<PAGE>
THE INSIDERS SELECT FUND
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
THE
BEAR STEARNS
FUNDS
245 Park Avenue
New York, NY 10167
1.800.766.4111
Robert S. Reitzes . . . . . . . . . . . . . . Chairman of the Board
Neil T. Eigen . . . . . . . . . . . . . . . . President
Peter B. Fox. . . . . . . . . . . . . . . . . Executive Vice President
William J. Montgoris. . . . . . . . . . . . . Executive Vice President
Peter M. Bren . . . . . . . . . . . . . . . . Trustee
Alan J. Dixon . . . . . . . . . . . . . . . . Trustee
John R. McKernan, Jr. . . . . . . . . . . . . Trustee
M.B. Oglesby, Jr. . . . . . . . . . . . . . . Trustee
Stephen A. Bornstein. . . . . . . . . . . . . Vice President
Frank J. Maresca. . . . . . . . . . . . . . . Vice President and Treasurer
Raymond D. DeAngelo . . . . . . . . . . . . . Vice President
Ellen T. Arthur . . . . . . . . . . . . . . . Secretary
Vincent L. Pereira. . . . . . . . . . . . . . Assistant Treasurer
Eileen M. Coyle . . . . . . . . . . . . . . . Assistant Secretary
INVESTMENT ADVISER &
ADMINISTRATOR SUB-INVESTMENT ADVISER
Bear Stearns Funds Symphony Asset Management
Management Inc. 555 California Street,
245 Park Avenue Suite 2975
New York, NY 10167 San Francisco, CA 94104
DISTRIBUTOR CUSTODIAN
Bear, Stearns & Co. Inc. Custodial Trust Company
245 Park Avenue 101 Carnegie Center
New York, NY 10167 Princeton, NJ 08540
TRANSFER & DIVIDEND COUNSEL
DISBURSEMENT AGENT Stroock & Stroock & Lavan
PFPC Inc. 7 Hanover Square
Bellevue Corporate Center New York, NY 10004
400 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
This report is submitted for the general information of the shareholders of
the Portfolio. It is not authorized for the distribution to prospective
investors in the Portfolio unless it is preceded or accompanied by a current
prospectus which includes details regarding the Portfolio's objectives,
policies, sales commissions and other information. Total return is based on
historical results and is not intended to indicate future performance. The
investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than original cost.
BSF-R-010-03
[LOGO]
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
LETTER TO SHAREHOLDERS
November 12, 1996
Dear Shareholders,
We are pleased to present the semi-annual report to the shareholders of The
Insiders Select Fund (the "Portfolio") for the six months ended September 30,
1996. From June 16, 1995 (commencement of investment operations) through
September 30, 1996, the Portfolio gained 28.17% and 27.33% (without giving
effect to sales charges and contingent deferred sales charges, if any) for class
A and C shares, respectively, compared to 31.85% for its benchmark, the S&P 500
(Composite) Index (the "S&P 500"). The average annual total return at September
30, 1996 was 21.11% and 20.50% (without giving effect to sales charges and
contingent deferred sales charges, if any) for class A and C shares,
respectively. The average annual total return for the S&P 500 was 23.78% for the
same period. For the six months ended September 30, 1996, class A and C shares
returned 9.79% and 9.46% (without giving effect to sales charges and contingent
deferred sales charges, if any), respectively, versus 7.72% for the S&P 500.
For the period June 20, 1995 (commencement of initial public offering) through
September 30, 1996, class Y shares gained 27.56% compared to 29.94% for the S&P
500. The average annual total return at September 30, 1996 for class Y shares
was 20.86% compared to 22.61% for the S&P 500. For the six months ended
September 30, 1996, class Y shares gained 9.99% compared to 7.72% for the S&P
500. Further performance data for each class of shares for this reporting period
is available in the "Financial Highlights" section of this report.
The U.S. equity market rebounded in August and September from a sharp correction
in July, induced by concerns over corporate earnings and the potential for
higher interest rates. As these fears subsided, the market recovered. Over this
time period, the Portfolio remained close to fully invested with a small short
position in one stock.
The Portfolio benefited from its exposure to stocks with strong earnings
momentum and above-average growth rates. The Portfolio's exposure to technology
stocks helped boost performance as the group rebounded strongly in August and
September. Other sectors such as banking and insurance contributed to the
Portfolio's performance. Retailing (grocery stores) stocks in the Portfolio also
performed well, led by Safeway Inc. Other outstanding performers were Conseco
Inc., City National Corp., Equifax Inc. and Hilton Hotels Corp.
The Portfolio continues to look for investment opportunities in stocks with
attractive valuations coupled with insider accumulation. Insiders selling which
had been heavy during the second quarter, decreased in July as the equity market
corrected. Insiders buying increased in August as insiders took advantage of
lower equity prices.
In conclusion, we appreciate your support and would be pleased to respond to any
questions or comments. If you have any questions concerning these Portfolios,
please call 1-800-766-4111.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
Robert S. Reitzes Praveen Gottipalli
Chairman of the Board Symphony Asset Management
The Bear Stearns Funds Sub-Investment Adviser
Portfolio Manager
The Insiders Select Fund
</TABLE>
1
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 (COMPOSITE) NATIONAL CONSUMER
CLASS A SHARES CLASS C SHARES INDEX PRICE INDEX
<S> <C> <C> <C> <C>
June 16, 1995 $9,525 $10,000 $10,000 $10,000
June 30, 1995 $9,581 $10,067 $10,099 $10,013
Sept. 30, 1995 $10,470 $10,975 $10,902 $10,059
Dec. 31, 1995 $10,802 $11,317 $11,558 $10,112
March 31, 1996 $11,120 $11,633 $12,179 $10,217
June 30, 1996 $11,684 $12,200 $12,591 $10,295
Sept. 30, 1996 $12,208 $12,733 $13,185 $10,361
$9,525 Investment made on June 16, 1995
Past performance is not predictive of
future performance
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
INCLUDING FEE WAIVERS
AND EXPENSE EXCLUDING FEE WAIVERS AND
REIMBURSEMENTS EXPENSE REIMBURSEMENTS
----------------------- -------------------------
<S> <C> <C>
The Insiders Select Fund(4)
Class A shares(5)........................... 16.64% 15.42%
Class C shares.............................. 20.50 18.75
Class Y shares(2)........................... 20.86 19.50
S&P 500 (Composite) Index(3).................... 23.78 --
National Consumer Price Index(3)................ 2.77 --
</TABLE>
- ---------
(1) For the period of June 16, 1995 (commencement of investment operations)
through September 30, 1996.
(2) The return of class Y shares (for which June 20, 1995 was the initial public
offering date) would have been higher than class A and C shares if
operations were commenced on the same day. The higher return is due to the
fact that there is no sales load, CDSC or 12b-1 fee charged to class Y
shares.
(3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
(class A shares reflects the initial maximum 4.75% sales load) and reflects
all Portfolio expenses. Investors should note that the Portfolio is a
professionally managed mutual fund while the indices are either unmanaged
and do not incur sales charges or expenses and/or are not available for
investment. Performance of the indices corresponds to the performance of
class A and C shares.
(4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses to
maintain the expense limitation, as set forth in the notes to financial
statements.
(5) Reflects the initial maximum 4.75% sales load. Without applicable sales
load, the average annual total returns would have been 21.11% including fee
waivers and expense reimbursements and 20.04% excluding fee waivers and
expense reimbursements.
CDSC -- Contingent Deferred Sales Charge.
2
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Aerospace & Defense 2.99%
Banks 5.06%
Chemicals & Fertilizers 1.75%
Commercial Services 2.83%
Computers & Office Equipment 1.79%
Computer Services 3.58%
Credit & Finance 11.70%
Drugs & Hospital Supplies 12.96%
Electrical Equipment 2.83%
Electronics 2.67%
Entertainment & Leisure 1.70%
Healthcare 1.96%
Lodging 4.06%
Miscellaneous Manufacturing 2.16%
Oil & Natural Gas 10.24%
Retailing, Apparel 1.97%
Retailing, Department Stores 3.85%
Retailing, Grocery Stores 3.52%
Telecommunications 8.27%
Cash & Cash Equivalents 5.16%
Other 8.95%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ------------------------------------------------------ --------------------------- ----------
<C> <S> <C> <C>
1. Johnson & Johnson................................. Drugs & Hospital Supplies 3.37
2. Merck & Co., Inc.................................. Drugs & Hospital Supplies 3.29
3. Merrill Lynch & Co. .............................. Credit & Finance 3.18
4. Services Corp. International...................... Commercial Services 2.83
5. Jefferson-Pilot Corp.............................. Credit & Finance 2.74
6. Sprint Corp....................................... Telecommunications 2.74
7. Mobil Corp. ...................................... Oil & Natural Gas 2.61
8. Hilton Hotels Corp................................ Lodging 2.56
9. Texaco Inc........................................ Oil & Natural Gas 2.51
10. VONS Companies Inc. .............................. Retailing, Grocery Stores 2.45
</TABLE>
3
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--94.84%
AEROSPACE & DEFENSE - 2.99%
2,000 General Dynamics Corp. ..................................... $ 137,750
3,000 McDonnell Douglas Corp. .................................... 157,500
7,000 Rockwell International Corp. ............................... 394,625
-----------
689,875
-----------
AUTO PARTS, REPLACEMENT - 0.91%
4,900 Kaydon Corp. ............................................... 210,700
-----------
BANKS - 5.06%
30,300 City National Corp. ........................................ 549,188
3,900 Green Tree Financial Corp. ................................. 153,075
5,170 Huntington Bancshares Inc. ................................. 118,910
4,410 Provident Bankshares Corp. ................................. 156,004
4,800 Summit Bancorp.............................................. 190,800
-----------
1,167,977
-----------
CASINO SERVICES - 0.59%
6,600 International Game Technology............................... 135,300
-----------
CHEMICALS & FERTILIZERS - 1.75%
6,100 Cytec Industries Inc. ...................................... 237,138
3,500 Georgia Gulf Corp. ......................................... 104,563
1,400 The B.F. Goodrich Co. ...................................... 63,175
-----------
404,876
-----------
COMMERCIAL SERVICES - 2.83%
21,600 Services Corp. International................................ 653,400
-----------
COMPUTER SERVICES - 3.58%
8,300 Cheyenne Software Inc. ..................................... 178,450
2,625 Computer Associates International, Inc. .................... 156,844
3,500 Comverse Technology Inc.*................................... 136,063
2,700 Microsoft Corp.*............................................ 356,063
-----------
827,420
-----------
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
COMPUTERS & OFFICE EQUIPMENT - 1.79%
2,100 Cabletron Systems Inc.*..................................... $ 143,325
2,100 Gateway 2000, Inc.*......................................... 100,538
3,200 Pitney Bowes Inc. .......................................... 168,800
-----------
412,663
-----------
CREDIT & FINANCE - 11.70%
6,000 Conseco Inc. ............................................... 295,500
4,500 Freemont General Corp. ..................................... 132,750
12,250 Jefferson-Pilot Corp. ...................................... 633,938
11,200 Merrill Lynch & Co. ........................................ 735,000
5,900 Morgan Stanley Group Inc. .................................. 293,525
3,100 NAC Re Corp. ............................................... 111,600
5,400 Price (T. Rowe) Associates.................................. 175,500
2,500 Student Loan Marketing Association.......................... 186,563
4,000 SunAmerica Inc. ............................................ 138,000
-----------
2,702,376
-----------
DRUGS & HOSPITAL SUPPLIES - 12.96%
3,700 American Home Products Corp. ............................... 235,875
3,600 Bristol-Myers Squibb Co. ................................... 346,950
4,000 Guidant Corp. .............................................. 221,000
9,600 Hillenbrand Industries...................................... 350,400
15,200 Johnson & Johnson........................................... 779,000
10,800 Merck & Co., Inc. .......................................... 760,050
5,475 Pharmacia & Upjohn, Inc. ................................... 225,844
2,000 Sola International, Inc.*................................... 74,500
-----------
2,993,619
-----------
ELECTRICAL EQUIPMENT - 2.83%
4,500 Belden, Inc. ............................................... 130,500
8,300 Honeywell, Inc. ............................................ 523,937
-----------
654,437
-----------
ELECTRONICS - 2.67%
4,400 Intel Corp. ................................................ 419,925
600 National Service Industries, Inc. .......................... 21,000
1,600 Oak Industries Inc.*........................................ 53,200
7,300 Teradyne, Inc.*............................................. 121,362
-----------
615,487
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT & LEISURE - 1.70%
9,300 MGM Grand, Inc.*............................................ $ 392,925
-----------
ENVIRONMENTAL CONTROLS - 1.08%
7,200 United Waste Systems, Inc.*................................. 250,200
-----------
FOOD & BEVERAGES - 0.60%
3,800 Interstate Bakeries Corp. .................................. 138,700
-----------
HEALTHCARE - 1.96%
2,400 Oxford Health Plans, Inc. .................................. 119,400
8,000 United Healthcare Corp. .................................... 333,000
-----------
452,400
-----------
IRON / STEEL - 0.40%
8,000 The LTV Corp. .............................................. 93,000
-----------
LODGING - 4.06%
5,200 HFS Inc.*................................................... 347,750
20,800 Hilton Hotels Corp. ........................................ 590,200
-----------
937,950
-----------
MACHINE, DIVERSIFIED - 0.10%
1,400 Credence Systems Corp*...................................... 22,050
-----------
MACHINE, TOOLS - 0.29%
2,100 Snap-On Inc. ............................................... 67,462
-----------
MISCELLANEOUS MANUFACTURING - 2.16%
3,500 Case Corp. ................................................. 170,625
4,200 Harsco Corp. ............................................... 264,600
2,600 ITT Industries, Inc. ....................................... 62,725
-----------
497,950
-----------
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
OIL & NATURAL GAS - 10.24%
7,600 Global Marine Inc.*......................................... $ 119,700
5,200 Mobil Corp. ................................................ 601,900
13,900 Oneok, Inc. ................................................ 382,250
1,900 Oryx Energy Co.*............................................ 33,725
2,300 Royal Dutch Petroleum Co. .................................. 359,087
1,500 Schlumberger, Ltd. ......................................... 126,750
6,300 Texaco Inc. ................................................ 579,600
3,200 The Williams Cos., Inc. .................................... 163,200
-----------
2,366,212
-----------
PACKAGING & CONTAINERS - 0.85%
5,300 Sealed Air Corp.*........................................... 197,425
-----------
PUBLISHING, NEWSPAPER - 0.78%
5,700 Media General Inc., Class A................................. 179,550
-----------
RETAILING, APPAREL - 1.97%
2,000 Nike Inc. .................................................. 243,000
5,900 The TJX Companies, Inc. .................................... 211,662
-----------
454,662
-----------
RETAILING, DEPARTMENT STORES - 3.85%
5,500 American Stores, Inc. ...................................... 220,000
6,500 Federated Department Stores Inc. ........................... 217,750
3,500 Meyer Fred Inc.*............................................ 115,937
7,500 Sears, Roebuck & Co. ....................................... 335,625
-----------
889,312
-----------
RETAILING, DRUG STORE - 0.76%
6,300 Eckerd Corp. ............................................... 176,400
-----------
RETAILING, GROCERY STORES - 3.52%
5,800 Safeway Inc.*............................................... 247,225
13,200 VONS Companies Inc.*........................................ 565,950
-----------
813,175
-----------
RETAILING, OFFICE SUPPLIES - 0.54%
5,600 Staples Inc. ............................................... 124,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS - 8.27%
800 360 Degrees Communications Company*......................... $ 18,800
14,200 Equifax Inc. ............................................... 374,525
10,200 GTE Corp. .................................................. 392,700
11,300 Loral Space & Communications Ltd.*.......................... 177,975
6,500 SBC Communications Inc. .................................... 312,812
16,300 Sprint Corp. ............................................... 633,662
-----------
1,910,474
-----------
UTILITIES - 1.05%
6,100 Texas Utilities Co. ........................................ 241,712
-----------
WHOLESALE, SPECIAL LINE - 1.00%
8,300 Tech Data, Inc.*............................................ 231,362
-----------
Total Common Stocks
(cost - $19,424,215)........................................ 21,905,301
-----------
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT - 2.25%
INVESTMENT COMPANY - 2.25%
520,014 The Milestone Funds Treasury Obligations
Portfolio, Institutional Shares**
(cost - $520,014)........................................... $ 520,014
-----------
Total Investments
(cost - $19,944,229) - 97.09%............................... 22,425,315
Other assets in excess of liabilities - 2.91%............... 671,682
-----------
Net Assets - 100.00%........................................ $23,096,997
-----------
-----------
SHORT SALE OF COMMON STOCK
RETAILING, APPAREL
4,200 Talbots, Inc.
(proceeds received - $125,408).............................. $ (126,000)
-----------
-----------
</TABLE>
- ---------
* Non-income producing security.
