As filed via EDGAR with the Securities and Exchange Commission on
March 18, 1997
Registration Nos. 33-84842
ICA No. 811-8798
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 {x]
Pre-Effective Amendment No. ________ [ ]
Post-Effective Amendment No. 10 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 10 [x]
(Check appropriate box or boxes)
THE BEAR STEARNS FUNDS
(Exact Name of Registrant as Specified in Charter)
245 Park Avenue
New York, New York 10167
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 272-2000
copy to:
Ellen Arthur, Esq. Jay G. Baris, Esq.
Bear, Stearns & Co. Inc. Kramer, Levin, Naftalis & Frankel
245 Park Avenue 919 Third Avenue
New York, New York 10167 New York, New York 10022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[x] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii)of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of shares of its beneficial
interest under the Securities Act of 1933 pursuant to Section 24(f) of the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal
year ended March 31, 1996 was filed on May 29, 1996.
<PAGE>
Cross-Reference Sheet Pursuant to Rule 495(a)
Focus Focus Prime Money
List List Market
Items in Portfolio Portfolio Portfolio
Part A of (Class A (Class Y (Class Y
Form N-1A Caption shares) shares) Shares)
- --------- ------- --------- --------- -------
1 Cover Cover Cover Cover
2 Synopsis 3 3 3
3 Condensed * * *
Financial
Information
4 General 4 4 4
Description
of Registrant
5 Management of 9 9 7
the Fund
5(a) Management's 21 17 13
Discussion of
Fund's
Performance
6 Capital Stock * * *
and Other
Securities
7 Purchase of 11 11 8
Securities
Being Offered
8 Redemption or 17 14 10
Repurchase
9 Pending Legal * * *
Proceedings
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<PAGE>
Items in Focus Prime Money
Part B of List Portfolio Market Portfolio
Form N-1A Caption (all classes) (all classes)
- --------- ------- ------------- -------------
10 Cover Page B-1 B-1
11 Table of Contents B-1 B-1
12 General Information and * *
History
13 Investment Objectives and B-2 B-2
Policies
14 Management of the Fund B-12 B-11
15 Control Persons and B-15 B-14
Principal Holders of
Securities
16 Investment Advisory and B-15 B-14
Other Services
17 Brokerage Allocation B-23 *
18 Capital Stock and Other * *
Securities
19 Purchase, Redemption and B-18, B-17
Pricing of Securities B-20
Being Offered
20 Tax Status B-21 B-17
21 Underwriters B-1 B-1
22 Calculations of B-25 B-19
Performance Data
23 Financial Statements * *
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<PAGE>
Items in Part C of
Form N-1A All Portfolios
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24 Financial Statements and C-1
Exhibits
25 Persons Controlled by or C-3
Under Common Control
with Registrant
26 Number of Holders of C-3
Securities
27 Indemnification C-4
28 Business and Other C-5
Connections of
Investment Adviser
9 Principal Underwriter C-5
30 Location of Accounts and C-7
Records
31 Management Services C-7
32 Undertakings C-7
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* Omitted since answer is negative or inapplicable.
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<PAGE>
THE BEAR STEARNS FUNDS
245 PARK AVENUE NEW YORK, NY 10167 1-800-766-4111
PROSPECTUS
Focus List Portfolio
Class A Shares Only
The Bear Stearns Funds (the "Fund") is an open-end management investment
company, known as a mutual fund. The Fund permits you to invest in separate
portfolios. By this Prospectus, Class A Shares of the Focus List Portfolio, a
non-diversified portfolio (the "Portfolio"), are offered. The Portfolio's
investment objective is capital appreciation. The Portfolio seeks to achieve
this objective by investing primarily in a portfolio of equity securities of
U.S. issuers that, at the time of purchase, are included on the Bear Stearns
Research Focus List (the "Focus List") developed by Bear Stearns' Equity
Research Department.
The Focus List typically consists of twenty stocks chosen from those stocks
currently rated as Buy or Attractive by a Bear Stearns research analyst. The
stocks are selected for inclusion on the Focus List by the Focus List Committee
(See p. ___ for a description of the Focus List Committee) based upon the
expectation that the selected stocks will outperform the total return realized
on the Standard & Poor's Index of 500 Common Stocks (the "S&P 500 Index") over
the next three to six months. There can be no assurance that the Portfolio will
achieve its investment objective.
By this Prospectus, the Portfolio is offering Class A Shares, which are subject
to a sales charge imposed at the time of purchase. The Portfolio issues another
Class of shares which has different expenses which would affect performance.
Investors desiring to obtain information about this other Class of shares should
call 1-800-766-4111 or ask their sales representative or the Portfolio's
distributor.
Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned subsidiary of The
Bear Stearns Companies Inc., serves as the Portfolio's investment adviser. BSFM
is referred to herein as the "Adviser."
Bear, Stearns & Co. Inc. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor.
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This Prospectus sets forth concisely information about the Portfolio that you
should know before investing. It should be read and retained for future
reference.
Part B (also known as the Statement of Additional Information), dated
_____________, 1997, which may be revised from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. For a free copy, write to
the address or call one of the telephone numbers listed under "General
Information" in this Prospectus.
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency.
The net asset value of funds of this type will fluctuate.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_________________, 1997
<PAGE>
Table of Contents
PAGE
Fee Table...........................................................
Description of the Fund.............................................
Risk Factors........................................................
Management of the Fund..............................................
How to Buy Shares ..................................................
Shareholder Services................................................
How to Redeem Shares................................................
Dividends, Distributions and Taxes..................................
Performance Information.............................................
General Information.................................................
Appendix............................................................ A-1
2
<PAGE>
Fee Table
A summary of estimated expenses investors will incur when investing in the Class
A Shares of the Portfolio offered pursuant to this Prospectus is set forth
below.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) ....... 4.75%
Maximum Deferred Sales Charge Imposed on Redemptions (as a percentage of the amount **
subject to charge).................................................................
Annual Portfolio Operating Expenses (as a percentage of average daily net assets)
Management Fees ................................................................... ____%
12b-1 Fees ........................................................................ ____%
Other Expenses (after expense reimbursement)* ..................................... ____%
Total Portfolio Operating Expenses (after fee waiver and expense reimbursement)* .. ____%
Example:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 Year .................................................................... $
3 Years ................................................................... $
5 Years ................................................................... $
10 Years .................................................................. $
======================
You would pay the following expenses on the same investment, assuming no
redemption:
1 Year .................................................................... $
3 Years ................................................................... $
5 Years ................................................................... $
10 Years .................................................................. $
======================
</TABLE>
* BSFM has undertaken to waive its investment advisory fee and assume
certain expenses of the Portfolio other than brokerage commissions,
extraordinary items, interest and taxes to the extent Total Portfolio Operating
Expenses exceed _____% for Class A Shares.
** In certain situations, where no sales charge is assessed at the time of
purchase, a contingent deferred sales charge of up to 1.00% may be imposed on
redemptions within the first year after purchase. See "How to Buy Shares."
3
<PAGE>
The amounts listed in the example should not be considered as representative of
past or future expenses and actual expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the
Portfolio's actual performance will vary and may result in an actual return
greater or less than 5%.
The purpose of the foregoing table is to assist you in understanding the costs
and expenses borne by the Portfolio and investors, the payment of which will
reduce investors' annual return. In addition to the expenses noted above, the
Fund will charge $7.50 for each wire redemption. See "How to Redeem Shares." For
a description of the expense reimbursement or waiver arrangements in effect, see
"Management of the Fund."
DESCRIPTION OF THE FUND
General
The Fund is a "series fund."
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As described below, for certain matters Fund
shareholders vote together as a group; as to others they vote separately by
portfolio. By this Prospectus, shares of the Portfolio are being offered. From
time to time, other portfolios may be established and sold pursuant to other
offering documents. See "General Information."
Investment Objective
The Portfolio seeks to provide capital appreciation
The Portfolio's investment objective is capital appreciation. The Portfolio's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Portfolio's outstanding voting
shares. There can be no assurance that the Portfolio's investment objective will
be achieved.
Management Policies
The Focus List Fund
The Portfolio seeks to invest primarily in the common stocks of the U.S. and
also foreign issuers that, at the time of purchase, are on the Bear Stearns
Equity Research Focus List (the "Focus List"). The Portfolio is designed for
investors seeking to maximize returns on a fully invested, all-equity portfolio.
The Portfolio is not a market-timing vehicle. Except for short-term liquidity
purposes, cash reserves are not expected to exceed 10% of Portfolio assets.
The Bear Stearns Research Focus List
The Bear Stearns Equity Research Department has over 70 equity analysts who
cover more than 900 common stocks of U.S. and foreign companies. Using a rating
system of "1" through "5", analysts assign stocks the following ratings: 1
("Buy", the highest rating), 2 ("Attractive"), 3 ("Neutral"), 4 ("Avoid"), 5
("Sell"). Approximately 300 stocks are rated as Buy or Attractive by a Bear
Stearns Research analyst.
4
<PAGE>
A Buy rating is assigned to stocks that the Bear Stearns Research analyst and
the Research Stock Selection Committee (comprised of senior Research personnel)
feel will significantly outperform the market over the next six to twelve months
because of a catalyst or near-term event that will trigger upward movement in
the stock's price. These catalysts can include a change in management, the
introduction of a new product or a change in the industry outlook. (See p. 23
for information about historical performance of the Focus List.) An Attractive
rating means that an analyst has determined that the stock has solid long-term
growth prospects either because of, or in comparison to, its industry and that
it is undervalued in comparison to its industry.
Domestic and international stocks and American Depositary Receipts (ADRs) rated
Buy (1) or Attractive (2) are eligible for inclusion on the Focus List. Stocks
are picked by the Focus List Committee, whose current members are Kathryn Booth,
Director of Global Research for Bear Stearns, and Elizabeth Mackay, Chief
Investment Strategist of Bear Stearns. The Committee generally maintains twenty
stocks on the list and any new additions are usually accompanied by a comparable
number of deletions. The Committee monitors the List daily, and candidates are
considered based on any one or more of the following criteria: market outlook,
perception of the stock's sector, and an analyst's view of the stock's current
valuation relative to the market and its industry.
Stocks that are downgraded below Attractive by an analyst are automatically
deleted from the Focus List. However, the Focus List Committee may delete stocks
for other reasons including, but not limited to, achievement of its target price
range, the failure of a catalyst to materialize or have its expected effect,
and/or the appearance of new, more attractive opportunities.
Types of Investments
Equities
Domestic and foreign common stocks, and American Depositary Receipts (ADRs) are
eligible for inclusion on the Focus List.
Money Market Instruments
The Portfolio may invest, in anticipation of investing cash positions, in money
market instruments consisting of U.S. Government securities, certificates of
deposit, time deposits, bankers' acceptances, short-term investment-grade
commercial obligations and other short-term debt instruments, and repurchase
agreements, as set forth in the Appendix. Under normal market conditions, the
Portfolio expects to have less than 10% of its total assets invested in money
market instruments.
Options on Securities and Indices
In certain circumstances, the Portfolio may engage in options transactions, such
as purchasing put or call options or writing covered call options. The Portfolio
may purchase call options to gain market exposure in a particular sector while
limiting downside risk. The Portfolio may purchase put options in order to hedge
against an anticipated loss in value of Portfolio securities. The principal
reason for writing covered call options, which are call options with respect to
which the Portfolio owns the underlying security or securities, is to realize,
through the receipt of premiums, a greater return than would be realized on the
Portfolio's securities alone. In return for a premium, the writer of a covered
call option forfeits the right to any appreciation in the value of the
underlying security above the strike price for the life of the option (or until
a closing purchase transaction can be effected). Nevertheless, the call writer
retains the risk of a decline in the price of the underlying security. (See
"Risk Factors" on page 7 and the Statement of Additional Information for
additional risk factors).
5
<PAGE>
Futures and Options on Futures
The Portfolio may buy and sell futures contracts and related options on
securities indices and related interest rates for a number of purposes. It may
do so to try to manage its exposure to the possibility that the prices of its
portfolio securities and instruments may decline or to establish a position in
the futures or options market as a temporary substitute for purchasing
individual securities or instruments. It may do so in an attempt to enhance its
income or return by purchasing and selling call and put options on futures
contracts on financial indices or securities. It also may use interest rate
futures to try to manage its exposure to changing interest rates. Investments in
futures and options on futures involve certain risks. (See "Risk Factors" on
page 7 and the Statement of Additional Information).
Investment Strategy
Generally, as soon as practicable after public announcement, the Adviser will
purchase a security that has been added to the Focus List, and will sell a
security when the security has been removed from the Focus List. The Adviser
determines what percentage of the Portfolio's total assets are to be allocated
into each Focus List stock and makes changes in allocation percentages as
investment and economic conditions change. The Adviser intends to allocate
portfolio transactions so that the Portfolio qualifies as a "regulated
investment company" under federal tax law, although there can be no assurance
that this goal will be achieved (see "Dividends, Distributions and Taxes").
Depending upon market conditions and to the extent the Portfolio needs to hold
cash balances to satisfy shareholder redemption requests, the Adviser may not
immediately purchase a new Focus List stock and/or may continue to hold one or
more Focus List stocks that have been deleted from the Focus List. The Adviser
will not have access to the Focus List prior to its becoming publicly
disseminated.
The Portfolio may invest up to 10% of its total assets in Portfolio stocks that
are not on the Focus List. The Portfolio will purchase stocks that are not on
the Focus List when the Adviser determines that any stocks on the Focus List are
inappropriate for the Portfolio because they are illiquid, would cause the
Portfolio to be overweighted in a particular sector or overly concentrated in a
particular industry, or for any other reason.
The Investment Strategy described above will be implemented to the extent it is
consistent with maintaining the Portfolio's qualification as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). See "Dividends, Distributions and Taxes." The Portfolio's strategy may
be limited, in particular, by the requirements for such qualification that less
than 30% of the Portfolio's annual gross income be derived from the sale or
other disposition of stocks held for less than three months.
Certain Fundamental Policies
Certain of the Portfolio's investment policies are fundamental policies that can
be changed only by shareholder vote.
The Portfolio may (i) borrow money to the extent permitted under the 1940 Act;
and (ii) concentrate its investments in the securities of issuers in a single
industry to the extent that investment decisions are made based upon the
industry classifications of the stocks appearing on the current Focus List. This
paragraph describes fundamental policies that cannot be changed as to the
Portfolio without approval by the holders of a majority (as defined in the 1940
Act) of the Portfolio's outstanding voting shares. See "Investment Objective and
Management Policies--Investment Restrictions" in the Statement of Additional
Information.
- 6 -
<PAGE>
Certain Additional Non-Fundamental Policies
The Portfolio may (i) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only to secure permitted borrowings; and (ii) invest up to 15% of
the value of its net assets in repurchase agreements providing for settlement in
more than seven days after notice and in other illiquid securities. See
"Investment Objective and Management Policies--Investment Restrictions" in the
Statement of Additional Information.
RISK FACTORS
No investment is free from risk. Investing in the Portfolio will subject
investors to certain risks which should be considered.
Net Asset Value Fluctuations
The Portfolio's net asset value per share is not fixed and should be expected to
fluctuate. Investors should purchase Portfolio shares only as a supplement to an
overall investment program and only if investors are willing to undertake the
risks involved.
Equity Securities
Investors should be aware that equity securities fluctuate in value, often based
on factors unrelated to the value of the issuer of the securities, and that
fluctuations can be pronounced. Changes in the value of the equity securities in
the Portfolio's portfolio will result in changes in the value of the Portfolio's
shares and thus the Portfolio's yield and total return to investors. The
Portfolio intends to remain almost fully invested in equity securities, even
during times of significant market decline, when other funds might take a more
defensive position by investing a greater amount of their assets in money market
instruments or cash that are less likely to decline when market conditions are
adverse for equities.
Foreign Equities
The Portfolio may invest in equity securities that are issued by foreign issuers
and are traded in the United States. All such securities will be issued by
foreign companies that comply with U.S. accounting standards. The Portfolio may
also invest in sponsored ADRs which are receipts typically issued by a U.S. bank
or trust company which evidence ownership of underlying securities of foreign
corporations.
Investors should recognize that investments in foreign companies involves
certain considerations that are not typically associated with investing in
domestic companies. For instance, with respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, imposition of
withholding taxes on dividend payments, political or social instability of
diplomatic developments that could affect investments in those countries.
Individual economies may differ favorably or unfavorably from the United States
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. Foreign securities denominated in foreign currencies may be subject to
the additional risk of fluctuations in the value of the currency as compared to
the U.S. dollar. Foreign securities markets may be subject to greater volatility
and may be less liquid than domestic markets. Transaction costs involving
foreign securities tend to be higher than similar costs applicable to
transactions in U.S. securities.
7
<PAGE>
Futures and Options
The Portfolio may trade futures contracts, options and options on futures
contracts. Investors should be aware that the use of derivative instruments such
as futures and options requires special skills and knowledge and investment
techniques that are different from what is required in other Portfolio
investments. If the Adviser trades a futures or options contract at the wrong
time or judges market conditions incorrectly, the strategies may result in a
significant loss to the Portfolio and reduce the Portfolio's return. The
Portfolio could also experience losses if the prices of its futures and options
positions were not properly correlated with its other investments or if it could
not close out a position because of an illiquid market for the future or option.
These risks and the strategies the Portfolio may use are described in greater
detail in the Statement of Additional Information.
Non-Diversified Status
The Portfolio's classification as a "non-diversified" investment company means
that the proportion of its assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified" investment company
is required by the 1940 Act generally, with respect to 75% of its total assets,
to invest not more than 5% of such assets in the securities of a single issuer
and to hold not more than 10% of the outstanding voting securities of a single
issuer. However, the Portfolio intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of the Code, which
generally requires that, at the end of each quarter of its taxable year, (i) at
least 50% of the market value of the Portfolio's total assets be invested in
cash, U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Portfolio's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Portfolio's assets may be
invested in the securities of a limited number of issuers, some of which may be
within the same industry or economic sector, the Portfolio's portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified investment
company.
Portfolio Turnover
The Adviser expects that the turnover in the securities held in the Portfolio
(that is, the frequency that the Portfolio will buy and sell securities) will
generally be 250% or greater. This portfolio turnover rate is significantly
higher than the portfolio turnover rates of other mutual funds that invest in
equity securities. A higher portfolio turnover rate means that the Portfolio
will incur substantially higher brokerage costs and may realize a greater amount
of short-term capital gains or losses. A high portfolio turnover rate may cause
the Portfolio to lose its status as a "regulated investment company" (see
"Dividends, Distributions and Taxes)."
Potential Investment Restrictions
It is possible that the Focus List will include stocks of issuers for which Bear
Stearns or one of its affiliates performs banking services for which it receives
fees, as well as stocks of issuers in which Bear Stearns or one of its
affiliates makes a market and may have a long or short position in the stock.
When Bear Stearns or one of its affiliates is engaged in an underwriting or
other distribution of stock of an issuer, the Adviser may be prohibited from
purchasing the stock of the issuer for the Portfolio. The activities of Bear
Stearns or one of its affiliates may, from time to time, limit the Focus List
Committee's ability to include stocks on the Focus List or the Portfolio's
flexibility in purchasing and selling such stocks. In addition, the Focus List
is available to other clients of Bear Stearns and its affiliates, including the
Adviser, as well as the Portfolio.
8
<PAGE>
Simultaneous Investments
Investment decisions for the Portfolio are made independently from those of
other investment companies or accounts advised by the Adviser. However, if such
other investment companies or accounts are prepared to invest in, or desire to
dispose of, securities of the type in which the Portfolio invests at the same
time as the Portfolio, available investments or opportunities for sales will be
allocated equitably to each. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by the Portfolio or the
price paid or received by the Portfolio.
MANAGEMENT OF THE FUND
Board of Trustees
The Trustees are responsible for the overall management and supervision of the
Portfolio's business.
The Fund's business affairs are managed under the general supervision of its
Board of Trustees. The Portfolio's Statement of Additional Information contains
the name and general business experience of each Trustee.
Investment Adviser
The Portfolio's investment adviser is BSFM.
The Portfolio's investment adviser is BSFM, a wholly owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York, New
York 10167. The Bear Stearns Companies Inc. is a holding company which, through
its subsidiaries including its principal subsidiary, Bear Stearns, is a leading
United States investment banking, securities trading and brokerage firm serving
United States and foreign corporations, governments and institutional and
individual investors. BSFM is a registered investment adviser and offers, either
directly or through affiliates, investment advisory and administrative services
to open-end and closed-end investment funds and other managed pooled investment
vehicles with net assets at December 31, 1996 of over $2.9 billion.
BSFM supervises and assists in the overall management of the Portfolio's affairs
under an Investment Advisory Agreement between BSFM and the Fund, subject to the
overall authority of the Fund's Board of Trustees in accordance with
Massachusetts law.
Mark Kurland, Chairman and Chief Executive Officer of Bear Stearns Asset
Management, serves as Portfolio Manager of the Portfolio. Mr. Kurland also
serves as Senior Managing Director of Bear, Stearns & Co. Inc.. He was
previously Director of Global Research from 1991 to 1995 at Bear , Stearns &
Co., Inc., where he also served as a member of the Investment Policy Committee,
President's Advisory Counsel, Equities Subcommittee and the Funds Committee. He
was previously Co-Head of Institutional Equities and Director of Research at
Mabon, Nugent & Co.
The Portfolio pays BSFM an advisory fee at an annual rate equal to __% of
average daily net assets.
Under the terms of the Investment Advisory Agreement, the Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of __% of the Portfolio's average
daily net assets.
The Portfolio's administrator is BSFM. The Portfolio pays BSFM an administration
fee at the annual rate of .15 of 1% of its average daily net assets.
Under the terms of an Administration Agreement with the Fund, BSFM generally
supervises all aspects of the operation of the Portfolio, subject to the overall
authority of the Fund's Board of Trustees in accordance with
9
<PAGE>
Massachusetts law. For providing administrative services to the Portfolio, the
Fund has agreed to pay BSFM a monthly fee at the annual rate of .15 of 1% of the
Portfolio's average daily net assets. Under the terms of an Administrative
Services Agreement with the Fund, PFPC Inc., the Portfolio's transfer agent,
provides certain administrative services to the Portfolio. For providing these
services, the Fund has agreed to pay PFPC Inc. an annual fee, as set forth
below:
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PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------------
First $200 million.................... .__ of 1%
Next $200 million up to $400 million.. .__ of 1%
Next $200 million up to $600 million.. .__ of 1%
Assets in excess of $600 million...... .__ of 1%
The above-referenced fee is subject to a monthly minimum fee of $____.
From time to time, BSFM may waive receipt of its fees and/or voluntarily assume
certain Portfolio expenses, which would have the effect of lowering the
Portfolio's expense ratio and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. The Portfolio will not pay
BSFM at a later time for any amounts it may waive, nor will the Portfolio
reimburse BSFM for any amounts it may assume. From time to time, PFPC Inc. may
voluntarily waive a portion of its fee.
Brokerage commissions may be paid to Bear Stearns for executing transactions if
the use of Bear Stearns is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers. The allocation of
brokerage transactions also may take into account a broker's sales of the
Portfolio's shares. See "Portfolio Transactions" in the Statement of Additional
Information.
Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment
Advisory Agreement is in effect.
Distributor
Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as
the Portfolio's principal underwriter and distributor of the Portfolio's shares
pursuant to an agreement which is renewable annually.
Custodian and Transfer Agent
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an
affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the
Portfolio's transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides certain administrative
services to the Portfolio.
Expense Limitation
BSFM has undertaken until such time as it gives investors at least 60 days'
notice to the contrary that, if in any fiscal year, certain expenses, including
the investment advisory fee, exceed _____% of Class A Shares' average
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daily net
assets for the fiscal year, BSFM may voluntarily waive a portion of its
investment advisory fee or bear other expenses to the extent of the excess
expense.
HOW TO BUY SHARES
General
An initial investment is $1,000, $500 for retirement plans; subsequent
investments must be at least $250, $100 for retirement plans; specify the Class
you wish to purchase.
The minimum initial investment is $1,000, or $500 if the investment is for Keogh
Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant. Subsequent
investments ordinarily must be at least $250 or $100 for retirement plans. Share
certificates are issued only upon written request. No certificates are issued
for fractional shares. The Portfolio reserves the right to reject any purchase
order. The Portfolio reserves the right to vary the initial and subsequent
investment minimum requirements at any time. Investments by employees of Bear
Stearns and its affiliates are not subject to minimum investment requirements.
Purchases of the Portfolio's shares may be made through a brokerage account
maintained with Bear Stearns or through certain investment dealers who are
members of the National Association of Securities Dealers, Inc. who have sales
agreements with Bear Stearns (an "Authorized Dealer"). Purchases of the
Portfolio's shares also may be made directly through the Transfer Agent. When
purchasing the Portfolio's shares, investors must specify which Class is being
purchased.
Purchases are effected at the public offering price next determined after a
purchase order is received by Bear Stearns, an Authorized Dealer or the Transfer
Agent (the "trade date"). Payment for Portfolio shares generally is due to Bear
Stearns or the Authorized Dealer on the third business day (the "settlement
date") after the trade date. Investors who make payments before the settlement
date may permit the payment to be held in their brokerage accounts or may
designate a temporary investment for payment until the settlement date. If a
temporary investment is not designated, Bear Stearns or the Authorized Dealer
will benefit from the temporary use of the funds if payment is made before the
settlement date.
Purchases can be made through Bear Stearns account executives, Authorized
Dealers or the Transfer Agent.
Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be
accepted), Federal Reserve draft or by wiring Federal Funds with funds held in
brokerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--Focus List
Portfolio--Class A" if purchased directly from the Portfolio, and should be
directed to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns
Funds--Focus List Portfolio--Class A, P.O. Box 8960, Wilmington, Delaware
19899-8960. Payment by check or Federal Reserve draft must be received within
three business days of receipt of the purchase order by Bear Stearns or an
Authorized Dealer. Orders placed directly with the Transfer Agent must be
accompanied by payment. Bear Stearns (or an investor's Authorized Dealer) is
responsible for forwarding payment promptly to the Fund. The Fund will charge
$7.50 for each wire redemption. The payment proceeds of a redemption of shares
recently purchased by check may be delayed as described under "How to Redeem
Shares."
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Investors who are not Bear Stearns clients may purchase Portfolio shares through
the Transfer Agent. To make an initial investment in the Portfolio, an investor
must establish an account with the Portfolio by furnishing necessary information
to the Fund. An account with the Portfolio may be established by completing and
signing the Account Information Form indicating which Class of shares is being
purchased, a copy of which is attached to this Prospectus, and mailing it,
together with a check to cover the purchase, to PFPC Inc., Attention: The Bear
Stearns Funds--Focus List Portfolio--Class A, P.O. Box 8960, Wilmington,
Delaware 19899-8960.
Subsequent purchases of shares may be made by checks made payable to the Fund
and directed to the address set forth in the preceding paragraph. The Portfolio
account number should appear on the check.
Shareholders may not purchase shares of the Fund with a check issued by a third
party and endorsed over to the Fund.
Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer
Agent before the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., New York time) on any day the Portfolio calculates its net
asset value are priced according to the net asset value determined on that date.
Purchase orders received after the close of trading on the New York Stock
Exchange are priced as of the time the net asset value is next determined.
Net asset value is computed daily as of the close of regular trading on the New
York Stock Exchange.
Shares of the Portfolio are sold on a continuous basis. Net asset value per
share is determined as of the close of regular trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time) on each business day.
The net asset value per share of Class A Shares of the Portfolio is computed by
dividing the value of the Portfolio's net assets represented by Class A Shares
(i.e., the value of its assets less liabilities) by the total number of shares
of Class A Shares outstanding. The Portfolio's investments are valued based on
market value or, where market quotations are not readily available, based on
fair value as determined in good faith by, or in accordance with procedures
established by, the Fund's Board of Trustees. For further information regarding
the methods employed in valuing the Portfolio's investments, see "Determination
of Net Asset Value" in the Portfolio's Statement of Additional Information.
Federal regulations require that investors provide a certified Taxpayer
Identification Number (a "TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes." Failure to furnish a certified TIN to the
Fund could subject the investor to a $50 penalty imposed by the Internal Revenue
Service (the "IRS").
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The sales charge may vary depending on the dollar amount invested in the
Portfolio.
The public offering price for Class A shares of the Portfolio is the net asset
value per share of that Class plus a sales load, which is imposed in accordance
with the following schedule:
- --------------------------------------------------------------------------------
TOTAL SALES LOAD
---------------------------
DEALER
AS A % OF CONCESSIONS
OFFERING AS A % OF NET AS A %
PRICE ASSET VALUE OF OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE*
- -----------------------------------------------------------------------------
Less than $50,000................. 4.75% 4.99% 4.25%
$50,000 to less than $100,000..... 4.25 4.44 3.75
$100,000 to less than $250,000.... 3.75 3.90 3.25
$250,000 to less than $500,000.... 3.25 3.36 3.00
$500,000 to less than $750,000.... 2.75 2.83 2.50
$750,000 to less than $1,000,000.. 2.25 2.30 2.00
$1,000,000 and above.............. 0.00 0.00 0.00
There is no initial sales charge on purchases of $1,000,000 or more of Class A
shares. However, if an investor purchases Class A shares without an initial
sales charge as part of an investment of at least $1,000,000 and redeems those
shares within one year after purchase, a CDSC of 1.00% will be imposed at the
time of redemption. The terms contained in the section of the Fund's Prospectus
entitled "How to Redeem Shares--Contingent Deferred Sales Charge" are applicable
to the Class A shares subject to a CDSC. Letter of Intent and Right of
Accumulation apply to such purchases of Class A shares.
The dealer concession may be changed from time to time but will remain the same
for all dealers. From time to time, Bear Stearns may make or allow additional
payments or promotional incentives to dealers that sell Class A shares. In some
instances, these incentives may be offered only to certain dealers who have sold
or may sell significant amounts of Class A shares. Dealers may receive a larger
percentage of the sales load from Bear Stearns than they receive for selling
most other funds.
Class A shares may be sold at net asset value to (a) Bear Stearns, its
affiliates or their respective officers, directors or employees (including
retired employees), any partnership of which Bear Stearns is a general partner,
any Trustee or officer of the Fund and designated family members of any of the
above individuals; (b) qualified retirement plans of Bear Stearns; (c) any
employee or registered representative of any Authorized Dealer or their
respective spouses and minor children; (d) trustees or directors of investment
companies for which Bear Stearns or an affiliate acts as sponsor; (e) any state,
country or city, or any instrumentality, department, authority or agency
thereof, which is prohibited by applicable investment laws from paying a sales
load or commission in connection with the purchase of Portfolio shares; (f) any
institutional investment clients including corporate sponsored pension and
profit-sharing
- --------
* Until further notice to the contrary, the full amount of the sales load will
be reallowed as a dealer concession.
