BEAR STEARNS FUNDS, 485APOS, 1997-10-01

BEAR STEARNS FUNDS
485APOS, 1997-10-01

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As filed via EDGAR with the Securities and Exchange Commission on October 1,
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. 15 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 15 [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)
-----

on (date) pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)(i)
-----

----- on (date) pursuant to paragraph (a)(i)

X 75 days after filing pursuant to paragraph (a)(ii)
-----

----- on (date) pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

----- this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.

Registrant has registered an indefinite number of shares of its beneficial
interest under the Securities Act of 1933 pursuant to Section 24(f) of the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal
year ended March 31, 1997 was filed on May 27, 1997.

<PAGE>

THE BEAR STEARNS FUNDS
BALANCED PORTFOLIO
HIGH YIELD TOTAL RETURN PORTFOLIO
INTERNATIONAL EQUITY 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 Financial Highlights

Item 4. General Description of Description of the
Registrant Fund; General
Information; Appendix

Item 5. Management of the Fund Management of the
Fund

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
the Fund

Item 13. Investment Objectives and Investment Objective
Policies and Management Policies;
Appendix

Item 14. Management of the Fund Management of the
Fund

Item 15. Control Persons and Principal Information About the
Fund

Holders of Securities

Item 16. Investment Advisory and Other Management Arrangements;
Services Custodian, Transfer and
Dividend Disbursing
Agent, Counsel and
Independent Auditors

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 Fund; 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>

THE BEAR STEARNS FUNDS
245 PARK AVENUE NEW YORK, NY 10167 1-800-766-4111

PROSPECTUS
BALANCED PORTFOLIO
CLASS A, B AND C SHARES

THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment
company, known as a mutual fund. The Fund permits you to invest in separate
portfolios. By this Prospectus, The Fund offers Class A, B and C shares of the
Balanced Portfolio, a diversified portfolio (the "Portfolio"). The Portfolio's
investment objective is long-term capital growth and current income. The
Portfolio seeks to achieve this objective by investing between 40% and 60% of
its total assets in equity securities and at least 25% in fixed-income senior
securities.

Class A shares are subject to a sales charge imposed at the time of purchase.
Class B shares are subject to a contingent deferred sales charge of up to 5%
imposed on redemptions made within the first six years of purchase. Class C
shares are subject to a 1% contingent deferred sales charge imposed on
redemptions made within the first year of purchase. The Portfolio also issues
another class of shares (Class Y shares), which has different expenses that
would affect performance. Investors desiring to obtain information about this
other class of shares should CALL 1-800-766-4111 or ask their sales
representative or the Portfolio's distributor.

BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor. Bear Stearns is also referred to herein as the
"Distributor."

-------------------------------------------

THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE PORTFOLIO THAT YOU
SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.

Part B (also known as the Statement of Additional Information), dated _____,
1997, which may be revised from time to time, provides a further discussion of
certain areas in this Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. For a free copy, write to the address
or call one of the telephone numbers listed under "General Information" in this
Prospectus.

-------------------------------------------

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

________, 1997

<PAGE>

Table of Contents

PAGE

Fee Table....................................................

Alternative Purchase Methods.................................

Description of the Portfolio.................................

Risk Factors.................................................

Management of the Portfolio..................................

Prior Performance of Related Accounts........................

How to Buy Shares ...........................................

Shareholder Services.........................................

How to Redeem Shares.........................................

Dividends, Distributions and Taxes...........................

Performance Information......................................

General Information..........................................

<PAGE>

FEE TABLE

A summary of estimated expenses investors will incur when investing in
the Portfolio is set forth below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>

- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)...................... 5.50% ____ ___
Maximum Deferred Sales Charge Imposed on
Redemptions (as a percentage of the amount
subject to charge) * 5.00% 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***............................................ 0.00% 0.75% 0.75%

Other Expenses (after expense
reimbursement)**......................................... 1.20% 0.95% 0.95%
---- ---- ----
Total Portfolio Operating Expenses (after fee
waiver and expense reimbursement)**...................... 1.20% 1.70% 1.70%
==== ==== ====

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.............................................. $ 67 $ 68 $ 27
3 YEARS............................................. $ 91 $ 86 $ 54
5 YEARS............................................. $117 $115 $ 92
10 YEARS****......................................... $192 $187 $201

EXAMPLE:
You would pay the following expenses on the same investment,
assuming no redemption:
1 YEAR.............................................. -- $ 17 $ 17
3 YEARS............................................. -- $ 54 $ 54
5 YEARS............................................. -- $ 92 $ 92
10 YEARS****......................................... -- $187 $201

</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."
** Other Expenses include a shareholder servicing fee of 0.25%. BSFM has
undertaken to waive its investment advisory fee and assume certain expenses
of the Portfolio other than brokerage commissions, extraordinary items,
interest and taxes. Without such fee waiver and expense reimbursement,
Advisory Fees stated above would have been 0.65% for the Portfolio. Other
Expenses are estimated to be 1.19% for Class A shares, 1.44% for Class B
shares and 1.44% for Class C shares. With respect to all classes, BSFM has
undertaken to waive its investment advisory fee and assume certain expenses
of the Portfolio other than brokerage commissions, extraordinary items,
interest and taxes to the extent Total Portfolio Operating Expenses exceed
2.34% for Class A shares, 2.84% for Class B shares and 2.84% for Class C
shares.
*** With respect to Class A shares, 12b-1 fees are currently being waived.
Without such fee waiver, 12b-1 fees with respect to Class A shares would
have been 0.25%.
**** Class B shares convert to Class A shares eight years after purchase;
therefore, Class A expenses are used in the hypothetical example after year
eight in the case of Class B shares.

THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE
PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5%.

The purpose of the foregoing table is to assist you in understanding the costs
and expenses borne by the Portfolio and investors, the payment of which will
reduce investors' annual return. In addition to the expenses noted above, the
Fund will charge $7.50 for each wire redemption. See "How to Redeem Shares." For
a description of the expense reimbursement or waiver arrangements in effect, see
"Management of the Fund."

<PAGE>

ALTERNATIVE PURCHASE METHODS

By this Prospectus, the Portfolio offers investors three methods of purchasing
its shares; investors may choose the class of shares that best suits their
needs, given the amount of purchase, the length of time the investor expects to
hold the shares and any other relevant circumstances. Each Portfolio share
represents an identical pro rata interest in the Portfolio's investment
portfolio.

CLASS A SHARES

Class A shares of the Portfolio are sold at net asset value per share plus a
maximum initial sales charge of 5.50% 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
the Portfolio are subject to an annual distribution fee at the rate of 0.25 of
1% of the average daily net assets of Class A. The Portfolio is currently
waiving this distribution fee. Class A shares are subject to an annual
shareholder servicing fee at the rate of 0.25 of 1% of the value of the average
daily net assets of Class A shares incurred in connection with the personal
service and maintenance of accounts holding Portfolio shares. See "Management of
the Portfolio-Distribution Plan" and "Shareholder Servicing Plan."

CLASS B SHARES

Class B shares of the Portfolio are sold without an initial sales charge, but
are subject to a Contingent Deferred Sales Charge ("CDSC") of up to 5% if the
Class B shares are redeemed within six years of purchase. See "How to Redeem
Shares-Class B Shares." The Class B shares of the Portfolio also are subject to
an annual distribution plan fee at the rate of 0.75 of 1% of the average daily
net assets of Class B. Class B shares are subject to an annual shareholder
servicing fee at the rate of 0.25 of 1% of the value of the average daily net
assets of Class B shares incurred in connection with the personal service and
maintenance of accounts holding Portfolio shares. See "Management of the
Portfolio-Distribution Plan" and "Shareholder Servicing Plan". Class B shares
will convert to Class A shares, based on their relative net asset values, eight
years after the initial purchase. The distribution plan and shareholder
servicing fees will cause Class B to have a higher expense ratio and to pay
lower dividends than Class A.

CLASS C SHARES

Class C shares of the Portfolio are subject to a 1% 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 the Portfolio also are subject to an
annual distribution fee at the rate of 0.75 of 1% of the average daily net
assets of Class C. Class C shares are subject to an annual shareholder servicing
fee at the rate of 0.25 of 1% of the value of the average daily net assets of
Class C shares incurred in connection with the personal service and maintenance
of accounts holding Portfolio shares. See "Management of the
Portfolio-Distribution Plan" and "Shareholder Servicing Plan." The
distribution and shareholder servicing fee will cause Class C 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
investment. Each investor should consider whether, during the anticipated life
of the investor's investment in the Portfolio, the accumulated distribution and
shareholder servicing plan fee and CDSC, if any, on Class B or 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 net return
of Class A. See "How to Buy Shares - Choosing a Class of Shares."

<PAGE>

Description of the Portfolio

GENERAL
THE FUND IS A "SERIES FUND."

The Fund is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes. A shareholder of one portfolio is not deemed to be a shareholder
of any other portfolio. As described below, for certain matters Fund
shareholders vote together as a group; as to others they vote separately by
portfolio. By this Prospectus, shares of the Portfolio are being offered. From
time to time, other portfolios may be established and sold pursuant to other
offering documents. See "General Information."

INVESTMENT OBJECTIVE

THE PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL GROWTH AND CURRENT INCOME

The Portfolio's investment objective is long-term capital growth and current
income. The Portfolio seeks capital appreciation primarily through the equity
component of its portfolio while investing in fixed-income securities primarily
to provide income for regular quarterly dividends. The Portfolio's investment
objective cannot be changed without approval by the holders of a majority of the
Portfolio's outstanding voting shares (as defined in the 1940 Act). There can be
no assurance that the Portfolio's investment objective will be achieved.

MANAGEMENT POLICIES

The Portfolio invests, under normal circumstances, between 40% and 60% of its
total assets in equity securities. The Portfolio also invests at least 25% of
its total assets in fixed-income senior securities and the remainder of its
assets in other fixed-income securities and cash. The percentage of the
Portfolio invested in equity and fixed-income securities will vary from time to
time as BSFM evaluates their relative attractiveness based on market valuations,
economic growth and inflation prospects. This allocation is subject to the
Portfolio's intention to pay regular quarterly dividends. The amount of
quarterly dividends can also be expected to fluctuate in accordance with factors
such as prevailing interest rates and the percentage of the Portfolio's assets
invested in fixed-income securities.

A portion of the Portfolio's portfolio of equity securities may be selected
primarily to provide current income. Equity securities selected to provide
current income may include interests in real estate investment trusts,
convertible securities, preferred stocks, utility stocks and interests in
limited partnerships.

The Portfolio's fixed income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities, custodial receipts and U.S. dollar denominated securities
issued by foreign governments. Such securities are collectively referred to
herein as "fixed-income securities."

INVESTMENT INSTRUMENTS AND STRATEGIES

<PAGE>

or preferred stock. Under normal conditions, the Portfolio will not invest less
than 40% or more than 60% of its total assets in equity securities.

CONVERTIBLE SECURITIES
The Portfolio may invest in convertible securities, which are bonds, debentures,
notes, preferred stocks or other securities that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest generally paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Convertible securities
have several unique investment characteristics such as (1) higher yields than
common stocks, but lower yields than comparable nonconvertible securities, (2) a
lesser degree of fluctuation in value than the underlying stock since they have
fixed income characteristics, and (3) the potential for capital appreciation if
the market price of the underlying common stock increases. In evaluating a
convertible security, BSFM will give primary emphasis to the attractiveness of
the underlying common stock. The convertible debt securities in which the
Balanced Portfolio invests will be rated, at the time of investment, BBB or
better by Standard & Poor's Ratings Group ("Standard & Poor's") or Baa or better
by Moody's Investors Service, Inc. ("Moody's"), or if unrated by such rating
organizations, determined to be of comparable quality by BSFM. Convertible debt
securities are equity investments for purposes of the Portfolio's investment
policies. Under normal conditions, the Portfolio will not invest more than 20%
of its total assets in convertible securities.

U.S. GOVERNMENT SECURITIES
The Portfolio may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. Government agencies, instrumentalities or sponsored
enterprises. U.S. Government Securities also include Treasury receipts and other
stripped U.S. Government Securities, where the interest and principal components
of stripped U.S. Government Securities are traded independently. The Portfolio
may also invest in zero coupon U.S. Treasury securities and in zero coupon
securities issued by financial institutions, which represent a proportionate
interest in underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and its value consists of the difference
between its face value at maturity and its cost. The market prices of zero
coupon securities generally are more volatile than the market prices of
securities that pay interest periodically. Under normal conditions, the
Portfolio will not invest more than 60% of its total assets in U.S. Government
Securities.

MORTGAGE-RELATED SECURITIES
The Portfolio may invest in mortgage-related securities, consistent with its
investment objective, that provide funds for mortgage loans made to commercial
and residential owners. These include securities which represent interests in
pools of mortgage loans made by lenders such as savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage loans are
assembled for sale to investors (such as the Portfolio) by various governmental,
government-related and private organizations. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the borrowers on their mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Prepayments are caused by
repayments of principal resulting from the sale of the underlying residential or
commercial property, refinancing or foreclosure, net of fees or costs which may
be incurred.

<PAGE>

insurance or guarantees, including individual loan, title, pool or hazard
insurance. There can be no assurance that the private insurers can meet their
obligations under the policies. The Portfolio may buy mortgage-related
securities without insurance or guarantees if through an examination of the loan
experience and practices of the poolers the Adviser determines that the
securities meet the Portfolio's investment criteria. Although the market for
such securities is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable. Under normal conditions,
the Portfolio will not invest more than 25% of its total assets in
mortgage-related securities.

ASSET-BACKED SECURITIES
The Portfolio may invest in asset-backed securities in accordance with its
investment objective and policies. Asset- backed securities represent an
undivided ownership interest in a pool of installment sales contracts and
installment loans collateralized by, among other things, credit card receivables
and automobiles. In general, asset-backed securities and the collateral
supporting them are of shorter maturity than mortgage loans. As a result,
investment in these securities should result in greater price stability for the
Portfolio.

Asset-backed securities are often structured with one or more types of credit
enhancement. For a description of the types of credit enhancement that may
accompany asset-backed securities, see the Statement of Additional Information.
The Portfolio will not limit their investments to asset-backed securities with
credit enhancements. Although asset-backed securities are not generally traded
on a national securities exchange, such securities are widely traded by brokers
and dealers, and to such extent will not be considered illiquid for the purposes
of the Portfolio's limitation on investment in illiquid securities. Under normal
conditions, the Portfolio will not invest more than 10% of its total assets in
asset-backed securities.

CORPORATE DEBT OBLIGATIONS.
The Portfolio may invest in corporate debt obligations rated BBB or higher by
Standard & Poor's or Baa or higher by Moody's. Corporate debt obligations are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations. Under normal conditions, the Portfolio will not
invest more than 60% of its total assets in corporate debt obligations.

CASH EQUIVALENTS.
The Portfolio may invest in short-term securities readily convertible to cash,
including U.S. Treasury bills, certificates of deposit and commercial paper
rated A-1 by Standard & Poor's or P-1 by Moody's. Under normal conditions, the
Portfolio will not invest more than 20% of its total assets in cash equivalents.

REAL ESTATE INVESTMENT TRUSTS ("REITS")
The Portfolio may invest in REITs. REITs are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT may increase or decrease based on changes in the value of the
underlying properties or mortgage loans. REITs are also subject to risks
generally associated with investments in real estate. Under normal conditions,
the Portfolio will not invest more than 10% of its total assets in REITs.

INVESTMENT STRATEGIES

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Portfolio may purchase when-issued securities. When-issued transactions
arise when securities are purchased by the Portfolio with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous price and yield to the Portfolio at the time of entering into the
transaction. The Portfolio may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. The Portfolio is
required to hold and maintain in a segregated account with the Portfolio's
custodian until three days prior to the settlement date, cash or liquid assets
in an amount sufficient to meet the purchase price. Alternatively, the Portfolio
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or

<PAGE>

forward commitment basis involves a risk of loss if the value of the security to
be purchased declines prior to the settlement date. Although the Portfolio would
generally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring securities for its portfolio, the Portfolio may
dispose of when-issued securities or forward commitments prior to settlement if
its Adviser deems it appropriate to do so. Under normal conditions, the
Portfolio will not invest more than 33 1/3% of its total assets in when-issued
securities or forward commitments.

REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Portfolio may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, the Portfolio might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held by
the Portfolio in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, the Portfolio
could suffer losses, including loss of interest on or principal of the security
and costs associated with delay and enforcement of the repurchase agreement.
Under normal conditions, the Portfolio may not invest more than 20% of its total
assets in repurchase agreements.

LENDING OF PORTFOLIO SECURITIES
The Portfolio may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions, such
as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the
securities loaned. Cash collateral may be invested in cash equivalents. The
Portfolio may experience a loss or delay in the recovery of its securities if
the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Portfolio. Under normal conditions, the value of
the securities loaned may not exceed 33 1/3% of the value of the total assets of
the Portfolio.

MORTGAGE DOLLAR ROLLS
The Portfolio may enter into mortgage "dollar rolls" in which the Portfolio
sells securities for delivery in the current month and simultaneously contracts
with the same counterparty to repurchase substantially similar (same type,
coupon and maturity) but not identical securities on a specified future date.
During the roll period, the Portfolio loses the right to receive principal and
interest paid on the securities sold. The Portfolio would benefit, however, to
the extent of any difference between the price received for the securities sold
and the lower forward price for the future purchase or fee income plus the
interest earned on the cash proceeds of the securities sold until the settlement
date for the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of the Portfolio. The
Portfolio will hold and maintain in a segregated account until the settlement
date cash or liquid assets in an amount equal to the forward purchase price.
Successful use of mortgage dollar rolls depends upon BSFM's ability to predict
correctly interest rates and mortgage prepayments. There is no assurance that
mortgage dollar rolls can be successfully employed. For financial reporting and
tax purposes, the Portfolio treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale. The Portfolio does not currently intend to enter
into mortgage dollar rolls that are accounted for as a financing. Under normal
conditions, the Portfolio will not invest more than 20% of its total assets in
mortgage dollar rolls.

TEMPORARY STRATEGIES

The Portfolio may, for temporary defensive purposes, invest 100% of its total
assets in U.S. Government securities, repurchase agreements collateralized by
U.S. Government Securities, commercial paper rated at least A-1 by Standard &
Poor's or P-1 by Moody's, certificates of deposit, bankers' acceptances,
repurchase agreements, non-convertible preferred stocks, non-convertible
corporate bonds with a remaining maturity of less than one year

<PAGE>

or, subject to certain tax restrictions, foreign currencies. When the
Portfolio's assets are invested in such instruments, the Portfolio may not be
achieving its investment objective.

PORTFOLIO TURNOVER
Under normal conditions the portfolio turnover rate for the Portfolio generally
will not exceed 30% in any one year. However, the portfolio turnover rate may
exceed this rate when BSFM believes the anticipated benefits of short-term
investments outweigh any increase in transaction costs or increase in short-term
gains. Higher portfolio turnover rates are likely to result in comparatively
greater brokerage commissions or transaction costs. Short-term gains realized
from portfolio transactions are taxable to shareholders as ordinary shares.

MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, the Portfolio may
engage in the following techniques and investments: (i) foreign securities; (ii)
structured securities; (iii) foreign currency exchange contracts; (iv) currency
swaps, mortgage swaps, index swaps and interest rate swaps, caps, floors and
collars; (v) zero coupon bonds; (vi) variable and floating rate securities;
(vii) custodial receipts; (viii) municipal securities; (ix) inverse floating
rate securities; and (x) warrants and stock purchase rights. No more than 5% of
the Portfolio's total assets will be committed to any one of the above
techniques and investments.

CERTAIN FUNDAMENTAL POLICIES

Certain of the Portfolio's investment policies are fundamental policies that can
be changed only by shareholder vote.