** Money market fund.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $19,944,229)...... $22,425,315
Receivable for Portfolio shares sold............ 396,410
Receivable for investments sold................. 320,722
Deposit with broker for security sold short
(including margin requirement of $97,889)...... 223,297
Amount segregated at custodian for security sold
short.......................................... 160,800
Receivable from investment adviser.............. 39,609
Dividends and interest receivable............... 27,388
Deferred organization expenses and other
assets......................................... 197,516
-----------
Total assets.............................. 23,791,057
-----------
LIABILITIES
Payable for investments purchased............... 292,343
Payable for Portfolio shares repurchased........ 162,799
Security sold short, at value (proceeds received
- $125,408).................................... 126,000
Distribution fee payable (class A and C
shares)........................................ 37,461
Administration fee payable...................... 5,617
Custodian fee payable........................... 2,671
Accrued expenses................................ 67,169
-----------
Total liabilities......................... 694,060
-----------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 1,506
Paid-in capital................................. 18,648,844
Undistributed net investment income............. 21,946
Accumulated net realized gain from
investments.................................... 1,944,207
Net unrealized appreciation on investments and
security sold short............................ 2,480,494
-----------
Net assets................................ $23,096,997
-----------
-----------
CLASS A
Net assets...................................... $12,795,207
-----------
Shares of beneficial interest outstanding....... 832,419
-----------
Net asset value per share....................... $15.37
-----------
-----------
Maximum offering price per share (net asset
value plus sales charge of 4.75%* of the
offering price)................................ $16.14
-----------
-----------
CLASS C
Net assets...................................... $ 8,904,272
-----------
Shares of beneficial interest outstanding....... 582,614
-----------
Net asset value and offering price per
share**........................................ $15.28
-----------
-----------
CLASS Y
Net assets...................................... $ 1,397,518
-----------
Shares of beneficial interest outstanding....... 90,624
-----------
Net asset value, offering and redemption value
per share...................................... $15.42
-----------
-----------
</TABLE>
- --------
* On investments of $50,000 or more, the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends....................................... $ 192,689
Interest........................................ 24,457
----------
217,146
----------
EXPENSES
Advisory fees................................... 87,731
Transfer agent fees and expenses................ 63,572
Accounting fees................................. 53,552
Distribution fees - class A..................... 31,199
Distribution fees - class C..................... 46,829
Reports and notices to shareholders............. 31,058
Federal and state registration fees............. 26,603
Legal and auditing fees......................... 21,291
Amortization of organization expenses........... 18,247
Administration fees............................. 17,395
Custodian fees and expenses..................... 11,531
Insurance expenses.............................. 8,122
Trustees' fees and expenses..................... 4,011
Other........................................... 4,016
----------
Total expenses before waivers and
reimbursements............................. 425,157
Less: waivers and reimbursements.......... (212,897)
----------
Total expenses after waivers and
reimbursements............................. 212,260
----------
Net investment income........................... 4,886
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND SECURITY SOLD SHORT TRANSACTIONS
Net realized gain from investments.............. 1,053,115
Net change in unrealized
appreciation/(depreciation) on:
Investments................................... 995,618
Security sold short........................... 33,600
----------
Net realized and unrealized gain on investments
and security sold short transactions........... 2,082,333
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $2,087,219
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE SIX JUNE 16,
MONTHS ENDED 1995*
SEPTEMBER THROUGH
30, 1996 MARCH 31,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income........................... $ 4,886 $ 28,761
Net realized gain from investments.............. 1,053,115 891,092
Net change in unrealized
appreciation/(depreciation) on investments and
security sold short............................ 1,029,218 1,451,276
------------ ------------
Net increase in net assets resulting from
operations..................................... 2,087,219 2,371,129
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income
Class A shares................................ -- (8,222)
Class Y shares................................ -- (3,479)
------------ ------------
-- (11,701)
------------ ------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares............ 3,488,711 26,820,998
Cost of shares repurchased...................... (5,831,887) (5,837,996)
Shares issued in reinvestment of dividends...... -- 10,500
------------ ------------
Net increase/(decrease) in net assets derived
from shares of beneficial interest
transactions................................... (2,343,176) 20,993,502
------------ ------------
Total increase/(decrease) in net assets......... (255,957) 23,352,930
NET ASSETS
Beginning of period............................. 23,352,954 24
------------ ------------
End of period (including undistributed net
investment income of $21,946 and $17,060,
respectively).................................. $23,096,997 $ 23,352,954
------------ ------------
------------ ------------
</TABLE>
- --------
* Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MONTHS JUNE 16, 1995*
ENDED SEPTEMBER 30, 1996 THROUGH
(UNAUDITED) MARCH 31, 1996
--------------------------------- ---------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C
-------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of period................................ $ 14.00 $ 13.96 $ 14.02 $ 12.00 $ 12.00
-------- --------- -------- -------- ---------
Net investment income/(loss)(1)..................................... 0.02 (0.02) 0.05 0.03 (0.01)
Net realized and unrealized gain on investments and security sold
short transactions(2).............................................. 1.35 1.34 1.35 1.98 1.97
-------- --------- -------- -------- ---------
Net increase in net assets resulting from operations................ 1.37 1.32 1.40 2.01 1.96
-------- --------- -------- -------- ---------
Dividends to shareholders from
Net investment income............................................. -- -- -- (0.01) --
-------- --------- -------- -------- ---------
Net asset value, end of period...................................... $ 15.37 $ 15.28 $ 15.42 $ 14.00 $ 13.96
-------- --------- -------- -------- ---------
-------- --------- -------- -------- ---------
Total investment return(3).......................................... 9.79% 9.46% 9.99% 16.75% 16.33%
-------- --------- -------- -------- ---------
-------- --------- -------- -------- ---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)........................... $12,795 $ 8,904 $ 1,398 $12,132 $ 9,928
Ratio of expenses to average net assets(1)(4)....................... 1.65% 2.15% 1.15% 1.65% 2.15%
Ratio of net investment income/(loss) to average net assets(1)(4)... 0.21% (0.28)% 0.70% 0.38% (0.12)%
Decrease reflected in above expense ratios and net investment
income/(loss) due to waivers and reimbursements(4)................. 2.19% 2.15% 2.18% 1.87% 1.92%
Portfolio turnover rate(6).......................................... 62.25% 62.25% 62.25% 93.45% 93.45%
Average commission rate per share(7)................................ $0.0286 $0.0286 $0.0286 $0.0294 $0.0294
<CAPTION>
FOR THE PERIOD
JUNE 20, 1995*
THROUGH
MARCH 31, 1996
---------------
CLASS Y
---------------
<S> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of period................................ $ 12.12
-------
Net investment income/(loss)(1)..................................... 0.07
Net realized and unrealized gain on investments and security sold
short transactions(2).............................................. 1.87
-------
Net increase in net assets resulting from operations................ 1.94
-------
Dividends to shareholders from
Net investment income............................................. (0.04)
-------
Net asset value, end of period...................................... $ 14.02
-------
-------
Total investment return(3).......................................... 15.98%(5)
-------
-------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)........................... $ 1,293
Ratio of expenses to average net assets(1)(4)....................... 1.15%
Ratio of net investment income/(loss) to average net assets(1)(4)... 0.97%(5)
Decrease reflected in above expense ratios and net investment
income/(loss) due to waivers and reimbursements(4)................. 2.04%(5)
Portfolio turnover rate(6).......................................... 93.45%
Average commission rate per share(7)................................ $0.0294
</TABLE>
- ---------
* Commencement of investment operations. Class Y shares commenced its initial
public offering on June 20, 1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on the actual shares outstanding on the date of distribution.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses in
investments during the respective periods because of the timing of sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective periods.
(3) Total investment return does not consider the effects of sales loads or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment returns are not annualized.
(4) Annualized.
(5) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(6) Not annualized.
(7) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments during each period.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
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 separate 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 Fund ("Insiders" or the "Portfolio") and S&P STARS Portfolio
(collectively, the "Portfolios"). Each portfolio is treated as a separate entity
for certain matters under the Investment Company Act, and for other purposes,
and a shareholder of one portfolio is not deemed to be a shareholder of any
other portfolio. As of the date hereof, the Portfolio offers three classes of
shares, which have been designated as class A, C and Y shares.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on June 16,
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. ("Bear
Stearns" or the "Distributor"). Costs of $181,965 which were incurred by the
Portfolio in connection with the organization, registration with the Commission
and initial public offering of its shares, have been deferred and are being
amortized using the straight-line method over the period of benefit not
exceeding sixty months, beginning with the commencement of investment operations
of the Portfolio. 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, unless this method does not represent fair 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 or under the
direction of 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).
11
<PAGE>
SHORT SELLING--When the Portfolio makes a short sale, an amount equal to the
proceeds received by the Portfolio is recorded as a liability and is
subsequently adjusted to the current market value of the short sale. Short sales
represent obligations of the Portfolio to make future delivery of specific
securities and, correspondingly, create an obligation to purchase the security
at market prices prevailing at the later delivery date (or to deliver the
security if already owned by the Portfolio). Upon the termination of a short
sale, the Portfolio will recognize a gain, limited to the price at which the
Portfolio sold the security short, if the market price is less than the proceeds
originally received. The Portfolio will recognize a loss, unlimited in
magnitude, if the market price at termination is greater than the proceeds
originally received. As a result, short sales create the risk that the
Portfolio's ultimate obligation to satisfy the delivery requirements may exceed
the amount of the proceeds initially received or the liability recorded in the
financial statements. The Portfolio has segregated $259,319 in separate accounts
as collateral for open short sales.
Security sold short at September 30, 1996:
<TABLE>
<CAPTION>
MARKET UNREALIZED
SHORT SALE PROCEEDS VALUE LOSS
- -------------------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
Talbots, Inc...................................... $125,408 $126,000 $ 592
</TABLE>
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 by 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 six months ended September 30, 1996, Bear Stearns Funds Management
Inc. ("BSFM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns
Companies Inc., serves 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 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 from which BSFM, in
turn, 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 six months ended September 30, 1996, BSFM (or the "Administrator")
served as the 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, PFPC Inc. is entitled to receive a monthly 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
approximately $132,000 for the Portfolio. During the six months ended September
30, 1996, PFPC Inc. has voluntarily waived a portion of its fee.
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 assets 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 six months ended September 30, 1996, the Adviser voluntarily limited
the Portfolio's total operating expenses (exclusive of brokerage commissions,
taxes, interest and extraordinary items) to a maximum annual level of 1.65% of
the average daily net assets of
12
<PAGE>
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 six months ended
September 30, 1996, the Adviser waived its advisory fee of $87,731. In addition,
the Adviser reimbursed $125,166, in order to maintain the voluntary expense
limitation.
For the six months ended September 30, 1996, Bear Stearns, an affiliate of the
Adviser and the Administrator, earned approximately $7,980 in 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 and the Administrator, serves as custodian
to the Portfolio.
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 six months ended September 30, 1996, the Portfolio paid Bear
Stearns 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 accrued daily and paid monthly or at such other intervals
as the Board of Trustees may determine. The fees paid to Bear Stearns under the
Plan are payable without regard to actual expenses incurred. For the six months
ended September 30, 1996, Bear Stearns earned $78,028 in distribution fees. Bear
Stearns uses these fees to pay dealers 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 dealers through which the sales are made. As a result
of an undertaking by the Distributor, it reallowed all of the sales charges to
its dealers selling Portfolio shares for the period June 16, 1995 (commencement
of investment operations) through September 26, 1995 and the period February 15,
1996 through June 30, 1996. Furthermore, the Distributor has increased the
compensation paid to its dealers selling Portfolio shares on net asset value
transfers (purchases made by investors with the proceeds from a redemption of
shares of an investment company sold with a sales charge or commission and not
distributed by Bear Stearns) from 0.50% to 1.00% beginning April 15, 1996 until
further notice. In addition, Bear Stearns advanced 1.00% in sales commissions on
the sale of class C shares to dealers at the time of such sales.
For the six months ended September 30, 1996, Bear Stearns has advised the
Portfolio that it received approximately $62,000 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 approximately $13,000 in contingent deferred sales
charges upon certain redemptions by class C shareholders.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at September
30, 1996 was $19,944,229. Accordingly, the net unrealized appreciation of
investments of $2,481,086 was composed of gross appreciation of $2,706,190 for
those investments having an excess of value over cost and $225,104 of gross
depreciation for those investments having an excess of cost over value.
For the six months ended September 30, 1996, aggregate purchases and sales of
investment securities (excluding short-term investments) for the Portfolio were
$13,645,701 and $16,618,391, respectively.
SHARES OF BENEFICIAL INTEREST
The Portfolio offers class A, C and 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 ("CDSC") of 1.00% during the first year. There is no sales
charge or CDSC on class Y shares, which are offered primarily to institutional
investors.
At September 30, 1996, 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.
13
<PAGE>
Transactions in the classes of shares of beneficial interest for the six months
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
SALES REINVESTMENTS REPURCHASES
---------------------- --------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A shares.................................... 151,228 $ 2,183,800 -- -- 185,123 $2,687,225
Class C shares.................................... 74,583 1,094,028 -- -- 203,247 2,913,698
Class Y shares.................................... 14,501 210,883 -- -- 16,068 230,964
</TABLE>
Transactions in the classes of shares of beneficial interest for the period June
16, 1995 (commencement of investment operations) through March 31, 1996 were as
follows:
<TABLE>
<CAPTION>
SALES REINVESTMENTS REPURCHASES
---------------------- --------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A shares.................................... 1,179,727 $15,128,116 537 $7,389 313,951 $4,288,010
Class C shares.................................... 801,060 10,158,978 -- -- 89,783 1,224,227
Class Y shares*................................... 116,322 1,533,904 226 3,111 24,357 325,759
</TABLE>
- ---------
*Class Y shares commenced its initial public offering on June 20, 1995.
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 party to the credit agreement is permitted to borrow in an amount up to 15%
of the value of its total assets. Subject to Board approval and upon making
necessary disclosure in its prospectus, each portfolio may, in accordance with
the provisions of the credit agreement, borrow up to 25% of the value of its
total assets, less all liabilities other than liabilities for borrowed money
outstanding at the time. However, at no time is the aggregate outstanding
principal amount of all loans to any of the portfolios to exceed $25,000,000.
The line of credit will bear interest at the greater of: (i) the annual rate of
interest announced from time to time from the bank at its head office as its
Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or at the
borrower's option, the rate quoted by The First National Bank of Boston.
Each loan is payable on demand or upon termination of this credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced.
The Portfolio uses the facility to borrow money only for temporary or emergency
(not leveraging) purposes. The Portfolio had no outstanding loans under the line
of credit agreement at September 30, 1996.
14
<PAGE>
[Logo]
The
Bear Stearns
Funds
245 PARK AVENUE
NEW YORK, NY 10167
1.800.766.4111
Robert S. Reitzes Chairman of the Board
Neil T. Eigen President
Peter B. Fox Executive Vice President
William J. Montgoris Executive Vice President
Peter M. Bren Trustee
Alan J. Dixon Trustee
John R. McKernan, Jr. Trustee
M.B. Oglesby, Jr. Trustee
Stephen A. Bornstein Vice President
Donalda L. Fordyce Vice President
Frank J. Maresca Vice President and Treasurer
Ellen T. Arthur Secretary
Vincent L. Pereira Assistant Treasurer
Eileen M. Coyle Assistant Secretary
INVESTMENT ADVISER DISTRIBUTOR
AND ADMINISTRATOR Bear, Stearns & Co. Inc.
Bear Stearns Funds 245 Park Avenue
Management Inc. New York, NY 10167
245 Park Avenue
New York, NY 10167
CUSTODIAN TRANSFER AND DIVIDEND
Custodial Trust Company DISBURSEMENT AGENT
101 Carnegie Center PFPC Inc.
Princeton, NJ 08540 Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
COUNSEL INDEPENDENT AUDITORS
Kramer, Levin, Naftalis & Frankel Deloitte & Touche
919 Third Avenue Deloitte & Touche House
New York, NY 10022 Earlsfort Terrace
Dublin 2, Ireland
The financial information included herein is taken from the records of the
Portfolio without examination by independent auditors who do not express an
opinion thereon.
This report is submitted for the general information of the shareholders of the
Portfolio. It is not authorized for distribution to prospective investors in the
Portfolio unless it is preceded or accompanied by a current prospectus which
includes details regarding the Portfolio's objectives, policies, sales
commissions and other information. Total investment return is based on
historical results and is not intended to indicate future performance. The
investment return and principal value of an investment in the Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than original cost.
"Standard & Poor's-Registered Trademark-", "S&P -Registered Trademark-", and
"STARS-Registered Trademark-" are trademarks of The McGraw-Hill Companies, Inc.
and have been licensed for use by Bear, Stearns & Co. Inc. S&P STARS Portfolio
is not sponsored, managed, advised, sold or promoted by Standard & Poor's.
BSF-R-011-03
S&P STARS
PORTFOLIO
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
LETTER TO SHAREHOLDERS
November 12, 1996
Dear Shareholders,
We are pleased to present the semi-annual report to shareholders for the S&P
STARS Portfolio (the "Portfolio") for the six months ended September 30, 1996.
