<PAGE>
[LOGO]
The
Bear Stearns
Funds
245 PARK AVENUE
NEW YORK, NY 10167
1.800.766.4111
<TABLE>
<S> <C>
Michael Minikes Chairman of the Board
Robert S. Reitzes President
Peter B. Fox Executive Vice President
William J. Montgoris Executive Vice President
Peter M. Bren Trustee
Alan J. Dixon Trustee
John R. McKernan, Jr. Trustee
M.B. Oglesby, Jr. Trustee
Stephen A. Bornstein Vice President
Donalda L. Fordyce Vice President
Frank J. Maresca Vice President and Treasurer
Ellen T. Arthur Secretary
Vincent L. Pereira Assistant Treasurer
Christina P. LaMastro Assistant Secretary
INVESTMENT ADVISER DISTRIBUTOR
Bear Stearns Asset Bear, Stearns & Co. Inc.
Management Inc. 245 Park Avenue
575 Lexington Avenue New York, NY 10167
New York, NY 10022
ADMINISTRATOR TRANSFER AND DIVIDEND
Bear Stearns Funds Management Inc. DISBURSEMENT AGENT
245 Park Avenue PFPC Inc.
New York, NY 10167 Bellevue Corporate Center
CUSTODIAN 400 Bellevue Parkway
Custodial Trust Company Wilmington, DE 19808
101 Carnegie Center INDEPENDENT AUDITORS
Princeton, NJ 08540 Deloitte & Touche LLP
COUNSEL Two World Financial Center
Kramer, Levin, New York, NY 10281
Naftalis & Frankel
919 Third Avenue
New York, NY 10022
</TABLE>
This report is submitted for the general information of the shareholders of
the Portfolio. It is not authorized for distribution to prospective
investors in the Portfolio unless it is preceded or accompanied by a
current prospectus which includes details regarding the Portfolio's
objectives, policies and other information. Total investment return is
based on historical results and is not intended to indicate future
performance.
Prime Money Market Portfolio is neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that the Prime Money Market
Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
BSFR-017-02
PRIME MONEY
MARKET PORTFOLIO
ANNUAL REPORT
MARCH 31, 1998
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
LETTER TO SHAREHOLDERS
May 15, 1998
Dear Shareholders:
We are pleased to present you with the first annual report of the Prime Money
Market Portfolio (the "Portfolio"). As you know, the Portfolio is a First Tier,
diversified, taxable institutional money market fund that invests in
high-quality commercial paper, certificates of deposit, short-term fixed and
variable-rate corporate securities and repurchase agreements. Our goal is to
provide the institutional investor and high-net-worth individual with a money
market portfolio that is committed to the preservation of capital, the
availability of funds to meet liquidity needs and the achievement of competitive
returns.
While investing in the high-quality instruments mentioned above, the Portfolio
has generated highly competitive yields. The Portfolio has produced net yields
that have exceeded the average for First Tier-Taxable Institutional Only Funds
as reported by IBC Financial Data, Inc. by 23 to 26 basis points for each full
month since its commencement of investment operations on July 14, 1997. In
addition, according to IBC's Money Fund Report-TM-, the Portfolio's monthly net
yield has ranked in the top 10% of all funds in its category since its
inception(1). As of March 31, 1998, the Portfolio's 7-day effective yield was
5.73%. For the period July 14, 1997 to March 31, 1998, the Portfolio's total
return was 5.72%.
The events that unfolded throughout the second half of 1997 and the first
quarter of 1998 confirmed that the United States was part of a larger global
economy. As a result of the uncertainty in Asian financial markets and the
positive impact this crisis has had on inflation in the U.S., the Federal
Reserve Board moved from a bias toward tightening to a neutral posture on
interest rates. Although employment data and other measures of the economy's
health were stronger than some members of the Board of Governors believed was
sustainable, the Fed left the Fed Funds rate unchanged during the fourth quarter
of 1997 and first quarter of 1998. Recently, there has been speculation that the
Fed has returned to a bias toward tightening. During this period, the
three-month Treasury bill yield increased slightly, the six-month yield was
virtually unchanged and the one-year yield decreased noticeably. Thus, the
short-term yield curve continued the flattening trend that started in the second
quarter of 1997.