The Portfolio may (i) borrow money to the extent permitted under the 1940 Act;
(ii) invest up to 5% of the value of its total obligations in the obligations of
any issuer, except that up to 25% of the value of the Portfolio's total assets
may be invested, and U.S. Government Securities may be purchased, without regard
to any such limitation; and (iii) invest up to 25% of the value of its total
assets in securities of issuers in a single industry, provided that there is no
such limitation in investments in securities issued or guaranteed by the U.S.
Government, its agencies or sponsored enterprises. This paragraph describes
fundamental policies which cannot be changed as to the Portfolio without
approval by the holders of a majority (as defined in the 1940 Act) of the
Portfolio's outstanding voting shares. See "Investment Objective and Management
Policies--Investment Restrictions" in the Statement of Additional Information.

CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES

The Portfolio may (i) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only to secure permitted borrowings; and (ii) invest up to 15% of
the value of its net assets in repurchase agreements providing for settlement in
more than seven days after notice and in other illiquid securities. See
"Investment Objective and Management Policies--Investment Restrictions" in the
Statement of Additional Information.

RISK FACTORS

NO INVESTMENT IS FREE FROM RISK. INVESTING IN THE PORTFOLIO WILL SUBJECT
INVESTORS TO CERTAIN RISKS WHICH SHOULD BE CONSIDERED.

NET ASSET VALUE FLUCTUATIONS

The Portfolio's net asset value per share is not fixed and should be expected to
fluctuate. Investors should purchase Portfolio shares only as a supplement to an
overall investment program and only if investors are willing to undertake the
risks involved.

<PAGE>

EQUITY SECURITIES

Investors should be aware that equity securities fluctuate in value, often based
on factors unrelated to the value of the issuer of the securities, and that
fluctuations can be pronounced. Changes in the value of the equity securities in
the Portfolio's portfolio will result in changes in the value of the Portfolio's
shares and thus the Portfolio's yield and total return to investors. The
Portfolio intends to invest between 40% and 60% of its total assets in equity
securities, even during times of significant market decline, when other Funds
might take a more defensive position by investing a greater amount of their
assets in money market instruments or cash that are less likely to decline when
market conditions are adverse for equities.

FIXED-INCOME SECURITIES

Investors should be aware that fixed-income securities fluctuate in value based
on changes in prevailing interest rates. As interest rates go up, the value of a
fixed-income security typically goes down, and vice versa. Generally,
fixed-income securities with longer maturities are more sensitive to changes in
interest rates.

Many fixed-income securities, including certain U.S. corporate fixed-income
securities in which the Portfolio may invest, contain call or buy-back features
which permit the issuer of the security to call or repurchase it. Such
securities may present risks based on payment expectations. If an issuer
exercises such a "call option" and redeems the security, the Portfolio may have
to replace the called security with a lower yielding security, resulting in a
decreased rate of return for the Portfolio.

SIMULTANEOUS INVESTMENTS

Investment decisions for the Portfolio are made independently from those of
other investment companies or accounts advised by the Adviser. However, if such
other investment companies or accounts are prepared to invest in, or desire to
dispose of, securities of the type in which the Portfolio invests at the same
time as the Portfolio, available investments or opportunities for sales will be
allocated equitably to each. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by the Portfolio or the
price paid or received by the Portfolio.

Management of the Portfolio

BOARD OF TRUSTEES

The Fund's business affairs are managed under the general supervision of its
Board of Trustees. The Portfolio's Statement of Additional Information contains
the name and general business experience of each Trustee.

INVESTMENT ADVISER

The Portfolio's investment adviser is BSFM, a wholly-owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York, New
York 10167. The Bear Stearns Companies Inc. is a holding company which, through
its subsidiaries including its principal subsidiary, Bear Stearns, is a leading
United States investment banking, securities trading and brokerage firm serving
United States and foreign corporations, governments and institutional and
individual investors. BSFM is a registered investment adviser and offers, either
directly or through affiliates, investment advisory and administrative services
to open-end and closed-end investment funds and other managed pooled investment
vehicles with net assets at ________, 1997 of over $___ billion.

<PAGE>

BSFM supervises and assists in the overall management of the Portfolio's affairs
under an investment advisory agreement between BSFM and the Fund (the
"Investment Advisory Agreement"), subject to the overall authority of the Fund's
Board of Trustees in accordance with Massachusetts law.

Lawrence M. Fields serves as the Senior Portfolio Manager of the Portfolio and
Heather J. Perlmutter serves as the co-Portfolio Manager. Mr. Fields has been
with Bear, Stearns & Co. Inc., in its Asset Management division since 1985. As
part of the division's equity investment team, he is responsible for the
management of balanced portfolios. From 1970 to 1985, Mr. Fields was with the
New York Life Insurance Company, where he spent the last four years as
Investment Vice President and Equity Portfolio Manager. Mr. Fields received his
B.S. in Accounting from Ohio State University, and his M.B.A. in Finance from
New York University Graduate School of Business. Ms. Perlmutter has been with
Bear, Stearns & Co. Inc. since 1990, and is currently managing balanced
portfolios. She began her tenure at Bear Stearns as a Sales Associate in the
Corporate Calling Group, and moved to Bear, Stearns & Co. Inc.'s Asset
Management division in 1993. She began her career as a Sales Assistant in the
Corporate Coverage Division of Morgan Stanley & Co. Inc. Ms. Perlmutter received
her B.A. in Communication from Rutgers University.

Under the terms of the Investment Advisory Agreement, the Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of 0.65% of the Portfolio's average
daily net assets.

THE ADMINISTRATOR

The Portfolio's administrator is BSFM.

Under the terms of an administration agreement with the Fund, BSFM generally
supervises all aspects of the operation of the Portfolio, subject to the overall
authority of the Fund's Board of Trustees in accordance with Massachusetts law.
For providing administrative services to the Portfolio, the Fund has agreed to
pay BSFM a monthly fee at the annual rate of 0.15 of 1% of the Portfolio's
average daily net assets. Under the terms of an administrative services
agreement with the Fund, PFPC Inc., the Portfolio's transfer agent, provides
certain administrative services to the Portfolio. For providing these services,
the Fund has agreed to pay PFPC Inc. an annual fee, as set forth below:

- -------------------------------------------------------------------------------
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
- -------------------------------------------------------------------------------
First $200 million....................... 0.10 of 1%
Next $200 million up to $400 million..... 0.075 of 1%
Next $200 million up to $600 million..... 0.05 of 1%
Assets in excess of $600 million......... 0.03 of 1%

The above-referenced fee is subject to a monthly minimum fee of $12,500.

From time to time, BSFM may waive receipt of its fees and/or voluntarily assume
certain Portfolio expenses, which would have the effect of lowering the
Portfolio's expense ratio and increasing yield to investors at the time such
amounts are waived or assumed, as the case may be. The Portfolio will not pay
BSFM at a later time for any amounts it may waive, nor will the Portfolio
reimburse BSFM for any amounts it may assume. From time to time, PFPC Inc. may
voluntarily waive a portion of its fee.

<PAGE>

brokerage transactions also may take into account a broker's sales of the
Portfolio's shares. See "Portfolio Transactions" in the Statement of Additional
Information.

Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment
Advisory Agreement is in effect.

DISTRIBUTOR

Bear Stearns, located at 245 Park Avenue, New York, New York 10167, serves as
the Portfolio's principal underwriter and distributor of the Portfolio's shares
pursuant to an agreement which is renewable annually. Bear Stearns is entitled
to receive the sales load described under "How to Buy Shares" and payments under
the Portfolio's Distribution Plan described below.

CUSTODIAN AND TRANSFER AGENT

Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, an
affiliate of Bear Stearns, is the Portfolio's custodian. PFPC Inc., Bellevue
Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, is the
Portfolio's transfer agent, dividend disbursing agent and registrar (the
"Transfer Agent"). The Transfer Agent also provides certain administrative
services to the Portfolio.

DISTRIBUTION PLAN - CLASS A, B AND C SHARES

Under a plan adopted by the Fund's Board of Trustees pursuant to Rule 12b-1
under the 1940 Act (the "Distribution Plan"), the Portfolio will pay Bear
Stearns an annual fee of 0.25%, 0.75% and 0.75% of the average daily net assets
of Class A, B and C shares, respectively. Amounts paid under the Distribution
Plan compensate Bear Stearns for distributing Portfolio shares. Bear Stearns may
pay third parties that sell Portfolio shares such amount as it may determine.

The Portfolio understands that these third parties may also charge fees for
their clients who are beneficial owners of Portfolio shares in connection with
their client accounts. These fees would be in addition to any amounts which may
be received by them from Bear Stearns under the Distribution Plan.

SHAREHOLDER SERVICING PLAN - CLASS A, B AND C SHARES

The Fund has adopted a shareholder servicing plan on behalf of the Portfolio's
Class A, B and C shares (the "Shareholder Servicing Plan"). In accordance with
the Shareholder Servicing Plan, the Fund may enter into shareholder service
agreements under which the Portfolio pays fees of up to 0.25% of the average
daily net assets of Class A, B or C shares for fees incurred in connection with
the personal service and maintenance of accounts holding Portfolio shares for
responding to inquiries of, and furnishing assistance to, shareholders regarding
ownership of the shares or their accounts or similar services not otherwise
provided on behalf of the Portfolio.

EXPENSE LIMITATION

BSFM has undertaken (until such time as it gives investors at least 60 days'
notice to the contrary) that, if in any fiscal year, certain expenses, including
the investment advisory fee, exceed 1.20% of Class A's average daily net assets,
1.70% of Class B's average daily net assets and 1.70% of Class C's average daily
net assets for the fiscal year, BSFM may waive a portion of its investment
advisory fee or bear other expenses to the extent of the excess expense.

<PAGE>

PRIOR PERFORMANCE OF RELATED ACCOUNTS

Set forth in the following table is the performance history of a composite of
institutional private accounts with investment objectives, policies, strategies
and risks substantially similar to those of the Portfolio. The accounts
constituting the composite have been managed during the periods indicated by
Bear Stearns Asset Management ("BSAM"), a division of Bear, Stearns & Co. Inc.,
which is an affiliate of the Adviser. BSAM specializes in the management of
separate accounts while the Adviser specializes in the management of registered
investment companies. Both entities are commonly managed and share portfolio
management personnel, including the portfolio managers of the Portfolio who have
been and are responsible for managing the accounts reflected in the composite.
Investors should note, however, that prior to January 1997, the portfolio
managers of the Portfolio reported to a Director of Equities who is no longer an
employee of either BSAM or the Adviser.

The figures presented in the table are intended to illustrate the past
performance of the Adviser in managing a composite set of accounts substantially
similar to the Portfolio and which, for that reason, may be relevant to
potential investors in the Portfolio. As indicated, the performance figures are
measured against a blended equity/fixed-income index reflective of the average
asset allocation of the accounts constituting the composite which is identical
to the expected average asset allocation of the Portfolio. The data do not
represent the past performance of the Portfolio and prospective investors should
not consider these performance figures as indicative of the future performance
of the Portfolio or of the Adviser.

The composite performance data shown below were calculated in accordance with
recommended standards of the Association for Investment Management and Research
("AIMR" /1/), retroactively applied to all time periods. All returns presented
were calculated on a total return basis and include all dividends and interest,
accrued income and realized and unrealized gains and losses. All returns reflect
the deduction of investment advisory fees, brokerage commissions and execution
costs paid by the account and does not reflect federal or state income taxes.
Custodial fees, if any, were not included in the calculation. The composite
includes all actual, fee-paying, discretionary institutional private accounts
managed by the BSAM that have investment objectives, policies, strategies and
risks substantially similar to those of the Portfolio. Securities transactions
are accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns. For additional information
regarding the composite performance data, please see the Statement of Additional
Information.

The institutional private accounts that are included in the composite are not
subject to the same types of expenses to which the Portfolio is subject nor to
the diversification requirements, specific tax restrictions and investment
limitations imposed on the Portfolio by the Investment Company Act or Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). Consequently,
the performance results for the composites could have been adversely affected if
the institutional private accounts included in the composites had been regulated
as investment companies under the federal securities laws.

The investment results of the composites presented below are unaudited and are
not intended to predict or suggest the returns that might be experienced by the
Portfolio or an individual investor investing in the Portfolio. Investors should
also be aware that the uses of a methodology different from that used below to
calculate performance could result in different performance data.

- ------------------------------

/1/ AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.

<PAGE>

BALANCED COMPOSITE PERFORMANCE SUMMARY

AS OF [NOVEMBER 30], 1997
<TABLE>
<CAPTION>
55% S&P 500/45% INVESTMENT ADVISER'S NUMBER OF MARKET VALUE PERCENT OF BSAM PERCENT OF
TIME PERIOD SALOMON BROAD BALANCED COMPOSITE PORTFOLIOS (MILLIONS) STRATEGY ASSETS BSAM ASSETS
<S> <C> <C> <C> <C> <C> <C>
Year to Date
1996
1995
1994 TO COME TO COME
1993
1992
1991
1990(3)
</TABLE>

- --------
/1/ Returns are calculated for a partial year, from the inception of the
Composite (April 1, 1990) through December 31, 1990.

<PAGE>

Purchases are effected at the public offering price next determined after a
purchase order is received by Bear Stearns, an Authorized Dealer or the Transfer
Agent (the "trade date"). Payment for Portfolio shares generally is due to Bear
Stearns or the Authorized Dealer on the third business day (the "settlement
date") after the trade date. Investors who make payments before the settlement
date may permit the payment to be held in their brokerage accounts or may
designate a temporary investment for payment until the settlement date. If a
temporary investment is not designated, Bear Stearns or the Authorized Dealer
will benefit from the temporary use of the funds if payment is made before the
settlement date.

CHOOSING A CLASS OF SHARES

Determining which class of shares best suits your investment needs depends on
several factors. Each class of shares has its own operating costs and sales
charges that will affect the results of your investment over time. Perhaps the
most significant factors are how much you intend to invest and the length of
time you expect to hold your investment. If your goals change over time, you
should review your investment to determine whether a particular class of shares
best suits your needs.

Class A shares are, in general, the most beneficial for the investor who
qualifies for a waiver or certain reductions of the front end sales charges as
described herein under "How to Buy Shares -- Class A Shares." Class B and Class
C shareholders may pay a CDSC upon redemption. Investors who expect to redeem
during the eight year CDSC period applicable to Class B shares or the one year
CDSC period applicable to Class C shares should consider the cost of the
applicable CDSC plus the aggregate annual distribution and service fees
applicable to Class B and Class C shares, as compared with the cost of the front
end sales charge plus the aggregate annual distribution fees applicable to Class
A shares. Because Class B and Class C shareholders pay no front end sales
charge, the entire purchase price is immediately invested in shares of the
Portfolio. Any return realized on the additional funds initially invested may
partially or wholly offset the ongoing distribution fees applicable to Class B
and Class C shares. There can be no assurance, however, as to the investment
return, if any, which will be realized on such additional funds. Over time, the
cumulative distribution and service fees applicable to Class B and Class C
shares will approach and may exceed the 5.50% maximum front end sales charge
plus the distribution fee applicable to Class A shares.

The factors below assume the expenses that apply to each class of shares as
described in this prospectus. In addition, they assume an annual rate of return
of approximately 5%. The actual amount of return may be higher or lower,
depending on the actual investment returns over time. This discussion is not
intended to be investment advice or recommendations, because each investor's
goals, needs and circumstances are unique.

MAXIMUM PURCHASE AMOUNT

There is a maximum purchase limitation of $500,000 in the aggregate on purchases
of Class B shares and a maximum purchase limitation of $1 million in the
aggregate on purchases of Class C shares. Investors who purchase $1 million or
more may only purchase Class A shares (as the sales charge is waived for
purchases in excess of $1 million). However, if you purchase over $1 million of
Class A shares, and do not maintain your investment for at least one year from
the date of purchase, you will be charged a CDSC of 1%.

LENGTH OF INVESTMENT

<PAGE>

Class B or Class C shares, which do not have an initial sales charge. Your
entire investment in Class B shares is available to work for you from the time
you make your initial investment but the higher expenses will cause your Class B
shares (until conversion to Class A shares) to have a higher expense ratio and
to pay lower dividends, to the extent dividends are paid, than Class A shares.
If you prefer not to pay an initial sales charge on an investment you might
consider purchasing Class B shares.

If you plan to invest less than $250,000 for a period of approximately eight
years or less, Class C shares might be more appropriate even though the class
expenses are higher, because there is no initial sales charge and no CDSC if
held for over one year. If you plan to invest less than $250,000 for a period of
between approximately nine and 12 years, Class B shares may be more appropriate.
If you plan to hold your investment for more than 12 years, then Class A shares
may be more appropriate, because the effect of the higher class expenses of
Class B and C shares might be greater than the effect of the initial sales
charge of the Class A shares.

If you plan to invest more than $250,000 but less than $500,000 for a period of
five years or less, then Class C shares may be more appropriate. If you plan to
hold your investment for approximately six years or more you may find Class A
shares more suitable.

If you plan to invest more than $500,00 but less than $1,000,000 for a period of
four years or less, then Class C shares may be more appropriate. If you plan to
hold your investment for approximately five years or more, you may find Class A
shares more suitable. For investors who invest $1 million or more, Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares.

PAYMENTS TO BROKERS
Your broker may be entitled to receive different compensation for selling shares
of one class of shares than for selling another class. The purpose of both the
CDSC and the asset-based sales charge is to compensate Bear Stearns and the
brokers who sell the shares.

CONSULT YOUR FINANCIAL ADVISER
You should consult your financial adviser to assist you in determining which
class of shares is most appropriate for you.

PURCHASE PROCEDURES

Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be
accepted), Federal Reserve draft or by wiring Federal Funds with funds held in
brokerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--Balanced
Portfolio--Class A" if purchased directly from the Portfolio, and should be
directed to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns
Funds--Balanced Portfolio--Class A, P.O. Box 8960, Wilmington, Delaware
19899-8960. Payment by check or Federal Reserve draft must be received within
three business days of receipt of the purchase order by Bear Stearns or an
Authorized Dealer. Orders placed directly with the Transfer Agent must be
accompanied by payment. Bear Stearns (or an investor's Authorized Dealer) is
responsible for forwarding payment promptly to the Fund. The Fund will charge
$7.50 for each wire redemption. The payment proceeds of a redemption of shares
recently purchased by check may be delayed as described under "How to Redeem
Shares."

<PAGE>

Prospectus, and mailing it, together with a check to cover the purchase, to PFPC
Inc., Attention: The Bear Stearns Funds--Balanced Portfolio--Class A, P.O. Box
8960, Wilmington, Delaware 19899-8960.

Subsequent purchases of shares may be made by checks made payable to the Fund
and directed to the address set forth in the preceding paragraph. The Portfolio
account number should appear on the check.

Shareholders may not purchase shares of the Fund with a check issued by a third
party and endorsed over to the Fund.

Purchase orders received by Bear Stearns, an Authorized Dealer or the Transfer
Agent before the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., New York time) on any day the Portfolio calculates its net
asset value are priced according to the net asset value determined on that date.
Purchase orders received after the close of trading on the New York Stock
Exchange are priced as of the time the net asset value is next determined.

NET ASSET VALUE IS COMPUTED DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE NEW
YORK STOCK EXCHANGE.

Shares of the Portfolio are sold on a continuous basis. Net asset value per
share is determined as of the close of regular trading on the floor of the New
York Stock Exchange (currently 4:00 p.m., New York time) on each business day.
The net asset value per share of each class of the Portfolio is computed by
dividing the value of the Portfolio's net assets represented by such class
(i.e., the value of its assets less liabilities) by the total number of shares
of such class outstanding. The Portfolio's investments are valued based on
market value or, where market quotations are not readily available, based on
fair value as determined in good faith by, or in accordance with procedures
established by, the Fund's Board of Trustees.