The Portfolio's total return for the period April 5, 1995 (commencement of
investment operations) through September 30, 1996, was 39.49% and 38.36%
(without giving effect to sales charges and contingent deferred sales charges,
if any) for class A and C shares, respectively. The S&P 500 (Composite) Index
("S&P 500") returned 40.84% for the same period. The average annual total return
at September 30, 1996 for the Portfolio was 24.97% and 24.29% (without giving
effect to sales charges and contingent deferred sales charges, if any) for class
A and C shares, respectively. The S&P 500's average annual total return was
25.78% for the same period. For the six months ended September 30, 1996, class A
and C shares returned 9.25% and 9.02% (without giving effect to sales charges
and contingent deferred sales charges, if any), respectively, versus 7.72% for
the S&P 500.
For the period August 7, 1995 (commencement of initial public offering) through
September 30, 1996, class Y shares gained 19.43% compared to 26.36% for the S&P
500. The average annual total return at September 30, 1996 for class Y shares
was 16.64% compared to 22.49% for the S&P 500. For the six months ended
September 30, 1996, class Y shares gained 9.49% compared to 7.72% for the S&P
500. Further performance data for each class of shares for this reporting period
is available in the "Financial Highlights" section of this report.
Based on recent economic data and discussions with several U.S. companies, we
continue to believe that U.S. economic growth for the second half of the year
will slow down. However, we also believe that inflation and interest rates will
remain subdued and we continue to look for growth stocks which will benefit in
this economic climate.
During the last six months, the Portfolio was heavily invested in technology and
growth stocks. We also maintained modest positions in oil services and financial
stocks. The Portfolio had only a limited exposure to cyclicals and consumer
durables.
The volatility of the Portfolio reflects the sharp movement in technology
stocks. Companies such as Adaptec, Inc., Computer Associates International, Inc.
and Sterling Software, Inc., to name a few, experienced sharp sell-offs in the
quarter only to hit new highs by the end of September. We continue to hold large
positions in Adaptec, Inc., Computer Associates International, Inc., Intel Corp.
and International Business Machines Corp. We believe the fundamentals of these
and other technology stocks remain strong and we look for continued strong
earnings growth in this sector. We believe that Windows NT and new PC
developments will contribute to a new wave of corporate upgrading for computers
in the U.S. Furthermore, we believe that demand outside the U.S. will remain
robust for these products.
We continue to maintain a significant position in healthcare-related companies.
We believe companies in this industry will show improved results in their
pharmaceutical operations.
Additionally, we are overweighting the oil service, exploration and production
stocks. These stocks should benefit from increased activity from the oil
companies, which are actively exploring to increase their depleted reserves. We
also have a market weighting in banks with Citicorp remaining the most
significant holding.
In conclusion, we continue to try to identify companies that have growth
characteristics for the next 6 to 12 months.
We appreciate your support and would be pleased to respond to any questions or
comments. If you have any questions concerning the Portfolio, please call
1-800-766-4111.
Sincerely,
[SIGNATURE]
Robert S. Reitzes
Chairman of the Board
The Bear Stearns Funds
Portfolio Manager
S&P STARS Master Series
1
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 (COMPOSITE) NATIONAL CONSUMER
CLASS A SHARES CLASS C SHARES INDEX PRICE INDEX
<S> <C> <C> <C> <C>
4/5/95 $9,525 $10,000 $10,000 $10,000
6/30/95 $10,573 $11,083 $10,842 $10,079
9/30/95 $11,446 $11,975 $11,704 $10,126
12/31/95 $11,648 $12,170 $12,409 $10,178
3/31/96 $12,162 $12,691 $13,075 $10,284
6/30/96 $12,307 $12,837 $13,661 $10,364
9/30/96 $13,287 $13,836 $14,084 $10,430
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
INCLUDING FEE WAIVERS
AND EXPENSE EXCLUDING FEE WAIVERS AND
REIMBURSEMENTS EXPENSE REIMBURSEMENTS
----------------------- -------------------------
<S> <C> <C>
S&P STARS Portfolio(4)
Class A shares(5)........................... 20.96% 19.99%
Class C shares.............................. 24.29 23.32
Class Y shares(2)........................... 16.64 16.01
S&P 500 (Composite) Index(3).................... 25.78 --
National Consumer Price Index(3)................ 2.86 --
</TABLE>
- ---------
(1) For the period of April 5, 1995 (commencement of investment operations)
through September 30, 1996.
(2) The return of class Y shares (for which August 7, 1995 was the initial
public offering date) would have been higher than class A and C shares if
operations were commenced on the same day. The higher return is due to the
fact that there is no sales load, CDSC or 12b-1 fee charged to class Y
shares.
(3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses (class A shares reflect the initial
maximum 4.75% sales load). Investors should note that the Portfolio is a
professionally managed mutual fund while the indices are either unmanaged
and do not incur sales charges or expenses and/or are not available for
investment. Performance of the indices corresponds to the performance of
class A and C shares.
(4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses to
maintain the expense limitation, as set forth in the notes to financial
statements.
(5) Reflects the initial maximum 4.75% sales load. Without applicable sales
load, the total returns would have been 24.97% including fee waivers and
expense reimbursements and 23.97% excluding fee waivers and expense
reimbursements.
CDSC -- Contingent Deferred Sales Charge.
2
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Other 6.94%
Banks 3.13%
Chemicals & Fertilizers 7.38%
Computers & Office Equipment 8.40%
Computer Networks 4.91%
Computer Services 13.19%
Cosmetics & Soap 2.45%
Drug & Hospital Supplies 12.70%
Electrical Equipment 7.18%
Electronics 16.47%
Food & Beverages 6.89%
Healthcare 4.81%
Restaurants 3.03%
Retailing 2.52%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ------------------------------------------------------ --------------------------- ----------
<C> <S> <C> <C>
1. General Electric Co. ............................. Electrical Equipment 7.18
2. Adaptec, Inc. .................................... Electronics 7.10
3. Computer Associates International, Inc. .......... Computer Services 6.90
4. Intel Corp. ...................................... Electronics 6.61
5. Sterling Software, Inc. .......................... Computer Services 6.29
6. Bay Networks, Inc. ............................... Computer Networks 4.91
7. Columbia/HCA Healthcare Corp. .................... Healthcare 4.81
8. Merck & Co., Inc. ................................ Drugs & Hospital Supplies 4.76
9. Pfizer Inc. ...................................... Drugs & Hospital Supplies 4.46
10. Crompton & Knowles Corp. ......................... Chemicals & Fertilizers 4.43
</TABLE>
3
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investment in S&P STARS Master Series
("Master Series"), at value.................... $ 88,619,281
Receivable for Portfolio shares sold............ 271,439
Receivable for investment sold in Master
Series......................................... 290,257
Deferred organization expenses and other
assets......................................... 178,954
-------------
Total assets.............................. 89,359,931
-------------
LIABILITIES
Payable for Portfolio shares repurchased........ 290,257
Payable for investments purchased in Master
Series......................................... 271,439
Distribution fee payable (class A and C
shares)........................................ 130,589
Administration fee payable...................... 22,370
Accrued expenses................................ 67,952
-------------
Total liabilities......................... 782,607
-------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 5,442
Paid-in capital................................. 73,278,800
Accumulated net investment loss from Master
Series......................................... (314,068)
Accumulated net realized gain from Master
Series......................................... 6,227,454
Net unrealized appreciation from Master
Series......................................... 9,379,696
-------------
Net assets................................ $ 88,577,324
-------------
CLASS A
Net assets...................................... $ 47,964,438
-------------
Shares of beneficial interest outstanding....... 2,942,931
-------------
Net asset value per share....................... $16.30
Maximum offering price per share (net asset
value plus sales charge of 4.75%* of the
offering price)................................ $17.11
CLASS C
Net assets...................................... $ 29,830,621
-------------
Shares of beneficial interest outstanding....... 1,841,430
-------------
Net asset value and offering price per
share**........................................ $16.20
CLASS Y
Net assets...................................... $ 10,782,265
-------------
Shares of beneficial interest outstanding....... 657,692
-------------
Net asset value, offering and redemption price
per share...................................... $16.39
</TABLE>
- --------
* On investments of $50,000 or more, the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Allocated net investment income from Master
Series......................................... $ 288,370
----------
EXPENSES
Distribution fees - class A..................... 115,674
Distribution fees - class C..................... 144,182
Transfer agent fees and expenses................ 87,364
Administration fees............................. 63,484
Accounting fees................................. 33,090
Federal and state registration fees............. 31,676
Legal and auditing fees......................... 26,773
Reports and notices to shareholders............. 22,562
Amortization of organization expenses........... 20,415
Trustees' fees and expenses..................... 3,761
Custodian fees and expenses..................... 2,507
Other........................................... 3,510
----------
Total expenses............................ 554,998
----------
Net investment loss............................. (266,628)
----------
NET REALIZED AND UNREALIZED GAIN FROM MASTER
SERIES
Net realized gain............................... 4,212,668
Net change in unrealized appreciation........... 3,376,679
----------
Net realized and unrealized gain from Master
Series......................................... 7,589,347
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $7,322,719
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE SIX APRIL 5,
MONTHS ENDED 1995*
SEPTEMBER 30, THROUGH
1996 MARCH 31,
(UNAUDITED) 1996
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment loss............................. $ (266,628) $ (47,440)
Net realized gain from Master Series............ 4,212,668 3,768,620
Net change in unrealized appreciation from
Master Series.................................. 3,376,679 6,003,017
------------- -------------
Net increase in net assets resulting from
operations..................................... 7,322,719 9,724,197
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class Y shares................................ -- (14,755)
------------- -------------
Net realized capital gains
Class A shares................................ -- (994,461)
Class C shares................................ -- (560,676)
Class Y shares................................ -- (183,942)
------------- -------------
-- (1,739,079)
------------- -------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares............ 16,220,680 86,911,640
Cost of shares repurchased...................... (16,874,591) (14,635,820)
Shares issued in reinvestment of dividends...... -- 1,537,317
------------- -------------
Net increase/(decrease) in net assets derived
from shares of beneficial interest
transactions................................... (653,911) 73,813,137
------------- -------------
Total increase in net assets.................... 6,668,808 81,783,500
NET ASSETS
Beginning of period............................. 81,908,516 125,016
------------- -------------
End of period................................... $ 88,577,324 $ 81,908,516
------------- -------------
------------- -------------
</TABLE>
- --------
* Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED APRIL 5, 1995*
SEPTEMBER 30, 1996 THROUGH
(UNAUDITED) MARCH 31, 1996
------------------------------ ------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period.......................... $ 14.92 $ 14.86 $ 14.97 $ 12.00 $ 12.00 $ 14.13
-------- -------- -------- -------- -------- --------
Net investment
income/(loss)(1)................ (0.04) (0.08) -- -- (0.06) 0.07
Net realized and unrealized gain
on investment(2)................ 1.42 1.42 1.42 3.31 3.28 1.20
-------- -------- -------- -------- -------- --------
Net increase in net assets
resulting from operations....... 1.38 1.34 1.42 3.31 3.22 1.27
-------- -------- -------- -------- -------- --------
Dividends and distributions to
shareholders from
Net investment income.......... -- -- -- -- -- (0.03)
Net realized capital gains..... -- -- -- (0.39) (0.36) (0.40)
-------- -------- -------- -------- -------- --------
-- -- -- (0.39) (0.36) (0.43)
-------- -------- -------- -------- -------- --------
Net asset value, end of period... $ 16.30 $ 16.20 $ 16.39 $ 14.92 $ 14.86 $ 14.97
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total investment return for the
period(3)....................... 9.25% 9.02% 9.49% 27.68% 26.91% 9.09%(6)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)........................ $ 47,964 $ 29,831 $ 10,782 $ 45,049 $ 28,081 $ 8,779
Ratio of expenses to average net
assets(1)(4).................... 1.50% 2.00% 1.00% 1.50% 2.00% 1.00%
Ratio of net investment
income/(loss) to average net
assets(1)(4).................... (0.51)% (1.02)% -- (0.01)% (0.45)% 0.82%(6)
Decrease reflected in above
expense ratios and net
investment income/(loss) due to
waivers and
reimbursements(4)(5)............ 0.74% 0.75% 0.76% 0.89% 0.92% 0.99%(6)
</TABLE>
- --------
* Commencement of investment operations. Class Y shares commenced its initial
public offering on August 7, 1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursments.
(2) The amounts shown for a share outstanding throughout the respective
periods are not in accord with the change in the aggregate gains and
losses in investments during the periods because of the timing of sales
and repurchases of Portfolio shares in relation to fluctuating net asset
value during the respective periods.
(3) Total investment return does not consider the effects of sales loads or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends
and distributions, if any. Total investment returns are not annualized.
(4) Annualized.
(5) Includes Portfolio's share of Master Series' expenses.
(6) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A or C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS 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
Fund and S&P STARS Portfolio. As of the date hereof, S&P STARS Portfolio (the
"Portfolio") offers three classes of shares which have been designated as class
A, C and Y shares.
The Portfolio invests all of its assets in S&P STARS Master Series (the "Master
Series"), a separate series of S&P STARS Fund (the "Master Fund"), which has the
same objective as the Portfolio. The Master Fund was organized as a Delaware
business trust on October 5, 1994 and is registered under the Investment Company
Act as an open-end management investment company. The Master Fund currently has
one fund in operation, the Master Series, a non-diversified fund. The value of
the Portfolio's investment in the Master Series reflects the Portfolio's
proportionate beneficial interest in the net assets of the Master Series (99.9%
at September 30, 1996). The performance of the Portfolio is directly affected by
the performance of the Master Series. The financial statements of the Master
Series, including the portfolio of investments, should be read in conjunction
with the Portfolio's financial statements.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on April 5,
1995, the Portfolio had no transactions other than those relating to
organizational matters and the sale of 5,209 class A shares and 5,209 class C
shares of beneficial interest of S&P STARS Portfolio to Bear, Stearns & Co. Inc.
("Bear Stearns" or the "Distributor"). Costs of $203,596 incurred by the
Portfolio in connection with the organization, its registration with the
Commission and with various states and the initial public offering of its shares
have been deferred and are being amortized, using the straight-line method over
the period of benefit not exceeding sixty months, beginning with the
commencement of investment operations of the Portfolio. In the event that the
Distributor or any transferee of the Distributor redeems any of its original
shares prior to the end of the sixty month period, the proceeds of the
redemption payable in respect of such shares shall be reduced by the pro rata
share (based on the proportionate share of the original shares redeemed to the
total number of original shares outstanding at the time of the redemption) of
the unamortized deferred organization expenses as of the date of such
redemption. In the event that the Portfolio is liquidated prior to the end of
the sixty month period, the Distributor or the transferee of the Distributor
shall bear the unamortized deferred organization expenses.
INVESTMENT VALUATION--The Portfolio invests all of its assets in the Master
Series, rather than in a portfolio of securities. Valuation of securities by the
Master Series is discussed in the Master Series' Notes to Financial Statements
which are included elsewhere in this report. Expenses and fees, including
administrative and distribution fees are accrued daily and taken into account
for the purposes 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 INCOME--The Portfolio accrues its share of income, net of Master
Series' expenses, daily on its investment in the Master Series. Net investment
income and realized and unrealized gains and losses from investment transactions
conducted by the Master Series, are allocated to the Portfolio based on the
Portfolio's proportional beneficial interest in the net assets of the Master
Series.
The Portfolio's allocated net investment income (other than distribution fees)
and realized and unrealized gains and losses from the Master Series is further
allocated each day 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).
8
<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 by 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 six months ended September 30, 1996, Bear Stearns Funds Management
Inc. ("BSFM" or the "Administrator") serves 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, PFPC Inc. is entitled
to receive from the Portfolio a monthly fee of $5,500.
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 assets of the Portfolio.
During the six months ended September 30, 1996, BSFM as the Master Series'
Adviser (the "Adviser") has voluntarily undertaken to limit the Portfolio's
total operating expenses (other than brokerage commissions, taxes, interest and
extraordinary items) to the extent that total Portfolio operating expenses
exceeded 1.50% of the average daily net assets of the Portfolio's class A
shares, 2.00% of the average daily net assets of the Portfolio's class C shares
and 1.00% of the average daily net assets of the Portfolio's class Y shares. As
necessary, this limitation is effected by waivers by the Adviser of its advisory
fees (Master Series only) and reimbursements of expenses exceeding the advisory
fee (Master Series and Portfolio). The Portfolio will not pay the Adviser at a
later time for any amounts it may waive, nor will the Portfolio reimburse the
Adviser for any amounts it may assume.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc. and an affiliate of the Administrator, serves as custodian to the
Portfolio.
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 six months ended September 30, 1996, the Portfolio paid Bear
Stearns 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 accrued daily and paid monthly or at such other intervals
as the Board of Trustees may determine. The fees paid to Bear Stearns are
payable without regard to actual expenses incurred. For the period April 1, 1996
through September 30, 1996, Bear Stearns earned $259,856 in distribution fees.