A consensus has yet to emerge on the impact of the Asian financial crisis. While
it is beyond doubt the crisis has helped keep inflation at low levels, the
effect the slowdown will have on future domestic growth is still unknown. The
largest variable may be the ability of the Japanese government to take
definitive steps to stimulate its domestic economy, strengthen its banking
system and act as the engine to revive growth throughout Asia.
1
<PAGE>
It appears the Fed will maintain its current posture on interest rates until
information on the economy becomes more conclusive. In the meantime, short-term
rates should continue to be somewhat volatile and trade within their recent
ranges. These conditions dictate a strategy of flexibility with an inclination
to extend the maturity of the Portfolio when conditions warrant.
Again, we appreciate your support and welcome your ideas and inquiries.
Sincerely,
[SIGNATURE]
Robert S. Reitzes
President
The Bear Stearns Funds
- -------
(1) The Net Yield represents past performance which is not a guarantee of
future results. Yields are net of management fees and expenses. As of March
31, 1998, there were 171 funds in the taxable First Tier - Institutional
Only category, and throughout all periods, some or all of the funds,
including The Bear Stearns Funds, reported fee waivers from time to time.
Without such waivers, the reported yields would have been lower.
2
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- 18.11%
BANK - DOMESTIC - 1.64%
2,000 Bankers Trust Co. [P-1, A-1]*..................... 5.650% 04/01/98 $ 1,999,721
-------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT - 16.47%
3,000 Banque Nationale de Paris (NY) [P-1, A-1]......... 5.670 04/07/98 3,000,049
2,000 Canadian Imperial Bank of Commerce, N.Y. [P-1,
A-1+]........................................... 5.560 04/08/98 2,000,000
2,000 Canadian Imperial Bank of Commerce, N.Y. [P-1,
A-1+]........................................... 5.950 06/29/98 2,000,147
3,000 Deutsche Bank N.Y. [P-1, A-1+].................... 5.935 09/15/98 3,000,729
2,000 Deutsche Bank N.Y. [P-1, A-1+].................... 5.620 02/26/99 1,999,131
1,000 Royal Bank of Canada, N.Y. [P-1, A-1+]............ 6.200 04/06/98 1,000,037
5,000 Societe General, N.Y. [P-1, A-1+]................. 5.650 07/06/98 5,000,885
2,000 Swiss Bank Corp., N.Y. [P-1, A-1+]................ 5.900 08/28/98 1,999,666
-------------
20,000,644
-------------
Total Certificates of Deposit (cost -
$22,000,365).................................... 22,000,365
-------------
COMMERCIAL PAPER -- 46.06%
ASSET-BACKED CREDIT CARD - 4.11%
5,000 Dakota Certification [P-1, A-1+].................. 5.500 04/09/98 4,993,889
-------------
COMMERCIAL FINANCE - 6.98%
3,000 Ford Motor Credit [P-1, A-1]...................... 5.570 04/09/98 2,996,287
1,500 General Electric Capital Corp. [P-1, A-1+]........ 5.540 04/06/98 1,498,846
2,000 General Electric Capital Corp. [P-1, A-1+]........ 5.660 04/30/98 1,990,881
2,000 General Electric Capital Corp. [P-1, A-1+]........ 5.560 05/08/98 1,988,571
-------------
8,474,585
-------------
CORPORATE LOAN CONDUIT - 11.16%
2,000 Centric Capital Corp. [P-1, A-1+]................. 5.530 05/19/98 1,985,253
3,000 Centric Capital Corp. [P-1, A-1+]................. 5.530 06/24/98 2,961,290
1,500 Greenwich Funding Corp. [P-1, A-1+]............... 5.490 04/07/98 1,498,627
