<PAGE>
[LOGO]
The
Bear Stearns
Funds
575 LEXINGTON AVENUE
NEW YORK, NY 10022
1.800.766.4111
<TABLE>
<S> <C>
Michael Minikes Chairman of the Board
Doni L. Fordyce President
Barry Sommers Executive Vice President
Peter M. Bren Trustee
Alan J. Dixon Trustee
John R. McKernan, Jr. Trustee
M.B. Oglesby, Jr. Trustee
Stephen A. Bornstein Vice President and Secretary
Frank J. Maresca Vice President and Treasurer
Vincent L. Pereira Assistant Treasurer
INVESTMENT ADVISER DISTRIBUTOR
Bear Stearns Asset Bear, Stearns & Co. Inc.
Management Inc. 245 Park Avenue
575 Lexington Avenue New York, NY 10167
New York, NY 10022
ADMINISTRATOR TRANSFER AND DIVIDEND
Bear Stearns Funds Management Inc. DISBURSEMENT AGENT
575 Lexington Avenue PFPC Inc.
New York, NY 10022 Bellevue Corporate Center
CUSTODIAN 400 Bellevue Parkway
Custodial Trust Company Wilmington, DE 19808
101 Carnegie Center INDEPENDENT AUDITORS
Princeton, NJ 08540 Deloitte & Touche LLP
COUNSEL Two World Financial Center
Kramer, Levin, New York, NY 10281
Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
</TABLE>
This report is submitted for the general information of the shareholders of
the Portfolio. It is not authorized for distribution to prospective
investors in the Portfolio unless it is preceded or accompanied by a
current prospectus which includes details regarding the Portfolio's
objectives, policies and other information. Total investment return is
based on historical results and is not intended to indicate future
performance.
Prime Money Market Portfolio is neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that the Prime Money Market
Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
BSFR-017-04
PRIME MONEY
MARKET PORTFOLIO
ANNUAL REPORT
MARCH 31, 1999
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
LETTER TO SHAREHOLDERS
April 30, 1999
Dear Shareholders:
We are pleased to present you with the annual report of the Prime Money Market
Portfolio (the "Portfolio") for the period ended March 31, 1999. As of March 31,
1999, the Portfolio's current yield was 4.84% and the 7-day effective yield was
4.92%. For the 12 months ended March 31, 1999, the Portfolio's total return was
5.37%, and exceeded the average total return for tier-one taxable institutional
money market funds by 20 basis points as measured by IBC Financial Data, Inc.(1)
As we reported in our semi-annual report dated September 30, 1998, the Portfolio
received an AAAm rating (its highest) from Standard & Poors. On November 24,
1998, Moody's Investors Service assigned a money market fund rating of Aaa (its
highest) to the portfolio. In its press-release, Moody's referenced the high
credit quality of the Portfolio's assets and the adviser's experience,
knowledge, and conservative investment policies. We are very pleased to have the
highest rating from both of these premier rating services.
The fourth quarter of 1998 began with financial markets in turmoil. However,
after two 25 basis point reductions in the targeted Federal Funds rate (at the
September 29th regularly scheduled meeting and on October 15th between regularly
scheduled meetings) to a level of 5.0%, markets started to calm. If there was
any doubt the Fed stood ready to provide liquidity to the system, it was removed
by an additional 25 basis point reduction in the targeted Fed Funds rate (to
4.75%) at the November 17th meeting of the Federal Open Market Committee (FOMC).
Credit conditions and liquidity concerns started to ease as the fourth quarter
wound down.
Despite international financial concerns, the U.S. economy continued its stellar
performance in the 4th quarter. Spurred by robust consumer spending, 4th quarter
GDP rose 6.0%. With inflation at exceptionally low levels, the economy's
performance was truly spectacular. Absent the pressures of inflation, the FOMC
left the targeted Fed Funds rate unchanged at both its February 3rd and March
30th-31st meetings. Also a neutral posture regarding future rate actions
remained in effect.