Bear Stearns uses these fees primarily to pay dealers 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 dealers through which the sales are made. In
addition, Bear Stearns pays 1.00% in sales commissions on the sale of class C
shares to dealers at the time of such sales.
For the six months ended September 30, 1996, Bear Stearns has advised the
Portfolio that it received approximately $284,000 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
9
<PAGE>
dealers which in turn paid commissions to sales persons. Bear Stearns has
advised the Portfolio that for the six months ended September 30, 1996, it
received approximately $23,000 in contingent deferred sales charges paid upon
certain redemptions by class C shareholders of the Portfolio.
INVESTMENT TRANSACTIONS
Additions and reductions to the Portfolio's investment in the Master Series
amounted to $16,220,680 and $17,401,257 respectively.
SHARES OF BENEFICIAL INTEREST
The Portfolio offers class A, C and 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 ("CDSC") of 1.00% during the first year. There is no sales
charge or CDSC on class Y shares, which are offered primarily to institutional
investors.
At September 30, 1996, there was an unlimited amount of $0.001 par value shares
of beneficial interest authorized of which Bear Stearns owned 5,209 class A
shares and 5,209 class C shares.
Transactions in the classes of shares of beneficial interest for the six months
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
SALES REPURCHASES
-------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- -----------
<S> <C> <C> <C> <C>
Class A shares........................................................ 656,613 $9,960,447 733,558 $10,935,895
Class C shares........................................................ 257,757 3,861,238 305,406 4,581,727
Class Y shares........................................................ 159,901 2,398,995 88,739 1,356,969
</TABLE>
Transactions in the classes of shares of beneficial interest for the period
April 5, 1995 (commencement of investment operations) through March 31, 1996
were as follows:
<TABLE>
<CAPTION>
SALES REINVESTMENTS REPURCHASES
----------------------- ----------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------ -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A shares.......................... 3,601,121 $48,488,374 58,847 $850,924 640,092 $9,215,429
Class C shares.......................... 2,211,148 29,952,540 34,906 503,689 356,975 5,104,093
Class Y shares*......................... 595,898 8,595,742 12,618 182,704 21,986 316,298
</TABLE>
- ---------
*Class Y shares commenced its initial public offering on August 7, 1995.
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, Large Cap Value Portfolio,
Small Cap Value Portfolio, Total Return Bond Portfolio, The Insiders Select Fund
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 shall the aggregate
outstanding principal amount of all loans to any of the portfolios exceed
$25,000,000. The line of credit will bear interest at the greater of: (i) the
annual rate of interest announced from time to time from the bank at its head
office as its Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%,
or, at the borrower's option, the rate quoted by The First National Bank of
Boston.
Each loan is payable on demand or upon termination of this credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced.
The Portfolio uses this facility to borrow money only for temporary or emergency
(not leveraging) purposes. The Portfolio had no amount outstanding under the
line of credit agreement at September 30, 1996.
10
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------
MARKET
SHARES+ VALUE
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--98.41%
BANKS - 3.13%
17,500 Bank of New York Co., Inc. ...... $ 514,062
25,000 Citicorp......................... 2,265,625
-----------
2,779,687
-----------
CHEMICALS & FERTILIZERS - 7.38%
240,000 Crompton & Knowles Corp. ........ 3,930,000
40,000 Rohm & Haas Co.++................ 2,620,000
-----------
6,550,000
-----------
COMPUTER NETWORKS - 4.91%
160,000 Bay Networks, Inc.+++ ........... 4,360,000
-----------
COMPUTER SERVICES - 13.19%
102,500 Computer Associates
International, Inc. ............. 6,124,375
73,000 Sterling Software, Inc. ......... 5,575,375
-----------
11,699,750
-----------
COMPUTERS & OFFICE EQUIPMENT -
8.40%
95,000 Cheyenne Software Inc.+++*....... 2,042,500
31,500 International Business Machines
Corp. ........................... 3,921,750
35,000 Oracle Systems Corp. ............ 1,489,688
-----------
7,453,938
-----------
CONTAINERS - 1.70%
36,600 Fisher Scientific International
Inc.++++......................... 1,509,750
-----------
COSMETICS & SOAP - 2.45%
25,000 Colgate-Palmolive Co. ........... 2,171,875
-----------
DRUGS & HOSPITAL SUPPLIES -
12.70%
49,000 Amgen Inc.*...................... 3,093,125
60,000 Merck & Co., Inc. ............... 4,222,500
50,000 Pfizer Inc. ..................... 3,956,250
-----------
11,271,875
-----------
<CAPTION>
- -------------------------------------------------------------
MARKET
SHARES+ VALUE
- -------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT - 7.18%
70,000 General Electric Co. ............ $ 6,370,000
-----------
ELECTRONICS - 16.47%
105,000 Adaptec, Inc.+++*................ 6,300,000
2,000 Intel Corp.+++................... 190,875
100,000 Intel Corp. Warrants expiring
3/09/98+++*...................... 5,675,000
37,500 Microchip Technology Inc.++++*... 1,401,563
10,000 Oaks Industries Inc.*............ 332,500
15,000 SGS - Thompson Microelecs
N.V.*............................ 710,625
-----------
14,610,563
-----------
ENTERTAINMENT & LEISURE - 0.69%
40,000 Comcast Corp., Class A........... 615,000
-----------
FOOD & BEVERAGES - 6.89%
90,000 Interstate Bakeries Corp.++...... 3,285,000
100,000 Pepsico, Inc.+++................. 2,825,000
-----------
6,110,000
-----------
HEALTHCARE - 4.81%
75,000 Columbia/HCA Healthcare Corp. ... 4,265,625
-----------
MISCELLANEOUS INDUSTRIALS - 0.43%
25,000 Mariner Health Group, Inc.*...... 384,375
-----------
OIL & NATURAL GAS - 1.51%
45,000 Apache Devices Inc. ............. 1,338,750
-----------
OIL - OFFSHORE DRILLING - 1.02%
57,500 Global Marine Inc.*.............. 905,625
-----------
RESTAURANTS - 3.03%
125,000 Wendy's International, Inc. ..... 2,687,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
SHARES+ VALUE
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RETAILING - 2.52%
50,000 Sears, Roebuck & Co. ............ $ 2,237,500
-----------
Total Common Stocks
(cost - $77,929,983)............. 87,321,813
Other assets in excess
of liabilities - 1.59%........... 1,413,490
-----------
Net Assets - 100.00%............. $88,735,303
-----------
-----------
</TABLE>
- ---------
+ Unless otherwise indicated all common stocks are ranked five stars.
++ Currently ranked three stars.
+++ Currently ranked four stars.
++++ Not ranked by STARS.
* Non-income producing security.
S&P STARS RANKINGS:
Five stars - Buy - Expected to be among the best performers over the next twelve
months and to rise in price.
Four stars - Accumulate - Expected to be an above-average performer.
Three stars - Hold - Expected to be an average performer.
Two stars - Avoid - Expected to be a below-average performer.
One star - Sell - Expected to be a well-below-average performer and to fall in
price.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $77,929,983)...... $ 87,321,813
Cash............................................ 9,070
Receivable for investments sold................. 5,009,300
Receivable for beneficial interests sold........ 271,439
Dividends and interest receivable............... 64,807
Receivable from investment adviser.............. 27,154
Deferred organization expenses and other
assets......................................... 77,653
--------------
Total assets.............................. 92,781,236
--------------
LIABILITIES
Loan payable.................................... 519,879
Payable for investments purchased............... 3,171,669
Payable for beneficial interests repurchased.... 290,257
Administration and accounting fees payable...... 16,500
Custodian fee payable........................... 8,457
Accrued expenses................................ 39,171
--------------
Total liabilities......................... 4,045,933
--------------
NET ASSETS
Net proceeds from capital contributions and
withdrawals.................................... 79,343,473
Net unrealized appreciation on investments...... 9,391,830
--------------
Net assets applicable to investors'
beneficial interests....................... $ 88,735,303
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends....................................... $ 384,549
Interest........................................ 32,162
-----------
416,711
-----------
EXPENSES
Advisory fees................................... 318,040
Administration and accounting fees.............. 54,952
Custodian fees and expenses..................... 23,060
Legal and auditing fees......................... 16,545
Amortization of organization expenses........... 10,028
Trustees' fees and expenses..................... 10,028
Insurance expenses.............................. 8,243
Other........................................... 2,757
-----------
Total expenses before waivers and
reimbursements............................. 443,653
Less: waivers and reimbursements.......... (315,677)
-----------
Total expenses after waivers and
reimbursements............................. 127,976
-----------
Net investment income........................... 288,735
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
SECURITIES SOLD SHORT AND OPTION TRANSACTIONS
Net realized gain/(loss) from:
Investments............................... 4,276,245
Option transactions....................... (1,540)
Securities sold short..................... (60,724)
Net change in unrealized appreciation on
investments, securities sold short and option
transactions................................... 3,385,456
-----------
Net realized and unrealized gain on investments,
securities sold short and option
transactions................................... 7,599,437
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $ 7,888,172
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE PERIOD
SEPTEMBER 30, APRIL 5, 1995*
1996 THROUGH
(UNAUDITED) MARCH 31, 1996
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income..................................... $ 288,735 $ 695,588
Net realized gain from investments, securities sold short
and option transactions.................................. 4,213,981 3,769,370
Net change in unrealized appreciation on investments...... 3,385,456 6,006,374
--------------- ---------------
Net increase in net assets resulting from operations...... 7,888,172 10,471,332
--------------- ---------------
CAPITAL TRANSACTIONS
Contributions............................................. 16,220,680 86,999,990
Withdrawals............................................... (17,401,257) (15,568,630)
--------------- ---------------
Net increase/(decrease) in net assets derived from capital
transactions............................................. (1,180,577) 71,431,360
--------------- ---------------
Total increase in net assets.............................. 6,707,595 81,902,692
NET ASSETS
Beginning of period....................................... 82,027,708 125,016
--------------- ---------------
End of period............................................. $88,735,303 $82,027,708
--------------- ---------------
--------------- ---------------
</TABLE>
- --------
* Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below are ratios to average net assets and other supplemental data for
each period indicated. This information has been derived from information
provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED APRIL 5, 1995*
SEPTEMBER 30, 1996 THROUGH MARCH
(UNAUDITED) 31, 1996
------------------ ----------------
<S> <C> <C>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)....... $88,735 $82,028
Ratio of expenses to average net assets(1)(2)... 0.30% 0.19%
Ratio of net investment income to average net
assets(1)(2)................................... 0.68% 1.36%
Decrease reflected in above expense ratios due
to waivers and reimbursements(2)............... 0.74% 0.91%
Portfolio turnover rate(3)...................... 111.48% 295.97%
Average commission rate per share(4)............ $0.0636 $0.0603
</TABLE>
- --------
* Commencement of investment operations.
(1) Reflects waivers and reimbursements.
(2) Annualized.
(3) Not annualized.
(4) Represents average commission rate per share charged to the Master Series
on purchases and sales of investments during each period.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Fund
S&P STARS Master Series
NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
S&P STARS Fund (the "Master Fund") was organized as a Delaware business trust on
October 5, 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
Master 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, and for other purposes, and a shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. The
Master Fund currently has one portfolio in operation, S&P STARS Master Series
(the "Master Series"), a non-diversified portfolio.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on April 5,
1995, the Master Fund had no transactions other than those relating to
organizational matters and the sale of 10,418 shares of beneficial interest of
the Master Series to S&P STARS Portfolio (the "Portfolio") of The Bear Stearns
Funds. Costs of approximately $100,000 incurred by the Master Fund in connection
with the organization and its registration with the Commission 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 Master Series. The Master Series commenced
investment operations on April 5, 1995. In the event that the Portfolio or any
transferee of the Portfolio redeems any of its original shares prior to the end
of the sixty month period, the proceeds of the redemption payable in respect of
such shares shall be reduced by the pro rata share (based on the proportionate
share of the original shares redeemed to the total number of original shares
outstanding at the time of the redemption) of the unamortized deferred
organization expenses as of the date of such redemption. In the event that the
Master Series is liquidated prior to the end of the sixty month period, the
Portfolio or the transferee of the Portfolio shall bear the unamortized deferred
organization expenses.
PORTFOLIO VALUATION--Securities, including covered call options written by the
Master Series, 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. Securities which mature in 60 days or less are valued
at amortized cost which approximates market value, unless this method does not
represent fair value. Expenses and fees, including the investment advisory,
administration fees and distribution fees, are accrued daily and taken into
account for the purposes of determining the net asset value of the Master
Series' shares.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Master Series' 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.
OPTIONS WRITING--When the Master Series writes an option, an amount equal to the
premium received by the Master Series is recorded as a liability and is
subsequently adjusted to the current market value of the option written.
Premiums received from writing options which expire unexercised are recorded by
the Master Series on the expiration date as realized gains from option
transactions. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the
17
<PAGE>
underlying securities in determining whether the Master Series has a realized
gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Master Series. The Master Series' use of
written options involves, to varying degrees, elements of market risk in excess
of the amount recognized in the statement of assets and liabilities. The
contract or notional amounts reflect the extent of the Master Series'
involvement in these financial instruments. In writing an option, the Master
Series bears the market risk of an unfavorable change in the price of the
security underlying the written option. Exercise of an option written by the
Master Series could result in the Master Series selling or buying a security at
a price different from the current market value. The Master Series' activities
in written options are conducted through regulated exchanges which do not result
in counterparty credit risks.
Option activity for the six months ended September 30, 1996 was as follows:
<TABLE>
<CAPTION>
PUT OPTIONS
-----------------------
CONTRACTS PREMIUMS
--------- -----------
<S> <C> <C>
Outstanding at beginning of period.................................... -- --
Options purchased..................................................... 70 $ 1,960
Options closed or expired............................................. (70 ) (1,960)
--
-----------
Outstanding at end of period.......................................... -- --
--
-----------
</TABLE>
SHORT SELLING--When the Master Series makes a short sale, an amount equal to the
proceeds received by the Master Series is recorded as a liability and is
subsequently adjusted to the current market value of the short sale. Short sales
represent obligations of the Master Series to make future delivery of specific
securities and, correspondingly, create an obligation to purchase the security
at market prices prevailing at the later delivery date (or to deliver the
security if already owned by the Master Series). Upon the termination of a short
sale, the Master Series will recognize a gain, limited to the price at which the
Master Series sold the security short, if the market price is less than the
proceeds originally received. The Master Series will recognize a loss, unlimited
in magnitude, if the market price at termination is greater than the proceeds
originally received. As a result, short sales create the risk that the Master
Series' ultimate obligation to satisfy the delivery requirements may exceed the
amount of the proceeds initially received or the liability recorded in the
financial statements
U.S. FEDERAL TAX STATUS--The Master Series is treated as a partnership for U.S.
federal tax purposes. No provision is made by the Master Series for U.S. federal
taxes; each investor in the Master Series is ultimately responsible for the
payment of any taxes. Since one of the Master Series' investors is a regulated
investment company that invests all of its assets in the Master Series (S&P
STARS Portfolio or the "Portfolio"), the Master Series normally must satisfy the
applicable source of income and diversification requirements (under the Internal
Revenue Code) in order for the Portfolio to satisfy them. The Master Series
intends to comply with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
During the six months ended September 30, 1996, Bear Stearns Funds Management
Inc. ("BSFM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns
Companies Inc., served as the investment adviser of the Master Series pursuant
to an Investment Advisory Agreement. The Adviser is entitled to receive from the
Master Series a monthly fee equal to an annual rate of 0.75% of the Master
Series' average daily net assets.
Under the terms of an Administrative Services Agreement with the Portfolio, PFPC
International Ltd. provides certain administrative services to the Master
Series. For providing these services, PFPC International Ltd. is entitled to
receive from the Master Series a monthly fee equal to an annual rate of 0.12% of
the Master Series' net assets up to $200 million, 0.09% of the next $200
million, 0.075% of the next $200 million, and 0.05% of net assets above $600
million, subject to a minimum fee of $8,500 for the Master Series, payable
monthly.
During the six months ended September 30, 1996, the Adviser has voluntarily
undertaken to limit the Portfolio's total operating expenses (other than
brokerage commissions, interest, taxes and extraordinary items) to the extent
that total Portfolio operating expenses exceeded 1.50% of the average daily net
assets of the Portfolio's class A shares, 2.00% of the average daily net assets
of the Portfolio's class C shares and 1.00% of the average daily net assets of
the Portfolio's class Y shares. As necessary, this limitation is
18
<PAGE>
effected by waivers by the Adviser of its advisory fees and reimbursements of
expenses exceeding the advisory fee. For the six months ended September 30,
1996, the Adviser waived $281,502 of its advisory fee and reimbursed $34,175 of
the Master Series expenses in order to maintain the voluntary expense
limitation. The Master Series will not pay the Adviser at a later time for any
amounts it may waive, nor will the Master Series reimburse the Adviser for any
amounts it may assume.