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plans, other benefit plans and insurance companies; (g) any pension funds, state
and municipal governments or funds, Taft-Hartley plans and qualified non-profit
organizations, foundations and endowments; (h) trust institutions (including
bank trust departments) investing on their own behalf or on behalf of their
clients; and (i) accounts as to which an Authorized Dealer charges an asset
management fee. To take advantage of these exemptions, a purchaser must indicate
its eligibility for an exemption to Bear Stearns along with its Account
Information Form. Such purchaser agrees to notify Bear Stearns if, at any time
of any additional purchases, it is no longer eligible for an exemption. Bear
Stearns reserves the right to request certification or additional information
from a purchaser in order to verify that such purchase is eligible for an
exemption. Bear Stearns reserves the right to limit the participation of its
employees in Class A shares of the Portfolio. Dividends and distributions
reinvested in Class A shares of the Portfolio will be made at the net asset
value per share on the reinvestment date.
Class A shares of the Portfolio also may be purchased at net asset value, with
the proceeds from the redemption of shares of an investment company sold with a
sales charge or commission and not distributed by Bear Stearns. However, if such
investor redeems those shares within one year after purchase, a CDSC of 1.00%
will be imposed at the time of redemption. This include shares of a mutual fund
which were subject to a contingent deferred sales charge upon redemption. The
purchase must be made within 60 days of the redemption, and Bear Stearns must be
notified by the investor in writing, or by the investor's investment
professional, at the time the purchase is made.
Bear Stearns will offer to pay Authorized Dealers an amount up to 1.00% of the
net asset value of shares purchased by the dealers' clients or customers in this
manner.
In addition, Class A Shares of the Portfolio may be purchased at net asset value
by the following customers of a broker that operates a master account for
purchasing and redeeming, and otherwise providing shareholder services in
respect of Fund shares pursuant to agreements with the Fund or Bear Stearns: (i)
investment advisers and financial planners who place trades for their own
accounts or for the accounts of their clients and who charge a management,
consulting or other fee, (ii) clients of such investment advisers and financial
planners if such clients place trades through accounts linked to master accounts
of such investment advisers or financial planners on the books and records of
such broker and (iii) retirement and deferred compensation plans, and trusts
used to fund such plans, including, but not limited to, plans or trusts defined
in Section 401(a), 403(b) or 457 of the Code, and "rabbi trusts," provided, in
each case, the purchase transaction is effected through such broker. The broker
may charge a fee for transaction in Portfolio shares.
Right of Accumulation
Investors may qualify for a reduced sales charge.
Pursuant to the Right of Accumulation, certain investors are permitted to
purchase Class A shares of the Portfolio at the sales charge applicable to the
total of (a) the dollar amount then being purchased plus (b) the current public
offering price of all Class A shares of the Portfolio, shares of the Fund's
other portfolios and shares of certain other funds sponsored or advised by Bear
Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns
Investment Trust, then held by the investor. The following purchases of Class A
shares may be aggregated for the purposes of determining the amount of purchase
and the corresponding sales load: (a) individual purchases on behalf of a single
purchaser, the purchaser's spouse and their children under the age of 21 years
including shares purchased in connection with a retirement account exclusively
for the benefit of such individual(s), such as an IRA, and purchases made by a
company controlled by such individual(s); (b) individual purchases by a trustee
or other fiduciary account, including an employee benefit plan (such as
employer-sponsored pension, profit-sharing and stock bonus plans, including
plans under Section 401(k) of the Code, and medical, life and disability
insurance trusts); or (c) individual purchases by a trustee or other fiduciary
purchasing shares concurrently for two or more employee benefit plans of a
single employer or of employers affiliated with each other. Subsequent purchases
made under
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<PAGE>
the conditions set forth above will be subject to the minimum subsequent
investment of $250 and will be entitled to the Right of Accumulation.
Letter of Intent
By checking the appropriate box in the Letter of Intent section of the Account
Information Form, investors become eligible for the reduced sales load
applicable to the total number of Class A shares of the Portfolio, Class A
shares of the Fund's other portfolios and shares of certain other funds
sponsored or advised by Bear Stearns, including the Emerging Markets Debt
Portfolio of Bear Stearns Investment Trust, purchased in a 13-month period
pursuant to the terms and under the conditions set forth herein. A minimum
initial purchase of $1,000 is required. The Transfer Agent will hold in escrow
5% of the amount indicated in the Account Information Form for payment of a
higher sales load if the investor does not purchase the full amount indicated in
the Account Information Form. The escrow will be released when the investor
fulfills the terms of the Letter of Intent by purchasing the specified amount.
If an investor's purchases qualify for a further sales load reduction, the sales
load will be adjusted to reflect the total purchase at the end of 13 months. If
total purchases are less than the amount specified, the investor will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact, will redeem an appropriate number of shares held in escrow to
realize the difference.
Checking a box in the Letter of Intent section of the Account Information Form
does not bind an investor to purchase, or the Portfolio to sell, the full amount
indicated at the sales load in effect at the time of signing, but the investor
must complete the intended purchase to obtain the reduced sales load. At the
time an investor purchases shares of any of the above-listed funds, the investor
must indicate its intention to do so under the Letter of Intent section of the
Account Information Form.
Systematic Investment Plan
The Portfolio offers shareholders convenient features and benefits, including
the Systematic Investment Plan.
The Systematic Investment Plan permits investors to purchase shares of the
Portfolio (minimum initial investment of $250 and minimum subsequent investments
of $100 per transaction) at regular intervals selected by the investor. Provided
the investor's bank or other financial institution allows automatic withdrawals,
Portfolio shares may be purchased by transferring funds from the account
designated by the investor. At the investor's option, the account designated
will be debited in the specified amount, and Portfolio shares will be purchased
once a month, on the twentieth day. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. Investors desiring to participate in the Systematic Investment Plan
should call the Transfer Agent at 1-800-447-1139 to obtain the appropriate
forms. The Systematic Investment Plan does not assure a profit and does not
protect against loss in declining markets. Since the Systematic Investment Plan
involves the continuous investment in the Portfolio regardless of fluctuating
price levels of the Portfolio's shares, investors should consider their
financial ability to continue to purchase through periods of low price levels.
The Fund may modify or terminate the Systematic Investment Plan at any time or
charge a service fee. No such fee currently is contemplated.
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<PAGE>
SHAREHOLDER SERVICES
Exchange Privilege
The Exchange Privilege permits easy purchases of other funds in the Bear Stearns
family.
The Exchange Privilege enables an investor to purchase, in exchange for Class A
Shares of the Portfolio, Class A Shares of the Fund's other portfolios or shares
of certain other funds sponsored or advised by Bear Stearns, including the
Emerging Markets Debt Portfolio of Bear Stearns Investment Trust, and the Money
Market Portfolio of The RBB Fund, Inc., to the extent such shares are offered
for sale in the investor's state of residence. These funds have different
investment objectives which may be of interest to investors. To use this
Privilege, investors should consult their account executive at Bear Stearns,
their account executive at an Authorized Dealer or the Transfer Agent to
determine if it is available and whether any conditions are imposed on its use.
To use this Privilege, exchange instructions must be given to the Transfer Agent
in writing or by telephone. A shareholder wishing to make an exchange may do so
by sending a written request to the Transfer Agent at the address given above in
"How to Buy Shares--General." Shareholders are automatically provided with
telephone exchange privileges when opening an account, unless they indicate on
the account application that they do not wish to use this privilege.
Shareholders holding share certificates are not eligible to exchange shares of
the Portfolio by phone because share certificates must accompany all exchange
requests. To add this feature to an existing account that previously did not
provide for this option, a Telephone Exchange Authorization Form must be filed
with the Transfer Agent. This form is available from the Transfer Agent. Once
this election has been made, the shareholder may contact the Transfer Agent by
telephone at 1-800-447-1139 to request the exchange. During periods of
substantial economic or market change, telephone exchanges may be difficult to
complete and shareholders may have to submit exchange requests to the Transfer
Agent in writing.
If the exchanging shareholder does not currently own Class A Shares of the
portfolio or fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as described below. To
participate in the Systematic Investment Plan, or establish automatic withdrawal
for the new account, however, an exchanging shareholder must file a specific
written request. The Exchange Privilege may be modified or terminated at any
time, or from time to time, by the Fund on 60 days' notice to the affected
portfolio or fund shareholders. The Fund, BSFM and Bear Stearns will not be
liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine. In attempting to
confirm that telephone instructions are genuine, the Fund will use such
procedures as are considered reasonable, including recording those instructions
and requesting information as to account registration (such as the name in which
an account is registered, the account number, recent transactions in the
account, and the account holder's Social Security number, address and/or bank).
Before any exchange, the investor must obtain and should review a copy of the
current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained free of charge from Bear Stearns, any
Authorized Dealer or the Transfer Agent. Except in the case of Personal
Retirement Plans, the shares being exchanged must have a current value of at
least $250; furthermore, when establishing a new account by exchange, the shares
being exchanged must have a value of at least the minimum initial investment
required for the portfolio or fund into which the exchange is being made; if
making an exchange to an existing account, the dollar value must equal or exceed
the applicable minimum for subsequent investments. If any amount remains in the
investment portfolio from which the exchange is being made, such amount must not
be below the minimum account value required by the Portfolio or Fund.
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<PAGE>
Shares will be exchanged at the next determined net asset value; however, except
in the instances described below, a sales load may be charged with respect to
exchanges of Class A shares into portfolios or funds sold with a sales load.
Generally, a sales load will be charged if the shares being exchanged were
subject to a sales load which is lower than the sales load to which the shares
being purchased are subject or were not subject to any sales load. If an
investor is exchanging Class A into a portfolio or fund that charges a sales
load, the investor may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the portfolio or
fund from which the investor is exchanging were: (a) purchased with a sales
load; (b) acquired by a previous exchange from shares purchased with a sales
load; or (c) acquired through reinvestment of dividends or distributions paid
with respect to the foregoing categories of shares. To qualify, at the time of
the exchange the investor must notify Bear Stearns, the Authorized Dealer or the
Transfer Agent. Any such qualification is subject to confirmation of the
Investor's holdings through a check of appropriate records. No fees currently
are charged shareholders directly in connection with exchanges, although the
Fund reserves the right, upon not less than 60 days' written notice, to charge
shareholders a $5.00 fee in accordance with rules promulgated by the Securities
and Exchange Commission. The Fund reserves the right to reject any exchange
request in whole or in part. The Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
The exchange of Class A Shares of one portfolio or fund for Class A Shares of
another is treated for Federal income tax purposes as a sale of the Class A
Shares given in exchange by the shareholder and, therefore, an exchanging
shareholder may realize a taxable gain or loss.
Redirected Distribution Option
The Redirected Distribution Option permits investment of investors' dividends
and distributions in shares of other funds in the Bear Stearns family.
The Redirected Distribution Option enables a shareholder to invest automatically
dividends and/or capital gain distributions, if any, paid by the Portfolio in
Class A Shares of another portfolio of the Fund or a fund advised or sponsored
by Bear Stearns of which the shareholder is an investor, or the Money Market
Portfolio of The RBB Fund, Inc. Shares of the other portfolio or fund will be
purchased at the then-current net asset value. If an investor is investing in a
class that charges a CDSC, the shares purchased will be subject on redemption to
the CDSC, if any, applicable to the purchased shares.
This privilege is available only for existing accounts and may not be used to
open new accounts. Minimum subsequent investments do not apply. The Fund may
modify or terminate this privilege at any time or charge a service fee. No such
fee currently is contemplated.
HOW TO REDEEM SHARES
General
The redemption price will be based on the net asset value next computed after
receipt of a redemption request.
Investors may request redemption of Portfolio shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, the Portfolio will redeem the shares at the next determined net asset
value. If the investor holds Portfolio shares of more than one Class, any
request for redemption must specify the Class of shares being redeemed. If the
investor fails to specify the Class of shares to be redeemed or if the
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<PAGE>
investor owns fewer shares of the Class than specified to be redeemed, the
redemption request may be delayed until the Transfer Agent receives further
instructions from the investor, the investor's Bear Stearns account executive or
the investor's Authorized Dealer. The Fund imposes no charges (other than any
applicable CDSC) when shares are redeemed directly through Bear Stearns.
The Portfolio ordinarily will make payment for all shares redeemed within three
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
However, if an investor has purchased Portfolio shares by check and subsequently
submits a redemption request by mail, the redemption proceeds will not be
transmitted until the check used for investment has cleared, which may take up
to 15 days. The Fund will reject requests to redeem shares by telephone or wire
for a period of 15 days after receipt by the Transfer Agent of the purchase
check against which such redemption is requested. This procedure does not apply
to shares purchased by wire payment.
The Fund reserves the right to redeem investor accounts at its option upon not
less than 60 days' written notice if the account's net asset value is $750 or
less, for reasons other than market conditions, and remains so during the notice
period. Shareholders who have redeemed Class A shares may reinstate their
Portfolio account without a sales charge up to the dollar amount redeemed by
purchasing Class A shares of the Portfolio within 60 days of the redemption. To
take advantage of this reinstatement privilege, shareholders must notify their
Bear Stearns account executive, Authorized Dealer or the Transfer Agent at the
time the privilege is exercised.
Contingent Deferred Sales Charge
Class A shares of the Portfolio may be subject to a CDSC of 1% upon redemption
within one year of purchase.
A CDSC of 1% payable to Bear Stearns is imposed on any redemption of Class A
shares within one year of the date of purchase by any investor that purchased
Class A shares as part of an investment of at least $1,000,000. A CDSC of 1% is
also imposed on any redemption of Class A shares within one year of the date of
purchase by any investor that purchased the shares with the proceeds from the
redemption of shares of an investment company sold with a sales charge or
commission and not distributed by Bear Stearns. No CDSC will be imposed to the
extent that the net asset value of the Class A shares redeemed does not exceed
(i) the current net asset value of Class A shares acquired through reinvestment
of dividends or capital gain distributions, plus (ii) increase in the net asset
value of an investor's Class A shares above the dollar amount of all such
investor's payments for the purchase of Class A shares held by the investor at
the time of redemption. See the Statement of Additional Information for more
information.
Procedures
Shareholders may redeem shares in several ways.
Redemption through Bear Stearns or Authorized Dealers
Clients with a brokerage account may submit redemption requests to their account
executives or Authorized Dealers in person or by telephone, mail or wire. As the
Fund's agent, Bear Stearns or Authorized Dealers may honor a redemption request
by repurchasing Fund shares from a redeeming shareholder at the shares' net
asset value next computed after receipt of the request by Bear Stearns or the
Authorized Dealer. Under normal circumstances, within three days, redemption
proceeds will be paid by check or credited to the shareholder's brokerage
account at the
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<PAGE>
election of the shareholder. Bear Stearns account executives or Authorized
Dealers are responsible for promptly forwarding redemption requests to the
Transfer Agent.
If an investor authorizes telephone redemption, the Transfer Agent may act on
telephone instructions from any person representing himself or herself to be a
representative of Bear Stearns or the Authorized Dealer and reasonably believed
by the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Transfer Agent or the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor the
Transfer Agent will be liable for following telephone instructions reasonably
believed to be genuine.
Redemption through the Transfer Agent
Shareholders who are not clients with a brokerage account who wish to redeem
shares must redeem their shares through the Transfer Agent by mail; other
shareholders also may redeem Fund shares through the Transfer Agent. Mail
redemption requests should be sent to the Transfer Agent at: PFPC Inc.,
Attention: The Bear Stearns Funds--Focus List Portfolio--Class A, P.O. Box 8960,
Wilmington, Delaware 19899-8960.
Additional Information about Redemptions
A shareholder may have redemption proceeds of $500 or more wired to the
shareholder's brokerage account or a commercial bank account designated by the
shareholder. A transaction fee of $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns account executive, to any Authorized
Dealer, or to the Transfer Agent if the shares are not held in a brokerage
account.
Written redemption instructions, indicating the Portfolio from which shares are
to be redeemed, and duly endorsed stock certificates, if previously issued, must
be received by the Transfer Agent in proper form and signed exactly as the
shares are registered. All signatures must be guaranteed. The Transfer Agent has
adopted standards and procedures pursuant to which signature-guarantees in
proper form generally will be accepted from domestic banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from
participants in the New York Stock Exchange Medallion Signature Program, the
Stock Exchanges Medallion Program and the Securities Transfer Agents Medallion
Program ("STAMP"). Such guarantees must be signed by an authorized signatory
thereof with "Signature Guaranteed" appearing with the shareholder's signature.
If the signature is guaranteed by a broker or dealer, such broker or dealer must
be a member of a clearing corporation and maintain net capital of at least
$100,000. Signature-guarantees may not be provided by notaries public.
Redemption requests by corporate and fiduciary shareholders must be accompanied
by appropriate documentation establishing the authority of the person seeking to
act on behalf of the account. Investors may obtain from the Fund or the Transfer
Agent forms of resolutions and other documentation which have been prepared in
advance to assist compliance with the Portfolio's procedures. Any questions with
respect to signature-guarantees should be directed to the Transfer Agent by
calling 1-800-447-1139.
During times of drastic economic or market conditions, investors may experience
difficulty in contacting Bear Stearns or Authorized Dealers by telephone to
request a redemption of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the redemption request being processed
at a later time than it would have been if telephone redemption had been used.
During the delay, the Portfolio's net asset value may fluctuate.
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Automatic Withdrawal
Automatic Withdrawal permits investors to request withdrawal of a specified
dollar amount (minimum of $25) on either a monthly or quarterly basis if the
investor has a $5,000 minimum account. An application for Automatic Withdrawal
can be obtained from Bear Stearns or the Transfer Agent. Automatic Withdrawal
may be ended at any time by the investor, the Fund or the Transfer Agent. Shares
for which certificates have been issued may not be redeemed through Automatic
Withdrawal. Class A shares withdrawn pursuant to the Automatic Withdrawal will
be subject to any applicable CDSC. Purchases of additional shares concurrent
with withdrawals generally are undesirable.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends will be automatically reinvested in additional Portfolio shares at net
asset value, unless payment in cash is requested or dividends are redirected
into another fund pursuant to the Redirected Distribution Option.
The Portfolio ordinarily pays dividends from its net investment income and
distributes net realized securities gains, if any, once a year, but it may make
distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the 1940 Act. The Portfolio will not make distributions from net
realized securities gains unless capital loss carryovers, if any, have been
utilized or have expired. Dividends are automatically reinvested in additional
Class A Shares of the Portfolio at net asset value, unless payment in cash is
requested or dividends are redirected into another fund pursuant to the
Redirected Distribution Option. All expenses are accrued daily and deducted
before declaration of dividends to investors. Dividends paid by each Class of
the Portfolio will be calculated at the same time and in the same manner and
will be of the same amount, except that the expenses attributable solely to a
particular class will be borne exclusively by such Class.
Dividends derived from net investment income, together with distributions from
net realized short-term securities gains and all or a portion of any gains
realized from the sale or disposition of certain market discount bonds, paid by
the Portfolio will be taxable to U.S. shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Portfolio or
redirected into another portfolio or fund. Distributions from net realized
long-term securities gains of the Portfolio will be taxable to U.S. shareholders
as long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Portfolio shares and whether such
distributions are received in cash or reinvested in, or redirected into, other
shares. The Code provides that the net capital gain of an individual generally
will not be subject to Federal income tax at a rate in excess of 28%.
Dividends and distributions may be subject to state and local taxes.
Dividends, together with distributions from net realized short-term securities
gains and all or a portion of any gains realized from the sale or other
disposition of market discount bonds, paid by the Portfolio to a foreign
investor generally are subject to U.S. nonresident withholding taxes at the rate
of 30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. Distributions from net realized long-term securities gains paid
by the Portfolio to a foreign investor as well as the proceeds of any
redemptions from a foreign investor's account, regardless of the extent to which
gain or loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of investors' dividends and distributions will be
mailed to them annually. Investors also will receive periodic summaries of their
accounts which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
20
<PAGE>
The Code provides for the "carryover" of some or all of the sales load imposed
on the Portfolio's Class A shares if an investor exchanges such shares for
shares of another fund or portfolio advised or sponsored by BSFM or its
affiliates within 91 days of purchase and such other fund reduces or eliminates
its otherwise applicable sales load for the purpose of the exchange. In this
case, the amount of the sales load charged the investor for such shares, up to
the amount of the reduction of the sales load charge on the exchange, is not
included in the basis of such shares for purposes of computing gain or loss on
the exchange, and instead is added to the basis of the fund shares received on
the exchange.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
Federal income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or if
a shareholder has failed to properly report taxable dividend and interest income
on a Federal income tax return.
A TIN is either the Social Security number or employer identification number of
the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner of
the account, and may be claimed as a credit on the record owner's Federal income
tax return.
The Portfolio is not expected to have any Federal tax liability; although
investors should expect to be subject to Federal, state or local taxes in
respect of their investment in Portfolio shares.
Management of the Fund intends to have the Portfolio qualify as a "regulated
investment company" under the Code and, thereafter, to continue to so qualify if
such qualification is in the best interests of its shareholders. Such
qualification relieves the Portfolio of any liability for Federal income tax to
the extent its earnings are distributed in accordance with applicable provisions
of the Code. In addition, the Portfolio is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
The Portfolio anticipates that there will be high portfolio turnover rate, which
may result in the Portfolio losing its qualification as a regulated investment
company. In this event, the Portfolio would be subject to federal income tax on
its net income at regular corporate rates (without a deduction for distributions
to shareholders). When distributed, such income would then be taxable to
shareholders as ordinary income to the extend of the Portfolio's earnings and
profits. Although Management intends to have the Portfolio qualify as a
regulated investment company, there can be no assurance that it will achieve
this goal.
Each investor should consult its tax adviser regarding specific questions as to
Federal, state or local taxes.
PERFORMANCE INFORMATION
The Portfolio may advertise its performance in a number of ways.
For purposes of advertising, performance for Class A Shares may be calculated on
the basis of average annual total return and/or total return. These total return
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Portfolio during the
measuring period were reinvested in Class A Shares. These figures also take into
account any applicable distribution and shareholder servicing fees.
21
<PAGE>
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Portfolio was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions, if any, during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis, would result in
the redeemable value of the investment at the end of the period. Advertisements
of the Portfolio's performance will include the Portfolio's average annual total
return for one, five and ten year periods, or for shorter periods depending upon
the length of time during which the Portfolio has operated. Computations of
average annual total return for periods of less than one year represent an
annualization of the Portfolio's actual total return for the applicable period.
Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions, if any. Total return generally is expressed as a
percentage rate which is calculated by combining the income and principal
changes for a specified period and dividing by the net asset value per share at
the beginning of the period. Advertisements may include the percentage rate of
total return or may include the value of a hypothetical investment at the end of
the period which assumes the application of the percentage rate of total return.
Total return for the Portfolio also may be calculated by using the net asset
value per share at the beginning of the period instead of the maximum offering
price per share at the beginning of the period for Class A shares. Calculations
based on the net asset value per share do not reflect the deduction of the sales
load on the Portfolio's Class A shares, which, if reflected, would reduce the
performance quoted.
Performance will vary from time to time and past results are not necessarily
representative of future results. Investors should remember that performance is
a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses. Performance
information, such as that described above, may not provide a basis for
comparison with other investments or other investment companies using a
different method of calculating performance.
Comparative performance information may be used from time to time in advertising
or marketing the Portfolio's shares, including data from Lipper Analytical
Services, Inc., Standard & Poor's 500 Composite Stock Price Index, Wilshire 4500
Stock Index, Russell Small Cap Index, the Dow Jones Industrial Average, the Bear
Stearns Research Focus List and other industry publications.
22
<PAGE>
The Bear Stearns Research Focus List
The performance of the Focus List since 1992, as measured by Zacks
InvestmentResearch, Inc., an independent provider of investment research, is as
follows:
Focus List Compared to S&P 500
- -------------------------------------------------------------------
Focus List S&P 500
- -------------------------------------------------------------------
1992
- -------------------------------------------------------------------
1Q 1.68% -2.53%
- -------------------------------------------------------------------
2Q -3.71% 1.90%
- -------------------------------------------------------------------
3Q 3.50% 3.15%
- -------------------------------------------------------------------
4Q 10.09% 5.04%
- -------------------------------------------------------------------
Year 11.56% 7.61%
- -------------------------------------------------------------------
Since Inception 11.56% 7.61%
- -------------------------------------------------------------------
1993
- -------------------------------------------------------------------
1Q -0.03% 4.37%
- -------------------------------------------------------------------
2Q -0.78% 0.49%
- -------------------------------------------------------------------
3Q 5.81% 2.58%
- -------------------------------------------------------------------
4Q 4.78% 2.32%
- -------------------------------------------------------------------
Year 9.97% 10.08%
- -------------------------------------------------------------------
Since Inception 22.68% 18.47%
- -------------------------------------------------------------------
1994
- -------------------------------------------------------------------
1Q -0.68% -3.79%
- -------------------------------------------------------------------
2Q 0.01% 0.42%
- -------------------------------------------------------------------
3Q 7.43% 4.89%
- -------------------------------------------------------------------
4Q -2.94% -0.02%
- -------------------------------------------------------------------
Year 3.57% 1.32%
- -------------------------------------------------------------------
Since Inception 27.06% 20.03%
- -------------------------------------------------------------------
1995
- -------------------------------------------------------------------
1Q 11.42% 9.74%
- -------------------------------------------------------------------
2Q 11.22% 9.55%
- -------------------------------------------------------------------
3Q 9.30% 7.94%
- -------------------------------------------------------------------
4Q 2.57% 6.02%
- -------------------------------------------------------------------
Year 38.92% 37.57%
- -------------------------------------------------------------------
Since Inception 76.52% 65.13%
- -------------------------------------------------------------------
1996
- -------------------------------------------------------------------
1Q 5.17% 5.37%
- -------------------------------------------------------------------
2Q 8.84% 4.49%
- -------------------------------------------------------------------
3Q 6.79% 3.09%
- -------------------------------------------------------------------
4Q 3.62% 8.46%
- -------------------------------------------------------------------
Year 26.66% 23.10%
- -------------------------------------------------------------------
Since Inception 123.59% 103.28%
- -------------------------------------------------------------------
23
<PAGE>
Performance of the Focus List for the periods indicated is measured on an
"equal-weighted" basis. That is, the performance reflects the percentage
increase or decrease of the value of one share of each stock contained in the
Focus List. Focus List returns reflect transaction fees of 1%, and returns are
compounded month to month.
Focus List Compared to S&P 500 - Annualized (for Periods Ended December 31,
1996)
- --------------------------------------------------------------
Focus List S&P 500
- --------------------------------------------------------------
1 yr. 26.66% 23.10%
- --------------------------------------------------------------
3 yr. 22.12% 19.70%
- --------------------------------------------------------------
5 yr. 17.46% 15.24%
- --------------------------------------------------------------
Past Performance of the Focus List Does Not Indicate Future Performance of the
Portfolio.
There is no guarantee that the future performance of the Portfolio will match
the historical performance of the Focus List, and the Portfolio's future
performance may vary significantly from that of the Focus List, because, among
other things:
o weightings of individual stocks in the Portfolio will differ from the
weightings assigned to the Focus List;
o securities in the Portfolio will have different cost bases and sale prices;
o the Portfolio is subject to certain restrictions that do not apply to the
Focus List, including limits on diversification of investments and industry
concentration;
o The Portfolio may invest a limited portion of its assets in short-term
money market securities and stocks that are not included on the Focus List.
o the Portfolio may hold securities deleted from the Focus List for a period
of time if the Portfolio Manager believes that selling the security would
result in unacceptable losses or could result in the Portfolio losing its
status as a "regulated investment company" under federal tax laws;
o the timing of purchases and sales of securities in the Portfolio may vary
due to market forces and cash flows due to purchases and redemptions; and o
the Portfolio's annualized management fees and operating expenses are
expected to be higher than the 1% transaction fees reflected in the above
performance figures.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the laws of The
Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust
(the "Trust Agreement") dated September 29, 1994. The Fund commenced operations
on or about April 3, 1995 in connection with the offer of shares of certain of
its other portfolios. The Fund is authorized to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. The Portfolio's shares
are classified into two Classes--Class A and Class Y. Each share has one vote
and shareholders will vote in the aggregate and not by Class, except as
otherwise required by law.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Portfolio. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the
Portfolio and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Portfolio's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Portfolio. Thus, the risk of a shareholder incurring
financial loss on account of a shareholder liability is limited to
24
<PAGE>
circumstances in which the Portfolio itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment of
any liability incurred by the Portfolio, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Portfolio. The
Fund's Trustees intend to conduct the operations of the Portfolio in a way so as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Portfolio. As discussed under "Management of the Fund" in the
Portfolio's Statement of Additional Information, the Portfolio ordinarily will
not hold shareholder meetings; however, shareholders under certain circumstances
may have the right to call a meeting of shareholders for the purpose of voting
to remove Trustees.
To date, the Fund's Board has authorized the creation of seven portfolios of
shares. All consideration received by the Fund for shares of one of the
portfolios and all assets in which such consideration is invested will belong to
that portfolio (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The assets attributable to, and the
expenses of, one portfolio (and as to classes within a portfolio) are treated
separately from those of the other portfolios (and classes). The Fund has the
ability to create, from time to time, new portfolios of shares without
shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
under the provisions of the 1940 Act or applicable state law or otherwise to the
holders of the outstanding voting securities of an investment company, such as
the Fund, will not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each portfolio
affected by such matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of such
portfolio in the matter are identical or that the matter does not affect any
interest of such portfolio. However, the Rule exempts the selection of
independent accountants and the election of Trustees from the separate voting
requirements of the Rule.
The Transfer Agent maintains a record of share ownership and will send
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at PFPC Inc.,
Attention: Focus List Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960,
by calling 1-800-447-1139 or by calling Bear Stearns at 1-800-766-4111.
25
<PAGE>
APPENDIX
Investment Techniques
In connection with its investment objective and policies, the Portfolio may
employ, among others, the following investment techniques which may involve
certain risks.
Lending Portfolio Securities
The Portfolio may earn additional income by lending its portfolio securities.
From time to time, the Portfolio may lend securities from its portfolio to
brokers, dealers and other financial institutions needing to borrow securities
to complete certain transactions. Such loans may not exceed 331/3% of the value
of the Portfolio's total assets. In connection with such loans, the Portfolio
will receive collateral consisting of cash, U.S. Government securities or
irrevocable letters of credit which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
Portfolio can increase its income through the investment of such collateral. The
Portfolio continues to be entitled to payments in amounts equal to the interest,
dividends and other distributions payable on the loaned security and receives
interest on the amount of the loan. Such loans will be terminable at any time
upon specified notice. The Portfolio might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Portfolio.
Borrowing Money
The Portfolio may borrow money.
As a fundamental policy, the Portfolio is permitted to borrow to the extent
permitted under the 1940 Act. The 1940 Act permits an investment company to
borrow in an amount up to 331/3% of the value of such company's total assets.
However, the Portfolio currently intends to borrow money only for temporary or
emergency (not leveraging) purposes, in an amount up to 15% of the value of its
total assets (including the amount borrowed) valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the Portfolio's total assets,
the Portfolio will not make any additional investments.
Certain Portfolio Securities
Foreign Securities
The Portfolio may purchase foreign securities.
The Portfolio may purchase securities of foreign issuers, which may involve more
risks than investment in securities issued by domestic companies. Securities of
foreign issuers may be traded in the United States in the form of American
Depository Receipts (ADRs) and other similar instruments, but most are traded
primarily in foreign markets. The risks of investing in foreign securities
include, among other things:
o Political and economic risk. Foreign investments are subject to increased
political and economic risks, especially in developing countries. In some
countries, there is the risk that assets may confiscated or taxed by foreign
governments.
