<PAGE>
[LOGO]
The
Bear Stearns
Funds
245 PARK AVENUE
NEW YORK, NY 10167
1.800.766.4111
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<S> <C>
INVESTMENT MANAGER/ADVISER TRANSFER AND DIVIDEND
Bear Stearns Asset DISBURSEMENT AGENT
Management Inc. PFPC Inc.
575 Lexington Avenue Bellevue Corporate Center
New York, NY 10022 400 Bellevue Parkway
ADMINISTRATOR Wilmington, DE 19809
Bear Stearns Funds INDEPENDENT AUDITORS
Management Inc. Deloitte & Touche LLP
245 Park Avenue Two World Financial Center
New York, NY 10167 New York, NY 10281
DISTRIBUTOR EMERGING MARKETS DEBT
Bear, Stearns & Co. Inc. PORTFOLIO:
245 Park Avenue CUSTODIAN
New York, NY 10167 Brown Brothers Harriman & Co.
TOTAL RETURN BOND PORTFOLIO & 40 Water Street
HIGH YIELD TOTAL RETURN Boston, MA 02109
PORTFOLIO: COUNSEL
CUSTODIAN Mayer, Brown & Platt
Custodial Trust Company 1675 Broadway
101 Carnegie Center New York, NY 10019
Princeton, NJ 08540
COUNSEL
Kramer, Levin, Naftalis &
Frankel
919 Third Avenue
New York, NY 10022
</TABLE>
This report is submitted for the general information of the shareholders of each
Portfolio. It is not authorized for distribution to prospective investors in
each Portfolio unless it is preceded or accompanied by a current prospectus
which includes details regarding each Portfolio's objectives, policies, sales
commissions and other information. Total investment return is based on
historical results and is not intended to indicate future performance. The
investment return and principal value of an investment in each Portfolio will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than original cost.
BSF-R-016-02
Emerging
Markets Debt
Portfolio
Total Return
Bond Portfolio
High Yield
Total Return
Portfolio
Annual Report
March 31, 1998
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
Total Return Bond Portfolio
High Yield Total Return Portfolio
LETTER TO SHAREHOLDERS
April 22, 1998
Dear Shareholders:
We are pleased to present the annual report to shareholders for the Emerging
Markets Debt Portfolio ("Debt Portfolio"), Total Return Bond Portfolio ("Bond
Portfolio") and High Yield Total Return Portfolio ("High Yield Portfolio") for
the fiscal year ended March 31, 1998. Detailed performance data for each class
of shares of each Portfolio can be found in the "Financial Highlights" and line
graph (except for the High Yield Portfolio) sections of this report.
The report on the High Yield Portfolio covers the period from January 2, 1998
(commencement of investment operations) through March 31, 1998, its first three
months of operations.
EMERGING MARKETS DEBT PORTFOLIO*
For the fiscal year ended March 31, 1998, the Debt Portfolio's Class A shares
(without giving effect to the sales charge) had a total return of 19.31%.(1) The
Debt Portfolio's benchmark index, the Salomon Brothers Emerging Markets Debt
Mutual Fund Index, returned 21.91% for the same period.
The Debt Portfolio's strong returns for the period reflect both the solid
foundation for credit improvement in many emerging markets and our focus on
those countries making the most progress toward sustainable economic growth with
low inflation. Although late 1997 was difficult for investors in emerging
markets due to the ripple effects from the currency crisis in Southeast Asia,
this upheaval accelerated the reform process in the region. A number of
countries, including Korea, Thailand, Indonesia and the Philippines, have agreed
to introduce market-oriented reforms in exchange for financial assistance from
the International Monetary Fund, World Bank and individual countries.
We expect significant financial and corporate restructuring to continue in Asia,
which should lead to additional investment opportunities in the region.
Consistent with this outlook, we recently raised our Asian exposure by two
percentage points to 6%, introducing an allocation to Korea. We believe that
Korea is best positioned to take advantage of an improvement in the region's
competitiveness. Korea has made progress in instituting labor reforms,
deregulating its financial markets and lowering barriers to the acquisition of
Korean companies by non-Korean entities. We were also pleased by the country's
election of a new, reformist president and by Standard & Poor's decision to
upgrade the country's credit rating.
A VALIDATION OF OUR STRATEGY
Ironically, we have seen a confirmation of our investment approach in the
fallout from Asia. Countries that we have favored have continued to implement
reforms. Mexico, for example, has significantly reduced public spending in an
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effort to offset the decline in its oil revenues resulting from lower oil
prices. Russia, where tax collection has been a long-standing problem, has seen
a significant increase both in the quantity and quality of tax revenues, which
encouraged the International Monetary Fund to extend the term of its financial
assistance.
We remain comfortable with the long-term outlook for the countries in which we
have invested. However, shorter-term considerations keep us from investing as
aggressively as we would like. Among our concerns is the impact of lower prices
for oil and other commodities on many of these countries, which are dependent on
natural resources for much of their exports and wealth. Ecuador and Venezuela,
for example, have not adjusted as quickly as Mexico to the prospect of lower
revenues. Economic growth prospects in selected countries represent another
concern. Brazil, for instance, which represents a large percentage of Latin
America's total economic output, is likely to show little economic growth this
year. Finally, a potential slowdown in economic growth in the U.S. and ongoing
sluggishness in Japan could lessen the demand for imports from many emerging
countries.
Consistent with our focus on relative value, we continue to attempt to identify
opportunities in markets that have suffered and to emphasize those countries
with the best prospects for meaningful reform and economic stability.
TOTAL RETURN BOND PORTFOLIO
For the fiscal year ended March 31, 1998, the Bond Portfolio's Class A shares
(without giving effect to the sales charge) had a total return of 9.43%.(2) The
Bond Portfolio's benchmark index, the Salomon Brothers Broad Investment Grade
Bond Index, returned 11.98% for the same period.
ASIAN CRISIS CHECKS INFLATION
In April 1997, the domestic fixed income markets peaked on concerns that the
strong economy would lead to an upsurge in inflation. After Gross Domestic
Product growth was reported at near 6% in the first quarter of 1997, the yield
on the 30-year Treasury bond exceeded 7% as the Federal Reserve Board (the
"Fed") maintained its bias toward tighter monetary policy. However, as the year
progressed, inflation fears eased and rates across the yield curve declined.
Ironically, the financial crisis in Asia had the beneficial effect of dampening
inflation concerns on expectations that growth domestically and globally would
slow. As of March 31, 1998, the 30-year Treasury yield was 5.92%.
With inflationary pressures nonexistent and evidence of an Asia-led slowdown
beginning to emerge, the Fed has remained on the sidelines. As a result of the
decline in volatility and a tightening of trading ranges, mortgage-backed
securities were the top-performing sector during the first quarter of 1998,
followed by corporate issues and Treasuries. Corporate spreads, which had
widened in the fourth quarter of 1997 as a result of the Asian crisis, recovered
in the first quarter of 1998 and prices firmed as the fallout appeared less
serious than initially feared.
We expect long-term Treasuries to continue to benefit from low inflation, the
strength of the dollar and the relative attractiveness of U.S. yields vis-a-vis
other major global markets. The Treasury market should gain further support as
we enter a period of budget surplus for the first time in decades. However, we
do not expect to see a meaningful rally, particularly in issues with shorter
maturities, until there are meaningful signs of a slowdown in economic growth.
We are maintaining our overweighted position in corporate bonds, reflecting our
confidence that inflation will remain low and economic growth will continue.
Although corporate profit growth is expected to slow, it is still expected to
remain positive and corporate credit quality should benefit. Despite the high
levels of refinancing and increased prepayment volatility in the mortgage-backed
securities market, we see pockets of investment opportunity, particularly in
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commercial mortgage-backed securities. Our bias is toward a steepening of the
yield curve, particularly between two and ten years, causing us to adopt a
bulleted approach to the positioning of the Bond Portfolio -- with a focus on
the three-to-seven-year range and the 30-year end of the yield curve.
HIGH YIELD TOTAL RETURN PORTFOLIO**
For the fiscal year ended March 31, 1998, the High Yield Portfolio's Class A
shares (without giving effect to the sales charge) had a total return of
8.30%.(3) The High Yield Portfolio's benchmark index, the Lipper High Current
Yield Funds Index, returned 4.27% for the same period. Its broad-based
securities market index, the C.S. First Boston High Yield Bond Index, returned
3.01% for the same period.
The objective of the High Yield Portfolio is total return through a combination
of high current income and capital appreciation. The management team uses
proprietary credit screening software and hands-on fundamental analysis to
select undervalued high yield securities that are believed to be positioned for
gradual or substantial credit improvement. Such improvements may result from
business developments that could significantly improve an issuer's financial
situation such as a merger or the issuance of equity to pay down debt.
A FOCUS ON VALUE AND HIGH TOTAL RETURN POTENTIAL
During the first calendar quarter of 1998, our primary focus was on constructing
a portfolio of up to 100 companies that met our strict criteria for strong
credit fundamentals -- which we accomplished. We concentrated on sectors where
we could find value and high total return potential such as telecommunications,
especially competitive local exchange companies ("CLECs") and European
long-distance carriers; consumer cyclicals, including food companies and apparel
and automotive manufacturers; and niche industrial concerns. Areas that we
avoided due to high valuations and/ or credit concerns were energy, steel and
radio/television broadcasting.
Two examples of our telecommunications holdings are WinStar Communications, Inc.
(2.26% of net assets) and Barak I.T.C. (1.64%). WinStar is a wireless CLEC that
is aggressively and successfully building out a nationwide telecommunications
network. The company, which is publicly traded, has very good operating momentum
and is a possible merger candidate over the next eighteen months. Barak is an
Israeli long-distance carrier that has achieved over 25% market share
penetration within a year. Like WinStar, Barak is an aggressive marketer, and we
like its growth prospects. In consumer cyclicals, we bought the preferred stock
of Nebco Evans Holdings Co. (2.17%), a food distributor for fast-food
restaurants. Already a major supplier for Burger King, Nebco recently became the
distributor for all of Pepsico's fast-food restaurants. We see immediate
synergies and efficiencies resulting from the combination of its new and
existing business. All of these positions are top ten holdings that we believe
should exhibit improving credit trends.
In addition, we took advantage of certain trading opportunities that we
carefully researched. These included Coleman Holdings Inc., a premier consumer
products company that recently underwent a major operational restructuring;
Advanced Radio Telecom Corp., a wireless CLEC whose bonds we believed to be
extremely cheap based on the company's underlying asset value; and Shoppers Food
Warehouse Corp. (0.75%), a regional operator of retail food stores owned by the
Dart Group Corp. and a possible candidate for sale. All of these positions
greatly contributed to our first-quarter returns.
In summary, we believe we have put together a solid portfolio that is well
positioned for continued strong performance. Our objective continues to be to
generate a competitive dividend yield and high total returns from a
professionally
3
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selected, diversified portfolio of higher yield securities; pursuing select
trading ideas; actively participating in the new issue market; and identifying
unit transactions (securities composed of debt, equity or equity warrants),
which may allow us at times to sell the debt components and to "strip" out the
warrants for longer-term appreciation potential.
In conclusion, we value the confidence you have placed in us and would be
pleased to address any questions or concerns you may have. Please feel free to
call us at 1-800-766-4111.
Sincerely,
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<S> <C>
[LOGO]
Robert S. Reitzes
President
Bear Stearns Investment Trust and
The Bear Stearns Funds
</TABLE>
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<S> <C>
* International investing involves risks such as currency exchange-rate volatility, possible political, social, or
economic instability and differences in taxation and other financial standards.
** Investing in high yield debt securities generally involves greater risks than investing in more highly rated debt
securities such as the risk of greater price fluctuation and the possible loss of principal and income.
(1) For the fiscal year ended March 31, 1998, the Debt Portfolio's Class A shares had a total return of 14.84%,
including the initial 3.75% maximum sales charge in effect at the beginning of the period.
(2) For the fiscal year ended March 31, 1998, the Bond Portfolio's Class A shares had a total return of 5.31%, including
the initial 3.75% maximum sales charge in effect at the beginning of the period.
(3) For the fiscal year ended March 31, 1998, the High Yield Portfolio's Class A shares had a total return of 3.39%,
including the initial 4.50% maximum sales charge.
</TABLE>
Bear Stearns Asset Management Inc. has waived its investment management/advisory
fee and agreed voluntarily to reimburse a portion of each Portfolio's operating
expenses, as necessary, to maintain the expense limitation as set forth in the
notes to the financial statements. Total returns shown include fee waivers and
expense reimbursements, if any; total returns would have been lower had there
been no assumption of fees and expenses in excess of expense limitations.
