As filed via EDGAR with the Securities and Exchange Commission on July 3, 1997
Registration Nos. 33-84842
ICA No. 811-8798
==============================================================================
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. 12 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12 [X]
(Check appropriate box or boxes)
THE BEAR STEARNS FUNDS
(Exact Name of Registrant as Specified in Charter)
245 Park Avenue
New York, New York 10167
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 272-2000
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)
-----
X on July 14, 1997 pursuant to paragraph (b)
-----
----- 60 days after filing pursuant to paragraph (a)(i)
----- on (date) pursuant to paragraph (a)(i)
----- 75 days after filing pursuant to paragraph (a)(ii)
----- on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
----- this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of shares of its beneficial
interest under the Securities Act of 1933 pursuant to Section 24(f) of the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal
year ended March 31, 1997 was filed on May 27, 1997.
<PAGE>
THE BEAR STEARNS FUNDS
LARGE CAP VALUE PORTFOLIO
SMALL CAP VALUE PORTFOLIO
TOTAL RETURN BOND PORTFOLIO
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
N-1A Item No. Location
- ------------- --------
Part A Prospectus Caption
- ------ ---------- -------
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3 . Condensed Financial Information Condensed Financial
Information
Item 4. General Description of Description of the
Registrant Portfolio; General
Information; Appendix A
Item 5. Management of the Fund Management of the
Portfolio
Item 5A. Management's Discussion of Performance
Fund's Performance Information
Item 6. Capital Stock and Other Not applicable
Securities
Item 7. Purchase of Securities Being Alternative Purchase
Offered Methods; How to Buy
Shares
Item 8 . Redemption or Repurchase How to Redeem Shares
Item 9. Pending Legal Proceedings Not Applicable
-ii-
<PAGE>
Statement of Additional
Part B Information Caption
-----------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Information about
Portfolio
Item 13. Investment Objectives and Investment Objective
Policies and Management Policies
Item 14. Management of the Fund Management of the
Portfolio
Item 15. Control Persons and Principal General Information
Holders of Securities
Item 16. Investment Advisory and Other Management Arrangements
Services
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Not Applicable
Securities
Item 19. Purchase, Redemption and Pricing Management of the
of Securities Portfolio; Purchase and
Redemption of Shares;
Determination of Net
Asset Value
Item 20. Tax Status Dividends,
Distributions and Taxes
Item 21. Underwriters Cover Page
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
-iii-
<PAGE>
T H E B E A R S T E A R N S F U N D S
2 4 5 P A R K A V E N U E N E W Y O R K, N Y 1 0 1 6 7 1 . 8 0 0
. 7 6 6 . 4 1 1 1
PROSPECTUS
The Bear Stearns Funds
LARGE CAP VALUE PORTFOLIO o SMALL CAP VALUE PORTFOLIO o TOTAL RETURN BOND
PORTFOLIO
CLASS A AND C SHARES
The Bear Stearns Funds (the "Fund") is an open-end management investment com-
pany, known as a mutual fund. The Fund permits you to invest in separate port-
folios. By this Prospectus, shares of three diversified portfolios (each, a
"Portfolio") are offered: the Large Cap Value Portfolio and the Small Cap
Value Portfolio (together, the "Equity Portfolios") and the Total Return Bond
Portfolio (the "Bond Portfolio").
o Each Equity Portfolio's investment objective is capital apprecia-
tion.
o The Bond Portfolio's investment objective is to maximize total re-
turn, consistent with preservation of capital. The Bond Portfolio
will invest primarily in investment grade, U.S. dollar denominated
fixed-income securities of domestic and foreign issuers. Under nor-
mal market conditions, the Bond Portfolio will invest in a portfolio
of securities with a dollar-weighted average maturity ranging from
four to thirteen years and a duration of not less than 65% of the
Salomon Brothers Broad Investment Grade ("BIG") Bond Index and not
more than 135% of the Salomon Brothers BIG Bond Index.
By this Prospectus, each Portfolio is offering two classes of shares. Class A
shares are subject to a sales charge imposed at the time of purchase and Class
C shares are subject to a 1% contingent deferred sales charge imposed on re-
demptions made within the first year of purchase. Other differences between
the classes include the services offered to and the expenses borne by each
class and certain voting rights, as described herein. These alternatives are
offered so an investor may choose the method of purchasing shares that is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. Each Portfolio issues an-
other class of shares which has different expenses which would affect perfor-
mance. Investors desiring to obtain information about this class of shares
should call 1-800-766-4111 or ask their sales representative or the Portfo-
lio's distributor.
BEAR STEARNS FUNDS MANAGEMENT INC. ("BSFM"), a wholly-owned subsidiary of The
Bear Stearns Companies Inc., serves as each Portfolio's investment adviser.
BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as
each Portfolio's distributor.
----------------------
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT EACH 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 July 14,
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 en-
dorsed by, any bank, and are not federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board, or any other agency.
The net asset value of funds of this type will fluctuate.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
JULY 14, 1997
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Fee Table.................................................................. 3
Financial Highlights....................................................... 5
Alternative Purchase Methods............................................... 8
Description of the Fund.................................................... 8
Risk Factors............................................................. 11
Management of the Fund..................................................... 14
How to Buy Shares.......................................................... 16
Shareholder Services....................................................... 20
How to Redeem Shares....................................................... 21
Dividends, Distributions and Taxes......................................... 23
Performance Information.................................................... 25
General Information........................................................ 26
Appendix................................................................... A-1
</TABLE>
2
<PAGE>
Fee Table
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
LARGE CAP SMALL CAP TOTAL RETURN
VALUE VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
CLASS A CLASS A CLASS A
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)................. 4.75% 4.75% 3.75%
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)
Advisory Fees (after fee waiver)**............ 0.00% 0.00% 0.00%
12b-1 Fees.................................... 0.50% 0.50% 0.35%
Other Expenses (after expense
reimbursement)**.............................. 1.00% 1.00% 0.45%
Total Portfolio Operating Expenses (after fee
waiver and expense reimbursement)**........... 1.50% 1.50% 0.80%
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...................................... $ 62 $ 62 $ 45
3 YEARS..................................... $ 93 $ 93 $ 62
5 YEARS..................................... $125 $ 125 $ 80
10 YEARS..................................... $218 $ 218 $133
</TABLE>
- ------
*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 of purchase. See "How to Buy Shares--Class A
Shares."
**BSFM has undertaken to waive its investment advisory fee and assume certain
expenses of each Portfolio other than brokerage commissions, extraordinary
items, interest and taxes to the extent Total Portfolio Operating Expenses
exceed 1.50% and 0.80% for each Equity Portfolio and the Bond Portfolio,
respectively. With respect to all Portfolios, without such fee waiver and
expense reimbursement, Advisory Fees stated above would have been % and %,
for each Equity Portfolio and Bond Portfolio, respectively. Other Expenses
would have been 1.83%, 1.25%, and 1.73% for Large Cap Value Portfolio, Small
Cap Value Portfolio and Bond Portfolio, respectively, and Total Portfolio
Operating Expenses would have been 3.08%, 2.50% and 2.53% for Large Cap Value
Portfolio, Small Cap Value Portfolio and Bond Portfolio, respectively.
3
<PAGE>
Fee Table (continued)
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
LARGE CAP SMALL CAP TOTAL RETURN
VALUE VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
CLASS C CLASS C CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)................ -- -- --
Maximum Deferred Sales Charge Imposed on
Redemptions (as a percentage of the amount
subject to charge)........................... 1.00% 1.00% 1.00%
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Advisory Fees (after fee waiver)*............ 0.00% 0.00% 0.00%
12b-1 Fees................................... 1.00% 1.00% 0.75%
Other Expenses (after expense
reimbursement)*.............................. 1.00% 1.00% 0.45%
Total Portfolio Operating Expenses (after fee
waiver and expense reimbursement)*........... 2.00% 2.00% 1.20%
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..................................... $ 30 $ 30 $ 22
3 YEARS.................................... $ 63 $ 63 $ 38
5 YEARS.................................... $108 $108 $ 66
10 YEARS.................................... $233 $233 $145
You would pay the following expenses on the
same investment, assuming no redemption:
1 YEAR..................................... $ 20 $ 20 $ 12
3 YEARS.................................... $ 63 $ 63 $ 38
5 YEARS.................................... $108 $108 $ 66
10 YEARS.................................... $233 $233 $145
</TABLE>
- ------
*BSFM has undertaken to waive its investment advisory fee and assume certain
expenses of each Portfolio other than brokerage commissions, extraordinary
items, interest and taxes to the extent Total Portfolio Operating Expenses
exceed 2.00% and 1.20% for each Equity Portfolio and the Bond Portfolio,
respectively. With respect to all Portfolios, without such fee waiver and
expense reimbursement, Advisory Fees stated above would have been % and %,
for each Equity Portfolio and Bond Portfolio, respectively. Other Expenses
would have been 1.86%, 1.24% and 1.74% for Large Cap Value Portfolio, Small
Cap Value Portfolio and Bond Portfolio, respectively, and Total Portfolio
Operating Expenses would have been 3.61%, 2.99% and 2.94% for Large Cap Value
Portfolio, Small Cap Value Portfolio and Bond Portfolio, respectively.
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, EACH
PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5%.
The purpose of the foregoing tables is to assist you in understanding the
costs and expenses borne by each 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." Long-term investors could pay more in 12b-1 fees than the economic
equivalent of paying a front-end sales charge. For a description of the ex-
pense reimbursement or waiver arrangements in effect, see "Management of the
Fund."
4
<PAGE>
Financial Highlights
The information in the table below covering each Portfolio's investment re-
sults for the periods indicated has been audited by Deloitte & Touche LLP.
Further financial data and related notes appear in the Portfolios' Annual Re-
port for the fiscal year ended March 31, 1997 which is incorporated by refer-
ence into the Portfolios' Statement of Additional Information which is avail-
able upon request.
Contained below is per share operating performance data, total investment re-
turn, ratios to average net assets and other supplemental data for a Class A
and Class C shares of each Portfolio for the periods indicated. This informa-
tion has been derived from information provided in each Portfolio's financial
statements.
LARGE CAP VALUE PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL APRIL 3, 1995*
YEAR ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996
---------------- -------------------
CLASS A CLASS C CLASS A CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of pe-
riod............................. $ 15.13 $ 15.08 $ 12.00 $ 12.00
------- ------- ------- -------
Net investment income/(loss)(1)... 0.04 (0.02) 0.06 (0.01)
Net realized and unrealized gain
on investments(2)................ 2.28 2.25 3.10 3.10
------- ------- ------- -------
Net increase in net assets
resulting from operations........ 2.32 2.23 3.16 3.09
------- ------- ------- -------
Dividends and distributions to
shareholders from
Net investment income............. (0.10) (0.02) (0.02) --
Net realized capital gains........ (0.18) (0.18) (0.01) (0.01)
------- ------- ------- -------
(0.28) (0.20) (0.03) (0.01)
------- ------- ------- -------
Net asset value, end of period.... $ 17.17 $ 17.11 $ 15.13 $ 15.08
======= ======= ======= =======
Total investment return(3)........ 15.44% 14.87% 26.35% 25.71%
======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)......................... $ 4,987 $ 2,986 $ 3,616 $ 3,520
Ratio of expenses to average net
assets(1)........................ 1.50% 2.00% 1.50%(4) 2.00%(4)
Ratio of net investment
income/(loss) to average net as-
sets(1).......................... 0.43% (0.08)% 0.46%(4) (0.06)%(4)
Decrease reflected in above ex-
pense ratios and net investment
income/(loss) due to waivers and
reimbursements................... 1.58% 1.61% 4.34%(4) 4.39%(4)
Portfolio turnover rate........... 136.67% 136.67% 45.28%(5) 45.28%(5)
Average commission rate per
share(6)......................... $0.0593 $0.0593 $0.0596 $0.0596
</TABLE>
- --------
* Commencement of operations. Commenced investment operations on April 4, 1995.
** Calculated based on shares outstanding on the first and last day of the re-
spective periods, except for dividends and distributions, if any, which are
based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses in in-
vestments during the respective periods because of the timing of sales and
repurchases of Portfolio shares in relation to fluctuating net asset value
during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) Annualized.
(5) Not annualized.
(6) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments subject to such commissions during each
period.
5
<PAGE>
SMALL CAP VALUE PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL APRIL 3, 1995*
YEAR ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996
---------------- --------------------
CLASS A CLASS C CLASS A CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFOR-
MANCE**
Net asset value, beginning of
period......................... $ 15.87 $ 15.79 $ 12.00 $ 12.00
------- ------- ------- -------
Net investment loss (1)......... (0.10) (0.18) (0.07) (0.10)
Net realized and unrealized gain
on
investments (2)................ 1.95 1.93 4.17 4.11
------- ------- ------- -------
Net increase in net assets
resulting from operations...... 1.85 1.75 4.10 4.01
------- ------- ------- -------
Distributions to shareholders
from:
Dividends and net realized capi-
tal gains...................... (0.24) (0.16) (0.23) (0.22)
------- ------- ------- -------
Net asset value, end of period.. $ 17.48 $ 17.38 $ 15.87 $ 15.79
======= ======= ======= =======
Total investment return (3)..... 11.71% 11.12% 34.36% 33.59%
======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)....................... $13,143 $11,071 $ 6,474 $ 6,753
Ratio of expenses to average net
assets (1)..................... 1.50% 2.00% 1.50% (4) 2.00% (4)
Ratio of net investment loss to
average net assets (1)......... (0.81)% (1.31)% (0.66)%(4) (1.09)%(4)
Decrease reflected in above
expense ratios and net
investment loss due to waivers
and reimbursements............. 1.00% 0.99% 2.32% (4) 2.39% (4)
Portfolio turnover rate......... 56.88% 56.88% 40.79% (5) 40.79% (5)
Average commission rate per
share (6)...................... $0.0550 $0.0550 $0.0572 $0.0572
</TABLE>
- --------
* Commencement of investment operations.
** Calculated based on shares outstanding on the first and last day of the re-
spective periods, except for dividends and distributions, if any, which are
based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective peri-
ods are not in accord with the changes in the aggregate gains and losses
in investments during the respective periods because of the timing of
sales and repurchases of Portfolio shares in relation to fluctuating net
asset values during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends
and distributions, if any. Total investment return is not annualized.
(4) Annualized.
(5) Not annualized.
(6) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments subject to such commissions during each
period.
6
<PAGE>
TOTAL RETURN BOND PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL APRIL 3, 1995*
YEAR ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996
---------------- ------------------
CLASS
CLASS A CLASS C A CLASS C
------- ------- ------ -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of peri-
od................................. $ 12.26 $ 12.26 $12.00 $12.00
------- ------- ------ ------
Net investment income (1)........... 0.73 0.68 0.71 0.67
Net realized and unrealized
gain/(loss) on investments (2)..... (0.20) (0.20) 0.30 0.30
------- ------- ------ ------
Net increase in net assets
resulting from operations.......... 0.53 0.48 1.01 0.97
------- ------- ------ ------
Dividends and distributions to
shareholders from
Net investment income............... (0.73) (0.68) (0.71) (0.67)
Net realized capital gains.......... (0.03) (0.03) (0.04) (0.04)
------- ------- ------ ------
(0.76) (0.71) (0.75) (0.71)
------- ------- ------ ------
Net asset value, end of period...... $ 12.03 $ 12.03 $12.26 $12.26
======= ======= ====== ======
Total investment return (3)......... 4.40% 3.99% 8.54% 8.13%
======= ======= ====== ======
RATIOS/SUPPLEMENTAL DATA (6)
Net assets, end of period (000's
omitted)........................... $3,367 $1,018 $4,467 $1,775
Ratio of expenses to average net as-
sets (1)........................... 0.80% 1.20% 0.85%(4) 1.25%(4)
Ratio of net investment income to
average
net assets (1)..................... 5.99% (5.57%) 5.76%(4) 5.38%(4)
Decrease reflected in above expense
ratios and net investment income
due to waivers and reimbursements.. 1.73% 1.74% 2.87%(4) 2.95%(4)
Portfolio turnover rate............. 262.95% 262.95% 107.35%(5) 107.35%(5)
</TABLE>
- --------
* Commencement of operations. Commenced investment operations on April 5,
1995.
** Calculated based on shares outstanding on the first and last day of the re-
spective periods, except for dividends and distributions, if any, which are
based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective peri-
ods are not in accord with the changes in the aggregate gains and losses
in investments during the respective periods because of the timing of
sales and repurchases of Portfolio shares in relation to fluctuating net
asset values during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends
and distributions, if any. Total investment return is not annualized.
(4) Annualized.
(5) Not annualized.
(6) Average commission rate per share disclosure is required for fiscal years
beginning on or after September 1, 1995. The Portfolio incurred no such
charges.
Further information about performance is contained in the Portfolios' Annual
Report, which may be obtained without charge by writing to the address or
calling one of the telephone numbers listed under "General Information."
7
<PAGE>
Alternative Purchase Methods
By this Prospectus, each Portfolio offers investors two methods of purchasing
its shares; investors may choose the class of shares that best suits their
needs, given the amount of purchase, the length of time the investor expects
to hold the shares and any other relevant circumstances. Each Portfolio share
represents an identical pro rata interest in each Portfolio's investment port-
folio.
Class A shares of each Equity Portfolio and the Bond Portfolio are sold at net
asset value per share plus a maximum initial sales charge of 4.75% and 3.75%,
respectively, of the public offering price imposed at the time of purchase.
The initial sales charge may be reduced or waived for certain purchases. See
"How to Buy Shares--Class A Shares." The Class A shares of each Equity Portfo-
lio and the Bond Portfolio are subject to an annual distribution and share-
holder servicing fee at the rate of .50 of 1% and .35 of 1%, respectively, of
the value of the average daily net assets. See "Management of the Fund--Dis-
tribution and Shareholder Servicing Plan."
Class C shares of each Portfolio are subject to a 1% contingent deferred sales
charge ("CDSC") which is assessed only if Class C shares are redeemed within
one year of purchase. See "How to Redeem Shares--Class C Shares." These shares
of each Equity Portfolio and the Bond Portfolio also are subject to an annual
distribution and shareholder servicing fee at the rate of 1% and .75 of 1%,
respectively, of the value of the average daily net assets of Class C. See
"Management of the Fund--Distribution and Shareholder Servicing Plan." The
distribution and shareholder servicing fee paid by Class C will cause such
class to have a higher expense ratio and to pay lower dividends than Class A.
The decision as to which Class of shares is more beneficial to each investor
depends on the amount and the intended length of time of the investor's in-
vestment. Each investor should consider whether, during the anticipated life
of the investor's investment in the Fund, the accumulated distribution and
shareholder servicing fee and CDSC, if any, on Class C shares would be less
than the initial sales charge on Class A shares purchased at the same time,
and to what extent, if any, such differential would be offset by the invest-
ment return of Class A. Additionally, investors qualifying for reduced initial
sales charges who expect to maintain their investment for an extended period
of time might consider purchasing Class A shares because the accumulated con-
tinuing distribution and shareholder servicing fees on Class C shares may ex-
ceed the initial sales charge on Class A shares during the life of the invest-
ment. Finally, each investor should consider the effect of the CDSC period in
the context of the investor's own investment time frame. Generally, for exam-
ple, Class A shares would be more appropriate for investors who invest
$1,000,000 and $500,000 or more in an Equity Portfolio's or the Bond Portfo-
lio's shares, respectively, but may not be appropriate for investors who in-
vest less than $50,000 in a Portfolio's shares depending on the investor's
time horizon.
Description of the Fund
INVESTMENT OBJECTIVE
Each Equity Portfolio seeks to provide capital appreciation. The Bond Portfo-
lio seeks to maximize total return, consistent with preservation of capital.
Each Equity Portfolio's investment objective is capital appreciation. The Bond
Portfolio's investment objective is to maximize total return, consistent with
preservation of capital. See "--Management Policies" below. Each Portfolio's
investment objective cannot be changed without approval by the holders of a
majority as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of such Portfolio's outstanding voting shares. There can be no
assurance that a Portfolio's investment objective will be achieved.
MANAGEMENT POLICIES
EQUITY PORTFOLIOS
The LARGE CAP VALUE PORTFOLIO invests, under normal market conditions, sub-
stantially all of its assets in equity securities of issuers with market capi-
talizations of $1 billion or more and identified by BSFM as value companies.
The SMALL CAP VALUE PORTFOLIO invests, under normal market conditions, sub-
stantially all of its assets in equity securities of issuers with market capi-
talizations between $500 million and $1 billion and identified by BSFM as
value companies.
8
<PAGE>
To determine whether a company's stock falls within the value classification,
BSFM analyzes it based on fundamental factors such as price to book value ra-
tios, price to earnings ratios, earnings growth, dividend payout ratios, re-
turn on equity, and the company's beta (a measure of stock price volatility
relative to the market generally). In general, BSFM believes that companies
with relatively low price to book ratios, low price to earnings ratios or
higher than average dividend payments in relation to price should be classi-
fied as value companies.
For potential investments, BSFM also, among other matters, may review new man-
agement and upcoming corporate restructuring plans, consider the general busi-
ness cycle and the company's position within the specific industry and con-
sider the responsiveness of the company to identified problems in an effort to
assess the likelihood of future appreciation of the company's securities.
BSFM anticipates that at least 85% of the value of each Equity Portfolio's to-
tal assets (except when maintaining a temporary defensive position) will be
invested in equity securities of domestic and foreign issuers. Each Equity
Portfolio expects, under normal market conditions, to invest less than 10% of
its assets in the equity securities of foreign issuers. Equity securities con-
sist of common stocks, convertible securities and preferred stocks. The con-
vertible securities and preferred stocks in which each Equity Portfolio may
invest will be rated at least investment grade by a nationally recognized sta-
tistical rating organization at the time of purchase. Each Equity Portfolio
may invest, in anticipation of investing cash positions, in money market in-
struments consisting of U.S. Government securities, certificates of deposit,
time deposits, bankers' acceptances, short-term investment grade corporate
bonds and other short-term debt instruments, and repurchase agreements, as set
forth in the Appendix. Under normal market conditions, each Equity Portfolio
expects to have less than 15% of its assets invested in money market instru-
ments. However, when BSFM determines that adverse market conditions exist,
each Equity Portfolio may adopt a temporary defensive posture and invest all
of its assets in money market instruments.
BOND PORTFOLIO
The BOND PORTFOLIO invests at least 65% of the value of its total assets (ex-
cept when maintaining a temporary defensive position) in bonds (which it de-
fines as bonds, debentures and other fixed-income securities). The Bond Port-
folio is permitted to invest in a broad range of investment grade, U.S. dollar
denominated fixed-income securities and securities with debt-like characteris-
tics (e.g., bearing interest or having stated principal) of domestic and for-
eign issuers. These debt securities include bonds, debentures, notes, money
market instruments (including foreign bank obligations, such as time deposits,
certificates of deposit and bankers' acceptances, commercial paper and other
short-term corporate debt obligations, and repurchase agreements), mortgage-
related securities (including interest-only and principal-only stripped mort-
gage-backed securities), asset-backed securities, municipal obligations and
convertible debt obligations. The issuers may include domestic and foreign
corporations, partnerships or trusts, and governments or their political sub-
divisions, agencies or instrumentalities. Under normal market conditions, the
Bond Portfolio seeks to provide performance results that equal or exceed the
Salomon Brothers BIG Bond Index, which is a market-capitalization weighted in-
dex that includes U.S. Treasury, Government-sponsored, mortgage and investment
grade fixed-rate corporate fixed-income securities with a maturity of one year
or longer and a minimum of $50 million amount outstanding at the time of in-
clusion in the Salomon Brothers BIG Bond Index. As of March 31, 1996, the
weighted average maturity of securities comprising the Salomon Brothers BIG
Bond Index was approximately nine years and their effective duration was ap-
proximately five years. Under normal market conditions, the Bond Portfolio in-
vests in a portfolio of securities with a dollar-weighted average maturity
ranging from four to thirteen years and a duration of not less than 65% of the
Salomon Brothers BIG Bond Index and not more than 135% of the Salomon Brothers
BIG Bond Index.
As a measure of a fixed-income security's cash flow, duration is an alterna-
tive to the concept of "term to maturity" in assessing the price volatility
associated with changes in interest rates. Generally, the longer the duration,
the more volatility an investor should expect. For example, the market price
of a bond with a duration of five years would be expected to decline 5% if in-
terest rates rose 1%. Conversely, the market price of the same bond would be
expected to increase 5% if interest rates fell 1%. The market price of a bond
with a duration of ten years would be expected to increase or decline twice as
much as the market price of a bond with a five year duration. Duration mea-
sures a security's maturity in terms of the average time required to receive
the present value of all interest and principal payments as opposed to its
term to maturity. The maturity of a security measures only the time until fi-
nal payment is due; it does not take account of the pattern of a security's
cash flows over time, which would include how cash flow is affected by prepay-
ments and
9
<PAGE>
by changes in interest rates. Incorporating a security's yield, coupon inter-
est payments, final maturity and option features into one measure, duration is
computed by determining the weighted average maturity of a bond's cash flows,
where the present values of the cash flows serve as weights. In computing the
duration of the Bond Portfolio, BSFM will estimate the duration of obligations
that are subject to prepayment or redemption by the issuer, taking into ac-
count the influence of interest rates on prepayments, coupon flows and other
factors which may affect the maturity of the security. This method of comput-
ing duration is known as effective duration.
BSFM anticipates actively managing the Bond Portfolio's assets in response to
change in the business cycle. BSFM seeks to identify and respond to phases in
the business cycle--simplistically, the expansion, topping out, recession and
trough phases--and to invest the Bond Portfolio's assets by shifting among
market sectors, maturities and relative credit quality in a way which it be-
lieves will achieve the Bond Portfolio's objective in a relatively conserva-
tive manner taking into account the volatility and risk associated with in-
vesting in a portfolio of relatively longer-term fixed-income securities.
While the Bond Portfolio seeks, as part of its investment objective, to pre-
serve capital, investors should recognize that the net asset value per share
of the Bond Portfolio should be expected to be more volatile than the net as-
set value per share of a fund that invested in portfolio securities with a
shorter duration.
At least 70% of the value of the Bond Portfolio's net assets must consist of
securities which, in the case of bonds and other debt instruments, are rated
no lower than A by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. ("S&P"),
Fitch Investors Service, L.P. ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff") or, if unrated, deemed to be of comparable quality by BSFM. Up to 30%
of the value of the Bond Portfolio's net assets may consist of securities
which, in the case of bonds and other debt instruments, are rated no lower
than Baa by Moody's or BBB by S&P, Fitch and Duff or, if unrated, deemed to be
of comparable quality by BSFM. The Bond Portfolio may invest in short-term
fixed-income obligations which are rated in the two highest rating categories
by Moody's, S&P, Fitch or Duff. See "Risk Factors--Fixed-Income Securities"
below, and "Appendix" in the Statement of Additional Information.
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 Portfolios are being offered.
From time to time, other portfolios may be established and sold pursuant to
other offering documents. See "General Information."
INVESTMENT TECHNIQUES
Each Portfolio may engage in various investment techniques, such as options
and futures transactions, short selling and lending portfolio securities, each
of which involves risk. Each Equity Portfolio also may engage in foreign cur-
rency exchange transactions, which also involve risk. Options and futures
transactions, as well as investments in certain asset-backed, mortgage-backed
and government securities, involve "derivative securities." Short selling is
discussed below. For a discussion of these other investment techniques and
their related risks, see "Appendix--Investment Techniques" and "Risk Factors"
below.
Short sales are transactions in which a Portfolio sells a security it does not
own in anticipation of a decline in the market value of that security. To com-
plete such a transaction, the Portfolio must borrow the security to make de-
livery to the buyer. The Portfolio then is obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. The
price at such time may be more or less than the price at which the security
was sold by the Portfolio. Until the security is replaced, the Portfolio is
required to pay to the lender amounts equal to any dividend which accrues dur-
ing the period of the loan. To borrow the security, the Portfolio also may be
required to pay a premium, which would increase the cost of the security sold.
The proceeds of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position is closed out.
Short selling by the Bond Portfolio will be used primarily in conjunction with
a long transaction, but not necessarily in the same instrument or an instru-
ment with a similar maturity or interest rate, to effect a hedged position to
take advantage of spreads in the market place.
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<PAGE>
Until the Portfolio replaces a borrowed security in connection with a short
sale, the Portfolio will: (a) maintain daily a segregated account, containing
liquid securities, at such a level that the amount deposited in the account
plus the amount deposited with the broker as collateral always equals the cur-
rent value of the security sold short; or (b) otherwise cover its short posi-
tion in accordance with positions taken by the staff of the Securities and Ex-
change Commission.
A Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on
which the Portfolio replaces the borrowed security. A Portfolio will realize a
gain if the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium or amounts in lieu of interest the
Portfolio may be required to pay in connection with a short sale. Each Portfo-
lio may purchase call options to provide a hedge against an increase in the
price of a security sold short by the Portfolio. See "Appendix--Investment
Techniques--Options Transactions."
Each Portfolio anticipates that the frequency of short sales will vary sub-
stantially in different periods, and it does not intend that any specified
portion of its assets, as a matter of practice, will be invested in short
sales. However, no securities will be sold short if, after effect is given to
any such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Portfolio's net assets. No Portfolio may sell
short the securities of any single issuer listed on a national securities ex-
change to the extent of more than 5% of the value of its net assets. No Port-
folio may sell short the securities of any class of an issuer to the extent,
at the time of the transaction, of more than 2% of the outstanding securities
of that class.
In addition to the short sales discussed above, each Portfolio may make short
sales "against the box," a transaction in which the Portfolio enters into a
short sale of a security which the Portfolio owns. The proceeds of the short
sale will be held by a broker until the settlement date at which time the
Portfolio delivers the security to close the short position. The Portfolio re-
ceives the net proceeds from the short sale. The Portfolio at no time will
have more than 15% of the value of its net assets in deposits on short sales
against the box. It currently is anticipated that the Portfolio will make
short sales against the box for purposes of protecting the value of the Port-
folio's net assets.
CERTAIN FUNDAMENTAL POLICIES
Each Portfolio may (i) borrow money to the extent permitted under the 1940
Act; (ii) invest up to 5% of the value of its total assets in the obligations
of any issuer, except that up to 25% of the value of the Portfolio's total as-
sets may be invested, and securities issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities may be purchased, without regard to
any such limitation; and (iii) invest up to 25% of the value of its total as-
sets in the securities of issuers in a single industry, provided that there is
no such limitation on investments in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. This paragraph describes
fundamental policies that cannot be changed as to a Portfolio without approval
by the holders of a majority (as defined in the 1940 Act) of such Portfolio's
outstanding voting shares. See "Investment Objective and Management Policies--
Investment Restrictions" in the Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each 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. In ad-
dition, each Equity Portfolio may purchase securities of any company having
less than three years' continuous operation (including operations of any pred-
ecessors) if such purchase does not cause the value of such Equity Portfolio's
investments in all such companies to exceed 5% of the value of its total as-
sets. See "Investment Objective and Management Policies--Investment Restric-
tions" in the Statement of Additional Information.
RISK FACTORS
No investment is free from risk. Investing in a Portfolio will subject invest-
ors to certain risks which should be considered.
11
<PAGE>
NET ASSET VALUE FLUCTUATIONS--(ALL PORTFOLIOS)
Each Portfolio's net asset value per share is not fixed and should be expected
to fluctuate. Investors should purchase Portfolio shares only as a supplement
to an overall investment program and only if investors are willing to under-
take the risks involved.
EQUITY SECURITIES--(EQUITY PORTFOLIOS)
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. The securities of smaller cap companies
may be subject to more abrupt or erratic market movements than larger cap com-
panies, both because the securities typically are traded in lower volume and
because the issuers typically are subject to a greater degree to changes in
earnings and prospects. Changes in the value of the equity securities in an
Equity Portfolio's portfolio will result in changes in the value of the Equity
Portfolio's shares and thus the Equity Portfolio's yield and total return to
investors.
FIXED-INCOME SECURITIES--(BOND PORTFOLIO)
Investors should be aware that even though interest-bearing securities are in-
vestments which promise a stable stream of income, the prices of such securi-
ties typically are inversely affected by changes in interest rates and, there-
fore, are subject to the risk of market price fluctuations. Thus, if interest
rates have increased from the time a security was purchased, such security, if
sold, might be sold at a price less than its cost. Similarly, if interest
rates have declined from the time a security was purchased, such security, if
sold, might be sold at a price greater than its cost. In either instance, if
the security was purchased at face value and held to maturity, no gain or loss
would be realized. Certain securities purchased by the Bond Portfolio, such as
those with interest rates that fluctuate directly or indirectly based on mul-
tiples of a stated index, are designed to be highly sensitive to changes in
interest rates and can subject the holders thereof to extreme reductions of
yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities. Once the rating
of a security purchased by the Bond Portfolio has been adversely changed, the
Bond Portfolio will consider all circumstances deemed relevant in determining
whether to continue to hold the security. Holding such securities that have
been downgraded below investment grade can subject the Bond Portfolio to addi-
tional risk. Certain securities purchased by the Bond Portfolio, such as those
rated Baa by Moody's or BBB by S&P, Fitch or Duff, may be subject to such risk
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Debt securities
which are rated Baa by Moody's are considered medium grade obligations; they
are neither highly protected nor poorly secured, and are considered by Moody's
to have speculative characteristics. Debt securities rated BBB by S&P are re-
garded as having adequate capacity to pay interest and repay principal, and
while such debt securities ordinarily 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 securities
in this category than in higher rated categories. Fitch considers the obli-
gor's ability to pay interest and repay principal on debt securities rated BBB
to be adequate; adverse changes in economic conditions and circumstances, how-
ever, are more likely to have an adverse impact on these debt securities and,
therefore, impair timely payment. Debt securities rated BBB by Duff are con-
sidered to have below average protection factors but still considered suffi-
cient for prudent investment.
No assurance can be given as to the liquidity of the market for certain mort-
gage-backed securities, such as collateralized mortgage obligations and
stripped mortgage-backed securities. Determination as to the liquidity of in-
terest-only and principal-only fixed mortgage-backed securities issued by the
U.S. Government or its agencies and instrumentalities will be made in accor-
dance with guidelines established by the Fund's Board of Trustees. In accor-
dance with such guidelines, BSFM will monitor investments in such securities
with particular regard to trading activity, availability of reliable price in-
formation and other relevant information. The Bond Portfolio intends to treat
other stripped mortgage-backed securities as illiquid securities. See "Appen-
dix--Certain Portfolio Securities--Illiquid Securities."
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. If the Bond Portfolio invests in such
securities it may be required, to maintain its qualification as a regulated
investment company and avoid liability for federal income taxes, to distribute
the income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
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<PAGE>
CERTAIN INVESTMENT TECHNIQUES--(ALL PORTFOLIOS)
The use of investment techniques such as engaging in options and futures
transactions, engaging in foreign currency exchange transactions, short sell-
ing and lending portfolio securities involves greater risk than that incurred
by many other funds with a similar objective. Using these techniques may pro-
duce higher than normal portfolio turnover and may affect the degree to which
the Portfolio's net asset value fluctuates. Higher portfolio turnover rates
are likely to result in comparatively greater brokerage commissions or trans-
action costs. See "Appendix--Investment Techniques."
Each Portfolio's ability to engage in certain short-term transactions may be
limited by the requirement that, to qualify as a regulated investment company,
it must earn less than 30% of its gross income from the disposition of securi-
ties held for less than three months. This 30% test limits the extent to which
the Portfolio may sell securities held for less than three months, effect
short sales of securities held for less than three months, write options ex-
piring in less than three months and invest in certain futures contracts,
among other strategies. With the exception of the above requirement, the
amount of portfolio activity will not be a limiting factor when making portfo-
lio decisions. Under normal market conditions, the portfolio turnover rate of
each Portfolio generally will not exceed 100%. See "Portfolio Transactions" in
the Portfolios' Statement of Additional Information.
INVESTING IN FOREIGN SECURITIES--(ALL PORTFOLIOS)
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, vol-
ume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States. The issuers of some of these securities, such as foreign bank
obligations, may be subject to less stringent or different regulations than
are U.S. issuers. In addition, there may be less publicly available informa-
tion about a non-U.S. issuer, and non-U.S. issuers generally are not subject
to uniform accounting and financial reporting standards, practices and re-
quirements comparable to those applicable to U.S. issuers.
Because stock certificates and other evidences of ownership of such securities
usually are held outside the United States, each Portfolio will be subject to
additional risks which include possible adverse political and economic devel-
opments, possible seizure or nationalization of foreign deposits and possible
adoption of governmental restrictions that might adversely affect the payment
of principal, interest and dividends on the foreign securities or might re-
strict the payment of principal, interest and dividends to investors located
outside the country of the issuers, whether from currency blockage or other-
wise. Custodial expenses for a portfolio of non-U.S. securities generally are
higher than for a portfolio of U.S. securities.
Since foreign securities often are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may
be affected favorably or unfavorably by changes in currency rates and exchange
control regulations. Some currency exchange costs may be incurred when a Port-
folio changes investments from one country to another.
Furthermore, some of these securities may be subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by a Portfolio from
sources within foreign countries may be reduced by withholding or other taxes
imposed by such countries, although applicable tax conventions may reduce or
eliminate such taxes. All such taxes paid by a Portfolio will reduce its net
income available for distribution to investors.
FOREIGN CURRENCY EXCHANGE--(EQUITY PORTFOLIOS)
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign govern-
ments or central banks, or the failure to intervene, or by currency controls
or political developments in the United States or abroad.
The foreign currency market offers less protection against defaults in the
forward trading of currencies than is available when trading in currencies oc-
curs on an exchange. Since a forward currency contract is not guaranteed by an
exchange or clearinghouse, a default on the contract would deprive an Equity
Portfolio of unrealized profits or force the Equity Portfolio to cover its
commitments for purchase or resale, if any, at the current market price.
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<PAGE>
FOREIGN COMMODITY TRANSACTIONS--(EQUITY PORTFOLIOS)
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission (the
"CFTC") and may be subject to greater risks than trading on domestic ex-
changes. See "Appendix--Investment Techniques." For example, some foreign ex-
changes are principal markets so that no common clearing facility exists and a
trader may look only to the broker for performance of the contract. In addi-
tion, unless an Equity Portfolio hedges against fluctuations in the exchange
rate between the U.S. dollar and the currencies in which trading is done on
foreign exchanges, any profits that the Equity Portfolio might realize in
trading could be eliminated by adverse changes in the exchange rate, or the
Equity Portfolio could incur losses as a result of those changes.
SIMULTANEOUS INVESTMENTS--(ALL PORTFOLIOS)
Investment decisions for each 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 dis-
pose of, securities of the type in which a Portfolio invests at the same time
as the Portfolio, available investments or opportunities for sales will be al-
located equitably to each. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by a Portfolio or the
price paid or received by the Portfolio.
Management of the Fund
BOARD OF TRUSTEES
The Fund's business affairs are managed under the general supervision of its
Board of Trustees. The Portfolios' Statement of Additional Information con-
tains the name and general business experience of each Trustee.
INVESTMENT ADVISER
The Portfolios' investment adviser is BSFM, a wholly-owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York,
New York 10167. The Bear Stearns Companies Inc. is a holding company which,
through its subsidiaries including its principal subsidiary, Bear Stearns, is
a leading United States investment banking, securities trading and brokerage
firm serving United States and foreign corporations, governments and institu-
tional and individual investors. BSFM is a registered investment adviser and
offers, either directly or through affiliates, investment advisory and admin-
istrative services to open-end and closed-end investment funds and other man-
aged pooled investment vehicles with net assets at March 31, 1997 of over $2.9
billion.
BSFM supervises and assists in the overall management of the Portfolios' af-
fairs under an Investment Advisory Agreement between BSFM and the Fund, sub-
ject to the overall authority of the Fund's Board of Trustees in accordance
with Massachusetts law.The Large Cap Value Portfolio's principal portfolio
managers are Robert S. Reitzes and Mark A. Kurland. Mark A. Kurland, Chairman
and Chief Executive Officer of BSFM and Bear Stearns Asset Management
("BSAM"), serves as Co-Manager of the Portfolio. Mr. Kurland also serves as
Senior Managing Director of Bear, Stearns & Co. Inc. He was previously Direc-
tor 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 Ad-
visory Counsel, Equities Subcommittee and the Funds Committee. He was previ-
ously Co-Head of Institutional Equities and Director of Research at Mabon, Nu-
gent & Co. Mr. Reitzes is also the principal portfolio manager for the Small
Cap Value Portfolio. The Small Cap Value Portfolio is managed by Robert S.
Reitzes, Harris Cohen and Gail Sprute. Mr. Reitzes is the Director of Mutual
Funds BSFM and Senior Managing Director of Bear Stearns since March 1994. For-
merly, he was Co-Director of Research and Senior Chemical Analyst of C.J.
Lawrence/Deutsche Bank Securities Corp. from January 1991 to March 1994. Ms.
Sprute joined BSAM in 1994 as an equity portfolio manager/equity analyst. From
1991 to 1994, she was employed by Deutsche Morgan Grenfell/C.J. Lawrence as an
associate analyst in the equity research division. Mr. Cohen joined BSAM in
1996 as an equity portfolio manager/analyst. Prior to this, he was a Senior
Analyst at Furman Selz LLC. Mr. Cohen graduated in 1993 with a M.B.A. from the
Stern School of Business at New York University. The Bond Portfolio's princi-
pal manager is Peter E. Mahoney. Mr. Mahoney rejoined Bear Stearns in November
1995 as a Managing Director of Bear Stearns and Director of Fixed Income In-
vestments of Bear Stearns Asset Management, positions he held during his em-
ployment with Bear Stearns from June 1987 through November 1994. From November
1994 to November 1995 he was a financial consultant.
