<PAGE>
BEAR STEARNS
The
Bear Stearns
Funds
245 PARK AVENUE
NEW YORK, NY 10167
1.800.766.4111
Robert S. Reitzes Chairman of the Board and
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 SUB-INVESTMENT ADVISER
AND ADMINISTRATOR Symphony Asset Management
Bear Stearns Funds 555 California Street
Management Inc. Suite 2975
245 Park Avenue San Francisco, CA 94104
New York, NY 10167
DISTRIBUTOR CUSTODIAN
Bear, Stearns & Co. Inc. Custodial Trust Company
245 Park Avenue 101 Carnegie Center
New York, NY 10167 Princeton, NJ 08540
TRANSFER AND DIVIDEND COUNSEL
DISBURSEMENT AGENT Kramer, Levin, Naftalis & Frankel
PFPC Inc. 919 Third Avenue
Bellevue Corporate Center New York, NY 10022
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 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.
BSF-R-010-04
THE INSIDERS
SELECT FUND
ANNUAL REPORT
MARCH 31, 1997
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
LETTER TO SHAREHOLDERS
April 21, 1997
Dear Shareholders:
We are pleased to present the annual report to shareholders for The Insiders
Select Fund (the "Portfolio") for the fiscal year ended March 31, 1997.
For this fiscal year, the Portfolio's class A shares (without giving effect to
the sales charge) had a total return of 18.31%*, the class C shares (without
giving effect to the contingent deferred sales charge) had a total return of
17.69% and the class Y shares returned 18.81%. The Portfolio's benchmark, the
S&P 500 Composite Index (the "S&P 500"), returned 19.73% for the period.
Additional performance data for each class of shares can be found in the
"Financial Highlights" section of this report. We lagged our benchmark due to
the fact that roughly 20% of the Portfolio was comprised of mid-cap stocks,
which, as a whole, underperformed the larger stocks represented in the S&P 500.
The Insiders Select Fund seeks to invest in companies where corporate insider
accumulation is coupled with attractive stock valuation. Insiders include
corporate officers and directors, as well as major shareholders. Insider
accumulation has been quite selective over the past 12 months as the bull market
in equities has driven up prices in many stocks. Insiders tend to be
value-oriented investors and as such, find bargain-hunting difficult in a raging
bull market. However, the correction in the stock market in late March made
valuations more favorable.
During the last quarter, our focus was on selectively accumulating stocks in the
financial services, retail, pharmaceutical and technology sectors. Despite the
fact that many of these stocks performed well over the past year, we think they
still offer good earnings growth potential. We continue to favor smaller
regional banks, many of which remain reasonably priced. Many health-care stocks
have underperformed the market over the past year, and we are investing in
stocks of those companies where insider accumulation is picking up.
Looking ahead, we will continue to invest in sectors where insider accumulation
is strong. We expect insider buying activity to pick up if the equity market
corrects further.
We value the confidence you have placed in us and would be pleased to address
any questions or concerns you may have. Please feel free to call us at
1-800-766-4111.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
Robert S. Reitzes Praveen Gottipalli, Portfolio Manager
Chairman of the Board and President Symphony Asset Management
The Bear Stearns Funds Sub-Investment Adviser
</TABLE>
* For the 12 months ended March 31, 1997, the Portfolio's class A shares had a
total return of 12.69% including the initial maximum 4.75% sales charge.
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) 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>
June 16, 1995 $9,525.00 $10,000.00 $10,000.00
June 30, 1995 $9,580.56 $10,066.66 $10,099.36
Sept. 30, 1995 $10,469.56 $10,975.00 $10,900.86
Dec. 31, 1995 $10,802.30 $11,316.66 $11,554.74
March 31, 1996 $11,120.01 $11,633.33 $12,154.46
June 30, 1996 $11,683.95 $12,000.00 $12,688.09
Sept. 30, 1996 $12,208.18 $12,733.33 $13,064.72
Dec. 31, 1996 $13,111.41 $13,662.60 $14,122.63
Mar. 31, 1997 $13,157.00 $13,691.00 $14,490.67
$9,525 Investment made on June 16, 1995
Past performance is not predictive of future performance
<CAPTION>
CONSUMER PRICE INDEX
<S> <C>
June 16, 1995 $10,000.00
June 30, 1995 $10,026.30
Sept. 30, 1995 $10,072.32
Dec. 31, 1995 $10,131.49
March 31, 1996 $10,230.11
June 30, 1996 $10,302.43
Sept. 30, 1996 $10,381.33
Dec. 31, 1996 $10,466.80
Mar. 31, 1997 $10,512.82
$9,525 Investment made on June 16, 1995
Past performance is not predictive of future performance
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL (3)
----------------- -------------
<S> <C> <C>
The Insiders Select Fund(2)
Class A shares(4)............................................ 12.69% 16.52%
Class C shares............................................... 17.69 19.13
S&P 500 Composite Index(1)....................................... 19.73 22.96
Consumer Price Index(1).......................................... 2.76 2.83
</TABLE>
- ---------
(1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the
Portfolio is a professionally managed mutual fund while the indices are
either unmanaged and do not incur sales charges or expenses and/or are not
available for investment.
(2) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses to
maintain the expense limitation, as set forth in the notes to financial
statements. Total returns shown include fee waivers and reimbursements;
total returns would have been lower had there been no assumption of fees and
expenses in excess of expense limitations.
(3) For the period June 16, 1995 (commencement of investment operations) through
March 31, 1997.
(4) Reflects the initial maximum 4.75% sales charge. Without the applicable
sales charge, the average annual total returns would have been 18.31% and
16.52%, respectively, for each period shown.
2
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS Y SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS Y SHARES S&P 500 COMPOSITE INDEX
<S> <C> <C>
Jun 20, 1995 10,000 10,000
Jun 30, 1995 9,967 10,012
Sept. 30, 1995 10,891 10,792
Dec. 31, 1995 11,259 11,440
Mar. 31, 1996 11,598 12,051
Jun 30, 1996 12,202 12,590
Sept. 30, 1996 12,756 12,975
Dec. 31, 1996 13,723 14,054
Mar. 31, 1997 13,779 14,428
Past performance is not predivtive of future performance
<CAPTION>
CONSUMER PRICE INDEX
<S> <C>
Jun 20, 1995 10,000
Jun 30, 1995 10,027
Sept. 30, 1995 10,073
Dec. 31, 1995 10,132
Mar. 31, 1996 10,231
Jun 30, 1996 10,303
Sept. 30, 1996 10,382
Dec. 31, 1996 10,467
Mar. 31, 1997 10,513
Past performance is not predivtive of future performance
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL (3)
----------------- -------------
<S> <C> <C>
The Insiders Select Fund(2)
Class Y shares............................................... 18.81% 19.69%
S&P 500 Composite Index(1)....................................... 19.73 22.62
Consumer Price Index(1).......................................... 2.76 2.84
</TABLE>
- ---------
(1) The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the
Portfolio is a professionally managed mutual fund while the indices are
either unmanaged and do not incur expenses and/or are not available for
investment.
(2) Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes for
the financial statements. Total returns shown include fee waivers and
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3) For the period June 20, 1995 (initial public offering date) through March
31, 1997.
3
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Aerospace & Defense (5.35%) 5.35%
Banks (6.36%) 6.36%
Chemicals & Fertilizers (1.14%) 1.41%
Computers & Office Equipment (3.14%) 3.14%
Computer Services (2.76%) 2.76%
Credit & Finance (10.23%) 10.23%
Drugs & Hospital Supplies (12.97%) 12.97%
Electrical Equipment (1.82%) 1.82%
Electronics (4.27%) 4.27%
Entertainment & Liesure (1.54%) 1.54%
Healthcare (2.53%) 2.53%
Lodging (2.32%) 2.32%
Miscellaneous Manufacturing (1.94%) 1.94%
Oil & Natural Gas (11.76%) 11.76%
Publishing - Newspaper (1.34%) 1.34%
Retailing - Department Stores (3.68%) 3.68%
Retailing - Grocery Stores (3.75%) 3.75%
Telecommunications (3.90%) 3.90%
Tools (1.18%) 1.18%
Cash & Cash Equivalents (4.21%) 4.21%
Other (13.54%) 13.54%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ---- -------------------------------------------------- --------------------------- ----------
<C> <S> <C> <C>
1. Merck & Co., Inc. ................................ Drugs & Hospital Supplies 3.65
2. Safeway Inc. ..................................... Retailing -- Grocery Stores 2.77
3. Texaco Inc. ...................................... Oil & Natural Gas 2.77
4. Microsoft Corp. .................................. Computer Services 2.76
5. Mobil Corp. ...................................... Oil & Natural Gas 2.72
6. Johnson & Johnson................................. Drugs & Hospital Supplies 2.65
7. Travelers Group, Inc. ............................ Credit & Finance 2.65
8. Intel Corp. ...................................... Electronics 2.62
9. City National Corp. .............................. Banks 2.39
10. Boeing Co. (The).................................. Aerospace & Defense 2.29
</TABLE>
4
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
----------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--95.79%
AEROSPACE & DEFENSE - 5.35%
5,800 Boeing Co. (The) ........................................... $ 572,025
2,000 General Dynamics Corp. ..................................... 134,750
5,500 Rockwell International Corp. ............................... 356,812
3,600 United Technologies Corp. .................................. 270,900
-----------
1,334,487
-----------
APPLIANCES - HOUSEHOLD - 0.46%
5,600 Maytag Corp. ............................................... 115,500
-----------
AUTOMOTIVE PARTS & EQUIPMENT - 0.73%
3,500 TRW Inc. ................................................... 181,125
-----------
BANKS - 6.36%
4,100 BankAmerica Corp. .......................................... 413,075
27,100 City National Corp. ........................................ 596,200
2,100 First American Corp. - Tennessee.*.......................... 133,613
1,300 Republic New York Corp. .................................... 114,563
7,500 Summit Bancorp ............................................. 328,125
-----------
1,585,576
-----------
BUILDING & CONSTRUCTION PRODUCTS - 0.57%
3,800 Lowes Companies ............................................ 142,025
-----------
CASINO SERVICES - 0.43%
6,600 International Game Technology .............................. 106,425
-----------
CHEMICALS & FERTILIZERS - 1.41%
6,100 Cytec Industries Inc.*...................................... 231,038
2,700 Praxair, Inc. .............................................. 121,163
-----------
352,201
-----------
COMMERCIAL SERVICES - 0.96%
4,900 Dun & Bradstreet Corp. ..................................... 124,338
5,500 Ogden Corp. ................................................ 116,188
-----------
240,526
-----------
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
COMPUTERS & OFFICE EQUIPMENT - 3.14%
6,500 Cadence Design Systems, Inc.*............................... $ 223,437
7,900 Data General Corp.*......................................... 134,300
3,200 Pitney Bowes, Inc. ........................................ 188,000
5,300 Seagate Technology, Inc.*................................... 237,838
-----------
783,575
-----------
COMPUTER SERVICES - 2.76%
7,500 Microsoft Corp.*............................................ 687,656
-----------
COSMETICS & TOILETRIES - 0.44%
4,200 Alberto-Culver Co., Class B ................................ 109,725
-----------
CREDIT & FINANCE - 10.23%
8,800 Conseco Inc. ............................................... 313,500
8,500 Equitable Companies, Inc. .................................. 231,625
4,500 Freemont General Corp. ..................................... 126,563
5,900 Morgan Stanley Group Inc. .................................. 346,625
3,100 NAC Re Corp. ............................................... 110,437
7,700 Price (T. Rowe) Associates ................................. 285,862
3,400 Student Loan Marketing Association ......................... 323,850
4,000 SunAmerica Inc. ............................................ 150,500
13,800 Travelers Group, Inc. ...................................... 660,662
-----------
2,549,624
-----------
DIVERSIFIED OPERATIONS - 0.92%
2,300 Kansas City Southern Industries, Inc. ...................... 115,000
2,100 Tyco International Ltd. .................................... 115,500
-----------
230,500
-----------
DRUGS & HOSPITAL SUPPLIES - 12.97%
4,400 Abbott Laboratories ........................................ 246,950
3,700 Becton, Dickinson & Co. .................................... 166,500
7,200 Bristol-Myers Squibb Co. ................................... 424,800
6,700 Eli Lilly & Co. ............................................ 551,075
12,500 Johnson & Johnson .......................................... 660,938
10,800 Merck & Co.,Inc. ........................................... 909,900
4,100 Monsanto Co. ............................................... 156,825
1,600 Schering-Plough Corp. ...................................... 116,400
-----------
3,233,388
-----------
</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
MARCH 31, 1997
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ELECTRICAL EQUIPMENT - 1.82%
1,500 Harris Corp. ............................................... $ 115,312
5,000 Honeywell, Inc. ............................................ 339,375
-----------
454,687
-----------
ELECTRONICS - 4.27%
2,300 Applied Materials, Inc.*.................................... 106,663
4,700 Intel Corp. ................................................ 653,888
4,000 Solectron Corp.*............................................ 200,500
1,400 Texas Instruments, Inc. .................................... 104,825
-----------
1,065,876
-----------
ELECTRONICS - MILITARY - 0.96%
6,400 Coltec Industries, Inc.*.................................... 118,400
5,200 Tracor, Inc.*............................................... 120,900
-----------
239,300
-----------
ENGINES - COMBUSTION - 0.47%
2,300 Cummins Engine Co., Inc. ................................... 117,875
-----------
ENTERTAINMENT & LEISURE - 1.54%
4,200 Brunswick Corp. ............................................ 112,875
7,500 MGM Grand, Inc.*............................................ 271,875
-----------
384,750
-----------
FOOD - MISCELLANEOUS/DIVERSIFIED - 0.69%
2,200 Ralston-Ralston Purina Group ............................... 171,875
-----------
HEALTHCARE - 2.53%
16,500 Humana, Inc. ............................................... 363,000
5,600 United Healthcare Corp. .................................... 266,700
-----------
629,700
-----------
HUMAN RESOURCES - 0.43%
6,700 Olsten Corp. ............................................... 108,038
-----------
INSTRUMENTS - SCIENTIFIC - 0.44%
1,700 Perkin-Elmer Corp. ......................................... 109,437
-----------
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
LODGING - 2.32%
14,900 Hilton Hotels Corp. ........................................ $ 361,325
6,500 Promus Hotel Corp.*......................................... 216,125
-----------
577,450
-----------
MACHINERY - FARM - 1.14%
2,700 Deere & Co. ................................................ 117,450
5,500 Dresser Industries, Inc. ................................... 166,375
-----------
283,825
-----------
MACHINERY - INDUSTRIAL - 0.62%
2,300 Dover Corp. ................................................ 120,750
800 Ingersoll-Rand Co. ......................................... 34,900
-----------
155,650
-----------
MISCELLANEOUS MANUFACTURING - 1.94%
3,500 Case Corp. ................................................. 177,625
8,400 Harsco Corp. ............................................... 305,550
-----------
483,175
-----------
METAL PROCESSORS & FABRICATORS - 0.89%
4,300 Allegheny Teledyne Inc. .................................... 120,937
3,300 Trinity Industries.......................................... 100,238
-----------
221,175
-----------
OIL & NATURAL GAS - 11.76%
3,200 Baker Hughes, Inc. ......................................... 122,800
2,800 Columbia Gas Systems, Inc. ................................. 162,050
5,200 Mobil Corp. ................................................ 679,250
13,900 Oneok, Inc. ................................................ 361,400
3,900 Pacific Enterprises ........................................ 117,975
5,500 Rowan Companies, Inc.*...................................... 124,437
2,300 Royal Dutch Petroleum Co. .................................. 402,500
1,500 Schlumberger, Ltd. ......................................... 160,875
6,300 Texaco Inc. ................................................ 689,850
2,400 Tidewater, Inc. ............................................ 110,400
-----------
2,931,537
-----------
PAPER & PAPER RELATED PRODUCTS - 1.12%
2,800 Kimberly-Clark Corp. ....................................... 278,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PUBLISHING - BOOKS - 0.96%
4,700 McGraw-Hill Companies, Inc. ................................ $ 240,287
-----------
PUBLISHING - NEWSPAPER - 1.34%
5,700 Media General Inc., Class A ................................ 161,738
500 Washington Post Co. ........................................ 172,000
-----------
333,738
-----------
RESPIRATORY PRODUCTS - 0.47%
6,700 Nellcor Puritan Bennett Inc.*............................... 118,088
-----------
RETAILING - DEPARTMENT STORES - 3.68%
6,600 Costco Inc.*................................................ 182,325
6,500 Federated Department Stores, Inc.*.......................... 213,687
3,500 Fred Meyer, Inc.*........................................... 144,375
7,500 Sears, Roebuck & Co. ....................................... 376,875
-----------
917,262
-----------
RETAILING - GROCERY STORES - 3.75%
5,500 American Stores, Inc. ...................................... 244,750
14,900 Safeway Inc.*............................................... 690,988
-----------
935,738
-----------
TELECOMMUNICATIONS - 3.90%
800 360 Degrees Communications Co.*............................. 13,800
6,700 Equifax Inc. ............................................... 182,575
11,300 Loral Space & Communications*............................... 159,612
11,100 Octel Communications Corp.*................................. 176,212
6,500 SBC Communications Inc. .................................... 342,062
6,500 Scientific-Atlanta Inc. .................................... 99,125
-----------
973,386
-----------
<CAPTION>
------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
<C> <S> <C>
TOOLS - 1.18%
2,100 Snap-On, Inc. .............................................. $ 81,375
5,600 Stanley Works (The) ........................................ 212,100
-----------
293,475
-----------
UTILITIES - 0.84%
6,100 Texas Utilities Co. ....................................... 208,925
-----------
Total Common Stocks
(cost - $21,642,520)........................................ 23,885,832
-----------
SHORT-TERM INVESTMENTS - 3.33%
INVESTMENT COMPANIES - 3.33%
581,257 Federated Investors, Trust for Short-Term U.S. Government
Securities**................................................ 581,257
84,713 The Milestone Funds Treasury Obligations Portfolio,
Institutional Shares**...................................... 84,713
164,645 The Treasurers Fund Inc., U.S. Treasury Money Market
Portfolio**................................................. 164,645
-----------
Total Short-Term Investments
(cost - $830,615)........................................... 830,615
-----------
Total Investments
(cost - $22,473,135) - 99.12%............................... 24,716,447
Other assets in excess of liabilities - 0.88%............... 218,628
-----------
Net Assets - 100.00%........................................ $24,935,075
-----------
-----------
</TABLE>
- ---------
* Non-income producing security.