4
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THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A SHARES(1)(2)(3) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EMERGING MARKETS DEBT PORTFOLIO
SALOMON BROTHERS EMERGING
CLASS A SHARES MARKETS DEBT MUTUAL FUND INDEX
<S> <C> <C>
May 4, 1995 $9,625.00 $10,000.00
$10,203.47 $10,950.00
Sept. 30, 1995 $10,805.20 $11,450.00
$11,876.53 $12,600.00
Mar. 31, 1996 $12,666.70 $13,400.00
$14,107.20 $14,300.00
Sept. 30, 1996 $15,590.00 $16,331.00
$16,718.60 $17,799.00
Mar. 31, 1997 $16,907.10 $18,013.00
$18,650.60 $19,950.00
Sept. 30, 1997 $19,966.20 $21,400.00
$19,160.90 $20,847.00
Mar. 31, 1998 $20,172.00 $21,960.00
Past performance is not predictive of future performance.
<CAPTION>
EMERGING MARKETS DEBT PORTFOLIO
CONSUMER PRICE INDEX
<S> <C>
May 4, 1995 $10,013.17
$10,039.50
Sept. 30, 1995 $10,085.58
$10,138.25
Mar. 31, 1996 $10,243.58
$10,322.58
Sept. 30, 1996 $10,388.41
$10,480.58
Mar. 31, 1997 $10,526.66
$10,589.00
Sept. 30, 1997 $10,626.00
$10,665.53
Mar. 31, 1998 $10,672.00
Past performance is not predictive of future performance.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1998 ANNUAL(4)
------------------- -------------------
<S> <C> <C>
Emerging Markets Debt Portfolio(2)
Class A shares(5)................................... 14.84% 27.25%
Class C shares(3)................................... 18.66 28.96
Salomon Brothers Emerging Markets Debt Mutual Fund
Index(1)............................................ 21.91 31.01
Consumer Price Index(1)................................. 1.31 2.26
</TABLE>
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<TABLE>
<S> <C>
(1) The chart assumes a hypothetical $10,000 initial investment in the Debt Portfolio and reflects all portfolio expenses.
Investors should note that the Debt Portfolio is a professionally managed mutual fund while the indices are either
unmanaged and do not incur sales charges or expenses and are not available for investment. Performance of the indices
correspond to the performance of Class A shares only.
(2) Bear Stearns Asset Management Inc. waived its investment management fee and agreed voluntarily to reimburse a portion of
the Debt Portfolio's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and expense reimbursements; total returns would have
been lower had there been no assumption of fees and expenses in excess of the expense limitations.
(3) Assuming no redemption of shares at the end of the period, the return of Class C shares (for which July 26, 1995 was the
initial public offering date) would have been higher than Class A shares if operations were commenced on the same day.
The higher return is due to the fact that there is no initial sales charge on Class C shares.
(4) Commencing May 4, 1995, Bear Stearns Asset Management Inc. assumed the daily portfolio management responsibility for the
Debt Portfolio. Total returns for Class A shares are shown for the period May 4, 1995 through March 31, 1998. For the
period May 3, 1993 (commencement of investment operations) through May 3, 1995 the Debt Portfolio's investment adviser
was BEA Associates and those results are not shown.
(5) Reflects the initial maximum sales charge in effect at the beginning of the period (3.75%). Without the applicable sales
charge, the total returns would have been 19.31% and 28.94%, respectively, for each period shown.
</TABLE>
5
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(3) VS. VARIOUS INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN BOND PORTFOLIO
CLASS A SHARES CLASS C SHARES
<S> <C> <C> <C> <C>
Apr. 5, 1995 $9,625.00 $10,000.00
$10,027.00 $10,412.00
Sept. 30, 1995 $10,260.00 $10,587.00
$10,679.00 $11,064.00
Mar. 31, 1996 $10,430.00 $10,797.00
$10,467.00 $10,824.00
Sept. 30, 1996 $10,644.00 $10,996.00
$10,972.00 $11,332.00
Mar. 31, 1997 $10,908.00 $11,245.00
$11,308.00 $11,648.00
Sept. 30, 1997 $11,659.00 $11,998.00
$11,799.60 $12,130.40
Mar. 31, 1998 $11,932.00 $12,247.00
Past performance is not predictive of future performance.
<CAPTION>
TOTAL RETURN BOND PORTFOLIO
SALOMON BROTHERS
BROAD INVESTMENT GRADE BOND INDEX CONSUMER PRICE INDEX
<S> <C> <C>
Apr. 5, 1995 $10,000.00 $10,000.00
$10,568.00 $10,079.00
Sept. 30, 1995 $10,767.00 $10,126.00
$11,234.00 $10,185.00
Mar. 31, 1996 $11,038.00 $10,284.00
$11,092.00 $10,357.00
Sept. 30, 1996 $11,300.00 $10,436.00
$11,641.00 $10,522.00
Mar. 31, 1997 $11,581.00 $10,568.00
$11,998.00 $10,595.00
Sept. 30, 1997 $12,397.00 $10,661.00
$12,762.65 $10,700.66
Mar. 31, 1998 $12,968.31 $10,707.27
Past performance is not predictive of future performance.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
MARCH 31, 1998 ANNUAL(4)
----------------- -----------------
<S> <C> <C>
Total Return Bond Portfolio(2)
Class A shares(5).................... 5.31% 6.08%
Class C shares....................... 8.92 7.01
Class Y shares(3).................... 9.81 6.81
Salomon Brothers Broad Investment Grade
Bond Index(1)........................ 11.98 9.08
Consumer Price Index(1).................. 1.31 2.31
</TABLE>
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<TABLE>
<S> <C>
(1) The chart assumes a hypothetical $10,000 initial investment in the Bond Portfolio and reflects all portfolio expenses.
Investors should note that the Bond Portfolio is a professionally managed mutual fund while the indices are unmanaged, do
not incur sales charges or expenses and are not available for investment. Performance of the indices correspond to the
performance of Class A and C shares.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and agreed voluntarily to reimburse a portion of the Bond
Portfolio's operating expenses to maintain the expense limitation, as set forth in the notes to the financial statements.
Total returns shown include fee waivers and expense reimbursements; total returns would have been lower had there been no
assumption of fees and expenses in excess of expense limitations.
(3) The return of Class Y shares (for which September 8, 1995 was the initial public offering date) would have been higher
than Class A and C shares if operations were commenced on the same day. The higher return is due to the fact that there
is no sales load, CDSC or 12b-1 fee charged to Class Y shares.
(4) For the period of April 5, 1995 (commencement of investment operations) through March 31, 1998.
(5) Reflects the initial maximum sales charge in effect at the beginning of the period (3.75% ) . Without the applicable
sales charge, the total returns would have been 9.43% and 7.45%, respectively, for each period shown.
</TABLE>
CDSC - Contingent Deferred Sales Charge
6
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN COUNTRY WEIGHTINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF NET
RANK COUNTRY ASSETS
- ------------------------------------------------------ ---------------
<C> <S> <C>
1. Argentina......................................... 15.15
2. Brazil............................................ 14.59
3. Mexico............................................ 14.48
4. Russia............................................ 5.95
5. Peru.............................................. 4.86
6. Nigeria........................................... 4.78
7. Venezuela......................................... 4.76
8. Ecuador........................................... 4.69
9. Panama............................................ 4.54
10. Morocco........................................... 4.45
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN ISSUERS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY PERCENT OF
RANK ISSUER CURRENCY TYPE NET ASSETS
- ------------------------------------------------------ ------------ ------------------ ----------
<C> <S> <C> <C> <C>
1. Republic of Argentina............................. U.S. dollar Brady bond 15.15
2. Federal Republic of Brazil........................ U.S. dollar Brady bond 14.59
3. United Mexican States............................. U.S. dollar Brady bond 14.48
4. Russia............................................ U.S. dollar Loan Participation 5.95
5. The Republic of Peru.............................. U.S. dollar Brady bond 4.86
6. Central Bank of Nigeria........................... U.S. dollar Brady bond 4.78
7. Republic of Venezuela............................. U.S. dollar Brady bond 4.76
8. The Republic of Ecuador........................... U.S. dollar Brady bond 4.69
9. The Republic of Panama............................ U.S. dollar Brady bond 4.54
10. The Kingdom of Morocco............................ U.S. dollar Loan Participation 4.45
</TABLE>
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<TABLE>
<S> <C>
* The Portfolio's holdings will change over time.
</TABLE>
7
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
TOP INDUSTRY WEIGHTINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF NET
RANK INDUSTRY ASSETS
- ------------------------------------------------------ ---------------
<C> <S> <C>
1. Industrial........................................ 26.15
2. U.S. Government Agency Obligations................ 22.02
3. Finance........................................... 17.52
4. Asset-Backed...................................... 17.47
5. U.S. Government Obligations....................... 8.79
6. Utilities......................................... 7.34
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ------------------------------------------------------ ------------------------- ----------
<C> <S> <C> <C>
1. Government National Mortgage Association.......... U.S. Government Agency 14.11
Obligations
2. U.S. Treasury Notes............................... U.S. Government 8.79
Obligations
3. Morgan Stanley Capital I Inc...................... Asset-Backed 6.55
4. IRT Property Company.............................. Finance 5.85
5. TCA Cable TV, Inc................................. Industrial 5.69
6. Panamerican Beverages, Inc........................ Industrial 5.43
7. Federal National Mortgage Association............. U.S. Government Agency 5.01
Obligations
8. LG-Caltex Oil Corporation......................... Industrial 4.82
9. Western Resources Inc............................. Utilities 4.76
10. AFC Mortgage Loan Asset-Backed Certificates....... Asset-Backed 4.28
</TABLE>
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<TABLE>
<S> <C>
* The Portfolio's holdings will change over time.
</TABLE>
8
<PAGE>
THE BEAR STEARNS FUNDS
High Yield Total Return Portfolio
MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN INDUSTRY WEIGHTINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ------------------------------------------------------ ---------------
<C> <S> <C>
1. Telecommunications................................ 8.10
2. Industrial Products............................... 7.26
3. Food, Beverage & Tobacco.......................... 7.22
4. Forest - Paper Products........................... 6.62
5. Long Distance Telephone Services.................. 6.46
6. Steels - Metals - Mining.......................... 6.40
7. Textiles - Apparel................................ 6.36
8. Television Broadcasting........................... 4.46
9. Supermarkets & Distributors....................... 4.33
10. Gaming............................................ 3.61
</TABLE>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ------------------------------------------------------ ------------------------- ---------------
<C> <S> <C> <C>
1. AP Holdings Inc................................... Other Consumer 2.47
Non-Cyclicals
2. WinStar Communications, Inc....................... Telecommunications 2.26
3. Richmont Marketing Specialists.................... Food, Beverage & Tobacco 2.20
4. Nebco Evans Holdings Co........................... Food, Beverage & Tobacco 2.17
5. Acme Television LLC............................... Television Broadcasting 1.64
6. Barak I.T.C....................................... Long Distance Telephone 1.64
Services
7. PriCellular Wire.................................. Cellular Communications 1.60
8. Twin Laboratories Inc............................. Health Care 1.55
9. Px Escrow Corp.................................... Motion Picture Exhibition 1.50
10. Comforce Operating Inc............................ Other Consumer Cyclicals 1.50
</TABLE>
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<TABLE>
<S> <C>
* The Portfolio's holdings will change over time.
