligence on the part of Custodian or
reckless disregard by Custodian of its obligations under this Agreement.
Custodian shall be entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. In no event shall Custodian be liable for
special or consequential damages or be liable in any manner whatsoever for any
-25-
<PAGE>
action taken or omitted upon instructions from the Fund or any agent of the
Fund. Custodian shall not be under any obligation at any time to ascertain
whether the Fund is in compliance with the 1940 Act, the regulations thereunder,
the provisions of its charter documents or by-laws, or its investment
objectives, policies and limitations as in effect from time to time.
8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or
--------------------------
considered to be the custodian of, any cash belonging to the Fund or any money
represented by a check, draft or other instrument for the payment of money,
until Custodian or its agents actually receive such cash or collect on such
instrument.
8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
---------------------------------
it is in the exercise of reasonable care, Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of title thereto
received or delivered by it or its agents.
8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the
-----------------------------
Fund whenever any money or property due and payable from or on account of any
Securities held hereunder for the Fund is not timely received by it. Custodian
shall not, however, be required to enforce collection, by legal means or
otherwise, of any such money or other property not paid when due, but shall
receive the proceeds of such collections as may be effected by it or its agents
in the ordinary course of Custodian's custody and safekeeping business or of the
custody and safekeeping business of such agents.
8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations
-------------------
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against Custodian. Custodian shall have no discretion whatsoever with respect to
the
-26-
<PAGE>
management, disposition or investment of the Custody Account and is not a
fiduciary to the Fund.
8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all
--------------------
applicable requirements of the Securities Act of 1933, the Securities Exchange
Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules
and regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by Custodian hereunder. Except as specifically set
forth herein, Custodian assumes no responsibility for such compliance by the
Fund.
8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for
-------------------------------
any loss involving any Securities, currencies, deposits or other property of the
Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities
Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for
any loss arising from a foreign currency transaction or contract, where the loss
results from a sovereign risk or where the entity maintaining such Securities,
currencies, deposits or other property of the Fund, whether Custodian, a Foreign
Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a
Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such
property or in connection with the transaction involving such property. For
purposes of this Agreement, "sovereign risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism, insurrection or revolution; or any other act or event beyond the
control of the Foreign Sub-custodian, the Foreign Securities Depository or the
agent of any of them.
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<PAGE>
ARTICLE IX
INDEMNIFICATION
---------------
9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless
---------------
Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian,
from and against any loss, damages, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal,
state or foreign securities and/or banking laws) or claim arising directly or
indirectly (a) from the fact that Securities are registered in the name of any
such nominee, or (b) from any action or inaction by Custodian or such sub-
custodian or other agent (i) at the request or direction of or in reliance on
the advice of the Fund or any of its agents, or (ii) upon Proper Instructions,
or (c) generally, from the performance of its obligations under this Agreement,
provided that Custodian, any sub-custodian or any nominee of either of them
shall not be indemnified and held harmless from and against any such loss,
damage, cost, expense, liability or claim arising from Custodian's willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
under this Agreement or, in the case of any sub-custodian or its nominee, from
such sub-custodian's willful misfeasance, bad faith, negligence or reckless
disregard of its obligations under the Agreement under which it is acting.
9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any
------------------------
action with respect to Securities, which may, in the opinion of Custodian,
result in Custodian or its nominee becoming liable for the payment of money or
incurring liability of some other form, Custodian shall not be required to take
such action until the Fund shall have provided indemnity therefor to Custodian
in an amount and form satisfactory to Custodian.
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<PAGE>
9.3 SECURITY. As security for the payment of any present or future
--------
obligation or liability of any kind which the Fund may have to Custodian with
respect to or in connection with the Custody Account or this Agreement, the Fund
hereby pledges to Custodian all cash, Securities and other property of every
kind which is in the Custody Account or otherwise held for the Fund pursuant to
this Agreement, and hereby grants to Custodian a lien, right of set-off and
continuing security interest in such cash, Securities and other property.
ARTICLE X
FORCE MAJEURE
-------------
Neither Custodian nor the Fund shall be liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Fund and Custodian represents and warrants for itself that (a)
it has all necessary power and authority to perform its obligations hereunder,
(b) the execution and delivery by it of this Agreement, and the performance by
it of its obligations under this Agreement, have been duly authorized by all
necessary action and will not violate any law, regulation, charter, by-law, or
other
-29-
<PAGE>
instrument, restriction or provision applicable to it or by which it is bound,
and (c) this Agreement constitutes a legal, valid and binding obligation of it,
enforceable against it in accordance with its terms.
ARTICLE XII
COMPENSATION OF CUSTODIAN
-------------------------
The Fund shall pay Custodian such fees and charges as are set forth in the
fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to
time be revised by Custodian upon 14 days' prior written notice to the Fund.
Any annual fee or other charges payable by the Fund shall be paid monthly by
automatic deduction from the Custody Account. Expenses incurred by Custodian in
the performance of its services hereunder, and all other proper charges and
disbursements of the Custody Account, shall be charged to the Custody Account by
Custodian and paid therefrom.
ARTICLE XIII
TAXES
-----
Any and all taxes, including any interest and penalties with respect
thereto, which may be levied or assessed under present or future laws or in
respect of the Custody Account or any income thereof shall be charged to the
Custody Account by Custodian and paid therefrom.
ARTICLE XIV
AUTHORIZED PERSONS
------------------
14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance
------------------
with any notice, confirmation, instruction or other communication received by it
from the Fund which is reasonably believed by Custodian to have been given or
signed on behalf of the Fund by one of the Authorized Persons designated by the
Fund in Exhibit A hereto, as it may from time to time be revised. The Fund
-30-
<PAGE>
may revise Exhibit A hereto at any time by notice in writing to Custodian given
in accordance with Article XV below, but no revision of Exhibit A hereto shall
be effective until Custodian actually receives such notice.
14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any
-------------------
Written or Oral Instructions which are reasonably believed by Custodian to have
been given or signed by one of the persons designated from time to time by any
of the investment advisers of the Fund specified in Exhibit B hereto (if any) as
it may from time to time be revised. The Fund may revise Exhibit B hereto at
any time by notice in writing to Custodian given in accordance with Article XV
below, and each investment adviser specified in Exhibit B hereto (if any) may at
any time by like notice designate an Authorized Person or remove an Authorized
Person previously designated by it, but no revision of Exhibit B hereto (if any)
and no designation or removal by such investment adviser shall be effective
until Custodian actually receives such notice.
14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance
-----------------
with Oral Instructions (as defined in Section 1.11 above). If Written
Instructions confirming Oral Instructions are not received by Custodian prior to
a transaction, it shall in no way affect the validity of the transaction
authorized by such Oral Instructions or the authorization of the Fund to effect
such transaction. Custodian shall incur no liability to the Fund in acting upon
Oral Instructions (as defined in Section 1.11 above). To the extent such Oral
Instructions vary from any confirming Written Instructions, Custodian shall
advise the Fund of such variance but unless confirming Written Instructions are
timely received, such Oral Instructions will govern. Either Custodian or Fund
may electronically record any instructions given by telephone and any other
telephone discussions with respect to the account of the Fund.
-31-
<PAGE>
ARTICLE XV
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be sent, delivered or given to
the recipient at the address set forth after its name hereinbelow:
IF TO THE FUND:
S&P STARS Portfolio - The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Attention: Frank J. Maresca
----------------
Telephone: (212) 272-2093
Facsimile: (212) 272-3098
IF TO CUSTODIAN:
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540-6231
Attention: Vice President - Trust Operations
---------------------------------
Telephone: (609) 951-2320
Facsimile: (609) 951-2327
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XV. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XVI
TERMINATION
-----------
Either party hereto may terminate this Agreement by giving to the other
party a notice in writing specifying the date of such termination, which shall
be not less than sixty (60) days after the date of the giving of such notice.
Upon the date set forth in such notice this Agreement shall terminate, and
Custodian shall, upon receipt of a notice of acceptance by the successor
custodian, on
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<PAGE>
that date (a) deliver directly to the successor custodian or its agents all
Securities (other than Securities held in a Book-Entry System, Securities
Depository or Foreign Securities Depository) and cash then owned by the Fund and
held by Custodian as custodian, and (b) transfer any Securities held in a Book-
Entry System, Securities Depository or Foreign Securities Depository to an
account of or for the benefit of the Fund, provided that the Fund shall have
paid to Custodian all fees, expenses and other amounts to the payment or
reimbursement of which it shall then be entitled.
ARTICLE XVII
MISCELLANEOUS
-------------
17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require
-------------
Custodian to perform any function or duties on a day other than a Business Day.
17.2 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to the
conflict of law principles thereof.
17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed
-----------------------
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for the Fund and such other printed matter
as merely identifies Custodian as custodian for the Fund. The Fund shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
17.4 NO WAIVER. No failure by either party hereto to exercise, and no
---------
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise
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<PAGE>
of any other right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment
----------
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
17.6 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
17.7 SEVERABILITY. If any provision of this Agreement shall be invalid,
------------
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
-------- -------
either party hereto without the written consent of the other party. Any
purported assignment in violation of this Section 17.8 shall be void.
17.9 HEADINGS. The headings of sections in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
-34-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its representative thereunto duly
authorized, all as of the day and year first above written.
S&P STARS PORTFOLIO - CUSTODIAL TRUST COMPANY
THE BEAR STEARNS FUNDS
By /s/ Frank J. Maresca By /s/ Ronald D. Watson
-------------------- --------------------
Authorized Officer Authorized Officer
-35-
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS/*/
Set forth below are the names of the persons, whose specimen signatures are
on file with the Custodian, authorized by the Board of Trustees of The Bear
Stearns Funds to have access to the S&P STARS Portfolio's (the "Fund")
investments.
Name
----
Robert S. Reitzes
Frank J. Maresca
Vincent L. Pereira
Eileen M. Coyle
_____________________
/*/Nothing herein shall prohibit any person designated as an Authorized Person
from giving Oral Instructions or Written Instructions to the Custodian, so long
as it does not result in delivery of or access to securities and similar
investments of the Fund by such person.
-36-
<PAGE>
EXHIBIT B
---------
INVESTMENT ADVISERS
Bear Stearns Funds Management Inc.
<PAGE>
EXHIBIT C
---------
CUSTODY FEES AND TRANSACTION CHARGES
DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges
-------------
for assets in the United States ("Domestic Assets") and transactions in the
United States, all such fees and charges to be payable monthly:
(1) an annual fee of the greater of 0.01% (one basis point) per annum of
the value of the Domestic Assets in the Custody Account or $5,000, such fee to
be payable monthly based upon the total market value of such Domestic Assets as
determined on the last Business Day of the month for which such fee is charged;
(2) a transaction charge of $18 for each buy, sell or redemption
transaction executed in the Custody Account with respect to such Domestic Assets
as are book-entry Securities (but not for any such buy or sell in a repurchase
transaction representing a cash sweep investment for the Fund's account or the
investment by the Fund of collateral for a loan of Securities);
(3) a transaction charge of $50 for each receipt or delivery into or from
the Custody Account of such Domestic Assets as are Securities in physical form;
(4) a transaction charge for each repurchase transaction in the Custody
Account which represents a cash sweep investment for the Fund's account,
computed at a rate of 0.10% (ten basis points) per annum on the amount of the
purchase price paid or received by the Fund in such repurchase transaction;
(5) a charge of $10 for each funds transfer; and
<PAGE>
(6) a service charge for each holding of Domestic Assets consisting of
Securities or other property sold by way of private placement or in such other
manner as to require services by Custodian which in the reasonable judgment of
Custodian are materially in excess of those ordinarily required for the holding
of publicly traded Securities in the United States.
INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside
------------------
the United States ("Foreign Assets") and transaction charges and other charges
(including, without limitation, charges for funds transfers, tax reclaims, and
foreign exchange services) outside the United States, all such fees and charges
to be payable monthly, according to a schedule of such fees and charges specific
to each country in which Foreign Assets are held, such schedule to be provided
from time to time upon request.
Fees shall be based upon the total market value of the applicable Foreign
Assets as determined on the last Business Day of the month for which such fees
are charged.
<PAGE>
EXHIBIT D
---------
APPROVED FOREIGN SUB-CUSTODIANS
Foreign Sub-custodian Country(ies) Securities Depositories
- --------------------- ------------ -----------------------
(See Attached)
<PAGE>
CITIBANK, N.A.
SEC RULE 17F-5 INFORMATION PACKAGE
AUGUST 1994
SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES
SECTION 2:
<TABLE>
<CAPTION>
OVERVIEW OF CITIBANK'S
FOREIGN SUBCUSTODIAN AND
DEPOSITORY ARRANGEMENTS
2-01.0 SUBCUSTODIAN NETWORK
<S> <C> <C> <C>
Colombia: Cititrust Colombia S.A.
Carrera 9A, No. 99-02,
Bogota, Colombia
Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank
Bartolome Mitre 502/30 2-12 Holmens Kanal
1036 Buenos Aires, Argentina DK-1092 Copenhagen K.
Denmark
Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki
101 Collins Street Aleksanterinkatu 42
Melbourne, VIC 3000 Australia 00100 Helsinki, Finland
Austria: Citibank (Austria) A.G. France: Citibank S.A. (France)
Postfach 90 Cedex 36
Lothringerstrasse 7 92073 Paris la Defense, France
A-1015 Vienna, Austria
Banque Paribas
Belgium: Generale Bank 3 Rue D'Antim
Montagne du Parc 3 75002 Paris, France
1000 Brussels, Belgium
Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft
Avenida Paulista 1111 Neue Mainzer Str. 75,
Sao Paulo, Brazil 60311, Frankfurt/Main,
Germany
Canada: Citibank Canada Greece: Citibank, N.A. (Greece)
123 Front Street West Athens Branch
Toronto, Ontario Othonos 8
M5J2M3, Canada Athens 10557, Greece
Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong)
Ahumada 40 Citicorp Tower
Santiago, Chile Citicorp Plaza
3 Garden Road
Central, Hong Kong
China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt.
c/o Citibank, N.A., 1052 Budapest V19-21.
Hong Kong, Citicorp Tower, Vaci Utca
Citicorp Plaza, 3 Garden Road, Hungary
Central, Hong Kong
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New
Sakhar Bhavan Zealand) Ltd.
230 Backbay Reclamation 23 Customs Street East
Nariman Point Auckland 1, New Zealand
Bombay 400 021
Indonesia: Citibank, N.A. (Jakarta)
Jalan Jend. Sudirman No. 1 Norway: Christiania Bank
Jakarta 12910, Indonesia P.O. Box 1166 Sentrum
0107 Oslo 1, Norway
Ireland: Citibank, N.A. (Ireland)
IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan)
Quay, Dublin 2 P.O. Box 4889
Ireland 11 Chundrigar Road
Karachi 74200
Italy: Citibank, N.A. (Italy) Pakistan
Foro Buonaparte N. 16
Casella Postale 10932
20121 Milan, Italy
Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima)
Citicorp Center, Av. Camino Real 456,
2-314 Higashi Shinagawa, Torre Real 5t 0 Piso,
Shinagawa - ku, Lima 27
Tokyo, Japan Peru
Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines)
3rd Circle Citibank Center
Jordan Insurance Building 8741 Paseo de Roxas
Prince Mohammad Street Makati Metro
Amman, Jordan Manila, Philippines
Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A.