For the six months ended September 30, 1996, Bear, Stearns & Co. Inc., an
affiliate of the Adviser, earned $163,976 in brokerage commissions from
portfolio transactions executed on behalf of the Master Series.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc. and an affiliate of the Adviser, serves as custodian to the Master Series.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at September
30, 1996 was $78,625,125. Accordingly, the net unrealized appreciation of
investments of $8,696,688 was composed of gross appreciation of $10,157,692 for
those investments having an excess of value over cost; and gross depreciation of
$1,461,004 for those investments having an excess of cost over value.
For the six months ended September 30, 1996, aggregate purchases and sales of
investment securities (excluding short-term investments) were $94,245,208 and
$91,264,909 respectively.
CREDIT AGREEMENT
The S&P STARS Fund, on behalf of the Master Series, has entered into a credit
agreement with The First National Bank of Boston. Bear Stearns Investment Trust,
which consists of the Emerging Markets Debt Portfolio and The Bear Stearns Funds
consisting of S&P STARS Portfolio, Large Cap Value Portfolio, Small Cap Value
Portfolio, Total Return Bond Portfolio and The Insiders Select Fund 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 shall the aggregate outstanding
principal amount of all loans to any of the portfolios exceed $25,000,000. The
line of credit will bear interest at the greater of: (i) the annual rate of
interest announced from time to time from the bank at its head office as its
Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or, at the
borrower's option, the rate quoted by The First National Bank of Boston.
Each loan is payable on demand or upon termination of this credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced.
The Master Series uses this facility to borrow money only for temporary or
emergency (not leveraging) purposes. The Master Series had $519,879 outstanding
at an interest rate of 7.375% under the line of credit agreement at September
30, 1996.
19
<PAGE>
[Logo]
The
Bear Stearns
Funds
245 PARK AVENUE
NEW YORK, NY 10167
1.800.766.4111
Robert S. Reitzes Chairman of the Board
Neil T. Eigen President
Peter B. Fox Executive Vice President
William J. Montgoris Executive Vice President
Peter M. Bren Trustee
Alan J. Dixon Trustee
John R. McKernan, Jr. Trustee
M.B. Oglesby, Jr. Trustee
Stephen A. Bornstein Vice President
Donalda L. Fordyce Vice President
Frank J. Maresca Vice President and Treasurer
Ellen T. Arthur Secretary
Vincent L. Pereira Assistant Treasurer
Eileen M. Coyle Assistant Secretary
INVESTMENT ADVISER DISTRIBUTOR
AND ADMINISTRATOR Bear, Stearns & Co. Inc.
Bear Stearns Funds 245 Park Avenue
Management Inc. New York, NY 10167
245 Park Avenue
New York, NY 10167
CUSTODIAN TRANSFER AND DIVIDEND
Custodial Trust Company DISBURSEMENT AGENT
101 Carnegie Center PFPC Inc.
Princeton, NJ 08540 Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
COUNSEL INDEPENDENT AUDITORS
Kramer, Levin, Naftalis & Frankel Deloitte & Touche LLP
919 Third Avenue Two World Financial Center
New York, NY 10022 New York, NY 10281
The financial information included herein is taken from the records of each
Portfolio without examination by independent auditors who do not express an
opinion thereon.
This report is submitted for the general information of the shareholders of each
Portfolio. It is not authorized for distribution to prospective investors in
each Portfolio unless it is preceded or accompanied by a current prospectus
which includes details regarding each Portfolio's objectives, policies, sales
commissions and other information. Total investment return is based on
historical results and is not intended to indicate future performance. The
investment return and principal value of an investment in each Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than original cost.
BSF-R-009-03
LARGE CAP
VALUE PORTFOLIO
SMALL CAP
VALUE PORTFOLIO
TOTAL RETURN
BOND PORTFOLIO
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
LETTER TO SHAREHOLDERS
November 12, 1996
Dear Shareholders,
We are pleased to present the semi-annual report to shareholders for the Large
Cap Value Portfolio ("Large Cap"), Small Cap Value Portfolio ("Small Cap") and
Total Return Bond Portfolio ("Bond Portfolio") (collectively, the "Portfolios")
for the six months ended September 30, 1996.
LARGE CAP VALUE PORTFOLIO
Large Cap's total return for the period April 4, 1995 (commencement of
investment operations) through September 30, 1996, was 28.68% and 27.71%
(without giving effect to sales charges and contingent deferred sales charges,
if any) for class A and C shares, respectively. The S&P 500 (Composite) Index
(the "S&P 500") returned 40.95% for the same period. The average annual total
return at September 30, 1996 for Large Cap was 18.36% and 17.76% (without giving
effect to sales charges and contingent deferred sales charges, if any) for class
A and C shares, respectively. The S&P 500 average annual total return was 25.79%
for the same period. For the six months ended September 30, 1996, class A and C
shares returned 1.85% and 1.59% (without giving effect to sales charges and
contingent deferred sales charges, if any), respectively, versus 7.72% for the
S&P 500.
For the period September 11, 1995 (commencement of initial public offering)
through September 30, 1996, class Y shares gained 11.05% compared to 22.72% for
the S&P 500. The average annual total return at September 30, 1996 for class Y
shares was 10.42% compared to 21.36% for the S&P 500. For the six months ended
September 30, 1996, class Y shares gained 2.12% compared to 7.72% for the S&P
500. Further performance data for each class of shares for this reporting period
is available in the "Financial Highlights" section of this report.
The first six months of Large Cap's fiscal year was characterized by a
relatively strong equity market. Value stocks have under-performed growth stocks
over this period and Large Cap has been exceptionally hard hit by earnings
disappointments. Digital Equipment Corp. and Stewart & Stevenson Services, Inc.
were both the victims of poor earnings reports. However, we believe that value
stocks will re-establish themselves in the near future; growth stocks look
somewhat extended and value stocks are relatively inexpensive versus growth
stocks.
Our financial sector holdings continue to do well, led by BankAmerica Corp.,
Bank of New York Co., Inc., Great Western Financial Corp. and Union Planters
Corp. We will continue to overweight the financial sector given its discount to
the market in general. Additionally, we find the sector's less variable and less
leveraged earnings very attractive. In the banking sector in particular, we see
better management of credit and interest rate risk and the best capital level in
thirty years.
From a fundamental point of view, we are comfortable with the equity market. The
economy has slowed from the unsustainable pace of the second quarter. Consumer
spending has eased and capital spending is growing more slowly. We believe
growth should be modest next year as well. This bodes well for inflation and
interest rates.
1
<PAGE>
SMALL CAP VALUE PORTFOLIO
Small Cap's total return for the period April 3, 1995 (commencement of
investment operations) through September 30, 1996, was 49.60% and 48.23%
(without giving effect to sales charges and contingent deferred sales charges,
if any) for class A and C shares, respectively, compared to 35.91% for its
benchmark, the Russell 2000 Index (the "Russell 2000"). The average annual total
return at September 30, 1996 for Small Cap was 30.83% and 30.03% (without giving
effect to sales charges and contingent deferred sales charges, if any) for class
A and C shares, respectively, versus 22.72% for the Russell 2000. For the six
months ended September 30, 1996, class A and C shares returned 11.34% and 10.96%
(without giving effect to sales charges and contingent deferred sales charges),
respectively, compared to 5.50% for the Russell 2000.
For the period June 22, 1995 (commencement of initial public offering) through
September 30, 1996, class Y shares gained 37.70% compared to 24.16% for the
Russell 2000. The average annual total return at September 30, 1996 for class Y
shares was 28.41% compared to 18.43% for the Russell 2000. For the six months
ended September 30, 1996, class Y shares gained 11.48% compared to 5.50% for the
Russell 2000. Further performance data for each class of shares for this
reporting period is available in the "Financial Highlights" section of this
report.
Performance during the first six months of this year was paced by a doubling in
price of one of our specialty retail holdings, American Eagle Outfitters, Inc.
As expected, this company is being viewed more and more as The Gap for
Generation X. Additionally, the sharp appreciation of recent purchases including
S3 Inc., Furniture Brands Intl., Inc., Health Images, Inc., and Foodmaker Inc.
(which we highlighted in the annual report) contributed to the performance of
Small Cap. Our best performing stock for the third quarter was S3 Inc., which
rose by 53%. We began buying the stock in April, when it sold at just over $11
per share following a decline of nearly 50% over the prior six months due to
some product transition concerns. S3 Inc. makes graphics accelerator chips and
is considered one of the best in its industry. With the launch of their new 3D
chip (which is exactly the direction in which video games and PCs are going),
earnings have the ability to truly accelerate over the next 15 months.
Although there was a great deal of volatility in the market during the third
quarter, by the end of the period, there was little change in the performance of
small company stocks. As a result, the solid returns reported last quarter, both
on an absolute and relative basis, have been retained. Larger cap stocks in
general performed somewhat better during the quarter. As a result, small cap
stocks are now even less expensive when compared to their larger brethren.
As we are formulating our outlook for 1997, it would appear that following a
second half slowdown here in the U.S., economic growth on a global basis will
accelerate next year. Coupled with an environment of stable interest rates, 1997
could be a good year for small cap stocks. Generally, small cap stocks perform
best when the economy transitions from slow growth to faster growth.
TOTAL RETURN BOND PORTFOLIO
The Bond Portfolio's total return for the period April 5, 1995 (commencement of
investment operations) through September 30, 1996 was 10.73% and 10.10% (without
giving effect to sales charges and contingent deferred sales charges, if any)
for class A and C shares, respectively. The Salomon Brothers Broad Investment
Grade ("BIG") Bond Index returned 12.84% for the same time period. The average
annual total return at September 30, 1996 for the Bond Portfolio was 7.05% and
6.64% (without giving effect to sales charges and contingent deferred sales
charges, if any) for class A and C shares, respectively, compared to the Salomon
Brothers BIG Bond Index which returned 8.43%. For the six months ended September
30, 1996, class A and C shares gained 2.18% and 1.97% (without giving effect to
sales charges and contingent deferred sales charges, if any), respectively,
versus 2.37% for the Salomon Brothers BIG Bond Index.
For the period September 8, 1995 (commencement of initial public offering)
through September 30, 1996, class Y shares gained 5.18% compared to 5.54% for
the Salomon Brothers BIG Bond Index. The average annual total return at
September 30, 1996 for class Y shares was 4.85% compared to 5.19% for the
Salomon Brothers BIG Bond Index. For the six months ended September 30, 1996,
class Y shares gained 2.37% compared to 2.37% for the Salomon Brothers BIG Bond
Index. Further performance data for each class of shares for this reporting
period is available in the "Financial Highlights" section of this report.
2
<PAGE>
The fixed income markets traded in a range from late April through the end of
the third quarter as economic indicators gave conflicting signs about the
direction and strength of economic growth. Employment and hourly earnings
statistics remained strong, consistent with the increases in both industrial
production and inventories. New home sales swelled in August, however, soft
existing home, retail and auto sales, as well as a large drop in durable goods
orders all point to slower growth ahead. Inflation has continued to come in at
the low end of estimates and should end the year at or below 3%. The widely
expected Federal Reserve (the "Fed") tightening failed to materialize, lending
further credence to the slower growth theory. The bond market responded
favorably to the Fed's inaction by pushing interest rates down across the
maturity spectrum. The yield curve (2 year vs. 30 year) steepened by four basis
points as short and intermediate Treasuries modestly outperformed their
longer-term counterparts.
Mortgage-backed securities were the best performing sector, producing a total
return of 2.75% for the six month period. Corporate bonds also performed
relatively well, returning 2.35% for the period, as spreads versus comparable
Treasuries narrowed.
The economy has slowed from the unsustainable pace of the second quarter.
Consumer spending has eased and capital spending is growing more slowly. We
believe that economic growth should be modest for the remainder of the year and
into next year as well. This bodes well for both inflation and interest rates.
We have positioned the Bond Portfolio to take advantage of a trend toward slower
growth. We have overweighted corporates, which still represent value as spreads
versus Treasuries have the potential to narrow further. As expectations of a
tighter monetary policy begin to wane, we will also emphasize intermediate
maturity Treasuries, which should be good relative performers in this
environment.
In conclusion, we appreciate your support and would be pleased to respond to any
questions or comments. If you have any questions concerning these Portfolios,
please call 1-800-766-4111.
Sincerely,
<TABLE>
<S> <C> <C>
[SIGNATURE] [SIGNATURE] [SIGNATURE]
Robert S. Reitzes Neil T. Eigen Peter E. Mahoney
Chairman of the Board President Portfolio Manager
The Bear Stearns Funds The Bear Stearns Funds Total Return Bond Portfolio
Portfolio Manager
Large Cap Value Portfolio
Small Cap Value Portfolio
</TABLE>
3
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS A SHARES CLASS C SHARES S&P 500 (COMPOSITE) INDEX
<S> <C> <C> <C>
4/4/95 $9,525 $10,000 $10,000
6/30/95 10,192 10,683 10,851
9/30/95 11,295 11,825 11,714
12/31/95 11,915 12,483 12,419
3/31/96 12,034 12,571 13,086
6/30/96 12,042 12,563 13,673
9/30/96 12,257 12,771 14,095
$9,525 Investment made on April 4, 1995
Past performance is not predictive of future performance
<CAPTION>
NATIONAL CONSUMER PRICE INDEX
<S> <C>
4/4/95 $10,000
6/30/95 10,079
9/30/95 10,126
12/31/95 10,178
3/31/96 10,284
6/30/96 10,364
9/30/96 10,430
$9,525 Investment made on April 4, 1995
Past performance is not predictive of future performance
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
INCLUDING FEE WAIVERS AND EXCLUDING FEE WAIVERS AND
EXPENSE REIMBURSEMENTS EXPENSE REIMBURSEMENTS
--------------------------- ---------------------------
<S> <C> <C>
Large Cap Value Portfolio(4)
Class A shares(5)........................ 14.57% 12.67%
Class C shares .......................... 17.76 15.52
Class Y shares(2)........................ 10.42 9.25
S&P 500 (Composite) Index(3)................. 25.79 --
National Consumer Price Index(3)............. 2.85 --
</TABLE>
- ---------
(1) For the period of April 4, 1995 (commencement of investment operations)
through September 30, 1996.
(2) The return of class Y shares (for which September 11, 1995 was the initial
public offering date) would have been higher than class A and C shares if
operations were commenced on the same day. The higher return is due to the
fact that there is no sales load, CDSC or 12b-1 fee charged to class Y
shares.
(3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
(class A shares reflects the initial maximum 4.75% sales load) and reflects
all Portfolio expenses. Investors should note that the Portfolio is a
professionally managed mutual fund while the indices are either unmanaged
and do not incur sales charges or expenses and/or are not available for
investment. Performance of the indices corresponds to the performance of
class A and C shares.
(4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses to
maintain the expense limitation, as set forth in the notes to the financial
statements.
(5) Reflects the initial maximum 4.75% sales load. Without applicable sales
load, the total returns would have been 18.36% including fee waivers and
expense reimbursements and 16.40% excluding fee waivers and expense
reimbursements.
CDSC -- Contingent Deferred Sales Charge.
4
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS A SHARES CLASS C SHARES RUSSELL 2000 INDEX
<S> <C> <C> <C>
4/3/95 $9,525 $10,000 $10,000
6/30/95 10,343 10,842 10,875
9/30/95 12,057 12,625 11,901
12/31/95 12,128 12,674 12,115
3/31/96 12,797 13,359 12,682
6/30/96 14,241 14,848 13,316
9/30/96 14,249 14,823 13,591
$9,525 Investment made on April 3, 1995
Past performance is not predictive of future performance
<CAPTION>
NATIONAL CONSUMER PRICE INDEX
<S> <C>
4/3/95 $10,000
6/30/95 10,079
9/30/95 10,126
12/31/95 10,178
3/31/96 10,284
6/30/96 10,364
9/30/96 10,430
$9,525 Investment made on April 3, 1995
Past performance is not predictive of future performance
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
INCLUDING FEE WAIVERS AND EXCLUDING FEE WAIVERS AND
EXPENSE REIMBURSEMENTS EXPENSE REIMBURSEMENTS
--------------------------- ---------------------------
<S> <C> <C>
Small Cap Value Portfolio(4)
Class A shares(5)........................ 26.65% 24.97%
Class C shares .......................... 30.03 28.93
Class Y shares(2)........................ 28.41 27.64
Russell 2000 Index(3)........................ 22.72 --
National Consumer Price Index(3)............. 2.85 --
</TABLE>
- ---------
(1) For the period of April 3, 1995 (commencement of investment operations)
through September 30, 1996.
(2) The return of class Y shares (for which June 22, 1995 was the initial public
offering date) would have been higher than class A and C shares if
operations were commenced on the same day. The higher return is due to the
fact that there is no sales load, CDSC or 12b-1 fee charged to class Y
shares.
(3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
(class A shares reflects the initial maximum 4.75% sales load) and reflects
all Portfolio expenses. Investors should note that the Portfolio is a
professionally managed mutual fund while the indices are either unmanaged
and do not incur sales charges or expenses and/or are not available for
investment. Performance of the indices corresponds to the performance of
class A and C shares.
(4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses to
maintain the expense limitation, as set forth in the notes to the financial
statements.