Federal regulations require that investors provide a certified Taxpayer
Identification Number (a "TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes." Failure to furnish a certified TIN to the
Fund could subject the investor to a $50 penalty imposed by the Internal Revenue
Service (the "IRS").

CLASS A SHARES

THE SALES CHARGE MAY VARY DEPENDING ON THE DOLLAR AMOUNT INVESTED IN THE
PORTFOLIO.

The public offering price for Class A shares of the Portfolio is the net asset
value per share of that class plus a sales load, which is imposed in accordance
with the following schedule:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SALES LOAD
-----------------------------------------------------

AS A % OF AS A % OF NET DEALER CONCESSIONS
OFFERING PRICE ASSET VALUE AS A %
AMOUNT OF TRANSACTION PER SHARE PER SHARE OF OFFERING PRICE*
- ------------------------------------------------------------------------------------------------------------------------------------

Less than $50,000........................... 5.50% 5.82% 5.25%

$50,000 to less than $100,000............... 4.75 4.99 4.25

$100,000 to less than $250,000.............. 3.75 3.90 3.25

$250,000 to less than $500,000.............. 2.75 2.83 2.50

$500,000 to less than $1,000,000............ 2.00 2.04 1.75

$1,000,000 and above........................ 0.00* 0.00 1.25
</TABLE>

<PAGE>

*There is no initial sales charge on purchases of $1,000,000 or more of
Class A shares. However, if an investor purchases Class A shares without an
initial sales charge as part of an investment of at least $1,000,000 and
redeems those shares within one year after purchase, a CDSC of 1.00% will
be imposed at the time of redemption. The terms contained in the section of
the Fund's Prospectus entitled "How to Redeem Shares--Contingent Deferred
Sales Charge" are applicable to the Class A shares subject to a CDSC.
Letter of Intent and Right of Accumulation apply to such purchases of Class
A shares.

The dealer concession may be changed from time to time but will remain the same
for all dealers. From time to time, Bear Stearns may make or allow additional
payments or promotional incentives to dealers that sell Class A shares. In some
instances, these incentives may be offered only to certain dealers who have sold
or may sell significant amounts of Class A shares. Dealers may receive a larger
percentage of the sales load from Bear Stearns than they receive for selling
most other funds.

Class A shares may be sold at net asset value to (a) Bear Stearns, its
affiliates or their respective officers, directors or employees (including
retired employees), any partnership of which Bear Stearns is a general partner,
any Trustee or officer of the Fund and designated family members of any of the
above individuals; (b) qualified retirement plans of Bear Stearns; (c) any
employee or registered representative of any Authorized Dealer or their
respective spouses and minor children; (d) trustees or directors of investment
companies for which Bear Stearns or an affiliate acts as sponsor; (e) any state,
country or city, or any instrumentality, department, authority or agency
thereof, which is prohibited by applicable investment laws from paying a sales
load or commission in connection with the purchase of Portfolio shares; (f) any
institutional investment clients including corporate sponsored pension and
profit-sharing plans, other benefit plans and insurance companies; (g) any
pension funds, state and municipal governments or funds, Taft-Hartley plans and
qualified non-profit organizations, foundations and endowments; (h) trust
institutions (including bank trust departments) investing on their own behalf or
on behalf of their clients; and (i) accounts as to which an Authorized Dealer
charges an asset management fee. To take advantage of these exemptions, a
purchaser must indicate its eligibility for an exemption to Bear Stearns along
with its Account Information Form. Such purchaser agrees to notify Bear Stearns
if, at any time of any additional purchases, it is no longer eligible for an
exemption. Bear Stearns reserves the right to request certification or
additional information from a purchaser in order to verify that such purchase is
eligible for an exemption. Bear Stearns reserves the right to limit the
participation of its employees in Class A shares of the Portfolio. Dividends and
distributions reinvested in Class A shares of the Portfolio will be made at the
net asset value per share on the reinvestment date.

Class A shares of the Portfolio also may be purchased at net asset value, with
the proceeds from the redemption of shares of an investment company sold with a
sales charge or commission and not distributed by Bear Stearns. 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. However, if such
investor redeems those shares within one year after purchase, a CDSC of 1.00%
will be imposed at the time of redemption. Bear Stearns will offer to pay
Authorized Dealers an amount up to 1.25% of the net asset value of shares
purchased by the dealers' clients or customers in this manner.

In addition, Class A Shares of the Portfolio may be purchased at net asset value
by the following customers of a broker that operates a master account for
purchasing and redeeming, and otherwise providing shareholder services in
respect of Fund shares pursuant to agreements with the Fund or Bear Stearns: (i)
investment advisers and financial planners who place trades for their own
accounts or for the accounts of their clients and who charge a management,
consulting or other fee, (ii) clients of such investment advisers and financial
planners if such clients place trades through accounts linked to master accounts
of such investment advisers or financial planners on the books and records of
such broker and (iii) retirement and deferred compensation plans, and trusts
used to fund such plans, including, but not limited to, plans or trusts defined
in Section 401(a), 403(b) or 457 of the Code, and "rabbi trusts," provided, in
each case, the purchase transaction is effected through such broker. The broker
may charge a fee for transactions in Portfolio shares.

<PAGE>

CLASS B SHARES

The public offering price for Class B 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 B shares made
within six years of purchase. See "How to Redeem Shares". The amount of the
CDSC, if any, will vary depending on the number of years from the time of
purchase until the time of redemption of Class B shares. For the purpose of
determining the number of years from the time of any purchase, all payments
during a month will be aggregated and deemed to have been made on the first day
of that month. In processing redemptions of Class B shares, the Portfolio will
first redeem shares not subject to any CDSC, and then shares held longest during
the eight-year period, resulting in the shareholder paying the lowest possible
CDSC. The amount of the CDSC charged upon redemption is as follows:

CDSC as a Percentage of
Year Since Dollar Amount
Purchase Subject to CDSC
- -------- ---------------
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
Eighth* 0%

* As discussed below, Class B shares automatically convert to Class A shares
after the eighth year following purchase.

Class B shares of the Portfolio will automatically convert into Class A shares
at the end of the calendar quarter that is eight years after the initial
purchase of the Class B shares. Class B shares acquired by exchange from Class B
shares of another portfolio will convert into Class A shares of such Portfolio
based on the date of the initial purchase. Class B shares acquired through
reinvestment of distributions will convert into Class A shares based on the date
of the initial purchase of the shares on which the distribution was paid. The
conversion of Class B shares to Class A shares will not occur at any time the
Portfolio is advised that such conversions may constitute taxable events for
federal tax purposes, which the Portfolio believes is unlikely. If conversions
do not occur as a result of possible taxability, Class B shares would continue
to be subject to higher expenses than Class A shares for an indeterminate
period.

The purpose of the conversion feature is to relieve the holders of Class B
shares from most of the burden of distribution-related expenses when the shares
have been outstanding for a duration sufficient for Bear Stearns to have been
substantially compensated for distribution-related expenses incurred in
connection with Class B shares.

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."

<PAGE>

RIGHT OF ACCUMULATION - CLASS A SHARES

INVESTORS MAY QUALIFY FOR A REDUCED SALES CHARGE.

Pursuant to the Right of Accumulation, certain investors are permitted to
purchase Class A shares of the Portfolio at the sales charge applicable to the
total of (a) the dollar amount then being purchased plus (b) the current public
offering price of all Class A shares of the Portfolio, shares of the Fund's
other portfolios and shares of certain other funds sponsored or advised by Bear
Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns
Investment Trust, then held by the investor. The following purchases of Class A
shares may be aggregated for the purposes of determining the amount of purchase
and the corresponding sales load: (a) individual purchases on behalf of a single
purchaser, the purchaser's spouse and their children under the age of 21 years
including shares purchased in connection with a retirement account exclusively
for the benefit of such individual(s), such as an IRA, and purchases made by a
company controlled by such individual(s); (b) individual purchases by a trustee
or other fiduciary account, including an employee benefit plan (such as
employer-sponsored pension, profit-sharing and stock bonus plans, including
plans under Section 401(k) of the Code, and medical, life and disability
insurance trusts); or (c) individual purchases by a trustee or other fiduciary
purchasing shares concurrently for two or more employee benefit plans of a
single employer or of employers affiliated with each other. Subsequent purchases
made under 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
applicable to the total number of Class A shares of the Portfolio, Class A
shares of the Fund's other portfolios and shares of certain other funds
sponsored or advised by Bear Stearns, including the Emerging Markets Debt
Portfolio of Bear Stearns Investment Trust, purchased in a 13-month period
pursuant to the terms and under the conditions set forth herein. A minimum
initial purchase of $1,000 is required. The Transfer Agent will hold in escrow
5% of the amount indicated in the Account Information Form for payment of a
higher sales load if the investor does not purchase the full amount indicated in
the Account Information Form. The escrow will be released when the investor
fulfills the terms of the Letter of Intent by purchasing the specified amount.
If an investor's purchases qualify for a further sales load reduction, the sales
load will be adjusted to reflect the total purchase at the end of 13 months. If
total purchases are less than the amount specified, the investor will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact, will redeem an appropriate number of shares held in escrow to
realize the difference. Checking a box in the Letter of Intent section of the
Account Information Form does not bind an investor to purchase, or the Portfolio
to sell, the full amount indicated at the sales load in effect at the time of
signing, but the investor must complete the intended purchase to obtain the
reduced sales load. At the time an investor purchases shares of any of the
above-listed funds, the investor must indicate its intention to do so under the
Letter of Intent section of the Account Information Form.

SYSTEMATIC INVESTMENT PLAN

THE PORTFOLIO OFFERS SHAREHOLDERS CONVENIENT FEATURES AND BENEFITS, INCLUDING
THE SYSTEMATIC INVESTMENT PLAN.

<PAGE>

the twentieth day. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated.
Investors desiring to participate in the Systematic Investment Plan should call
the Transfer Agent at 1-800-447-1139 to obtain the appropriate forms. The
Systematic Investment Plan does not assure a profit and does not protect against
loss in declining markets. Since the Systematic Investment Plan involves the
continuous investment in the Portfolio regardless of fluctuating price levels of
the Portfolio's shares, investors should consider their financial ability to
continue to purchase through periods of low price levels. The Fund may modify or
terminate the Systematic Investment Plan at any time or charge a service fee. No
such fee currently is contemplated.

SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE

THE EXCHANGE PRIVILEGE PERMITS EASY PURCHASES OF OTHER FUNDS IN THE BEAR STEARNS
FAMILY.

The Exchange Privilege enables an investor to purchase, in exchange for shares
of the Portfolio, shares of the same class of the Fund's other portfolios or
shares of the same class of certain other funds sponsored or advised by Bear
Stearns, including the Emerging Markets Debt Portfolio of Bear Stearns
Investment Trust, and the Money Market Portfolio of The RBB Fund, Inc., to the
extent such shares are offered for sale in the investor's state of residence.
These funds have different investment objectives which may be of interest to
investors. To use this Privilege, investors should consult their account
executive at Bear Stearns, their account executive at an Authorized Dealer or
the Transfer Agent to determine if it is available and whether any conditions
are imposed on its use.

To use this Privilege, exchange instructions must be given to the Transfer Agent
in writing or by telephone. A shareholder wishing to make an exchange may do so
by sending a written request to the Transfer Agent at the address given above in
"How to Buy Shares--General." Shareholders are automatically provided with
telephone exchange privileges when opening an account, unless they indicate on
the account application that they do not wish to use this privilege.
Shareholders holding share certificates are not eligible to exchange shares of
the Portfolio by phone because share certificates must accompany all exchange
requests. To add this feature to an existing account that previously did not
provide for this option, a Telephone Exchange Authorization Form must be filed
with the Transfer Agent. This form is available from the Transfer Agent. Once
this election has been made, the shareholder may contact the Transfer Agent by
telephone at 1-800-447-1139 to request the exchange. During periods of
substantial economic or market change, telephone exchanges may be difficult to
complete and shareholders may have to submit exchange requests to the Transfer
Agent in writing.

The Transfer Agent may use security procedures to confirm that telephone
instructions are genuine. If the Transfer Agent does not use reasonable
procedures, it may be liable for losses due to unauthorized transactions, but
otherwise neither the Transfer Agent nor the Portfolio will be liable for losses
or expenses arising out of telephone instructions reasonably believed to be
genuine.

If the exchanging shareholder does not currently own Class A Shares of the
portfolio or fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as described below. To
participate in the Systematic Investment Plan, or establish automatic withdrawal
for the new account, however, an exchanging shareholder must file a specific
written request. The Exchange Privilege may be modified or terminated at any
time, or from time to time, by the Fund on 60 days' notice to the affected
portfolio or fund shareholders. The Fund, BSFM and Bear Stearns will not be
liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine. In attempting to
confirm that telephone instructions are genuine, the Fund will use such
procedures as are considered reasonable, including recording those instructions
and requesting information as to account registration (such as the name in which
an account is registered, the account number, recent transactions in the
account, and the account holder's Social Security number, address and/or bank).

<PAGE>

Before any exchange, the investor must obtain and should review a copy of the
current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained free of charge from Bear Stearns, any
Authorized Dealer or the Transfer Agent. Except in the case of Personal
Retirement Plans, the shares being exchanged must have a current value of at
least $250; furthermore, when establishing a new account by exchange, the shares
being exchanged must have a value of at least the minimum initial investment
required for the portfolio or fund into which the exchange is being made; if
making an exchange to an existing account, the dollar value must equal or exceed
the applicable minimum for subsequent investments. If any amount remains in the
investment portfolio from which the exchange is being made, such amount must not
be below the minimum account value required by the Portfolio or Fund.

Shares will be exchanged at the next determined net asset value. No CDSC will be
imposed on Class B shares at the time of an exchange. The CDSC applicable on
redemption of Class B shares will be calculated from the date of the initial
purchase of the Class B shares exchanged. If an investor is exchanging Class A
into a portfolio or fund that charges a sales load, the investor may qualify for
share prices which do not include the sales load or which reflect a reduced
sales load, if the shares of the portfolio or fund from which the investor is
exchanging were: (a) purchased with a sales load; (b) acquired by a previous
exchange from shares purchased with a sales load; or (c) acquired through
reinvestment of dividends or distributions paid with respect to the foregoing
categories of shares. To qualify, at the time of the exchange the investor must
notify Bear Stearns, the Authorized Dealer or the Transfer Agent. Any such
qualification is subject to confirmation of the Investor's holdings through a
check of appropriate records. No fees currently are charged shareholders
directly in connection with exchanges, although the Fund reserves the right,
upon not less than 60 days' written notice, to charge shareholders a $5.00 fee
in accordance with rules promulgated by the Securities and Exchange Commission.
The Fund reserves the right to reject any exchange request in whole or in part.
The Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.

The exchange of 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 exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.

REDIRECTED DISTRIBUTION OPTION

THE REDIRECTED DISTRIBUTION OPTION PERMITS INVESTMENT OF INVESTORS' DIVIDENDS
AND DISTRIBUTIONS IN SHARES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY.

The Redirected Distribution Option enables a shareholder to invest automatically
dividends and/or capital gain distributions, if any, paid by the Portfolio in
the same class of shares of another portfolio of the Fund or a fund advised or
sponsored by Bear Stearns of which the shareholder is an investor, or the Money
Market Portfolio of The RBB Fund, Inc. Shares of the other portfolio or fund
will be purchased at the current net asset value. If an investor is investing in
a class that charges a CDSC, the shares purchased will be subject upon
redemption to the CDSC, if 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.

<PAGE>

HOW TO REDEEM SHARES
GENERAL

THE REDEMPTION PRICE WILL BE BASED ON THE NET ASSET VALUE NEXT COMPUTED AFTER
RECEIPT OF A REDEMPTION REQUEST.

Investors may request redemption of Portfolio shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, the Portfolio will redeem the shares at the next determined net asset
value. If the investor holds Portfolio shares of more than one class, any
request for redemption must specify the class of shares being redeemed. If the
investor fails to specify the class of shares to be redeemed or if the investor
owns fewer shares of the class than specified to be redeemed, the redemption
request may be delayed until the Transfer Agent receives further instructions
from the investor, the investor's Bear Stearns account executive or the
investor's Authorized Dealer. The Fund imposes no charges (other than any
applicable CDSC) when shares are redeemed directly through Bear Stearns.

The Portfolio ordinarily will make payment for all shares redeemed within three
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
However, if an investor has purchased Portfolio shares by check and subsequently
submits a redemption request by mail, the redemption proceeds will not be
transmitted until the check used for investment has cleared, which may take up
to 15 days. The Fund will reject requests to redeem shares by telephone or wire
for a period of 15 days after receipt by the Transfer Agent of the purchase
check against which such redemption is requested. This procedure does not apply
to shares purchased by wire payment.

The Fund reserves the right to redeem investor accounts at its option upon not
less than 60 days' written notice if the account's net asset value is $750 or
less, for reasons other than market conditions, and remains so during the notice
period. Shareholders who have redeemed Class A shares may reinstate their
Portfolio account without a sales charge up to the dollar amount redeemed by
purchasing Class A shares of the same Portfolio or of any other Bear Stearns
Fund within 60 days of the redemption. Shareholders should obtain and read the
applicable prospectuses of such other funds and consider their objectives,
policies and applicable fees before investing in any of such funds. To take
advantage of this reinstatement privilege, shareholders must notify their Bear
Stearns account executive, Authorized Dealer or the Transfer Agent at the time
the privilege is exercised.

CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES

CLASS A SHARES OF THE PORTFOLIO MAY BE SUBJECT TO A CDSC OF 1% UPON REDEMPTION
WITHIN ONE YEAR OF PURCHASE.

A CDSC of 1% payable to Bear Stearns is imposed on any redemption of Class A
shares within one year of the date of purchase by any investor that purchased
Class A shares as part of an investment of at least $1,000,000. A CDSC of 1% is
also imposed on any redemption of Class A shares within one year of the date of
purchase by any investor that purchased the shares with the proceeds from the
redemption of shares of an investment company sold with a sales charge or
commission and not distributed by Bear Stearns. No CDSC will be imposed to the
extent that the net asset value of the Class A shares redeemed does not exceed
(i) the current net asset value of Class A shares acquired through reinvestment
of dividends or capital gain distributions, plus (ii) increase in the net asset
value of an investor's Class A shares above the dollar amount of all such
investor's payments for the purchase of Class A shares held by the investor at
the time of redemption. See the Statement of Additional Information for more
information.

<PAGE>

CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

A CDSC of up to 5% payable to Bear Stearns is imposed on any redemption of Class
B shares within six years of the date of purchase. No CDSC will be imposed to
the extent that the net asset value of the Class B shares redeemed does not
exceed (i) the current net asset value of Class B shares acquired through
reinvestment of dividends or capital gain distributions, plus (ii) increases in
the net asset value of an investor's Class B shares above the dollar amount of
all such investor's payments for the purchase of Class B shares held by the
investor at the time of redemption.

If the aggregate value of Class B shares redeemed has declined below their
original cost as a result of the Portfolio's performance, the applicable CDSC
may be applied to the then-current net asset value rather than the purchase
price.

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value of Class B shares above the
total amount of payments for the purchase of Class B shares made during the
preceding year; then of amounts representing shares purchased more than one year
prior to the redemption; and, finally, of amounts representing the cost of
shares purchased within one year prior to the redemption.

For example, assume an investor purchased 100 shares of the Portfolio at $10 per
share for a cost of $1,000. Subsequently, the shareholder acquired 5 additional
shares through dividend reinvestment. During the first year after the purchase
the investor decided to redeem $500 of his or her investment. Assuming at the
time of the redemption the net asset value had appreciated to $12 per share, the
value of the investor's shares would be $1,260 (105 shares at $12 per share).
The CDSC would not be applied to the value of the reinvested dividend shares and
the amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 5% for a
total CDSC of $12.00.