** Money market fund.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $22,473,135)...... $24,716,447
Receivable for investments sold................. 210,209
Receivable for Portfolio shares sold............ 76,276
Receivable from investment adviser.............. 32,013
Dividends and interest receivable............... 31,609
Deferred organization expenses and other
assets......................................... 164,856
-----------
Total assets.............................. 25,231,410
-----------
LIABILITIES
Payable for investments purchased............... 154,532
Distribution fee payable (class A and C
shares)........................................ 41,745
Payable for Portfolio shares repurchased........ 19,674
Administration fee payable...................... 3,326
Custodian fee payable........................... 3,583
Accrued expenses................................ 73,475
-----------
Total liabilities......................... 296,335
-----------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 1,714
Paid-in capital................................. 21,598,953
Accumulated net realized gain from
investments.................................... 1,091,096
Net unrealized appreciation on investments...... 2,243,312
-----------
Net assets................................ $24,935,075
-----------
-----------
CLASS A
Net assets...................................... $13,859,782
-----------
Shares of beneficial interest outstanding....... 950,505
-----------
Net asset value per share....................... $14.58
-----------
-----------
Maximum offering price per share (net asset
value plus sales charge of 4.75%* of the
offering price)................................ $15.31
-----------
-----------
CLASS C
Net assets...................................... $ 9,518,756
-----------
Shares of beneficial interest outstanding....... 657,363
-----------
Net asset value and offering price per
share**........................................ $14.48
-----------
-----------
CLASS Y
Net assets...................................... $ 1,556,537
-----------
Shares of beneficial interest outstanding....... 106,150
-----------
Net asset value, offering and redemption value
per share...................................... $14.66
-----------
-----------
</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 intergral part of the financial statements.
8
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of withholding taxes of $879).... $ 359,727
Interest........................................ 60,861
----------
420,588
----------
EXPENSES
Advisory fees................................... 182,313
Distribution fees - class A..................... 65,276
Distribution fees - class C..................... 94,265
Transfer agent fees and expenses................ 125,229
Accounting fees................................. 107,174
Federal and state registration fees............. 72,508
Reports and notices to shareholders............. 52,000
Legal and auditing fees......................... 43,000
Amortization of organization expenses........... 36,394
Administration fees............................. 35,873
Custodian fees and expenses..................... 22,999
Insurance expenses.............................. 16,199
Trustees' fees and expenses..................... 3,401
Other........................................... 5,386
----------
Total expenses before waivers and
reimbursements............................. 862,017
Less: waivers and reimbursements.......... (426,258)
----------
Total expenses after waivers and
reimbursements............................. 435,759
----------
Net investment loss............................. (15,171)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND SECURITY SOLD SHORT
Net realized gain from investments.............. 3,006,957
Net change in unrealized appreciation on:
Investments................................... 757,844
Security sold short........................... 34,192
----------
Net realized and unrealized gain on investments
and security sold short........................ 3,798,993
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $3,783,822
----------
----------
</TABLE>
The accompanying notes are an intergral part of the financial statements.
9
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE JUNE 16,
FISCAL YEAR 1995*
ENDED THROUGH
MARCH 31, MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).................... $ (15,171) $ 28,761
Net realized gain from investments.............. 3,006,957 891,092
Net change in unrealized apppreciation on
investments and security sold short............ 792,036 1,451,276
------------ ------------
Net increase in net assets resulting from
operations..................................... 3,783,822 2,371,129
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares................................ (8,066) (8,222)
Class Y shares................................ (1,784) (3,479)
------------ ------------
(9,850) (11,701)
------------ ------------
Net realized capital gains
Class A shares................................ (1,540,623) --
Class C shares................................ (1,088,043) --
Class Y shares................................ (170,326) --
------------ ------------
(2,798,992) --
------------ ------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares............ 7,652,245 26,820,998
Cost of shares repurchased...................... (9,576,787) (5,837,996)
Shares issued in reinvestment of dividends...... 2,531,683 10,500
------------ ------------
Net increase in net assets derived from shares
of beneficial interest transactions............ 607,141 20,993,502
------------ ------------
Total increase in net assets.................... 1,582,121 23,352,930
NET ASSETS
Beginning of period............................. 23,352,954 24
------------ ------------
End of period................................... $24,935,075 $23,352,954**
------------ ------------
------------ ------------
</TABLE>
- --------
* Commencement of investment operations.
** Includes undistributed net investment income of $17,060.
The accompanying notes are an intergal part of the financial statements.
10
<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
JUNE 16, 1995*
FOR THE FISCAL YEAR ENDED THROUGH
MARCH 31, 1997 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 (0.06) 0.08 0.03 (0.01)
Net realized and unrealized gain on
investments and security sold short(2)........................ 2.48 2.47 2.49 1.98 1.97
-------- --------- -------- -------- ---------
Net increase in net assets resulting from operations........... 2.50 2.41 2.57 2.01 1.96
-------- --------- -------- -------- ---------
Dividends and distributions to shareholders from
Net investment income........................................ (0.01) -- (0.02) (0.01) --
Net realized capital gains................................... (1.91) (1.89) (1.91) -- --
-------- --------- -------- -------- ---------
(1.92) (1.89) (1.93) (0.01) --
-------- --------- -------- -------- ---------
Net asset value, end of period................................. $ 14.58 $ 14.48 $ 14.66 $ 14.00 $ 13.96
-------- --------- -------- -------- ---------
-------- --------- -------- -------- ---------
Total investment return(3)..................................... 18.31% 17.69% 18.81% 16.75% 16.33%
-------- --------- -------- -------- ---------
-------- --------- -------- -------- ---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................... $13,860 $ 9,519 $ 1,557 $12,132 $ 9,928
Ratio of expenses to average net assets(1)..................... 1.65% 2.15% 1.15% 1.65%(5) 2.15%(5)
Ratio of net investment income/(loss) to average net
assets(1)..................................................... 0.11% (0.38)% 0.60% 0.38%(5) (0.12)%(5)
Decrease reflected in above expense ratios and net investment
income/(loss) due to waivers and reimbursements............... 1.82% 1.81% 1.81% 1.87%(5) 1.92%(5)
Portfolio turnover rate........................................ 128.42% 128.42% 128.42% 93.45%(6) 93.45%(6)
Average commission rate per share(7)........................... $0.0264 $0.0264 $0.0264 $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(2)........................ 1.87
-------
Net increase in net assets resulting from operations........... 1.94
-------
Dividends and distributions to shareholders from
Net investment income........................................ (0.04)
Net realized capital gains................................... --
-------
(0.04)
-------
Net asset value, end of period................................. $ 14.02
-------
-------
Total investment return(3)..................................... 15.98%(4)
-------
-------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................... $ 1,293
Ratio of expenses to average net assets(1)..................... 1.15%(5)
Ratio of net investment income/(loss) to average net
assets(1)..................................................... 0.97%(4)(5)
Decrease reflected in above expense ratios and net investment
income/(loss) due to waivers and reimbursements............... 2.04%(4)(5)
Portfolio turnover rate........................................ 93.45%(6)
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 amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses in
investments during the respective periods because of the timing of sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(6) Not annualized.
(7) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments subject to such commissions during each
period.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
NOTES TO FINANCIAL STATEMENTS
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).
12
<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 had no securities short sold at March 31,
1997.
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. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within
capital accounts based on their US federal tax-basis treatment; temporary
differences do not require reclassification. At March 31, 1997, the Portfolio
reclassified within the composition of net assets a net operating loss of $7,961
to accumulated realized gains.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
During the fiscal year ended March 31, 1997, Bear Stearns Funds Management Inc.
("BSFM" or "Adviser"), a wholly-owned subsidiary of The Bear Stearns Companies
Inc., served as the investment adviser pursuant to an Investment Advisory
Agreement with the Portfolio. BSFM has engaged Symphony Asset Management
("Symphony"), a subsidiary of BARRA, Inc., as the Portfolio's sub-investment
adviser to manage the Portfolio's day-to-day investment activities. BSFM and
Symphony are referred to herein collectively as the "Advisers." BSFM is entitled
to receive from the Portfolio a monthly fee equal to an annual rate of 1.00% of
the Portfolio's average daily net assets 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. The performance adjustment fee reduced the total
advisory fee by $56,841 or 0.24% of the value of the Portfolio's average net
assets due to underperformance in comparison to the S&P 500 Composite Index
during the period.
During the fiscal year ended March 31, 1997, 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 $100,000 for the Portfolio. During the fiscal year ended March 31,
1997, PFPC Inc. has voluntarily waived a portion of its fee.
During the fiscal year ended March 31, 1997, the Adviser has voluntarily
undertaken to limit 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 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 year ended March 31, 1997, the
Adviser waived its advisory fee of $182,313. In addition, the Adviser reimbursed
$243,945, in order to maintain the voluntary expense limitation.
13
<PAGE>
For the fiscal year ended March 31, 1997, Bear Stearns, an affiliate of the
Adviser and the Administrator, earned $8,925 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 fiscal year ended March 31, 1997, 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 fiscal year
ended March 31, 1997, Bear Stearns earned $159,541 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 fiscal year ended March 31, 1997, Bear Stearns has advised the Portfolio
that it received approximately $163,000 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 $14,300 in contingent deferred sales charges
upon certain redemptions by class C shareholders.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at March 31,
1997 was $22,473,135. Accordingly, the net unrealized appreciation of
investments of $2,243,312 was composed of gross appreciation of $2,734,543 for
those investments having an excess of value over cost and $491,231 of gross
depreciation for those investments having an excess of cost over value.
For the fiscal year ended March 31, 1997, aggregate purchases and sales of
investment securities (excluding short-term investments) for the Portfolio were
$28,876,688 and $31,585,896, 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 March 31, 1997, 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.
14
<PAGE>
Transactions in the classes of shares of beneficial interest for the fiscal year
ended March 31, 1997 were as follows:
<TABLE>
<CAPTION>
SALES REINVESTMENTS REPURCHASES
---------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A shares.................................... 331,726 $ 4,976,082 97,925 $1,381,727 345,460 $5,185,795
Class C shares.................................... 148,520 2,231,793 70,623 991,548 273,058 3,992,295
Class Y shares.................................... 29,508 444,370 11,179 158,408 26,728 398,697
</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 amount outstanding under the line of credit
agreement for the Portfolio averaged $2,452 during the fiscal year ended March
31, 1997. The Portfolio did not have any amount outstanding at any month-end
under such line of credit agreement during the fiscal year ended March 31, 1997.
The average interest rate during the fiscal year ended March 31, 1997, on
amounts outstanding under such line of credit agreement, was 8.25%.
15
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders,
The Insiders Select Fund
(A series of The Bear Stearns Funds):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Insiders Select Fund (the "Portfolio") as
of March 31, 1997, and the related statements of operations, changes in net
assets and the financial highlights for the year ended March 31, 1997 and the
period June 16, 1995 (commencement of operations) to March 31, 1996. These
financial statements and financial highlights are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at March 31, 1997 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Insiders Select
Fund at March 31, 1997, the results of its operations, the changes in its net
assets and the financial highlights for the periods presented in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
May 9, 1997
16
<PAGE>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
SHAREHOLDER TAX INFORMATION -- (UNAUDITED)
The Portfolio is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of the Portfolio's fiscal
year end (March 31, 1997) as to the U.S. federal tax status of distributions
received by the Portfolio's shareholders in respect of such fiscal year.
During the fiscal year ended March 31, 1997, the following dividends and
distributions per share were paid by the Portfolio:
<TABLE>
<CAPTION>
ORDINARY INCOME LONG-TERM CAPITAL GAINS
- ------------------------------------- -------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
- ----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.720 $ 1.700 $ 1.730 $ 0.200 $ 0.019 $ 0.200
- ----------- ----------- ----------- --------- --------- ---------
- ----------- ----------- ----------- --------- --------- ---------
</TABLE>
The percentage of ordinary income received from The Insiders Select Fund
qualifying for the corporate dividends received deduction is 16.86%. All
Portfolio dividends were derived from dividend income.
