<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-8798
---------------------------------------------
The Bear Stearns Funds
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
383 Madison Ave. New York, NY 10179
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Stephen A. Bornstein, Esq. 383 Madison Ave. New York, NY 10179
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-272-2553
----------------------------
Date of fiscal year end: March 31, 2004
--------------------------
Date of reporting period: April 1, 2003 through March 31, 2004
--------------------------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
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ITEM 1. REPORTS TO STOCKHOLDERS.
<Page>
THE BEAR STEARNS FUNDS
FIXED INCOME FUNDS
- - INCOME PORTFOLIO
- - HIGH YIELD TOTAL RETURN PORTFOLIO
ANNUAL REPORT
MARCH 31, 2004
[BEAR STEARNS LOGO]
BSF-R-016-14
<Page>
THE BEAR STEARNS FUNDS
INCOME PORTFOLIO
HIGH YIELD TOTAL RETURN PORTFOLIO
LETTER TO SHAREHOLDERS
April 8, 2004
Dear Shareholders:
We are pleased to present the annual report to shareholders of the Income
Portfolio and High Yield Total Return Portfolio ("High Yield Portfolio") of The
Bear Stearns Funds for the fiscal year ended March 31, 2004. Detailed
performance data for each class of shares of each Portfolio can be found in the
"Financial Highlights" and in the line graph sections of this report.
INCOME PORTFOLIO
The Income Portfolio's fiscal year was, by many measures, a favorable one for
the fixed income markets, and especially for lower quality corporate bonds. The
Federal Reserve kept short-term interest rates at their lowest level in 45
years, and inflation remained muted. Stronger corporate earnings propelled a
rising stock market, and improving consumer confidence following the end of the
war with Iraq led to a decline in corporate yield spreads over Treasuries.
Default rates declined, and corporate credit profiles improved. Throughout the
year, the lowest-rated securities experienced the best performance as investors
sought yield.
Though interest rates began and ended the period at approximately the same
level, yields experienced rollercoaster-like volatility during the year.
Treasury yields fell to historical lows in the weeks leading up to the first
attacks on Iraq, then climbed once it became apparent that full scale
hostilities would be short lived. Through the summer months, yields for spread
products* increased steadily as the economy began to show signs of improvement.
Toward year end, rates declined again, and then remained stable for the rest of
the fiscal year.
The Income Portfolio outperformed the Lehman Intermediate Government/Credit
Index(1) benchmark due to its allocations to investment grade and high yield
corporate bonds. Prior to the start of the fiscal year, both sectors had
experienced precipitous price declines due to the high premiums placed on risk
during the recession. As the fiscal year progressed, however, these securities
benefited from the turnaround in the U.S. economy. Companies used improving cash
flows to continue to pay off debt. Yield spreads narrowed significantly due to
improvements in the outlook for corporate earnings and an increase in demand for
higher-yielding securities. The high yield sector, in particular, posted
impressive results.
By contrast, our investments in the mortgage-backed sector detracted from
performance due to high levels of interest rate volatility, and hence,
prepayment uncertainty. In response to the rise in prepayment uncertainty, we
reduced the Income Portfolio's mortgage-backed exposure throughout the year. In
addition, when we did invest in the sector, we focused on structured securities
that were not as vulnerable to prepayment risk, such as collateralized mortgage
obligations and commercial mortgage-backed securities.
At the time of this writing, jobs growth appeared to be the only factor missing
from the U.S. economic recovery. But while a lack of job creation is bad news
for the economy, it is good news for the bond markets since the Fed will be
unlikely to raise interest rates until job growth materializes and is sustained.
In the months ahead, we expect interest rates to remain stable as long as
inflation and job creation remain subdued. Though it is unlikely to repeat its
record returns of last year, we expect the corporate sector to continue to lead
the fixed income markets.
HIGH YIELD TOTAL RETURN PORTFOLIO**
The high yield market posted its second strongest year of performance during the
High Yield Portfolio's fiscal year, trailing only 1991. During the year, the
market's favorable supply and demand characteristics attracted investors to all
levels of the credit spectrum. Default rates crept lower as companies that might
otherwise have faced liquidity crunches were able to secure financing.
Historically low interest rates meant easy access to capital for even the least
creditworthy of issuers. As a result, new supply for the year included a
sizeable portion of low-rated credits.
1
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Every sector of the high yield market generated positive returns for the fiscal
year, with the one exception of textiles. Other sectors that underperformed,
albeit with positive returns, included brokerage firms, railroads, and metals.
By contrast, several more volatile, lower-quality sectors rebounded strongly. In
particular, electric utility issuers posted the strongest returns for the year.
Although utilities' fundamental operating concerns did not abate, many companies
were able to achieve temporary relief from balance sheet amortization issues by
demonstrating their ease of access to capital. The High Yield Portfolio's modest
weighting in the sector contributed positively to performance. Other
outperforming sectors for the High Yield Portfolio included financial services,
cable, and wireless telecommunications.
The high yield market's exceptional returns for the year were driven almost
entirely by lower-rated credits, as investors showed an increasing willingness
to take on risk in exchange for higher yields. Such risk-taking was rewarded, as
credits rated Caa and lower outperformed higher-rated credits by a ratio of more
than two to one.
For the High Yield Portfolio, we stayed true to our conservative investment
philosophy, which has helped generate above average performance in prior
periods. Our underperformance versus both the Lehman High Yield Index(2) and
Lipper High Yield Bond Fund Index(3) was largely due to our underweighted
allocation to credits rated Caa and lower. While the High Yield Portfolio's
largest allocations were in stable, single-B credits, we made several calculated
investments in lower-quality issues. Conversely, our overweighted positions in
three defensive sectors -- health care, energy, and gaming -- detracted from
performance as these sectors posted solid, yet below benchmark returns.
During the year, the flow of funds into the high yield market was strong,
including several weeks where inflows exceeded $1 billion. In such an
environment, the pace of new issuance was often unable to keep up with demand.
With investors scrambling to put cash to work, almost any new issue was
welcomed, regardless of the issuing company's credit profile or the structure of
the deal. As the year progressed, bonds rated Caa- and lower became an
increasingly larger part of new issuance, reaching 18% of total new issuance in
the final quarter of the year.
Sincerely,
/s/ Barry Sommers
Barry Sommers
President
The Bear Stearns Funds
- ----------
* The term "spread products" refers to fixed income securities that trade at
a yield spread over U.S. Treasuries, and typically refers to corporate
bonds, asset-backed securities, mortgage-backed securities, and U.S.
government agency issues.
** 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) The Lehman Intermediate Government/Credit Index does not take into account
the effect of investment management fees, transaction costs and other
expenses. You cannot invest directly into an index.
(2) The Lehman High Yield Index does not take into account management fees,
transactions costs and other expenses. You cannot invest directly into an
index.
(3) The Lipper High Yield Bond Fund Index does not take into account management
fees, transactions costs and other expenses. You cannot invest directly
into an index.
Bear Stearns Asset Management Inc. has waived a portion of its advisory fee and
agreed 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.
Performance results do not reflect the deduction of taxes that a shareholder
would pay on portfolio distributions or the redemption of portfolio shares. On
the accompanying line charts and total return tables found on pages 3 and 4, the
returns of each portfolio assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date.
In addition to historical information, this report contains forward-looking
statements, which may concern, among other things, domestic and foreign markets,
industry and economic trends and developments and government regulation and
their potential impact on each portfolios' investments. These statements are
subject to risks and uncertainties and actual trends, developments and
regulations in the future and their impact on each portfolio could be materially
different from those projected, anticipated or implied. The portfolios have no
obligation to update or revise forward-looking statements.
2
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INCOME PORTFOLIO
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(5) VS. VARIOUS INDICES
<Table>
<Caption>
CLASS A SHARES CLASS C SHARES LEHMAN INTERMEDIATE GOVERNMENT/CREDIT INDEX LIPPER A RATED BOND FUND INDEX
Apr 5, 95 $ 9,550 $ 10,000 $ 10,000 $ 10,000
Sep 30, 95 $ 10,145 $ 10,602 $ 10,628 $ 10,884
Mar 31, 96 $ 10,365 $ 10,811 $ 10,909 $ 11,114
Sep 30, 96 $ 10,575 $ 11,009 $ 11,173 $ 11,346
Mar 31, 97 $ 10,822 $ 11,244 $ 11,433 $ 11,625
Sep 30, 97 $ 11,572 $ 11,998 $ 12,088 $ 12,500
Mar 31, 98 $ 11,841 $ 12,243 $ 12,539 $ 13,035
Sep 30, 98 $ 12,504 $ 12,887 $ 13,350 $ 13,776
Mar 31, 99 $ 12,525 $ 12,858 $ 13,364 $ 13,692
Sep 30, 99 $ 12,432 $ 12,720 $ 13,433 $ 13,546
Mar 31, 2000 $ 12,623 $ 12,887 $ 13,642 $ 13,812
Sep 30, 2000 $ 13,109 $ 13,340 $ 14,273 $ 14,333
Mar 31, 2001 $ 13,971 $ 14,170 $ 15,302 $ 15,374
Sep 30, 2001 $ 14,593 $ 14,750 $ 16,113 $ 16,040
Mar 31, 2002 $ 14,514 $ 14,619 $ 16,091 $ 16,038
Sep 30, 2002 $ 15,482 $ 15,543 $ 17,418 $ 17,182
Mar 31, 2003 $ 15,973 $ 15,984 $ 17,979 $ 17,721
Sep 30, 2003 $ 16,359 $ 16,308 $ 18,464 $ 18,229
Mar 31, 2004 $ 16,810 $ 16,714 $ 18,933 $ 18,788
</Table>
Past performance is not predictive of future performance.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
-------------------------------------------------
5-YEAR SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7)
-------- -------------- -----------------
Income Portfolio(2)
Class A shares(5) 0.50% 5.08% 5.93%
Class B shares(4) (0.49) 5.03 5.16
Class C shares(6) 3.57 5.39 5.88
Class Y shares(3) 5.61 6.40 6.50
Lehman Intermediate Government/Credit Index(1) 5.30 7.22 7.36
Lipper A Rated Bond Fund Index(1) 6.02 6.53 7.26
</Table>
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(1) The chart assumes a hypothetical $10,000 initial investment in the Income
Portfolio and reflects all portfolio expenses. Investors should note that
the Income 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 corresponds to the
performance of Class A and C shares.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and agreed to
reimburse a portion of the Income 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 expense limitations.
(3) The returns of Class Y shares (for which September 8, 1995, was the initial
public offering date) are higher than Class A, B and C shares due to the
fact that there is no sales load, contingent deferred sales charge or 12b-1
fee charged to Class Y shares.
(4) Assuming no redemption of shares at the end of the period, the returns of
Class B shares (for which February 2, 1998, was the initial public offering
date) would have been higher than Class A shares and would have been
substantially the same as Class C 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 B shares. Total returns reflect the applicable
contingent deferred sales charge. Without the applicable sales charge, the
total returns would have been 4.49%, 5.35% and 5.16%, respectively, for
each period shown.
(5) Reflects the initial maximum sales charge of 4.50%. Without the applicable
sales charge, the total returns would have been 5.24%, 6.05% and 6.48%,
respectively, for each period shown.
(6) Reflects the applicable contingent deferred sales charge. Without the
applicable sales charge, the total return for the one year ended March 31,
2004 would have been 4.57%.
(7) Inception dates: Class A and C shares commenced on April 5, 1995, Class B
shares commenced on February 2, 1998 and Class Y shares commenced on
September 8, 1995.
3
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HIGH YIELD TOTAL RETURN PORTFOLIO
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A, B AND C SHARES(1)(2)(4)(5) VS. VARIOUS INDICES
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES LEHMAN HIGH YIELD INDEX LIPPER HIGH YIELD BOND FUND INDEX
Jan 2, 98 $ 9,550 $ 10,000 $ 10,000 $ 10,000 $ 10,000
Mar 31, 98 $ 10,338 $ 10,809 $ 10,809 $ 10,336 $ 10,440
Sep 30, 98 $ 9,778 $ 10,188 $ 10,188 $ 9,974 $ 9,688
Mar 31, 99 $ 10,176 $ 10,568 $ 10,568 $ 10,375 $ 10,312
Sep 30, 99 $ 9,929 $ 10,275 $ 10,275 $ 10,263 $ 10,196
Mar 31, 2000 $ 9,702 $ 10,006 $ 10,006 $ 10,187 $ 10,311
Sep 30, 2000 $ 9,613 $ 9,885 $ 9,885 $ 10,362 $ 10,189
Mar 31, 2001 $ 9,596 $ 9,834 $ 9,834 $ 10,443 $ 9,776
Sep 30, 2001 $ 9,242 $ 9,439 $ 9,439 $ 9,773 $ 8,888
Mar 31, 2002 $ 9,999 $ 10,179 $ 10,179 $ 10,511 $ 9,394
Sep 30, 2002 $ 9,643 $ 9,798 $ 9,797 $ 9,548 $ 8,604
Mar 31, 2003 $ 10,517 $ 10,652 $ 10,639 $ 10,968 $ 9,693
Sep 30, 2003 $ 11,568 $ 11,662 $ 11,650 $ 12,411 $ 10,884
Mar 31, 2004 $ 12,264 $ 12,340 $ 12,328 $ 13,453 $ 11,752
</Table>
Past performance is not predictive of future performance.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
-------------------------------------------------
5-YEAR SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7)
-------- -------------- -----------------
High Yield Total Return Portfolio(2)
Class A shares(4) 11.39% 2.82% 3.30%
Class B shares(5) 10.85 2.86 3.42
Class C shares(6) 14.88 3.11 3.40
Class Y shares(3) 17.01 N/A 10.07
Lehman High Yield Index(1) 22.66 5.33 4.85
Lipper High Yield Bond Fund Index(1) 21.25 2.65 2.62
</Table>
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(1) The chart assumes a hypothetical $10,000 initial investment in the High
Yield Portfolio and reflects all portfolio expenses. Investors should note
that the High Yield 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 corresponds to the
performance of Class A, B and C shares.
(2) Bear Stearns Asset Management Inc. waived a portion of its advisory fee and
agreed to reimburse a portion of the High Yield 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 expense
limitations.
(3) The returns of Class Y shares (for which July 11, 2001 was the initial
public offering date) are higher than Class A, B and C shares due to the
fact that there is no sales load, contingent deferred sales charge or 12b-1
fee charged to Class Y shares.
(4) Reflects the initial maximum sales charge of 4.50%. Without the applicable
sales charge, the total returns would have been 16.62%, 3.78% and 4.07%,
respectively, for each period shown.
(5) Reflects the applicable contingent deferred sales charge. Without the
applicable sales charge, the total returns would have been 15.85%, 3.14%
and 3.42%, respectively, for each period shown.
(6) Reflects the applicable contingent deferred sales charge. Without the
applicable sales charge, the total return for the one year ended March 31,
2004 would have been 15.88%.
(7) Inception dates: Class A, B and C shares commenced on January 2, 1998 and
Class Y shares commenced on July 11, 2001.
4
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INCOME PORTFOLIO
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY/SECTOR WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY/SECTOR NET ASSETS
- ---- -------------------------------------------------------------------------------------- ----------
1. Asset-Backed Securities 20.26
2. Bank Holding Companies 6.88
3. U.S. Government Agency Obligations 6.87
4. Mortgage-Backed Securities - Structured 6.07
5. Personal Credit Institutions 4.65
6. Mortgage-Backed Securities - Pass-Through 4.37
7. Motor Vehicles & Car Bodies 3.51
8. Telephone Communications 3.49
9. Electric & Other Services Combined 3.07
10. Finance Services 2.90
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY/SECTOR NET ASSETS
- ---- ------------------------------------------- ------------------------------------- ----------
1. Fannie Mae Mortgage-Backed Securities 4.12
2. Fannie Mae U.S. Government Agency Obligations 3.68
3. Federal Home Loan Bank U.S. Government Agency Obligations 3.19
4. AmeriCredit Automobile Receivables Trust Asset-Backed Securities 2.89
5. Residential Asset Mortgage Products, Inc. Asset-Backed Securities 2.39
6. Tyco International Group S.A. Conglomerates 2.13
7. Block Mortgage Finance Inc. Asset-Backed Securities 1.93
8. Capital One Bank Personal Credit Institutions 1.78
9. Wal-Mart Stores, Inc. General Merchandise Stores 1.68
10. CIT Group Home Equity Loan Trust Asset-Backed Securities 1.65
</Table>
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* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell the securities
mentioned. The portfolio is actively managed, therefore holdings may not be
current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in
or may seek to perform investment banking services for the companies
listed.
5
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HIGH YIELD TOTAL RETURN PORTFOLIO
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ---- --------------------------------------------------------------------------------------------- ----------
1. Publishing 8.44
2. Health Care 8.06
3. Oil & Gas 6.97
4. Hotels/Motels/Casinos 5.73
5. Aerospace & Defense 5.64
6. Leisure 4.94
7. Chemicals/Plastics 4.88
8. Electronic Components 4.79
9. Surface Transportation 4.47
10. Building/Development 4.04
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ---- ---------------------------------------------------------------- ------------------------ ----------
1. Universal City Development Partners, Ltd. and UCDP Finance, Inc. Leisure 1.80
2. American Seafoods Group LLC and American Seafoods, Inc. Food Products 1.77
3. Case New Holland Inc. Farming/Agriculture 1.75
4. R.H. Donnelley Finance Corp. I Publishing 1.69
5. Sanmina-SCI Corp. Electronic Components 1.67
6. IMC Global Inc. Farming/Agriculture 1.61
7. Dex Media East LLC and Dex Media East Finance Co. Publishing 1.56
8. SESI, L.L.C. Oil & Gas 1.54
9. Dynegy Holdings Inc. Oil & Gas 1.54
10. Mothers Work, Inc. Retailers 1.52
</Table>
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* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell the securities
mentioned. The portfolio is actively managed, therefore holdings may not be
current. Bear, Stearns & Co. Inc. or its affiliates may hold positions in
or may seek to perform investment banking services for the companies
listed.