A-1
<PAGE>
o Regulatory risk. Foreign securities markets may be subject to less
government regulation and foreign issuers may not be subject to uniform
accounting, auditing and financial reporting standards.
o Currency risk. Foreign securities denominated in foreign currencies may
be subject to the additional risk of fluctuations in the value of the currency
as compared to the U.S. dollar.
o Market risk. Foreign securities markets may be subject to greater
volatility and may be less liquid than domestic markets.
o Transaction costs. Transaction costs involving foreign securities tend to
be higher than similar costs applicable to transactions in U.S.
securities.Convertible Securities
Money Market Instruments
The Portfolio may invest in a variety of money market instruments.
The Portfolio may invest, in the circumstances described under "Description of
the Fund--Management Policies," in the following types of money market
instruments, each of which at the time of purchase must have or be deemed to
have under rules of the Securities and Exchange Commission remaining maturities
of 13 months or less. Under normal circumstances, the Portfolio does not expect
to invest more than 5% of its total assets in money market instruments or cash.
U.S. Government Securities The Portfolio may purchase securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, which
include U.S. Treasury securities that differ in their interest rates, maturities
and times of issuance. Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. These
securities bear fixed, floating or variable rates of interest. Principal and
interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance can
be given that it will always do so, since it is not so obligated by law.
Bank Obligations
The Portfolio may invest in bank obligations, including certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, the
Portfolio may be subject to additional investment risks that are different in
some respects from those incurred by a fund which invests only in debt
obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits.
Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time.
A-2
<PAGE>
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by the Portfolio will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. The Portfolio will not invest more than
15% of the value of its net assets in time deposits maturing in more than seven
days and in other securities that are illiquid.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Repurchase Agreements
Repurchase agreements involve the acquisition by the Portfolio of an underlying
debt instrument, subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the instrument at a fixed price usually not more than one
week after its purchase. Certain costs may be incurred by the Portfolio in
connection with the sale of the securities if the seller does not repurchase
them in accordance with the repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by the Portfolio may be delayed or limited.
Commercial Paper and Other Short-Term Corporate Obligations
Commercial paper consists of short-term, unsecured promissory notes issued to
finance short-term credit needs. The commercial paper purchased by the Portfolio
will consist only of direct obligations which, at the time of their purchase,
are (a) rated not lower than Prime-1 by Moody's Investors Service Inc.
("Moody's"), A-1 by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("S&P"), F-1 by Fitch Investors Service, L.P.
("Fitch") or Duff-1 by Duff & Phelps Credit Rating Co. ("Duff"), (b) issued by
companies having an outstanding unsecured debt issue currently rated not lower
than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined
by the Advisers to be of comparable quality to those rated obligations which may
be purchased by the Portfolio. The Portfolio may purchase floating and variable
rate demand notes and bonds, which are obligations ordinarily having stated
maturities in excess of one year, but which permit the holder to demand payment
of principal at any time or at specified intervals.
Investment Company Securities
The Portfolio may invest in securities of other investment companies.
The Portfolio may invest in securities issued by other investment companies.
Under the 1940 Act, the Portfolio's investment in such securities currently is
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Portfolio's total assets with respect
to any one investment company and (iii) 10% of the Portfolio's total assets in
the aggregate. Investments in the securities of other investment companies will
involve duplication of advisory fees and certain other expenses.
Illiquid Securities
The Portfolio may purchase illiquid securities.
The Portfolio may invest up to 15% of the value of its net assets in securities
as to which a liquid trading market does not exist, provided such investments
are consistent with the Portfolio's investment objective. Such securities may
include securities that are not readily marketable, such as certain securities
that are subject to legal or contractual restrictions on resale, repurchase
agreements providing for settlement in more than seven days after notice, and
options traded in the over-the-counter market and securities used to cover such
options. As to these
A-3
<PAGE>
securities, the Portfolio is subject to a risk that should the Portfolio desire
to sell them when a ready buyer is not available at a price the Portfolio deems
representative of their value, the value of the Portfolio's net assets could be
adversely affected.
A-4
<PAGE>
THE
BEAR STEARNS
FUNDS
245 Park Avenue
New York, NY 10167
1.800.766.4111
Distributor
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Investment Adviser and Administrator
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167
Custodian
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540
Transfer & Dividend
Disbursement Agent
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE FOCUS LIST PORTFOLIO'S
PROSPECTUS AND IN THE FOCUS LIST PORTFOLIO'S SALES LITERATURE IN CONNECTION WITH
THE OFFER OF THE FOCUS LIST PORTFOLIO'S SHARES, AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THE FOCUS LIST PORTFOLIO'S PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
THE BEAR STEARNS FUNDS
245 PARK AVENUE NEW YORK, NY 10167 1-800-766-4111
PROSPECTUS
Focus List Portfolio
Class Y Shares Only
The Bear Stearns Funds (the "Fund") is an open-end management investment
company, known as a mutual fund. The Fund permits you to invest in separate
portfolios. By this Prospectus, Class Y Shares of the Focus List Portfolio, a
non-diversified portfolio (the "Portfolio"), are offered. The Portfolio's
investment objective is capital appreciation. The Portfolio seeks to achieve
this objective by investing primarily in a portfolio of equity securities of
U.S. issuers that, at the time of purchase, are included on the Bear Stearns
Research Focus List (the "Focus List") developed by Bear Stearns' Equity
Research Department.
The Focus List typically consists of twenty stocks chosen from those stocks
currently rated as Buy or Attractive by a Bear Stearns research analyst. The
stocks are selected for inclusion on the Focus List by the Focus List Committee
(See p. ____ for a description of the Focus List Committee) based upon the
expectation that the selected stocks will outperform the total return realized
on the Standard & Poor's Index of 500 Common Stocks (the "S&P 500 Index") over
the next three to six months. There can be no assurance that the Portfolio will
achieve its investment objective.
Class Y Shares are sold at net asset value without a sales charge to investors
whose minimum investment is $2.5 million. The Portfolio issues another Class of
shares that has sales charges and different expenses which would affect
performance. Investors desiring to obtain information about this other Class of
shares should call 1-800-766- 4111 or ask their sales representative or the
Portfolio's distributor.
Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned subsidiary of The
Bear Stearns Companies Inc., serves as the Portfolio's investment adviser. BSFM
is referred to herein as the "Adviser."
Bear, Stearns & Co. Inc. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor.
This Prospectus sets forth concisely information about the Portfolio that you
should know before investing. It should be read and retained for future
reference.
Part B (also known as the Statement of Additional Information), dated
_____________, 1997, which may be revised from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. For a free copy, write to
the address or call one of the telephone numbers listed under "General
Information" in this Prospectus.
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency.
The net asset value of funds of this type will fluctuate.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_________________, 1997
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Table of Contents
PAGE
Fee Table..............................................................
Description of the Fund................................................
Risk Factors...........................................................
Management of the Fund.................................................
How to Buy Shares .....................................................
Shareholder Services...................................................
How to Redeem Shares...................................................
Dividends, Distributions and Taxes.....................................
Performance Information................................................
General Information....................................................
Appendix............................................................... A-1
2
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FEE TABLE
A summary of estimated expenses investors will incur when investing in the Class
Y Shares of the Portfolio offered pursuant to this Prospectus is set forth
below.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................... None
Maximum Deferred Sales Charge Imposed on Redemptions (as a percentage of the amount None
subject to charge)..............................................................................
Annual Portfolio Operating Expenses (as a percentage of average daily net assets)
Management Fees................................................................................. ___%
12b-1 Fees...................................................................................... ___%
Other Expenses (after expense reimbursement)*................................................... ___%
Total Portfolio Operating Expenses (after fee waiver and expense reimbursement)*................ ___%
Example:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 Year.................................................................................. $
3 Years................................................................................. $
======================
</TABLE>
* BSFM has undertaken to waive its investment advisory fee and assume
certain expenses of the Portfolio other than brokerage commissions,
extraordinary items, interest and taxes to the extent Total Portfolio Operating
Expenses exceed _____% for Class Y Shares.
The amounts listed in the example should not be considered as representative of
past or future expenses and actual expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the
Portfolio's actual performance will vary and may result in an actual return
greater or less than 5%.
The purpose of the foregoing table is to assist you in understanding the costs
and expenses borne by the Portfolio and investors, the payment of which will
reduce investors' annual return. In addition to the expenses noted above, the
Fund will charge $7.50 for each wire redemption. See "How to Redeem Shares." For
a description of the expense reimbursement or waiver arrangements in effect, see
"Management of the Fund."
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DESCRIPTION OF THE FUND
General
The Fund is a "series fund."
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As described below, for certain matters Fund
shareholders vote together as a group; as to others they vote separately by
portfolio. By this Prospectus, shares of the Portfolio are being offered. From
time to time, other portfolios may be established and sold pursuant to other
offering documents. See "General Information."
Investment Objective
The Portfolio seeks to provide capital appreciation
The Portfolio's investment objective is capital appreciation. The Portfolio's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Portfolio's investment objective
will be achieved.
Management Policies
The Focus List Fund
The Portfolio seeks to invest primarily in the common stocks of the U.S. and
also foreign issuers that, at the time of purchase, are on the Bear Stearns
Equity Research Focus List (the "Focus List"). The Portfolio is designed for
investors seeking to maximize returns on a fully invested, all-equity portfolio.
The Portfolio is not a market-timing vehicle. Except for short-term liquidity
purposes, cash reserves are not expected to exceed 10% of Portfolio assets.
The Bear Stearns Research Focus List
The Bear Stearns Equity Research Department has over 70 equity analysts who
cover more than 900 common stocks of U.S. and foreign companies. Using a rating
system of "1" through "5", analysts assign stocks the following ratings: 1
("Buy", the highest rating), 2 ("Attractive"), 3 ("Neutral"), 4 ("Avoid"), 5
("Sell"). Approximately 300 stocks are rated as Buy or Attractive by a Bear
Stearns Research analyst.
A Buy rating is assigned to stocks that the Bear Stearns Research analyst and
the Research Stock Selection Committee (comprised of senior Research personnel)
feel will significantly outperform the market over the next six to twelve months
because of a catalyst or near-term event that will trigger upward movement in
the stock's price. These catalysts can include a change in management, the
introduction of a new product or a change in the industry outlook. (See p. 18
for information about historical performance of the Focus List.) An Attractive
rating means that an analyst has determined that the stock has solid long-term
growth prospects either because of, or in comparison to, its industry and that
it is undervalued in comparison to its industry.
Domestic and international stocks and American Depositary Receipts (ADRs) rated
Buy (1) or Attractive (2) are eligible for inclusion on the Focus List. Stocks
are picked by the Focus List Committee, whose current members
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are Kathryn Booth, Director of Global Research for Bear Stearns, and Elizabeth
Mackay, Chief Investment Strategist of Bear Stearns. The Committee generally
maintains twenty stocks on the list and any new additions are usually
accompanied by a comparable number of deletions. The Committee monitors the List
daily, and candidates are considered based on any one or more of the following
criteria: market outlook, perception of the stock's sector, and an analyst's
view of the stock's current valuation relative to the market and its industry.
Stock that are downgraded below Attractive by an analyst are automatically
deleted from the Focus List. However, the Focus List Committee may delete stocks
for other reasons including, but not limited to, achievement of its target price
range, the failure of a catalyst to materialize or have its expected effect,
and/or the appearance of new, more attractive opportunities.
Types of Investments
Equities
Domestic and foreign common stocks, and American Depositary Receipts (ADRs) are
eligible for inclusion on the Focus List.
Money Market Instruments
The Portfolio may invest, in anticipation of investing cash positions, in money
market instruments consisting of U.S. Government securities, certificates of
deposit, time deposits, bankers' acceptances, short-term investment-grade
commercial obligations and other short-term debt instruments, and repurchase
agreements, as set forth in the Appendix. Under normal market conditions, the
Portfolio expects to have less than 10% of its total assets invested in money
market instruments.
Options on Securities and Indices
In certain circumstances, the Portfolio may engage in options transactions, such
as purchasing put or call options or writing covered call options. The Portfolio
may purchase call options to gain market exposure in a particular sector while
limiting downside risk. The Portfolio may purchase put options in order to hedge
against an anticipated loss in value of Portfolio securities. The principal
reason for writing covered call options, which are call options with respect to
which the Portfolio owns the underlying security or securities, is to realize,
through the receipt of premiums, a greater return than would be realized on the
Portfolio's securities alone. In return for a premium, the writer of a covered
call option forfeits the right to any appreciation in the value of the
underlying security above the strike price for the life of the option (or until
a closing purchase transaction can be effected). Nevertheless, the call writer
retains the risk of a decline in the price of the underlying security. (See
"Risk Factors" on page 7 and the Statement of Additional Information for
individual risk factors).
Futures and Options on Futures
The Portfolio may buy and sell futures contracts and related options on
securities indices and related interest rates for a number of purposes. It may
do so to try to manage its exposure to the possibility that the prices of its
portfolio securities and instruments may decline or to establish a position in
the futures or options market as a temporary substitute for purchasing
individual securities or instruments. It may do so in an attempt to enhance its
income or return by purchasing and selling call and put options on futures
contracts on financial indices or securities. It also may use interest rate
futures to try to manage its exposure to changing interest rates. Investments in
futures and options on futures involve certain risks. (See "Risk Factors" on
page 7 and the Statement of Additional Information).
5
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Investment Strategy
Generally, as soon as practicable after public announcement, the Adviser will
purchase a security that has been added to the Focus List, and will sell a
security when the security has been removed from the Focus List. The Adviser
determines what percentage of the Portfolio's total assets are to be allocated
into each Focus List stock and makes changes in allocation percentages as
investment and economic conditions change. The Adviser intends to allocate
portfolio transactions so that the Portfolio qualifies as a "regulated
investment company" under federal tax law, although there can be no assurance
that this goal will be achieved (see "Dividends, Distributions and Taxes").
Depending upon market conditions and to the extent the Portfolio needs to hold
cash balances to satisfy shareholder redemption requests, the Adviser may not
immediately purchase a new Focus List stock and/or may continue to hold one or
more Focus List stocks that have been deleted from the Focus List. The Adviser
will not have access to the Focus List prior to its becoming publicly
disseminated.
The Portfolio may invest up to 10% of its total assets in Portfolio stocks that
are not on the Focus List. The Portfolio will purchase stocks that are not on
the Focus List when the Adviser determines that any stocks on the Focus List are
inappropriate for the Portfolio because they are illiquid, would cause the
Portfolio to be overweighted in a particular sector or overly concentrated in a
particular industry, or for any other reason.
The Investment Strategy described above will be implemented to the extent it is
consistent with maintaining the Portfolio's qualification as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). See "Dividends, Distributions and Taxes." The Portfolio's strategy may
be limited, in particular, by the requirements for such qualification that less
than 30% of the Portfolio's annual gross income be derived from the sale or
other disposition of stocks held for less than three months.
Certain Fundamental Policies
Certain of the Portfolio's investment policies are fundamental policies that can
be changed only by shareholder vote.
The Portfolio may (i) borrow money to the extent permitted under the 1940 Act;
and (ii) concentrate its investments in the securities of issuers in a single
industry to the extent that investment decisions are made based upon the
industry classifications of the stocks appearing on the current Focus List. This
paragraph describes fundamental policies that cannot be changed as to the
Portfolio without approval by the holders of a majority (as defined in the 1940
Act) of the Portfolio's outstanding voting shares. See "Investment Objective and
Management Policies--Investment Restrictions" in the Statement of Additional
Information.
Certain Additional Non-Fundamental Policies
The Portfolio may (i) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only to secure permitted borrowings; and (ii) invest up to 15% of
the value of its net assets in repurchase agreements providing for settlement in
more than seven days after notice and in other illiquid securities. See
"Investment Objective and Management Policies--Investment Restrictions" in the
Statement of Additional Information.
6
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RISK FACTORS
No investment is free from risk. Investing in the Portfolio will subject
investors to certain risks which should be considered.
Net Asset Value Fluctuations
The Portfolio's net asset value per share is not fixed and should be expected to
fluctuate. Investors should purchase Portfolio shares only as a supplement to an
overall investment program and only if investors are willing to undertake the
risks involved.
Equity Securities
Investors should be aware that equity securities fluctuate in value, often based
on factors unrelated to the value of the issuer of the securities, and that
fluctuations can be pronounced. Changes in the value of the equity securities in
the Portfolio's portfolio will result in changes in the value of the Portfolio's
shares and thus the Portfolio's yield and total return to investors. The
Portfolio intends to remain almost fully invested in equity securities, even
during times of significant market decline, when other funds might take a more
defensive position by investing a greater amount of their assets in money market
instruments or cash that are less likely to decline when market conditions are
adverse for equities.
Foreign Equities
The Portfolio may invest in equity securities that are issued by foreign issuers
and are traded in the United States. All such securities will be issued by
foreign companies that comply with U.S. accounting standards. The Portfolio may
also invest in sponsored ADRs which are receipts typically issued by a U.S. bank
or trust company which evidence ownership of underlying securities of foreign
corporations.
Investors should recognize that investments in foreign companies involves
certain considerations that are not typically associated with investing in
domestic companies. For instance, with respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, imposition of
withholding taxes on dividend payments, political or social instability of
diplomatic developments that could affect investments in those countries.
Individual economies may differ favorably or unfavorably from the United States
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. Foreign securities denominated in foreign currencies may be subject to
the additional risk of fluctuations in the value of the currency as compared to
the U.S. dollar. Foreign securities markets may be subject to greater volatility
and may be less liquid than domestic markets. Transaction costs involving
foreign securities tend to be higher than similar costs applicable to
transactions in U.S. securities.
Futures and Options
The Portfolio may trade futures contracts, options, and options on futures
contracts. Investors should be aware that the use of derivative instruments such
as futures and options requires special skills and knowledge and investment
techniques that are different from what is required in other Portfolio
investments. If the Adviser trades a futures or options contract at the wrong
time or judges market conditions incorrectly, the strategies may result in a
significant loss to the Portfolio and reduce the Portfolio's return. The
Portfolio could also experience losses if the prices of its futures and options
positions were not properly correlated with its other investments or if it could
not
7
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close out a position because of an illiquid market for the future or option.
These risks and the strategies the Portfolio may use are described in greater
detail in the Statement of Additional Information.
Non-Diversified Status
The Portfolio's classification as a "non-diversified" investment company means
that the proportion of its assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified" investment company
is required by the 1940 Act generally, with respect to 75% of its total assets,
to invest not more than 5% of such assets in the securities of a single issuer
and to hold not more than 10% of the outstanding voting securities of a single
issuer. However, the Portfolio intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of the Code, which
generally requires that, at the end of each quarter of its taxable year, (i) at
least 50% of the market value of the Portfolio's total assets be invested in
cash, U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Portfolio's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Portfolio's assets may be
invested in the securities of a limited number of issuers, some of which may be
within the same industry or economic sector, the Portfolio's portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified investment
company.
Portfolio Turnover
The Adviser expects that the turnover in the securities held in the Portfolio
(that is, the frequency that the Portfolio will buy and sell securities) will
generally be 250% or greater. This portfolio turnover rate is significantly
higher than the portfolio turnover rates of other mutual funds that invest in
equity securities. A higher portfolio turnover rate means that the Portfolio
will incur substantially higher brokerage costs and may realize a greater amount
of short-term capital gains or losses. A high portfolio turnover rate may cause
the Portfolio to lose its status as a "regulated investment company" (see
"Dividends, Distributions and Taxes)."
Potential Investment Restrictions
It is possible that the Focus List will include stocks of issuers for which Bear
Stearns or one of its affiliates performs banking services for which it receives
fees, as well as stocks of issuers in which Bear Stearns or one of its
affiliates makes a market and may have a long or short position in the stock.
When Bear Stearns or one of its affiliates is engaged in an underwriting or
other distribution of stock of an issuer, the Adviser may be prohibited from
purchasing the stock of the issuer for the Portfolio. The activities of Bear
Stearns or one of its affiliates may, from time to time, limit the Focus List
Committee's ability to include stocks on the Focus List or the Portfolio's
flexibility in purchasing and selling such stocks. In addition, the Focus List
is available to other clients of Bear Stearns and its affiliates, including the
Adviser, as well as the Portfolio.
Simultaneous Investments
Investment decisions for the Portfolio are made independently from those of
other investment companies or accounts advised by the Adviser. However, if such
other investment companies or accounts are prepared to invest in, or desire to
dispose of, securities of the type in which the Portfolio invests at the same
time as the Portfolio, available investments or opportunities for sales will be
allocated equitably to each. In some cases, this procedure may
8
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adversely affect the size of the position obtained for or disposed of by the
Portfolio or the price paid or received by the Portfolio.
MANAGEMENT OF THE FUND
Board of Trustees
The Trustees are responsible for the overall management and supervision of the
Portfolio's business.
The Fund's business affairs are managed under the general supervision of its
Board of Trustees. The Portfolio's Statement of Additional Information contains
the name and general business experience of each Trustee.
Investment Adviser
The Portfolio's investment adviser is BSFM.
The Portfolio's investment adviser is BSFM, a wholly owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York, New
York 10167. The Bear Stearns Companies Inc. is a holding company which, through
its subsidiaries including its principal subsidiary, Bear Stearns, is a leading
United States investment banking, securities trading and brokerage firm serving
United States and foreign corporations, governments and institutional and
individual investors. BSFM is a registered investment adviser and offers, either
directly or through affiliates, investment advisory and administrative services
to open-end and closed-end investment funds and other managed pooled investment
vehicles with net assets at December 31, 1996 of over $2.9 billion.
BSFM supervises and assists in the overall management of the Portfolio's affairs
under an Investment Advisory Agreement between BSFM and the Fund, subject to the
overall authority of the Fund's Board of Trustees in accordance with
Massachusetts law.
Mark Kurland, Chairman and Chief Executive Officer of Bear Stearns Asset
Management, serves as Portfolio Manager of the Portfolio. Mr. Kurland also
serves as Senior Managing Director of Bear, Stearns & Co. Inc.. He was
previously Director of Global Research from 1991 to 1995 at Bear , Stearns &
Co., Inc., where he also served as a member of the Investment Policy Committee,
President's Advisory Counsel, Equities Subcommittee and the Funds Committee. He
was previously Co-Head of Institutional Equities and Director of Research at
Mabon, Nugent & Co.
The Portfolio pays BSFM an advisory fee at an annual rate equal to __% of
average daily net assets.
Under the terms of the Investment Advisory Agreement, the Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of __% of the Portfolio's average
daily net assets.
The Portfolio's administrator is BSFM. The Portfolio pays BSFM an administration
fee at the annual rate of .15 of 1% of its average daily net assets.
Under the terms of an Administration Agreement with the Fund, BSFM generally
supervises all aspects of the operation of the Portfolio, subject to the overall
authority of the Fund's Board of Trustees in accordance with Massachusetts law.
For providing administrative services to the Portfolio, the Fund has agreed to
pay BSFM a monthly fee at the annual rate of .15 of 1% of the Portfolio's
average daily net assets. Under the terms of an Administrative Services
Agreement with the Fund, PFPC Inc., the Portfolio's transfer agent, provides
certain
9
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administrative services to the Portfolio. For providing these services, the Fund
has agreed to pay PFPC Inc. an annual fee, as set forth below:
- --------------------------------------------------------------------------------
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
First $200 million.................... .__ of 1%
Next $200 million up to $400 million.. .__ of 1%
Next $200 million up to $600 million.. .__ of 1%
Assets in excess of $600 million...... .__ of 1%
The above-referenced fee is subject to a monthly minimum fee of $______.
From time to time, BSFM may waive receipt of its fees and/or voluntarily assume
certain Portfolio expenses, which would have the effect of lowering the
Portfolio's expense ratio and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. The Portfolio will not pay
BSFM at a later time for any amounts it may waive, nor will the Portfolio
reimburse BSFM for any amounts it may assume. From time to time, PFPC Inc. may
voluntarily waive a portion of its fee.
Brokerage commissions may be paid to Bear Stearns for executing transactions if
the use of Bear Stearns is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers. The allocation of
brokerage transactions also may take into account a broker's sales of the
Portfolio's shares. See "Portfolio Transactions" in the Statement of Additional
Information.
Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment
Advisory Agreement is in effect.
Distributor
Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as
the Portfolio's principal underwriter and distributor of the Portfolio's shares
pursuant to an agreement which is renewable annually.
Custodian and Transfer Agent
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an
affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the
Portfolio's transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides certain administrative
services to the Portfolio.
Expense Limitation
BSFM has undertaken until such time as it gives investors at least 60 days'
notice to the contrary that, if in any fiscal year, certain expenses, including
the investment advisory fee, exceed _____% of Class Y Shares' average daily net
assets for the fiscal year, BSFM may waive a portion of its investment advisory
fee or bear other expenses to the extent of the excess expense.
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HOW TO BUY SHARES
General
The minimum initial investment is $2.5 million. Subsequent investments may be
made in any amount. Share certificates are issued only upon written request. The
Fund reserves the right to reject any purchase order. The Fund reserves the
right to vary the initial and subsequent investment minimum requirements at any
time. Investments by employees of Bear Stearns and its affiliates are not
subject to the minimum investment requirement. In addition, accounts under the
discretionary management of Bear Stearns and its affiliates are not subject to
the minimum investment requirement.
Purchases of the Portfolio's shares may be made through a brokerage account
maintained with Bear Stearns or through certain investment dealers who are
members of the National Association of Securities Dealers, Inc. who have sales
agreements with Bear Stearns (an "Authorized Dealer"). Purchases of the
Portfolio's shares also may be made directly through the Transfer Agent.
Investors must specify that Class Y is being purchased.
Purchases are effected at Class Y Shares' net asset value next determined after
a purchase order is received by Bear Stearns, an Authorized Dealer or the
Transfer Agent (the "trade date"). Payment for Portfolio shares generally is due
to Bear Stearns or the Authorized Dealer on the third business day (the
"settlement date") after the trade date. Investors who make payment before the
settlement date may permit the payment to be held in their brokerage accounts or
may designate a temporary investment for payment until the settlement date. If a
temporary investment is not designated, Bear Stearns or the Authorized Dealer
will benefit from the temporary use of the funds if payment is made before the
settlement date.
Purchases can be made through Bear Stearns account executives, Authorized
Dealers or the Transfer Agent.
Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be
accepted), Federal Reserve draft or by wiring Federal Funds with funds held in
brokerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--Focus List
Portfolio--Class Y" if purchased directly from the Portfolio, and should be
directed to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns
Funds--Focus List Portfolio--Class Y, P.O. Box 8960, Wilmington, Delaware
19899-8960. Payment by check or Federal Reserve draft must be received within
three business days of receipt of the purchase order by Bear Stearns or an
Authorized Dealer. Orders placed directly with the Transfer Agent must be
accompanied by payment. Bear Stearns (or an investor's Authorized Dealer) is
responsible for forwarding payment promptly to the Fund. The Fund will charge
$7.50 for each wire redemption. The payment proceeds of a redemption of shares
recently purchased by check may be delayed as described under "How to Redeem
Shares."
Investors who are not Bear Stearns clients may purchase Portfolio shares through
the Transfer Agent. To make an initial investment in the Portfolio, an investor
must establish an account with the Portfolio by furnishing necessary information
to the Fund. An account with the Portfolio may be established by completing and
signing the Account Information Form indicating which Class of shares is being
purchased, a copy of which is attached to this Prospectus, and mailing it,
together with a check to cover the purchase, to PFPC Inc., Attention: The Bear
Stearns Funds--Focus List Portfolio--Class Y, P.O. Box 8960, Wilmington,
Delaware 19899-8960.
Subsequent purchases of shares may be made by checks made payable to the Fund
and directed to the address set forth in the preceding paragraph. The Portfolio
account number should appear on the check.
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Shareholders may not purchase shares of the Fund with a check issued by a third
party and endorsed over to the Fund.
Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer
Agent before the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., New York time) on any day the Portfolio calculates its net
asset value are priced according to the net asset value determined on that date.
Purchase orders received after the close of trading on the New York Stock
Exchange are priced as of the time the net asset value is next determined.
Net asset value is computed daily as of the close of regular trading on the New
York Stock Exchange.
Shares of the Portfolio are sold on a continuous basis. Net asset value per
share is determined as of the close of regular trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time) on each business day.
The net asset value per share of Class Y Shares of the Portfolio is computed by
dividing the value of the Portfolio's net assets represented by Class Y Shares
(i.e., the value of its assets less liabilities) by the total number of shares
of Class Y Shares outstanding. The Portfolio's investments are valued based on
market value or, where market quotations are not readily available, based on
fair value as determined in good faith by, or in accordance with procedures
established by, the Fund's Board of Trustees. For further information regarding
the methods employed in valuing the Portfolio's investments, see "Determination
of Net Asset Value" in the Portfolio's Statement of Additional Information.
Federal regulations require that investors provide a certified Taxpayer
Identification Number (a "TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes." Failure to furnish a certified TIN to the
Fund could subject the investor to a $50 penalty imposed by the Internal Revenue
Service (the "IRS").
SHAREHOLDER SERVICES
Exchange Privilege
The Exchange Privilege permits easy purchases of other funds in the Bear Stearns
family.
The Exchange Privilege enables an investor to purchase, in exchange for Class Y
Shares of the Portfolio, Class Y Shares of the Fund's other portfolios or shares
of certain other funds sponsored or advised by Bear Stearns, including the
Emerging Markets Debt Portfolio of Bear Stearns Investment Trust, and the Money
Market Portfolio of The RBB Fund, Inc., to the extent such shares are offered
for sale in the investor's state of residence. These funds have different
investment objectives which may be of interest to investors. To use this
Privilege, investors should consult their account executive at Bear Stearns,
their account executive at an Authorized Dealer or the Transfer Agent to
determine if it is available and whether any conditions are imposed on its use.
To use this Privilege, exchange instructions must be given to the Transfer Agent
in writing or by telephone. A shareholder wishing to make an exchange may do so
by sending a written request to the Transfer Agent at the address given above in
"How to Buy Shares--General." Shareholders are automatically provided with
telephone exchange privileges when opening an account, unless they indicate on
the account application that they do not wish to use this privilege.
Shareholders holding share certificates are not eligible to exchange shares of
the Portfolio by phone because share certificates must accompany all exchange
requests. To add this feature to an existing account
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that previously did not provide for this option, a Telephone Exchange
Authorization Form must be filed with the Transfer Agent. This form is available
from the Transfer Agent. Once this election has been made, the shareholder may
contact the Transfer Agent by telephone at 1-800-447-1139 (in Delaware call
collect 302-791-1031) to request the exchange. During periods of substantial
economic or market change, telephone exchanges may be difficult to complete and
shareholders may have to submit exchange requests to the Transfer Agent in
writing.
If the exchanging shareholder does not currently own Class Y Shares of the
portfolio or fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as described below. The Exchange
Privilege may be modified or terminated at any time, or from time to time, by
the Fund on 60 days' notice to the affected portfolio or fund shareholders. The
Fund, BSFM and Bear Stearns will not be liable for any loss, liability, cost or
expense for acting upon telephone instructions that are reasonably believed to
be genuine. In attempting to confirm that telephone instructions are genuine,
the Fund will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's Social
Security number, address and/or bank).