Because the Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 1997. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns, will be made in conjunction
with Form 1099-DIV and will be mailed in January 1998.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend. They will generally not be entitled to a foreign tax
credit or deduction for the withholding taxes paid by the Portfolio.
In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income for U.S. federal income tax purposes.
However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may
need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Portfolio.
17
<PAGE>
BEAR STEARNS
The
Bear Stearns
Funds
245 PARK AVENUE
NEW YORK, NY 10167
1.800.766.4111
Robert S. Reitzes Chairman of the Board and
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
Deloitte & Touche LLP Kramer, Levin, Naftalis & Frankel
Two World Financial Center 919 Third Avenue
New York, NY 10281 New York, NY 10022
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 & Poors[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-011-04
S&P STARS
PORTFOLIO
ANNUAL REPORT
MARCH 31, 1997
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
LETTER TO SHAREHOLDERS
April 21, 1997
Dear Shareholders:
We are pleased to present the annual report to shareholders for the S&P STARS
Portfolio (the "Portfolio") for the fiscal year ended March 31, 1997. This was a
volatile time for the equity market, particularly the technology sector, which
is a core area of concentration for the Portfolio. Although we remain sanguine
about the prospects for technology in the long run, the sell-off in this area at
the end of March dragged down the Portfolio's performance for the twelve-month
period.
For the fiscal year ended March 31, 1997, the Portfolio's class A shares
(without giving effect to the sales charge) had a total return of 16.87%*, class
C shares (without giving effect to the contingent deferred sales charge) had a
total return of 16.33% and class Y shares returned 17.48%. The Portfolio's
benchmark, the S&P 500 Composite Index, returned 19.73% for the same period.
Additional performance data for each class of shares can be found in the
"Financial Highlights" section of this report.
Since our semi-annual report last fall, the economy has proved to be stronger
than we, along with many other market watchers, had expected. Gross Domestic
Product growth for the fourth quarter of 1996 was a healthy 3.8%. Despite recent
concerns about a pick-up in inflation, we expect growth to remain a moderate 2%
to 3% this year with a modest inflation rate of roughly 3%. Factors that should
help keep inflation under control include increased global competition and ample
production capacity.
MAINTAINING A DISCIPLINED STRATEGY
Growth stocks, particularly technology issues, corrected in June and July last
year, rebounded in the fall, then corrected again in late March. Recognizing
that volatility is a characteristic of the kinds of companies we focus on, we
will continue to maintain our discipline of concentrating on those areas we
believe have the best long-term earnings growth potential -- notably technology
and health care.
In the technology sector, new holdings include Analog Devices, Inc. (2.06% of
the Master Series' net assets), a leader in wireless communications technology;
Quantum Corp. (3.55%) and Seagate Technology, Inc. (5.60%), two leading
suppliers of disk drives; and Cisco Systems, Inc. (4.01%), the world's largest
supplier of high-performance computer inter-networking systems. Significantly,
unlike many other fund managers, we held onto some of our key technology
positions, such as Intel Corp. (11.81%) and Seagate Technology, Inc. (5.60%),
because at recent prices they were selling below their expected growth rates.
We added Warner-Lambert Co. (4.82%), which we believe to be poised for
significant growth with the recent introduction of two new drugs, Lipitor, a
cholesterol-reducing drug, and the diabetes drug Rezulin, both of which quickly
gained significant market share. We also saw opportunity in the consolidation
occurring in the financial services sector and have added Conseco, Inc. (4.15%),
which recently acquired several smaller insurance companies.
Our strategy in the months ahead will be to continue to try to identify
companies that have solid growth prospects for the following six-to twelve-month
period.
- --------
* For the fiscal year ended March 31, 1997, the Portfolio's class A shares had a
total return of 11.34% including the initial maximum 4.75% sales charge.
1
<PAGE>
In conclusion, we value the confidence you have placed in us and would be
pleased to address any questions or concerns you may have. Please feel free to
call us at 1-800-766-4111.
Sincerely,
[SIGNATURE]
Robert S. Reitzes
Chairman of the Board and President
The Bear Stearns Funds
Portfolio Manager
S&P STARS Master Series
2
<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) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS CLASS A SHARES CLASS C SHARES S&P 500 COMPOSITE INDEX
<S> <C> <C> <C>
Apr. 5, 1995 $9,525
June 30, 1995 10,573 11,083 10,848
Sep. 30, 1995 11,446 11,975 11,709
Dec. 31, 1995 11,648 12,170 12,411
Mar. 31, 1996 12,162 12,691 13,074
June 30, 1996 12,307 12,837 13,659
Sep. 30, 1996 13,287 13,836 14,076
Dec. 31, 1996 14,881 15,471 15,247
Mar. 31, 1997 14,209 14,764 15,653
$9,525 Investment made on April 5, 1995
Past performance is not predictive of future performance
<CAPTION>
DOLLARS CONSUMER PRICE INDEX
<S> <C>
Apr. 5, 1995 $10,000
June 30, 1995 10,079
Sep. 30, 1995 10,126
Dec. 31, 1995 10,178
Mar. 31, 1996 10,284
June 30, 1996 10,364
Sep. 30, 1996 10,430
Dec. 31, 1996 10,522
Mar. 31, 1997 10,568
$9,525 Investment made on April 5, 1995
Past performance is not predictive of future performance
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
S&P STARS Portfolio(2)
Class A shares(4)............................................... 11.34% 19.29%
Class C shares.................................................. 16.33 21.60
S&P 500 Composite Index(1).......................................... 19.73 25.23
Consumer Price Index(1)............................................. 2.76 2.81
</TABLE>
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses (class A shares reflect the initial
maximum 4.75% sales charge). Investors should note that the Portfolio is a
professionally managed mutual fund while the indices are either unmanaged and
do not incur sales charges or expenses and/or are not available for
investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and/or
reimbursements, total returns would have been lower had there been no
assumption of fees and/or expenses in excess of expense limitations.
(3)For the period of April 5, 1995 (commencement of investment operations)
through March 31, 1997.
(4)Reflects the initial maximum 4.75% sales charge. Without the applicable sales
charge, the total returns would have been 16.87% and 22.25% respectively, for
each period shown.
3
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS Y SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P STARS PORTFOLIO
<S> <C> <C> <C>
Class Y shares S&P 500 Composite Consumer Price Index
August 7, 1995 $10,000 $10,000 $10,000
September 30, 1995 10,241 10,486 10,039
December 31, 1995 10,435 11,115 10,098
March 31, 1996 10,908 11,709 10,197
June 30, 1996 11,054 12,233 10,269
September 30, 1996 11,943 12,607 10,347
December 31, 1996 13,400 13,655 10,433
March 31, 1997 12,816 14,019 10,478
Past performance is not predictive of future performance
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
S&P STARS Portfolio
Class Y shares(2)............................................... 17.48% 16.20%
S&P 500 Composite Index(1).......................................... 19.73 22.69
Consumer Price Index(1)............................................. 2.76 2.87
</TABLE>
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and/or
expense reimbursements, total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period of August 7, 1995 (initial public offering date) through March
31, 1997.
4
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automotive Equipment 2.61%
Banks 6.34%
Chemicals & Fertilizers 4.30%
Computers & Office Equipment 18.76%
Computer Services 4.37%
Diversified Operations 5.37%
Drugs & Hospital Supplies 6.93%
Electronic Measuring Instruments 5.10%
Electronics 21.31%
Insurance 4.15%
Machinery 3.41%
Oil - Offshore Drilling 3.89%
Restaurants 4.73%
Retailing 3.67%
Other 5.06%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
---- -------------------------------------------------- --------------------------- ----------
<C> <S> <C> <C>
1. Intel Corp. ...................................... Electronics 11.81
2. Adaptec, Inc. .................................... Electronics 7.44
3. Seagate Technology, Inc........................... Computers & Office 5.60
Equipment
4. General Electric Co. ............................. Diversified Operations 5.37
5. Vishay Intertechnology, Inc. ..................... Electronic Measuring 5.10
Instruments
6. Warner-Lambert Co. ............................... Drugs & Hospital Supplies 4.82
7. Wendy's International, Inc........................ Restaurants 4.73
8. EMC Corp. ........................................ Computers & Office 4.58
Equipment
9. Citicorp.......................................... Banks 4.51
10. Computer Associates International, Inc. .......... Computer Services 4.37
</TABLE>
5
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments in S&P STARS Master Series
("Master Series"), at value.................... $ 120,014,527
Receivable for investments sold in Master
Series......................................... 1,641,921
Receivable for Portfolio shares sold............ 343,443
Deferred organization expenses and other
assets......................................... 156,571
-------------
Total assets.............................. 122,156,462
-------------
LIABILITIES
Payable for investments purchased in Master
Series......................................... 1,641,921
Payable for Portfolio shares repurchased........ 343,443
Distribution fee payable (class A and C
shares)........................................ 189,039
Administration fee payable...................... 17,432
Accrued expenses................................ 88,603
-------------
Total liabilities......................... 2,280,438
-------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 7,435
Paid-in capital................................. 107,925,894
Accumulated net realized gain from Master
Series......................................... 9,987,870
Net unrealized appreciation from Master
Series......................................... 1,954,825
-------------
Net assets................................ $ 119,876,024
-------------
-------------
CLASS A
Net assets...................................... $ 67,490,866
-------------
Shares of beneficial interest outstanding....... 4,183,005
-------------
Net asset value per share....................... $16.13
Maximum offering price per share (net asset
value plus sales charge of 4.75%* of the
offering price)................................ $16.93
CLASS C
Net assets...................................... $ 37,622,491
-------------
Shares of beneficial interest outstanding....... 2,342,170
-------------
Net asset value and offering price per
share**........................................ $16.06
CLASS Y
Net assets...................................... $ 14,762,667
-------------
Shares of beneficial interest outstanding....... 909,551
-------------
Net asset value, offering and redemption price
per share...................................... $16.23
</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.
6
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Allocated net investment income from Master
Series......................................... $ 589,335
----------
EXPENSES
Distribution fees - class A..................... 276,327
Distribution fees - class C..................... 324,164
Transfer agent fees and expenses................ 176,208
Administration fees............................. 149,100
Legal and auditing fees......................... 97,111
Federal and state registration fees............. 82,609
Accounting fees................................. 65,999
Reports and notices to shareholders............. 45,001
Amortization of organization expenses........... 40,719
Trustees' fees and expenses..................... 7,501
Custodian fees and expenses..................... 5,001
Other........................................... 7,001
----------
Total expenses............................ 1,276,741
----------
Net investment loss............................. (687,406)
----------
NET REALIZED AND UNREALIZED GAIN FROM MASTER
SERIES
Net realized gain............................... 16,488,691
Net change in unrealized appreciation........... (4,048,192)
----------
Net realized and unrealized gain from Master
Series......................................... 12,440,499
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $11,753,093
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE APRIL 5,
FISCAL 1995*
YEAR ENDED THROUGH
MARCH 31, MARCH 31,
1997 1996
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment loss............................. $ (687,406) $ (47,440)
Net realized gain from Master Series............ 16,488,691 3,768,620
Net change in unrealized appreciation from
Master Series.................................. (4,048,192) 6,003,017
------------- -------------
Net increase in net assets resulting from
operations..................................... 11,753,093 9,724,197
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class Y shares.................................. -- (14,755)
------------- -------------
-- (14,755)
------------- -------------
Net realized capital gains
Class A shares.................................. (4,448,797) (994,461)
Class C shares.................................. (2,375,768) (560,676)
Class Y shares.................................. (956,196) (183,942)
------------- -------------
(7,780,761) (1,739,079)
------------- -------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares............ 66,340,756 86,911,640
Cost of shares repurchased...................... (39,406,235) (14,635,820)
Shares issued in reinvestment of dividends...... 7,060,655 1,537,317
------------- -------------
Net increase in net assets derived from shares
of beneficial interest transactions............ 33,995,176 73,813,137
------------- -------------
Total increase in net assets.................... 37,967,508 81,783,500
NET ASSETS
Beginning of period............................. 81,908,516 125,016
------------- -------------
End of period................................... $ 119,876,024 $ 81,908,516
------------- -------------
------------- -------------
</TABLE>
- --------
* Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below are per share operating performace 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 FISCAL APRIL 5, 1995*
YEAR ENDED THROUGH
MARCH 31, 1997 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).... (0.09) (0.17) (0.02) -- (0.06) 0.07
Net realized and unrealized gain
from Master Series(2)........... 2.63 2.62 2.66 3.31 3.28 1.20
-------- -------- -------- -------- -------- --------
Net increase in net assets
resulting from operations....... 2.54 2.45 2.64 3.31 3.22 1.27
-------- -------- -------- -------- -------- --------
Dividends and distributions to
shareholders from
Net investment income.......... -- -- -- -- -- (0.03)
Net realized capital gains..... (1.33) (1.25) (1.38) (0.39) (0.36) (0.40)
-------- -------- -------- -------- -------- --------
(1.33) (1.25) (1.38) (0.39) (0.36) (0.43)
-------- -------- -------- -------- -------- --------
Net asset value, end of period... $ 16.13 $ 16.06 $ 16.23 $ 14.92 $ 14.86 $14.97
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total investment return for the
period(3)....................... 16.87% 16.33% 17.48% 27.68% 26.91% 9.09%(6)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)........................ $ 67,491 $ 37,622 $ 14,763 $ 45,049 $ 28,081 $8,779
Ratio of expenses to average net
assets(1)....................... 1.50% 2.00% 1.00% 1.50%(4) 2.00%(4) 1.00%(4)
Ratio of net investment
income/(loss)
to average net assets(1)........ (0.59)% (1.09)% (0.10)% (0.01)%(4) (0.45)%(4) 0.82%(4)(6)
Decrease reflected in above
expense ratios
and net investment loss due to
waivers and reimbursements(5)... 0.70% 0.70% 0.70% 0.89%(4) 0.92%(4) 0.99%(4)(6)
</TABLE>
- --------
* Commencement of investment operations. Class Y shares commenced its initial
public offering on August 7, 1995.
** Calculated based upon shares outstanding on the first and last day of the
respective period, except for dividends and distributions, if any, which are
based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and/or 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 value
during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) Annualized.
(5) 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.
9
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
NOTES TO FINANCIAL STATEMENTS
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 March 31, 1997). 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 approximately $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).
10
<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 Portifolio. Dividends and distributions to shareholders are
recorded on the ex-dividend date. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within
capital accounts based on their U.S. federal tax-basis treatment; temporary
differences do not require reclassification. At March 31, 1997, the Portfolio
reclassified within the composition of net assets a net operating loss of
$734,846 to accumulated net realized gains.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
During the fiscal year ended March 31, 1997, Bear Stearns Funds Management Inc.