6
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INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS -- 97.90%
ASSET-BACKED SECURITIES - 20.26%
$ 1,298 AmeriCredit Automobile Receivables Trust, Series 2002-EM, Class A3A 2.970% 03/06/07 $ 1,314,539
300 AmeriCredit Automobile Receivables Trust, Series 2003-AM, Class A3A 2.370 06/06/07 302,225
1,050 Block Mortgage Finance Inc., Series 1999-1, Class A4 6.600 02/25/30 1,080,361
350 Capital One Auto Finance Trust, Series 2003-B, Class A4 3.180 09/15/10 357,157
900 CIT Group Home Equity Loan Trust, Series 2002-1, Class AF4 5.970 03/25/29 922,359
490 Delta Funding Home Equity Loan Trust, Series 2000-2, Class A6F 7.970 08/15/30 509,354
159 Fannie Mae, Whole Loan, Series 2002-W2, Class AF3 5.127 02/25/30 159,533
675 Greenwich Capital Commercial Funding Corp., Series 2003-C2, Class A2 4.022 01/05/36 694,149
475 GS Auto Loan Trust, Series 2004-1, Class A4 2.650 05/16/11 478,091
573 Mitsubishi Motors Credit of America, Inc., Automobile Trust,
Series 2002-2, Class A3 3.670 07/17/06 577,102
875 Navistar International Corp., Owner Trust, Series 2003-A, Class A4 2.240 11/15/09 876,294
750 Onyx Acceptance Auto Trust, Series 2003-D, Class A4 3.200 03/15/10 767,125
750 Residential Asset Mortgage Products, Inc., Series 2003-RS5, Class AI2 2.130 06/25/24 752,052
575 Residential Asset Mortgage Products, Inc., Series 2003-RZ5, Class A2 3.180 03/25/27 586,282
675 Triad Auto Receivables Owner Trust, Series 2002-A, Class A4 3.240 08/12/09 692,765
500 WFS Financial Owner Trust, Series 2004-1, Class A4 2.810 08/22/11 504,543
750 Whole Auto Loan Trust, Series 2003-1, Class A3A 1.840 10/15/06 753,723
---------------
Total Asset-Backed Securities (cost - $11,297,448) 11,327,654
---------------
CORPORATE OBLIGATIONS - 60.33%
ALUMINUM FOUNDRIES - 0.30%
170 Newell Rubbermaid Inc., Notes 4.000 05/01/10 169,308
---------------
BANK HOLDING COMPANIES - 6.88%
670 Bank of America Corp., Unsecured Senior Notes 5.875 02/15/09 748,430
800 Bank One Corp., Notes 6.000 08/01/08 894,748
400 J.P. Morgan Chase & Co., Senior Notes 4.000 02/01/08 415,994
500 MBNA Corp., Notes 4.625 09/15/08 523,063
750 SunTrust Banks, Inc., Unsecured Senior Notes 6.250 06/01/08 842,656
350 Washington Mutual Capital I, Subordinated Capital Income Securities,
Company Guaranteed 8.375 06/01/27 420,919
---------------
3,845,810
---------------
BOTTLED & CANNED SOFT DRINKS - 1.62%
800 Coca-Cola Enterprises, Inc., Unsecured Unsubordinated Notes 6.125 08/15/11 907,622
---------------
BUILDING/DEVELOPMENT - 0.59%
300 K. Hovnanian Enterprises, Inc., Senior Subordinated Notes,
Company Guaranteed 7.750 05/15/13 328,500
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
7
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
CABLE TELEVISION - 1.54%
$ 375 Comcast Corp., Unsecured Senior Notes, Company Guaranteed 5.850% 01/15/10 $ 409,094
155 Cox Communications, Inc., Unsecured Notes 3.875 10/01/08 157,363
300 Rogers Cable Inc., Secured Notes* 5.500 03/15/14 292,875
---------------
859,332
---------------
CIGARETTES - 0.39%
200 Altria Group, Inc., Notes 7.000 11/04/13 220,798
---------------
CONGLOMERATES - 2.13%
455 Tyco International Group S.A., Unsecured Senior Yankee Bonds,
Company Guaranteed (1) 6.750 02/15/11 507,383
625 Tyco International Group S.A., Unsecured Yankee Bonds,
Company Guaranteed (1) 6.125 11/01/08 680,653
---------------
1,188,036
---------------
CONTAINERS - METAL/GLASS - 0.59%
300 Owens-Brockway Glass Container Inc., Secured Senior Notes 8.750 11/15/12 327,750
---------------
CRUDE PETROLEUM & NATURAL GAS - 1.41%
700 BP Amoco plc, Notes 5.900 04/15/09 789,374
---------------
DRILLING OIL & GAS WELLS - 0.93%
455 Transocean Inc., Unsecured Notes 6.625 04/15/11 520,991
---------------
ELECTRIC & ELECTRONIC EQUIPMENT - 0.66%
350 General Electric Co., Notes 5.000 02/01/13 367,131
---------------
ELECTRIC & OTHER SERVICES COMBINED - 3.07%
700 National Rural Utilities Cooperative Finance Corp., Collateral Trust Notes 4.375 10/01/10 724,786
175 Pacific Gas & Electric Co., 1st Mortgage 4.200 03/01/11 175,536
800 Peco Energy Co., 1st Mortgage 3.500 05/01/08 816,724
---------------
1,717,046
---------------
ELECTRIC SERVICES - 0.79%
400 AES Corp. (The), Senior Secured Notes* 9.000 05/15/15 443,500
---------------
ELECTRONIC COMPONENTS - 1.53%
400 Amkor Technology, Inc., Unsecured Senior Notes 7.750 05/15/13 410,000
400 Fairchild Semiconductor International, Inc., Unsecured Senior
Subordinated Notes 10.500 02/01/09 443,500
---------------
853,500
---------------
EQUIPMENT LEASING - 0.42%
250 United Rentals N.A. Inc., Senior Subordinated Notes* 7.000 02/15/14 236,250
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
EQUIPMENT RENTAL & LEASING - 1.61%
$ 820 International Lease Finance Corp., Notes 5.875% 05/01/13 $ 898,181
---------------
FINANCE SERVICES - 2.90%
260 Infinity Property & Casualty, Inc., Notes* 5.500 02/18/14 263,598
800 Prudential Financial, Inc., Medium Term Senior Notes 3.750 05/01/08 819,759
450 Unilever Capital Corp., Notes, Company Guaranteed 7.125 11/01/10 537,291
---------------
1,620,648
---------------
FIRE, MARINE & CASUALTY INSURANCE - 1.24%
650 Allstate Corp., Unsecured Senior Notes 7.875 05/01/05 694,021
---------------
GAS TRANSMISSION & DISTRIBUTION - 1.44%
750 Consolidated Natural Gas Co., Unsecured Senior Unsubordinated Notes,
Series B 5.375 11/01/06 804,893
---------------
GENERAL MEDICAL & SURGICAL HOSPITALS - 0.48%
270 HCA Inc., Notes 5.750 03/15/14 270,285
---------------
GENERAL MERCHANDISE STORES - 1.68%
800 Wal-Mart Stores, Inc., Unsecured Senior Notes 6.875 08/10/09 939,934
---------------
GROCERY STORES - 1.01%
530 Safeway, Inc., Unsecured Senior Notes 5.800 08/15/12 566,771
---------------
MEN'S & BOY'S SHIRTS - 0.47%
250 Phillips-Van Heusen Corp., Senior Notes* 7.250 02/15/11 260,000
---------------
METAL CANS - 0.46%
250 Silgan Holdings Inc., Senior Subordinated Notes 6.750 11/15/13 258,750
---------------
MISCELLANEOUS BUSINESS CREDIT INSTITUTIONS - 1.21%
650 CIT Group, Inc., Senior Notes 4.750 12/15/10 674,857
---------------
MOTION PICTURE & VIDEO PRODUCTION - 1.76%
465 AOL Time Warner, Inc., Notes, Company Guaranteed 6.750 04/15/11 528,061
450 Liberty Media Corp., Notes 3.500 09/25/06 458,562
---------------
986,623
---------------
MOTOR VEHICLES & CAR BODIES - 3.51%
550 DaimlerChrysler N.A. Holdings, Notes 6.500 11/15/13 595,928
610 Ford Motor Credit Co., Notes 7.250 10/25/11 661,633
650 General Motors Acceptance Corp., Notes 6.875 09/15/11 706,226
---------------
1,963,784
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE(S) DATE(S) VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
NEWSPAPERS - 0.65%
$ 350 MediaNews Group Inc., Senior Subordinated Notes* 6.875% 10/01/13 $ 361,375
------------
OIL & GAS - 0.48%
250 Swift Energy Co., Unsecured Senior Subordinated Notes 10.250 08/01/09 268,750
------------
PAPER MILLS - 0.71%
350 International Paper Co., Unsecured Senior Notes 6.750 09/01/11 398,603
------------
PERSONAL CREDIT INSTITUTIONS - 4.65%
935 Capital One Bank, Notes 4.250 - 5.750 12/01/08 - 09/15/10 992,673
690 General Electric Capital Corp., Medium Term Notes, Series A 6.875 11/15/10 811,091
700 Household Finance Corp., Notes 6.375 11/27/12 793,445
------------
2,597,209
------------
PHARMACEUTICAL PREPARATIONS - 1.55%
825 Wyeth, Notes 5.500 03/15/13 867,490
------------
PRINTING & PUBLISHING - 0.37%
200 Reader's Digest Association, Inc. (The), Unsecured Senior Notes* 6.500 03/01/11 207,000
------------
PUBLISHING - 1.34%
400 Dex Media East LLC & Dex Media East Finance Co., Unsecured
Senior Notes, Series B, Company Guaranteed 9.875 11/15/09 452,000
250 R.H. Donnelley Finance Corp. I, Unsecured Senior Subordinated
Notes, Company Guaranteed* 10.875 12/15/12 299,375
------------
751,375
------------
REAL ESTATE - 1.10%
300 Intrawest Corp., Unsecured Senior Notes, Company Guaranteed (2) 7.500 10/15/13 311,250
300 iStar Financial Inc., Unsecured Senior Notes* 4.875 01/15/09 304,500
------------
615,750
------------
REAL ESTATE INVESTMENT TRUST - 1.09%
600 Duke Realty Corp., Notes 3.350 01/15/08 609,110
------------
REFRIGERATION & HEATING EQUIPMENT - 0.48%
250 Manitowoc Co., Inc. (The), Unsecured Senior Notes,
Company Guaranteed 7.125 11/01/13 267,500
------------
REFUSE SYSTEMS - 0.79%
400 Allied Waste North America, Inc., Senior Notes 7.875 04/15/13 439,000
------------
RETAILERS - 0.63%
300 J.C. Penney Co., Inc., Unsecured Notes 8.000 03/01/10 353,250
------------
</Table>
The accompanying notes are an integral part of the financial statements.
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE(S) DATE(S) VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
SECURITY BROKERS & DEALERS - 0.53%
$ 300 Morgan Stanley, Subordinated Notes 4.750% 04/01/14 $ 295,661
------------
SHIPBUILDING & REPAIRING - 0.44%
250 Ship Finance International Ltd., Unsecured Senior Notes*(3) 8.500 12/15/13 246,250
------------
SURGICAL & MEDICAL INSTRUMENTS - 0.48%
250 ALARIS Medical, Inc., Senior Subordinated Notes 7.250 07/01/11 265,625
------------
TELEGRAPH COMMUNICATIONS - 0.93%
500 Level 3 Communications Corp., Senior Subordinated Notes,
Company Guaranteed 6.125 07/15/13 518,750
------------
TELEPHONE COMMUNICATIONS - 3.49%
275 Cingular Wireless LLC, Unsecured Senior Notes 5.625 12/15/06 297,037
350 Sprint Capital Corp., Notes, Company Guaranteed 6.375 05/01/09 390,510
320 TELUS Corp., Notes 8.000 06/01/11 386,125
770 Verizon New York, Inc., Unsecured Senior Debentures, Series A 6.875 04/01/12 877,778
------------
1,951,450
------------
Total Corporate Obligations (cost - $32,521,514) 33,727,846
------------
MORTGAGE-BACKED SECURITIES - 10.44%
PASS-THROUGH - 4.37%
563 Comm 2000-C1, Commercial Mortgage Pass-Through Certificates,
Class A1 7.206 08/15/33 613,748
1,458 Fannie Mae, TBA 4.500 - 5.000 02/01/18 - 10/01/18 1,493,838
323 Federal Gold Home Loan Mortgage Corp., Pool #G01477 6.000 12/01/32 335,432
------------
2,443,018
------------
STRUCTURED - 6.07%
800 Fannie Mae, Series 2003-33, Class PB 4.000 02/25/22 807,739
654 JP Morgan Commercial Mortgage Finance Corp., Series 1998-C6,
Class A2 6.533 01/15/30 688,237
575 Lehman Large Loan, Series 1997-LL1, Class A3 6.900 03/12/07 638,651
599 Mortgage Capital Funding, Inc., Series 1997-MC1, Class A3 7.288 07/20/27 641,454
547 PNC Mortgage Acceptance Corp., Series 2000-C1, Class A1 7.520 07/15/08 615,113
------------
3,391,194
------------
Total Mortgage-Backed Securities (cost - $5,800,072) 5,834,212
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 6.87%
FANNIE MAE - 3.68%
1,870 Unsecured Notes 5.250 - 5.375 01/15/09 - 11/15/11 2,056,244
------------
</Table>
The accompanying notes are an integral part of the financial statements.
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
FEDERAL HOME LOAN BANK - 3.19%
$ 1,725 Unsecured Bonds, Series 7Y07 3.500% 11/15/07 $ 1,780,267
---------------
Total U.S. Government Agency Obligations (cost - $3,746,520) 3,836,511
---------------
Total Long-Term Debt Investments
(cost - $53,365,554) 54,726,223
---------------
<Caption>
SHARES
- ------------
SHORT-TERM INVESTMENTS -- 4.59%
INVESTMENT COMPANY - 0.12%
67,001 Federated Government Obligations Fund** 0.900 -- 67,001
---------------
<Caption>
PRINCIPAL
AMOUNT
(000'S)
- ------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 4.47%
$ 2,500 Freddie Mac, Discount Notes (4) 0.990 04/01/04 2,500,000
---------------
Total Short-Term Investments (cost - $2,567,001) 2,567,001
---------------
Total Investments -- 102.49% (cost - $55,932,555) 57,293,224
Liabilities in excess of other assets -- (2.49)% (1,389,787)
---------------
Net Assets -- 100.00% $ 55,903,437
===============
</Table>
- ----------
* SEC Rule 144A security. Security exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities have been
determined to be liquid in accordance with procedures adopted by the Fund's
Board of Trustees.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
(1) Domiciled in Luxembourg.
(2) Domiciled in Canada.
(3) Domiciled in Bermuda.
(4) All or a portion of which was segregated as collateral for TBA securities.
TBA To Be Announced.
The accompanying notes are an integral part of the financial statements.
12
<Page>
HIGH YIELD TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS -- 95.22%
UNITED STATES - 85.90%
AEROSPACE & DEFENSE - 5.64%
$ 1,600 Armor Holdings, Inc., Senior Subordinated Notes 8.250% 08/15/13 $ 1,780,000
1,500 DRS Technologies, Inc., Unsecured Senior Subordinated Notes 6.875 11/01/13 1,567,500
2,000 L-3 Communications Corp., Unsecured Senior Subordinated Notes,
Company Guaranteed 6.125 07/15/13 2,075,000
2,500 TD Funding Corp., Senior Subordinated Notes, Company Guaranteed 8.375 07/15/11 2,662,500
2,800 Vought Aircraft Industries, Inc., Senior Notes* 8.000 07/15/11 2,912,000
---------------
10,997,000
---------------
AUTOMOTIVE - 2.37%
1,000 Collins & Aikman Products Co., Unsecured Senior Subordinated Notes,
Company Guaranteed 11.500 04/15/06 987,500
1,875 Stoneridge, Inc., Unsecured Senior Notes, Company Guaranteed 11.500 05/01/12 2,245,312
1,200 Tenneco Automotive Inc., Secured Senior Notes, Series B 10.250 07/15/13 1,386,000
---------------
4,618,812
---------------
BUILDING/DEVELOPMENT - 2.71%
500 K. Hovnanian Enterprises, Inc., Senior Subordinated Notes,
Company Guaranteed 7.750 05/15/13 547,500
1,000 K. Hovnanian Enterprises, Inc., Unsecured Senior Subordinated Notes,
Company Guaranteed 8.875 04/01/12 1,135,000
2,000 KB HOME, Senior Subordinated Notes 7.750 02/01/10 2,175,000
1,250 WCI Communities, Inc., Unsecured Senior Subordinated Notes,
Company Guaranteed 10.625 02/15/11 1,418,750
---------------
5,276,250
---------------
BUILDING MANAGEMENT - 0.87%
1,500 CB Richard Ellis Services, Inc., Unsecured Senior Subordinated Notes,
Company Guaranteed 11.250 06/15/11 1,702,500
---------------
BUSINESS EQUIPMENT/SERVICES - 1.13%
2,000 Buhrmann US, Inc., Unsecured Senior Subordinated Notes,
Company Guaranteed 12.250 11/01/09 2,210,000
---------------
CABLE TELEVISION - 3.65%
2,750 Charter Communications Holdings II, Unsecured Senior Notes* 10.250 09/15/10 2,846,250
2,000 CSC Holdings, Inc., Unsecured Senior Notes, Series B 7.625 04/01/11 2,120,000
2,000 Insight Midwest, L.P. and Insight Capital, Inc., Senior Notes* 10.500 11/01/10 2,160,000
---------------
7,126,250
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE(S) DATE(S) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
CHEMICALS/PLASTICS - 3.47%
$ 2,000 Equistar Chemicals, LP and Equistar Funding Corp., Unsecured
Senior Notes 10.625% 05/01/11 $ 2,165,000
1,750 Huntsman International LLC, Unsecured Senior Notes,
Company Guaranteed 9.875 03/01/09 1,933,750
2,400 Westlake Chemical Corp., Senior Notes, Company Guaranteed 8.750 07/15/11 2,664,000
------------
6,762,750
------------
CLOTHING/TEXTILES - 1.00%
1,663 William Carter Co. (The), Unsecured Senior Subordinated Notes,
Series B, Company Guaranteed 10.875 08/15/11 1,941,553
------------
CONTAINERS - METAL/GLASS - 1.62%
1,000 Owens-Brockway Glass Container Inc., Secured Senior Notes 8.750 11/15/12 1,092,500
2,000 Silgan Holdings Inc., Senior Subordinated Notes 6.750 11/15/13 2,070,000
------------
3,162,500
------------
ELECTRONIC COMPONENTS - 3.66%
1,500 Amkor Technology, Inc., Senior Notes* 7.125 03/15/11 1,507,500
1,950 ON Semiconductor Corp. and Semiconductor Components Industries,
LLC, Secured Senior Notes, Company Guaranteed 13.000 05/15/08 2,369,250
2,750 Sanmina-SCI Corp., Secured Senior Notes, Company Guaranteed 10.375 01/15/10 3,258,750
------------
7,135,500
------------
EQUIPMENT LEASING - 0.99%
2,000 United Rentals N.A. Inc., Senior Subordinated Notes* 7.000 - 7.750 11/15/13 - 02/15/14 1,925,000
------------
FARMING/AGRICULTURE - 3.36%
3,000 Case New Holland Inc., Senior Notes* 9.250 08/01/11 3,405,000
2,500 IMC Global Inc., Senior Notes 10.875 08/01/13 3,143,750
------------
6,548,750
------------
FINANCE SERVICES - 0.98%
1,750 Dollar Financial Group, Inc., Senior Notes, Company Guaranteed 9.750 11/15/11 1,907,500
------------
FOOD PRODUCTS - 2.75%
2,875 American Seafoods Group LLC and American Seafoods, Inc.,
Unsecured Senior Subordinated Notes, Company Guaranteed 10.125 04/15/10 3,450,000
1,800 Pinnacle Foods Holding, Senior Subordinated Notes* 8.250 12/01/13 1,921,500
------------
5,371,500
------------
FOOD SERVICES - 1.99%
2,339 Carrols Corp., Unsecured Senior Subordinated Notes,
Company Guaranteed 9.500 12/01/08 2,356,542
1,500 Real Mex Restaurants Inc., Secured Senior Notes* 10.000 04/01/10 1,518,750
------------
3,875,292
------------
</Table>
The accompanying notes are an integral part of the financial statements.