The preliminary release for 1st quarter 1999 GDP was 4.5%, and inflation
pressures were absent. Several opinions have been offered to explain the
continuation of the ideal economic environment that exists in the U.S., which is
characterized by solid growth, low unemployment and low inflation. One school of
thought, supported by Federal Reserve Board Chairman Greenspan, attributes these
conditions to increases in worker productivity. This view is starting to be
embraced by other members of the FOMC, who are shifting from an inclination to
make preemptive strikes against inflation to a more restrained approach that
looks for solid evidence of inflation before implementing increases in rates.
1
<PAGE>
Looking forward, it appears the FOMC will continue to maintain a neutral posture
for the immediate future. Our strategy in this environment continues to revolve
around flexibility. We will continue to take modest positions when opportunities
arise, but believe that safety of principal and liquidity are the highest
priorities.
We do appreciate your support and welcome your ideas and concerns.
Sincerely,
[SIGNATURE]
Doni L. Fordyce
President
The Bear Stearns Funds
- -------
(1) The Net Yield represents past performance which is not a guarantee of
future results. Yields are net of management fees and expenses. As of March
31, 1999, there were 178 funds in the taxable First Tier - Institutional
Only category, and throughout all periods, some or all of the funds,
including the Prime Money Market Portfolio, reported fee waivers from time
to time. Without such waivers, the reported yields would have been lower.
2
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BANKERS ACCEPTANCES -- 1.3%
BANKS - DOMESTIC - 1.3%
$ 5,000 Wachovia Bank N.A. [P-1, A-1+].................... 4.670% 04/19/99 $ 4,988,325
-------------
CORPORATE OBLIGATIONS -- 8.8%
BANKS - FOREIGN - 0.9%
3,500 Abbey National Treasury Services plc* [P-1,
A-1+]........................................... 4.785 04/01/99 3,499,060
-------------
BANKS - DOMESTIC - 5.5%
5,000 First Union National Bank* [P-1, A-1]............. 4.950 04/01/99 4,998,634
1,000 First Union National Bank [P-1, A-1].............. 5.310 09/14/99 1,000,813
2,000 J.P. Morgan & Co., Inc.* [P-1, A-1+].............. 4.855 04/07/99 1,999,741
2,000 Key Bank N.A.* [P-1, A-1]......................... 4.780 04/01/99 1,999,691
5,000 NationsBank N.A. [P-1, A-1+]...................... 5.020 04/01/99 5,000,000
4,000 Northern Trust Co.* [P-1, A-1+]................... 4.727 04/08/99 3,998,948
2,500 PNC Bank N.A.* [P-1, A-1]......................... 4.813 04/16/99 2,499,308
-------------
21,497,135
-------------
BANKS - YANKEE - CANADA - 0.3%
1,000 Royal Bank of Canada* [P-1, A-1+]................. 4.805 04/01/99 999,433
-------------
INVESTMENT STRUCTURE - 0.8%
3,000 Sigma Finance Inc.* [P-1, A-1+]................... 4.980 04/01/99 3,000,000
-------------
SECURITIES DEALER - 1.3%
5,000 Goldman Sachs Group L.P.+ [P-1, A-1+]............. 4.951 04/07/99 5,000,000
-------------
Total Corporate Obligations (cost $28,995,628) 33,995,628
-------------
COMMERCIAL PAPER -- 41.1%
ASSET-BACKED CREDIT CARDS - 2.3%
3,000 Citibank Credit Card Master Trust, Dakota
Certificates [P-1, A-1+]........................ 4.890 04/07/99 2,997,555
3,000 Citibank Credit Card Master Trust, Dakota
Certificates [P-1, A-1+]........................ 4.820 05/03/99 2,987,146
3,000 Citibank Credit Card Master Trust, Dakota
Certificates [P-1, A-1+]........................ 4.850 06/01/99 2,975,346
-------------
8,960,047
-------------
BANK - YANKEE - U.K. - 0.4%
1,530 Lloyds Bank plc [P-1, A-1+]....................... 5.000 04/07/99 1,528,725
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
COMMERCIAL FINANCE - 12.8%
$ 3,000 American Express Credit Corp. [P-1, A-1].......... 4.850% 04/01/99 $ 3,000,000
12,000 Caisse Des Depot [P-1, A-1+]...................... 5.080 04/01/99 12,000,000