("BSFM" or the "Administrator") served as administrator to the Portfolio
pursuant to an Administration Agreement. The Administrator is entitled to
receive from the Portfolio a monthly fee equal to an annual rate of 0.15% of the
Portfolio's average daily net assets. Under the terms of an Administrative
Services Agreement with the Portfolio, PFPC Inc. provides certain administrative
services to the Portfolio. For providing these services, 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 fiscal year ended March 31, 1997, 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 subsidary 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 fiscal year ended March 31, 1997, 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 fiscal year ended
March 31, 1997, Bear Stearns earned $600,491 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. As a result
of an undertaking by the Distributor, it reallowed all of the sales charges to
its dealers selling Portfolio shares for the period April 5, 1995 (commencement
of investment operations) through September 26, 1995 and the period February 15,
1996 through June 30, 1996. Furthermore, the Distributor has
11
<PAGE>
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 fiscal year ended March 31, 1997, Bear Stearns has advised the Portfolio
that it received approximately $904,000 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. Bear Stearns has advised the Portfolio that for the fiscal year ended
March 31, 1997, it received approximately $30,000 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 $66,340,367 and $41,277,815, 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 March 31, 1997, 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 fiscal year
ended March 31, 1997 were as follows:
<TABLE>
<CAPTION>
SALES REINVESTMENTS
--------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- --------- -------------
<S> <C> <C> <C> <C>
Class A shares..................................................... 2,517,105 $ 42,363,300 242,732 $ 3,986,019
Class C shares..................................................... 935,884 15,772,161 134,250 2,197,714
Class Y shares..................................................... 492,911 8,205,295 53,147 876,922
<CAPTION>
REPURCHASES
---------------------------
SHARES AMOUNT
----------- --------------
<S> <C> <C>
Class A shares..................................................... 1,596,708 $ 25,841,545
Class C shares..................................................... 617,043 9,919,428
Class Y shares..................................................... 223,037 3,645,262
</TABLE>
Transactions in the classes of shares of beneficial interests for the period
April 5, 1995 (commencement of investment operations) through March 31, 1996
were as follows:
<TABLE>
<CAPTION>
SALES REINVESTMENTS
--------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- --------- -------------
<S> <C> <C> <C> <C>
Class A shares..................................................... 3,601,121 $ 48,488,374 58,847 $ 850,924
Class C shares..................................................... 2,211,148 29,952,540 34,906 503,689
Class Y* shares.................................................... 595,898 8,595,742 12,618 182,704
<CAPTION>
REPURCHASES
---------------------------
SHARES AMOUNT
----------- --------------
<S> <C> <C>
Class A shares..................................................... 640,092 $ 9,215,429
Class C shares..................................................... 356,975 5,104,093
Class Y* shares.................................................... 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 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
12
<PAGE>
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 during the fiscal year ended March 31, 1997.
SUBSEQUENT EVENT
At the April 29, 1997, meeting of the Board of Trustees of the Fund, the Board
authorized a transaction that would "despoke" the S&P STARS Portfolio and
liquidate the S&P STARS Fund. This would be accomplished by a redemption request
that all shares of the S&P STARS Portfolio be redeemed and the Master Series
fulfull its redemption obligation by delivering portfolio securities, rather
than cash, that the Master Series currently holds at the date of the redemption.
This would thereby keep all shareholders essentially in the same position as
they were prior to the transaction. The transaction is subject to approval by
the Portfolio's shareholders of a new investment advisory agreement between the
Fund, on behalf of the Portfolio, and BSFM.
13
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders,
S&P STARS Portfolio
(A series of The Bear Stearns Funds):
We have audited the accompanying statement of assets and liabilities of the S&P
STARS Portfolio (the "Portfolio") as of March 31, 1997, and the related
statements of operations, changes in net assets and the financial highlights for
the fiscal year ended March 31, 1997 and the period April 5, 1995 (commencement
of operations) through March 31, 1996. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of S&P STARS Portfolio
at March 31, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the periods presented in conformity with
generally accepted accounting principles.
Deloitte & Touche
Dublin, Ireland
May 9, 1997
14
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
SHAREHOLDER TAX INFORMATION -- (UNAUDITED)
The Portfolio is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholder within 60 days of the Portfolio's fiscal
year end (March 31, 1997) as to the U.S. federal tax status of distributions
received by the Portfolio's shareholders in respect of such fiscal year.
During the fiscal year ended March 31, 1997 the following dividends and
distributions per share were paid by the Portfolio:
<TABLE>
<CAPTION>
ORDINARY INCOME LONG-TERM CAPITAL GAINS
- ------------------------------------- -------------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 1.24 $ 1.16 $ 1.29 $ 0.09 $ 0.09 $ 0.09
----- ----- ----------- ----- ----- -----
----- ----- ----------- ----- ----- -----
</TABLE>
The percentage of ordinary income dividends received from S&P STARS Portfolio
qualifying for the corporate dividends received deduction is 11.99%.
This information is given to meet certain requirements of the Internal Revenue
Code of 1986, as amended.
Because the Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 1997. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns, will be made in conjunction
with Form 1099-DIV and will be mailed in January 1998.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend. They will generally not be entitled to a foreign tax
credit or deduction for the withholding taxes paid by the Portfolio, if any.
In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income for U.S. federal income tax purposes.
However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans may
need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Portfolio.
15
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
----------------------------------------------------------
MARKET
SHARES+ VALUE
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--97.31%
AUTOMOTIVE EQUIPMENT - 2.61%
60,000 Goodyear Tire & Rubber Co.
(The) ............................. $ 3,135,000
------------
BANKS - 6.34%
60,000 Bank of New York Co., Inc. ........ 2,205,000
50,000 Citicorp........................... 5,412,500
------------
7,617,500
------------
CHEMICALS & FERTILIZERS - 4.30%
135,000 Monsanto Co. ...................... 5,163,750
------------
COMPUTERS & OFFICE EQUIPMENT - 18.76%
100,000 Cisco Systems, Inc.*++............. 4,812,500
155,000 EMC Corp.*......................... 5,502,500
100,000 HMT Technology Corp.*++............ 1,225,000
110,500 Quantum Corp.*+++.................. 4,268,061
150,000 Seagate Technology, Inc.*.......... 6,731,250
------------
22,539,311
------------
COMPUTER SERVICES - 4.37%
135,000 Computer Associates International,
Inc. .............................. 5,248,125
------------
DIVERSIFIED OPERATIONS - 5.37%
65,000 General Electric Co. .............. 6,451,250
------------
DRUGS & HOSPITAL SUPPLIES - 6.93%
30,000 Merck & Co., Inc. ................. 2,527,500
67,000 Warner-Lambert Co. ................ 5,795,500
------------
8,323,000
------------
ELECTRICAL EQUIPMENT - 0.92%
115,000 DSP Communications, Inc.*++........ 1,106,875
------------
ELECTRONIC MEASURING INSTRUMENTS - 5.10%
277,000 Vishay Intertechnology, Inc.*...... 6,128,625
------------
ELECTRONICS - 21.31%
250,000 Adaptec, Inc.*..................... 8,937,500
110,000 Analog Devices, Inc.*+++........... 2,475,000
102,000 Intel Corp. ....................... 14,190,750
------------
25,603,250
------------
<CAPTION>
- --------------------------------------------------------------
MARKET
SHARES+ VALUE
- --------------------------------------------------------------
<C> <S> <C>
INSURANCE - 4.15%
140,000 Conseco, Inc. ..................... $ 4,987,500
------------
LASER SYSTEMS - 0.20%
5,000 Coherent, Inc.*.................... 239,063
------------
MACHINERY - 3.41%
210,000 Crompton & Knowles Corp.+++........ 4,095,000
------------
OIL & NATURAL GAS - 1.25%
45,000 Apache Corp. ...................... 1,507,500
------------
OIL - OFFSHORE DRILLING - 3.89%
185,000 Global Marine Inc.*................ 3,977,500
40,000 Noble Drilling Corp.*.............. 690,000
------------
4,667,500
------------
RESTAURANTS - 4.73%
275,700 Wendy's International, Inc. ....... 5,686,313
------------
RETAILING - 3.67%
82,500 Home Depot, Inc. (The)............. 4,413,750
------------
Total Common Stocks
(cost - $115,044,732).............. 116,913,312
------------
<CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS--1.88%
INVESTMENT COMPANIES - 1.88%
2,257,573 The Milestone Funds Treasury
Obligations Portfolio,
Institutional Shares**++........... 2,257,573
306 Federated Investors, Trust for
Short-Term U.S. Government Trust
Securities**++..................... 306
------------
Total Short-Term Investments
(cost $2,257,879).................. 2,257,879
------------
Total Investments
(cost $117,302,611) - 99.19%....... 119,171,191
Other assets in excess of
liabilities - 0.81%................ 968,902
------------
Net Assets - 100.00%............... $120,140,093
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
----------------------------------------------------------
NUMBER OF MARKET
CONTRACTS VALUE
- --------------------------------------------------------------
<C> <S> <C>
WRITTEN CALL OPTIONS
ELECTRONICS
200 Intel Corp*++
07/19/97 @ $160.................... $ (115,000)
200 Intel Corp*++
07/19/97 @ $155.................... (127,500)
------------
(premiums received - $332,539) $ (242,500)
------------
------------
</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.
** Money market fund.
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.
17
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $117,302,611)..... $119,171,191
Receivable for investments sold................. 4,224,333
Receivable for beneficial interests sold........ 343,443
Dividends and interest receivable............... 95,191
Deferred organization expenses and other
assets......................................... 74,016
-----------
Total assets.............................. 123,908,174
-----------
LIABILITIES
Payable for investments purchased............... 1,812,560
Payable for beneficial interests repurchased.... 1,641,921
Written call options, at value (premiums
received - $332,539)........................... 242,500
Advisory fee payable............................ 21,234
Custodian fee payable........................... 3,626
Accrued expenses................................ 46,240
-----------
Total liabilities......................... 3,768,081
-----------
NET ASSETS
Net proceeds from capital contributions and
withdrawals.................................... 118,181,474
Net unrealized appreciation on investments and
option transactions............................ 1,958,619
-----------
Net assets applicable to investors'
beneficial interests....................... $120,140,093
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends....................................... $ 808,843
Interest........................................ 103,629
-----------
912,472
-----------
EXPENSES
Advisory fees................................... 747,970
Administration and accounting fees.............. 123,741
Legal and auditing fees......................... 58,632
Custodian fees and expenses..................... 37,581
Amortization of organization expenses........... 20,002
Insurance expenses.............................. 16,280
Trustees' fees and expenses..................... 14,209
Other........................................... 3,267
-----------
Total expenses before waivers............. 1,021,682
Less: waivers............................. (699,997)
-----------
Total expenses after waivers.............. 321,685
-----------
Net investment income........................... 590,787
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
SECURITIES SOLD SHORT AND OPTION TRANSACTIONS:
Net realized gain/(loss) from:
Investments............................... 16,532,203
Securities sold short..................... (23,862)
Option transactions....................... (1,540)
Net change in unrealized appreciation on:
Investments............................... (4,137,794)
Option transactions....................... 90,039
-----------
Net realized and unrealized gain on investments,
securities sold short and option
transactions................................... 12,459,046
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $13,049,833
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL APRIL 5, 1995*
YEAR ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996
------------------ -----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income........................... $ 590,787 $ 695,588
Net realized gain from investments, securities
sold short and option transactions............. 16,506,801 3,769,370
Net change in unrealized appreciation on
investments.................................... (4,047,755) 6,006,374
------------------ -----------------
Net increase in net assets resulting from
operations..................................... 13,049,833 10,471,332
------------------ -----------------
CAPITAL TRANSACTIONS
Contributions................................... 66,340,367 86,999,990
Withdrawals..................................... (41,277,815) (15,568,630)
------------------ -----------------
Net increase in net assets derived from capital
transactions................................... 25,062,552 71,431,360
------------------ -----------------
Total increase in net assets.................... 38,112,385 81,902,692
NET ASSETS
Beginning of period............................. 82,027,708 125,016
------------------ -----------------
End of period................................... $ 120,140,093 $ 82,027,708
------------------ -----------------
------------------ -----------------
</TABLE>
- --------
* Commencement of investment operations.
The accompanying notes are an integral part of the financial statements.
20
<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 PERIOD
FOR THE FISCAL APRIL 5, 1995*
YEAR ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996
----------------- -----------------
<S> <C> <C>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)....... $ 120,140 $ 82,028
Ratio of expenses to average net assets(1)...... 0.32% 0.19%(2)
Ratio of net investment income to average net
assets(1)...................................... 0.59% 1.36%(2)
Decrease reflected in above expense ratios due
to waivers and/or reimbursements............... 0.70% 0.91%(2)
Portfolio turnover rate......................... 220.00% 295.97%(3)
Average commission rate per share(4)............ $ 0.0595 $ 0.0603
</TABLE>
- --------
* Commencement of investment operations.
(1) Reflects waivers and/or reimbursements.
(2) Annualized.
(3) Not annualized.
(4) Represents average commission rate per share charged to the Master Series on
purchases and sales of investments subject to such commissions during each
period.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Fund
S&P STARS Master Series
NOTES TO FINANCIAL STATEMENTS
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 and
administration 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 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
22
<PAGE>
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 fiscal year ended March 31, 1997 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
------------------- -------------------
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period................ -- -- -- --
Options written................................... 400 $332,539 -- --
Options Purchased................................. -- -- 70 $ 1,960
Options closed or expired......................... -- -- (70 ) (1,960 )
--
--- -------- --------
Outstanding at end of period...................... 400 332,539 -- --
--
--
--- -------- --------
--- -------- --------
</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 fiscal year ended March 31, 1997, 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 fiscal year ended March 31, 1997, 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 effected by
waivers by the Adviser of its advisory fees and reimbursements of expenses
exceeding the advisory fee. For the fiscal year ended
23
<PAGE>
March 31, 1997, the Adviser waived $699,997 of its advisory fee 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 fiscal year ended March 31, 1997, Bear, Stearns & Co. Inc., an affiliate
of the Adviser, earned $368,765 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 March 31,
1997 was $117,393,549. Accordingly, the net unrealized appreciation of
investments of $1,777,642 was composed of gross appreciation of $8,067,308 for
those investments having an excess of value over cost; and gross depreciation of
$6,289,666 for those investments having an excess of cost over value.
For the fiscal year ended March 31, 1997, aggregate purchases and sales of
investment securities (excluding short-term investments) were $240,965,152 and
$213,126,061, 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 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 amount outstanding under the line of credit agreement for the Master Series
averaged $26,074 during the fiscal year ended March 31, 1997. The maximum amount
outstanding at any month-end under such line of credit agreement during the
fiscal year ended March 31, 1997 was $220,000. The monthly weighted average
interest rate during the fiscal year ended March 31, 1997, on amounts
outstanding under such line of credit agreement, was 8.09%.
The Master Series uses this facility to borrow money only for temporary or
emergency (not leveraging) purposes. The Master Series had no amount outstanding
under the line of credit agreement at March 31, 1997.
24
<PAGE>
THE BEAR STEARNS FUNDS
S&P STARS Master Series
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Investors,
S&P STARS Master Series
(A series of the S&P STARS Fund):
We have audited the accompanying statement of assets and liabilities of the S&P
STARS Master Series, (the "Master Series") as of March 31, 1997, and the related
statements of operations, changes in net assets and the financial highlights for
the fiscal year ended March 31, 1997 and the period April 5, 1995 (commencement
of operations) through March 31, 1996. These financial statements and financial
highlights are the responsibility of the Master Series's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of S&P STARS Master
Series at March 31, 1997, the results of its operations, the changes in its net
assets and the financial highlights for the periods presented in conformity with
generally accepted accounting principles.