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Each Equity Portfolio pays BSFM an advisory fee at an annual rate equal to .75
of 1% of the Equity Portfolio's average daily net assets and the Bond Portfo-
lio pays BSFM an advisory fee at the annual rate of .45 of 1% of the Bond
Portfolio's average daily net assets.
Under the terms of the Investment Advisory Agreement, each Equity Portfolio
has agreed to pay BSFM a monthly fee at the annual rate of .75 of 1% of the
Equity Portfolio's average daily net assets and the Bond Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of .45 of 1% of the Bond Portfo-
lio's average daily net assets. For the fiscal year ended March 31, 1997, no
fees were paid by the Large Cap Value Portfolio, Small Cap Value Portfolio and
Bond Portfolio pursuant to a voluntary undertaking by BSFM.
Each Portfolio's administrator is BSFM. Under the terms of an Administration
Agreement with the Fund, BSFM generally supervises all aspects of the opera-
tion of each Portfolio, subject to the overall authority of the Fund's Board
of Trustees in accordance with Massachusetts law. For providing administrative
services to each Portfolio, the Fund has agreed to pay BSFM a monthly fee at
the annual rate of .15 of 1% of each Portfolio's average daily net assets. Un-
der the terms of an Administrative Services Agreement with the Fund, PFPC Inc.
provides certain administrative services to each Portfolio. For providing
these services, PFPC Inc. is entitled to receive from each Portfolio a monthly
fee equal to an annual rate of .10 of 1% of the Portfolio's average daily net
assets up to $200 million, .075 of 1% of the next $200 million, .05 of 1% of
the next $200 million and .03 of 1% of net assets above $600 million, subject
to a minimum annual fee of $132,000 for each Portfolio.
For the fiscal year ended March 31, 1997, the Large Cap Value Portfolio, Small
Cap Value Portfolio and Bond Portfolio each paid PFPC Inc. a monthly fee at
the effective annual rate of 0.49 of 1%, 0.31 of 1% and 0.35 of 1%, respec-
tively of the Portfolio's average daily net assets.
From time to time, BSFM may waive receipt of its fees and/or voluntarily as-
sume certain Portfolio expenses, which would have the effect of lowering the
Portfolio's expense ratio and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. No Portfolio will pay BSFM
at a later time for any amounts it may waive, nor will a Portfolio reimburse
BSFM for any amounts it may assume. From time to time PFPC Inc. may waive a
portion of its fee. Effective May 1, 1996, and until further notice, PFPC Inc.
will reduce each Portfolio's monthly minimum to $7,500 for net assets of less
than $25 million; $9,167 for net assets of $25 million to $50 million; $11,000
for net assets in excess of $50 million. PFPC Inc. reserves the right to re-
voke this voluntary fee waiver at any time.
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 each
Portfolio's shares. See "Portfolio Transactions" in the Statement of Addi-
tional Information.
Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment Ad-
visory Agreement is in effect.
DISTRIBUTOR
Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as
each Portfolio's principal underwriter and distributor of each Portfolio's
shares pursuant to an agreement which is renewable annually. Bear Stearns is
entitled to receive the sales load described under "How to Buy Shares" and
payments under each Portfolio's Distribution and Shareholder Servicing Plan
described below.
CUSTODIAN AND TRANSFER AGENT
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an
affiliate of Bear Stearns, is each Portfolio's custodian. PFPC Inc., Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is each
Portfolio's transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides certain administrative
services to each Portfolio.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
Under a plan adopted by the Fund's Board of Trustees pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), each Portfolio pays Bear Stearns for distrib-
uting Portfolio shares and for providing per
15
<PAGE>
sonal services to, and/or maintaining accounts of, Portfolio shareholders a
fee as follows of the average daily net assets of the respective class:
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Portfolios.............................................. .50% 1.00%
Bond Portfolio................................................. .35% .75%
</TABLE>
Under the Plan, Bear Stearns may pay third parties in respect of these serv-
ices such amount as it may determine. The fees paid to Bear Stearns under the
Plan are payable without regard to actual expenses incurred. The Fund under-
stands that these third parties also may charge fees to their clients who are
beneficial owners of Portfolio shares in connection with their client ac-
counts. These fees would be in addition to any amounts which may be received
by them from Bear Stearns under the Plan.
EXPENSE LIMITATION
BSFM has undertaken until such time as it gives investors at least 60 days no-
tice to the contrary that, if in any fiscal year, certain expenses, including
the investment advisory fee and fees under the Plan, exceed 0.80% of the aver-
age daily net assets of the Bond Portfolio--Class A, 1.20% of the average
daily net assets of the Bond Portfolio--Class C, 1.50% of the average daily
net assets of each Equity Portfolio--Class A and 2.00% of the average daily
net assets of each Equity Portfolio--Class C for the fiscal year, BSFM may
waive a portion of its investment advisory fee or bear other expenses to the
extent of the excess expense.
How to Buy Shares
GENERAL
The minimum initial investment is $1,000, or $500 if the investment is for
Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant.
Subsequent investments ordinarily must be at least $250 or $100 for retirement
plans. Share certificates are issued only upon written request. No certifi-
cates are issued for fractional shares. The Fund reserves the right to reject
any purchase order. The Fund reserves the right to vary the initial and subse-
quent investment minimum requirements at any time. Investments by employees of
Bear Stearns and its affiliates are not subject to minimum investment require-
ments.
Purchases of a 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 a Portfo-
lio's shares also may be made directly through the Transfer Agent. When pur-
chasing Portfolio shares, investors must specify which Class is being pur-
chased.
Purchases are effected at the public offering price next determined after a
purchase order is received by Bear Stearns, an Authorized Dealer or the Trans-
fer Agent (the "trade date"). Payment for Portfolio shares generally is due to
Bear Stearns or the Authorized Dealer on the third business day (the "settle-
ment date") after the trade date. Investors who make payment before the set-
tlement date may permit the payment to be held in their brokerage accounts or
may designate a temporary investment for payment until the settlement date. If
a temporary investment is not designated, Bear Stearns or the Authorized
Dealer will benefit from the temporary use of the funds if payment is made be-
fore the settlement date.
Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be accept-
ed), Federal Reserve draft or by wiring Federal Funds with funds held in bro-
kerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--[Name of
Portfolio]" if purchased directly from the Portfolio, and should be directed
to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns Funds--[Name of
Portfolio], P.O. Box 8960, Wilmington, Delaware 19899-8960. Direct overnight
deliveries to PFPC, Inc., 400 Bellevue Parkway, Suite 108, Wilmington, Dela-
ware 19809. Payment by check or Federal Reserve draft must be received within
three business days of receipt of
16
<PAGE>
the purchase order by Bear Stearns or an Authorized Dealer. Shareholders may
not purchase shares of the Portfolio with a check issued by a third party and
endorsed over to the Portfolio. 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 redemp-
tion 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 a Portfolio, an
investor must establish an account with the Portfolio by furnishing necessary
information to the Fund. An account with a Portfolio may be established by
completing and signing the Account Information Form indicating which Class of
shares is being purchased, a copy of which is attached to this Prospectus, and
mailing it, together with a check to cover the purchase, to PFPC Inc., Atten-
tion: The Bear Stearns Funds--[Name of Portfolio], P.O. Box 8960, Wilmington,
Delaware 19899-8960.
Subsequent purchases of shares may be made by checks made payable to the Fund
and directed to the address set forth in the preceding paragraph. The Portfo-
lio account number should appear on the check.
Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer
Agent before the close of regular trading on the New York Stock Exchange (cur-
rently 4:00 p.m., New York time) on any day the relevant Portfolio calculates
its net asset value are priced according to the net asset value determined on
that date. Purchase orders received after the close of trading on the New York
Stock Exchange are priced as of the time the net asset value is next deter-
mined.
Shares of the Portfolios are sold on a continuous basis. Net asset value per
share is determined as of the close of regular trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time) on each business day.
The net asset value per share of each Class of each 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. Each Equity 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 pro-
cedures established by, the Fund's Board of Trustees. Substantially all of the
Bond Portfolio's investments are valued each business day at fair value as de-
termined by one or more independent pricing services (the "Service") approved
by the Fund's Board of Trustees. Procedures of the Service are reviewed under
the general supervision of the Fund's Board of Trustees. The remaining assets
of the Bond Portfolio are valued using available market quotations or at fair
value as determined in good faith by, or in accordance with procedures estab-
lished by, the Fund's Board of Trustees. For further information regarding the
methods employed in valuing each Portfolio's investments, see "Determination
of Net Asset Value" in the Portfolios' Statement of Additional Information.
Federal regulations require that investors provide a certified Taxpayer Iden-
tification Number (a "TIN") upon opening or reopening an account. See "Divi-
dends, Distributions and Taxes." Failure to furnish a certified TIN to the
Fund could subject the investor to backup withholding and a $50 penalty im-
posed by the Internal Revenue Service (the "IRS").
CLASS A SHARES
The sales charge may vary depending on the dollar amount invested in each
Portfolio. The public offering price for Class A shares of each Equity Portfo-
lio is the net asset value per share of that Class plus a sales load, which is
imposed in accordance with the following schedule:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
TOTAL SALES LOAD
------------------------------
AS A % OF AS A % OF DEALER CONCESSIONS
OFFERING PRICE NET ASSET VALUE AS A %
AMOUNT OF TRANSACTION PER SHARE PER SHARE OF OFFERING PRICE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000............ 4.75% 4.99% 4.25%
$50,000 to less than
$100,000..................... 4.25 4.44 3.75
$100,000 to less than
$250,000..................... 3.75 3.90 3.25
$250,000 to less than
$500,000..................... 3.25 3.36 3.00
$500,000 to less than
$750,000..................... 2.75 2.83 2.50
$750,000 to less than
$1,000,000................... 2.25 2.30 2.00
$1,000,000 and above......... 0.00 0.00 1.00
</TABLE>
17
<PAGE>
The public offering price for Class A shares of the Bond Portfolio is the net
asset value per share of that Class plus a sales load, which is imposed in ac-
cordance with the following schedule:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
TOTAL SALES LOAD
------------------------------
AS A % OF AS A % OF DEALER CONCESSIONS
OFFERING PRICE NET ASSET VALUE AS A %
AMOUNT OF TRANSACTION PER SHARE PER SHARE OF OFFERING PRICE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000............ 3.75% 3.90% 3.25%
$50,000 to less than
$100,000..................... 3.25 3.36 2.75
$100,000 to less than
$250,000..................... 2.75 2.83 2.25
$250,000 to less than
$500,000..................... 2.25 2.30 2.00
$500,000 to less than
$750,000..................... 2.00 2.04 1.75
$750,000 to less than
$1,000,000................... 1.50 1.52 1.25
$1,000,000 and above......... 0.00 0.00 0.50
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more of Class A
shares. However, if an investor purchases Class A shares without an initial
sales charge as part of an investment of at least $1,000,000 and redeems those
shares within one year after purchase, a CDSC of 1.00% and .50% for each Eq-
uity Portfolio and the Bond Portfolio, respectively, will be imposed at the
time of redemption. The terms contained in the section of the Fund's Prospec-
tus entitled "How to Redeem Shares--Contingent Deferred Sales Charge--Class C
Shares" are applicable to the Class A shares subject to a CDSC. Letter of In-
tent and Right of Accumulation apply to such purchases of Class A shares.
The dealer concession may be changed from time to time but will remain the
same for all dealers. From time to time, Bear Stearns may make or allow addi-
tional payments or promotional incentives to dealers that sell Class A shares.
In some instances, these incentives may be offered only to certain dealers who
have sold or may sell significant amounts of Class A shares. Dealers may re-
ceive a larger percentage of the sales load from Bear Stearns than they re-
ceive for selling most other funds.
Class A shares may be sold at net asset value to (a) Bear Stearns, its affili-
ates 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 em-
ployee or registered representative of any Authorized Dealer or their respec-
tive spouses and minor children; (d) trustees or directors of investment com-
panies for which Bear Stearns or an affiliate acts as sponsor; (e) any state,
county or city, or any instrumentality, department, authority or agency there-
of, which is prohibited by applicable investment laws from paying a sales load
or commission in connection with the purchase of Portfolio shares; (f) any in-
stitutional investment clients including corporate sponsored pension and prof-
it-sharing plans, other benefit plans and insurance companies; and (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 purchaser
is eligible for an exemption. Bear Stearns reserves the right to limit the
participation of its employees in Class A shares of each Portfolio. Dividends
and distributions reinvested in Class A shares of a Portfolio will be made at
the net asset value per share on the reinvestment date.
Class A shares of each 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. Howev-
er, 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 includes 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.
18
<PAGE>
THE BEAR STEARNS FUNDS
<TABLE>
<S> <C>
Account Information Form
Please Note: Do not use this form to open a retirement plan account. For
retirement plan forms call 1-800-766-4111. For assistance in completing
this form, contact PFPC Inc. at 1-800-447-1139.
1 Account Type (Please print; indicate only one registration type)
[ ] Individual [ ] Joint Tenant
------------------------------------------------------------------------------------------------------------------
NAME
------------------------------------------------------------------------------------------------------------------
JOINT REGISTRANT, IF ANY (SEE NOTES 1 AND 2)
___ ___ ___ - ___ ___ - ___ ___ ___ ___ ___ - ___ ___ ___ ___ ___ ___ ___
SOCIAL SECURITY NUMBER OF PRIMARY OWNER TAXPAYER IDENTIFICATION NUMBER
(1) Use only the Social Security number or Taxpayer Identification Number
of the first listed joint tenant.
(2) For joint registrations, the account registrants will be joint tenants
with right of survivorship and not tenants in common unless tenants in
common or community property registrations are requested.
------------------------------------------------------------------------------------------------------------------
[ ] Uniform Gift to Minors, or [ ] Uniform Transfer to Minors (where allowed by law)
------------------------------------------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
------------------------------------------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
Under the Uniform Gift/Transfers to Minors Act.
------------------------------------------------------------------
STATE RESIDENCE OF MINOR
___ ___ / ___ ___ / ___ ___ ___ ___ ___ - ___ ___ - ___ ___ ___ ___
MINOR'S DATE OF BIRTH MINOR'S SOCIAL SECURITY NUMBER (REQUIRED TO OPEN ACCOUNT)
------------------------------------------------------------------------------------------------------------------
[ ] Corporation [ ] Partnership [ ] Trust* [ ] Other
------------------------------------------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER
------------------------------------------------------------------------------------------------------------------
NAME(S) OF TRUSTEE(S) DATE OF THE TRUST AGREEMENT
___ ___ ___ - ___ ___ - ___ ___ ___ ___ ___ - ___ ___ ___ ___ ___ ___ ___
SOCIAL SECURITY NUMBER (REQUIRED TO OPEN ACCOUNT) TAXPAYER IDENTIFICATION NUMBER (REQUIRED TO OPEN ACCOUNT)
* If a Trust, include date of trust instrument and list of trustees if they are to be named in the registration.
2 Mailing Address
------------------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
( ) ( )
------------------------------------------------------------------------------------------------------------------
DAY TELEPHONE EVENING TELEPHONE
3 Investment Information
Method of Investment
[ ] I have enclosed a check for a minimum initial investment of $1,000 per Fund.
[ ] I have enclosed a check for a minimum subsequent investment of $250 per Fund or completed the Systematic
Investment Plan information in Section 13.
[ ] I purchased _____________________ shares of _______________________________________________ through my
broker on ____/____/____. Confirm # _______________.
Please make my investment in the Funds designated below:
------------------------------------------------------------------------------------------------------------------
CLASS A CLASS C BEAR STEARNS FUNDS INVESTMENT AMOUNT
------------------------------------------------------------------------------------------------------------------
______ ______ S&P STARS Portfolio $______________________
______ ______ Large Cap Value Portfolio $______________________
______ ______ Small Cap Value Portfolio $______________________
______ ______ Total Return Bond Portfolio $______________________
______ ______ The Insiders Select Fund $______________________
______ ______ Emerging Markets Debt Portfolio $______________________
______ ______ Money Market Portfolio $______________________
N/A Focus List Portfolio $----------------------
TOTAL INVESTMENT AMOUNT $======================
Note: All shares purchased will be held in a shareholder account for the investor at the Transfer Agent. Checks drawn on
foreign banks and checks made payable to persons or entities other than the Fund will not be accepted. Checks should be made
payable to the Fund which you are investing in. If no class is designated, your investment will be made in Class A shares.
NOT PART OF THE PROSPECTUS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4 Reduced Sales Charge (Available for Class A Shares Only)
Method of Investment
Are you a shareholder in another Bear Stearns Fund? [ ] Yes [ ] No
[ ] I apply for Right of Accumulation reduced sales charges based on the
following Bear Stearns Fund Accounts (excluding Class C Shares).
------------------------------------------------------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
------------------------------------------------------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
------------------------------------------------------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
Letter of Intent
[ ] I am already investing under an existing Letter of Intent.
[ ] I agree to the Letter of Intent provisions in the Fund's current prospectus. During a 13-month period, I plan to invest a
dollar amount of at least: [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $750,000 [ ] $1,000,000
Net Asset Value Purchase
[ ] I qualify for an exemption from the sales charge by meeting the conditions set forth in the prospectus. (Please attach
certification to this form.)
[ ] I qualify to purchase shares at net asset value, with proceeds received from a mutual fund or closed-end fund not
distributed by Bear Stearns. (Please attach proof of fund share redemption.)
5 Distribution Options
Dividends and capital gains may be reinvested or paid by check. If no options are selected below, both dividends and capital
gains will be reinvested in additional Fund shares.
Dividends [ ] Pay by check. [ ] Reinvest.
Capital Gains [ ] Pay by check. [ ] Reinvest.
The Redirected Distribution Option allows an investor to have dividends and any other distributions from a Fund automatically
used to purchase shares of the same class of any other Fund. The receiving account must be in the same name as your existing
account.
[ ] Please reinvest dividends and capital gains from the ____________________________ to the __________________________ .
(NAME OF FUND) (NAME OF FUND)
If you elect to have distributions paid by check, distributions will be sent to the address of record. Distributions may also
be sent to another payee:
------------------------------------------------------------------------------------------------------------------
NAME
------------------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
------------------------------------------------------------------------------------------------------------------
Optional Features
6 Automatic Withdrawal Plan
[ ] Fund Name [ ] Amount
-------------------------------------------------------- --------------------------
[ ] Startup month __________________________
Frequency option: [ ] Monthly [ ] Every other month [ ] Quarterly [ ] Semiannually [ ] Annually
. A minimum account value of $5,000 in a single account is required to establish an automatic withdrawal plan.
. Payments will be made on or near the 25th of the month.
. Shareholders holding share certificates are not eligible for the Automatic Withdrawal Plan.
[ ] Please mail checks to Address of Record (Named in Section 2)
[ ] Please electronically credit my Bank of Record (Named in Section 9)
[ ] Special payee as specified below:
------------------------------------------------------------------------------------------------------------------
NAME
------------------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
7 Telephone Exchange Privilege
Unless indicated below, I authorize the Transfer Agent to accept instructions from any persons to exchange shares in my
account(s) by telephone, in accordance with the procedures and conditions set forth in the Fund's current prospectus.
[ ] I DO NOT want the Telephone Exchange Privilege.
NOT PART OF THE PROSPECTUS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8 Telephone Redemption Privilege
[ ] I authorize the Transfer Agent to accept instructions from any person to
redeem shares in my account(s) by telephone, in accordance with the procedures
and conditions set forth in the Fund's current prospectus.
Checks for redemption of proceeds will be sent by check via U.S. Mail to
the address of record, unless the information in Section 9 is completed for
redemption by wire of $500 or more.
9 Bank of Record (for Telephone Redemptions and/or Systematic Investment Plans)
Please attach a voided check (for electronic credit to your checking
account) in the space provided in Section 13.
------------------------------------------------------------------------------------------------------------------
BANK NAME
------------------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
------------------------------------------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
------------------------------------------------------------------------------------------------------------------
ACCOUNT NAME
10 Signature and Taxpayer Certification
The undersigned warrants that I(we) have full authority and, if a natural person, I(we) am(are) of legal age to purchase shares
pursuant to this Account Information Form, and have received a current prospectus for the Bear Stearns Fund(s) in which I(we)
am(are) investing. The undersigned acknowledges that the Telephone Exchange Privilege is automatic and that I(we) may bear the
risk of loss in event of fraudulent use of the Privilege. If I(we) do not want the Telephone Exchange Privilege, I(we) have so
indicated on this Account Information Form.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following certification:
Under penalty of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding or (b) I have not been notified
by the IRS that I am subject to 31% backup withholding as a result of a failure to report all interest or dividends or (c)
the IRS has notified me that I am no longer subject to backup withholding.
Certification Instructions -- You must cross out item (2) above if you have been notified by the IRS that you are currently
subject to backup withholding because of underreporting of interest or dividends on your tax return. Mutual fund shares are not
deposits of, or guaranteed by, any depository institution, nor are they insured by the FDIC. Investment in the funds involves
investment risks, including possible loss of principal.
[ ] Exempt from backup withholding [ ] Nonresident alien (Form W-8 attached)
-----------------------------
COUNTRY OF CITIZENSHIP
------------------------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE TITLE DATE
------------------------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE TITLE DATE
11 For Authorized Dealer Use Only (Please Print)
We hereby authorize the Transfer Agent to act as our agent in connection with the transactions authorized by the Account
Information Form and agree to notify the Transfer Agent of any purchases made under a Letter of Intent or Right of
Accumulation. If this Account Information Form includes a Telephone Exchange Privilege authorization, a Telephone Redemption
Privilege authorization or an Automatic Withdrawal Plan request, we guarantee the signature(s) above.
------------------------------------------------------------------------------------------------------------------
DEALER'S NAME DEALER NUMBER
------------------------------------------------------------------------------------------------------------------
MAIN OFFICE ADDRESS BRANCH NUMBER
------------------------------------------------------------------------------------------------------------------
REPRESENTATIVE'S NAME REP. NUMBER
( )
------------------------------------------------------------------------ ---------------------------------------
BRANCH ADDRESS TELEPHONE NUMBER
------------------------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF DEALER TITLE DATE
12 Additional Account Statements (Please Print)
In addition to myself and my representative, please send copies of my account statements to:
----------------------------------------------------------- -----------------------------------------------------------
NAME NAME
----------------------------------------------------------- -----------------------------------------------------------
ADDRESS ADDRESS
----------------------------------------------------------- -----------------------------------------------------------
CITY, STATE, ZIP CODE CITY, STATE, ZIP CODE
NOT PART OF THE PROSPECTUS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13 Systematic Investment Plan
The Systematic Investment Plan, which is available to shareholders of the Bear Stearns Funds, makes possible regularly
scheduled purchases of Fund shares to allow dollar-cost averaging. The Funds' Transfer Agent can arrange for an amount of money
selected by you ($100 minimum) to be deducted from your checking account and used to purchase shares of a specified Bear
Stearns Fund. A $250 minimum initial investment is required. This may not be used in conjunction with the Automatic Withdrawal
Plan.
Please debit $_______________ from my checking account (named in Section 9) on or about the 20th of the month. Depending on the
Application receipt date, the Plan may take 10 to 20 days to be in effect.
[ ] Monthly [ ] Every alternate month
[ ] Quarterly [ ] Other _________________________________
$ ______________ into the ______________________________________________Fund __________________________ Start Month.
$100 MINIMUM
$ ______________ into the ______________________________________________Fund __________________________ Start Month.
$100 MINIMUM
$ ______________ into the ______________________________________________Fund __________________________ Start Month.
$100 MINIMUM
If you are applying for the Telephone Redemption Privilege or Systematic Investment Plan, please tape your voided check on top
of our sample below.
John Smith 000
123 First Avenue
Anytown, USA 12345
------------------------------------------------------------------------------------------------------------
VOID
------------------------------------------------------------------------------------------------------------
-------------------------------------------------- --------------------------------------------
Service Assistance
Our knowledgeable Client Services Representatives are
available to assist you between 8:00 a.m. and 6:00 p.m.
Eastern Time at:
1-800-447-1139
Mailing or Fax Instructions
Mail your completed Account Information Form and
check to:
The Bear Stearns Funds
c/o PFPC Inc.
P.O. Box 8960
Wilmington, DE 19899-8960
Fax: 302-791-1777
If applications will be faxed, please call and notify Client Services at 1-800-
447-1139 before placing an order.
Bear, Stearns & Co, Inc.
6.97
NOT PART OF THE PROSPECTUS
</TABLE>
<PAGE>
CLASS C SHARES
The public offering price for Class C shares is the next determined net asset
value per share of that Class. No initial sales charge is imposed at the time
of purchase. A CDSC is imposed, however, on redemptions of Class C shares made
within the first year of purchase. See "How to Redeem Shares."
RIGHT OF ACCUMULATION--CLASS A SHARES
Pursuant to the Right of Accumulation, certain investors are permitted to pur-
chase Class A shares of any Portfolio at the sales charge applicable to the
total of (a) the dollar amount then being purchased plus (b) the current pub-
lic offering price of all Class A shares of the Portfolios, shares of the
Fund's other portfolios and shares of certain other funds sponsored or advised
by Bear Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns
Investment Trust, then held by the investor. The following purchases of Class
A shares may be aggregated for the purposes of determining the amount of pur-
chase and the corresponding sales load: (a) individual purchases on behalf of
a single purchaser, the purchaser's spouse and their children under the age of
21 years including shares purchased in connection with a retirement account
exclusively for the benefit of such individual(s), such as an IRA, and pur-
chases made by a company controlled by such individual(s); (b) individual pur-
chases by a trustee or other fiduciary account, including an employee benefit
plan (such as employer-sponsored pension, profit-sharing and stock bonus
plans, including plans under Section 401(k) of the Code, and medical, life and
disability insurance trusts); or (c) individual purchases by a trustee or
other fiduciary purchasing shares concurrently for two or more employee bene-
fit plans of a single employer or of employers affiliated with each other.
Subsequent purchases made under 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--CLASS A SHARES
By checking the appropriate box in the Letter of Intent section of the Account
Information Form, investors become eligible for the reduced sales load appli-
cable to the total number of Class A shares of each Portfolio, Class A shares
of the Fund's other portfolios and shares of certain other funds sponsored or
advised by Bear Stearns, including the Emerging Markets Debt Portfolio of Bear
Stearns Investment Trust, purchased in a 13-month period pursuant to the terms
and under the conditions set forth herein. A minimum initial purchase of
$1,000 is required. The Transfer Agent will hold in escrow 5% of the amount
indicated in the Account Information Form for payment of a higher sales load
if the investor does not purchase the full amount indicated in the Account In-
formation Form. The escrow will be released when the investor fulfills the
terms of the Letter of Intent by purchasing the specified amount. If an in-
vestor's purchases qualify for a further sales load reduction, the sales load
will be adjusted to reflect the total purchase at the end of 13 months. If to-
tal purchases are less than the amount specified, the investor will be re-
quested to remit an amount equal to the difference between the sales load ac-
tually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent,
as attorney-in-fact, will redeem an appropriate number of shares held in es-
crow to realize the difference. Checking a box in the Letter of Intent section
of the Account Information Form does not bind an investor to purchase, or a
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 Systematic Investment Plan permits investors to purchase shares of a Port-
folio (minimum initial investment of $250 and minimum subsequent investments
of $100 per transaction) at regular intervals selected by the investor. Pro-
vided the investor's bank or other financial institution allows automatic
withdrawals, Portfolio shares may be purchased by transferring funds from the
account designated by the investor. At the investor's option, the account des-
ignated will be debited in the specified amount, and Portfolio shares will be
purchased once a month, on the twentieth day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House member may
be so designated. Investors desiring to participate in the Systematic Invest-
ment Plan should call the Transfer Agent at 1-800-447-1139 to obtain the ap-
propriate forms. The Systematic Investment Plan does not assure a profit and
does not protect against loss in declining markets. Since the
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Systematic Investment Plan involves the continuous investment in a Portfolio
regardless of fluctuating price levels of the Portfolio's shares, investors
should consider their financial ability to continue to purchase through peri-
ods of low price levels. The Fund may modify or terminate the Systematic In-
vestment Plan at any time or charge a service fee. No such fee currently is
contemplated.
Shareholder Services
EXCHANGE PRIVILEGE
The Exchange Privilege enables an investor to purchase, in exchange for shares
of a Class of a Portfolio, shares of the same Class of the Fund's other port-
folios 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 invest-
ors. To use this Privilege, investors should consult their account executive
at Bear Stearns, their account executive at an Authorized Dealer or the Trans-
fer Agent to determine if it is available and whether any conditions are im-
posed on its use.
To use this Privilege, exchange instructions must be given to the Transfer
Agent in writing or by telephone. A shareholder wishing to make an exchange
may do so by sending a written request to the Transfer Agent at the address
given above in "How to Buy Shares--General." Shareholders are automatically
provided with telephone exchange privileges when opening an account, unless
they indicate on the account application that they do not wish to use this
privilege. Shareholders holding share certificates are not eligible to ex-
change shares of a Portfolio by phone because share certificates must accom-
pany all exchange requests. To add this feature to an existing account that
previously did not provide for this option, a Telephone Exchange Authorization
Form must be filed with the Transfer Agent. This form is available from the
Transfer Agent. Once this election has been made, the shareholder may contact
the Transfer Agent by telephone at 1-800-447-1139 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 re-
quests to the Transfer Agent in writing.
If the exchanging shareholder does not currently own shares of the portfolio
or fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and Authorized
Dealer of record as the account from which shares are exchanged, unless other-
wise specified in writing by the shareholder with all signatures guaranteed by
an eligible guarantor institution as described below. To participate in the
Systematic Investment Plan or establish automatic withdrawal for the new ac-
count, however, an exchanging shareholder must file a specific written re-
quest. 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 regis-
tered, the account number, recent transactions in the account, and the account
holder's Social Security number, address and/or bank).
Before any exchange, the investor must obtain and should review a copy of the
current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained free of charge from Bear Stearns, any Au-
thorized Dealer or the Transfer Agent. Except in the case of Personal Retire-
ment Plans, the shares being exchanged must have a current value of at least
$250; furthermore, when establishing a new account by exchange, the shares be-
ing exchanged must have a value of at least the minimum initial investment re-
quired for the portfolio or fund into which the exchange is being made; if
making an exchange to an existing account, the dollar value must equal or ex-
ceed the applicable minimum for subsequent investments. If any amount remains
in the investment portfolio from which the exchange is being made, such amount
must not be below the minimum account value required by the Portfolio or Fund.
Shares will be exchanged at the next determined net asset value; however, ex-
cept in the instances described below, a sales load may be charged with re-
spect to exchanges of Class A shares into portfolios or funds sold with a
sales load. Generally, a sales load will be charged if the shares being ex-
changed were subject to a sales load which is lower than the sales load to
which the shares being purchased are subject or were not subject to any sales
load. No CDSC will be imposed on Class C
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<PAGE>
shares at the time of an exchange. The CDSC applicable on redemption of the
acquired Class C shares will be calculated from the date of the initial pur-
chase of the Class C shares exchanged. If an investor is exchanging Class A
shares 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 Ex-
change 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 shares of one portfolio or fund for shares of another is
treated for federal income tax purposes as a sale of the shares given in ex-
change by the shareholder and, therefore, an exchanging shareholder may recog-
nize a taxable gain or loss.
REDIRECTED DISTRIBUTION OPTION
The Redirected Distribution Option enables a shareholder to invest automati-
cally dividends and/or capital gain distributions, if any, paid by a Portfolio
in shares of the same Class 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; in certain instances a CDSC will be charged.
Investors may request redemption of Portfolio shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, the Portfolio will redeem the shares at the next determined net asset
value. If the investor holds Portfolio shares of more than one Class, any re-
quest for redemption must specify the Class of shares being redeemed. If the
investor fails to specify the Class of shares to be redeemed or if the in-
vestor owns fewer shares of the Class than specified to be redeemed, the re-
demption request may be delayed until the Transfer Agent receives further in-
structions from the investor, the investor's Bear Stearns account executive or
the investor's Authorized Dealer. The Fund imposes no charges (other than any
applicable CDSC) when shares are redeemed directly through Bear Stearns.
Each Portfolio ordinarily will make payment for all shares redeemed within
three days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. However, if an investor has purchased Portfolio shares by check
and subsequently submits a redemption request by mail, the redemption proceeds
will not be transmitted until the check used for investment has cleared, which
may take up to 15 days. The Fund will reject requests to redeem shares by tel-
ephone or wire for a period of 15 days after receipt by the Transfer Agent of
the purchase check against which such redemption is requested. This procedure
does not apply to shares purchased by wire payment.
The Fund reserves the right to redeem investor accounts at its option upon not
less than 60 days' written notice if the account's net asset value is $750 or
less, for reasons other than market conditions, and remains so during the no-
tice period. Shareholders who have redeemed Class A shares may reinstate their
Portfolio account without a sales charge up to the dollar amount redeemed by
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<PAGE>
purchasing Class A shares of the same Portfolio within 60 days of the redemp-
tion. To take advantage of this reinstatement privilege, shareholders must no-
tify their Bear Stearns account executive, Authorized Dealer or the Transfer
Agent at the time the privilege is exercised.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES
A CDSC of 1% payable to Bear Stearns is imposed on any redemption of Class C
shares within one year of the date of purchase. No CDSC will be imposed to the
extent that the net asset value of the Class C shares redeemed does not exceed
(i) the current net asset value of Class C shares acquired through reinvest-
ment of dividends or capital gain distributions, plus (ii) increases in the
net asset value of an investor's Class C shares above the dollar amount of all
such investor's payments for the purchase of Class C shares held by the in-
vestor at the time of redemption.
If the aggregate value of Class C shares redeemed has declined below their
original cost as a result of the Portfolio's performance, the applicable CDSC
may be applied to the then-current net asset value rather than the purchase
price.
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares ac-
quired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value of Class C shares above
the total amount of payments for the purchase of Class C shares made during
the preceding year; then of amounts representing shares purchased more than
one year prior to the redemption; and, finally, of amounts representing the
cost of shares purchased within one year prior to the redemption.
For example, assume an investor purchased 100 shares of an Equity 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. As-
suming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the value of the rein-
vested 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% for a total CDSC of $2.40.
The CDSC applicable to Class C shares will be waived in connection with (a)
redemptions made within one year after the death or disability, as defined in
Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the
"Code"), of the shareholder, (b) redemptions by employees participating in El-
igible Benefit Plans, (c) redemptions as a result of a combination of any in-
vestment company with a Portfolio by merger, acquisition of assets or other-
wise, and (d) a distribution following retirement under a tax-deferred retire-
ment 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 Trust-
ees determine to discontinue the waiver of the CDSC, the disclosure in the
Portfolios' 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 CDSC waived as provided in the Portfolio's prospectus at the
time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption an investor
must notify the Transfer Agent or the investor's Bear Stearns account execu-
tive or the investor's Authorized Dealer must notify the Distributor. Any such
qualification is subject to confirmation of the investor's entitlement.
PROCEDURES
REDEMPTION THROUGH BEAR STEARNS OR AUTHORIZED DEALERS
Clients with a brokerage account may submit redemption requests to their ac-
count executives or Authorized Dealers in person or by telephone, mail or
wire. As the Fund's agent, Bear Stearns or Authorized Dealers may honor a re-
demption request by repurchasing Fund shares from a redeeming shareholder at
the shares' net asset value next computed after receipt of the request by Bear
Stearns or the Authorized Dealer. Under normal circumstances, within three
days, redemption proceeds will be paid by check or credited to the sharehold-
er's brokerage account at the election of the shareholder. Bear Stearns ac-
count executives or Authorized Dealers are responsible for promptly forwarding
redemption requests to the Transfer Agent.
If an investor authorizes telephone redemption, the Transfer Agent may act on
telephone instructions from any person representing himself or herself to be a
representative of Bear Stearns or the Authorized Dealer and reasonably be-
lieved by the Transfer Agent to be genuine. The Fund will require the Transfer
Agent to employ reasonable procedures, such as requiring a form of personal
22
<PAGE>
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Transfer Agent or the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions reason-
ably believed to be genuine.
REDEMPTION THROUGH THE TRANSFER AGENT
Shareholders who are not clients with a brokerage account who wish to redeem
shares must redeem their shares through the Transfer Agent by mail; other
shareholders also may redeem Fund shares through the Transfer Agent. Mail re-
demption requests should be sent to the Transfer Agent at: PFPC Inc., Atten-
tion: The Bear Stearns Funds--[Name of Portfolio], P.O. Box 8960, Wilmington,
Delaware 19899-8960.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
A shareholder may have redemption proceeds of $500 or more wired to the share-
holder's brokerage account or a commercial bank account designated by the
shareholder. A transaction fee of $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns account executive, to any Autho-
rized Dealer, or to the Transfer Agent if the shares are not held in a broker-
age account.
If share certificates have been issued, written redemption instructions, indi-
cating the portfolio from which shares are to be redeemed, and duly endorsed
share certificates, must be received by the Transfer Agent in proper form and
signed exactly as the shares are registered. If the proceeds of the redemption
would exceed $25,000, or if the proceeds are not to be paid to the record
owner at the record address, or if the shareholder is a corporation, partner-
ship, trust or fiduciary, signature(s) must be guaranteed by any eligible
guarantor institution. A signature guarantee is designed to protect the share-
holders and the Portfolio against fraudulent transactions by unauthorized per-
sons. A signature guarantee may be obtained from a domestic bank or trust com-
pany, recognized broker, dealer, clearing agency or savings association who
are participants in a medallion program by the securities transfer associa-
tion. The three recognized medallion programs are Securities Transfer Agent
Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and New
York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature Guaran-
tees which are not a part of these programs will not be accepted. Please note
that a notary public stamp or seal is not acceptable. The Fund reserves the
right to amend or discontinue its signature guarantee policy at any time and,
with regard to a particular redemption transaction, to require a signature
guarantee at its discretion. Any questions with respect to signature-guaran-
tees should be directed to the Transfer Agent by calling 1-800-447-1139.
During times of drastic economic or market conditions, investors may experi-
ence difficulty in contacting Bear Stearns or Authorized Dealers by telephone
to request a redemption of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the redemption request being proc-
essed at a later time than it would have been if telephone redemption had been
used. During the delay, each Portfolio's net asset value may fluctuate.
AUTOMATIC WITHDRAWAL
Automatic Withdrawal permits investors to request withdrawal of a specified
dollar amount (minimum of $25) on either a monthly or quarterly basis if the
investor has a $5,000 minimum account. An application for Automatic Withdrawal
can be obtained from Bear Stearns or the Transfer Agent. Automatic Withdrawal
may be ended at any time by the investor, the Fund or the Transfer Agent.
Shares for which certificates have been issued may not be redeemed through Au-
tomatic Withdrawal. Purchases of additional shares concurrent with withdrawals
generally are undesirable.
Class C shares withdrawn pursuant to the Automatic Withdrawal will be subject
to any applicable CDSC. Purchases of additional Class A shares where the sales
load is imposed concurrently with withdrawals of Class A shares generally are
undesirable.
Dividends, Distributions and Taxes
Dividends will be automatically reinvested in additional Portfolio shares at
net asset value, unless payment in cash is requested or dividends are redi-
rected into another fund pursuant to the Redirected Distribution Option. The
Bond Portfolio declares dividends from net investment income on each day the
New York Stock Exchange is open for business. These dividends usually are paid
on or about the twentieth day of each month. The earnings for Saturdays, Sun-
days and holidays are de-
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<PAGE>
clared as dividends on the preceding business day. Shares begin accruing in-
come dividends on the day the purchase order is effective. If all shares in an
account are redeemed at any time, all dividends to which the shareholder is
entitled will be paid along with the proceeds of the redemption.
Each Equity Portfolio ordinarily pays dividends from its net investment income
at least once a year.
Each 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 dis-
tribution requirements of the Code, in all events in a manner consistent with
the provisions of the 1940 Act. No Portfolio will 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
Portfolio shares at net asset value, unless payment in cash is requested or
dividends are redirected into another fund pursuant to the Redirected Distri-
bution Option. All expenses are accrued daily and deducted before declaration
of dividends to investors. Dividends paid by each Class of each Portfolio will
be calculated at the same time and in the same manner and will be of the same
amount, except that the expenses attributable solely to a particular Class of
a Portfolio will be borne exclusively by such Class. Class C shares will re-
ceive lower per share dividends than Class A shares because of the higher ex-
penses borne by Class C. See "Fee Table."
Dividends derived from net investment income, together with distributions from
net realized short-term securities gains and all or a portion of any gains re-
alized from the sale or disposition of certain market discount bonds, paid by
a Portfolio will be taxable to U.S. shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Portfolio or redi-
rected into another portfolio or fund. Distributions from net realized long-
term securities gains of a 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's shares and whether such distri-
butions 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%. Divi-
dends and distributions may be subject to state and local taxes.
Dividends, together with distributions from net realized short-term securities
gains and all or a portion of any gains realized from the sale or other dispo-
sition of certain market discount bonds, paid by a Portfolio to a foreign in-
vestor 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 speci-
fied in a tax treaty. Distributions from net realized long-term securities
gains paid by a 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. non-
resident withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of investors' dividends and distributions will be
mailed to them annually. Investors also will receive periodic summaries of
their accounts which will include information as to dividends and distribu-
tions from securities gains, if any, paid during the year.
The Code provides for the "carryover" of some or all of the sales load imposed
on a Portfolio's Class A shares if an investor exchanges such shares for
shares of another fund or portfolio advised or sponsored by BSFM or its affil-
iates within 91 days of purchase and such other fund reduces or eliminates its
otherwise applicable sales load for the purpose of the exchange. In this case,
the amount of the sales load charged the investor for such shares, up to the
amount of the reduction of the sales load charge on the exchange, is not in-
cluded in the basis of such shares for purposes of computing gain or loss on
the exchange, and instead is added to the basis of the fund shares received on
the exchange.