Before any exchange, the investor must obtain and should review a copy of the
current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained free of charge from Bear Stearns, any
Authorized Dealer or the Transfer Agent. When establishing a new account by
exchange, the Class Y Shares being exchanged must have a value of at least the
minimum initial investment required for the portfolio or fund into which the
exchange is being made; if making an exchange to an existing account, the dollar
value must equal or exceed the applicable minimum for subsequent investments. If
any amount remains in the investment portfolio from which the exchange is being
made, such amount must not be below the minimum account value required by the
Portfolio or Fund.
Class Y Shares will be exchanged at the next determined net asset value. No fees
currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a $5.00 fee in accordance with rules promulgated
by the Securities and Exchange Commission. The Fund reserves the right to reject
any exchange request in whole or in part. The Exchange Privilege may be modified
or terminated at any time upon notice to shareholders.
The exchange of Class Y Shares of one portfolio or fund for Class Y Shares of
another is treated for Federal income tax purposes as a sale of the Class Y
Shares given in exchange by the shareholder and, therefore, an exchanging
shareholder may realize a taxable gain or loss.
Redirected Distribution Option
The Redirected Distribution Option permits investment of investors' dividends
and distributions in shares of other funds in the Bear Stearns family.
The Redirected Distribution Option enables a shareholder to invest automatically
dividends and/or capital gain distributions, if any, paid by the Portfolio in
Class Y Shares of another portfolio of the Fund or a fund advised or sponsored
by Bear Stearns of which the shareholder is an investor, or the Money Market
Portfolio of The RBB Fund, Inc. Shares of the other portfolio or fund will be
purchased at the then-current net asset value.
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<PAGE>
This privilege is available only for existing accounts and may not be used to
open new accounts. Minimum subsequent investments do not apply. The Fund may
modify or terminate this privilege at any time or charge a service fee. No such
fee currently is contemplated.
HOW TO REDEEM SHARES
General
The redemption price will be based on the net asset value next computed after
receipt of a redemption request.
Investors may request redemption of Portfolio shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, the Portfolio will redeem the shares at the next determined net asset
value. If the investor holds Portfolio shares of more than one Class, any
request for redemption must specify the Class of shares being redeemed. If the
investor fails to specify the Class of shares to be redeemed or if the investor
owns fewer shares of the Class than specified to be redeemed, the redemption
request may be delayed until the Transfer Agent receives further instructions
from the investor, the investor's Bear Stearns account executive or the
investor's Authorized Dealer. The Fund imposes no charges when shares are
redeemed directly through Bear Stearns.
The Portfolio ordinarily will make payment for all shares redeemed within three
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
However, if an investor has purchased Portfolio shares by check and subsequently
submits a redemption request by mail, the redemption proceeds will not be
transmitted until the check used for investment has cleared, which may take up
to 15 days. The Fund will reject requests to redeem shares by telephone or wire
for a period of 15 days after receipt by the Transfer Agent of the purchase
check against which such redemption is requested. This procedure does not apply
to shares purchased by wire payment.
The Fund reserves the right to redeem investor accounts at its option upon not
less than 60 days' written notice if the account's net asset value is $750 or
less, for reasons other than market conditions, and remains so during the notice
period.
Procedures
Shareholders may redeem shares in several ways.
Redemption through Bear Stearns or Authorized Dealers
Clients with a brokerage account may submit redemption requests to their account
executives or Authorized Dealers in person or by telephone, mail or wire. As the
Fund's agent, Bear Stearns or Authorized Dealers may honor a redemption request
by repurchasing Fund shares from a redeeming shareholder at the shares' net
asset value next computed after receipt of the request by Bear Stearns or the
Authorized Dealer. Under normal circumstances, within three days, redemption
proceeds will be paid by check or credited to the shareholder's brokerage
account at the election of the shareholder. Bear Stearns account executives or
Authorized Dealers are responsible for promptly forwarding redemption requests
to the Transfer Agent.
If an investor authorizes telephone redemption, the Transfer Agent may act on
telephone instructions from any person representing himself or herself to be a
representative of Bear Stearns or the Authorized Dealer and reasonably believed
by the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ
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<PAGE>
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine and, if it does not follow such
procedures, the Transfer Agent or the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. Neither the Fund nor the Transfer Agent
will be liable for following telephone instructions reasonably believed to be
genuine.
Redemption through the Transfer Agent
Shareholders who are not clients with a brokerage account who wish to redeem
shares must redeem their shares through the Transfer Agent by mail; other
shareholders also may redeem Fund shares through the Transfer Agent. Mail
redemption requests should be sent to the Transfer Agent at: PFPC Inc.,
Attention: The Bear Stearns Funds--Focus List Portfolio--Class Y, P.O. Box 8960,
Wilmington, Delaware 19899-8960.
Additional Information about Redemptions
A shareholder may have redemption proceeds of $500 or more wired to the
shareholder's brokerage account or a commercial bank account designated by the
shareholder. A transaction fee of $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns account executive, to any Authorized
Dealer, or to the Transfer Agent if the shares are not held in a brokerage
account.
Written redemption instructions, indicating the Portfolio from which shares are
to be redeemed, and duly endorsed stock certificates, if previously issued, must
be received by the Transfer Agent in proper form and signed exactly as the
shares are registered. All signatures must be guaranteed. The Transfer Agent has
adopted standards and procedures pursuant to which signature-guarantees in
proper form generally will be accepted from domestic banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from
participants in the New York Stock Exchange Medallion Signature Program, the
Stock Exchanges Medallion Program and the Securities Transfer Agents Medallion
Program ("STAMP"). Such guarantees must be signed by an authorized signatory
thereof with "Signature Guaranteed" appearing with the shareholder's signature.
If the signature is guaranteed by a broker or dealer, such broker or dealer must
be a member of a clearing corporation and maintain net capital of at least
$100,000. Signature-guarantees may not be provided by notaries public.
Redemption requests by corporate and fiduciary shareholders must be accompanied
by appropriate documentation establishing the authority of the person seeking to
act on behalf of the account. Investors may obtain from the Fund or the Transfer
Agent forms of resolutions and other documentation which have been prepared in
advance to assist compliance with the Portfolio's procedures. Any questions with
respect to signature-guarantees should be directed to the Transfer Agent by
calling 1-800-447-1139.
During times of drastic economic or market conditions, investors may experience
difficulty in contacting Bear Stearns or Authorized Dealers by telephone to
request a redemption of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the redemption request being processed
at a later time than it would have been if telephone redemption had been used.
During the delay, the Portfolio's net asset value may fluctuate.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends will be automatically reinvested in additional Portfolio shares at net
asset value, unless payment in cash is requested or dividends are redirected
into another fund pursuant to the Redirected Distribution Option.
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<PAGE>
The Portfolio ordinarily pays dividends from its net investment income and
distributes net realized securities gains, if any, once a year, but it may make
distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the 1940 Act. The Portfolio will not make distributions from net
realized securities gains unless capital loss carryovers, if any, have been
utilized or have expired. Dividends are automatically reinvested in additional
Class Y Shares of the Portfolio at net asset value, unless payment in cash is
requested or dividends are redirected into another fund pursuant to the
Redirected Distribution Option. All expenses are accrued daily and deducted
before declaration of dividends to investors.
Dividends derived from net investment income, together with distributions from
net realized short-term securities gains and all or a portion of any gains
realized from the sale or disposition of certain market discount bonds, paid by
the Portfolio will be taxable to U.S. shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Portfolio or
redirected into another portfolio or fund. Distributions from net realized
long-term securities gains of the Portfolio will be taxable to U.S. shareholders
as long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Portfolio shares and whether such
distributions are received in cash or reinvested in, or redirected into other,
shares. The Code provides that the net capital gain of an individual generally
will not be subject to Federal income tax at a rate in excess of 28%.
Dividends and distributions may be subject to state and local taxes.
Dividends, together with distributions from net realized short-term securities
gains and all or a portion of any gains realized from the sale or other
disposition of market discount bonds, paid by the Portfolio to a foreign
investor generally are subject to U.S. nonresident withholding taxes at the rate
of 30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. Distributions from net realized long-term securities gains paid
by the Portfolio to a foreign investor as well as the proceeds of any
redemptions from a foreign investor's account, regardless of the extent to which
gain or loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of investors' dividends and distributions will be
mailed to them annually. Investors also will receive periodic summaries of their
accounts which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
Federal income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or if
a shareholder has failed to properly report taxable dividend and interest income
on a Federal income tax return.
A TIN is either the Social Security number or employer identification number of
the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner of
the account, and may be claimed as a credit on the record owner's Federal income
tax return.
The Portfolio is not expected to have any Federal tax liability; although
investors should expect to be subject to Federal, state or local taxes in
respect of their investment in Portfolio shares.
Management of the Fund intends to have the Portfolio qualify as a "regulated
investment company" under the Code and, thereafter, to continue to so qualify if
such qualification is in the best interests of its shareholders. Such
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<PAGE>
qualification relieves the Portfolio of any liability for Federal income tax to
the extent its earnings are distributed in accordance with applicable provisions
of the Code. In addition, the Portfolio is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
The Portfolio anticipates that there will be high portfolio turnover rate, which
may result in the Portfolio losing its qualification as a regulated investment
company. In this event, the Portfolio would be subject to federal income tax on
its net income at regular corporate rates (without a deduction for distributions
to shareholders). When distributed, such income would then be taxable to
shareholders as ordinary income to the extend of the Portfolio's earnings and
profits. Although Management intends to have the Portfolio qualify as a
regulated investment company, there can be no assurance that it will achieve
this goal.
Each investor should consult its tax adviser regarding specific questions as to
Federal, state or local taxes.
PERFORMANCE INFORMATION
The Portfolio may advertise its performance in a number of ways.
For purposes of advertising, performance for Class Y Shares may be calculated on
the basis of average annual total return and/or total return. These total return
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Portfolio during the
measuring period were reinvested in Class Y Shares.
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Portfolio was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions, if any, during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis, would result in
the redeemable value of the investment at the end of the period. Advertisements
of the Portfolio's performance will include the Portfolio's average annual total
return for one, five and ten year periods, or for shorter periods depending upon
the length of time during which the Portfolio has operated. Computations of
average annual total return for periods of less than one year represent an
annualization of the Portfolio's actual total return for the applicable period.
Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions, if any. Total return generally is expressed as a
percentage rate which is calculated by combining the income and principal
changes for a specified period and dividing by the net asset value per share at
the beginning of the period. Advertisements may include the percentage rate of
total return or may include the value of a hypothetical investment at the end of
the period which assumes the application of the percentage rate of total return.
Performance will vary from time to time and past results are not necessarily
representative of future results. Investors should remember that performance is
a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses. Performance
information, such as that described above, may not provide a basis for
comparison with other investments or other investment companies using a
different method of calculating performance.
Comparative performance information may be used from time to time in advertising
or marketing the Portfolio's shares, including data from Lipper Analytical
Services, Inc., Standard & Poor's 500 Composite Stock Price Index, Wilshire 4500
Stock Index, Russell Small Cap Index, the Dow Jones Industrial Average, the Bear
Stearns Research Focus List and other industry publications.
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<PAGE>
The Bear Stearns Research Focus List
The performance of the Focus List since 1992 as measured by Zacks Investment
Research, Inc., an independent provider of investment research, is as follows:
Focus List Compared to S&P 500
- -------------------------------------------------------------------
Focus List S&P 500
- -------------------------------------------------------------------
1992
- -------------------------------------------------------------------
1Q 1.68% -2.53%
- -------------------------------------------------------------------
2Q -3.71% 1.90%
- -------------------------------------------------------------------
3Q 3.50% 3.15%
- -------------------------------------------------------------------
4Q 10.09% 5.04%
- -------------------------------------------------------------------
Year 11.56% 7.61%
- -------------------------------------------------------------------
Since Inception 11.56% 7.61%
- -------------------------------------------------------------------
1993
- -------------------------------------------------------------------
1Q -0.03% 4.37%
- -------------------------------------------------------------------
2Q -0.78% 0.49%
- -------------------------------------------------------------------
3Q 5.81% 2.58%
- -------------------------------------------------------------------
4Q 4.78% 2.32%
- -------------------------------------------------------------------
Year 9.97% 10.08%
- -------------------------------------------------------------------
Since Inception 22.68% 18.47%
- -------------------------------------------------------------------
1994
- -------------------------------------------------------------------
1Q -0.68% -3.79%
- -------------------------------------------------------------------
2Q 0.01% 0.42%
- -------------------------------------------------------------------
3Q 7.43% 4.89%
- -------------------------------------------------------------------
4Q -2.94% -0.02
- -------------------------------------------------------------------
Year 3.57% 1.32%
- -------------------------------------------------------------------
Since Inception 27.06% 20.03%
- -------------------------------------------------------------------
1995
- -------------------------------------------------------------------
1Q 11.42% 9.74%
- -------------------------------------------------------------------
2Q 11.22% 9.55%
- -------------------------------------------------------------------
3Q 9.30% 7.94%
- -------------------------------------------------------------------
4Q 2.57% 6.02%
- -------------------------------------------------------------------
Year 38.92% 37.57%
- -------------------------------------------------------------------
Since Inception 76.52% 65.13%
- -------------------------------------------------------------------
1996
- -------------------------------------------------------------------
1Q 5.17% 5.37%
- -------------------------------------------------------------------
2Q 8.84% 4.49%
- -------------------------------------------------------------------
3Q 6.79% 3.09%
- -------------------------------------------------------------------
4Q 3.62% 8.46%
- -------------------------------------------------------------------
Year 26.66% 23.10%
- -------------------------------------------------------------------
Since Inception 123.59% 103.28%
- -------------------------------------------------------------------
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<PAGE>
Performance of the Focus List for the periods indicated is measured on an
"equal-weighted" basis. That is, the performance reflects the percentage
increase or decrease of the value of one share of each stock contained in the
Focus List. Focus List returns reflect transaction fees of 1%, and returns are
compounded month to month.
Focus List Compared to S&P 500 - Annualized (for Periods Ended December 31,
1996)
- --------------------------------------------------------------
Focus List S&P 500
- --------------------------------------------------------------
1 yr. 26.66% 23.10%
- --------------------------------------------------------------
3 yr. 22.12% 19.70%
- --------------------------------------------------------------
5 yr. 17.46% 15.24%
- --------------------------------------------------------------
Past Performance of the Focus List Does Not Indicate Future Performance of the
Portfolio.
There is no guarantee that the future performance of the Portfolio will match
the historical performance of the Focus List, and the Portfolio's future
performance may vary significantly from that of the Focus List, because, among
other things:
o weightings of individual stocks in the Portfolio will differ from the
weightings assigned to the Focus List;
o securities in the Portfolio will have different cost bases and sale prices;
o the Portfolio is subject to certain restrictions that do not apply to the
Focus List, including limits on diversification of investments and industry
concentration;
o the Portfolio may invest a limited portion of its assets in short-term
money market securities and stocks that are not included on the Focus List.
o the Portfolio may hold securities deleted from the Focus List for a period
of time if the Portfolio Manager believes that selling the security would
result in unacceptable losses or could result in the Portfolio losing its
status as a "regulated investment company" under federal tax laws;
o the timing of purchases and sales of securities in the Portfolio may vary
due to market forces and cash flows due to purchases and redemptions; and
o the Portfolio's annualized management fees and operating expenses are
expected to be higher than the 1% transaction fees reflected in the above
performance figures.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the laws of The
Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust
(the "Trust Agreement") dated September 29, 1994. The Fund commenced operations
on or about April 3, 1995 in connection with the offer of shares of certain of
its other portfolios. The Fund is authorized to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. The Portfolio's shares
are classified into two Classes--Class A and Class Y. Each share has one vote
and shareholders will vote in the aggregate and not by Class, except as
otherwise required by law.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Portfolio. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the
Portfolio and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Portfolio's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the
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<PAGE>
Portfolio. Thus, the risk of a shareholder incurring financial loss on account
of a shareholder liability is limited to circumstances in which the Portfolio
itself would be unable to meet its obligations, a possibility which management
believes is remote. Upon payment of any liability incurred by the Portfolio, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the Portfolio. The Fund's Trustees intend to conduct the
operations of the Portfolio in a way so as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Portfolio. As
discussed under "Management of the Fund" in the Portfolio's Statement of
Additional Information, the Portfolio ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the right
to call a meeting of shareholders for the purpose of voting to remove Trustees.
To date, the Fund's Board has authorized the creation of seven portfolios of
shares. All consideration received by the Fund for shares of one of the
portfolios and all assets in which such consideration is invested will belong to
that portfolio (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The assets attributable to, and the
expenses of, one portfolio (and as to classes within a portfolio) are treated
separately from those of the other portfolios (and classes). The Fund has the
ability to create, from time to time, new portfolios of shares without
shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
under the provisions of the 1940 Act or applicable state law or otherwise to the
holders of the outstanding voting securities of an investment company, such as
the Fund, will not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each portfolio
affected by such matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of such
portfolio in the matter are identical or that the matter does not affect any
interest of such portfolio. However, the Rule exempts the selection of
independent accountants and the election of Trustees from the separate voting
requirements of the Rule.
The Transfer Agent maintains a record of share ownership and will send
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at PFPC Inc.,
Attention: Focus List Portfolio, P.O. Box 8960, Wilmington, Delaware 19899-8960,
by calling 1-800-447-1139 or by calling Bear Stearns at 1-800-766-4111.
20
<PAGE>
APPENDIX
Investment Techniques
In connection with its investment objective and policies, the Portfolio may
employ, among others, the following investment techniques which may involve
certain risks.
Lending Portfolio Securities
The Portfolio may earn additional income by lending its portfolio securities.
From time to time, the Portfolio may lend securities from its portfolio to
brokers, dealers and other financial institutions needing to borrow securities
to complete certain transactions. Such loans may not exceed 331/3% of the value
of the Portfolio's total assets. In connection with such loans, the Portfolio
will receive collateral consisting of cash, U.S. Government securities or
irrevocable letters of credit which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
Portfolio can increase its income through the investment of such collateral. The
Portfolio continues to be entitled to payments in amounts equal to the interest,
dividends and other distributions payable on the loaned security and receives
interest on the amount of the loan. Such loans will be terminable at any time
upon specified notice. The Portfolio might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Portfolio.
Borrowing Money
The Portfolio may borrow money.
As a fundamental policy, the Portfolio is permitted to borrow to the extent
permitted under the 1940 Act. The 1940 Act permits an investment company to
borrow in an amount up to 331/3% of the value of such company's total assets.
However, the Portfolio currently intends to borrow money only for temporary or
emergency (not leveraging) purposes, in an amount up to 15% of the value of its
total assets (including the amount borrowed) valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the Portfolio's total assets,
the Portfolio will not make any additional investments.
Certain Portfolio Securities
Foreign Securities
The Portfolio may purchase foreign securities.
The Portfolio may purchase securities of foreign issuers, which may involve more
risks than investment in securities issued by domestic companies. Securities of
foreign issuers may be traded in the United States in the form of American
Depository Receipts (ADRs) and other similar instruments, but most are traded
primarily in foreign markets. The risks of investing in foreign securities
include, among other things:
o Political and economic risk. Foreign investments are subject to increased
political and economic risks, especially in developing countries. In some
countries, there is the risk that assets may confiscated or taxed by foreign
governments.
A-1
<PAGE>
o Regulatory risk. Foreign securities markets may be subject to less
government regulation and foreign issuers may not be subject to uniform
accounting, auditing and financial reporting standards.
o Currency risk. Foreign securities denominated in foreign currencies may
be subject to the additional risk of fluctuations in the value of the currency
as compared to the U.S. dollar.
o Market risk. Foreign securities markets may be subject to greater
volatility and may be less liquid than domestic markets.
o Transaction costs. Transaction costs involving foreign securities tend to
be higher than similar costs applicable to transactions in U.S.
securities.Convertible Securities
Money Market Instruments
The Portfolio may invest in a variety of money market instruments.
The Portfolio may invest, in the circumstances described under "Description of
the Fund--Management Policies," in the following types of money market
instruments, each of which at the time of purchase must have or be deemed to
have under rules of the Securities and Exchange Commission remaining maturities
of 13 months or less. Under normal circumstances, the Portfolio does not expect
to invest more than 5% of its total assets in money market instruments or cash.
U.S. Government Securities
The Portfolio may purchase securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, which include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, by the right of the issuer to borrow from
the U.S. Treasury; others, such as those issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of the
agency or instrumentality. These securities bear fixed, floating or variable
rates of interest. Principal and interest may fluctuate based on generally
recognized reference rates or the relationship of rates. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it will always do so, since
it is not so obligated by law.
Bank Obligations
The Portfolio may invest in bank obligations, including certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, the
Portfolio may be subject to additional investment risks that are different in
some respects from those incurred by a fund which invests only in debt
obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits.
Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time.
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<PAGE>
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by the Portfolio will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. The Portfolio will not invest more than
15% of the value of its net assets in time deposits maturing in more than seven
days and in other securities that are illiquid.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Repurchase Agreements
Repurchase agreements involve the acquisition by the Portfolio of an underlying
debt instrument, subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the instrument at a fixed price usually not more than one
week after its purchase. Certain costs may be incurred by the Portfolio in
connection with the sale of the securities if the seller does not repurchase
them in accordance with the repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by the Portfolio may be delayed or limited.
Commercial Paper and Other Short-Term Corporate Obligations
Commercial paper consists of short-term, unsecured promissory notes issued to
finance short-term credit needs. The commercial paper purchased by the Portfolio
will consist only of direct obligations which, at the time of their purchase,
are (a) rated not lower than Prime-1 by Moody's Investors Service Inc.
("Moody's"), A-1 by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("S&P"), F-1 by Fitch Investors Service, L.P.
("Fitch") or Duff-1 by Duff & Phelps Credit Rating Co. ("Duff"), (b) issued by
companies having an outstanding unsecured debt issue currently rated not lower
than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined
by the Advisers to be of comparable quality to those rated obligations which may
be purchased by the Portfolio. The Portfolio may purchase floating and variable
rate demand notes and bonds, which are obligations ordinarily having stated
maturities in excess of one year, but which permit the holder to demand payment
of principal at any time or at specified intervals.
Investment Company Securities
The Portfolio may invest in securities of other investment companies.
The Portfolio may invest in securities issued by other investment companies.
Under the 1940 Act, the Portfolio's investment in such securities currently is
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Portfolio's total assets with respect
to any one investment company and (iii) 10% of the Portfolio's total assets in
the aggregate. Investments in the securities of other investment companies will
involve duplication of advisory fees and certain other expenses.
Illiquid Securities
The Portfolio may purchase illiquid securities.
The Portfolio may invest up to 15% of the value of its net assets in securities
as to which a liquid trading market does not exist, provided such investments
are consistent with the Portfolio's investment objective. Such securities may
include securities that are not readily marketable, such as certain securities
that are subject to legal or contractual restrictions on resale, repurchase
agreements providing for settlement in more than seven days after notice, and
options traded in the over-the-counter market and securities used to cover such
options. As to these securities, the Portfolio is subject to a risk that should
the Portfolio desire to sell them when a ready buyer is not
A-3
<PAGE>
available at a price the Portfolio deems representative of their value, the
value of the Portfolio's net assets could be adversely affected.
A-4
<PAGE>
THE
BEAR STEARNS
FUNDS
245 Park Avenue
New York, NY 10167
1.800.766.4111
Distributor
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Investment Adviser and Administrator
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167
Custodian
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540
Transfer and Dividend
Disbursement Agent
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE FOCUS LIST PORTFOLIO'S
PROSPECTUS AND IN THE FOCUS LIST PORTFOLIO'S SALES LITERATURE IN CONNECTION WITH
THE OFFER OF THE FOCUS LIST PORTFOLIO'S SHARES, AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THE FOCUS LIST PORTFOLIO'S PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
A-5
<PAGE>
THE BEAR STEARNS FUNDS
245 PARK AVENUE NEW YORK, NY 10167 1-800-766-4111
PROSPECTUS
PRIME MONEY MARKET PORTFOLIO
The Bear Stearns Funds (the "Fund") is an open-end management investment
company, known as a mutual fund. The Fund permits you to invest in separate
portfolios. By this Prospectus, shares of the Prime Money Market Portfolio, a
diversified no-load money market portfolio (the "Portfolio") are offered. The
Portfolio's investment objective is to seek to provide liquidity and current
income consistent with stability of principal. The Portfolio seeks to achieve
its objective by investing in a broad range of short-term instruments, including
obligations of U.S. Government, bank, and commercial obligations, and repurchase
agreements relating to such obligations.
By this Prospectus, the Portfolio is offering Class Y shares.
Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned subsidiary of The
Bear Stearns Companies Inc., serves as the Portfolio's investment adviser.
Bear, Stearns & Co. Inc. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor.
This Prospectus sets forth concisely information about the Portfolio that you
should know before investing. It should be read and retained for future
reference.
Part B (also known as the Statement of Additional Information), dated ________,
1997, which may be revised from time to time, provides a further discussion of
certain areas in this Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated herein by reference. For a free copy, write to
the address or call one of the telephone numbers listed under "General
Information" in this Prospectus.
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. The Portfolio is
subject to investment risks, including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
____________, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
Fee Table................................. __
Condensed Financial Information........... __
Alternative Purchase Methods.............. __
Description of the Fund................... __
Risk Factors.............................. __
Management of the Fund.................... __
How to Buy Shares......................... __
Shareholder Services...................... __
How to Redeem Shares...................... __
Dividends, Distributions
and Taxes............................... __
Performance Information................... __
General Information....................... __
Appendix.................................. __
2
<PAGE>
BACKGROUND AND EXPENSE
INFORMATION
The Portfolio currently offers two classes of shares, only one of which, Class Y
Shares, is offered by this Prospectus. Each class represents an equal, pro rata,
interest in a Portfolio. The Portfolio's other class have different service
and/or distribution fees and expenses from Class Y which would affect the
performance of that class of shares. Investors may obtain information concerning
the Portfolio's other classes of shares by calling Bear Stearns at
1-800-766-4111.
Expense Summary
================================================================================
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................................................... 0%
Maximum Deferred Sales Charge Imposed on Redemptions (as a 0%
percentage of the amount subject to charge)...............................
Annual Portfolio Operating Expenses (After Fee Waivers and Expense Reimbursement)
(as a percentage of average daily net assets)
Advisory Fees............................................................. 0.10%
12b-1 Fees................................................................ None
Shareholder Services Fees................................................. None
Other Expenses (after expense reimbursement)*............................. 0.10%
-----
Total Portfolio Operating Expenses (after fee waiver and expense
reimbursement)*......................................................... 0.20%
------
Example:
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each
time period:
1 Year....................................................................... $ __
3 Years...................................................................... $ __
</TABLE>
- ----------
* BSFM has undertaken to waive its investment advisory fee and assume certain
expenses of the Portfolio, extraordinary items, interest and taxes to the extent
Total Portfolio Operating Expenses exceed 0.20%. Without such waiver and expense
reimbursement which may be terminated at any time, Advisory Fees stated above
would be 0.20%, Other Expenses are estimated to be 0.15% and Total Portfolio
Operating Expenses would be 0.35%.
The amounts listed in the example should not be considered as representative of
past or future expenses and actual expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the
Portfolio's actual performance will vary and may result in an actual return
greater or less than 5%.
The purpose of the foregoing table is to assist you in understanding the costs
and expenses borne by the Portfolio and investors, the payment of which will
reduce investors' annual return. See "How to Redeem Shares." For a description
of the expense reimbursement or waiver arrangements in effect, see "Management
of the Fund."
3
<PAGE>
DESCRIPTION OF THE FUND
General
The Fund is a "series fund."
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As described below, for certain matters Fund
shareholders vote together as a group; as to others they vote separately by
portfolio. By this Prospectus, shares of the Portfolio are being offered. From
time to time, other portfolios may be established and sold pursuant to other
offering documents. See "General Information."
Investment Objective
The Portfolio seeks to provide liquidity and current income consistent with
stability of principal.
The Portfolio's investment objective cannot be changed without approval by the
holders of a majority (as defined in the 1940 Act) of the Portfolio's
outstanding voting shares. There can be no assurance that the Portfolio's
investment objective will be achieved.
Management Policies
The Portfolio seeks to invest primarily in short-term, high quality money market
instruments.
The Portfolio seeks to maintain a net asset value of $1.00 per share, although
there is no assurance that it will be able to do so on a continuing basis. The
Portfolio intends to comply with all rules applicable to money market funds
under Rule 2a-7 under the Investment Company Act of 1940. The Portfolio operates
as a diversified investment portfolio. Certain securities held by the Portfolio
may have remaining maturities in excess of stated limitations discussed below if
securities provide for adjustments in their interest rates not less frequently
than such time limitations. The Portfolio will maintain a dollar-weighted
average portfolio maturity of 90 days or less.
In pursuing its investment objective, the Portfolio invests in a broad range of
short-term instruments, including obligations of the U.S. Government, banks and
commercial obligations, and repurchase agreements relating to such obligations.
It may also invest in securities of foreign issuers. The Portfolio invests only
in securities that are payable in U.S. dollars and that have (or pursuant to
regulations adopted by the SEC will be deemed to have) remaining maturities of
thirteen months or less at the date of purchase by the Portfolio.
The Portfolio invests in securities rated by the "Requisite NRSROs." "Requisite
NRSROs" means (a) any two nationally-recognized statistical rating organizations
("NRSROs") that have issued a rating with respect to a security or class of debt
obligations of an issuer, or (b) one NRSRO, if only one NRSRO has issued such a
rating at the time that the Portfolio acquires the security. Currently, there
are six NRSROs: Standard & Poor's, a division of The McGraw-Hill Companies
("S&P"); Moody's Investors Service, Inc. ("Moody's"); Fitch Investors Services,
Inc.; Duff and Phelps, Inc.; IBCA Limited and its affiliate, IBCA, Inc.; and
Thomson Bankwatch. A discussion of the ratings categories of the NRSROs is
contained in the Appendix to the Statement of Additional Information.
The Portfolio will limit its portfolio investments to securities that the Board
of Trustees determines present minimal credit risks and that are "Eligible
Securities" at the time of acquisition by the Portfolio. The term Eligible
Securities includes securities rated by the Requisite NRSROs in one of the two
highest short-term rating categories, securities of issuers that have received
such rating with respect to other short-term debt securities and comparable
unrated securities.
The Portfolio generally may not invest more than 5% of its total assets in the
securities of any one issuer, except for U.S. Government securities. In
addition, the Portfolio may not invest more than 5% of its total assets in
Eligible Securities that have not received the highest rating from the Requisite
NRSROs and comparable unrated securities ("Second Tier Securities") and may not
invest more than 1% of its total assets in the Second Tier Securities of any one
issuer. The Portfolio may invest more than 5% (but no more than 25%) of the
then-current value of the Portfolio's total assets in the securities of a single
issuer for a period of up to three business days, provided that (a) the
securities either are rated by the Requisite NRSROs in the highest short-term
rating category
4
<PAGE>
or are securities of issuers that have received such rating with respect to
other short-term debt securities or are comparable unrated securities, and (b)
the Portfolio does not make more than one such investment at any one time.