WAIVER OF CDSC

The CDSC applicable to Class B shares will be waived in connection with (a)
redemptions made within one year after the death or disability, as defined in
section 72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in eligible benefit plans, (c) redemptions as a result of a
combination of any investment company with a Portfolio by merger, acquisition of
assets or otherwise, (d) a distribution following retirement under a
tax-deferred retirement plan or upon attaining age 70 1/2 in the case of an IRA
or Keogh plan or custodial account pursuant to section 403(b) of the Code, and
(e) to the extent that shares redeemed have been withdrawn from the Automatic
Withdrawal Plan, up to a maximum amount of 12% per year from a shareholder
account based on the value of the account at the time the automatic withdrawal
is established. If the Fund's Trustees 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 that 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 executive or
the investor's Authorized Dealer must notify Bear Stearns. Any such
qualification is subject to confirmation of the investor's entitlement.

CONTINGENT DEFERRED SALES CHARGE - CLASS C SHARES

<PAGE>

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 investor 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
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value of Class C shares above the
total amount of payments for the purchase of Class C shares made during the
preceding year; then of amounts representing 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. Assuming
at the time of the redemption the net asset value had appreciated to $12 per
share, the value of the investor's shares would be $1,260 (105 shares at $12 per
share). The CDSC would not be applied to the value of the reinvested dividend
shares and the amount which represents appreciation ($260). Therefore, $240 of
the $500 redemption proceeds ($500 minus $260) would be charged at a rate of 1%
for a total CDSC of $2.40.

WAIVER OF CDSC

The CDSC applicable to Class C shares will be waived in connection with (a)
redemptions made within one year after the death or disability, as defined in
section 72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in eligible benefit plans, (c) redemptions as a result of a
combination of any investment company with a Portfolio by merger, acquisition of
assets or otherwise, (d) a distribution following retirement under a
tax-deferred retirement plan or upon attaining age 70 1/2 in the case of an IRA
or Keogh plan or custodial account pursuant to section 403(b) of the Code, and
(e) to the extent that shares redeemed have been withdrawn from the Automatic
Withdrawal Plan, up to a maximum amount of 12% per year from a shareholder
account based on the value of the account at the time the automatic withdrawal
is established. If the Fund's Trustees 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.

PROCEDURES

SHAREHOLDERS MAY REDEEM SHARES IN SEVERAL WAYS.

REDEMPTION THROUGH BEAR STEARNS OR AUTHORIZED DEALERS
Clients with a brokerage account may submit redemption requests to their account
executives or Authorized Dealers in person or by telephone, mail or wire. As the
Fund's agent, Bear Stearns or Authorized Dealers may honor a redemption request
by repurchasing Fund shares from a redeeming shareholder at the shares' net
asset value next computed after receipt of the request by Bear Stearns or the
Authorized Dealer. Under normal circumstances, within three days, redemption
proceeds will be paid by check or credited to the shareholder's brokerage
account at the

<PAGE>

election of the shareholder. Bear Stearns account executives or Authorized
Dealers are responsible for promptly forwarding redemption requests to the
Transfer Agent.

If an investor authorizes telephone redemption, the Transfer Agent may act on
telephone instructions from any person representing himself or herself to be a
representative of Bear Stearns or the Authorized Dealer and reasonably believed
by the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Transfer Agent or the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor the
Transfer Agent will be liable for following telephone instructions reasonably
believed to be genuine.

REDEMPTION THROUGH THE TRANSFER AGENT
Shareholders who are not clients with a brokerage account who wish to redeem
shares must redeem their shares through the Transfer Agent by mail; other
shareholders also may redeem Fund shares through the Transfer Agent. Mail
redemption requests should be sent to the Transfer Agent at: PFPC Inc.,
Attention: The Bear Stearns Funds--Balanced Portfolio--Class A, P.O. Box 8960,
Wilmington, Delaware 19899-8960.

ADDITIONAL INFORMATION ABOUT REDEMPTIONS
A shareholder may have redemption proceeds of $500 or more wired to the
shareholder's brokerage account or a commercial bank account designated by the
shareholder. A transaction fee of $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns account executive, to any Authorized
Dealer, or to the Transfer Agent if the shares are not held in a brokerage
account.

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, partnership, trust or fiduciary, signature(s) must be
guaranteed by any eligible guarantor institution. A signature guarantee is
designed to protect the shareholders and the Portfolio against fraudulent
transactions by unauthorized persons. In certain instances, such as transfer of
ownership or when the registered shareholder(s) requests that redemption
proceeds be sent to a different name of address than the registered name and
address of record on the shareholder account, the Fund will require that the
shareholder's signature be guaranteed. When a signature guarantee is required,
each signature must be guaranteed. A signature guarantee may be obtained from a
domestic bank or trust company, broker, dealer, clearing agency or savings
association who are participants in a medallion program recognized by the
Securities Transfer Association. 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 Guarantees which are not a part of these programs will not be
accepted. The institution providing the guarantee must see a signature ink stamp
or medallion which states "Signature(s) Guaranteed" and be signed in the name of
the guarantor by an authorized person with that person's title and the date. The
Fund may reject a signature guarantee if the guarantor is not a member of or
participant in a signature guarantee program. 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. Redemption requests by corporate and fiduciary shareholders must be
accompanied by appropriate documentation establishing the authority of the
person seeking to act on behalf of the account. Investors may obtain from the
Fund or the Transfer Agent forms of resolutions and other documentation which
have been prepared in advance to assist compliance with the Portfolio's
procedures. Any questions with respect to signature- guarantees should be
directed to the Transfer Agent by calling 1-800-447-1139.

<PAGE>

may result in the redemption request being processed at a later time than it
would have been if telephone redemption had been used. During the delay, the
Portfolio's net asset value may fluctuate.

AUTOMATIC WITHDRAWAL

Automatic Withdrawal permits investors to request withdrawal of a specified
dollar amount (minimum of $25) on either a monthly or quarterly basis if the
investor has a $5,000 minimum account. An application for Automatic Withdrawal
can be obtained from Bear Stearns or the Transfer Agent. Automatic Withdrawal
may be ended at any time by the investor, the Fund or the Transfer Agent. Shares
for which certificates have been issued may not be redeemed through Automatic
Withdrawal. Class A shares withdrawn pursuant to the Automatic Withdrawal will
be subject to any applicable CDSC. Purchases of additional shares concurrent
with withdrawals generally are undesirable.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS WILL BE AUTOMATICALLY REINVESTED IN ADDITIONAL PORTFOLIO SHARES AT NET
ASSET VALUE, UNLESS PAYMENT IN CASH IS REQUESTED OR DIVIDENDS ARE REDIRECTED
INTO ANOTHER FUND PURSUANT TO THE REDIRECTED DISTRIBUTION OPTION.

The Portfolio ordinarily pays dividends from its net investment income quarterly
and distributes net realized securities gains, if any, once a year, but it may
make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the 1940 Act. The Portfolio will not make distributions from net
realized securities gains unless capital loss carryovers, if any, have been
utilized or have expired. Dividends are automatically reinvested in additional
Portfolio shares at net asset value, unless payment in cash is requested or
dividends are redirected into another fund pursuant to the Redirected
Distribution Option. All expenses are accrued daily and deducted before
declaration of dividends to investors. Dividends paid by each Class of the
Portfolio will be calculated at the same time and in the same manner and will be
of the same amount, except that the expenses attributable solely to a particular
class will be borne exclusively by such Class. Class B and C shares will receive
lower per share dividends than Class A shares because of the higher expenses
borne by Class B and C shares. 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
realized from the sale or disposition of certain market discount bonds, paid by
the Portfolio will be taxable to U.S. shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Portfolio or
redirected into another portfolio or fund. Distributions from net realized
long-term securities gains of the Portfolio will be taxable to U.S. shareholders
as long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Portfolio shares and whether such
distributions are received in cash or reinvested in, or redirected into, other
shares. The Code provides that the net capital gain of an individual generally
will not be subject to Federal income tax at a rate in excess of 28% and certain
capital gains of individuals may be subject to a lower tax rate. Dividends and
distributions may be subject to state and local taxes.

Dividends, together with distributions from net realized short-term securities
gains and distributions from all or a portion of any gains realized from the
sale or other disposition of market discount bonds, paid by the Portfolio to a
foreign investor generally are subject to U.S. nonresident withholding taxes at
the rate of 30%, unless the foreign investor claims the benefit of a lower rate
specified in a tax treaty. Distributions from net realized long-term securities
gains paid by the Portfolio to a foreign investor as well as the proceeds of any
redemptions from a foreign investor's account, regardless of the extent to which
gain or loss may be realized, generally will not be subject to

<PAGE>

U.S. nonresident withholding tax. However, such distributions may be subject to
backup withholding, as described below, unless the foreign investor certifies
his non-U.S. residency status.

Notice as to the tax status of investors' dividends and distributions will be
mailed to them annually. Investors also will receive periodic summaries of their
accounts which will include information as to dividends and distributions from
securities gains, if any, paid during the year.

The Code provides for the "carryover" of some or all of the sales load imposed
on the Portfolio's Class A shares if an investor exchanges such shares for
shares of another fund or portfolio advised or sponsored by BSFM or its
affiliates within 91 days of purchase and such other fund reduces or eliminates
its otherwise applicable sales load for the purpose of the exchange. In this
case, the amount of the sales load charged the investor for such shares, up to
the amount of the reduction of the sales load charge on the exchange, is not
included in the basis of such shares for purposes of computing gain or loss on
the exchange, and instead is added to the basis of the fund shares received on
the exchange.

Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
Federal income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or if
a shareholder has failed to properly report taxable dividend and interest income
on a Federal income tax return.

A TIN is either the Social Security number or employer identification number of
the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner of
the account, and may be claimed as a credit on the record owner's Federal income
tax return.

THE PORTFOLIO IS NOT EXPECTED TO HAVE ANY FEDERAL TAX LIABILITY; ALTHOUGH
INVESTORS SHOULD EXPECT TO BE SUBJECT TO FEDERAL, STATE OR LOCAL TAXES IN
RESPECT OF THEIR INVESTMENT IN PORTFOLIO SHARES.

Management of the Fund intends to have the Portfolio qualify as a "regulated
investment company" under the Code and, thereafter, to continue to so qualify if
such qualification is in the best interests of its shareholders. Such
qualification relieves the Portfolio of any liability for Federal income tax to
the extent its earnings are distributed in accordance with applicable provisions
of the Code. In addition, the Portfolio is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.

The Portfolio anticipates that there will be high portfolio turnover rate, which
may result in the Portfolio losing its qualification as a regulated investment
company. In this event, the Portfolio would be subject to federal income tax on
its net income at regular corporate rates (without a deduction for distributions
to shareholders). When distributed, such income would then be taxable to
shareholders as ordinary income to the extent of the Portfolio's earnings and
profits. Although Management intends to have the Portfolio qualify as a
regulated investment company, there can be no assurance that it will achieve
this goal.

Each investor should consult its tax adviser regarding specific questions as to
Federal, state or local taxes.

<PAGE>

PERFORMANCE INFORMATION

THE PORTFOLIO MAY ADVERTISE ITS PERFORMANCE IN A NUMBER OF WAYS.

For purposes of advertising, performance for Class A, B and C shares may be
calculated on the basis of average annual total return and/or total return.
These total return figures reflect changes in the price of the shares and assume
that any income dividends and/or capital gains distributions made by the
Portfolio during the measuring period were reinvested in 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 B and C should be expected to be lower than that of Class A. Performance
for each class will be calculated separately.

Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Portfolio was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions, if any, during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis, would result in
the redeemable value of the investment at the end of the period. Advertisements
of the Portfolio's performance will include the Portfolio's average annual total
return for one, five and ten year periods, or for shorter periods depending upon
the length of time during which the Portfolio has operated. Computations of
average annual total return for periods of less than one year represent an
annualization of the Portfolio's actual total return for the applicable period.

Total return is computed on a per share basis and assumes the reinvestment of
dividends and distributions, if any. Total return generally is expressed as a
percentage rate which is calculated by combining the income and principal
changes for a specified period and dividing by the net asset value (or maximum
public offering price in the case of Class A shares) per share at the beginning
of the period. Class B total return will reflect the deduction of the CDSC.
Advertisements may include the percentage rate of total return or may include
the value of a hypothetical investment at the end of the period which assumes
the application of the percentage rate of total return. Total return for the
Portfolio also may be calculated by using the net asset value per share at the
beginning of the period instead of the maximum offering price per share at the
beginning of the period for Class A shares or without giving effect to any
applicable CDSC at the end of the period for Class B or C. Calculations based on
the net asset value per share do not reflect the deduction of the sales load on
the Portfolio's Class A shares, which, if reflected, would reduce the
performance quoted.

Performance will vary from time to time and past results are not necessarily
representative of future results. Investors should remember that performance is
a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses. Performance
information, such as that described above, may not provide a basis for
comparison with other investments or other investment companies using a
different method of calculating performance.

Comparative performance information may be used from time to time in advertising
or marketing the Portfolio's shares, including data from Lipper Analytical
Services, Inc., Standard & Poor's 500 Composite Stock Price Index, Wilshire 4500
Stock Index, Russell Small Cap Index, the Dow Jones Industrial Average, the Bear
Stearns Research Focus List and other industry publications.

<PAGE>

GENERAL INFORMATION

The Fund was organized as an unincorporated business trust under the laws of The
Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust
(the "Trust Agreement") dated September 29, 1994. The Fund commenced operations
on or about April 3, 1995 in connection with the offer of shares of certain of
its other portfolios. The Fund is authorized to issue an unlimited number of
shares of beneficial interest, par value $0.001 per share. The Portfolio's
shares are classified into four Classes--Class A, B, C and Y. Each share has one
vote and shareholders will vote in the aggregate and not by Class, except as
otherwise required by law.

Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Portfolio. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the
Portfolio and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or a
Trustee. The Trust Agreement provides for indemnification from the Portfolio's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Portfolio. Thus, the risk of a shareholder incurring
financial loss on account of a shareholder liability is limited to circumstances
in which the Portfolio itself would be unable to meet its obligations, a
possibility which management believes is remote. Upon payment of any liability
incurred by the Portfolio, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Portfolio. The Fund's
Trustees intend to conduct the operations of the Portfolio in a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Portfolio. As discussed under "Management of the Fund" in the
Portfolio's Statement of Additional Information, the Portfolio ordinarily will
not hold shareholder meetings; however, shareholders under certain circumstances
may have the right to call a meeting of shareholders for the purpose of voting
to remove Trustees.

To date, the Fund's Board has authorized the creation of ten portfolios of
shares. All consideration received by the Fund for shares of one of the
portfolios and all assets in which such consideration is invested will belong to
that portfolio (subject only to the rights of creditors of the Fund) and will be
subject to the liabilities related thereto. The assets attributable to, and the
expenses of, one portfolio (and as to classes within a portfolio) are treated
separately from those of the other portfolios (and classes). The Fund has the
ability to create, from time to time, new portfolios of shares without
shareholder approval.

Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
under the provisions of the 1940 Act or applicable state law or otherwise to the
holders of the outstanding voting securities of an investment company, such as
the Fund, will not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each portfolio
affected by such matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of such
portfolio in the matter are identical or that the matter does not affect any
interest of such portfolio. However, the Rule exempts the selection of
independent accountants and the election of Trustees from the separate voting
requirements of the Rule.

The Transfer Agent maintains a record of share ownership and will send
confirmations and statements of account.

Shareholder inquiries may be made by writing to the Fund at PFPC Inc.,
Attention: The Bear Stearns Fund -- Balanced Portfolio, P.O. Box 8960,
Wilmington, Delaware 19899-8960, by calling 1-800-447-1139 or by calling Bear
Stearns at 1-800-766-4111.

<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 & Administrator
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167

Custodian
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540

Transfer & Dividend
Disbursement Agent
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809

Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022

Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281

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 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.

31
<PAGE>

THE BEAR STEARNS FUNDS
245 PARK AVENUE NEW YORK, NY 10167 1-800-766-4111

PROSPECTUS
BALANCED PORTFOLIO
CLASS Y SHARES

THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment
company, known as a mutual fund. The Fund permits you to invest in separate
portfolios. By this Prospectus, the Fund offers Class Y shares of the Balanced
Portfolio, a diversified portfolio (the "Portfolio"). The Portfolio's investment
objective is long-term capital growth and current income. The Portfolio seeks to
achieve this objective by investing between 40% and 60% of its total assets in
equity securities and at least 25% in fixed-income senior securities.

Class Y shares are sold at net asset value without a sales charge to investors
whose minimum investment is $2.5 million. The Portfolio also issues three other
classes of shares (Class A, B and C shares), which have different expenses that
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 & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor. Bear Stearns is also referred to herein as the
"Distributor."

------------------------------------------

THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE PORTFOLIO THAT YOU
SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.

Part B (also known as the Statement of Additional Information), dated [December
31], 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.

------------------------------------------

[December 31], 1997

<PAGE>

Table of Contents

PAGE

Background and Expense Information................................

Description of the Portfolio......................................

Risk Factors......................................................

Management of the Portfolio.......................................

Prior Performance of Related Accounts ............................

How to Buy Shares ................................................

Shareholder Services..............................................

How to Redeem Shares..............................................

Dividends, Distributions and Taxes................................

Performance Information...........................................

General Information...............................................
==========

<PAGE>

Background and Expense
Information

The Portfolio currently offers four classes of shares, only one of which, Class
Y, is offered by this Prospectus. Each class represents an equal, pro rata,
interest in the Portfolio. The Portfolio's other classes have different services
and/or distribution fees and expenses from Class Y, which would affect
performance of those classes of shares. Investors may obtain information
concerning the Portfolio's other class by calling Bear Stearns at 1-800-
766-4111.

EXPENSE SUMMARY

A summary of estimated expenses investors will incur when investing in the Class
Y Shares of the Portfolio offered pursuant to this Prospectus is set forth
below.

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................................... None

Maximum Deferred Sales Charge Imposed on Redemptions (as a
percentage of the amount subject to charge)............... None

ANNUAL PORTFOLIO OPERATING EXPENSES (AFTER FEE WAIVERS AND EXPENSE
REIMBURSEMENT)

Advisory Fees (after fee waivers)*............................. 0%

12b-1 Fees..................................................... 0%

Other Expenses (after expense reimbursement)*.................. __%

Total Portfolio Operating Expenses (after fee waiver and expense
reimbursement)*........................................... __%

EXAMPLE:
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period:

1 Year..................................................... $___

3 Years.................................................... $
===

* "Other Expenses" are based on estimated amounts for the current fiscal year.
BSFM has undertaken to waive its investment advisory fee and assume certain
expenses of the Portfolio other than brokerage commissions, extraordinary items,
interest and taxes to the extent Total Portfolio Operating Expenses exceed ___%
for Class Y Shares. Without such waiver and expense reimbursement, (which may be
discontinued at any time upon notice to shareholders), Advisory Fees would be
___%, Other Expenses are estimated to be ____%, and Total Portfolio Operating
Expenses would be ___%.

<PAGE>

Description of the Portfolio

GENERAL
THE FUND IS A "SERIES FUND."

INVESTMENT OBJECTIVE

THE PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL GROWTH AND CURRENT INCOME

MANAGEMENT POLICIES

INVESTMENT INSTRUMENTS AND STRATEGIES

EQUITY SECURITIES
The Portfolio may invest in equity securities. These securities may include
foreign and domestic common stocks or preferred stocks, rights and warrants and
debt securities which are convertible or exchangeable for common stock or
preferred stock. Under normal conditions, the Portfolio will not invest less
than 40% or more than 60% of its total assets in equity securities.