</TABLE>
9
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS -- 89.42%
ARGENTINA - 15.15%
SOVEREIGN
1,200 Republic of Argentina, Discount Bond, Series L
(a)(b).......................................... 6.875% 03/31/23 $ 1,041,750
2,375 Republic of Argentina, FRB Bearer (a)(b).......... 6.688 03/31/05 2,191,999
3,350 Republic of Argentina, Par Bond (b)(c)............ 5.500 03/31/23 2,573,219
-----------
Total Argentina (cost - $5,374,406)............... 5,806,968
-----------
BRAZIL - 14.59%
SOVEREIGN
2,252 Federal Republic of Brazil, Capitalization Bond
(b)(c).......................................... 8.000 04/15/14 1,900,136
900 Federal Republic of Brazil, DCB (a)(b)............ 6.750 04/15/12 726,187
725 Federal Republic of Brazil, DCB (a)(b)............ 6.750 04/15/12 584,984
1,000 Federal Republic of Brazil, Discount Bond, Series
Z-L (a)(b)...................................... 6.688 04/15/24 853,750
417 Federal Republic of Brazil, EI Bond (a)(b)........ 6.688 04/15/06 376,932
400 Federal Republic of Brazil, FLIRB Bearer (a)(b)... 4.500 04/15/09 315,480
975 Federal Republic of Brazil, NMB, Series L
(a)(b).......................................... 6.750 04/15/09 833,625
-----------
Total Brazil (cost - $5,585,418).................. 5,591,094
-----------
BULGARIA - 4.28%
SOVEREIGN
900 Republic of Bulgaria, FLIRB, Series A (a)(b)...... 2.250 07/28/12 602,438
625 Republic of Bulgaria, IAB Bearer (a)(b)........... 6.563 07/28/11 489,844
700 Republic of Bulgaria, IAB Registered (a)(b)....... 6.563 07/28/11 548,625
-----------
Total Bulgaria (cost - $1,274,718)................ 1,640,907
-----------
ECUADOR - 4.69%
SOVEREIGN
1,350 The Republic of Ecuador, Discount Bond (a)(b)..... 6.688 02/28/25 1,008,281
1,224 The Republic of Ecuador, PDI Bearer Bond (a)(b)... 6.688 02/27/15 790,967
-----------
Total Ecuador (cost - $1,728,697)................. 1,799,248
-----------
MEXICO - 14.48%
SOVEREIGN
100 United Mexican States, Par Bond, Series A (b)..... 6.250 12/31/19 85,375
6,400 United Mexican States, Par Bond, Series B (b)..... 6.250 12/31/19 5,464,000
-----------
Total Mexico (cost - $4,871,676).................. 5,549,375
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
MOROCCO - 4.45%
SOVEREIGN
1,900 The Kingdom of Morocco, Tranche A, Loan
Participation (a) (cost - $1,389,264)........... 5.844% 01/01/09 $ 1,705,250
-----------
NIGERIA - 4.78%
SOVEREIGN
2,500 Central Bank of Nigeria, Par Bond (b)(c)(d)
(cost - $1,720,992)............................. 6.250 11/15/20 1,832,813
-----------
PANAMA - 4.54%
SOVEREIGN
1,175 The Republic of Panama, IRB (a)(b)................ 3.750 07/17/14 942,938
937 The Republic of Panama, PDI Bond (a)(b)........... 6.563 07/17/16 798,482
-----------
Total Panama (cost - $1,657,789).................. 1,741,420
-----------
PERU - 4.86%
SOVEREIGN
400 The Republic of Peru, Discount Bond (a)(b)........ 6.688 03/08/27 333,500
250 The Republic of Peru, FLIRB (b)(c)................ 3.250 03/07/17 157,188
150 The Republic of Peru, PDI Bond (b)(c)............. 4.000 03/07/17 103,125
1,846 The Republic of Peru, PDI Bond (a)(b)............. 4.000 03/07/17 1,269,125
-----------
Total Peru (cost - $1,397,552).................... 1,862,938
-----------
PHILIPPINES - 4.16%
SOVEREIGN
1,050 Republic of the Philippines, FLIRB, Series B
(a)(b).......................................... 6.000 06/01/08 948,885
725 Republic of the Philippines, Par Bond, Series B
(b)(c).......................................... 6.500 12/01/17 646,609
-----------
Total Philippines (cost - $1,647,116)............. 1,595,494
-----------
POLAND - 2.73%
SOVEREIGN
900 Delphes Co. No. 2 Ltd. (b)(c)..................... 7.750 05/05/09 911,250
150 The Polish People's Republic, PDI Bearer Bond
(b)(c).......................................... 4.000 10/27/14 134,719
-----------
Total Poland (cost - $1,028,561).................. 1,045,969
-----------
RUSSIA - 5.95%
SOVEREIGN
939 Russia, IAN Series (a)............................ 6.719 12/15/15 663,353
2,550 Russia, Principal Loan (a)........................ 6.719 12/15/20 1,617,656
-----------
Total Russia (cost - $2,236,566).................. 2,281,009
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S)+ RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
VENEZUELA - 4.76%
SOVEREIGN
1,429 Republic of Venezuela, DCB (a)(b)................. 6.813% 12/18/07 $ 1,302,678
600 Republic of Venezuela, Par Bond, Series B
(b)(e).......................................... 6.750 03/31/20 520,875
-----------
Total Venezuela (cost - $1,708,429)............... 1,823,553
-----------
Total Long-Term Debt Investments
(cost - $31,621,184)............................ 34,276,038
-----------
SHORT-TERM INVESTMENT -- 5.43%
GRAND CAYMAN - 5.43%
2,083 Brown Brothers Harriman & Co.
(cost - $2,083,000)............................. 5.250 * 2,083,000
-----------
Total Investments -- 94.85%
(cost $33,704,184).............................. 36,359,038
Other assets in excess of liabilities -- 5.15%.... 1,972,330
-----------
Net Assets -- 100.00%............................. $38,331,368
-----------
-----------
</TABLE>
- ---------
<TABLE>
<S> <C>
+ Denominated in United States dollars.
* Variable rate call account. Rate resets on a daily basis, amounts available generally on the same business day.
(a) Adjustable rate; rate based on London Interbank Offered Rate (LIBOR).
(b) Brady bond.
(c) Step-up coupon; coupon increases at periodic intervals.
(d) With additional 2,500 warrants attached, with no market value.
(e) With additional 2,000 warrants attached, with no market value.
DCB Debt Conversion Bond.
EI Eligible Interest.
FLIRB Front Loaded Interest Reduction Bond.
FRB Floating Rate Bond.
IAB Interest Arrears Bond.
IAN Interest Arrears Note.
IRB Interest Reduction Bond.
NMD New Money Bond.
PDI Past Due Interest.
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS -- 99.29%
CORPORATE OBLIGATIONS - 68.48%
ASSET-BACKED - 17.47%
$ 373 AFC Mortgage Loan Asset-Backed Certificates,
Series 1994-1, Class 1A......................... 6.400 % 03/25/24 $ 371,689
251 Ford Credit 1995-B Grantor Trust, Asset-Backed
Certificates, Class A........................... 5.900 10/15/00 250,819
540 Morgan Stanley Capital I Inc., Series 1997-C1,
Class A-1B, Commercial Mortgage Pass-Through
Certificates.................................... 7.460 03/01/04 568,687
300 Washington Mutual Capital I, Subordinated Capital
Income Securities, Washington Mutual Inc.
Guaranteed...................................... 8.375 06/01/27 326,250
----------
1,517,445
----------
FINANCE - 17.52%
350 Aetna Services Inc., Aetna Inc. Guaranteed........ 6.970 08/15/36 365,312
200 Berkley, W.R. Capital Trust, Berkley, W.R. Inc.
Guaranteed...................................... 8.197 12/15/45 207,500
250 Hutchison Whampoa Financial, Hutchison Whampoa
Ltd. Guaranteed*................................ 7.500 08/01/27 225,625
500 IRT Property Company, Senior Notes................ 7.250 08/15/07 508,125
200 Markel Capital Trust 1, Series B, Capital
Securities, Markel Corporation Guaranteed*...... 8.710 01/01/46 215,000
----------
1,521,562
----------
INDUSTRIAL - 26.15%
500 LG-Caltex Oil Corporation, Unsecured Notes*....... 7.500 07/15/07 418,746
200 MedPartners, Inc., Senior Subordinated Notes...... 6.875 09/01/00 192,750
250 News America, Inc.*............................... 6.750 01/09/38 248,125
475 Panamerican Beverages, Inc., Senior Notes*........ 7.250 07/01/09 472,031
200 Sony Corporation, Unsubordinated Notes............ 6.125 03/04/03 199,500
500 TCA Cable TV, Inc................................. 6.530 02/01/28 494,375
250 Time Warner Inc., Pass-Thru Asset Trust
Securities*..................................... 4.900 07/29/99 245,937
----------
2,271,464
----------
UTILITIES - 7.34%
250 Empresa Electrica del Norte Grande S.A., Senior
Loan Participation Certificates*................ 7.750 03/15/06 224,016
400 Western Resources Inc............................. 7.125 08/01/09 413,500
----------
637,516
----------
Total Corporate Obligations
(cost - $5,965,048)............................. 5,947,987
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 22.02%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.90%
250 Federal Home Loan Mortgage Corporation............ 6.500 01/01/01 252,041
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE BEAR STEARNS FUNDS
Total Return Bond Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE(S) DATE(S) VALUE
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 5.01%
$ 443 Federal National Mortgage Association............. 5.250-6.500% 01/15/03-03/01/28 $ 435,490
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 14.11%
821 Government National Mortgage Association.......... 7.000 12/06/05-03/15/28 828,959
400 Government National Mortgage Association, TBA..... 6.500 07/01/25 396,375
----------
1,225,334
----------
Total U.S. Government Agency Obligations
(cost - $1,922,804)............................. 1,912,865
----------
U.S. GOVERNMENT OBLIGATIONS - 8.79%
U.S. TREASURY NOTES - 8.79%
750 U.S. Treasury Notes (cost - $755,527)............. 5.875-6.625 11/30/01-07/31/01 763,264
----------
Total Long-Term Debt Investments
(cost - $8,643,379)............................. 8,624,116
----------
SHORT-TERM INVESTMENTS -- 7.66%
DISCOUNT COMMERCIAL PAPER - 7.46%
250 Centric Capital Corp.***.......................... 5.550 04/30/98 248,882
400 GE Capital Corp.***............................... 5.530 04/20/98 398,833
----------
647,715
----------
<CAPTION>
SHARES
- ----------
<C> <S> <C> <C> <C>
INVESTMENT COMPANY - 0.20%
17,496 The Milestone Funds Treasury Obligations
Portfolio, Institutional Shares**............... 17,496
----------
Total Short-Term Investments
(cost - $665,211)............................... 665,211
----------
Total Investments -- 106.95%
(cost - $9,308,590)............................. 9,289,327
Liabilities in excess of other assets --
(6.95)%......................................... (603,219)
----------
Net Assets -- 100.00%............................. $8,686,108
----------
----------
</TABLE>
- ---------
<TABLE>
<S> <C>
TBA To Be Announced. TBA securities are purchased on a firm commitment basis with an approximate principal and
maturity. The actual principal and maturity date is determined upon settlement.
* SEC Rule 144A security. Such securities are traded only among qualified institutional buyers.
** Money market fund.
*** A portion of which was segregated as collateral for TBA securities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE BEAR STEARNS FUNDS
High Yield Total Return Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS -- 102.58%
UNITED STATES - 91.60%
AUTOMOBILE MANUFACTURING RELATED - 2.88%
$ 500 Prestolite Electric Inc., Senior Notes*........... 9.625% 02/01/08 $ 513,750
500 Stanadyne Automotive Corp., Senior Subordinated
Notes*.......................................... 10.250 12/15/07 512,500
-----------
1,026,250
-----------
BUSINESS SERVICES - 1.45%
500 Nationwide Credit Inc., Senior Notes*............. 10.250 01/15/08 516,250
-----------
CELLULAR COMMUNICATIONS - 2.54%
500 Crown Castle International Corp., Senior Discount
Notes*++........................................ 10.625 11/15/07 336,250
500 PriCellular Wire, Senior Discount Notes, Series
B............................................... 14.000 11/15/01 568,750
-----------
905,000
-----------
CHEMICALS - 3.58%
500 American Pacific Corporation, Senior Notes*....... 9.250 03/01/05 517,500
500 Envirodyne Industries, Inc., Senior Notes......... 10.250 12/01/01 498,750
250 Sterling Chemicals, Inc., Senior Subordinated
Notes........................................... 11.750 08/15/06 258,125
-----------
1,274,375
-----------
CONVENIENCE & DRUG RETAILERS - 1.43%
500 Duane Reade Inc., Senior Subordinated Notes....... 9.250 02/15/08 510,000
-----------
DIVERSIFIED - CONGLOMERATES - 2.16%
500 Eagle-Picher Industries, Inc., Senior Subordinated
Notes*.......................................... 9.375 03/01/08 510,000
250 Jordan Industries, Inc., Senior Notes, Series
B*.............................................. 10.375 08/01/07 259,375
-----------
769,375
-----------
EXPLORATION & PRODUCTION - 2.80%
500 Abraxas Petroleum Corporation, Senior Notes,
Series B........................................ 11.500 11/01/04 511,250
500 National Energy Group, Inc., Senior Notes, Series
D............................................... 10.750 11/01/06 485,000
-----------
996,250
-----------
FABRICATED GLASS, PLASTICS & FIBERS - 2.35%
250 American Architectural Products Corporation,
Senior Notes*................................... 11.750 12/01/07 262,500
500 Graham Packaging Co., Senior Discount Notes*++.... 10.750 01/15/09 317,500
250 Outsourcing Services Group, Senior Subordinated
Notes*.......................................... 10.875 03/01/06 255,625
-----------
835,625
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE BEAR STEARNS FUNDS
High Yield Total Return Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
FOOD, BEVERAGE & TOBACCO - 3.65%
$ 500 North Atlantic Trading Company, Inc., Senior
Notes, Series B, North Atlantic Trading Company,
Inc. Guaranteed................................. 11.000% 06/15/04 $ 516,250
750 Richmont Marketing Specialists, Senior
Subordinated Notes*............................. 10.125 12/15/07 781,875
-----------
1,298,125
-----------
FOREST - PAPER PRODUCTS - 6.62%
250 Bear Island LLC, Senior Notes*.................... 10.000 12/01/07 259,375
250 Bear Island LLC, Senior Notes*.................... 10.000 12/01/07 259,375
250 Florida Coast Paper Company L.L.C., First
Mortgage, Series B*............................. 12.750 06/01/03 270,625
500 Pacific Lumber Company, Senior Notes.............. 10.500 03/01/03 521,250
250 Plainwell Inc., Senior Subordinated Notes*........ 11.000 03/01/08 253,750
500 SF Holdings Group Inc., Units*++.................. 12.750 03/15/08 280,000
500 Stone Container Corp., Senior Notes............... 9.875 02/01/01 511,875
-----------
2,356,250
-----------
FREIGHT - CONTAINERS - SHIPPING - 0.73%
250 Kitty Hawk, Inc., Senior Notes.................... 9.950 11/15/04 260,000
-----------
GAMING - 3.61%
250 Hard Rock Hotel Inc., Senior Subordinated
Notes*.......................................... 9.250 04/01/05 255,625
500 Lady Luck Gaming Corp............................. 11.875 03/01/01 513,750
500 Venetian Casino Resort LLC*....................... 12.250 11/15/04 517,500
-----------
1,286,875
-----------
HEALTH CARE - 3.02%
500 Paracelsus Healthcare Corporation, Senior
Subordinated Notes.............................. 10.000 08/15/06 522,500
500 Twin Laboratories Inc., Senior Subordinated Notes,
Twin Laboratories Inc.