89-29 Shinmun-Ro, Sentorska 12,
Chongro-ku 00-082 Warsaw,
Seoul, Korea Poland
Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A.
67 Boulevard Rua Barat, Salgueiro 30,
Grande-Duchesse Charlotte 4th floor, 1200 Lisbon,
L-1010, Luxembourg Portugal
Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A.
28-30 Medan Pasar 252 Ponce De Leon Avenue
50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936
Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore)
Paseo de la Reforma 390 UIC Building #01-00
Mexico City DF, 06695 Mexico 5 Shenton Way
Singapore 0106
Netherlands: Citibank, N.A. (Netherlands)
"Europlaza", South Africa: First National Bank
Hoogoorddreef 54 B, Mezzanine floor,
1101 BE Amsterdam z.o., 3 First Place,
The Netherlands Post Box 7713
Johannesburg, 2000
South Africa
</TABLE>
<PAGE>
Spain: Citibank, N.A. (Spain)
Jose Ortega Y Gasset 29
28006 Madrid, Spain
Sri Lanka: Citibank, N.A. (Sri Lanka)
67 Dharmapala Mawatha
P.O. Box 888
Colombo 7, Sri Lanka
Sweden: Skandinaviska Enskilda Banken
Sergels Torg 2
Stockholm, Sweden
Switzerland: Citibank (Switzerland)
Bahnhofstrass 63,
Post Office Box 24
8021 Zurich, Switzerland
Taiwan: Citibank, N.A. (Taiwan)
Taipei Branch
No. 52 Ming Sheng East Road
Sec. 4
Taipei, Taiwan
Thailand: Citibank, N.A. (Thailand)
127 South Sathom Road
Bangkok 10120, Thailand
Turkey: Citibank, N.A. (Turkey)
Buyukedere Caddesi,
No. 100, Eseutepe 80280
Istanbul, Turkey
United Kingdom: Citibank, N.A.
25 Molesworth St,
Lewisham, London SE 13 7EX
United Kingdom
The First National Bank of
Chicago
27 Leadenhall Street
London EC3A 1AA, England
Uruguay: Citibank, N.A. (Uruguay)
Cerrito 455
P.O. Box 690
Montevideo
Uruguay
Venezuela: Citibank, N.A. (Caracas)
Carmelitas a Altagracia
Edificio Citibank
Caracas 1010, Venezuela
<PAGE>
2-01.1 STATUS AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS'
EQUITY
<S> <C> <C> <C>
Argentina Citibank, N.A. Branch NA
Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption
Austria Citibank (Austria) A.G. Subsidiary SEC Exemption
Belgium Generale Bank Correspondent US$ 2,260 MM
Brazil Citibank, N.A. Branch NA
Canada Citibank Canada Subsidiary US$ 299.9 MM
Chile Citibank, N.A. Branch NA
China Citibank, N.A. Branch NA
Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption
Sociedad Fiduciary
Denmark Den Danske Bank Correspondent US$ 2,975 MM
Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM
France Citibank S.A. Subsidiary SEC Exemption
France Banque Paribas Correspondent US$ 2,998 MM
Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM
Greece Citibank, N.A. Branch NA
Hong Kong Citibank, N.A. Branch NA
Hungary Citibank Budapest Rt. Subsidiary SEC Exemption
India Citibank, N.A. Branch NA
Indonesia Citibank, N.A. Branch NA
Ireland Citibank, N.A. Branch NA
Italy Citibank, N.A. Branch NA
Japan Citibank, N.A. Branch NA
Jordan Citibank, N.A. Branch NA
Korea Citibank, N.A. Branch NA
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Luxembourg Cedel S.A. Depository NA
Malaysia Citibank Berhad Subsidiary US$ 145MM
Mexico Citibank, N.A. Branch NA
Netherlands Citibank, N.A. Branch NA
New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption
Norway Christiania Bank Correspondent US$ 512MM
Pakistan Citibank, N.A. Branch NA
Peru Citibank, N.A. Branch NA
Philippines Citibank, N.A. Branch NA
Poland Citibank Poland S.A. Subsidiary SEC Exemption
Portugal Citibank Portugal S.A. Subsidiary SEC Exemption
Singapore Citibank, N.A. Branch NA
South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM
Spain Citibank, N.A. Branch NA
Sri Lanka Citibank, N.A. Branch NA
Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM
Switzerland Citibank (Switzerland) Affiliate US$ 198MM
Taiwan Citibank, N.A. Branch NA
Thailand Citibank, N.A. Branch NA
Turkey Citibank, N.A. Branch NA
U.K. Citibank, N.A. Branch NA
Uruguay Citibank, N.A. Branch NA
Venezuela Citibank, N.A. Branch NA
</TABLE>
<PAGE>
2-02.0 DEPOSITORIES
<TABLE>
<S> <C> <C> <C>
Argentina: Caja de Valores ("CDV") Finland: Central Share Registry
The Helsinki Money Market Center
Australia: The Reserve Bank Information France: Societe Interprofessionnelle
and Transfer System ("RITS") pour la Compensation de
Valeurs Mobilieres
Austraclear ("SICOVAM")
Austria: Wertpapiersammelbank Banque de France
bei der Oesterreichische
Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G.
("DKV")
Belgium: Caisse Interprofessionelle
de Depots et de Virements Greece: Central Securities Depository,
de Titres S.A. ("CIK") S.A. ("CSD")
Banque Nationale Hong Kong: Central Clearing and
de Belgique ("BNB") Settlement System
("CCASS")
Brazil: BOVESPA's Registered
Shares Fungible Custody Hungary: The Central Depository and
("BOVESPA") Clearing House ("CDCH")
Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO")
Securities Limited ("CDS")
Italy: Monte Titoli Instituto per la
China: The Shanghai Securities Custodia e l'Amministrazione
Central Clearing and Accentrata di Valori Mibiliar
Registration Corporation ("Monte Titoli")
("SSCCRC")
The Bank of Italy
The Shenzhen Securities
Registrars Co. Ltd. - registrar Japan: Japan Securities Depository
for three banks forming a Center ("JASDEC")
decentralized depository
structure The Bank of Japan ("BOJ")
Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities
Depository ("KSD")
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Luxembourg: CEDEL, S.A.
Malaysia: Malaysian Central
Depository Sdn. Bhd.
("MCD")
Mexico: Instituto para el Deposito de
Valores ("S.D. Indeval")
Netherlands: Nederlands Centraal Instituut
voor Giraal Effectenverkeer
B.V. ("Necigef")
New Zealand: Austraclear
Norway: The Norwegian Registry of
Securities -
Verdipapirsentralen ("VPS")
Peru: Caja de Valores ("CAVAL")
Poland: The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)
Portugal: Central de Registo e Valores Mobiliarios
Singapore: Central Depository (PTE) Ltd.
South Africa: The Central Depository (Pty) Ltd.
Spain: Servico de Compensacion y
Liquidacion de Valores ("SCLV")
Sri Lanka: Central Depository System (Pvt) Limited
Sweden: Vardepapperscentralen VPC AB ("VPC")
Switzerland: Schwerzerische Effekten-Giro AG ("SEGA")
Taiwan: Taiwan Securities Central
Depository Co., Ltd. ("TSCD")
Thailand: Share Depository Center ("SDC")
Turkey: Istanbul Stock Exchange Settlement
and Custody Company Inc.
United
Kingdom: Central Gilts Office ("CGO")
</TABLE>
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK,
COUNTRY DATE SUBCUSTODIAN IF APPLICABLE.
<S> <C> <C> <C>
Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores
N.Y. - Buenos Aires Office
Australia 1982 ANZ Banking Group Austraclear
Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der
Oesterreichischen Kontrollbank AG)
Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de
N.Y. - Brussels Office Depots et de Virements de Titres)
Euroclear Clearance System Limited
Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo;
N.Y. - Sao Paulo Office equities)
BVRJ (Bolsa de Valores de Rio de Janeiro,
equities)
CETIP (Central de Custodia e Liquidacao
Financeira de Titulos; corporate bonds)
SELEC (Sistema Especial de Liquidacao e
Custodia; gov't securities)
Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities)
Commerce
Chile 1993 Citibank, N.A.
People's Republic 1992 Hongkong and Shanghai Banking
of China- Corporation
Shanghai and
Shenzhen
Czech Republic 1994 Ceskoslovenska Obchodni Banka, A.S.
Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish
Securities Centre)
Finland 1985 Union Bank of Finland
France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle
N.Y. - Paris Office Pour La Compensation des Valeurs
Mobilieres)
Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein)
N.Y. - Frankfurt Office
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Greece 1989 National Bank of Greece S.A.
Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement
Corporation System)
Hungary 1993 Citibank N.A.
India 1993 Hongkong and Shanghai Banking
Corporation
Indonesia 1990 Hongkong and Shanghai Banking
Corporation
Ireland 1988 Allied Irish Banks PLC
Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange)
Clearing House Ltd.
Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A.
Milan Office
Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository
Center)
JSA (Japan Securities Agent)
Jordan 1994 Citibank, N.A.
Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement
Corporation)
Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des
Luxembourg, S.A. Valeurs Mobilieres)
Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated
Corporation Network Services)
Mexico 1990 Citibank, N.A. Indeval
Morocco 1994 Banque Commerciale du Maroc
Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut
Voor Giraal Effectenverkeer BV)
New Zealand 1982 ANZ Banking Group Ltd.
Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian
Registry of Securities)
Pakistan 1994 Citibank, N.A.
Peru 1994 Citibank, N.A. CAVAL (Caja de Valores)
Philippines 1990 Hongkong and Shanghai Banking
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Poland 1993 Bank Handlowy
Portugal 1988 Banco Espirito Santo E
Comercial de Lisboa
Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte
South Africa 1993 First National Bank of Southern
Africa
Spain 1977 Morgan Guaranty Trust Co. of
N.Y. - Madrid Office
Sri Lanka 1992 Hongkong and Shanghai Banking
Corporation
Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities
Register Centre)
Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG)
Taiwan 1992 Hongkong and Shanghai Banking
Corporation
Thailand 1988 Hongkong and Shanghai Banking
Corporation
Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and
Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas
ve Saklama A.S.)
United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and
London Office Lodgement for Investors, Stock Management
for Jobbers)
CGO (Central Gilts Office)
CMS (Central Money Market Office)
United States of 1977 Morgan Guaranty Trust Co. of N.Y. The Federal Reserve Bank of New York
America The Depository Trust Co.
The Participants Trust Co.
Venezuela 1991 Citibank, N.A.
</TABLE>
<PAGE>
EXHIBIT (8)
CUSTODY AGREEMENT
This AGREEMENT, dated as of June 7, 1995, by and between THE INSIDERS
SELECT PORTFOLIO (the "Fund"), a portfolio of The Bear Stearns Funds (the
"Company"), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, and CUSTODIAL TRUST COMPANY, a bank organized and
existing under the laws of the State of New Jersey (the "Custodian").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund desires that its Securities, cash and other assets be
held and administered by Custodian pursuant to this Agreement;
WHEREAS, the Fund is an investment portfolio represented by a series of
Shares constituting part of the capital stock of the Company, an open-end
management investment company registered under the 1940 Act (as hereinafter
defined);
WHEREAS, Custodian represents that it is a bank having the qualifications
prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following terms, unless the context
otherwise requires, shall mean:
<PAGE>
1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized
-----------------
by resolution of the Board of Directors to give Oral Instructions and Written
Instructions on behalf of the Fund and identified, by name or by office, in
Exhibit A hereto or any person duly designated to do so by an investment adviser
of the Fund specified by the Fund in Exhibit B hereto.
1.2 "BOARD OF DIRECTORS" means the Board of Trustees of the Fund or, when
------------------
permitted under the 1940 Act, the Executive Committee thereof, if any.
1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a Federal
-----------------
Reserve bank as provided for in Subpart O of Treasury Circular No. 300, 31 CFR
306, in Subpart B of 31 CFR Part 350, or in such other book-entry regulations of
federal agencies as are substantially in the form of such Subpart O.
1.4 "BUSINESS DAY" means any day recognized as a settlement day by The
------------
New York Stock Exchange, Inc. and on which banks in the State of New Jersey are
open for business.
1.5 "CUSTODY ACCOUNT" means the account in the name of the Fund, which is
---------------
provided for in Section 3.2 below.
1.6 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust
--------------------------
company or other entity organized under the laws of a country other than the
United States which is eligible under Rule 17f-5 under the 1940 Act to act as a
sub-custodian for Foreign Securities and other assets of the Fund held outside
the United States.
1.7 "FOREIGN SECURITIES" means Securities as defined in paragraph (c)(1)
------------------
of Rule 17f-5 under the 1940 Act.
2
<PAGE>
1.8 "FOREIGN SECURITIES DEPOSITORY" means a securities depository or
-----------------------------
clearing agency as defined in subparagraphs (c)(2)(iii) or (iv) of Rule 17f-5
under the 1940 Act.
1.9 "1940 ACT" means the Investment Company Act of 1940, as amended.
--------
1.10 "OFFICER" means the President, any Vice President, the Secretary, any
-------
Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund.
1.11 "ORAL INSTRUCTIONS" means instructions orally transmitted to and
-----------------
accepted by Custodian which are (a) reasonably believed by Custodian to have
been given by an Authorized Person, (b) recorded and kept among the records of
Custodian made in the ordinary course of business, and (c) orally confirmed by
Custodian.
1.12 "PROPER INSTRUCTIONS" means Oral Instructions or Written
-------------------
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.13 "SECURITIES" includes, without limitation, common and preferred
----------
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, forward contracts, futures contracts (including those related to
indexes), options on futures contracts or indexes, bankers' acceptances,
mortgage-backed securities or other obligations, and any certificates, receipts,
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that Custodian
has the facilities to clear and to service.
1.14 "SECURITIES DEPOSITORY" means The Depository Trust Company and
---------------------
(provided that Custodian has received a copy of a
3
<PAGE>
resolution of the Board of Directors of the Fund, certified by an Officer,
specifically approving the use thereof as a depository for the Fund) any other
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"), which acts
as a system for the central handling and deposit of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities.
1.15 "SHARES" means the shares into which the capital stock of the Fund is
------
divided.
1.16 "WRITTEN INSTRUCTIONS" means (a) written communications received by
--------------------
Custodian and signed by two persons reasonably believed by Custodian to be
Authorized Persons, or (b) communications by telex or any other such system from
two persons reasonably believed by Custodian to be Authorized Persons, or (c)
communications between electro-mechanical or electronic devices.
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
2.1 APPOINTMENT. The Fund hereby appoints Custodian as custodian of all
-----------
such Securities, cash and other assets as may be acceptable to Custodian and
from time to time delivered to it by the Fund or others for the account of the
Fund.
2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian
----------
and agrees to perform the duties thereof as hereinafter set forth.
4
<PAGE>
ARTICLE III
CUSTODY OF CASH AND SECURITIES
------------------------------
3.1 SEGREGATION. All Securities and non-cash property of the Fund in the
-----------
possession of Custodian (other than Securities maintained by Custodian in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of Custodian and shall
be identified as belonging to the Fund.