<PAGE>

U.S. GOVERNMENT SECURITIES
The Portfolio may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. Government agencies, instrumentalities or sponsored
enterprises. U.S. Government Securities also include Treasury receipts and other
stripped U.S. Government Securities, where the interest and principal components
of stripped U.S. Government securities are traded independently. The Portfolio
may also invest in zero coupon U.S. Treasury securities and in zero coupon
securities issued by financial institutions, which represent a proportionate
interest in underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and its value consists of the difference
between its face value at maturity and its cost. The market prices of zero
coupon securities generally are more volatile than the market prices of
securities that pay interest periodically. Under normal conditions, the
Portfolio will not invest more than 60% of its total assets in U.S. Government
Securities.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payments in such pools. However, timely payment of
interest and/or principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool or hazard
insurance. There can be no assurance that the private insurers can meet their
obligations under the policies. The Portfolio may buy mortgage-related
securities without insurance or guarantees if through an examination of the loan
experience and practices of the poolers the

<PAGE>

Adviser determines that the securities meet the Portfolio's investment criteria.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable. Under normal conditions, the Portfolio will not invest more than 25%
of its total assets in mortgage-related securities.

INVESTMENT STRATEGIES

<PAGE>

or forward commitments prior to settlement if its Adviser deems it appropriate
to do so. Under normal conditions, the Portfolio will not invest more than 33
1/3% of its total assets in when-issued securities or forward commitments.

TEMPORARY STRATEGIES

<PAGE>

CERTAIN FUNDAMENTAL POLICIES

Certain of the Portfolio's investment policies are fundamental policies that can
be changed only by shareholder vote.

CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES

RISK FACTORS

NO INVESTMENT IS FREE FROM RISK. INVESTING IN THE PORTFOLIO WILL SUBJECT
INVESTORS TO CERTAIN RISKS WHICH SHOULD BE CONSIDERED.

NET ASSET VALUE FLUCTUATIONS

<PAGE>

EQUITY SECURITIES

Investors should be aware that equity securities fluctuate in value, often based
on factors unrelated to the value of the issuer of the securities, and that
fluctuations can be pronounced. Changes in the value of the equity securities in
the Portfolio's portfolio will result in changes in the value of the Portfolio's
shares and thus the Portfolio's yield and total return to investors. The
Portfolio intends to invest between 40% and 60% of its total assets in equity
securities, even during times of significant market decline, when other funds
might take a more defensive position by investing a greater amount of their
assets in money market instruments or cash that are less likely to decline when
market conditions are adverse for equities.

FIXED-INCOME SECURITIES

Investors should be aware that fixed-income securities fluctuate in value based
on changes in prevailing interest rates. As interest rates go up, the value of a
fixed-income security typically goes down and vice versa. Generally,
fixed-income securities with longer maturities are more sensitive to changes in
interest rates.

SIMULTANEOUS INVESTMENTS

MANAGEMENT OF THE PORTFOLIO

BOARD OF TRUSTEES

INVESTMENT ADVISER

<PAGE>

Under the terms of the Investment Advisory Agreement, the Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of 0.65% of the Portfolio's average
daily net assets.

THE ADMINISTRATOR

The Portfolio's administrator is BSFM.

- --------------------------------------------------------------------------------
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
First $200 million....................... 0.10 of 1%
Next $200 million up to $400 million..... 0.075 of 1%
Next $200 million up to $600 million..... 0.05 of 1%
Assets in excess of $600 million......... 0.03 of 1%

The above-referenced fee is subject to a monthly minimum fee of $12,500.

<PAGE>

brokerage transactions also may take into account a broker's sales of the
Portfolio's shares. See "Portfolio Transactions" in the Statement of Additional
Information.

Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment
Advisory Agreement is in effect.

<PAGE>

DISTRIBUTOR

CUSTODIAN AND TRANSFER AGENT

EXPENSE LIMITATION

BSFM has undertaken (until such time as it gives investors at least 60 days'
notice to the contrary) that, if in any fiscal year, certain expenses, including
the investment advisory fee, exceed ___% of Class Y's average daily net assets
for the fiscal year, BSFM may waive a portion of its investment advisory fee or
bear other expenses to the extent of the excess expense.

PRIOR PERFORMANCE OF RELATED ACCOUNTS

- ------------------------------

(1) AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.

12
<PAGE>

fees, if any, were not included in the calculation. The Investment Adviser's
composite includes all actual, fee- paying, discretionary institutional private
accounts managed by the Investment Adviser that have investment objectives,
policies, strategies and risks substantially similar to those of the Portfolio.
Securities transactions are accounted for on the trade date and accrual
accounting is utilized. Cash and equivalents are included in performance
returns. For additional information regarding the composite performance data,
please see the Statement of Additional Information.

The institutional private accounts that are included in the Investment Adviser's
composite are not subject to the same types of expenses to which the Portfolio
is subject nor to the diversification requirements, specific tax restrictions
and investment limitations imposed on the Portfolio by the Investment Company
Act or Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Consequently, the performance results for the Investment Adviser's
composites could have been adversely affected if the institutional private
accounts included in the composites had been regulated as investment companies
under the federal securities laws.

The investment results of the Investment Adviser's composites presented below
are unaudited and are not intended to predict or suggest the returns that might
be experienced by the Portfolio or an individual investor investing in the
Portfolio. Investors should also be aware that the uses of a methodology
different from that used below to calculate performance could result in
different performance data.

BALANCED COMPOSITE PERFORMANCE SUMMARY

AS OF [NOVEMBER 30], 1997

55% S&P 500/45% INVESTMENT ADVISER'S
TIME PERIOD SALOMON BROAD BALANCED COMPOSITE

Year to Date
1996
1995
1994 TO COME
1993
1992
1991
1990/1/

- --------
/1/ Returns are calculated for a partial year, from the inception of the
Composite (April 1, 1990) through December 31, 1990.

<PAGE>

HOW TO BUY SHARES

GENERAL

The minimum initial investment is $2.5 million. Subsequent investments may be
made in any amount. Share certificates are issued only upon written request. The
Fund reserves the right to reject any purchase order. The Fund reserves the
right to vary the initial and subsequent investment minimum requirements at any
time. Investments by employees of Bear Stearns and its affiliates are not
subject to the minimum investment requirement. In addition, accounts under the
discretionary management of Bear Stearns and its affiliates are not subject to
the minimum investment requirement.

Purchases of the Portfolio's shares may be made through a brokerage account
maintained with Bear Stearns or through certain investment dealers who are
members of the National Association of Securities Dealers, Inc. who have sales
agreements with Bear Stearns (an "Authorized Dealer"). Purchases of the
Portfolio's shares also may be made directly through the Transfer Agent.
Investors must specify that Class Y is being purchased.

Purchases are effected at Class Y Shares' net asset value next determined after
a purchase order is received by Bear Stearns, an Authorized Dealer or the
Transfer Agent (the "trade date"). Payment for Portfolio shares generally is due
to Bear Stearns or the Authorized Dealer on the third business day (the
"settlement date") after the trade date. Investors who make payment before the
settlement date may permit the payment to be held in their brokerage accounts or
may designate a temporary investment for payment until the settlement date. If a
temporary investment is not designated, Bear Stearns or the Authorized Dealer
will benefit from the temporary use of the funds if payment is made before the
settlement date.

PURCHASE PROCEDURES

Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be
accepted), Federal Reserve draft or by wiring Federal Funds with funds held in
brokerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--Balanced
Portfolio--Class Y" if purchased directly from the Portfolio, and should be
directed to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns
Funds--Balanced Portfolio--Class Y, P.O. Box 8960, Wilmington, Delaware
19899-8960. Payment by check or Federal Reserve draft must be received within
three business days of receipt of the purchase order by Bear Stearns or an
Authorized Dealer. Orders placed directly with the Transfer Agent must be
accompanied by payment. Bear Stearns (or an investor's Authorized Dealer) is
responsible for forwarding payment promptly to the Fund. The Fund will charge
$7.50 for each wire redemption. The payment proceeds of a redemption of shares
recently purchased by check may be delayed as described under "How to Redeem
Shares."

Investors who are not Bear Stearns clients may purchase Portfolio shares through
the Transfer Agent. To make an initial investment in the Portfolio, an investor
must establish an account with the Portfolio by furnishing necessary information
to the Fund. An account with the Portfolio may be established by completing and
signing the Account Information Form indicating which Class of shares is being
purchased, a copy of which is attached to this Prospectus, and mailing it,
together with a check to cover the purchase, to PFPC Inc., Attention: The Bear
Stearns Funds--Balanced Portfolio--Class Y, P.O. Box 8960, Wilmington, Delaware
19899-8960.

<PAGE>

Shareholders may not purchase shares of the Fund with a check issued by a third
party and endorsed over to the Fund.

NET ASSET VALUE IS COMPUTED DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE NEW
YORK STOCK EXCHANGE.

SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE

THE EXCHANGE PRIVILEGE PERMITS EASY PURCHASES OF OTHER FUNDS IN THE BEAR STEARNS
FAMILY.

The Exchange Privilege enables an investor to purchase, in exchange for Class Y
shares of the Portfolio, Class Y shares of the Fund's other portfolios or shares
of certain other funds sponsored or advised by Bear Stearns, including the
Emerging Markets Debt Portfolio of Bear Stearns Investment Trust, and the Money
Market Portfolio of The RBB Fund, Inc., to the extent such shares are offered
for sale in the investor's state of residence. These funds have different
investment objectives which may be of interest to investors. To use this
Privilege, investors should consult their account executive at Bear Stearns,
their account executive at an Authorized Dealer or the Transfer Agent to
determine if it is available and whether any conditions are imposed on its use.

<PAGE>

substantial economic or market change, telephone exchanges may be difficult to
complete and shareholders may have to submit exchange requests to the Transfer
Agent in writing.

If the exchanging shareholder does not currently own Class Y Shares of the
portfolio or fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as described below. To
participate in the Systematic Investment Plan, or establish automatic withdrawal
for the new account, however, an exchanging shareholder must file a specific
written request. The Exchange Privilege may be modified or terminated at any
time, or from time to time, by the Fund on 60 days' notice to the affected
portfolio or fund shareholders. The Fund, BSFM and Bear Stearns will not be
liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine. In attempting to
confirm that telephone instructions are genuine, the Fund will use such
procedures as are considered reasonable, including recording those instructions
and requesting information as to account registration (such as the name in which
an account is registered, the account number, recent transactions in the
account, and the account holder's Social Security number, address and/or bank).

Class Y Shares will be exchanged at the next determined net asset value. No fees
currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a $5.00 fee in accordance with rules promulgated
by the Securities and Exchange Commission. The Fund reserves the right to reject
any exchange request in whole or in part. The Exchange Privilege may be modified
or terminated at any time upon notice to shareholders.

The exchange of shares of one portfolio or fund for Class Y shares of another is
treated for Federal income tax purposes as a sale of the Class Y shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss.

REDIRECTED DISTRIBUTION OPTION

THE REDIRECTED DISTRIBUTION OPTION PERMITS INVESTMENT OF INVESTORS' DIVIDENDS
AND DISTRIBUTIONS IN SHARES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY.

The Redirected Distribution Option enables a shareholder to invest automatically
dividends and/or capital gain distributions, if any, paid by the Portfolio in
Class A shares of another portfolio of the Fund or a fund advised or sponsored
by Bear Stearns of which the shareholder is an investor, or the Money Market
Portfolio of The RBB Fund, Inc. Shares of the other portfolio or fund will be
purchased at the current net asset value.

<PAGE>

HOW TO REDEEM SHARES
GENERAL

THE REDEMPTION PRICE WILL BE BASED ON THE NET ASSET VALUE NEXT COMPUTED AFTER
RECEIPT OF A REDEMPTION REQUEST.

Investors may request redemption of Portfolio shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, the Portfolio will redeem the shares at the next determined net asset
value. If the investor holds Portfolio shares of more than one class, any
request for redemption must specify the class of shares being redeemed. If the
investor fails to specify the class of shares to be redeemed or if the investor
owns fewer shares of the class than specified to be redeemed, the redemption
request may be delayed until the Transfer Agent receives further instructions
from the investor, the investor's Bear Stearns account executive or the
investor's Authorized Dealer. The Fund imposes no charges when shares are
redeemed directly through Bear Stearns.

PROCEDURES

SHAREHOLDERS MAY REDEEM SHARES IN SEVERAL WAYS.

<PAGE>

During times of drastic economic or market conditions, investors may experience
difficulty in contacting Bear Stearns or Authorized Dealers by telephone to
request a redemption of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the redemption request being processed
at a later time than it would have been if telephone redemption had been used.
During the delay, the Portfolio's net asset value may fluctuate.

<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

Dividends, together with distributions from net realized short-term securities
gains and all or a portion of any gains realized from the sale or other
disposition of market discount bonds, paid by the Portfolio to a foreign
investor generally are subject to U.S. nonresident withholding taxes at the rate
of 30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. Distributions from net realized long-term securities gains paid
by the Portfolio to a foreign investor as well as the proceeds of any
redemptions from a foreign investor's account, regardless of the extent to which
gain or loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.

<PAGE>

that the TIN furnished in connection with opening an account is correct or that
such shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may notify
the Fund to institute backup withholding if the IRS determines a shareholder's
TIN is incorrect or if a shareholder has failed to properly report taxable
dividend and interest income on a Federal income tax return.

THE PORTFOLIO IS NOT EXPECTED TO HAVE ANY FEDERAL TAX LIABILITY; ALTHOUGH
INVESTORS SHOULD EXPECT TO BE SUBJECT TO FEDERAL, STATE OR LOCAL TAXES IN
RESPECT OF THEIR INVESTMENT IN PORTFOLIO SHARES.

The Portfolio anticipates that there will be high portfolio turnover rate, which
may result in the Portfolio losing its qualification as a regulated investment
company. In this event, the Portfolio would be subject to federal income tax on
its net income at regular corporate rates (without a deduction for distributions
to shareholders). When distributed, such income would then be taxable to
shareholders as ordinary income to the extend of the Portfolio's earnings and
profits. Although Management intends to have the Portfolio qualify as a
regulated investment company, there can be no assurance that it will achieve
this goal.

Each investor should consult its tax adviser regarding specific questions as to
Federal, state or local taxes.

PERFORMANCE INFORMATION

THE PORTFOLIO MAY ADVERTISE ITS PERFORMANCE IN A NUMBER OF WAYS.

For purposes of advertising, performance for Class Y shares may be calculated on
the basis of average annual total return and/or total return. These total return
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Portfolio during the
measuring period were reinvested in Class Y shares.

<PAGE>

GENERAL INFORMATION

<PAGE>

The Transfer Agent maintains a record of share ownership and will send
confirmations and statements of account.

<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 & Administrator
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167

Custodian
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540

Transfer & Dividend
Disbursement Agent
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809

Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022

Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281

<PAGE>
THE BEAR STEARNS FUNDS
245 PARK AVENUE NEW YORK, NY 10167 1-800-766-4111

PROSPECTUS

HIGH YIELD TOTAL RETURN PORTFOLIO
CLASS A, B AND C SHARES

THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment
company, known as a mutual fund. The Fund permits you to invest in separate
portfolios. By this Prospectus, the Fund offers Class A, B and C shares of the
High Yield Total Return Portfolio, a diversified portfolio (the "Portfolio").
The Portfolio's investment objective is total return through high current income
and capital appreciation. The Portfolio seeks to achieve its objective by
investing primarily in high-yielding, lower-rated fixed-income securities.
Normally, the Portfolio will invest at least 80% of its total assets in high
yield fixed-income securities, including, domestic and foreign debt securities,
convertible securities and preferred stocks.

THE PORTFOLIO INVESTS PRIMARILY IN LOWER -RATED AND UNRATED BONDS, INCLUDING
DEFAULTED AND DISTRESSED SECURITIES. THESE SECURITIES ARE SUBJECT TO A GREATER
RISK OF LOSS OF PRINCIPAL AND NONPAYMENT OF INTEREST, INCLUDING DEFAULT RISK,
THAN HIGHER RATED BONDS. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED
WITH AN INVESTMENT IN THE PORTFOLIO.

BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor.

THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE PORTFOLIO THAT YOU
SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.

Part B (also known as the Statement of Additional Information), dated _______,
1997, which may be revised from time to time, provides a further discussion of
certain areas in this Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. For a free copy, write to the address
or call one of the telephone numbers listed under "General Information" in this
Prospectus.

_________, 1997
<PAGE>

Table of Contents

PAGE
Fee Table...................................................................

Alternative Purchase Methods................................................

Description of the Portfolio................................................

Risk Factors................................................................

Management of the Portfolio.................................................

How to Buy Shares ..........................................................

Shareholder Services........................................................

How to Redeem Shares........................................................

Dividends, Distributions and Taxes..........................................

Performance Information.....................................................

General Information.........................................................

Appendix....................................................................

2
<PAGE>

FEE TABLE

A summary of the estimated expenses investors will incur when investing in
the Portfolio is set forth below.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ................. 4.50% -- --
Maximum Deferred Sales Charge Imposed on
Redemptions (as a percentage of the amount subject to
charge) ............................................. * 5.00% 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*** ....................................... 0.00% 0.75% 0.75%

Other Expenses (after expense
reimbursement)** .................................... 1.15% 0.80% 0.80%
------- ---- ----
Total Portfolio Operating Expenses (after fee
waiver and expense reimbursement)** ................. 1.15% 1.55% 1.55%
======= ==== ====

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 ......................................... $56 $67 $26
3 YEARS ........................................ $80 $82 $49
5 YEARS ........................................ $105 $108 $84
10 YEARS**** .................................... $178 $171 $185

EXAMPLE:
You would pay the following expenses on the same
investment, assuming no redemption:
1 YEAR ......................................... $16 $16
3 YEARS ........................................ $49 $49
5 YEARS ........................................ $84 $84
10 YEARS**** .................................... $171 $185
</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."
** Other Expenses include a shareholder servicing fee of 0.25%. BSFM has
undertaken to waive its investment advisory fee and assume certain expenses
of the Portfolio other than brokerage commissions, extraordinary items,
interest and taxes. Without such fee waiver and expense reimbursement,
Advisory Fees stated above would have been 0.60% for the Portfolio. Other
Expenses are estimated to be 1.83% for Class A shares and 1.59% for Class B
and C shares. Total Portfolio Operating Expenses are estimated to be 2.53%
for Class A shares, and 2.94% for Class B and C shares.
*** With respect to Class A shares, 12b-1 fees are currently being waived.
Without such fee waiver, 12b-1 fees with respect to Class A shares would
have been 0.10%.
**** Class B shares convert to Class A shares eight years after purchase;
therefore, Class A expenses are used in the hypothetical example after year
eight with respect to Class B shares.

3
<PAGE>

ALTERNATIVE PURCHASE METHODS

CLASS A SHARES

Class A shares of the Portfolio are sold at net asset value per share plus a
maximum initial sales charge of 4.50% 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." Class A shares of the
Portfolio are subject to an annual distribution fee at the rate of 0.10 of 1% of
the average daily net assets of Class A. The Portfolio is currently waiving this
distribution fee. The Class A shares are subject to an annual shareholder
servicing fee at the rate of 0.25 of 1% of the value of the average daily net
assets of Class A shares incurred in connection with the personal service and
maintenance of accounts holding Portfolio shares. See "Management of the
Portfolio-Distribution Plan" and "Shareholder Servicing Plan."

CLASS B SHARES

Class B shares of the Portfolio are sold without an initial sales charge, but
are subject to a Contingent Deferred Sales Charge ("CDSC") of up to 5% if the
Class B shares are redeemed within six years of purchase. See "How to Redeem
Shares-Class B Shares." Class B shares of the Portfolio are subject to an annual
distribution fee at the rate of 0.75 of 1% of the average daily net assets of
Class B. Class B shares are subject to an annual shareholder servicing fee at
the rate of 0.25 of 1% of the value of the average daily net assets of Class B
shares incurred in connection with the personal service and maintenance of
accounts holding Portfolio shares. See "Management of the Portfolio-Distribution
Plan" and "Shareholder Servicing Plan." Class B shares will convert to Class A
shares, based on their relative net asset values, eight years after the initial
purchase. The distribution and shareholder servicing fee will cause Class B to
have a higher expense ratio and to pay lower dividends than Class A.