Guaranteed...................................... 10.250 05/15/06 553,750
-----------
1,076,250
-----------
INDUSTRIAL PRODUCTS - 4.36%
250 AMTROL, Inc., Senior Subordinated Notes........... 10.625 12/31/06 259,062
500 Day International Group, Inc., Senior Subordinated
Notes*.......................................... 9.500 03/15/08 508,750
500 Roller Bearing Co. of America, Senior Subordinated
Notes, Series B................................. 9.625 06/15/07 516,250
250 Ryder TRS, Inc., Senior Subordinated Notes........ 10.000 12/01/06 270,000
-----------
1,554,062
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE BEAR STEARNS FUNDS
High Yield Total Return Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
INTERNATIONAL CABLE - 1.73%
$ 500 Diva Systems Corp., Units*++...................... 12.625% 03/01/08 $ 285,000
500 NTL Incorporated, Senior Notes*++................. 9.750 04/01/08 329,375
-----------
614,375
-----------
LODGING & LEISURE - 2.04%
250 Premier Cruise Ltd, Senior Notes*................. 11.000 03/15/08 247,500
750 Premier Parks Inc., Senior Discount Notes++....... 10.000 04/01/08 479,063
-----------
726,563
-----------
LONG DISTANCE TELEPHONE SERVICES - 4.82%
250 Econophone, Inc., Senior Discount Notes*++........ 11.000 02/15/08 145,625
500 Facilicom International, Senior Notes*............ 10.500 01/15/08 523,750
500 Global Telesystems Group, Inc., Senior Notes...... 9.875 02/15/05 518,125
500 Jordan Telecommunication Products, Inc., Series B,
Senior Notes.................................... 9.875 08/01/07 530,625
-----------
1,718,125
-----------
MOTION PICTURE EXHIBITION - 2.20%
250 Production Resource Group, Senior Subordinated
Notes*.......................................... 11.500 01/15/08 247,187
750 Px Escrow Corp., Senior Discount Notes*++......... 9.625 02/01/06 535,313
-----------
782,500
-----------
OIL SERVICES - 1.28%
500 Universal Compression Holdings, Senior Discount
Notes*++........................................ 11.375 02/15/09 300,000
250 Universal Compression Inc., Senior Discount
Notes*++........................................ 11.375 02/15/08 155,625
-----------
455,625
-----------
OTHER CONSUMER CYCLICALS - 2.22%
500 Comforce Operating Inc., Senior Notes*............ 12.000 12/01/07 535,000
250 Hedstrom Corporation, Senior Subordinated Notes,
Hedstrom Holdings, Inc. Guaranteed.............. 10.000 06/01/07 256,875
-----------
791,875
-----------
OTHER CONSUMER NON-CYCLICALS - 2.47%
1,500 AP Holdings Inc., Senior Discount Notes*++........ 11.250 03/15/08 881,250
-----------
OTHER FINANCE - 1.39%
250 AmeriCredit Corp., Senior Notes*.................. 9.250 02/01/04 247,188
250 Delta Financial Corporation, Senior Notes......... 9.500 08/01/04 246,875
-----------
494,063
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
THE BEAR STEARNS FUNDS
High Yield Total Return Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
PAGING SERVICES - 0.43%
$ 250 PageMart Wireless, Inc., Senior Discount
Notes*++........................................ 11.250% 02/01/08 $ 153,750
-----------
PUBLISHING - 1.88%
250 Liberty Group Operating, Senior Subordinated
Notes*.......................................... 9.375 02/01/08 256,250
250 Liberty Group Publishing, Senior Discount
Notes*++........................................ 11.625 02/01/09 150,625
250 Sullivan Graphics Inc., Senior Subordinated
Notes........................................... 12.750 08/01/05 262,500
-----------
669,375
-----------
RETAILERS - 1.50%
500 Phar-Mor, Inc., Senior Notes...................... 11.720 09/11/02 533,125
-----------
SATELLITES - 1.46%
500 American Mobile Satellite Corporation, Units*..... 12.250 04/01/08 520,000
-----------
STEELS - METALS - MINING - 4.96%
500 Anker Coal Group Inc., Senior Notes*.............. 9.750 10/01/07 492,500
250 EnviroSource, Inc., Senior Notes.................. 9.750 06/15/03 255,625
500 Renco Steel Holdings, Senior Notes*............... 10.875 02/01/05 518,750
500 WHX Corporation, Senior Notes*.................... 10.500 04/15/05 500,000
-----------
1,766,875
-----------
SUPERMARKETS & DISTRIBUTORS - 4.33%
250 Big 5 Corp., Senior Notes*........................ 10.875 11/15/07 256,875
250 Big 5 Holdings Inc., Senior Subordinated Notes,
Series B........................................ 13.625 09/15/02 257,500
500 Dairy Mart Convenience Stores, Inc., Senior
Subordinated Notes.............................. 10.250 03/15/04 500,000
250 Jitney-Jungle Stores of America, Inc., Senior
Subordinated Notes.............................. 10.375 09/15/07 260,625
250 Shoppers Food Warehouse Corp., Senior Notes, SFX
Holding Corp. Guaranteed........................ 9.750 06/15/04 267,500
-----------
1,542,500
-----------
TECHNOLOGY - 1.47%
500 Fairchild Semiconductor Corp., Senior Subordinated
Notes........................................... 10.125 03/15/07 522,500
-----------
TELECOMMUNICATIONS - 6.47%
250 21st Century Telecom Group, Inc., Senior Discount
Notes*++........................................ 12.250 02/15/08 147,500
500 American Communications Services, Inc., Senior
Discount Notes++................................ 12.750 04/01/06 407,500
500 GST USA, Inc., Senior Discount Notes++............ 13.875 12/15/05 417,500
250 Intermedia Communications, Inc., Senior Notes,
Series B*....................................... 8.500 01/15/08 262,500
500 KMC Telecom Holdings Inc., Units*++............... 12.500 02/15/08 300,000
250 MGC Communications Inc., Senior Notes, Series B... 13.000 10/01/04 260,625
500 WinStar Communications, Inc., Senior Subordinated
Notes*.......................................... 10.000 03/15/08 508,750
-----------
2,304,375
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
THE BEAR STEARNS FUNDS
High Yield Total Return Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
TELEVISION BROADCASTING - 3.41%
$ 710 Acme Televison LLC, Senior Discount Notes*++...... 10.875% 09/30/04 $ 583,975
500 Falcon Holdings Group L.P., Senior Discount
Notes*++........................................ 9.285 04/15/10 316,645
500 Lin Holdings Corp., Senior Discount Notes*++...... 10.000 03/01/08 314,375
-----------
1,214,995
-----------
TEXTILES - APPAREL - 6.36%
500 Anvil Knitwear, Inc., Senior Notes, Series B*..... 10.875 03/15/07 522,500
200 Consoltex Group Inc., Senior Subordinated Notes,
Series B........................................ 11.000 10/01/03 212,000
500 Galey & Lord, Inc., Senior Subordinated Notes*.... 9.125 03/01/08 507,500
500 Imperial Home Decor Group, Senior Subordinated
Notes*.......................................... 11.000 03/15/08 511,250
500 Tultex Corporation, Inc., Tultex Corporation, Inc.
Guaranteed...................................... 9.625 04/15/07 510,000
-----------
2,263,250
-----------
Total United States (cost - $32,183,099).......... 32,619,808
-----------
AUSTRALIA - 1.43%
STEELS - METALS - MINING - 1.43%
250 Centaur Mining & Exploration Limited, Centaur
Nickel Guaranteed*.............................. 11.000 12/01/07 260,625
250 Murrin Murrin Holdings PTY, Senior Notes+......... 9.375 08/31/07 250,000
-----------
Total Australia (cost - $507,599)................. 510,625
-----------
CANADA - 5.10%
AEROSPACE - DEFENSE - 1.48%
500 Derlan Manufacturing, Senior Yankee Notes......... 10.000 01/15/07 526,875
-----------
EXPLORATION & PRODUCTION - 0.72%
250 Pacalta Resources Ltd., Senior Yankee Notes,
Series B........................................ 10.750 06/15/04 256,875
-----------
INDUSTRIAL PRODUCTS - 2.90%
250 International Utility Structures, Senior
Subordinated Notes*............................. 10.750 02/01/08 261,250
250 International Utility Structures, Units*.......... 13.000 02/01/08 260,000
500 Trench Electric & Trench Inc., Trench Electric
Guaranteed*..................................... 10.250 12/15/07 511,250
-----------
1,032,500
-----------
Total Canada (cost - $1,787,962).................. 1,816,250
-----------
CYPRUS - 1.41%
FREIGHT - CONTAINERS - SHIPPING - 1.41%
500 American Reefer Co., Ltd., First Mortgage*
(cost - $508,120)............................... 10.250 03/01/08 502,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
THE BEAR STEARNS FUNDS
High Yield Total Return Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT INVESTMENTS (CONTINUED)
ISRAEL - 1.64%
LONG DISTANCE TELEPHONE SERVICES - 1.64%
$ 1,000 Barak I.T.C., Senior Discount Notes*++
(cost - $589,373)............................... 12.500% 11/15/07 $ 583,750
-----------
MEXICO - 1.40%
FOOD, BEVERAGE & TOBACCO - 1.40%
500 Grupo Azucarero Mexico, S.A. de C.V., Senior
Notes*
(cost - $493,664)............................... 11.500 01/15/05 497,500
-----------
Total Long-Term Debt Investments
(cost - $36,069,817)............................ 36,530,433
-----------
<CAPTION>
SHARES
- ----------
<C> <S> <C> <C> <C>
LONG-TERM EQUITY INVESTMENTS - 6.39%
PREFERRED STOCKS - UNITED STATES - 6.39%
CELLULAR COMMUNICATIONS - 0.75%
250 Dobson Communications Corp.*+++................... 12.250 -- 267,945
-----------
FOOD, BEVERAGE & TOBACCO - 2.17%
750 Nebco Evans Holdings Co.*......................... 11.250 -- 773,906
-----------
NORTH AMERICAN CABLE SERVICES - 0.82%
2,500 Adelphia Communications Corp., Series B*+++....... 13.000 -- 290,714
-----------
TELECOMMUNICATIONS - 1.60%
250 21st Century Telecom Group, Inc., Units*+++....... 13.750 -- 275,387
250 WinStar Communications, Inc.*+++.................. 14.250 -- 295,005
-----------
570,392
-----------
TELEVISION BROADCASTING - 1.05%
356 Paxson Communications Corporation+++.............. 12.500 -- 372,540
-----------
Total Long-Term Equity Investments
(cost - $2,176,256)............................. 2,275,497
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
THE BEAR STEARNS FUNDS
High Yield Total Return Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WARRANTS -- 0.02%
TELECOMMUNICATIONS - 0.02%
250 MGC Communications, Inc. (expiring 10/01/04)
(cost - $8,750)................................. $ 8,750
-----------
SHORT-TERM INVESTMENT -- 1.89%
INVESTMENT COMPANY - 1.89%
674,741 The Milestone Funds Treasury Obligations
Portfolio, Institutional Shares**
(cost - $674,741)............................... 674,741
-----------
Total Investments -- 110.88%
(cost - $38,929,564)............................ 39,489,421
Liabilities in excess of other assets --
(10.88)%........................................ (3,877,021)
-----------
Net Assets -- 100.00%............................. $35,612,400
-----------
-----------
</TABLE>
- ---------
<TABLE>
<S> <C>
* SEC Rule 144A security. Such securities are traded only among qualified institutional buyers.