3,000 Greenwich Funding Corp. [P-1, A-1+]............... 5.570 04/08/98 2,996,751
4,139 Wood Street Funding [P-1, A-1].................... 5.550 05/15/98 4,110,924
-------------
13,552,845
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
DIVERSIFIED RECEIVABLES CONDUIT - 16.21%
2,000 Alpine Securitization Corp. [P-1, A-1+]........... 5.470% 04/07/98 $ 1,998,177
2,000 Alpine Securitization Corp. [P-1, A-1+]........... 5.550 04/28/98 1,991,675
2,500 Barton Capitol Corp. [P-1, A-1+].................. 5.500 04/20/98 2,492,743
2,000 Park Avenue Receivables Corp. [P-1, A-1].......... 5.540 05/15/98 1,986,458
2,500 Sheffield Receivables Corp. [P-1, A-1+]........... 5.550 04/07/98 2,497,688
3,000 Twin Towers Inc. [P-1, A-1+]...................... 5.420 04/14/98 2,994,128
2,750 Windmill Funding Corp. [P-1, A-1+]................ 5.470 04/21/98 2,741,643
3,000 Windmill Funding Corp. [P-1, A-1]................. 5.450 05/08/98 2,983,196
-------------
19,685,708
-------------
INVESTMENT STRUCTURE - 1.23%
1,500 Sigma Finance Corp. [P-1, A-1+]................... 5.660 05/05/98 1,491,982
-------------
SECURITIES DEALERS - 5.55%
4,000 Merrill Lynch [P-1, A-1+]......................... 5.560 04/02/98 3,999,382
2,750 Morgan Stanley Dean Witter Discover [P-1, A-1].... 5.480 04/06/98 2,747,907
-------------
6,747,289
-------------
YANKEE DOLLAR COMMERCIAL PAPER - 0.82%
1,000 Royal Bank of Canada [P-1, A-1+].................. 5.600 05/08/98 994,244
-------------
Total Commercial Paper (cost - $55,940,542)....... 55,940,542
-------------
CORPORATE OBLIGATIONS -- 16.07%
BANK - FOREIGN - 1.65%
2,000 ANZ Banking Group, Ltd. [P-1, A-1+]*.............. 5.605 04/01/98 1,999,718
-------------
BANKS - DOMESTIC - 7.41%
2,000 Bank of America N.A. [P-1, A-1+]*................. 5.650 04/01/98 1,999,649
3,000 J.P. Morgan & Co., Inc. [P-1, A-1+]............... 0.000+ 04/01/98 3,000,000
2,000 Key Bank N.A. [P-1, A-1]*......................... 5.520 04/01/98 1,999,445
2,000 PNC Bank N.A. [P-1, A-1]*......................... 5.670 04/01/98 1,999,371
-------------
8,998,465
-------------
COMMERCIAL FINANCE - 1.66%
2,000 Norwest Financial Inc. [P-1, A-1+]................ 8.500 08/15/98 2,018,147
-------------
INVESTMENT STRUCTURE - 2.88%
2,500 Sigma Finance Corp. [P-1, A-1+]*.................. 5.675 04/01/98 2,500,000
1,000 Sigma Finance Corp. [P-1, A-1+]................... 5.710 03/02/99 1,000,000
-------------
3,500,000
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
SECURITIES DEALER - 2.47%
3,000 Morgan Stanley Dean Witter Discover [P-1, A-1]*... 5.670% 04/01/98 $ 3,000,000
-------------
Total Corporate Obligations (cost -
$19,516,330).................................... 19,516,330
-------------
REPURCHASE AGREEMENT -- 19.74%
23,975 BZW Securities Inc. (amortized cost -
$23,975,000)**.................................. 6.050 04/01/98 23,975,000
-------------
Total Investments -- 99.98%
(amortized cost - $121,432,237)***.............. 121,432,237
Other assets in excess of liabilities -- 0.02%.... 28,228
-------------
Net Assets -- 100.0%.............................. $ 121,460,465
-------------
-------------
</TABLE>
- ---------
+ Zero Coupon Bond.
* Variable Rate Obligations - The rate shown is the rate as of March 31, 1998
and the maturity date shown is the date the interest rate resets.
** See notes to the financial statements for description of underlying
collateral.