CLASS C SHARES

Class C shares of the Portfolio are subject to a 1% CDSC which is assessed only
if Class C shares are redeemed within one year of purchase. See "How to Redeem
Shares-Class C Shares." Class C shares of the Portfolio also are subject to an
annual distribution fee at the rate of 0.75 of 1% of the average daily net
assets of Class C. Class C shares are subject to an annual shareholder servicing
fee at the rate of 0.25 of 1% of the value of the average daily net assets of
Class C shares for fees incurred in connection with the personal service and
maintenance of accounts holding Portfolio shares. See "Management of the
Portfolio-Distribution Plan" and "Shareholder Servicing Plan." The distribution
and shareholder servicing fee will cause Class C 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
investment. Each investor should consider whether, during the anticipated life
of the investor's investment in the Portfolio, the accumulated distribution and
shareholder servicing fee and CDSC, if any, on Class B or C shares would be less
than the initial sales charge on Class A shares purchased at the same

4
<PAGE>

time, and to what extent, if any, such differential would be offset by the net
return of Class A. See "How to Buy Shares- Choosing a Class of Shares."

Description of the Portfolio

GENERAL

The Fund is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. As described below, for certain matters Fund
shareholders vote together as a group; as to others they vote separately by
portfolio. By this Prospectus, shares of the Portfolio are being offered. From
time to time, other portfolios may be established and sold pursuant to other
offering documents. See "General Information."

INVESTMENT OBJECTIVE

The Portfolio's investment objective is total return through high current income
and capital appreciation. The Portfolio's investment objective cannot be changed
without approval by the holders of a majority of the Portfolio's outstanding
voting shares (as defined in the 1940 Act). There can be no assurance that the
Portfolio's investment objective will be achieved.

MANAGEMENT POLICIES

The Portfolio will invest, under normal circumstances, at least 80% of its total
assets in high yield fixed-income securities (as defined below), including
domestic and foreign debt securities, convertible securities and preferred
stocks. The balance of the Portfolio's assets may be invested in any other
securities which the Adviser believes are consistent with the Portfolio's
objective, including higher-rated fixed-income securities, common stocks and
other equity securities. The Portfolio is designed for investors seeking to
diversify an all-equity portfolio with securities that offer greater income with
capital appreciation potential. The Portfolio is not a market-timing vehicle.

Securities offering the high yield and appreciation potential characteristics
that the Portfolio seeks are generally found in mature cyclical or depressed
industries and highly leveraged companies. These securities are also generally
rated in the medium to lower categories by recognized rating services. The
Portfolio expects to seek high current income by investing principally in
fixed-income securities rated Baa or lower by Moody's Investors Service
(Moody's), or BBB or lower by Standard & Poor's Ratings Group (Standard &
Poor's) or comparably rated by any other Nationally Recognized Statistical
Rating Organization (NRSRO), or unrated securities determined by the Adviser to
be of comparable quality. Corporate bonds rated Baa by Moody's are described by
Moody's as being investment grade, but are also characterized as having
speculative characteristics. Corporate bonds rated below Baa by Moody's and BBB
by Standard & Poor's are considered speculative. The Portfolio may invest up to
10%, and will normally hold no more than 25% (as a result of market movements or
downgrades), of its assets in bonds rated below Caa by Moody's or CCC by
Standard & Poor's, including bonds in the lowest ratings categories (C for
Moody's and D for Standard and Poor's) and unrated bonds of comparable quality.
Such securities are highly speculative and may be in default of principal and/or
interest payments. A description of corporate bond ratings is contained in
Appendix A to this Prospectus.

In selecting a security for investment by the Portfolio, the Adviser will
perform its own investment analysis and will not rely principally on the ratings
assigned by the rating services, although such ratings will be considered by the
Adviser. The Adviser will consider, among other things, the financial history
and condition, the prospects and the management of an issuer in selecting
securities for the Portfolio. The Adviser will be free to invest in high yield,
high risk debt securities of any maturity and duration and the interest rates on
such securities may be fixed or floating.

5
<PAGE>

Investments in high yield, high risk debt securities involve comparatively
greater risks, including price volatility and the risk of default in the timely
payment of interest and principal, than higher rated securities. Some of such
investments may be non-performing when purchased. See "Risk Factors."

In addition to providing the potential for high current income, high yield
securities may provide the potential for capital appreciation. The Portfolio
will seek capital appreciation by investing in securities which may be expected
by the Adviser to appreciate in value as a result of declines in long-term
interest rates or favorable developments affecting the business or prospects of
the issuer which may improve the issuer's financial condition and credit rating,
or a combination of both.

As stated above, normally at least 80% of the Portfolio's total assets will be
invested in high yield fixed-income securities, including medium- to lower-rated
high yield fixed-income securities and unrated securities of comparable quality.
The balance of the Portfolio's assets may be invested in any other securities
believed by the Adviser to be consistent with the Portfolio's investment
objective, including higher-rated fixed-income securities, common stocks and
other equity securities. When prevailing economic conditions cause a narrowing
of the spreads between the yields derived from medium to lower rated or
comparable unrated securities and those derived from higher rated issues, the
Portfolio may invest in higher rated fixed-income securities that provide
similar yields but have less risk. Generally, the Portfolio's average weighted
maturity will range from 3 to 12 years.

INVESTMENT INSTRUMENTS AND STRATEGIES

ZERO COUPON SECURITIES, PAY-IN-KIND BONDS AND DISCOUNT OBLIGATIONS
The Portfolio may invest in zero coupon securities and pay-in-kind bonds. These
investments involve special risk considerations. Zero coupon securities are debt
securities that pay no cash income but are sold at substantial discounts from
their value at maturity. When a zero coupon security is held to maturity, its
entire return, which consists of the amortization of discount, comes from the
difference between its purchase price and its maturity value. This difference is
known at the time of purchase, so that investors holding zero coupon securities
until maturity know at the time of their investment what the return on their
investment will be. Certain zero coupon securities also are sold at substantial
discounts from their maturity value and provide for the commencement of regular
interest payments at a deferred date. The Portfolio also may purchase
pay-in-kind bonds. Pay-in-kind bonds pay all or a portion of their interest in
the form of debt or equity securities. The Portfolio will only purchase
pay-in-kind bonds that pay all or a portion of their interest in the form of
debt securities. Zero coupon securities and pay-in-kind bonds may be issued by a
wide variety of corporate and governmental issuers.

Zero coupon securities, pay-in-kind bonds and debt securities acquired at a
discount are subject to greater price fluctuations in response to changes in
interest rates than are ordinary interest-paying debt securities with similar
maturities; the value of zero coupon securities and debt securities acquired at
a discount appreciates more during periods of declining interest rates and
depreciates more during periods of rising interest rates. Under current federal
income tax law, the Portfolio is required to accrue as income each year the
value of securities received in respect of pay-in-kind bonds and a portion of
the original issue discount with respect to zero coupon securities and other
securities issued at a discount to the stated redemption price. In addition, the
Portfolio will elect similar treatment for any market discount with respect to
debt securities acquired at a discount. Accordingly, the Portfolio may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate current cash to satisfy certain distribution requirements. Under normal
conditions, the Portfolio will not invest more than 25% of its total assets in
zero coupon securities, pay-in-kind bonds or discount obligations.

SECURITIES LOANS, REPURCHASE AGREEMENTS, WHEN-ISSUED AND FORWARD COMMITMENTS
TRANSACTIONS
The Portfolio may lend portfolio securities to broker-dealers, major banks or
other recognized domestic institutional borrowers of securities. The Portfolio
may also enter into repurchase agreements with dealers, domestic banks or
recognized financial institutions that, in the opinion of the Adviser, present
minimal credit risks. These transactions must be fully collateralized at all
times, but involve some risk to the Portfolio if the other party should default
on its obligations and the Portfolio is delayed or prevented from recovering the
collateral. The Portfolio may also purchase securities on a when-issued basis or
for future delivery, which may increase its overall investment exposure and
involves a risk of loss if the value of the securities declines prior to the
settlement date. Under normal

6
<PAGE>

conditions, the Portfolio will not lend more than 30% of its total assets or
invest more than 33 1/3% of its total assets in when- issued securities or
forward commitments.

The Portfolio has no current intention of converting any convertible securities
they may own into equity securities or holding them as an equity investment upon
conversion, although they may do so for temporary purposes. A convertible
security might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security held by the Portfolio is called for redemption, the Portfolio may be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party. Under normal conditions,
the Portfolio will not invest more than 10% of its total assets in convertible
securities.

MORTGAGE-RELATED SECURITIES
The Portfolio may invest in mortgage-related securities, consistent with its
investment objective, that provide funds for mortgage loans made to residential
homeowners. These include securities which represent interests in pools of
mortgage loans made by lenders such as savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled for
sale to investors (such as the Portfolio) by various governmental,
government-related and private organizations. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Prepayments are caused by repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs which may be incurred.

7
<PAGE>

Portfolio having a contractual relationship only with the Lender, not with the
borrower government. The Portfolio will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the Portfolio
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and the Portfolio may not directly
benefit from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Portfolio will assume the credit risk of both
the borrower and the Lender that is selling the Participation. In the event of
the insolvency of the Lender selling a Participation, the Portfolio may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. The Portfolio will acquire Participations
only if the Lender positioned between the Portfolio and the borrower is
determined by the Adviser to be creditworthy. Creditworthiness will be judged
based on the same credit analysis performed by the Adviser when purchasing
marketable securities. When the Portfolio purchases Assignments from Lenders,
the Portfolio will acquire direct rights against the borrower on the Loan.
However, since Assignments are arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.

The Portfolio may have difficulty disposing of Assignments and Participations.
The liquidity of such securities is limited and the Portfolio anticipates that
such securities could be sold only to a limited number of institutional
investors. The lack of a liquid secondary market could have an adverse impact on
the value of such securities and on the Portfolios' ability to dispose of
particular Assignments or Participations when necessary to meet the Portfolios'
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for the Portfolio to assign a value to those securities for purposes
of valuing the Portfolio and calculating its net asset value. Under normal
conditions, the Portfolio will not invest more than 15% of its total assets in
Participations or Assignments.

EQUITY SECURITIES
In seeking to meet its objective, the Portfolio may invest in "equity"
securities, including distressed securities, as described below. These
securities include foreign and domestic common stocks or preferred stocks,
rights and warrants and debt securities or preferred stock which are convertible
or exchangeable for common stock or preferred stock. To the extent the Portfolio
invests in equity securities, there may be a diminution in the Portfolio's
overall yield. See "Distressed Securities" below. Under normal conditions, the
Portfolio will not invest more than 20% of its total assets in equity
securities.

DISTRESSED SECURITIES
The Portfolio may invest in debt or equity securities of financially troubled or
bankrupt companies (financially troubled issuers) and in debt or equity
securities of companies, that in the view of Adviser are currently undervalued,
out-of- favor or price depressed relative to their long-term potential for
growth and income (operationally troubled issuers) (collectively distressed
securities). Investment in distressed securities involves certain risks. See
"Risk Factors Relating to Investing in Distressed Securities." Under normal
conditions, the Portfolio will not invest more than 20% of its total assets in
distressed securities.

HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Portfolio may engage in various portfolio strategies, including using
derivatives, to reduce certain risks of its investments and to attempt to
enhance return. These strategies currently include futures contracts and related
options (including interest rate futures contracts and options there), options
on securities, financial indices and currencies, and forward currency exchange
contracts. The Portfolio's ability to use these strategies may be limited by
market conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. See "Portfolio Securities"
in the Statement of Additional Information. New financial products and risk
management techniques continue to be developed and the Portfolio may use these
new investments and techniques to the extent consistent with its investment
objective and policies.

8
<PAGE>

The Portfolio will not purchase or sell futures contracts or related options, or
options on stock indices, if immediately thereafter the sum of the amounts of
initial margin deposits on the Portfolio's existing futures and premiums paid
for options exceeds 5% of the Portfolio's total assets. This restriction does
not apply to the purchase and sale of futures contracts and related options made
for "bona fide hedging purposes".

OPTIONS ON SECURITIES AND INDICES

In certain circumstances, the Portfolio may engage in options transactions, such
as purchasing put or call options or writing (selling) covered call options. The
Portfolio may purchase call options to gain market exposure in a particular
sector while limiting downside risk. The Portfolio may purchase put options in
order to hedge against an anticipated loss in value of Portfolio securities. The
principal reason for writing covered call options (which are call options with
respect to which the Portfolio owns the underlying security or securities) is to
realize, through the receipt of premiums, a greater return than would be
realized on the Portfolio's securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. (See "Risk Factors" and the Statement of Additional Information for
additional risk factors).

FUTURES AND OPTIONS ON FUTURES

The Portfolio may buy and sell futures contracts and related options on
securities indices and related interest rates for a number of purposes. It may
do so to try to manage its exposure to the possibility that the prices of its
portfolio securities and instruments may decline or to establish a position in
the futures or options market as a temporary substitute for purchasing
individual securities or instruments. It may do so in an attempt to enhance its
income or return by purchasing and selling call and put options on futures
contracts on financial indices or securities. It also may use interest rate
futures to try to manage its exposure to changing interest rates. Investments in
futures and options on futures involve certain risks. (See "Risk Factors" and
the Statement of Additional Information).

FOREIGN SECURITIES
The Portfolio may invest in securities of foreign issuers. When the Portfolio
invests in foreign securities, they may be denominated in foreign currencies.
Thus, the Portfolio's net asset value will be affected by changes in exchange
rates. (See "Risk Factors"). Under normal conditions, the Portfolio will not
invest more than 25% of its assets in foreign securities.

ILLIQUID SECURITIES
The Portfolio may invest in illiquid securities, including securities that are
not readily marketable, time deposits and repurchase agreements not terminable
within seven days. Illiquid assets are assets that may not be sold or disposed
of in the ordinary course of business within seven days at approximately the
value at which the Portfolio has valued the investment. Securities that have
readily available market quotations are not deemed illiquid for purposes of this
limitation (irrespective of any legal or contractual restrictions on resale).
The Portfolio may purchase securities that are not registered under the
Securities Act of 1933, as amended, but which can be sold to qualified
institutional buyers in accordance with Rule 144A under that Act ("Rule 144A
securities"). Rule 144A securities generally must be sold to other qualified
institutional buyers. If a particular investment in Rule 144A securities is not
determined to be liquid, that investment will be included within the 15%
limitation on investment in illiquid securities. The ability to sell Rule 144A
securities to qualified institutional buyers is a recent development and it is
not possible to predict how this market will mature. The Adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. Under normal conditions, the Portfolio will not invest more than
15% of the value of its net assets in illiquid securities.

<PAGE>

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 any dividends or interest which
accrue during the period of the loan. To borrow the security, the Portfolio 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. Until the Portfolio replaces the borrowed security, it will (a) maintain in
a segregated account cash, U.S. Government securities, equity securities or
other liquid, unencumbered assets, marked-to-market daily, at such a level that
the amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and will not
be less than the market value of the security at the time it was sold short or
(b) otherwise cover its short position through a short sale "against-the-box,"
which is a short sale in which the Portfolio owns an equal amount of the
securities sold short or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short. There are certain tax
implications associated with this strategy. See "Dividends, Distributions and
Taxes."

The Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Portfolio replaces the borrowed security. The Portfolio will realize a gain
if the security declines in price between those dates. The amount of any gain
will be decreased, and the amount of any loss will be increased, by the amount
of any premium, dividends or interest paid in connection with the short sale.
Under normal conditions, the Portfolio will not engage in short sales to the
extent that the Portfolio would be required to segregate with its Custodian, or
deposit as collateral to replace borrowed securities, more than 25% of its net
assets.

TEMPORARY STRATEGIES
The Portfolio retains the flexibility to respond promptly to changes in market
and economic conditions. Accordingly, consistent with the Portfolio's investment
objectives, the Adviser may employ a temporary defensive investment strategy if
it determines such a strategy is warranted. Under such a defensive strategy, the
Portfolio temporarily may hold cash (U.S. dollars, foreign currencies or
multinational currency units) and/or invest up to 100% of its assets in high
quality fixed-income securities or money market instruments of U.S. or foreign
issuers, and most or all of the Portfolio's investments may be made in the
United States and denominated in U.S. dollars.

In addition, pending investment of proceeds from new sales of Portfolio shares
or to meet ordinary daily cash needs, the Portfolio temporarily may hold cash
(U.S. dollars, foreign currencies or multinational currency units) and may
invest any portion of its assets in high quality foreign or domestic money
market instruments.

MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, the Portfolio,
may engage in the following techniques and investments: (i) asset-backed
securities; (ii) U.S. municipal securities; (iii) trade claims; (iv) depository
receipts and depository shares; (v) forward foreign currency exchange contracts;
(vi) currency swaps, mortgage swaps, index swaps and interest rate swaps, caps,
floors and collars; and (vii) reverse repurchase agreements. No more than 5% of
the Portfolio's total assets will be committed to any one of the above
techniques and investments. For more information see the Statement of Additional
Information.

PORTFOLIO TURNOVER
The Portfolio will not trade in securities with the intention of generating
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held. Because high yield markets can be
especially volatile, securities of emerging markets countries may at times be
held only briefly. Under normal conditions, the portfolio turnover rate for the
Portfolio generally will not exceed 150% in any one year. However, the portfolio
turnover rate may exceed this rate, when BSFM believes the anticipated benefits
of short-term investments outweigh any increase in transaction costs or increase
in short-term gains. Higher portfolio turnover rates are likely to result in
comparatively greater brokerage commissions or transaction costs. Short-term
gains realized from portfolio transactions are taxable to shareholders as
ordinary income.

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<PAGE>

CERTAIN FUNDAMENTAL POLICIES

Certain of the Portfolio's investment policies are fundamental policies that can
be changed only by shareholder vote.

The Portfolio may (i) borrow money to the extent permitted under the 1940 Act;
(ii) invest up to 5% of the value of its total obligations in the obligations of
any 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, its
agencies or sponsored enterprises may be purchased, without regard to any such
limitation; and (iii) invest up to 25% of the value of its total assets in
securities of issuers in a single industry, provided that there is no such
limitation in investments in securities issued or guaranteed by the U.S.
Government, its agencies or sponsored enterprises. This paragraph describes
three of the Portfolio's fundamental policies, which cannot be changed as to the
Portfolio without approval by the holders of a majority (as defined in the 1940
Act) of the Portfolio's outstanding voting shares. See "Investment Objective and
Management Policies--Investment Restrictions" in the Statement of Additional
Information.

CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES

Risk Factors

NO INVESTMENT IS FREE FROM RISK. INVESTING IN THE PORTFOLIO WILL SUBJECT
INVESTORS TO CERTAIN RISKS WHICH SHOULD BE CONSIDERED.

GENERAL
The Portfolio's net asset value will fluctuate, reflecting fluctuations in the
market value of its portfolio positions and its net currency exposure. The value
of the Portfolio's fixed income securities generally fluctuates inversely with
interest rate movements and fixed-income securities with longer maturities tend
to be subject to increased volatility. 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. The Portfolio is subject to the risk that BSFM
incorrectly predicts the direction of interest rates, or misjudges the
creditworthiness of a particular issuer. There is no assurance that the
Portfolio will achieve its investment objective.