** Money market fund.
+ Pro-rata sinking fund has been established.
++ Coupon rate is zero until step-up date. Step-up rate is provided.
+++ Payment-in-kind; of which all or a portion of the coupon is being capitalized at periodic intervals.
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<CAPTION>
EMERGING MARKETS TOTAL RETURN HIGH YIELD TOTAL
DEBT PORTFOLIO BOND PORTFOLIO RETURN PORTFOLIO
---------------- -------------- ----------------
<S> <C> <C> <C>
ASSETS
Investments, at value (cost - $33,704,184,
$9,308,590 and $38,929,564, respectively)..... $ 36,359,038 $ 9,289,327 $ 39,489,421
Receivable for Portfolio shares sold............ 69,763 -- 1,321,872
Receivable for investments sold................. 1,144,248 496,563 1,162,213
Receivable for open forward foreign currency
exchange contracts............................ 123,138 -- --
Receivable from investment manager/adviser...... 56,886 10,328 30,223
Interest and dividends receivable............... 648,788 95,774 666,121
Deferred organization expenses and other
assets........................................ 60,761 52,825 132,855
---------------- -------------- ----------------
Total assets.............................. 38,462,622 9,944,817 42,802,705
---------------- -------------- ----------------
LIABILITIES
Payable for investments purchased............... -- 1,149,426 6,925,246
Payable for Portfolio shares repurchased........ 21,183 -- 509
Distribution fee payable (Class A, B and C
shares)....................................... 39,025 6,288 28,566
Dividends payable............................... -- 20,502 72,395
Organization expenses payable................... -- -- 56,234
Investment management fee payable............... 481 -- --
Custodian fee payable........................... 21,280 4,090 78
Administration fee payable...................... -- 2,704 7,181
Accrued expenses................................ 49,285 75,699 100,096
---------------- -------------- ----------------
Total liabilities......................... 131,254 1,258,709 7,190,305
---------------- -------------- ----------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)..... 3,196 702 2,798
Paid-in capital................................. 34,902,327 8,531,245 34,667,408
Undistributed net investment income............. 37,723 -- --
Accumulated net realized gain from investments
and foreign currency related transactions, if
any........................................... 610,130 173,424 382,337
Net unrealized appreciation/(depreciation) on
investments and foreign currency related
transactions, if any.......................... 2,777,992 (19,263) 559,857
---------------- -------------- ----------------
Net assets................................ $ 38,331,368 $ 8,686,108 $ 35,612,400
---------------- -------------- ----------------
---------------- -------------- ----------------
CLASS A
Net assets...................................... $ 33,448,396 $ 2,925,980 $ 18,301,087
---------------- -------------- ----------------
Shares of beneficial interest outstanding....... 2,787,194 236,507 1,437,735
---------------- -------------- ----------------
Net asset value per share....................... $12.00 $12.37 $12.73
---------------- -------------- ----------------
---------------- -------------- ----------------
Maximum offering price per share (net asset
value plus sales charge of 4.50%* of the
offering price)............................... $12.57 $12.95 $13.33
---------------- -------------- ----------------
---------------- -------------- ----------------
CLASS B
Net assets...................................... $ 565,960 $ 17,853 $ 6,013,049
---------------- -------------- ----------------
Shares of beneficial interest outstanding....... 47,357 1,443 472,393
---------------- -------------- ----------------
Net asset value and offering price per
share**....................................... $11.95 $12.37 $12.73
---------------- -------------- ----------------
---------------- -------------- ----------------
CLASS C
Net assets...................................... $ 4,317,012 $ 1,402,824 $ 11,298,264
---------------- -------------- ----------------
Shares of beneficial interest outstanding....... 361,115 113,394 887,582
---------------- -------------- ----------------
Net asset value and offering price per
share**....................................... $11.95 $12.37 $12.73
---------------- -------------- ----------------
---------------- -------------- ----------------
CLASS Y
Net assets...................................... -- $ 4,339,451 --
---------------- -------------- ----------------
Shares of beneficial interest outstanding....... -- 350,666 --
---------------- -------------- ----------------
Net asset value, offering and redemption price
per share..................................... -- $12.37 --
---------------- -------------- ----------------
---------------- -------------- ----------------
</TABLE>
- ----------
<TABLE>
<S> <C>
* On investments of $50,000 or more, the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales
charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HIGH YIELD TOTAL
EMERGING MARKETS TOTAL RETURN RETURN
DEBT PORTFOLIO BOND PORTFOLIO PORTFOLIO*
---------------- -------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest........................................ $ 3,654,267 $ 1,348,801 $ 406,210
Dividends....................................... -- 53,164 32,217
---------------- -------------- ----------------
3,654,267 1,401,965 438,427
---------------- -------------- ----------------
EXPENSES
Investment management/advisory fees............. 435,752 91,715 28,723
Legal and auditing fees......................... 176,849 39,898 22,416
Accounting fees................................. 80,121 98,944 5,468
Transfer agent fees and expenses................ 53,936 99,961 1,003
Distribution fees - Class A..................... 120,046 11,111 8,354
Distribution fees - Class B..................... 782 21 7,019
Distribution fees - Class C..................... 29,812 10,434 13,194
Federal and state registration fees............. 68,644 41,448 20,090
Amortization of organization expenses........... 54,732 12,961 2,063
Reports and notices to shareholders............. 47,957 10,999 6,339
Custodian fees and expenses..................... 39,499 11,501 2,721
Administration fees............................. -- 30,572 7,181
Insurance expenses.............................. 13,828 13,296 243
Trustees' fees and expenses..................... 12,485 4,301 1,000
Other........................................... 4,571 3,098 2,259
---------------- -------------- ----------------
Total expenses before waivers and related
reimbursements............................ 1,139,014 480,260 128,073
Less: waivers and related reimbursements.... (385,863) (366,834) (70,593)
---------------- -------------- ----------------
Total expenses after waivers and related
reimbursements............................ 753,151 113,426 57,480
---------------- -------------- ----------------
Net investment income........................... 2,901,116 1,288,539 380,947
---------------- -------------- ----------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from:
Investments................................... 3,615,063 268,245 382,337
Foreign currency related transactions......... 9,706 -- --
Net change in unrealized
appreciation/(depreciation) on:
Investments................................... 17,794 281,692 559,857
Foreign currency related transactions......... 123,138 -- --
---------------- -------------- ----------------
Net realized and unrealized gain on
investments................................... 3,765,701 549,937 942,194
---------------- -------------- ----------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $ 6,666,817 $ 1,838,476 $ 1,323,141
---------------- -------------- ----------------
---------------- -------------- ----------------
</TABLE>
- --------
<TABLE>
<S> <C>
* For the period January 2, 1998 (commencement of investment operations) through March 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
THE BEAR STEARNS FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING MARKETS TOTAL RETURN
DEBT PORTFOLIO BOND PORTFOLIO HIGH YIELD TOTAL
------------------------- -------------------------- RETURN PORTFOLIO
-----------------
FOR THE FISCAL YEARS FOR THE FISCAL YEARS ENDED FOR THE PERIOD
ENDED MARCH 31, MARCH 31, JANUARY 2, 1998*
------------------------- -------------------------- THROUGH MARCH 31,
1998 1997 1998 1997 1998
------------ ----------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income........................... $ 2,901,116 $ 2,612,145 $ 1,288,539 $ 1,366,916 $ 380,947
Net realized gain/(loss) from investments and
foreign currency related transactions, if
any........................................... 3,624,769 3,672,807 268,245 (61,189) 382,337
Net change in unrealized appreciation/
(depreciation) on investments and foreign
currency related transactions, if any......... 140,932 2,855,740 281,692 (148,563) 559,857
------------ ----------- ------------ ------------ -----------------
Net increase in net assets resulting from
operations.................................... 6,666,817 9,140,692 1,838,476 1,157,164 1,323,141
------------ ----------- ------------ ------------ -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares................................ (2,590,726) (2,452,281) (194,516) (262,042) (213,477)
Class B shares................................ (9,337) -- (111) -- (58,135)
Class C shares................................ (281,260) (105,187) (70,620) (92,135) (109,335)
Class Y shares................................ -- -- (1,023,292) (1,012,739) --
------------ ----------- ------------ ------------ -----------------
(2,881,323) (2,557,468) (1,288,539) (1,366,916) (380,947)
------------ ----------- ------------ ------------ -----------------
Net realized capital gains
Class A shares................................ (833,408) -- (4,235) (10,555) --
Class C shares................................ (96,366) -- (2,042) (4,155) --
Class Y shares................................ -- -- (25,301) (38,149) --
------------ ----------- ------------ ------------ -----------------
(929,774) -- (31,578) (52,859) --
------------ ----------- ------------ ------------ -----------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares............ 10,697,786 8,277,741 6,734,676 11,283,204 35,248,122
Cost of shares repurchased...................... (13,467,125) (9,849,056) (17,586,264) (12,702,583) (754,186)
Shares issued in reinvestment of dividends...... 2,477,379 1,693,825 1,148,623 1,111,988 176,234
------------ ----------- ------------ ------------ -----------------
Net increase/(decrease) in net assets derived
from shares of beneficial interest
transactions.................................. (291,960) 122,510 (9,702,965) (307,391) 34,670,170
------------ ----------- ------------ ------------ -----------------
Total increase/(decrease) in net assets......... 2,563,760 6,705,734 (9,184,606) (570,002) 35,612,364
NET ASSETS
Beginning of period............................. 35,767,608 29,061,874 17,870,714 18,440,716 36
------------ ----------- ------------ ------------ -----------------
End of period**................................. $ 38,331,368 $35,767,608 $ 8,686,108 $ 17,870,714 $35,612,400
------------ ----------- ------------ ------------ -----------------
------------ ----------- ------------ ------------ -----------------
</TABLE>
- --------
<TABLE>
<S> <C>
* Commencement of investment operations.
** Emerging Markets Debt Portfolio includes undistributed net investment income of $37,723 and $17,930, respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
(This page has been intentionally left blank.)
25
<PAGE>
THE BEAR STEARNS FUNDS
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below is per share operating performance data for each class of shares
outstanding, total investment returns, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
NET REALIZED AND
ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE, NET GAIN/(LOSS) ON FROM NET FROM NET
BEGINNING INVESTMENT INVESTMENTS INVESTMENT REALIZED
OF PERIOD INCOME *(4) *(5) INCOME CAPITAL GAINS
---------- ----------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
EMERGING MARKETS DEBT
PORTFOLIO(1)
CLASS A
For the fiscal year
ended March 31,
1998................. $11.14 $ 0.91 $1.17 $(0.92) $(0.30)
For the fiscal year
ended March 31,
1997................. 9.02 0.85 2.10 (0.83) --
For the fiscal year
ended March 31,
1996................. 6.90 0.91 2.13 (0.92) --
For the fiscal year
ended March 31,
1995................. 8.98 0.79 (1.85) (0.77) (0.25)
For the period May 3,
1993 through March
31, 1994............. 9.55 0.66 (0.55) (0.65) (0.03)
CLASS B
For the period January
12, 1998 through
March 31, 1998....... 11.33 0.21 0.61 (0.20) --
CLASS C
For the fiscal year
ended March 31,
1998................. 11.14 0.97 1.04 (0.90) (0.30)
For the fiscal year
ended March 31,
1997................. 9.04 0.84 2.07 (0.81) --
For the period July 26,
1995 through March
31, 1996............. 7.81 0.59 1.32 (0.68) --
TOTAL RETURN BOND
PORTFOLIO(2)
CLASS A
For the fiscal year
ended March 31,
1998................. 12.03 0.76 0.36 (0.76) (0.02)
For the fiscal year
ended March 31,
1997................. 12.26 0.73 (0.20) (0.73) (0.03)
For the period April 5,
1995 through March
31, 1996............. 12.00 0.71 0.30 (0.71) (0.04)
CLASS B
For the period February
2, 1998 through March
31, 1998............. 12.47 0.10 (0.10) (0.10) --
CLASS C
For the fiscal year
ended March 31,
1998................. 12.03 0.70 0.36 (0.70) (0.02)
For the fiscal year
ended March 31,
1997................. 12.26 0.68 (0.20) (0.68) (0.03)
For the period April 5,
1995 through March
31, 1996............. 12.00 0.67 0.30 (0.67) (0.04)
CLASS Y
For the fiscal year
ended March 31,
1998................. 12.03 0.80 0.36 (0.80) (0.02)
For the fiscal year
ended March 31,
1997................. 12.26 0.77 (0.20) (0.77) (0.03)
For the period
September 8, 1995
through March 31,
1996................. 12.35 0.41 (0.05) (0.41) (0.04)
HIGH YIELD TOTAL RETURN
PORTFOLIO(3)
CLASS A
For the period January
2, 1998 through March
31, 1998............. 12.00 0.26 0.73 (0.26) --
CLASS B
For the period January
2, 1998 through March
31, 1998............. 12.00 0.24 0.73 (0.24) --
CLASS C
For the period January
2, 1998 through March
31, 1998............. 12.00 0.24 0.73 (0.24) --
</TABLE>
- ----------
* Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on the actual shares outstanding on the dates of distributions.