*** The cost of investments for federal income tax purposes is substantially the
same as for financial reporting purposes.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at amortized cost which
approximates market value
(identified and tax cost - $121,432,237)...... $121,432,237
Cash............................................ 573
Receivable from investment adviser.............. 72,491
Interest receivable............................. 615,509
Deferred organization expenses and other
assets........................................ 79,174
------------
Total assets.............................. 122,199,984
------------
LIABILITIES
Dividends payable............................... 558,298
Administration fee payable...................... 5,107
Custodian fee payable........................... 4,137
Organization expenses payable................... 25,875
Accrued expenses................................ 146,102
------------
Total liabilities......................... 739,519
------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)..... 121,461
Paid-in capital................................. 121,339,047
Accumulated net realized loss from
investments................................... (43)
------------
Net assets................................ $121,460,465
------------
------------
CLASS Y
Net assets...................................... $121,460,465
------------
Shares of beneficial interest outstanding....... 121,460,508
------------
Net asset value, offering and redemption price
per share..................................... $1.00
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 14, 1997* THROUGH MARCH 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................ $3,443,370
----------
EXPENSES
Advisory fees................................... 120,582
Federal and state registration fees............. 75,261
Legal and auditing fees......................... 45,675
Accounting fees................................. 39,813
Administration fees............................. 30,167
Reports and notices to shareholders............. 30,114
Insurance expenses.............................. 16,440
Transfer agent fees and expenses................ 9,232
Custodian fees and expenses..................... 9,186
Amortization of organization expenses........... 8,065
Trustees' fees and expenses..................... 4,014
Other........................................... 3,013
----------
Total expenses before waivers and related
reimbursements............................. 391,562
Less: waivers and related reimbursements.... (311,756)
----------
Total expenses after waivers and related
reimbursements............................. 79,806
----------
Net investment income........................... 3,363,564
----------
NET REALIZED LOSS ON INVESTMENTS.................. (43)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $3,363,521
----------
----------
</TABLE>
- --------
* Commencement of investment operations
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JULY 14, 1997* THROUGH MARCH 31, 1998
<TABLE>
<S> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income........................... $ 3,363,564
Net realized loss on investments................ (43)
--------------
Net increase in net assets resulting from
operations.................................... 3,363,521
--------------
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income........................... (3,363,564)
--------------
SHARES OF BENEFICIAL INTEREST**
Net proceeds from the sale of shares............ 203,898,180
Cost of shares repurchased...................... (85,207,807)
Shares issued in reinvestment of dividends...... 2,770,134
--------------
Net increase in net assets derived from shares
of beneficial interest transactions........... 121,460,507
--------------
Total increase in net assets.................... 121,460,464
NET ASSETS
Beginning of period............................. 1
--------------
End of period................................... $ 121,460,465
--------------
--------------
</TABLE>
- --------
* Commencement of investment operations
** Share transactions at net asset value of $1.00 per share.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below is per share operating performance data for each share
outstanding, total investment return, ratios to average net assets and other
supplemental data for the period. This information has been derived from
information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 14, 1997*
THROUGH MARCH 31, 1998
---------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 1.00
Net investment income(1)......... 0.0399
--------
Net increase in net assets
resulting from operations...... 0.0399
--------
Dividends to shareholders from
net investment income.......... (0.0399)
--------
Net asset value, end of period... $ 1.00
--------
--------
Total investment return(2)(3).... 5.72%
--------
--------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)....................... $ 121,460
Ratio of expenses to average net
assets(1)(3)(4)................ 0.13%
Ratio of net investment income to
average net assets(1)(3)....... 5.58%
Decrease reflected in above
expense ratio and net
investment income due to
waivers and related
reimbursements(3).............. 0.52%
</TABLE>
- --------
* Commencement of investment operations
(1) Reflects waivers and related reimbursements.
(2) Total investment return is calculated assuming a purchase of shares on the
first day and a sale of shares on the last day of the period and includes
reinvestment of dividends.
(3) Annualized.