Generally, the Fund must 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 share holder fails to cer-
tify that the TIN furnished in connection with opening an account is correct
and that such shareholder has not received notice from the IRS of being sub-
ject 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 direct the Fund to institute backup withholding if the IRS determines
that a shareholder's TIN is incorrect or if a shareholder has failed to prop-
erly report taxable dividend and interest income on a federal income tax re-
turn.
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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.
While a Portfolio is not expected to have any federal tax liability, investors
should expect to be subject to federal, state and local taxes in respect of
their investment in Portfolio shares.
Management of the Fund believes that each Portfolio has qualified for the fis-
cal year ended March 31, 1997 as a "regulated investment company" under the
Code. Each Portfolio intends to continue to so qualify if such qualification
is in the best interests of its shareholders. Such qualification relieves a
Portfolio of any liability for federal income tax to the extent its earnings
are distributed in accordance with applicable provisions of the Code. A Port-
folio may be 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 applicable to an investment in a Portfolio.
Performance Information
For purposes of advertising, performance for each Class of each Portfolio 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 as-
sume that any income dividends and/or capital gains distributions made by a
Portfolio during the measuring period were reinvested in shares of the same
Class. These figures also take into account any applicable distribution and
shareholder servicing fees. As a result, at any given time, the performance of
Class C should be expected to be lower than that of Class A. Performance for
each Class will be calculated separately.
Performance of the Bond Portfolio also may be advertised on the basis of cur-
rent yield. Current yield refers to the Bond Portfolio's annualized net in-
vestment income per share over a 30-day period, expressed as a percentage of
the net asset value per share at the end of the period. For purposes of calcu-
lating current yield, the amount of net investment income per share during
that 30-day period, computed in accordance with regulatory requirements, is
compounded by assuming that it is reinvested at a constant rate over a six-
month period. An identical result is then assumed to have occurred during a
second six-month period which, when added to the result for the first six
months, provides an "annualized" yield for an entire one-year period.
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Portfolio was purchased with an ini-
tial payment of $1,000 and that the investment was redeemed at the end of a
stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the re-
deemable value of the investment at the end of the period. Advertisements of
each Portfolio's performance will include such Portfolio's average annual to-
tal return for one, five and ten year periods, or for shorter periods depend-
ing upon the length of time during which the Portfolio has operated. Computa-
tions of average annual total return for periods of less than one year repre-
sent an annualization of such Portfolio's actual total return for the applica-
ble period.
Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions. Total return generally is expressed as a percent-
age rate which is calculated by combining the income and principal changes for
a specified period and dividing by the net asset value (or maximum public of-
fering price in the case of Class A shares) per share at the beginning of the
period. Class C total return will reflect the deduction of the CDSC. Adver-
tisements may include the percentage rate of total return or may include the
value of a hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return. Total return for each
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 or without giving effect to any ap-
plicable CDSC at the end of the period for Class C shares. Calculations based
on the net asset value per share do not reflect the deduction of the sales
load on the Portfolio's Class A shares, which, if reflected, would reduce the
performance quoted.
Performance will vary from time to time and past results are not necessarily
representative of future results. Investors should remember that performance
is a function of portfolio management in select-
25
<PAGE>
ing the type and quality of portfolio securities and is affected by operating
expenses. Performance information, such as that described above, may not pro-
vide a basis for comparison with other investments or other investment compa-
nies using a different method of calculating performance.
Comparative performance information may be used from time to time in advertis-
ing or marketing each Equity Portfolio's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price Index,
Wilshire 4500 Stock Index, Russell Small Cap Index, the Dow Jones Industrial
Average and other industry publications. Performance information that may be
used in advertising or marketing the Bond Portfolio's shares can include data
from Lipper Analytical Services, Inc., Morningstar, Inc., Bond Buyer's 20-Bond
Index, Moody's Bond Survey Bond Index, Lehman Brothers Aggregate Bond Index,
Salomon Brothers Broad Investment-Grade Index and components thereof, Mutual
Fund Values; Mutual Fund Forecaster, Mutual Fund Investing and other industry
publications.
General Information
The Fund was organized as a 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, and commenced operations on or about
April 3, 1995. The Fund is authorized to issue an unlimited number of shares
of beneficial interest, par value $.001 per share. Each Portfolio's shares are
classified into three Classes--Class A, Class C and Class Y. Each share has
one vote and shareholders will vote in the aggregate and not by Class, except
as otherwise required by law.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Portfolio of which they are
shareholders. However, the Trust Agreement disclaims shareholder liability for
acts or obligations of the relevant 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 indem-
nification from the respective Portfolio's property for all losses and ex-
penses of any shareholder held personally liable for the obligations of a
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 a Portfolio, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of such Portfolio. The Fund's Trustees intend to conduct the
operations of each Portfolio in a way so as to avoid, as far as possible, ul-
timate liability of the shareholders for liabilities of the Portfolio. As dis-
cussed under "Management of the Fund" in the Portfolios' Statement of Addi-
tional Information, each Portfolio ordinarily will not hold shareholder meet-
ings; 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 port-
folios and all assets in which such consideration is invested will belong to
that portfolio (subject only to the rights of creditors of the Fund) and will
be subject to the liabilities related thereto. The assets attributable to, and
the expenses of, one portfolio (and as to classes within a portfolio) are
treated separately from those of the other portfolios (and classes). The Fund
has the ability to create, from time to time, new portfolios of shares without
shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be submit-
ted under the provisions of the 1940 Act or applicable state law or otherwise
to the holders of the outstanding voting securities of an investment company,
such as the Fund, will not be deemed to have been effectively acted upon un-
less approved by the holders of a majority of the outstanding shares of each
portfolio affected by such matter. Rule 18f-2 further provides that a portfo-
lio shall be deemed to be affected by a matter unless it is clear that the in-
terests of such portfolio in the matter are identical or that the matter does
not affect any interest of such portfolio. However, Rule 18f-2 exempts the se-
lection of independent accountants and the election of Trustees from the sepa-
rate voting requirements of Rule 18f-2.
The Transfer Agent maintains a record of share ownership and will send confir-
mations and statements of account.
Shareholder inquiries may be made by writing to the Fund at PFPC Inc., Atten-
tion: The Bear Stearns Funds, P.O. Box 8960, Wilmington, Delaware 19899-8960,
by calling 1-800-447-1139 or by calling Bear Stearns at 1-800-766-4111.
26
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Appendix
INVESTMENT TECHNIQUES
In connection with its investment objective and policies, each Portfolio may
employ, among others, the following investment techniques which may involve
certain risks. Options and futures transactions involve "derivative securi-
ties."
OPTIONS TRANSACTIONS--(ALL PORTFOLIOS)
Each Portfolio may engage in options transactions. Each Portfolio is permitted
to invest up to 5% of its assets, represented by the premium paid, in the pur-
chase of call and put options in respect of specific securities (or groups or
"baskets" of specific securities) in which the Portfolio may invest. Each
Portfolio may write and sell covered call option contracts on securities owned
by the Portfolio not exceeding 20% of the value of its net assets at the time
such option contracts are written. Each Portfolio also may purchase call op-
tions to enter into closing purchase transactions. Each Portfolio also may
write covered put option contracts to the extent of 20% of the value of its
net assets at the time such option contracts are written. A call option gives
the purchaser of the option the right to buy, and obligates the writer to
sell, the underlying security at the exercise price at any time during the op-
tion period. Conversely, a put option gives the purchaser of the option the
right to sell, and obligates the writer to buy, the underlying security at the
exercise price at any time during the option period. A covered put option sold
by a Portfolio exposes the Portfolio during the term of the option to a de-
cline in price of the underlying security or securities. A put option sold by
the Portfolio is covered when, among other things, cash or liquid securities
are placed in a segregated account with the Fund's custodian to fulfill the
obligation undertaken.
Each Equity Portfolio also may purchase and sell call and put options on for-
eign currency for the purpose of hedging against changes in future currency
exchange rates. Call options convey the right to buy the underlying currency
at a price which is expected to be lower than the spot price of the currency
at the time the option expires. Put options convey the right to sell the un-
derlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option expires.
Each Equity Portfolio may purchase and sell call and put options on stock in-
dexes listed on U.S. securities exchanges or traded in the over-the-counter
market. A stock index fluctuates with changes in the market values of the
stocks included in the index. Because the value of an index option depends
upon movements in the level of the index rather than the price of a particular
stock, whether an Equity Portfolio will realize a gain or loss from the pur-
chase or writing of options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the price of a par-
ticular stock.
Successful use by each Equity Portfolio of options will be subject to BSFM's
ability to predict correctly movements in the direction of individual stocks,
the stock market generally, foreign currencies or interest rates. The Bond
Portfolio's successful use of options will be subject to BSFM's ability to
predict correctly movements in interest rates. To the extent BSFM's predic-
tions are incorrect, a Portfolio may incur losses which could adversely affect
the value of a shareholder's investment.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--(ALL PORTFOLIOS)
Each Portfolio may enter into interest rate futures contracts and options with
respect thereto. Each Equity Portfolio also may enter into stock index futures
contracts and currency futures contracts, and options with respect thereto, in
U.S. domestic markets or on exchanges located outside the United States. See
"--Options Transactions" above. These transactions will be entered into as a
substitute for comparable market positions in the underlying securities or for
hedging purposes. Although no Portfolio would be a commodity pool, it would be
subject to rules of the CFTC limiting the extent to which it could engage in
these transactions.
Each Portfolio's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
CFTC. In addition, a Portfolio may not engage in such transactions if the sum
of the amount of initial margin deposits and premiums paid for unexpired com-
modity options, other than for bona fide hedging transactions, would exceed 5%
of the liquidation value of the Portfolio's assets, after taking into account
unrealized profits and unrealized losses on such contracts it has entered in-
to; provided, however, that in the case of an
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option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the 5%. To the extent a Portfolio engages in
the use of futures and options on futures for other than bona fide hedging
purposes, the Portfolio may be subject to additional risk.
Engaging in these transactions involves risk of loss to a Portfolio which
could adversely affect the value of a shareholder's investment. Although each
Portfolio intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid mar-
ket will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation permit-
ted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that
day at a price beyond that limit or trading may be suspended for specified pe-
riods during the trading day. Futures contract prices could move to the limit
for several consecutive trading days with little or no trading, thereby pre-
venting prompt liquidation of futures positions and potentially subjecting the
Portfolio to substantial losses. In addition, an Equity Portfolio engaging in
futures transactions in foreign markets may involve greater risks than trading
on domestic exchanges.
Successful use of futures by an Equity Portfolio or the Bond Portfolio also is
subject to BSFM's ability to predict correctly movements in the direction of
the market or foreign currencies, or interest rates, respectively, and, to the
extent the transaction is entered into for hedging purposes, to ascertain the
appropriate correlation between the transaction being hedged and the price
movements of the futures contract. For example, if a Portfolio has hedged
against the possibility of a decline in the market adversely affecting the
value of securities held in its portfolio and prices increase instead, the
Portfolio will lose part or all of the benefit of the increased value of secu-
rities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Portfolio has in-
sufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market. The Portfolio may have to
sell securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and Ex-
change Commission, each Portfolio may be required to segregate cash or high
quality liquid securities in connection with its commodities transactions in
an amount generally equal to the value of the underlying commodity. The segre-
gation of such assets will have the effect of limiting the Portfolio's ability
otherwise to invest those assets.
FORWARD COMMITMENTS--(BOND PORTFOLIO)
The Bond Portfolio may purchase securities on a when-issued or forward commit-
ment basis, which means that the price is fixed at the time of commitment, but
delivery and payment ordinarily take place a number of days after the date of
the commitment to purchase. The Bond Portfolio will make commitments to pur-
chase such securities only with the intention of actually acquiring the secu-
rities, but the Bond Portfolio may sell these securities before the settlement
date if it is deemed advisable. The Bond Portfolio will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
Securities purchased on a when-issued or forward commitment basis and certain
other securities held by the Bond Portfolio are subject to changes in value
(both generally changing in the same way, i.e., appreciating when interest
rates decline and depreciating when interest rates rise) based upon the
public's perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a when-
issued or forward commitment basis may expose the Bond Portfolio to risk be-
cause they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment basis can involve
the additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction it-
self. A segregated account of the Bond Portfolio consisting of cash, cash
equivalents or U.S. Government securities or other high quality liquid debt
securities of the type in which the Bond Portfolio invests at least equal at
all times to the amount of the when-issued or forward commitments will be es-
tablished and maintained at the Fund's custodian bank. Purchasing securities
on a forward commitment basis when the Bond Portfolio is fully or almost fully
invested may result in greater potential fluctuation in the value of the Bond
Portfolio's net assets and its net asset value per share.
FUTURE DEVELOPMENTS--(ALL PORTFOLIOS)
Each Portfolio may take advantage of opportunities in the area of options and
futures contracts, options on futures contracts and any other derivative in-
vestments which are not presently contem-
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plated for use by a Portfolio or which are not currently available but which
may be developed, to the extent such opportunities are both consistent with a
Portfolio's investment objective and legally permissible for such Portfolio.
Before entering into such transactions or making any such investment, the
Portfolio will provide appropriate disclosure in its prospectus.
LENDING PORTFOLIO SECURITIES--(ALL PORTFOLIOS)
From time to time, each Portfolio may lend securities from its portfolio to
brokers, dealers and other financial institutions needing to borrow securities
to complete certain transactions. Such loans may not exceed 33 1/3% of the
value of a Portfolio's total assets. In connection with such loans, a Portfo-
lio 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 secu-
rities. Each Portfolio can increase its income through the investment of such
collateral. A Portfolio continues to be entitled to payments in amounts equal
to the interest, dividends and other distributions payable on the loaned secu-
rity and receives interest on the amount of the loan. Such loans will be ter-
minable at any time upon specified notice. A Portfolio might experience risk
of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with such Portfolio.
BORROWING MONEY--(ALL PORTFOLIOS)
As a fundamental policy, each 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, each 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 a Portfolio's total as-
sets, such Portfolio will not make any additional investments.
CERTAIN PORTFOLIO SECURITIES
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS--(EQUITY PORTFOLIOS)
Each Equity Portfolio's assets may be invested in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs") and European De-
positary Receipts ("EDRs"). These securities may not necessarily be denomi-
nated in the same currency as the securities into which they may be converted.
ADRs are receipts typically issued by a United States bank or trust company
which evidence ownership of underlying securities issued by a foreign corpora-
tion. EDRs, which are sometimes referred to as Continental Depositary Receipts
("CDRs"), are receipts issued in Europe typically by non-United States banks
and trust companies that evidence ownership of either foreign or domestic se-
curities. Generally, ADRs in registered form are designed for use in the
United States securities markets and EDRs and CDRs in bearer form are designed
for use in Europe. Each Equity Portfolio may invest in ADRs, EDRs and CDRs
through "sponsored" or "unsponsored" facilities. A sponsored facility is es-
tablished jointly by the issuer of the underlying security and a depositary,
whereas a depositary may establish an unsponsored facility without participa-
tion by the issuer of the deposited security. Holders of unsponsored deposi-
tary receipts generally bear all the costs of such facilities and the deposi-
tary of an unsponsored facility frequently is under no obligation to distrib-
ute shareholder communications received from the issuer of the deposited secu-
rity or to pass through voting rights to the holders of such receipts in re-
spect of the deposited securities.
MORTGAGE-RELATED SECURITIES--(BOND PORTFOLIO)
The Bond Portfolio may invest in mortgage-related securities which are collat-
eralized by pools of mortgage loans.
Mortgage-related securities are a form of derivative securities collateralized
by pools of mortgage loans assembled for sale to investors by various govern-
mental agencies, such as the Government National Mortgage Association and gov-
ernment-related organizations such as the Federal National Mortgage Associa-
tion and the Federal Home Loan Mortgage Corporation, as well as by private is-
suers such as commercial banks, savings and loan institutions, mortgage banks
and private mortgage insurance companies, and similar foreign entities. The
mortgage-related securities in which the Bond Portfolio may invest include
those with fixed, floating and variable interest rates, those with interest
rates that change based on multiples of changes in interest rates and those
with interest rates that change inversely to changes in interest rates, as
well as stripped mortgage-backed securities which are derivative multiclass
mortgage securities. Stripped mortgage-backed securities usually are struc-
tured with two classes that receive different proportions of interest and
principal distributions on a pool of mortgage-backed securities or whole
loans. A common type of stripped mort-
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<PAGE>
gage-backed security will have one class receiving some of the interest and
most of the principal from the mortgage collateral, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). Although certain mortgage-related securities
are guaranteed by a third party or otherwise similarly secured, the market
value of the security, which may fluctuate, is not so secured. If the Bond
Portfolio purchases a mortgage-related security at a premium, all or part of
the premium may be lost if there is a decline in the market value of the secu-
rity, whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of certain of these securities are inversely affected by changes in in-
terest rates. However, though the value of a mortgage-related security may de-
cline when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to prepay. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict accurately
the security's return to the Bond Portfolio. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities ex-
perience greater than anticipated prepayments of principal, the Bond Portfolio
may fail to fully recoup its initial investment in these securities even if
the securities are rated in the highest rating category by a nationally recog-
nized statistical rating organization. In addition, regular payments received
in respect of mortgage-related securities include both interest and principal.
No assurance can be given as to the return the Bond Portfolio will receive
when these amounts are reinvested. For further discussion concerning the in-
vestment considerations involved, see "Description of the Fund--Risk Factors--
Fixed-Income Securities" above and "Illiquid Securities" below and "Investment
Objective and Management Policies--Portfolio Securities--Mortgage-Related Se-
curities" in the Statement of Additional Information.
ASSET-BACKED SECURITIES--(BOND PORTFOLIO)
The Bond Portfolio may invest in asset-backed securities which are a form of
derivative securities. The securitization techniques used for asset-backed se-
curities are similar to those used for mortgage-related securities. These se-
curities include debt securities and securities with debt-like characteris-
tics. The collateral for these securities has included home equity loans, au-
tomobile and credit card receivables, boat loans, computer leases, airplane
leases, mobile home loans, recreational vehicle loans and hospital account re-
ceivables.
Asset-backed securities present certain risks that are not presented by mort-
gage-backed securities. Primarily, these securities do not have the benefit of
the same security interest in the related collateral. Credit card receivables
generally are unsecured and the debtors are entitled to the protection of a
number of state and Federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain pos-
session of the underlying obligations. If the servicer were to sell these ob-
ligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset-backed secu-
rities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may
not have a proper security interest in all of the obligations backing such re-
ceivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
CONVERTIBLE SECURITIES--(ALL PORTFOLIOS)
Convertible securities may be converted at a stated price within a specified
period of time into a specified number of shares of common stock of the same
or a different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convert-
ible debt securities. While providing a fixed-income stream (generally higher
in yield than the income derivable from a common stock but lower than that af-
forded by a non-convertible debt security), a convertible security also af-
fords an investor the opportunity, through its conversion feature, to partici-
pate in the capital appreciation of the common stock into which it is convert-
ible.
The Bond Portfolio also may invest in debt securities with warrants attached
or in units with warrants. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
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<PAGE>
In connection with its purchases of convertible securities (which include debt
securities with warrants), the Bond Portfolio from time to time may hold com-
mon stock received upon the conversion of the security or the exercise of the
warrant. The Bond Portfolio does not intend to retain the common stock in its
portfolio and will sell it as promptly as it can and in a manner which it be-
lieves will reduce the risk to the Bond Portfolio of loss in connection with
the sale.
In general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its "con-
version value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and gen-
erally decreases when interest rates rise. However, the price of a convertible
security also is influenced by the market value of the security's underlying
common stock. Thus, the price of a convertible security generally increases as
the market value of the underlying stock increases, and generally decreases as
the market value of the underlying stock declines. Investments in convertible
securities generally entail less risk than investments in the common stock of
the same issuer.
MUNICIPAL OBLIGATIONS--(BOND PORTFOLIO)
Municipal obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their polit-
ical subdivisions, agencies and instrumentalities, or multistate agencies or
authorities. While in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal obligations
of similar quality, certain issues of municipal obligations, both taxable and
non-taxable, offer yields comparable and in some cases greater than the yields
available on other permissible investments. Municipal obligations generally
include debt obligations issued to obtain funds for various public purposes as
well as certain industrial development bonds issued by or on behalf of public
authorities. Dividends received by shareholders which are attributable to in-
terest income received by it from municipal obligations generally will be sub-
ject to federal income tax. Municipal obligations bear fixed, floating or
variable rates of interest, which are determined in some instances by formulas
under which the municipal obligation's interest rate will change directly or
inversely to changes in interest rates or an index, or multiples thereof, in
many cases subject to a maximum and minimum. The Bond Portfolio currently in-
tends to invest no more than 25% of its assets in municipal obligations. How-
ever, this percentage may be varied from time to time without shareholder ap-
proval.
ZERO COUPON AND STRIPPED SECURITIES--(BOND PORTFOLIO)
The Bond Portfolio may invest in zero coupon U.S. Treasury securities, which
are Treasury Notes and Bonds that have been stripped of their unmatured inter-
est coupons, the coupons themselves and receipts or certificates representing
interests in such stripped debt obligations and coupons. The Bond Portfolio
also may invest in zero coupon securities issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool
of underlying U.S. Treasury securities. A zero coupon security pays no inter-
est to its holder during its life and is sold at a discount to its face value
at maturity. The amount of the discount fluctuates with the market price of
the security. The market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest periodically
and are likely to respond to a greater degree to changes in interest rates
than non-zero coupon securities having similar maturities and credit quali-
ties.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES--(BOND
PORTFOLIO)
The Bond Portfolio may invest in U.S. dollar denominated obligations issued or
guaranteed by one or more foreign governments or any of their political subdi-
visions, agencies or instrumentalities that are determined by BSFM to be of
comparable quality to the other obligations in which the Bond Portfolio may
invest. Such securities also include debt obligations of supranational enti-
ties. Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or de-
velopment and international banking institutions and related government agen-
cies. Examples include the International Bank for Reconstruction and Develop-
ment (the World Bank), the European Coal and Steel Community, the Asian Devel-
opment Bank and the InterAmerican Development Bank. The percentage of the Bond
Portfolio's assets invested in securities issued by foreign governments will
vary depending on the relative yields of such securities, the economic and fi-
nancial markets of the countries in which the investments are made and the in-
terest rate climate of such countries.
MONEY MARKET INSTRUMENTS
Each Portfolio may invest, in the circumstances described under "Description
of the Fund--Management Policies," in the following types of money market in-
struments, each of which at the time of
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purchase must have or be deemed to have under rules of the Securities and Ex-
change Commission remaining maturities of 13 months or less.
U.S. TREASURY SECURITIES--(ALL PORTFOLIOS)
U.S. Treasury securities include Treasury Bills, Treasury Notes and Treasury
Bonds 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.
U.S. GOVERNMENT SECURITIES--(ALL PORTFOLIOS)
In addition to U.S. Treasury securities, U.S. Government securities include
securities issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage As-
sociation 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 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 Mar-
keting 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--(ALL PORTFOLIOS)
Each Portfolio may invest in bank obligations, including certificates of de-
posit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign subsidi-
aries of domestic banks, and domestic and foreign branches of foreign banks, a
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 obliga-
tions 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 restric-
tions which might adversely affect the payment of principal and interest on
these securities and the possible seizure or nationalization of foreign depos-
its.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by each Portfolio will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. No Portfolio will invest more than 15%
of the value of its net assets in time deposits maturing in more than seven
days and in other securities that are illiquid.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include unin-
sured, direct obligations bearing fixed, floating or variable interest rates.
REPURCHASE AGREEMENTS--(ALL PORTFOLIOS)
Repurchase agreements involve the acquisition by a Portfolio of an underlying
debt instrument, subject to an obligation of the seller to repurchase, and
such Portfolio to resell, the instrument at a fixed price usually not more
than one week after its purchase. Certain costs may be incurred by a Portfolio
in connection with the sale of the securities if the seller does not repur-
chase them in accordance with the repurchase agreement. In addition, if bank-
ruptcy proceedings are commenced with respect to the seller of the securities,
realization on the securities by a Portfolio may be delayed or limited.
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COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS--(ALL PORTFOLIOS)
Commercial paper consists of short-term, unsecured promissory notes issued to
finance short-term credit needs. The commercial paper purchased by each Port-
folio will consist only of direct obligations which, at the time of their pur-
chase, are (a) rated not lower than Prime-1 by Moody's, A-1 by S&P, F-1 by
Fitch or Duff-1 by 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 BSFM to be of comparable
quality to those rated obligations which may be purchased by a Portfolio. Each
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.
WARRANTS--(EQUITY PORTFOLIOS)
Each Equity Portfolio may invest up to 5% of its net assets in warrants, ex-
cept that this limitation does not apply to warrants acquired in units or at-
tached to securities. Included in such amount, but not to exceed 2% of the
value of an Equity Portfolio's net assets, may be warrants which are not
listed on the New York or American Stock Exchange. A warrant is an instrument
issued by a corporation which gives the holder the right to subscribe to a
specified amount of the corporation's capital stock at a set price for a spec-
ified period of time.
INVESTMENT COMPANY SECURITIES--(ALL PORTFOLIOS)
Each Portfolio may invest in securities issued by other investment companies.
Under the 1940 Act, a 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 such Portfolio's total assets with re-
spect to any one investment company and (iii) 10% of the Portfolio's total as-
sets in the aggregate. Investments in the securities of other investment com-
panies will involve duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES--(ALL PORTFOLIOS)
Each Portfolio may invest up to 15% of the value of its net assets in securi-
ties as to which a liquid trading market does not exist, provided such invest-
ments are consistent with the Portfolio's investment objective. Such securi-
ties may include securities that are not readily marketable, such as certain
securities that are subject to legal or contractual restrictions on resale,
repurchase agreements providing for settlement in more than seven days after
notice, options traded in the over-the-counter market and securities used to
cover such options, and certain asset-backed and mortgage-backed securities,
such as certain collateralized mortgage obligations and stripped mortgage-
backed securities. As to these securities, each Portfolio is subject to a risk
that should such 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 such Portfolio's net assets could be adversely affected.
RATINGS--(ALL PORTFOLIOS)
The ratings of Moody's, S&P, Fitch and Duff represent their opinions as to the
quality of the obligations which they undertake to rate. It should be empha-
sized, however, that ratings are relative and subjective and, although ratings
may be useful in evaluating the safety of interest and principal payments,
they do not evaluate the market value risk of such obligations. Therefore, al-
though these ratings may be an initial criterion for selection of portfolio
investments, BSFM also will evaluate such obligations and the ability of their
issuers to pay interest and principal. Each Portfolio will rely on BSFM's
judgment, analysis and experience in evaluating the creditworthiness of an is-
suer. In this evaluation, BSFM will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic condi-
tions and trends, the quality of the issuer's management and regulatory mat-
ters. It also is possible that a rating agency might not timely change the
rating on a particular issue to reflect subsequent events. Once the rating of
a security held by a Portfolio has been changed, BSFM will consider all cir-
cumstances deemed relevant in determining whether such Portfolio should con-
tinue to hold the security.
A-7
<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
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 PORTFOLIO'S PROSPECTUS AND IN
THE PORTFOLIO'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE
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 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>
T H E B E A R S T E A R N S F U N D S
2 4 5 P A R K A V E N U E N E W Y O R K, N Y 1 0 1 6 7 1 . 8 0 0
. 7 6 6 . 4 1 1 1
PROSPECTUS
The Bear Stearns Funds
LARGE CAP VALUE PORTFOLIO o SMALL CAP VALUE PORTFOLIO o TOTAL RETURN BOND PORT-
FOLIO CLASS Y SHARES
THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment com-
pany, known as a mutual fund. The Fund permits you to invest in separate port-
folios. By this Prospectus, Class Y shares of three diversified portfolios
(each, a "Portfolio") are offered: the Large Cap Value Portfolio and the Small
Cap Value Portfolio (together, the "Equity Portfolios") and the Total Return
Bond Portfolio (the "Bond Portfolio").
o Each Equity Portfolio's investment objective is capital appreciation.
o The Bond Portfolio's investment objective is to maximize total return,
consistent with preservation of capital. The Bond Portfolio will in-
vest primarily in investment grade, U.S. dollar denominated fixed-in-
come securities of domestic and foreign issuers. Under normal market
conditions, the Bond Portfolio will invest in a portfolio of securi-
ties with a dollar-weighted average maturity ranging from four to
thirteen years and a duration of not less than 65% of the Salomon
Brothers Broad Investment Grade ("BIG") Bond Index and not more than
135% of the Salomon Brothers BIG Bond Index.
Class Y shares are sold at net asset value without a sales charge to investors
whose minimum investment is at least $2.5 million. Each Portfolio issues other
classes of shares which have sales charges and different expenses which would
affect performance. Investors desiring to obtain information about these other
classes 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 each Portfolio's investment adviser
(the "Advisor").
BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as
each Portfolio's distributor.
----------------------
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT EACH PORTFOLIO THAT YOU
SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE REFER-
ENCE.
Part B (also known as the Statement of Additional Information), dated July 14,
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 en-
dorsed by, any bank, and are not federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board, or any other agency.
The net asset value of funds of this type will fluctuate.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
JULY 14, 1997
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Fee Table.................................................................. 3
Financial Highlights....................................................... 4
Description of the Fund.................................................... 5
Risk Factors............................................................. 8
Management of the Fund..................................................... 10
How to Buy Shares.......................................................... 12
Shareholder Services....................................................... 13
How to Redeem Shares....................................................... 14
Dividends, Distributions and Taxes......................................... 16
Performance Information.................................................... 17
General Information........................................................ 18
Appendix................................................................... A-1
</TABLE>
2
<PAGE>
Fee Table
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
LARGE CAP SMALL CAP TOTAL RETURN
VALUE VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
CLASS Y CLASS Y CLASS Y
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... None None None
Maximum Deferred Sales Charge Imposed on
Redemptions (as a percentage of the amount
subject to charge)........................... None None None
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Management Fees (after fee waiver)*.......... 0.00% 0.00% 0.00%
12b-1 Fees................................... None None None
Other Expenses (after expense
reimbursement)*.............................. 1.00% 1.00% 0.45%
Total Portfolio Operating Expenses (after fee
waiver and expense reimbursement)*........... 1.00% 1.00% 0.45%
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..................................... $ 10 $ 10 $ 5
3 YEARS.................................... $ 32 $ 32 $14
5 YEARS.................................... $ 55 $ 55 $25
10 YEARS.................................... $122 $122 $57
</TABLE>
- ------
*BSFM has undertaken to waive its investment advisory fee and assume certain
expenses of each Portfolio other than brokerage commissions, extraordinary
items, interest and taxes to the extent Total Portfolio Operating Expenses ex-
ceed .00% and 0.45% for each Equity Portfolio and the Bond Portfolio, respec-
tively. Without such fee waiver and expense reimbursement, Management Fees
stated above would be 0.75% and 0.45%, for each Equity Portfolio and Bond
Portfolio, respectively. Other Expenses would be 1.75%, 1.25% and 1.73% for
Large Cap Value Portfolio, Small Cap Value Portfolio and Bond Portfolio, re-
spectively, and Total Portfolio Operating Expenses would be 2.50%, 2.00% and
2.18% for Large Cap Value Portfolio, Small Cap Value Portfolio and Bond Port-
folio, respectively.
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, EACH
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 each 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 ef-
fect, see "Management of the Fund."
3
<PAGE>
Financial Highlights
The information in the table below covering each Portfolio's investment re-
sults for the periods indicated has been audited by Deloitte & Touche LLP.
Further financial data and related notes appear in the Portfolios' Annual Re-
port for the fiscal year ended March 31, 1997 which is incorporated by refer-
ence into the Portfolios' Statement of Additional Information which is avail-
able upon request.
Contained below is per share operating performance data, total investment re-
turn, ratios to average net assets and other supplemental data for a Class Y
share of each Portfolio for the periods indicated. This information has been
derived from information provided in each Portfolio's financial statements.
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FOR THE PERIOD
SEPTEMBER 11, PERIOD SEPTEMBER 8,
1995 JUNE 22, 1995 1995
FOR THE FISCAL YEAR ENDED THROUGH THROUGH THROUGH
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1996 MARCH 31, 1996
--------------------------------- -------------- -------------- --------------
LARGE CAP SMALL CAP TOTAL RETURN LARGE CAP SMALL CAP
VALUE VALUE BOND VALUE VALUE TOTAL RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO BOND PORTFOLIO
--------- --------- ------------ -------------- -------------- --------------
CLASS Y CLASS Y CLASS Y CLASS Y CLASS Y CLASS Y
--------- --------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE**
Net asset value,
beginning of period.... $ 15.12 $ 15.85 $ 12.26 $ 13.98 $ 13.09 $ 12.35
------- ------- ------- ------- ------- -------
Net investment income
(1).................... 0.23 (0.05) 0.77 0.07 -- 0.41
Net realized and
unrealized gain/(loss)
on investments (2)..... 2.17 1.97 (0.20) 1.16 3.05 (0.05)
------- ------- ------- ------- ------- -------
Net increase in net
assets resulting from
operations............. 2.40 1.92 0.57 1.23 3.05 0.36
------- ------- ------- ------- ------- -------
Dividends and
distributions to
shareholders from:
Net investment income... (0.16) -- (0.77) (0.08) -- (0.41)
Net realized capital
gains.................. (0.18) (0.30) (0.03) (0.01) (0.29) (0.04)
------- ------- ------- ------- ------- -------
(0.34) (0.80) (0.09) (0.29) (0.45)
------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 17.18 $ 17.47 $ 12.03 $ 15.12 $ 15.85 $ 12.26
======= ======= ======= ======= ======= =======
Total investment return
(3).................... 16.04% 12.19% 4.77% 8.75% 23.52% 2.92%
======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's omitted). $ 6,109 $16,724 $13,486 $ 3,413 $ 8,989 $12,199
Ratio of expenses to
average net assets (1). 1.00% 1.00% 0.45% 1.00%(4) 1.00%(4) 0.45%(4)
Ratio of net investment
income to average net
assets (1)............. 1.00% (0.31)% 6.34% 0.76%(4) -- 5.93%(4)
Decrease reflected in
above expense ratios
and net investment
income due to waivers
and reimbursements..... 1.50% 1.00% 1.73% 4.41%(4) 2.45%(4) 2.89%(4)
Portfolio turnover rate. 136.67% 56.88% 262.95% 45.28%(5) 40.79%(5) 107.35%(5)
Average commission rate
per share (6).......... $0.0593 $0.0550 -- $0.0596 $0.0572 --
</TABLE>
- ------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective peri-
ods are not in accord with the changes in the aggregate gains and losses
in investments during the respective periods because of the timing of
sales and repurchases of Portfolio shares in relation to fluctuating net
asset values during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends
and distributions, if any. Total investment return is not annualized.
(4) Annualized.
(5) Not annualized.
(6) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments subject to such commissions during each
period.
Further information about performance is contained in the Portfolios' Annual
Report, which may be obtained without charge by writing to the address or
calling one of the telephone numbers listed under "General Information."
4
<PAGE>
Description of the Fund
INVESTMENT OBJECTIVE
Each Equity Portfolio seeks to provide capital appreciation. The Bond
Portfolio seeks to maximize total return, consistent with preservation of
capital.
Each Equity Portfolio's investment objective is capital appreciation. The Bond
Portfolio's investment objective is to maximize total return, consistent with
preservation of capital. See "--Management Policies" below. Each Portfolio's
investment objective cannot be changed without approval by the holders of a
majority as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of such Portfolio's outstanding voting shares. There can be no
assurance that a Portfolio's investment objective will be achieved.
MANAGEMENT POLICIES
EQUITY PORTFOLIOS
The LARGE CAP VALUE PORTFOLIO invests, under normal market conditions, sub-
stantially all of its assets in equity securities of issuers with market capi-
talizations of $1 billion or more and identified by BSFM as value companies.
The SMALL CAP VALUE PORTFOLIO invests, under normal market conditions, sub-
stantially all of its assets in equity securities of issuers with market capi-
talizations between $500 million and $1 billion and identified by BSFM as
value companies.
To determine whether a company's stock falls within the value classification,
BSFM analyzes it based on fundamental factors such as price to book value ra-
tios, price to earnings ratios, earnings growth, dividend payout ratios, re-
turn on equity, and the company's beta (a measure of stock price volatility
relative to the market generally). In general, BSFM believes that companies
with relatively low price to book ratios, low price to earnings ratios or
higher than average dividend payments in relation to price should be classi-
fied as value companies.
For potential investments, BSFM also, among other matters, may review new man-
agement and upcoming corporate restructuring plans, consider the general busi-
ness cycle and the company's position within the specific industry and con-
sider the responsiveness of the company to identified problems in an effort to
assess the likelihood of future appreciation of the company's securities.
BSFM anticipates that at least 85% of the value of each Equity Portfolio's to-
tal assets (except when maintaining a temporary defensive position) will be
invested in equity securities of domestic and foreign issuers. Each Equity
Portfolio expects, under normal market conditions, to invest less than 10% of
its assets in the equity securities of foreign issuers. Equity securities con-
sist of common stocks, convertible securities and preferred stocks. The con-
vertible securities and preferred stocks in which each Equity Portfolio may
invest will be rated at least investment grade by a nationally recognized sta-
tistical rating organization at the time of purchase. Each Equity Portfolio
may invest, in anticipation of investing cash positions, in money market in-
struments consisting of U.S. Government securities, certificates of deposit,
time deposits, bankers' acceptances, short-term investment grade corporate
bonds and other short-term debt instruments, and repurchase agreements, as set
forth in the Appendix. Under normal market conditions, each Equity Portfolio
expects to have less than 15% of its assets invested in money market instru-
ments. However, when BSFM determines that adverse market conditions exist,
each Equity Portfolio may adopt a temporary defensive posture and invest all
of its assets in money market instruments.
BOND PORTFOLIO
The BOND PORTFOLIO invests at least 65% of the value of its total assets (ex-
cept when maintaining a temporary defensive position) in bonds (which it de-
fines as bonds, debentures and other fixed-income securities). The Bond Port-
folio is permitted to invest in a broad range of investment grade, U.S. dollar
denominated fixed-income securities and securities with debt-like characteris-
tics (e.g., bearing interest or having stated principal) of domestic and for-
eign issuers. These debt securities include bonds, debentures, notes, money
market instruments (including foreign bank obligations, such as time deposits,
certificates of deposit and bankers' acceptances, commercial paper and other
short-term corporate debt obligations, and repurchase agreements), mortgage-
related securities (including interest-only and principal-only stripped mort-
gage-backed securities), asset-backed securities, municipal obligations and
convertible debt obligations. The issuers may include domestic and foreign
corporations, partnerships or trusts, and governments or their political sub-
divisions, agencies or instrumentalities. Under normal market conditions, the
Bond Portfolio seeks to provide performance results that equal or exceed the
Salomon Brothers BIG Bond Index, which is a market-capital-
5
<PAGE>
ization weighted index that includes U.S. Treasury, Government-sponsored,
mortgage and investment grade fixed-rate corporate fixed-income securities
with a maturity of one year or longer and a minimum of $50 million amount out-
standing at the time of inclusion in the Salomon Brothers BIG Bond Index. As
of March 31, 1997, the weighted average maturity of securities comprising the
Salomon Brothers BIG Bond Index was approximately--nine years and their effec-
tive duration was approximately--five years. Under normal market conditions,
the Bond Portfolio invests in a portfolio of securities with a dollar-weighted
average maturity ranging from four to thirteen years and a duration of not
less than 65% of the Salomon Brothers BIG Bond Index and not more than 135% of
the Salomon Brothers BIG Bond Index.
As a measure of a fixed-income security's cash flow, duration is an alterna-
tive to the concept of "term to maturity" in assessing the price volatility
associated with changes in interest rates. Generally, the longer the duration,
the more volatility an investor should expect. For example, the market price
of a bond with a duration of five years would be expected to decline 5% if in-
terest rates rose 1%. Conversely, the market price of the same bond would be
expected to increase 5% if interest rates fell 1%. The market price of a bond
with a duration of ten years would be expected to increase or decline twice as
much as the market price of a bond with a five year duration. Duration mea-
sures a security's maturity in terms of the average time required to receive
the present value of all interest and principal payments as opposed to its
term to maturity. The maturity of a security measures only the time until fi-
nal payment is due; it does not take account of the pattern of a security's
cash flows over time, which would include how cash flow is affected by prepay-
ments and by changes in interest rates. Incorporating a security's yield, cou-
pon interest payments, final maturity and option features into one measure,
duration is computed by determining the weighted average maturity of a bond's
cash flows, where the present values of the cash flows serve as weights. In
computing the duration of the Bond Portfolio, BSFM will estimate the duration
of obligations that are subject to prepayment or redemption by the issuer,
taking into account the influence of interest rates on prepayments, coupon
flows and other factors which may affect the maturity of the security. This
method of computing duration is known as effective duration.
BSFM anticipates actively managing the Bond Portfolio's assets in response to
change in the business cycle. BSFM seeks to identify and respond to phases in
the business cycle--simplistically, the expansion, topping out, recession and
trough phases--and to invest the Bond Portfolio's assets by shifting among
market sectors, maturities and relative credit quality in a way which it be-
lieves will achieve the Bond Portfolio's objective in a relatively conserva-
tive manner taking into account the volatility and risk associated with in-
vesting in a portfolio of relatively longer-term fixed-income securities.