3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust
---------------
department a custody account in the name of the Fund, subject only to draft or
order of Custodian, in which Custodian shall enter and carry all Securities,
cash and other assets of the Fund which are delivered to Custodian and accepted
by it. Custodian shall not be under any duty or obligation to require the Fund
to deliver to it any Securities or funds owned by the Fund and shall have no
responsibility or liability for or on account of Securities or funds not so
delivered.
(b) If Custodian at any time fails to receive any of the documents
referred to in Section 3.5(a) below, then, until such time as it receives such
document, it shall not be obligated to receive any Securities of the Fund into
the Custody Account and shall be entitled to return to the Fund any Securities
of the Fund that it is holding.
(c) Custodian may, but shall not be obligated to, hold Securities
that may be held only in physical form.
(d) Custodian is authorized to disclose the name, address and
securities positions of the Fund to the issuers of such securities when
requested by them to do so.
5
<PAGE>
3.3 APPOINTMENT OF AGENTS. (a) Custodian may employ suitable agents,
---------------------
which may include affiliates of Custodian, such as Bear, Stearns & Co. Inc. or
Bear, Stearns Securities Corp., both of which are registered broker-dealers.
The appointment of any agent pursuant to this Section 3.3(a) shall not relieve
Custodian of any of its obligations or liabilities under this Agreement.
However, no Book-Entry System, Securities Depository, Foreign Securities
Depository or other securities depository or clearing agency (whether foreign or
domestic) which it is or may become standard market practice to use for the
comparison and settlement of trades in securities shall be an agent or sub-
contractor of Custodian for purposes of this Section 3.3(a) or otherwise.
(b) In its discretion, Custodian may appoint, and at any time remove,
any domestic bank or trust company which is qualified to act as a custodian
under the 1940 Act as sub-custodian to hold Securities and cash of the Fund and
to carry out such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of Custodian and subject only
to its draft or order), provided, however, that the appointment of any such
agent or opening and maintenance of any such accounts shall be at Custodian's
expense and shall not relieve Custodian of any of its obligations or liabilities
under this Agreement.
(c) Upon receipt of Written Instructions to do so and at the Fund's
expense, Custodian shall appoint as sub-custodian such domestic bank or trust
company as is named therein, provided that (i) such bank or trust company is
qualified to act as a custodian under the 1940 Act, and (ii) notwithstanding
anything to the contrary in Section 7.1 below or elsewhere in this Agreement,
Custodian shall have no greater liability to the Fund for the actions or
omissions of any such sub-custodian than any such sub-custodian has to
Custodian, and Custodian shall not be required
6
<PAGE>
to discharge any such liability which may be imposed on it unless and until such
sub-custodian has effectively indemnified Custodian against it or has otherwise
discharged its liability to Custodian in full.
3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver to Custodian
-------------------------------
the Fund's Securities, cash and other assets, which are acceptable to Custodian,
including (a) payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the term of this Agreement,
and (b) cash received by the Fund for the issuance, at any time during such
term, of Shares. Custodian shall not be responsible for such Securities, cash
or other assets until actually received by it.
3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian may
----------------------------------------------
deposit and/or maintain Securities of the Fund in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Fund shall deliver to Custodian a
resolution of the Board of Directors of the Fund, certified by an Officer,
authorizing and instructing Custodian (and any sub-custodian appointed pursuant
to Section 3.3 above) on an on-going basis to deposit in such Securities
Depository or Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance hereunder (or under
the applicable sub-custody agreement in the case of such sub-custodian),
including, without limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities, and deliveries and returns of
collateral consisting of Securities.
7
<PAGE>
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of Custodian in
such Book-Entry System or Securities Depository which includes only assets held
by Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of Custodian with respect to Securities of the Fund
maintained in a Book-Entry System or Securities Depository shall at all times
identify such Securities as belonging to the Fund.
(d) If Securities purchased by the Fund are to be held in a Book-Entry
System or Securities Depository, Custodian shall pay for such Securities upon
(i) receipt of advice from the Book-Entry System or Securities Depository that
such Securities have been transferred to the Depository Account, and (ii) the
making of an entry on the records of Custodian to reflect such payment and
transfer for the account of the Fund. If Securities sold by the Fund are held
in a Book-Entry System or Securities Depository, Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System or Securities
Depository that payment for such Securities has been transferred to the
Depository Account, and (ii) the making of an entry on the records of Custodian
to reflect such transfer and payment for the account of the Fund.
(e) Custodian shall provide the Fund with copies of any report
obtained by Custodian from a Book-Entry System or Securities Depository in which
Securities of the Fund are kept on the internal accounting controls and
procedures for safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) At its election, the Fund shall be subrogated to the rights of
Custodian with respect to any claim against a Book-Entry System or Securities
Depository or any other person for any loss or
8
<PAGE>
damage to the Fund arising from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Fund has not been made whole for any
such loss or damage.
3.6 DISBURSEMENT OF MONEYS FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall disburse moneys from the Custody Account,
but only in the following cases:
(a) For the purchase of Securities for the Fund but only (i) in the
case of Securities (other than options on Securities, futures contracts and
options on futures contracts), against the delivery to Custodian (or any sub-
custodian appointed pursuant to Section 3.3 above) of such Securities registered
as provided in Section 3.9 below or in proper form for transfer or, if the
purchase of such Securities is effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section
3.5 above; (ii) in the case of options on Securities, against delivery to
Custodian (or such sub-custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii) in the case of futures
contracts and options on futures contracts, against delivery to Custodian (or
such sub-custodian) of evidence of title thereto in favor of the Fund, the
Custodian, any such sub-custodian or any nominee referred to in Section 3.9
below; and (iv) in the case of repurchase or reverse repurchase agreements
entered into by the Fund, against delivery of the purchased Securities either in
certificate form or through an entry crediting Custodian's account at a Book-
Entry System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
9
<PAGE>
(d) In payment of the redemption price of Shares as provided in
Article VI below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the Fund:
interest, taxes, administration, investment management, investment advisory,
accounting, auditing, transfer agent, custodian, trustee and legal fees; and
other operating expenses of the Fund; in all cases, whether or not such expenses
are to be in whole or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with rules
of The Options Clearing Corporation and of any registered national securities
exchange (or of any similar organization or organizations) regarding escrow or
other arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including Custodian), but
only if the payment instructions to Custodian detail specific Securities to be
acquired;
(i) For the purchase from a bank or other financial institution of
loan participations, but only if Custodian has in its possession a copy of the
agreement between the Fund and such bank or other financial institution with
respect to the purchase of
10
<PAGE>
such loan participations and the payment instructions to Custodian detail
specific assets to be acquired;
(j) For the purchase and sale of foreign currencies or options to
purchase and sell foreign currencies for spot and future delivery on behalf and
for the account of the Fund pursuant to contracts with such banks and other
financial institutions, including Custodian, any sub-custodian and any affiliate
of Custodian, as principal, as are approved and authorized by the Fund, but only
if the payment instructions to Custodian detail specific assets to be acquired;
(k) For transfer to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement among the Fund, Custodian and
such a broker-dealer as margin for a short sale of Securities;
(l) For the payment of the amounts of dividends received with respect
to Securities sold short; and
(m) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the amount and purpose of such payment,
declaring such purpose to be a proper purpose of the Fund, and naming the person
or persons to whom such payment is to be made.
3.7 DELIVERY OF SECURITIES FROM THE CUSTODY ACCOUNT. Upon receipt of
-----------------------------------------------
Proper Instructions, Custodian shall release and deliver Securities of the Fund
from the Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but,
subject to Section 5.3 below, only against receipt of
11
<PAGE>
payment therefor in cash, by certified or cashiers' check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided that, in any such
case, the cash or other consideration is to be delivered to Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name
of the Fund or any of the nominees referred to in Section 3.9 below, or (ii) for
exchange for a different number of certificates or other evidence representing
the same aggregate face amount or number of units; provided that, in any such
case, the new Securities are to be delivered to Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such Securities, or pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase
agreement entered into by the Fund;
12
<PAGE>
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities and cash,
if any, are to be delivered to Custodian;
(i) For delivery in connection with any loans of Securities pursuant
to any securities loan agreement entered into by the Fund, but only against
receipt of such collateral as is required under such securities loan agreement;
(j) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against receipt by
Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(l) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian and a broker-dealer, relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or organizations) regarding
escrow or other arrangements in connection with transactions by the Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Fund, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(n) For delivery to a broker-dealer registered under the 1934 Act or
in accordance with the provisions of any agreement
13
<PAGE>
among the Fund, Custodian and such a broker-dealer as margin for a short sale of
Securities;
(o) For delivery (by a Foreign Sub-custodian or an agent of Custodian)
to the depository used by an issuer of American Depositary Receipts or
International Depositary Receipts (hereinafter collectively referred to as
"ADRs") for such Securities against a written receipt therefor adequately
describing such Securities and written evidence satisfactory to the Foreign Sub-
custodian or agent that the depository has acknowledged receipt of instructions
to issue with respect to such Securities ADRs in the name of the Custodian, or a
nominee of the Custodian, for delivery to the Custodian;
(p) To deliver ADRs to the issuer thereof against a written receipt
therefor adequately describing the ADR's delivered and written evidence
satisfactory to the Custodian that the issuer of the ADRs has acknowledged the
receipt of instructions to cause its depository to deliver the Securities
underlying such ADRs to a Foreign Sub-custodian or agent of Custodian; or
(q) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the Securities to be delivered, setting
forth the purpose for which such delivery is to be made, declaring such purpose
to be a proper purpose of the Fund, and naming the person or persons to whom
delivery of such Securities is to be made.
3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
-----------------------------------------
instructed by the Fund, Custodian shall with respect to all Securities held for
the Fund:
14
<PAGE>
(a) Subject to Section 8.4 below, collect on a timely basis all income
and other payments to which the Fund is entitled either by law or pursuant to
custom in the securities business;
(b) Subject to Section 8.4 below, collect on a timely basis the amount
payable upon or with respect to all Securities and other assets which may mature
or be called, redeemed, retired or otherwise become payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect, and prepare and submit
reports to the Internal Revenue Service ("IRS") and to the Fund at such time, in
such manner and containing such information as is prescribed by the IRS;
(f) Hold for the Fund all rights and similar securities issued with
respect to Securities of the Fund; and
(g) In general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with Securities and assets of the Fund.
3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the
---------------------------------------
Fund that are issuable only in bearer form shall be held by Custodian in that
form, provided that any such Securities shall be held in a Book-Entry System if
eligible therefor. All other Securities held for the Fund may be registered in
the name of Custodian as agent, any sub-custodian appointed pursuant to Section
3.3 above, any Securities Depository, any Foreign Sub-custodian or
15
<PAGE>
Foreign Securities Depository (in the case of Foreign Securities), or any
nominee or agent of any of them. The Fund shall furnish to Custodian
appropriate instruments to enable Custodian to hold or deliver in proper form
for transfer, or to register as in this Section 3.9 provided, any Securities
delivered to Custodian which are registered in the name of the Fund.
3.10 RECORDS. (a) Custodian shall maintain complete and accurate records
-------
with respect to Securities, cash or other property held for the Fund, including
(i) journals or other records of original entry containing an itemized daily
record in detail of all receipts and deliveries of Securities and all receipts
and disbursements of cash; (ii) ledgers (or other records) reflecting (A)
Securities in transfer, if any, (B) Securities in physical possession, (C)
monies and Securities borrowed and monies and Securities loaned (together with a
record of the collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. Custodian
shall keep such other books and records with respect to Securities, cash and
other property of the Fund which is held hereunder as the Fund may reasonably
request.
(b) All such books and records maintained by Custodian shall (i) be
maintained in a form acceptable to the Fund and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Fund and at all times during the regular business hours of Custodian be made
available upon request for inspection by duly authorized officers, employees or
agents of the Fund and employees or agents of the Securities and Exchange
Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940
Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
16
<PAGE>
3.11 REPORTS BY CUSTODIAN. Custodian shall furnish the Fund with a daily
--------------------
activity statement, including a summary of all transfers to or from the Custody
Account, on the day following such transfers. At least monthly and from time to
time, Custodian shall furnish the Fund with a detailed statement of the
Securities and moneys held for the Fund under this Agreement.
3.12 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Fund with
--------------------------
such reports as the Fund may reasonably request from time to time on the
internal accounting controls and procedures for safeguarding Securities which
are employed by Custodian or any sub-custodian appointed pursuant to Section 3.3
above.
3.13 PROXIES AND OTHER MATERIALS. Unless otherwise instructed by the
---------------------------
Fund, Custodian shall promptly deliver to the Fund (at the address set forth in
Article XV below) all notices of meetings, proxies and proxy materials which it
receives regarding Securities held in the Custody Account. Before delivering
them to the Fund, Custodian shall cause all proxies relating to such Securities
which are not registered in the name of the Fund, or a nominee thereof, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted. Unless otherwise
instructed by the Fund, neither Custodian nor any of its agents shall exercise
any voting rights with respect to Securities held hereunder.
3.14 INFORMATION ON CORPORATE ACTIONS. Custodian shall promptly transmit
--------------------------------
to the Fund (at the address set forth in Article XV below) all written
information received by Custodian from issuers of Securities held in the Custody
Account. With respect to tender or exchange offers for such Securities,
Custodian shall promptly transmit to the Fund all written information received
by it from the issuers of the Securities whose tender or exchange is sought and
by the party (or its agents) making the tender or exchange offer. If the Fund
desires to take action with respect to
17
<PAGE>
any tender offer, exchange offer or other similar transaction, the Fund shall
notify Custodian (a) in the case of Foreign Securities, such number of Business
Days prior to the date on which Custodian is to take such action (which number
of days is in the Custodian's sole discretion) as will allow Custodian to take
such action in the relevant local market in a timely fashion, and (b) in the
case of all other Securities, at least five Business Days prior to the date on
which Custodian is to take such action.
3.15 CO-OPERATION. Custodian shall cooperate with and supply necessary
------------
information to the entity or entities appointed by the Fund to keep the books of
account of the Fund and/or to compute the value of the assets of the Fund.
ARTICLE IV
DUTIES OF CUSTODIAN WITH
RESPECT TO PROPERTY OF
THE FUND HELD OUTSIDE THE UNITED STATES
---------------------------------------
4.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Custodian may appoint sub-
-------------------------------------
custodians pursuant to Section 3.3 hereof or Eligible Foreign Custodians in
accordance with Rule 17f-5 under the 1940 Act as Foreign Sub-custodians
hereunder for the Fund's Securities and other assets maintained outside the
United States. Upon receipt of Written Instructions from the Fund to do so, the
Custodian shall cease the employment of any Foreign Sub-custodian for
maintaining custody of the Fund's assets.
4.2 ASSETS TO BE HELD. The Custodian shall limit the Securities and
-----------------
other assets maintained in the custody of an Eligible Foreign Custodian to: (a)
Foreign Securities, and (b) cash and cash equivalents in such amounts as the
Fund may determine.
4.3 FOREIGN SECURITIES DEPOSITORIES. Custodian or any Foreign Sub-
-------------------------------
custodian employed by it may maintain assets of the
18
<PAGE>
Fund in Foreign Securities Depositories in accordance with Rule 17f-5 under the
1940 Act.
4.4 AGREEMENTS WITH FOREIGN SUB-CUSTODIANS. Fund shall approve in
--------------------------------------
writing (a) the appointment of each Foreign Sub-custodian and the agreement
pursuant to which the Custodian employs such Foreign Sub-custodian and (b) for
the appointment of each Eligible Foreign Custodian as a Foreign Sub-custodian,
the country or countries in which such Foreign Sub-custodian is authorized to
hold Securities, cash and other property of the Fund.