HIGH YIELD SECURITIES
GENERAL. The Portfolio may invest all or substantially all of its assets in high
yield, high risk debt securities, commonly referred to as "junk bonds."
Securities rated below investment grade and comparable unrated securities offer
yields that fluctuate over time, but generally are superior to the yields
offered by higher rated securities. However, securities rated below investment
grade also involve greater risks than higher rated securities. Under rating
agency guidelines, medium- and lower-rated securities and comparable unrated
securities will likely have some quality and protective characteristics that are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Certain of the debt securities in which the Portfolio may invest may have, or be
considered comparable to securities having, the lowest ratings for
non-subordinated debt instruments assigned by Moody's, S&P or D&P (i.e., rated C
by Moody's or CCC or lower by S&P or D&P). Under rating agency guidelines, these
securities are considered to have extremely poor prospects of ever attaining any
real investment standing, to have a current identifiable vulnerability to
default, to be unlikely to have the capacity to pay interest and repay principal
when due in the event of adverse business, financial or economic conditions,
and/or to be in default or not current in the payment of interest or principal.
Such securities are considered speculative with respect to the issuer's

11
<PAGE>

capacity to pay interest and repay principal in accordance with the terms of the
obligations. Unrated securities deemed comparable to these lower- and
lowest-rated securities will have similar characteristics. Accordingly, it is
possible that these types of factors could, in certain instances, reduce the
value of securities held by the Portfolio with a commensurate effect on the
value of their respective shares. Therefore, an investment in the Portfolio
should not be considered as a complete investment program for all investors.

The secondary markets for high yield, high risk corporate and sovereign debt
securities are not as liquid as the secondary markets for higher rated
securities. The secondary markets for high yield, high risk debt securities are
characterized by relatively few market makers and participants in the market are
mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for
high yield, high risk debt securities is generally lower than that for
higher-rated securities and the secondary markets could contract under adverse
market or economic conditions independent of any specific adverse changes in the
condition of a particular issuer. These factors may have an adverse effect on
the Portfolio's ability to dispose of particular portfolio investments and may
limit its ability to obtain accurate market quotations for purposes of valuing
securities and calculating net asset value. If the Portfolio is not able to
obtain precise or accurate market quotations for a particular security, it will
become more difficult for the Fund's Board of Trustees to value the Portfolio's
securities and the Fund's Trustees may have to use a greater degree of judgment
in making such valuations. Furthermore, adverse publicity and investor
perceptions about lower-rated securities, whether or not based on fundamental
analysis, may tend to decrease the market value and liquidity of such
lower-rated securities. Less liquid secondary markets may also affect the
Portfolio's ability to sell securities at their fair value. In addition, the
Portfolio may invest up to 15% of its net assets, measured at the time of
investment, in illiquid securities, which may be more difficult to value and to
sell at fair value. If the secondary markets for high yield, high risk debt
securities contract due to adverse economic conditions or for other reasons,
certain previously liquid securities in the Portfolio may become illiquid and
the proportion of the Portfolio's assets invested in illiquid securities may
increase.

The ratings of fixed-income securities by Moody's, S&P and D&P are a generally
accepted barometer of credit risk. They are, however, subject to certain
limitations from an investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated. In addition, there may be varying degrees of difference
in credit risk of securities within each rating category. See Appendix A to this
Prospectus for a description of such ratings.

CORPORATE DEBT SECURITIES. While the market values of securities rated below
investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities,
the market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, such securities generally present a higher
degree of credit risk. Issuers of these securities are often highly leveraged
and may not have more traditional methods of financing available to them, so
that their ability to service their debt obligations during an economic downturn
or during sustained periods of rising interest rates may be impaired. The risk
of loss due to default in payment of interest or principal by such issuers is
significantly greater than with investment grade securities because such
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness.

12
<PAGE>

as those in which the Portfolios may invest have historically experienced, and
may continue to experience, high rates of inflation, high interest rates,
exchange rate fluctuations, trade difficulties and extreme poverty and
unemployment. Many of these countries are also characterized by political
uncertainty or instability. Additional factors which may influence the ability
or willingness to service debt include, but are not limited to, a country's cash
flow situation, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of its debt service burden to the economy as a
whole, and its government's policy towards the International Monetary Fund, the
World Bank and other international agencies.

As a result, a governmental obligor may default on its obligations. If such a
default occurs, the Portfolio may have limited legal recourse against the issuer
and/or guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign sovereign debt
securities to obtain recourse may be subject to the political climate in the
relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
sovereign debt obligations in the event of default under their commercial bank
loan agreements.

FOREIGN SECURITIES
Foreign securities involve certain risks, which should be considered carefully
by an investor in the Portfolio. These risks include political or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. Government, its instrumentalities or agencies. In
addition, there may be less publicly available information about a foreign
company or government than about a domestic company or the U.S. Government.
Foreign companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States and
there is a possibility of expropriation, confiscatory taxation or diplomatic
developments which could affect investment. In many instances, foreign debt
securities may provide higher yields than securities of domestic issuers which
have similar maturities and quality. These investments, however, may be less
liquid than the securities of U.S. corporations. In the event of default of any
such foreign debt obligations, it may be more difficult for the Portfolio to
obtain or enforce a judgement against the issuers of such securities.

Investing in the securities markets of developing countries involves exposure to
economies that are generally less diverse and mature and to political systems
which can be expected to have less stability than those of developed countries.
Historical experience indicates that the markets of developing countries have
been more volatile than the markets of developed countries. The risks associated
with investments in foreign securities may be greater with respect to
investments in developing countries and are certainly greater with respect to
investments in the securities of financially and operationally troubled issuers.

Additional costs could be incurred in connection with the Portfolio's
international investment activities. Foreign brokerage commissions are generally
higher than United States brokerage commissions. Increased custodian costs as
well as administrative difficulties (such as the applicability of foreign laws
to foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.

If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversion between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Portfolio's securities
denominated in that currency. Such changes also will affect the Portfolio's
income and distributions to shareholders. In addition, although the Portfolio
will receive income in such currencies, the Portfolio will be required to
compute and distribute its income in U.S. dollars. Therefore, if the exchange
rate for any such currency declines after the Portfolio's income has been
accrued and translated into U.S. dollars, the Portfolio could be required to
liquidate portfolio securities to make such distributions, particularly in
instances in which the amount of income the Portfolio is required to distribute
is not immediately reduced by the decline in such currency. Similarly, if an
exchange rate declines between the time the Portfolio incurs expenses in U.S.
dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in

13
<PAGE>

order to pay such expenses in U.S. dollars will be greater than the equivalent
amount in any such currency of such expenses at the time they were incurred.

The Portfolio may, but need not, enter into forward foreign currency exchange
contracts, options on foreign currencies and futures contracts on foreign
currencies and related options, for hedging purposes, including: locking-in the
U.S. dollar price of the purchase or sale of securities denominated in a foreign
currency; locking-in U.S. dollar equivalent of dividends to be paid on such
securities which are held by the Portfolio; and protecting the U.S. dollar value
of such securities which are held by the Portfolio.

RISK OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the
Portfolio would be subject absent the use of these strategies. The Portfolio,
and thus the investor, may lose money through any unsuccessful use of these
strategies. If the Adviser's predictions of movements in the direction of the
securities, foreign currency and interest rate markets are inaccurate, the
adverse consequences to the Portfolio may leave the Portfolio in a worse
position that if such strategies were not used. Risks inherent in the use of
options, foreign currency and futures contracts and options on futures contracts
include (1) dependence on the Adviser's ability to predict correctly movements
in the direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that skills needed to sue these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Portfolio to
purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Portfolio to sell a
portfolio security at a disadvantageous time, due to the need for the Portfolio
to maintain "cover" or to segregate securities in connection with hedging
transactions. See "Dividends, Distributions and Taxes" in the Statement of
Additional Information.

The Portfolio will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Portfolio will generally purchase OTC options only if the Adviser believes that
the other party to options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will continue
to exist or that the other party will continue to make a market. Thus, it may
not be possible to close an options or futures transaction. The inability to
close options and futures positions also could have an adverse impact on the
Portfolio's ability to effectively hedge its portfolio. There is also the risk
of loss by the Portfolio of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Portfolio has an open position in an
option, a futures contract or related option.

RISK FACTORS RELATING TO INVESTING IN DISTRESSED SECURITIES
Distressed securities involve a high degree of credit and market risk and may be
subject to greater price volatility than other securities in which the Portfolio
invests.

Although the Portfolio will invest in select companies which in the view of the
Adviser have the potential over the long term for capital growth, there can be
no assurance that such financially or operationally troubled companies can be
successfully transformed into profitable operating companies. There is a
possibility that the Portfolio may incur substantial or total losses on its
investments. During an economic downturn or recession, securities of financially
troubled issuers are more likely to go into default than securities of other
issuers. In addition, it may be difficult to obtain information about
financially and operationally troubled issuers.

Securities of financially troubled issuers are less liquid and more volatile
than securities of companies not experiencing financial difficulties. The market
prices of such securities are subject to erratic and abrupt market movements and
the spread between bid and asked prices may be greater than normally expected.
In addition, it is anticipated that many of such portfolio investments may not
be widely traded and that the Portfolio's position in such securities may be
substantially relative to the market for such securities. As a result, the
Portfolio may experience delays and incur losses and other costs in connection
with the sale of its portfolio securities.

14
<PAGE>

Distressed securities which the Portfolio may purchase may also include
securities of companies involved in bankruptcy proceedings, reorganizations and
financial restructurings. To the extent the Portfolio invests in such
securities, it may have a more active participation in the affairs of issuers
than is generally assumed by an investor. This may subject the Portfolio to
litigation risks or prevent the Portfolio from disposing of securities. In a
bankruptcy or other proceeding, the Portfolio as a creditor may be unable to
enforce its rights in any collateral or may have its security interest in any
collateral challenged, disallowed or subordinated to the claims of the
creditors. See "Portfolio Securities--Bankruptcy and Other
Proceedings--Litigation Risks" in the Statement of Additional Information.

SIMULTANEOUS INVESTMENTS
Investment decisions for the Portfolio are made independently from those of
other investment companies or accounts advised by the Adviser. However, if such
other investment companies or accounts are prepared to invest in, or desire to
dispose of, securities of the type in which the Portfolio invests at the same
time as the Portfolio, available investments or opportunities for sales will be
allocated equitably to each. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by the Portfolio or the
price paid or received by the Portfolio.

MANAGEMENT OF THE PORTFOLIO

BOARD OF TRUSTEES

INVESTMENT ADVISER

The Portfolio's investment adviser is BSFM, a wholly owned subsidiary of The
Bear Stearns Companies Inc., which is located at 245 Park Avenue, New York, New
York 10167. The Bear Stearns Companies Inc. is a holding company which, through
its subsidiaries including its principal subsidiary, Bear Stearns, is a leading
United States investment banking, securities trading and brokerage firm serving
United States and foreign corporations, governments and institutional and
individual investors. BSFM is a registered investment adviser and offers, either
directly or through affiliates, investment advisory and administrative services
to open-end and closed-end investment funds and other managed pooled investment
vehicles with net assets at June 30, 1997 of over $3.3 billion.

BSFM supervises and assists in the overall management of the Portfolio's affairs
under an Investment Advisory Agreement between BSFM and the Fund, subject to the
overall authority of the Fund's Board of Trustees in accordance with
Massachusetts law.

Michael A. Snyder serves as Portfolio Manager of the Portfolio. Mr. Snyder is a
Managing Director at Bear Stearns Asset Management ("BSAM"), which he joined in
May, 1997. Prior to joining BSAM, Mr. Snyder was a Vice President and high yield
portfolio manager at Prudential Investments, where he was responsible for the
management of more than $750 million in institutional and retail high yield
assets since ___. Prior to that, he served as a vice president in private
placements at Prudential Capital Corporation. Mr. Snyder holds an MBA from the
Fuqua School of Business at Duke University and a BA from Dickenson College.

Under the terms of the Investment Advisory Agreement, the Portfolio has agreed
to pay BSFM a monthly fee at the annual rate of 0.60% of the Portfolio's average
daily net assets.

15
<PAGE>

THE ADMINISTRATOR

The Portfolio's administrator is BSFM. Under the terms of an Administration
Agreement with the Fund, BSFM generally supervises all aspects of the operation
of the Portfolio, subject to the overall authority of the Fund's Board of
Trustees in accordance with Massachusetts law. For providing administrative
services to the Portfolio, the Fund has agreed to pay BSFM a monthly fee at the
annual rate of 0.15 of 1% of the Portfolio's average daily net assets. Under the
terms of an Administrative Services Agreement with the Fund, PFPC Inc., the
Portfolio's transfer agent, provides certain administrative services to the
Portfolio. For providing these services, the Fund has agreed to pay PFPC Inc. an
annual fee, as set forth below:

- --------------------------------------------------------------------------------
PORTFOLIO'S ANNUAL FEE AS A PERCENTAGE OF
AVERAGE NET ASSETS AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
First $200 million......................... 0.10 of 1%
Next $200 million up to $400 million....... 0.075 of 1%
Next $200 million up to $600 million....... 0.05 of 1%
Assets in excess of $600 million........... 0.03 of 1%

The above-referenced fee is subject to a monthly minimum fee of $12,500.

Brokerage commissions may be paid to Bear Stearns for executing transactions if
the use of Bear Stearns is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers. The allocation of
brokerage transactions also may take into account a broker's sales of the
Portfolio's shares. See "Portfolio Transactions" in the Statement of Additional
Information.

Bear Stearns has agreed to permit the Fund to use the name "Bear Stearns" or
derivatives thereof as part of the Fund name for as long as the Investment
Advisory Agreement is in effect.

DISTRIBUTOR

CUSTODIAN AND TRANSFER AGENT

DISTRIBUTION PLAN - CLASS A, B AND C SHARES

Under a Plan adopted by the Fund's Board of Trustees pursuant to Rule 12b-1
under the 1940 Act (the "Distribution Plan"), the Portfolio will pay Bear
Stearns an annual fee of 0.10%, 0.75% and 0.75% of the average daily net

16
<PAGE>

assets of Class A, B and C, shares, respectively. Amounts paid under the
Distribution Plan compensate Bear Stearns for distributing Portfolio shares.
Bear Stearns may pay third parties that sell Portfolio shares such amount as it
may determine.

SHAREHOLDER SERVICING PLAN - CLASS A, B AND C SHARES

EXPENSE LIMITATION

BSFM has undertaken until such time as it gives investors at least 60 days'
notice to the contrary that, if in any fiscal year, certain expenses, including
the investment advisory fee, exceed 1.15% of Class A's average daily net assets,
1.55% of Class B's average daily net assets and 1.55% of Class C's average daily
net assets for the fiscal year, BSFM may waive a portion of its investment
advisory fee or bear other expenses to the extent of the excess expense.

HOW TO BUY SHARES

GENERAL

AN INITIAL INVESTMENT IS $1,000, $500 FOR RETIREMENT PLANS; SUBSEQUENT
INVESTMENTS MUST BE AT LEAST $250, $100 FOR RETIREMENT PLANS; SPECIFY THE CLASS
YOU WISH TO PURCHASE.

The minimum initial investment is $1,000, or $500 if the investment is for Keogh
Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant. Subsequent
investments ordinarily must be at least $250 or $100 for retirement plans. Share
certificates are issued only upon written request. No certificates are issued
for fractional shares. The Portfolio reserves the right to reject any purchase
order. The Portfolio reserves the right to vary the initial and subsequent
investment minimum requirements at any time. Investments by employees of Bear
Stearns and its affiliates are not subject to minimum investment requirements.

Purchases of the Portfolio's shares may be made through a brokerage account
maintained with Bear Stearns or through certain investment dealers who are
members of the National Association of Securities Dealers, Inc. who have sales
agreements with Bear Stearns (an "Authorized Dealer"). Purchases of the
Portfolio's shares also may be made directly through the Transfer Agent. When
purchasing the Portfolio's shares, investors must specify which Class is being
purchased.

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<PAGE>

is not designated, Bear Stearns or the Authorized Dealer will benefit from the
temporary use of the funds if payment is made before the settlement date.

CHOOSING A CLASS OF SHARES

Class A shares are, in general, the most beneficial for the investor who
qualifies for a waiver or certain reductions of the front end sales charges as
described herein under "How to Buy Shares -- Class A Shares." Class B and Class
C shareholders may pay a CDSC upon redemption. Investors who expect to redeem
during the eight year CDSC period applicable to Class B shares or the one year
CDSC period applicable to Class C shares should consider the cost of the
applicable CDSC plus the aggregate annual distribution and service fees
applicable to Class B and Class C shares, as compared with the cost of the front
end sales charge plus the aggregate annual distribution fees applicable to Class
A shares. Because Class B and Class C shareholders pay no front end sales
charge, the entire purchase price is immediately invested in shares of the
Portfolio. Any return realized on the additional funds initially invested may
partially or wholly offset the ongoing distribution fees applicable to Class B
and Class C shares. There can be no assurance, however, as to the investment
return, if any, which will be realized on such additional funds. Over time, the
cumulative distribution and service fees applicable to Class B and Class C
shares will approach and may exceed the 4.50% maximum front end sales charge
plus the distribution fee applicable to Class A shares.

The factors discussed below assume the expenses that apply to each class of
shares as described in this prospectus. In addition, they assume an annual rate
of return of approximately 5%. The actual amount of the return may be higher or
lower, depending on actual investment returns over time. This discussion is not
intended to be investment advice or recommendations, because each investor's
goals, needs and circumstances are unique.

MAXIMUM PURCHASE AMOUNT

LENGTH OF INVESTMENT

Knowing the approximate time you plan to hold your investment can help you
select the class of shares that is most appropriate for you. Generally, the
amount of sales charge you pay over time will depend on the amount you invest.
If you plan to invest a large amount over time, the reduced sales charges
available for larger purchases of Class A shares may, over time, offset the
effect of paying an initial sales charge on your investment (the initial sales
charge of Class A shares effectively reduces the amount of your investment),
compared to the higher expenses on Class B or Class C shares, which do not have
an initial sales charge. Your entire investment in Class B shares is available
to work for you from the time you make your initial investment but the higher
expenses will cause your Class B shares (until conversion to Class A shares) to
have a higher expense ratio and to pay lower dividends, to the extent dividends
are paid, than Class A shares. If you prefer not to pay an initial sales charge
on an investment you might consider purchasing Class B shares.

If you plan to invest less than $250,000 for approximately eight years or less,
Class C shares might be more appropriate even though the class expenses are
higher, because there is no initial sales charge and no CDSC if held

18
<PAGE>

for over one year. If you plan to invest less than $250,000 for a period of
between approximately nine and 12 years, Class B shares may be more appropriate.
If you plan to hold your investment for more than 12 years, then Class A shares
may be more appropriate, because the effect of the higher class expenses of
Class C shares might be greater than the effect of the initial sales charge of
the Class A shares.

If you plan to invest more than $250,000 but less than $500,000 for a period of
approximately five years or less, then Class C shares may be more appropriate.
If you plan to hold your investment for approximately six years or more, you may
find Class A shares more suitable.

If you plan to invest more than $500,000 but less than $1,000,000 for a period
of four years or less, then Class C shares may be more appropriate. If you plan
to hold your investment for approximately five years or more, you may find Class
A shares more suitable. For investors who invest $1,000,000 or more, Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares.

CONSULT YOUR FINANCIAL ADVISER
You should consult your financial adviser to assist you in determining which
class of shares is most appropriate for you.

PURCHASE PROCEDURES

Purchases through Bear Stearns account executives or Authorized Dealers may be
made by check (except that a check drawn on a foreign bank will not be
accepted), Federal Reserve draft or by wiring Federal Funds with funds held in
brokerage accounts at Bear Stearns or the Authorized Dealer. Checks or Federal
Reserve drafts should be made payable as follows: (i) to Bear Stearns or an
investor's Authorized Dealer or (ii) to "The Bear Stearns Funds--High Yield
Total Return Portfolio" if purchased directly from the Portfolio, and should be
directed to the Transfer Agent: PFPC Inc., Attention: The Bear Stearns
Funds--High Yield Total Return Portfolio, P.O. Box 8960, Wilmington, Delaware
19899-8960. Payment by check or Federal Reserve draft must be received within
three business days of receipt of the purchase order by Bear Stearns or an
Authorized Dealer. Orders placed directly with the Transfer Agent must be
accompanied by payment. Bear Stearns (or an investor's Authorized Dealer) is
responsible for forwarding payment promptly to the Fund. The Fund will charge
$7.50 for each wire redemption. The payment proceeds of a redemption of shares
recently purchased by check may be delayed as described under "How to Redeem
Shares."