(5) Reflects the initial maximum 4.75% sales load. Without applicable sales
load, the total returns would have been 30.83% including fee waivers and
expense reimbursements and 29.11% excluding fee waivers and expense
reimbursements.
CDSC -- Contingent Deferred Sales Charge.
5
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(3)(4) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SALOMON BROTHERS BROAD
CLASS A SHARES CLASS C SHARES INVESTMENT GRADE BOND INDEX
<S> <C> <C> <C>
4/5/95 $9,625 $10,000 $10,000
6/30/95 10,027 10,412 10,553
9/30/95 10,206 10,587 10,753
12/31/95 10,679 11,064 11,219
3/31/96 10,430 10,797 11,023
6/30/96 10,467 10,824 11,077
9/30/96 10,658 11,010 11,284
$9,625 Investment made on April 5, 1995
Past performance is not predictive of future performance
<CAPTION>
NATIONAL CONSUMER
PRICE INDEX
<S> <C>
4/5/95 $10,000
6/30/95 10,079
9/30/95 10,126
12/31/95 10,178
3/31/96 10,284
6/30/96 10,364
9/30/96 10,430
$9,625 Investment made on April 5, 1995
Past performance is not predictive of future performance
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
INCLUDING FEE WAIVERS AND EXCLUDING FEE WAIVERS AND
EXPENSE REIMBURSEMENTS EXPENSE REIMBURSEMENTS
--------------------------- ---------------------------
<S> <C> <C>
Total Return Bond Portfolio(4)
Class A shares(5)........................ 4.35% 1.86%
Class C shares .......................... 6.64 3.99
Class Y shares(2)........................ 4.85 2.60
Salomon Brothers Broad Investment Grade Bond
Index(3).................................... 8.43 --
National Consumer Price Index(3)............. 2.86 --
</TABLE>
- ---------
(1) For the period of April 5, 1995 (commencement of investment operations)
through September 30, 1996.
(2) The return of class Y shares (for which September 8, 1995 was the initial
public offering date) would have been higher than class A and C shares if
operations were commenced on the same day. The higher return is due to the
fact that there is no sales load, CDSC or 12b-1 fee charged to class Y
shares.
(3) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
(class A shares reflects the initial maximum 3.75% sales load) and reflects
all Portfolio expenses. Investors should note that the Portfolio is a
professionally managed mutual fund while the indices are either unmanaged
and do not incur sales charges or expenses and/or are not available for
investment. Performance of the indices corresponds to the performance of
class A and C shares.
(4) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses to
maintain the expense limitation, as set forth in the notes to the financial
statements.
(5) Reflects the initial maximum 3.75% sales load. Without applicable sales
load, the average annual total returns would have been 7.05% including fee
waivers and expense reimbursements and 4.54% excluding fee waivers and
expense reimbursements.
CDSC -- Contingent Deferred Sales Charge.
6
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Credit & Finance 13.95%
Electrical Equipment 13.88%
Chemicals & Fertilizers 3.28%
Computers & Office Equipment 9.14%
Retailing 3.38%
Banks 6.16%
Insurance 6.05%
Services 3.28%
Automobiles 5.34%
Furnishings & Appliances 3.38%
Drugs & Hospital Supplies 13.72%
Aerospace 3.15%
Forest Products & Paper 3.08%
Other 12.21%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ----- -------------------------------------------------- --------------------------- ----------
<C> <S> <C> <C>
1. Baxter International, Inc. ....................... Drugs & Hospital Supplies 3.95
2. Stewart & Stevenson Services, Inc................. Electrical Equipment 3.78
3. ADT Ltd........................................... Electrical Equipment 3.76
4. Union Planters Corp. ............................. Credit & Finance 3.73
5. BankAmerica Corp. ................................ Banks 3.59
6. Federal National Mortgage Association............. Credit & Finance 3.52
7. Great Western Financial Corp. .................... Credit & Finance 3.48
8. Bristol-Myers Squibb Co. ......................... Drugs & Hospital Supplies 3.41
9. Armstrong World Industries, Inc. ................. Furnishings & Appliances 3.38
10. May Department Stores Co. ........................ Retailing 3.38
</TABLE>
7
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Textiles & Shoes 12.49%
Coal 3.06%
Credit & Finance 3.91%
Miscellaneous Industrials 8.31%
Electrical Equipment 4.75%
Non-Ferrous Metals 2.91%
Banks 7.66%
Publishing & Broadcasting 4.17%
Building & Housing 7.40%
Drugs & Hospital Supplies 2.80%
Telecommunications 3.10%
Electronics 6.73%
Services 4.57%
Other 9.09%
Tobacco 3.07%
Lodging & Catering 4.84%
Computers & Office Equipment 6.61%
Retailing 4.53%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ----- -------------------------------------------------- --------------------------- ----------
<C> <S> <C> <C>
1. California Financial Holding Co. ................. Banks 5.28
2. Cephalon Inc. .................................... Services 4.57
3. S3 Inc. .......................................... Computers & Office
Equipment 4.38
4. Cadmus Communications Corp. ...................... Publishing & Broadcasting 4.17
5. Foodmaker Inc. ................................... Lodging & Catering 3.96
6. Windmere Corp. ................................... Electrical Equipment 3.79
7. Furniture Brands Intl., Inc. ..................... Textiles & Shoes 3.60
8. Donnkenny Inc. ................................... Textiles & Shoes 3.37
9. Ann Taylor, Inc. ................................. Textiles & Shoes 3.32
10. Davel Communications Group, Inc. ................. Telecommunications 3.10
</TABLE>
8
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TREASURY / GOVERNMENT SECURITIES CORPORATE ASSET-BACKED
<S> <C> <C> <C>
Total Return Bond Portfolio 19.86% 41.78% 4.40%
Salomon Brothers Broad Investment Grade Bond Index 52.00% 17.00% 2.00%
<CAPTION>
MORTGAGE-BACKED SECURITIES CASH & CASH EQUIVALENTS
<S> <C> <C>
Total Return Bond Portfolio 26.05% 7.91%
Salomon Brothers Broad Investment Grade Bond Index 29.00% 0.00%
</TABLE>
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN SALOMON BROTHERS BROAD
BOND INVESTMENT GRADE BOND
PORTFOLIO INDEX
------------- -------------------------
8.36 years 8.46 years
Average Maturity....................................
<S> <C> <C>
5.09 years 4.79 years
Average Duration....................................
6.87% 7.23%
Average Coupon......................................
7.00% 6.98%
Yield to Maturity...................................
- ----------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--99.33%
AEROSPACE - 3.15%
6,000 United Technologies Corp. ......... $ 720,750
-----------
AUTOMOBILES - 5.34%
20,000 Ford Motor Co. .................... 625,000
12,400 General Motors Corp. .............. 595,200
-----------
1,220,200
-----------
BANKS - 6.16%
10,000 BankAmerica Corp. ................. 821,250
20,000 Bank of New York Co., Inc. ........ 587,500
-----------
1,408,750
-----------
BUILDING & HOUSING - 2.74%
17,000 Owens-Corning Fiberglas Corp. ..... 626,875
-----------
CHEMICALS & FERTILIZERS - 3.28%
10,000 Grace (W.R.) & Co. ................ 750,000
-----------
COMPUTERS & OFFICE EQUIPMENT -
9.14%
16,000 Digital Equipment Corp.*........... 572,000
19,000 Tandy Corp. ....................... 767,125
14,000 Xerox Corp. ....................... 750,750
-----------
2,089,875
-----------
CREDIT & FINANCE - 13.95%
23,100 Federal National Mortgage
Association........................ 805,613
30,000 Great Western Financial Corp. ..... 795,000
15,000 Travelers Group, Inc. ............. 736,875
24,000 Union Planters Corp. .............. 852,000
-----------
3,189,488
-----------
DRUGS & HOSPITAL SUPPLIES - 13.72%
19,300 Baxter International, Inc. ........ 902,275
8,100 Bristol-Myers Squibb Co. .......... 780,637
36,000 Chiron Corp.*...................... 684,000
12,000 Medtronic, Inc. ................... 769,500
-----------
3,136,412
-----------
<CAPTION>
- -----------------------------------------------------------
MARKET
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT - 13.88%
45,000 ADT Ltd.*.......................... $ 860,625
8,000 General Electric Co. .............. 728,000
9,600 Raychem Corp. ..................... 720,000
40,000 Stewart & Stevenson Services,
Inc. .............................. 865,000
-----------
3,173,625
-----------
ELECTRONICS -1.70%
7,500 Motorola, Inc. .................... 387,188
-----------
FOOD & BEVERAGES - 2.93%
7,450 Philip Morris Cos. Inc. ........... 668,637
-----------
FOREST PRODUCTS & PAPER - 3.08%
8,000 Kimberly - Clark Corp. ............ 705,000
-----------
FURNISHINGS & APPLIANCES - 3.38%
12,400 Armstrong World Industries,
Inc. .............................. 773,450
-----------
INSURANCE - 6.05%
25,000 Equitable Cos., Inc. .............. 643,750
40,000 USF&G Corp. ....................... 740,000
-----------
1,383,750
-----------
MISCELLANEOUS INDUSTRIALS - 1.32%
22,000 Dial Corp. ........................ 302,500
-----------
RAILROADS - 2.85%
9,000 Conrail Inc. ...................... 651,375
-----------
RETAILING - 3.38%
15,900 May Department Stores Co. ......... 773,138
-----------
SERVICES - 3.28%
37,000 Humana Inc.*....................... 749,250
-----------
Total Common Stocks
(cost - $21,680,471)............... 22,710,263
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MARKET
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT--8.28%
INVESTMENT COMPANY - 8.28%
1,892,912 The Milestone Funds Treasury
Obligations
Portfolio, Institutional Shares**
(cost - $1,892,912)................ $ 1,892,912
-----------
Total Investments
(cost - $23,573,383) - 107.61%..... 24,603,175
Liabilities in excess of other
assets - (7.61)%................... (1,739,595)
-----------
Net Assets - 100.00%............... $22,863,580
-----------
-----------
</TABLE>
- ---------
* Non-income producing security.
** Money market fund.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--99.98%
BANKS - 7.66%
10,000 Bank United Corp., Class A.......... $ 248,750
20,100 Bay View Capital Corp. ............. 716,063
92,250 California Financial Holding Co. ... 2,144,813
-----------
3,109,626
-----------
BUILDING & HOUSING - 7.40%
132,625 Fedders Corp., Class A.............. 679,703
48,500 Giant Cement Holding, Inc.*......... 721,438
56,800 M/I Schottenstein Homes, Inc.*...... 497,000
56,000 Triangle Pacific Corp.*............. 1,106,000
-----------
3,004,141
-----------
CHEMICALS & FERTILIZERS - 1.91%
85,000 Applied Extrusion Technologies,
Inc.*............................... 775,625
-----------
COAL - 3.06%
72,000 Zeigler Coal Holding Co. ........... 1,242,000
-----------
COMPUTERS & OFFICE EQUIPMENT - 6.61%
25,600 Dialogic Corp.*..................... 908,800
90,000 S3 Inc.*............................ 1,777,500
-----------
2,686,300
-----------
COSMETICS & SOAPS - 1.98%
60,550 Guest Supply, Inc.*................. 802,288
-----------
CREDIT & FINANCE - 3.91%
30,000 RenaissanceRe Holdings Ltd. ........ 840,000
23,900 Security-Connecticut Corp. ......... 749,862
-----------
1,589,862
-----------
DRUGS & HOSPITAL SUPPLIES - 2.80%
85,000 Health Images, Inc. ................ 1,136,875
-----------
ELECTRICAL EQUIPMENT - 4.75%
62,500 Aerovax Inc.*....................... 390,625
112,000 Windmere Corp. ..................... 1,540,000
-----------
1,930,625
-----------
<CAPTION>
- ------------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------
<C> <S> <C>
ELECTRONICS - 6.73%
57,300 Cubic Corp. Designs................. $ 1,117,350
40,000 Elsag Bailey Process Automation
N.V. ............................... 855,000
77,000 Griffon Corp.*...................... 760,375
-----------
2,732,725
-----------
ENTERTAINMENT & LEISURE - 1.75%
32,000 Avondale Industries, Inc.*.......... 596,000
48,000 Graff Pay-Per-View Inc.*............ 114,000
-----------
710,000
-----------
GROCERY PRODUCTS - 1.60%
53,200 FoodBrands America, Inc.*........... 651,700
-----------
LODGING & CATERING - 4.84%
161,000 Foodmaker Inc.*..................... 1,610,000
36,200 John Q. Hammons Hotels, Inc.*....... 357,475
-----------
1,967,475
-----------
MACHINERY - 1.83%
83,900 Lamson & Sessions Co.*.............. 744,612
-----------
MISCELLANEOUS INDUSTRIALS - 8.31%
36,000 Furon Co. .......................... 1,212,500
58,400 Greyhound Lines Inc.*............... 197,100
43,900 Ornda Healthcorp*................... 1,201,763
45,000 VWR Scientific Products*............ 765,000
-----------
3,376,363
-----------
NON-FERROUS METALS - 2.91%
29,100 Mueller Industries, Inc.*........... 1,182,187
-----------
PUBLISHING & BROADCASTING - 4.17%
101,100 Cadmus Communications Corp. ........ 1,693,425
-----------
RETAILING - 4.53%
45,000 American Eagle Outfitters, Inc.*.... 956,250
60,000 Michaels Stores, Inc.*.............. 881,250
-----------
1,837,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SERVICES - 4.57%
77,000 Cephalon Inc.*...................... $ 1,857,625
-----------
TELECOMMUNICATIONS - 3.10%
72,500 Davel Communications Group, Inc.*... 1,259,687
-----------
TEXTILES & SHOES - 12.49%
80,000 Ann Taylor, Inc.*................... 1,350,000
46,000 Cone Mills Corp.*................... 362,250
80,000 Donnkenny Inc.*..................... 1,370,000
37,000 Fieldcrest Cannon, Inc.*............ 527,250
100,000 Furniture Brands Intl., Inc.*....... 1,462,500
-----------
5,072,000
-----------
TOBACCO - 3.07%
65,100 Dimon Inc. ......................... 1,245,037
-----------
Total Common Stocks
(cost - $35,300,293)................ 40,607,678
-----------
<CAPTION>
- ------------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT--1.18%
INVESTMENT COMPANY - 1.18%
480,934 The Milestone Funds Treasury
Obligations Portfolio, Institutional
Shares**
(cost - $480,934)................... $ 480,934
-----------
Total Investments
(cost - $35,781,227) - 101.16%...... 41,088,612
Liabilities in excess of other
assets - (1.16)%.................... (473,622)
-----------
Net Assets - 100.00%................ $40,614,990
-----------
-----------
</TABLE>
- ---------
* Non-income producing security.