(4) Without the waiver of advisory fee and related reimbursement of certain
operating expenses, the ratio of expenses to average net assets for Prime
Money Market Portfolio would have been 0.65% annualized for the period July
14, 1997 through March 31, 1998.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business
trust on September 29, 1994 and is registered with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as an open-end management investment
company. The Fund consists of ten separate portfolios: seven diversified
portfolios, Large Cap Value Portfolio, Small Cap Value Portfolio, Total Return
Bond Portfolio, International Equity Portfolio, Balanced Portfolio, High Yield
Total Return Portfolio and Prime Money Market Portfolio (the "Portfolio"), and
three non-diversified portfolios, The Insiders Select Fund, S&P STARS Portfolio,
and Focus List Portfolio. Each portfolio is treated as a separate entity for
certain matters under the Investment Company Act, and for other purposes, and a
shareholder of one portfolio is not deemed to be a shareholder of any other
portfolio. As of the date hereof, each portfolio (except the Prime Money Market
Portfolio which only offers shares designated as class Y and Focus List and
International Equity which have yet to commence initial public offerings of
their class Y shares) offers four classes of shares, which have been designated
as class A, B, C, and Y shares.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on July 14,
1997, the Portfolio did not have any transactions other than those relating to
organizational matters and the sale of one class Y share to Bear, Stearns & Co.,
Inc. ("Bear Stearns" or the "Distributor"). Costs of $56,500 which were incurred
by the Portfolio in connection with the organization, registration with the
Commission and initial public offering of its shares, have been deferred and are
being amortized using the straight-line method over the period of benefit not
exceeding sixty months, beginning with the commencement of investment operations
of the Portfolio. In the event that the portfolio is liquidated prior to the end
of the sixty month period, the Distributor or the transferee of the Distributor
shall bear the unamortized deferred organization expenses.
PORTFOLIO VALUATION--Portfolio securities are valued at amortized cost, which
approximates current securities are valued at cost when purchased and thereafter
a constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the valuations
are performed in an attempt to avoid dilution or other unfair results to
shareholders. The Portfolio seeks to maintain a net asset value of $1.00 per
share, although there is no assurance that it will be able to do so on a
continuing basis.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses are calculated on the identified cost basis
for both financial reporting and income tax purposes. Interest income and
expenses are recorded on the accrual basis.
U.S. FEDERAL TAX STATUS--The Portfolio intends to distribute substantially all
of its taxable income and to comply with the other requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing during each calendar year substantially all of its
ordinary income and capital gains, if any, the Portfolio intends not to be
subject to a U.S. federal excise tax.
DIVIDENDS AND DISTRIBUTIONS--Dividends from net investment income are declared
daily and paid monthly. Any net realized capital gains are distributed at least
annually. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
REPURCHASE AGREEMENTS--The Portfolio may purchase securities from financial
institutions subject to the seller's agreement to repurchase and the Portfolio's
agreement to resell the securities at par. The investment adviser only enters
into repurchase agreements with financial institutions that are primary dealers
and deemed to be creditworthy by the
10
<PAGE>
investment adviser in accordance with procedures adopted by the Board of
Trustees. Securities purchased subject to repurchase agreements are maintained
with a custodian of the Portfolio and must have, at all times, an aggregate
market value greater than or equal to the repurchase price plus accrued
interest. If the value of the underlying securities falls below 102% of the
value of the repurchase price plus accrued interest, the Portfolio will require
the seller to deposit additional collateral by the next Portfolio business day.
In the event that the seller under the agreement defaults on its repurchase
obligation or fails to deposit sufficient collateral, the Portfolio has the
contractual right, subject to the requirements of applicable bankruptcy and
insolvency laws, to sell the underlying securities and may claim any resulting
loss from the seller.
MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
As of December 4, 1997, Bear Stearns Asset Management Inc. ("BSAM" or the
"Adviser"), formerly known as Bear Stearns Funds Management Inc. delegated
certain administrative services to a separate administrator, of the same name,
Bear Stearns Funds Management Inc. ("BSFM"), a newly created wholly-owned
subsidiary of The Bear Stearns Companies Inc. The Adviser is staffed by the same
personnel and performs the same services called for by the Advisory Agreement
before its name change. On February 4, 1998, at a regular meeting of the Fund's
Board of Trustees, the Board approved the Advisory Agreement with BSAM and the
related delegation of duties to BSFM. The Adviser is entitled to receive from
the Portfolio a monthly fee equal to an annual rate of 0.20% of the Portfolio's
average daily net assets.
During the period ended March 31, 1998, BSFM (the "Administrator") served as
administrator to the Portfolio pursuant to an Administration Agreement. The
Administrator is entitled to receive from the Portfolio a monthly fee equal to
0.05% of the Portfolio's average daily net assets. Under the terms of an
Administration Services Agreement with the Portfolio, PFPC Inc. provides certain
administrative services to the Portfolio. For providing these services, PFPC
Inc. is entitled to receive from the Portfolio a monthly fee equal to an annual
rate of 0.075% of the Portfolio's average daily net assets up to $150 million,
0.04% of the next $150 million, 0.02% of the next $300 million and 0.0125% of
net assets above $600 million, subject to a minimum monthly fee of $6,250 for
the Portfolio. During the period ended March 31, 1998, PFPC Inc. has voluntarily
waived a portion of its fee.