(1) Commencement of investment operations on May 3, 1993. Class B and C shares
commenced its initial public offering on January 12, 1998 and July 26,
1995, respectively.
(2) Commencement of investment operations on April 5, 1995. Class B, C and Y
shares commenced its initial public offering on February 2, 1998, April 5,
1995 and September 8, 1995, respectively.
(3) Commencement of investment operations on January 2, 1998.
(4) Reflects waivers and related reimbursements.
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
RATIO OF INCREASE/(DECREASE)
NET REFLECTED IN
NET ASSET RATIO OF INVESTMENT EXPENSE RATIOS AND
VALUE, TOTAL NET ASSETS, EXPENSES TO INCOME TO NET INVESTMENT INCOME
END OF INVESTMENT END OF PERIOD AVERAGE NET AVERAGE NET DUE TO WAIVERS AND
PERIOD RETURN(6) (000'S OMITTED) ASSETS(4) ASSETS(4) RELATED REIMBURSEMENTS
---------- -------------- ---------------- ----------- ------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
EMERGING MARKETS DEBT
PORTFOLIO(1)
CLASS A
For the fiscal year
ended March 31,
1998................. $ 12.00 19.31% $ 33,448 1.75% 7.70% 1.01%
For the fiscal year
ended March 31,
1997................. 11.14 33.48 33,185 2.00 7.95 0.80
For the fiscal year
ended March 31,
1996................. 9.02 46.13 28,860 2.00 10.64 1.18
For the fiscal year
ended March 31,
1995................. 6.90 (13.07) 28,049 2.00 8.86 0.53
For the period May 3,
1993 through March
31, 1994............. 8.98 0.36 45,691 2.00(8) 7.24(8) 0.33(8)
CLASS B
For the period January
12, 1998 through
March 31, 1998....... 11.95 7.29(7) 566 2.40(8) 7.13(7)(8) 2.25(7)(8)
CLASS C
For the fiscal year
ended March 31,
1998................. 11.95 18.66 4,317 2.40 7.31 1.05
For the fiscal year
ended March 31,
1997................. 11.14 32.97 2,583 2.40 7.59 0.64
For the period July 26,
1995 through March
31, 1996............. 9.04 25.45(7) 202 2.40(8) 8.72(7)(8) 3.42(7)(8)
TOTAL RETURN BOND
PORTFOLIO(2)
CLASS A
For the fiscal year
ended March 31,
1998................. 12.37 9.43 2,926 0.80 6.13 1.86
For the fiscal year
ended March 31,
1997................. 12.03 4.40 3,367 0.80 5.99 1.73
For the period April 5,
1995 through March
31, 1996............. 12.26 8.54 4,467 0.85(8) 5.76(8) 2.87(8)
CLASS B
For the period February
2, 1998 through March
31, 1998............. 12.37 (0.04)(7) 18 1.45(8) 5.22(7)(8) 0.48(7)(8)
CLASS C
For the fiscal year
ended March 31,
1998................. 12.37 8.92 1,403 1.28 5.60 1.80
For the fiscal year
ended March 31,
1997................. 12.03 3.99 1,018 1.20 5.57 1.74
For the period April 5,
1995 through March
31, 1996............. 12.26 8.13 1,775 1.25(8) 5.38(8) 2.95(8)
CLASS Y
For the fiscal year
ended March 31,
1998................. 12.37 9.81 4,339 0.45 6.39 1.78
For the fiscal year
ended March 31,
1997................. 12.03 4.77 13,486 0.45 6.34 1.73
For the period
September 8, 1995
through March 31,
1996................. 12.26 2.92(7) 12,199 0.45(8) 5.93(7)(8) 2.89(7)(8)
HIGH YIELD TOTAL RETURN
PORTFOLIO(3)
CLASS A
For the period January
2, 1998 through March
31, 1998............. 12.73 8.30 18,301 1.00(8) 9.14(8) 1.67(8)
CLASS B
For the period January
2, 1998 through March
31, 1998............. 12.73 8.13 6,013 1.65(8) 8.46(8) 1.68(8)
CLASS C
For the period January
2, 1998 through March
31, 1998............. 12.73 8.13 11,298 1.65(8) 8.46(8) 1.67(8)
<CAPTION>
PORTFOLIO
TURNOVER
RATE
---------
<S> <C>
EMERGING MARKETS DEBT
PORTFOLIO(1)
CLASS A
For the fiscal year
ended March 31,
1998................. 128.91%
For the fiscal year
ended March 31,
1997................. 223.41
For the fiscal year
ended March 31,
1996................. 266.46
For the fiscal year
ended March 31,
1995................. 35.01
For the period May 3,
1993 through March
31, 1994............. 100.85
CLASS B
For the period January
12, 1998 through
March 31, 1998....... 128.91
CLASS C
For the fiscal year
ended March 31,
1998................. 128.91
For the fiscal year
ended March 31,
1997................. 223.41
For the period July 26,
1995 through March
31, 1996............. 266.46
TOTAL RETURN BOND
PORTFOLIO(2)
CLASS A
For the fiscal year
ended March 31,
1998................. 244.78
For the fiscal year
ended March 31,
1997................. 262.95
For the period April 5,
1995 through March
31, 1996............. 107.35
CLASS B
For the period February
2, 1998 through March
31, 1998............. 244.78
CLASS C
For the fiscal year
ended March 31,
1998................. 244.78
For the fiscal year
ended March 31,
1997................. 262.95
For the period April 5,
1995 through March
31, 1996............. 107.35
CLASS Y
For the fiscal year
ended March 31,
1998................. 244.78
For the fiscal year
ended March 31,
1997................. 262.95
For the period
September 8, 1995
through March 31,
1996................. 107.35
HIGH YIELD TOTAL RETURN
PORTFOLIO(3)
CLASS A
For the period January
2, 1998 through March
31, 1998............. 139.61
CLASS B
For the period January
2, 1998 through March
31, 1998............. 139.61
CLASS C
For the period January
2, 1998 through March
31, 1998............. 139.61
</TABLE>
- ----------
(5) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses on
investments during the respective periods because of the timing of sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective periods. For Emerging Markets Debt Portfolio
net realized and unrealized gain/(loss) on investments include forward
foreign currency exchange contracts and translation of foreign currency
related transactions.
(6) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(7) The total investment return and ratios for a class of shares are not
necessarily comparable to those of any other outstanding class of shares,
due to timing differences in the commencement of the intial public
offerings.
(8) Annualized.
27
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
Total Return Bond Portfolio
High Yield Total Return Portfolio
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Bear Stearns Investment Trust (the "Trust") and The Bear Stearns Funds (the
"Fund") were organized as Massachusetts business trusts on October 15, 1992 and
September 29, 1994, respectively, and are registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as open-end management investment
companies. The Trust currently has one fund in operation, the Emerging Markets
Debt Portfolio ("Debt Portfolio"), a non-diversified portfolio. On February 22,
1995, the Debt Portfolio changed its name from the Emerging Markets Debt Fund.
As of the date hereof, the Debt Portfolio offers four classes of shares, which
have been designated as Class A, B, C and Y shares. Class Y shares of the Debt
Portfolio has yet to commence its initial public offering. The Fund currently
consists of ten separate portfolios: seven diversified portfolios, Prime Money
Market Portfolio, Large Cap Value Portfolio, Small Cap Value Portfolio,
International Equity Portfolio, Balanced Portfolio, High Yield Total Return
Portfolio ("High Yield Portfolio") and Total Return Bond Portfolio ("Bond
Portfolio"), and three non-diversified portfolios, The Insiders Select Fund,
Focus List Portfolio and S&P STARS Portfolio. As of the date hereof, the Bond
Portfolio and High Yield Portfolio offer four classes of shares, which have been
designated as Class A, B, C and Y shares. Class Y shares of the High Yield
Portfolio has yet to commence its initial public offering. 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.
ORGANIZATIONAL MATTERS -- Prior to commencing investment operations on May 3,
1993, April 5, 1995 and January 2, 1998, the Debt Portfolio, Bond Portfolio and
High Yield Portfolio (each a "Portfolio" and collectively, the "Portfolios"),
respectively, did not have any transactions other than those relating to
organizational matters and the sale of shares of beneficial interest of the
Trust to Bear Stearns Asset Management Inc. ("BSAM" or the "Adviser"), formerly
known as Bear Stearns Funds Management Inc. and shares of beneficial interest of
the Bond Portfolio and High Yield Portfolio to Bear, Stearns & Co., Inc. ("Bear
Stearns" or the "Distributor") as follows:
<TABLE>
<CAPTION>
PORTFOLIOS CLASS A CLASS B CLASS C
- ---------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Debt Portfolio.......................... 10,472 -- --
Bond Portfolio.......................... 1,041 -- 1,041
High Yield Portfolio.................... 1 1 1
</TABLE>
Costs of $273,667, $76,571 and $56,234 which were incurred by the Debt
Portfolio, Bond Portfolio and High Yield Portfolio, respectively, in connection
with the organization of its shares, have been deferred and are being amortized
using the straight-line method over the period of benefit not exceeding sixty
months, beginning with the commencement of investment operations of each
Portfolio. In the event that BSAM or Bear Stearns or any transferee thereof
redeems any of its original shares prior to the end of the sixty month period,
the proceeds of the redemption payable in respect of such shares shall be
reduced by the pro rata share (based on the proportionate share of the original
shares redeemed to the total number of original shares outstanding at the time
of the redemption) of the unamortized deferred organization expenses as of the
date of such redemption. In the event that any of the Portfolios are liquidated
prior to the end of the sixty month period, BSAM or Bear Stearns or any
transferee thereof shall bear the unamortized deferred organization expenses.
28
<PAGE>
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.
PORTFOLIO VALUATION -- Each Portfolio calculates the net asset value of and
completes orders to purchase or repurchase its shares of beneficial interest on
each business day, with the exception of those days on which the New York Stock
Exchange is closed.
The assets of the Debt Portfolio are not listed on security exchanges or traded
on other regulated markets, therefore, in the absence of reported sales prices
on a valuation date, assets generally will be valued at the mean of the last bid
and offer quotations. In the absence of reported bid and offer quotations on
such valuation date, such assets will be valued from the broker bids of at least
one market maker. In the absence of current broker bids or if PFPC Inc.
("PFPC"), in consultation with the Valuation Committee, concludes that such
broker bids are not indicative of the fair value for such assets by reason of
the illiquidity of a particular security or investment, or other factors, the
value of such assets will be recorded at their fair value determined in good
faith by PFPC after consultation with the Valuation Committee. In making this
determination the Valuation Committee will consider, among other things,
publicly available information regarding the issuer, market conditions and
values ascribed to comparable companies. In instances where the price determined
above is deemed not to represent fair market value, the price is determined in
such manner as the Board of Trustees may prescribe. Any assets which are
denominated in a foreign currency are converted into U.S. dollars at the
prevailing market rates for purposes of calculating net asset value.
For the Bond Portfolio and High Yield Portfolio, substantially all of the
investments (including short-term investments) are valued at each business day
by one or more independent pricing services (the "Service") approved by the
Fund's Board of Trustees. Securities valued by the Service for which quoted bid
prices in the judgment of the Service are readily available and are
representative of the bid side of the market are valued at the mean between the
quoted bid prices (as obtained by the Service from dealers in such securities)
and asked prices (as calculated by the Service based upon its evaluation of the
market for such securities).
The amortized cost method of valuation is used with respect to debt obligations
with 60 days or less remaining to maturity, unless this method does not
represent fair value. Expenses and fees, including the respective investment
management and advisory, administration and distribution fees, are accrued daily
and taken into account for the purpose of determining the net asset value of
each Portfolio's shares. Because of the differences in operating expenses
incurred by each class, the per share net asset value of each class will differ.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from investments and foreign currency
related transactions are calculated on the identified cost basis. Interest
income is recorded on an accrual basis. Dividend income is recorded on the
ex-dividend date. Discounts are treated as adjustments to interest income and
identified costs of investments over the lives of the respective investments.
The Debt Portfolio's net investment income (other than distribution fees) and
unrealized and realized gains or losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). For the Bond Portfolio and High Yield Portfolio, net
investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of the settled shares value of each class at the beginning
of the day.