Deloitte & Touche
Dublin, Ireland
May 9, 1997
25
<PAGE>
BEAR STEARNS
The
Bear Stearns
Funds
245 PARK AVENUE
NEW YORK, NY 10167
1.800.766.4111
Robert S. Reitzes Chairman of the Board and
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
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-009-04
LARGE CAP
VALUE PORTFOLIO
SMALL CAP
VALUE PORTFOLIO
TOTAL RETURN
BOND PORTFOLIO
ANNUAL REPORT
MARCH 31, 1997
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
LETTER TO SHAREHOLDERS
April 21, 1997
Dear Shareholders,
We are pleased to present the 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 fiscal year ended March 31, 1997. Detailed performance data for each class
of shares of each of the Portfolios can be found in the "Financial Highlights"
section of this report.
LARGE CAP VALUE PORTFOLIO
For the fiscal year ended March 31, 1997, Large Cap's class A shares (without
giving effect to the sales charge) had a total return of 15.44%1, class C shares
(without giving effect to the contingent deferred sales charge) had a total
return of 14.87% and class Y shares returned 16.04%. Large Cap's benchmark, the
S&P 500 Composite Index, returned 19.73% for the same period. Due to recent
additions in the technology sector to the Portfolio, notably Intel Corp. (4.44%
of Large Cap's net assets), Large Cap lagged its benchmark as technology stocks
underperformed the broader market during this period.
STAYING AHEAD OF THE INFLATION CURVE
From April 1996 through February 1997, the stock market continued its stellar
upward momentum. However, by March, the market was overextended and ready for a
catalyst to correct -- which it did, falling nearly 10% for the month. The
impetus for the correction came when the Federal Reserve Board raised interest
rates toward the end of the month based on concerns about possible wage
inflation. We believe that Chairman Greenspan is ahead of the inflation curve
and that we will see the economy slowing to the 2.5% - 3.0% range, which should
cause rates to fall in the second half of the year. This should be good news for
the stock market and for Large Cap.
During the first quarter of 1997, we increased our technology exposure with the
purchase of Intel Corp., Varian Associates, Inc. (3.88%) and Quantum Corp.
(3.81%). Due to the dollar's strength, we began to steer away from multinational
companies and to focus our attention on firms with significant domestic sales,
such as Wendy's International, Inc. (3.22%).
Following our strategy of seeking out undervalued companies whose long-term
earnings are expected to get a boost from a near-term catalyst, we acquired The
Goodyear Tire & Rubber Co. (6.38%), which is currently benefiting from
restructuring and cost-cutting initiatives, and Pitney Bowes, Inc. (4.80%),
which is profiting from the trend to digital meters and from the outsourcing of
its office services.
We expect a volatile market over the near term as investors anticipate further
interest rate hikes, but we would view market dips as buying opportunities.
- --------
1 For the fiscal year ended March 31, 1997, Large Cap's class A shares had a
total return of 9.96% including the initial maximum 4.75% sales charge.
1
<PAGE>
SMALL CAP VALUE PORTFOLIO*
Given the volatility in the stock market in general over the past year and the
sell-off in the small-cap market in the first quarter of 1997, Small Cap's
performance was particularly noteworthy. For the fiscal year ended March 31,
1997, Small Cap's class A shares (without giving effect to the sales charge) had
a total return of 11.71%2 , class C shares (without giving effect to the
contingent deferred sales charge) had a total return of 11.12% and class Y
shares returned 12.19% -- all outperforming Small Cap's benchmark, the Russell
2000 Index, which returned 5.13% for the same period.
We believe Small Cap's relative strength can be attributed to our strategy of
following a disciplined value-oriented approach and avoiding high-risk stocks.
We continue to buy companies with low absolute and relative price-earnings
multiples and strong fundamentals that are expected to lead to long-term
earnings growth. Companies are sold when their current performance and future
outlook do not meet our expectations.
SEEKING GROWTH IN UNIQUE SCENARIOS
In the recent rising interest rate environment, we have found unique situations
where a company's stock price reflects a perceived vulnerability to higher
rates, although the firm's underlying fundamentals, we believe, are quite
strong. For example, Chase Brass Industries, Inc. (2.47% of Small Cap's net
assets), which manufactures brass rod, is viewed as a new housing and
construction company, and its stock is trading at a price-earnings multiple of
under nine-times 1997 and eight-times 1998 earnings per share estimates.
However, Chase is selling everything it produces and just implemented a price
increase. Home remodeling, the concern over lead in drinking water and the
firm's move into asymmetrical shapes should continue to constrain capacity even
as production capabilities are increased incrementally. Chase generates excess
free cash flow, management owns over 10% of the shares, and it recently
completed an acquisition that should add $0.20 - $0.30 per share to earnings
this year -- all reasons why we see value and an underpriced stock.
As illustrated above, our primary focus continues to be on individual stocks. We
believe there are compelling company-specific stories with strong earnings
growth even in an environment of rising interest rates. Rigorous internal,
in-depth research will continue to be key to our stock selection, and with
increasing volatility in the market, we will seek opportunities to buy unique
stocks at even more attractive valuations.
TOTAL RETURN BOND PORTFOLIO
For the fiscal year ended March 31, 1997, Bond Portfolio's class A shares
(without giving effect to the sales charge) had a total return of 4.40%3, class
C shares (without giving effect to the contingent deferred sales charge) had a
total return of 3.99% and class Y shares returned 4.77%. Bond Portfolio's
benchmark, Salomon Brothers Broad Investment Grade Bond Index, returned 4.92%
for the same period.
Over the period, Bond Portfolio's emphasis on corporate securities, with their
relatively higher yields, added to its relative returns as corporate spreads
tightened. However, this same strategy worked against us in March of this year
as spreads widened due to quarter-end pressures and the Federal Reserve's
tightening.
- --------
* Small-cap funds typically carry additional risks, since smaller companies
generally have a higher risk of failure than well-established, larger
companies. Historically, stocks of smaller companies have experienced a
greater degree of market volatility than stocks on average.
2 For the fiscal year ended March 31, 1997, Small Cap's class A shares had a
total return of 6.41% including the initial maximum 4.75% sales charge.
3 For the fiscal year ended March 31, 1997, Bond Portfolio's class A shares had
a total return of 0.49% including the initial maximum 3.75% sales charge.
2
<PAGE>
FOCUSING ON CORPORATE AND MORTGAGE-BACKED SECURITIES
During the past six to eight months, the fixed income markets traded in a fairly
narrow range. In that regard, the strategy that we have had in place has paid
off. We have overweighted corporate and mortgage-backed securities for two
reasons: 1) to generate high income in a stable, low-volatility environment and
2) to benefit from expected spread tightening versus U.S. Treasury securities.
In the near term, we expect to increase our exposure to Yankee credits
(dollar-denominated bonds issued by foreign banks and companies in the U.S.),
especially those issued by countries where spreads have widened on what we
believe to be largely unwarranted political and economic concerns.
From a structural standpoint, we will continue to focus on securities that
should benefit from increased volatility. In the mortgage sector, this points
toward discounted collateral, well-structured collateralized mortgage
obligations and commercial mortgage tranches, and in the corporate sector,
toward noncallable or putable issues.
We expect the U.S. economy to remain strong with inflation under control.
However, as the economies of Europe and Japan pick up, we expect to see a
strengthening in U.S. exports in spite of the dollar's strength. This will keep
upward pressure on wages and keep the Federal Reserve in a tightening mode. We
believe that at least one and possibly two tightenings will occur this year. As
a result, we expect a more volatile market, with long-term rates testing the
7.20% - 7.25% range before the market rallies later in the year. We will
continue to emphasize corporate securities in the Bond Portfolio, given
favorable economic conditions and the recent widening of spreads.
We continue to carefully monitor commodities prices and any labor market
developments for signs of pressure that could trigger further short-term upward
moves in interest rates.
In conclusion, we value the confidence you have placed in us and would be
pleased to address any questions or concerns you may have. Please feel free to
call us at 1-800-766-4111.
Sincerely,
<TABLE>
<S> <C> <C>
[SIGNATURE] [SIGNATURE] [SIGNATURE]
Robert S. Reitzes Mark Kurland Peter E. Mahoney
Chairman of the Board and Portfolio Manager Portfolio Manager
President Large Cap Value Portfolio Total Return Bond Portfolio
The Bear Stearns Funds
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) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
Large Cap Value Portfolio
Class A shares Class C shares S&P 500 Composite Index
Apr. 4, 1995 $9,525 $10,000 $10,000
June 30, 1995 10,192 10,683 10,924
Sept. 30, 1995 11,295 11,825 11,791
Dec. 31, 1995 11,915 12,463 12,498
Mar. 31, 1996 12,034 12,571 13,166
June 30, 1996 12,042 12,563 13,755
Sept. 30, 1996 12,257 12,771 14,175
Dec. 31, 1996 13,627 14,178 15,354
Mar. 31, 1997 13,892 14,440 15,763
$9,525 Investment made on April 4, 1995
Past performance is not predictive of future performance
Large Cap Value Portfolio
Class A shares $13,892
Class C shares $14,440
S&P 500 Composite Index $15,763
Consumer Price Index $10,568
<CAPTION>
DOLLARS
<S> <C>
Large Cap Value Portfolio
Consumer Price Index
Apr. 4, 1995 $10,000
June 30, 1995 10,079
Sept. 30, 1995 10,126
Dec. 31, 1995 10,178
Mar. 31, 1996 10,284
June 30, 1996 10,364
Sept. 30, 1996 10,430
Dec. 31, 1996 10,522
Mar. 31, 1997 10,568
$9,525 Investment made on April 4, 1995
Past performance is not predictive of future performance
Large Cap Value Portfolio
Class A shares
Class C shares
S&P 500 Composite Index
Consumer Price Index
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
Large Cap Value Portfolio(2)
Class A shares(4)............................................... 9.96% 17.94%
Class C shares.................................................. 14.87 20.23
S&P 500 Composite Index(1).......................................... 19.73 25.63
Consumer Price Index(1)............................................. 2.76 2.81
</TABLE>
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period April 4, 1995 (commencement of investment operations) through
March 31, 1997.
(4)Reflects the initial maximum 4.75% sales charge. Without the applicable sales
charge, the total returns would have been 15.44% and 20.86%, respectively,
for each period shown.
4
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS Y SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C>
Large Cap Value Portfolio
Class Y shares S&P 500 Composite Index
Sept. 11, 1995 $10,000 $10,000
Sept. 30, 1995 $10,186 $10,221
Dec. 31, 1995 10,760 10,834
Mar. 31, 1996 10,875 11,413
June 30, 1996 10,896 11,923
Sept. 30, 1996 11,105 12,287
Dec. 31, 1996 12,360 13,309
Mar. 31, 1997 12,619 13,664
Past performance is not predictive of future performance
Large Cap Value Portfolio
Class Y shares $12,619
S&P 500 Composite Index $13,664
Consumer Price Index $10,451
<CAPTION>
DOLLARS
<S> <C>
Large Cap Value Portfolio
Consumer Price Index
Sept. 11, 1995 $10,000
Sept. 30, 1995 $10,013
Dec. 31, 1995 10,072
Mar. 31, 1996 10,170
June 30, 1996 10,242
Sept. 30, 1996 10,320
Dec. 31, 1996 10,405
Mar. 31, 1997 10,451
Past performance is not predictive of future performance
Large Cap Value Portfolio
Class Y shares
S&P 500 Composite Index
Consumer Price Index
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
Large Cap Value Portfolio(2)
Class Y shares.................................................. 16.04% 16.12%
S&P 500 Composite Index(1).......................................... 19.73 22.21
Consumer Price Index(1)............................................. 2.76 2.88
</TABLE>
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period September 11, 1995 (initial public offering date) through
March 31, 1997.
5
<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) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
Small Cap Value Portfolio
Class A shares Class C shares Russell 2000 Index
Apr. 3, 1995 $9,525 $10,000 $10,000
June 30, 1995 10,343 10,842 10,901
Sept. 30, 1995 12,057 12,625 11,969
Dec. 31, 1995 12,128 12,673 12,231
Mar. 31, 1996 12,797 13,358 12,852
June 30, 1996 14,240 14,847 13,511
Sept. 30, 1996 14,249 14,822 13,556
Dec. 31, 1996 14,002 14,553 14,248
Mar. 31, 1997 14,295 14,845 13,512
$9,525 Investment made on April 3, 1995
Past performance is not predictive of future performance
Small Cap Value Portfolio
Class A shares $14,296
Class C shares $14,845
Russell 2000 Index $13,512
Consumer Price Index $10,568
<CAPTION>
DOLLARS
<S> <C>
Small Cap Value Portfolio
Consumer Price Index
Apr. 3, 1995 $10,000
June 30, 1995 10,079
Sept. 30, 1995 10,126
Dec. 31, 1995 10,178
Mar. 31, 1996 10,284
June 30, 1996 10,364
Sept. 30, 1996 10,430
Dec. 31, 1996 10,522
Mar. 31, 1997 10,568
$9,525 Investment made on April 3, 1995
Past performance is not predictive of future performance
Small Cap Value Portfolio
Class A shares
Class C shares
Russell 2000 Index
Consumer Price Index
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
Small Cap Value Portfolio(2)
Class A shares(4)............................................... 6.41% 19.63%
Class C shares.................................................. 11.12 21.90
Russell 2000 Index(1)............................................... 5.13 16.27
Consumer Price Index(1)............................................. 2.76 2.81
</TABLE>
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period April 3, 1995 (commencement of investment operations) through
March 31, 1997.
(4)Reflects the initial maximum 4.75% sales charge. Without the applicable sales
charge, the total returns would have been 11.71% and 22.58%, respectively,
for each period shown.
6
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS Y SHARES (1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
Small Cap Value Portfolio
Class Y shares Russell 2000 Index Consumer Price Index
June 22, 1995 $10,000 $10,000 $10,000
June 30, 1995 9,954 10,037 10,027
Sept. 30, 1995 11,620 11,021 10,073
Dec. 31, 1995 11,697 11,262 10,132
Mar. 31, 1996 12,352 11,834 10,231
June 30, 1996 13,762 12,440 10,303
Sept. 30, 1996 13,770 12,481 10,382
Dec. 31, 1996 13,555 13,119 10,467
Mar. 31, 1997 13,857 12,441 10,513
Past performance is not predictive of future performance
Small Cap Value Portfolio
Class Y shares $13,857
Russell 2000 Index $12,441
Consumer Price Index $10,513
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
Small Cap Value Portfolio(2)
Class Y shares.................................................. 12.19% 20.17%
Russell 2000 Index(1)............................................... 5.13 13.07
Consumer Price Index(1)............................................. 2.76 2.85
</TABLE>
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period June 22, 1995 (initial public offering date) through March 31,
1997.