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE(S) DATE(S) VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
FOREST PRODUCTS - 0.51%
$ 1,000 Cellu Tissue Holdings, Secured Senior Notes* 9.750% 03/15/10 $ 990,000
------------
HEALTH CARE - 8.06%
1,250 ALARIS Medical, Inc., Senior Subordinated Notes 7.250 07/01/11 1,328,125
1,600 AmeriPath, Inc., Unsecured Senior Notes, Company Guaranteed 10.500 04/01/13 1,640,000
900 AmeriPath, Inc., Unsecured Senior Subordinated Notes* 10.500 04/01/13 922,500
2,250 InSight Health Services Corp., Unsecured Senior Subordinated
Notes, Series B, Company Guaranteed 9.875 11/01/11 2,266,875
750 Inverness Medical Innovations, Inc., Senior Subordinated Notes* 8.750 02/15/12 765,000
2,500 Medex, Inc., Senior Subordinated Notes* 8.875 05/15/13 2,731,250
2,500 NDCHealth Corp., Unsecured Senior Subordinated Notes,
Company Guaranteed 10.500 12/01/12 2,887,500
1,750 Pharma Intermediate, Senior Discount Notes*(1) 11.500 04/01/14 1,010,625
2,000 Select Medical Corp., Senior Subordinated Notes 7.500 08/01/13 2,165,000
------------
15,716,875
------------
HOMEBUILDERS - 0.67%
1,250 William Lyon Homes, Inc., Senior Notes* 7.500 02/15/14 1,306,250
------------
HOTELS/MOTELS/CASINOS - 5.73%
2,750 HMH Properties, Inc., Secured Senior Notes, Series B,
Company Guaranteed 7.875 08/01/08 2,870,313
1,000 Penn National Gaming, Inc., Senior Subordinated Notes* 6.875 12/01/11 1,020,000
1,500 Poster Financial Group Inc., Secured Notes* 8.750 12/01/11 1,582,500
2,500 Station Casinos, Inc., Senior Subordinated Notes* 6.500 - 6.875 02/01/14 - 03/01/16 2,553,125
1,500 Turning Stone Casino Resort Enterprise, Senior Notes* 9.125 12/15/10 1,631,250
1,250 Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp.,
Unsecured Second Mortgage Notes 12.000 11/01/10 1,512,500
------------
11,169,688
------------
INDUSTRIAL EQUIPMENT - 1.25%
2,250 SPX Corp., Unsecured Senior Notes 7.500 01/01/13 2,441,250
------------
LEISURE - 4.94%
1,500 AMC Entertainment Inc., Senior Subordinated Notes* 8.000 03/01/14 1,496,250
1,250 Bally Total Fitness Holding Corp., Unsecured Senior Subordinated
Notes, Series D 9.875 10/15/07 1,031,250
1,700 Samsonite Corp., Unsecured Senior Subordinated Notes 10.750 06/15/08 1,780,750
3,000 Universal City Development Partners, Ltd. and UCDP Finance, Inc.,
Senior Notes 11.750 04/01/10 3,506,250
1,800 Vail Resorts, Inc., Senior Subordinated Notes* 6.750 02/15/14 1,813,500
------------
9,628,000
------------
</Table>
The accompanying notes are an integral part of the financial statements.
15
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
NON-FERROUS METALS - 2.15%
$ 1,900 Compass Minerals Group, Inc., Unsecured Senior Subordinated Notes,
Company Guaranteed 10.000% 08/15/11 $ 2,166,000
2,000 Peabody Energy Corp., Senior Notes 5.875 04/15/16 2,025,000
---------------
4,191,000
---------------
OIL & GAS - 4.79%
2,750 Dynegy Holdings Inc., Secured Notes* 9.875 07/15/10 3,004,375
2,750 SESI, L.L.C., Unsecured Senior Notes, Company Guaranteed 8.875 05/15/11 3,011,250
1,500 Swift Energy Co., Unsecured Senior Subordinated Notes 10.250 08/01/09 1,612,500
1,600 TransMontaigne Inc., Senior Subordinated Notes* 9.125 06/01/10 1,720,000
---------------
9,348,125
---------------
PUBLISHING - 8.44%
2,700 Dex Media East LLC and Dex Media East Finance Co.,
Unsecured Senior Notes, Series B, Company Guaranteed 9.875 11/15/09 3,051,000
2,500 Dex Media West LLC and Dex Media West Finance Co.,
Senior Subordinated Notes* 9.875 08/15/13 2,787,500
2,250 Mail-Well I Corp., Senior Subordinated Notes* 7.875 12/01/13 2,137,500
2,600 MediaNews Group Inc., Senior Subordinated Notes* 6.875 10/01/13 2,684,500
2,500 PRIMEDIA Inc., Senior Notes* 8.000 05/15/13 2,512,500
2,750 R.H. Donnelley Finance Corp. I, Unsecured Senior Subordinated
Notes, Company Guaranteed* 10.875 12/15/12 3,293,125
---------------
16,466,125
---------------
RADIO/TELEVISION - 0.88%
1,500 LBI Media, Inc., Unsecured Senior Subordinated Notes,
Company Guaranteed 10.125 07/15/12 1,721,250
---------------
RAIL INDUSTRIES - 0.62%
1,200 Trinity Industries, Inc., Senior Notes* 6.500 03/15/14 1,206,000
---------------
RETAILERS - 3.41%
1,500 Jo-Ann Stores, Inc., Senior Subordinated Notes* 7.500 03/01/12 1,533,750
2,750 Mothers Work, Inc., Unsecured Senior Notes, Company Guaranteed 11.250 08/01/10 2,970,000
500 Phillips-Van Heusen Corp., Senior Notes* 7.250 02/15/11 520,000
1,500 Sonic Automotive, Inc., Unsecured Senior Subordinated Notes, Series B 8.625 08/15/13 1,635,000
---------------
6,658,750
---------------
STEEL - 1.16%
2,000 Jorgensen, Earle M. Co., Secured Notes 9.750 06/01/12 2,260,000
---------------
SURFACE TRANSPORTATION - 1.20%
2,265 Accuride Corp., Unsecured Senior Subordinated Notes, Series B 9.250 02/01/08 2,349,938
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
16
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
UTILITIES - 2.34%
$ 2,500 AES Corp. (The), Unsecured Senior Notes 9.500% 06/01/09 $ 2,725,000
2,000 Calpine Corp., Secured Senior Notes* 8.750 07/15/13 1,840,000
---------------
4,565,000
---------------
WIRELESS TELECOMMUNICATIONS - 3.56%
1,500 Crown Castle International Corp., Senior Notes 7.500 12/01/13 1,481,250
2,000 Nextel Communications, Inc., Unsecured Senior Notes 7.375 08/01/15 2,175,000
1,500 Qwest Communications International Inc., Senior Notes* 7.500 02/15/14 1,421,250
1,600 Qwest Services Corp., Notes* 13.500 12/15/10 1,868,000
---------------
6,945,500
---------------
Total United States (cost - $157,325,298)** 167,524,908
---------------
BERMUDA - 1.26%
SURFACE TRANSPORTATION - 1.26%
2,500 Ship Finance International Ltd., Unsecured Senior Notes*
(cost - $2,500,000) 8.500 12/15/13 2,462,500
---------------
CANADA - 2.74%
BUILDING/DEVELOPMENT - 1.33%
2,500 Intrawest Corp., Unsecured Senior Notes, Company Guaranteed 7.500 10/15/13 2,593,750
---------------
CHEMICALS/PLASTICS - 1.41%
2,500 Acetex Corp., Unsecured Senior Notes 10.875 08/01/09 2,750,000
---------------
Total Canada (cost - $5,080,418) 5,343,750
---------------
CAYMAN ISLANDS - 1.90%
ELECTRONIC COMPONENTS - 1.13%
2,000 Seagate Technology HDD Holdings, Unsecured Senior Notes,
Company Guaranteed 8.000 05/15/09 2,195,000
---------------
OIL & GAS - 0.77%
1,500 Gemstone Investors Ltd., Unsecured Senior Notes, Company Guaranteed* 7.710 10/31/04 1,503,750
---------------
Total Cayman Islands (cost - $3,500,000) 3,698,750
---------------
MARSHALL ISLAND - 2.01%
SURFACE TRANSPORTATION - 2.01%
2,000 General Maritime Corp., Senior Notes 10.000 03/15/13 2,250,000
1,600 OMI Corp., Unsecured Senior Notes 7.625 12/01/13 1,668,000
---------------
Total Marshall Island (cost - $3,671,364) 3,918,000
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
17
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT INTEREST MATURITY
(000'S) RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT INVESTMENTS (CONTINUED)
NORWAY - 1.41%
OIL & GAS - 1.41%
$ 2,500 Petroleum Geo-Services ASA, Senior Notes (cost - $2,688,958) 10.000% 11/05/10 $ 2,743,750
---------------
Total Long-Term Debt Investments
(cost - $174,766,038) 185,691,658
---------------
<Caption>
SHARES
- ------------
EQUITY INVESTMENT -- 0.00%
PREFERRED STOCK - UNITED STATES - 0.00%
CLOTHING/TEXTILES - 0.00%
51 Cluett American Corp., Senior Exchangeable Preferred Stock, Series B (2)
(cost - $512) 12.500 -- 1,033
---------------
SHORT-TERM INVESTMENTS -- 7.40%
INVESTMENT COMPANY - 0.35%
686,879 Federated Government Obligations Fund*** 0.900 -- 686,879
---------------
<Caption>
PRINCIPAL
AMOUNT
(000'S)
- ------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 7.05%
$ 13,750 Freddie Mac, Discount Notes 0.990 04/01/04 13,750,000
---------------
Total Short-Term Investments (cost - $14,436,879) 14,436,879
---------------
Total Investments -- 102.62% (cost - $189,203,429) 200,129,570
Securities Lending Collateral (3) -- 1.70% 3,314,600
Liabilities in excess of other assets -- (4.32)% (8,424,478)
---------------
Net Assets -- 100.00% $ 195,019,692
===============
</Table>
- ----------
* SEC Rule 144A security. Security exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities have been
determined to be liquid in accordance with procedures adopted by the Fund's
Board of Trustees.
** Included in the cost is $8,750 relating to investments in 13 warrants of
Imperial Credit Industry Corp. (expiring 01/31/08) and 250 warrants of
Mpower Holding Corp. (expiring 10/01/04); with no market value,
respectively.
*** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
(1) Step-up bond; coupon rate is zero until step-up date. Step-up rate is
provided.
(2) Payment-in-kind; of which all or a portion of the coupon is being
capitalized at periodic intervals.
(3) Cash collateral invested in various money market mutual funds.
The accompanying notes are an integral part of the financial statements.
18
<Page>
STATEMENTS OF ASSETS & LIABILITIES
MARCH 31, 2004
<Table>
<Caption>
HIGH YIELD
INCOME TOTAL RETURN
PORTFOLIO PORTFOLIO
--------------- ---------------
ASSETS
Investments, at value (cost - $55,932,555 and $189,203,429, respectively) $ 57,293,224 $ 200,129,570
Interest and dividends receivable 668,180 4,285,216
Collateral received for securities loaned -- 3,314,600
Receivable for investments sold 1,848,375 --
Receivable for Portfolio shares sold 4,682 2,372
Prepaid expenses 17,084 26,474
--------------- ---------------
Total assets 59,831,545 207,758,232
--------------- ---------------
LIABILITIES
Payable for Portfolio shares repurchased 90,523 8,498,178
Payable upon return for securities loaned -- 3,314,600
Payable for investments purchased 1,847,391 --
Loan payable 1,800,000 --
Distribution and service fees payable (Class A, B, and C shares) 68,343 368,349
Dividends payable 52,147 367,855
Advisory fee payable 10,899 76,047
Administration fee payable 7,420 26,555
Custodian fee payable 1,705 2,841
Accrued expenses 49,680 84,115
--------------- ---------------
Total liabilities 3,928,108 12,738,540
--------------- ---------------
NET ASSETS
Capital stock, $0.001 par value (unlimited shares of beneficial interest
authorized) 4,489 22,178
Paid-in capital 54,219,798 220,300,485
Accumulated net investment loss (26,210) --
Accumulated net realized gain/(loss) from investments 344,691 (36,229,112)
Net unrealized appreciation on investments 1,360,669 10,926,141
--------------- ---------------
Net assets $ 55,903,437 $ 195,019,692
=============== ===============
CLASS A
Net assets $ 11,207,002 $ 62,543,381
--------------- ---------------
Shares of beneficial interest outstanding 899,118 7,112,722
--------------- ---------------
Net asset value per share $ 12.46 $ 8.79
=============== ===============
Maximum offering price per share (net asset value plus sales charge of
4.50%* of the offering price) $ 13.05 $ 9.20
=============== ===============
CLASS B
Net assets $ 14,551,194 $ 50,155,817
--------------- ---------------
Shares of beneficial interest outstanding 1,169,117 5,700,379
--------------- ---------------
Net asset value and offering price per share** $ 12.45 $ 8.80
=============== ===============
CLASS C
Net assets $ 8,041,958 $ 51,269,054
--------------- ---------------
Shares of beneficial interest outstanding 645,605 5,834,305
--------------- ---------------
Net asset value and offering price per share** $ 12.46 $ 8.79
=============== ===============
CLASS Y
Net assets $ 22,103,283 $ 31,051,440
--------------- ---------------
Shares of beneficial interest outstanding 1,774,843 3,530,145
--------------- ---------------
Net asset value, offering and redemption price per share $ 12.45 $ 8.80
=============== ===============
</Table>
- ----------
* On investments of $50,000 or more, the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
19
<Page>
STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
<Table>
<Caption>
HIGH YIELD
INCOME TOTAL RETURN
PORTFOLIO PORTFOLIO
--------------- ---------------
INVESTMENT INCOME
Interest $ 3,141,664 $ 18,750,007
Dividends 7,720 48,832
Securities lending income -- 41,503
--------------- ---------------
3,149,384 18,840,342
--------------- ---------------
EXPENSES
Advisory fees 334,592 1,352,970
Distribution and service fees - Class A 70,633 293,753
Distribution and service fees - Class B 170,168 504,492
Distribution and service fees - Class C 92,878 557,673
Administration fees 111,532 338,245
Transfer agent fees and expenses 172,611 251,572
Legal and auditing fees 70,144 77,110
Accounting fees 26,024 78,924
Federal and state registration fees 51,663 53,207
Reports and notices to shareholders 17,998 39,000
Custodian fees and expenses 13,688 32,147
Trustees' fees and expenses 14,347 14,272
Insurance expenses 7,155 7,044
Other 8,367 6,920
--------------- ---------------
Total expenses before waivers and related reimbursements, if any 1,161,800 3,607,329
Less: waivers and related reimbursements, if any (355,283) (541,083)
--------------- ---------------
Total expenses after waivers and related reimbursements, if any 806,517 3,066,246
--------------- ---------------
Net investment income 2,342,867 15,774,096
--------------- ---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments 1,251,757 15,113,886
Net change in unrealized appreciation on investments (220,083) 3,271,498
--------------- ---------------
Net realized and unrealized gain on investments 1,031,674 18,385,384
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,374,541 $ 34,159,480
=============== ===============
</Table>
The accompanying notes are an integral part of the financial statements.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
INCOME HIGH YIELD TOTAL
PORTFOLIO RETURN PORTFOLIO
------------------------------ ------------------------------
FOR THE FOR THE
FISCAL YEARS FISCAL YEARS
ENDED MARCH 31, ENDED MARCH 31,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 2,342,867 $ 2,096,420 $ 15,774,096 $ 13,203,181
Net realized gain/(loss) from investments 1,251,757 1,239,185 15,113,886 (9,773,653)
Net change in unrealized appreciation/(depreciation)
on investments (220,083) 2,049,098 3,271,498 5,790,271
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations 3,374,541 5,384,703 34,159,480 9,219,799
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares (729,132) (621,839) (6,115,990) (6,054,300)
Class B shares (504,165) (447,104) (3,327,470) (2,692,060)
Class C shares (274,799) (293,523) (3,683,630) (2,685,695)
Class Y shares (1,102,597) (881,676) (2,681,129) (1,775,411)
------------- ------------- ------------- -------------
(2,610,693) (2,244,142) (15,808,219) (13,207,466)
------------- ------------- ------------- -------------
Net realized capital gains
Class A shares (317,155) (44,489) -- --
Class B shares (289,913) (38,437) -- --
Class C shares (156,249) (25,707) -- --
Class Y shares (491,491) (61,911) -- --
------------- ------------- ------------- -------------
(1,254,808) (170,544) -- --
------------- ------------- ------------- -------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares 26,957,939 67,589,024 85,015,497 102,263,758
Cost of shares repurchased (56,235,437) (25,383,270) (115,732,302) (59,204,597)
Shares issued in reinvestment of dividends and distributions 3,144,454 1,871,830 9,086,335 8,107,135
------------- ------------- ------------- -------------
Net increase/(decrease) in net assets derived from shares of
beneficial interest transactions (26,133,044) 44,077,584 (21,630,470) 51,166,296
------------- ------------- ------------- -------------
Total increase/(decrease) in net assets (26,624,004) 47,047,601 (3,279,209) 47,178,629
NET ASSETS
Beginning of year 82,527,441 35,479,840 198,298,901 151,120,272
------------- ------------- ------------- -------------
End of year $ 55,903,437 $ 82,527,441 $ 195,019,692 $ 198,298,901*
============= ============= ============= =============
</Table>
- ----------
* Includes undistributed net investment income of $34,123.
The accompanying notes are an integral part of the financial statements.
21
<Page>
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 year indicated. This information has been derived
from information provided in the financial statements.