The Portfolio may purchase obligations of issuers in the banking industry, such
as commercial paper, notes, certificates of deposit, bankers acceptances and
time deposits and U.S. dollar denominated instruments issued or supported by the
credit of U.S. or foreign banks or savings institutions having total assets at
the time of purchase in excess of $1 billion. The Portfolio may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its assets.
PORTFOLIO INSTRUMENTS AND PRACTICES
Investment strategies that are available to the Portfolio are set forth below.
Additional information concerning certain of these strategies and their related
risks is contained in the Appendix and Statement of Additional Information.
U.S. Government Obligations
The Portfolio may purchase obligations issued or guaranteed by the U.S. Treasury
(including STRIPS), U.S. Government agencies, or U.S. Government-sponsored
enterprises.
Repurchase Agreements
The Portfolio may agree to purchase securities from financial institutions
subject to the seller's agreement to repurchase them at an agreed upon time and
price within one year from the date of acquisition ("repurchase agreements").
Reverse Repurchase Agreements
The Portfolio may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the investment restrictions described
below. Pursuant to such agreements, the Portfolio would only sell portfolio
securities to financial institutions and agree to repurchase them at an agreed
upon date and price. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
of the securities the Portfolio are obligated to repurchase. The Portfolio may
engage in reverse repurchase agreements provided that the amount of the reverse
repurchase agreements and any other borrowings does not exceed one-third of the
value of the Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings).
When-Issued Securities
The Portfolio may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and yield. The Portfolio will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. The
Portfolio expects that commitments to purchase when-issued securities will not
exceed 25% of the value of their total assets absent unusual market conditions.
The Portfolio does not intend to purchase when-issued securities for speculative
purposes but only in furtherance of their investment objectives.
Illiquid Securities
The Portfolio will not knowingly invest more than 10% of the value of its total
net assets in illiquid securities, including time deposits and repurchase
agreements having maturities longer than seven days. Securities that have
readily available market quotations are not deemed illiquid for purposes of this
limitation (irrespective of any legal or contractual restrictions on resale).
5
<PAGE>
Foreign Securities
The Portfolio may invest in dollar-dominated securities of foreign issuers,
including obligations of foreign banks or foreign branches of U.S. banks.
Investments in foreign banks or foreign issuers present certain risks, including
those resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions, and reduced availability of public information. Foreign issuers
are not generally subject to uniform accounting, auditing and financial
reporting standards or to other regulatory practices and requirements applicable
to domestic issuers.
Certain Fundamental Policies
Certain of the Portfolio's investment policies are fundamental policies that can
be changed only by shareholder vote.
The policies described below are fundamental and cannot be changed as to the
Portfolio without approval by the holders of a majority (as defined in the 1940
Act) of the Portfolio's outstanding voting shares. See "Investment Objective and
Management Policies--Investment Restrictions" in the Statement of Additional
Information.
The Portfolio may not:
1. Borrow money, except that the Portfolio may (i) borrow money for
temporary or emergency purposes (not for leveraging or investment) from banks,
or subject to specific authorization by the SEC, from portfolios advised by the
BSFM or an affiliate of the BSFM, and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not exceed one-third of
the value of the Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings).
2. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
investments in U.S. Government securities or bank instruments.
3. Make loans except that the Portfolio may (i) purchase or hold debt
obligations in accordance with its investment objective and policies, (ii) enter
into repurchase agreements for securities, and (iii) subject to specific
authorization by the SEC, lend money to other portfolios advised by the BSFM or
an affiliate of the BSFM.
Certain Additional Non-Fundamental Policies
The Portfolio may not mortgage, pledge or hypothecate any assets except in
connection with such borrowings and reverse repurchase and then only in amounts
not exceeding one-third of the value of the particular Portfolio's total assets
at the time of such borrowing. Additional investments will not be made by the
Portfolio when borrowings exceed 5% of the Portfolio's assets. The Portfolio may
invest up to 10% of the value of its net assets in repurchase agreements having
maturities longer than seven days and in other illiquid securities. See
"Investment Objective and Management Policies--Investment Restrictions" in the
Statement of Additional Information.
Risk Factors
No investment is free from risk. Investing in the Portfolio will subject
investors to certain risks which should be considered.
Although the Portfolio will attempt to maintain its net asset value at $1.00 per
share, there can be no assurance that it will achieve this goal. The Portfolio
is subject to risks common to money market funds, including credit risk and
interest rate risk. The Board of Trustees has adopted procedures to ensure that
the Portfolio invests in high quality instruments.
Diversified Status
The Portfolio is classified as a "diversified" portfolio. A "diversified"
investment company is required by the 1940 Act generally, with respect to 75% of
its total assets, to invest not more than 5% of such assets in the securities of
a single issuer and to hold not more than 10% of the outstanding voting
securities of a single issuer. The Portfolio intends to conduct its operations
so as to qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"), which requires that, at
the end of each quarter of its taxable year, (i) at least 50% of the market
value of the Portfolio's total assets be invested in cash, U.S.
6
<PAGE>
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Portfolio's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets be
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies). The
Portfolio intends to comply with the more restrictive diversification
requirements applicable to money market funds, discussed above.
Simultaneous Investments
Investment decisions for the Portfolio are made independently from those of
other investment companies or accounts advised by BSFM. However, if such other
investment companies or accounts are prepared to invest in, or desire to dispose
of, securities of the type in which the Portfolio invests at the same time as
the Portfolio, available investments or opportunities for sales will be
allocated equitably to each. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by the Portfolio or the
price paid or received by the Portfolio.
MANAGEMENT OF THE FUND
Board of Trustees
The Trustees are responsible for the overall management and supervision of the
Portfolio's business.
The Portfolio's business affairs are managed under the general supervision of
its Board of Trustees. The Portfolio's Statement of Additional Information
contains the name and general business experience of each Trustee.
Investment Adviser
The Portfolio's investment adviser is BSFM.
The Portfolio's investment adviser is BSFM, a wholly-owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York, New
York 10167. The Bear Stearns Companies Inc. is a holding company which, through
its subsidiaries including its principal subsidiary, Bear Stearns, is a leading
United States investment banking, securities trading and brokerage firm serving
United States and foreign corporations, governments and institutional and
individual investors. BSFM is a registered investment adviser and offers, either
directly or through affiliates, investment advisory and administrative services
to open-end and closed-end investment funds and other managed pooled investment
vehicles with net assets at February 28, 1997 of over $2.9 billion.
BSFM supervises and assists in the overall management of the Portfolio's affairs
under an Investment Advisory Agreement between BSFM and the Fund, subject to the
overall authority of the Fund's Board of Trustees in accordance with
Massachusetts law.
The Portfolio pays BSFM a monthly advisory fee at an annual rate equal to 0.20%
of the Portfolio's average daily net assets.
BSFN also serves as the Portfolio's administrator. Portfolio's administrator is
BSFM. The Portfolio pays BSFM an administration fee at the annual rate of .05 of
1% of its average daily net assets.
Under the terms of an Administration Agreement with the Portfolio, BSFM
generally supervises all aspects of the operation of the Portfolio, subject to
the overall authority of the Fund's Board of Trustees in accordance with
Massachusetts law. For providing administrative services to the Portfolio, the
Portfolio has agreed to pay BSFM a monthly fee at the annual rate of .05 of 1%
of the Portfolio's average daily net assets. Under the terms of an
Administrative Services Agreement with the Portfolio, PFPC Inc. provides certain
administrative services to the Portfolio. For providing these services, the
Portfolio has agreed to pay PFPC Inc. an annual fee, as set forth below:
7
<PAGE>
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
First $150 million...................................... .075 of 1%
Next $150 million up to $300 million.................... .04 of 1%
Next $300 million up to $600 million.................... .02 of 1%
Assets in excess of $600 million........................ .0125 of 1%
The above-referenced fee is subject to a monthly minimum fee of $6,250.
From time to time, BSFM may waive receipt of its fees and/or voluntarily assume
certain Portfolio expenses, which would have the effect of lowering the
Portfolio's expense ratio and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. The Portfolio will not pay
BSFM at a later time for any amounts it may waive, nor will the Portfolio
reimburse BSFM for any amounts it may assume. From time to time, PFPC Inc. may
voluntarily waive a portion of its fee.
Bear Stearns has agreed to permit the Portfolio to use the name "Bear Stearns"
or derivatives thereof as part of the Portfolio name for as long as the
Investment Advisory Agreement is in effect.
Distributor
Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as
the Portfolio's principal underwriter and distributor of the Portfolio's shares
pursuant to an agreement which is renewable annually.
Custodian and Transfer Agent
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an
affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the
Portfolio's transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides certain administrative
services to the Portfolio.
Expense Limitation
BSFM has voluntarily undertaken to waive its investment advisory fee and assume
certain expenses of the Portfolio, extraordinary items, interest and taxes to
the extent Total Portfolio Operating Expenses exceed 0.20% of Class Y's average
daily net assets. Such waivers and expense reimbursement may be discontinued at
any time upon notice to the shareholder.
HOW TO BUY SHARES
General
The minimum initial investment in Class Y shares is $5,000,000; there is no
minimum for subsequent investments.
Shares of the Portfolio may be purchased by wire only. Shares are sold at the
net asset value next determined after receipt of a purchase order in the manner
described below. Purchase orders are accepted on any day on which the New York
Stock Exchange and the Federal Reserve Bank of New York are open ("Fund Business
Day") between the hours of 9:00 a.m. and 5:00 p.m. (Eastern Time). The Portfolio
does not determine net asset value, and purchase orders are not accepted, on the
days those institutions observe the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving and Christmas.
8
<PAGE>
Procedures
Purchases can be made through Bear Stearns account executives, Authorized
Dealers or the Transfer Agent.
Purchase order of the Portfolio's shares may be made through a brokerage firm
maintained with Bear Stearns or through certain investment dealers who are
members of the National Association of Securities Dealers, Inc. who have sales
agreements with Bear Stearns (an "Authorized Dealer").
To purchase shares of the Portfolio by Federal Reserve wire, call the Transfer
Agent, PFPC Inc., at (800) 447-1139 or call your sales representative. If the
Transfer Agent receives a firm indication of the approximate size of the
intended investment before 2:30 p.m. (Eastern Time) and the completed purchase
order before 3:00 p.m. (Eastern Time), and the Custodian receives Federal Funds
the same day, purchases of shares of the Portfolio begin to earn dividends that
day. Completed orders received after 3:00 p.m. begin to earn dividends the next
Fund Business Day upon receipt of Federal Funds.
To allow the Adviser to manage the Portfolio most effectively, investors are
encouraged to execute as many trades as possible before 2:30 p.m. To protect the
Portfolio's performance and shareholders, the Adviser discourages frequent
trading in response to short-term market fluctuations. The Portfolio reserves
the right to refuse any investment that, in its sole discretion, would disrupt
the Portfolio's management.
If the Public Securities Association recommends that the government securities
markets close early, the Fund may advance the time at which the Transfer Agent
must receive notification of orders for purposes of determining eligibility for
dividends on that day. Investors who notify the Transfer Agent after the
advanced time become entitled to dividends on the following Fund Business Day.
If the Transfer Agent receives notification of a redemption request after the
advanced time, it ordinarily will wire redemption proceeds on the next Fund
Business Day.
If an investor does not remit Federal Funds, such payment must be converted into
Federal Funds. This usually occurs within one Fund Business Day of receipt of a
bank wire. Prior to receipt of Federal Funds, the investor's monies will not be
invested.
The following procedure will help assure prompt receipt of your Federal Funds
wire:
A. Telephone the Transfer Agent, PFPC Inc., toll free at (800) 447-1139
and provide the following information:
Your name
Address
Telephone number
Taxpayer ID number
The amount being wired. The identity of the bank
wiring funds.
You will then be provided with a Portfolio account number. (Investors with
existing accounts must also notify the Portfolio before wiring funds.)
B. Instruct your bank to wire the specified amount to the Portfolio as
follows:
PNC Bank, N.A.
ABA #0310-005-3
Credit A/C # [ ]
From: (Name of Investor)
For Purchase of: The Prime Money Market Portfolio
Amount: (amount to be invested)
An investor may open an account when placing an initial order by telephone,
provided the investor thereafter submits an Account Information Form by mail. An
Account Information Form is included with this Prospectus. PFPC will not process
redemptions until it receives a fully completed and signed Account Information
Form.
9
<PAGE>
The Fund and the Transfer Agent each reserves the right to reject any purchase
order for any reason.
Share Certificates. The Transfer Agent maintains a share account for each
shareholder. The Fund does not issue share certificates.
Account Statements. Monthly account statements are sent to investors to report
transactions such as purchases and redemptions as well as dividends paid during
the month.
Minimum Investment Required. The minimum initial investment in the Portfolio is
$5,000,000. There is no minimum subsequent investment. The Fund reserves the
right to waive the minimum investment requirement.
Investors who are not Bear Stearns clients may purchase Portfolio shares through
the Transfer Agent. To make an initial investment in the Portfolio, an investor
must establish an account with the Portfolio by furnishing necessary information
to the Fund. An account with the Portfolio may be established by completing and
signing the Account Information Form indicating which Class of shares is being
purchased, a copy of which is attached to this Prospectus, and transmitting it
to PFPC Inc., Attention: The Bear Stearns Funds--Prime Money Market Portfolio,
P.O. Box 8960, Wilmington, Delaware 19899-8960. Fax (____) _____-________. Wire
Federal Funds the same day to [to come].
Net asset value is computed daily as of the close of regular trading on the New
York Stock Exchange.
Shares of the Portfolio are sold on a continuous basis. Net asset value per
share is determined as of 4:15 p.m., New York time on each business day and at
such times as may be appropriate or necessary. The net asset value per share of
each Class of the Portfolio is computed by dividing the value of the Portfolio's
net assets represented by such Class (i.e., the value of its assets less
liabilities) by the total number of shares of such Class outstanding. The
Portfolio seeks to maintain a $1.00 net asset value; therefore the Portfolio
uses the "Amortized Cost Method" to value individual holdings. For further
information regarding the methods employed in valuing the Portfolio's
investments, see "Determination of Net Asset Value" in the Portfolio's Statement
of Additional Information.
Federal regulations require that investors provide a certified Taxpayer
Identification Number (a "TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes." Failure to furnish a certified TIN to the
Fund could subject the investor to a $50 penalty imposed by the Internal Revenue
Service (the "IRS").
HOW TO REDEEM SHARES
General
The redemption price will be based on the net asset value next computed after
receipt of a redemption request.
Holders of shares of the Portfolio may redeem their shares without charge at the
net asset value next determined after the Portfolio receives the redemption
request. Redemption requests must be received in proper form and can be made by
telephone request or wire request on any Fund Business Day between the hours of
9:00 a.m. and 5:00 p.m. (Eastern Time).
Procedure Shareholders may redeem shares in several ways Redemption through Bear
Stearns or Authorized Dealers Clients with a brokerage account may submit
redemption requests to their account executives or Authorized Dealers in person
or by telephone, mail or wire. Bear Stearns account executives or Authorized
Dealers are responsible for promptly forwarding redemption requests to the
Transfer Agent.
10
<PAGE>
Redemption through the Transfer Agent
BY TELEPHONE. Provided your account is maintained with the Transfer Agent,
redemption requests may be made by telephoning the Transfer Agent, PFPC Inc., at
(800) 447-1139. Shareholders must provide the Transfer Agent with the
shareholder's account number, the exact name in which the shares are registered
and some additional form of identification such as a password. A redemption by
telephone may be made only if the telephone redemption authorization has been
completed on the Account Information Form included with this Prospectus. In an
effort to prevent unauthorized or fraudulent redemption requests by telephone,
the Transfer Agent will follow reasonable procedures to confirm that such
instructions are genuine. If such procedures are followed, neither the Transfer
Agent nor the Fund will be liable for any losses due to unauthorized or
fraudulent redemption requests.
In times of drastic economic or market changes, it may be difficult to make
redemptions by telephone. If a shareholder cannot reach the Transfer Agent by
telephone, redemption requests may be mailed or hand-delivered to the Transfer
Agent.
WRITTEN REQUESTS. Redemption requests may be made by writing to the Prime Money
Market Portfolio, c/o PFPC Inc., P.O. Box 8960, Wilmington, Delaware 19899-8960.
Written requests must be in proper form. The shareholder will need to provide
the exact name in which the shares are registered, the Portfolio name, account
number, and the share or dollar amount requested.
A signature guarantee is required for any written redemption request and for any
instruction to change the shareholder's record name or address, a designated
bank account, the dividend election, or the telephone redemption or other option
elected on an account. Signature guarantees may be provided by any eligible
institution acceptable to the Transfer Agent, including a bank, a broker, a
dealer, national securities exchange, a credit union, or a savings association
which is authorized to guarantee signatures. Other procedures may be implemented
from time to time.
The Transfer Agent may request additional documentation to establish that a
redemption request has been authorized properly. A redemption request will not
be considered to have been received in proper form until such additional
documentation has been submitted to the Transfer Agent.
FIRM INDICATION OF
REDEMPTION REQUEST COMPLETED
AND APPROXIMATE SIZE REDEMPTION
OF REDEMPTION ORDER REDEMPTION
RECEIVED RECEIVED PROCEEDS DIVIDENDS
- --------------------------------------------------------------------------------
By 2:30 p.m. By 4:00 p.m. Wired same Not earned on day
Eastern Time Eastern Time Business Day requested
received
After 2:30 p.m. After 4:00 p.m. Wired next Earned on day
Eastern Time Eastern Time Business Day requested received
Due to the cost to the Fund of maintaining smaller accounts, the Fund reserves
the right to redeem, upon 60 days' written notice, all shares in an account with
an aggregate net asset value of less than $500,000 unless an investment is made
to restore the minimum value. The Fund will not redeem accounts that fall below
this amount solely as a result of a reduction in the net asset value of the
Portfolio's shares.
PFPC Inc. may request additional documentation to establish that a redemption
request has been authorized properly. A redemption request will not be
considered to have been received in proper form until such additional
documentation has been submitted to PFPC, Inc.
The Portfolio reserves the right to wire redemption proceeds within seven days
after receiving the redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Portfolio. In addition, the Portfolio
may redeem shares involuntarily or suspend the right of redemption as permitted
under the Investment Company
11
<PAGE>
Act of 1940, as amended (the "1940 Act"), or under certain special circumstances
described in the Statement of Additional Information under "Additional Purchase
and Redemption Information."
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends will be automatically reinvested in additional Portfolio shares at net
asset value, unless payment in cash is requested.
The Portfolio's net investment income is declared daily as a dividend to shares
held of record at the close of business on the date of declaration. Shares begin
accruing dividends on the day the purchase order for the shares is effective and
continue to accrue dividends through the day before such shares are redeemed.
All expenses are accrued daily and deducted before declaration of dividends to
investors. Dividends are automatically reinvested in additional Portfolio
shares, unless payment in cash is requested. Cash dividends are paid monthly by
check or wire transfer at the end of the month or after a redemption of all of
an investor's shares of a particular class. The Portfolio distributes net
realized securities gains, if any, once a year, but it may make distributions on
a more frequent basis to comply with the distribution requirements of the Code,
in all events in a manner consistent with the provisions of the 1940 Act.
Dividends are declared daily and paid monthly, following the close of the last
Fund Business Day of the month. Shares purchased by wire before 3:00 p.m.
(Eastern Time) begin earning dividends that day. Dividends are automatically
reinvested on payment dates in additional shares of the Portfolio unless cash
payments are requested by contacting the Fund. The election to reinvest
dividends and distributions or receive them in cash may be changed at any time
upon written notice to the Transfer Agent. All dividends and other distributions
are treated in the same manner for Federal income tax purposes whether received
in cash or reinvested in shares of the Portfolio. If no election is made, all
dividends and distributions will be reinvested.
Net realized short-term capital gains, if any, will be distributed whenever the
Trustees determine that such distributions would be in the best interest of the
shareholders, which would be at least once per year. The Fund does not
anticipate that the Portfolio would realize any long-term capital gains, but
should they occur, they also will be distributed at least once every 12 months.
Dividends, together with distributions from net realized short-term securities
gains and all or a portion of any gains realized from the sale or other
disposition of market discount bonds, paid by the Portfolio to a foreign
investor generally are subject to U.S. nonresident withholding taxes at the rate
of 30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of investors' dividends and distributions will be
mailed to them annually. Investors also will receive periodic summaries of their
accounts which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
Federal income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or if
a shareholder has failed to properly report taxable dividend and interest income
on a Federal income tax return.
A TIN is either the Social Security number or employer identification number of
the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner of
the account, and may be claimed as a credit on the record owner's Federal income
tax return.
12
<PAGE>
The Portfolio is not expected to have any Federal tax liability; although
investors should expect to be subject to Federal, state or local taxes in
respect of their investment in Portfolio shares.
The Portfolio intends to continue to so qualify if such qualification is in the
best interests of its shareholders. Such qualification relieves the Portfolio of
any liability for Federal income tax to the extent its earnings are distributed
in accordance with applicable provisions of the Code. In addition, the Portfolio
is subject to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains.
Each investor should consult its tax adviser regarding specific questions as to
Federal, state or local taxes.
PERFORMANCE INFORMATION
The Portfolio may advertise its performance in a number of ways.
From time to time, the "yields" and "effective yields" may be quoted in
advertisements or in reports to shareholders. Yield quotations are computed
separately for each class of shares. The "yield" quoted in advertisements for a
particular class of shares refers to the income generated by an investment in
such shares over a specific period (such as a seven-day period) identified in
the advertisement. This income is then "annualized;" that is, the amount of
income generated by the investment during that period is assumed to be generated
each such period over a 52-week or one-year period and is shown as a percentage
of the investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in a particular class is assumed
to be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Portfolio was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a percentage rate
which, if applied on a compounded annual basis, would result in the redeemable
value of the investment at the end of the period. Advertisements of the
Portfolio's performance will include the Portfolio's average annual total return
for one, five and ten year periods, or for shorter periods depending upon the
length of time during which the Portfolio has operated. Computations of average
annual total return for periods of less than one year represent an annualization
of the Portfolio's actual total return for the applicable period.
Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions. Total return generally is expressed as a percentage
rate which is calculated by combining the income and principal changes for a
specified period and dividing by the net asset value per share at the beginning
of the period. Advertisements may include the percentage rate of total return or
may include the value of a hypothetical investment at the end of the period
which assumes the application of the percentage rate of total return.
The Portfolio's yield figures for a class of shares represent past performance,
will fluctuate and should not be considered as representative of future results.
The yield of any investment is generally a function of portfolio quality and
maturity, type of investment and operating expenses. Any fees charged by
institutional investors directly to their customers in connection with
investments in Portfolio shares are not reflected in the Portfolio's expenses or
yields; and, such fees, if charged, would reduce the actual return received by
customers on their investments. The methods used to compute the Portfolio's
yields are described in more detail in the Statement of Additional Information.
Investors may call 1-800-447-1139 to obtain current yield information.
The Portfolio performance may be compared to those of other mutual funds with
similar objectives, to other relevant indices, or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as Morningstar, Inc., Barron's, IBC Money Fund
Report(R), The Wall Street Journal and The New York Times; reports prepared by
Lipper Analytical Services, Inc., and publications of a local or regional
nature.
13
<PAGE>
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the laws of the
Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust
(the "Trust Agreement") dated September 29, 1994. The Fund commenced operations
on or about April 3, 1995 in connection with the offer of shares of certain of
its other portfolios. The Fund is authorized to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. The Portfolio's shares
are classified into two Classes--Class A, and Class Y. Each share has one vote
and shareholders will vote in the aggregate and not by Class, except as
otherwise required by law. As of this date, only Class Y Shares are being
offered.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Portfolio. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the
Portfolio and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Portfolio's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Portfolio. Thus, the risk of a shareholder incurring
financial loss on account of a shareholder liability is limited to circumstances
in which the Portfolio itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any liability
incurred by the Portfolio, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Portfolio. The Fund's
Trustees intend to conduct the operations of the Portfolio in a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Portfolio. As discussed under "Management of the Fund" in the
Portfolio's Statement of Additional Information, the Portfolio ordinarily will
not hold shareholder meetings; however, shareholders under certain circumstances
may have the right to call a meeting of shareholders for the purpose of voting
to remove Trustees.
To date, the Fund's Board has authorized the creation of seven portfolios of
shares. All consideration received by the Fund for shares of one of the
portfolios and all assets in which such consideration is invested will belong to
that portfolio (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The assets attributable to, and the
expenses of, one portfolio (and as to classes within a portfolio) are treated
separately from those of the other portfolios (and classes). The Fund has the
ability to create, from time to time, new portfolios of shares without
shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
under the provisions of the 1940 Act or applicable state law or otherwise to the
holders of the outstanding voting securities of an investment company, such as
the Fund, will not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each portfolio
affected by such matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of such
portfolio in the matter are identical or that the matter does not affect any
interest of such portfolio. However, the Rule exempts the selection of
independent accountants and the election of Trustees from the separate voting
requirements of the Rule.
The Transfer Agent maintains a record of share ownership and will send
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at PFPC Inc.,
Attention: The Prime Money Market Portfolio, P.O. Box 8960, Wilmington, Delaware
19899- 8960, by calling 1-800-447-1139 (in Delaware call collect 302-791-1031)
or by calling Bear Stearns at 1-800-766-4111.
14
<PAGE>
APPENDIX
Investment Techniques
In connection with its investment objective and policies, the Portfolio may
employ, among others, the following investment techniques which may involve
certain risks.
Borrowing Money
The Portfolio may borrow money.
As a fundamental policy, the Portfolio is permitted to borrow to the extent
permitted under the 1940 Act. The 1940 Act permits an investment company to
borrow in an amount up to 33-1/3% of the value of such company's total assets.
However, the Portfolio currently intends to borrow money only for temporary or
emergency (not leveraging) purposes, in an amount up to 15% of the value of its
total assets (including the amount borrowed) valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the Portfolio's total assets,
the Portfolio will not make any additional investments.
Certain Portfolio Securities
Money Market Instruments
The Portfolio may invest in a variety of money market instruments.
The Portfolio may invest, in the circumstances described under "Description of
the Fund--Management Policies," in the following types of money market
instruments, each of which at the time of purchase must have or be deemed to
have under rules of the Securities and Exchange Commission remaining maturities
of 397 days or less.
The securities purchased by the Portfolio rated by the "Requisite NRSROs" means
(a) any two nationally-recognized statistical rating organizations ("NRSROs")
that have issued a rating with respect to a security or class of debt
obligations of an issuer, or (b) one NRSRO, if only one NRSRO has issued such a
rating at the time that the Fund acquires the security. Currently, there are six
NRSROs: Standard & Poor's, a division of The McGraw-Hill Companies ("S&P");
Moody's Investors Service, Inc. ("Moody's"); Fitch Investors Services, Inc.;
Duff and Phelps, Inc.; IBCA Limited and its affiliate, IBCA, Inc.; and Thomson
Bankwatch.
U.S. Government Securities The Portfolio may purchase securities issued or
guaranteed by the U.S. Government, its agencies, or government sponsored
enterprises, which include U.S. Treasury securities that differ in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
Government sponsored enterprises, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the U.S. Treasury; others, such
as those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Principal
and interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support to
such U.S. Government agencies or Government sponsored agencies, no assurance can
be given that it will always do so, since it is not so obligated by law.
Securities issued or guaranteed by the U.S. Government, its agencies or
Government sponsored enterprises have historically involved little risk of loss
of principal if held to maturity. However, due to fluctuations in interest
rates, the market value of the securities may vary during the period an investor
owns shares of the Portfolio.
U.S. Treasury STRIPS
The Portfolio may invest in separately traded principal and interest components
of securities backed by the full faith and credit of the U.S. Treasury. The
principal and interest components of U.S. Treasury bonds with remaining
A-1
<PAGE>
maturities of longer than ten years are eligible to be traded independently
under the Separate Trading of Registered Interest and Principal of Securities
("STRIPS") program. Under the STRIPS program, the principal and interest
components are separately issued by the U.S. Treasury at the request of
depository financial institutions, which then trade the component parts
separately. Under the stripped bond rules of the Internal Revenue Code of 1986,
as amended (the "Code"), investments by the Fund in STRIPS will result in the
accrual of interest income on such investments in advance of the receipt of the
cash corresponding to such income. The interest component of STRIPS may be more
volatile than that of U.S. Treasury bills with comparable maturities. In
accordance with Rule 2a-7, the Portfolio's investments in STRIPS are limited to
those with maturity components not exceeding 397 days.
Variable and Floating Rate Securities
The interest rates payable on certain securities in which the Portfolio may
invest are not fixed and may fluctuate based upon changes in market rates. A
variable rate obligation has an interest rate which is adjusted at predesignated
periods. Interest on a floating rate obligation is adjusted whenever there is a
change in the market rate of interest on which the interest rate payable is
based. Variable and floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. Such obligations may fluctuate in
value in response to interest rate changes if there is a delay between changes
in market interest rates and the interest reset date for the obligation. The
Portfolio will take demand or reset features into consideration in determining
the average portfolio duration of the Fund and the effective maturity of
individual securities.
Bank Obligations The Portfolio may invest in bank obligations, including
certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions. With respect to such securities issued by foreign branches of
domestic banks, foreign subsidiaries of domestic banks, and domestic and foreign
branches of foreign banks, the Portfolio may be subject to additional investment
risks that are different in some respects from those incurred by a fund which
invests only in debt obligations of U.S. domestic issuers. Such risks include
possible future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the securities, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities and the possible seizure or nationalization of
foreign deposits.
Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by the Portfolio will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. The Portfolio will not invest more than
10% of the value of its net assets in time deposits maturing in more than seven
days and in other securities that are illiquid.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Repurchase Agreements
Repurchase agreements involve the acquisition by the Portfolio of an underlying
debt instrument, subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the instrument at a fixed price usually not more than one
week after its purchase. Certain costs may be incurred by the Portfolio in
connection with the sale of the securities if the seller does not repurchase
them in accordance with the repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by the Portfolio may be delayed or limited.
A-2
<PAGE>
Commercial Paper and Other Short-Term Corporate Obligations
Commercial paper consists of short-term, unsecured promissory notes issued to
finance short-term credit needs.
Investment Company Securities
The Portfolio may invest in securities of other investment companies.
The Portfolio may invest in securities issued by other investment companies.
Under the 1940 Act, the Portfolio's investment in such securities currently is
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Portfolio's total assets with respect
to any one investment company and (iii) 10% of the Portfolio's total assets in
the aggregate. Investments in the securities of other investment companies will
involve duplication of advisory fees and certain other expenses.
Illiquid Securities
The Portfolio may purchase illiquid securities. The Portfolio may invest up to
10% of the value of its net assets in securities as to which a liquid trading
market does not exist, provided such investments are consistent with the
Portfolio's investment objective. Such securities may include securities that
are not readily marketable, such as certain securities that are subject to legal
or contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice. As to these securities, the
Portfolio is subject to a risk that should the Portfolio desire to sell them
when a ready buyer is not available at a price the Portfolio deems
representative of their value, the value of the Portfolio's net assets could be
adversely affected.