While the Bond Portfolio seeks, as part of its investment objective, to pre-
serve capital, investors should recognize that the net asset value per share
of the Bond Portfolio should be expected to be more volatile than the net as-
set value per share of a fund that invested in portfolio securities with a
shorter duration.
At least 70% of the value of the Bond Portfolio's net assets must consist of
securities which, in the case of bonds and other debt instruments, are rated
no lower than A by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. ("S&P"),
Fitch Investors Service, L.P. ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff") or, if unrated, deemed to be of comparable quality by BSFM. Up to 30%
of the value of the Bond Portfo-lio's net assets may consist of securities
which, in the case of bonds and other debt instruments, are rated no lower
than Baa by Moody's and BBB by S&P, Fitch and Duff or, if unrated, deemed to
be of comparable quality by BSFM. The Bond Portfolio may invest in short-term
fixed-income obligations which are rated in the two highest rating categories
by Moody's, S&P, Fitch or Duff. See "Risk Factors--Fixed-Income Securities"
below, and "Appendix" in the Statement of Additional Information.
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 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 Portfo-
lios are being offered. From time to time, other portfolios may be established
and sold pursuant to other offering documents. See "General Information."
INVESTMENT TECHNIQUES
Each Portfolio may engage in various investment techniques, such as options
and futures transactions, short selling and lending portfolio securities, each
of which involves risk. Each Equity Portfolio also may engage in foreign cur-
rency exchange transactions, which also involve risk. Options and
6
<PAGE>
futures transactions, as well as investments in certain asset-backed, mort-
gage-backed and government securities, involve "derivative securities." Short
selling is discussed below. For a discussion of these other investment tech-
niques and their related risks, see "Appendix--Investment Techniques" and
"Risk Factors" below.
Short sales are transactions in which a Portfolio sells a security it does not
own in anticipation of a decline in the market value of that security. To com-
plete such a transaction, the Portfolio must borrow the security to make de-
livery to the buyer. The Portfolio then is obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. The
price at such time may be more or less than the price at which the security
was sold by the Portfolio. Until the security is replaced, the Portfolio is
required to pay to the lender amounts equal to any dividend which accrues dur-
ing the period of the loan. To borrow the security, the Portfolio also may be
required to pay a premium, which would increase the cost of the security sold.
The proceeds of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position is closed out.
Short selling by the Bond Portfolio will be used primarily in conjunction with
a long transaction, but not necessarily in the same instrument or an instru-
ment with a similar maturity or interest rate, to effect a hedged position to
take advantage of spreads in the market place.
Until the Portfolio replaces a borrowed security in connection with a short
sale, the Portfolio will: (a) maintain daily a segregated account, containing
liquid securities, at such a level that the amount deposited in the account
plus the amount deposited with the broker as collateral always equals the cur-
rent value of the security sold short; or (b) otherwise cover its short posi-
tion in accordance with positions taken by the staff of the Securities and Ex-
change Commission.
A Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on
which the Portfolio replaces the borrowed security. A Portfolio will realize a
gain if the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium or amounts in lieu of interest the
Portfolio may be required to pay in connection with a short sale. Each Portfo-
lio may purchase call options to provide a hedge against an increase in the
price of a security sold short by the Portfolio. See "Appendix--Investment
Techniques--Options Transactions."
Each Portfolio anticipates that the frequency of short sales will vary sub-
stantially in different periods, and it does not intend that any specified
portion of its assets, as a matter of practice, will be invested in short
sales. However, no securities will be sold short if, after effect is given to
any such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Portfolio's net assets. No Portfolio may sell
short the securities of any single issuer listed on a national securities ex-
change to the extent of more than 5% of the value of its net assets. No Port-
folio may sell short the securities of any class of an issuer to the extent,
at the time of the transaction, of more than 2% of the outstanding securities
of that class.
In addition to the short sales discussed above, each Portfolio may make short
sales "against the box," a transaction in which the Portfolio enters into a
short sale of a security which the Portfolio owns. The proceeds of the short
sale will be held by a broker until the settlement date at which time the
Portfolio delivers the security to close the short position. The Portfolio re-
ceives the net proceeds from the short sale. The Portfolio at no time will
have more than 15% of the value of its net assets in deposits on short sales
against the box. It currently is anticipated that the Portfolio will make
short sales against the box for purposes of protecting the value of the Port-
folio's net assets.
CERTAIN FUNDAMENTAL POLICIES
Each Portfolio may (i) borrow money to the extent permitted under the 1940
Act; (ii) invest up to 5% of the value of its total assets in the obligations
of any issuer, except that up to 25% of the value of the Portfolio's total as-
sets may be invested, and securities issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities may be purchased, without regard to
any such limitation; and (iii) invest up to 25% of the value of its total as-
sets in the securities of issuers in a single industry, provided that there is
no such limitation on investments in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. This paragraph describes
fundamental policies that cannot be changed as to a Portfolio without approval
by the holders of a majority (as defined in the 1940 Act) of such Portfolio's
outstanding voting shares. See "Investment Objective and Management Policies--
Investment Restrictions" in the Statement of Additional Information.
7
<PAGE>
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each 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. In ad-
dition, each Equity Portfolio may purchase securities of any company having
less than three years' continuous operation (including operations of any pred-
ecessors) if such purchase does not cause the value of such Equity Portfolio's
investments in all such companies to exceed 5% of the value of its total as-
sets. See "Investment Objective and Management Policies--Investment Restric-
tions" in the Statement of Additional Information.
RISK FACTORS
No investment is free from risk. Investing in a Portfolio will subject invest-
ors to certain risks which should be considered.
NET ASSET VALUE FLUCTUATIONS--(ALL PORTFOLIOS)
Each Portfolio's net asset value per share is not fixed and should be expected
to fluctuate. Investors should purchase Portfolio shares only as a supplement
to an overall investment program and only if investors are willing to under-
take the risks involved.
EQUITY SECURITIES--(EQUITY PORTFOLIOS)
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. The securities of smaller cap companies
may be subject to more abrupt or erratic market movements than larger cap com-
panies, both because the securities typically are traded in lower volume and
because the issuers typically are subject to a greater degree to changes in
earnings and prospects. Changes in the value of the equity securities in an
Equity Portfolio's portfolio will result in changes in the value of the Equity
Portfolio's shares and thus the Equity Portfolio's yield and total return to
investors.
FIXED-INCOME SECURITIES--(BOND PORTFOLIO)
Investors should be aware that even though interest-bearing securities are in-
vestments which promise a stable stream of income, the prices of such securi-
ties typically are inversely affected by changes in interest rates and, there-
fore, are subject to the risk of market price fluctuations. Thus, if interest
rates have increased from the time a security was purchased, such security, if
sold, might be sold at a price less than its cost. Similarly, if interest
rates have declined from the time a security was purchased, such security, if
sold, might be sold at a price greater than its cost. In either instance, if
the security was purchased at face value and held to maturity, no gain or loss
would be realized. Certain securities purchased by the Bond Portfolio, such as
those with interest rates that fluctuate directly or indirectly based on mul-
tiples of a stated index, are designed to be highly sensitive to changes in
interest rates and can subject the holders thereof to extreme reductions of
yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities. Once the rating
of a security purchased by the Bond Portfolio has been adversely changed, the
Bond Portfolio will consider all circumstances deemed relevant in determining
whether to continue to hold the security. Holding such securities that have
been downgraded below investment grade can subject the Bond Portfolio to addi-
tional risk. Certain securities purchased by the Bond Portfolio, such as those
rated Baa by Moody's or BBB by S&P, Fitch or Duff, may be subject to such risk
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Debt securities
which are rated Baa by Moody's are considered medium grade obligations; they
are neither highly protected nor poorly secured, and are considered by Moody's
to have speculative characteristics. Debt securities rated BBB by S&P are re-
garded as having adequate capacity to pay interest and repay principal, and
while such debt securities ordinarily 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 securities
in this category than in higher rated categories. Fitch considers the obli-
gor's ability to pay interest and repay principal on debt securities rated BBB
to be adequate; adverse changes in economic conditions and circumstances, how-
ever, are more likely to have an adverse impact on these debt securities and,
therefore, impair timely payment. Debt securities rated BBB by Duff are con-
sidered to have below average protection factors but still considered suffi-
cient for prudent investment.
No assurance can be given as to the liquidity of the market for certain mort-
gage-backed securities, such as collateralized mortgage obligations and
stripped mortgage-backed securities. Determination
8
<PAGE>
as to the liquidity of interest-only and principal-only fixed mortgage-backed
securities issued by the U.S. Government or its agencies and instrumentalities
will be made in accordance with guidelines established by the Fund's Board of
Trustees. In accordance with such guidelines, BSFM will monitor investments in
such securities with particular regard to trading activity, availability of
reliable price information and other relevant information. The Bond Portfolio
intends to treat other stripped mortgage-backed securities as illiquid securi-
ties. See "Appendix--Certain Portfolio Securities--Illiquid Securities."
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. If the Bond Portfolio invests in such
securities it may be required, to maintain its qualification as a regulated
investment company and avoid liability for federal income taxes, to distribute
the income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
CERTAIN INVESTMENT TECHNIQUES--(ALL PORTFOLIOS)
The use of investment techniques such as engaging in options and futures
transactions, engaging in foreign currency exchange transactions, short sell-
ing and lending portfolio securities involves greater risk than that incurred
by many other funds with a similar objective. Using these techniques may pro-
duce higher than normal portfolio turnover and may affect the degree to which
the Portfolio's net asset value fluctuates. Higher portfolio turnover rates
are likely to result in comparatively greater brokerage commissions or trans-
action costs. See "Appendix--Investment Techniques."
Each Portfolio's ability to engage in certain short-term transactions may be
limited by the requirement that, to qualify as a regulated investment company,
it must earn less than 30% of its gross income from the disposition of securi-
ties held for less than three months. This 30% test limits the extent to which
the Portfolio may sell securities held for less than three months, effect
short sales of securities held for less than three months, write options ex-
piring in less than three months and invest in certain futures contracts,
among other strategies. With the exception of the above requirement, the
amount of portfolio activity will not be a limiting factor when making portfo-
lio decisions. Under normal market conditions, the portfolio turnover rate of
each Portfolio generally will not exceed 100%. See "Portfolio Transactions" in
the Portfolios' Statement of Additional Information.
INVESTING IN FOREIGN SECURITIES--(ALL PORTFOLIOS)
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, vol-
ume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States. The issuers of some of these securities, such as foreign bank
obligations, may be subject to less stringent or different regulations than
are U.S. issuers. In addition, there may be less publicly available informa-
tion about a non-U.S. issuer, and non-U.S. issuers generally are not subject
to uniform accounting and financial reporting standards, practices and re-
quirements comparable to those applicable to U.S. issuers.
Because stock certificates and other evidences of ownership of such securities
usually are held outside the United States, each Portfolio will be subject to
additional risks which include possible adverse political and economic devel-
opments, possible seizure or nationalization of foreign deposits and possible
adoption of governmental restrictions that might adversely affect the payment
of principal, interest and dividends on the foreign securities or might re-
strict the payment of principal, interest and dividends to investors located
outside the country of the issuers, whether from currency blockage or other-
wise. Custodial expenses for a portfolio of non-U.S. securities generally are
higher than for a portfolio of U.S. securities.
Since foreign securities often are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may
be affected favorably or unfavorably by changes in currency rates and exchange
control regulations. Some currency exchange costs may be incurred when a Port-
folio changes investments from one country to another.
Furthermore, some of these securities may be subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income received by a Portfolio from
sources within foreign countries may be reduced by withholding or other taxes
imposed by such countries, although applicable tax conventions may reduce or
eliminate such taxes. All such taxes paid by a Portfolio will reduce its net
income available for distribution to investors.
9
<PAGE>
FOREIGN CURRENCY EXCHANGE--(EQUITY PORTFOLIOS)
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign govern-
ments or central banks, or the failure to intervene, or by currency controls
or political developments in the United States or abroad.
The foreign currency market offers less protection against defaults in the
forward trading of currencies than is available when trading in currencies oc-
curs on an exchange. Since a forward currency contract is not guaranteed by an
exchange or clearinghouse, a default on the contract would deprive an Equity
Portfolio of unrealized profits or force the Equity Portfolio to cover its
commitments for purchase or resale, if any, at the current market price.
FOREIGN COMMODITY TRANSACTIONS--(EQUITY PORTFOLIOS)
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission (the
"CFTC") and may be subject to greater risks than trading on domestic ex-
changes. See "Appendix--Investment Techniques." For example, some foreign ex-
changes are principal markets so that no common clearing facility exists and a
trader may look only to the broker for performance of the contract. In addi-
tion, unless an Equity Portfolio hedges against fluctuations in the exchange
rate between the U.S. dollar and the currencies in which trading is done on
foreign exchanges, any profits that the Equity Portfolio might realize in
trading could be eliminated by adverse changes in the exchange rate, or the
Equity Portfolio could incur losses as a result of those changes.
SIMULTANEOUS INVESTMENTS--(ALL PORTFOLIOS)
Investment decisions for each 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 dis-
pose of, securities of the type in which a Portfolio invests at the same time
as the Portfolio, available investments or opportunities for sales will be al-
located equitably to each. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by a Portfolio or the
price paid or received by the Portfolio.
Management of the Fund
BOARD OF TRUSTEES
The Fund's business affairs are managed under the general supervision of its
Board of Trustees. The Portfolios' Statement of Additional Information con-
tains the name and general business experience of each Trustee.
INVESTMENT ADVISER
The Portfolios' investment adviser is BSFM, a wholly-owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York,
New York 10167. The Bear Stearns Companies Inc. is a holding company which,
through its subsidiaries including its principal subsidiary, Bear Stearns, is
a leading United States investment banking, securities trading and brokerage
firm serving United States and foreign corporations, governments and institu-
tional and individual investors. BSFM is a registered investment adviser and
offers, either directly or through affiliates, investment advisory and admin-
istrative services to open-end and closed-end investment funds and other man-
aged pooled investment vehicles with net assets at March 31, 1997 of over $2.9
billion.
BSFM supervises and assists in the overall management of the Portfolios' af-
fairs under an Investment Advisory Agreement between BSFM and the Fund, sub-
ject to the overall authority of the Fund's Board of Trustees in accordance
with Massachusetts law. The Large Cap Value Portfolio's principal portfolio
managers are Robert S. Reitzes and Mark A. Kurland. Mark A. Kurland, Chairman
and Chief Executive Officer of BSFM and Bear Stearns Asset Management
("BSAM"), serves as Co-Manager of the Portfolio. Mr. Kurland also serves as
Senior Managing Director of Bear, Stearns & Co. Inc. He was previously Direc-
tor 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 Ad-
visory Counsel, Equities Subcommittee and the Funds Committee. He was previ-
ously Co-Head of Institutional Equities and Director of Research at Mabon, Nu-
gent & Co. Mr. Reitzes is also the principal portfolio manager for the Small
Cap Value Portfolio. The Small Cap Value Portfolio is managed by Robert S.
10
<PAGE>
Reitzes, Harris Cohen and Gail Sprute. Mr. Reitzes is the Director of Mutual
Funds BSFM and Senior Managing Director of Bear Stearns since March 1994. For-
merly, he was Co-Director of Research and Senior Chemical Analyst of C.J.
Lawrence/Deutsche Bank Securities Corp. from January 1991 to March 1994. Ms.
Sprute joined BSAM in 1994 as an equity portfolio manager/equity analyst. From
1991 to 1994, she was employed by Deutsche Morgan Grenfell/C.J. Lawrence as an
associate analyst in the equity research division. Mr. Cohen joined BSAM in
1996 as an equity portfolio manager/analyst. Prior to this, he was a Senior
Analyst at Furman Selz LLC. Mr. Cohen graduated in 1993 with a M.B.A. from the
Stern School of Business at New York University. The Bond Portfolio's princi-
pal manager is Peter E. Mahoney. Mr. Mahoney rejoined Bear Stearns in November
1995 as a Managing Director of Bear Stearns and Director of Fixed Income In-
vestments of Bear Stearns Asset Management, positions he held during his em-
ployment with Bear Stearns from June 1987 through November 1994. From November
1994 to November 1995 he was a financial consultant.
Each Equity Portfolio pays BSFM an advisory fee at an annual rate equal to .75
of 1% of the Equity Portfolio's average daily net assets and the Bond Portfo-
lio pays BSFM an advisory fee at the annual rate of .45 of 1% of the Bond
Portfolio's average daily net assets.
Under the terms of the Investment Advisory Agreement, each Equity Portfolio
has agreed to pay BSFM a monthly fee at the annual rate of .75 of 1% of the
Equity Portfolio's average daily net assets and the Bond Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of .45 of 1% of the Bond Portfo-
lio's average daily net assets. For the fiscal year ended March 31, 1997, [no]
fees were paid by the Large Cap Value Portfolio, Small Cap Value Portfolio and
Bond Portfolio, pursuant to a voluntary undertaking by BSFM.
Each Portfolio's administrator is BSFM. Under the terms of an Administration
Agreement with the Fund, BSFM generally supervises all aspects of the opera-
tion of each Portfolio, subject to the overall authority of the Fund's Board
of Trustees in accordance with Massachusetts law. For providing administrative
services to each Portfolio, the Fund has agreed to pay BSFM a monthly fee at
the annual rate of .15 of 1% of each Portfolio's average daily net assets. Un-
der the terms of an Administrative Services Agreement with the Fund, PFPC Inc.
provides certain administrative services to each Portfolio. For providing
these services, PFPC Inc. is entitled to receive from each Portfolio a monthly
fee equal to an annual rate of .10 of 1% of the Portfolio's average daily net
assets up to $200 million, .075 of 1% of the next $200 million, .05 of 1% of
the next $200 million and .03 of 1% of net assets above $600 million, subject
to a minimum annual fee of $132,000 for each Portfolio.
For the fiscal year ended March 31, 1997, the Large Cap Value Portfolio, Small
Cap Value Portfolio and Bond Portfolio, each paid PFPC Inc. a monthly fee at
the effective annual rate of 0.49 of 1%, 0.31 of 1% and 0.46 of 1%, respec-
tively, of the Portfolio's average daily net assets.
From time to time, BSFM may waive receipt of its fees and/or voluntarily as-
sume certain Portfolio expenses, which would have the effect of lowering the
Portfolio's expense ratio and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. No Portfolio will pay BSFM
at a later time for any amounts it may waive, nor will a Portfolio reimburse
BSFM for any amounts it may assume. From time to time, PFPC Inc. may waive a
portion of its fee. Effective May 1, 1996, and until further notice, PFPC Inc.
will reduce its monthly minimum for each Portfolio to $7,500 for net assets of
less than $25 million; $9,167 for net assets of $25 million to $50 million;
$11,000 for net assets in excess of $50 million. PFPC Inc. reserves the right
to revoke this voluntary fee waiver at any time.
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 each
Portfolio's shares. See "Portfolio Transactions" in the Statement of Addi-
tional Information.
Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment Ad-
visory Agreement is in effect.
DISTRIBUTOR
Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as
each Portfolio's principal underwriter and distributor of each Portfolio's
shares pursuant to an agreement which is renewable annually.
11
<PAGE>
CUSTODIAN AND TRANSFER AGENT
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an
affiliate of Bear Stearns, is each Portfolio's custodian. PFPC Inc., Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is each
Portfolio's transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides certain administrative
services to each 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, includ-
ing the investment advisory fee, exceed 0.45% of the average daily net assets
of the Bond Portfolio--Class Y and 1.00% of the average daily net assets of
each Equity Portfolio--Class Y for the fiscal year, BSFM may waive a portion
of its investment advisory fee or bear other expenses to the extent of the ex-
cess expense.
How to Buy Shares
GENERAL
The minimum initial investment is $2.5 million. Subsequent investments may be
made in any amount. Share certificates are issued only upon written request.
The Fund reserves the right to 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
management of Bear Stearns, its affiliates or authorized dealers are not sub-
ject to the minimum investment requirement.
Purchases of a 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 a Portfo-
lio'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's net asset value per share 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 be-
fore the settlement date.
Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be accept-
ed), Federal Reserve draft or by wiring Federal Funds with funds held in bro-
kerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--[Name of
Portfolio]--Class Y" if purchased directly from the Portfolio, and should be
directed to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns Funds--
[Name of Portfolio]--Class Y, P.O. Box 8960, Wilmington, Delaware 19899-8960.
Direct overnight deliveries to PFPC, Inc., 400 Bellevue Parkway, Suite 108,
Wilmington, Delaware 19809. 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. Shareholders may not purchase shares of the
Portfolio with a check issued by a third party and endorsed over to the Port-
folio. Orders placed directly with the Transfer Agent must be accompanied by
payment. Bear Stearns (or an investor's Authorized Dealer) is responsible for
forwarding payment promptly to the Fund. The Fund will charge $7.50 for each
wire redemption. The payment proceeds of a redemption of shares recently pur-
chased by check may be delayed as described under "How to Redeem Shares."
Investors who are not Bear Stearns clients may purchase Portfolio shares
through the Transfer Agent. To make an initial investment in a Portfolio, an
investor must establish an account with the Portfolio by furnishing necessary
information to the Fund. An account with a Portfolio may be estab-
12
<PAGE>
THE BEAR STEARNS FUNDS
<TABLE>
<S> <C>
Account Information Form
Please Note: For assistance in completing this form, contact PFPC Inc. at 1-800-447-1139.
1 Account Type (Please print; indicate only one registration type)
[ ] Individual [ ] Joint Tenant
------------------------------------------------------------------------------------------------------------------
NAME
------------------------------------------------------------------------------------------------------------------
JOINT REGISTRANT, IF ANY (SEE NOTES 1 AND 2)
___ ___ ___ - ___ ___ - ___ ___ ___ ___ ___ ___ - ___ ___ ___ ___ ___ ___ ___
SOCIAL SECURITY NUMBER OF PRIMARY OWNER TAXPAYER IDENTIFICATION NUMBER
(1) Use only the Social Security number or Taxpayer Identification Number of the first listed joint tenant.
(2) For joint registrations, the account registrants will be joint tenants with right of survivorship and not
tenants in common unless tenants in common or community property registrations are requested.
------------------------------------------------------------------------------------------------------------------
[ ] Uniform Gift to Minors, or [ ] Uniform Transfer to Minors (where allowed by law)
------------------------------------------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
------------------------------------------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
Under the Uniform Gift/Transfers to Minors Act.
----------------------------------------------------------------
STATE RESIDENCE OF MINOR
___ ___ / ___ ___ / ___ ___ ___ ___ ___ - ___ ___ - ___ ___ ___ ___
MINOR'S DATE OF BIRTH MINOR'S SOCIAL SECURITY NUMBER (REQUIRED TO OPEN ACCOUNT)
------------------------------------------------------------------------------------------------------------------
[ ] Corporation [ ] Partnership [ ] Trust* [ ] Other
------------------------------------------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER
------------------------------------------------------------------------------------------------------------------
NAME(S) OF TRUSTEE(S) DATE OF THE TRUST AGREEMENT
___ ___ ___ - ___ ___ - ___ ___ ___ ___ ___ ___ - ___ ___ ___ ___ ___ ___ ___
SOCIAL SECURITY NUMBER (REQUIRED TO OPEN ACCOUNT) TAXPAYER IDENTIFICATION NUMBER (REQUIRED TO OPEN ACCOUNT)
* If a Trust, include date of trust instrument and list of trustees if they are to be named in the registration.
2 Mailing Address
------------------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
( ) ( )
------------------------------------------------------ -------------------------------------------------------
DAY TELEPHONE EVENING TELEPHONE
3 Investment Information
Method of Investment
[ ] I have enclosed a check for a minimum initial investment of $2,500,000 per Fund.
[ ] I will wire the minimum initial investment of $2,500,000 per Fund.
[ ] I have enclosed a check for an additional investment of $ ___________________________ per Fund.
[ ] I will wire an additional investment of $ ___________________________ per Fund.
[ ] I purchased _____________________ shares of _______________________________________________ through my
broker on ____/____/____. Confirm # _______________.
NOT PART OF THE PROSPECTUS
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<TABLE>
<S> <C>
3 Investment Information continued
Wiring Instructions
A. Telephone the Fund's transfer agent, PFPC Inc., toll-free (800) 447-1139, and provide it with your name, address, telephone
number, Social Security or Taxpayer Identification Number, the Fund or Funds selected, the amount being wired, and by which
bank. PFPC Inc. will then provide a Fund account number. (Investors with existing accounts should also notify the FundOs
transfer agent prior to wiring funds.)
B. Instruct your bank or broker to wire the specified amount, together with your assigned account number, to the Transfer
Agent:
PFPC Inc.
ABA-0310-0005-3
Credit account number: 86-1030-3398
From: (name of investor)
Account number: (investor's account number with the Fund)
For purchase of: (name of the Fund)
Amount: (amount to be invested)
Please make my investment in the Funds designated below:
CLASS Y BEAR STEARNS FUNDS INVESTMENT AMOUNT
_________ S&P STARS Portfolio $______________________
_________ Large Cap Value Portfolio $______________________
_________ Small Cap Value Portfolio $______________________
_________ Total Return Bond Portfolio $______________________
_________ The Insiders Select Fund $______________________
_________ Money Market Portfolio $______________________
_________ Prime Money Market Portfolio $______________________
Emerging Markets Debt Portfolio $______________________
TOTAL INVESTMENT AMOUNT $======================
Note: All shares purchased will be held in a shareholder account for the investor at the Transfer Agent. Checks drawn on
foreign banks and checks made payable to persons or entities other than the Fund will not be accepted. Checks should be made
payable to the Fund which you are investing in.
4 Distribution Options
Dividends and capital gains may be reinvested or paid by check. If no options are selected below, both dividends and capital
gains will be reinvested in additional Fund shares.
Dividends [ ] Pay by check. [ ] Reinvest.
Capital Gains [ ] Pay by check. [ ] Reinvest.
The Redirected Distribution Option allows an investor to have dividends and any other distributions from a Fund automatically
used to purchase shares of the same class of any other Fund. The receiving account must be in the same name as your existing
account.
[ ] Please reinvest dividends and capital gains from the ____________________________ to the __________________________ .
(NAME OF FUND) (NAME OF FUND)
If you elect to have distributions paid by check, distributions will be sent to the address of record. Distributions may also
be sent to another payee:
--------------------------------------------------------------------------------------------------------------------------
NAME
--------------------------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
--------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
--------------------------------------------------------------------------------------------------------------------------
Optional Features
5 Telephone Exchange Privilege
Unless indicated below, I authorize the Transfer Agent to accept instructions from any persons to exchange shares in my
account(s) by telephone, in accordance with the procedures and conditions set forth in the FundOs current prospectus.
[ ] I DO NOT want the Telephone Exchange Privilege.
6 Telephone Redemption Privilege
[ ] I authorize the Transfer Agent to accept instructions from any person to redeem shares in my account(s) by telephone, in
accordance with the procedures and conditions set forth in the FundOs current prospectus.
Checks for redemption of proceeds will be sent by check via U.S. Mail to the address of record, unless the information in
Section 7 is completed for redemption by wire of $500 or more.
NOT PART OF THE PROSPECTUS
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<TABLE>
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7 Bank of Record (for Telephone Redemptions)
Please attach a voided check (for electronic credit to your checking account) in the space provided in Section 11.
--------------------------------------------------------------------------------------------------------------------------
BANK NAME
--------------------------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
--------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
--------------------------------------------------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
--------------------------------------------------------------------------------------------------------------------------
ACCOUNT NAME
8 Signature and Taxpayer Certification
The undersigned warrants that I(we) have full authority and, if a natural person, I(we) am(are) of legal age to purchase shares
pursuant to this Account Information Form, and have received a current prospectus for the Bear Stearns Fund(s) in which I(we)
am(are) investing. The undersigned acknowledges that the Telephone Exchange Privilege is automatic and that I(we) may bear the
risk of loss in event of fraudulent use of the Privilege. If I(we) do not want the Telephone Exchange Privilege, I(we) have so
indicated on this Account Information Form.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following certification:
Under penalty of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to
me), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding or (b) I have not been notified by
the IRS that I am subject to 31% backup withholding as a result of a failure to report all interest or dividends or (c) the IRS
has notified me that I am no longer subject to backup withholding.
Certification Instructions N You must cross out item (2) above if you have been notified by the IRS that you are currently
subject to backup withholding because of underreporting of interest or dividends on your tax return. Mutual fund shares are not
deposits of, or guaranteed by, any depository institution, nor are they insured by the FDIC. Investment in the funds involves
investment risks, including possible loss of principal.
[ ] Exempt from backup withholding [ ] Nonresident alien (Form W-8 attached) _____________________________
COUNTRY OF CITIZENSHIP
--------------------------------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE TITLE DATE
--------------------------------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE TITLE DATE
9 For Authorized Dealer Use Only (Please Print)
We hereby authorize the Transfer Agent to act as our agent in connection with the transactions authorized by the Account
Information Form. If this Account Information Form includes a Telephone Exchange Privilege authorization or a Telephone
Redemption Privilege, we guarantee the signature(s) above.
--------------------------------------------------------------------------------------------------------------------------
DEALEROS NAME DEALER NUMBER
--------------------------------------------------------------------------------------------------------------------------
MAIN OFFICE ADDRESS BRANCH NUMBER
--------------------------------------------------------------------------------------------------------------------------
REPRESENTATIVEOS NAME REP. NUMBER
( )
------------------------------------------------------ ----------------------------------------------------------------
BRANCH ADDRESS TELEPHONE NUMBER
--------------------------------------------------------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF DEALER TITLE DATE
10 Additional Account Statements (Please Print)
In addition to myself and my representative, please send copies of my account statements to:
------------------------------------------------------ ------------------------------------------------------
NAME NAME
------------------------------------------------------ ------------------------------------------------------
ADDRESS ADDRESS
------------------------------------------------------ ------------------------------------------------------
CITY, STATE, ZIP CODE CITY, STATE, ZIP CODE
NOT PART OF THE PROSPECTUS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11 If you are applying for the Telephone Redemption Privilege, please tape your voided check on top of our sample below.
John Smith 000
123 First Avenue
Anytown, USA 12345
________________________________________________________________________________________ $ [ ]
VOID
_______________________________________________________________________________________________________
_______________________________________________________________________________________________________
Service Assistance
Our knowledgeable Client Services Representatives are
available to assist you between 8:00 a.m. and 6:00 p.m.
Eastern Time at:
1-800-447-1139
Mailing or Fax Instructions
Mail your completed Account Information Form and check to:
The Bear Stearns Funds
c/o PFPC Inc.
P.O. Box 8960
Wilmington, DE 19899-8960
Fax: 302-791-1777
If applications will be faxed please call and notify Client
Services at 1-800-447-1139 before placing an order.
Bear, Stearns & Co, Inc.
6.97
NOT PART OF THE PROSPECTUS
</TABLE>
<PAGE>
lished by completing and signing the Account Information Form indicating which
Class of shares is being purchased, a copy of which is attached to this Pro-
spectus, and mailing it, together with a check to cover the purchase, to PFPC
Inc., Attention: The Bear Stearns Funds--[Name of Portfolio]--Class Y, P.O.
Box 8960, Wilmington, Delaware 19899-8960.
Subsequent purchases of shares may be made by checks made payable to the Fund
and directed to the address set forth in the preceding paragraph. The Portfo-
lio account number should appear on the check.
Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer
Agent before the close of regular trading on the New York Stock Exchange (cur-
rently 4:00 p.m., New York time) on any day the relevant Portfolio calculates
its net asset value are priced according to the net asset value determined on
that date. Purchase orders received after the close of trading on the New York
Stock Exchange are priced as of the time the net asset value is next deter-
mined.
Shares of the Portfolios are sold on a continuous basis. Net asset value per
share is determined as of the close of regular trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time) on each business day.
The net asset value per share of Class Y of each Portfolio is computed by di-
viding the value of the Portfolio's net assets represented by Class Y (i.e.,
the value of its assets less liabilities) by the total number of shares of
Class Y outstanding. Each Equity 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. Substantially all of the Bond
Portfolio's investments are valued each business day at fair value as deter-
mined by one or more independent pricing services (the "Service") approved by
the Fund's Board of Trustees. Procedures of the Service are reviewed under the
general supervision of the Fund's Board of Trustees. The remaining assets of
the Bond Portfolio are valued using available market quotations or at fair
value as determined in good faith by, or in accordance with procedures estab-
lished by, the Fund's Board of Trustees. For further information regarding the
methods employed in valuing each Portfolio's investments, see "Determination
of Net Asset Value" in the Portfolios' Statement of Additional Information.
Federal regulations require that investors provide a certified Taxpayer Iden-
tification Number (a "TIN") upon opening or reopening an account. See "Divi-
dends, Distributions and Taxes." Failure to furnish a certified TIN to the
Fund could subject the investor to backup withholding and a $50 penalty im-
posed by the Internal Revenue Service (the "IRS").
Shareholder Services
EXCHANGE PRIVILEGE
The Exchange Privilege enables an investor to purchase, in exchange for Class
Y shares of a Portfolio, Class Y shares of the Fund's other portfolios or
shares of certain other funds sponsored or advised by Bear Stearns, including
the Emerging Markets Debt Portfolio of Bear Stearns Investment Trust, and the
Money Market Portfolio of The RBB Fund, Inc., to the extent such shares are
offered for sale in the investor's state of residence. These funds have dif-
ferent investment objectives which may be of interest to investors. To use
this Privilege, investors should consult their account executive at Bear
Stearns, their account executive at an Authorized Dealer or the Transfer Agent
to determine if it is available and whether any conditions are imposed on its
use.
To use this Privilege, exchange instructions must be given to the Transfer
Agent in writing or by telephone. A shareholder wishing to make an exchange
may do so by sending a written request to the Transfer Agent at the address
given above in "How to Buy Shares--General." Shareholders are automatically
provided with telephone exchange privileges when opening an account, unless
they indicate on the account application that they do not wish to use this
privilege. Shareholders holding share certificates are not eligible to ex-
change shares of a Portfolio by phone because share certificates must accom-
pany all exchange requests. To add this feature to an existing account that
previously did not provide for this option, a Telephone Exchange Authorization
Form must be filed with the Transfer Agent. This form is available from the
Transfer Agent. Once this election has been made, the shareholder may contact
the Transfer Agent by telephone at 1-800-447-1139 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 re-
quests to the Transfer Agent in writing.
13
<PAGE>
If the exchanging shareholder does not currently own Class Y shares of the
portfolio or fund whose shares are being acquired, a new account will be es-
tablished with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as described below. The Ex-
change Privilege may be modified or terminated at any time, or from time to
time, by the Fund on 60 days' notice to the affected portfolio or fund share-
holders. The Fund, BSFM and Bear Stearns will not be liable for any loss, lia-
bility, cost or expense for acting upon telephone instructions that are rea-
sonably believed to be genuine. In attempting to confirm that telephone in-
structions are genuine, the Fund will use such procedures as are considered
reasonable, including recording those instructions and requesting information
as to account registration (such as the name in which an account is regis-
tered, the account number, recent transactions in the account, and the account
holder's Social Security number, address and/or bank).
Before any exchange, the investor must obtain and should review a copy of the
current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained free of charge from Bear Stearns, any Au-
thorized Dealer or the Transfer Agent. When establishing a new account by ex-
change, the Class Y shares being exchanged must have a value of at least the
minimum initial investment required for the portfolio or fund into which the
exchange is being made; if making an exchange to an existing account, the dol-
lar value must equal or exceed the applicable minimum for subsequent invest-
ments. If any amount remains in the investment portfolio from which the ex-
change is being made, such amount must not be below the minimum account value
required by the Portfolio or Fund.
Class Y shares will be exchanged at the next determined net asset value. No
fees currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written no-
tice, to charge shareholders a $5.00 fee in accordance with rules promulgated
by the Securities and Exchange Commission. The Fund reserves the right to re-
ject any exchange request in whole or in part. The Exchange Privilege may be
modified or terminated at any time upon notice to shareholders.
The exchange of Class Y shares of one portfolio or fund for Class Y shares of
another is treated for federal income tax purposes as a sale of the Class Y
shares given in exchange by the shareholder and, therefore, an exchanging
shareholder may recognize a taxable gain or loss.
REDIRECTED DISTRIBUTION OPTION
The Redirected Distribution Option enables a shareholder to invest automati-
cally dividends and/or capital gain distributions, if any, paid by a Portfolio
in Class Y shares of another portfolio of the Fund or a fund advised or spon-
sored by Bear Stearns of which the shareholder is an investor, or the Money
Market Portfolio of The RBB Fund, Inc. Shares of the other portfolio or fund
will be purchased at the then-current net asset value.
This privilege is available only for existing accounts and may not be used to
open new accounts. Minimum subsequent investments do not apply. The Fund may
modify or terminate this privilege at any time or charge a service fee. No
such fee currently is contemplated.
How to Redeem Shares
GENERAL
The redemption price will be based on the net asset value next computed after
receipt of a redemption request.
Investors may request redemption of Portfolio shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, the Portfolio will redeem the shares at the next determined net asset
value. If the investor holds Portfolio shares of more than one Class, any re-
quest for redemption must specify the Class of shares being redeemed. If the
investor fails to specify the Class of shares to be redeemed or if the in-
vestor owns fewer shares of the Class than specified to be redeemed, the re-
demption request may be delayed until the Transfer Agent receives further in-
structions from the investor, the investor's Bear Stearns account executive or
the investor's Authorized Dealer. The Fund imposes no charges when shares are
redeemed directly through Bear Stearns.
Each 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
14
<PAGE>
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 re-
quests to redeem shares by telephone or wire for a period of 15 days after re-
ceipt by the Transfer Agent of the purchase check against which such redemp-
tion is requested. This procedure does not apply to shares purchased by wire
payment.
The Fund reserves the right to redeem investor accounts at its option upon not
less than 60 days' written notice if the account's net asset value is $750 or
less, for reasons other than market conditions, and remains so during the no-
tice period.
PROCEDURES
REDEMPTION THROUGH BEAR STEARNS OR AUTHORIZED DEALERS
Clients with a brokerage account may submit redemption requests to their ac-
count executives or Authorized Dealers in person or by telephone, mail or
wire. As the Fund's agent, Bear Stearns or Authorized Dealers may honor a re-
demption request by repurchasing Fund shares from a redeeming shareholder at
the shares' net asset value next computed after receipt of the request by Bear
Stearns or the Authorized Dealer. Under normal circumstances, within three
days, redemption proceeds will be paid by check or credited to the sharehold-
er's brokerage account at the election of the shareholder. Bear Stearns ac-
count executives or Authorized Dealers are responsible for promptly forwarding
redemption requests to the Transfer Agent.
If an investor authorizes telephone redemption, the Transfer Agent may act on
telephone instructions from any person representing himself or herself to be a
representative of Bear Stearns or the Authorized Dealer and reasonably be-
lieved by the Transfer Agent to be genuine. The Fund will require the Transfer
Agent to employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Transfer Agent or the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions reason-
ably believed to be genuine.
REDEMPTION THROUGH THE TRANSFER AGENT
Shareholders who are not clients with a brokerage account who wish to redeem
shares must redeem their shares through the Transfer Agent by mail; other
shareholders also may redeem Fund shares through the Transfer Agent. Mail re-
demption requests should be sent to the Transfer Agent at: PFPC Inc., Atten-
tion: The Bear Stearns Funds--[Name of Portfolio]--Class Y, P.O. Box 8960,
Wilmington, Delaware 19899-8960.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
A shareholder may have redemption proceeds of $500 or more wired to the share-
holder's brokerage account or a commercial bank account designated by the
shareholder. A transaction fee of $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns account executive, to any Autho-
rized Dealer, or to the Transfer Agent if the shares are not held in a broker-
age account.
If share certificates have been issued, written redemption instructions, indi-
cating the portfolio from which shares are to be redeemed, and duly endorsed
share certificates, must be received by the Transfer Agent in proper form and
signed exactly as the shares are registered. If the proceeds of the redemption
would exceed $25,000, or if the proceeds are not to be paid to the record
owner at the record address, or if the shareholder is a corporation, partner-
ship, trust or fiduciary, signature(s) must be guaranteed by any eligible
guarantor institution. A signature guarantee is designed to protect the share-
holders and the Portfolio against fraudulent transactions by unauthorized per-
sons. A signature guarantee may be obtained from a domestic bank or trust com-
pany, recognized broker, dealer, clearing agency or savings association who
are participants in a medallion program by the securities transfer associa-
tion. The three recognized medallion programs are Securities Transfer Agent
Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and New
York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature Guaran-
tees which are not a part of these programs will not be accepted. Please note
that a notary public stamp or seal is not acceptable. The Fund reserves the
right to amend or discontinue its signature guarantee policy at any time and,
with regard to a particular redemption transaction, to require a signature
guarantee at its discretion. Any questions with respect to signature-guaran-
tees should be directed to the Transfer Agent by calling 1-800-447-1139.
15
<PAGE>
During times of drastic economic or market conditions, investors may experi-
ence difficulty in contacting Bear Stearns or Authorized Dealers by telephone
to request a redemption of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the redemption request being proc-
essed at a later time than it would have been if telephone redemption had been
used. During the delay, each 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 redi-
rected into another fund pursuant to the Redirected Distribution Option. The
Bond Portfolio declares dividends from net investment income on each day the
New York Stock Exchange is open for business. These dividends usually are paid
on or about the twentieth day of each month. The earnings for Saturdays, Sun-
days and holidays are declared as dividends on the preceding business day.
Shares begin accruing income dividends on the day the purchase order is effec-
tive. If all shares in an account are redeemed at any time, all dividends to
which the shareholder is entitled will be paid along with the proceeds of the
redemption.