<Table>
<Caption>
NET NET
ASSET REALIZED AND
VALUE, NET UNREALIZED
BEGINNING INVESTMENT GAIN/(LOSS) ON
OF YEAR INCOME*(1) INVESTMENTS*(2)
---------- ---------- ---------------
INCOME PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 12.50 $ 0.41 $ 0.23
For the fiscal year ended March 31, 2003 11.84 0.44 0.73
For the fiscal year ended March 31, 2002 11.99 0.60 (0.15)
For the fiscal year ended March 31, 2001 11.53 0.73 0.46
For the fiscal year ended March 31, 2000 12.15 0.70 (0.62)
CLASS B
For the fiscal year ended March 31, 2004 12.50 0.32 0.23
For the fiscal year ended March 31, 2003 11.84 0.36 0.73
For the fiscal year ended March 31, 2002 11.99 0.52 (0.15)
For the fiscal year ended March 31, 2001 11.53 0.65 0.46
For the fiscal year ended March 31, 2000 12.15 0.63 (0.62)
CLASS C
For the fiscal year ended March 31, 2004 12.50 0.32 0.24
For the fiscal year ended March 31, 2003 11.84 0.36 0.73
For the fiscal year ended March 31, 2002 11.99 0.52 (0.15)
For the fiscal year ended March 31, 2001 11.53 0.65 0.46
For the fiscal year ended March 31, 2000 12.15 0.63 (0.62)
CLASS Y
For the fiscal year ended March 31, 2004 12.49 0.45 0.23
For the fiscal year ended March 31, 2003 11.84 0.48 0.72
For the fiscal year ended March 31, 2002 11.99 0.64 (0.15)
For the fiscal year ended March 31, 2001 11.53 0.77 0.46
For the fiscal year ended March 31, 2000 12.15 0.74 (0.62)
<Caption>
DIVIDENDS DISTRIBUTIONS
FROM NET FROM NET
INVESTMENT REALIZED
INCOME CAPITAL GAINS
---------- --------------
INCOME PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ (0.45) $ (0.23)
For the fiscal year ended March 31, 2003 (0.48) (0.03)
For the fiscal year ended March 31, 2002 (0.60) --
For the fiscal year ended March 31, 2001 (0.73) --
For the fiscal year ended March 31, 2000 (0.70) --
CLASS B
For the fiscal year ended March 31, 2004 (0.37) (0.23)
For the fiscal year ended March 31, 2003 (0.40) (0.03)
For the fiscal year ended March 31, 2002 (0.52) --
For the fiscal year ended March 31, 2001 (0.65) --
For the fiscal year ended March 31, 2000 (0.63) --
CLASS C
For the fiscal year ended March 31, 2004 (0.37) (0.23)
For the fiscal year ended March 31, 2003 (0.40) (0.03)
For the fiscal year ended March 31, 2002 (0.52) --
For the fiscal year ended March 31, 2001 (0.65) --
For the fiscal year ended March 31, 2000 (0.63) --
CLASS Y
For the fiscal year ended March 31, 2004 (0.49) (0.23)
For the fiscal year ended March 31, 2003 (0.52) (0.03)
For the fiscal year ended March 31, 2002 (0.64) --
For the fiscal year ended March 31, 2001 (0.77) --
For the fiscal year ended March 31, 2000 (0.74) --
</Table>
- ----------
* Calculated based on average settled shares outstanding during the
respective years, except for dividends and distributions, if any, which are
based on the actual shares outstanding on the dates of distributions.
(1) Reflects waivers and related reimbursements.
(2) The amounts shown for a share outstanding throughout the respective years
are not in accord with the changes in the aggregate gains and losses on
investments during the respective years because of the timing of the sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective years.
The accompanying notes are an integral part of the financial statements.
22
<Page>
<Table>
<Caption>
NET
ASSET
VALUE, TOTAL NET ASSETS, RATIO OF
END OF INVESTMENT END OF YEAR EXPENSES TO
YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1)
-------- ---------- --------------- ---------------------
INCOME PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 12.46 5.24% $ 11,207 0.97%
For the fiscal year ended March 31, 2003 12.50 10.05 23,594 0.80
For the fiscal year ended March 31, 2002 11.84 3.86 9,757 0.80
For the fiscal year ended March 31, 2001 11.99 10.68 8,316 0.80
For the fiscal year ended March 31, 2000 11.53 0.77 5,071 0.80
CLASS B
For the fiscal year ended March 31, 2004 12.45 4.49 14,551 1.63
For the fiscal year ended March 31, 2003 12.50 9.34 19,185 1.45
For the fiscal year ended March 31, 2002 11.84 3.19 6,773 1.45
For the fiscal year ended March 31, 2001 11.99 9.96 4,861 1.45
For the fiscal year ended March 31, 2000 11.53 0.12 2,027 1.45
CLASS C
For the fiscal year ended March 31, 2004 12.46 4.57 8,042 1.63
For the fiscal year ended March 31, 2003 12.50 9.34 11,443 1.45
For the fiscal year ended March 31, 2002 11.84 3.19 6,066 1.45
For the fiscal year ended March 31, 2001 11.99 9.96 3,339 1.45
For the fiscal year ended March 31, 2000 11.53 0.12 1,971 1.45
CLASS Y
For the fiscal year ended March 31, 2004 12.45 5.61 22,103 0.63
For the fiscal year ended March 31, 2003 12.49 10.35 28,307 0.45
For the fiscal year ended March 31, 2002 11.84 4.22 12,884 0.45
For the fiscal year ended March 31, 2001 11.99 11.07 8,321 0.45
For the fiscal year ended March 31, 2000 11.53 1.13 4,763 0.45
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND NET
NET INVESTMENT INVESTMENT INCOME RATIOS PORTFOLIO
INCOME TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
--------------------- ------------------------ ----------
INCOME PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 3.25% 0.48% 103.91%
For the fiscal year ended March 31, 2003 3.58 0.71 161.09
For the fiscal year ended March 31, 2002 4.99 1.45 240.84
For the fiscal year ended March 31, 2001 6.22 2.48 174.46
For the fiscal year ended March 31, 2000 5.99 3.13 158.47
CLASS B
For the fiscal year ended March 31, 2004 2.61 0.48 103.91
For the fiscal year ended March 31, 2003 2.91 0.71 161.09
For the fiscal year ended March 31, 2002 4.27 1.45 240.84
For the fiscal year ended March 31, 2001 5.55 2.48 174.46
For the fiscal year ended March 31, 2000 5.34 3.13 158.47
CLASS C
For the fiscal year ended March 31, 2004 2.61 0.48 103.91
For the fiscal year ended March 31, 2003 2.95 0.71 161.09
For the fiscal year ended March 31, 2002 4.27 1.45 240.84
For the fiscal year ended March 31, 2001 5.55 2.48 174.46
For the fiscal year ended March 31, 2000 5.33 3.13 158.47
CLASS Y
For the fiscal year ended March 31, 2004 3.60 0.48 103.91
For the fiscal year ended March 31, 2003 3.94 0.71 161.09
For the fiscal year ended March 31, 2002 5.35 1.45 240.84
For the fiscal year ended March 31, 2001 6.52 2.48 174.46
For the fiscal year ended March 31, 2000 6.36 3.13 158.47
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each year reported and includes reinvestment of dividends and
distributions, if any.
23
<Page>
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
ASSET REALIZED AND
VALUE, NET UNREALIZED
BEGINNING INVESTMENT GAIN/(LOSS) ON
OF PERIOD INCOME*(1) INVESTMENTS*(2)
---------- ---------- ---------------
HIGH YIELD TOTAL RETURN PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 8.10 $ 0.62 $ 0.69
For the fiscal year ended March 31, 2003 8.36 0.66 (0.26)
For the fiscal year ended March 31, 2002 8.74 0.72 (0.38)
For the fiscal year ended March 31, 2001 9.78 0.94 (1.04)
For the fiscal year ended March 31, 2000 11.36 1.08 (1.58)
CLASS B
For the fiscal year ended March 31, 2004 8.11 0.56 0.70
For the fiscal year ended March 31, 2003 8.36 0.60 (0.24)
For the fiscal year ended March 31, 2002 8.74 0.67 (0.38)
For the fiscal year ended March 31, 2001 9.78 0.88 (1.04)
For the fiscal year ended March 31, 2000 11.36 1.01 (1.58)
CLASS C
For the fiscal year ended March 31, 2004 8.10 0.56 0.70
For the fiscal year ended March 31, 2003 8.36 0.60 (0.25)
For the fiscal year ended March 31, 2002 8.74 0.67 (0.38)
For the fiscal year ended March 31, 2001 9.78 0.88 (1.04)
For the fiscal year ended March 31, 2000 11.36 1.01 (1.58)
CLASS Y
For the fiscal year ended March 31, 2004 8.11 0.65 0.69
For the fiscal year ended March 31, 2003 8.36 0.68 (0.24)
For the period July 11, 2001** through
March 31, 2002 8.46 0.53 (0.10)
<Caption>
DIVIDENDS DISTRIBUTIONS
FROM NET FROM NET
INVESTMENT REALIZED
INCOME CAPITAL GAINS
---------- -------------
HIGH YIELD TOTAL RETURN PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ (0.62) --
For the fiscal year ended March 31, 2003 (0.66) --
For the fiscal year ended March 31, 2002 (0.72) --
For the fiscal year ended March 31, 2001 (0.94) --
For the fiscal year ended March 31, 2000 (1.08) --
CLASS B
For the fiscal year ended March 31, 2004 (0.57) --
For the fiscal year ended March 31, 2003 (0.61) --
For the fiscal year ended March 31, 2002 (0.67) --
For the fiscal year ended March 31, 2001 (0.88) --
For the fiscal year ended March 31, 2000 (1.01) --
CLASS C
For the fiscal year ended March 31, 2004 (0.57) --
For the fiscal year ended March 31, 2003 (0.61) --
For the fiscal year ended March 31, 2002 (0.67) --
For the fiscal year ended March 31, 2001 (0.88) --
For the fiscal year ended March 31, 2000 (1.01) --
CLASS Y
For the fiscal year ended March 31, 2004 (0.65) --
For the fiscal year ended March 31, 2003 (0.69) --
For the period July 11, 2001** through
March 31, 2002 (0.53) --
</Table>
- ----------
* Calculated based on average settled shares outstanding during the
respective periods, except for dividends and distributions, if any, which
are based on the actual shares outstanding on the dates of distributions.
** Commencement of initial public offering.
(1) Reflects waivers and related reimbursements.
(2) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses on
investments during the respective periods because of the timing of the
sales and repurchases of Portfolio shares in relation to fluctuating net
asset values during the respective periods.
The accompanying notes are an integral part of the financial statements.
24
<Page>
<Table>
<Caption>
NET
ASSET
VALUE, TOTAL NET ASSETS, RATIO OF
END OF INVESTMENT END OF PERIOD EXPENSES TO
PERIOD RETURN(3) (000's OMITTED) AVERAGE NET ASSETS(1)
-------- ---------- --------------- ---------------------
HIGH YIELD TOTAL RETURN PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 8.79 16.62% $ 62,543 1.11%
For the fiscal year ended March 31, 2003 8.10 5.18 84,889 1.00
For the fiscal year ended March 31, 2002 8.36 4.16 72,491 1.00
For the fiscal year ended March 31, 2001 8.74 (1.07) 69,132 1.00
For the fiscal year ended March 31, 2000 9.78 (4.68) 44,991 1.00
CLASS B
For the fiscal year ended March 31, 2004 8.80 15.85 50,156 1.76
For the fiscal year ended March 31, 2003 8.11 4.63 43,853 1.65
For the fiscal year ended March 31, 2002 8.36 3.49 32,233 1.65
For the fiscal year ended March 31, 2001 8.74 (1.71) 26,336 1.65
For the fiscal year ended March 31, 2000 9.78 (5.29) 23,520 1.65
CLASS C
For the fiscal year ended March 31, 2004 8.79 15.88 51,269 1.76
For the fiscal year ended March 31, 2003 8.10 4.50 46,263 1.65
For the fiscal year ended March 31, 2002 8.36 3.49 29,535 1.65
For the fiscal year ended March 31, 2001 8.74 (1.71) 22,317 1.65
For the fiscal year ended March 31, 2000 9.78 (5.29) 18,707 1.65
CLASS Y
For the fiscal year ended March 31, 2004 8.80 17.01 31,051 0.76
For the fiscal year ended March 31, 2003 8.11 5.69 23,293 0.65
For the period July 11, 2001** through
March 31, 2002 8.36 4.99(4) 16,862 0.65(5)
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND NET
NET INVESTMENT INVESTMENT INCOME RATIOS PORTFOLIO
INCOME TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
--------------------- ------------------------- ----------
HIGH YIELD TOTAL RETURN PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 7.28% 0.24% 132.41%
For the fiscal year ended March 31, 2003 8.20 0.39 103.22
For the fiscal year ended March 31, 2002 8.51 0.49 212.94
For the fiscal year ended March 31, 2001 10.03 0.64 122.83
For the fiscal year ended March 31, 2000 10.14 0.58 70.61
CLASS B
For the fiscal year ended March 31, 2004 6.58 0.24 132.41
For the fiscal year ended March 31, 2003 7.55 0.38 103.22
For the fiscal year ended March 31, 2002 7.86 0.49 212.94
For the fiscal year ended March 31, 2001 9.45 0.64 122.83
For the fiscal year ended March 31, 2000 9.49 0.59 70.61
CLASS C
For the fiscal year ended March 31, 2004 6.59 0.24 132.41
For the fiscal year ended March 31, 2003 7.52 0.38 103.22
For the fiscal year ended March 31, 2002 7.84 0.49 212.94
For the fiscal year ended March 31, 2001 9.45 0.64 122.83
For the fiscal year ended March 31, 2000 9.49 0.59 70.61
CLASS Y
For the fiscal year ended March 31, 2004 7.57 0.24 132.41
For the fiscal year ended March 31, 2003 8.55 0.39 103.22
For the period July 11, 2001** through
March 31, 2002 8.67(4)(5) 0.49(4)(5) 212.94
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total investment return is not annualized.
(4) 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 the timing differences in the commencement of initial public
offerings.
(5) Annualized.
25
<Page>
INCOME PORTFOLIO
HIGH YIELD TOTAL RETURN 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 "SEC") under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), as an open-end management investment company. The
Fund currently consists of ten separate portfolios: six diversified portfolios,
Prime Money Market Portfolio, Intrinsic Value Portfolio, Small Cap Value
Portfolio, International Equity Portfolio, Income Portfolio and High Yield Total
Return Portfolio ("High Yield Portfolio"), and four non-diversified portfolios,
The Insiders Select Fund, Alpha Growth Portfolio, S&P STARS Portfolio and S&P
STARS Opportunities Portfolio. As of the date hereof, the Income Portfolio and
High Yield Portfolio (each a "Portfolio" and collectively, the "Portfolios")
offer four classes of shares, which have been designated as Class A, B, C and Y
shares. 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.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with their vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund expects that risk of loss to be remote.
MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP"), 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 as
of the close of regular trading on the New York Stock Exchange, Inc. (the
"Exchange") (generally 4:00 p.m. Eastern time) on each day that the Exchange is
open for trading.
Substantially all fixed-income securities (including short-term investments that
are not valued using the amortized cost method) are valued each business day as
of the close of regular trading on the Exchange by one or more independent
pricing services (the "Pricing Services") approved by the Fund's Board of
Trustees (the "Board"). When quoted bid prices are readily available, the
Pricing Services generally value fixed-income securities at the mean of the bid
and asked prices, provided that the Pricing Services believe those prices to
reflect the fair market value of the securities. Other investments valued by the
Pricing Services are carried at fair value as determined by the Pricing
Services, based on methods which include consideration of: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Pricing Services may take
other factors into consideration in pricing securities, including institutional
size transactions in similar groups of securities as well as developments
related to specific securities. Securities that are not valued by a Pricing
Service are valued at the average of the most recent bid and asked prices in the
market in which such securities are primarily traded, or at the last sales price
for securities traded primarily on an exchange or a national securities market.
In the absence of reported sales of securities traded primarily on an exchange
or a national securities market, the average of the most recent bid and asked
prices are used. Bid price is used when no asked price is available.
Equity securities, including written covered call options, are valued each
business day at the last sale price as of the close of regular trading on the
Exchange by one or more Pricing Services. Securities not listed on an exchange
or national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except in the case of open short positions where the asked price is
used for valuation purposes. Bid price is used when no asked price is available.
26
<Page>
Other assets and securities for which no quotations are readily available or
which are restricted as to sale (or resale) are valued by such methods as the
Fund's Board deems in good faith to reflect the fair value. Restricted
securities, as well as securities or other assets for which market quotations
are not readily available, or are not valued by a Pricing Service approved by
the Fund's Board, are valued at fair value as determined in good faith by Bear
Stearns Asset Management Inc.'s ("BSAM" or the "Adviser") Valuation Committee,
pursuant to procedures approved by the Fund's Board. The Board reviews the
methods of valuation quarterly.
Short-term investments (those acquired with remaining maturities of 60 days or
less) are valued at cost, plus or minus any amortized discount or premium, which
approximates market value.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from securities 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 and premiums are
treated as adjustments to interest income and identified costs of investments
over the lives of the respective investments. The Portfolios' net investment
income (other than distribution and service 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 end of the
day.
Expenses and fees, including the respective investment advisory, administration,
distribution and service 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 may differ.
SECURITIES LENDING--Loans of securities are required to be initially secured by
collateral at least equal to 100% of the market value of the securities on loan
and maintained at a level at least equal to the value of loaned securities.
However, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings. In the event that the borrower fails to return securities,
and cash collateral being maintained by the borrower is insufficient to cover
the value of loaned securities and provided such collateral insufficiency is not
the result of investment losses, the lending agent has agreed to pay the amount
of the shortfall to the Portfolios. The market value of securities on loan to
brokers as March 31, 2004 was as follows:
<Table>
<Caption>
MARKET VALUE OF
PORTFOLIO SECURITIES ON LOAN
- --------- ------------------
High Yield Portfolio $ 3,106,610
</Table>
The Income Portfolio did not have any securities lending transactions during the
fiscal year ended March 31, 2004.
Pursuant to an exemptive order received from the SEC (the "Order"), Custodial
Trust Company ("CTC"), a wholly-owned subsidiary of The Bear Stearns Companies
Inc., custodian to each of the Portfolios and an affiliate of BSAM, Bear Stearns
Funds Management Inc. ("BSFM" or the "Administrator") and Bear, Stearns & Co.
Inc., ("Bear Stearns" or the "Distributor") served as the securities lending
agent for the Portfolios and, subject to the Order, participated in the lending
income earned by the Portfolios. For the fiscal year ended March 31, 2004, CTC
has been compensated approximately $10,203 from the High Yield Portfolio. In
addition, the Order permits (subject to limitations) a Portfolio to loan
securities to its affiliates. For the fiscal year ended March 31, 2004, Bear,
Stearns Securities Corp., an affiliate of the Portfolios, received rebates in
connection with such loans amounting to $21,500 for the High Yield Portfolio.
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. 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.
The tax character of distributions paid during the fiscal year ended March 31,
2004 were as follows:
<Table>
<Caption>
ORDINARY LONG-TERM TOTAL
PORTFOLIO INCOME CAPITAL GAIN DISTRIBUTIONS
- --------- ------------- ------------ -------------
Income Portfolio $ 3,353,022 $ 547,419 $ 3,900,441
High Yield Portfolio 15,890,570 -- 15,890,570
</Table>
27
<Page>
The tax character of distributions paid during the fiscal year ended March 31,
2003 were as follows:
<Table>
<Caption>
ORDINARY LONG-TERM TOTAL
PORTFOLIO INCOME CAPITAL GAIN DISTRIBUTIONS
- --------- ------------- ------------ -------------
Income Portfolio $ 2,278,773 $ 98,648 $ 2,377,421
High Yield Portfolio 13,159,828 -- 13,159,828
</Table>
At March 31, 2004, the components of distributable earnings on a tax basis were
as follows:
<Table>
<Caption>
ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED CAPITAL TOTAL
ORDINARY LONG-TERM DISTRIBUTIONS AND OTHER UNREALIZED ACCUMULATED
PORTFOLIO INCOME CAPITAL GAINS PAYABLE LOSSES APPRECIATION EARNINGS/(DEFICIT)
- --------- ------------- ------------- ------------- ------------- ------------- ------------------
Income Portfolio $ 178,884 $ 209,583 $ (52,147) -- $ 1,342,830 $ 1,679,150
High Yield Portfolio 367,855 -- (367,855) $ (36,217,625) 10,914,654 (25,302,971)
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales.