The Portfolio may invest in commercial obligations issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended ("Section 4(2) paper"). The
Portfolio may also purchase securities that are not registered under the
Securities Act of 1933, as amended, but which can be sold to qualified
institutional buyers in accordance with Rule 144A under that Act ("Rule 144A
securities"). Section 4(2) paper is restricted as to disposition under the
federal securities laws, and generally is sold to institutional investors such
as the Portfolio who agree that they are purchasing the paper for investment and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors like the Portfolio through or with the assistance of the
issuer or investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. Rule 144A securities generally must be sold to other
qualified institutional buyers. If a particular investment in Section 4(2) paper
or Rule 144A securities is not determined to be liquid, that investment will be
included within the percentage limitation on investment in illiquid securities.
A-3
<PAGE>
THE
BEAR STEARNS
FUNDS
245 Park Avenue
New York, NY 10167
1.800.766.4111
Distributor
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Investment Adviser and Administrator
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167
Custodian
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540
Transfer & Dividend
Disbursement Agent
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE PRIME MONEY MARKET PORTFOLIO'S
PROSPECTUS AND IN THE BEAR STEARNS PRIME MONEY MARKET PORTFOLIO'S OFFICIAL SALES
LITERATURE IN CONNECTION WITH THE OFFER OF BEAR STEARNS PRIME MONEY MARKET
PORTFOLIO'S SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND.
THE BEAR STEARNS PRIME MONEY MARKET PORTFOLIO'S PROSPECTUS DOES NOT CONSTITUTE
AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
THE BEAR STEARNS FUNDS
FOCUS LIST PORTFOLIO
CLASS A AND CLASS Y
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
____________, 1997
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current relevant
Prospectus dated ____________, 1997 of the Focus List Portfolio (the
"Portfolio") of The Bear Stearns Funds (the "Fund"), as each may be revised from
time to time. To obtain a free copy of such Prospectus, please write to the Fund
at PFPC Inc. ("PFPC"), Attention: The Focus List Portfolio, P.O. Box 8960,
Wilmington, Delaware 19899-8960, call 1-800-447-1139 or call Bear, Stearns & Co.
Inc. ("Bear Stearns") at 1-800-766-4111.
Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned subsidiary
of The Bear Stearns Companies Inc., serves as the Portfolio's investment
adviser.
Bear Stearns, an affiliate of BSFM, serves as distributor of the
Portfolio's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies.......................... B-2
Management of the Fund................................................ B-12
Management Arrangements............................................... B-15
Purchase and Redemption of Shares..................................... B-18
Determination of Net Asset Value...................................... B-20
Dividends, Distributions and Taxes.................................... B-21
Portfolio Transactions................................................ B-23
Performance Information............................................... B-25
Information About the Fund............................................ B-26
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors.................................... B-26
-1-
<PAGE>
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "Description of the
Fund."
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Bear Stearns Research Focus List
The Portfolio seeks to invest primarily in equity securities of U.S. issuers
that, at the time of purchase, are on the Bear Stearns Research Focus List (the
"Focus List"). The Portfolio is designed for investors seeking to maximize
returns on a fully-invested, all-equity portfolio. The Portfolio is not a
market-timing vehicle. Except for short-term liquidity purposes, cash reserves
should rarely, if ever, exceed 5% of Portfolio assets.
The Focus List typically consists of twenty selected stocks chosen from those
stocks currently rated as Attractive or as a Buy by a Bear Stearns research
analyst. The stocks are selected for inclusion on the Focus List by a Focus List
Committee (comprised of senior Bear Stearns investment strategists) based upon
the expectation that the selected stocks will outperform the total return
realized on the S&P 500 Index over the next three to six months.
The Bear Stearns Global Research Department has fifty domestic equity analysts
who cover 800 issues. Using a rating system of 1-5, stocks are rated by analysts
with "1" being the highest rating of "buy" and "2" attractive, etc.
Approximately two hundred stocks are rated as Attractive or as a Buy. All rating
changes (other than to 3 - no opinion) are approved by the Stock Selection
Committee at Bear Stearns.
The criteria for an Attractive (2) rating by an analyst is that the stock must
be a good, long-term growth prospect either because of or in comparison to its
industry and that it is undervalued in comparison to the industry. A Buy (1)
rating means that the analyst along with the Stock Section Committee feel that
the stock, already rated Attractive, will outperform the market over the next
six to twelve months because of a catalyst or near-term event which will trigger
the upside. These catalysts can include change in management, the introduction
of a new product, or a change in the industry outlook.
Stocks are picked by the Focus List Committee whose members are Kathryn Booth,
Director of Global Research of Bear Stearns, and Elizabeth Mackay, Chief
Investment Strategist of Bear Stearns. The Committee maintains twenty stocks on
the list and any new additions are generally accompanied by a comparable number
of deletions. The Committee monitors the list daily and candidates are
considered based on any one or more of the following criteria: market and/or
sector perception, analyst view and relative value.
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Stocks that are downgraded below Attractive (2) by an analyst, are automatically
deleted from the Focus List. However, the Focus List Committee may delete stocks
for several other reasons including, but not limited to, achievement of its
target price range, the lack of a catalyst to materialize or have its expected
effect, and/or the appearance of new, more attractive opportunities.
It is possible that the Focus List will include stocks of issuers for which Bear
Stearns or one of its affiliates performs banking services for which it receives
fees, as well as stocks of issuers in which Bear Stearns or one of its
affiliates makes a market and may have a long or short position in the stock.
When Bear Stearns or one of its affiliates is engaged in an underwriting or
other distribution of stock of an issuer, the Adviser may be prohibited from
purchasing the stock of the issuer for the Portfolio. The activities of Bear
Stearns or one of its affiliates may, from time to time, limit the Focus List
Committee's ability to include stocks on the Focus List or the Portfolio's
flexibility in purchasing and selling such stocks. In addition, the Focus List
is available to other clients of Bear Stearns and its affiliates, including the
Adviser, as well as the Portfolio.
Investment Strategy
Generally, as soon as practicable after public announcement, the Portfolio
Manager will purchase a security that has been added to the Focus List, and will
sell a security when the security has been removed from the Focus List. The
Portfolio Manager determines what percentage of the Portfolio's total assets are
to be allocated into each Focus List stock and makes changes in allocation
percentages as investment and economic conditions change. Depending upon market
conditions and to the extent the Portfolio needs to hold cash balances to
satisfy shareholder redemption requests, the Portfolio Manager may not
immediately purchase a new Focus List stock and/or may continue to hold one or
more Focus List stocks that have been deleted from the Focus List. The Portfolio
Manager will not have access to the Focus List prior to its becoming publicly
disseminated.
The Investment Strategy described above will be implemented to the extent it is
consistent with maintaining the Portfolio's qualification as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). See "Dividends, Distributions and Taxes." The Portfolio's strategy may
be limited, in particular, by the requirements for such qualification that less
than 30% of the Portfolio's annual gross income be derived from the sale or
other disposition of stocks held for less than three months.
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Portfolio Securities
Equity Securities. Equity securities consist of common stocks,
convertible securities and preferred stocks. Preferred stock generally receives
dividends before distributions are paid on common stock and ordinarily has a
priority claim over common stockholders if the issuer of the stock is
liquidated. Domestic and foreign stocks, and American Depositary Receipts (ADRs)
are eligible for inclusion of the Focus List.
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System and to have their deposits insured
by the Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks
organized under state law are supervised and examined by state banking
authorities but are members of the Federal Reserve System only if they elect to
join. In addition, state banks whose certificates of deposit ("CDs") may be
purchased by the Portfolio are insured by the FDIC (although such insurance may
not be of material benefit to the Portfolio, depending on the principal amount
of the CDs of each bank held by the Portfolio) and are subject to Federal
examination and to a substantial body of Federal law and regulation. As a result
of Federal or state laws and regulations, domestic branches of domestic banks
whose CDs may be purchased by the Portfolio generally are required, among other
things, to maintain specified levels of reserves, are limited in the amounts
which they can loan to a single borrower and are subject to other regulation
designed to promote financial soundness. However, not all of such laws and
regulations apply to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries
of domestic banks and domestic and foreign branches of foreign banks, such as
CDs and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
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limited by the terms of a specific obligation or by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a designated
bank within the state, a certain percentage of their assets as fixed from time
to time by the appropriate regulatory authority; and (2) maintain assets within
the state in an amount equal to a specified percentage of the aggregate amount
of liabilities of the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of Federal and State Branches generally
must be insured by the FDIC if such branches take deposits of less than
$100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, BSFM carefully evaluates such investments on a case-by-case
basis.
Repurchase Agreements. The Portfolio's custodian or sub-custodian will
have custody of, and will hold in a segregated account, securities acquired by
the Portfolio under a repurchase agreement. Repurchase agreements are considered
by the staff of the Securities and Exchange Commission to be loans by the
Portfolio. In an attempt to reduce the risk of incurring a loss on a repurchase
agreement, the Portfolio will enter into repurchase agreements only with
domestic banks with total assets in excess of one billion dollars, or primary
government securities dealers reporting to the Federal Reserve Bank of New York,
with respect to securities of the type in which the Portfolio may invest, and
will require that additional securities be deposited with it if the value of the
securities purchased should decrease below the resale price. The Advisers will
monitor on an ongoing basis the value of the collateral to assure that it always
equals or exceeds the repurchase price. The Portfolio will consider on an
ongoing basis the credit worthiness of the institutions with which it enters
into repurchase agreements.
Commercial Paper and Other Short-Term Corporate Obligations. Variable
rate demand notes include variable amount master demand notes, which are
obligations that permit the Portfolio to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Portfolio, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. As mutually agreed between the parties, the Portfolio may increase the
amount under the notes at any time up to the full amount provided by the note
agreement, or decrease the amount, and the borrower may repay up to the full
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amount of the note without penalty. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value, plus accrued interest, at any time. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Portfolio's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. In connection with floating and variable rate
demand obligations, the Advisers will consider, on an ongoing basis, earning
power, cash flow and other liquidity ratios of the borrower, and the borrower's
ability to pay principal and interest on demand. Such obligations frequently are
not rated by credit rating agencies, and the Portfolio may invest in them only
if at the time of an investment the borrower meets the criteria set forth in the
Portfolio's Prospectus for other commercial paper issuers.
Illiquid Securities. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended, and are not readily
marketable, the Portfolio will endeavor to obtain the right to registration at
the expense of the issuer. Generally, there will be a lapse of time between the
Portfolio's decision to sell any such security and the registration of the
security permitting sale. During any such period, the price of the securities
will be subject to market fluctuations. However, if a substantial market of
qualified institutional buyers develops for certain unregistered securities
purchased by the Portfolio pursuant to Rule 144A under the Securities Act of
1933, as amended, the Portfolio intends to treat them as liquid securities in
accordance with procedures approved by the Fund's Board of Trustees. Because it
is not possible to predict with assurance how the market for restricted
securities pursuant to Rule 144A will develop, the Fund's Board of Trustees has
directed the Advisers to monitor carefully the Portfolio's investments in such
securities with particular regard to trading activity, availability of reliable
price information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, the Portfolio's investing in such securities
may have the effect of increasing the level of illiquidity in the Portfolio
during such period.
Management Policies
The Portfolio engages in the following practices in furtherance of its
objective.
Options Transactions. The Portfolio may engage in options transactions,
such as purchasing put or call options or writing covered call options. The
principal reason for writing covered call options, which are call options with
respect to which the Portfolio owns the underlying security or securities, is to
realize, through the receipt of premiums, a greater return than would be
realized on the Portfolio's securities alone. In return for a premium, the
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writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. The size of the premiums that the Portfolio may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
time the options are written. In the case of call options, these exercise prices
are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. The Portfolio may write (a) in-the-money call options when BSFM
expects that the price of the underlying security will remain stable or decline
moderately during the option period, (b) at-the-money call options when BSFM
expects that the price of the underlying security will remain stable or advance
moderately during the option period and (c) out-of-the-money call options when
BSFM expects that the premiums received from writing the call option plus the
appreciation in market price of the underlying security up to the exercise price
will be greater than the appreciation in the price of the underlying security
alone. In these circumstances, if the market price of the underlying security
declines and the security is sold at this lower price, the amount of any
realized loss will be offset wholly or in part by the premium received.
So long as the Portfolio's obligation as the writer of a call option
continues, the Portfolio may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Portfolio to deliver the
underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Portfolio effects a closing purchase
transaction. The Portfolio can no longer effect a closing purchase transaction
with respect to an option once it has been assigned an exercise notice.
While it may choose to do otherwise, the Portfolio generally will
purchase or write only those options for which BSFM believes there is an active
secondary market so as to facilitate closing transactions. There is no assurance
that sufficient trading interest to create a liquid secondary market on a
securities exchange will exist for any particular option or at any particular
time, and for some options no such secondary market may exist. A liquid
secondary market in an option may cease to exist for a variety of reasons. In
the past, for example, higher than anticipated trading activity or order flow,
or other unforeseen events, at times have rendered certain clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that otherwise may interfere with the timely execution of
customers' orders, will not recur. In such event, it might
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not be possible to effect closing transactions in particular options. If as a
covered call option writer the Portfolio is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Futures Contracts and Options on Futures Contracts. The Portfolio may
trade futures contracts and options on futures contracts in U.S. domestic
markets, such as the Chicago Board of Trade and the International Monetary
Market of the Chicago Mercantile Exchange.
Initially, when purchasing or selling futures contracts the Portfolio
will be required to deposit with the Fund's custodian in the broker's name an
amount of cash or cash equivalents up to approximately 10% of the contract
amount. This amount is subject to change by the exchange or board of trade on
which the contract is traded and members of such exchange or board of trade may
impose their own higher requirements. This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Portfolio upon termination of the futures position,
assuming all contractual obligations have been satisfied. Subsequent payments,
known as "variation margin," to and from the broker will be made daily as the
price of the index or securities underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, the Portfolio may elect to close the position
by taking an opposite position, at the then prevailing price, which will operate
to terminate the Portfolio's existing position in the contract.
Although the Portfolio intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the Portfolio
to substantial losses. If it is not possible, or the Portfolio determines not,
to close a futures position in anticipation of adverse price movements, the
Portfolio will be required to make daily cash payments of variation margin. In
such circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may offset partially or completely losses on the futures
contract. However, no assurance can be given that the price of the securities
being hedged will correlate with the price movements in a futures contract and
thus provide an offset to losses on the futures contract.
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In addition, to the extent the Portfolio is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect correlation
between securities owned by the Portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is possible
that the hedge will not be fully effective in that, for example, losses on the
portfolio securities may be in excess of gains on the futures contract or losses
on the futures contract may be in excess of gains on the portfolio securities
that were the subject of the hedge. In futures contracts based on indices, the
risk of imperfect correlation increases as the composition of the Portfolio's
investments varies from the composition of the index. In an effort to compensate
for the imperfect correlation of movements in the price of the securities being
hedged and movements in the price of futures contracts, the Portfolio may buy or
sell futures contracts in a greater or lesser dollar amount than the dollar
amount of the securities being hedged if the historical volatility of the
futures contract has been less or greater than that of the securities. Such
"over hedging" or "under hedging" may adversely affect the Portfolio's net
investment results if market movements are not as anticipated when the hedge is
established.
Upon exercise of an option, the writer of the option will deliver to
the holder of the option the futures position and the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because the
value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option does change daily and that change would be reflected in
the net asset value of each Portfolio.
Lending Portfolio Securities. To a limited extent, the Portfolio may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, the Portfolio can
increase its income through the investment of the cash collateral. For purposes
of this policy, the Portfolio considers collateral consisting of U.S. Government
securities or irrevocable letters of credit issued by banks whose securities
meet the standards for investment by the Portfolio to be the equivalent of cash.
From time to time, the Portfolio may return to the borrower or a third party
which is unaffiliated with the Portfolio, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (1)
the Portfolio must receive at least 100% cash collateral from the borrower;
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(2) the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; (5) the Portfolio may pay only reasonable custodian fees in connection
with the loan; and (6) while voting rights on the loaned securities may pass to
the borrower, the Fund's Board of Trustees must terminate the loan and regain
the right to vote the securities if a material event adversely affecting the
investment occurs. These conditions may be subject to future modification.
Investment Restrictions. The Portfolio has adopted investment
restrictions numbered 1 through 8 as fundamental policies. These restrictions
cannot be changed, as to the Portfolio, without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Portfolio's outstanding voting shares. Investment
restrictions numbered 9 and 10 are not fundamental policies and may be changed
by vote of a majority of the Trustees at any time. The Portfolio may not:
1. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act) except that (a) the Portfolio may engage in transactions that
may result in the issuance of senior securities to the extent permitted under
applicable regulations and interpretations of the 1940 Act or an exemptive
order; (b) the Portfolio may acquire other securities, the acquisition of which
may result in the issuance of a senior security, to the extent permitted under
applicable regulations or interpretations of the 1940 Act; (c) subject to the
restrictions set forth below, the Portfolio may borrow money as authorized by
the 1940 Act.
2. Purchase, hold or deal in real estate, real estate limited
partnership interests, or oil, gas or other mineral leases or exploration or
development programs, but the Portfolio may purchase and sell securities that
are secured by real estate or issued by companies that invest or deal in real
estate or real estate investment trusts.
3. Borrow money, except to the extent permitted under the 1940 Act. The
1940 Act permits an investment company to borrow in an amount up to 33-1/3% of
the value of such company's total assets. For purposes of this Investment
Restriction, the entry into options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or indexes
shall not constitute borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Portfolio may
lend its portfolio securities in an amount not to exceed 33-1/3% of the value of
its total assets. Any loans of portfolio securities will be made according to
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guidelines established by the Securities and Exchange Commission and the Fund's
Board of Trustees.
5. Act as an underwriter of securities of other issuers, except to the
extent the Portfolio may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
6. Invest in commodities, except that the Portfolio may purchase and
sell options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indices.
7. Purchase securities on margin, but the Portfolio may make margin
deposits in connection with transactions in options, forward contracts, futures
contracts, including those relating to indexes, and options on futures contracts
or indexes.
8. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indexes.
9. Make short sales of securities, other than short sales "against the
box."
10. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
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MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years, are
shown below. Each Trustee who is an "interested person" of the Fund, as defined
in the 1940 Act, is indicated by an asterisk.
Name and Address Position Principal Occupation
(and age) with Fund During Past Five Years
- ---------------- --------- ----------------------
Peter M. Bren (62) Trustee
2 East 70th Street President of The Bren Co.;
New York, New York 10021 President of Cole, Bren
Realty Advisors and Senior
Partner for Lincoln
Properties prior thereto.
Alan J. Dixon* (68) Trustee Partner of Bryan Cave, a
7535 Claymont Court law firm in St. Louis since
Apt. #2 January 1993; United
Belleville, IL 62223 States Senator of Illinois
from 1981 to 1993.
John R. McKernan, Jr. (48) Trustee Chairman and Chief Executive
114 Nottingham Road Officer of McKernan
Auburn, ME 04210 Enterprises since January
1995; Governor of Maine prior
thereto.
M.B. Oglesby, Jr. (53) Trustee Vice Chairman of Cassidy
5300 Albemarle Street & Associates since
Bethseda, MD 20816 February 1996; Senior
Trustee Vice President of RJR
Nabisco, Inc. from April
1989 to February 1996;
Former Deputy Chief of
Staff-White House from
1988 to January 1989.
Robert S. Reitzes* (52) Trustee President and Chairman of the
245 Park Avenue Board Director of Mutual
New York, NY 10167 Funds Bear Stearns Asset
Management and Senior
Managing Director of Bear
Stearns since March 1994;
Co-Director of Research and
Senior
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Name and Address Position Principal Occupation
(and age) with Fund During Past Five Years
- ---------------- --------- ----------------------
Chemical Analyst of C.J.
Lawrence/Deutsche Bank
Securities Corp. from January
1991 to March 1994.
Peter B. Fox (44) Executive Vice Senior Managing Director,
Three First National Plaza President Bear Stearns, Public
Chicago, IL 60602 Finance
William J. Montgoris (49) Executive Vice Chief Financial Officer
245 Park Avenue President Chief Operating Officer,
New York, NY 10167 Bear Stearns.
Stephen A. Bornstein (52) Vice President Managing Director, Legal
245 Park Avenue Department, Bear Stearns
New York, NY 10167
Frank J. Maresca (38) Vice President Managing Director of Bear
245 Park Avenue and Treasurer Stearns since September 1994;
New York, NY 10167 Associate Director of Bear
Stearns from September 1993
to September 1994; Executive
Vice President of BSFM since
March 1992; Vice President of
Bear Stearns from March 1992
to September 1993; First Vice
President of Mitchell
Hutchins Asset Management
Inc. ("Mitchell Hutchins")
from June 1988 to March 1992;
and Director of Funds
Administration Division of
Mitchell Hutchins from
November 1991 to March 1992.
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Name and Address Position Principal Occupation
(and age) with Fund During Past Five Years
- ---------------- --------- ----------------------
Doni Fordyce (38) Vice President Senior Managing Director,
245 Park Avenue Bear Stearns Asset
New York, NY 10167 Management.
Ellen T. Arthur (43) Secretary Associate Director of Bear
245 Park Avenue Stearns since January 1996;
New York, NY 10167 Senior Counsel and Corporate
Vice President of PaineWebber
Incorporated from April 1989
to September 1995.
Vincent L. Pereira (31) Assistant Associate Director of Bear
245 Park Avenue Treasurer since September 1995 and Vice
New York, NY 10167 President of BSFM since May
1993; Vice President of Bear
Stearns from May 1993 to
September 1995; Assistant
Vice President of Mitchell
Hutchins from October 1992 to
May 1993; Senior Relationship
Manager of Mitchell Hutchins
from June 1988 to October
1992.
Eileen M. Coyle (31) Assistant Vice President of Bear
245 Park Avenue Secretary Stearns since September 1995;
New York, NY 10167 Accounting Supervisor and
Senior Accountant for Bear
Stearns since 1990.
The Fund pays its non-affiliated Board members an annual retainer of
$5,000 and a per meeting fee of $500 and reimburses them for their expenses. The
Fund does not compensate its officers. The aggregate amount of compensation paid
to each Board member by the Fund and by all other funds in the Bear Stearns
Family of Funds for which such person is a Board member (the number of which is
set forth in parenthesis next to each Board member's total compensation) for the
fiscal year ended March 31, 1996 is as follows:
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<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Board Aggregate Pension or Estimated Annual Total
Member Compensation Retirement Benefits Benefits Upon Compensation from
from Fund* Accrued as Part of Retirement Fund and Fund
Fund's Expenses Complex Paid to
Board Members
<S> <C> <C> <C> <C>
Peter M. Bren $7,000 None None $12,000(2)
Alan J. Dixon $7,000 None None $7,000(1)
John R. McKernan, Jr. $7,000 None None $12,000(2)
M.B. Oglesby, Jr. $7,000 None None $12,000(2)
Robert S. Reitzes None None None None(2)
</TABLE>
- ---------------------
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $10,100 for Board members of the Fund, as a
group.
Board members and officers of the Fund, as a group, owned less than 1%
of the Portfolio's shares outstanding on _________, 1997.
For so long as the Plan described in the section captioned "Management
Arrangements--Distribution and Shareholder Servicing Plan" remains in effect,
the Fund's Trustees who are not "interested persons" of the Fund, as defined in
the 1940 Act, will be selected and nominated by the Trustees who are not
"interested persons" of the Fund.
No meetings of shareholders of the Fund will be held for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Under the 1940 Act, shareholders of record of not less than two-thirds
of the outstanding shares of the Fund may remove a Trustee through a declaration
in writing or by vote cast in person or by proxy at a meeting called for that
purpose. Under the Fund's Agreement and Declaration of Trust, the Trustees are
required to call a meeting of shareholders for the purpose of voting upon the
question of removal of any such Trustee when requested in writing to do so by
the shareholders of record of not less than 10% of the Fund's outstanding
shares.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "Management of the
Fund."
Investment Advisory Agreement. BSFM provides investment advisory
services to the Portfolio pursuant to the Investment Advisory Agreement (the
"Agreement") dated _______________, 1997, with the Fund. The Agreement will
remain in effect for two years from the date of execution and shall continue
from year to year thereafter if it is approved by (i) the Fund's Board of
Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting
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<PAGE>
securities of the Portfolio, provided that in either event the continuance also
is approved by a majority of the Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Fund or BSFM, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Agreement is terminable, as to the Portfolio, without penalty, on 60 days'
notice, by the Fund's Board of Trustees or by vote of the holders of a majority
of the Portfolio's shares, or, on not less than 90 days' notice, by BSFM. As to
the Portfolio, the Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
BSFM is a wholly owned subsidiary of The Bear Stearns Companies Inc.
The following persons are directors and/or senior officers of BSFM: Mark A.
Kurland, Chief Executive Officer, President, Chairman of the Board and Director;
Robert S. Reitzes, Executive Vice President and Director; Milton B. Rubin, Vice
Chairman of the Board; Frank J. Maresca, Executive Vice President; Neil T.
Eigen, Executive Vice President; Vincent L. Pereira, Treasurer and Secretary;
and Michael Minikes, Warren J. Spector and Robert M. Steinberg, Directors.
As compensation for BSFM's advisory services, the Fund has agreed to
pay BSFM a monthly fee at the annual rate of __% of value of the Portfolio's
average daily net assets.
Administration Agreement. BSFM provides certain administrative services
to the Fund pursuant to the Administration Agreement dated ______________, with
the Fund. The Administration Agreement will continue until ___________ and
thereafter will be subject to annual approval by (i) the Fund's Board or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Portfolio, provided that in either event its continuance also
is approved by a majority of the Fund's Board members who are not "interested
persons" (as defined in the 1940 Act) of the Fund or BSFM, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Administration Agreement is terminable without penalty, on 60 days' notice, by
the Fund's Board or by vote of the holders of a majority of the Portfolio's
shares or upon not less than 90 days' notice by BSFM. The Administration
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
As compensation for BSFM's administrative services, the Fund has agreed
to pay BSFM a monthly fee at the annual rate of .15 of 1% of the Portfolio's
average daily net assets.
Administrative Services Agreement. PFPC provides certain administrative
services to the Fund pursuant to the Administrative Services Agreement dated
________________, 1997, with the Fund. The Administrative Services Agreement is
terminable upon 60 days' notice by either the Fund or PFPC. PFPC may assign its
rights or delegate its duties under the Administrative
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<PAGE>
Services Agreement to any wholly-owned direct or indirect subsidiary of PNC
Bank, National Association or PNC Bank Corp., provided that (i) PFPC gives the
Fund 30 days' notice; (ii) the delegate (or assignee) agrees with PFPC and the
Fund to comply with all relevant provisions of the 1940 Act; and (iii) PFPC and
such delegate (or assignee) promptly provide information requested by the Fund
in connection with such delegation.
As compensation for PFPC's administrative services, the Fund has agreed
to pay PFPC a monthly fee at the rate set forth in the Portfolio's Prospectus.
Distribution and Shareholder Servicing Plan. Rule 12b-1 (the "Rule")
adopted by the Securities and Exchange Commission under the 1940 Act provides,
among other things, that an investment company may bear expenses of distributing
its shares only pursuant to a plan adopted in accordance with the Rule. The
Fund's Trustees have adopted such a plan with respect to Class A and Class C
shares (the "Plan"). The Fund's Trustees believe that there is a reasonable
likelihood that the Plan will benefit the Portfolio and the holders of its Class
A and Class C shares.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the Trustees
for their review. In addition, the Plan provides that it may not be amended to
increase materially the costs which holders of a Class of shares may bear
pursuant to the Plan without approval of such shareholders and that other
material amendments of the Plan must be approved by the Board of Trustees, and
by the Trustees who are neither "interested persons" (as defined in the 1940
Act) of the Fund nor have any direct or indirect financial interest in the
operation of the Plan or in the related Plan agreements, by vote cast in person
at a meeting called for the purpose of considering such amendments. The Plan and
related agreements are subject to annual approval by such vote cast in person at
a meeting called for the purpose of voting on the Plan. The Plan is terminable
at any time by vote of a majority of the Trustees who are not "interested
persons" and who have no direct or indirect financial interest in the operation
of the Plan or in the Plan agreements or by vote of holders of a majority of the
Portfolio's relevant Class of shares. A Plan agreement is terminable, as to the
Portfolio, without penalty, at any time, by such vote of the Trustees, upon not
more than 60 days' written notice to the parties to such agreement or by vote of
the holders of a majority of the Portfolio's Class A and Class C shares. A Plan
agreement will terminate automatically, as to the Portfolio, in the event of its
assignment (as defined in the 1940 Act).
Expenses. All expenses incurred in the operation of the Fund are borne
by the Fund, except to the extent specifically assumed by BSFM. The expenses
borne by the Fund include: organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
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brokerage fees and commissions, if any, fees of Board members who are not
officers, directors, employees or holders of 5% or more of the outstanding
voting securities of BSFM, BSFM or their affiliates, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory, administrative and
fund accounting fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining the Fund's existence, costs of
independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, costs of preparing and printing certain
prospectuses and statements of additional information, and any extraordinary
expenses. Expenses attributable to a particular portfolio are charged against
the assets of that portfolio; other expenses of the Fund are allocated among the
portfolios on the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each portfolio.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the sections in the Portfolio's Prospectus entitled "How to Buy Shares" and
"How to Redeem Shares."
The Distributor. Bear Stearns serves as the Portfolio's distributor on
a best efforts basis pursuant to an agreement dated _________________, 1997
which is renewable annually. In some states, banks or other institutions
effecting transactions in Portfolio shares may be required to register as
dealers pursuant to state law.
Purchase Order Delays. The effective date of a purchase order may be
delayed if PFPC, the Portfolio's transfer agent, is unable to process the
purchase order because of an interruption of services at its processing
facilities. In such event, the purchase order would become effective at the
purchase price next determined after such services are restored.
Sales Loads--Class A. Set forth below is an example of the method of
computing the offering price of the Class A shares of the Portfolio. The example
assumes a purchase of Class A shares aggregating less than $50,000 subject to
the schedule of sales charges set forth in the Prospectus at a price based upon
the net asset value of the Class A shares on _______________, 1997.
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<PAGE>
Net Asset Value per Share $_____
Per Share Sales Charge - 4.75%
of offering price (4.99% of
net asset value per share) $_____
Per Share Offering Price to
the Public $_____
Conditional Deferred Sales Charge - Class A. If the aggregate value of
Class A shares redeemed has declined below their original cost as a result of
the Portfolio's performance, the applicable CDSC may be applied to the
then-current net asset value rather than the purchase price.
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value of Class A shares above the
total amounts of payments for the purchase of Class A shares made during the
preceding year; then of amounts representing shares purchased more than one year
prior to the redemption; and, finally, of amounts representing the cost of
shares purchased within one year prior to the redemption.
For example, assume an investor purchased 100 shares of the Portfolio at $10 per
share for a cost of $1,000. Subsequently, the shareholder acquired 5 additional
shares through dividend reinvestment. During the first year after the purchase
the investor decided to redeem $500 of his or her investment. Assuming at the
time of the redemption the net asset value had appreciated to $12 per share, the
value of the investor's shares would be $1,260 (105 shares at $12 per share).
The CDSC would not be applied to the value of the reinvested dividend shares and
the amount which represents appreciation ($260). Therefore $240 of the $500
redemption proceeds ($500 minus 260) would be charged at a rate of 1% to a total
CDSC of $2.40.