Investors who are not Bear Stearns clients may purchase Portfolio shares through
the Transfer Agent. To make an initial investment in the Portfolio, an investor
must establish an account with the Portfolio by furnishing necessary information
to the Fund. An account with the Portfolio may be established by completing and
signing the Account Information Form indicating which class of shares is being
purchased, a copy of which is attached to this Prospectus, and mailing it,
together with a check to cover the purchase, to PFPC Inc., Attention: The Bear
Stearns Funds--High Yield Total Return Portfolio, P.O. Box 8960, Wilmington,
Delaware 19899-8960.

Shareholders may not purchase shares of the Fund with a check issued by a third
party and endorsed over to the Fund.

19
<PAGE>

its net asset value are priced according to the net asset value determined on
that date. Purchase orders received after the close of trading on the New York
Stock Exchange are priced as of the time the net asset value is next determined.

NET ASSET VALUE IS COMPUTED DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE NEW
YORK STOCK EXCHANGE.

CLASS A SHARES

THE SALES CHARGE MAY VARY DEPENDING ON THE DOLLAR AMOUNT INVESTED IN THE
PORTFOLIO.

The public offering price for Class A shares of the Portfolio is the net asset
value per share of that Class plus a sales load, which is imposed in accordance
with the following schedule:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TOTAL SALES LOAD
-------------------------------
AS A % OF AS A % OF NET DEALER CONCESSIONS
OFFERING PRICE ASSET VALUE AS A % OF
AMOUNT OF TRANSACTION PER SHARE PER SHARE OFFERING PRICE*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000........................... 4.50% 4.71% 4.25%

$50,000 to less than $100,000............... 4.25 4.44 4.00

$100,000 to less than $250,000.............. 3.25 3.36 3.00

$250,000 to less than $500,000.............. 2.50 2.56 2.20

$500,000 to less than $1,000,000............ 2.00 2.04 1.75

$1,000,000 and above........................ 0.00* 0.00 1.25
</TABLE>

20
<PAGE>

shares. In some instances, these incentives may be offered only to certain
dealers who have sold or may sell significant amounts of Class A shares. Dealers
may receive a larger percentage of the sales load from Bear Stearns than they
receive for selling most other funds.

Class A shares may be sold at net asset value to (a) Bear Stearns, its
affiliates or their respective officers, directors or employees (including
retired employees), any partnership of which Bear Stearns is a general partner,
any Trustee or officer of the Fund and designated family members of any of the
above individuals; (b) qualified retirement plans of Bear Stearns; (c) any
employee or registered representative of any Authorized Dealer or their
respective spouses and minor children; (d) trustees or directors of investment
companies for which Bear Stearns or an affiliate acts as sponsor; (e) any state,
country or city, or any instrumentality, department, authority or agency
thereof, which is prohibited by applicable investment laws from paying a sales
load or commission in connection with the purchase of Portfolio shares; (f) any
institutional investment clients including corporate-sponsored pension and
profit-sharing plans, other benefit plans and insurance companies; (g) any
pension funds, state and municipal governments or funds, Taft- Hartley plans and
qualified non-profit organizations, foundations and endowments; (h) trust
institutions (including bank trust departments) investing on their own behalf or
on behalf of their clients; and (i) accounts as to which an Authorized Dealer
charges an asset management fee. To take advantage of these exemptions, a
purchaser must indicate its eligibility for an exemption to Bear Stearns along
with its Account Information Form. Such purchaser agrees to notify Bear Stearns
if, at any time of any additional purchases, it is no longer eligible for an
exemption. Bear Stearns reserves the right to request certification or
additional information from a purchaser in order to verify that such purchase is
eligible for an exemption. Bear Stearns reserves the right to limit the
participation of its employees in Class A shares of the Portfolio. Dividends and
distributions reinvested in Class A shares of the Portfolio will be made at the
net asset value per share on the reinvestment date.

Class A shares of the Portfolio also may be purchased at net asset value, with
the proceeds from the redemption of shares of an investment company sold with a
sales charge or commission and not distributed by Bear Stearns. This include
shares of a mutual fund which were subject to a contingent deferred sales charge
upon redemption. The purchase must be made within 60 days of the redemption, and
Bear Stearns must be notified by the investor in writing, or by the investor's
investment professional, at the time the purchase is made. However, if such
investor redeems those shares within one year after purchase, a CDSC of 1.00%
will be imposed at the time of redemption. Bear Stearns will offer to pay
Authorized Dealers an amount up to 1.25% of the net asset value of shares
purchased by the dealers' clients or customers in this manner.

In addition, Class A Shares of the Portfolio may be purchased at net asset value
by the following customers of a broker that operates a master account for
purchasing and redeeming, and otherwise providing shareholder services in
respect of Fund shares pursuant to agreements with the Fund or Bear Stearns: (i)
investment advisers and financial planners who place trades for their own
accounts or for the accounts of their clients and who charge a management,
consulting or other fee, (ii) clients of such investment advisers and financial
planners if such clients place trades through accounts linked to master accounts
of such investment advisers or financial planners on the books and records of
such broker and (iii) retirement and deferred compensation plans, and trusts
used to fund such plans, including, but not limited to, plans or trusts defined
in sections 401(a), 403(b) or 457 of the Internal Revenue Code of 1986, as
amended (the "Code"), and "rabbi trusts," provided, in each case, the purchase
transaction is effected through such broker. The broker may charge a fee for
transaction in Portfolio shares.

CLASS B SHARES

21
<PAGE>

eight-year period, resulting in the shareholder paying the lowest possible CDSC.
The amount of the CDSC charged upon redemption is as follows:

CDSC as a Percentage of
Year Since Dollar Amount
Purchase Subject to CDSC
-------- ---------------
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
Eighth* 0%

- ----------

* As discussed below, Class B Shares automatically convert to Class A Shares
after the eighth year following purchase.

CLASS C SHARES

RIGHT OF ACCUMULATION - CLASS A SHARES

INVESTORS MAY QUALIFY FOR A REDUCED SALES CHARGE.

22
<PAGE>

bonus plans, including plans under section 401(k) of the Code, and medical, life
and disability insurance trusts); or (c) individual purchases by a trustee or
other fiduciary purchasing shares concurrently for two or more employee benefit
plans of a single employer or of employers affiliated with each other.
Subsequent purchases made under 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

SYSTEMATIC INVESTMENT PLAN

THE PORTFOLIO OFFERS SHAREHOLDERS CONVENIENT FEATURES AND BENEFITS, INCLUDING
THE SYSTEMATIC INVESTMENT PLAN.

The Systematic Investment Plan permits investors to purchase shares of the
Portfolio (minimum initial investment of $250 and minimum subsequent investments
of $100 per transaction) at regular intervals selected by the investor. Provided
the investor's bank or other financial institution allows automatic withdrawals,
Portfolio shares may be purchased by transferring funds from the account
designated by the investor. At the investor's option, the account designated
will be debited in the specified amount, and Portfolio shares will be purchased
once a month, on or about the twentieth day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House member may
be so designated. Investors desiring to participate in the Systematic Investment
Plan should call the Transfer Agent at 1-800-447-1139 to obtain the appropriate
forms. The Systematic Investment Plan does not assure a profit and does not
protect against loss in declining markets. Since the Systematic Investment Plan
involves the continuous investment in the Portfolio regardless of fluctuating
price levels of the Portfolio's shares, investors should consider their
financial ability to continue to purchase through periods of low price levels.
The Fund may modify or terminate the Systematic Investment Plan at any time or
charge a service fee. No such fee currently is contemplated.

SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE

THE EXCHANGE PRIVILEGE PERMITS EASY PURCHASES OF OTHER FUNDS IN THE BEAR STEARNS
FAMILY.

23
<PAGE>

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 otherwise
specified in writing by the shareholder with all signatures guaranteed by an
eligible guarantor institution as described below. To participate in the
Systematic Investment Plan, or establish automatic withdrawal for the new
account, however, an exchanging shareholder must file a specific written
request. The Exchange Privilege may be modified or terminated at any time, or
from time to time, by the Fund on 60 days' notice to the affected portfolio or
fund shareholders. The Fund, BSFM and Bear Stearns will not be liable for any
loss, liability, cost or expense for acting upon telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Fund will use such procedures as are considered
reasonable, including recording those instructions and requesting information as
to account registration (such as the name in which an account is registered, the
account number, recent transactions in the account, and the account holder's
Social Security number, address and/or bank).

24
<PAGE>

purchased with a sales load; (b) acquired by a previous exchange from shares
purchased with a sales load; or (c) acquired through reinvestment of dividends
or distributions paid with respect to the foregoing categories of shares. To
qualify, at the time of the exchange the investor must notify Bear Stearns, the
Authorized Dealer or the Transfer Agent. Any such qualification is subject to
confirmation of the Investor's holdings through a check of appropriate records.
No fees currently are charged shareholders directly in connection with
exchanges, although the Fund reserves the right, upon not less than 60 days'
written notice, to charge shareholders a $5.00 fee in accordance with rules
promulgated by the Securities and Exchange Commission. The Fund reserves the
right to reject any exchange request in whole or in part. The Exchange Privilege
may be modified or terminated at any time upon notice to shareholders.

REDIRECTED DISTRIBUTION OPTION

THE REDIRECTED DISTRIBUTION OPTION PERMITS INVESTMENT OF INVESTORS' DIVIDENDS
AND DISTRIBUTIONS IN SHARES OF OTHER FUNDS IN THE BEAR STEARNS FAMILY.

HOW TO REDEEM SHARES
GENERAL

THE REDEMPTION PRICE WILL BE BASED ON THE NET ASSET VALUE NEXT COMPUTED AFTER
RECEIPT OF A REDEMPTION REQUEST.

25
<PAGE>

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.

CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES

CLASS A SHARES OF THE PORTFOLIO MAY BE SUBJECT TO A CDSC OF 1% UPON REDEMPTION
WITHIN ONE YEAR OF PURCHASE.

CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES

26
<PAGE>

the amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 5% for a
total CDSC of $12.00.

WAIVER OF CDSC

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 reinvestment
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 investor at
the time of redemption.

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value of Class 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.

WAIVER OF CDSC

27
<PAGE>

company with a Portfolio by merger, acquisition of assets or otherwise, (d) a
distribution following retirement under a tax-deferred retirement plan or upon
attaining age 70 1/2 in the case of an IRA or Keogh plan or custodial account
pursuant to section 403(b) of the Code, and (e) to the extent that shares
redeemed have been withdrawn from the Automatic Withdrawal Plan, up to a maximum
amount of 12% per year from a shareholder account based on the value of the
account at the time the automatic withdrawal is established. If the Fund's
Trustees 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.

PROCEDURES

SHAREHOLDERS MAY REDEEM SHARES IN SEVERAL WAYS.

REDEMPTION THROUGH THE TRANSFER AGENT
Shareholders who are not clients with a brokerage account who wish to redeem
shares must redeem their shares through the Transfer Agent by mail; other
shareholders also may redeem Fund shares through the Transfer Agent. Mail
redemption requests should be sent to the Transfer Agent at: PFPC Inc.,
Attention: The Bear Stearns Funds--High Yield Total Return Portfolio, P.O. Box
8960, Wilmington, Delaware 19899-8960.

28
<PAGE>

shareholder's signature be guaranteed. When a signature guarantee is required,
each signature must be guaranteed. A signature guarantee may be obtained from a
domestic bank or trust company, broker, dealer, clearing agency or savings
association who are participants in a medallion program recognized by the
Securities Transfer Association. 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 Guarantees which are not a part of these programs will not be
accepted. The institution providing the guarantee must see a signature ink stamp
or medallion which states "Signature(s) Guaranteed" and be signed in the name of
the guarantor by an authorized person with that person's title and the date. The
Fund may reject a signature guarantee if the guarantor is not a member of or
participant in a signature guarantee program. 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. Redemption requests by corporate and fiduciary shareholders must be
accompanied by appropriate documentation establishing the authority of the
person seeking to act on behalf of the account. Investors may obtain from the
Fund or the Transfer Agent forms of resolutions and other documentation which
have been prepared in advance to assist compliance with the Portfolio's
procedures. Any questions with respect to signature-guarantees should be
directed to the Transfer Agent by calling 1-800-447-1139.

AUTOMATIC WITHDRAWAL

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Portfolio ordinarily pays dividends from its net investment income monthly
and distributes net realized securities gains, if any, once a year, but it may
make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the 1940 Act. The Portfolio will not make distributions from net
realized securities gains unless capital loss carryovers, if any, have been
utilized or have expired. Dividends are automatically reinvested in additional
Portfolio shares at net asset value, unless payment in cash is requested or
dividends are redirected into another fund pursuant to the Redirected
Distribution Option. All expenses are accrued daily and deducted before
declaration of dividends to investors. Dividends paid by each Class of the
Portfolio will be calculated at the same time and in the same manner and will be
of the same amount, except that the expenses attributable solely to a particular
class will be borne exclusively by such Class. Class B and C shares will receive
lower per share dividends than Class A shares because of the higher expenses
borne by Class B and C shares. See "Fee Table."

29
<PAGE>

The Portfolio may enter into short sales "against the box". See "Description of
the Portfolio - Investment Instruments and Strategies". Any gains realized by
the Portfolio on such sales will be recognized at the time the Portfolio enters
into the short sales.

THE PORTFOLIO IS NOT EXPECTED TO HAVE ANY FEDERAL TAX LIABILITY; ALTHOUGH
INVESTORS SHOULD EXPECT TO BE SUBJECT TO FEDERAL, STATE OR LOCAL TAXES IN
RESPECT OF THEIR INVESTMENT IN PORTFOLIO SHARES.

30
<PAGE>

qualification relieves the Portfolio of any liability for Federal income tax to
the extent its earnings are distributed in accordance with applicable provisions
of the Code. In addition, the Portfolio is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.

The Portfolio anticipates that there will be high portfolio turnover rate, which
may result in the Portfolio losing its qualification as a regulated investment
company. In this event, the Portfolio would be subject to federal income tax on
its net income at regular corporate rates (without a deduction for distributions
to shareholders). When distributed, such income would then be taxable to
shareholders as ordinary income to the extend of the Portfolio's earnings and
profits. Although Management intends to have the Portfolio qualify as a
regulated investment company, there can be no assurance that it will achieve
this goal.

Each investor should consult its tax adviser regarding specific questions as to
Federal, state or local taxes.

PERFORMANCE INFORMATION

THE PORTFOLIO MAY ADVERTISE ITS PERFORMANCE IN A NUMBER OF WAYS.

31
<PAGE>

Comparative performance information may be used from time to time in advertising
or marketing the Portfolio's shares, including data from Lipper Analytical
Services, Lehman Brothers High Yield Bond Index, C.S. First Boston High Yield
Bond Index and other industry publications.

GENERAL INFORMATION

The Fund was organized as an unincorporated business trust under the laws of The
Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust
(the "Trust Agreement") dated September 29, 1994. The Fund commenced operations
on or about April 3, 1995 in connection with the offer of shares of certain of
its other portfolios. The Fund is authorized to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. The Portfolio's shares
are classified into four Classes--Class A, B, C and Y. Each share has one vote
and shareholders will vote in the aggregate and not by class, except as
otherwise required by law.

The Transfer Agent maintains a record of share ownership and will send
confirmations and statements of account.

Shareholder inquiries may be made by writing to the Fund at PFPC Inc.,
Attention: High Yield Total Return Portfolio, P.O. Box 8960, Wilmington,
Delaware 19899-8960, by calling 1-800-447-1139 or by calling Bear Stearns at
1-800-766- 4111.

32
<PAGE>

APPENDIX

APPENDIX A

RATINGS

The following is a description of certain ratings of Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") and Duff & Phelps Credit
Rating Co. ("D&P") that are applicable to certain obligations in which certain
of the Company's Funds may invest.

MOODY'S CORPORATE BOND RATINGS

Aaa--Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment qualities 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.

Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterize bonds in this class.

B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in high
degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Moody's applies numerical modifiers "1", "2" and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.

A-1
<PAGE>

S&P CORPORATE BOND RATINGS

AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA--Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.

A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

D--Bonds rated D are in default. The D category is used when interest payments
or principal payments are not made on the date due even if the applicable grace
period has not expired. The D rating is also used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.

The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.

D&P CORPORATE BOND RATINGS

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than risk-free U.S. Treasury debt.

AA--High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic stress.

A--Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.

BBB--Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.

BB--Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.

B--Below investment grade and possessing risk that obligations will not be met
when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.

CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

A-2
<PAGE>

DD--Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.

The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.

MOODY'S COMMERCIAL PAPER RATINGS

Prime-1--Issuers (or related supporting institutions) rated Prime-1 have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally 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.

Prime-2--Issuers (or related supporting institutions) rated Prime-2 have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.

Prime-3--Issuers (or related supporting institutions) rated Prime-3 have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

Not Prime--Issuers rated Not Prime do not fall within any of the Prime rating
categories.

S&P COMMERCIAL PAPER RATINGS

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:

A--Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.

A-1--This designation 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.

A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1".

A-3--Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

B--Issues rated "B" are regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
short-term adversities.

C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

A-3
<PAGE>

D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.

D&P COMMERCIAL PAPER RATINGS

Duff 1+ --Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.

Duff 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

Duff 1- --High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

Duff 3--Satisfactory liquidity and other protection factors qualify issue as
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.

Duff 4--Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.

Duff 5--Issuer failed to meet scheduled principal and/or interest payments.

------------------------

A-4
<PAGE>

Like higher rated bonds, bonds rated in the Baa or BBB categories are considered
to have adequate capacity to pay principal and interest. However, such bonds may
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds.

After purchase by the Fund, a security may cease to be rated or its rating may
be reduced below the minimum required for purchase by the Fund. Neither event
will require a sale of such security by the Fund. However, the Adviser will
consider such event in its determination of whether a Fund should continue to
hold the security. To the extent that the ratings given by Moody's, S&P or D&P
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in this Prospectus and in the
Statement of Additional Information.

A-5
<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 & Administrator
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167

Custodian
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540

Transfer & Dividend
Disbursement Agent
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809

Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022

Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281

A-6
<PAGE>

THE BEAR STEARNS FUNDS
245 PARK AVENUE NEW YORK, NY 10167 1-800-766-4111

PROSPECTUS
High Yield Total Return Portfolio
CLASS Y SHARES

THE BEAR STEARNS FUNDS (the "Fund") is an open-end management investment
company, known as a mutual fund. The Fund permits you to invest in separate
portfolios. By this Prospectus,the Fund offers Class Y shares of the High Yield
Total Return Portfolio, a diversified portfolio (the "Portfolio"). The
Portfolio's investment objective is total return through high current income and
capital appreciation. The Portfolio seeks to achieve its objective by investing
primarily in high-yielding, lower-rated fixed-income securities. Normally, the
Portfolio will invest at least 80% of its total assets will be invested in high
yield fixed income securities, including, domestic and foreign debt securities,
convertible securities and preferred stocks.

THE PORTFOLIO INVESTS PRIMARILY IN LOWER- RATED AND UNRATED BONDS, INCLUDING
DEFAULTED AND DISTRESSED SECURITIES. THESE SECURITIES ARE SUBJECT TO A GREATER
RISK OF LOSS OF PRINCIPAL AND NONPAYMENT OF INTEREST, INCLUDING DEFAULT RISK,
THAN HIGHER RATED BONDS. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED
WITH AN INVESTMENT IN THE PORTFOLIO.

BEAR, STEARNS & CO. INC. ("Bear Stearns"), an affiliate of BSFM, serves as the
Portfolio's distributor.

-------------------------------