2,900 Ford Motor Credit Corp. [P-1, A-1]................ 4.850 04/08/99 2,897,265
3,000 Ford Motor Credit Corp. [P-1, A-1]................ 4.870 04/05/99 2,998,377
3,500 Ford Motor Credit Corp. [P-1, A-1]................ 4.820 04/07/99 3,497,188
1,800 Ford Motor Credit Corp. [P-1, A-1]................ 4.860 04/09/99 1,798,056
3,000 General Electric Capital Corp. [P-1, A-1+]........ 4.850 05/13/99 2,983,025
3,000 General Electric Capital Corp. [P-1, A-1+]........ 4.830 07/21/99 2,955,323
2,000 General Electric Capital Corp. [P-1, A-1+]........ 4.830 05/25/99 1,985,510
5,000 General Motors Acceptance Corp. [P-1, A-1]........ 4.950 04/06/99 4,996,563
3,500 General Motors Acceptance Corp. [P-1, A-1]........ 5.000 04/06/99 3,497,569
5,000 IBM Credit Corp. [P-1, A-1]....................... 4.950 04/01/99 5,000,000
2,000 UBS AG [P-1, A-1+]................................ 5.010 04/19/99 1,994,990
-------------
49,603,866
-------------
CORPORATE LOAN CONDUIT - 3.8%
2,333 Centric Capital Corp. [P-1, A-1+]................. 5.080 05/04/99 2,322,136
2,857 Centric Capital Corp. [P-1, A-1+]................. 4.880 05/06/99 2,843,445
4,000 Centric Capital Corp. [P-1, A-1+]................. 4.870 06/07/99 3,963,746
2,755 Greenwich Funding Corp. [P-1, A-1+]............... 4.880 04/26/99 2,745,664
3,000 Greenwich Funding Corp. [P-1, A-1+]............... 4.900 05/04/99 2,986,525
-------------
14,861,516
-------------
DIVERSIFIED RECEIVABLES CONDUIT - 10.9%
5,000 Alpine Securitization Corp. [P-1, A-1+]........... 4.850 04/06/99 4,996,632
2,000 Alpine Securitization Corp. [P-1, A-1+]........... 4.950 04/20/99 1,994,775
2,500 Barton Capitol Corp. [P-1, A-1+].................. 4.860 04/05/99 2,498,650
2,000 Barton Capitol Corp. [P-1, A-1+].................. 4.910 04/13/99 1,996,727
3,000 Barton Capitol Corp. [P-1, A-1+].................. 4.900 04/20/99 2,992,242
2,577 Barton Capitol Corp. [P-1, A-1+].................. 4.900 04/26/99 2,568,231
5,001 Enterprise Funding [P-1, A-1+].................... 5.100 04/01/99 5,001,000
3,018 Enterprise Funding [P-1, A-1+].................... 4.880 04/08/99 3,015,136
3,000 Park Avenue Receivables Corp. [P-1, A-1].......... 4.880 04/20/99 2,992,273
4,000 Sheffield Receivables Corp. [P-1, A-1+]........... 4.980 04/06/99 3,997,233
4,000 Windmill Funding Corp. [P-1, A-1+]................ 4.880 04/13/99 3,993,493
4,000 Windmill Funding Corp. [P-1, A-1+]................ 4.950 04/14/99 3,992,850
2,000 Windmill Funding Corp. [P-1, A-1+]................ 4.910 04/30/99 1,992,089
-------------
42,031,331
-------------
DIVERSIFIED OPERATIONS - 3.1%
12,000 Koch Industries Inc. [P-1, A-1+].................. 5.020 04/01/99 12,000,000
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
INVESTMENT STRUCTURE - 1.8%
$ 2,500 Sigma Finance Corp. [P-1, A-1+]................... 5.300% 04/20/99 $ 2,493,007
2,000 Sigma Finance Corp. [P-1, A-1+]................... 5.170 05/25/99 1,984,490
2,500 Sigma Finance Corp. [P-1, A-1+]................... 4.830 08/11/99 2,455,725
-------------
6,933,222
-------------
MEDICAL-DRUGS - 1.6%
6,000 American Home Products [P-1, A-1]................. 5.030 04/01/99 6,000,000
-------------
SECURITIES DEALER - 4.4%
4,000 Credit Suisse First Boston Inc. [P-1, A-1+]....... 4.840 05/18/99 3,974,724
3,000 Credit Suisse First Boston Inc. [P-1, A-1+]....... 4.850 06/09/99 2,972,113
4,000 Goldman Sachs Group, L.P. [P-1, A-1+]............. 4.860 04/14/99 3,992,980
3,000 Morgan Stanley Dean Witter Discover & Co., (LOC)
[P-1, A-1]...................................... 4.900 04/05/99 2,998,367
3,000 Morgan Stanley Dean Witter Discover & Co., (LOC)
[P-1, A-1]...................................... 4.840 06/15/99 2,969,750
-------------
16,907,934
-------------
Total Commercial Paper (cost $158,826,641)........ 158,826,641
-------------
CERTIFICATES OF DEPOSIT -- 20.8%
BANKS - DOMESTIC - 1.2%
3,750 Bank of America N.A. [P-1, A-1+].................. 4.950 11/18/99 3,749,988