Each Equity Portfolio ordinarily pays dividends from its net investment income
at least once a year.
Each 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 dis-
tribution requirements of the Code, in all events in a manner consistent with
the provisions of the 1940 Act. No Portfolio will 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 Redi-
rected Distribution Option. All expenses are accrued daily and deducted before
declaration of dividends to investors.
Dividends derived from net investment income, together with distributions from
net realized short-term securities gains and all or a portion of any gains re-
alized from the sale or disposition of certain market discount bonds, paid by
a Portfolio will be taxable to U.S. shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Portfolio or redi-
rected into another portfolio or fund. Distributions from net realized long-
term securities gains of a 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's shares and whether such distri-
butions 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%. Divi-
dends and distributions may be subject to state and local taxes.
Dividends, together with distributions from net realized short-term securities
gains and all or a portion of any gains realized from the sale or other dispo-
sition of certain market discount bonds, paid by a Portfolio to a foreign in-
vestor 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 speci-
fied in a tax treaty. Distributions from net realized long-term securities
gains paid by a 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. non-
resident withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of investors' dividends and distributions will be
mailed to them annually. Investors also will receive periodic summaries of
their accounts which will include information as to dividends and distribu-
tions from securities gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup withhold-
ing") and remit to the U.S. Treasury 31% of dividends, distributions from net
realized securities gains and the proceeds of any redemption, regardless of
the extent to which gain or loss may be realized, paid to a shareholder if
such shareholder fails to certify that the TIN furnished in connection with
opening an account is correct and that such shareholder has not received no-
tice 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 direct the Fund to institute
backup withholding if the IRS determines that a shareholder's TIN is incorrect
or if a shareholder has failed to properly report taxable dividend and inter-
est income on a federal income tax return.
16
<PAGE>
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.
While a Portfolio is not expected to have any federal tax liability, investors
should expect to be subject to federal, state and local taxes in respect of
their investment in Portfolio shares. Management of the Fund believes that
each Portfolio has qualified for the fiscal year ended March 31, 1997 as a
"regulated investment company" under the Code. Each Portfolio intends to con-
tinue to so qualify if such qualification is in the best interests of its
shareholders. Such qualification relieves a Portfolio of any liability for
Federal income tax to the extent its earnings are distributed in accordance
with applicable provisions of the Code. A Portfolio may be 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 applicable to an investment in a Portfolio.
Performance Information
For purposes of advertising, performance for Class Y of each Portfolio 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 as-
sume that any income dividends and/or capital gains distributions made by a
Portfolio during the measuring period were reinvested in Class Y shares.
Performance of the Bond Portfolio also may be advertised on the basis of cur-
rent yield. Current yield refers to the Bond Portfolio's annualized net in-
vestment income per share over a 30-day period, expressed as a percentage of
the net asset value per share at the end of the period. For purposes of calcu-
lating current yield, the amount of net investment income per share during
that 30-day period, computed in accordance with regulatory requirements, is
compounded by assuming that it is reinvested at a constant rate over a six-
month period. An identical result is then assumed to have occurred during a
second six-month period which, when added to the result for the first six
months, provides an "annualized" yield for an entire one-year period.
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Portfolio was purchased with an ini-
tial payment of $1,000 and that the investment was redeemed at the end of a
stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the re-
deemable value of the investment at the end of the period. Advertisements of
each Portfolio's performance will include such Portfolio's average annual to-
tal return for one, five and ten year periods, or for shorter periods depend-
ing upon the length of time during which the Portfolio has operated. Computa-
tions of average annual total return for periods of less than one year repre-
sent an annualization of such Portfolio's actual total return for the applica-
ble period.
Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions. Total return generally is expressed as a percent-
age rate which is calculated by combining the income and principal changes for
a specified period and dividing by the net asset value per share at the begin-
ning of the period. Advertisements may include the percentage rate of total
return or may include the value of a hypothetical investment at the end of the
period which assumes the application of the percentage rate of total return.
Performance will vary from time to time and past results are not necessarily
representative of future results. Investors should remember that performance
is a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses. Performance infor-
mation, such as that described above, may not provide a basis for comparison
with other investments or other investment companies using a different method
of calculating performance.
Comparative performance information may be used from time to time in advertis-
ing or marketing each Equity Portfolio's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's 500 Composite Stock Price Index,
Wilshire 4500 Stock Index, Russell Small Cap Index, the Dow Jones Industrial
Average and other industry publications. Performance information that may be
used in advertising or marketing the Bond Portfolio's shares can include data
from Lipper Analytical Services, Inc.,
17
<PAGE>
Morningstar, Inc., Bond Buyer's 20-Bond Index, Moody's Bond Survey Bond Index,
Lehman Brothers Aggregate Bond Index, Salomon Brothers Broad Investment-Grade
Index and components thereof, Mutual Fund Values; Mutual Fund Forecaster, Mu-
tual Fund Investing and other industry publications.
General Information
The Fund was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust (the "Trust Agreement") dated September 29, 1994, and commenced opera-
tions on or about April 3, 1995. The Fund is authorized to issue an unlimited
number of shares of beneficial interest, par value $.001 per share. Each Port-
folio's shares are classified into three Classes--Class A, Class C and Class
Y. Each share has one vote and shareholders will vote in the aggregate and not
by Class, except as otherwise required by law.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Portfolio of which they are
shareholders. However, the Trust Agreement disclaims shareholder liability for
acts or obligations of the relevant 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 indem-
nification from the respective Portfolio's property for all losses and ex-
penses of any shareholder held personally liable for the obligations of a
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 a Portfolio, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of such Portfolio. The Fund's Trustees intend to conduct the
operations of each Portfolio in a way so as to avoid, as far as possible, ul-
timate liability of the shareholders for liabilities of the Portfolio. As dis-
cussed under "Management of the Fund" in the Portfolios' Statement of Addi-
tional Information, each Portfolio ordinarily will not hold shareholder meet-
ings; 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 port-
folios and all assets in which such consideration is invested will belong to
that portfolio (subject only to the rights of creditors of the Fund) and will
be subject to the liabilities related thereto. The assets attributable to, and
the expenses of, one portfolio (and as to classes within a portfolio) are
treated separately from those of the other portfolios (and classes). The Fund
has the ability to create, from time to time, new portfolios of shares without
shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be submit-
ted under the provisions of the 1940 Act or applicable state law or otherwise
to the holders of the outstanding voting securities of an investment company,
such as the Fund, will not be deemed to have been effectively acted upon un-
less approved by the holders of a majority of the outstanding shares of each
portfolio affected by such matter. Rule 18f-2 further provides that a portfo-
lio shall be deemed to be affected by a matter unless it is clear that the in-
terests of such portfolio in the matter are identical or that the matter does
not affect any interest of such portfolio. However, Rule 18f-2 exempts the se-
lection of independent accountants and the election of Trustees from the sepa-
rate voting requirements of Rule 18f-2.
The Transfer Agent maintains a record of share ownership and will send confir-
mations and statements of account.
Shareholder inquiries may be made by writing to the Fund at PFPC Inc., Atten-
tion: The Bear Stearns Funds, P.O. Box 8960, Wilmington, Delaware 19899-8960,
by calling 1-800-447-1139 or by calling Bear Stearns at 1-800-766-4111.
18
<PAGE>
Appendix
INVESTMENT TECHNIQUES
In connection with its investment objective and policies, each Portfolio may
employ, among others, the following investment techniques which may involve
certain risks. Options and futures transactions involve "derivative securi-
ties."
OPTIONS TRANSACTIONS--(ALL PORTFOLIOS)
Each Portfolio may engage in options transactions. Each Portfolio is permitted
to invest up to 5% of its assets, represented by the premium paid, in the pur-
chase of call and put options in respect of specific securities (or groups or
"baskets" of specific securities) in which the Portfolio may invest. Each
Portfolio may write and sell covered call option contracts on securities owned
by the Portfolio not exceeding 20% of the value of its net assets at the time
such option contracts are written. Each Portfolio also may purchase call op-
tions to enter into closing purchase transactions. Each Portfolio also may
write covered put option contracts to the extent of 20% of the value of its
net assets at the time such option contracts are written. A call option gives
the purchaser of the option the right to buy, and obligates the writer to
sell, the underlying security at the exercise price at any time during the op-
tion period. Conversely, a put option gives the purchaser of the option the
right to sell, and obligates the writer to buy, the underlying security at the
exercise price at any time during the option period. A covered put option sold
by a Portfolio exposes the Portfolio during the term of the option to a de-
cline in price of the underlying security or securities. A put option sold by
the Portfolio is covered when, among other things, cash or liquid securities
are placed in a segregated account with the Fund's custodian to fulfill the
obligation undertaken.
Each Equity Portfolio also may purchase and sell call and put options on for-
eign currency for the purpose of hedging against changes in future currency
exchange rates. Call options convey the right to buy the underlying currency
at a price which is expected to be lower than the spot price of the currency
at the time the option expires. Put options convey the right to sell the un-
derlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option expires.
Each Equity Portfolio may purchase and sell call and put options on stock in-
dexes listed on U.S. securities exchanges or traded in the over-the-counter
market. A stock index fluctuates with changes in the market values of the
stocks included in the index. Because the value of an index option depends
upon movements in the level of the index rather than the price of a particular
stock, whether an Equity Portfolio will realize a gain or loss from the pur-
chase or writing of options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the price of a par-
ticular stock.
Successful use by each Equity Portfolio of options will be subject to BSFM's
ability to predict correctly movements in the direction of individual stocks,
the stock market generally, foreign currencies or interest rates. The Bond
Portfolio's successful use of options will be subject to BSFM's ability to
predict correctly movements in interest rates. To the extent BSFM's predic-
tions are incorrect, a Portfolio may incur losses which could adversely affect
the value of a shareholder's investment.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--(ALL PORTFOLIOS)
Each Portfolio may enter into interest rate futures contracts and options with
respect thereto. Each Equity Portfolio also may enter into stock index futures
contracts and currency futures contracts, and options with respect thereto, in
U.S. domestic markets or on exchanges located outside the United States. See
"--Options Transactions" above. These transactions will be entered into as a
substitute for comparable market positions in the underlying securities or for
hedging purposes. Although no Portfolio would be a commodity pool, it would be
subject to rules of the CFTC limiting the extent to which it could engage in
these transactions.
Each Portfolio's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
CFTC. In addition, a Portfolio may not engage in such transactions if the sum
of the amount of initial margin deposits and premiums paid for unexpired com-
modity options, other than for bona fide hedging transactions, would exceed 5%
of the liquidation value of the Portfolio's assets, after taking into account
unrealized profits and unrealized losses on such contracts it has entered in-
to; provided, however, that in the case of an
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option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the 5%. To the extent a Portfolio engages in
the use of futures and options on futures for other than bona fide hedging
purposes, the Portfolio may be subject to additional risk.
Engaging in these transactions involves risk of loss to a Portfolio which
could adversely affect the value of a shareholder's investment. Although each
Portfolio intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid mar-
ket will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation permit-
ted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that
day at a price beyond that limit or trading may be suspended for specified pe-
riods during the trading day. Futures contract prices could move to the limit
for several consecutive trading days with little or no trading, thereby pre-
venting prompt liquidation of futures positions and potentially subjecting the
Portfolio to substantial losses. In addition, an Equity Portfolio engaging in
futures transactions in foreign markets may involve greater risks than trading
on domestic exchanges.
Successful use of futures by an Equity Portfolio or the Bond Portfolio also is
subject to BSFM's ability to predict correctly movements in the direction of
the market or foreign currencies, or interest rates, respectively, and, to the
extent the transaction is entered into for hedging purposes, to ascertain the
appropriate correlation between the transaction being hedged and the price
movements of the futures contract. For example, if a Portfolio has hedged
against the possibility of a decline in the market adversely affecting the
value of securities held in its portfolio and prices increase instead, the
Portfolio will lose part or all of the benefit of the increased value of secu-
rities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Portfolio has in-
sufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market. The Portfolio may have to
sell securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and Ex-
change Commission, each Portfolio may be required to segregate cash or high
quality money market instruments in connection with its commodities transac-
tions in an amount generally equal to the value of the underlying commodity.
The segregation of such assets will have the effect of limiting the Portfo-
lio's ability otherwise to invest those assets.
FORWARD COMMITMENTS--(BOND PORTFOLIO)
The Bond Portfolio may purchase securities on a when-issued or forward commit-
ment basis, which means that the price is fixed at the time of commitment, but
delivery and payment ordinarily take place a number of days after the date of
the commitment to purchase. The Bond Portfolio will make commitments to pur-
chase such securities only with the intention of actually acquiring the secu-
rities, but the Bond Portfolio may sell these securities before the settlement
date if it is deemed advisable. The Bond Portfolio will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
Securities purchased on a when-issued or forward commitment basis and certain
other securities held by the Bond Portfolio are subject to changes in value
(both generally changing in the same way, i.e., appreciating when interest
rates decline and depreciating when interest rates rise) based upon the
public's perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a when-
issued or forward commitment basis may expose the Bond Portfolio to risk be-
cause they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment basis can involve
the additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction it-
self. A segregated account of the Bond Portfolio consisting of cash, cash
equivalents or U.S. Government securities or other high quality liquid debt
securities of the type in which the Bond Portfolio invests at least equal at
all times to the amount of the when-issued or forward commitments will be es-
tablished and maintained at the Fund's custodian bank. Purchasing securities
on a forward commitment basis when the Bond Portfolio is fully or almost fully
invested may result in greater potential fluctuation in the value of the Bond
Portfolio's net assets and its net asset value per share.
FUTURE DEVELOPMENTS--(ALL PORTFOLIOS)
Each Portfolio may take advantage of opportunities in the area of options and
futures contracts, options on futures contracts and any other derivative in-
vestments which are not presently contem-
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plated for use by a Portfolio or which are not currently available but which
may be developed, to the extent such opportunities are both consistent with a
Portfolio's investment objective and legally permissible for such Portfolio.
Before entering into such transactions or making any such investment, the
Portfolio will provide appropriate disclosure in its prospectus.
LENDING PORTFOLIO SECURITIES--(ALL PORTFOLIOS)
From time to time, each Portfolio may lend securities from its portfolio to
brokers, dealers and other financial institutions needing to borrow securities
to complete certain transactions. Such loans may not exceed 33 1/3% of the
value of a Portfolio's total assets. In connection with such loans, a Portfo-
lio 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 secu-
rities. Each Portfolio can increase its income through the investment of such
collateral. A Portfolio continues to be entitled to payments in amounts equal
to the interest, dividends and other distributions payable on the loaned secu-
rity and receives interest on the amount of the loan. Such loans will be ter-
minable at any time upon specified notice. A Portfolio might experience risk
of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with such Portfolio.
BORROWING MONEY--(ALL PORTFOLIOS)
As a fundamental policy, each 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, each 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 a Portfolio's total as-
sets, such Portfolio will not make any additional investments.
CERTAIN PORTFOLIO SECURITIES
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS--(EQUITY PORTFOLIOS)
Each Equity Portfolio's assets may be invested in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs") and European De-
positary Receipts ("EDRs"). These securities may not necessarily be denomi-
nated in the same currency as the securities into which they may be converted.
ADRs are receipts typically issued by a United States bank or trust company
which evidence ownership of underlying securities issued by a foreign corpora-
tion. EDRs, which are sometimes referred to as Continental Depositary Receipts
("CDRs"), are receipts issued in Europe typically by non-United States banks
and trust companies that evidence ownership of either foreign or domestic se-
curities. Generally, ADRs in registered form are designed for use in the
United States securities markets and EDRs and CDRs in bearer form are designed
for use in Europe. Each Equity Portfolio may invest in ADRs, EDRs and CDRs
through "sponsored" or "unsponsored" facilities. A sponsored facility is es-
tablished jointly by the issuer of the underlying security and a depositary,
whereas a depositary may establish an unsponsored facility without participa-
tion by the issuer of the deposited security. Holders of unsponsored deposi-
tary receipts generally bear all the costs of such facilities and the deposi-
tary of an unsponsored facility frequently is under no obligation to distrib-
ute shareholder communications received from the issuer of the deposited secu-
rity or to pass through voting rights to the holders of such receipts in re-
spect of the deposited securities.
MORTGAGE-RELATED SECURITIES--(BOND PORTFOLIO)
The Bond Portfolio may invest in mortgage-related securities which are collat-
eralized by pools of mortgage loans.
Mortgage-related securities are a form of derivative securities collateralized
by pools of mortgage loans assembled for sale to investors by various govern-
mental agencies, such as the Government National Mortgage Association and gov-
ernment-related organizations such as the Federal National Mortgage Associa-
tion and the Federal Home Loan Mortgage Corporation, as well as by private is-
suers such as commercial banks, savings and loan institutions, mortgage banks
and private mortgage insurance companies, and similar foreign entities. The
mortgage-related securities in which the Bond Portfolio may invest include
those with fixed, floating and variable interest rates, those with interest
rates that change based on multiples of changes in interest rates and those
with interest rates that change inversely to changes in interest rates, as
well as stripped mortgage-backed securities which are derivative multiclass
mortgage securities. Stripped mortgage-backed securities usually are struc-
tured with two classes that receive different proportions of interest and
principal distributions on a pool of mortgage-backed securities or whole
loans. A common type of stripped mort-
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gage-backed security will have one class receiving some of the interest and
most of the principal from the mortgage collateral, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). Although certain mortgage-related securities
are guaranteed by a third party or otherwise similarly secured, the market
value of the security, which may fluctuate, is not so secured. If the Bond
Portfolio purchases a mortgage-related security at a premium, all or part of
the premium may be lost if there is a decline in the market value of the secu-
rity, whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of certain of these securities are inversely affected by changes in in-
terest rates. However, though the value of a mortgage-related security may de-
cline when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to prepay. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict accurately
the security's return to the Bond Portfolio. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities ex-
perience greater than anticipated prepayments of principal, the Bond Portfolio
may fail to fully recoup its initial investment in these securities even if
the securities are rated in the highest rating category by a nationally recog-
nized statistical rating organization. In addition, regular payments received
in respect of mortgage-related securities include both interest and principal.
No assurance can be given as to the return the Bond Portfolio will receive
when these amounts are reinvested. For further discussion concerning the in-
vestment considerations involved, see "Description of the Fund--Risk Factors--
Fixed-Income Securities" above and "Illiquid Securities" below and "Investment
Objective and Management Policies--Portfolio Securities--Mortgage-Related Se-
curities" in the Statement of Additional Information.
ASSET-BACKED SECURITIES--(BOND PORTFOLIO)
The Bond Portfolio may invest in asset-backed securities which are a form of
derivative securities. The securitization techniques used for asset-backed se-
curities are similar to those used for mortgage-related securities. These se-
curities include debt securities and securities with debt-like characteris-
tics. The collateral for these securities has included home equity loans, au-
tomobile and credit card receivables, boat loans, computer leases, airplane
leases, mobile home loans, recreational vehicle loans and hospital account
receivables.
Asset-backed securities present certain risks that are not presented by mort-
gage-backed securities. Primarily, these securities do not have the benefit of
the same security interest in the related collateral. Credit card receivables
generally are unsecured and the debtors are entitled to the protection of a
number of state and Federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain pos-
session of the underlying obligations. If the servicer were to sell these ob-
ligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset-backed secu-
rities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may
not have a proper security interest in all of the obligations backing such re-
ceivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
CONVERTIBLE SECURITIES--(ALL PORTFOLIOS)
Convertible securities may be converted at a stated price within a specified
period of time into a specified number of shares of common stock of the same
or a different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convert-
ible debt securities. While providing a fixed-income stream (generally higher
in yield than the income derivable from a common stock but lower than that af-
forded by a non-convertible debt security), a convertible security also af-
fords an investor the opportunity, through its conversion feature, to partici-
pate in the capital appreciation of the common stock into which it is convert-
ible.
The Bond Portfolio also may invest in debt securities with warrants attached
or in units with warrants. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
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<PAGE>
In connection with its purchases of convertible securities (which include debt
securities with warrants), the Bond Portfolio from time to time may hold com-
mon stock received upon the conversion of the security or the exercise of the
warrant. The Bond Portfolio does not intend to retain the common stock in its
portfolio and will sell it as promptly as it can and in a manner which it be-
lieves will reduce the risk to the Bond Portfolio of loss in connection with
the sale.
In general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its "con-
version value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and gen-
erally decreases when interest rates rise. However, the price of a convertible
security also is influenced by the market value of the security's underlying
common stock. Thus, the price of a convertible security generally increases as
the market value of the underlying stock increases, and generally decreases as
the market value of the underlying stock declines. Investments in convertible
securities generally entail less risk than investments in the common stock of
the same issuer.
MUNICIPAL OBLIGATIONS--(BOND PORTFOLIO)
Municipal obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their polit-
ical subdivisions, agencies and instrumentalities, or multistate agencies or
authorities. While in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal obligations
of similar quality, certain issues of municipal obligations, both taxable and
non-taxable, offer yields comparable and in some cases greater than the yields
available on other permissible investments. Municipal obligations generally
include debt obligations issued to obtain funds for various public purposes as
well as certain industrial development bonds issued by or on behalf of public
authorities. Dividends received by shareholders which are attributable to in-
terest income received by it from municipal obligations generally will be sub-
ject to federal income tax. Municipal obligations bear fixed, floating or
variable rates of interest, which are determined in some instances by formulas
under which the municipal obligation's interest rate will change directly or
inversely to changes in interest rates or an index, or multiples thereof, in
many cases subject to a maximum and minimum. The Bond Portfolio currently in-
tends to invest no more than 25% of its assets in municipal obligations. How-
ever, this percentage may be varied from time to time without shareholder ap-
proval.
ZERO COUPON AND STRIPPED SECURITIES--(BOND PORTFOLIO)
The Bond Portfolio may invest in zero coupon U.S. Treasury securities, which
are Treasury Notes and Bonds that have been stripped of their unmatured inter-
est coupons, the coupons themselves and receipts or certificates representing
interests in such stripped debt obligations and coupons. The Bond Portfolio
also may invest in zero coupon securities issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool
of underlying U.S. Treasury securities. A zero coupon security pays no inter-
est to its holder during its life and is sold at a discount to its face value
at maturity. The amount of the discount fluctuates with the market price of
the security. The market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest periodically
and are likely to respond to a greater degree to changes in interest rates
than non-zero coupon securities having similar maturities and credit quali-
ties.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES--(BOND
PORTFOLIO)
The Bond Portfolio may invest in U.S. dollar denominated obligations issued or
guaranteed by one or more foreign governments or any of their political subdi-
visions, agencies or instrumentalities that are determined by BSFM to be of
comparable quality to the other obligations in which the Bond Portfolio may
invest. Such securities also include debt obligations of supranational enti-
ties. Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or de-
velopment and international banking institutions and related government agen-
cies. Examples include the International Bank for Reconstruction and Develop-
ment (the World Bank), the European Coal and Steel Community, the Asian Devel-
opment Bank and the InterAmerican Development Bank. The percentage of the Bond
Portfolio's assets invested in securities issued by foreign governments will
vary depending on the relative yields of such securities, the economic and fi-
nancial markets of the countries in which the investments are made and the in-
terest rate climate of such countries.
MONEY MARKET INSTRUMENTS
Each Portfolio may invest, in the circumstances described under "Description
of the Fund--Management Policies," in the following types of money market in-
struments, each of which at the time of
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<PAGE>
purchase must have or be deemed to have under rules of the Securities and Ex-
change Commission remaining maturities of 13 months or less.
U.S. TREASURY SECURITIES--(ALL PORTFOLIOS)
U.S. Treasury securities include Treasury Bills, Treasury Notes and Treasury
Bonds 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.
U.S. GOVERNMENT SECURITIES--(ALL PORTFOLIOS)
In addition to U.S. Treasury securities, U.S. Government securities include
securities issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage As-
sociation 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 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 Mar-
keting 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--(ALL PORTFOLIOS)
Each Portfolio may invest in bank obligations, including certificates of de-
posit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign subsidi-
aries of domestic banks, and domestic and foreign branches of foreign banks, a
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 obliga-
tions 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 restric-
tions which might adversely affect the payment of principal and interest on
these securities and the possible seizure or nationalization of foreign depos-
its.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by each Portfolio will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. No Portfolio will invest more than 15%
of the value of its net assets in time deposits maturing in more than seven
days and in other securities that are illiquid.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include unin-
sured, direct obligations bearing fixed, floating or variable interest rates.
REPURCHASE AGREEMENTS--(ALL PORTFOLIOS)
Repurchase agreements involve the acquisition by a Portfolio of an underlying
debt instrument, subject to an obligation of the seller to repurchase, and
such Portfolio to resell, the instrument at a fixed price usually not more
than one week after its purchase. Certain costs may be incurred by a Portfolio
in connection with the sale of the securities if the seller does not repur-
chase them in accordance with the repurchase agreement. In addition, if bank-
ruptcy proceedings are commenced with respect to the seller of the securities,
realization on the securities by a Portfolio may be delayed or limited.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS--(ALL PORTFOLIOS)
Commercial paper consists of short-term, unsecured promissory notes issued to
finance short-term credit needs. The commercial paper purchased by each Port-
folio will consist only of direct obliga-
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<PAGE>
tions which, at the time of their purchase, are (a) rated not lower than
Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by 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, deter-
mined by BSFM to be of comparable quality to those rated obligations which may
be purchased by a Portfolio. Each 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 pay-
ment of principal at any time or at specified intervals.
WARRANTS--(EQUITY PORTFOLIOS)
Each Equity Portfolio may invest up to 5% of its net assets in warrants, ex-
cept that this limitation does not apply to warrants acquired in units or at-
tached to securities. Included in such amount, but not to exceed 2% of the
value of an Equity Portfolio's net assets, may be warrants which are not
listed on the New York or American Stock Exchange. A warrant is an instrument
issued by a corporation which gives the holder the right to subscribe to a
specified amount of the corporation's capital stock at a set price for a spec-
ified period of time.
INVESTMENT COMPANY SECURITIES--(ALL PORTFOLIOS)
Each Portfolio may invest in securities issued by other investment companies.
Under the 1940 Act, a 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 such Portfolio's total assets with re-
spect to any one investment company and (iii) 10% of the Portfolio's total as-
sets in the aggregate. Investments in the securities of other investment com-
panies will involve duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES--(ALL PORTFOLIOS)
Each Portfolio may invest up to 15% of the value of its net assets in securi-
ties as to which a liquid trading market does not exist, provided such invest-
ments are consistent with the Portfolio's investment objective. Such securi-
ties may include securities that are not readily marketable, such as certain
securities that are subject to legal or contractual restrictions on resale,
repurchase agreements providing for settlement in more than seven days after
notice, options traded in the over-the-counter market and securities used to
cover such options, and certain asset-backed and mortgage-backed securities,
such as certain collateralized mortgage obligations and stripped mortgage-
backed securities. As to these securities, each Portfolio is subject to a risk
that should such 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 such Portfolio's net assets could be adversely affected.
RATINGS--(ALL PORTFOLIOS)
The ratings of Moody's, S&P, Fitch and Duff represent their opinions as to the
quality of the obligations which they undertake to rate. It should be empha-
sized, however, that ratings are relative and subjective and, although ratings
may be useful in evaluating the safety of interest and principal payments,
they do not evaluate the market value risk of such obligations. Therefore, al-
though these ratings may be an initial criterion for selection of portfolio
investments, BSFM also will evaluate such obligations and the ability of their
issuers to pay interest and principal. Each Portfolio will rely on BSFM's
judgment, analysis and experience in evaluating the creditworthiness of an is-
suer. In this evaluation, BSFM will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic condi-
tions and trends, the quality of the issuer's management and regulatory mat-
ters. It also is possible that a rating agency might not timely change the
rating on a particular issue to reflect subsequent events. Once the rating of
a security held by a Portfolio has been changed, BSFM will consider all cir-
cumstances deemed relevant in determining whether such Portfolio should con-
tinue to hold the security.
A-7
<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
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 PORTFOLIO'S PROSPECTUS AND
IN THE PORTFOLIO'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF
THE 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 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
LARGE CAP VALUE PORTFOLIO
SMALL CAP VALUE PORTFOLIO
TOTAL RETURN BOND PORTFOLIO
CLASS A, CLASS C AND CLASS Y
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
JULY 14, 1997
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current relevant
Prospectus dated July 14, 1997 of The Bear Stearns Funds (the "Fund"), as each
may be revised from time to time, offering shares of three diversified
portfolios (each, a "Portfolio"): the Large Cap Value Portfolio and the Small
Cap Value Portfolio (together, the "Equity Portfolios") and the Total Return
Bond Portfolio (the "Bond Portfolio"). To obtain a free copy of such Prospectus,
please write to the Fund at PFPC Inc. ("PFPC"), Attention: [Name of 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 each Portfolio's investment
adviser.
Bear Stearns, an affiliate of BSFM, serves as distributor of each
Portfolio's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies......................... B- 2
Management of the Fund............................................... B- 10
Management Arrangements.............................................. B- 13
Purchase and Redemption of Shares.................................... B- 16
Determination of Net Asset Value..................................... B- 18
Dividends, Distributions and Taxes................................... B- 19
Portfolio Transactions............................................... B- 26
Performance Information.............................................. B- 28
Code of Ethics....................................................... B- 29
Information About the Fund........................................... B- 29
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors..................................... B- 32
Financial Statements................................................. B- 33
Appendix............................................................. B- 34
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the section in the Portfolios' Prospectus entitled "Description of the
Fund."
Portfolio Securities
Bank Obligations. (All Portfolios) 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 each Portfolio are insured by the FDIC (although such
insurance may not be of material benefit to a Portfolio, depending on the
principal amount of the CDs of each bank held by such 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 each 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
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
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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.
Mortgage-Related Securities
Government Agency Securities. (Bond Portfolio) Mortgage-related
securities issued by the Government National Mortgage Association ("GNMA")
include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes")
which are guaranteed as to the timely payment of principal and interest by GNMA
and such guarantee is backed by the full faith and credit of the United States.
GNMA is a wholly-owned U.S. Government corporation within the department of
Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee.
Government Related Securities. (Bond Portfolio) Mortgage-related
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA and are not backed by or entitled
to the full faith and credit of the United States. The FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). The FHLMC is a corporate instrumentality of
the United States created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Bank and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When the FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
Repurchase Agreements. (All Portfolios) Each 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, each 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 each
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. BSFM will monitor on an ongoing basis the value of the collateral
to assure that it always equals or exceeds the repurchase price. Each Portfolio
will consider on an ongoing basis the creditworthiness of the institutions with
which it enters into repurchase agreements.
Municipal Obligations. (Bond Portfolio) Municipal obligations are
classified as general obligation bonds, revenue bonds and notes. General
obligation bonds are secured by the issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Industrial
development bonds, in most cases, are revenue bonds and generally do not carry
the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes are
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short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Certain municipal
obligations are subject to redemption at a date earlier than their stated
maturity pursuant to call options, which may be separated from the related
municipal obligation and purchased and sold separately. The Bond Portfolio will
invest in municipal obligations, the ratings of which correspond with the
ratings of other permissible Bond Portfolio investments.
Commercial Paper and Other Short-Term Corporate Obligations. (All
Portfolios) Variable rate demand notes include variable amount master demand
notes, which are obligations that permit each Portfolio to invest fluctuating
amounts at varying rates of interest pursuant to direct arrangements between a
Portfolio, as lender, and the borrower. These notes permit daily changes in the
amounts borrowed. As mutually agreed between the parties, a Portfolio may
increase the amount under the notes at any time up to the full amount provided
by the note agreement, or decrease the amount, and the borrower may repay up to
the full amount of the note without penalty. Because these obligations are
direct lending arrangements between the lender and the 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, a 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, BSFM 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 an Equity Portfolio may
invest in them only if at the time of an investment the borrower meets the
criteria set forth in the Equity Portfolios' Prospectus for other commercial
paper issuers.
Illiquid Securities. (All Portfolios) When purchasing securities that
have not been registered under the Securities Act of 1933, as amended, and are
not readily marketable, each Portfolio will endeavor to obtain the right to
registration at the expense of the issuer. Generally, there will be a lapse of
time between a 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 a Portfolio pursuant to Rule 144A under the
Securities Act of 1933, as amended, such 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 BSFM to monitor carefully each 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, a Portfolio's investing in such securities may
have the effect of increasing the level of illiquidity in such Portfolio during
such period.
Ratings of Debt. (Bond Portfolio) Subsequent to its purchase by the
Bond Portfolio, a debt issue may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Bond Portfolio. Neither event
will require the sale of such securities by the Bond Portfolio, but BSFM will
consider such event in determining whether the Bond Portfolio should continue to
hold the securities. To the extent that the ratings given by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("S&P"), Fitch Investors Service, L.P. ("Fitch") or
Duff & Phelps Credit Rating Co. ("Duff") may change as a result of changes in
such organizations or their rating systems, the Bond
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Portfolio will attempt to use comparable ratings as standards for its
investments in accordance with the investment policies contained in the
Portfolio's Prospectus and this Statement of Additional Information.
Management Policies
Each Portfolio engages in the following practices in furtherance of its
objective.
Options Transactions. (All Portfolios) Each Portfolio may engage in
options transactions, such as purchasing or writing covered call or put options.
The principal reason for writing covered call options, which are call options
with respect to which a Portfolio owns the underlying security or securities, is
to realize, through the receipt of premiums, a greater return than would be
realized on a Portfolio's securities alone. In return for a premium, the writer
of a covered call option forfeits the right to any appreciation in the value of
the underlying security above the strike price for the life of the option (or
until a closing purchase transaction can be effected). Nevertheless, the call
writer retains the risk of a decline in the price of the underlying security.
Similarly, the principal reason for writing covered put options is to realize
income in the form of premiums. The writer of a covered put option accepts the
risk of a decline in the price of the underlying security. The size of the
premiums that a 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 by the Portfolios 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. Each 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. Out-of-the-money, at-the-money and in-the-money put options (the
reverse of call options as to the relation of exercise price to market price)
may be utilized in the same market environments that such call options are used
in equivalent transactions.
So long as a Portfolio's obligation as the writer of an option
continues, such Portfolio may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Portfolio to
deliver, in the case of a call, or take delivery of, in the case of a put, the
underlying security against payment of the exercise price. This obligation
terminates when the option expires or a Portfolio effects a closing purchase
transaction. A 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, each 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,
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such as trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance that
similar events, or events that otherwise may interfere with the timely execution
of customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. If as a covered call option
writer a Portfolio is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise or it
otherwise covers its position.
Stock Index Options. (Equity Portfolios) Each Equity Portfolio may
purchase and write put and call options on stock indexes listed on U.S. or
foreign securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included in the
index.
Options on stock indexes are similar to options on stock except that
(a) the expiration cycles of stock index options are generally monthly, while
those of stock options are currently quarterly, and (b) the delivery
requirements are different. Instead of giving the right to take or make delivery
of a stock at a specified price, an option on a stock index gives the holder the
right to receive a cash "exercise settlement amount" equal to (i) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (ii) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option. The amount
of cash received will be equal to such difference between the closing price of
the index and the exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
Futures Contracts and Options on Futures Contracts. (All Portfolios)
Each 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, or, to the extent permitted
under applicable law, on exchanges located outside the United States, such as
the London International Financial Futures Exchange and the Sydney Futures
Exchange Limited. Foreign markets may offer advantages such as trading in
commodities that are not currently traded in the United States or arbitrage
possibilities not available in the United States.
Initially, when purchasing or selling futures contracts, a 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 each 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
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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 a Portfolio
to substantial losses. If it is not possible, or the Portfolio determines not,
to close a futures position in anticipation of adverse price movements, the
Portfolio will be required to make daily cash payments of variation margin. In
such circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may offset partially or completely losses on the futures
contract. However, no assurance can be given that the price of the securities
being hedged will correlate with the price movements in a futures contract and
thus provide an offset to losses on the futures contract.
In addition, to the extent a Portfolio is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect correlation
between securities owned by the Portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is possible
that the hedge will not be fully effective in that, for example, losses on the
portfolio securities may be in excess of gains on the futures contract or losses
on the futures contract may be in excess of gains on the portfolio securities
that were the subject of the hedge. In futures contracts based on indexes, the
risk of imperfect correlation increases as the composition of an Equity
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 a
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.
Foreign Currency Transactions. (Equity Portfolios) If an Equity
Portfolio enters into a currency transaction, it will deposit, if so required by
applicable regulations, with its custodian cash, U.S. government securities or
other high grade debt obligations, in a segregated account of the Equity
Portfolio in an amount at least equal to the value of the Equity Portfolio's
total assets committed to the consummation of the forward contract. If the value
of the securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Equity Portfolio's commitment with respect to the
contract.
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At or before the maturity of a forward contract, the Equity Portfolio
either may sell a security and make delivery of the currency, or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Equity Portfolio will obtain,
on the same maturity date, the same amount of the currency which it is obligated
to deliver. If the Equity Portfolio retains the portfolio security and engages
in an offsetting transaction, such Equity Portfolio, at the time of execution of
the offsetting transaction, will incur a gain or loss to the extent movement has
occurred in forward contract prices. Should forward prices decline during the
period between the Equity Portfolio's entering into a forward contract for the
sale of a currency and the date it enters into an offsetting contract for the
purchase of the currency, the Equity Portfolio will realize a gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Equity
Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to each Equity Portfolio of engaging in currency transactions
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved. The use of forward currency exchange contracts does
not eliminate fluctuations in the underlying prices of the securities, but it
does establish a rate of exchange that can be achieved in the future. If a
devaluation generally is anticipated, an Equity Portfolio may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates. The requirements for qualification as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), may
cause the Fund to restrict the degree to which each Equity Portfolio engages in
currency transactions. See "Dividends, Distributions and Taxes."
Lending Portfolio Securities. (All Portfolios) To a limited extent,
each 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, a Portfolio can
increase its income through the investment of the cash collateral. For purposes
of this policy, a 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 such Portfolio to be the equivalent of
cash. From time to time, a Portfolio may return to the borrower or a third party
which is unaffiliated with such 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)
each Portfolio must receive at least 100% cash collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) each Portfolio must be
able to terminate the loan at any time; (4) each 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) each 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.
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Investment Restrictions. Each Portfolio has adopted investment
restrictions numbered 1 through 10 as fundamental policies. These restrictions
cannot be changed, as to a Portfolio, without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of such Portfolio's outstanding voting shares. Investment
restrictions numbered 11 through 16 are not fundamental policies and may be
changed by vote of a majority of the Trustees at any time. No Portfolio may:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
2. Invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of the Portfolio's total assets may
be invested, and securities issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities may be purchased, without regard to any such
limitation.
3. Hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to 75% of
the Portfolio's total assets.
4. Invest in commodities, except that each Portfolio may purchase and
sell options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
5. 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 each 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.
6. 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.
7. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each Portfolio
may lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange Commission
and the Fund's Board of Trustees.
8. Act as an underwriter of securities of other issuers, except to the
extent each Portfolio may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
9. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act).
10. Purchase securities on margin, but each 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.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
B-9
<PAGE>
12. Purchase, sell or write puts, calls or combinations thereof, except
as described in the Portfolio's Prospectus and Statement of Additional
Information.
13. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of its net assets would be so
invested.
14. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
The following investment restrictions numbered 15 and 16, which are not
a fundamental policy, apply only to the Equity Portfolios. Neither of these
Portfolios may:
15. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) if such purchase
would cause the value of the Equity Portfolio's investments in all such
companies to exceed 5% of the value of its total assets.
16. Invest in the securities of a company for the purpose of exercising
management or control, but each Equity Portfolio will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
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.
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 (63) Trustee President of The Bren Co., since 1969;
126 East 56th Street President of Cole, Bren Realty
New York, NY 10021 Advisors and Senior Partner
for Lincoln Properties prior
thereto.
Alan J. Dixon* (69) Trustee Partner of Bryan Cave, a law
7535 Claymont Court firm in St. Louis since
Apt. #2 January 1993; United States
Belleville, IL 62223 Senator of Illinois from 1981
to 1993.
John R. McKernan, Jr. (49) Trustee Chairman and Chief Executive
P.O. Box 15213 Officer of McKernan
Portland, ME 02110 Enterprises since January
1995; Governor of Maine prior
thereto.
B-10
<PAGE>
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATION
(AND AGE) WITH FUND DURING PAST FIVE YEARS
- ---------------- --------- ----------------------
M.B. Oglesby, Jr. (55) Trustee Vice Chairman of Cassidy &
700 13th Street, N.W. Associates since February
Washington, DC 20005 1996; Senior 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* (53) Chairman of the Director of Mutual Funds-Bear
245 Park Avenue Board Stearns Asset Management and
New York, NY 10167 Senior Managing Director of
Bear Stearns since March 1994;
Co-Director of Research and
Senior Chemical Analyst of
C.J. Lawrence/Deutsche Bank
Securities Corp. from January
1991 to March 1994.
Peter B. Fox (45) Executive Vice Managing Director-Emeritus,
Three First National Plaza President Bear Stearns, since February
Chicago, IL 60602 1997; Bear Stearns, Senior
Managing Director, Public
Finance, since September 1987.
William J. Montgoris (50) Executive Vice Chief Financial Officer and
245 Park Avenue President Chief Operating Officer, Bear
New York, NY 10167 Stearns.
Stephen A. Bornstein (54) 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.
B-11
<PAGE>
Donalda L. Fordyce (38) Vice President Senior Managing Director,
245 Park Avenue Bear Stearns Asset Management
New York, NY 10167 since March, 1996; previously
Vice President, Asset
Management Group, Goldman,
Sachs from 1986 to 1996.