During the period ended March 31, 1998, the Adviser has voluntarily undertaken
to limit the Portfolio's operating expenses (exclusive of brokerage commissions,
taxes, interest, and extraordinary items) to a maximum annual level of no more
than 0.20% of its average daily net assets. The effective net operating expense
ratio for the period was 0.13% of the Portfolio's average daily net assets
(annualized). As necessary, this limitation is effected by waivers by the
Adviser of its advisory fees and reimbursements of expenses exceeding the
advisory fee. For the period ended March 31, 1998, the Adviser waived advisory
fees of $120,582. In addition, the Adviser reimbursed $191,174, in order to
maintain the voluntary expense limitation.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc., and an affiliate of the Adviser and the Administrator, serves as custodian
to the Portfolio.
SHARES OF BENEFICIAL INTEREST
The Portfolio currently offers class Y shares. There is no sales charge or CDSC
on class Y shares, which are offered primarily to institutional investors.
At March 31, 1998 there was an unlimited amount of $0.001 par value shares of
beneficial interest authorized for the Portfolio, of which Bear Stearns owned
45,413,477 of class Y shares (including 413,476 shares acquired through
dividends reinvested).
11
<PAGE>
COLLATERAL FOR REPURCHASE AGREEMENTS
Listed below is the collateral associated with the repurchase agreement with BZW
Securities Inc. outstanding at March 31, 1998.
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MARKET ACCURAL
ISSUER AMOUNT (000) MATURITY RATE VALUE INTEREST TOTAL VALUE
- ----------------------------------- ------------ ----------------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
FHLMC GOLD*........................ $25,423 01/01/02-02/01/28 5.50%-8.50% $24,314,720 $139,781 $24,454,501
</TABLE>
- ---------
*Federal Home Loan Mortgage Corp. Gold
CREDIT AGREEMENT
The Fund, (on behalf of Prime Money Market Portfolio), has entered into a credit
agreement with The First National Bank of Boston. Small Cap Value Portfolio,
Large Cap Value Portfolio, The Insiders Select Fund, S&P STARS Portfolio, Total
Return Bond Portfolio, Focus List Portfolio, Balanced Portfolio, International
Equity Portfolio, High Yield Total Return Portfolio and Bear Stearns Investment
Trust, which consists of the Emerging Markets Debt Portfolio, are also parties
to the credit agreement. The agreement provides that each party to the credit
agreement is permitted to borrow in an amount equal to the lesser of $25 million
or 25% of the net assets of each Portfolio. At no time shall the aggregate
outstanding principal amount of all loans to any of the Portfolios exceed $25
million. Each Portfolio as a fundamental policy is permitted to borrow in an
amount up to 33 1/3% of the value of such Portfolio's assets. However, each
Portfolio currently intends to borrow money only for temporary or emergency (not
leveraging) purposes in an amount up to 15% (10% for the Emerging Markets Debt
Portfolio) of its net assets. The line of credit will bear interest at the
greater of: (i) the annual rate of interest announced from time to time from the
bank at its head office as its Base Rate, or (ii) the Federal Funds Effective
Rate plus 0.50%, or at the borrower's option, the rate quoted by The First
National Bank of Boston.
Each loan is payable on demand or upon termination of this credit agreement or,
for money market loans, on the last day of the interest period and, in any
event, not later than 14 days from the date the loan was advanced. The Portfolio
had no amounts outstanding under the line of credit agreement during the period
ended March 31, 1998.
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THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders,
Prime Money Market Portfolio
(a Series of The Bear Stearns Funds):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Prime Money Market Portfolio, as of March 31,
1998, and the related statements of operations, changes in net assets and the
financial highlights for the period presented. These financial statements and
financial highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at March 31, 1998 by
correspondence with the custodian and brokers, and where replies were not
received, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prime Money Market
Portfolio at March 31, 1998, the results of its operations, the changes in its
net assets and the financial highlights for the period presented in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
May 8, 1998
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