1,000 Chase Manhattan Bank N.A. [P-1, A-1+]............. 5.745 05/10/99 1,000,609
-------------
4,750,597
-------------
BANKS EURO-DUTCH - 1.3%
3,000 ING Bank NV [P-1, A-1+]........................... 4.930 08/12/99 2,999,480
2,000 ING Bank NV [P-1, A-1+]........................... 5.000 09/09/99 2,000,168
-------------
4,999,648
-------------
BANKS - YANKEE - CANADA - 3.9%
3,000 Canadian Imperial Bank [P-1, A-1+]................ 5.710 06/23/99 3,005,113
3,000 Canadian Imperial Bank [P-1, A-1+]................ 5.010 01/27/00 2,999,761
1,000 Royal Bank of Canada [P-1, A-1+].................. 5.685 06/30/99 999,885
3,000 Royal Bank of Canada [P-1, A-1+].................. 4.910 08/09/99 3,000,000
2,500 Toronto Dominion Bank Ltd.* [P-1, A-1+]........... 4.790 04/01/99 2,499,438
2,500 Toronto Dominion Bank Ltd. [P1, A1+].............. 5.640 07/14/99 2,499,572
-------------
15,003,769
-------------
BANKS - YANKEE - FRANCE - 0.6%
2,500 Societe Generale [P-1, A-1+]...................... 5.750 04/06/99 2,500,155
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT (CONTINUED)
BANKS - YANKEE - GERMANY - 7.0%
$ 4,000 Bayerische Landesbank Girozentrale [P-1, A-1+].... 5.720% 05/06/99 $ 4,002,454
2,000 Bayerische Landesbank Girozentrale [P-1, A-1+].... 5.650 07/23/99 2,003,432
6,000 Bayerische Hypotheken-und Wechsel Bank AG [P-1,
A-1+]........................................... 5.755 04/02/99 6,000,082
3,000 Deutsche Bank AG [P-1, A-1+]...................... 4.880 04/19/99 3,000,000
3,000 Dresdner Bank AG [P-1, A-1+]...................... 4.950 11/09/99 2,998,523
3,000 Norddeutsche Landesbank Girozentrale [P-1,
A-1+]........................................... 5.250 03/01/00 2,998,940
3,000 Westdeutsche Landesbank Girozentrale [P-1,
A-1+]........................................... 4.920 08/16/99 2,998,881
3,000 Westdeutsche Landesbank Girozentrale [P-1,
A-1+]........................................... 5.160 09/17/99 3,000,775
-------------
27,003,087
-------------
BANKS - YANKEE - NETHERLANDS - 2.1%
2,000 Rabobank Nederland NV [P-1, A-1+]................. 5.590 04/06/99 2,000,072
2,000 Rabobank Nederland NV [P-1, A-1+]................. 5.710 04/16/99 1,999,905
2,000 Rabobank Nederland NV [P-1, A-1+]................. 5.770 05/05/99 2,000,649
2,000 Rabobank Nederland NV [P-1, A-1+]................. 5.650 07/08/99 2,002,613
-------------
8,003,239
-------------
BANKS - YANKEE - U.K. - 3.1%
3,000 Barclay's Bank plc [P-1, A-1+].................... 4.875 04/27/99 3,000,011
2,000 Barclay's Bank plc [P-1, A-1+].................... 5.030 09/07/99 2,000,491
2,000 National Westminster plc [P-1, A-1+].............. 5.740 04/28/99 1,999,858
2,000 National Westminster plc [P-1, A-1+].............. 5.738 05/07/99 2,000,028
3,000 National Westminster plc [P-1, A-1+].............. 4.980 01/10/00 2,999,099
-------------
11,999,487
-------------
BANKS - YANKEE - SWISS - 1.6%
1,000 UBS AG [P-1, A-1+]................................ 5.705 07/02/99 1,001,440
5,000 UBS AG [P-1, A-1+]................................ 5.075 01/13/00 5,003,006
-------------
6,004,446
-------------
Total Certificates of Deposit (cost
$80,264,428).................................... 80,264,428
-------------
TIME DEPOSIT -- 2.6%
10,000 South Trust Bank N.A. (cost $10,000,000).......... 5.250 04/01/99 10,000,000
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS** -- 25.1%
$40,000 Goldman Sachs & Co., L.P.......................... 4.900% 04/01/99 $ 40,000,000
56,775 Morgan Stanley & Co. Inc.......................... 4.970 04/01/99 56,775,000
-------------
Total Repurchase Agreements (cost $96,775,000).... 96,775,000
-------------
Total Investments - 99.7%
(cost $384,850,022)***.......................... 384,850,022
Other Assets in Excess of Liabilities - 0.3%...... 1,350,734
-------------
Net Assets - 100.0%............................... $ 386,200,756
-------------
-------------
</TABLE>
- ---------
* Variable Rate Obligations - The rate shown is the rate as of March 31, 1999