Ellen T. Arthur (44) 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 (32) Assistant Associate Director of Bear
245 Park Avenue Treasurer Stearns since September 1995
New York, NY 10167 and Vice 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 (32) Assistant Vice President of Bear Stearns
245 Park Avenue Secretary 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, 1997 is as follows:
<TABLE>
<CAPTION>
(5)
(3) Total
(2) Pension or (4) Compensation from
(1) Aggregate Retirement Benefits Estimated Annual Fund and Fund
Name of Board Compensation Accrued as Part of Benefits Upon Complex Paid to
Member from Fund * Fund's Expenses Retirement Board Members
------ ----------- --------------- ---------- -------------
<S> <C> <C> <C> <C>
Peter M. Bren $7,000 None None $11,500
Alan J. Dixon $7,000 None None $ 6,500
John R. McKernan, Jr. $7,000 None None $12,000
M.B. Oglesby, Jr. $7,000 None None $12,000
Robert S. Reitzes None None None None
- ---------------------
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $10,100 for Board members of the Fund, as a group.
</TABLE>
B-12
<PAGE>
Board members and officers of the Fund, as a group, owned less than 1%
of each Portfolio's shares outstanding on May 31, 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 Portfolios' Prospectus entitled "Management of the
Fund."
Investment Advisory Agreement. BSFM provides investment advisory
services to each Portfolio pursuant to the Investment Advisory Agreement (the
"Agreement") dated February 22, 1995, as revised May 4, 1995, with the Fund. As
to each Portfolio, the Agreement is subject to annual approval by (i) the Fund's
Board of Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Portfolio, provided that in either event
the continuance also is approved by a majority of the Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Fund or BSFM, by
vote cast in person at a meeting called for the purpose of voting on such
approval. The Board of Trustees, including a majority of the Trustees who are
not "interested persons" of any party to the Agreement, last approved the
Agreement at a meeting held on January 28, 1997. The Agreement is terminable, as
to each 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 relevant 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; Donalda L.
Fordyce, Executive Vice President; Vincent L. Pereira, Treasurer; Ellen T.
Arthur, Secretary; and Michael Minikes, Warren J. Spector and Robert M.
Steinberg, Directors.
BSFM provides investment advisory services to each Portfolio in
accordance with its stated policies, subject to the approval of the Fund's Board
of Trustees. BSFM provides each Portfolio with portfolio managers who are
authorized by the Board of Trustees to execute purchases and sales of
securities. The portfolio managers of the Equity Portfolios are Robert S.
Reitzes, Mark A. Kurkland, Jim McClusky, Gail Sprute and Harris Cohen. The
portfolio manager of the Bond Portfolio is Peter E. Mahoney . All purchases and
sales are reported for the Board's review at the meeting subsequent to such
transactions.
B-13
<PAGE>
As compensation for BSFM's advisory services, each Equity Portfolio has
agreed to pay BSFM a monthly fee at the annual rate of .75 of 1% of the value of
such Equity Portfolio's average daily net assets. The Bond Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of .45 of 1% of the value of the
Bond Portfolio's average daily net assets. For the period from April 3, 1995
(commencement of operations) through March 31, 1996, the investment advisory
fees payable by the Large Cap Value Portfolio, Small Cap Value Portfolio and
Bond Portfolio amounted to $45,531, $88,955 and $51,869, respectively. For the
fiscal year ended March 31, 1997, the investment advisory fees payable by the
Large Cap Value Portfolio, Small Cap Value Portfolio and Bond Portfolio amounted
to $151,578, $285,539 and $98,957, respectively. These amounts were waived
pursuant to an undertaking by BSFM, resulting in no fees being paid by the Large
Cap Value Portfolio, the Small Cap Value Portfolio and the Bond Portfolio. In
addition, BSFM reimbursed $161,196, $86,666 and $280,261 for Large Cap Value
Portfolio, Small Cap Value Portfolio and Bond Portfolio, respectively. In
addition, the Adviser reimbursed $161,196, $86,666 and $280,261 for Large Cap
Value Portfolio, Small Cap Value Portfolio and Bond Portfolio, respectively, in
order to mainain the voluntary expense limitation.
Administration Agreement. BSFM provides certain administrative services
to the Fund pursuant to the Administration Agreement dated February 22, 1995, as
revised April 11, 1995 and June 2, 1997, with the Fund. As to each Portfolio,
the Administration Agreement will continue until February 22, 1998 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, as to each Portfolio, 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. As to
the relevant Portfolio, 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 each Portfolio's
average daily net assets. For the period from April 3, 1995 (commencement of
operations) through March 31, 1996, the administration fees accrued, but not
paid, by the Large Cap Value Portfolio, Small Cap Value Portfolio and Bond
Portfolio amounted to $9,106, $17,782 and $17,290, respectively. For the fiscal
year ended March 31, 1997, the administration fees accrued [but not paid], by
the Large Cap Value Portfolio, Snall Cap Value Portfolio and Bond Portfolio
amounted to $30,232, $57,108 and $32,986, respectively.
Administrative Services Agreement. PFPC provides certain administrative
services to the Fund pursuant to the Administrative Services Agreement dated
February 22, 1995, 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 Portfolios' Prospectus.
For the period from April 3, 1995 (commencement of operations) through March 31,
1996, the administrative fees payable by the Large Cap Value Portfolio, Small
Cap Value Portfolio and Bond Portfolio amounted to $126,000 $127,500 and
B-14
<PAGE>
$124,500, respectively. These amounts were reduced to $62,405, $62,532 and
$63,913, respectively, as a result of a waiver of fees by PFPC. For the fiscal
year ended March 31, 1997, the administrative fees payable by the Large Cap
Value Portfolio, Small Cap Value Portfolio and Bond Portfolio amounted to
$______, $______ and $______, respectively. These amounts were reduced to
$______, $_______ and $______, respectively, as a result of a waiver of fees by
PFPC.
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 each 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 effected 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 was so approved
on January 23, 1996. The Plan is terminable at any time, as to each Class of
each Portfolio, 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
relevant Class' shares. A Plan agreement is terminable, as to each Class of each
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 relevant Class' shares. A Plan agreement will
terminate automatically, as to the relevant Class of a Portfolio, in the event
of its assignment (as defined in the 1940 Act).
For the period from April 3, 1995 (commencement of operations) through
March 31, 1996, the Large Cap Value Portfolio, Small Cap Value Portfolio and
Bond Portfolio paid Bear Stearns $13,300, $22,762 and $14,093, respectively,
with respect to Class A shares and $23,333, $37,577 and $11,638, respectively,
with respect to Class C shares under the Plan. Of such amounts, the following
amounts were paid as indicated for Class A and Class C shares of each Portfolio:
<TABLE>
<CAPTION>
Large Cap Value Portfolio Small Cap Value Portfolio Total Return Bond Portfolio
------------------------- ------------------------- ---------------------------
Class A Class C Class A Class C Class A Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Payments to
Brokers or Dealers $7,620 $10,955 17,815 $26,976 $11,713 $4,734
Payments for 5,680 12,378 4,947 10,601 2,380 6,904
Advertising
</TABLE>
For the fiscal year ended March 31, 1997, the Large Cap Value
Portfolio, Small Cap Value Portfolio and Bond Portfolio paid Bear Stearns
$______, $______ and $______, respectively, with respect to Class A shares and
$______, $______ and $______, respectively, with respect to Class C shares under
the Plan. Of such amounts, the following amounts were paid as indicated for
Class A and Class C shares of each Portfolio:
B-15
<PAGE>
<TABLE>
<CAPTION>
Large Cap Value Portfolio Small Cap Value Portfolio Total Return Bond Portfolio
------------------------- ------------------------- ---------------------------
Class A Class C Class A Class C Class A Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Payments to
Brokers or Dealers
Payments for
Advertising
</TABLE>
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 or its 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.
Expense Limitation. BSFM agreed that if, in any fiscal year, the
aggregate expenses of a Portfolio, exclusive of taxes, brokerage, interest on
borrowings and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, exceed the expense limitation of any state
having jurisdiction over the Portfolio, the Fund may deduct from the payment to
be made to BSFM, such excess expense to the extent required by state law. Such
deduction or payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the sections in the Portfolios' Prospectus entitled "How to Buy Shares" and
"How to Redeem Shares."
The Distributor. Bear Stearns serves as the Portfolios' distributor on
a best efforts basis pursuant to an agreement dated February 22, 1995 which is
renewable annually. For the period April 3, 1995 (commencement of operations)
through March 31, 1996, Bear Stearns retained $72, $388 and $10,549 from the
sales loads on Class A shares of the Large Cap Value Portfolio, Small Cap Value
Portfolio and Bond Portfolio, respectively, and $110, $583 and $185 from
contingent deferred sales charges ("CDSC") on Class C shares of the Large Cap
Value Portfolio, Small Cap Value Portfolio and Bond Portfolio, respectively. For
the fiscal year ended March 31, 1997, Bear Stearns retained $__, $___ and
$______ from the sales loads on Class A shares of the Large Cap Value Portfolio,
Small Cap Value Portfolio and Bond Portfolio, respectively, and $___, $___ and
$___ from contingent deferred sales charges ("CDSC") on Class C shares of the
Large Cap Value Portfolio, Small Cap Value Portfolio and Bond Portfolio,
respectively. In some states, banks or other institutions effecting transactions
in Portfolio shares may be required to register as dealers pursuant to state
law.
B-16
<PAGE>
Purchase Order Delays. The effective date of a purchase order may be
delayed if PFPC, the Portfolios' 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 each 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 March 31, 1997.
EQUITY PORTFOLIOS: Large Cap Value Small Cap Value
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 $ $
BOND PORTFOLIO:
Net Asset Value per Share $
Per Share Sales Charge - 3.75%
of offering price (3.90% of
net asset value per share) $
Per Share Offering Price to
the Public $
Redemption Commitment. Each 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.
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 each Portfolio ordinarily utilizes is restricted, or when
an emergency exists as determined by the Securities and Exchange Commission so
that disposal of a 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.
B-17
<PAGE>
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Portfolios' Prospectus entitled "How to Buy Shares."
Valuation of Portfolio Securities. Equity Portfolio securities,
including covered call options written by an Equity Portfolio, are valued at the
last sale price on the securities exchange or national securities market on
which such securities primarily are traded. Securities not listed on an exchange
or national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked prices,
except in the case of open short positions where the asked price is used for
valuation purposes. Bid price is used when no asked price is available. Any
assets or liabilities initially expressed in terms of foreign currency will be
converted into U.S. dollars at the prevailing market rates for purposes of
calculating net asset value. Because of the need to obtain prices as of the
close of trading on various exchanges throughout the world for such foreign
securities, the calculation of net asset value does not take place
contemporaneously with the determination of prices of such securities. Forward
currency contracts will be valued at the current cost of offsetting the
contract. 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 an Equity
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.
Substantially all of the Bond Portfolio's investments (including
short-term investments) are valued each business day by one or more independent
pricing services (the "Service") approved by the Fund's Board of Trustees.
Securities valued by the Service for which quoted bid prices in the judgment of
the Service are readily available and are representative of the bid side of the
market are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by the
Service based upon its evaluation of the market for such securities). Any assets
or liabilities initially expressed in terms of foreign currency will be
converted into U.S. dollars at the prevailing market rates for purposes of
calculating net asset value. Because of the need to obtain prices as of the
close of trading on various exchanges throughout the world for such foreign
securities, the calculation of net asset value does not take place
contemporaneously with the determination of prices of such securities. Other
investments valued by the Service are carried at fair value as determined by the
Service, based on methods which include consideration of: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments are
not valued by the Service and are carried at amortized cost, which approximate
value. Other investments that are not valued by the Service are valued at the
average of the most recent bid and asked prices in the market in which such
investments are primarily traded, or at the last sales price for securities
traded primarily on an exchange or the national securities market. In the
absence of reported sales of investments traded primarily on an exchange or the
national securities market, the average of the most recent bid and asked prices
is used. Bid price is used when no asked price is available. Expenses and fees
are accrued daily and taken into account for the purpose of determining the net
asset value of the Bond 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.
Each Portfolio's 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
B-18
<PAGE>
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 Portfolios' Prospectus entitled "Dividends,
Distributions and Taxes."
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolios or their shareholders, and
the discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
Each Portfolio has elected to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, a Portfolio is not subject to
federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) for the
taxable year (the "Distribution Requirement"), and satisfies certain other
requirements of the Code that are described below. Distributions by a Portfolio
made during the taxable year or, under specified circumstances, within twelve
months after the close of the taxable year, will be considered distributions of
income and gains of the taxable year and will, therefore, satisfy the
Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test").
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However, foreign currency gains, including those derived from options, futures
and forwards, will not in any event be characterized as Short-Short Gain if they
are directly related to the regulated investment company's investments in stock
or securities (or options or futures thereon). Because of the Short- Short Gain
Test, a Portfolio may have to limit the sale of appreciated securities that it
has held for less than three months. However, the Short- Short Gain Test will
not prevent a Portfolio from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding period is
disregarded for this purpose. Interest (including original issue discount)
received by a Portfolio at maturity or upon the disposition of a security held
for less than three months will not be treated as gross income derived from the
sale or other disposition of such security within the meaning of the Short-Short
Gain Test. However, income that is attributable to realized market appreciation
will be treated as gross income from such sale or other disposition of
securities for this purpose.
In general, gain or loss recognized by a Portfolio on the disposition
of an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Portfolio at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Portfolio held the debt obligation. In
addition, under the rules of Code section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code section 1256 (unless a Portfolio
elects otherwise), will generally be treated as ordinary income or loss.
Further, the Code also treats as ordinary income a portion of the
capital gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Portfolio's net investment in
the transaction and: (1) the transaction consists of the acquisition of property
by the Portfolio and a contemporaneous contract to sell substantially identical
property in the future; (2) the transaction is a straddle within the meaning of
section 1092 of the Code; (2) the transaction is one that was marketed or sold
to the Portfolio on the basis that it would have the economic characteristics of
a loan but the interest-like return would be taxed as capital gain; or (4) the
transaction is described as a conversion transaction in the Treasury
Regulations. The amount of the gain recharacterized generally will not exceed
the amount of the interest that would have accrued on the net investment for the
relevant period at a yield equal to 120% of the federal long-term, mid-term, or
short-term rate, depending upon the type of instrument at issue, reduced by an
amount equal to: (1) prior inclusions of ordinary income items from the
conversion transaction and (2) the capital interest on acquisition indebtedness
under Code section 263(g). Built-in losses will be preserved where a Portfolio
has a built-in loss with respect to property that becomes a part of a conversion
transaction. No authority exists that indicates that the converted character of
the income will not be passed to a Portfolio's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by a Portfolio on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (depending on the
type of the Portfolio) (1) the asset is used to close a "short sale" (which
includes for certain purposes the acquisition of a put option) or is
substantially identical to another asset so used, (2) the asset is otherwise
held by the Portfolio as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Portfolio grants a qualified covered
call option (which, among other things, must not be deep-in-the-money) with
respect thereto, or (3) the asset is stock and the Portfolio grants an
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in-the-money qualified covered call option with respect thereto. However, for
purposes of the Short-Short Gain Test, the holding period of the asset disposed
of may be reduced only in the case of clause (1) above. In addition, a Portfolio
may be required to defer the recognition of a loss on the disposition of an
asset held as part of a straddle to the extent of any unrecognized gain on the
offsetting position.
Any gain recognized by a Portfolio on the lapse of, or any gain or loss
recognized by the Portfolio from a closing transaction with respect to, an
option written by the Portfolio will be treated as a short-term capital gain or
loss. For purposes of the Short-Short Gain Test, the holding period of an option
written by a Portfolio will commence on the date it is written and end on the
date it lapses or the date of a closing transaction is entered into.
Accordingly, a Portfolio may be limited in its ability to write options which
expire within three months and to enter into closing transactions at a gain
within three months of the writing of options.
Certain transactions that may be engaged in by a Portfolio (such as
regulated futures contracts, certain foreign currency contracts, and options on
stock indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. A Portfolio,
however, may elect not to have this special tax treatment apply to Section 1256
contracts that are part of a "mixed straddle" with other investments of the
Portfolio that are not Section 1256 contracts. Under Treasury Regulations, gains
arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.
A Portfolio may purchase securities of certain foreign investment funds
or trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If a Portfolio invests in a PFIC, it may elect to
treat the PFIC as a qualified electing fund (a "QEF"), in which event the
Portfolio will each year have ordinary income equal to its pro rata share of the
PFIC's ordinary earnings for the year and long-term capital gain equal to its
pro rata share of the PFIC's net capital gain for year, regardless of whether
the Portfolio receives distributions of any such ordinary earnings or capital
gains from the PFIC. If a Portfolio does not elect to treat the PFIC as a QEF,
then, in general, (1) any gain recognized by the Portfolio upon sale or other
disposition of its interest in the PFIC or any excess distribution received by
the Portfolio from the PFIC will be allocated ratably over the Portfolio's
holding period of its interest in the PFIC, (2) the portion of such gain or
excess distribution so allocated to the year in which the gain is recognized or
the excess distribution is received shall be included in the Portolio's gross
income for such year as ordinary income (and the distribution of such portion by
the Portfolio to shareholders will be taxable as an ordinary income dividend,
but such portion will not be subject to tax at the Portfolio level), (3) the
Portfolio shall be liable for tax on the portions of such gain or excess
distribution so allocated to prior years in an amount equal to, for each such
prior year, (i) the amount of gain or excess distribution allocated to such
prior year multiplied by the highest tax rate (individual or corporate) in
effect for such prior year plus (ii) interest on the amount determined under
clause (i) for the period from the due date for
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filing a return for such prior year until the date for filing a return for the
year in which the gain is recognized or the excess distribution is received at
the rates and methods applicable to underpayments of tax for such period, and
(4) the distribution by the Portfolio to shareholders of the portions of such
gain or excess distribution so allocated to prior years (net of the tax payable
by the Portfolio thereon) will again be taxable to the shareholders as an
ordinary income dividend.
Under proposed Treasury Regulations, a Portfolio can elect to recognize
as gain the excess, as of the last day of its taxable year, of the fair market
value of each share of PFIC stock over the Portfolio's adjusted tax basis in
that share ("mark to market gain"). Such mark to market gain will be included by
the Portfolio as ordinary income and will not be subject to the Short-Short Gain
Test, and the Portfolio's holding period with respect to such PFIC stock will
commence on the first day of the next taxable year. If the Portfolio makes such
election in the first taxable year it holds PFIC stock, it will not incur the
tax described in the preceding paragraphs.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each
Portfolio must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each quarter of a
Portfolio's taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
each of which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and does not hold more
than 10% of the outstanding voting securities of such issuer), and no more than
25% of the value of its total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Portfolio
controls and which are engaged in the same or similar trades or businesses.
Generally, an option (call or put) with respect to a security is treated as
issued by the issuer of the security, not the issuer of the option.
If for any taxable year a Portfolio does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to a tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Portfolio's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
capital gain net income for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having a
taxable year ending November 30 or December 31, for its taxable year (a "taxable
year election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
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For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Portfolio may in certain circumstances be required
to liquidate portfolio investments to make sufficient distribution to avoid
excise tax liability.
Portfolio Distributions
Each Portfolio anticipates distributing substantially all of its
investment company taxable income for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but will qualify for the 70% dividends-received
deduction for corporate shareholders only to the extent discussed below.
Dividends paid on Class A, Class C, and Class Y shares are calculated at the
same time and in the same manner. In general, dividends on Class C shares are
expected to be lower than those on Class A shares due to the higher distribution
expenses borne by the Class C shares. Dividends may also differ between classes
as a result of differences in other class specific expenses.
A Portfolio may either retain or distribute to shareholders its net
capital gain for each taxable year. Each Portfolio currently intends to
distribute any such amounts. Net capital gain that is distributed and designated
as a capital gain dividend will be taxable to shareholders as long-term capital
gain, regardless of the length of time the shareholder has held his shares or
whether such gain was recognized by a Portfolio prior to the date on which the
shareholder acquired his shares. The Code provides, however, that under certain
conditions only 50% of the capital gain recognized upon a Portfolio's
disposition of domestic "small business" stock will be subject to tax.
Conversely, if a Portfolio elects to retain its net capital gain, the
Portfolio will be taxed thereon (except to the extent of any available capital
loss carryovers) at the 35% corporate tax rate. If a Portfolio elects to retain
its net capital gain, it is expected that the Portfolio also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result that
each shareholder will be required to report his pro rata share of such gain on
his tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Portfolio on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
Ordinary income dividends paid by the Equity Portfolios with respect to
a taxable year will qualify for the 70% dividends-received deduction generally
available to corporations (other than corporations, such as S corporations,
which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the extent of
the amount of qualifying dividends received by the Equity Portfolios from
domestic corporations for the taxable year. A dividend received by an Equity
Portfolio will not be treated as a qualifying dividend (1) if it has been
received with respect to any share of stock that the Portfolio has held for less
than 46 days (91 days in the case of certain preferred stock), excluding for
this purpose under the rules of Code section 246(c)(3)and (4) (i) any day
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more than 45 days (or 90 days in the case of certain preferred stock) after the
date on which the stock becomes ex-dividend and (ii) any period during which the
Portfolio has an option to sell, is under a contractual obligation to sell, has
made and not closed a short sale of, is the grantor of a deep-in- the-money or
otherwise nonqualified option to buy, or has otherwise diminished its risk of
loss by holding other positions with respect to, such (or substantially
identical) stock; (2) to the extent that the Portfolio is under an obligation
(pursuant to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property; or (3) to the extent
that the stock on which the dividend is paid is treated as debt-financed under
the rules of Code section 246A. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (1) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Portfolio or (2) by application of Code section 246(b) which in
general limits the dividends-received deduction to 70% of the shareholder's
taxable income (determined without regard to the dividends-received deduction
and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum marginal
rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the
excess of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. For purposes of the corporate AMT, the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's AMTI. However, a corporate shareholder will generally be required
to take the full amount of any dividend received from an Equity Portfolio into
account (without a dividends-received deduction) in determining its adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Investment income that may be received by a Portfolio from sources
within foreign countries may be subject to foreign taxes withheld at the source.
The United States has entered into tax treaties with many foreign countries
which entitle the Portfolio to a reduced rate of, or exemption from, taxes on
such income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Portfolio's assets to be invested in various
countries is not known.
Distributions by the Portfolios that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by the Portfolios will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested in
additional shares of another Portfolio (or another fund). Shareholders receiving
a distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Portfolio reflects undistributed
net investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Portfolio, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although they economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a
Portfolio into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such month will be
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deemed to have been received by the shareholders (and made by the Portfolio) on
December 31 of such calendar year if such dividends are actually paid in January
of the following year. Shareholders will be advised annually as to the U.S.
federal income tax consequences of distributions made (or deemed made) during
the year.
A Portfolio will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Portfolio that it is not subject to backup withholding or that it is an exempt
recipient (such as a corporation).
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Portfolio in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Portfolio within 30 days before or
after the sale or redemption. In general, any gain or loss arising from (or
treated as arising from) the sale or redemption of shares of a Portfolio will be
considered capital gain or loss and will be long-term capital gain or loss if
the shares were held for longer than one year. However, any capital loss arising
from the sale or redemption of shares held for six months or less will be
treated as a long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, the special holding period
rules of Code section 246(c)(3) and (4) (discussed above in connection with the
dividends-received deduction for corporations) generally will apply in
determining the holding period of shares. Long-term capital gains of
noncorporate taxpayers are currently taxed at a maximum rate 11.6% lower than
the maximum rate applicable to ordinary income. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of a
Portfolio,(2) disposes of such shares less than 91 days after they are acquired,
and (3) subsequently acquires shares of the Portfolio or another fund at a
reduced sales load pursuant to a right to reinvest at such reduced sales load
acquired in connection with the acquisition of the shares disposed of, then the
sales load on the shares disposed of (to the extent of the reduction in the
sales load on the shares subsequently acquired) shall not be taken into account
in determining gain or loss on the shares disposed of but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder") depends on whether the income from a
Portfolio is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Portfolio is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower applicable treaty rate) upon the gross amount of the
dividend. Such foreign shareholder would generally be exempt from U.S. federal
income tax on gains realized on the sale of shares of a Portfolio, capital gain
dividends, and amounts retained by the Portfolio that are designated as
undistributed capital gains.
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If the income from a Portfolio is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends, and any gains realized upon the sale of
shares of the Portfolio will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Portfolio may be
required to withhold U.S. federal income tax at the rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Portfolio with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Portfolios, including the applicability of foreign taxes.
Effect of Future Legislation; State and Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investment in the Portfolios.
PORTFOLIO TRANSACTIONS
BSFM assumes general supervision over placing orders on behalf of each
Equity 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 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.
BSFM assumes general supervision over placing orders on behalf of the
Bond Portfolio for the purchase or sale of investment securities. Purchases and
sales of portfolio securities usually are principal transactions. Bond Portfolio
securities ordinarily are purchased directly from the issuer or from an
underwriter or a market maker for the securities. Usually no brokerage
commissions are paid by the Fund for such purchases. Purchases of portfolio
securities from underwriters include a commission or concession paid by the
issuer to the underwriter and the purchase price paid to market makers for the
securities may include the spread between the bid and asked price. Bond
Portfolio transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment.
Such information may be useful to BSFM in serving each Portfolio and
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 Portfolios. Sales of Portfolio shares
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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 an Equity Portfolio for transactions in securities of domestic issuers. When
transactions are executed in the over-the-counter market, each Portfolio will
deal with the primary market makers unless a more favorable price or execution
otherwise is obtainable. Foreign exchange transactions of each Equity Portfolio
are made with banks or institutions in the interbank market at prices reflecting
a mark-up or mark-down and/or commission.
Portfolio turnover may vary from year to year as well as within a year.
The turnover rate for the Large Cap Value Portfolio, Small Cap Value Portfolio
and Bond Portfolio for the period April 3, 1995 (commencement of operations)
through March 31, 1996 was 45%, 41% and 107%, respectively. The turnover rate
for the fiscal year ended March 31, 1997 was 137%, 57% and 263%, respectively.
In periods in which extraordinary market conditions prevail, BSFM will not be
deterred from changing investment strategy as rapidly as needed, in which case
higher turnover rates can be anticipated which would result in greater brokerage
expenses. The overall reasonableness of brokerage commissions paid is evaluated
by BSFM based upon its knowledge of available information as to the general
level of commissions paid by other institutional investors for comparable
services.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the Securities and Exchange Commission
thereunder, the Board of Trustees has determined that transactions for each
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 each
Portfolio on the floor of any national securities exchange, provided (i) the
Board of Trustees has expressly authorized Bear Stearns to effect such
transactions, and (ii) Bear Stearns annually advises the Board of Trustees of
the aggregate compensation it earned on such transactions. Over-the-counter
purchases and sales are transacted directly with principal market makers except
in those cases in which better prices and executions may be obtained elsewhere.
For the period April 3, 1995 (commencement of operations) through March
31, 1996, the Large Cap Value Portfolio and Small Cap Value Portfolio paid total
brokerage commissions of $26,576 and $64,825, respectively, of which
approximately $1,200 and $1,700 was paid to Bear Stearns. The Large Cap Value
Portfolio and Small Cap Value Portfolio paid 4.52% and 2.62%, respectively, of
its commissions to Bear Stearns, and, with respect to all the securities
transactions for each Equity Portfolio, 1.95% and 0.72% of the transactions,
respectively, involved commissions being paid to Bear Stearns. No brokerage
commissions were paid by the Bond Portfolio.
For the period fiscal year ended March 31, 1997, the Large Cap Value
Portfolio and Small Cap Value Portfolio paid total brokerage commissions of
$______ and $______, respectively, of which approximately $1,267 and $9,066 was
paid to Bear Stearns. The Large Cap Value Portfolio and Small Cap Value
Portfolio paid ____% and ____%, respectively, of its commissions to Bear
Stearns, and, with respect to all the securities transactions for each Equity
Portfolio, ____% and ____% of the transactions, respectively, involved
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commissions being paid to Bear Stearns. No brokerage commissions were paid by
the Bond Portfolio.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Portfolios' Prospectus entitled "Performance
Information."
Current yield for the 30-day period ended March 31, 1997 for Class A,
Class C and Class Y of the Bond Portfolio was ____%, ____% and ____%,
respectively. The current yield for each Class reflects the waiver or
reimbursement of certain fees and expenses by the investment adviser, without
which the Portfolio's current yield for such period would have been ____% for
Class A, ____% for Class C and ____% for Class Y. Current yield of the Bond
Portfolio is computed pursuant to a formula which operates as follows: The
amount of the Bond Portfolio's expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and interest
earned by the Bond Portfolio during the period. That result is then divided by
the product of: (a) the average daily number of shares outstanding during the
period that were entitled to receive dividends, and (b) the maximum offering
price per share on the last day of the period less any undistributed earned
income per share reasonably expected to be declared as a dividend shortly
thereafter. The quotient is then added to 1, and that sum is raised to the 6th
power, after which 1 is subtracted. The current yield is then arrived at by
multiplying the result by 2.
Average annual total return of each Portfolio 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 of each Portfolio 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.
The total return for each Portfolio for the fiscal year ended March 31,
1997 for the indicated Class was as follows:
B-28
<PAGE>
<TABLE>
<CAPTION>
Class A Class C Class Y
-------------------------- ------------------- -------
Name of Portfolio Based on Maximum Based on Net Based on Net Based on
- -----------------
Offering Price Asset Value Asset Value Maximum
-------------- ----------- ----------- -------
CDSC
----
<S> <C> <C> <C> <C>
Large Cap Value Portfolio 9.96% 15.44% 14.87% % 16.04%
Small Cap Value Portfolio 6.41% 11.71% 11.12% % 12.19%
Total Return Bond Portfolio 0.49% 4.40% 3.99% % 4.77%
</TABLE>
CODE OF ETHICS
The Fund, on behalf of each Portfolio, has adopted an amended and
restated Code of Ethics (the "Code of Ethics"), which established standards by
which certain access persons of the Fund must abide relating to personal
securities trading conduct. Under the Code of Ethics, access persons which
include, among others, trustees and officers of the Trust and employees of the
Fund and BSFM, are prohibited from engaging in certain conduct, including: (1)
the purchase or sale of any security being purchased or sold, or being
considered for purchase or sale, by the Portfolio, without prior approval by the
Fund or without the applicability of certain exemptions; (2) the recommendation
of a securities transaction without disclosing his or her interest in the
security or issuer of the security; (3) the commission of fraud in connection
with the purchase or sale of a security held by or to be acquired by each
Portfolio; (4) the purchase of any securities in an initial public offering or
private placement transaction eligible for purchase or sale by each Portfolio
without prior approval by the Fund; and (5) the acceptance of gifts of more than
a de minimus value from those doing business with or on behalf of the Portfolio.
Certain transactions are exempt from item (1) of the previous sentence,
including: (1) purchases or sales on the account of an access person that are
not under the control of or that are non-volitional with respect to that person;
(2) purchases or sales of securities not eligible for purchase or sale by the
Portfolio; (3) purchases or sales relating to rights issued by an issuer pro
rata to all holders of a class of its securities; and (4) any securities
transaction, or series of related transactions, involving 500 or fewer shares of
an issuer having a market capitalization greater than $1 billion.
The Code of Ethics specifies that access persons shall place the
interests of the shareholders of each Portfolio first, shall avoid potential or
actual conflicts of interest with each Portfolio, and shall not take unfair
advantage of their relationship with each Portfolio. Under certain
circumstances, the Investment Manager to each Portfolio may aggregate or bunch
trades with other clients provided that no client is materially disadvantaged.
Access persons are required by the Code of Ethics to file quarterly reports of
personal securities investment transactions. However, an access person is not
required to report a transaction over which he or she had no control.
Furthermore, a trustee of the Fund who is not an "interested person" (as defined
in the Investment Company Act) of the Fund is not required to report a
transaction if such person did not know or, in the ordinary course of his duties
as a trustee of the Fund, should have known, at the time of the transaction,
that, within a 15 day period before or after such transaction, the security that
such person purchased or sold was either purchased or sold, or was being
considered for purchase or sale, by each Portfolio. The Code of Ethics specifies
that certain designated supervisory persons and/or designated compliance
officers shall supervise implementation and enforcement of the Code of Ethics
and shall, at their sole discretion, grant or deny approval of transactions
required by the Code of Ethics.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Portfolios' Prospectus entitled "General Information."
B-29
<PAGE>
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Portfolio shares have no preemptive, subscription or conversion rights and are
freely transferable.
The Fund will send annual and semi-annual financial statements to all
its shareholders.
As of May 31, 1997, the following shareholders owned, directly or
indirectly, 5% or more of the indicated Class of the Portfolio's shares.
Percent of Large Cap
Value Portfolio
Name and Address Class A Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 001-00269-20
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 086-15297-17
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 200-40406-10
1 Metrotech Center North
Brooklyn, NY 11201-3859
Percent of Large Cap
Value Portfolio
Name and Address Class C Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 001-00269-20
1 Metrotech Center North
Brooklyn, NY 11201-3859
Name and Address
Bear Stearns Securities Corp. %
FBO 220-43167-11
1 Metrotech Center North
Brooklyn, NY 11201-3859
Percent of Large Cap
Value Portfolio
Name and Address Class Y Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 049-41108-10
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 049-41109-19
1 Metrotech Center North
Brooklyn, NY 11201-3859
Percent of Small Cap
Value Portfolio
Name and Address Class A Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 001-00269-20
1 Metrotech Center North
Brooklyn, NY 11201-3859
B-30
<PAGE>
Percent of Small Cap
Value Portfolio
Name and Address Class C Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 001-00269-20
1 Metrotech Center North
Brooklyn, NY 01201-3859
Percent of Small Cap
Value Portfolio
Name and Address Class Y Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 049-41065-11
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 049-40625-16
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 049-41108-10
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 049-41109-19
1 Metrotech Center North
Brooklyn, NY 11201-3859
Custodial Trust Company %
101 Carnegie Center
Princeton, NJ 08540
Percent of Total
Return Bond Portfolio
Name and Address Class A Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 001-00269-20
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 051-29339-12
1 Metrotech Center North
Brooklyn, NY 11201-3859
Percent of Total
Return Bond Portfolio
Name and Address Class C Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 001-00269-20
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 498-00001-13
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 220-43677-14
1 Metrotech Center North
Brooklyn, NY 11201-3859
B-31
<PAGE>
Bear Stearns Securities Corp. %
FBO 220-43671-10
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 027-43204-23
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 050-34543-16
1 Metrotech Center North
Brooklyn, NY 11201-3859
Percent of Total
Return Bond Portfolio
Name and Address Class Y Shares Outstanding
- ---------------- --------------------------
Bear Stearns Securities Corp. %
FBO 049-41095-15
1 Metrotech Center North
Brooklyn, NY 11201-3859
Bear Stearns Securities Corp. %
FBO 049-41110-16
1 Metrotech Center North
Brooklyn, NY 11201-3859
A shareholder who beneficially owns, directly or indirectly, more than
25% of a Portfolio's voting Securities may be deemed a "control person" (as
defined in the 1940 Act) of a Portfolio.
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 each Portfolio's custodian. Under
a custody agreement with each Portfolio, CTC holds each Portfolio's securities
and keeps all necessary accounts and records. For its services, CTC receives
from each Portfolio 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 each Portfolio's transfer agent,
dividend disbursing agent and registrar. Neither CTC nor PFPC has any part in
determining the investment policies of any Portfolio or which securities are to
be purchased or sold by any Portfolio.
Kramer, Levin, Naftalis & Frankel, 919 Third 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 Portfolios' Prospectus.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281-1434, independent auditors, have been selected as auditors of the Fund.
B-33
<PAGE>
FINANCIAL STATEMENTS
The Portfolios' Annual Report to Shareholders for the fiscal year ended
March 31, 1997 is a separate document supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated by reference into this
Statement of Additional Information.
B-35
<PAGE>
APPENDIX
Description of certain ratings assigned by S&P, Moody's, Fitch and
Duff:
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they 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
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with a
plus sign (+) designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa 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.
B-34
<PAGE>
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are 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 which are rated A 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.
Baa
Bonds which are rated Baa are considered as 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.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category. The
modifier 1 indicates a ranking for the security in the higher end of a rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by 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 earnings 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.
Issuers (or relating supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will 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 alternate liquidity is
maintained.
B-35
<PAGE>
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are 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 rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as 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 rated A are considered to be investment grade and of 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 rated BBB are 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.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
B-36
<PAGE>
F-1
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
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
B-37
<PAGE>
THE BEAR STEARNS FUNDS
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A:
(i) Financial Highlights are included in Part A
(ii) Annual Report to Shareholders is incorporated by
reference in Part A.
Part B:
Annual Report to Shareholders for the fiscal year ended
March 31, 1997 for the Large Cap Value Portfolio, Small Cap
Value Portfolio and Total Return Bond Portfolio is
incorporated by reference in Part B and filed herewith as
Exhibit 99.B12.
(b) Exhibits:
EX-99.B1(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 electronically on November 9,
1995, accession number 0000950130-95-
002359.
EX-99.B1(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
electronically on November 9, 1995,
accession number 0000950130-95-002359.
EX-99.B2 By-Laws are incorporated by reference to
Exhibit (2) of Post-Effective Amendment
No. 7 to the Registration Statement on
Form N-1A filed electronically on
November 9, 1995, accession number
0000950130-95-002359.
EX-99.B3 None.
EX-99.B4 None.
EX-99.B5(a) Investment Advisory Agreement between
the Registrant and Bear Stearns Funds
Management Inc. ("BSFM") is incorporated
C-1
<PAGE>
by reference to Exhibit (5)(a) of Post-
Effective Amendment No. 7 to the
Registration Statement on Form N-1A
filed electronically on November 9,
1995, accession number 0000950130-95-
002359.
EX-99.B5(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 electronically on November 9,
1995, accession number 0000950130-95-
002359.
EX-99.B5(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
electronically on November 9, 1995,
accession number 0000950130-95-002359.
EX-99.B6(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 electronically on November 9,
1995, accession number 0000950130-95-
002359.
EX-99.B6(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 electronically on June 20, 1996,
accession number 0000899681-96-000180.
EX-99.B7 None.
EX-99.B8 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 electronically on November 9,
1995, accession number 0000950130-95-
002359.
EX-99.B9 None.
EX-99.B10 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
C-2
<PAGE>
filed electronically on November 9,
1995, accession number 0000950130-95-
002359.
EX-99.B11(a) Consent of Kramer, Levin, Naftalis &
Frankel is filed herewith.
EX-99.B11(b) Consent of Independent Auditors is filed
herewith.
EX-99.B12 Annual Report to Shareholders for the
fiscal year ended March 31, 1997 for
the Large Cap Value Portfolio, Small
Cap Value Portfolio and Total Return
Bond Portfolio is filed herewith.
EX-99.B13 None.
EX-99.B14 None.
EX-99.B15 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 electronically on
November 9, 1995, accession number
0000950130-95-002359.
EX-99.B16 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 electronically on
November 9, 1995, accession number
0000950130-95-002359.
EX-99.B17 Financial Data Schedules are filed
herewith as Exhibit 27.
EX-99.B18 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 electronically on June 20,
1996, accession number 0000950130-95-
002359.
Other Exhibits:
EX-99.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 electronically on
C-3
<PAGE>
November 9, 1995, accession number
0000950130-95-002359.
EX-99.B Powers of attorney are incorporated by
reference to Other Exhibit (b) of Post-
Effective Amendment No. 7 to the
Registration Statement on Form N-1A
filed electronically on November 9,
1995, accession number
0000950130-95-002359 and to Other
Exhibit (b) of Post-Effective Amendment
No. 8 to the Registration Statement on
Form N-1A filed electronically on April
12, 1996, accession number
0000950130-96-001230.
Item 25. Persons Controlled by or Under Common Control with
Registrant
Not Applicable
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class June 23, 1997
-------------- ----------------
Shares of beneficial interest, $.001 par value per share, of the
following portfolios:
S&P STARS Portfolio--Class A 4467
S&P STARS Portfolio--Class C 2707
S&P STARS Portfolio--Class Y 436
Large Cap Value Portfolio--Class A 187
Large Cap Value Portfolio--Class C 195
Large Cap Value Portfolio--Class Y 110
Small Cap Value Portfolio--Class A 833
Small Cap Value Portfolio--Class C 749
Small Cap Value Portfolio--Class Y 310
Total Return Bond Portfolio--Class A 111
Total Return Bond Portfolio--Class C 43
Total Return Bond Portfolio--Class Y 35
The Insiders Select Fund--Class A 1361
The Insiders Select Fund--Class C 672
The Insiders Select Fund--Class Y 105
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 (filed as Exhibit 1(a) to Registrant's Post- Effective
Amendment No. 7 filed electronically on November 9, 1995, accession number
0000950130-95-002359 and incorporated herein by
C-4
<PAGE>
reference). The application of these provisions is limited by Article 10 of the
Registrant's By-Laws (filed as Exhibit 2 to Registrant's Post-Effective
Amendment No. 7 filed electronically on November 9, 1995, accession number
0000950130-95-002359 and incorporated herein by reference) 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 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) to Registrant's Post-Effective Amendment No. 7
filed electronically on November 9, 1995, accession number 0000950130-95-002359
and incorporated herein by reference.
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 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
C-5
<PAGE>
o Managed Income Securities Plus Fund, Inc.