4.5 APPROVED FOREIGN SUB-CUSTODIANS. (a) Those Foreign Sub-custodians
-------------------------------
and the countries where and the Foreign Securities Depositories through which
they or the Custodian may hold Securities, cash and other property of the Fund
which the Fund has approved to date are set forth on Exhibit D hereto. Exhibit
D shall be amended from time to time as Foreign Sub-custodians, countries and/or
Foreign Securities Depositories are changed, added or deleted. The Fund shall
be responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country not listed in Exhibit E in order to
allow the Fund to give the approval required by Section 4.4 hereof and for
Custodian to put the appropriate arrangements in place with a Foreign Sub-
custodian.
(b) If the Fund invests in a Security to be held pursuant to this
Article before the foregoing procedures have been completed, such Security may
be held by such agent as Custodian may select, and Custodian shall bear no
liability to Fund for the actions of such agent, except to the extent Custodian
shall have recovered from such agent for any damages caused to Fund by such
agent.
4.6 REPORTS BY CUSTODIAN. Custodian shall supply to the Fund from time
--------------------
to time, as mutually agreed upon, reports in respect
19
<PAGE>
of the safekeeping of the Securities and other assets of the Fund held by
Foreign Sub-custodians, including, but not limited to, advices or notifications
of transfers of Securities to or from the accounts maintained by Foreign Sub-
custodians for the Custodian on behalf of the Fund.
4.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Upon receipt of Proper
---------------------------------------
Instructions given in any of the cases specified in Section 3.7 above, Custodian
shall cause the Foreign Sub-custodians to transfer, exchange or deliver Foreign
Securities owned by the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market; and
(b) Upon receipt of Proper Instructions given in any of the cases
specified in Section 3.6 above, Custodian shall cause the Foreign Sub-custodians
to pay out monies of the Fund, subject to all local laws, regulations, customs,
procedures and practices applicable in the relevant local market.
4.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. The agreement pursuant to which
-----------------------------------
the Custodian employs a Foreign Sub-custodian shall require such Foreign Sub-
custodian to exercise reasonable care in the performance of its duties and shall
hold such Foreign sub-custodian responsible for any direct loss or damage
arising out of any willful misfeasance, bad faith or negligence of such Foreign
Sub-custodian in the performance of its obligations under such agreement or out
of its reckless disregard of such obligations. At its election, the Fund shall
be subrogated to the rights of Custodian with respect to any claims against a
Foreign Sub-custodian as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or damage.
20
<PAGE>
4.9 LIABILITY OF CUSTODIAN. Notwithstanding anything to the contrary in
----------------------
Section 8.1 below or elsewhere in this Agreement, Custodian shall have no
greater liability to the Fund for the actions or omissions of any Foreign Sub-
custodian than any such Foreign Sub-custodian has to Custodian, and Custodian
shall not be required to discharge any such liability which may be imposed on it
unless and until such Foreign Sub-custodian has effectively indemnified
Custodian against it or has otherwise discharged its liability to Custodian in
full. Custodian shall have no liability for any loss or damage resulting from
acts or omissions of any Foreign Sub-custodian arising out of or caused,
directly or indirectly, by circumstances beyond such Foreign Sub-custodian's
reasonable control, including, without limitation, sovereign risk, as described
in Section 8.7, or "force majeure", as covered in Article X.
4.10 MONITORING RESPONSIBILITIES. Upon the request of the Fund, Custodian
---------------------------
shall annually furnish to the Fund information concerning all Foreign Sub-
custodians hereunder which shall be similar in kind and scope to that furnished
to the Fund in connection with the initial approval by the Fund of the
agreements pursuant to which Custodian employs such Foreign Sub-custodians or as
otherwise required by Rule 17f-5 under the 1940 Act.
4.11 TAX RECLAIMS. Upon the written request of the Fund, Custodian shall
------------
exercise, on behalf of the Fund, tax reclaim rights of Fund which arise in
connection with Foreign Securities in the Custody Account.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
5.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities
----------------------
for the Fund, Written Instructions shall be delivered to Custodian, specifying
(a) the name of the issuer or writer of such
21
<PAGE>
Securities, and the title or other description thereof, (b) the number of
shares, principal amount (and accrued interest, if any), or other units
purchased, (c) the date of purchase and settlement, (d) the purchase price per
unit, (e) the total amount payable upon such purchase, and (f) the name of the
person to whom such amount is payable. Custodian shall upon receipt of such
Securities purchased by the Fund (or, if the Securities are transferred by means
of a private placement transaction, upon the receipt of such Securities or
payment instructions to Custodian which detail specific Securities to be
acquired) pay out of the moneys held for the account of the Fund the total
amount specified in such Written Instructions to the person named therein.
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities or other assets for the Fund if there is
insufficient cash available in the Custody Account.
5.2 SALE OF SECURITIES. Promptly upon each sale of Securities by the
------------------
Fund, Written Instructions shall be delivered to Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions,
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
5.3 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 5.2 above or
---------------------------
any other provision of this Agreement and subject, in the case of Foreign
Securities, to all local laws, regulations,
22
<PAGE>
customs, procedures and practices applicable in the relevant local market,
Custodian, when instructed to deliver Securities against payment, shall be
entitled, but only if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor and,
exclusively in the case of Securities in physical form, to deliver such
Securities prior to receipt of payment. In any such case, the Fund shall bear
the risk that final payment for such Securities may not be made or that such
Securities may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and Custodian shall have no liability for
any of the foregoing.
5.4 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from
---------------------------------
time to time, Custodian may credit the Custody Account, prior to actual receipt
of final payment thereof, with (a) proceeds from the sale of Securities which it
has been instructed to deliver against payment, (b) proceeds from the redemption
of Securities or other assets of the Fund, and (c) income from cash, Securities
or other assets of the Fund. Any such credit shall be conditional upon actual
receipt by Custodian of final payment and may be reversed if final payment is
not actually received in full. Custodian may, in its sole discretion and from
time to time, permit the Fund to use funds so credited to the Custody Account in
anticipation of actual receipt of final payment. Any such funds shall be
repayable immediately upon demand made by Custodian at any time prior to the
actual receipt of all final payments in anticipation of which funds were
credited to the Custody Account.
5.5 FINAL PAYMENT. For purposes of this Agreement, "final payment" means
-------------
payment in funds which are (or have become) immediately available, under
applicable law are irreversible, and are not subject to any security interest,
levy, lien or other encumbrance.
23
<PAGE>
ARTICLE VI
REDEMPTION OF FUND SHARES
-------------------------
6.1 TRANSFER OF FUNDS. From such funds as may be available for the
-----------------
purpose in the Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares on account of the Fund,
Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Fund may designate therein with respect to such amount.
6.2 NO DUTY REGARDING PAYING BANKS. Custodian shall not be responsible
------------------------------
for the payment or distribution by any bank designated in Proper Instructions
given pursuant to Section 6.1 above of any amount paid by Custodian to such bank
in accordance with such Proper Instructions.
ARTICLE VII
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, Custodian shall establish and maintain
a segregated account or accounts for and on behalf of the Fund, into which
account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account:
(a) in accordance with the provisions of any agreement among the Fund,
Custodian and a broker-dealer (or any futures commission merchant), relating to
compliance with the rules of The Options Clearing Corporation or of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund,
24
<PAGE>
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in connection with
financial futures contracts (or options thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under the
1940 Act for the maintenance of segregated accounts by registered investment
companies in connection with reverse repurchase agreements, when-issued, delayed
delivery and firm commitment transactions, and short sales of securities, and
(e) for other proper purposes, but only upon receipt of, in addition
to Proper Instructions, a copy of a resolution of the Board of Directors,
certified by an Officer, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper purposes of the
Fund.
ARTICLE VIII
CONCERNING THE CUSTODIAN
------------------------
8.1 STANDARD OF CARE. Custodian shall be held to the exercise of
----------------
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Fund for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim which does not arise from
willful misfeasance, bad faith or negligence on the part of Custodian or
reckless disregard by Custodian of its obligations under this Agreement.
Custodian shall be entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. In no event shall Custodian be liable for
special or consequential damages or be liable in any manner whatsoever for any
25
<PAGE>
action taken or omitted upon instructions from the Fund or any agent of the
Fund. Custodian shall not be under any obligation at any time to ascertain
whether the Fund is in compliance with the 1940 Act, the regulations thereunder,
the provisions of its charter documents or by-laws, or its investment
objectives, policies and limitations as in effect from time to time.
8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or
--------------------------
considered to be the custodian of, any cash belonging to the Fund or any money
represented by a check, draft or other instrument for the payment of money,
until Custodian or its agents actually receive such cash or collect on such
instrument.
8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
---------------------------------
it is in the exercise of reasonable care, Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of title thereto
received or delivered by it or its agents.
8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the
-----------------------------
Fund whenever any money or property due and payable from or on account of any
Securities held hereunder for the Fund is not timely received by it. Custodian
shall not, however, be required to enforce collection, by legal means or
otherwise, of any such money or other property not paid when due, but shall
receive the proceeds of such collections as may be effected by it or its agents
in the ordinary course of Custodian's custody and safekeeping business or of the
custody and safekeeping business of such agents.
8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations
-------------------
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against Custodian. Custodian shall have no discretion whatsoever with respect to
the
26
<PAGE>
management, disposition or investment of the Custody Account and is not a
fiduciary to the Fund.
8.6 COMPLIANCE WITH LAWS. Custodian undertakes to comply with all
--------------------
applicable requirements of the Securities Act of 1933, the Securities Exchange
Act of 1934, the 1940 Act and the Commodities Exchange Act and any laws, rules
and regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by Custodian hereunder. Except as specifically set
forth herein, Custodian assumes no responsibility for such compliance by the
Fund.
8.7 NO LIABILITY FOR SOVEREIGN RISK. Custodian shall not be liable for
-------------------------------
any loss involving any Securities, currencies, deposits or other property of the
Fund, whether maintained by it, a Foreign Sub-custodian, a Foreign Securities
Depository, an agent of Custodian or a Foreign Sub-custodian or a bank, or for
any loss arising from a foreign currency transaction or contract, where the loss
results from a sovereign risk or where the entity maintaining such Securities,
currencies, deposits or other property of the Fund, whether Custodian, a Foreign
Sub-custodian, a Foreign Securities Depository, an agent of Custodian or a
Foreign Sub-custodian or a bank, has exercised reasonable care maintaining such
property or in connection with the transaction involving such property. For
purposes of this Agreement, "sovereign risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism, insurrection or revolution; or any other act or event beyond the
control of the Foreign Sub-custodian, the Foreign Securities Depository or the
agent of any of them.
27
<PAGE>
ARTICLE IX
INDEMNIFICATION
---------------
9.1 INDEMNIFICATION. The Fund shall indemnify and hold harmless
---------------
Custodian, any sub-custodian and any nominee of Custodian or any sub-custodian,
from and against any loss, damages, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any federal,
state or foreign securities and/or banking laws) or claim arising directly or
indirectly (a) from the fact that Securities are registered in the name of any
such nominee, or (b) from any action or inaction by Custodian or such sub-
custodian or other agent (i) at the request or direction of or in reliance on
the advice of the Fund or any of its agents, or (ii) upon Proper Instructions,
or (c) generally, from the performance of its obligations under this Agreement,
provided that Custodian, any sub-custodian or any nominee of either of them
shall not be indemnified and held harmless from and against any such loss,
damage, cost, expense, liability or claim arising from Custodian's willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
under this Agreement or, in the case of any sub-custodian or its nominee, from
such sub-custodian's willful misfeasance, bad faith, negligence or reckless
disregard of its obligations under the Agreement under which it is acting.
9.2 INDEMNITY TO BE PROVIDED. If the Fund requests Custodian to take any
------------------------
action with respect to Securities, which may, in the opinion of Custodian,
result in Custodian or its nominee becoming liable for the payment of money or
incurring liability of some other form, Custodian shall not be required to take
such action until the Fund shall have provided indemnity therefor to Custodian
in an amount and form satisfactory to Custodian.
28
<PAGE>
9.3 SECURITY. As security for the payment of any present or future
--------
obligation or liability of any kind which the Fund may have to Custodian with
respect to or in connection with the Custody Account or this Agreement, the Fund
hereby pledges to Custodian all cash, Securities and other property of every
kind which is in the Custody Account or otherwise held for the Fund pursuant to
this Agreement, and hereby grants to Custodian a lien, right of set-off and
continuing security interest in such cash, Securities and other property.
ARTICLE X
FORCE MAJEURE
-------------
Neither Custodian nor the Fund shall be liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Fund and Custodian represents and warrants for itself that (a)
it has all necessary power and authority to perform its obligations hereunder,
(b) the execution and delivery by it of this Agreement, and the performance by
it of its obligations under this Agreement, have been duly authorized by all
necessary action and will not violate any law, regulation, charter, by-law, or
other
29
<PAGE>
instrument, restriction or provision applicable to it or by which it is bound,
and (c) this Agreement constitutes a legal, valid and binding obligation of it,
enforceable against it in accordance with its terms.
ARTICLE XII
COMPENSATION OF CUSTODIAN
-------------------------
The Fund shall pay Custodian such fees and charges as are set forth in the
fee schedule annexed hereto as Exhibit C, as such fee schedule may from time to
time be revised by Custodian upon 14 days' prior written notice to the Fund.
Any annual fee or other charges payable by the Fund shall be paid monthly by
automatic deduction from the Custody Account. Expenses incurred by Custodian in
the performance of its services hereunder, and all other proper charges and
disbursements of the Custody Account, shall be charged to the Custody Account by
Custodian and paid therefrom.
ARTICLE XIII
TAXES
-----
Any and all taxes, including any interest and penalties with respect
thereto, which may be levied or assessed under present or future laws or in
respect of the Custody Account or any income thereof shall be charged to the
Custody Account by Custodian and paid therefrom.
ARTICLE XIV
AUTHORIZED PERSONS
------------------
14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance
------------------
with any notice, confirmation, instruction or other communication received by it
from the Fund which is reasonably believed by Custodian to have been given or
signed on behalf of the Fund by one of the Authorized Persons designated by the
Fund in Exhibit A hereto, as it may from time to time be revised. The Fund
30
<PAGE>
may revise Exhibit A hereto at any time by notice in writing to Custodian given
in accordance with Article XV below, but no revision of Exhibit A hereto shall
be effective until Custodian actually receives such notice.
14.2 INVESTMENT ADVISERS. Custodian may also act in accordance with any
-------------------
Written or Oral Instructions which are reasonably believed by Custodian to have
been given or signed by one of the persons designated from time to time by any
of the investment advisers of the Fund specified in Exhibit B hereto (if any) as
it may from time to time be revised. The Fund may revise Exhibit B hereto at
any time by notice in writing to Custodian given in accordance with Article XV
below, and each investment adviser specified in Exhibit B hereto (if any) may at
any time by like notice designate an Authorized Person or remove an Authorized
Person previously designated by it, but no revision of Exhibit B hereto (if any)
and no designation or removal by such investment adviser shall be effective
until Custodian actually receives such notice.