and the maturity date shown is the date the interest rate resets.
** See notes to the financial statements for description of underlying
collateral.
*** The cost of investments for federal income tax purposes is substantially the
same as for financial reporting purposes.
+ Variable Rate Obligation. The rate is based on the three month LIBOR (London
Interbank Offered Rate)-2%, with a seven day guarantee feature and a final
maturity date of 11/05/99.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments, at amortized cost which
approximates market value
(identified and tax cost - $384,850,022)...... $384,850,022
Cash............................................ 577
Receivable from investment adviser.............. 68,162
Interest receivable............................. 2,613,744
Deferred organization expenses and other
assets........................................ 69,202
------------
Total assets.............................. 387,601,707
------------
LIABILITIES
Dividends payable............................... 1,233,456
Administration fee payable...................... 13,521
Custodian fee payable........................... 13,111
Accrued expenses................................ 140,863
------------
Total liabilities......................... 1,400,951
------------
NET ASSETS
Capital stock, $0.001 par value (unlimited
shares of beneficial interest authorized)..... 386,236
Paid-in capital................................. 385,850,128
Accumulated net realized loss from
investments................................... (35,608)
------------
Net assets................................ $386,200,756
------------
------------
CLASS Y
Net assets...................................... $386,200,756
------------
Shares of beneficial interest outstanding....... 386,236,364
------------
Net asset value, offering and redemption price
per share..................................... $1.00
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................ $11,580,645
-----------
EXPENSES
Advisory fees................................... 434,624
Accounting fees................................. 139,740
Federal and state registration fees............. 114,625
Administration fees............................. 108,656
Custodian fees and expenses..................... 48,684
Legal and auditing fees......................... 40,767
Transfer agent fees and expenses................ 25,200
Reports and notices to shareholders............. 16,711
Amortization of organization expenses........... 11,336
Insurance expenses.............................. 7,580
Rating fees and expenses........................ 6,464
Trustees' fees and expenses..................... 5,614
Other........................................... 9,605
-----------
Total expenses before waivers and related
reimbursements............................. 969,606
Less: waivers and related reimbursements.... (543,660)
-----------
Total expenses after waivers and related
reimbursements............................. 425,946
-----------
Net investment income........................... 11,154,699
-----------
NET REALIZED LOSS ON INVESTMENTS.................. (35,565)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $11,119,134
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
FISCAL YEAR JULY 14, 1997*
ENDED THROUGH MARCH
MARCH 31, 1999 31, 1998
--------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income........................... $ 11,154,699 $ 3,363,564
Net realized loss on investments................ (35,565) (43)
--------------- --------------
Net increase in net assets resulting from
operations.................................... 11,119,134 3,363,521
--------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income........................... (11,154,699) (3,363,564)
--------------- --------------
SHARES OF BENEFICIAL INTEREST**
Net proceeds from the sale of shares............ 915,765,236 203,898,180
Cost of shares repurchased...................... (657,566,582) (85,207,807)