(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
James E. Cayne
Alan C. Greenberg Chairman of the Board
John L. Knight
Mark E. Lehman
Alan D. Schwartz
Warren J. Spector
John H. Slade Director Emeritus
Executive Officers
Alan C. Greenberg Chairman of the Board
James E. Cayne Chief Executive
Officer/President
William J. Montgoris Chief Operating Officer/
Executive Vice President/
Chief Operations Officer
(designation)
Mark E. Lehman Executive Vice President/
General Counsel/Chief
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
Legal Officer (designation))
Samuel L. Molinaro, Jr. Senior Vice President - Finance
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;
and
(2) to furnish each person to whom a prospectus is
delivered with a copy of its most current annual
report to shareholders, upon request and without
charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of the Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 3rd day of July, 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 July 3, 1997
- --------------------
Robert S. Reitzes Executive Officer)
/s/ Frank J. Maresca Vice President and July 3, 1997
- --------------------
Frank J. Maresca Treasurer (Principal
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 July 3, 1997
- ---------------------
Robert S. Reitzes
*By: /s/ Frank J. Maresca
---------------------
Frank J. Maresca,
Attorney-in-Fact
C-8
<PAGE>
INDEX TO EXHIBITS
EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel
EX-99.B11(b) Consent of Independent Auditors
EX-99.B12 Annual Report to Shareholders for the fiscal year ended
March 31, 1997 for the Large Cap Value Portfolio, Small Cap
Value Portfolio and Total Return Bond Portfolio
EX-27 Financial Data Schedules
C-9
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 Maria T. Jones
Mark J. Headley Scott S. Rosenblum Maxwell M. Rabb
Robert M. Heller Michele D. Ross James Schreiber
Philip S. Kaufman Howard J. Rothman Counsel
Peter S. Kolevzon Max J. Schwartz _____
Kenneth P. Kopelman Mark B. Segall
Michael Paul Korotkin Judith Singer M. Frances Buchinsky
Shari K. Krouner Howard A. Sobel Abbe L. Dienstag
Kevin B. Leblang Jeffrey S. Trachtman Ronald S. Greenberg
David P. Levin Jonathan M. Wagner Debora K. Grobman
Ezra G. Levin Harold P. Weinberger Christian S. Herzeca
Larry M. Loeb E. Lisk Wyckoff, Jr. Jane Lee
Pinchas Mendelson
Lynn R. Saidenberg
Special Counsel
-----
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
July 2, 1997
The Bear Stearns Funds
245 Park Avenue
New York, New York 10167
Re: The Bear Stearns Funds
with respect to the following portfolios only:
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
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. 12 to the Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
-------------------------------------
Kramer, Levin, Naftalis & Frankel
CONSENT OF INDEPENDENT AUDITORS
The Bear Stearns Funds:
We consent to the incorporation by reference in Post-Effective Amendment No. 12
to Registration Statement No. 33-84842 of our report dated May 7, 1997 relating
to the Large Cap Value Portfolio, Small Cap Value Portfolio and Total Return
Bond Portfolio of The Bear Stearns Funds in the Statement of Additional
Information, which is a part of such Registration Statement and to the
references to us under the caption "Financial Highlights" in the Prospectuses,
which also are a part of such Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
July 2, 1997
T H E B E A R S T E A R N S F U N D S
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
LETTER TO SHAREHOLDERS
April 21, 1997
Dear Shareholders,
We are pleased to present the annual report to shareholders for the Large Cap
Value Portfolio ("Large Cap"), Small Cap Value Portfolio ("Small Cap") and Total
Return Bond Portfolio ("Bond Portfolio") (collectively, the "Portfolios") for
the fiscal year ended March 31, 1997. Detailed performance data for each class
of shares of each of the Portfolios can be found in the "Financial Highlights"
section of this report.
LARGE CAP VALUE PORTFOLIO
For the fiscal year ended March 31, 1997, Large Cap's class A shares (without
giving effect to the sales charge) had a total return of 15.44%1, class C shares
(without giving effect to the contingent deferred sales charge) had a total
return of 14.87% and class Y shares returned 16.04%. Large Cap's benchmark, the
S&P 500 Composite Index, returned 19.73% for the same period. Due to recent
additions in the technology sector to the Portfolio, notably Intel Corp. (4.44%
of Large Cap's net assets), Large Cap lagged its benchmark as technology stocks
underperformed the broader market during this period.
STAYING AHEAD OF THE INFLATION CURVE
From April 1996 through February 1997, the stock market continued its stellar
upward momentum. However, by March, the market was overextended and ready for a
catalyst to correct -- which it did, falling nearly 10% for the month. The
impetus for the correction came when the Federal Reserve Board raised interest
rates toward the end of the month based on concerns about possible wage
inflation. We believe that Chairman Greenspan is ahead of the inflation curve
and that we will see the economy slowing to the 2.5% - 3.0% range, which should
cause rates to fall in the second half of the year. This should be good news for
the stock market and for Large Cap.
During the first quarter of 1997, we increased our technology exposure with the
purchase of Intel Corp., Varian Associates, Inc. (3.88%) and Quantum Corp.
(3.81%). Due to the dollar's strength, we began to steer away from multinational
companies and to focus our attention on firms with significant domestic sales,
such as Wendy's International, Inc. (3.22%).
Following our strategy of seeking out undervalued companies whose long-term
earnings are expected to get a boost from a near-term catalyst, we acquired The
Goodyear Tire & Rubber Co. (6.38%), which is currently benefiting from
restructuring and cost-cutting initiatives, and Pitney Bowes, Inc. (4.80%),
which is profiting from the trend to digital meters and from the outsourcing of
its office services.
We expect a volatile market over the near term as investors anticipate further
interest rate hikes, but we would view market dips as buying opportunities.
- --------
1 For the fiscal year ended March 31, 1997, Large Cap's class A shares had a
total return of 9.96% including the initial maximum 4.75% sales charge.
1
<PAGE>
SMALL CAP VALUE PORTFOLIO*
Given the volatility in the stock market in general over the past year and the
sell-off in the small-cap market in the first quarter of 1997, Small Cap's
performance was particularly noteworthy. For the fiscal year ended March 31,
1997, Small Cap's class A shares (without giving effect to the sales charge) had
a total return of 11.71%2 , class C shares (without giving effect to the
contingent deferred sales charge) had a total return of 11.12% and class Y
shares returned 12.19% -- all outperforming Small Cap's benchmark, the Russell
2000 Index, which returned 5.13% for the same period.
We believe Small Cap's relative strength can be attributed to our strategy of
following a disciplined value-oriented approach and avoiding high-risk stocks.
We continue to buy companies with low absolute and relative price-earnings
multiples and strong fundamentals that are expected to lead to long-term
earnings growth. Companies are sold when their current performance and future
outlook do not meet our expectations.
SEEKING GROWTH IN UNIQUE SCENARIOS
In the recent rising interest rate environment, we have found unique situations
where a company's stock price reflects a perceived vulnerability to higher
rates, although the firm's underlying fundamentals, we believe, are quite
strong. For example, Chase Brass Industries, Inc. (2.47% of Small Cap's net
assets), which manufactures brass rod, is viewed as a new housing and
construction company, and its stock is trading at a price-earnings multiple of
under nine-times 1997 and eight-times 1998 earnings per share estimates.
However, Chase is selling everything it produces and just implemented a price
increase. Home remodeling, the concern over lead in drinking water and the
firm's move into asymmetrical shapes should continue to constrain capacity even
as production capabilities are increased incrementally. Chase generates excess
free cash flow, management owns over 10% of the shares, and it recently
completed an acquisition that should add $0.20 - $0.30 per share to earnings
this year -- all reasons why we see value and an underpriced stock.
As illustrated above, our primary focus continues to be on individual stocks. We
believe there are compelling company-specific stories with strong earnings
growth even in an environment of rising interest rates. Rigorous internal,
in-depth research will continue to be key to our stock selection, and with
increasing volatility in the market, we will seek opportunities to buy unique
stocks at even more attractive valuations.
TOTAL RETURN BOND PORTFOLIO
For the fiscal year ended March 31, 1997, Bond Portfolio's class A shares
(without giving effect to the sales charge) had a total return of 4.40%3, class
C shares (without giving effect to the contingent deferred sales charge) had a
total return of 3.99% and class Y shares returned 4.77%. Bond Portfolio's
benchmark, Salomon Brothers Broad Investment Grade Bond Index, returned 4.92%
for the same period.
Over the period, Bond Portfolio's emphasis on corporate securities, with their
relatively higher yields, added to its relative returns as corporate spreads
tightened. However, this same strategy worked against us in March of this year
as spreads widened due to quarter-end pressures and the Federal Reserve's
tightening.
- --------
* Small-cap funds typically carry additional risks, since smaller companies
generally have a higher risk of failure than well-established, larger
companies. Historically, stocks of smaller companies have experienced a
greater degree of market volatility than stocks on average.
2 For the fiscal year ended March 31, 1997, Small Cap's class A shares had a
total return of 6.41% including the initial maximum 4.75% sales charge.
3 For the fiscal year ended March 31, 1997, Bond Portfolio's class A shares had
a total return of 0.49% including the initial maximum 3.75% sales charge.
2
<PAGE>
FOCUSING ON CORPORATE AND MORTGAGE-BACKED SECURITIES
During the past six to eight months, the fixed income markets traded in a fairly
narrow range. In that regard, the strategy that we have had in place has paid
off. We have overweighted corporate and mortgage-backed securities for two
reasons: 1) to generate high income in a stable, low-volatility environment and
2) to benefit from expected spread tightening versus U.S. Treasury securities.
In the near term, we expect to increase our exposure to Yankee credits
(dollar-denominated bonds issued by foreign banks and companies in the U.S.),
especially those issued by countries where spreads have widened on what we
believe to be largely unwarranted political and economic concerns.
From a structural standpoint, we will continue to focus on securities that
should benefit from increased volatility. In the mortgage sector, this points
toward discounted collateral, well-structured collateralized mortgage
obligations and commercial mortgage tranches, and in the corporate sector,
toward noncallable or putable issues.
We expect the U.S. economy to remain strong with inflation under control.
However, as the economies of Europe and Japan pick up, we expect to see a
strengthening in U.S. exports in spite of the dollar's strength. This will keep
upward pressure on wages and keep the Federal Reserve in a tightening mode. We
believe that at least one and possibly two tightenings will occur this year. As
a result, we expect a more volatile market, with long-term rates testing the
7.20% - 7.25% range before the market rallies later in the year. We will
continue to emphasize corporate securities in the Bond Portfolio, given
favorable economic conditions and the recent widening of spreads.
We continue to carefully monitor commodities prices and any labor market
developments for signs of pressure that could trigger further short-term upward
moves in interest rates.
In conclusion, we value the confidence you have placed in us and would be
pleased to address any questions or concerns you may have. Please feel free to
call us at 1-800-766-4111.
Sincerely,
/s/Robert S. Reitzes /s/Mark Kurland /s/Peter E. Mahoney
Robert S. Reitzes Mark Kurland Peter E. Mahoney
Chairman of the Board and Portfolio Manager Portfolio Manager
President Large Cap Value Portfolio Total Return Bond
The Bear Stearns Funds Portfolio
Portfolio Manager
Large Cap Value Portfolio
Small Cap Value Portfolio
3
<PAGE>
THE BEAR STEARNS FUNDS
LARGE CAP VALUE PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOLLARS
Large Cap Value Portfolio
Class A shares Class C shares S&P 500 Composite Index
Apr. 4, 1995 $9,525 $10,000 $10,000
June 30, 1995 10,192 10,683 10,924
Sept. 30, 1995 11,295 11,825 11,791
Dec. 31, 1995 11,915 12,463 12,498
Mar. 31, 1996 12,034 12,571 13,166
June 30, 1996 12,042 12,563 13,755
Sept. 30, 1996 12,257 12,771 14,175
Dec. 31, 1996 13,627 14,178 15,354
Mar. 31, 1997 13,892 14,440 15,763
$9,525 Investment made on April 4, 1995 Past performance is not predictive of
future performance Large Cap Value Portfolio Class A shares $13,892 Class C
shares $14,440 S&P 500 Composite Index $15,763 Consumer Price Index $10,568
DOLLARS
Large Cap Value Portfolio
Consumer Price Index
Apr. 4, 1995 $10,000
June 30, 1995 10,079
Sept. 30, 1995 10,126
Dec. 31, 1995 10,178
Mar. 31, 1996 10,284
June 30, 1996 10,364
Sept. 30, 1996 10,430
Dec. 31, 1996 10,522
Mar. 31, 1997 10,568
$9,525 Investment made on April 4, 1995 Past performance is not predictive of
future performance Large Cap Value Portfolio Class A shares Class C shares S&P
500 Composite Index Consumer Price Index
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
Large Cap Value Portfolio(2)
Class A shares(4).................. 9.96% 17.94%
Class C shares..................... 14.87 20.23
S&P 500 Composite Index(1)............. 19.73 25.63
Consumer Price Index(1)................ 2.76 2.81
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period April 4, 1995 (commencement of investment operations) through
March 31, 1997.
(4)Reflects the initial maximum 4.75% sales charge. Without the applicable sales
charge, the total returns would have been 15.44% and 20.86%, respectively,
for each period shown.
4
<PAGE>
THE BEAR STEARNS FUNDS
LARGE CAP VALUE PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS Y SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOLLARS
Large Cap Value Portfolio
Class Y shares S&P 500 Composite Index
Sept. 11, 1995 $10,000 $10,000
Sept. 30, 1995 $10,186 $10,221
Dec. 31, 1995 10,760 10,834
Mar. 31, 1996 10,875 11,413
June 30, 1996 10,896 11,923
Sept. 30, 1996 11,105 12,287
Dec. 31, 1996 12,360 13,309
Mar. 31, 1997 12,619 13,664
Past performance is not predictive of future performance
Large Cap Value Portfolio
Class Y shares $12,619
S&P 500 Composite Index $13,664
Consumer Price Index $10,451
DOLLARS
Large Cap Value Portfolio
Consumer Price Index
Sept. 11, 1995 $10,000
Sept. 30, 1995 $10,013
Dec. 31, 1995 10,072
Mar. 31, 1996 10,170
June 30, 1996 10,242
Sept. 30, 1996 10,320
Dec. 31, 1996 10,405
Mar. 31, 1997 10,451
Past performance is not predictive of future performance Large Cap Value
Portfolio Class Y shares S&P 500 Composite Index Consumer Price Index
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
Large Cap Value Portfolio(2)
Class Y shares.................... 16.04% 16.12%
S&P 500 Composite Index(1)............ 19.73 22.21
Consumer Price Index(1)............... 2.76 2.88
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period September 11, 1995 (initial public offering date) through
March 31, 1997.
5
<PAGE>
THE BEAR STEARNS FUNDS
SMALL CAP VALUE PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOLLARS
Small Cap Value Portfolio
Class A shares Class C shares Russell 2000 Index
Apr. 3, 1995 $9,525 $10,000 $10,000
June 30, 1995 10,343 10,842 10,901
Sept. 30, 1995 12,057 12,625 11,969
Dec. 31, 1995 12,128 12,673 12,231
Mar. 31, 1996 12,797 13,358 12,852
June 30, 1996 14,240 14,847 13,511
Sept. 30, 1996 14,249 14,822 13,556
Dec. 31, 1996 14,002 14,553 14,248
Mar. 31, 1997 14,295 14,845 13,512
$9,525 Investment made on April 3, 1995 Past performance is not predictive of
future performance Small Cap Value Portfolio Class A shares $14,296 Class C
shares $14,845 Russell 2000 Index $13,512 Consumer Price Index $10,568
DOLLARS
Small Cap Value Portfolio
Consumer Price Index
Apr. 3, 1995 $10,000
June 30, 1995 10,079
Sept. 30, 1995 10,126
Dec. 31, 1995 10,178
Mar. 31, 1996 10,284
June 30, 1996 10,364
Sept. 30, 1996 10,430
Dec. 31, 1996 10,522
Mar. 31, 1997 10,568
$9,525 Investment made on April 3, 1995 Past performance is not predictive of
future performance Small Cap Value Portfolio Class A shares Class C shares
Russell 2000 Index Consumer Price Index
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
Small Cap Value Portfolio(2)
Class A shares(4)..................... 6.41% 19.63%
Class C shares........................ 11.12 21.90
Russell 2000 Index(1)..................... 5.13 16.27
Consumer Price Index(1)................... 2.76 2.81
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period April 3, 1995 (commencement of investment operations) through
March 31, 1997.
(4)Reflects the initial maximum 4.75% sales charge. Without the applicable sales
charge, the total returns would have been 11.71% and 22.58%, respectively,
for each period shown.
6
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS Y SHARES (1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOLLARS
Small Cap Value Portfolio
Class Y shares Russell 2000 Index Consumer Price Index
June 22, 1995 $10,000 $10,000 $10,000
June 30, 1995 9,954 10,037 10,027
Sept. 30, 1995 11,620 11,021 10,073
Dec. 31, 1995 11,697 11,262 10,132
Mar. 31, 1996 12,352 11,834 10,231
June 30, 1996 13,762 12,440 10,303
Sept. 30, 1996 13,770 12,481 10,382
Dec. 31, 1996 13,555 13,119 10,467
Mar. 31, 1997 13,857 12,441 10,513
Past performance is not predictive of future performance
Small Cap Value Portfolio
Class Y shares $13,857
Russell 2000 Index $12,441
Consumer Price Index $10,513
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
Small Cap Value Portfolio(2)
Class Y shares...................... 12.19% 20.17%
Russell 2000 Index(1)................... 5.13 13.07
Consumer Price Index(1)................. 2.76 2.85
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period June 22, 1995 (initial public offering date) through March 31,
1997.
7
<PAGE>
THE BEAR STEARNS FUNDS
TOTAL RETURN BOND PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TOTAL RETURN BOND PORTFOLIO
DOLLARS
Salomon Brothers Broad
Class A shares Class C shares Investment Grade Bond Index
Apr. 5, 1995 $9,625 $10,000 $10,000
June 30, 1995 10,027 10,412 10,568
Sept. 30, 1995 10,206 10,587 10,767
Dec. 31, 1995 10,679 11,064 11,234
Mar. 31, 1996 10,430 10,797 11,038
June 30, 1996 10,467 10,824 11,092
Sept. 30, 1996 10,644 10,996 11,300
Dec. 31, 1996 10,972 11,322 11,641
Mar. 31, 1997 10,908 11,245 11,581
$9,625 Investment made on April 5, 1995 Past performance is not predictive of
future performance Total Return Bond Portfolio Class A shares 10,908 Class C
shares 11,245 Salomon Brothers Broad Investment Grade Bond Index 11,581 Consumer
Price Index 10,568
TOTAL RETURN BOND PORTFOLIO
DOLLARS
Consumer
Price Index
Apr. 5, 1995 $10,000
June 30, 1995 10,079
Sept. 30, 1995 10,126
Dec. 31, 1995 10,185
Mar. 31, 1996 10,284
June 30, 1996 10,357
Sept. 30, 1996 10,436
Dec. 31, 1996 10,522
Mar. 31, 1997 10,568
$9,625 Investment made on April 5, 1995 Past performance is not predictive of
future performance Total Return Bond Portfolio Class A shares Class C shares
Salomon Brothers Broad Investment Grade Bond Index Consumer Price Index
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
Total Return Bond Portfolio(2)
Class A shares(4).................... 0.49% 4.45%
Class C shares....................... 3.99 6.06
Salomon Brothers Broad Investment
Grade Bond Index(1).................... 4.92 7.65
Consumer Price Index(1).................. 2.76 2.81
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period April 5, 1995 (commencement of investment operations) through
March 31, 1997.
(4)Reflects the initial maximum 3.75% sales charge. Without the applicable sales
charge, the total returns would have been 4.40% and 6.47%, respectively, for
each period shown.
8
THE BEAR STEARNS FUNDS
TOTAL RETURN BOND PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS Y SHARES(1)(2) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TOTAL RETURN BOND PORTFOLIO
DOLLARS
Salomon Brothers Broad Consumer
Class Y shares Investment Grade Bond Index Price Index
Sept. 8, 1995 10,000 10,000 10,000
Sept. 30, 1995 10,036 10,056 10,013
Dec. 31, 1995 10,511 10,492 10,072
Mar. 31, 1996 10,274 10,309 10,170
June 30, 1996 10,319 10,360 10,242
Sept. 30, 1996 10,503 10,553 10,320
Dec. 31, 1996 10,837 10,872 10,405
Mar. 31, 1997 10,782 10,816 10,451
Past performance is not predictive of future
performance
Total Return Bond Portfolio
Class Y shares 10,782
Salomon Brothers Broad Investment Grade Bond Index 10,816
Consumer Price Index 10,451
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1997 ANNUAL(3)
----------------- -------------
Total Return Bond Portfolio(2)
Class Y shares...................... 4.77% 4.93%
Salomon Brothers Broad Investment
Grade Bond Index(1)..................... 4.92 5.14
Consumer Price Index(1)................. 2.76 2.86
- ---------
(1)The chart assumes a hypothetical $10,000 initial investment in the Portfolio
and reflects all Portfolio expenses. Investors should note that the Portfolio
is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and/or are not available
for investment.
(2)Bear Stearns Funds Management Inc. waived its advisory fee and agreed to
voluntarily reimburse a portion of the Portfolio's operating expenses, if
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense
reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3)For the period September 8, 1995 (initial public offering date) through March
31, 1997.
9
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Computers & Office Equipment 12.37%
Building & Construction 7.52%
Tobacco 3.36%
Cash & Cash Equivalents 0.33%
Electronics 4.44%
Instruments -- Scientific 1.37%
Automobiles 5.63%
Transport -- Railroads 3.68%
Life/Health Insurance 9.48%
Banks 4.41%
Protection -- Safety 5.33%
Drugs & Hospital Supplies 11.50%
Automotive Equipment 6.38%
Diversified Operations 8.46%
Soap & Cleaning Products 2.38%
Restaurants 3.22%
Credit & Finance 10.14%
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ----- -------------------------------------------------- --------------------------- ----------
<S> <C> <C>
1. Goodyear Tire & Rubber Co. (The) ................. Automotive Equipment 6.38
2. ADT Ltd. ......................................... Protection -- Safety 5.33
3. Pitney Bowes, Inc. ............................... Computers & Office
Equipment 4.80
4. General Electric Co. ............................. Diversified Operations 4.58
5. Intel Corp. ...................................... Electronics 4.44
6. Bank of New York Co., Inc. ....................... Banks 4.41
7. Equitable Cos., Inc. ............................. Life/Health Insurance 4.26
8. FannieMae......................................... Credit & Finance 4.16
9. Medtronic, Inc. .................................. Drugs & Hospital Supplies 4.11
10. Armstrong World Industries, Inc. ................. Building & Construction 4.09
</TABLE>
10
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Building & Housing 9.63%
Home Furnishings 2.93%
Retail - Restaurants 5.71%
Cosmetics & Soaps 2.83%
Banks 5.82%
Grocery Products 3.00%
Financial Services 2.59%
Steel 3.53%
Cash & Cash Equivalents 2.21%
Textiles & Shoes 4.48%
Tobacco 3.66%
Other 21.96%
Publishing & Broadcasting 3.16%
Non-Ferrous Metals 5.25%
Life/Health Insurance 2.63%
Rubber & Plastics 3.74%
Electronics 3.36%
Electrical Equipment 4.22%
Drugs & Hospital Supplies 2.57%
Coal 4.18%
Computers & Office Equipment 2.54%
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDING SECTOR NET ASSETS
- ----- -------------------------------------------------- --------------------------- ----------
<S> <C> <C>
1. Triangle Pacific Corp. ........................... Building & Housing 5.11
2. AnnTaylor Stores Corp. ........................... Textiles & Shoes 4.48
3. Zeigler Coal Holding Co. ......................... Coal 4.18
4. Foodmaker, Inc. .................................. Retail -- Restaurants 4.11
5. Windmere-Durable Holdings Inc. ................... Electrical Equipment 3.86
6. DIMON Inc. ....................................... Tobacco 3.66
7. Universal Stainless & Alloy Products, Inc. ....... Steel 3.53
8. Cubic Corp. Designs............................... Electronics 3.36
9. Cadmus Communications Corp. ...................... Publishing & Broadcasting 3.16
10. Bay View Capital Corp. ........................... Banks 3.13
</TABLE>
11
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
(AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TREASURY / GOVERNMENT SECURITIES CORPORATES
<S> <C> <C>
Total Return Bond Portfolio 13.09% 54.41%
Salomon Brothers Broad Investment Grade Bond Index 50.77% 19.65%
MORTGAGE-BACKED SECURITIES PREFERRED STOCK
Total Return Bond Portfolio 24.62% 5.42%
Salomon Brothers Broad Investment Grade Bond Index 29.58% 0.00%
CASH & CASH EQUIVALENTS
Total Return Bond Portfolio 2.46%
Salomon Brothers Broad Investment Grade Bond Index 0.00%
</TABLE>
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN SALOMON BROTHERS BROAD
BOND PORTFOLIO INVESTMENT GRADE BOND INDEX
------------------- -----------------------------------
<S> <C> <C>
Average Maturity.......................................................... 9.26 years 8.63 years
4.88 years 4.76 years
Average Duration..........................................................
7.41% 7.19%
Average Coupon............................................................
7.56% 7.19%
Yield to Maturity.........................................................
</TABLE>
- -------------------------------------------------------------------------------
12
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS--99.67%
AUTOMOBILES - 5.63%
13,600 Ford Motor Co. ...................... $ 426,700
6,600 General Motors Corp. ................ 365,475
-----------
792,175
-----------
AUTOMOTIVE EQUIPMENT - 6.38%
17,200 Goodyear Tire & Rubber Co. (The) .... 898,700
-----------
BANKS - 4.41%
16,900 Bank of New York Co., Inc. .......... 621,075
-----------
BUILDING & CONSTRUCTION - 7.52%
8,900 Armstrong World Industries, Inc. .... 576,275
12,000 Owens Corning........................ 483,000
-----------
1,059,275
-----------
COMPUTERS & OFFICE EQUIPMENT - 12.37%
11,500 Pitney Bowes, Inc. .................. 675,625
13,900 Quantum Corp.*....................... 536,888
9,300 Xerox Corp. ......................... 528,937
-----------
1,741,450
-----------
CREDIT & FINANCE - 10.14%
16,200 FannieMae............................ 585,225
7,100 Great Western Financial Corp. ....... 286,663
11,600 Travelers Group, Inc. ............... 555,350
-----------
1,427,238
-----------
DIVERSIFIED OPERATIONS - 8.46%
6,500 General Electric Co. ................ 645,125
10,200 Varian Associates, Inc. ............. 545,700
-----------
1,190,825
-----------
DRUGS & HOSPITAL SUPPLIES - 11.50%
12,100 Baxter International Inc. ........... 521,812
8,800 Bristol-Myers Squibb Co. ............ 519,200
9,300 Medtronic, Inc. ..................... 578,925
-----------
1,619,937
-----------
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONICS - 4.44%
4,500 Intel Corp. ......................... $ 626,063
-----------
INSTRUMENTS--SCIENTIFIC - 1.37%
3,000 Perkin-Elmer Corp. .................. 193,125
-----------
LIFE/HEALTH INSURANCE - 9.48%
3,900 Aon Corporation...................... 238,875
22,000 Equitable Cos., Inc. ................ 599,500
23,100 USF&G Corp. ......................... 496,650
-----------
1,335,025
-----------
PROTECTION--SAFETY - 5.33%
30,000 ADT Ltd.*............................ 750,000
-----------
RESTAURANTS - 3.22%
22,000 Wendy's International, Inc. ......... 453,750
-----------
SOAP & CLEANING PRODUCTS - 2.38%
20,800 Dial Corp. .......................... 335,400
-----------
TOBACCO - 3.36%
4,150 Philip Morris Cos. Inc. ............. 473,619
-----------
TRANSPORT--RAILROADS - 3.68%
4,590 Conrail, Inc. ....................... 517,522
-----------
Total Common Stocks
(cost - $12,409,053)................. 14,035,179
-----------
SHORT-TERM INVESTMENT- 0.49%
INVESTMENT COMPANY - 0.49%
69,397 The Milestone Funds Treasury
Obligations
Portfolio, Institutional Shares**
(cost - $69,397)..................... 69,397
-----------
Total Investments
(cost - $12,478,450) - 100.16%....... 14,104,576
Liabilities in excess of other assets
-(0.16)%............................. (22,744)
-----------
Net Assets - 100.00%................. $14,081,832
-----------
-----------
- ---------
* Non-income producing security.
** Money market fund.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS--97.79%
AUTOMOTIVE EQUIPMENT - 1.09%
70,000 Audiovox Corp.*..................... $ 446,250
-----------
BANKS - 5.82%
25,100 Bay View Capital Corp. ............. 1,280,100
19,950 California Financial Holding Co. ... 578,550
30,500 Hamilton Bancorp, Inc. ............. 526,125
-----------
2,384,775
-----------
BUILDING & HOUSING - 9.63%
132,625 Fedders Corp., Class A.............. 712,859
73,500 Giant Cement Holding, Inc.*......... 1,139,250
76,000 Triangle Pacific Corp.*............. 2,090,000
-----------
3,942,109
-----------
CHEMICALS & FERTILIZERS - 0.61%
13,700 Lilly Industries, Inc. ............. 248,313
-----------
COAL - 4.18%
72,000 Zeigler Coal Holding Co. ........... 1,710,000
-----------
COMMERCIAL PRINTING - 2.32%
35,000 Bowne & Co., Inc. .................. 949,375
-----------
COMMERCIAL SERVICES - 0.98%
16,500 Steiner Leisure Ltd.*............... 400,125
-----------
COMMUNICATIONS - 1.63%
25,500 Data Transmission Network Corp.*.... 669,375
-----------
COMMUNICATIONS SOFTWARE - 1.21%
25,600 Dialogic Corp.*..................... 496,000
-----------
COMPUTERS & OFFICE EQUIPMENT - 2.54%
80,000 S3 Inc.*............................ 1,040,000
-----------
COSMETICS & SOAPS - 2.83%
80,550 Guest Supply, Inc.*................. 1,157,906
-----------
DIVERSIFIED OPERATIONS - 2.26%
77,000 Griffon Corp.*...................... 924,000
-----------
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
DRUGS & HOSPITAL SUPPLIES - 2.57%
53,000 Global Pharmaceutical Corp.*........ $ 453,813
56,500 HumaScan Inc.*...................... 596,781
-----------
1,050,594
-----------
ELECTRICAL EQUIPMENT - 4.22%
34,000 Aerovox, Inc.*...................... 144,500
112,000 Windmere-Durable Holdings Inc. ..... 1,582,000
-----------
1,726,500
-----------
ELECTRONICS - 3.36%
57,300 Cubic Corp. Designs................. 1,375,200
-----------
ENTERTAINMENT & LEISURE - 0.27%
15,000 Colonial Downs Holdings, Inc., Class
A*.................................. 110,625
-----------
FINANCIAL SERVICES - 2.59%
35,900 Banks United Corp., Class A......... 1,059,050
-----------
GROCERY PRODUCTS - 3.00%
53,200 Foodbrands America, Inc.*........... 1,230,250
-----------
HOME FURNISHINGS - 2.93%
80,000 Furniture Brands Intl., Inc.*....... 1,200,000
-----------
LIFE/HEALTH INSURANCE - 2.63%
23,900 Security-Connecticut Corp. ......... 1,078,488
-----------
MEDICAL--DRUGS - 2.41%
47,000 Cephalon, Inc.*..................... 987,000
-----------
MISCELLANEOUS INDUSTRIALS - 2.09%
77,000 Alyn Corp.*......................... 721,875
2,000 SPS Technologies, Inc.*............. 135,000
-----------
856,875
-----------
NON-FERROUS METALS - 5.25%
49,900 Chase Brass Industries, Inc.*....... 1,010,475
29,100 Mueller Industries, Inc.*........... 1,138,537
-----------
2,149,012
-----------
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE BEAR STEARNS FUNDS
Small Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL & GAS - 1.87%
25,000 Equitable Resources, Inc. .......... $ 765,625
-----------
PAPER & PAPER RELATED PRODUCTS - 2.02%
27,300 Schweitzer-Mauduit International,
Inc. ............................... 825,825
-----------
PUBLISHING & BROADCASTING - 3.16%
91,500 Cadmus Communications Corp. ........ 1,292,437
-----------
RETAIL--RESTAURANTS - 5.71%
50,000 Apple South, Inc. .................. 656,250
166,000 Foodmaker, Inc.*.................... 1,680,750
-----------
2,337,000
-----------
RUBBER & PLASTICS - 3.74%
80,000 Applied Extrusion Technologies,
Inc.*............................... 870,000
83,900 Lamson & Sessions Co.*.............. 660,713
-----------
1,530,713
-----------
STEEL - 3.53%
146,500 Universal Stainless & Alloy
Products, Inc.*..................... 1,446,687
-----------
TELECOMMUNICATIONS - 2.06%
54,500 Davel Communications Group, Inc.*... 844,750
-----------
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
TEXTILES & SHOES - 4.48%
90,000 AnnTaylor Stores Corp.*............. $ 1,833,750
-----------
TOBACCO - 3.66%
65,100 DIMON Inc. ......................... 1,497,300
-----------
TRANSPORT--MARINE - 1.14%
27,000 Avondale Industries, Inc.*.......... 465,750
-----------
Total Common Stocks
(cost - $33,947,540)................ 40,031,659
-----------
SHORT-TERM INVESTMENT-1.83%
INVESTMENT COMPANY - 1.83%
750,765 The Milestone Funds Treasury
Obligations Portfolio, Institutional
Shares**
(cost - $750,765)................... 750,765
-----------
Total Investments
(cost - $34,698,305) - 99.62%....... 40,782,424
Other assets in excess of
liabilities - 0.38%................. 155,100
-----------
Net Assets - 100.00%................ $40,937,524
-----------
-----------
- ---------
* Non-income producing security.
** Money market fund.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET
DESCRIPTION (000'S) VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM DEBT INVESTMENTS--92.12% CORPORATE OBLIGATIONS - 54.41% ASSET-BACKED -
9.34% AFC Mortgage Loan Asset-Backed Certificates, Series 1994-1, Class 1A,
Superior Bank FSB
Depositor, 6.40%,
03/25/24....................................................................................... $ 482 $ 465,431
Ford Credit 1995-B Grantor Trust, Asset-Backed Certificates, Class A, 5.90%, 10/15/00........... 470 467,313
Morgan Stanley Capital I Inc., Series 1997-C1, Class A-1B, Commercial Mortgage Pass-Through
Certificates, 7.46%, 05/15/06.................................................................. 540 543,713
Standard Credit Card Trust 1990-6, Credit Card Participation Certificates, Class A, 9.375%,
07/10/97....................................................................................... 190 191,818
-----------
1,668,275
-----------
FINANCE - 18.08%
Aon Capital Trust A, Capital Securities, Aon Corporation Guaranteed, 8.205%, 01/01/27*.......... 500 489,826
Associates Corp. N.A., Senior Notes, 7.50%, 05/15/99............................................ 150 152,625
CIT Group Holdings, Inc. (The), Senior Notes, MTN, 6.75%, 05/14/01.............................. 250 246,875
Compass Trust I, Capital Securities, Series A, Compass Bancshares, Inc., 8.23%, 01/15/27........ 500 484,375
General Motors Acceptance Corp., MTN, 6.125%, 09/08/97.......................................... 675 675,479
Lehman Brothers Holdings Inc., Series E, MTN, 6.65%, 01/28/00................................... 500 495,000
Markel Capital Trust I, Markel Corporation Guaranteed, 8.71%, 01/01/46*......................... 200 196,410
Salomon Inc, Senior Notes, 7.20%, 02/01/04...................................................... 500 491,250
-----------
3,231,840
-----------
GOVERNMENT--AGENCY - 4.14%
Hydro-Quebec, Yankee Debentures, 8.05%, 07/07/24................................................ 700 740,250
-----------
INDUSTRIAL - 15.95%
Coca-Cola Enterprises Inc., Debentures, 6.70%, 10/15/36......................................... 725 714,125
Continental Cablevision, Senior Notes, 8.30%, 05/15/06.......................................... 500 520,000
Cooper Tire & Rubber Company, Notes, 7.625%, 03/15/27........................................... 200 195,000
Six Flags Entertainment Inc., Senior Notes, Time Warner Entertainment Inc. Guaranteed, Zero
Coupon, 12/15/99............................................................................... 250 206,250
TCI Communications, Inc., Series B, Senior Notes, MTN, 7.55%, 09/02/03.......................... 750 727,500
Total Access Communication Public Company Limited, Senior Unsecured Yankee Bonds, 8.375%,
11/04/06*...................................................................................... 500 487,500
-----------
2,850,375
-----------
TELEPHONE - 4.15%
US West Capital Funding, Inc., US West, Inc. Guaranteed, 6.85%, 01/15/02........................ 750 740,625
-----------
UTILITY--GAS - 2.75%
Ras Laffan Liquified Natural Gas Company Limited, Secured Bonds, 7.628%, 09/15/06*.............. 500 491,250
-----------
Total Corporate Obligations (cost - $9,878,834)................................................. 9,722,615
-----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
16
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET
DESCRIPTION (000'S) VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 24.62%
Federal Home Loan Mortgage Corporation
6.00%, 10/01/00............................................................................... $ 238 $ 231,883
Federal National Mortgage Association
6.50%, 04/01/26............................................................................... 19 17,712
7.00%, 10/01/25............................................................................... 504 482,071
7.00%, 01/01/26............................................................................... 241 230,073
7.00%, 11/01/26............................................................................... 895 856,371
8.00%, 02/01/12............................................................................... 571 581,563
Government National Mortgage Association
7.00%, 08/15/10............................................................................... 227 223,906
7.00%, 08/15/25............................................................................... 269 257,061
7.00%, 02/15/26............................................................................... 140 133,865
7.00%, 03/15/26............................................................................... 1,452 1,386,137
-----------
Total U.S. Government Agency Obligations (cost - $4,477,779).................................... 4,400,642
-----------
U.S. GOVERNMENT OBLIGATIONS - 13.09%
U.S. Treasury Notes
5.75%, 10/31/00............................................................................... 500 485,670
5.875%, 08/15/98.............................................................................. 350 348,131
6.125%, 07/31/00.............................................................................. 500 492,500
6.625%, 07/31/01.............................................................................. 500 497,990
7.75%, 11/30/99............................................................................... 500 514,255
-----------
Total U.S. Government Obligations (cost - $2,373,800)........................................... 2,338,546
-----------
Total Long-Term Debt Investments (cost - $16,730,413)........................................... 16,461,803
-----------
SHARES
---------
LONG-TERM EQUITY INVESTMENTS--5.42%
PREFERRED STOCKS - 5.42%
1585 Broadway Corporation, Step-Down Preferred Stock, 13.83%, 12/30/06*......................... 500 485,182
Marquette Real Estate Funding Corporation, Step-Down Preferred Stock, 13.701%, 12/30/06*........ 500 483,288
-----------
Total Long-Term Equity Investments (cost - $1,000,815).......................................... 968,470
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS--0.00%
INVESTMENT COMPANIES - 0.00%
Federated Investors, Trust for Short-Term U.S. Government Securities**.......................... 119 $ 119
The Milestone Funds Treasury Obligations Portfolio, Institutional Shares **..................... 454 454
-----------
Total Short-Term Investments (cost - $573)...................................................... 573
-----------
Total Investments (cost - $17,731,801) - 97.54%................................................. 17,430,846
Other assets in excess of liabilities - 2.46%................................................... 439,868
-----------
Net Assets - 100.00%............................................................................ $17,870,714
-----------
-----------
</TABLE>
- ---------
MTN -- Medium-Term Notes.
* SEC Rule 144A Security. Such securities are traded only among "qualified
institutional buyers".
** Money market fund.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP
VALUE VALUE TOTAL RETURN
PORTFOLIO PORTFOLIO BOND PORTFOLIO
-------------- -------------- --------------
ASSETS
<S> <C> <C> <C>
Investments, at value (cost - $12,478,450,
$34,698,305 and $17,731,801, respectively)..... $ 14,104,576 $ 40,782,424 $ 17,430,846
Receivable for Portfolio shares sold............ 101,416 20,747 73,214
Receivable for investments sold................. -- 649,773 202,886
Receivable from investment adviser.............. 11,997 -- 33,844
Dividends and interest receivable............... 20,125 12,780 239,294
Deferred organization expenses and other
assets......................................... 91,426 111,636 79,307
-------------- -------------- --------------
Total assets.............................. 14,329,540 41,577,360 18,059,391
-------------- -------------- --------------
LIABILITIES
Loan payable.................................... -- -- 58,000
Payable for Portfolio shares repurchased........ 165,587 66,250 107
Payable for investments purchased............... -- 457,039 --
Dividends payable............................... -- -- 33,741
Administration fee payable...................... 1,927 5,477 2,384
Distribution fee payable (class A and C
shares)........................................ 16,126 46,559 6,138
Custodian fee payable........................... 1,993 1,240 7,110
Accrued expenses................................ 62,075 63,271 81,197
-------------- -------------- --------------
Total liabilities......................... 247,708 639,836 188,677
-------------- -------------- --------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)...... 821 2,346 1,486
Paid-in capital................................. 9,793,505 35,248,497 18,233,426
Undistributed net investment income............. 8,376 -- --
Accumulated net realized gain/(loss) from
investments.................................... 2,653,004 (397,438) (63,243)
Net unrealized appreciation/(depreciation) on
investments.................................... 1,626,126 6,084,119 (300,955)
-------------- -------------- --------------
Net assets................................ $ 14,081,832 $ 40,937,524 $ 17,870,714
-------------- -------------- --------------
-------------- -------------- --------------
CLASS A
Net assets...................................... $ 4,986,830 $ 13,142,573 $ 3,366,497
-------------- -------------- --------------
Shares of beneficial interest outstanding....... 290,426 751,791 279,908
-------------- -------------- --------------
Net asset value per share....................... $17.17 $17.48 $12.03
-------------- -------------- --------------
-------------- -------------- --------------
Maximum offering price per share (net asset value plus sales charge of 4.75%*,
4.75%* and
3.75%*, respectively, of the offering price)... $18.03 $18.35 $12.50
-------------- -------------- --------------
-------------- -------------- --------------
CLASS C
$ 2,986,488 $ 11,070,666 $ 1,017,746
Net assets......................................