14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance
-----------------
with Oral Instructions (as defined in Section 1.11 above). If Written
Instructions confirming Oral Instructions are not received by Custodian prior to
a transaction, it shall in no way affect the validity of the transaction
authorized by such Oral Instructions or the authorization of the Fund to effect
such transaction. Custodian shall incur no liability to the Fund in acting upon
Oral Instructions (as defined in Section 1.11 above). To the extent such Oral
Instructions vary from any confirming Written Instructions, Custodian shall
advise the Fund of such variance but unless confirming Written Instructions are
timely received, such Oral Instructions will govern. Either Custodian or Fund
may electronically record any instructions given by telephone and any other
telephone discussions with respect to the account of the Fund.
31
<PAGE>
ARTICLE XV
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be sent, delivered or given to
the recipient at the address set forth after its name hereinbelow:
IF TO THE FUND:
The Insiders Select Portfolio - The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Attention: Frank J. Maresca
----------------
Telephone: (212) 272-2093
Facsimile: (212) 272-3098
IF TO CUSTODIAN:
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540-6231
Attention: Vice President - Trust Operations
---------------------------------
Telephone: (609) 951-2320
Facsimile: (609) 951-2327
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XV. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XVI
TERMINATION
-----------
Either party hereto may terminate this Agreement by giving to the other
party a notice in writing specifying the date of such termination, which shall
be not less than sixty (60) days after the date of the giving of such notice.
Upon the date set forth in such notice this Agreement shall terminate, and
Custodian shall, upon receipt of a notice of acceptance by the successor
custodian, on
32
<PAGE>
that date (a) deliver directly to the successor custodian or its agents all
Securities (other than Securities held in a Book-Entry System, Securities
Depository or Foreign Securities Depository) and cash then owned by the Fund and
held by Custodian as custodian, and (b) transfer any Securities held in a Book-
Entry System, Securities Depository or Foreign Securities Depository to an
account of or for the benefit of the Fund, provided that the Fund shall have
paid to Custodian all fees, expenses and other amounts to the payment or
reimbursement of which it shall then be entitled.
ARTICLE XVII
MISCELLANEOUS
-------------
17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require
-------------
Custodian to perform any function or duties on a day other than a Business Day.
17.2 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to the
conflict of law principles thereof.
17.3 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed
-----------------------
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for the Fund and such other printed matter
as merely identifies Custodian as custodian for the Fund. The Fund shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
17.4 NO WAIVER. No failure by either party hereto to exercise, and no
---------
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise
33
<PAGE>
of any other right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
17.5 AMENDMENTS. This Agreement cannot be changed orally and no amendment
----------
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
17.6 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
17.7 SEVERABILITY. If any provision of this Agreement shall be invalid,
------------
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
-------- -------
either party hereto without the written consent of the other party. Any
purported assignment in violation of this Section 17.8 shall be void.
17.9 HEADINGS. The headings of sections in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
34
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its representative thereunto duly
authorized, all as of the day and year first above written.
THE INSIDERS SELECT PORTFOLIO - CUSTODIAL TRUST COMPANY
THE BEAR STEARNS FUNDS
By /s/ Frank J. Maresca By /s/ Ronald D. Watson
-------------------- --------------------
Authorized Officer Authorized Officer
35
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS WITH ACCESS TO INVESTMENTS/*/
Set forth below are the names of the persons, whose specimen signatures are
on file with the Custodian, authorized by the Board of Trustees of The Bear
Stearns Funds to have access to The Insiders Select Portfolio's (the "Fund")
investments.
Name
----
Neil L. Rudolph
Praveen Gottipalli
Frank J. Maresca
Vincent L. Pereira
Eileen M. Coyle
_____________________
/*/Nothing herein shall prohibit any person designated as an Authorized Person
from giving Oral Instructions or Written Instructions to the Custodian, so long
as it does not result in delivery of or access to securities and similar
investments of the Fund by such person.
<PAGE>
EXHIBIT B
---------
INVESTMENT ADVISERS
Bear Stearns Funds Management Inc.
Symphony Asset Management
<PAGE>
EXHIBIT C
---------
CUSTODY FEES AND TRANSACTION CHARGES
DOMESTIC FEES. The Fund shall pay Custodian the following fees and charges
-------------
for assets in the United States ("Domestic Assets") and transactions in the
United States, all such fees and charges to be payable monthly:
(1) an annual fee of the greater of 0.015% (one and one-half basis points)
per annum of the value of the Domestic Assets in the Custody Account or $5,000,
such fee to be payable monthly based upon the total market value of such
Domestic Assets as determined on the last Business Day of the month for which
such fee is charged;
(2) a transaction charge of $18 for each buy, sell or redemption
transaction executed in the Custody Account with respect to such Domestic Assets
as are book-entry Securities (but not for any such buy or sell in a repurchase
transaction representing a cash sweep investment for the Fund's account or the
investment by the Fund of collateral for a loan of Securities);
(3) a transaction charge of $50 for each receipt or delivery into or from
the Custody Account of such Domestic Assets as are Securities in physical form;
(4) a transaction charge for each repurchase transaction in the Custody
Account which represents a cash sweep investment for the Fund's account,
computed at a rate of 0.10% (ten basis points) per annum on the amount of the
purchase price paid or received by the Fund in such repurchase transaction;
(5) a charge of $10 for each funds transfer; and
<PAGE>
(6) a service charge for each holding of Domestic Assets consisting of
Securities or other property sold by way of private placement or in such other
manner as to require services by Custodian which in the reasonable judgment of
Custodian are materially in excess of those ordinarily required for the holding
of publicly traded Securities in the United States.
INTERNATIONAL FEES. The Fund shall pay Custodian fees for assets outside
------------------
the United States ("Foreign Assets") and transaction charges and other charges
(including, without limitation, charges for funds transfers, tax reclaims, and
foreign exchange services) outside the United States, all such fees and charges
to be payable monthly, according to a schedule of such fees and charges specific
to each country in which Foreign Assets are held, such schedule to be provided
from time to time upon request.
Fees shall be based upon the total market value of the applicable Foreign
Assets as determined on the last Business Day of the month for which such fees
are charged.
<PAGE>
EXHIBIT D
---------
APPROVED FOREIGN SUB-CUSTODIANS
Foreign Sub-custodian Country(ies) Securities Depositories
- --------------------- ------------ -----------------------
(See Attached)
<PAGE>
CITIBANK, N.A.
SEC RULE 17F-5 INFORMATION PACKAGE
AUGUST 1994
SECTION 2: OVERVIEW OF FOREIGN SUBCUSTODIANS & DEPOSITORIES
SECTION 2:
<TABLE>
<CAPTION>
OVERVIEW OF CITIBANK'S
FOREIGN SUBCUSTODIAN AND
DEPOSITORY ARRANGEMENTS
2-01.0 SUBCUSTODIAN NETWORK
<S> <C> <C> <C>
Colombia: Cititrust Colombia S.A.
Carrera 9A, No. 99-02,
Bogota, Colombia
Argentina: Citibank, N.A. (Argentina) Denmark: Den Danske Bank
Bartolome Mitre 502/30 2-12 Holmens Kanal
1036 Buenos Aires, Argentina DK-1092 Copenhagen K.
Denmark
Australia: Citicorp Nominees Pty. Ltd. Finland: Kansallis-Osake-Pankki
101 Collins Street Aleksanterinkatu 42
Melbourne, VIC 3000 Australia 00100 Helsinki, Finland
Austria: Citibank (Austria) A.G. France: Citibank S.A. (France)
Postfach 90 Cedex 36
Lothringerstrasse 7 92073 Paris la Defense, France
A-1015 Vienna, Austria
Banque Paribas
Belgium: Generale Bank 3 Rue D'Antim
Montagne du Parc 3 75002 Paris, France
1000 Brussels, Belgium
Brazil: Citibank, N.A. (Brazil) Germany: Citibank Aktiengesellschaft
Avenida Paulista 1111 Neue Mainzer Str. 75,
Sao Paulo, Brazil 60311, Frankfurt/Main,
Germany
Canada: Citibank Canada Greece: Citibank, N.A. (Greece)
123 Front Street West Athens Branch
Toronto, Ontario Othonos 8
M5J2M3, Canada Athens 10557, Greece
Chile: Citibank, N.A. (Chile) Hong Kong: Citibank, N.A. (Hong Kong)
Ahumada 40 Citicorp Tower
Santiago, Chile Citicorp Plaza
3 Garden Road
Central, Hong Kong
China: Citibank, N.A. (Hong Kong) Hungary: Citibank Budapest Rt.
c/o Citibank, N.A., 1052 Budapest V19-21.
Hong Kong, Citicorp Tower, Vaci Utca
Citicorp Plaza, 3 Garden Road, Hungary
Central, Hong Kong
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
India: Citibank, N.A. (India) New Zealand: Citibank Nominees (New
Sakhar Bhavan Zealand) Ltd.
230 Backbay Reclamation 23 Customs Street East
Nariman Point Auckland 1, New Zealand
Bombay 400 021
Indonesia: Citibank, N.A. (Jakarta)
Jalan Jend. Sudirman No. 1 Norway: Christiania Bank
Jakarta 12910, Indonesia P.O. Box 1166 Sentrum
0107 Oslo 1, Norway
Ireland: Citibank, N.A. (Ireland)
IFSC House, Custom House Pakistan: Citibank, N.A. (Pakistan)
Quay, Dublin 2 P.O. Box 4889
Ireland 11 Chundrigar Road
Karachi 74200
Italy: Citibank, N.A. (Italy) Pakistan
Foro Buonaparte N. 16
Casella Postale 10932
20121 Milan, Italy
Japan: Citibank, N.A. (Japan) Peru: Citibank, N.A. (Lima)
Citicorp Center, Av. Camino Real 456,
2-314 Higashi Shinagawa, Torre Real 5t 0 Piso,
Shinagawa - ku, Lima 27
Tokyo, Japan Peru
Jordan: Citibank, N.A. (Jordan) Philippines: Citibank, N.A. (Philippines)
3rd Circle Citibank Center
Jordan Insurance Building 8741 Paseo de Roxas
Prince Mohammad Street Makati Metro
Amman, Jordan Manila, Philippines
Korea: Citibank, N.A. (Korea) Poland: Citibank Poland S.A.
89-29 Shinmun-Ro, Sentorska 12,
Chongro-ku 00-082 Warsaw,
Seoul, Korea Poland
Luxembourg: Cedel S.A. Portugal: Citibank Portugal S.A.
67 Boulevard Rua Barat, Salgueiro 30,
Grande-Duchesse Charlotte 4th floor, 1200 Lisbon,
L-1010, Luxembourg Portugal
Malaysia: Citibank Berhad Puerto Rico: Citibank, N.A.
28-30 Medan Pasar 252 Ponce De Leon Avenue
50050 Kuala Lumpur, Malaysia San Juan, Puerto Rico 00936
Mexico: Citibank, N.A. (Mexico) Singapore: Citibank, N.A. (Singapore)
Paseo de la Reforma 390 UIC Building #01-00
Mexico City DF, 06695 Mexico 5 Shenton Way
Singapore 0106
Netherlands: Citibank, N.A. (Netherlands)
"Europlaza", South Africa: First National Bank
Hoogoorddreef 54 B, Mezzanine floor,
1101 BE Amsterdam z.o., 3 First Place,
The Netherlands Post Box 7713
Johannesburg, 2000
South Africa
</TABLE>
<PAGE>
Spain: Citibank, N.A. (Spain)
Jose Ortega Y Gasset 29
28006 Madrid, Spain
Sri Lanka: Citibank, N.A. (Sri Lanka)
67 Dharmapala Mawatha
P.O. Box 888
Colombo 7, Sri Lanka
Sweden: Skandinaviska Enskilda Banken
Sergels Torg 2
Stockholm, Sweden
Switzerland: Citibank (Switzerland)
Bahnhofstrass 63,
Post Office Box 24
8021 Zurich, Switzerland
Taiwan: Citibank, N.A. (Taiwan)
Taipei Branch
No. 52 Ming Sheng East Road
Sec. 4
Taipei, Taiwan
Thailand: Citibank, N.A. (Thailand)
127 South Sathom Road
Bangkok 10120, Thailand
Turkey: Citibank, N.A. (Turkey)
Buyukedere Caddesi,
No. 100, Eseutepe 80280
Istanbul, Turkey
United Kingdom: Citibank, N.A.
25 Molesworth St,
Lewisham, London SE 13 7EX
United Kingdom
The First National Bank of
Chicago
27 Leadenhall Street
London EC3A 1AA, England
Uruguay: Citibank, N.A. (Uruguay)
Cerrito 455
P.O. Box 690
Montevideo
Uruguay
Venezuela: Citibank, N.A. (Caracas)
Carmelitas a Altagracia
Edificio Citibank
Caracas 1010, Venezuela
<PAGE>
2-01.1 STATUS AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN STATUS SHAREHOLDERS'
EQUITY
<S> <C> <C> <C>
Argentina Citibank, N.A. Branch NA
Australia Citicorp Nominees Pty. Ltd. Subsidiary SEC Exemption
Austria Citibank (Austria) A.G. Subsidiary SEC Exemption
Belgium Generale Bank Correspondent US$ 2,260 MM
Brazil Citibank, N.A. Branch NA
Canada Citibank Canada Subsidiary US$ 299.9 MM
Chile Citibank, N.A. Branch NA
China Citibank, N.A. Branch NA
Colombia Cititrust Colombia S.A. Subsidiary SEC Exemption
Sociedad Fiduciary
Denmark Den Danske Bank Correspondent US$ 2,975 MM
Finland Kansallis-Osake-Pankki Correspondent US$ 1,325 MM
France Citibank S.A. Subsidiary SEC Exemption
France Banque Paribas Correspondent US$ 2,998 MM
Germany Citibank Aktiengesellschaft Subsidiary US$ 298 MM
Greece Citibank, N.A. Branch NA
Hong Kong Citibank, N.A. Branch NA
Hungary Citibank Budapest Rt. Subsidiary SEC Exemption
India Citibank, N.A. Branch NA
Indonesia Citibank, N.A. Branch NA
Ireland Citibank, N.A. Branch NA
Italy Citibank, N.A. Branch NA
Japan Citibank, N.A. Branch NA
Jordan Citibank, N.A. Branch NA
Korea Citibank, N.A. Branch NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Luxembourg Cedel S.A. Depository NA
Malaysia Citibank Berhad Subsidiary US$ 145MM
Mexico Citibank, N.A. Branch NA
Netherlands Citibank, N.A. Branch NA
New Zealand Citibank Nominees (NZ) Ltd. Subsidiary SEC Exemption
Norway Christiania Bank Correspondent US$ 512MM
Pakistan Citibank, N.A. Branch NA
Peru Citibank, N.A. Branch NA
Philippines Citibank, N.A. Branch NA
Poland Citibank Poland S.A. Subsidiary SEC Exemption
Portugal Citibank Portugal S.A. Subsidiary SEC Exemption
Singapore Citibank, N.A. Branch NA
South Africa First National Bank of Southern Africa Ltd. Correspondent US$ 620MM
Spain Citibank, N.A. Branch NA
Sri Lanka Citibank, N.A. Branch NA
Sweden Skandinaviska Enskilda Banken Correspondent US$ 669MM
Switzerland Citibank (Switzerland) Affiliate US$ 198MM
Taiwan Citibank, N.A. Branch NA
Thailand Citibank, N.A. Branch NA
Turkey Citibank, N.A. Branch NA
U.K. Citibank, N.A. Branch NA
Uruguay Citibank, N.A. Branch NA
Venezuela Citibank, N.A. Branch NA
</TABLE>
<PAGE>
2-02.0 DEPOSITORIES
<TABLE>
<S> <C> <C> <C>
Argentina: Caja de Valores ("CDV") Finland: Central Share Registry
The Helsinki Money
Market Center
Australia: The Reserve Bank Information France: Societe Interprofessionnelle
and Transfer System ("RITS") pour la Compensation de
Valeurs Mobilieres
Austraclear ("SICOVAM")
Austria: Wertpapiersammelbank Banque de France
bei der Oesterreichische
Kontrollbank ("OEKB/WSB") Germany: Deutscher Kassenverein A.G.