** Money market fund.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET
DESCRIPTION (000'S) VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS--92.09%
CORPORATE OBLIGATIONS - 46.18%
ASSET-BACKED - 4.40%
Access Financial Mortgage Loan Trust, Sequential Paper, Series 1996-2, Class A5, 7.925%,
06/18/27....................................................................................... $ 200 $ 203,458
Ford Credit 1995-B Grantor Trust, Asset-Backed Certificates, Class A, 5.90%, 10/15/00........... 602 599,907
Standard Credit Card Trust 1990-6, Credit Card Participation Certificates, Class A, 9.375%,
07/10/97....................................................................................... 190 195,531
-----------
998,896
-----------
FINANCE - 17.93%
Associates Corp. N.A., Senior Notes, 7.50%, 05/15/99............................................ 150 153,562
Caterpillar Financial Services Corp., Series E, MTN, 6.56%, 11/03/97............................ 150 150,592
CIT Group Holdings, Inc., Senior Notes, MTN, 6.75%, 05/14/01.................................... 250 249,062
Ford Motor Credit, Global Bond, 7.00%, 09/25/01................................................. 500 501,875
General Motors Acceptance Corp., MTN, 6.125%, 09/08/97.......................................... 675 674,507
International Bank for Reconstruction and Development, 7.625%, 02/13/97......................... 100 100,625
Lehman Brothers Inc., Senior Subordinated Notes, 7.125%, 07/15/02............................... 400 397,000
Mepc Finance Inc., Mepc P.L.C. Guaranteed, 7.50%, 05/01/03...................................... 500 503,750
Salomon Inc, Senior Notes, 6.75%, 02/15/03...................................................... 750 721,875
Secured Finance, Inc., Debentures, FSA Insured, 9.05%,12/15/04.................................. 550 617,375
-----------
4,070,223
-----------
GOVERNMENT - REGIONAL - 2.43%
Province of Quebec, Yankee Debentures, 7.50%, 07/15/23.......................................... 575 552,000
-----------
INDUSTRIAL - 21.42%
Anadarko Petroleum, 7.73%, 09/15/45............................................................. 500 503,750
Chevron Trust Fund, Debentures, Chevron Corp. Guaranteed, 8.11%, 12/01/04....................... 750 792,188
Commonwealth Edison Co., 6.375%, 07/15/00....................................................... 500 490,625
Philip Morris Cos. Inc., Notes, 7.25%, 09/15/01................................................. 650 654,063
Phillips Petroleum Co., Notes, 8.49%, 01/01/23.................................................. 600 607,500
Sears, Roebuck & Co., MTN, 9.05%, 02/06/12...................................................... 450 507,375
Six Flags Entertainment Inc., Senior Notes, Time Warner Entertainment Inc. Guaranteed, Zero
Coupon, 12/15/99............................................................................... 250 200,313
Time Warner Entertainment Inc., Debentures, 8.375%, 03/15/23.................................... 500 492,500
U.S. West Communications, Debentures, 6.875%, 09/15/33.......................................... 700 614,250
-----------
4,862,564
-----------
Total Corporate Obligations (cost - $10,480,366)................................................ 10,483,683
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 26.05%
Federal Home Loan Mortgage Corporation
6.00%, 10/01/00............................................................................... 250 244,943
6.00%, 05/01/11............................................................................... 1,482 1,407,475
8.00%, 04/01/10............................................................................... 300 307,019
8.00%, 06/01/11............................................................................... 344 351,925
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET
DESCRIPTION (000'S) VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal National Mortgage Association
5.80%, 12/10/03............................................................................... $ 250 $ 236,485
6.50%, 03/01/26............................................................................... 1,103 1,037,015
6.50%, 04/01/26............................................................................... 19 18,240
7.00%, 01/01/26............................................................................... 250 241,196
Government National Mortgage Association
7.00%, 08/15/10............................................................................... 234 232,471
7.00%, 08/15/25............................................................................... 271 260,855
7.00%, 02/15/26............................................................................... 143 137,711
7.00%, 03/15/26............................................................................... 1,493 1,437,630
-----------
Total U.S. Government Agency Obligations (cost - $5,920,343).................................... 5,912,965
-----------
U.S. GOVERNMENT OBLIGATIONS - 19.86%
U.S. Treasury Bonds
7.625%, 02/15/25.............................................................................. 700 751,716
U.S. Treasury Notes
5.75%, 10/31/00............................................................................... 625 610,125
5.875%, 08/15/98.............................................................................. 1,150 1,145,389
5.875%, 02/15/04.............................................................................. 350 334,750
6.625%, 07/31/01.............................................................................. 300 301,866
7.125%, 09/30/99.............................................................................. 825 843,769
7.75%, 11/30/99............................................................................... 500 520,295
-----------
Total U.S. Government Obligations (cost - $4,559,067)........................................... 4,507,910
-----------
Total Long-Term Investments (cost - $20,959,776)................................................ 20,904,558
-----------
SHORT-TERM INVESTMENTS--10.03%
U.S. GOVERNMENT AGENCY DISCOUNT NOTE - 4.40%
Federal Home Loan Mortgage Corporation, Discount Note, 5.19%, 10/03/96 (cost - $999,712)........ 1,000 999,712
-----------
<CAPTION>
SHARES
---------
<S> <C> <C>
INVESTMENT COMPANY - 5.63%
The Milestone Funds Treasury Obligations Portfolio, Institutional Shares* (cost - $1,278,109)... 1,278,109 1,278,109
-----------
Total Short-Term Investments (cost - $2,277,821)................................................ 2,277,821
-----------
Total Investments (cost - $23,237,597) - 102.12%................................................ 23,182,379
Liabilities in excess of other assets - (2.12)%................................................. (482,485)
-----------
Net Assets - 100.00%............................................................................ $22,699,894
-----------
-----------
</TABLE>
- ---------
FSA Financial Security Assurance.
MTN Medium Term Notes.
* Money market fund.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP TOTAL RETURN
VALUE VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Investments, at value (cost-$23,573,383,
$35,781,227 and
$23,237,597, respectively)..................... $ 24,603,175 $ 41,088,612 $23,182,379
Dividends and interest receivable............... 37,503 6,255 248,726
Receivable for Portfolio shares sold............ 42,498 98,257 116,119
Receivable from investment adviser.............. 24,758 13,225 45,011
Deferred organization expenses and other
assets......................................... 104,971 123,814 93,933
-------------- -------------- ------------
Total assets.............................. 24,812,905 41,330,163 23,686,168
-------------- -------------- ------------
LIABILITIES
Payable for Portfolio shares repurchased........ 1,831,356 561,007 818,270
Administration fee payable...................... 14,751 43,283 34,528
Dividends payable............................... -- -- 26,951
Distribution fee payable (class A and C
shares)........................................ 15,993 41,895 7,240
Organization expenses payable................... 8,520 -- 7,095
Custodian fee payable........................... 3,534 4,539 5,055
Accrued expenses................................ 75,171 64,449 87,135
-------------- -------------- ------------
Total liabilities......................... 1,949,325 715,173 986,274
-------------- -------------- ------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 1,484 2,305 1,869
Paid-in capital................................. 21,157,963 34,637,597 22,961,037
Undistributed net investment income/(loss)...... 87,129 (139,788) --
Accumulated net realized gain/(loss) from
investments.................................... 587,212 807,491 (207,794)
Net unrealized appreciation/(depreciation) on
investments.................................... 1,029,792 5,307,385 (55,218)
-------------- -------------- ------------
Net assets................................ $ 22,863,580 $ 40,614,990 $22,699,894
-------------- -------------- ------------
-------------- -------------- ------------
CLASS A
Net assets...................................... $ 5,696,018 $ 11,409,044 $ 4,322,833
-------------- -------------- ------------
Shares of beneficial interest outstanding....... 369,622 645,831 355,879
-------------- -------------- ------------
Net asset value per share....................... $15.41 $17.67 $12.15
-------------- -------------- ------------
-------------- -------------- ------------
Maximum offering price per share (net asset
value plus sales charge of 4.75%*, 4.75%* and
3.75%*, respectively, of the offering price)... $16.18 $18.55 $12.62
-------------- -------------- ------------
-------------- -------------- ------------
CLASS C
Net assets...................................... $ 4,095,640 $ 12,494,605 $ 1,828,085
-------------- -------------- ------------
267,349 712,959 150,497
Shares of beneficial interest outstanding.......
-------------- -------------- ------------
Net asset value and offering price per
share**........................................ $15.32 $17.52 $12.15
-------------- -------------- ------------
-------------- -------------- ------------
CLASS Y
Net assets...................................... $ 13,071,922 $ 16,711,341 $16,548,976
-------------- -------------- ------------
Shares of beneficial interest outstanding....... 846,751 945,777 1,362,390
-------------- -------------- ------------
Net asset value, offering and redemption price
per share...................................... $15.44 $17.67 $12.15
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
- ---------
* On investments of $50,000 or more, the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP TOTAL RETURN
VALUE PORTFOLIO VALUE PORTFOLIO BOND PORTFOLIO
---------------- ---------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................................... $ 217,682 $ 102,323 --
Interest............................................................ 2,722 5,128 $ 761,510
---------------- ---------------- ----------------
220,404 107,451 761,510
---------------- ---------------- ----------------
EXPENSES
Advisory fees....................................................... 80,363 127,493 51,715
Accounting fees..................................................... 52,898 61,319 51,186
Transfer agent fees and expenses.................................... 52,717 56,133 54,243
Distribution fees - class A......................................... 12,006 24,477 7,661
Distribution fees - class C......................................... 18,290 50,797 6,736
Administration fees................................................. 16,072 25,498 17,238
Legal and auditing fees............................................. 16,754 20,537 19,287
Reports and notices to shareholders................................. 13,035 13,035 13,035
Amortization of organization expenses............................... 9,957 10,832 7,673
Federal and state registration fees................................. 10,863 11,141 5,867
Insurance expenses.................................................. 7,589 7,589 7,589
Custodian fees and expenses......................................... 4,914 6,718 7,023
Trustees' fees and expenses......................................... 3,510 3,510 8,010
Other............................................................... 3,518 4,350 478
---------------- ---------------- ----------------
Total expenses before waivers and reimbursements.............. 302,486 423,429 257,741
Less: waivers and reimbursements.............................. (164,071) (176,190) (191,096)
---------------- ---------------- ----------------
Total expenses after waivers and reimbursements............... 138,415 247,239 66,645
---------------- ---------------- ----------------
Net investment income/(loss)........................................ 81,989 (139,788) 694,865
---------------- ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) from investments........................... 495,177 603,706 (258,599)
Net change in unrealized appreciation/(depreciation) on
investments........................................................ (109,561) 2,620,992 97,174
---------------- ---------------- ----------------
Net realized and unrealized gain/(loss) on investments.............. 385,616 3,224,698 (161,425)
---------------- ---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 467,605 $3,084,910 $ 533,440
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Large Cap Value Portfolio
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED APRIL 3, 1995*
SEPTEMBER 30, 1996 THROUGH MARCH
(UNAUDITED) 31, 1996
-------------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income..................................... $ 81,989 $ 20,211
Net realized gain from investments........................ 495,177 95,147
Net change in unrealized appreciation on investments...... (109,561) 1,139,353
-------------------- ----------------
Net increase in net assets resulting from operations...... 467,605 1,254,711
-------------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... -- (4,557)
Class C shares.......................................... -- --
Class Y shares.......................................... -- (10,514)
-------------------- ----------------
-- (15,071)
-------------------- ----------------
Net realized capital gains
Class A shares.......................................... -- (1,184)
Class C shares.......................................... -- (1,037)
Class Y shares.......................................... -- (891)
-------------------- ----------------
-- (3,112)
-------------------- ----------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares...................... 17,358,508 10,493,529
Cost of shares repurchased................................ (5,511,706) (1,214,980)
Shares issued in reinvestment of dividends................ -- 9,088
-------------------- ----------------
Net increase in net assets derived from shares of
beneficial interest transactions......................... 11,846,802 9,287,637
-------------------- ----------------
Total increase in net assets.............................. 12,314,407 10,524,165
NET ASSETS
Beginning of period....................................... 10,549,173 25,008
-------------------- ----------------
End of period (including undistributed net investment
income of
$87,129 and $5,140, respectively)........................ $22,863,580 $ 10,549,173
-------------------- ----------------
-------------------- ----------------
</TABLE>
- --------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Small Cap Value Portfolio
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED APRIL 3, 1995*
SEPTEMBER 30, 1996 THROUGH MARCH
(UNAUDITED) 31, 1996
-------------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment loss....................................... $ (139,788) $ (69,561)
Net realized gain from investments........................ 603,706 544,848
Net change in unrealized appreciation on investments...... 2,620,992 2,686,393
-------------------- ----------------
Net increase in net assets resulting from operations...... 3,084,910 3,161,680
-------------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized capital gains
Class A shares.......................................... -- (64,256)
Class C shares.......................................... -- (72,361)
Class Y shares.......................................... -- (134,885)
-------------------- ----------------
-- (271,502)
-------------------- ----------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares...................... 19,268,421 23,204,316
Cost of shares repurchased................................ (3,954,586) (4,151,186)
Shares issued in reinvestment of dividends................ -- 247,929
-------------------- ----------------
Net increase in net assets derived from shares of
beneficial interest transactions......................... 15,313,835 19,301,059
-------------------- ----------------
Total increase in net assets.............................. 18,398,745 22,191,237
NET ASSETS
Beginning of period....................................... 22,216,245 25,008
-------------------- ----------------
End of period............................................. $40,614,990 $ 22,216,245
-------------------- ----------------
-------------------- ----------------
</TABLE>
- --------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Total Return Bond Portfolio
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED APRIL 3, 1995*
SEPTEMBER 30, 1996 THROUGH MARCH
(UNAUDITED) 31, 1996
-------------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income..................................... $ 694,865 $ 670,434
Net realized gain/(loss) from investments................. (258,599) 105,601
Net change in unrealized depreciation on investments...... 97,174 (152,392)
-------------------- ----------------
Net increase in net assets resulting from operations...... 533,440 623,643
-------------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... (126,994) (232,740)
Class C shares.......................................... (48,460) (84,059)
Class Y shares.......................................... (519,411) (353,635)
-------------------- ----------------
(694,865) (670,434)
-------------------- ----------------
Net realized capital gains
Class A shares.......................................... -- (13,644)
Class C shares.......................................... -- (5,746)
Class Y shares.......................................... -- (35,406)
-------------------- ----------------
-- (54,796)
-------------------- ----------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares...................... 7,680,122 19,389,794
Cost of shares repurchased................................ (3,810,806) (1,253,726)
Shares issued in reinvestment of dividends................ 551,287 381,251
-------------------- ----------------
Net increase in net assets derived from shares of
beneficial interest transactions......................... 4,420,603 18,517,319
-------------------- ----------------
Total increase in net assets.............................. 4,259,178 18,415,732
NET ASSETS
Beginning of period....................................... 18,440,716 24,984
-------------------- ----------------
End of period............................................. $22,699,894 $ 18,440,716
-------------------- ----------------
-------------------- ----------------
</TABLE>
- --------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
Large Cap Value Portfolio
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED SEPTEMBER 30, 1996 APRIL 3, 1995* THROUGH
(UNAUDITED) MARCH 31, 1996
------------------------- -------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of period........................... $ 15.13 $ 15.08 $ 15.12 $ 12.00 $ 12.00 $ 13.98
------- ------- ------- ------- ------- -------
Net investment income/(loss)(1)................................ 0.02 -- 0.09 0.06 (0.01) 0.07
Net realized and unrealized gain on investments(2)............. 0.26 0.24 0.23 3.10 3.10 1.16
------- ------- ------- ------- ------- -------
Net increase in net assets resulting from operations........... 0.28 0.24 0.32 3.16 3.09 1.23
------- ------- ------- ------- ------- -------
Dividends and distributions to shareholders from
Net investment income.......................................... -- -- -- (0.02) -- (0.08)
Net realized capital gains..................................... -- -- -- (0.01) (0.01) (0.01)
------- ------- ------- ------- ------- -------
-- -- -- (0.03) (0.01) (0.09)
------- ------- ------- ------- ------- -------
Net asset value, end of period................................. $ 15.41 $ 15.32 $ 15.44 $ 15.13 $ 15.08 $ 15.12
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(3)..................................... 1.85% 1.59% 2.12% 26.35% 25.71% 8.75%(4)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................... $ 5,696 $ 4,096 $13,072 $ 3,616 $ 3,520 $ 3,413
Ratio of expenses to average net assets(1)(5).................. 1.50% 2.00% 1.00% 1.50% 2.00% 1.00%
Ratio of net investment income/(loss) to average net
assets(1)(5).................................................. 0.49% -- 1.09% 0.46% (0.06)% 0.76%(4)
Decrease reflected in above expense ratios and net investment
income/(loss) due to waivers and reimbursements(5)............ 1.77% 1.81% 1.67% 4.34% 4.39% 4.41%(4)
Portfolio turnover rate(6)..................................... 34.01% 34.01% 34.01% 45.28% 45.28% 45.28%
Average commission rate per share(7)........................... $0.0596 $0.0596 $0.0596 $0.0596 $0.0596 $0.0596
</TABLE>
- ---------
* Commencement of operations. Commenced investment operations on April 4,
1995. Class Y shares commenced its initial public offering on September 11,
1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective
periods are not in accord with the changes in the aggregate gains and
losses in investments during the respective periods because of the timing
of sales and repurchases of Portfolio shares in relation to fluctuating
net asset values during the respective periods.
(3) Total investment return does not consider the effects of sales loads or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends
and distributions, if any. Total investment returns are not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(6) Not annualized.
(7) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments during each period.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
Small Cap Value Portfolio
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED SEPTEMBER 30, 1996 APRIL 3, 1995* THROUGH
(UNAUDITED) MARCH 31, 1996
--------------------------------- -----------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of period............ $ 15.87 $ 15.79 $ 15.85 $ 12.00 $ 12.00 $ 13.09
--------- --------- --------- --------- --------- -----------
Net investment loss(1).......................... (0.07) (0.10) (0.03) (0.07) (0.10) --
Net realized and unrealized gain on
investments(2)................................. 1.87 1.83 1.85 4.17 4.11 3.05
--------- --------- --------- --------- --------- -----------
Net increase in net assets resulting from
operations..................................... 1.80 1.73 1.82 4.10 4.01 3.05
--------- --------- --------- --------- --------- -----------
Distributions to shareholders from
Net realized capital gains...................... -- -- -- (0.23) (0.22) (0.29)
--------- --------- --------- --------- --------- -----------
Net asset value, end of period.................. $ 17.67 $ 17.52 $ 17.67 $ 15.87 $ 15.79 $ 15.85
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Total investment return(3)...................... 11.34% 10.96% 11.48% 34.36% 33.59% 23.52%(4)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)....... $ 11,409 $ 12,495 $ 16,711 $ 6,474 $ 6,753 $ 8,989
Ratio of expenses to average net assets(1)(5)... 1.50% 2.00% 1.00% 1.50% 2.00% 1.00%
Ratio of net investment loss to average net
assets(1)(5)................................... (0.88)% (1.38)% (0.38)% (0.66)% (1.09)% --
Decrease reflected in above expense ratios and
net investment loss due to waivers and
reimbursements(5).............................. 1.09% 1.08% 1.08% 2.32% 2.39% 2.45%(4)
Portfolio turnover rate(6)...................... 12.96% 12.96% 12.96% 40.79% 40.79% 40.79%
Average commission rate per share(7)............ $ 0.0559 $ 0.0559 $ 0.0559 $ 0.0572 $ 0.0572 $ 0.0572
</TABLE>
- --------
* Commencement of operations. Commenced investment operations on April 3,
1995. Class Y shares commenced its initial public offering on June 22, 1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses in
investments during the respective periods because of the timing of sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective periods.