Shares issued in reinvestment of dividends...... 6,577,202 2,770,134
--------------- --------------
Net increase in net assets derived from shares
of beneficial interest transactions........... 264,775,856 121,460,507
--------------- --------------
Total increase in net assets.................... 264,740,291 121,460,464
NET ASSETS
Beginning of period............................. 121,460,465 1
--------------- --------------
End of period................................... $386,200,756 $ 121,460,465
--------------- --------------
--------------- --------------
</TABLE>
- --------
* Commencement of investment operations.
** Share transactions at net asset value of $1.00 per share.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Contained below is per share operating performance data for each share
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 14, 1997*
FISCAL YEAR ENDED THROUGH
MARCH 31, 1999 MARCH 31, 1998
--------------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period......................... $ 1.00 $ 1.00
Net investment income(1)......... 0.0524 0.0399
-------- --------
Net increase in net assets
resulting from operations...... 0.0524 0.0399
-------- --------
Dividends and distributions to
shareholders from net
investment income.............. (0.0524) (0.0399)
-------- --------
Net asset value, end of period... $ 1.00 $ 1.00
-------- --------
-------- --------
Total investment return(2)....... 5.37% 5.72%
-------- --------
-------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)....................... $ 386,201 $ 121,460
Ratio of expenses to average net
assets(1)(4)................... 0.20% 0.13%(3)
Ratio of net investment income to
average net assets(1).......... 5.24% 5.58%(3)
Increase/(decrease) reflected in
above expense ratio and net
investment income due to
waivers and reimbursements..... 0.25% 0.52%(3)
</TABLE>
- --------
* Commencement of investment operations.
(1) Reflects waivers and reimbursements.
(2) Total investment return is calculated assuming a purchase of shares on the
first day and a sale of shares on the last day of each period reported and
includes reinvestment of dividends and distributions.
(3) Annualized.
(4) Without the waiver of advisory fee and without the reimbursement of certain
operating expenses, the ratio of expenses to average net assets would have
been 0.45% for the year ended March 31, 1999 and 0.65% annualized for the
period July 14, 1997 through March 31, 1998.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE BEAR STEARNS FUNDS
PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business
trust on September 29, 1994 and is registered with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as an open-end management investment
company. The Fund consists of ten separate portfolios: seven diversified
portfolios, Large Cap Value Portfolio, Small Cap Value Portfolio, Income
Portfolio, International Equity Portfolio, Balanced Portfolio, High Yield Total
Return Portfolio and Prime Money Market Portfolio (the "Portfolio"), and three
non-diversified portfolios, The Insiders Select Fund, S&P STARS Portfolio, and
Focus List Portfolio. Each portfolio is treated as a separate entity for certain
matters under the Investment Company Act, and for other purposes, and a
shareholder of one portfolio is not deemed to be a shareholder of any other
portfolio. As of the date hereof, each portfolio (except the Prime Money Market
Portfolio which only offers shares designated as class Y and Focus List and
International Equity which have yet to commence initial public offerings of
their class Y shares) offers four classes of shares, which have been designated
as class A, B, C, and Y shares.
ORGANIZATIONAL MATTERS--Prior to commencing investment operations on July 14,
1997, the Portfolio did not have any transactions other than those relating to
organizational matters and the sale of one class Y share to Bear, Stearns & Co.