("DKV")
Belgium: Caisse Interprofessionelle
de Depots et de Virements Greece: Central Securities Depository,
de Titres S.A. ("CIK") S.A. ("CSD")
Banque Nationale Hong Kong: Central Clearing and
de Belgique ("BNB") Settlement System
("CCASS")
Brazil: BOVESPA's Registered
Shares Fungible Custody Hungary: The Central Depository and
("BOVESPA") Clearing House ("CDCH")
Canada: The Canadian Depository for Ireland: Gilt Settlement Office ("GSO")
Securities Limited ("CDS")
Italy: Monte Titoli Instituto per la
China: The Shanghai Securities Custodia e l'Amministrazione
Central Clearing and Accentrata di Valori Mibiliar
Registration Corporation ("Monte Titoli")
("SSCCRC")
The Bank of Italy
The Shenzhen Securities
Registrars Co. Ltd. - registrar Japan: Japan Securities Depository
for three banks forming a Center ("JASDEC")
decentralized depository
structure The Bank of Japan ("BOJ")
Denmark: Vaerdipapircentralen ("VP") Korea: The Korea Securities
Depository ("KSD")
</TABLE>
<PAGE>
Luxembourg: CEDEL, S.A.
Malaysia: Malaysian Central
Depository Sdn. Bhd.
("MCD")
Mexico: Instituto para el Deposito de
Valores ("S.D. Indeval")
Netherlands: Nederlands Centraal Instituut
voor Giraal Effectenverkeer
B.V. ("Necigef")
New Zealand: Austraclear
Norway: The Norwegian Registry of
Securities -
Verdipapirsentralen ("VPS")
Peru: Caja de Valores ("CAVAL")
Poland: The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)
Portugal: Central de Registo e Valores Mobiliarios
Singapore: Central Depository (PTE) Ltd.
South Africa: The Central Depository (Pty) Ltd.
Spain: Servico de Compensacion y
Liquidacion de Valores ("SCLV")
Sri Lanka: Central Depository System (Pvt) Limited
Sweden: Vardepapperscentralen VPC AB ("VPC")
Switzerland: Schwerzerische Effekten-Giro AG ("SEGA")
Taiwan: Taiwan Securities Central
Depository Co., Ltd. ("TSCD")
Thailand: Share Depository Center ("SDC")
Turkey: Istanbul Stock Exchange Settlement
and Custody Company Inc.
United
Kingdom: Central Gilts Office ("CGO")
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
START DEPOSITORY IN ADDITION TO THE CENTRAL BANK,
COUNTRY DATE SUBCUSTODIAN IF APPLICABLE.
<S> <C> <C> <C>
Argentina 1991 Morgan Guaranty Trust Co. of Caja de Valores
N.Y. - Buenos Aires
Office
Australia 1982 ANZ Banking Group Austraclear
Austria 1988 Creditanstalt-Bankverein OeKB-WSB (Wertpapiersammelbank bei der
Oesterreichischen Kontrollbank AG)
Belgium 1977 Morgan Guaranty Trust Co. of CIK (Caisse Interprofessionnelle de
N.Y. - Brussels Office Depots et de Virements de Titres)
Euroclear Clearance System Limited
Brazil 1991 Morgan Guaranty Trust Co. of BOVESPA (Bolsa de Valores de Sao Paolo;
N.Y. - Sao Paulo Office equities)
BVRJ (Bolsa de Valores de Rio de Janeiro,
equities)
CETIP (Central de Custodia e Liquidacao
Financeira de Titulos; corporate bonds)
SELEC (Sistema Especial de Liquidacao e
Custodia; gov't securities)
Canada 1978 Canadian Imperial Bank of CDS (Canadian Depository for Securities)
Commerce
Chile 1993 Citibank, N.A.
People's Republic 1992 Hongkong and Shanghai Banking
of China- Corporation
Shanghai and
Shenzhen
Czech Republic 1994 Ceskoslovenska Obchodni Banka,
A.S.
Denmark 1985 Den Danske Bank VP (Vaerdipapircentralen; Danish
Securities Centre)
Finland 1985 Union Bank of Finland
France 1977 Morgan Guaranty Trust Co. of SICOVAM (Societe Interprofessionnelle Pour
N.Y. - Paris Office La Compensation des Valeurs Mobilieres)
Germany 1977 Morgan Guaranty Trust Co. of DKV (Deutscher Kassenverein)
N.Y. - Frankfurt Office
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Greece 1989 National Bank of Greece S.A.
Hong Kong 1978 Hongkong and Shanghai Banking CCASS (Central Clearing and Settlement
Corporation System)
Hungary 1993 Citibank N.A.
India 1993 Hongkong and Shanghai Banking
Corporation
Indonesia 1990 Hongkong and Shanghai Banking
Corporation
Ireland 1988 Allied Irish Banks PLC
Israel 1994 Bank Leumi LE TASE (Tel Aviv Stock Exchange)
Clearing House Ltd.
Italy 1977 Morgan Guaranty Trust Co. of N.Y. Monte Titoli S.p.A.
Milan Office
Japan 1977 The Fuji Bank, Limited JASDEC (Japan Securities Depository Center)
JSA (Japan Securities Agent)
Jordan 1994 Citibank, N.A.
Korea 1991 Bank of Seoul KSSC (Korea Securities Settlement
Corporation)
Luxembourg 1992 Banque Internationale A CEDEL (Centrale de Livraison des Valeurs
Luxembourg, S.A. Mobilieres)
Malaysia 1987 Hongkong and Shanghai Banking SCANS (Securities Clearing Automated
Corporation Network Services)
Mexico 1990 Citibank, N.A. Indeval
Morocco 1994 Banque Commerciale du Maroc
Netherlands 1978 Bank Labouchere nv NECIGEF (Nederlands Centraal Instituut Voor
Giraal Effectenverkeer BV)
New Zealand 1982 ANZ Banking Group Ltd.
Norway 1978 Den Norske Bank VPS (Verdipapirsentralen; Norwegian
Registry of Securities)
Pakistan 1994 Citibank, N.A.
Peru 1994 Citibank, N.A. CAVAL (Caja de Valores)
Philippines 1990 Hongkong and Shanghai Banking
Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Poland 1993 Bank Handlowy
Portugal 1988 Banco Espirito Santo E
Comercial de Lisboa
Singapore 1988 Development Bank of Singapore (CDP) Central Depository Pte
South Africa 1993 First National Bank of Southern
Africa
Spain 1977 Morgan Guaranty Trust Co. of
N.Y. - Madrid Office
Sri Lanka 1992 Hongkong and Shanghai Banking
Corporation
Sweden 1985 Skandinaviska Enskilda Banken VPC (Vaerdepappercentralen; Securities
Register Centre)
Switzerland 1977 Bank Leu SEGA (Schweizerische Effekten - Giro AG)
Taiwan 1992 Hongkong and Shanghai Banking
Corporation
Thailand 1988 Hongkong and Shanghai Banking
Corporation
Turkey 1990 Citibank, N.A. Istanbul Stock Exchange Settlement and
Ottoman Bank Custody Company, Inc. (I.M.K.B. Takas ve
Saklama A.S.)
United Kingdom 1977 Morgan Guaranty Trust Co. of N.Y. TALISMAN (Transfer, Accounting and
London Office Lodgement for Investors, Stock Management
for Jobbers)
CGO (Central Gilts Office)
CMS (Central Money Market Office)
United States of 1977 Morgan Guaranty Trust Co. of The Federal Reserve Bank of New York
America N.Y. The Depository Trust Co.
The Participants Trust Co.
Venezuela 1991 Citibank, N.A.
</TABLE>
<PAGE>
EXHIBIT (10)
STROOCK & STROOCK & LAVAN
Seven Hanover Square
New York, New York 10004-2696
February 27, 1995
The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Gentlemen:
We have acted as counsel to The Bear Stearns Funds (the "Fund") in connection
with the preparation of a Registration Statement on Form N-1A, Registration No.
33-84842 (the "Registration Statement"), covering shares of beneficial interest
(the "Shares") of the Fund.
We have examined copies of the Agreement and Declaration of Trust and By-Laws of
the Fund, the Registration Statement and such other documents, records, papers,
statutes and authorities as we deemed necessary to form a basis for the opinion
hereinafter expressed. In our examination of such material, we have assumed the
genuineness of all signatures and the conformity to original documents of all
copies submitted to us. As to various questions of fact material to such
opinion, we have relied upon statements and certificates of officers and
representatives of the Fund and others.
Attorneys involved in the preparation of this opinion are admitted only to the
bar of the State of New York. As to various questions arising under the laws of
the Commonwealth of Massachusetts, we have relied on the opinion of Messrs.
Ropes & Gray, a copy of which is attached hereto. Qualifications set forth in
their opinion are deemed incorporated herein.
Based upon the foregoing, we are of the opinion that the Fund is authorized to
issue an unlimited number of Shares, and that, when the Shares are issued and
sold and the authorized consideration therefor is received by the Fund, they
will be validly issued, fully paid and nonassessable by the Fund.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included in
the Registration Statement, and to the filing of this opinion as an exhibit to
any application made by or on behalf of the Fund or any distributor or dealer in
connection with the registration and qualification of the Fund or its Shares
under the securities laws of any state or jurisdiction. In giving such
permission, we do not admit hereby that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan
STROOCK & STROOCK & LAVAN
<PAGE>
ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2624
February 27, 1995
Stroock & Stroock & Lavan
Seven Hanover Square
New York, NY 10004-2594
Gentlemen:
We are furnishing this opinion in connection with the proposed offer and sale
from time to time by S&P STARS Portfolio, Large Cap Value Portfolio, Small Cap
Value Portfolio, Total Return Bond Portfolio and The Insiders Portfolio (each a
"Series") of The Bear Stearns Funds (the "Trust") of an indefinite number of
shares of beneficial interest, par value $.001 per share (the "Shares"), of each
of such Series pursuant to the Trust's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended.
We are familiar with the action taken by the Trustees of the Trust to
authorized the issuance of the Shares. We have examined the Trust's records of
Trustee action, its By-Laws and its Agreement and Declaration of Trust, as
amended to date. We have examined such other documents as we deem necessary for
the purposes of this opinion.
We assume that, upon sale of the Shares, the Trust will receive the net asset
value thereof, which amount shall be at least equal to the par value thereof.
Based upon the foregoing, we are of the opinion that the Trust is authorized
to issue an unlimited number of Shares, and that, when the Shares are issued and
sold after the Registration Statement has been declared effective and the
authorized consideration therefor is received by the Trust, they will be validly
issued, fully paid and nonassessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust or any
Series. However, the Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust or any Series and requires that
notice of such disclaimer be given in every note, bond, contract or other
undertaking issued by or on
<PAGE>
behalf of the Trust. The Agreement and Declaration of Trust provides for
indemnification out of any Series property for all loss and expense of any
shareholder held personally liable for the obligations of any Series. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust or any Series itself
would be unable to meet its obligations.
We consent to the filing of this opinion as an exhibit to the aforesaid
Registration Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
STROOCK & STROOCK & LAVAN
Seven Hanover Square
New York, New York 10004-2696
May 8, 1995
The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Gentlemen:
We have acted as counsel to The Insiders Select Portfolio (the "Series") of The
Bear Stearns Funds (the "Trust") in connection with the preparation of a
Registration Statement on Form N-1A, Registration No. 33-84842 (the
"Registration Statement"), covering shares of beneficial interest (the "Shares")
of the Series.
We have examined copies of the Agreement and Declaration of Trust and By-Laws of
the Trust, the Registration Statement and such other documents, records, papers,
statutes and authorities as we deemed necessary to form a basis for the opinion
hereinafter expressed. In our examination of such material, we have assumed the
genuineness of all signatures and the conformity to original documents of all
copies submitted to us. As to various questions of fact material to such
opinion, we have relied upon statements and certificates of officers and
representatives of the Trust and others.
Attorneys involved in the preparation of this opinion are admitted only to the
bar of the State of New York. As to various questions arising under the laws of
the Commonwealth of Massachusetts, we have relied on the opinion of Messrs.
Ropes & Gray, a copy of which is attached hereto. Qualifications set forth in
their opinion are deemed incorporated herein.
Based upon the foregoing, we are of the opinion that the Trust is authorized to
issue an unlimited number of Shares, and that, when the Shares are issued and
sold and the authorized consideration therefor is received by the Trust, they
will be validly issued, fully paid and nonassessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included in
the Registration Statement, and to the filing of this opinion as an exhibit to
any application made by or on behalf of the Series or any distributor or dealer
in
<PAGE>
connection with the registration and qualification of the Series or its Shares
under the securities laws of any state or jurisdiction. In giving such
permission, we do not admit hereby that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan
STROOCK & STROOCK & LAVAN
<PAGE>
ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2624
May 8, 1995
Stroock & Stroock & Lavan
Seven Hanover Square
New York, NY 10004-2594
Gentlemen:
We are furnishing this opinion in connection with the proposed offer and sale
from time to time by The Insiders Select Portfolio (the "Series") of The Bear
Stearns Funds (the "Trust") of an indefinite number of shares of beneficial
interest, par value $.001 per share (the "Shares"), of the Series pursuant to
the Trust's Registration Statement on Form N-1A (No. 33-84842) under the
Securities Act of 1933, as amended.
We are familiar with the action taken by the Trustees of the Trust to
authorize the issuance of the Shares. We have examined the Trust's records of
Trustee action, its By-Laws and its Agreement and Declaration of Trust, as
amended to date. We have examined such other documents as we deem necessary for
the purpose of this opinion.
We have assumed that, upon sale of the Shares, the Trust will receive the net
asset value thereof, which amount shall be at least equal to the par value
thereof.
Based upon the foregoing, we are of the opinion that the Trust is authorized
to issue an unlimited number of Shares, and that, when the Shares are issued and
sold after the Registration Statement has been declared effective and the
authorized consideration therefor is received by the Trust, they will be validly
issued, fully paid and nonassessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust or a
series of the Trust. However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust or any series and
requires that notice of such disclaimer be given in every note, bond, contract
or other undertaking
<PAGE>
issued by or on behalf of the Trust. The Agreement and Declaration of Trust
provides for indemnification out of property of the Series for all loss and
expense of any shareholder held personally liable for the obligations of the
Series. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust or the
Series itself would be unable to meet its obligations.