7
<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) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN BOND PORTFOLIO
<S> <C> <C> <C>
DOLLARS
Salomon Brothers Broad
Class A shares Class C shares Investment Grade Bond Index
Apr. 5, 1995 $9,625 $10,000 $10,000
June 30, 1995 10,027 10,412 10,568
Sept. 30, 1995 10,206 10,587 10,767
Dec. 31, 1995 10,679 11,064 11,234
Mar. 31, 1996 10,430 10,797 11,038
June 30, 1996 10,467 10,824 11,092
Sept. 30, 1996 10,644 10,996 11,300
Dec. 31, 1996 10,972 11,322 11,641
Mar. 31, 1997 10,908 11,245 11,581
$9,625 Investment made on April 5, 1995
Past performance is not predictive of future performance
Total Return Bond Portfolio
Class A shares 10,908
Class C shares 11,245
Salomon Brothers Broad Investment Grade Bond Index 11,581
Consumer Price Index 10,568
<CAPTION>
TOTAL RETURN BOND PORTFOLIO
<S> <C>
DOLLARS
Consumer
Price Index
Apr. 5, 1995 $10,000
June 30, 1995 10,079
Sept. 30, 1995 10,126
Dec. 31, 1995 10,185
Mar. 31, 1996 10,284
June 30, 1996 10,357
Sept. 30, 1996 10,436
Dec. 31, 1996 10,522
Mar. 31, 1997 10,568
$9,625 Investment made on April 5, 1995
Past performance is not predictive of future performance
Total Return Bond Portfolio
Class A shares
Class C shares
Salomon Brothers Broad Investment Grade Bond Index
Consumer Price Index
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
Total Return Bond Portfolio(2)
Class A shares(4)............................................... 0.49% 4.45%
Class C shares.................................................. 3.99 6.06
Salomon Brothers Broad Investment Grade Bond Index(1)............... 4.92 7.65
Consumer Price Index(1)............................................. 2.76 2.81
</TABLE>
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period April 5, 1995 (commencement of investment operations) through
March 31, 1997.
(4)Reflects the initial maximum 3.75% sales charge. Without the applicable sales
charge, the total returns would have been 4.40% and 6.47%, respectively, for
each period shown.
8
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS Y SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN BOND PORTFOLIO
<S> <C> <C> <C>
DOLLARS
Salomon Brothers Broad Consumer
Class Y shares Investment Grade Bond Index Price Index
Sept. 8, 1995 10,000 10,000 10,000
Sept. 30, 1995 10,036 10,056 10,013
Dec. 31, 1995 10,511 10,492 10,072
Mar. 31, 1996 10,274 10,309 10,170
June 30, 1996 10,319 10,360 10,242
Sept. 30, 1996 10,503 10,553 10,320
Dec. 31, 1996 10,837 10,872 10,405
Mar. 31, 1997 10,782 10,816 10,451
Past performance is not predictive of future
performance
Total Return Bond Portfolio
Class Y shares 10,782
Salomon Brothers Broad Investment Grade Bond Index 10,816
Consumer Price Index 10,451
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
<S> <C> <C>
Total Return Bond Portfolio(2)
Class Y shares.................................................. 4.77% 4.93%
Salomon Brothers Broad Investment Grade Bond Index(1)............... 4.92 5.14
Consumer Price Index(1)............................................. 2.76 2.86
</TABLE>
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period September 8, 1995 (initial public offering date) through March
31, 1997.
9
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Computers & Office Equipment 12.37%
Building & Construction 7.52%
Tobacco 3.36%
Cash & Cash Equivalents 0.33%
Electronics 4.44%
Instruments -- Scientific 1.37%
Automobiles 5.63%
Transport -- Railroads 3.68%
Life/Health Insurance 9.48%
Banks 4.41%
Protection -- Safety 5.33%
Drugs & Hospital Supplies 11.50%
Automotive Equipment 6.38%
Diversified Operations 8.46%
Soap & Cleaning Products 2.38%
Restaurants 3.22%
Credit & Finance 10.14%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ----- -------------------------------------------------- --------------------------- ----------
<C> <S> <C> <C>
1. Goodyear Tire & Rubber Co. (The) ................. Automotive Equipment 6.38
2. ADT Ltd. ......................................... Protection -- Safety 5.33
3. Pitney Bowes, Inc. ............................... Computers & Office
Equipment 4.80
4. General Electric Co. ............................. Diversified Operations 4.58
5. Intel Corp. ...................................... Electronics 4.44
6. Bank of New York Co., Inc. ....................... Banks 4.41
7. Equitable Cos., Inc. ............................. Life/Health Insurance 4.26
8. FannieMae......................................... Credit & Finance 4.16
9. Medtronic, Inc. .................................. Drugs & Hospital Supplies 4.11
10. Armstrong World Industries, Inc. ................. Building & Construction 4.09
</TABLE>
10
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Building & Housing 9.63%
Home Furnishings 2.93%
Retail - Restaurants 5.71%
Cosmetics & Soaps 2.83%
Banks 5.82%
Grocery Products 3.00%
Financial Services 2.59%
Steel 3.53%
Cash & Cash Equivalents 2.21%
Textiles & Shoes 4.48%
Tobacco 3.66%
Other 21.96%
Publishing & Broadcasting 3.16%
Non-Ferrous Metals 5.25%
Life/Health Insurance 2.63%
Rubber & Plastics 3.74%
Electronics 3.36%
Electrical Equipment 4.22%
Drugs & Hospital Supplies 2.57%
Coal 4.18%
Computers & Office Equipment 2.54%
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ----- -------------------------------------------------- --------------------------- ----------
<C> <S> <C> <C>
1. Triangle Pacific Corp. ........................... Building & Housing 5.11
2. AnnTaylor Stores Corp. ........................... Textiles & Shoes 4.48
3. Zeigler Coal Holding Co. ......................... Coal 4.18
4. Foodmaker, Inc. .................................. Retail -- Restaurants 4.11
5. Windmere-Durable Holdings Inc. ................... Electrical Equipment 3.86
6. DIMON Inc. ....................................... Tobacco 3.66
7. Universal Stainless & Alloy Products, Inc. ....... Steel 3.53
8. Cubic Corp. Designs............................... Electronics 3.36
9. Cadmus Communications Corp. ...................... Publishing & Broadcasting 3.16
10. Bay View Capital Corp. ........................... Banks 3.13
</TABLE>
11
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TREASURY / GOVERNMENT SECURITIES CORPORATES
<S> <C> <C>
Total Return Bond Portfolio 13.09% 54.41%
Salomon Brothers Broad Investment Grade Bond Index 50.77% 19.65%
<CAPTION>
MORTGAGE-BACKED SECURITIES PREFERRED STOCK
<S> <C>
Total Return Bond Portfolio 24.62% 5.42%
Salomon Brothers Broad Investment Grade Bond Index 29.58% 0.00%
<CAPTION>
CASH & CASH EQUIVALENTS
Total Return Bond Portfolio 2.46%
Salomon Brothers Broad Investment Grade Bond Index 0.00%
</TABLE>
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN SALOMON BROTHERS BROAD
BOND PORTFOLIO INVESTMENT GRADE BOND INDEX
------------------- -----------------------------------
<S> <C> <C>
9.26 years 8.63 years
Average Maturity..........................................................
4.88 years 4.76 years
Average Duration..........................................................
7.41% 7.19%
Average Coupon............................................................
7.56% 7.19%
Yield to Maturity.........................................................
- ----------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
----------------------------------------------------------
MARKET
SHARES VALUE
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--99.67%
AUTOMOBILES - 5.63%
13,600 Ford Motor Co. ...................... $ 426,700
6,600 General Motors Corp. ................ 365,475
-----------
792,175
-----------
AUTOMOTIVE EQUIPMENT - 6.38%
17,200 Goodyear Tire & Rubber Co. (The) .... 898,700
-----------
BANKS - 4.41%
16,900 Bank of New York Co., Inc. .......... 621,075
-----------
BUILDING & CONSTRUCTION - 7.52%
8,900 Armstrong World Industries, Inc. .... 576,275
12,000 Owens Corning........................ 483,000
-----------
1,059,275
-----------
COMPUTERS & OFFICE EQUIPMENT - 12.37%
11,500 Pitney Bowes, Inc. .................. 675,625
13,900 Quantum Corp.*....................... 536,888
9,300 Xerox Corp. ......................... 528,937
-----------
1,741,450
-----------
CREDIT & FINANCE - 10.14%
16,200 FannieMae............................ 585,225
7,100 Great Western Financial Corp. ....... 286,663
11,600 Travelers Group, Inc. ............... 555,350
-----------
1,427,238
-----------
DIVERSIFIED OPERATIONS - 8.46%
6,500 General Electric Co. ................ 645,125
10,200 Varian Associates, Inc. ............. 545,700
-----------
1,190,825
-----------
DRUGS & HOSPITAL SUPPLIES - 11.50%
12,100 Baxter International Inc. ........... 521,812
8,800 Bristol-Myers Squibb Co. ............ 519,200
9,300 Medtronic, Inc. ..................... 578,925
-----------
1,619,937
-----------
<CAPTION>
- ---------------------------------------------------------------
MARKET
SHARES VALUE
- ---------------------------------------------------------------
<C> <S> <C>
ELECTRONICS - 4.44%
4,500 Intel Corp. ......................... $ 626,063
-----------
INSTRUMENTS--SCIENTIFIC - 1.37%
3,000 Perkin-Elmer Corp. .................. 193,125
-----------
LIFE/HEALTH INSURANCE - 9.48%
3,900 Aon Corporation...................... 238,875
22,000 Equitable Cos., Inc. ................ 599,500
23,100 USF&G Corp. ......................... 496,650
-----------
1,335,025
-----------
PROTECTION--SAFETY - 5.33%
30,000 ADT Ltd.*............................ 750,000
-----------
RESTAURANTS - 3.22%
22,000 Wendy's International, Inc. ......... 453,750
-----------
SOAP & CLEANING PRODUCTS - 2.38%
20,800 Dial Corp. .......................... 335,400
-----------
TOBACCO - 3.36%
4,150 Philip Morris Cos. Inc. ............. 473,619
-----------
TRANSPORT--RAILROADS - 3.68%
4,590 Conrail, Inc. ....................... 517,522
-----------
Total Common Stocks
(cost - $12,409,053)................. 14,035,179
-----------
SHORT-TERM INVESTMENT- 0.49%
INVESTMENT COMPANY - 0.49%
69,397 The Milestone Funds Treasury
Obligations
Portfolio, Institutional Shares**
(cost - $69,397)..................... 69,397
-----------
Total Investments
(cost - $12,478,450) - 100.16%....... 14,104,576
Liabilities in excess of other assets
-(0.16)%............................. (22,744)
-----------
Net Assets - 100.00%................. $14,081,832
-----------
-----------
</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
Small Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
----------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--97.79%
AUTOMOTIVE EQUIPMENT - 1.09%
70,000 Audiovox Corp.*..................... $ 446,250
-----------
BANKS - 5.82%
25,100 Bay View Capital Corp. ............. 1,280,100
19,950 California Financial Holding Co. ... 578,550
30,500 Hamilton Bancorp, Inc. ............. 526,125
-----------
2,384,775
-----------
BUILDING & HOUSING - 9.63%
132,625 Fedders Corp., Class A.............. 712,859
73,500 Giant Cement Holding, Inc.*......... 1,139,250
76,000 Triangle Pacific Corp.*............. 2,090,000
-----------
3,942,109
-----------
CHEMICALS & FERTILIZERS - 0.61%
13,700 Lilly Industries, Inc. ............. 248,313
-----------
COAL - 4.18%
72,000 Zeigler Coal Holding Co. ........... 1,710,000
-----------
COMMERCIAL PRINTING - 2.32%
35,000 Bowne & Co., Inc. .................. 949,375
-----------
COMMERCIAL SERVICES - 0.98%
16,500 Steiner Leisure Ltd.*............... 400,125
-----------
COMMUNICATIONS - 1.63%
25,500 Data Transmission Network Corp.*.... 669,375
-----------
COMMUNICATIONS SOFTWARE - 1.21%
25,600 Dialogic Corp.*..................... 496,000
-----------
COMPUTERS & OFFICE EQUIPMENT - 2.54%
80,000 S3 Inc.*............................ 1,040,000
-----------
COSMETICS & SOAPS - 2.83%
80,550 Guest Supply, Inc.*................. 1,157,906
-----------
DIVERSIFIED OPERATIONS - 2.26%
77,000 Griffon Corp.*...................... 924,000
-----------
<CAPTION>
- ------------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------
<C> <S> <C>
DRUGS & HOSPITAL SUPPLIES - 2.57%
53,000 Global Pharmaceutical Corp.*........ $ 453,813
56,500 HumaScan Inc.*...................... 596,781
-----------
1,050,594
-----------
ELECTRICAL EQUIPMENT - 4.22%
34,000 Aerovox, Inc.*...................... 144,500
112,000 Windmere-Durable Holdings Inc. ..... 1,582,000
-----------
1,726,500
-----------
ELECTRONICS - 3.36%
57,300 Cubic Corp. Designs................. 1,375,200
-----------
ENTERTAINMENT & LEISURE - 0.27%
15,000 Colonial Downs Holdings, Inc., Class
A*.................................. 110,625
-----------
FINANCIAL SERVICES - 2.59%
35,900 Banks United Corp., Class A......... 1,059,050
-----------
GROCERY PRODUCTS - 3.00%
53,200 Foodbrands America, Inc.*........... 1,230,250
-----------
HOME FURNISHINGS - 2.93%
80,000 Furniture Brands Intl., Inc.*....... 1,200,000
-----------
LIFE/HEALTH INSURANCE - 2.63%
23,900 Security-Connecticut Corp. ......... 1,078,488
-----------
MEDICAL--DRUGS - 2.41%
47,000 Cephalon, Inc.*..................... 987,000
-----------
MISCELLANEOUS INDUSTRIALS - 2.09%
77,000 Alyn Corp.*......................... 721,875
2,000 SPS Technologies, Inc.*............. 135,000
-----------
856,875
-----------
NON-FERROUS METALS - 5.25%
49,900 Chase Brass Industries, Inc.*....... 1,010,475
29,100 Mueller Industries, Inc.*........... 1,138,537
-----------
2,149,012
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS - 1.87%
25,000 Equitable Resources, Inc. .......... $ 765,625
-----------
PAPER & PAPER RELATED PRODUCTS - 2.02%
27,300 Schweitzer-Mauduit International,
Inc. ............................... 825,825
-----------
PUBLISHING & BROADCASTING - 3.16%
91,500 Cadmus Communications Corp. ........ 1,292,437
-----------
RETAIL--RESTAURANTS - 5.71%
50,000 Apple South, Inc. .................. 656,250
166,000 Foodmaker, Inc.*.................... 1,680,750
-----------
2,337,000
-----------
RUBBER & PLASTICS - 3.74%
80,000 Applied Extrusion Technologies,
Inc.*............................... 870,000
83,900 Lamson & Sessions Co.*.............. 660,713
-----------
1,530,713
-----------
STEEL - 3.53%
146,500 Universal Stainless & Alloy
Products, Inc.*..................... 1,446,687
-----------
TELECOMMUNICATIONS - 2.06%
54,500 Davel Communications Group, Inc.*... 844,750
-----------
<CAPTION>
- ------------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------
<C> <S> <C>
TEXTILES & SHOES - 4.48%
90,000 AnnTaylor Stores Corp.*............. $ 1,833,750
-----------
TOBACCO - 3.66%
65,100 DIMON Inc. ......................... 1,497,300
-----------
TRANSPORT--MARINE - 1.14%
27,000 Avondale Industries, Inc.*.......... 465,750
-----------
Total Common Stocks
(cost - $33,947,540)................ 40,031,659
-----------
SHORT-TERM INVESTMENT-1.83%
INVESTMENT COMPANY - 1.83%
750,765 The Milestone Funds Treasury
Obligations Portfolio, Institutional
Shares**
(cost - $750,765)................... 750,765
-----------
Total Investments
(cost - $34,698,305) - 99.62%....... 40,782,424
Other assets in excess of
liabilities - 0.38%................. 155,100
-----------
Net Assets - 100.00%................ $40,937,524
-----------
-----------
</TABLE>
- ---------
* Non-income producing security.