Inc. ("Bear Stearns" or the "Distributor"). Costs of $56,500 which were incurred
by the Portfolio in connection with the organization, registration with the
Commission and initial public offering of its shares, have been deferred and are
being amortized using the straight-line method over the period of benefit not
exceeding sixty months, beginning with the commencement of investment operations
of the Portfolio. In the event that the Portfolio is liquidated prior to the end
of the sixty month period, the Distributor or the transferee of the Distributor
shall bear the unamortized deferred organization expenses.
PORTFOLIO VALUATION--Portfolio securities are valued under the amortized cost
method, which approximates current market value. Securities are valued at cost
when purchased and thereafter a constant proportionate amortization of any
discount or premium is recorded until maturity of the security. Regular review
and monitoring of the valuations are performed in an attempt to avoid dilution
or other unfair results to shareholders. The Portfolio seeks to maintain a net
asset value of $1.00 per share, although there is no assurance that it will be
able to do so on a continuing basis.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses are calculated on the identified cost basis
for both financial reporting and income tax purposes. Interest income and
expenses are recorded on the accrual basis.
U.S. FEDERAL TAX STATUS--The Portfolio intends to distribute substantially all
of its taxable income and to comply with the other requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing during each calendar year substantially all of its net
investment income and capital gains, if any, the Portfolio intends not to be
subject to a U.S. federal excise tax.
At March 31 1999, the Portfolio had a capital loss carryforward of $34,543
available as a reduction, to the extent provided in regulations of any future
net capital gains realized before the end of fiscal year 2007. To the extent
that the loss is used to offset future capital gains, it is probable that the
gains so offset will not be distributed to shareholders.
For U.S. federal income tax purposes, realized capital losses incurred after
October 31, 1998, within the fiscal year, are deemed to arise on the first day
of the following fiscal year. The Portfolio incurred and elected to defer such
losses of $1,065.
12
<PAGE>
DIVIDENDS AND DISTRIBUTIONS--Dividends from net investment income are declared
daily and paid monthly. Any net realized capital gains are distributed at least
annually. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principals.
REPURCHASE AGREEMENTS--The Portfolio may purchase securities from financial
institutions subject to the seller's agreement to repurchase and the Portfolio's
agreement to resell the securities at par. The investment adviser only enters
into repurchase agreements with financial institutions that are primary dealers
and deemed to be creditworthy by the investment adviser in accordance with
procedures adopted by the Board of Trustees. Securities purchased subject to
repurchase agreements are maintained with a custodian of the Portfolio and must
have, at all times, an aggregate market value greater than or equal to the
repurchase price plus accrued interest. If the value of the underlying
securities falls below 102% of the value of the repurchase price plus accrued
interest, the Portfolio will require the seller to deposit additional collateral
by the next Portfolio business day. In the event that the seller under the
agreement defaults on its repurchase obligation or fails to deposit sufficient
collateral, the Portfolio has the contractual right, subject to the requirements
of applicable bankruptcy and insolvency laws, to sell the underlying securities
and may claim any resulting loss from the seller.
MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principals requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
For the fiscal year ended March 31, 1999, Bear Stearns Asset Management Inc.
("BSAM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns
Companies Inc., served as Adviser pursuant to an advisory agreement with the
Portfolio. Under the terms of the Investment Advisory Agreement the Adviser is
entitled to receive from the Portfolio a monthly fee equal to an annual rate of
0.20% of the Portfolio's average daily net assets.
For the fiscal year ended March 31, 1999, Bear Stearns Funds Management Inc.
("BSFM" or the "Administrator") served as administrator to the Portfolio
pursuant to an Administration Agreement. The Administrator is entitled to
receive from the Portfolio a monthly fee equal to 0.05% of the Portfolio's
average daily net assets. Under the terms of an Administrative Services
Agreement with the Portfolio, PFPC Inc. provides certain fund accounting and
administrative services to the Portfolio. For providing these services, PFPC
Inc. is entitled to receive from the Portfolio a monthly fee equal to an annual
rate of 0.075% of the Portfolio's average daily net assets up to $150 million,
0.04% of the next $150 million, 0.02% of the next $300 million and 0.0125% of
net assets above $600 million, subject to a minimum monthly fee of $6,250 for
the Portfolio. For the fiscal year ended March 31, 1999, PFPC Inc. has
voluntarily waived a portion of its fee.