We consent to the filing of this opinion as an exhibit to the aforesaid
Registration Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
STROOCK & STROOCK & LAVAN
Seven Hanover Square
New York, New York 10004-2696
June 8, 1995
The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Gentlemen:
We have acted as counsel to The Bear Stearns Funds (the "Trust") in connection
with the preparation of a Registration Statement on Form N-1A, Registration No.
33-84842 (the "Registration Statement"), covering Class Y shares of beneficial
interest of each of its Series (the "Shares").
We have examined copies of the Agreement and Declaration of Trust and By-Laws of
the Trust, the Registration Statement and such other documents, records, papers,
statutes and authorities as we deemed necessary to form a basis for the opinion
hereinafter expressed. In our examination of such material, we have assumed the
genuineness of all signatures and the conformity to original documents of all
copies submitted to us. As to various questions of fact material to such
opinion, we have relied upon statements and certificates of officers and
representatives of the Trust and others.
Attorneys involved in the preparation of this opinion are admitted only to the
bar of the State of New York. As to various questions arising under the laws of
the Commonwealth of Massachusetts, we have relied on the opinion of Messrs.
Ropes & Gray, a copy of which is attached hereto. Qualifications set forth in
their opinion are deemed incorporated herein.
Based upon the foregoing, we are of the opinion that the Trust is authorized to
issue an unlimited number of Shares, and that, when the Shares are issued and
sold and the authorized consideration
<PAGE>
therefor is received by the Trust, they will be validly issued, fully paid and
nonassessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included in
the Registration Statement, and to the filing of this opinion as an exhibit to
any application made by or on behalf of the Trust or any distributor or dealer
in connection with the registration and qualification of the Trust or its Shares
under the securities laws of any state or jurisdiction. In giving such
permission, we do not admit hereby that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan
STROOCK & STROOCK & LAVAN
<PAGE>
ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2624
June 8, 1995
Stroock & Stroock & Lavan
Seven Hanover Square
New York, NY 10004-2594
Gentlemen:
We are furnishing this opinion in connection with the proposed offer and sale
from time to time by each of the Large Cap Value Portfolio, Small Cap Value
Portfolio, S&P Stars Portfolio, Total Return Bond Portfolio and The Insiders
Select Portfolio of The Bear Stearns Funds (the "Trust") of an indefinite number
of Class Y shares of beneficial interest, par value $.001 per share (the
"Shares"), pursuant to the Trust's Registration Statement on Form N-1A (No. 33-
84842) under the Securities Act of 1933, as amended.
We are familiar with the action taken by the Trustees of the Trust to
authorize the issuance of the Shares. We have examined the Trust's records of
Trustee action, its By-laws and its Agreement and Declaration of Trust, as
amended to date. We have examined such other documents as we deem necessary for
the purposes of this opinion.
We assume that, upon sale of the Shares, the Trust will receive the net asset
value thereof, which amount shall be at least equal to the par value thereof.
Based upon the foregoing, we are of the opinion that the Trust is authorized
to issue an unlimited number of Shares, and that, when the Shares are issued and
sold after the Registration Statement has been declared effective and the
authorized consideration therefor is received by the Trust, they will be validly
issued, fully paid and nonassessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust or any
series of the Trust (a "Series"). However, the Agreement and Declaration of
Trust disclaims shareholder liability for acts or obligations of the Trust or
any Series and requires that notice of such disclaimer be given in every note,
bond, contract or other undertaking issued by or on behalf of the Trust. The
Agreement and Declaration of Trust provides for indemnification
<PAGE>
out of property of the Trust or a particular Series for all loss and expenses of
any shareholder held personally liable for the obligations of the Trust or that
particular Series. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
or the Particular Series itself would be unable to meet its obligations.
We consent to the filing of this opinion as an exhibit to the aforesaid
Registration Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
Exhibit (11)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 7 to Registration
Statement No. 33-84842 of The Bear Stearns Funds of our report dated May 5, 1995
appearing in the Statement of Additional Information relating to The Insiders
Select Portfolio, which is a part of such Registration Statement, and to the
reference to us under the heading "Custodian, Transfer and Dividend Disbursing
Agent, Counsel and Independent Auditors" in the Statement of Additional
Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
November 8, 1995
<PAGE>
EXHIBIT (15)
THE BEAR STEARNS FUNDS
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
WHEREAS, The Bear Stearns Funds (the "Trust") engages in business as
an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust is comprised of the series set forth on Schedule 1,
as such schedule is revised from time to time (each, a "Portfolio") and the
Portfolios are divided into such classes as from time to time may be set forth
on such Schedule (each, a "Class"); and
WHEREAS, the Trust desires to adopt this Plan pursuant to Rule 12b-1
under the Act, and the Trust's Board has determined that there is a reasonable
likelihood that adoption of this Plan will benefit the Portfolios and their
shareholders; and
WHEREAS, the Trust employs Bear, Stearns & Co. Inc. (the
"Distributor") as Distributor of the Portfolios' shares (the "Shares") pursuant
to a Distribution Agreement dated February 22, 1995.
NOW, THEREFORE, the Trust hereby adopts, and the Distributor hereby
agrees to the terms of, this Plan in accordance with Rule 12b-1 under the Act on
the following terms and conditions:
1. (a) Each Portfolio or Class, as the case may be, shall pay the
Distributor for distributing its Shares and for providing
personal services to, and/or maintaining accounts of, its
shareholders ("Servicing") a fee at the annual rate, based on its
average daily net assets, set forth on Schedule 1.
(b) The Distributor may pay one or more third parties a fee in
respect of any Shares owned by investors with whom the third
party has a Servicing relationship or for whom the third party is
the dealer or holder of record. The Distributor shall determine
the amounts to be paid to such third parties and the basis on
which such payments will
<PAGE>
be made. Payments to a third party are subject to compliance by
the third party with the terms of any related Plan agreement
between the third party and the Distributor.
(c) For the purposes of determining the fees payable under this Plan,
the value of each Portfolio's or Class' net assets shall be
computed in the manner specified in the Trust's charter documents
as then in effect for the computation of the value of such
Portfolios' or Class' net assets.
2. As respects each Portfolio or Class, as the case may be, this Plan
shall not take affect until it has been approved by a vote of at least
a majority (as defined in the Act) of the outstanding voting
securities of the relevant Portfolio or Class.
3. As respects each Portfolio or Class, as the case may be, this Plan
shall not take effect until it, together with any related agreement,
has been approved by vote of a majority of both (a) the Trust's Board
and (b) those Trustees who are not "interested persons" of the Trust
(as defined by the Act) and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Trustees") cast in person at a meeting (or meetings)
called for the purpose of voting on this Plan and such related
Agreements.
4. As respects each Portfolio or Class, as the case may be, this Plan
shall remain in effect until February 22, 1996 and shall continue in
effect thereafter so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in
paragraph 3.
5. The Distributor shall provide to the Trust's Board and the Board shall
review, at least quarterly, a written report of amounts paid hereunder
and the purposes for which they were made.
6. As respects each Portfolio or Class, as the case may be, this Plan may
be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of its outstanding voting
securities.
7. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such
amendment is approved in the manner
-2-
<PAGE>
provided for initial approval in paragraph 2 hereof. No material
amendment to the Plan shall be made unless approved in the manner
provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of the
Trust shall be committed to the discretion of the Trustees who are not
such interested persons.
9. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof, for a
period of not less than six years from the date of this Plan, any such
agreement or any such report, as the case may be, the first two years
in an easily accessible place.
10. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. The name
The Bear Stearns Funds is the designation of the Trustees for the time
being under an Agreement and Declaration of Trust dated September 29,
1994, as amended from time to time, and all persons dealing with the
Trust must look solely to the property of the Trust for enforcement of
any claims against the Trust as neither the Trustees, officers, agents
or shareholders assume any personal liability for obligations entered
into on behalf of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf of the Portfolios and
Classes, and the Distributor have executed this Plan as of the date set forth
below.
Dated: February 22, 1995
THE BEAR STEARNS FUNDS
By: /s/ Frank J. Maresca
------------------------
BEAR, STEARNS & CO. INC.
By: /s/ Robert S. Reitzes
------------------------
-3-
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Name of Series Class A* Class C*
- ------------------------------- --------- ---------
<S> <C> <C>
S&P STARS Portfolio .50% 1.00%
Large Cap Value Portfolio .50% 1.00%
Small Cap Value Portfolio .50% 1.00%
Total Return Bond Portfolio .35% .75%
The Insiders Select Portfolio .50% 1.00%
</TABLE>
- --------------------
* Annual Fee as a Percentage of Average Daily Net Assets.
-4-
<PAGE>
EXHIBIT (16)
INSIDERS SELECT - SINCE INCEPTION BASED ON NAV
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
-------------------- --- ------
06/16/95 83.333 $0.000 $12.00
09/30/95 83.333
ENDING NAV 09/30/95 13.19
ENDING REDEEMABLE VALUE $1,099.16
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,099.17
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 9.917% ANNUALIZED
<PAGE>
BEAR STEARNS INSIDERS SELECT PORTFOLIO - SINCE INCEPTION BASED ON MOP
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
06/16/95 79.365 $0.000 $12.00
09/30/95 79.365
ENDING NAV 09/30/95 $13.19
ENDING REDEEMABLE VALUE $1,046.82
FORMULA: P=INITIAL VALUE $1,000.00
1/N E=ENDIND PERIOD VALUE $1,046.82
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 4.682% ANNUALIZED
<PAGE>
INSIDERS SELECT - SINCE INCEPTION BASED ON NAV
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
06/16/95 83.333 $0.000 $12.00
09/30/95 83.333
ENDING NAV 09/30/95 $13.17
ENDING REDEEMABLE VALUE $1,097.50
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,097.50
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 9.750% ANNUALIZED
<PAGE>
INSIDERS SELECT - SINCE INCEPTION(includes CDSC fee)
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
06/16/95 83.333 $0.000 $12.00
09/30/95 83.333
ENDING NAV(includes CDSC $13.04
fee)
ENDING REDEEMABLE VALUE $1,086.67
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,086.67
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 8.667% ANNUALIZED
<PAGE>
INSIDERS SELECT - SINCE INCEPTION BASED ON NAV
CLASS Y
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
06/20/95 82.508 $0.000 $12.12
09/30/95 82.508
ENDING NAV 09/30/95 $13.20
ENDING REDEEMABLE VALUE $1,089.11
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,089.11
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 8.911% ANNUALIZED
<PAGE>
LARGE CAP - SINCE INCEPTION BASED ON NAV
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- ------
04/03/95 83.333 $0.000 $12.00
06/30/95 83.333
ENDING NAV 06/30/95 $12.84
ENDING REDEEMABLE VALUE $1,070.00
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,070.00
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 7.000% ANNUALIZED
<PAGE>
LARGE CAP - SINCE INCEPTION BASED ON MOP
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- ------
04/03/95 79.365 $0.000 $12.00
06/30/95 79.365
ENDING NAV 06/30/95 $12.84
ENDING REDEEMABLE VALUE $1,019.05
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,019.05
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 1.905% ANNUALIZED
<PAGE>
LARGE CAP - SINCE INCEPTION BASED ON NAV
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- ------
04/03/95 83.333 $0.000 $12.00
06/30/95 83.333
ENDING NAV 06/30/95 $12.82
ENDING REDEEMABLE VALUE $1,068.33
FORMULA: P=INITIAL VALUE $1,000.00
1/N E=ENDIND PERIOD VALUE $1,068.33
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 6.833% ANNUALIZED
<PAGE>
LARGE CAP - SINCE INCEPTION(includes CDSC fee)
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- ------
04/03/95 83.333 $0.000 $12.00
06/30/95 83.333
ENDING NAV(includes CDSC $12.69
fee)
ENDING REDEEMABLE VALUE $1,057.50
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,057.50
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 5.750% ANNUALIZED
<PAGE>
SMALL CAP - SINCE INCEPTION BASED ON NAV
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 83.333 $0.000 $12.00
06/30/95 83.333
ENDING NAV 06/30/95 $13.03
ENDING REDEEMABLE VALUE $1085.83
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,085.83
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1,00000
T=TOTAL RETURN FOR PERIOD
T= 8.583% ANNUALIZED
<PAGE>
SMALL CAP - SINCE INCEPTION BASED ON MOP
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 79.365 $0.000 $12.00
06/30/95 79.365
ENDING NAV 06/30/95 $13.03
ENDING REDEEMABLE VALUE $1034.13
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,034.13
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 3.413% ANNUALIZED
<PAGE>
SMALL CAP - SINCE INCEPTION BASED ON NAV
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 83.333 $0.000 $12.00
06/30/95 83.333
ENDING NAV 06/30/95 $13.02
ENDING REDEEMABLE VALUE $1,085.00
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,085.00
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 8.500% ANNUALIZED
<PAGE>
SMALL CAP - SINCE INCEPTION (includes CDSC fee)
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 83.333 $0.000 $12.00
06/30/95 83.333
ENDING NAV (includes CDSC $12.89
fee)
ENDING REDEEMABLE VALUE $1,074.17
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,074.17
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 7.417% ANNUALIZED
<PAGE>
SMALL CAP - SINCE INCEPTION BASED ON NAV
CLASS Y
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 76.394 $0.000 $13.09
06/30/95 76.394
ENDING NAV 06/30/95 $13.03
ENDING REDEEMABLE VALUE $995.42
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 995.42
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= -0.458% ANNUALIZED
<PAGE>
S & P STARS - SINCE INCEPTION BASED ON NAV
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 83.333 $0.000 $12.00
06/30/95 83.333
ENDING NAV 06/30/95 $13.32
ENDING REDEEMABLE VALUE $1,110.00
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,110.00
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 11.000% ANNUALIZED
<PAGE>
S & P STARS - SINCE INCEPTION BASED ON MOP
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 79.365 $0.000 $12.00
06/30/95 79.365
ENDING NAV 06/30/95 $13.32
ENDING REDEEMABLE VALUE $1,057.14
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,057.14
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.0000
T=TOTAL RETURN FOR PERIOD
T= 5.714% ANNUALIZED
<PAGE>
S & P STARS - SINCE INCEPTION BASED ON NAV
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 83.333 $0.000 $12.00
06/30/95 83.333
ENDING NAV 06/30/95 $13.30
ENDING REDEEMABLE VALUE $1,108.33
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,108.33
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.0000
T=TOTAL RETURN FOR PERIOD
T= 10.833% ANNUALIZED
<PAGE>
S & P STARS - SINCE INCEPTION (includes CDSC fee)
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - -----
04/03/95 83.333 0.0000 $12.00
06/30/95 83.333
ENDING NAV (includes CDSC $13.17
fee)
ENDING REDEEMABLE VALUE $1,097.50
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,097.50
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 9.750% ANNUALIZED
<PAGE>
TOTAL RETURN BOND -- SINCE INCEPTION BASED ON NAV
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 83.333 $0.000 $12.00
04/21/95 83.333 $0.022 $12.05 1.87061125 0.15523745
05/23/95 83.489 $0.064 $12.20 5.30524775 0.43485637
06/20/95 83.923 $0.064 $12.38 5.363569 0.43324
06/30/95 84.357 $0.025 $12.26 2.1443466 0.17490592
06/30/95 84.532
ENDING NAV 06/30/95 $12.35
ENDING REDEEMABLE VALUE $1,043.96
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,043.96
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 4.396% ANNUALIZED
<PAGE>
TOTAL RETURN BOND -- SINCE INCEPTION BASED ON MOP
CLASS A
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 80.208 $0.000 $12.00
04/21/95 80.208 $0.022 $12.05 1.800463 0.14942
05/23/95 80.358 $0.064 $12.20 5.106301 0.41855
06/20/95 30.776 $0.064 $12.38 5.162435 0.41700
06/30/95 81.193 $0.025 $12.35 2.060686 0.16686
06/30/95 81.360
ENDING NAV 06/30/95 $12.35
ENDING REDEEMABLE VALUE $1,004.80
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,004.80
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 0.480% ANNUALIZED
<PAGE>
TOTAL RETURN BOND -- SINCE INCEPTION BASED ON NAV
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 83.333 $0.000 $12.00
04/21/95 83.333 $0.023 $12.05 1.93924142 0.1609329
05/23/95 83.494 $0.059 $12.20 4.9312607 0.4042017
06/20/95 83.898 $0.060 $12.38 5.02275847 0.40571555
06/30/95 84.304 $0.024 $12.26 1.98114831 0.16159448
06/30/95 84.466
ENDING NAV 06/30/95 $12.35
ENDING REDEEMABLE VALUE $1,043.15
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,043.15
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 4.315% ANNUALIZED
<PAGE>
TOTAL RETURN BOND -- SINCE INCEPTION (includes CDSC fee)
CLASS C
DIVIDEND IN DIVIDEND IN
SHARES DISTRIBUTION NAV $ SHARES
------ ------------ --- - ------
04/03/95 83.333 $0.000 $12.00
04/21/95 83.333 $0.023 $12.05 1.93924142 0.1609329
05/23/95 83.494 $0.059 $12.20 4.9312607 0.4042017
06/20/95 83.898 $0.060 $12.38 5.02275847 0.40571555
06/30/95 84.304 $0.024 $12.26 1.98114831 0.16159448
06/30/95 84.466
ENDING NAV 06/30/95 $12.23
ENDING REDEEMABLE VALUE $1,033.02
FORMULA: P=INITIAL VALUE 1,000.00
1/N E=ENDIND PERIOD VALUE 1,033.02
T= ((E/P) -1) N=NUMBER OF YEARS IN PERIOD 1.00000
T=TOTAL RETURN FOR PERIOD
T= 3.302% ANNUALIZED
<PAGE>
EXHIBIT (18)
THE BEAR STEARNS FUNDS
RULE 18F-3 PLAN
Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), requires that the Board of an investment company desiring to offer
multiple classes pursuant to said Rule adopt a plan setting forth the separate
arrangement and expense allocation of each class, and any related conversion
features or exchange privileges.