At March 31, 2004, the High Yield Portfolio had capital loss carryforwards
available as a reduction to the extent provided in regulations of any future net
capital gains realized before the end of fiscal year 2011. To the extent that
the capital loss carryforwards are used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders. The
High Yield Portfolio had the following capital loss carryforwards at March 31,
2004:
<Table>
<Caption>
GROSS CAPITAL AMOUNT EXPIRING IN
LOSS ---------------------------------------------
PORTFOLIO CARRYFORWARD 2009 2010 2011
- --------- ------------- ------------- ------------- -------------
High Yield Portfolio $ 36,217,625 $ 6,985,460 $ 20,187,320 $ 9,044,845
</Table>
During the fiscal year ended March 31, 2004, the High Yield Portfolio utilized
$12,380,479 of prior year capital loss carryforwards.
For U.S. federal income tax purposes, net realized capital losses from
investments incurred after October 31, 2003, within the current fiscal year are
deemed to arise on the first day of the following fiscal year. Neither Portfolio
incurred such losses.
For U.S. federal income tax purposes, the cost of securities owned, gross
appreciation, gross depreciation and net unrealized appreciation of investments
at March 31, 2004 were as follows:
<Table>
<Caption>
GROSS GROSS NET
PORTFOLIO COST APPRECIATION DEPRECIATION APPRECIATION
- --------- ------------- ------------- ------------- -------------
Income Portfolio $ 55,950,394 $ 1,487,901 $ (145,071) $ 1,342,830
High Yield Portfolio 189,214,916 11,736,795 (822,141) 10,914,654
</Table>
At March 31, 2004, the Income Portfolio reclassified within the composition of
net assets, $267,867 from accumulated net investment loss to accumulated net
realized gain from investments.
DIVIDENDS AND DISTRIBUTIONS--Each Portfolio declares dividends from net
investment income on each day the Exchange is open for business. These dividends
are paid usually on or about the twentieth day of each month. Distributions of
net realized gains, if any, will be declared and paid at least annually.
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 GAAP. 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
For the fiscal year ended March 31, 2004, BSAM, a wholly owned subsidiary of The
Bear Stearns Companies Inc., served as investment adviser pursuant to an
Investment Advisory Agreement with respect to each Portfolio. Under the terms of
the
28
<Page>
Investment Advisory Agreement, the Income Portfolio and High Yield Portfolio
have agreed to pay BSAM a monthly fee at 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, 2004, BSFM served as administrator to each
Portfolio pursuant to an Administration Agreement. BSFM is entitled to receive
from each Portfolio a monthly fee equal to an annual rate of 0.15% of each
Portfolio's average daily net assets up to $1 billion, 0.12% of the next $1
billion, 0.10% of the next $3 billion and 0.08% of average daily net assets
above $5 billion.
Effective August 1, 2003, BSAM has undertaken to limit each Portfolio's total
operating expenses (exclusive of brokerage commissions, taxes, interest and
extraordinary items) to a maximum annual level as a percent of each Portfolio's
average daily net assets as follows:
<Table>
<Caption>
PORTFOLIO CLASS A CLASS B CLASS C CLASS Y
- --------- ------- ------- ------- -------
Income Portfolio* 1.10% 1.75% 1.75% 0.75%
High Yield Portfolio** 1.15 1.80 1.80 0.80
</Table>
- ----------
*Prior to August 1, 2003, the expense limitations were 0.80%, 1.45%, 1.45% and
0.45% for Class A, B, C and Y shares, respectively.
**Prior to August 1, 2003, the expense limitations were 1.00%, 1.65%, 1.65% and
0.65% for Class A, B, C and Y shares, respectively.
As necessary, these limitations were 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, 2004, the advisory fee waivers and reimbursements of
expenses (in order to maintain the expense limitation) were as follows:
<Table>
<Caption>
PORTFOLIO ADVISORY FEE WAIVERS EXPENSE REIMBURSEMENTS
- --------- -------------------- ----------------------
Income Portfolio $ 305,323 $ 49,960
High Yield Portfolio 541,083 --
</Table>
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.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN
The Fund, on behalf of the Portfolios, has entered into a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act. Under the Distribution
Plan, each Portfolio paid Bear Stearns a fee at an annual rate of 0.10% for
Class A shares and 0.75% for both Class B and C shares. The Fund, on behalf of
the Portfolios, has adopted a Shareholder Servicing Plan whereby each Portfolio
paid Bear Stearns 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 the
respective Portfolios and are accrued daily and paid quarterly or at such
intervals as the Board may determine. The fees paid to Bear Stearns under the
Distribution Plan are payable without regard to actual expenses incurred. Bear
Stearns uses the distribution fees to pay broker-dealers or other financial
institutions whose clients hold each Portfolio's shares and other
distribution-related activities. Bear Stearns uses shareholder servicing fees to
pay broker-dealers or other financial institutions that provide personal
services in connection with the maintenance of shareholder accounts.
For the fiscal year ended March 31, 2004, the distribution and shareholder
servicing fees paid to Bear Stearns under each Plan were as follows:
<Table>
<Caption>
PORTFOLIO DISTRIBUTION FEES SHAREHOLDER SERVICING FEES
- --------- ----------------- --------------------------
Income Portfolio $ 217,467 $ 116,212
High Yield Portfolio 880,553 475,365
</Table>
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. 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.
29
<Page>
For the fiscal year ended March 31, 2004, Bear Stearns has advised each
Portfolio that it received the amounts noted below in front-end sales charges
resulting from sales of Class A shares and contingent deferred sales charges
("CDSC") upon certain redemptions by Class A, B and C shareholders,
respectively. The amounts were as follows:
<Table>
<Caption>
CDSC
FRONT-END SALES CHARGES ---------------------------------------------
PORTFOLIO CLASS A CLASS A CLASS B CLASS C
- --------- ----------------------- ------------- ------------- -------------
Income Portfolio $ 51,033 $ 11,448 $ 122,511 $ 5,880
High Yield Portfolio 331,205 18,477 189,065 42,438
</Table>
INVESTMENTS IN SECURITIES
For the fiscal year ended March 31, 2004, aggregate purchases and sales of
investment securities (excluding short-term investments) for each Portfolio were
as follows:
<Table>
<Caption>
PORTFOLIO PURCHASES SALES
- --------- -------------- --------------
Income Portfolio $ 73,754,799 $ 96,771,085
High Yield Portfolio 279,098,694 297,872,250
</Table>
SHARES OF BENEFICIAL INTEREST
Each Portfolio offers Class A, B, C and Y shares. 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. There is no sales
charge or CDSC on Class Y shares, which are offered primarily to institutional
investors.
Transactions in shares of beneficial interest for each Portfolio were as
follows:
<Table>
<Caption>
INCOME PORTFOLIO HIGH YIELD PORTFOLIO
------------------------------------------- -------------------------------------------
SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS
------------- ------------- ------------- ------------- ------------- -------------
CLASS A
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 983,720 2,032,632 60,082 4,314,586 8,012,076 334,361
Value $ 12,386,608 $ 25,287,999 $ 746,474 $ 36,277,978 $ 68,585,800 $ 2,848,022
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 1,918,416 892,665 38,049 6,370,363 4,975,324 408,346
Value $ 23,511,749 $ 10,924,899 $ 466,500 $ 50,751,493 $ 39,763,822 $ 3,257,445
CLASS B
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 247,616 660,870 47,052 1,240,734 1,133,341 184,653
Value $ 3,100,893 $ 8,223,048 $ 583,375 $ 10,449,237 $ 9,746,019 $ 1,580,197
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 1,516,519 580,387 27,109 2,581,257 1,206,435 177,294
Value $ 18,475,988 $ 7,071,143 $ 332,372 $ 20,618,000 $ 9,586,223 $ 1,414,056
CLASS C
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 240,403 538,845 28,640 1,954,731 2,083,742 252,925
Value $ 3,015,615 $ 6,724,888 $ 355,535 $ 16,423,914 $ 17,987,733 $ 2,162,802
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 706,186 325,220 22,051 2,873,843 910,780 213,931
Value $ 8,630,729 $ 3,975,476 $ 269,870 $ 22,966,703 $ 7,229,012 $ 1,702,053
CLASS Y
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 676,411 1,285,062 117,536 2,595,521 2,229,721 290,852
Value $ 8,454,823 $ 15,999,502 $ 1,459,070 $ 21,864,368 $ 19,412,750 $ 2,495,314
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 1,390,146 278,085 65,567 970,032 331,419 217,625
Value $ 16,970,558 $ 3,411,752 $ 803,088 $ 7,927,562 $ 2,625,540 $ 1,733,581
</Table>
30
<Page>
REDEMPTION FEES
The Portfolios impose a redemption fee of 1.00% of the total redemption amount
(calculated at market value) if a shareholder sells their shares 60 days or less
after the purchase date. The redemption fee will not apply to shares purchased
through reinvested distributions (dividends and capital gains), shares held in
retirement plans or shares redeemed through designated systematic withdrawal
plans. The redemption fee is recorded as an increase to paid-in-capital. The
redemption fees paid to the Income Portfolio and High Yield Portfolio for the
fiscal year ended March 31, 2004 were $4,227 and $44,269, respectively.
CREDIT FACILITY
The Fund has entered into a demand promissory note arrangement with JPMorgan
Chase Bank (the "Bank") to provide an uncommitted credit facility to the Fund
(on behalf of each Portfolio). The credit facility bears interest at the greater
of: (i) the rate otherwise in effect for such loan plus 2%, or (ii) that rate of
interest from time to time announced by the Bank at its principal office as its
prime commercial lending rate plus 2%, with such interest to be payable on
demand and upon payment in full of such principal. High Yield Portfolio as a
fundamental policy is permitted to borrow in an amount up to 33 1/3% of its
total assets. Income Portfolio intends to borrow money only for temporary or
emergency (not leveraging) purposes and only in amounts up to 15% of its total
assets.
Each loan is payable on demand or upon termination of this credit facility or on
the last day of the interest period and, in any event, not later than 14 days
from the date the loan was advanced.
Amounts outstanding under the credit facility during the fiscal year ended March
31, 2004, were as follows:
<Table>
<Caption>
MAXIMUM LOAN AMOUNT NUMBER OF DAYS
PORTFOLIO AVERAGE LOAN BALANCE OUTSTANDING AVERAGE INTEREST RATE BORROWED
- --------- -------------------- ------------------- --------------------- --------------
Income Portfolio $ 286,115 $ 3,452,500 1.64% 93
High Yield Portfolio 11,120 1,200,000 1.57% 7
</Table>
The Income Portfolio had $1,800,000 outstanding under the line of credit
facility at March 31, 2004. The High Yield Portfolio had no amount outstanding
under the credit facility at March 31, 2004.
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.
RESULTS OF SPECIAL SHAREHOLDER MEETINGS (UNAUDITED)
On November 18, 2003, BSAM and The Dreyfus Corporation with its relevant
affiliates ("Dreyfus"), announced a strategic arrangement in which the
Portfolios will merge with new or existing Dreyfus funds that have the same or
similar investment objectives (the "Transaction").
The Transaction has received the approvals of the Board of Trustees of the Fund
and the Boards of the relevant Dreyfus funds.
31
<Page>
A special joint meeting of each Portfolio's shareholders was held on March 11,
2004 at the offices of Bear Stearns, 383 Madison Avenue, New York, New York, to
seek shareholder approval for the merger of each Portfolio into a new or
existing Dreyfus fund with the same or similar investment objectives, as set
forth in the following table.
<Table>
<Caption>
PORTFOLIO CORRESPONDING DREYFUS FUND
- --------- -------------------------------------------------
Income Portfolio Dreyfus Premier Core Bond Fund
High Yield Portfolio Dreyfus Premier Limited Term High Yield Fund
</Table>
The following table shows the number of shares of each Portfolio that, as of the
record date of January 2, 2004, were outstanding and entitled to vote.
<Table>
<Caption>
PORTFOLIO NUMBER OF SHARES OUTSTANDING AND ENTITLED TO VOTE
- --------- -------------------------------------------------
Income Portfolio 5,268,066
High Yield Portfolio 26,572,347
</Table>
Each reorganization required the affirmative vote of a majority of the relevant
Portfolio's shares outstanding and entitled to vote.
As of March 11, 2004, of the Portfolios listed above, only the Income Portfolio
had received sufficient votes to determine whether to approve the
reorganization. As a result, the meeting for the High Yield Portfolio was
adjourned until April 8, 2004.
The results of the voting at the March 11th meeting for the Income Portfolio, as
independently certified by Management Information Services, are shown in the
following table. As indicated, this reorganization received shareholder approval
at the March 11th meeting.
<Table>
<Caption>
FOR AGAINST ABSTAIN
----------------------- --------------------- ---------------------
PORTFOLIO NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
- --------- ---------- ---------- -------- ---------- -------- ----------
Income Portfolio 2,718,309 51.60% 112,751 2.14% 82,646 1.57%
</Table>
SUBSEQUENT EVENT (UNAUDITED)
On April 8, 2004, the High Yield Portfolio reconvened a shareholder meeting to
vote on whether to approve the Portfolio's reorganization. The results of the
voting at the April 8th meeting for this Portfolio, as independently certified
by Management Information Services, are shown in the following table. As
indicated, this reorganization received shareholder approval at the April 8th
meeting.
<Table>
<Caption>
FOR AGAINST ABSTAIN
----------------------- --------------------- ---------------------
PORTFOLIO NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
- --------- ---------- ---------- -------- ---------- -------- ----------
High Yield Portfolio 14,084,366 53.00% 955,510 3.60% 626,532 2.36%
</Table>
Each reorganization that was approved on either March 11th or April 8th closed
after the close of business on April 30, 2004. Immediately after such date, the
assets of each Portfolio were transferred to its corresponding Dreyfus fund in
exchange for shares of that Dreyfus fund and those Dreyfus fund shares were then
distributed pro rata to each Portfolio shareholder, in complete liquidation of
each Portfolio.
32
<Page>
INCOME PORTFOLIO
HIGH YIELD TOTAL RETURN PORTFOLIO
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders,
Income 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 Income Portfolio and High Yield Total Return
Portfolio (collectively, the "Portfolios") as of March 31, 2004, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2004, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios as of March 31, 2004, the results of their operations for the
year then ended, the changes in their net assets for each of the two years in
the period then ended, and the financial highlights for each of the respective
stated periods, in conformity with accounting principles generally accepted in
the United States of America.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
April 28, 2004
33
<Page>
INCOME 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, 2004) as to the U.S. federal tax status of distributions
received by each Portfolio's shareholders in respect of such fiscal year. During
the fiscal year ended March 31, 2004, the following dividends and distributions
per share were paid by each of the Portfolios:
<Table>
<Caption>
LONG-TERM CAPITAL GAINS
NET INVESTMENT SHORT-TERM ---------------------------------
INCOME CAPITAL GAINS PRE MAY 6, 2003 POST MAY 5, 2003
-------------- ------------- --------------- ----------------
Income Portfolio:
Class A $ 0.449616939 $ 0.1293 $ 0.0365 $ 0.0635
Class B 0.368563216 0.1293 0.0365 0.0635
Class C 0.368330784 0.1293 0.0365 0.0635
Class Y 0.493351712 0.1293 0.0365 0.0635
High Yield Total Return Portfolio:
Class A 0.623231283 -- -- --
Class B 0.567499801 -- -- --
Class C 0.567600382 -- -- --
Class Y 0.653077544 -- -- --
</Table>
None of the above long-term gains distributions relating to pre May 6, 2003 are
from qualified 5-year gains.
Ordinary income dividends, which include short-term gain distributions, should
be reported as dividend income on Form 1040. Income dividends are taxable as
ordinary income, as are short-term capital gain distributions.
With respect to each Portfolio, none of its ordinary income dividends qualify
for the corporate dividends received deduction.
Because each Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 2004. 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 2005.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their actual ordinary dividends. 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.
34
<Page>
TRUSTEES AND OFFICERS
The following information is provided for each Trustee, Officer and the Advisory
Trustee of The Bear Stearns Funds (the "Trust") as of March 31, 2004. Each
Trustee oversees all 10 portfolios of the Trust. The mailing address of the
Trustees and Officers is 383 Madison Avenue, New York, New York 10179.
<Table>
<Caption>
POSITION(S) WITH THE
NAME AND TRUST AND LENGTH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AGE OF TIME SERVED(1) IN THE PAST 5 YEARS HELD BY TRUSTEE
INDEPENDENT TRUSTEES
John S. Levy - 68 Trustee, since 2000 Managing Partner, Fayerweather SL Green Realty Corp.
Capital Partners (private investment
partnership)
M.B. Oglesby, Jr. - 61 Trustee, since 1995 Consultant; Vice Chairman, BKSH & None
Associates, Washington DC (government
lobbyists) (2002-present); Formerly,
Chief of Staff to United States Trade
Representative, Executive Office of
the President (2001-2002);
Consultant, Chairman, Oglesby
Properties, Inc.; President and Chief
Executive Officer, Association of
American Railroads; Vice Chairman,
Cassidy & Associates
Robert E. Richardson - 62 Trustee, since 2000 Retired; Formerly, Vice President, None
Broker/Dealer Department, Mellon Bank
(1991-1999)
"INTERESTED" TRUSTEE(2)
Michael Minikes - 60 Chairman of the Board, Treasurer, The Bear Stearns Companies None
and Trustee, since 1999 Inc. and Bear, Stearns & Co. Inc.
("Bear Stearns"); Senior Managing
Director, Bear Stearns; Co-President,
Bear, Stearns Securities Corporation
(1999-present); Director, Custodial
Trust Company and Bear Stearns Bank
plc
</Table>
(1) The term of office for a Trustee is indefinite, until he or she resigns, is
removed or a successor is elected and qualified.
(2) The Interested Trustee is considered to be an "interested person" (as
defined by the Investment Company Act of 1940, as amended) of the Trust
because of his employment with the Trust's adviser or principal
underwriter.