FOREIGN CURRENCY TRANSLATION -- The books and records of the Debt Portfolio are
maintained in U.S. dollars as follows: (1) the market value of investment
securities and other assets and liabilities stated in foreign currencies are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting exchange
gains and losses are included in the Statement of Operations. The Debt Portfolio
does not generally isolate the effect of fluctuations in foreign exchange rates
from the effect of fluctuations in the market prices of investments. However,
the Debt Portfolio does isolate the effect of
29
<PAGE>
fluctuations in foreign exchange rates when determining the gain or loss upon
the sale or maturity of foreign currency-denominated debt obligations pursuant
to U.S. federal income tax regulations; such amount is categorized as foreign
exchange gain or loss for both financial reporting and income tax reporting
purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Debt Portfolio is permitted
to enter into forward foreign currency exchange contracts solely for purposes of
protecting against adverse changes in foreign currency exchange rates. The Debt
Portfolio may enter into contracts to purchase foreign currencies to protect
against a rise in the U.S. dollar price of securities it has purchased pending
final settlement, or it may enter into contracts to sell foreign currencies to
protect against the decline in value of its non-dollar denominated securities
due to a decline in the value of foreign currencies against the U.S. dollar.
When the Debt Portfolio enters into a forward foreign currency exchange contract
to buy a foreign currency, it will place cash or readily marketable securities
in a segregated account in an amount equal to the value of its total assets
committed to the consummation of the forward contract. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Debt Portfolio's commitment with respect to the
contract. Investors should be aware that the forward currency market for the
purchase of U.S. dollars in many emerging countries is not highly developed and
that in certain emerging countries no forward market for foreign currencies
currently exists or that such market may be closed to investment by the Debt
Portfolio.
The Debt Portfolio's open forward foreign currency exchange contracts at March
31, 1998 were as follows:
<TABLE>
<CAPTION>
DELIVERY
VALUE
(LOCAL SETTLEMENT UNREALIZED
CURRENCY CURRENCY) DATE COST VALUE GAIN
- ---------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PURCHASE:
Korean won.............................. 964,725,000 05/26/98 $ 570,000 $ 681,255 $ 111,255
SALE:
Japanese yen............................ 73,112,760 04/23/98 550,523 562,406 11,883
-----------
Net unrealized gain............... $ 123,138
-----------
-----------
</TABLE>
U.S. FEDERAL TAX STATUS -- Each Portfolio intends to distribute substantially
all of its taxable income and to comply with the other requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies. Accordingly, no provision for U.S. federal income taxes is required.
In addition, by distributing during each calendar year substantially all of its
ordinary income and capital gains, if any, each Portfolio intends not to be
subject to a U.S. federal excise tax.
FOREIGN WITHHOLDING TAXES -- Income received from sources outside of the United
States may be subject to withholding and other taxes imposed by countries other
than the United States.
DIVIDENDS AND DISTRIBUTIONS -- The Debt Portfolio declares and pays as quarterly
dividends to shareholders substantially all of its net investment income. The
Bond Portfolio and High Yield Portfolio declare dividends from net investment
income on each day the New York Stock Exchange is open for business. These
dividends on the Bond Portfolio and High Yield Portfolio are paid usually on or
about the twentieth day of each month. Distribution of net realized gains, if
any, will be declared and paid at least annually by each Portfolio. Dividends
and distributions to shareholders are recorded on the ex-dividend date. Income
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within capital accounts based on their U.S. federal tax-basis
treatment; temporary differences do not require reclassification.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
As of December 4, 1997, Bear Stearns Asset Management Inc., 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
30
<PAGE>
same personnel and performs the same services called for by the respective
Investment Management and 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 respective Investment Management and Advisory Agreement with BSAM
and the related delegation of duties to BSFM.
For the fiscal year ended March 31, 1998, BSAM served as the Debt Portfolio's
investment manager pursuant to the Investment Management Agreement. For its
investment management and administrative services, BSAM receives from the Debt
Portfolio a monthly fee at an annual rate equal to 1.15% of the Debt Portfolio's
average daily net assets up to $50 million, 1.00% of the Debt Portfolio's
average daily net assets of more than $50 million but not in excess of $100
million and 0.70% of the Debt Portfolio's average daily net assets above $100
million. Prior to May 4, 1995, BEA Associates served as investment adviser to
the Debt Portfolio.
For the fiscal year ended March 31, 1998, BSAM served as the Bond Portfolio's
and High Yield Portfolio's investment adviser pursuant to an Investment Advisory
Agreement with the Bond Portfolio and High Yield Portfolio. Under the terms of
the Investment Advisory Agreement, BSAM is entitled to receive from the Bond
Portfolio and High Yield Portfolio a monthly fee equal to an annual rate of
0.45% and 0.60%, respectively, of each Portfolio's average daily net assets.
For the fiscal year ended March 31, 1998, BSFM served as administrator to the
Bond Portfolio and High Yield Portfolio pursuant to an Administrative Agreement.
BSFM is entitled to receive from the Bond Portfolio and High Yield Portfolio a
monthly fee equal to an annual rate of 0.15% of each Portfolio's average daily
net assets.
Under the terms of an Administrative Services Agreement with the Portfolios,
PFPC provides certain accounting and administrative services to each Portfolio.
For providing these services, PFPC is entitled to receive from the Portfolios a
monthly fee equal to an annual rate of 0.10% of each Portfolio's average daily
net assets up to $200 million, 0.075% of the next $200 million, 0.05% of the
next $200 million, and 0.03% of the net assets above $600 million, subject to a
minimum annual fee of $150,000 for each Portfolio. During the fiscal year ended
March 31, 1998, PFPC has voluntarily waived a portion of its fee.
Effective December 24, 1997, BSAM voluntarily undertook to limit the total
operating expenses (exclusive of brokerage commissions, taxes, interest and
extraordinary items) to a maximum annual level of 1.75%, 0.80% and 1.00% of the
average daily net assets of Class A shares, 2.40%, 1.45% and 1.65% of the
average daily net assets of Class B and C shares of the Debt Portfolio, Bond
Portfolio and High Yield Portfolio, respectively. Effective December 24, 1997,
BSAM voluntarily undertook to continue to limit the total operating expenses
(exclusive of brokerage commissions, taxes, interest and extraordinary items) to
a maximum annual level of 0.45% of the average daily net assets of Class Y
shares of the Bond Portfolio. Prior to December 24, 1997, BSAM voluntarily
undertook to limit the total operating expenses (exclusive of brokerage
commissions, taxes, interest and extraordinary items) to a maximum annual level
of 2.00% and 2.40% of the average daily net assets of the Debt Portfolio's Class
A and C shares, respectively, and 0.80%, 1.20% and 0.45% of the Bond Portfolio's
average daily net assets for Class A, C and Y shares, respectively. As
necessary, this limitation is effected by waivers by BSAM of its investment
management/advisory fees and reimbursements of expenses exceeding the investment
management/advisory fees. For the fiscal year ended March 31, 1998, BSAM waived
advisory fees of $227,031, $91,715 and $28,723 for the Debt Portfolio, Bond
Portfolio and High Yield Portfolio, respectively. In addition, BSAM reimbursed
$158,832, $275,119 and $41,870 for the Debt Portfolio, Bond Portfolio and High
Yield Portfolio, respectively, in order to maintain the voluntary expense
limitation. The Portfolios will not pay BSAM at a later time for any amounts
BSAM may waive, nor will the Portfolios reimburse BSAM for any amounts BSAM may
assume.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc. and an affiliate of BSAM and BSFMI, serves as custodian to the Bond
Portfolio and High Yield Portfolio.
DISTRIBUTION PLAN
The Trust, on behalf of the Debt Portfolio, has entered into an amended and
restated Distribution and Servicing Plan (the "Prior Plan") pursuant to Rule
12b-1 under the Investment Company Act. Upon adoption of the Prior Plan by the
31
<PAGE>
shareholders of the Debt Portfolio on May 4, 1995, the Prior Plan increased the
amount of 12b-1 fees on the Debt Portfolio's current shares, which have been
designated Class A shares, from an annual rate of 0.25% of the Debt Portfolio to
an annual rate of 0.35% of Class A shares (of which 0.25% was attributable to
shareholder servicing). The Prior Plan provides for 12b-1 fees on Class C shares
at an annual rate of 0.75% of the Debt Portfolio's Class C shares. Effective
December 24, 1997, the Trust, on behalf of the Debt Portfolio, has adopted an
amended and restated Distribution Plan (the "New Plan") pursuant to Rule 12b-1
under the Investment Company Act. Under the Prior Plan, the Debt Portfolio still
pays Bear Stearns a fee at an annual rate of 0.35% for Class A shares and under
the New Plan, the Debt Portfolio pays Bear Stearns a fee at an annual rate of
0.75% for Class B and C shares. With respect to the Debt Portfolio's Class A
shares, up to 0.25% of Class A will compensate institutions for personal service
and maintenance of accounts holding the Debt Portfolio's Class A shares. The
Trust, on behalf of Class B and C shares of the Debt Portfolio, has adopted a
Shareholder Servicing Plan whereby the Debt Portfolio pays fees of up to 0.25%
of its Class B and C shares.
The Fund, on behalf of the Bond Portfolio, has entered into a Distribution Plan
and Servicing Plan (the "Prior Distribution Plan") pursuant to Rule 12b-1 under
the Investment Company Act. Under the Prior Distribution Plan, the Bond
Portfolio paid Bear Stearns a fee at an annual rate of 0.35% for Class A shares
(of which 0.25% was attributable to shareholder servicing) and 0.75% for Class C
shares. Effective December 24, 1997, the Fund, on behalf of the Bond Portfolio,
has adopted a Distribution Plan (the "New Distribution Plan") pursuant to Rule
12b-1 under the Investment Company Act. Under the Prior Distribution Plan, the
Bond Portfolio still pays Bear Stearns a fee at an annual rate of 0.35% for
Class A shares and under the New Distribution Plan, the Bond Portfolio pays Bear
Stearns a fee at an annual rate of 0.75% for Class B and C shares. With respect
to the Bond Portfolio's Class A shares, up to 0.25% of Class A compensates
institutions for personal service and maintenance of accounts holding the Bond
Portfolio's Class A shares. The Fund, on behalf of Class B and C shares of the
Bond Portfolio has adopted a Shareholder Servicing Plan whereby the Bond
Portfolio pays fees of up to 0.25% of its Class B and C shares.
The Fund, on behalf of Class A, B and C shares of the High Yield Portfolio, has
entered into a Distribution Plan (the "Distribution Plan") pursuant to Rule
12b-1 under the Investment Company Act. Under the Distribution Plan in effect
for the period December 24, 1997 through March 31, 1998, the High Yield
Portfolio pays Bear Stearns a fee at an annual rate of 0.10% for Class A shares
and 0.75% for Class B and C shares. The Fund, on behalf of Class A, B and C
shares of the High Yield Portfolio, has adopted a Shareholder Servicing Plan
(the "Shareholder Servicing Plan"). Under the Shareholder Servicing Plan in
effect for the period December 24, 1997 through March 31, 1998, the High Yield
Portfolio pays fees of up to 0.25% of its Class A, B and C shares.
Such fees are based on the average daily net assets in each class of each
Portfolio and are accrued daily and paid quarterly or at such other intervals as
the Board of Trustees may determine. For the fiscal year ended March 31, 1998,
Bear Stearns earned $62,093, $12,660 and $17,547 for the Debt Portfolio, Bond
Portfolio and High Yield Portfolio, respectively, in distribution fees. Bear
Stearns uses these fees to pay broker/dealers whose clients hold each
Portfolio's shares and other distribution-related activities. For the same
period, Bear Stearns earned $88,547, $8,906 and $11,020 for the Debt Portfolio,
Bond Portfolio and High Yield Portfolio, respectively, in shareholder servicing
fees. Bear Stearns pays broker/ dealers and other financial institutions whose
clients hold Portfolio shares primarily for shareholder liaison and other
account maintenance services.
In addition, as Distributor of the Portfolios, Bear Stearns collects the sales
charges imposed on sales of each Portfolio's Class A shares, and reallows a
portion of such charges to dealers through which the sales are made. As a result
of an undertaking by the Distributor, it reallowed all of the sales charges to
its dealers selling Portfolio shares for the period April 3, 1995 through
September 26, 1995 and the period February 15, 1996 through June 30, 1996.
Furthermore, the Distributor has increased the compensation paid to its dealers
selling Portfolio shares on net asset value transfers (purchases made by
investors with the proceeds from a redemption of shares of an investment company
sold with a sales charge or commission and not distributed by Bear Stearns) from
0.50% to 1.00% beginning April 15, 1996 until December 23, 1997. Effective
December 24, 1997, the Distributor has increased the reallowance to all
authorized dealers on net asset value transfers from 1.00% to 1.25%. In
addition, Bear Stearns advanced 4.25% and 1.00% in sales commissions on the sale
of Class B and C shares, respectively, to dealers at the time of such sales.