** Money market fund.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET
DESCRIPTION (000'S) VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM DEBT INVESTMENTS--92.12%
CORPORATE OBLIGATIONS - 54.41%
ASSET-BACKED - 9.34%
AFC Mortgage Loan Asset-Backed Certificates, Series 1994-1, Class 1A, Superior Bank FSB
Depositor, 6.40%,
03/25/24....................................................................................... $ 482 $ 465,431
Ford Credit 1995-B Grantor Trust, Asset-Backed Certificates, Class A, 5.90%, 10/15/00........... 470 467,313
Morgan Stanley Capital I Inc., Series 1997-C1, Class A-1B, Commercial Mortgage Pass-Through
Certificates, 7.46%, 05/15/06.................................................................. 540 543,713
Standard Credit Card Trust 1990-6, Credit Card Participation Certificates, Class A, 9.375%,
07/10/97....................................................................................... 190 191,818
-----------
1,668,275
-----------
FINANCE - 18.08%
Aon Capital Trust A, Capital Securities, Aon Corporation Guaranteed, 8.205%, 01/01/27*.......... 500 489,826
Associates Corp. N.A., Senior Notes, 7.50%, 05/15/99............................................ 150 152,625
CIT Group Holdings, Inc. (The), Senior Notes, MTN, 6.75%, 05/14/01.............................. 250 246,875
Compass Trust I, Capital Securities, Series A, Compass Bancshares, Inc., 8.23%, 01/15/27........ 500 484,375
General Motors Acceptance Corp., MTN, 6.125%, 09/08/97.......................................... 675 675,479
Lehman Brothers Holdings Inc., Series E, MTN, 6.65%, 01/28/00................................... 500 495,000
Markel Capital Trust I, Markel Corporation Guaranteed, 8.71%, 01/01/46*......................... 200 196,410
Salomon Inc, Senior Notes, 7.20%, 02/01/04...................................................... 500 491,250
-----------
3,231,840
-----------
GOVERNMENT--AGENCY - 4.14%
Hydro-Quebec, Yankee Debentures, 8.05%, 07/07/24................................................ 700 740,250
-----------
INDUSTRIAL - 15.95%
Coca-Cola Enterprises Inc., Debentures, 6.70%, 10/15/36......................................... 725 714,125
Continental Cablevision, Senior Notes, 8.30%, 05/15/06.......................................... 500 520,000
Cooper Tire & Rubber Company, Notes, 7.625%, 03/15/27........................................... 200 195,000
Six Flags Entertainment Inc., Senior Notes, Time Warner Entertainment Inc. Guaranteed, Zero
Coupon, 12/15/99............................................................................... 250 206,250
TCI Communications, Inc., Series B, Senior Notes, MTN, 7.55%, 09/02/03.......................... 750 727,500
Total Access Communication Public Company Limited, Senior Unsecured Yankee Bonds, 8.375%,
11/04/06*...................................................................................... 500 487,500
-----------
2,850,375
-----------
TELEPHONE - 4.15%
US West Capital Funding, Inc., US West, Inc. Guaranteed, 6.85%, 01/15/02........................ 750 740,625
-----------
UTILITY--GAS - 2.75%
Ras Laffan Liquified Natural Gas Company Limited, Secured Bonds, 7.628%, 09/15/06*.............. 500 491,250
-----------
Total Corporate Obligations (cost - $9,878,834)................................................. 9,722,615
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET
DESCRIPTION (000'S) VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 24.62%
Federal Home Loan Mortgage Corporation
6.00%, 10/01/00............................................................................... $ 238 $ 231,883
Federal National Mortgage Association
6.50%, 04/01/26............................................................................... 19 17,712
7.00%, 10/01/25............................................................................... 504 482,071
7.00%, 01/01/26............................................................................... 241 230,073
7.00%, 11/01/26............................................................................... 895 856,371
8.00%, 02/01/12............................................................................... 571 581,563
Government National Mortgage Association
7.00%, 08/15/10............................................................................... 227 223,906
7.00%, 08/15/25............................................................................... 269 257,061
7.00%, 02/15/26............................................................................... 140 133,865
7.00%, 03/15/26............................................................................... 1,452 1,386,137
-----------
Total U.S. Government Agency Obligations (cost - $4,477,779).................................... 4,400,642
-----------
U.S. GOVERNMENT OBLIGATIONS - 13.09%
U.S. Treasury Notes
5.75%, 10/31/00............................................................................... 500 485,670
5.875%, 08/15/98.............................................................................. 350 348,131
6.125%, 07/31/00.............................................................................. 500 492,500
6.625%, 07/31/01.............................................................................. 500 497,990
7.75%, 11/30/99............................................................................... 500 514,255
-----------
Total U.S. Government Obligations (cost - $2,373,800)........................................... 2,338,546
-----------
Total Long-Term Debt Investments (cost - $16,730,413)........................................... 16,461,803
-----------
<CAPTION>
SHARES
---------
<S> <C> <C>
LONG-TERM EQUITY INVESTMENTS--5.42%
PREFERRED STOCKS - 5.42%
1585 Broadway Corporation, Step-Down Preferred Stock, 13.83%, 12/30/06*......................... 500 485,182
Marquette Real Estate Funding Corporation, Step-Down Preferred Stock, 13.701%, 12/30/06*........ 500 483,288
-----------
Total Long-Term Equity Investments (cost - $1,000,815).......................................... 968,470
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS--0.00%
INVESTMENT COMPANIES - 0.00%
Federated Investors, Trust for Short-Term U.S. Government Securities**.......................... 119 $ 119
The Milestone Funds Treasury Obligations Portfolio, Institutional Shares **..................... 454 454
-----------
Total Short-Term Investments (cost - $573)...................................................... 573
-----------
Total Investments (cost - $17,731,801) - 97.54%................................................. 17,430,846
Other assets in excess of liabilities - 2.46%................................................... 439,868
-----------
Net Assets - 100.00%............................................................................ $17,870,714
-----------
-----------
</TABLE>
- ---------
MTN -- Medium-Term Notes.
* SEC Rule 144A Security. Such securities are traded only among "qualified
institutional buyers".
** Money market fund.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP
VALUE VALUE TOTAL RETURN
PORTFOLIO PORTFOLIO BOND PORTFOLIO
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investments, at value (cost - $12,478,450,
$34,698,305 and $17,731,801, respectively)..... $ 14,104,576 $ 40,782,424 $ 17,430,846
Receivable for Portfolio shares sold............ 101,416 20,747 73,214
Receivable for investments sold................. -- 649,773 202,886
Receivable from investment adviser.............. 11,997 -- 33,844
Dividends and interest receivable............... 20,125 12,780 239,294
Deferred organization expenses and other
assets......................................... 91,426 111,636 79,307
-------------- -------------- --------------
Total assets.............................. 14,329,540 41,577,360 18,059,391
-------------- -------------- --------------
LIABILITIES
Loan payable.................................... -- -- 58,000
Payable for Portfolio shares repurchased........ 165,587 66,250 107
Payable for investments purchased............... -- 457,039 --
Dividends payable............................... -- -- 33,741
Administration fee payable...................... 1,927 5,477 2,384
Distribution fee payable (class A and C
shares)........................................ 16,126 46,559 6,138
Custodian fee payable........................... 1,993 1,240 7,110
Accrued expenses................................ 62,075 63,271 81,197
-------------- -------------- --------------
Total liabilities......................... 247,708 639,836 188,677
-------------- -------------- --------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 821 2,346 1,486
Paid-in capital................................. 9,793,505 35,248,497 18,233,426
Undistributed net investment income............. 8,376 -- --
Accumulated net realized gain/(loss) from
investments.................................... 2,653,004 (397,438) (63,243)
Net unrealized appreciation/(depreciation) on
investments.................................... 1,626,126 6,084,119 (300,955)
-------------- -------------- --------------
Net assets................................ $ 14,081,832 $ 40,937,524 $ 17,870,714
-------------- -------------- --------------
-------------- -------------- --------------
CLASS A
Net assets...................................... $ 4,986,830 $ 13,142,573 $ 3,366,497
-------------- -------------- --------------
Shares of beneficial interest outstanding....... 290,426 751,791 279,908
-------------- -------------- --------------
Net asset value per share....................... $17.17 $17.48 $12.03
-------------- -------------- --------------
-------------- -------------- --------------
Maximum offering price per share (net asset
value plus sales charge of 4.75%*, 4.75%* and
3.75%*, respectively, of the offering price)... $18.03 $18.35 $12.50
-------------- -------------- --------------
-------------- -------------- --------------
CLASS C
$ 2,986,488 $ 11,070,666 $ 1,017,746
Net assets......................................
-------------- -------------- --------------
Shares of beneficial interest outstanding....... 174,588 637,042 84,626
-------------- -------------- --------------
Net asset value and offering price per
share**........................................ $17.11 $17.38 $12.03
-------------- -------------- --------------
-------------- -------------- --------------
CLASS Y
Net assets...................................... $ 6,108,514 $ 16,724,285 $ 13,486,471
-------------- -------------- --------------
355,556 957,355 1,121,464
Shares of beneficial interest outstanding.......
-------------- -------------- --------------
Net asset value, offering and redemption price
per share...................................... $17.18 $17.47 $12.03
-------------- -------------- --------------
-------------- -------------- --------------
</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.
19
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP TOTAL RETURN
VALUE PORTFOLIO VALUE PORTFOLIO BOND PORTFOLIO
---------------- ---------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................................... $ 388,841 $ 240,179 $ 12,133
Interest............................................................ 10,957 21,681 1,482,997
---------------- ---------------- ----------------
399,798 261,860 1,495,130
---------------- ---------------- ----------------
EXPENSES
Advisory fees....................................................... 151,578 285,539 98,957
Transfer agent fees and expenses.................................... 104,027 131,112 101,476
Accounting fees..................................................... 99,570 119,822 99,469
Distribution fees - class A......................................... 27,440 57,907 15,344
Distribution fees - class C......................................... 37,332 111,111 12,483
Legal and auditing fees............................................. 39,505 52,884 43,203
Administration fees................................................. 30,232 57,108 32,986
Reports and notices to shareholders................................. 10,459 17,558 19,432
Federal and state registration fees................................. 27,811 36,387 27,797
Amortization of organization expenses............................... 19,860 21,604 15,304
Insurance expenses.................................................. 15,137 14,971 15,078
Custodian fees and expenses......................................... 8,900 10,222 15,002
Trustees' fees and expenses......................................... 7,001 8,001 10,901
Other............................................................... 2,345 5,851 --
---------------- ---------------- ----------------
Total expenses before waivers and reimbursements.............. 581,197 930,077 507,432
Less: waivers and reimbursements.............................. (312,774) (372,205) (379,218)
---------------- ---------------- ----------------
Total expenses after waivers and reimbursements............... 268,423 557,872 128,214
---------------- ---------------- ----------------
Net investment income/(loss)........................................ 131,375 (296,012) 1,366,916
---------------- ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) from investments........................... 2,770,141 210,104 (61,189)
Net change in unrealized appreciation/(depreciation) on
investments........................................................ 486,773 3,397,726 (148,563)
---------------- ---------------- ----------------
Net realized and unrealized gain/(loss) on investments.............. 3,256,914 3,607,830 (209,752)
---------------- ---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $3,388,289 $3,311,818 $1,157,164
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP
VALUE PORTFOLIO VALUE PORTFOLIO
------------------------------------ ----------------
FOR THE FOR THE PERIOD FOR THE
FISCAL YEAR APRIL 3, 1995* FISCAL YEAR
ENDED THROUGH ENDED
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).............................. $ 131,375 $ 20,211 $ (296,012)
Net realized gain/(loss) from investments................. 2,770,141 95,147 210,104
Net change in unrealized appreciation/ (depreciation) on
investments.............................................. 486,773 1,139,353 3,397,726
---------------- ---------------- ----------------
Net increase in net assets resulting from operations...... 3,388,289 1,254,711 3,311,818
---------------- ---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... (36,680) (4,557) --
Class C shares.......................................... (5,113) -- --
Class Y shares.......................................... (86,346) (10,514) --
---------------- ---------------- ----------------
(128,139) (15,071) --
---------------- ---------------- ----------------
Net realized capital gains
Class A shares.......................................... (66,024) (1,184) (191,411)
Class C shares.......................................... (46,015) (1,037) (113,992)
Class Y shares.......................................... (97,133) (891) (274,790)
---------------- ---------------- ----------------
(209,172) (3,112) (580,193)
---------------- ---------------- ----------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares...................... 21,189,714 10,493,529 31,319,342
Cost of shares repurchased................................ (20,911,123) (1,214,980) (15,839,169)
Shares issued in reinvestment of dividends................ 203,090 9,088 509,481
---------------- ---------------- ----------------
Net increase/(decrease) in net assets derived from shares
of beneficial interest transactions...................... 481,681 9,287,637 15,989,654
---------------- ---------------- ----------------
Total increase/(decrease) in net assets................... 3,532,659 10,524,165 18,721,279
NET ASSETS
Beginning of period....................................... 10,549,173 25,008 22,216,245
---------------- ---------------- ----------------
End of period**........................................... $14,081,832 $10,549,173 $40,937,524
---------------- ---------------- ----------------
---------------- ---------------- ----------------
<CAPTION>
TOTAL RETURN
BOND PORTFOLIO
------------------------------------
FOR THE PERIOD FOR THE FOR THE PERIOD
APRIL 3, 1995* FISCAL YEAR APRIL 3, 1995*
THROUGH ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).............................. $ (69,561) $ 1,366,916 $ 670,434
Net realized gain/(loss) from investments................. 544,848 (61,189) 105,601
Net change in unrealized appreciation/ (depreciation) on
investments.............................................. 2,686,393 (148,563) (152,392)
---------------- ---------------- ----------------
Net increase in net assets resulting from operations...... 3,161,680 1,157,164 623,643
---------------- ---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... -- (262,042) (232,740)
Class C shares.......................................... -- (92,135) (84,059)
Class Y shares.......................................... -- (1,012,739) (353,635)
---------------- ---------------- ----------------
-- (1,366,916) (670,434)
---------------- ---------------- ----------------
Net realized capital gains
Class A shares.......................................... (64,256) (10,555) (13,644)
Class C shares.......................................... (72,361) (4,155) (5,746)
Class Y shares.......................................... (134,885) (38,149) (35,406)
---------------- ---------------- ----------------
(271,502) (52,859) (54,796)
---------------- ---------------- ----------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares...................... 23,204,316 11,283,204 19,389,794
Cost of shares repurchased................................ (4,151,186) (12,702,583) (1,253,726)
Shares issued in reinvestment of dividends................ 247,929 1,111,988 381,251
---------------- ---------------- ----------------
Net increase/(decrease) in net assets derived from shares
of beneficial interest transactions...................... 19,301,059 (307,391) 18,517,319
---------------- ---------------- ----------------
Total increase/(decrease) in net assets................... 22,191,237 (570,002) 18,415,732
NET ASSETS
Beginning of period....................................... 25,008 18,440,716 24,984
---------------- ---------------- ----------------
End of period**........................................... $22,216,245 $17,870,714 $18,440,716
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
- ----------
* Commencement of operations.