(3) Total investment return does not consider the effects of sales loads or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment returns are not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(6) Not annualized.
(7) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments during each period.
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
Total Return Bond Portfolio
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED SEPTEMBER 30, 1996 APRIL 3, 1995* THROUGH
(UNAUDITED) MARCH 31, 1996
--------------------------- ---------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of period........................... $12.26 $12.26 $ 12.26 $12.00 $12.00 $ 12.35
------- ------- ------- ------- ------- -------
Net investment income(1)....................................... 0.36 0.33 0.38 0.71 0.67 0.41
Net realized and unrealized gain/(loss) on investments(2)...... (0.11) (0.11) (0.11) 0.30 0.30 (0.05)
------- ------- ------- ------- ------- -------
Net increase in net assets resulting from operations........... 0.25 0.22 0.27 1.01 0.97 0.36
------- ------- ------- ------- ------- -------
Dividends and distributions to shareholders from
Net investment income.......................................... (0.36) (0.33) (0.38) (0.71) (0.67) (0.41)
Net realized capital gains..................................... -- -- -- (0.04) (0.04) (0.04)
------- ------- ------- ------- ------- -------
(0.36) (0.33) (0.38) (0.75) (0.71) (0.45)
------- ------- ------- ------- ------- -------
Net asset value, end of period................................. $12.15 $12.15 $ 12.15 $12.26 $12.26 $ 12.26
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(3)..................................... 2.18% 1.97% 2.37% 8.54% 8.13% 2.92%(4)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA(7)
Net assets, end of period (000's omitted)...................... $4,323 $1,828 $16,549 $4,467 $1,775 $12,199
Ratio of expenses to average net assets(1)(5).................. 0.80% 1.20% 0.45% 0.85% 1.25% 0.45%
Ratio of net investment income to average net assets(1)(5)..... 5.81% 5.40% 6.17% 5.76% 5.38% 5.93%(4)
Decrease reflected in above expense ratios and net investment
income due to waivers and reimbursements(5)................... 1.83% 1.82% 1.83% 2.87% 2.95% 2.89%(4)
Portfolio turnover rate(6)..................................... 116.85% 116.85% 116.85% 107.35% 107.35% 107.35%
</TABLE>
- --------
* Commencement of operations. Commenced investment operations on April 5,
1995. Class Y shares commenced its initial public offering on September 8,
1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses in
investments during the respective periods because of the timing of sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective periods.
(3) Total investment return does not consider the effects of sales loads or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment returns are not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(6) Not annualized.
(7) Average commission rate per share disclosure is required for fiscal years
beginning on or after September 1, 1995. The Portfolio incurred no such
charges.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond 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 separate portfolios in operation: three
diversified portfolios, Large Cap Value Portfolio ("Large Cap"), Small Cap Value
Portfolio ("Small Cap") and Total Return Bond Portfolio ("Bond Portfolio")
(collectively, the "Portfolios") and two non-diversified portfolios, The
Insiders Select Fund and S&P STARS Portfolio. Each portfolio is treated as a
separate entity for certain matters under the Investment Company Act, and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As of the date hereof, each Portfolio offers
three classes of shares, which have been designated as class A, C and Y shares.
ORGANIZATIONAL MATTERS--Prior to commencing operations on April 3, 1995, the
Portfolios did not have any transactions other than those relating to
organizational matters and the sale of 1,042, 1,042 and 1,041 class A shares and
1,042, 1,042 and 1,041 class C shares of beneficial interest of Large Cap, Small
Cap and Bond Portfolio, respectively, to Bear, Stearns & Co. Inc., ("Bear
Stearns" or the "Distributor"). Costs of $99,875, $107,203 and $76,571 which
were incurred by Large Cap, Small Cap and Bond Portfolio, respectively, in
connection with the organization, registration with the Commission and initial
public offering of its shares, have been deferred and are being amortized using
the straight-line method over the period of benefit not exceeding sixty months,
beginning with the commencement of investment operations of each Portfolio. The
Portfolios commenced investment operations on April 4, 1995, April 3, 1995 and
April 5, 1995 for Large Cap, Small Cap and Bond Portfolio, respectively. In the
event that the Distributor or any transferee of the Distributor redeems any of
its original shares in any of the Portfolios prior to the end of the sixty month
period, the proceeds of the redemption payable in respect of such shares shall
be reduced by the pro rata share (based on the proportionate share of the
original shares redeemed to the total number of original shares outstanding at
the time of the redemption) of the unamortized deferred organization expenses as
of the date of such redemption. In the event that any of the Portfolios are
liquidated prior to the end of the sixty month period, the Distributor or the
transferee of the Distributor shall bear the unamortized deferred organization
expenses.
PORTFOLIO VALUATION--Each 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.
The Equity Portfolios' (consisting of Large Cap and Small Cap) securities,
including covered call options written by the Equity Portfolios, 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. For the
Bond Portfolio, substantially all of the investments (including short-term
investments) are valued at each business day by one or more independent pricing
services (the "Service") approved by the Fund's Board of Trustees. Securities
valued by the Service for which quoted bid prices in the judgment of the Service
are readily available and are representative of the bid side of the market, are
valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Securities which
mature in 60 days or less are valued at amortized cost, which approximates
market value, unless this method does not represent fair value. 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 a 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.
24
<PAGE>
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. Discounts are treated as
adjustments to interest income and identified costs of investments over the
lives of respective investments.
The Equity Portfolios' net investment income (other than distribution fees) and
unrealized and realized gains or losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). The Bond Portfolio's net investment income (other than
distribution fees) and unrealized and realized gains or losses are allocated
daily to each class of shares based upon the relative proportion of the settled
shares value of each class at the beginning of the day.
U.S. FEDERAL TAX STATUS--Each Portfolio intends to distribute substantially all
of its taxable income and to comply with the other requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing during each calendar year substantially all of its
ordinary income and capital gains, if any, each Portfolio intends not to be
subject to a U.S. federal excise tax.
DIVIDENDS AND DISTRIBUTIONS--Each Equity Portfolio intends to distribute at
least annually to shareholders substantially all of its net investment income.
The Bond Portfolio declares dividends from net investment income on each day the
New York Stock Exchange is open for business. These dividends on the Bond
Portfolio are paid usually on or about the twentieth day of each month.
Distribution of net realized gains, if any, will be declared and paid at least
annually by all Portfolios. 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 six months ended September 30, 1996, Bear Stearns Funds Management
Inc. ("BSFM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns
Companies Inc., serves as the investment adviser pursuant to an Investment
Advisory Agreement with each Portfolio. The Adviser is entitled to receive from
the Portfolios a monthly fee equal to an annual rate of 0.75% of each Equity
Portfolio's average daily net assets and 0.45% of the Bond Portfolio's average
daily net assets.
During the six months ended September 30, 1996, BSFM (or the "Administrator")
serves as administrator to each Portfolio pursuant to an Administration
Agreement. The Administrator is entitled to receive from each Portfolio a
monthly fee equal to an annual rate of 0.15% of each Portfolio's average daily
net assets. Under the terms of an Administrative Services Agreement with each
Portfolio, PFPC Inc. provides certain administrative services to each Portfolio.
For providing these services, PFPC Inc. is entitled to receive from each
Portfolio a monthly 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 $132,000 for each Portfolio. During the six
months ended September 30, 1996, PFPC Inc. has voluntarily waived a portion of
its fee.
These fees are computed daily and paid monthly, and are subject to reduction in
any year to the extent that a 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 assets of the Portfolio. The Portfolios will not pay BSFM at a later time
for any amounts it may waive, nor will the Portfolios reimburse BSFM for any
amounts it may assume.
During the six months ended September 30, 1996, the Adviser has voluntarily
undertaken to limit each Equity Portfolio's total operating expenses (exclusive
of brokerage commissions, taxes, interest and extraordinary items) to a maximum
annual level of 1.50% of the average daily net assets of its class A shares,
2.00% of the average daily net assets of its class C shares and 1.00% of the
average daily net assets of its class Y shares. During the period April 3, 1995
through August 31, 1995, the Adviser had voluntarily undertaken to limit the
total operating expenses (exclusive of brokerage commissions, taxes, interest
and extraordinary items) of the Bond Portfolio, to a maximum annual level of
1.00%, 1.40%, and 0.65% of such Portfolio's average daily net assets for class
A, C and Y shares, respectively. Effective September 1, 1995, the total
operating expenses (exclusive of brokerage commissions, taxes, interest and
extraordinary items) were further reduced by the Adviser with respect to the
Bond Portfolio only, to a maximum annual level of
25
<PAGE>
0.80%, 1.20% and 0.45% of the Bond Portfolio's average daily net assets for
class A, C and Y shares, respectively. 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 six months ended September 30, 1996, the
Adviser waived advisory fees of $80,363, $127,493 and $51,715 for Large Cap,
Small Cap and Bond Portfolio, respectively. In addition, the Adviser reimbursed
$83,708, $48,697 and $139,381 for Large Cap, Small Cap and Bond Portfolio,
respectively, in order to maintain the voluntary expense limitation.
For the six months ended September 30, 1996, Bear Stearns, an affiliate of the
Adviser and the Administrator, earned approximately $585 and $5,266 in brokerage
commissions from portfolio transactions executed on behalf of Large Cap and
Small Cap, respectively.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc. and an affiliate of the Adviser and the Administrator, serves as custodian
to the Portfolios.
DISTRIBUTION PLAN
The Fund, on behalf of each 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 six months ended September 30, 1996, the Equity Portfolios
each paid Bear Stearns a fee at an annual rate of 0.50% for class A shares and
1.00% for class C shares and the Bond Portfolio paid Bear Stearns a fee at an
annual rate of 0.35% for class A shares and 0.75% for class C shares. Such fees
are based on the average daily net assets in each class of the respective
Portfolios and are accrued daily and paid monthly or at such other intervals as
the Board of Trustees may determine. The fees paid to Bear Stearns under the
Plan are payable without regard to actual expenses incurred. For the six months
ended September 30, 1996, Bear Stearns earned $30,296, $75,274 and $14,397 for
Large Cap, Small Cap and Bond Portfolio, respectively, in distribution fees.
Bear Stearns uses these fees to pay its dealers whose clients hold Portfolio
shares and for other distribution-related activities.
In addition, as Distributor of the Portfolios, Bear Stearns collects the sales
charges imposed on sales of each Portfolio's class A shares, and reallows a
portion of such charges to dealers through which the sales are made. As a result
of an undertaking by the Distributor, it reallowed or will reallow all of the
sales charges to its dealers selling Portfolio shares for the period April 3,
1995 (commencement of operations) through September 26, 1995 and the period
February 15, 1996 through June 30, 1996. Furthermore, the Distributor has
increased the compensation paid to its dealers selling Portfolio shares on net
asset value transfers (purchases made by investors with the proceeds from a
redemption of shares of an investment company sold with a sales charge or
commission and not distributed by Bear Stearns) from 0.50% to 1.00% beginning
April 15, 1996 until further notice. In addition, Bear Stearns advanced 1.00% in
sales commissions on the sale of class C shares to dealers at the time of such
sales.
For the six months ended September 30, 1996, Bear Stearns has advised each
Portfolio that it received approximately $29,000, $143,000 and $12,000 in
front-end sales charges resulting from sales of class A shares of Large Cap,
Small Cap and Bond Portfolio, respectively. 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 Large Cap, Small Cap and Bond Portfolio
that during the period, it received approximately $2,000, $4,000 and $100 from
the Portfolios, respectively, in contingent deferred sales charges upon certain
redemptions by class C shareholders.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the costs of securities owned at September
30, 1996 were $23,588,054, $35,781,227 and $23,238,818 for Large Cap, Small Cap
and Bond Portfolio, respectively. Accordingly, the net unrealized
appreciation/(depreciation) of investments are as follows:
<TABLE>
<CAPTION>
NET
APPRECIATION/
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- ------------------------------ ------------ ------------ ----------------
<S> <C> <C> <C>
Large Cap..................... $2,042,523 $(1,027,402) $1,015,121
Small Cap..................... 7,136,815 (1,829,430) 5,307,385
Bond Portfolio................ 90,153 (146,592) (56,439)
</TABLE>
26
<PAGE>
For the six months ended September 30, 1996, aggregate purchases and sales of
investment securities (excluding short-term investments) for each Portfolio were
as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ------------------------------ ------------ ------------
<S> <C> <C>
Large Cap..................... $18,740,877 $ 6,720,995
Small Cap..................... 20,095,075 4,279,122
Bond Portfolio................ 28,110,400 24,441,738
</TABLE>
SHARES OF BENEFICIAL INTEREST
Each Portfolio offers class A, C and Y shares. Class A shares are sold with a
front-end sales charge of up to 4.75% (3.75% in the case of the Bond Portfolio).
Class C shares are sold with a contingent deferred sales charge ("CDSC") of
1.00% during the first year. There is no sales charge or CDSC on class Y shares,
which are offered primarily to institutional investors.
At September 30, 1996, there was an unlimited amount of $0.001 par value shares
of beneficial interest authorized for each Portfolio, of which Bear Stearns
owned 63,675, 73,811 and 59,598 of class A shares and 63,564, 73,763 and 59,598
of class C shares of Large Cap, Small Cap and Bond Portfolio, respectively.
Transactions in the classes of shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
LARGE CAP(1) SMALL CAP(2) BOND PORTFOLIO(3)
--------------------------------- -------------------------------- ---------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
SALES:
Shares......... 139,065 46,377 963,050 315,737 353,228 464,653 26,988 6,812 599,927
Amount......... $2,123,738 $ 692,576 $14,542,194 $5,372,798 $6,080,991 $7,814,632 $ 326,349 $ 82,586 $ 7,271,187
REINVESTMENTS:
Shares......... -- -- -- -- -- -- 6,631 2,240 36,613
Amount......... -- -- -- -- -- -- $ 80,389 $ 27,147 $ 443,751
REPURCHASES:
Shares......... 8,454 12,447 342,012 77,914 67,900 85,952 42,250 3,360 269,462
Amount......... $ 125,466 $ 188,097 $ 5,198,143 $1,313,561 $1,144,964 $1,496,061 $ 510,442 $ 40,765 $ 3,259,599
FOR THE PERIOD APRIL 3, 1995* THROUGH MARCH 31, 1996
SALES:
Shares......... 315,696 233,174 230,011 670,342 431,865 564,644 412,635 146,761 1,013,077
Amount......... $4,132,049 $3,029,455 $ 3,332,025 $9,119,686 $5,897,544 $8,187,086 $5,005,133 $1,778,698 $12,605,963
REINVESTMENTS:
Shares......... 332 68 211 3,827 4,544 8,725 11,440 3,450 15,678
Amount......... $ 4,945 $ 1,009 $ 3,134 $ 55,602 $ 65,802 $ 126,525 $ 142,125 $ 42,916 $ 196,210
REPURCHASES:
Shares......... 78,059 865 4,509 267,203 9,820 6,293 60,606 6,447 33,443
Amount......... $1,135,562 $ 12,818 $ 66,600 $3,916,200 $ 142,216 $ 92,770 $ 761,370 $ 81,056 $ 411,300
</TABLE>
- ---------
* Commencement of operations.
(1) Commenced investment operations on April 4, 1995, class Y shares commenced
its initial public offering on September 11, 1995.
(2) Commenced investment operations on April 3, 1995, class Y shares commenced
its initial public offering on June 22, 1995.
(3) Commenced investment operations on April 5, 1995, class Y shares commenced
its initial public offering on September 8, 1995.
CREDIT AGREEMENT
The Fund, on behalf of the Portfolios, has entered into a credit agreement with
The First National Bank of Boston. S&P STARS Fund, The Insiders Select Fund, S&P
STARS 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 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
27
<PAGE>
prospectus, each portfolio may, in accordance with the provisions of the credit
agreement, borrow up to 25% of the value of its total assets, less all
liabilities other than liabilities for borrowed money outstanding at the time.
However, at no time is the aggregate outstanding principal amount of all loans
to any of the portfolios to exceed $25,000,000. The line of credit will bear
interest at the greater of: (i) the annual rate of interest announced from time
to time from the bank at its head office as its Base Rate, or (ii) the Federal
Funds Effective Rate plus 0.50%, or at the borrower's option, the rate quoted by
The First National Bank of Boston.
Each loan is payable on demand or upon termination of this credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced.
The Portfolios use the facility to borrow money only for temporary or emergency
(not leveraging) purposes. Large Cap, Small Cap and Bond Portfolio had no
amounts outstanding under the line of credit agreement at September 30, 1996.
28