-------------- -------------- --------------
Shares of beneficial interest outstanding....... 174,588 637,042 84,626
-------------- -------------- --------------
Net asset value and offering price per
share**........................................ $17.11 $17.38 $12.03
-------------- -------------- --------------
-------------- -------------- --------------
CLASS Y
Net assets...................................... $ 6,108,514 $ 16,724,285 $ 13,486,471
-------------- -------------- --------------
355,556 957,355 1,121,464
Shares of beneficial interest outstanding.......
-------------- -------------- --------------
Net asset value, offering and redemption price
per share...................................... $17.18 $17.47 $12.03
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
- ---------
* On investments of $50,000 or more, the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP TOTAL RETURN
VALUE PORTFOLIO VALUE PORTFOLIO BOND PORTFOLIO
---------------- ---------------- ----------------
INVESTMENT INCOME
<S> <C> <C> <C>
Dividends........................................................... $ 388,841 $ 240,179 $ 12,133
Interest............................................................ 10,957 21,681 1,482,997
---------------- ---------------- ----------------
399,798 261,860 1,495,130
---------------- ---------------- ----------------
EXPENSES
Advisory fees....................................................... 151,578 285,539 98,957
Transfer agent fees and expenses.................................... 104,027 131,112 101,476
Accounting fees..................................................... 99,570 119,822 99,469
Distribution fees - class A......................................... 27,440 57,907 15,344
Distribution fees - class C......................................... 37,332 111,111 12,483
Legal and auditing fees............................................. 39,505 52,884 43,203
Administration fees................................................. 30,232 57,108 32,986
Reports and notices to shareholders................................. 10,459 17,558 19,432
Federal and state registration fees................................. 27,811 36,387 27,797
Amortization of organization expenses............................... 19,860 21,604 15,304
Insurance expenses.................................................. 15,137 14,971 15,078
Custodian fees and expenses......................................... 8,900 10,222 15,002
Trustees' fees and expenses......................................... 7,001 8,001 10,901
Other............................................................... 2,345 5,851 --
---------------- ---------------- ----------------
Total expenses before waivers and reimbursements.............. 581,197 930,077 507,432
Less: waivers and reimbursements.............................. (312,774) (372,205) (379,218)
---------------- ---------------- ----------------
Total expenses after waivers and reimbursements............... 268,423 557,872 128,214
---------------- ---------------- ----------------
Net investment income/(loss)........................................ 131,375 (296,012) 1,366,916
---------------- ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) from investments........................... 2,770,141 210,104 (61,189)
Net change in unrealized appreciation/(depreciation) on
investments........................................................ 486,773 3,397,726 (148,563)
---------------- ---------------- ----------------
Net realized and unrealized gain/(loss) on investments.............. 3,256,914 3,607,830 (209,752)
---------------- ---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $3,388,289 $3,311,818 $1,157,164
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP
VALUE PORTFOLIO VALUE PORTFOLIO
------------------------------------ ----------------
FOR THE FOR THE PERIOD FOR THE
FISCAL YEAR APRIL 3, 1995* FISCAL YEAR
ENDED THROUGH ENDED
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997
---------------- ---------------- ----------------
INCREASE IN NET ASSETS FROM
OPERATIONS
<S> <C> <C> <C>
Net investment income/(loss).............................. $ 131,375 $ 20,211 $ (296,012)
Net realized gain/(loss) from investments................. 2,770,141 95,147 210,104
Net change in unrealized appreciation/ (depreciation) on
investments.............................................. 486,773 1,139,353 3,397,726
---------------- ---------------- ----------------
Net increase in net assets resulting from operations...... 3,388,289 1,254,711 3,311,818
---------------- ---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... (36,680) (4,557) --
Class C shares.......................................... (5,113) -- --
Class Y shares.......................................... (86,346) (10,514) --
---------------- ---------------- ----------------
(128,139) (15,071) --
---------------- ---------------- ----------------
Net realized capital gains
Class A shares.......................................... (66,024) (1,184) (191,411)
Class C shares.......................................... (46,015) (1,037) (113,992)
Class Y shares.......................................... (97,133) (891) (274,790)
---------------- ---------------- ----------------
(209,172) (3,112) (580,193)
---------------- ---------------- ----------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares...................... 21,189,714 10,493,529 31,319,342
Cost of shares repurchased................................ (20,911,123) (1,214,980) (15,839,169)
Shares issued in reinvestment of dividends................ 203,090 9,088 509,481
---------------- ---------------- ----------------
Net increase/(decrease) in net assets derived from shares
of beneficial interest transactions...................... 481,681 9,287,637 15,989,654
---------------- ---------------- ----------------
Total increase/(decrease) in net assets................... 3,532,659 10,524,165 18,721,279
NET ASSETS
Beginning of period....................................... 10,549,173 25,008 22,216,245
---------------- ---------------- ----------------
End of period**........................................... $14,081,832 $10,549,173 $40,937,524
---------------- ---------------- ----------------
---------------- ---------------- ----------------
SMALL CAP TOTAL RETURN
VALUE PORTFOLIO BOND PORTFOLIO
---------------- ------------------------------------
FOR THE PERIOD FOR THE FOR THE PERIOD
APRIL 3, 1995* FISCAL YEAR APRIL 3, 1995*
THROUGH ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1996
---------------- ---------------- ----------------
INCREASE IN NET ASSETS FROM
OPERATIONS
<S> <C> <C> <C>
Net investment income/(loss).............................. $ (69,561) $ 1,366,916 $ 670,434
Net realized gain/(loss) from investments................. 544,848 (61,189) 105,601
Net change in unrealized appreciation/ (depreciation) on
investments.............................................. 2,686,393 (148,563) (152,392)
---------------- ---------------- ----------------
Net increase in net assets resulting from operations...... 3,161,680 1,157,164 623,643
---------------- ---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... -- (262,042) (232,740)
Class C shares.......................................... -- (92,135) (84,059)
Class Y shares.......................................... -- (1,012,739) (353,635)
---------------- ---------------- ----------------
-- (1,366,916) (670,434)
---------------- ---------------- ----------------
Net realized capital gains
Class A shares.......................................... (64,256) (10,555) (13,644)
Class C shares.......................................... (72,361) (4,155) (5,746)
Class Y shares.......................................... (134,885) (38,149) (35,406)
---------------- ---------------- ----------------
(271,502) (52,859) (54,796)
---------------- ---------------- ----------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares...................... 23,204,316 11,283,204 19,389,794
Cost of shares repurchased................................ (4,151,186) (12,702,583) (1,253,726)
Shares issued in reinvestment of dividends................ 247,929 1,111,988 381,251
---------------- ---------------- ----------------
Net increase/(decrease) in net assets derived from shares
of beneficial interest transactions...................... 19,301,059 (307,391) 18,517,319
---------------- ---------------- ----------------
Total increase/(decrease) in net assets................... 22,191,237 (570,002) 18,415,732
NET ASSETS
Beginning of period....................................... 25,008 18,440,716 24,984
---------------- ---------------- ----------------
End of period**........................................... $22,216,245 $17,870,714 $18,440,716
================ ================ ===============
</TABLE>
- ----------
* Commencement of operations.
** Includes undistributed net investment income of $8,376 for the fiscal year
ended March 31, 1997 and $5,140 for the period April 3, 1995* through March
31, 1996, for Large Cap Value Portfolio.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
Large Cap Value Portfolio
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED APRIL 3, 1995* THROUGH
MARCH 31, 1997 MARCH 31, 1996
--------------------------- ---------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period............................... $ 15.13 $ 15.08 $ 15.12 $ 12.00 $ 12.00 $ 13.98
------- ------- ------- ------- ------- -------
Net investment income/(loss)(1)....... 0.04 (0.02) 0.23 0.06 (0.01) 0.07
Net realized and unrealized gain on
investments(2)....................... 2.28 2.25 2.17 3.10 3.10 1.16
------- ------- ------- ------- ------- -------
Net increase in net assets resulting
from operations...................... 2.32 2.23 2.40 3.16 3.09 1.23
------- ------- ------- ------- ------- -------
Dividends and distributions to
shareholders from
Net investment income................. (0.10) (0.02) (0.16) (0.02) -- (0.08)
Net realized capital gains............ (0.18) (0.18) (0.18) (0.01) (0.01) (0.01)
------- ------- ------- ------- ------- -------
(0.28) (0.20) (0.34) (0.03) (0.01) (0.09)
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 17.17 $ 17.11 $ 17.18 $ 15.13 $ 15.08 $ 15.12
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(3)............ 15.44% 14.87% 16.04% 26.35% 25.71% 8.75%(4)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)............................. $ 4,987 $ 2,986 $ 6,109 $ 3,616 $ 3,520 $ 3,413
Ratio of expenses to average net
assets(1)............................ 1.50% 2.00% 1.00% 1.50%(5) 2.00%(5) 1.00%(5)
Ratio of net investment income/(loss)
to average net assets(1)............. 0.43% (0.08)% 1.00% 0.46%(5) (0.06)%(5) 0.76%(4)(5)
Decrease reflected in above expense
ratios and net investment
income/(loss) due to waivers and
reimbursements....................... 1.58% 1.61% 1.50% 4.34%(5) 4.39%(5) 4.41%(4)(5)
Portfolio turnover rate............... 136.67% 136.67% 136.67% 45.28%(6) 45.28%(6) 45.28%(6)
Average commission rate per
share(7)............................. $0.0593 $0.0593 $0.0593 $0.0596 $0.0596 $0.0596
</TABLE>
- --------
* Commencement of operations. Commenced investment operations on April 4, 1995.
Class Y shares commenced its initial public offering on September 11, 1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses in
investments during the respective periods because of the timing of sales and
repurchases of Portfolio shares in relation to fluctuating net asset values
during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(6) Not annualized.
(7) Represents average commission rate per share charged to the Portfolio on
purchases and sales of investments subject to such commissions during each
period.
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
Small Cap Value Portfolio
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED APRIL 3, 1995* THROUGH
MARCH 31, 1997 MARCH 31, 1996
--------------------------- ---------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period............................... $ 15.87 $ 15.79 $ 15.85 $ 12.00 $ 12.00 $ 13.09
------- ------- ------- ------- ------- -------
Net investment loss(1)................ (0.10) (0.18) (0.05) (0.07) (0.10) --
Net realized and unrealized gain on
investments(2)....................... 1.95 1.93 1.97 4.17 4.11 3.05
------- ------- ------- ------- ------- -------
Net increase in net assets resulting
from operations...................... 1.85 1.75 1.92 4.10 4.01 3.05
------- ------- ------- ------- ------- -------
Distributions to shareholders from
Net realized capital gains............ (0.24) (0.16) (0.30) (0.23) (0.22) (0.29)
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 17.48 $ 17.38 $ 17.47 $ 15.87 $ 15.79 $ 15.85
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(3)............ 11.71% 11.12% 12.19% 34.36% 33.59% 23.52%(4)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)............................. $13,143 $11,071 $16,724 $ 6,474 $ 6,753 $ 8,989
Ratio of expenses to average net
assets(1)............................ 1.50% 2.00% 1.00% 1.50%(5) 2.00%(5) 1.00%(5)
Ratio of net investment loss to
average net assets(1)................ (0.81)% (1.31)% (0.31)% (0.66)%(5) (1.09)%(5) --
Decrease reflected in above expense
ratios and net investment loss due to
waivers and reimbursements........... 1.00% 0.99% 1.00% 2.32%(5) 2.39%(5) 2.45%(4)(5)
Portfolio turnover rate............... 56.88% 56.88% 56.88% 40.79%(6) 40.79%(6) 40.79%(6)
Average commission rate per
share(7)............................. $0.0550 $0.0550 $0.0550 $0.0572 $0.0572 $0.0572
</TABLE>
- --------
* Commencement of investment operations. Class Y shares commenced its initial
public offering on June 22, 1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions. (1)
Reflects waivers and reimbursements. (2) The amounts shown for a share
outstanding throughout the respective periods are not in accord with the
changes in the aggregate gains and losses in investments during the
respective periods because of the timing of sales and repurchases of
Portfolio shares in relation to fluctuating net asset values during the
respective periods. (3) Total investment return does not consider the
effects of sales charges or contingent deferred sales charges. Total
investment return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of each period reported and
includes reinvestment of dividends and distributions, if any. Total
investment return is not annualized. (4) The total investment return and
ratios for class Y shares are not necessarily comparable to those of class
A and C shares, due to timing differences in the commencement of the
initial public offering of class Y shares. (5) Annualized. (6) Not
annualized. (7) Represents average commission rate per share charged to the
Portfolio on purchases and sales of investments subject to such commissions
during each period.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
Total Return Bond Portfolio
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED APRIL 3, 1995* THROUGH
MARCH 31, 1997 MARCH 31, 1996
--------------------------- ---------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE**
Net asset value, beginning of
period............................... $ 12.26 $ 12.26 $ 12.26 $ 12.00 $ 12.00 $ 12.35
------- ------- ------- ------- ------- -------
Net investment income(1).............. 0.73 0.68 0.77 0.71 0.67 0.41
Net realized and unrealized
gain/(loss) on investments(2)........ (0.20) (0.20) (0.20) 0.30 0.30 (0.05)
------- ------- ------- ------- ------- -------
Net increase in net assets resulting
from operations...................... 0.53 0.48 0.57 1.01 0.97 0.36
------- ------- ------- ------- ------- -------
Dividends and distributions to
shareholders from
Net investment income................. (0.73) (0.68) (0.77) (0.71) (0.67) (0.41)
Net realized capital gains............ (0.03) (0.03) (0.03) (0.04) (0.04) (0.04)
------- ------- ------- ------- ------- -------
(0.76) (0.71) (0.80) (0.75) (0.71) (0.45)
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 12.03 $ 12.03 $ 12.03 $ 12.26 $ 12.26 $ 12.26
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return(3)............ 4.40% 3.99% 4.77% 8.54% 8.13% 2.92%(4)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA(7)
Net assets, end of period (000's
omitted)............................. $ 3,367 $ 1,018 $13,486 $ 4,467 $ 1,775 $12,199
Ratio of expenses to average net
assets(1)............................ 0.80% 1.20% 0.45% 0.85%(5) 1.25%(5) 0.45%(5)
Ratio of net investment income to
average net assets(1)................ 5.99% 5.57% 6.34% 5.76%(5) 5.38%(5) 5.93%(4)(5)
Decrease reflected in above expense
ratios and
net investment income due to waivers
and reimbursements................... 1.73% 1.74% 1.73% 2.87%(5) 2.95%(5) 2.89%(4)(5)
Portfolio turnover rate............... 262.95% 262.95% 262.95% 107.35%(6) 107.35%(6) 107.35%(6)
</TABLE>
- --------
* Commencement of operations. Commenced investment operations on April 5,
1995. Class Y shares commenced its initial public offering on September 8,
1995.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses in
investments during the respective periods because of the timing of sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) The total investment return and ratios for class Y shares are not
necessarily comparable to those of class A and C shares, due to timing
differences in the commencement of the initial public offering of class Y
shares.
(5) Annualized.
(6) Not annualized.
(7) Average commission rate per share disclosure is required for fiscal years
beginning on or after September 1, 1995. The Portfolio incurred no such
charges.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business
trust on September 29, 1994 and is registered with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as an open-end management investment
company. The Fund currently has five separate portfolios in operation: three
diversified portfolios, Large Cap Value Portfolio ("Large Cap"), Small Cap Value
Portfolio ("Small Cap") and Total Return Bond Portfolio ("Bond Portfolio")
(collectively, the "Portfolios") and two non-diversified portfolios, The
Insiders Select Fund and S&P STARS Portfolio. Each portfolio is treated as a
separate entity for certain matters under the Investment Company Act, and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As of the date hereof, each Portfolio offers
three classes of shares, which have been designated as class A, C and Y shares.
ORGANIZATIONAL MATTERS--Prior to commencing operations on April 3, 1995, the
Portfolios did not have any transactions other than those relating to
organizational matters and the sale of 1,042, 1,042 and 1,041 class A shares and
1,042, 1,042 and 1,041 class C shares of beneficial interest of Large Cap, Small
Cap and Bond Portfolio, respectively, to Bear, Stearns & Co. Inc., ("Bear
Stearns" or the "Distributor"). Costs of $99,875, $107,203 and $76,571 which
were incurred by Large Cap, Small Cap and Bond Portfolio, respectively, in
connection with the organization, registration with the Commission and initial
public offering of its shares, have been deferred and are being amortized using
the straight-line method over the period of benefit not exceeding sixty months,
beginning with the commencement of investment operations of each Portfolio. The
Portfolios commenced investment operations on April 4, 1995, April 3, 1995 and
April 5, 1995 for Large Cap, Small Cap, and Bond Portfolio, respectively. In the
event that the Distributor or any transferee of the Distributor redeems any of
its original shares in any of the Portfolios prior to the end of the sixty month
period, the proceeds of the redemption payable in respect of such shares shall
be reduced by the pro rata share (based on the proportionate share of the
original shares redeemed to the total number of original shares outstanding at
the time of the redemption) of the unamortized deferred organization expenses as
of the date of such redemption. In the event that any of the Portfolios are
liquidated prior to the end of the sixty month period, the Distributor or the
transferee of the Distributor shall bear the unamortized deferred organization
expenses.
PORTFOLIO VALUATION--Each Portfolio calculates the net asset value of and
completes orders to purchase or repurchase its shares of beneficial interest on
each business day, with the exception of those days on which the New York Stock
Exchange is closed.
The Equity Portfolios' (consisting of Large Cap and Small Cap) securities,
including covered call options written by the Equity Portfolios, are valued at
the last sale price on the securities exchange or national securities market on
which such securities primarily are traded. Securities not listed on an exchange
or national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked prices,
except in the case of open short positions where the asked price is used for
valuation purposes. Bid price is used when no asked price is available. For the
Bond Portfolio, substantially all of the investments (including short-term
investments) are valued at each business day by one or more independent pricing
services (the "Service") approved by the Fund's Board of Trustees. Securities
valued by the Service for which quoted bid prices in the judgment of the Service
are readily available and are representative of the bid side of the market, are
valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Securities which
mature in 60 days or less are valued at amortized cost, which approximates
market value, unless this
25
<PAGE>
method does not represent fair value. Expenses and fees, including the
investment advisory, administration and distribution fees, are accrued daily and
taken into account for the purpose of determining the net asset value of a
Portfolio's shares. Because of the differences in operating expenses incurred by
each class, the per share net asset value of each class will differ.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from securities are calculated on the
identified cost basis. Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis. Discounts are treated as
adjustments to interest income and identified costs of investments over the
lives of respective investments.
The Equity Portfolios' net investment income (other than distribution fees) and
unrealized and realized gains or losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). The Bond Portfolio's net investment income (other than
distribution fees) and unrealized and realized gains or losses are allocated
daily to each class of shares based upon the relative proportion of the settled
shares value of each class at the beginning of the day.
U.S. FEDERAL TAX STATUS--Each Portfolio intends to distribute substantially all
of its taxable income and to comply with the other requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing during each calendar year substantially all of its
ordinary income and capital gains, if any, each Portfolio intends not to be
subject to a U.S. federal excise tax.
At March 31, 1997, the Bond Portfolio had a capital loss carryforward of $60,955
available as a reduction, to the extent provided in regulations of any future
net capital gains realized before the end of fiscal year 2005. To the extent
that the loss is used to offset future capital gains, it is probable that the
gains so offset will not be distributed to shareholders.
For U.S. federal income tax purposes, realized capital losses incurred after
October 31, 1996, within the fiscal year, are deemed to arise on the first day
of the following fiscal year. Small Cap incurred and elected to defer such
losses of $397,438.
DIVIDENDS AND DISTRIBUTIONS--Each Equity Portfolio intends to distribute at
least annually to shareholders substantially all of its net investment income.
The Bond Portfolio declares dividends from net investment income on each day the
New York Stock Exchange is open for business. These dividends on the Bond
Portfolio are paid usually on or about the twentieth day of each month.
Distribution of net realized gains, if any, will be declared and paid at least
annually by all Portfolios. Dividends and distributions to shareholders are
recorded on the ex-dividend date. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within
capital accounts based on their U.S. federal tax-basis treatment; temporary
differences do not require reclassification. At March 31, 1997, Small Cap
reclassified within the composition of net assets a net operating loss of
$300,695 to accumulated net realized gains. In addition, Small Cap reclassified
$64,878 in net operating loss to paid-in capital.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
During the fiscal year ended March 31, 1997, Bear Stearns Funds Management Inc.
("BSFM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns
Companies Inc., serves as the investment adviser pursuant to an Investment
Advisory Agreement with each Portfolio. The Adviser is entitled to receive from
the Portfolios a monthly fee equal to an annual rate of 0.75% of each Equity
Portfolio's average daily net assets and 0.45% of the Bond Portfolio's average
daily net assets.
During the fiscal year ended March 31, 1997, BSFM (or the "Administrator")
served as administrator to each Portfolio pursuant to an Administration
Agreement. The Administrator is entitled to receive from each Portfolio a
monthly fee equal to an annual rate of 0.15% of each Portfolio's average daily
net assets. Under the terms of an Administrative Services Agreement with each
Portfolio, PFPC Inc. provides certain administrative services to each Portfolio.
For providing these services, PFPC Inc. is entitled to receive from each
Portfolio a monthly fee equal to an annual rate of 0.10% of the Portfolio's
average daily net assets up to $200 million, 0.075% of the next $200 million,
0.05% of the next $200 million and 0.03% of net assets above $600 million,
subject to a minimum annual fee of $132,000 for each Portfolio. During the
fiscal year ended March 31, 1997, PFPC Inc. has voluntarily waived a portion of
its fee.
26
<PAGE>
During the fiscal year ended March 31, 1997, the Adviser has voluntarily
undertaken to limit each Equity Portfolio's total operating expenses (exclusive
of brokerage commissions, taxes, interest and extraordinary items) to a maximum
annual level of 1.50% of the average daily net assets of its class A shares,
2.00% of the average daily net assets of its class C shares and 1.00% of the
average daily net assets of its class Y shares. During the period April 3, 1995
through August 31, 1995, the Adviser had voluntarily undertaken to limit the
total operating expenses (exclusive of brokerage commissions, taxes, interest
and extraordinary items) of the Bond Portfolio, to a maximum annual level of
1.00%, 1.40%, and 0.65% of such Portfolio's average daily net assets for class
A, C and Y shares, respectively. Effective September 1, 1995, the total
operating expenses (exclusive of brokerage commissions, taxes, interest and
extraordinary items) were further reduced by the Adviser with respect to the
Bond Portfolio only, to a maximum annual level of 0.80%, 1.20% and 0.45% of the
Bond Portfolio's average daily net assets for class A, C and Y shares,
respectively. As necessary, this limitation is effected by waivers by the
Adviser of its advisory fees and reimbursements of expenses exceeding the
advisory fee. For the fiscal year ended March 31, 1997, the Adviser waived
advisory fees of $151,578, $285,539 and $98,957 for Large Cap, Small Cap and
Bond Portfolio, respectively. In addition, the Adviser reimbursed $161,196,
$86,666 and $280,261 for Large Cap, Small Cap and Bond Portfolio, respectively,
in order to maintain the voluntary expense limitation.
For the fiscal year ended March 31, 1997, Bear Stearns, an affiliate of the
Adviser and the Administrator, earned $1,267 and $9,066 in brokerage commissions
from portfolio transactions executed on behalf of Large Cap and Small Cap,
respectively.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc. and an affiliate of the Adviser and the Administrator, serves as custodian
to the Portfolios.
DISTRIBUTION PLAN
The Fund, on behalf of each Portfolio, has entered into a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the Plan
in effect for the fiscal year ended March 31, 1997, the Equity Portfolios each
paid Bear Stearns a fee at an annual rate of 0.50% for class A shares and 1.00%
for class C shares and the Bond Portfolio paid Bear Stearns a fee at an annual
rate of 0.35% for class A shares and 0.75% for class C shares. Such fees are
based on the average daily net assets in each class of the respective Portfolios
and are accrued daily and paid monthly or at such other intervals as the Board
of Trustees may determine. The fees paid to Bear Stearns under the Plan are
payable without regard to actual expenses incurred. For the fiscal year ended
March 31, 1997, Bear Stearns earned $64,772, $169,018 and $27,827 for Large Cap,
Small Cap and Bond Portfolio, respectively, in distribution fees. Bear Stearns
uses these fees to pay its dealers whose clients hold Portfolio shares and for
other distribution-related activities.
In addition, as Distributor of the Portfolios, Bear Stearns collects the sales
charges imposed on sales of each Portfolio's class A shares, and reallows a
portion of such charges to dealers through which the sales are made. As a result
of an undertaking by the Distributor, it reallowed all of the sales charges to
its dealers selling Portfolio shares for the period April 3, 1995 (commencement
of operations) through September 26, 1995 and the period February 15, 1996
through June 30, 1996. Furthermore, the Distributor has increased the
compensation paid to its dealers selling Portfolio shares on net asset value
transfers (purchases made by investors with the proceeds from a redemption of
shares of an investment company sold with a sales charge or commission and not
distributed by Bear Stearns) from 0.50% to 1.00% beginning April 15, 1996 until
further notice. In addition, Bear Stearns advanced 1.00% in sales commissions on
the sale of class C shares to dealers at the time of such sales.
For the fiscal year ended March 31, 1997, Bear Stearns has advised each
Portfolio that it received approximately $43,100, $227,500 and $17,600 in
front-end sales charges resulting from sales of class A shares of Large Cap,
Small Cap and Bond Portfolio, respectively. From these fees, Bear Stearns paid
such sales charges to dealers which in turn paid commissions to sales persons.
In addition, Bear Stearns has advised Large Cap, Small Cap and Bond Portfolio
that during the period, it received approximately $3,200, $2,700 and $100 from
the Portfolios, respectively, in contingent deferred sales charges upon certain
redemptions by class C shareholders.
27
<PAGE>
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the costs of securities owned at March 31,
1997 were $12,495,862, $34,698,305 and $17,732,035 for Large Cap, Small Cap and
Bond Portfolio, respectively. Accordingly, the net unrealized
appreciation/(depreciation) of investments are as follows:
<TABLE>
<CAPTION>
NET
APPRECIATION/
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- ---------------------------------------- --------------- --------------- -----------------
<S> <C> <C> <C>
Large Cap............................... $ 1,820,935 $ (212,221) $ 1,608,714
Small Cap............................... 7,605,934 (1,521,815) 6,084,119
Bond Portfolio.......................... 2,798 (303,987) (301,189)
For the fiscal year ended March 31, 1997, aggregate purchases and sales of
investment securities (excluding short-term investments) for each Portfolio were
as follows:
PORTFOLIO PURCHASES SALES
- ---------------------------------------- -------------- --------------
Large Cap............................... $ 26,322,213 $ 25,695,746
Small Cap............................... 35,863,818 21,007,015
Bond Portfolio.......................... 54,226,881 53,591,865
</TABLE>
SHARES OF BENEFICIAL INTEREST
Each Portfolio offers class A, C and Y shares. Class A shares are sold with a
front-end sales charge of up to 4.75% (3.75% in the case of the Bond Portfolio).
Class C shares are sold with a contingent deferred sales charge ("CDSC") of
1.00% within the first year. There is no sales charge or CDSC on class Y shares,
which are offered primarily to institutional investors.
At March 31, 1997, there was an unlimited amount of $0.001 par value shares of
beneficial interest authorized for each Portfolio, of which Bear Stearns owned
1,042, 1,042 and 1,041 of class A shares and 1,042, 1,042 and 1,041 of class C
shares of Large Cap, Small Cap and Bond Portfolio, respectively.
Transactions in the classes of shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
LARGE CAP(1) SMALL CAP(2) BOND PORTFOLIO(3)
----------------------------------- ------------------------------------ ----------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y CLASS A CLASS C
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
SALES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares................... 231,427 61,362 1,085,350 589,041 464,417 771,522 124,771 24,694
Amount................... $3,703,414 $ 950,313 $16,535,987 $10,117,507 $8,013,394 $13,188,441 $1,526,794 $ 301,360
REINVESTMENTS:
Shares................... 5,640 3,077 3,863 10,191 6,403 13,693 14,003 4,620
Amount................... $ 91,138 $ 49,600 $ 62,352 $ 171,713 $ 107,447 $ 230,321 $ 171,130 $ 56,453
REPURCHASES:
Shares................... 185,652 123,270 959,370 255,449 261,409 394,936 223,376 89,493
Amount................... $3,216,798 $2,089,876 $15,604,449 $ 4,464,886 $4,565,675 $ 6,808,608 $2,719,344 $1,098,501
CLASS Y
----------
FOR THE FISCAL YEAR ENDED
SALES:
Shares................... 777,105
Amount................... $9,455,050
REINVESTMENTS:
Shares................... 72,402
Amount................... $ 884,405
REPURCHASES:
Shares................... 723,355
Amount................... $8,884,738
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
LARGE CAP(1) SMALL CAP(2) BOND PORTFOLIO(3)
----------------------------------- ------------------------------------ ----------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y CLASS A CLASS C
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------
FOR THE PERIOD APRIL 3, 1995* THROUGH MARCH 31, 1996 SALES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares................... 315,696 233,174 230,011 670,342 431,865 564,644 412,635 146,761
Amount................... $4,132,049 $3,029,455 $ 3,332,025 $ 9,119,686 $5,897,544 $ 8,187,086 $5,005,133 $1,778,698
REINVESTMENTS:
Shares................... 332 68 211 3,827 4,544 8,725 11,440 3,450
Amount................... $ 4,945 $ 1,009 $ 3,134 $ 55,602 $ 65,802 $ 126,525 $ 142,125 $ 42,916
REPURCHASES:
Shares................... 78,059 865 4,509 267,203 9,820 6,293 60,606 6,447
Amount................... $1,135,562 $ 12,818 $ 66,600 $ 3,916,200 $ 142,216 $ 92,770 $ 761,370 $ 81,056
CLASS Y
----------
FOR THE PERIOD APRIL 3, 1
SALES:
Shares................... 1,013,077
Amount................... $12,605,963
REINVESTMENTS:
Shares................... 15,678
Amount................... $ 196,210
REPURCHASES:
Shares................... 33,443
Amount................... $ 411,300
</TABLE>
- ---------
* Commencement of operations.
(1) Commenced investment operations on April 4, 1995, class Y shares commenced
its initial public offering on September 11, 1995.
(2) Commenced investment operations on April 3, 1995, class Y shares commenced
its initial public offering on June 22, 1995.
(3) Commenced investment operations on April 5, 1995, class Y shares commenced
its initial public offering on September 8, 1995.
CREDIT AGREEMENT
The Fund, on behalf of the Portfolios, has entered into a credit agreement with
The First National Bank of Boston. S&P STARS Fund, The Insiders Select Fund, S&P
STARS Portfolio and Bear Stearns Investment Trust, which consists of the
Emerging Markets Debt Portfolio, are also parties to the credit agreement. The
agreement provides that each party to the credit agreement is permitted to
borrow in an amount up to 15% of the value of its total assets. Subject to Board
approval and upon making necessary disclosure in its prospectus, each portfolio
may, in accordance with the provisions of the credit agreement, borrow up to 25%
of the value of its total assets, less all liabilities other than liabilities
for borrowed money outstanding at the time. However, at no time is the aggregate
outstanding principal amount of all loans to any of the portfolios to exceed
$25,000,000. The line of credit will bear interest at the greater of: (i) the
annual rate of interest announced from time to time from the bank at its head
office as its Base Rate, or (ii) the Federal Funds Effective Rate plus 0.50%, or
at the borrower's option, the rate quoted by The First National Bank of Boston.
Each loan is payable on demand or upon termination of this credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced.
The Portfolios use the facility to borrow money only for temporary or emergency
(not leveraging) purposes. Amounts outstanding under the line of credit
agreement for Large Cap, Small Cap, and Bond Portfolio averaged $14,895, $22,618
and $14,364, respectively, during the year ended March 31, 1997. The maximum
amounts outstanding at any month-end under such line of credit agreement during
fiscal year 1997 for Large Cap, Small Cap, and Bond Portfolio, were $52,000,
$160,000 and $58,000, respectively. The average interest rates during 1997, on
amounts outstanding under such line of credit agreement were 8.25%, 8.18% and
7.98% for Large Cap, Small Cap and Bond Portfolio, respectively. Large Cap and
Small Cap had no amounts outstanding under the line of credit agreement at March
31, 1997. The Bond Portfolio had $58,000 outstanding under the line of credit
agreement at March 31, 1997.
29
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders, Large Cap Value Portfolio Small Cap
Value Portfolio Total Return Bond Portfolio (Series of The Bear Stearns Funds):
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments of Large Cap Value Portfolio, Small Cap Value
Portfolio and Total Return Bond Portfolio (collectively, the "Portfolios") as of
March 31, 1997, and the related statements of operations, changes in net assets
and the financial highlights for the fiscal year ended March 31, 1997 and the
period April 3, 1995 (commencement of operations) through March 31, 1996. These
financial statements and financial highlights are the responsibility of the
Portfolios' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at March 31, 1997 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Large Cap Value
Portfolio, Small Cap Value Portfolio and Total Return Bond Portfolio at March
31, 1997, the results of their operations, the changes in their net assets and
the financial highlights for the periods presented in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
New York, New York
May 9, 1997
30
<PAGE>
THE BEAR STEARNS FUNDS
Large Cap Value Portfolio
Small Cap Value Portfolio
Total Return Bond Portfolio
SHAREHOLDER TAX INFORMATION -- (UNAUDITED)
Each Portfolio is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of each Portfolio's fiscal
year end (March 31, 1997) as to the U.S. federal tax status of distributions
received by the Portfolio's shareholders in respect of such fiscal year. During
the fiscal year ended March 31, 1997, the following dividends and distributions
per share were paid by each of the Portfolios:
LARGE CAP VALUE PORTFOLIO
ORDINARY INCOME LONG-TERM CAPITAL GAINS
- ------------------------------------- -------------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
- ----------- ----------- ----------- ----------- ----------- -----------
$ 0.18 $ 0.10 $ 0.24 $ 0.10 $ 0.10 $ 0.10
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
The percentage of total ordinary income dividends received from the Large Cap
Value Portfolio qualifying for the corporate dividends received deduction is
100%.
SMALL CAP VALUE PORTFOLIO
ORDINARY INCOME LONG-TERM CAPITAL GAINS
- ------------------------------------- -------------------------------------
CLASS A CLASS C CLASS Y CLASS A CLASS C CLASS Y
- ----------- ----------- ----------- ----------- ----------- -----------
$ 0.21 $ 0.13 $ 0.27 $ 0.03 $ 0.03 $ 0.03
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
The percentage of total ordinary income dividends from the Small Cap Value
Portfolio qualifying for the corporate dividends received deduction is 41.50%.
TOTAL RETURN BOND PORTFOLIO
ORDINARY INCOME
- -------------------------------
CLASS A CLASS C CLASS Y
- --------- --------- ---------
$ 0.7593 $ 0.7106 $ 0.8021
- --------- --------- ---------
- --------- --------- ---------
There were no ordinary income dividends from the Total Return Bond Portfolio
which would qualify for the dividends received deduction available to corporate
shareholders.
Because each Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 1997. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns, will be made in conjunction
with Form 1099-DIV and will be mailed in January 1998.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend. They will generally not be entitled to a foreign tax
credit or deduction for the withholding taxes paid by the Portfolios, if any.
In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income for U.S. federal income tax purposes.
However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may
need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Portfolios.
31
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
BEAR STEARNS
The
Bear Stearns
Funds
245 Park Avenue LARGE CAP
New York, NY 10167 VALUE PORTFOLIO
1.800.766.4111
Robert S. Reitzes Chairman of the Board and SMALL CAP
President VALUE PORTFOLIO
Peter B. Fox Executive Vice President
William J. Montgoris Executive Vice President TOTAL RETURN
Peter M. Bren Trustee BOND PORTFOLIO
Alan J. Dixon Trustee
John R. McKernan, Jr. Trustee
M.B. Oglesby, Jr. Trustee
Stephen A. Bornstein Vice President
Donalda L. Fordyce Vice President
Frank J. Maresca Vice President and Treasurer
Ellen T. Arthur Secretary
Vincent L. Pereira Assistant Treasurer
Eileen M. Coyle Assistant Secretary
Investment Adviser Distributor
and Administrator Bear, Stearns & Co. Inc.
Bear Stearns Funds 245 Park Avenue
Management Inc. New York, NY 10167
245 Park Avenue
New York, NY 10167
Custodian Transfer and Dividend
Custodial Trust Company Disbursement Agent
101 Carnegie Center PFPC Inc.
Princeton, NJ 08540 Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
Counsel Independent Auditors
Kramer, Levin, Naftalis Deloitte & Touche LLP
& Frankel Two World Financial Center
919 Third Avenue New York, NY 10281
New York, NY 10022
This report is submitted for the general ANNUAL REPORT
information of the shareholders of each MARCH 31, 1997
Portfolio. It is not authorized for
distribution to prospective investors in
each Portfolio unless it is preceded or
accompanied by a current prospectus
which includes details regarding each
Portfolio's objectives, policies, sales
commissions and other information. Total
investment return is based on historical
results and is not intended to indicate
future performance. The investment
return and principal value of an
investment in each Portfolio will
fluctuate, so that an investors shares,
when redeemed, may be worth more or less
than original cost.
BSF-R-009-04
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 12478450
<INVESTMENTS-AT-VALUE> 14104576
<RECEIVABLES> 133538
<ASSETS-OTHER> 91426
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14329540
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247708
<TOTAL-LIABILITIES> 247708
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9794326
<SHARES-COMMON-STOCK> 820570
<SHARES-COMMON-PRIOR> 698143
<ACCUMULATED-NII-CURRENT> 8376
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2653004
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1626126
<NET-ASSETS> 14081832
<DIVIDEND-INCOME> 388841
<INTEREST-INCOME> 10957
<OTHER-INCOME> 0
<EXPENSES-NET> 268423
<NET-INVESTMENT-INCOME> 131375
<REALIZED-GAINS-CURRENT> 2770141
<APPREC-INCREASE-CURRENT> 486773
<NET-CHANGE-FROM-OPS> 3388289
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (128139)
<DISTRIBUTIONS-OF-GAINS> (209172)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1378139
<NUMBER-OF-SHARES-REDEEMED> (1268292)
<SHARES-REINVESTED> 12580
<NET-CHANGE-IN-ASSETS> 3532659
<ACCUMULATED-NII-PRIOR> 5140
<ACCUMULATED-GAINS-PRIOR> 92035
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 151578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581197
<AVERAGE-NET-ASSETS> 5494471
<PER-SHARE-NAV-BEGIN> 15.13
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 2.28
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> .18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.17
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
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<S> <C>
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<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 12478450
<INVESTMENTS-AT-VALUE> 14104576
<RECEIVABLES> 133538
<ASSETS-OTHER> 91426
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14329540
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247708
<TOTAL-LIABILITIES> 247708
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9794326
<SHARES-COMMON-STOCK> 820570
<SHARES-COMMON-PRIOR> 698143
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2653004
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1626126
<NET-ASSETS> 14081832
<DIVIDEND-INCOME> 388841
<INTEREST-INCOME> 10957
<OTHER-INCOME> 0
<EXPENSES-NET> 268423
<NET-INVESTMENT-INCOME> 131375
<REALIZED-GAINS-CURRENT> 2770141
<APPREC-INCREASE-CURRENT> 486773
<NET-CHANGE-FROM-OPS> 3388289
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (128139)
<DISTRIBUTIONS-OF-GAINS> (209172)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1378139
<NUMBER-OF-SHARES-REDEEMED> (1268292)
<SHARES-REINVESTED> 12580
<NET-CHANGE-IN-ASSETS> 3532659
<ACCUMULATED-NII-PRIOR> 5140
<ACCUMULATED-GAINS-PRIOR> 92035
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 151578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581197
<AVERAGE-NET-ASSETS> 3739791
<PER-SHARE-NAV-BEGIN> 15.08
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 2.25
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> .18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.11
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 12478450
<INVESTMENTS-AT-VALUE> 14104576
<RECEIVABLES> 133538
<ASSETS-OTHER> 91426
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14329540
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247708
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<SENIOR-EQUITY> 0
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000931145
<NAME> THE BEAR STEARNS FUNDS
<SERIES>
<NUMBER> 021
<NAME> SMALL CAP VALUE PORTFOLIO - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000931145
<NAME> THE BEAR STEARNS FUNDS
<SERIES>
<NUMBER> 022
<NAME> SMALL CAP VALUE PORTFOLIO - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000931145
<NAME> THE BEAR STEARNS FUNDS
<SERIES>
<NUMBER> 023
<NAME> SMALL CAP VALUE PORTFOLIO - CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000931145
<NAME> THE BEAR STEARNS FUNDS
<SERIES>
<NUMBER> 031
<NAME> TOTAL RETURN BOND PORTFOLIO - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 17731801
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000931145
<NAME> THE BEAR STEARNS FUNDS
<SERIES>
<NUMBER> 032
<NAME> TOTAL RETURN BOND PORTFOLIO - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000931145
<NAME> THE BEAR STEARNS FUNDS
<SERIES>
<NUMBER> 033
<NAME> TOTAL RETURN BOND PORTFOLIO - CLASS Y
<S> <C>
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</TABLE>