** Includes undistributed net investment income of $8,376 for the fiscal year
ended March 31, 1997 and $5,140 for the period April 3, 1995* through March
31, 1996, for Large Cap Value Portfolio.
The accompanying notes are an integral part of the financial statements.
21
<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 PERIOD
FOR THE FISCAL YEAR ENDED APRIL 3, 1995* THROUGH
MARCH 31, 1997 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)....... 0.04 (0.02) 0.23 0.06 (0.01) 0.07
Net realized and unrealized gain on
investments(2)....................... 2.28 2.25 2.17 3.10 3.10 1.16
------- ------- ------- ------- ------- -------
Net increase in net assets resulting
from operations...................... 2.32 2.23 2.40 3.16 3.09 1.23
------- ------- ------- ------- ------- -------
Dividends and distributions to
shareholders from
Net investment income................. (0.10) (0.02) (0.16) (0.02) -- (0.08)
Net realized capital gains............ (0.18) (0.18) (0.18) (0.01) (0.01) (0.01)
------- ------- ------- ------- ------- -------
(0.28) (0.20) (0.34) (0.03) (0.01) (0.09)
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 17.17 $ 17.11 $ 17.18 $ 15.13 $ 15.08 $ 15.12
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(3)............ 15.44% 14.87% 16.04% 26.35% 25.71% 8.75%(4)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)............................. $ 4,987 $ 2,986 $ 6,109 $ 3,616 $ 3,520 $ 3,413
Ratio of expenses to average net
assets(1)............................ 1.50% 2.00% 1.00% 1.50%(5) 2.00%(5) 1.00%(5)
Ratio of net investment income/(loss)
to average net assets(1)............. 0.43% (0.08)% 1.00% 0.46%(5) (0.06)%(5) 0.76%(4)(5)
Decrease reflected in above expense
ratios and net investment
income/(loss) due to waivers and
reimbursements....................... 1.58% 1.61% 1.50% 4.34%(5) 4.39%(5) 4.41%(4)(5)
Portfolio turnover rate............... 136.67% 136.67% 136.67% 45.28%(6) 45.28%(6) 45.28%(6)
Average commission rate per
share(7)............................. $0.0593 $0.0593 $0.0593 $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 charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(6) Not annualized.
(7) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments subject to such commissions during each
period.
The accompanying notes are an integral part of the financial statements.
22
<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 PERIOD
FOR THE FISCAL YEAR ENDED APRIL 3, 1995* THROUGH
MARCH 31, 1997 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)................ (0.10) (0.18) (0.05) (0.07) (0.10) --
Net realized and unrealized gain on
investments(2)....................... 1.95 1.93 1.97 4.17 4.11 3.05
------- ------- ------- ------- ------- -------
Net increase in net assets resulting
from operations...................... 1.85 1.75 1.92 4.10 4.01 3.05
------- ------- ------- ------- ------- -------
Distributions to shareholders from
Net realized capital gains............ (0.24) (0.16) (0.30) (0.23) (0.22) (0.29)
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 17.48 $ 17.38 $ 17.47 $ 15.87 $ 15.79 $ 15.85
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(3)............ 11.71% 11.12% 12.19% 34.36% 33.59% 23.52%(4)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)............................. $13,143 $11,071 $16,724 $ 6,474 $ 6,753 $ 8,989
Ratio of expenses to average net
assets(1)............................ 1.50% 2.00% 1.00% 1.50%(5) 2.00%(5) 1.00%(5)
Ratio of net investment loss to
average net assets(1)................ (0.81)% (1.31)% (0.31)% (0.66)%(5) (1.09)%(5) --
Decrease reflected in above expense
ratios and net investment loss due to
waivers and reimbursements........... 1.00% 0.99% 1.00% 2.32%(5) 2.39%(5) 2.45%(4)(5)
Portfolio turnover rate............... 56.88% 56.88% 56.88% 40.79%(6) 40.79%(6) 40.79%(6)
Average commission rate per
share(7)............................. $0.0550 $0.0550 $0.0550 $0.0572 $0.0572 $0.0572
</TABLE>
- --------
* Commencement of investment operations. 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 charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(6) Not annualized.
(7) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments subject to such commissions during each
period.
The accompanying notes are an integral part of the financial statements.
23
<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 PERIOD
FOR THE FISCAL YEAR ENDED APRIL 3, 1995* THROUGH
MARCH 31, 1997 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).............. 0.73 0.68 0.77 0.71 0.67 0.41
Net realized and unrealized
gain/(loss) on investments(2)........ (0.20) (0.20) (0.20) 0.30 0.30 (0.05)
------- ------- ------- ------- ------- -------
Net increase in net assets resulting
from operations...................... 0.53 0.48 0.57 1.01 0.97 0.36
------- ------- ------- ------- ------- -------
Dividends and distributions to
shareholders from
Net investment income................. (0.73) (0.68) (0.77) (0.71) (0.67) (0.41)
Net realized capital gains............ (0.03) (0.03) (0.03) (0.04) (0.04) (0.04)
------- ------- ------- ------- ------- -------
(0.76) (0.71) (0.80) (0.75) (0.71) (0.45)
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 12.03 $ 12.03 $ 12.03 $ 12.26 $ 12.26 $ 12.26
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(3)............ 4.40% 3.99% 4.77% 8.54% 8.13% 2.92%(4)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA(7)
Net assets, end of period (000's
omitted)............................. $ 3,367 $ 1,018 $13,486 $ 4,467 $ 1,775 $12,199
Ratio of expenses to average net
assets(1)............................ 0.80% 1.20% 0.45% 0.85%(5) 1.25%(5) 0.45%(5)
Ratio of net investment income to
average net assets(1)................ 5.99% 5.57% 6.34% 5.76%(5) 5.38%(5) 5.93%(4)(5)
Decrease reflected in above expense
ratios and
net investment income due to waivers
and reimbursements................... 1.73% 1.74% 1.73% 2.87%(5) 2.95%(5) 2.89%(4)(5)
Portfolio turnover rate............... 262.95% 262.95% 262.95% 107.35%(6) 107.35%(6) 107.35%(6)
</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 charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(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.
24
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
NOTES TO FINANCIAL STATEMENTS
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
25
<PAGE>
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.
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.
At March 31, 1997, the Bond Portfolio had a capital loss carryforward of $60,955
available as a reduction, to the extent provided in regulations of any future
net capital gains realized before the end of fiscal year 2005. To the extent
that the loss is used to offset future capital gains, it is probable that the
gains so offset will not be distributed to shareholders.
For U.S. federal income tax purposes, realized capital losses incurred after
October 31, 1996, within the fiscal year, are deemed to arise on the first day
of the following fiscal year. Small Cap incurred and elected to defer such
losses of $397,438.
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. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within
capital accounts based on their U.S. federal tax-basis treatment; temporary
differences do not require reclassification. At March 31, 1997, Small Cap
reclassified within the composition of net assets a net operating loss of
$300,695 to accumulated net realized gains. In addition, Small Cap reclassified
$64,878 in net operating loss to paid-in capital.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
During the fiscal year ended March 31, 1997, 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 fiscal year ended March 31, 1997, BSFM (or the "Administrator")
served 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
fiscal year ended March 31, 1997, PFPC Inc. has voluntarily waived a portion of
its fee.
26
<PAGE>
During the fiscal year ended March 31, 1997, 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 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 fiscal year ended March 31, 1997, the Adviser waived
advisory fees of $151,578, $285,539 and $98,957 for Large Cap, Small Cap and
Bond Portfolio, respectively. In addition, the Adviser reimbursed $161,196,
$86,666 and $280,261 for Large Cap, Small Cap and Bond Portfolio, respectively,
in order to maintain the voluntary expense limitation.
For the fiscal year ended March 31, 1997, Bear Stearns, an affiliate of the
Adviser and the Administrator, earned $1,267 and $9,066 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 fiscal year ended March 31, 1997, 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 fiscal year ended
March 31, 1997, Bear Stearns earned $64,772, $169,018 and $27,827 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 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 fiscal year ended March 31, 1997, Bear Stearns has advised each
Portfolio that it received approximately $43,100, $227,500 and $17,600 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 $3,200, $2,700 and $100 from
the Portfolios, respectively, in contingent deferred sales charges upon certain
redemptions by class C shareholders.
27
<PAGE>
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the costs of securities owned at March 31,
1997 were $12,495,862, $34,698,305 and $17,732,035 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............................... $ 1,820,935 $ (212,221) $ 1,608,714
Small Cap............................... 7,605,934 (1,521,815) 6,084,119
Bond Portfolio.......................... 2,798 (303,987) (301,189)
</TABLE>
For the fiscal year ended March 31, 1997, 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............................... $ 26,322,213 $ 25,695,746
Small Cap............................... 35,863,818 21,007,015
Bond Portfolio.......................... 54,226,881 53,591,865
</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% within the first year. There is no sales charge or CDSC on class Y shares,
which are offered primarily to institutional investors.
At March 31, 1997, there was an unlimited amount of $0.001 par value shares of
beneficial interest authorized for each Portfolio, of which Bear Stearns owned
1,042, 1,042 and 1,041 of class A shares and 1,042, 1,042 and 1,041 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
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
SALES:
Shares................... 231,427 61,362 1,085,350 589,041 464,417 771,522 124,771 24,694
Amount................... $3,703,414 $ 950,313 $16,535,987 $10,117,507 $8,013,394 $13,188,441 $1,526,794 $ 301,360
REINVESTMENTS:
Shares................... 5,640 3,077 3,863 10,191 6,403 13,693 14,003 4,620
Amount................... $ 91,138 $ 49,600 $ 62,352 $ 171,713 $ 107,447 $ 230,321 $ 171,130 $ 56,453
REPURCHASES:
Shares................... 185,652 123,270 959,370 255,449 261,409 394,936 223,376 89,493
Amount................... $3,216,798 $2,089,876 $15,604,449 $ 4,464,886 $4,565,675 $ 6,808,608 $2,719,344 $1,098,501
<CAPTION>
CLASS Y
----------
<S> <C>
FOR THE FISCAL YEAR ENDED
SALES:
Shares................... 777,105
Amount................... $9,455,050
REINVESTMENTS:
Shares................... 72,402
Amount................... $ 884,405
REPURCHASES:
Shares................... 723,355
Amount................... $8,884,738
</TABLE>
28
<PAGE>
<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
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
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
REINVESTMENTS:
Shares................... 332 68 211 3,827 4,544 8,725 11,440 3,450
Amount................... $ 4,945 $ 1,009 $ 3,134 $ 55,602 $ 65,802 $ 126,525 $ 142,125 $ 42,916
REPURCHASES:
Shares................... 78,059 865 4,509 267,203 9,820 6,293 60,606 6,447
Amount................... $1,135,562 $ 12,818 $ 66,600 $ 3,916,200 $ 142,216 $ 92,770 $ 761,370 $ 81,056
<CAPTION>
CLASS Y
----------
<S> <C>
FOR THE PERIOD APRIL 3, 1
SALES:
Shares................... 1,013,077
Amount................... $12,605,963
REINVESTMENTS:
Shares................... 15,678
Amount................... $ 196,210
REPURCHASES:
Shares................... 33,443
Amount................... $ 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 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. Amounts outstanding under the line of credit
agreement for Large Cap, Small Cap, and Bond Portfolio averaged $14,895, $22,618
and $14,364, respectively, during the year ended March 31, 1997. The maximum
amounts outstanding at any month-end under such line of credit agreement during
fiscal year 1997 for Large Cap, Small Cap, and Bond Portfolio, were $52,000,
$160,000 and $58,000, respectively. The average interest rates during 1997, on
amounts outstanding under such line of credit agreement were 8.25%, 8.18% and
7.98% for Large Cap, Small Cap and Bond Portfolio, respectively. Large Cap and
Small Cap had no amounts outstanding under the line of credit agreement at March
31, 1997. The Bond Portfolio had $58,000 outstanding under the line of credit
agreement at March 31, 1997.
29
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders,
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
(Series of The Bear Stearns Funds):
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments of Large Cap Value Portfolio, Small Cap Value
Portfolio and Total Return Bond Portfolio (collectively, the "Portfolios") as of
March 31, 1997, and the related statements of operations, changes in net assets
and the financial highlights for the fiscal year ended March 31, 1997 and the
period April 3, 1995 (commencement of operations) through March 31, 1996. These
financial statements and financial highlights are the responsibility of the
Portfolios' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at March 31, 1997 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Large Cap Value
Portfolio, Small Cap Value Portfolio and Total Return Bond Portfolio at March
31, 1997, the results of their operations, the changes in their net assets and
the financial highlights for the periods presented in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
New York, New York
May 9, 1997
30
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
SHAREHOLDER TAX INFORMATION -- (UNAUDITED)
Each Portfolio is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of each Portfolio's fiscal
year end (March 31, 1997) as to the U.S. federal tax status of distributions
received by the Portfolio's shareholders in respect of such fiscal year. During
the fiscal year ended March 31, 1997, the following dividends and distributions
per share were paid by each of the Portfolios:
LARGE CAP VALUE PORTFOLIO
<TABLE>
<CAPTION>
ORDINARY INCOME LONG-TERM CAPITAL GAINS
- ------------------------------------- -------------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.18 $ 0.10 $ 0.24 $ 0.10 $ 0.10 $ 0.10
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
The percentage of total ordinary income dividends received from the Large Cap
Value Portfolio qualifying for the corporate dividends received deduction is
100%.
SMALL CAP VALUE PORTFOLIO
<TABLE>
<CAPTION>
ORDINARY INCOME LONG-TERM CAPITAL GAINS
- ------------------------------------- -------------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.21 $ 0.13 $ 0.27 $ 0.03 $ 0.03 $ 0.03
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
The percentage of total ordinary income dividends from the Small Cap Value
Portfolio qualifying for the corporate dividends received deduction is 41.50%.
TOTAL RETURN BOND PORTFOLIO
<TABLE>
<CAPTION>
ORDINARY INCOME
- -------------------------------
CLASS A CLASS C CLASS Y
- --------- --------- ---------
<S> <C> <C>
$ 0.7593 $ 0.7106 $ 0.8021
- --------- --------- ---------
- --------- --------- ---------
</TABLE>
There were no ordinary income dividends from the Total Return Bond Portfolio
which would qualify for the dividends received deduction available to corporate
shareholders.
Because each Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 1997. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns, will be made in conjunction
with Form 1099-DIV and will be mailed in January 1998.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend. They will generally not be entitled to a foreign tax
credit or deduction for the withholding taxes paid by the Portfolios, if any.
In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income for U.S. federal income tax purposes.
However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may
need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Portfolios.
31