35
<Page>
<Table>
<Caption>
POSITION(S) WITH THE
NAME AND TRUST AND LENGTH
AGE OF TIME SERVED(1) PRINCIPAL OCCUPATION(S) IN THE PAST 5 YEARS
ADVISORY TRUSTEE
Alan J. Dixon - 77 Advisory Trustee, Partner - Corporate Business and
since 1995 Legislative Law, Bryan Cave (law firm);
Formerly, United States Senator (1981-1992)
OFFICERS WHO ARE NOT TRUSTEES
Barry Sommers - 34 President, since Senior Managing Director (since 2000); Head
November 2003; of Marketing and Sales for the Trust (since
Executive Vice President, 1997) and Managing Director (1997-2000),
from 1998 to Bear Stearns
November 2003
Stephen A. Bornstein - 60 Vice President and General Counsel, Managing
Secretary, since 1995 Director/Principal and Executive Vice
President, Bear Stearns Asset Management
Inc. ("BSAM"); Managing Director/Principal,
Bear Stearns; Vice President, General
Counsel and Secretary, Bear Stearns Funds
Management Inc. ("BSFM")
Frank J. Maresca - 45 Vice President and President and Chief Executive Officer,
Treasurer, since 1995 BSFM; Senior Managing Director, Bear
Stearns (since 2001); Managing Director,
Bear Stearns
Vincent L. Pereira - 38 Assistant Treasurer, Executive Vice President, BSFM; Managing
since 1995 Director, (since 1999) and Associate
Director (1997-1999), Bear Stearns
Alaina V. Metz, 36 Assistant Secretary, Chief Administrative Officer of BISYS Fund
since 2002 Services
</Table>
(1) The term of the office for a Trustee or Officer is indefinite, until he or
she resigns, is removed or a successor is elected and qualified.
36
<Page>
INCOME PORTFOLIO
HIGH YIELD TOTAL RETURN PORTFOLIO
PRIVACY NOTICE
While information is the cornerstone of our ability to provide superior service,
our most important assets are our shareholders and the trust that they place in
us. Keeping shareholder information secure and using it only as our shareholders
would want us to are top priorities at The Bear Stearns Funds.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
personal information about you. This is the information we collect from you on
applications or other forms, and from the transactions you make with us or third
parties. It may include your name, address, social security number, account
transactions and balances, and information investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone
except as permitted by law. Specifically, we may disclose the information we
collect to companies that perform services on our behalf, such as the transfer
agent that processes shareholder accounts and mailers that assist us in the
distribution of shareholder materials. This allows us to continue to meet your
investing needs, and to effect transactions that you request or authorize.
These companies will use this information only for the services for which we
hired them, and are not permitted to use or share this information for any other
purpose. To protect your personal information internally, we permit access only
by authorized employees and maintain physical, electronic and procedural
safeguards to guard your personal information.
You may have received communications regarding information privacy on policies
from other financial institutions that gave you the opportunity to "opt-out" of
certain information sharing with companies that are not affiliated with that
financial institution. The Bear Stearns Funds does not share information with
other companies for purposes of marketing solicitations. Therefore, The Bear
Stearns Funds does not provide opt-out options to its shareholders.
We reserve the right to change our privacy policy at any time. The examples
contained within this notice are illustrations; they are not intended to be
exclusive. This notice complies with a recently enacted Federal law and SEC
regulations regarding privacy. You may have additional rights under foreign or
other domestic laws that may apply to you.
37
<Page>
THE
BEAR STEARNS
FUNDS
383 MADISON AVENUE, NEW YORK, NY 10179 1.800.766.4111
Michael Minikes Chairman of the Board and Trustee
Barry Sommers President
John S. Levy Trustee
M. B. Oglesby, Jr. Trustee
Robert E. Richardson Trustee
Stephen A. Bornstein Vice President and Secretary
Frank J. Maresca Vice President and Treasurer
Vincent L. Pereira Assistant Treasurer
Alaina V. Metz Assistant Secretary
INVESTMENT ADVISER TRANSFER AND DIVIDEND
Bear Stearns Asset DISBURSEMENT AGENT
Management Inc. PFPC Inc.
383 Madison Avenue 301 Bellevue Parkway
New York, NY 10179 Wilmington, DE 19809
ADMINISTRATOR INDEPENDENT AUDITORS
Bear Stearns Funds Deloitte & Touche LLP
Management Inc. 1700 Market Street
383 Madison Avenue Philadelphia, PA 19103
New York, NY 10179
COUNSEL
DISTRIBUTOR Kramer Levin
Bear, Stearns & Co. Inc. Naftalis & Frankel LLP
383 Madison Avenue 919 Third Avenue
New York, NY 10179 New York, NY 10022
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540
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.
<Page>
THE
BEAR STEARNS
FUNDS
EQUITY FUNDS
S&P STARS PORTFOLIO
S&P STARS OPPORTUNITIES PORTFOLIO
THE INSIDERS SELECT FUND
INTRINSIC VALUE PORTFOLIO
SMALL CAP VALUE PORTFOLIO
ALPHA GROWTH PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
ANNUAL REPORT
MARCH 31, 2004
[BEAR STEARNS LOGO]
BSF-R-015-14
<Page>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
S&P STARS Opportunities Portfolio
The Insiders Select Fund
Intrinsic Value Portfolio
Small Cap Value Portfolio
Alpha Growth Portfolio
International Equity Portfolio
LETTER TO SHAREHOLDERS
April 8, 2004
Dear Shareholders:
We are pleased to present the annual report to shareholders for the S&P STARS
Portfolio, S&P STARS Opportunities Portfolio, The Insiders Select Fund,
Intrinsic Value Portfolio, Small Cap Value Portfolio, Alpha Growth Portfolio and
International Equity Portfolio (each a "Portfolio" of The Bear Stearns Funds),
for the fiscal year ended March 31, 2004. Detailed performance data for each
class of shares of each Portfolio can be found in the "Financial Highlights" and
in the line graph sections of this report.
S&P STARS PORTFOLIO
The Portfolio's fiscal year benefited from an excellent economic backdrop for
the U.S. stock market. To start, corporate earnings growth reached almost 20%
for companies in the S&P 500. This, combined with inflation and interest rates
that remained at lows not seen since the early 1960s, drove price-to-earnings
(P/E) multiples to premium levels by fiscal year end. Additionally, the nation's
Gross Domestic Product (GDP) growth for the period came in well ahead of its
10-year historical average. Stock prices performed admirably, with the S&P 500
gaining more than 35% for the fiscal year. The Portfolio's core position with a
growth bias enabled it to reap the full benefit of these favorable market
conditions, leading to our significant outperformance versus the S&P 500
benchmark.
The Portfolio outperformed the S&P 500 in a number of sectors during the fiscal
year, including technology, consumer staples, consumer discretionary,
healthcare, telecommunications and utilities, with the lion's share of
outperformance coming from technology. Technology as a sector benefited from a
long awaited increase in business spending starting in the September quarter. In
particular, our investment in an advertising-driven Internet site that provides
information and commerce services to the technology industry saw its stock price
more than double during the period due to a resurgence in on-line advertising.
Additionally, one of the Portfolio's semiconductor holdings benefited from an
increase in demand for electronic equipment, and hence, for semiconductors --
part of an ongoing recovery in the semiconductor industry that began 15 months
ago. Finally, our investment in a very large supplier of data networking
products to corporate enterprises was a direct beneficiary of the third
quarter's long-awaited increase in business spending, which led to improving
prospects for technology sales, and particularly networking products.
By contrast, the Portfolio's overweighted position in the drilling services
industry within the energy sector detracted modestly from performance during the
fiscal year. Historically high energy prices did not translate into as great an
increase in demand for oil and gas drilling as had been anticipated. The
Portfolio also experienced a modest loss so far from its investment in a
discount commercial airline carrier whose share price underperformed due to
overcapacity concerns in the airline industry, which are likely to cause
downward pressure on pricing. We continue to hold the stock as we believe it is
well positioned to participate in the ongoing revival in domestic business
travel in the year ahead.
1
<Page>
Finally, our short position* in a major domestic tire manufacturer detracted
from performance. We had originally shorted the stock on the premise that the
company's significant financial difficulties would further deteriorate. Though
the company's fundamental weaknesses remained unchanged, its stock price spiked
on news that it had gained refinancing. In keeping with our policy, we closed
the position when the stock's price increased 20%.
For calendar year 2004, we expect GDP growth to exceed 4%, and for inflation to
start gradually rising toward year-end. Corporate earnings growth is likely to
be robust, driven primarily by economically sensitive sectors.
The average P/E multiple for the S&P 500 is now above its historical average --
an acceptable state in an environment of low inflation. Above-average P/Es
become more of a liability, however, as inflation picks up. For this reason, we
expect to see a stock market correction in the range of 10% to 20% once
investors incorporate higher future rates of inflation into their investment
framework. Whether or not the market will finish 2004 in positive or negative
territory will likely depend on the timing of such an event. In either case, we
believe such a correction will not mark the end of the current bull market, but
merely a pause. Corrections of this nature are typically short lived, and,
barring a major terrorist act in the U.S. or other developed nations, we would
expect U.S. equities to continue to rise in subsequent months.
S&P STARS OPPORTUNITIES PORTFOLIO
During the Portfolio's fiscal year, the U.S. economy recovered strongly from the
lingering effects of the events of September 11 and deflation of the stock
market bubble of the late 1990s. Corporate earnings growth reached almost 20%
for companies in the S&P 500. This, combined with inflation and interest rates
that remained at lows not seen since the early 1960s, drove price-to-earnings
(P/E) multiples to premium levels by year end. Additionally, the nation's GDP
growth for the period came in well ahead of its 10-year historical average.
Stock prices performed admirably, with the S&P 500 gaining more than 35% for the
fiscal year.
While the Portfolio's absolute performance for the fiscal year was strong, we
underperformed the S&P MidCap 400 benchmark, largely due to our modest cash
position. Our equity investments essentially matched the benchmark during the
period.
Within the healthcare sector, our investments in several HMOs and diagnostic
labs detracted from performance. In addition, the Portfolio's stock in a
manufacturer and marketer of data storage systems hurt performance. The
company's stock suffered from concerns of a possible loss of business to a new
competitor. Our short position* in an integrated forest products company, also
detracted from performance as an increase in demand for wood products drove the
company's share price higher during the period. We had shorted the company prior
to the start of the fiscal year as a means of hedging against a continuation of
the recession.
Finally, the Portfolio has experienced a modest loss so far from its investment
in a discount commercial airline carrier whose share price has underperformed
due to overcapacity concerns in the airline industry, which could cause downward
pressure on pricing. We continue to hold the stock as we believe it is well
positioned to participate in the ongoing revival in domestic business travel in
the year ahead.
On a positive note, the Portfolio's overweighted position in technology -- one
of the fiscal year's strongest performing sectors -- contributed positively to
performance. Within the technology sector, our investment in a developer and
marketer of analog, discrete, logic, and non-volatile memory semiconductors
benefited from increasing demand for electronic equipment, and hence, for
semiconductors -- part of an ongoing recovery in the semiconductor industry that
began 15 months ago. In addition, the Portfolio's stock in a provider of
electronics manufacturing services posted better than average performance due to
the overall revival in demand for technology hardware products. Our stock
selection and underweighted position in utilities, a defensive sector, also
helped performance during the fiscal year.
THE INSIDERS SELECT FUND
As the fiscal year began, the stage was set for an economic recovery, with
short-term interest rates at their lowest level in 45 years, tax cuts in the
offing, and inflation well under control. As the year progressed, high levels of
consumer spending and a long-awaited increase in business spending propelled the
economy. GDP growth reached 8.2% in the
2
<Page>
third calendar quarter -- the fastest rate of growth since 1983. The stock
market responded enthusiastically, with the S&P 500 gaining more than 35% for
the fiscal year.
Equity market performance was led by companies that were more speculative in
nature, many of which were smaller, more highly leveraged, and with
less-than-promising earnings profiles. Because we focus on companies with strong
balance sheets, solid business models and consistent growth dynamics, we
deliberately avoid the types of stocks that were 2003's top performers. As a
result, while the Portfolio's performance on an absolute basis was strong, we
modestly underperformed the S&P MidCap 400 benchmark for the fiscal year.
An historically high level of insider selling was a consistent theme for the
fiscal year. For every one dollar of insider buying, there were approximately
twenty dollars sold, bringing the rate of insider selling to a 10-year high.
While it is possible that the high rate of selling could have been caused by
employees cashing in on stock options with three-to-five year vesting periods
that had been issued in 2000, it could also have been driven by investors'
desires to lock in gains after having watched their share prices fall
precipitously during the recession.
The Portfolio's consumer staples holdings detracted from performance relative to
the benchmark during the fiscal year. In particular, our investment in a large
grocery store chain suffered from stiff competition. We sold the position in
October. In addition, our modest cash position of approximately 5% acted as a
drag on performance, given the strength of the equity markets.
By contrast, our energy sector holdings contributed positively to performance.
In particular, our investments in several oil and natural gas refiners and
exploration & production companies benefited from rising oil prices and
favorable supply and demand characteristics. Capacity within the industry has
declined over the last 20 years due to the rising volatility of oil and gas
prices, which has made it difficult for companies to achieve sustainable returns
on investment. This dynamic has driven many competitors out of the market in
North America.
Our overweighted position in the industrials sector also helped results as the
sector performed strongly during the economic recovery. Specifically, our
investment in a large multi-industry conglomerate posted exceptional
performance. The company, which had seen its stock price plummet as a result of
a massive accounting scandal in 2002, continued to benefit from its new
management and new board of directors, which have successfully turned the
company around.
Finally, though we were underweighted technology -- one of 2003's strongest
performing sectors -- positive stock selection within technology benefited
performance. Technology stocks in general came back strongly from their lows of
previous years, fueled by the global economic expansion and ensuing increase in
demand for technology products and services.
INTRINSIC VALUE PORTFOLIO
As the Portfolio's fiscal year began, the U.S. economy had finally turned the
corner from one of the most devastating bear markets in modern history. The
stage was set for recovery, with short-term interest rates at their lowest level
in 45 years, tax cuts in the offing, and inflation well under control. As the
year progressed, consumer spending remained strong due to record levels of
mortgage refinancings. The third calendar quarter brought a long-awaited
increase in business spending, as well as GDP growth of 8.2% -- the fastest rate
of growth since 1983. The stock market responded enthusiastically, with the S&P
500 gaining more than 35% for the fiscal year. We are pleased to have
outperformed the S&P 500 benchmark for the Portfolio's fiscal year.
During the fiscal year, our overweighted positions relative to the benchmark in
financial services, consumer discretionary and energy -- all economically
sensitive sectors that tend to outperform during times of economic expansion --
contributed to performance. Financial services, the Portfolio's second strongest
sector, experienced above average performance as a number of companies posted
better than expected earnings results. In addition, unlike other cyclicals,
valuations in the financial sector began the fiscal year relatively low, but
increased throughout the year, driven by improving consumer and business credit
quality and a significant increase in investment banking activity.
Similarly, the consumer discretionary sector also benefited from low valuations
prior to the start of the fiscal year, which set the stage for particularly
strong performance. As a result, many consumer discretionary stocks were at the
forefront
3
<Page>
of the stock market's rebound. In addition to being overweighted in a strong
sector, our stock selection among a diverse range of industries within the
consumer discretionary sector contributed significantly to returns.
Stock selection also helped performance in the energy sector. In particular, our
investments in several oil and natural gas refiners and exploration & production
companies benefited from the highest oil and gas prices in years, as well as an
industry-wide decline in production capacity, which had the effect of limiting
supply in an environment of rising demand.
Conversely, our underweighted position in technology -- one of the fiscal year's
strongest performing sectors -- represented an opportunity cost to the
Portfolio. As the year began, technology stocks with attractive valuations were
scarce, given that so many of them were unprofitable at the time. Though the
Portfolio was underweighted in technology, those names we did hold significantly
outperformed all of the benchmark's technology holdings on a total return basis
due to superior stock selection. Technology stocks in general came back strongly
from their lows of previous years, fueled by the global economic expansion and
ensuing increase in demand for technology products and services.
The Portfolio's modest cash position of approximately 5% acted as a drag on
performance during the fiscal year, given the strength of the equity markets.
At present, we believe that much of the improving outlook for the economy is
already reflected in stock prices. Going forward, we expect stock price
appreciation to be driven more by earnings than by the fundamental re-valuation
of securities we saw coming out of the recession. We therefore expect a return
to normalcy in which earnings continue to improve, albeit not at the rapid pace
of 2003. Historically, equities have generated returns of between 6% and 10% on
average. We expect the equity markets for 2004 to generate performance in the
higher end of that range.
SMALL CAP VALUE PORTFOLIO**
As is typical during the initial stages of an economic recovery, small caps
outperformed mid and large cap stocks during the fiscal year, resulting in
exceptionally strong gains for small cap investors. In an environment in which
investors sought risk in pursuit of higher rewards, the year's best performers
were illiquid microcaps (stocks with market capitalizations below $300 million)
and lower quality stocks with less-than-promising earnings profiles. While the
Portfolio's returns for the year were very strong, we underperformed the Russell
2000 benchmark due to the fact that our process precluded us from holding many
of the lower quality stocks that were the year's top performers.
When considering the Portfolio's relative performance, it is important to keep
in mind our objective of achieving above average long term performance by
investing in small cap stocks with demonstrated earnings growth, solid business
models, strong fundamentals and highly capable management teams. We deliberately
avoid lower quality stocks and illiquid microcaps, which tend to be highly
volatile and extremely risky. These policies have served our shareholders well
during times when stocks of this nature have significantly underperformed.
While all of the Portfolio's sectors registered positive performance for the
year, our allocation to the healthcare sector detracted from performance
relative to the benchmark. Specifically, we were underweighted relative to the
benchmark in biotechnology -- an industry that includes a predominance of high
risk companies without the strength and consistency of earnings we require.
Biotechnology stocks rebounded strongly during the year from their extreme lows
reached during the recession.
Our underweighted position in the materials & processing sector, which performed
strongly during the year, also hurt our relative performance. Earnings improved
dramatically in the sector, fueled by the rebounding economy. Within the
technology sector, while many of our holdings performed admirably, we did not
own the lower quality stocks that experienced the strongest performance for the
year.
By contrast, our investments in producer durables showed particularly strong
performance versus the benchmark. In particular, our investment in a
semiconductor company benefited from the spike in business technology spending
during the year. Additionally, our investment in a supplier of parts and
equipment to the pollution control industry registered better than expected
earnings growth, also due to the burgeoning economy.
4
<Page>
ALPHA GROWTH PORTFOLIO
A dynamic economic recovery characterized most of the Portfolio's fiscal year.
Stimulative monetary and fiscal policies, a continued high level of consumer
spending, and a resurgence in business spending led to the strongest GDP growth
in 20 years (during the quarter ended September 30, 2003). Stocks, fueled by
increases in corporate profitability and the improving economic outlook,
rebounded strongly from one of the worst bear markets in modern history, with
the S&P 500 gaining more than 32% for the year.
As is typical in the initial stages of a recovery, the stocks that had been
beaten down the farthest during the recession bounced back the strongest. Many
of these equity market forerunners were smaller, highly leveraged and more
speculative in nature. The Portfolio, which is designed to perform well over a
full market cycle (typically lasting from three to five years), modestly
underperformed the S&P 500 benchmark during the fiscal year. In general, we do
not expect to outperform during speculative markets such as that of 2003, but
rather to offer protection from overvalued stocks that may have poor long-term
growth dynamics.