32
<PAGE>
For the fiscal year ended March 31, 1998, Bear Stearns has advised each
Portfolio that it received approximately $88,900, $11,400 and $155,700 in
front-end sales charges resulting from sales of Class A shares of the Debt
Portfolio, Bond Portfolio and High Yield Portfolio, respectively. From these
fees, Bear Stearns paid such sales charges to dealers which in turn paid
commissions to salespersons. In addition, Bear Stearns has advised the Debt
Portfolio and Bond Portfolio that during the period, it received approximately
$1,900 and $100 from each Portfolio, respectively, in contingent deferred sales
charges ("CDSC") upon certain redemptions by Class C shareholders. There were no
amounts received in CDSC for Class B shares.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at March 31,
1998, were $33,743,850, $9,308,590 and $38,930,489 for the Debt Portfolio, Bond
Portfolio and High Yield Portfolio, respectively. Accordingly, the net
unrealized appreciation/(depreciation) on investments for each Portfolio were as
follows:
<TABLE>
<CAPTION>
NET APPRECIATION/
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- ------------------------------ ------------ ------------ -----------------
<S> <C> <C> <C>
Debt Portfolio................ $ 2,732,599 $(117,411) $2,615,188
Bond Portfolio................ 135,103 (154,366) (19,263)
High Yield Portfolio.......... 613,218 (54,286) 558,932
</TABLE>
For the fiscal year ended March 31, 1998, aggregate purchases and sales of
portfolio securities (excluding short-term investments) for each Portfolio were
as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ------------------------------ ----------- -----------
<S> <C> <C>
Debt Portfolio................ $45,850,795 $48,402,009
Bond Portfolio................ 45,079,119 53,903,019
High Yield Portfolio*......... 64,251,608 26,449,125
</TABLE>
- ---------
* Commencement of investment operations on January 2, 1998.
SHARES OF BENEFICIAL INTEREST
Each Portfolio offers Class A, B, C and Y shares. Effective December 24, 1997,
Class A shares are sold with a front-end sales charge of up to 4.50% for each
Portfolio. Class B shares are sold with a CDSC of up to 5.00% within six years
of purchase. Class C shares are sold with a CDSC of 1.00% within the first year
of purchase. Prior to December 24, 1997, Class A shares of the Debt Portfolio
and Bond Portfolio were sold with a front-end sales charge of up to 3.75%. There
is no sales charge or CDSC on Class Y shares, which are offered primarily to
institutional investors.
33
<PAGE>
At March 31, 1998, there was an unlimited amount of $0.001 par value shares of
beneficial interest authorized for each Portfolio, of which BSAM owned 10,472
Class A shares of the Debt Portfolio and Bear Stearns owned 1,059 shares of
Class A and 1,057 shares of Class C shares of the Bond Portfolio and 1 share
each of Class A, B and C shares of the High Yield Portfolio, including
reinvestment of dividends and distributions, if any. Transactions in shares of
beneficial interest for each Portfolio were as follows:
<TABLE>
<CAPTION>
DEBT PORTFOLIO BOND PORTFOLIO
-------------------------------------- --------------------------------------
SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS
---------- ----------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Shares.................................. 664,133 1,036,380 180,565 55,103 110,591 12,087
Value................................... $7,891,033 $12,380,642 $2,128,341 $ 681,376 $ 1,369,024 $149,576
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Shares.................................. 530,036 902,360 151,588 124,771 223,376 14,003
Value................................... $5,729,161 $ 9,458,425 $1,601,260 $1,526,794 $ 2,719,344 $171,130
CLASS B*
FOR THE PERIOD ENDED MARCH 31, 1998
Shares.................................. 46,940 -- 417 1,442 -- 1
Value................................... $ 546,764 -- $ 4,933 $ 18,014 -- $ 13
CLASS C
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Shares.................................. 189,824 89,937 29,316 56,500 32,601 4,869
Value................................... $2,259,989 $ 1,086,483 $ 344,105 $ 702,888 $ 406,228 $ 60,310
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Shares.................................. 236,617 35,448 8,435 24,694 89,493 4,620
Value................................... $2,548,580 $ 390,631 $ 92,565 $ 301,360 $ 1,098,501 $ 56,453
CLASS Y**
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Shares.................................. -- -- -- 429,021 1,275,562 75,743
Value................................... -- -- -- $5,332,398 $15,811,012 $938,724
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Shares.................................. -- -- -- 777,105 723,355 72,402
Value................................... -- -- -- $9,455,050 $ 8,884,738 $884,405
<CAPTION>
HIGH YIELD PORTFOLIO (1)
----------------------------------------
SALES REPURCHASES REINVESTMENTS
----------- ----------- -------------
<S> <C> <C> <C>
CLASS A
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Shares.................................. 1,466,227 36,611 8,118
Value................................... $18,130,818 $450,922 $102,477
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Shares.................................. -- -- --
Value................................... -- -- --
CLASS B*
FOR THE PERIOD ENDED MARCH 31, 1998
Shares.................................. 481,123 10,726 1,995
Value................................... $ 6,075,621 $235,284 $ 25,196
CLASS C
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Shares.................................. 897,573 13,841 3,849
Value................................... $11,041,683 $ 67,980 $ 48,561
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Shares.................................. -- -- --
Value................................... -- -- --
CLASS Y**
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Shares.................................. -- -- --
Value................................... -- -- --
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Shares.................................. -- -- --
Value................................... -- -- --
</TABLE>
- ----------
<TABLE>
<S> <C>
* Class B shares commenced its initial public offering for the Debt Portfolio, Bond Portfolio and High Yield Portfolio on
January 12, 1998, February 2, 1998 and December 29, 1997, respectively.
** Class Y shares has yet to commence its initial public offering for the Debt Portfolio and High Yield Portfolio.
(1) Commencement of investment operations on January 2, 1998.
</TABLE>
CREDIT AGREEMENT
The Trust (on behalf of the Debt Portfolio) and the Fund (on behalf of the Bond
Portfolio and High Yield Portfolio) have entered into a credit agreement with
BankBoston, N.A. Small Cap Value Portfolio, Large Cap Value Portfolio, The
Insiders Select Fund, S&P STARS Portfolio, Prime Money Market Portfolio,
Balanced Portfolio, International Equity Portfolio and Focus List 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 a 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 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 BankBoston,
N.A.
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.
34
<PAGE>
Amounts outstanding under the line of credit agreement during the fiscal year
ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
AVERAGE MAXIMUM AVERAGE
LOAN LOAN AMOUNT INTEREST
PORTFOLIO BALANCE OUTSTANDING RATE
- ------------------------------ ------- ----------- --------
<S> <C> <C> <C>
Bond Portfolio................ $ 3,539 $ 194,200 8.48%
High Yield Portfolio*......... 26,551 1,026,000 8.01
</TABLE>
- ---------
* Commencement of investment operations on January 2, 1998.
The Portfolios had no amounts outstanding under the line of credit agreement at
March 31, 1998. The Debt Portfolio had no amounts outstanding under the line of
credit agreement during the fiscal year ended March 31, 1998.
CONCENTRATION OF RISK -- HIGH YIELD PORTFOLIO
Lower-rated debt securities (commonly known as "junk bonds"), possess
speculative characteristics and are subject to greater market fluctuations and
risk of lost income and principal than higher-rated debt securities for a
variety of reasons. Also, during an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals and to obtain
additional financing. In addition, periods of economic uncertainty and changes
can be expected to result in increased volatility of market prices of
lower-rated debt securities and the High Yield Portfolio's net asset value.
CONCENTRATION OF RISK -- DEBT PORTFOLIO
Investments in emerging market debt involve special risks. The issuer of the
debt of the governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and the Debt Portfolio may have limited legal
recourse in the event of a default.
Certain emerging countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging country's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Debt Portfolio
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Debt Portfolio of any restrictions on investments.
Most securities markets in emerging market countries may have substantially less
volume and are subject to less government supervision than U.S. securities
markets. Securities of many issuers in emerging market countries may be less
liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging market countries than in the
United States.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in exchange rates.
In addition, forward contracts are subject to the risk that the counterparty to
the contract will default on its obligations. A default on the contract would
deprive the Debt Portfolio of unrealized profits, the benefits of a currency
hedge, increase transaction costs or force the Debt Portfolio to cover its
purchase or sale commitments, if any, at the current market price. The Debt
Portfolio will not enter into such transactions unless the credit quality of the
unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by BSAM.
35
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
Total Return Bond Portfolio
High Yield Total Return Portfolio
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders,
Emerging Markets Debt Portfolio
(A series of the Bear Stearns Investment Trust)
Total Return Bond Portfolio
High Yield Total Return Portfolio
(Series of The Bear Stearns Funds):
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments of Emerging Markets Debt Portfolio, Total Return
Bond Portfolio and High Yield Total Return Portfolio (collectively, the
"Portfolios") as of March 31, 1998, and the related statements of operations,
changes in net assets and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Portfolios' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the 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 audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Emerging Markets
Debt Portfolio, Total Return Bond Portfolio and High Yield Total Return
Portfolio at March 31, 1998, the results of their operations, the changes in
their net assets and the financial highlights for each of the periods presented
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
May 8, 1998
36
<PAGE>
THE BEAR STEARNS FUNDS
Emerging Markets Debt Portfolio
Total Return Bond Portfolio
High Yield Total Return Portfolio
SHAREHOLDER TAX INFORMATION -- (UNAUDITED)
Each Portfolio is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of each Portfolio's fiscal
year end (March 31, 1998) as to the U.S. federal tax status of dividends and
distributions received by each Portfolio's shareholders in respect of such
fiscal year. During the fiscal year ended March 31, 1998, the following
dividends and distributions per share were paid by each of the Portfolios:
EMERGING MARKETS DEBT PORTFOLIO
<TABLE>
<CAPTION>
NET INVESTMENT INCOME 20 PERCENT RATE GAINS
- ------------------------------------- ------------------------
CLASS A CLASS B CLASS C CLASS A CLASS C
- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 0.9200 $ 0.2035 $ 0.9015 $ 0.3049 $ 0.3049
- ----------- ----------- ----------- ----------- -----------
- ----------- ----------- ----------- ----------- -----------
</TABLE>
There were no ordinary income dividends from the Emerging Markets Debt Portfolio
which would qualify for the dividends received deduction available to corporate
shareholders. All Portfolio dividends and distributions were derived from income
and capital gains on foreign obligations; however they were not subject to
foreign withholding taxes.
TOTAL RETURN BOND PORTFOLIO
<TABLE>
<CAPTION>
NET INVESTMENT INCOME SHORT-TERM CAPITAL GAINS
- ---------------------------------------------------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS Y CLASS A CLASS C CLASS Y
- ------------------- ------------------- ------------------- ------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 0.762770703 $ 0.079770407 $ 0.705466506 $ 0.806271574 $ 0.0170 $ 0.0170 $ 0.0170
- ------------------- ------------------- ------------------- ------------------- ----------- ----------- -----------
- ------------------- ------------------- ------------------- ------------------- ----------- ----------- -----------
</TABLE>
There were no ordinary income dividends from the Total Return Bond Portfolio
which would qualify for the dividends received deduction available to corporate
shareholders.
HIGH YIELD TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
- -------------------------------------------------------------
CLASS A CLASS B CLASS C
- ------------------- ------------------- -------------------
<S> <C> <C>
$ 0.231038643 $ 0.213390102 $ 0.213382031
- ------------------- ------------------- -------------------
- ------------------- ------------------- -------------------
</TABLE>
There were no ordinary income dividends from the High Yield Total Return
Portfolio which would qualify for the dividends received deduction available to
corporate shareholders.
Because each Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 1998. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns, will be made in conjunction
with Form 1099-DIV and will be mailed in January 1999.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend. They will generally not be entitled to a foreign tax
credit or deduction for the withholding taxes paid by the Portfolios, if any.
In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income for U.S. federal income tax purposes.
However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may
need this information for their annual information reporting.
Shareholders are advised to consult with their own tax advisers with respect to
the tax consequences of their investment in the Portfolios.
37
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<S> <C>
Michael Minikes Chairman of the Board
Robert S. Reitzes President
Peter B. Fox Trustee - Emerging Markets Debt
Portfolio
Executive Vice President - Total Return
Bond Portfolio and
High Yield Total Return Portfolio
William J. Montgoris Executive Vice President - Total Return
Bond Portfolio and
High Yield Total Return Portfolio
Peter M. Bren Trustee
Alan J. Dixon Trustee - Total Return Bond Portfolio
and
High Yield Total Return Portfolio
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
</TABLE>