The CDSC applicable to Class A shares will be waived in connection with (a)
redemptions made within one year after the death or disability, as defined in
Section 72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in Eligible Benefit Plans, (c) redemptions as a result of a
combination of any investment company with the Portfolio by merger, acquisition
of assets or otherwise, and (d) a distribution following retirement under a
tax-deferred retirement plan or upon attaining age 70 1/2 in the case of an IRA
or Keogh plan or custodial account pursuant to Section 403(b) of the Code. If
the Fund's Trustees determine to discontinue the waiver of the CDSC, the
disclosure in the Portfolio's prospectus will be revised appropriately. Any
Portfolio shares subject to a CDSC which were purchased prior to the termination
of such waiver will have the
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<PAGE>
CDSC waived as provided in the Portfolio's prospectus at the time of the
purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption an investor must
notify the Transfer Agent or the investor's Bear Stearns account executive or
the investor's Authorized Dealer must notify the Distributor. Any such
qualification is subject to confirmation of the investor's entitlement.
Redemption Commitment. The Portfolio has committed itself to pay in
cash all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of the
Portfolio's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such amount, the
Board of Trustees reserves the right to make payments in whole or in part in
securities or other assets in case of an emergency or any time a cash
distribution would impair the liquidity of the Portfolio to the detriment of the
existing shareholders. In this event, the securities would be valued in the same
manner as the Portfolio is valued. If the recipient sold such securities,
brokerage charges would be incurred. Were the Portfolio to redeem securities in
kind, it first would seek to distribute readily marketable securities.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b) when
trading in the markets the Portfolio ordinarily utilizes is restricted, or when
an emergency exists as determined by the Securities and Exchange Commission so
that disposal of the Portfolio's investments or determination of its net asset
value is not reasonably practicable, or (c) for such other periods as the
Securities and Exchange Commission by order may permit to protect Portfolio
shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "How to Buy Shares."
Valuation of Portfolio Securities. Portfolio securities, including
covered call options written by the Portfolio, are valued at the last sale price
on the securities exchange or national securities market on which such
securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no transactions,
are valued at the average of the most recent bid and asked prices, except in the
case of open short positions where the asked price is used for valuation
purposes. Bid price is used
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<PAGE>
when no asked price is available. Short-term investments are carried at
amortized cost, which approximates value. Any securities or other assets for
which recent market quotations are not readily available are valued at fair
value as determined in good faith by the Fund's Board of Trustees. Expenses and
fees, including the management fee and distribution and service fees, are
accrued daily and taken into account for the purpose of determining the net
asset value of the Portfolio's shares. Because of the differences in operating
expenses incurred by each Class, the per share net asset value of each Class
will differ.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Board of Trustees, are valued at fair value as
determined in good faith by the Board of Trustees. The Board of Trustees will
review the method of valuation on a current basis. In making their good faith
valuation of restricted securities, the Trustees generally will take the
following factors into consideration: restricted securities which are, or are
convertible into, securities of the same class of securities for which a public
market exists usually will be valued at market value less the same percentage
discount at which purchased. This discount will be revised periodically by the
Board of Trustees if the Trustees believe that it no longer reflects the value
of the restricted securities. Restricted securities not of the same class as
securities for which a public market exists usually will be valued initially at
cost. Any subsequent adjustment from cost will be based upon considerations
deemed relevant by the Board of Trustees.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "Dividends,
Distributions and Taxes."
Management of the Fund intends to have the Portfolio qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and thereafter, to continue to so qualify if such
qualification is in the best interests of shareholders. Qualification as a
regulated investment company relieves the Portfolio from any liability for
Federal income taxes on net investment income and net realized securities gains
to the extent that such income and gains are distributed to shareholders in
accordance with applicable provisions of the Code. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
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<PAGE>
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the cost
of the investment. Such a dividend or distribution would be a return of
investment in an economic sense, although taxable as stated above. In addition,
the Code provides that if a shareholder holds shares of the regulated investment
company for six months or less and has received a capital gain distribution with
respect to such shares, any loss incurred on the sale of such shares will be
treated as long-term capital loss to the extent of the capital gain distribution
received.
Depending on the composition of a regulated investment company's
income, dividends paid by the regulated investment company from net investment
income may qualify for the dividends received deduction allowable to certain
U.S. corporate shareholders ("dividends received deduction"). In general,
dividend income of the regulated investment company distributed to qualifying
corporate shareholders will be eligible for the dividends received deduction
only to the extent that (i) the regulated investment company's income consists
of dividends paid by U.S. corporations and (ii) the regulated investment company
would have been entitled to the dividends received deduction with respect to
such dividend income if the regulated investment company were not a regulated
investment company under the Code. The dividends received deduction for
qualifying corporate shareholders may be further reduced if the shares of the
regulated investment company held by such shareholders with respect to which
dividends are received are treated as debt-financed or deemed to have been held
for less than 46 days. In addition, the Code provides other limitations with
respect to the ability of a qualifying corporate shareholder to claim the
dividends received deduction in connection with holding shares of a regulated
investment company.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain and loss. However, a portion of the gain or loss from
the disposition of non-U.S. dollar denominated securities (including debt
instruments, certain financial forward futures and option contracts and certain
preferred stock) may be treated as ordinary income or loss under Section 988 of
the Code. In addition, all or a portion of any gain realized from the sale or
other disposition of certain market discount bonds will be treated as ordinary
income under Section 1276. Finally, all or a portion of the gain realized from
engaging in "conversion transactions" may be treated as ordinary income under
Section 1258. "Conversion transactions" are defined to include certain forward,
futures, option and straddle transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulations to be
issued in the future.
Under Section 1256 of the Code, any gain or loss realized by a
regulated investment company from certain futures and forward contracts and
options transactions will be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. Gain or loss will arise upon exercise or
lapse of such contracts and options as well as from closing transactions. In
addition,
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<PAGE>
any such contracts or options remaining unexercised at the end of a regulated
investment company's taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to such regulated investment
company characterized in the manner described above.
Offsetting positions held by a regulated investment company involving
certain contracts or options may constitute "straddles." "Straddles" are defined
to include "offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, overrides or modifies the provisions of Section
1256 and 988. If a regulated investment company were treated as entering into
"straddles" by reason of its engaging in certain forward contracts or options
transactions, such "straddles" would be characterized as "mixed straddles" if
the contracts or options transactions comprising a part of such "straddles" were
governed by Section 1256 of the Code. A regulated investment company may make
one or more elections with respect to "mixed straddles." Depending on which
election is made, if any, the results to a regulated investment company may
differ. If no election is made to the extent the "straddle" and conversion
transactions rules apply to positions established by a regulated investment
company, losses realized by the regulated investment company will be deferred to
the extent of unrealized gain in the offsetting position. Moreover, as a result
of the "straddle" rules, short-term capital loss on "straddle" positions may be
recharacterized as long-term capital loss, and long-term capital gains may be
treated as short-term capital gains or ordinary income.
Investment by a regulated investment company in securities issued or
acquired at a discount, or providing for deferred interest or for payment of
interest in the form of additional obligations could under special tax rules
affect the amount, timing and character of distributions to shareholders by
causing a regulated investment company to recognize income prior to the receipt
of cash payments. For example, a regulated investment company could be required
to accrue a portion of the discount (or deemed discount) at which the securities
were issued and to distribute such income in order to maintain its qualification
as a regulated investment company. In such case, the regulated investment
company may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.
PORTFOLIO TRANSACTIONS
BSFM assumes general supervision over placing orders on behalf of the
Portfolio for the purchase or sale of investment securities. Allocation of
brokerage transactions, including their frequency, is made in BSFM's best
judgment and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders at the most favorable net
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price. Subject to this consideration, the brokers selected will include those
that supplement BSFM's research facilities with statistical data, investment
information, economic facts and opinions. Information so received is in addition
to and not in lieu of services required to be performed by BSFM and BSFM's fees
are not reduced as a consequence of the receipt of such supplemental
information.
Such information may be useful to BSFM in serving both the Portfolio
and the other funds which it advises and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to BSFM in
carrying out its obligations to the Portfolio. Sales of Portfolio shares by a
broker may be taken into consideration, and brokers also will be selected
because of their ability to handle special executions such as are involved in
large block trades or broad distributions, provided the primary consideration is
met. Large block trades may, in certain cases, result from two or more funds
advised or administered by BSFM being engaged simultaneously in the purchase or
sale of the same security. Certain of BSFM's transactions in securities of
foreign issuers may not benefit from the negotiated commission rates available
to the Portfolio for transactions in securities of domestic issuers. When
transactions are executed in the over-the-counter market, the Portfolio will
deal with the primary market makers unless a more favorable price or execution
otherwise is obtainable.
Portfolio turnover may vary from year to year as well as within a year.
BSFM expects that the turnover on the securities held in the Portfolio will be
250% or greater. This pottfolio tunrover rate is significantly higher than the
portfolio turnover rates of other mutual funds that invest in equity securities.
A higher portfolio turnover rate means that the Portfolio will incur
substantially higher brokerage costs and may realize a greater amount of
short-term capital gains or losses.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the Securities and Exchange Commission
thereunder, the Board of Trustees has determined that transactions for the
Portfolio may be executed through Bear Stearns if, in the judgment of BSFM, the
use of Bear Stearns is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers, and if, in the
transaction, Bear Stearns charges the Portfolio a rate consistent with that
charged to comparable unaffiliated customers in similar transactions. In
addition, under rules recently adopted by the Securities and Exchange
Commission, Bear Stearns may directly execute such transactions for the
Portfolio on the floor of any national securities exchange, provided (i) on the
Board of Trustees has expressly authorized Bear Stearns to effect such
transactions, and (ii) Bear Stearns annually advises the Board of Trustees of
the aggregate compensation it earned on such transactions. Over-the-counter
purchases and sales are transacted directly with principal market makers except
in those cases in which better prices and executions may be obtained elsewhere.
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PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "Performance
Information."
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value (maximum offering
price in the case of Class A) per share with a hypothetical $1,000 payment made
at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result. A Class' average annual total return figures
calculated in accordance with such formula assume that in the case of Class A
the maximum sales load has been deducted from the hypothetical initial
investment at the time of purchase or in the case of Class C the maximum
applicable CDSC has been paid upon redemption at the end of the period.
Total return is calculated by subtracting the amount of the Portfolio's
net asset value (maximum offering price in the case of Class A) per share at the
beginning of a stated period from the net asset value per share at the end of
the period (after giving effect to the reinvestment of dividends and
distributions during the period and any applicable CDSC), and dividing the
result by the net asset value (maximum offering price in the case of Class A)
per share at the beginning of the period. Total return also may be calculated
based on the net asset value per share at the beginning of the period instead of
the maximum offering price per share at the beginning of the period for Class A
shares or without giving effect to any applicable CDSC at the end of the period
for Class C shares. In such cases, the calculation would not reflect the
deduction of the sales load with respect to Class A shares or any applicable
CDSC with respect to Class C shares, which, if reflected would reduce the
performance quoted.
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<PAGE>
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "General Information."
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Portfolio shares have no preemptive, subscription or conversion rights and are
freely transferable.
The Fund will send annual and semi-annual financial statements to all
its shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
Custodial Trust Company ("CTC"), 101 Carnegie Center, Princeton, New
Jersey 08540, an affiliate of Bear Stearns, is the Portfolio's custodian. Under
the custody agreement with the Portfolio, CTC holds the Portfolio's securities
and keeps all necessary accounts and records. For its services, CTC receives an
annual fee of the greater of .015% of the value of the domestic assets held in
custody or $5,000, such fee to be payable monthly based upon the total market
value of such assets, as determined on the last business day of the month. In
addition, CTC receives certain securities transactions charges which are payable
monthly. PFPC, Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809, is the Portfolio's transfer agent, dividend disbursing agent and
registrar. Neither CTC nor PFPC has any part in determining the investment
policies of the Portfolio or which securities are to be purchased or sold by the
Portfolio.
Kramer, Levin, Naftalis & Frankel, 919 3rd Avenue, New York, New York
10022, as counsel for the Fund, has rendered its opinion as to certain legal
matters regarding the due authorization and valid issuance of the shares of
beneficial interest being sold pursuant to the Portfolio's Prospectus.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281-1434, independent auditors, have been selected as auditors of the Fund.
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<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
CLASS Y
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
____________, 1997
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current relevant
Prospectus dated ____________, 1997 of the Prime Money Market Portfolio (the
"Portfolio") of The Bear Stearns Funds (the "Fund"), as each may be revised from
time to time. To obtain a free copy of such Prospectus, please write to the Fund
at PFPC Inc. ("PFPC"), Attention: The Prime Money Market Portfolio, P.O. Box
8960, Wilmington, Delaware 19899-8960, call 1-800-447-1139 (in Delaware call
collect 302-791-1031) or call Bear, Stearns & Co. Inc. ("Bear Stearns") at
1-800- 766-4111.
Bear Stearns Funds Management Inc. ("BSFM" or the "Adviser"), a
wholly-owned subsidiary of The Bear Stearns Companies Inc., serves as the
Portfolio's investment adviser.
Bear Stearns, an affiliate of BSFM, serves as distributor of the
Portfolio's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies......................... B-2
Additional Purchase and Redemption Information....................... B-8
Determination of Net Asset Value..................................... B-9
Management of the Fund............................................... B-11
Management Arrangements.............................................. B-14
Purchase and Redemption of Shares.................................... B-17
Dividends, Distributions and Taxes................................... B-17
Dividends............................................................ B-20
Additional Yield Information......................................... B-20
Information About the Fund........................................... B-20
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors................................... B-20
Appendix............................................................. B-23
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
As stated in the Portfolio's Prospectus, the investment objective of
the Portfolio is to seek to provide liquidity and current income constitent with
stability of principal. The following policies supplement the description of the
Portfolio's investment objective and policies in the Prospectus.
Portfolio Transactions
Subject to the general control of the Fund's Board of Trustees, the
Adviser is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of portfolio securities for the Portfolio. The
Adviser purchases portfolio securities for the Portfolio either directly from
the issuer or from dealers who specialize in money market instruments. Such
purchases are usually without brokerage commissions. In making portfolio
investments, the Adviser seeks to obtain the best net price and the most
favorable execution of orders. To the extent that the execution and price
offered by more than one dealer are comparable, the Adviser may, in its
discretion, effect transactions in portfolio securities with dealers who provide
the Fund with research advice or other services.
The Adviser may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from the Portfolio prior to their maturity at their original
costs plus interest (interest may sometimes be adjusted to reflect the actual
maturity of the securities) if the Adviser believes that the Portfolio's
anticipated need for liquidity makes such action desirable. Certain dealers (but
not issuers) have charged and may in the future charge a higher price for
commercial paper where they undertake to repurchase prior to maturity. The
payment of a higher price in order to obtain such an undertaking reduces the
yield which might otherwise be received by the Portfolio on the commercial
paper. The Fund's Board of Trustees has authorized the Adviser to pay a higher
price for commercial paper where it secures such an undertaking if the Adviser
believes that the prepayment privilege is desirable to assure the Portfolio's
liquidity and such an undertaking cannot otherwise be obtained.
Investment decisions for the Portfolio are made independently from
those for another of the Fund's portfolios or other investment company
portfolios or accounts advised by the Adviser. Such other portfolios may also
invest in the same securities as the Portfolio. When purchases or sales of the
same security are made at substantially the same time on behalf of such other
portfolios, transactions are averaged as to price, and available investments
allocated as to amount, in a manner which the Adviser believes to be equitable
to each portfolio, including the Portfolio. In some instances, this investment
procedure may adversely affect the price paid or received by the Portfolio or
the size of the
- 2 -
<PAGE>
position obtainable for the Portfolio. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Portfolio
with those to be sold or purchased for such other portfolios in order to obtain
best execution.
The Portfolio will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase agreements with Bear Sterns or the Adviser or any affiliated person
(as such term is defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of any of them, except to the extent permitted by the Securities
and Exchange Commission (the "SEC"). In addition, with respect to such
transactions, securities, deposits and agreements, the Portfolio will not give
preference to Service Organizations with which the Portfolio enters into
agreements.
The Portfolio may seek profits through short-term trading. The
Portfolio's annual portfolio turnover will be relatively high, but brokerage
commissions are normally not paid on money market instruments and the Portfolio
turnover is not expected to have a material effect on its net income. The
Portfolio's turnover rate is expected to be zero for regulatory reporting
purposes.
Additional Information on Portfolio Instruments
With respect to the variable rate notes and variable rate demand notes
described in the Prospectus, the Adviser will consider the earning power, cash
flows and other liquidity ratios of the issues of such notes and will
continuously monitor their financial ability to meet payment obligations when
due.
The repurchase price under the repurchase agreements described in the
Portfolio's Prospectus generally equals the price paid by the Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The collateral underlying each repurchase agreement entered into by the
Portfolio will consist entirely of direct obligations of the U.S. Government and
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. Securities subject to repurchase agreements will be held by
the Fund Custodian, sub-custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by the Portfolio under
the 1940 Act.
As stated in the Portfolio's Prospectus, the Portfolio may purchase
securities on a "when-issued" basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When the Portfolio agrees to
purchase when-issued securities, the Custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
a purchase commitment, and in such a case the Portfolio subsequently may be
required to
- 3 -
<PAGE>
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Portfolio's commitment.
It may be expected that the Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Portfolio will set aside
cash or liquid assets to satisfy its purchase commitments in the manner
described, the Portfolio's liquidity and ability to manage its portfolio might
be affected in the event its commitments to purchase when-issued securities ever
exceeded 25% of the value of its assets. When the Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Portfolio's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous. The
Portfolio does not intend to purchase when-issued securities for speculative
purposes but only in furtherance of its investment objective. The Portfolio
reserves the right to sell these securities before the settlement date if it is
deemed advisable.
Examples of the types of U.S. Government obligations that may be held
by the Portfolio include, in addition to U.S. Treasury Bills, the obligations of
the Federal Housing Administration, Farmers Home Administration, Export-Import
Bank of the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, Federal Financing
Bank, General Services Administration, Student Loan Marketing Association,
Central Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Farm Credit Banks, Maritime Administration, Resolution Trust
Corporation, Tennessee Valley Authority, U.S. Postal Service, and Washington
D.C. Armory Board.
For purposes of the Portfolio's investment policies with respect to
obligations of issuers in the banking industry, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. The Portfolio's investments in the obligations of foreign branches of
U.S. banks and foreign banks and other foreign issues may subject the Portfolio
to investment risks that are different in some respects from those of investment
in obligations of U.S. domestic issuers. Such risks include future political and
economic developments, the possible seizure of nationalization of foreign
deposits, the possible establishment of exchange controls of the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on such obligations. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and foreign issuers generally are subject to different accounting,
auditing, reporting and record keeping standards than those applicable to U.S.
issuers. The Portfolio will acquire securities issued by foreign branches of
U.S. banks or foreign issuers only when the Adviser believes that the risks
associated with such instruments are minimal.
- 4 -
<PAGE>
Among the bank obligations in which the Portfolio may invest are notes
issued by banks. These notes, which are exempt from registration under federal
securities laws, are not deposits of the banks and are not insured by the
Federal Deposit Insurance Corporation or any other insurer. Holders of notes
rank on a par with other unsecured and unsubordinated creditors of the banks.
Notes may be sold at par or sold on a discount basis and may bear fixed or
floating rates of interest.
The Portfolio may invest in asset-backed and receivable-backed
securities. Several types of asset-backed and receivable-backed securities have
been offered to investors, including interests in pools of credit card
receivables and motor vehicle retail installment sales contracts and security
interests in the vehicles securing the contracts. Payments of principal and
interest on those securities are passed through to certificate holders. In
addition, asset-backed securities often carry credit protection in the form of
extra collateral, subordinate certificates, cash reserve accounts and other
enhancements. An investor's return on these securities may be affected by early
prepayment of principal on the underlying receivables or sales contracts. Any
asset-backed or receivable-backed securities held by the Portfolio must comply
with the portfolio maturity and quality requirements contained in Rule 2a-7
under the 1940 Act. The Portfolio will monitor the performance of these
investments and will not acquire any such securities unless rated in the highest
rating category by at least two nationally-recognized statistical rating
organizations ("NRSROs").
The Portfolio may invest in obligations issued by state and local
governmental entities. Municipal securities are issued by various public
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately operated facilities
are considered to be municipal securities and may be purchased by the Portfolio.
Dividends paid by the Portfolio that are derived from interest on such municipal
securities would be taxable to the Portfolio's investors for federal income tax
purposes.
The SEC has adopted Rule 144A under the Securities Act of 1933, as
amended (the "1933 Act"), that allows for a broader institutional trading market
for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. The Adviser anticipates that the market for certain restricted
securities such as institutional commercial paper will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc.
- 5 -
<PAGE>
The Adviser will monitor the liquidity of restricted and other illiquid
securities under the supervision of the Board of Trustees. In reaching liquidity
decisions with respect to Rule 144A securities, the Adviser will consider, inter
alia, the following factors: (1) the unregistered nature of a Rule 144A
security, (2) the frequency of trades and quotes for a Rule 144A security, (3)
the number of dealers wishing to purchase or sell the Rule 144A security and the
number of other potential purchasers, (4) dealer undertakings to make a market
in the Rule 144A security, (5) the trading markets for the Rule 144A security,
and (6) the nature of the Rule 144A security and the nature of marketplace
trades (e.g., the time needed to dispose of the Rule 144A security, the method
of soliciting offers, and the mechanics of the transfer).
The Appendix to this Statement of Additional Information contains a
description of the relevant rating symbols used by NRSROs for commercial
obligations that may be purchased by the Portfolio.
The Portfolio may invest in mortgage-backed securities issued by U.S.
Government agencies or U.S. Government-sponsored enterprises consisting of
mortgage pass-through securities or collateralized mortgage obligations
("CMO's"). Mortgage pass-through securities in which the Portfolio may invest
represent a partial ownership interest in a pool of residential mortgage loans
and are issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal
Home Loan Mortgage Corporation ("FHLMC"). CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively referred to as "Mortgage Assets"). CMOs in which the Portfolio may
invest are issued by GNMA, FNMA and FHLMC. In a CMO, a series of bonds or
certificates are usually issued in multiple classes. Each class of CMOs, often
referred to as a "tranche," is issued at a specific fixed or floating coupon
rate and has a state maturity or final distribution date. Principal prepayments
on the Mortgage Assets may cause the CMOs to be retired substantially earlier
than their stated maturities or final distribution dates, resulting in a loss of
all or part of the premium if any has been paid. Interest is paid or accrues on
all classes of the CMOs on a monthly, quarterly, or semiannual basis. The
Portfolio expects that mortgage-backed securities will only be purchased in
connection with repurchase transactions.
Investment Restrictions
The Portfolio's Prospectus summarizes certain investment limitations
that may not be changed without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares (as defined below under
"Miscellaneous"). Investment limitations numbered 1 through 7 may not be changed
without such a vote of shareholders; investment limitations 8 through 12 may be
changed by a vote of the Trust's Board of Trustees at any time.
- 6 -
<PAGE>
The Portfolio may not:
1. Purchase securities of any one issuer if as a result more than 5% of
the value the Portfolio's assets would be invested in the securities of such
issuer, except that up to 25% of the value of the Portfolio's total assets may
be invested without regard to such 5% limitation and provided that there is no
limitation with respect to investments in U.S. Government securities.
2. Borrow money, except that the Portfolio may (i) borrow money for
temporary or emergency purposes (not for leveraging or investment) from banks
or, subject to specific authorization by the SEC, from funds advised by the
Adviser to an affiliate of the Adviser, and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not exceed one-third of
the value of the Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings. The Portfolio may not mortgage, pledge, or
hypothecate its assets except in connection with such borrowings and reverse
repurchase agreements and then only in amounts not exceeding one-third of the
value of the Portfolio's total assets. Additional investments will not be made
when borrowings exceed 5% of the Portfolio assets.
3. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
investments in U.S. Government securities or in bank instruments issued by
domestic banks.
4. Make loans, except that the Portfolio may (i) purchase or hold debt
obligations in accordance with its investment objective and policies, (ii) enter
into repurchase agreements for securities, (iii) subject to specific
authorization by the SEC, lend money to other funds advised by the Adviser or an
affiliate of the Adviser.
5. Act as an underwriter of securities, except insofar as the Portfolio
may be deemed an underwriter under applicable securities laws in selling
portfolio securities.
6. Purchase or sell real estate or real estate limited partnerships,
provided that the Portfolio may purchase securities of issuers which invest in
real estate or interests therein.
7. Purchase or sell commodities contracts, or invest in oil, gas or
mineral exploration or development programs or in mineral leases.
8. Knowingly invest more than 10% of the value of the Portfolio's
assets in securities that may be illiquid because of legal or contractual
- 7 -
<PAGE>
restrictions on resale or securities for which there are no readily available
market quotations.
9. Purchase securities on margin, make short sales of securities, or
maintain a short position.
10. Write or sell puts, calls, straddles, spreads or combinations
thereof.
11. Purchase securities of other investment companies except as
permitted under the 1940 Act or in connection with a merger, consolidation,
acquisition, or reorganization.
12. Invest in warrants.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
In General
Information on how to purchase and redeem the Portfolio's shares is
included in the Prospectus. The issuance of shares is recorded on the
Portfolio's books, and share certificates are not issued.
The regulations of the Comptroller of the Currency (the "Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved by
the Comptroller to exercise fiduciary powers must be invested in accordance with
the instrument establishing the fiduciary relationship and local law. The Fund
believes that the purchase of Prime Money Market Portfolio shares by such
national banks acting on behalf of their fiduciary accounts is not contrary to
applicable regulations if consistent with the particular account and proper
under the law governing the administration of the account.
Under the 1940 Act, the Portfolio may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
New York Stock Exchange ("NYSE") is closed, other than customary weekend and
holiday closings, or during which trading on the NYSE is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Portfolio may
also suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.) In addition, the Portfolio may
redeem shares involuntarily in certain other instances if the Board of Trustees
determines that failure to redeem may have material, adverse consequences to the
Portfolio's investors in general. The Portfolio is obligated to redeem shares
solely in cash up to $250,000 or 1% of such Fund's net asset
- 8 -
<PAGE>
value, whichever is less, for any one investor within a 90-day period. Any
redemption beyond this amount will also be in cash unless the Board of Trustees
determines that conditions exist which make payment of redemption proceeds
wholly in cash unwise or undesirable. In such a case, the Portfolio may make
payment wholly or partly in readily marketable securities or other property,
valued in the same way the Portfolio determines net asset value. See "Net Asset
Value" below for an example of when such redemption or form of payment might be
appropriate. Redemption in kind is not as liquid as a cash redemption. Investors
who receive a redemption in kind may incur transaction costs, if they sell such
securities or property, and may receive less than the redemption value of such
securities or property upon sale, particularly where such securities are sold
prior to maturity.
Any institution purchasing shares on behalf of separate accounts will
be required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the Fund's portfolios or classes of
shares must maintain a separate Master Account for each portfolio's class of
shares. Sub-accounts may be established by name or number either when the Master
Account is opened or later.
DETERMINATION OF NET ASSET VALUE
The Portfolio's net asset value per share is calculated separately for
each class by dividing the total value of the assets belonging to the Portfolio
attributable to a class, less the value of any class-specific liabilities
charged to the Portfolio by the total number of the Portfolio's shares of that
class outstanding. "Assets belonging to" the Portfolio consist of the
consideration received upon the issuance of Portfolio shares together with all
income, earnings, profits and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds and a portion of any general
assets of the Fund not belonging to a particular Portfolio. Assets belonging to
the Portfolio are charged with the direct liabilities of the Portfolio and with
a share of the general liabilities of the Fund allocated on a daily basis in
proportion to the relative net assets of the Portfolio and the Fund's other
portfolios. Determinations made in good faith and in accordance with generally
accepted accounting principles by the Board of Trustees as to the allocation of
any assets or liabilities with respect to the Portfolio are conclusive.
As stated in the Prospectus, in computing the net asset value of its
shares for purposes of sales and redemptions, the Portfolio uses the amortized
cost method of valuation. Under this method, the Portfolio values each of its
portfolio securities at cost on the date of purchase and thereafter assumes a
constant proportionate amortization of any discount or premium until maturity of
the security. As a result, the value of the portfolio security for purposes of
- 9 -
<PAGE>
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method seems to provide certainty in
portfolio valuation, it may result in valuations of the Portfolio's securities
which are higher or lower than the market value of such securities.
In connection with its use of amortized cost valuation, the Portfolio
limits the dollar-weighted average maturity of its portfolio to not more than 90
days and does not purchase any instrument with a remaining maturity of more than
thirteen months (397 days) (with certain exceptions). The Fund's Board of
Trustees has also established procedures pursuant to rules promulgated by the
SEC that are intended to stabilize the Portfolio's net asset value per share for
purposes of sales and redemptions at $1.00. Such procedures include the
determination, at such intervals as the Board deems appropriate, of the extent,
if any, to which the Portfolio's net asset value per share calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds 1/2 of 1%, the Board will consider promptly what action, if
any, should be initiated. If the Board believes that the amount of any deviation
from a Fund's $1.00 amortized cost price per share may result in material
dilution or other unfair results to investors, it will take such steps as it
considers appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten the Portfolio's average portfolio maturity, redeeming shares in kind,
reducing or withholding dividends, or utilizing a net asset value per share
determined by using available market quotations.
- 10 -
<PAGE>
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years, are
shown below. Each Trustee who is an "interested person" of the Fund, as defined
in the 1940 Act, is indicated by an asterisk.
Name and Address Position Principal Occupation
(and age) with Fund During Past Five Years
- ---------------- --------- ----------------------
Peter M. Bren (62) Trustee
2 East 70th Street President of The Bren Co.;
New York, New York 10021 President of Cole, Bren
Realty Advisors and Senior
Partner for Lincoln
Properties prior thereto.
Alan J. Dixon* (68) Trustee Partner of Bryan Cave, a
7535 Claymont Court law firm in St. Louis since
Apt. #2 January 1993; United
Belleville, IL 62223 States Senator of Illinois
from 1981 to 1993.
John R. McKernan, Jr. (48) Trustee Chairman and Chief Executive
114 Nottingham Road Officer of McKernan
Auburn, ME 04210 Enterprises since January
1995; Governor of Maine prior
thereto.
M.B. Oglesby, Jr. (53) Trustee Vice Chairman of Cassidy
5300 Albemarle Street & Associates since
Bethseda, MD 20816 February 1996; Senior
Trustee Vice President of RJR
Nabisco, Inc. from April
1989 to February 1996;
Former Deputy Chief of
Staff-White House from
1988 to January 1989.
Robert S. Reitzes* (52) Trustee President and Chairman of the
245 Park Avenue Board Director of Mutual
New York, NY 10167 Funds Bear Stearns Asset
Management and Senior
Managing Director of Bear
Stearns since March 1994;
Co-Director of Research and
Senior
-11-
<PAGE>
Name and Address Position Principal Occupation
(and age) with Fund During Past Five Years
- ---------------- --------- ----------------------
Chemical Analyst of C.J.
Lawrence/Deutsche Bank
Securities Corp. from January
1991 to March 1994.