In accordance with our strategy, the Portfolio underwent its annual rebalancing
in early January, through which our proprietary systematic screening process was
applied anew to our investable universe of 1,800 stocks in order to identify
what we believe to be 50 of the strongest investment candidates in terms of
relative price appreciation, past and projected earnings growth, and reasonable
valuations. The rebalancing led to a reduced weighting in the consumer
discretionary sector, and to larger allocations to technology and
telecommunications -- both of which exhibited strong relative price appreciation
during 2003.
The Portfolio's performance for the fiscal year was positively impacted by our
allocations to the technology, consumer discretionary and industrials sectors.
Within technology, strong performance came from companies in a range of
industries including software, hardware and networking systems. The sector's
exceptional relative performance during 2003 drove the Portfolio's technology
allocation upward, from an underweighted position relative to the benchmark in
2003 to an overweighted position as of the January '04 rebalancing. The
Portfolio's investments in the consumer discretionary and industrials sectors
both benefited from the economic recovery. Strong levels of consumer and
business spending drove earnings and stock price performance in both sectors
throughout the year.
Our underweighted position in the telecommunications sector, which rebounded
strongly during the year, represented an opportunity cost to the Portfolio.
Telecommunications stocks were underrepresented in the Portfolio after its
January 2003 rebalancing due to the sector's poor relative strength during the
prior year. In addition, our allocations to energy and utilities -- both
defensive sectors -- detracted somewhat from performance.
Looking forward, we expect the equity markets to continue to provide superior
returns to other asset classes over the long run, as they have in the past. For
the Portfolio, we plan to continue to add value through the highly disciplined
application of our time-tested strategy -- an approach we believe offers the
potential for consistent, above average returns over the long run.
INTERNATIONAL EQUITY PORTFOLIO***
The Portfolio's fiscal year witnessed a widespread recovery in the global equity
markets, which had reached a multi-year low in April of 2003. The stage for the
year's recovery was set with historically low interest rates in many countries,
an abatement of the uncertainty surrounding the conflict with Iraq, and
improving sentiment following the spate of corporate governance scandals that
roiled markets and shook investor confidence in 2002. The international equity
markets came back strongly during the fiscal year, with more speculative, lower
quality, and oftentimes highly leveraged companies leading the way.
Europe outperformed all other regions due in large part to the euro's
appreciation versus the U.S. dollar. Roughly 13% of Europe's gains for the
fiscal year were attributable to the euro's appreciation against the dollar --
the effect of which attracted investor capital from around the world to
euro-denominated securities. The weakness of the U.S. dollar was driven by
concerns that the U.S. current account deficit had become unsustainable and that
U.S. interest rates were too
5
<Page>
low. Europe's strong performance was also fueled by a large number of
lower-quality stocks that performed especially well. In addition to Europe, the
emerging markets, in particular China, performed strongly during the fiscal
year.
While the Portfolio's overall performance was positive, we underperformed the
MSCI EAFE benchmark due to our underweighted position in Europe. Our decision to
underweight Europe reflects the region's weak fundamentals, which included
restrictive monetary and fiscal policies, low population growth, low
productivity growth rates, inefficient labor market regulations, and relatively
high tax rates.
Helping to offset some of these losses, our focus on the emerging markets --
China and Russia specifically -- contributed positively to performance. During
the fiscal year, the strong performance of several of Russia's largest energy
companies drove an economic expansion that led to an increase in consumer
spending, which in turn boosted the share prices of some of the Portfolio's
investments in Russian wireless telecommunications companies. Our allocation to
Thailand also fared well as the country experienced continued strong growth,
fueled by an increase in exports. In addition, several of the Portfolio's
investments in Canadian technology companies benefited from a resurgence in
demand for technology products and services.
Sincerely,
/s/ Barry Sommers
Barry Sommers
President
The Bear Stearns Funds
- ----------
* Used to take advantage of an expected decline in the price of a stock,
short selling is a strategy in which the investor sells borrowed stock in
anticipation of buying it back at a lower price in the future. Short
selling is considered leverage and may involve substantial risks.
** Small-cap funds typically carry additional risks, since smaller companies
generally have a higher risk of failure than well-established larger
companies. Historically, stocks of smaller companies have experienced a
greater degree of market volatility than stocks on average.
*** International investing involves risks such as currency exchange-rate
volatility, possible political, social, or economic instability and
differences in taxation and other financial standards.
Bear Stearns Asset Management Inc. has waived a portion of its advisory fee and
reimbursed 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.
Performance results do not reflect the deduction of taxes that a shareholder
would pay on portfolio distributions or the redemption of portfolio shares. On
the accompanying line charts and total return tables found on pages 7 through
13, the returns of each portfolio assume reinvestment of all dividends and
capital gains distributions at net asset value on the ex-dividend date.
In addition to historical information, this report contains forward-looking
statements, which may concern, among other things, domestic and foreign markets,
industry and economic trends and developments and government regulation and
their potential impact on each portfolio's investments. These statements are
subject to risks and uncertainties and actual trends, developments and
regulations in the future and their impact on each portfolio could be materially
different from those projected, anticipated or implied. The portfolios have no
obligation to update or revise forward-looking statements.
6
<Page>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
<Table>
<Caption>
CLASS A SHARES CLASS C SHARES S&P 500 COMPOSITE INDEX
April 5, 1995 $ 9,450 $ 10,000 $ 10,000
September 30, 1995 $ 11,357 $ 11,974 $ 11,714
March 31, 1996 $ 12,066 $ 12,689 $ 13,086
September 30, 1996 $ 13,182 $ 13,835 $ 14,095
March 31, 1997 $ 14,100 $ 14,764 $ 15,680
September 30, 1997 $ 19,203 $ 20,055 $ 19,797
March 31, 1998 $ 20,236 $ 21,077 $ 23,206
September 30, 1998 $ 18,909 $ 19,646 $ 21,587
March 31, 1999 $ 25,792 $ 26,717 $ 27,489
September 30, 1999 $ 26,701 $ 27,604 $ 27,588
March 31, 2000 $ 38,901 $ 40,116 $ 32,420
September 30, 2000 $ 40,098 $ 41,257 $ 31,253
March 31, 2001 $ 30,204 $ 30,994 $ 25,392
September 30, 2001 $ 26,257 $ 26,875 $ 22,933
March 31, 2002 $ 27,245 $ 27,805 $ 25,454
September 30, 2002 $ 17,170 $ 17,481 $ 18,235
March 31, 2003 $ 17,148 $ 17,412 $ 19,150
September 30, 2003 $ 21,702 $ 21,984 $ 22,684
March 31, 2004 $ 25,380 $ 25,661 $ 25,878
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
----------------------------------------------
5-YEAR SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7)
-------- -------------- -----------------
S&P STARS Portfolio(2)
Class A shares(5) 39.87% (1.45)% 10.92%
Class B shares(4) 42.39 (1.19) 5.45
Class C shares(6) 46.35 (0.80) 11.05
Class Y shares(3) 48.81 0.23 10.62
S&P 500 Composite Index(1) 35.12 (1.20) 11.15
</Table>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the
Portfolio and reflects all Portfolio expenses. Investors should note that
the Portfolio is a professionally managed mutual fund while the index is
unmanaged, does not incur sales charges or expenses and is not available
for investment.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a
portion of the Portfolio's operating expenses, if necessary, to maintain
the expense limitation, as set forth in the notes to the financial
statements. Total returns shown include fee waivers and expense
reimbursements, if any; total returns would have been lower had there been
no assumption of fees and expenses in excess of expense limitations.
(3) The returns of Class Y shares (for which August 7, 1995 was the initial
public offering date) are higher than Class A, B and C shares. The higher
returns are due to the fact that there is no sales load, CDSC or 12b-1 fee
charged to Class Y shares.
(4) Reflects the applicable CDSC. Without the applicable sales charge, the
total returns would have been 47.39%, (0.80)% and 5.45%, respectively, for
each period shown. Assuming no redemption of shares at the end of the
period, the return of Class B shares (for which January 5, 1998 was the
initial public offering date) would have been higher than Class A shares
and would have been substantially the same as Class C 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 B shares.
(5) Reflects the initial maximum sales charge of 5.50%, for each period shown.
Without the applicable sales charge, the total returns would have been
48.01%, (0.32)% and 11.62%, respectively, for each period shown.
(6) Reflects the applicable CDSC. Without the applicable sales charge, the
total return for the one year ended March 31, 2004 would have been 47.35%.
(7) For the period April 5, 1995 (commencement of investment operations)
through March 31, 2004, unless otherwise indicated.
CDSC - Contingent Deferred Sales Charge
7
<Page>
S&P STARS Opportunities Portfolio
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A, B AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES S&P MIDCAP 400 INDEX
October 1, 2001 $ 9,450 $ 10,000 $ 10,000 $ 10,000
December 31, 2001 $ 11,103 $ 11,725 $ 11,733 $ 11,799
March 31, 2002 $ 11,237 $ 11,858 $ 11,857 $ 12,592
June 30, 2002 $ 9,977 $ 10,507 $ 10,506 $ 11,420
September 30, 2002 $ 8,340 $ 8,765 $ 8,773 $ 9,530
December 31, 2002 $ 8,595 $ 9,027 $ 9,036 $ 10,086
March 31, 2003 $ 8,387 $ 8,797 $ 8,799 $ 9,639
June 30, 2003 $ 9,691 $ 10,152 $ 10,153 $ 11,338
September 30, 2003 $ 10,315 $ 10,786 $ 10,788 $ 12,086
December 31, 2003 $ 11,595 $ 12,114 $ 12,107 $ 13,679
March 31, 2004 $ 12,218 $ 12,426 $ 12,733 $ 14,372
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
----------------------------------------------
SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL(7)
-------- -----------------
S&P STARS Opportunities Portfolio(2)
Class A shares(5) 37.66% 8.35%
Class B shares(4) 39.62 9.09
Class C shares(6) 43.71 10.17
Class Y shares(3) 45.93 11.21
S&P MidCap 400 Index(1) 49.10 15.62
</Table>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the
Portfolio and reflects all Portfolio expenses. Investors should note that
the Portfolio is a professionally managed mutual fund while the index is
unmanaged, does not incur sales charges or expenses and is not available
for investment.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a
portion of the Portfolio's operating expenses, if necessary, to maintain
the expense limitation, as set forth in the notes to the financial
statements. Total returns shown include fee waivers and expense
reimbursements, if any; total returns would have been lower had there been
no assumption of fees and expenses in excess of expense limitations.
(3) The returns of Class Y shares are higher than Class A, B and C shares. The
higher returns are due to the fact that there is no sales load, CDSC or
12b-1 fee charged to Class Y shares.
(4) Reflects the applicable CDSC. Without the applicable sales charge, the
total returns would have been 44.62% and 10.14%, respectively, for each
period shown. Assuming no redemption of shares at the end of the period,
the return of Class B shares would have been higher than Class A shares and
would have been substantially the same as Class C shares. The higher return
is due to the fact that there is no initial sales charge on Class B shares.
(5) Reflects the initial maximum sales charge of 5.50%, for each period shown.
Without the applicable sales charge, the total returns would have been
45.66% and 10.84% respectively, for each period shown.
(6) Reflects the applicable CDSC. Without the applicable sales charge, the
total return for the one year ended March 31, 2004 would have been 44.71%.
(7) For the period October 1, 2001 (commencement of investment operations)
through March 31, 2004.
CDSC - Contingent Deferred Sales Charge
8
<Page>
The Insiders Select Fund
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
<Table>
<Caption>
CLASS A SHARES CLASS C SHARES S&P MIDCAP 400 INDEX
June 16, 1995 $ 9,450 $ 10,000 $ 10,000
September 30, 1995 $ 10,387 $ 10,975 $ 11,123
March 31, 1996 $ 11,033 $ 11,624 $ 11,977
September 30, 1996 $ 12,114 $ 12,732 $ 12,680
March 31, 1997 $ 13,055 $ 13,689 $ 13,249
September 30, 1997 $ 16,629 $ 17,386 $ 17,639
March 31, 1998 $ 19,064 $ 19,873 $ 19,745
September 30, 1998 $ 15,845 $ 16,478 $ 16,526
March 31, 1999 $ 19,121 $ 19,841 $ 19,834
September 30, 1999 $ 18,616 $ 19,273 $ 20,740
March 31, 2000 $ 19,198 $ 19,830 $ 27,388
September 30, 2000 $ 21,638 $ 22,299 $ 29,702
March 31, 2001 $ 22,632 $ 23,264 $ 25,482
September 30, 2001 $ 19,957 $ 20,473 $ 24,058
March 31, 2002 $ 23,684 $ 24,228 $ 30,294
September 30, 2002 $ 17,183 $ 17,529 $ 22,928
March 31, 2003 $ 17,337 $ 17,633 $ 23,190
September 30, 2003 $ 21,261 $ 21,576 $ 29,076
March 31, 2004 $ 25,212 $ 25,537 $ 34,576
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
----------------------------------------------
5-YEAR SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7)
-------- -------------- -----------------
The Insiders Select Fund(2)
Class A shares(5) 37.39% 4.50% 11.09%
Class B shares(4) 39.67 4.84 6.09
Class C shares(6) 43.83 5.17 11.25
Class Y shares(3) 45.51 6.13 12.18
S&P MidCap 400 Index(1) 49.10 11.76 15.14
</Table>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the
Portfolio and reflects all Portfolio expenses. Investors should note that
the Portfolio is a professionally managed mutual fund while the index is
unmanaged, does not incur sales charges or expenses and is not available
for investment.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a
portion of the Portfolio's operating expenses, if necessary, to maintain
the expense limitation, as set forth in the notes to the financial
statements. Total returns shown include fee waivers and expense
reimbursements, if any; total returns would have been lower had there been
no assumption of fees and expenses in excess of expense limitations.
(3) The returns of Class Y shares (for which June 20, 1995 was the initial
public offering date) are higher than Class A, B and C shares. The higher
returns are due to the fact that there is no sales load, CDSC or 12b-1 fee
charged to Class Y shares.
(4) Reflects the applicable CDSC. Without the applicable sales charge, the
total returns would have been 44.67%, 5.17% and 6.09%, respectively, for
each period shown. Assuming no redemption of shares at the end of the
period, the return of Class B shares (for which January 6, 1998 was the
initial public offering date) would have been higher than Class A shares
and would have been substantially the same as Class C 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 B shares.
(5) Reflects the initial maximum sales charge of 5.50%, for each period shown.
Without the applicable sales charge, the total returns would have been
45.41%, 5.69% and 11.80% respectively, for each period shown.
(6) Reflects the applicable CDSC. Without the applicable sales charge, the
total return for the one year ended March 31, 2004 would have been 44.83%.
(7) For the period of June 16, 1995 (commencement of investment operations)
through March 31, 2004, unless otherwise indicated.
CDSC - Contingent Deferred Sales Charge
9
<Page>
Intrinsic Value Portfolio
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
<Table>
<Caption>
CLASS A SHARES CLASS C SHARES S&P 500 COMPOSITE INDEX
April 4, 1995 $ 9,450 $ 10,000 $ 10,000
September 30, 1995 $ 11,206 $ 11,824 $ 11,796
March 31, 1996 $ 11,941 $ 12,569 $ 13,177
September 30, 1996 $ 12,161 $ 12,769 $ 14,194
March 31, 1997 $ 13,781 $ 14,422 $ 15,790
September 30, 1997 $ 17,385 $ 18,139 $ 19,936
March 31, 1998 $ 19,926 $ 20,760 $ 23,369
September 30, 1998 $ 17,574 $ 18,259 $ 21,739
March 31, 1999 $ 20,660 $ 21,425 $ 27,682
September 30, 1999 $ 20,117 $ 20,804 $ 27,782
March 31, 2000 $ 19,649 $ 20,273 $ 32,648
September 30, 2000 $ 22,128 $ 22,772 $ 31,472
March 31, 2001 $ 24,322 $ 24,969 $ 25,570
September 30, 2001 $ 22,069 $ 22,605 $ 23,094
March 31, 2002 $ 25,471 $ 26,015 $ 25,632
September 30, 2002 $ 18,140 $ 18,477 $ 18,363
March 31, 2003 $ 18,953 $ 19,263 $ 19,284
September 30, 2003 $ 23,481 $ 23,820 $ 22,843
March 31, 2004 $ 27,199 $ 27,519 $ 26,059
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
----------------------------------------------
5-YEAR SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7)
-------- -------------- -----------------
Intrinsic Value Portfolio(2)
Class A shares(5) 35.66% 4.46% 11.77%
Class B shares(4) 37.79 4.77 6.85
Class C shares(6) 41.86 5.13 11.92
Class Y shares(3) 44.41 6.28 11.77
S&P 500 Composite Index(1) 35.12 (1.20) 11.23
</Table>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the
Portfolio and reflects all Portfolio expenses. Investors should note that
the Portfolio is a professionally managed mutual fund while the index is
unmanaged, does not incur sales charges or expenses and is not available
for investment.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a
portion of the Portfolio's operating expenses, if necessary, to maintain
the expense limitation, as set forth in the notes to the financial
statements. Total returns shown include fee waivers and expense
reimbursements, if any; total returns would have been lower had there been
no assumption of fees and expenses in excess of expense limitations.
(3) The returns of Class Y shares (for which September 11, 1995 was the initial
public offering date) for the one year and 5-year average annual periods
are higher than Class A, B and C shares. The higher returns are due to the
fact that there is no sales load, CDSC or 12b-1 fee charged to Class Y
shares. The Class Y since inception average annual returns are not
comparable to Class A, B and C shares due to the timing differences in the
commencement of initial public offerings.
(4) Reflects the applicable CDSC. Without the applicable sales charge, the
total returns would have been 42.79%, 5.10% and 6.85%, respectively, for
each period shown. Assuming no redemption of shares at the end of the
period, the average annual return of Class B shares (for which January 28,
1998 was the initial public offering date) would have been higher than
Class A shares and would have been substantially the same as Class C 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 B shares.
(5) Reflects the initial maximum sales charge of 5.50%, for each period shown.
Without the applicable sales charge, the total returns would have been
43.53%, 5.65% and 12.48% respectively, for each period shown.
(6) Reflects the applicable CDSC. Without the applicable sales charge, the
total return for the one year ended March 31, 2004 would have been 42.86%.
(7) For the period April 4, 1995 (commencement of investment operations)
through March 31, 2004, unless otherwise indicated.