The Board, including a majority of the non-interested Board members,
of the above-referenced fund (the "Fund") which desires to offer multiple
classes for the series set forth on Schedule A (the "Series") has determined
that the following plan is in the best interests of each class individually and
the Fund as a whole:
1. CLASS DESIGNATION: Each Series' shares shall be divided into
Class A, Class C and Class Y.
2. DIFFERENCES IN SERVICES: The services offered to shareholders of
each Class shall be substantially the same, except that Right of Accumulation
and Letter of Intent shall be available only to holders of Class A shares.
3. DIFFERENCES IN DISTRIBUTION ARRANGEMENTS: Class A shares shall be
offered with a front-end sales charge, as such term is defined in Article III,
Section 26(b), of the Rules of Fair Practice of the National Association of
Securities Dealers,
<PAGE>
Inc., and a deferred sales charge (a "CDSC"), as such term is defined in said
Section 26(b), may be assessed on certain redemptions of Class A shares
purchased without an initial sales charge as part of an investment of $1 million
or more. The amount of the sales charge and the amount of and provisions
relating to the CDSC pertaining to the Class A shares are set forth on Schedule
B hereto.
Class C shares shall not be subject to a front-end sales charge, but
shall be subject to a CDSC. The amount of and provisions relating to the CDSC
pertaining to Class C shares are set forth on Schedule C hereto.
Class A and Class C shares shall be charged a fee pursuant to a
Distribution and Shareholder Servicing Plan adopted under Rule 12b-1 under the
1940 Act. The amount of the fees under the Distribution and Shareholder
Servicing Plan are set forth on Schedule D hereto.
Class Y shares shall be offered at net asset value with no front-end
sales charge, CDSC or distribution and shareholder servicing fees. Class Y
shares are available to investors whose minimum initial purchase is at least
$2.5 million, subject to such waivers or variations as from time to time may be
in effect.
4. EXPENSE ALLOCATION. The following expenses will be allocated, to
the extent practicable, on a Class-by-Class basis: (a) fees under the
Distribution and Shareholder Servicing Plan; (b) printing and postage expenses
related to
-2-
<PAGE>
preparing and distributing materials, such as shareholder reports, prospectuses
and proxies, to current shareholders of a specific Class; (c) Securities and
Exchange Commission and Blue Sky registration fees incurred by a specific Class;
(d) the expense of administrative personnel and services as required to support
the shareholders of a specific Class; (d) litigation or other legal expenses
relating solely to a specific Class; and (f) Board members' fees incurred as a
result of issues relating to a specific Class.
5. CONVERSION FEATURES. On October 13, 1995, Class A Shares held by
investors who are eligible to purchase Class Y Shares shall be converted to
Class Y shares, based on the relative net value of such Classes as of the close
of business on such date, without the imposition of any sales charge, fee or
other charge. Thereafter, if a holder of Class A Shares notifies the Fund's
distributor that it desires to have its Class A Shares converted to Class Y
Shares because it then is eligible to purchase Class Y Shares, the shares which
are the subject of the notice shall be converted to Class Y shares, without the
imposition of any sales charge, fee or other charge, on the third business day
following confirmation of the investor's eligibility to own Class Y Shares, at
the relative net value of such Classes as of the close of business on such date.
6. EXCHANGE PRIVILEGES. Shares of a Class are exchangeable only for
(a) shares of the same Class of another
-3-
<PAGE>
Series or of other investment companies sponsored by the Fund's distributor and
(b) shares of the Money Market Portfolio of The RBB Fund, Inc.
Dated: March 24, 1995, as revised May 4, 1995,
May 31, 1995 and September 29, 1995
-4-
<PAGE>
SCHEDULE A
S&P STARS Portfolio
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
The Insiders Select Portfolio
A-1
<PAGE>
SCHEDULE B
FRONT-END SALES CHARGE--CLASS A SHARES--The public offering price for Class A
shares shall be the net asset value per share of that Class plus a sales load as
shown below:
(A) FOR S&P STARS PORTFOLIO, LARGE CAP VALUE PORTFOLIO, SMALL
CAP VALUE PORTFOLIO AND THE INSIDERS PORTFOLIO
<TABLE>
<CAPTION>
TOTAL SALES LOAD
-------------------------
AS A % OF AS A % OF
OFFERING NET ASSET
PRICE PER VALUE PER
AMOUNT OF TRANSACTION SHARE SHARE
------------------------
<S> <C> <C>
Less than $50,000.................................... 4.75 4.99
$50,000 to less than $100,000........................ 4.25 4.44
$100,000 to less than $250,000....................... 3.75 3.90
$250,000 to less than $500,000....................... 3.25 3.36
$500,000 to less than $750,000....................... 2.75 2.83
$750,000 to less than $1,000,000..................... 2.25 2.30
$1,000,000 and above................................. 0.00 0.00
(B) FOR TOTAL RETURN BOND PORTFOLIO
<CAPTION>
TOTAL SALES LOAD
-------------------------
AS A % OF AS A % OF
OFFERING NET ASSET
PRICE PER VALUE PER
AMOUNT OF TRANSACTION SHARE SHARE
------------------------
<S> <C> <C>
Less than $50,000.................................... 3.75 3.90
$50,000 to less than $100,000........................ 3.25 3.36
$100,000 to less than $250,000....................... 2.75 2.83
$250,000 to less than $500,000....................... 2.25 2.30
$500,000 to less than $750,000....................... 2.00 2.04
$750,000 to less than $1,000,000..................... 1.50 1.52
$1,000,000 and above................................. 0.00 0.00
</TABLE>
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES--A CDSC of 1.00% (.50% in the
case of the Total Return Bond Portfolio) shall be assessed at the time of
redemption of Class A shares purchased without an initial sales charge as part
of an
B-1
<PAGE>
investment of at least $1,000,000 and redeemed within one year after purchase. A
CDSC of .50% shall be assessed at the time of redemption of Class A shares
purchased without a sales charge with the proceeds from the redemption of shares
of an investment company sold with a sales charge or commission and not
distributed by the Fund's Distributor. The terms contained in Schedule C
pertaining to the CDSC assessed on redemptions of Class C shares, including the
provisions for waiving the CDSC, shall be applicable to the Class A shares
subject to a CDSC. Letter of Intent and Right of Accumulation shall apply to
such purchases of Class A shares.
B-2
<PAGE>
SCHEDULE C
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES--A CDSC of 1.00% payable to the
Fund's Distributor shall be imposed on any redemption of Class C shares made
within one year of the date of purchase. No CDSC shall be imposed to the extent
that the net asset value of the Class C shares redeemed does not exceed (i) the
current net asset value of Class C shares acquired through reinvestment of
dividends or capital gain distributions, plus (ii) increases in the net asset
value of the shareholder's Class C shares above the dollar amount of all
payments for the purchase of Class C shares of the Fund held by such shareholder
at the time of redemption.
If the aggregate value of the Class C shares redeemed has declined
below their original cost as a result of the Fund's performance, a CDSC may be
applied to the then-current net asset value rather than the purchase price.
In determining whether a CDSC is applicable to a redemption, the
calculation shall be made in a manner that results in the lowest possible rate.
Therefore, it shall be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value of
Class C shares above the total amount of payments for the purchase of Class C
shares made during the preceding year; then of amounts representing the cost of
shares purchased more than one year prior to the redemption; and finally, of
amounts representing the cost of shares purchased within one year prior to
redemption.
WAIVER OF CDSC--The CDSC shall be waived in connection with (a) redemptions made
within one year after the death or disability, as defined in Section 72(m)(7) of
the Internal Revenue Code of 1986, as amended (the "Code"), of the shareholder,
(b) redemptions by employees participating in Eligible Benefit Plans, (c)
redemptions as a result of a combination of any investment company with the Fund
or Series by merger, acquisition of assets or otherwise, and (d) a distribution
following retirement under a tax-deferred retirement plan or upon attaining age
70-1/2 in the case of an IRA or Keogh plan or custodial account pursuant to
Section 403(b) of the Code. Any Fund shares subject to a CDSC which were
purchased prior to the termination of such waiver shall have the CDSC waived as
provided in the Fund's prospectus at the time of the purchase of such shares.
C-1
<PAGE>
SCHEDULE D
AMOUNT OF DISTRIBUTION AND SHAREHOLDER SERVICING PLAN--Each Series shall pay a
fee based on the value of the average daily net assets of the respective Class
as follows:
<TABLE>
<CAPTION>
Name of Series Class A Class C
- ------------------------------- -------- --------
<S> <C> <C>
S&P Stars Portfolio .50% 1.00%
Large Cap Value Portfolio .50% 1.00%
Small Cap Value Portfolio .50% 1.00%
The Insiders Select Portfolio .50% 1.00%
Total Return Bond Portfolio .35% .75%
</TABLE>
D-1
<PAGE>
Other Exhibit (a)
THE BEAR STEARNS FUNDS
Secretary's Certificate
The undersigned, Stephen A. Bornstein, Secretary of The Bear Stearns
Funds (the "Trust"), hereby certifies that set forth below is a copy of the
resolution adopted by the Trust's Board authorizing the signing of the Trust's
Registration Statement and all amendments and supplements thereto on behalf of
the proper officers of the Trust pursuant to a power of attorney.
RESOLVED, that the Registration Statement and any and all
amendments and supplements thereto, may be signed by any one of
Robert S. Reitzes, Stephen A. Bornstein, Frank J. Maresca and
Vincent L. Pereira as the attorney-in-fact for the proper
officers of the Trust, with full power of substitution and
resubstitution; and that the appointment of each of such persons
as such attorney-in-fact hereby is authorized and approved; and
that such attorneys-in-fact, and each of them, shall have full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection with such
Registration Statement and any and all amendments and supplements
thereto, as fully to all intents and purposes as the officer, for
whom he is acting as attorney-in-fact, might or could do in
person.
IN WITNESS WHEREOF, I have hereunto signed my name on April 17, 1995.
/s/ Stephen A. Bornstein
-------------------------------
Stephen A. Bornstein, Secretary
<PAGE>
Other Exhibit (b)
THIS EXHIBIT HAS BEEN PREVIOUSLY FILED ON THE SIGNATURE PAGE OF PRE-EFFECTIVE
AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT ON FORM N-1A, FILED FEBRUARY 28,
1995.
POWER OF ATTORNEY
Each person whose signature appears below on this Amendment to Registration
Statement hereby constitutes and appoints Robert S. Reitzes, Stephen A.
Bornstein, Frank J. Maresca and Vincent L. Pereira, and each of them, with full
power to act without the other, his/her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him/her and in
his/her name, place and stead, in any and all capacities (until revoked in
writing) to sign any and all amendments to this Registration Statement
(including post-effective amendments and amendments thereto), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or their or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ John D. Knox President February 27, 1995
- ------------------------- (Principal Executive
John D. Knox Officer)
/s/ Frank J. Maresca Vice President February 27, 1995
- ------------------------- and Treasurer
Frank J. Maresca (Principal Financial
and Accounting Officer)
/s/ Peter M. Bren Trustee February 27, 1995
- -------------------------
Peter M. Bren
/s/ Alan J. Dixon Trustee February 27, 1995
- -------------------------
Alan J. Dixon
/s/ Peter B. Fox Trustee February 27, 1995
- -------------------------
Peter B. Fox
/s/ John R. McKernan, Jr. Trustee February 27, 1995
- -------------------------
John R. McKernan, Jr.
<PAGE>
/s/ William Montgoris Trustee February 27, 1995
- -------------------------
William Montgoris
/s/ M.B. Oglesby, Jr. Trustee February 27, 1995
- -------------------------
M.B. Oglesby, Jr.
/s/ Robert S. Reitzes Trustee February 27, 1995
- -------------------------
Robert S. Reitzes
-ii-
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below on this Amendment to Registration
Statement hereby constitutes and appoints Robert S. Reitzes, Stephen A.
Bornstein, Frank J. Maresca and Vincent L. Pereira, and each of them, with full
power to act without the other, his/her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him/her and in
his/her name, place and stead, in any and all capacities (until revoked in
writing) to sign any and all amendments to this Registration Statement
(including post-effective amendments and amendments thereto), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or their or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Barry Nix President February 27, 1995
- ------------------------- (Principal Executive
Barry Nix Officer)
/s/ James Fergus McKeon Treasurer and February 27, 1995
- ------------------------- Secretary
James Fergus McKeon (Principal Financial
and Accounting Officer)
/s/ Robert S. Reitzes Chairman of the February 27, 1995
- ------------------------- Board and Trustee
Robert S. Reitzes
/s/ John J. Danilovich Trustee February 27, 1995
- -------------------------
John J. Danilovich
/s/ Vincent Anthony Walsh Trustee February 27, 1995
- -------------------------
Vincent Anthony Walsh
-iii-