Peter B. Fox (44) Executive Vice Senior Managing Director,
Three First National Plaza President Bear Stearns, Public
Chicago, IL 60602 Finance
William J. Montgoris (49) Executive Vice Chief Financial Officer
245 Park Avenue President Chief Operating Officer,
New York, NY 10167 Bear Stearns.
Stephen A. Bornstein (52) Vice President Managing Director, Legal
245 Park Avenue Department, Bear Stearns
New York, NY 10167
Frank J. Maresca (38) Vice President Managing Director of Bear
245 Park Avenue and Treasurer Stearns since September 1994;
New York, NY 10167 Associate Director of Bear
Stearns from September 1993
to September 1994; Executive
Vice President of BSFM since
March 1992; Vice President of
Bear Stearns from March 1992
to September 1993; First Vice
President of Mitchell
Hutchins Asset Management
Inc. ("Mitchell Hutchins")
from June 1988 to March 1992;
and Director of Funds
Administration Division of
Mitchell Hutchins from
November 1991 to March 1992.
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<PAGE>
Name and Address Position Principal Occupation
(and age) with Fund During Past Five Years
- ---------------- --------- ----------------------
Doni Fordyce (38) Vice President Senior Managing Director,
245 Park Avenue Bear Stearns Asset
New York, NY 10167 Management.
Ellen T. Arthur (43) Secretary Associate Director of Bear
245 Park Avenue Stearns since January 1996;
New York, NY 10167 Senior Counsel and Corporate
Vice President of PaineWebber
Incorporated from April 1989
to September 1995.
Vincent L. Pereira (31) Assistant Associate Director of Bear
245 Park Avenue Treasurer since September 1995 and Vice
New York, NY 10167 President of BSFM since May
1993; Vice President of Bear
Stearns from May 1993 to
September 1995; Assistant
Vice President of Mitchell
Hutchins from October 1992 to
May 1993; Senior Relationship
Manager of Mitchell Hutchins
from June 1988 to October
1992.
Eileen M. Coyle (31) Assistant Vice President of Bear
245 Park Avenue Secretary Stearns since September 1995;
New York, NY 10167 Accounting Supervisor and
Senior Accountant for Bear
Stearns since 1990.
The Fund pays its non-affiliated Board members an annual retainer of
$5,000 and a per meeting fee of $500 and reimburses them for their expenses. The
Fund does not compensate its officers. The aggregate amount of compensation paid
to each Board member by the Fund and by all other funds in the Bear Stearns
Family of Funds for which such person is a Board member (the number of which is
set forth in parenthesis next to each Board member's total compensation) for the
fiscal year ended March 31, 1996 is as follows:
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<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Board Aggregate Pension or Estimated Annual Total
Member Compensation Retirement Benefits Benefits Upon Compensation from
from Fund* Accrued as Part of Retirement Fund and Fund
Fund's Expenses Complex Paid to
Board Members
<S> <C> <C> <C> <C>
Peter M. Bren $7,000 None None $12,000(2)
Alan J. Dixon $7,000 None None $7,000(1)
John R. McKernan, Jr. $7,000 None None $12,000(2)
M.B. Oglesby, Jr. $7,000 None None $12,000(2)
Robert S. Reitzes None None None None(2)
</TABLE>
- ---------------------
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $10,100 for Board members of the Fund, as a
group.
Board members and officers of the Fund, as a group, owned less than 1%
of the Portfolio's shares outstanding on _________, 1997.
For so long as the Plan described in the section captioned "Management
Arrangements--Distribution and Shareholder Servicing Plan" remains in effect,
the Fund's Trustees who are not "interested persons" of the Fund, as defined in
the 1940 Act, will be selected and nominated by the Trustees who are not
"interested persons" of the Fund.
No meetings of shareholders of the Fund will be held for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Under the 1940 Act, shareholders of record of not less than two-thirds
of the outstanding shares of the Fund may remove a Trustee through a declaration
in writing or by vote cast in person or by proxy at a meeting called for that
purpose. Under the Fund's Agreement and Declaration of Trust, the Trustees are
required to call a meeting of shareholders for the purpose of voting upon the
question of removal of any such Trustee when requested in writing to do so by
the shareholders of record of not less than 10% of the Fund's outstanding
shares.
MANAGEMENT ARRANGEMENTS
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "Management of the
Fund."
Investment Advisory Agreement. BSFM provides investment advisory
services to the Portfolio pursuant to the Investment Advisory Agreement (the
"Agreement") dated _______________, 1997, with the Fund. The Agreement will
remain in effect for two years from the date of execution and shall continue
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<PAGE>
from year to year thereafter if it is approved by (i) the Fund's Board of
Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Portfolio, provided that in either event
the continuance also is approved by a majority of the Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Fund or BSFM, by
vote cast in person at a meeting called for the purpose of voting on such
approval. The Agreement is terminable, as to the Portfolio, without penalty, on
60 days' notice, by the Fund's Board of Trustees or by vote of the holders of a
majority of the Portfolio's shares, or, on not less than 90 days' notice, by
BSFM. As to the Portfolio, the Agreement will terminate automatically in the
event of its assignment (as defined in the 1940 Act).
BSFM is a wholly owned subsidiary of The Bear Stearns Companies Inc.
The following persons are directors and/or senior officers of BSFM: Mark A.
Kurland, Chief Executive Officer, President, Chairman of the Board and Director;
Robert S. Reitzes, Executive Vice President and Director; Milton B. Rubin, Vice
Chairman of the Board; Frank J. Maresca, Executive Vice President; Vincent L.
Pereira, Treasurer and Secretary; and Michael Minikes, Warren J. Spector and
Robert M. Steinberg, Directors.
As compensation for BSFM's advisory services, the Fund has agreed to
pay BSFM a monthly fee at the annual rate of 0.20% of value of the Portfolio's
average daily net assets.
Administration Agreement. BSFM provides certain administrative services
to the Fund pursuant to the Administration Agreement dated ______________, with
the Fund. The Administration Agreement will continue until ___________ and
thereafter will be subject to annual approval by (i) the Fund's Board or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Portfolio, provided that in either event its continuance also
is approved by a majority of the Fund's Board members who are not "interested
persons" (as defined in the 1940 Act) of the Fund or BSFM, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Administration Agreement is terminable without penalty, on 60 days' notice, by
the Fund's Board or by vote of the holders of a majority of the Portfolio's
shares or upon not less than 90 days' notice by BSFM. The Administration
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
As compensation for BSFM's administrative services, the Fund has agreed
to pay BSFM a monthly fee at the annual rate of 0.05 of 1% of the Portfolio's
average daily net assets.
Administrative Services Agreement. PFPC provides certain administrative
services to the Fund pursuant to the Administrative Services
- 15 -
<PAGE>
Agreement dated ________________, 1997, with the Fund. The Administrative
Services Agreement is terminable upon 60 days' notice by either the Fund or
PFPC. PFPC may assign its rights or delegate its duties under the Administrative
Services Agreement to any wholly-owned direct or indirect subsidiary of PNC
Bank, National Association or PNC Bank Corp., provided that (i) PFPC gives the
Fund 30 days' notice; (ii) the delegate (or assignee) agrees with PFPC and the
Fund to comply with all relevant provisions of the 1940 Act; and (iii) PFPC and
such delegate (or assignee) promptly provide information requested by the Fund
in connection with such delegation.
As compensation for PFPC's administrative services, the Fund has agreed
to pay PFPC a monthly fee at the rate set forth in the Portfolio's Prospectus.
Expense Limitation. BSFM has voluntarily undertaken to waive its
investment advisory fee and assume certain expenses of the Portfolio,
extraordinary items, interest and taxes to the extent Total Portfolio Operating
Expenses exceed 0.20% of Class Y's average daily net assets. Such waivers and
expense reimbursement may be discounted at any time upon notice to the
shareholder.
Expenses. All expenses incurred in the operation of the Fund are borne
by the Fund, except to the extent specifically assumed by BSFM. The expenses
borne by the Fund include: organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
brokerage fees and commissions, if any, fees of Board members who are not
officers, directors, employees or holders of 5% or more of the outstanding
voting securities of BSFM, BSFM or their affiliates, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory, administrative and
fund accounting fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining the Fund's existence, costs of
independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, costs of preparing and printing certain
prospectuses and statements of additional information, and any extraordinary
expenses. Expenses attributable to a particular portfolio are charged against
the assets of that portfolio; other expenses of the Fund are allocated among the
portfolios on the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each portfolio.
- 16 -
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the sections in the Portfolio's Prospectus entitled "How to Buy Shares" and
"How to Redeem Shares."
The Distributor. Bear Stearns serves as the Portfolio's distributor on
a best efforts basis pursuant to an agreement dated _________________, 1997
which is renewable annually. In some states, banks or other institutions
effecting transactions in Portfolio shares may be required to register as
dealers pursuant to state law.
Purchase Order Delays. The effective date of a purchase order may be
delayed if PFPC, the Portfolio's transfer agent, is unable to process the
purchase order because of an interruption of services at its processing
facilities. In such event, the purchase order would become effective at the
purchase price next determined after such services are restored.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "Dividends,
Distributions and Taxes."
Management of the Fund intends to have the Portfolio qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and thereafter, to continue to so qualify if such
qualification is in the best interests of shareholders. Qualification as a
regulated investment company relieves the Portfolio from any liability for
Federal income taxes on net investment income and net realized securities gains
to the extent that such income and gains are distributed to shareholders in
accordance with applicable provisions of the Code. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the cost
of the investment. Such a dividend or distribution would be a return of
investment in an economic sense, although taxable as stated above. In addition,
the Code provides that if a shareholder holds shares of the regulated investment
company for six months or less and has received a capital gain distribution with
respect to such shares, any loss incurred on the sale of such shares will be
treated as long-term capital loss to the extent of the capital gain distribution
received.
- 17 -
<PAGE>
Depending on the composition of a regulated investment company's
income, dividends paid by the regulated investment company from net investment
income may qualify for the dividends received deduction allowable to certain
U.S. corporate shareholders ("dividends received deduction"). In general,
dividend income of the regulated investment company distributed to qualifying
corporate shareholders will be eligible for the dividends received deduction
only to the extent that (i) the regulated investment company's income consists
of dividends paid by U.S. corporations and (ii) the regulated investment company
would have been entitled to the dividends received deduction with respect to
such dividend income if the regulated investment company were not a regulated
investment company under the Code. The dividends received deduction for
qualifying corporate shareholders may be further reduced if the shares of the
regulated investment company held by such shareholders with respect to which
dividends are received are treated as debt-financed or deemed to have been held
for less than 46 days. In addition, the Code provides other limitations with
respect to the ability of a qualifying corporate shareholder to claim the
dividends received deduction in connection with holding shares of a regulated
investment company.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain and loss. In addition, all or a portion of any gain
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276.
Investment by a regulated investment company in securities issued or
acquired at a discount, or providing for deferred interest or for payment of
interest in the form of additional obligations could under special tax rules
affect the amount, timing and character of distributions to shareholders by
causing a regulated investment company to recognize income prior to the receipt
of cash payments. For example, a regulated investment company could be required
to accrue a portion of the discount (or deemed discount) at which the securities
were issued and to distribute such income in order to maintain its qualification
as a regulated investment company. In such case, the regulated investment
company may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.
DIVIDENDS
The Portfolio's net investment income for dividend purposes consists of
(i) interest accrued and original issue discount earned on the Portfolio's
assets, (ii) plus the amortization of market discount and minus the amortization
of market premium on such assets, (iii) less accrued expenses directly
attributable to the Portfolio and the general expenses (e.g. legal, accounting
and trustees' fees) of the Fund prorated to the Portfolio on the basis of its
relative net assets. Any
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<PAGE>
realized short-term capital gains may also be distributed as dividends to
Portfolio investors.
The Fund uses its best efforts to maintain the net asset value per
share of the Portfolio at $1.00. As a result of a significant expense or
realized or unrealized loss incurred by the Portfolio , it is possible that the
Portfolio's net asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields" and "effective yields" are calculated separately for each
class of shares of the Portfolio and in accordance with the formulas prescribed
by the SEC. The seven-day yield for each class of shares in the Portfolio is
calculated by determining the net change in the value of a hypothetical
preexisting account in the Portfolio having a balance of one share of the class
involved at the beginning of the period, dividing the net change by the value of
the account at the beginning of the period to obtain the base period return, and
multiplying the base period return by 365/7. The net change in the value of an
account in the Portfolio includes the value of additional shares purchased with
dividends from the original share and dividends declared on the original share
and any such additional shares, net of all fees charged to all shareholder
accounts in proportion to the length of the base period and the Portfolio's
average account size, but not include gains and losses or realized appreciation
and depreciation. In addition, the effective annualized yield may be computed on
a compounded basis (calculated as described above) with respect to each class of
a Portfolio's shares by adding 1 to the base period return, raising the sum to a
power equal to 365/7, and subtracting 1 from the result. Similarly, based on
calculations described above, 30-day (or one-month) yields and effective yields
may also be calculated.
From time to time, in advertisements or in reports to investors, the
Portfolio's yield may be quoted and compared to that of other money market funds
or accounts with similar investment objectives and to stock or other relevant
indices. For example, the yield of the Portfolio may be compared to the IBC
Money Fund Average, which is an average compiled by IBC MONEY FUND REPORT(R) of
Holliston, MA 01746, a widely-recognized independent publication that monitors
the performance of money market funds, or to the average yields reported by the
Bank Rate Monitor from money market deposit accounts offered by the 50 leading
banks and thrift institutions in the top five standard metropolitan statistical
areas.
The Portfolio's yields will fluctuate, and any quotation of yield
should not be considered as representative of the future performance of the
Portfolio. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in Portfolio shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield
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<PAGE>
for a stated period of time. Investors should remember that performance and
yield are generally functions of the kind and quality of the investments held in
a portfolio, portfolio maturity, operating expenses net of waivers and expense
reimbursements, and market conditions. Any fees charged by banks with respect to
Customer accounts investing in shares of the Portfolio will not be included in
yield calculations; such fees, if charged, would reduce the actual yield from
that quoted.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Portfolio's Prospectus entitled "General Information."
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Portfolio shares have no preemptive, subscription or conversion rights and are
freely transferable.
The Fund will send annual and semi-annual financial statements to all
its shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
Custodial Trust Company ("CTC"), 101 Carnegie Center, Princeton, New
Jersey 08540, an affiliate of Bear Stearns, is the Portfolio's custodian. Under
the custody agreement with the Portfolio, CTC holds the Portfolio's securities
and keeps all necessary accounts and records. For its services, CTC receives an
annual fee of the greater of .015% of the value of the domestic assets held in
custody or $5,000, such fee to be payable monthly based upon the total market
value of such assets, as determined on the last business day of the month. In
addition, CTC receives certain securities transactions charges which are payable
monthly. PFPC, Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809, is the Portfolio's transfer agent, dividend disbursing agent and
registrar. Neither CTC nor PFPC has any part in determining the investment
policies of the Portfolio or which securities are to be purchased or sold by the
Portfolio.
Kramer, Levin, Naftalis & Frankel, 919 3rd Avenue, New York, New York
10022, as counsel for the Fund, has rendered its opinion as to certain legal
matters regarding the due authorization and valid issuance of the shares of
beneficial interest being sold pursuant to the Portfolio's Prospectus.
- 20 -
<PAGE>
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281-1434, independent auditors, have been selected as auditors of the Fund.
- 21 -
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Standard & Poor's, a division of The McGraw-Hill Companies, commercial
paper rating is a current assessment of the likelihood of timely payment of debt
considered short-term in the relevant market. The following summarizes the two
highest rating categories used by Standard & Poor's for commercial paper.
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A- 1."
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. The following summarizes the two highest rating categories
used by Moody's for commercial paper.
"Prime-1" - Issuer or related supporting institutions which are
considered to have a superior ability for repayment of senior short-term debt
obligations. Principal repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well-established
industries, high rates of return on funds employed, conservative capitalization
structures with moderate reliance on debt and ample asset protection, broad
margins in earning coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions which are
considered to have a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
The two highest rating categories of Duff & Phelps for investment grade
commercial paper are "D-1" and "D-2." Duff & Phelps employs three
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<PAGE>
designations, "D-1+, " "D-1" and "D-1-," within the highest rating category. The
following summarizes the two highest rating categories used by Duff & Phelps for
commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The two
highest rating categories of Fitch for short-term obligations are "F-1" and
"F-2." Fitch employs two designations, "F-1+" and "F-1," within the highest
rating category. The following summarizes some of the rating categories used by
Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues carrying this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
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<PAGE>
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less. The following summarizes the two highest ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch;s highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The highest rating category of IBCA for
short-term debt is "A." IBCA employs two designations, "A1+" and "A1," within
the highest rating category. The following summarizes the two highest categories
used by IBCA for short-term ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of "A1+" is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
Long-Term Debt Ratings
The following summarizes the ratings used by Standards & Poor's for
long-term debt:
"AAA" - This designation represents the highest rating assigned by
Standards & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt considered to have a very strong capacity to pay interest
and repay principal and differs from the highest rated issue only in a small
degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
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<PAGE>
"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC," and "C" - Debt that possesses one of these
ratings is regarding as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. "BB" indicates the
least degree of speculation and "CCC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"CI" - This rating is reserved for income bonds on which no interest is
being paid.
"D" - Debt is in payment default. This rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) or MINUS (-) - The rating of "AA" may be modified by the
addition of a plus or minus sign to show relative standing within this rating
category.
The following summarizes the ratings used by Moody's for long-term
debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
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<PAGE>
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements, "B" indicates a general lack of
characteristics of desirable investment, "Caa" represents a poor standing, "Ca"
represents obligations which are speculative in a high degree, and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
a default.
Con. (---) - Municipal Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in generic
classification of "Aa" in its corporate bond rating system. The modifier 1
indicates that the company ranks in the higher end of its generic rating
category, the modifier 2 indicates a mid-range ranking, and the modifier 3
indicates that the company ranks at the lower end of its generic rating
category.
Those municipal bonds in the "Aa" to "B" groups which Moody's believes
possess the strongest investment attributes are designated by the symbols "Aa1,"
"A1," "Baa1," "Ba1," and "B1."
The following summarizes the ratings used by Duff & Phelps for
long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
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<PAGE>
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" - Debt possesses below average protection factors, but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest, or preferred dividends. Debt rated "DD"
is a defaulted debt obligations, and the rating "DP" represents preferred stock
with dividend averages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB," and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major rating categories.
The following summarizes the ratings used by Fitch for bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong as bonds rated "AAA." Because bonds rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
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<PAGE>
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment that bonds should be valued on the basis of the ultimate recovery
value in liquidation or reorganization of the obligor.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long-term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
two highest rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
"A" - The designation indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
PLUS (+) or MINUS (-) - The ratings may include a plus or minus sign
designation which indicates where within the respective category the issue is
placed.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the two highest
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
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<PAGE>
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business economic or financial conditions may lead
to increased investment risk.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within these rating categories.
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<PAGE>
THE BEAR STEARNS FUNDS
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Included in the Prospectus:
None
Included in the Statement of Additional
Information:
None
(b) Exhibits:
(1)(a) Agreement and Declaration of Trust is
incorporated by reference to Exhibit
(1)(a) of Post-Effective Amendment No. 7
to the Registration Statement on Form N-
1A, filed November 10, 1995.
(1)(b) Amendment to Agreement and Declaration of
Trust is incorporated by reference to
Exhibit (1)(b) of Post-Effective
Amendment No. 7 to the Registration
Statement on Form N-1A, filed November
10, 1995.
(2) By-Laws are incorporated by reference to
Exhibit (2) of Post-Effective Amendment
No. 7 to the Registration Statement on
Form N-1A, filed November 10, 1995.
(3) None.
(4) None.
(5)(a) Investment Advisory Agreement between the
Registrant and Bear Stearns Funds
Management Inc. ("BSFM") is incorporated
by reference to Exhibit (5)(a) of Post-
Effective Amendment No. 7 to the
Registration Statement on Form N-1A,
filed November 10, 1995.
(5)(b) Administration Agreement between the
Registrant and BSFM is incorporated by
reference to Exhibit (5)(b) of
Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A,
filed November 10, 1995.
C-1
<PAGE>
(5)(c) Administrative Services Agreement, as
amended, between the Registrant and PFPC
Inc. is incorporated by reference to
Exhibit (5)(c) of Post-Effective
Amendment No. 7 to the Registration
Statement on Form N-1A, filed November
10, 1995.
(5)(d) Sub-Investment Advisory Agreement
between BSFM and Symphony Asset
Management is incorporated by
reference to Exhibit (5)(d) of
Post-Effective Amendment No. 7 to the
Registration Statement on Form N- 1A,
filed November 10, 1995.
(6)(a) Distribution Agreement between the
Registrant and Bear, Stearns & Co. Inc.
is incorporated by reference to Exhibit
(6)(a) of Post-Effective Amendment No. 7
to the Registration Statement on Form N-
1A, filed November 10, 1995.
(6)(b) Form of Dealer Agreement is incorporated
by reference to Exhibit (6)(b) of Post-
Effective Amendment No. 9 to the
Registration Statement on Form N-1A,
filed June 20, 1996.
(7) None.
(8) Custody Agreements between the Registrant
and Custodial Trust Company are
incorporated by reference to Exhibit (8)
of Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A,
filed November 10, 1995.
(9) None.
(10) Opinion (including consent) of Stroock
& Stroock & Lavan is incorporated by
reference to Exhibit (10) of
Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A,
filed November 10, 1995.
(11)(a) Consent of Kramer, Levin, Naftalis &
Frankel is filed herewith.
(11)(b) Consent of Independent Auditors is
filed herewith.
(12) None.
(13) None.
C-2
<PAGE>
(14) None.
(15) Distribution and Shareholder Servicing
Plan is incorporated by reference to
Exhibit (15) of Post-Effective
Amendment No. 7 to the Registration
Statement on Form N-1A, filed November
10, 1995.
(16) Schedules of Computation of Performance
Data are incorporated by reference to
Exhibit (16) of Post Effective Amendment
No. 5 to the Registration Statement on
Form N-1A, filed September 1, 1995 and to
Exhibit (16) of Post-Effective Amendment
No. 7 to the Registration Statement on
Form N-1A, filed on November 10, 1995.
(17) None.
(18) Rule 18f-3 Plan, as revised is
incorporated by reference to Exhibit (18)
of Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A,
filed June 20, 1996.
Other Exhibit:
(a) Certificate of Corporate Secretary is
incorporated by reference to Other
Exhibit (a) of Post-Effective Amendment
No. 7 to the Registration Statement on
Form N-1A, filed November 10, 1995.
(b) Powers of attorney are incorporated by
reference to Other Exhibit (b) of Post-
Effective Amendment No. 8 to the
Registration on Form N-1A, filed April
12, 1996.
Item 25. Persons Controlled by or Under Common Control with
Registrant
Not Applicable
C-3
<PAGE>
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders*
-------------- --------
Shares of beneficial
interest, $.001 par value
per share, of the
following portfolios:
S&P STARS Portfolio--Class A 4,224
S&P STARS Portfolio--Class C 2,516
S&P STARS Portfolio--Class Y 388
Large Cap Value Portfolio--Class A 183
Large Cap Value Portfolio--Class C 194
Large Cap Value Portfolio--Class Y 102
Small Cap Value Portfolio--Class A 786
Small Cap Value Portfolio--Class C 695
Small Cap Value Portfolio--Class Y 301
Total Return Bond Portfolio--Class A 112
Total Return Bond Portfolio--Class C 42
Total Return Bond Portfolio--Class Y 35
The Insiders Select Fund--Class A 1,275
The Insiders Select Fund--Class C 672
The Insiders Select Fund--Class Y 101
Focus List Fund--Class A N/A
Focus List Fund--Class Y N/A
Prime Money Market Portfolio--Class Y N/A
Item 27. Indemnification
---------------
Reference is made to Article VIII of the Registrant's Declaration of
Trust previously filed as Exhibit 1(a). The application of these provisions is
limited by Article 10 of the Registrant's By-Laws filed as Exhibit 2 and by the
following undertaking set forth in the rules promulgated by the Securities and
Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a trustee, officer or
- -----------------
* As of March 11, 1997.
C-4
<PAGE>
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.
Reference also is made to the Distribution Agreement previously filed
as Exhibit 6(a).
Item 28(a). Business and Other Connections of Investment Adviser
----------------------------------------------------
Registrant is fulfilling the requirement of this Item 28(a) to provide
a list of the officers and directors of Bear Stearns Funds Management Inc.
("BSFM"), the investment adviser of the Registrant, together with information as
to any other business, profession, vocation or employment of a substantial
nature engaged in by BSFM or those of its officers and directors during the past
two years, by incorporating by reference the information contained in the Form
ADV filed with the SEC pursuant to the Investment Advisers Act of 1940 by BSFM
(SEC File No. 801- 29862).
Item 28(b). Business and Other Connections of Sub-Investment Adviser
--------------------------------------------------------
Registrant is fulfilling the requirement of this Item 28(b) to provide
a list of the officers and directors of Symphony Asset Management ("Symphony"),
the sub-investment adviser of the Registrant's The Insiders Select Fund,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by Symphony or those of its
officers and directors during the past two years, by incorporating by reference
the information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by Symphony (SEC File No. 801-46388).
Item 29. Principal Underwriters
----------------------
(a) Bear, Stearns & Co. Inc. ("Bear Stearns") acts as principal
underwriter or depositor for the following investment companies:
o Bear Stearns Investment Trust -- Emerging Markets Debt Portfolio
o Managed Income Securities Plus Fund, Inc.
C-5
<PAGE>
(b) Set forth below is a list of each executive officer and director of
Bear Stearns. The principal business address of each such person is 245 Park
Avenue, New York, New York 10167, except as set forth below.
Positions and Positions and
Offices with Offices with
Name Bear Stearns Registrant
- ---- ------------ ----------
Directors
- ---------
Alan C. Greenberg Chairman of the Board
James E. Cayne
John L. Knight
Mark E. Lehman
Alan D. Schwartz
John H. Slade Director Emeritus
Warren J. Spector
Executive Officers
- ------------------
Alan C. Greenberg Chairman of Board
James E. Cayne Chief Executive
Officer/President
William J. Montgoris Chief Operating Executive Vice
Officer/Chief President
Operations
Officer
Samuel L. Molinaro, Jr. Senior Vice President - Finance
Chief Financial Officer
Alan D. Schwartz Executive Vice
President
Warren J. Spector Executive Vice
President
Kenneth L. Edlow Secretary
Michael Minikes Treasurer
Michael J. Abatemarco 1/ Controller/Assistant
Secretary
Mark E. Lehman Executive Vice President/
General Counsel/Chief
Legal Officer
Frederick B. Casey Assistant Treasurer
- ----------------
1/ Michael J. Abatemarco's principal business address is 1
MetroTech Center North, Brooklyn, New York 11201-3859.
C-6
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
1. Bear Stearns Funds Management Inc.
245 Park Avenue
New York, New York 10167
2. The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
3. Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540
4. PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, Delaware 19809
Item 31. Management Services
-------------------
Not Applicable
Item 32. Undertakings
------------
Registrant hereby undertakes
(1) to call a meeting of shareholders for the purpose
of voting upon the question of removal of a
trustee or trustees when requested in writing to
do so by the holders of at least 10% of the
Registrant's outstanding shares of beneficial
interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to
shareholder communications;
(2) to furnish each person to whom a prospectus is
delivered with a copy of its most current annual
report to shareholders, upon request and without
charge; and
(3) to file, on behalf of the Focus List Portfolio and
the Prime Money Market Portfolio, a post-effective
amendment, using financial statements which need
not be certified, within four to six months from
the effective date of this Registration Statement
or the commencement of the public offering under
the Securities Act of 1933.
C-7
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of New York on the 14th day
of March, 1997.
THE BEAR STEARNS FUNDS
(Registrant)
By: /s/ Robert S. Reitzes
---------------------
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ Robert S. Reitzes President (Principal March 14, 1997
- --------------------- Executive Officer)
Robert S. Reitzes
/s/ Frank J. Maresca Vice President and March 14, 1997
- -------------------- Treasurer (Principal
Frank J. Maresca Financial and
Accounting Officer)
* Trustee
- ------------------
Peter M. Bren
* Trustee
- ------------------
Alan J. Dixon
* Trustee
- --------------------
John R. McKernan, Jr.
* Trustee
- ------------------
M.B. Oglesby, Jr.
/s/ Robert S. Reitzes Trustee March 14, 1997
- ---------------------
Robert S. Reitzes
*By: /s/ Frank J. Maresca
--------------------
Frank J. Maresca,
Attorney-in-Fact
C-8
<PAGE>
THE BEAR STEARNS FUNDS
Post-Effective Amendment No. 10 to
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
---------------
EXHIBITS
---------------
<PAGE>
INDEX TO EXHIBITS
-----------------
(11)(a) Consent of Kramer, Levin, Naftalis & Frankel
(11)(b) Consent of Independent Auditors
Kramer, Levin, Naftalis & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
Arthur H. Aufses III Monica C. Lord Sherwin Kamin
Thomas D. Balliett Richard Marlin Arthur B. Kramer
Jay G. Baris Thomas E. Molner Maurice N. Nessen
Philip Bentley Thomas H. Moreland Founding Partners
Saul E. Burian Ellen R. Nadler Counsel
Barry Michael Cass Gary P. Naftalis _____
Thomas E. Constance Michael J. Nassau
Michael J. Dell Michael S. Nelson Martin Balsam
Kenneth H. Eckstein Jay A. Neveloff Joshua M. Berman
Charlotte M. Fischman Michael S. Oberman Jules Buchwald
David S. Frankel Paul S. Pearlman Rudolph de Winter
Marvin E. Frankel Susan J. Penry-Williams Meyer Eisenberg
Alan R. Friedman Bruce Rabb Arthur D. Emil
Carl Frischling Allan E. Reznick Maxwell M. Rabb
Mark J. Headley Scott S. Rosenblum James Schreiber
Robert M. Heller Michele D. Ross Counsel
Philip S. Kaufman Max J. Schwartz _____
Peter S. Kolevzon Mark B. Segall
Kenneth P. Kopelman Judith Singer M. Frances Buchinsky
Michael Paul Korotkin Howard A. Sobel Abbe L. Dienstag
Shari K. Krouner Jeffrey S. Trachtman Ronald S. Greenberg
Kevin B. Leblang Jonathan M. Wagner Debora K. Grobman
David P. Levin Harold P. Weinberger Christian S. Herzeca
Ezra G. Levin E. Lisk Wyckoff, Jr. Jane lee
Larry M. Loeb Pinchas Mendelson
Lynn R. Saidenberg
Special Counsel
-----
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
March 17, 1997
The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Re: The Bear Stearns Funds
Registration No. 33-84842
Post-Effective Amendment
to Registration Statement on Form N-1A
--------------------------------------
Gentlemen:
We consent to the reference to our Firm as counsel in Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A.
Very truly yours,
/s/Kramer, Levin, Naftalis & Frankel
------------------------------------
INDEPENDENT ACCOUNTANT'S CONSENT
We consent to the use in this Post-Effective Amendment No. 10 to
Registration Statement No. 33-84842 of The Bear Stearns Funds on Form N-1A of
our name which is included under the caption "Custodian, Transfer and Dividend
Disbursing Agent, Counsel and Independent Auditors" in such Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
New York, New York
March 18, 1997