For the fiscal year ended March 31, 1999, the Adviser has voluntarily undertaken
to limit the Portfolio's operating expenses (exclusive of brokerage commissions,
taxes, interest, and extraordinary items) to a maximum annual level of no more
than 0.20% of its average daily net assets. As necessary, this limitation is
effected by waivers by the Adviser of its advisory fees and reimbursements of
expenses exceeding the advisory fee. For the fiscal year ended March 31, 1999,
the Adviser waived advisory fees of $400,797. In addition, the Adviser
reimbursed $142,863, in order to maintain the voluntary expense limitation.
Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns Companies
Inc., and an affiliate of the Adviser and the Administrator, serves as custodian
to the Portfolio.
SHARES OF BENEFICIAL INTEREST
The Portfolio currently offers class Y shares. There is no sales charge or CDSC
on class Y shares, which are offered primarily to institutional investors.
At March 31, 1999 there was an unlimited amount of $0.001 par value shares of
beneficial interest authorized for the Portfolio, of which Bear Stearns owned
83,990,879 of class Y shares (including 1,324,653 shares acquired through
dividends reinvested).
13
<PAGE>
COLLATERAL FOR REPURCHASE AGREEMENTS
Listed below is the collateral associated with the repurchase agreement with
Goldman Sachs & Co., L.P. outstanding at March 31, 1999:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MARKET ACCRUED
ISSUER AMOUNT (000) MATURITY DATES RATES VALUE INTEREST TOTAL VALUE
- ----------------------------------- ------------ ----------------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
FHLMC**............................ $224,852 04/15/99-03/01/29 5.00%-14.75% $17,280,167 $107,345 $17,387,512
FNMA*.............................. $184,729 04/25/99-05/01/29 5.00%-12.50% 23,278,222 134,266 23,412,488
----------- -------- -----------
$40,558,389 $241,611 $40,800,000
----------- -------- -----------
----------- -------- -----------
</TABLE>
Listed below is the collateral associated with the repurchase agreement with
Morgan Stanley & Co. Inc. outstanding at March 31, 1999.
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MARKET ACCRUED
ISSUER AMOUNT (000) MATURITY DATES RATES VALUE INTEREST TOTAL VALUE
- ----------------------------------- ------------ ----------------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
FNMA*.............................. $169,024 04/01/19-10/01/36 6.13%-7.37% $57,859,292 326,114 $58,185,406
</TABLE>
- ---------
* Federal National Mortgage Association
**Federal Home Loan Mortgage Corp.
CREDIT AGREEMENT
The Fund (on behalf of Prime Money Market Portfolio) has 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, Income Portfolio,
Focus List Portfolio, Balanced Portfolio, International Equity Portfolio, High
Yield Total Return Portfolio and Bear Stearns Investment Trust, which consists
of the Emerging Markets Debt Portfolio, are also parties to the credit
agreement. The agreement provides that each party to the credit agreement is
permitted to borrow in an amount equal to the lesser of $25 million or 25% of
the net assets of 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 Emerging Markets Debt
Portfolio) of its net assets. The line of credit will bear interest at the
greater of: (i) the annual rate of interest announced from time to time from the
bank at its head office as its Base Rate, or (ii) the Federal Funds 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. The Portfolio
had no amounts outstanding under the line of credit agreement during the fiscal
year ended March 31, 1999.
14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders,
Prime Money Market Portfolio
(A Series of The Bear Stearns Funds):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Money Market Portfolio (the "Portfolio")
as of March 31, 1999, and the related statements of operations, changes in net
assets and the financial highlights for the periods presented. These financial
statements and the financial highlights are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our 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 as of March
31, 1999 by correspondence with the custodian. 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 Prime Money Market
Portfolio as of March 31, 1999, the results of its operations, the changes in
its 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 14, 1999
15