CDSC - Contingent Deferred Sales Charge
10
<Page>
Small Cap Value Portfolio
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A AND C SHARES(1)(2)(5) VS. ITS BROAD-BASED INDEX
<Table>
<Caption>
CLASS A SHARES CLASS C SHARES RUSSELL 2000 INDEX
April 3, 1995 $ 9,450 $ 10,000 $ 10,000
September 30, 1995 $ 11,963 $ 12,625 $ 12,000
March 31, 1996 $ 12,698 $ 13,361 $ 12,885
September 30, 1996 $ 14,139 $ 14,824 $ 13,576
March 31, 1997 $ 14,187 $ 14,845 $ 13,543
September 30, 1997 $ 18,528 $ 19,337 $ 18,081
March 31, 1998 $ 20,832 $ 21,689 $ 19,233
September 30, 1998 $ 14,885 $ 15,462 $ 14,643
March 31, 1999 $ 16,610 $ 17,203 $ 16,107
September 30, 1999 $ 18,898 $ 19,525 $ 17,435
March 31, 2000 $ 22,956 $ 23,671 $ 22,114
September 30, 2000 $ 21,984 $ 22,601 $ 21,513
March 31, 2001 $ 20,283 $ 20,813 $ 18,724
September 30, 2001 $ 19,578 $ 20,028 $ 16,951
March 31, 2002 $ 24,037 $ 24,508 $ 21,342
September 30, 2002 $ 17,022 $ 17,291 $ 15,374
March 31, 2003 $ 16,361 $ 16,555 $ 15,588
September 30, 2003 $ 20,406 $ 20,595 $ 20,984
March 31, 2004 $ 24,467 $ 24,638 $ 25,536
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
----------------------------------------------
5-YEAR SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(7)
-------- -------------- -----------------
Small Cap Value Portfolio(2)
Class A shares(5) 41.33% 6.84% 10.46%
Class B shares(4) 43.79 7.10 4.78
Class C shares(6) 47.79 7.45 10.54
Class Y shares(3) 50.08 8.54 10.85
Russell 2000 Index(1) 63.83 9.65 10.98
</Table>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the
Portfolio and reflects all Portfolio expenses. Investors should note that
the Portfolio is a professionally managed mutual fund while the index is
unmanaged, does not incur sales charges or expenses, and is not available
for investment.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a
portion of the Portfolio's operating expenses, if necessary, to maintain
the expense limitation, as set forth in the notes to the financial
statements. Total returns shown include fee waivers and expense
reimbursements, if any; total returns would have been lower had there been
no assumption of fees and expenses in excess of expense limitations.
(3) The returns of Class Y shares (for which June 22, 1995 was the initial
public offering date) are higher than Class A, B and C shares. The higher
returns are due to the fact that there is no sales load, CDSC or 12b-1 fee
charged to Class Y shares.
(4) Reflects the applicable CDSC. Without the applicable sales charge, the
total returns would have been 48.79%, 7.40% and 4.78%, respectively, for
each period shown. Assuming no redemption of shares at the end of the
period, the return of Class B shares (for which January 21, 1998 was the
initial public offering date) would have been higher than Class A shares
and would have been substantially the same as Class C 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 B shares.
(5) Reflects the maximum sales charge of 5.50%, for each period shown. Without
the applicable sales charge, the total returns would have been 49.55%,
8.05% and 11.16%, respectively, for each period shown.
(6) Reflects the applicable CDSC. Without the applicable sales charge, the
total return for the one year ended March 31, 2004 would have been 48.79%.
(7) For the period April 3, 1995 (commencement of investment operations)
through March 31, 2004, unless otherwise indicated.
CDSC - Contingent Deferred Sales Charge
11
<Page>
Alpha Growth Portfolio
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A, B AND C SHARES(1)(2)(4)(5) VS. ITS BROAD-BASED INDEX
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES S&P 500 COMPOSITE INDEX
December 31, 1997 $ 9,450 $ 10,000 $ 10,000 $ 10,000
March 31, 1998 $ 10,553 $ 11,149 $ 11,149 $ 11,395
September 30, 1998 $ 9,515 $ 10,024 $ 10,024 $ 10,600
March 31, 1999 $ 13,664 $ 14,338 $ 14,348 $ 13,498
September 30, 1999 $ 13,428 $ 14,046 $ 14,055 $ 13,547
March 31, 2000 $ 16,735 $ 17,468 $ 17,477 $ 15,920
September 30, 2000 $ 14,643 $ 15,246 $ 15,258 $ 15,346
March 31, 2001 $ 13,215 $ 13,738 $ 13,739 $ 12,469
September 30, 2001 $ 12,102 $ 12,544 $ 12,546 $ 11,261
March 31, 2002 $ 14,863 $ 15,367 $ 15,377 $ 12,499
September 30, 2002 $ 12,456 $ 12,862 $ 12,857 $ 8,954
March 31, 2003 $ 12,281 $ 12,664 $ 12,681 $ 9,403
September 30, 2003 $ 14,341 $ 14,760 $ 14,777 $ 11,139
March 31, 2004 $ 16,526 $ 16,964 $ 16,989 $ 12,707
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
----------------------------------------------
5-YEAR SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(3)
-------- -------------- -----------------
Alpha Growth Portfolio(2)
Class A shares(4) 27.12% 2.71% 8.36%
Class B shares(5) 28.95 3.06 8.82
Class C shares(6) 32.97 3.43 8.84
S&P 500 Composite Index(1) 35.12 (1.20) 4.50
</Table>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the
Portfolio and reflects all Portfolio expenses. Investors should note that
the Portfolio is a professionally managed mutual fund while the index is
unmanaged, does not incur sales charges or expenses and is not available
for investment.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a
portion of the 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, if any; total
returns would have been lower had there been no assumption of fees and
expenses in excess of expense limitations.
(3) For the period of December 29, 1997 (commencement of investment operations)
through March 31, 2004.
(4) Reflects the initial maximum sales charge of 5.50%, for each period.
Without the applicable sales charge, the total returns would have been
34.55%, 3.88% and 9.35%, respectively, for each period shown.
(5) Reflects the applicable CDSC. Without the applicable sales charge, the
total returns would have been 33.95%, 3.41% and 8.82%, respectively, for
each period shown.
(6) Reflects the applicable CDSC. Without the applicable sales charge, the
total return for the one year ended March 31, 2004 would have been 33.97%.
CDSC - Contingent Deferred Sales Charge
12
<Page>
International Equity Portfolio
[CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A, B AND C SHARES(1)(2)(5)(6) VS. ITS BROAD-BASED INDEX
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES MSCI EAFE INDEX
December 31, 1997 $ 9,450 $ 10,000 $ 10,000 $ 10,000
March 31, 1998 $ 10,843 $ 11,458 $ 11,458 $ 11,479
September 30, 1998 $ 10,197 $ 10,751 $ 10,751 $ 9,966
March 31, 1999 $ 11,924 $ 12,544 $ 12,545 $ 12,209
September 30, 1999 $ 13,507 $ 14,170 $ 14,171 $ 13,086
March 31, 2000 $ 22,141 $ 23,164 $ 23,165 $ 15,311
September 30, 2000 $ 17,028 $ 17,768 $ 17,769 $ 13,535
March 31, 2001 $ 14,173 $ 14,754 $ 14,745 $ 11,380
September 30, 2001 $ 11,652 $ 12,086 $ 12,086 $ 9,708
March 31, 2002 $ 11,821 $ 12,240 $ 12,241 $ 10,444
September 30, 2002 $ 9,367 $ 9,675 $ 9,676 $ 8,226
March 31, 2003 $ 8,327 $ 8,563 $ 8,573 $ 8,047
September 30, 2003 $ 10,055 $ 10,359 $ 10,368 $ 10,410
March 31, 2004 $ 11,809 $ 12,137 $ 12,162 $ 12,728
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<Table>
<Caption>
TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
----------------------------------------------
5-YEAR SINCE INCEPTION
ONE YEAR AVERAGE ANNUAL AVERAGE ANNUAL(3)
-------- -------------- -----------------
International Equity(2)
Class A shares(5) 34.01% (1.32)% 2.69%
Class B shares(6) 36.72 (1.05) 3.15
Class C shares(7) 40.87 (0.61) 3.18
Class Y Shares(4) 43.09 N/A (4.16)
MSCI EAFE Index(1) 58.15 0.83 4.29
</Table>
- ----------
(1) The chart assumes a hypothetical $10,000 initial investment in the
Portfolio and reflects all Portfolio expenses. Investors should note that
the Portfolio is a professionally managed mutual fund while the index is
unmanaged, does not incur sales charges or expenses and is not available
for investment.
(2) Bear Stearns Asset Management Inc. waived its advisory fee and reimbursed a
portion of the Portfolio's operating expenses, if necessary, to maintain
the expense limitation, as set forth in the notes to the financial
statements. Total returns shown include fee waivers and expense
reimbursements, if any; total returns would have been lower had there been
no assumption of fees and expenses in excess of expense limitations.
(3) For the period of December 29, 1997 (commencement of investment operations)
through March 31, 2004.
(4) The returns of Class Y (for which July 5, 2001 was the initial public
offering date) for the one year period are higher than Class A, B and C
shares. The higher return is due to the fact that there is no sales load,
CDSC or 12b-1 fee charged to Class Y shares. The Class Y since inception
average annual returns are not comparable to Class A, B and C shares due to
the timing differences in the commencement of initial public offerings.
(5) Reflects the initial maximum sales charge of 5.50%, for each period.
Without the applicable sales charge, the total returns would have been
41.80%, (0.20)% and 3.63% respectively, for each period shown.
(6) Reflects the applicable CDSC. Without the applicable sales charge, total
returns would have been 41.72%, (0.65)% and 3.15%, respectively, for each
period shown.
(7) Reflects the applicable CDSC. Without the applicable sales charge, the
total return for the one year ended March 31, 2004 would have been 41.87%.
CDSC - Contingent Deferred Sales Charge
13
<Page>
S&P STARS Portfolio
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ---- ----------------------------------------------------------------------------------- ----------
1. Prepackaged Software 4.67
2. Computer Related Services 3.74
3. Bank Holding Companies 3.64
4. Semiconductors & Related Devices 3.59
5. Radiotelephone Communications 3.50
6. Department Stores 2.86
7. Pharmaceutical Preparations 2.80
8. Commercial Banks 2.62
9. Petroleum Refining 2.53
10. Hospital & Medical Service Plans 2.52
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ---- ------------------------------------- ------------------------------------------- ----------
1. CNET Networks, Inc. Computer Related Services 3.74
2. Pfizer Inc. Pharmaceutical Preparations 2.80
3. Citigroup Inc. Commercial Banks 2.62
4. Exxon Mobil Corp. Petroleum Refining 2.53
5. Coventry Health Care, Inc. Hospital & Medical Service Plans 2.52
6. Apache Corp. Crude Petroleum & Natural Gas 2.34
7. Amgen Inc. Biological Products 2.32
8. Rayovac Corp. Primary Batteries, Dry & Wet 2.28
9. Allstate Corp. (The) Fire, Marine & Casualty Insurance 2.18
10. Best Buy Co., Inc. Radio, TV & Electronic Stores 2.17
</Table>
- ----------
* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell securities mentioned.
The Portfolio is actively managed, therefore holdings may not be current.
Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may
seek to perform investment banking services for the companies listed.
14
<Page>
S&P STARS Opportunities Portfolio
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ---- ----------------------------------------------------------------------------------- ----------
1. Prepackaged Software 5.35
2. Crude Petroleum & Natural Gas 4.26
3. Refrigeration & Heating Equipment 4.15
4. Investment Advisory Service 4.00
5. Real Estate Investment Trusts 3.97
6. Information Retrieval Services 2.70
7. Chemicals & Allied Products 2.33
8. Primary Batteries, Dry & Wet 2.28
9. Colleges & Universities 2.27
10. Health Services 2.25
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ---- ------------------------------------- ------------------------------------------- ----------
1. Bankrate, Inc. Information Retrieval Services 2.70
2. FMC Corp. Chemicals & Allied Products 2.33
3. Rayovac Corp. Primary Batteries, Dry & Wet 2.28
4. Corinthian Colleges, Inc. Colleges & Universities 2.27
5. WebMD Corp. Health Services 2.25
6. CNET Networks, Inc. Computer Related Services 2.24
7. Cytyc Corp. Medical & Hospital Equipment 2.22
8. Watts Water Technologies, Inc. Industrial Valves 2.20
9. Evergreen Resources, Inc. Crude Petroleum & Natural Gas 2.18
10. Vishay Intertechnology, Inc. Electronic Resistors 2.16
</Table>
- ----------
* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell securities mentioned.
The Portfolio is actively managed, therefore holdings may not be current.
Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may
seek to perform investment banking services for the companies listed.
15
<Page>
The Insiders Select Fund
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ---- ----------------------------------------------------------------------------------- ----------
1. Bank Holding Companies 10.19
2. Petroleum Refining 6.22
3. Women's Ready-To-Wear Stores 4.99
4. Crude Petroleum & Natural Gas 4.46
5. National Banks 4.22
6. Personal Credit Institutions 3.52
7. Aircraft Engines & Engine Parts 3.25
8. Holding Offices 3.16
9. Surety Insurance 3.01
10. Flat Glass 2.99
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ---- --------------------------------------- ----------------------------------------- ----------
1. FleetBoston Financial Corp. National Banks 4.22
2. Sunoco, Inc. Petroleum Refining 3.98
3. American Express Co. Personal Credit Institutions 3.52
4. PNC Financial Services Group, Inc.(The) Bank Holding Companies 3.27
5. United Technologies Corp. Aircraft Engines & Engine Parts 3.25
6. MGIC Investment Corp. Holding Offices 3.16
7. Washington Mutual, Inc. Bank Holding Companies 3.08
8. MBIA Inc. Surety Insurance 3.01
9. PPG Industries, Inc. Flat Glass 2.99
10. Kimberly-Clark Corp. Sanitary Paper Products 2.98
</Table>
- ----------
* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell securities mentioned.
The Portfolio is actively managed, therefore holdings may not be current.
Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may
seek to perform investment banking services for the companies
listed.
16
<Page>
Intrinsic Value Portfolio
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ---- ----------------------------------------------------------------------------------- ----------
1. Bank Holding Companies 10.03
2. Petroleum Refining 7.96
3. Fire, Marine & Casualty Insurance 7.22
4. Commercial Banks 4.88
5. Motion Picture & Video Production 4.43
6. Women's Ready-To-Wear Stores 4.33
7. Pharmaceutical Preparations 4.17
8. Telephone Communications 3.85
9. Medical Products 3.70
10. General Medical & Surgical Hospitals 2.61
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ---- ------------------------------------- ------------------------------------------- ----------
1. Citigroup Inc. Commercial Banks 4.88
2. Bank of America Corp. Bank Holding Companies 4.43
3. Liberty Media Corp. Motion Picture & Video Production 3.73
4. Johnson & Johnson Medical Products 3.70
5. Exxon Mobil Corp. Petroleum Refining 3.59
6. American International Group, Inc. Fire, Marine & Casualty Insurance 2.62
7. HCA Inc. General Medical & Surgical Hospitals 2.61
8. International Paper Co. Paper Mills 2.60
9. Nokia Corp. Communications Equipment 2.57
10. General Electric Co. Electric & Electronics Equipment 2.55
</Table>
- ----------
* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell securities mentioned.
The Portfolio is actively managed, therefore holdings may not be current.
Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may
seek to perform investment banking services for the companies listed.
17
<Page>
Small Cap Value Portfolio
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ---- ----------------------------------------------------------------------------------- ----------
1. Bank Holding Companies 14.31
2. Semiconductors & Related Devices 5.73
3. Biological Products 5.60
4. Crude Petroleum & Natural Gas 5.50
5. Real Estate Investment Trusts 5.07
6. Prepackaged Software 4.48
7. Electronic Computers 4.23
8. Computer Integrated Systems Design 3.29
9. Freight Transportation Arrangement 3.13
10. Oil & Gas Field Services 2.93
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ---- ------------------------------------- ------------------------------------------- ----------
1. Genesee & Wyoming Inc., Class A Freight Transportation Arrangement 3.13
2. Key Energy Services, Inc. Oil & Gas Field Services 2.93
3. Stage Stores, Inc. Department Stores 2.85
4. Swift Energy Co. Crude Petroleum & Natural Gas 2.84
5. InVision Technologies, Inc. Electromedical Equipment 2.68
6. Magnum Hunter Resources, Inc. Crude Petroleum & Natural Gas 2.66
7. Headwaters Inc. Refuse Systems 2.56
8. Greater Bay Bancorp Bank Holding Companies 2.50
9. BankAtlantic Bancorp, Inc., Class A Bank Holding Companies 2.48
10. Provident Bankshares Corp. Bank Holding Companies 2.48
</Table>
- ----------
* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell securities mentioned.
The Portfolio is actively managed, therefore holdings may not be current.
Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may
seek to perform investment banking services for the companies listed.
18
<Page>
Alpha Growth Portfolio
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ---- ----------------------------------------------------------------------------------- ----------
1. Semiconductors & Related Devices 11.66
2. Gold Ores 6.68
3. Motor Vehicles & Car Bodies 4.92
4. Prepackaged Software 3.53
5. Bank Holding Companies 3.47
6. Construction Machinery 3.44
7. Circuit Boards 3.44
8. Electronic Components 3.33
9. Communications Equipment 2.62
10. Mortgage Bankers & Correspondents 2.31
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ---- ------------------------------------- ------------------------------------------- ----------
1. Telefonaktiebolaget LM Ericsson, ADR Communications Equipment 2.62
2. Countrywide Financial Corp. Mortgage Bankers & Correspondents 2.31
3. Symantec Corp. Prepackaged Software 2.29
4. Nortel Networks Corp. Telecommunication Equipment 2.25
5. Lucent Technologies Inc. Computer Integrated Systems Design 2.24
6. International Game Technology Manufacturing Industries 2.23
7. QUALCOMM Inc. Radio & TV Communications Equipment 2.21
8. New York Community Bancorp, Inc. Banks, Savings Institutions 2.18
9. Apollo Group, Inc., Class A Colleges & Universities 2.14
10. Capital One Financial Corp. Personal Credit Institutions 2.13
</Table>
- ----------
* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell securities mentioned.
Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may
seek to perform investment banking services for the companies listed. All
holdings were equally weighted on January 1, 2004. Differences in
percentage holdings of each security after January 1, 2004 are due to
market movement.
19
<Page>
International Equity Portfolio
MARCH 31, 2004
(UNAUDITED)
TOP TEN INDUSTRY WEIGHTINGS
<Table>
<Caption>
PERCENT OF
RANK INDUSTRY NET ASSETS
- ---- ----------------------------------------------------------------------------------- ----------
1. Foreign Banks, Branches & Agencies 11.17
2. Real Estate 7.47
3. Insurance Carriers 6.92
4. Telephone Communications 6.30
5. Internet Service Provider 5.09
6. Electronic Components & Accessories 3.90
7. Computer-Integrated Systems 3.53
8. Financial Services 3.05
9. Fire, Marine & Casualty Insurance 2.98
10. Radio & Telephone Communications 2.86
</Table>
TOP TEN HOLDINGS*
<Table>
<Caption>
PERCENT OF
RANK HOLDINGS INDUSTRY NET ASSETS
- ---- ------------------------------------- ------------------------------------------- ----------
1. Yahoo Japan Corp. Internet Service Provider 5.09
2. Sun Hung Kai Properties Ltd. Real Estate 3.65
3. Research in Motion Ltd. Computer-Integrated Systems 3.53
4. AXA Insurance Carriers 2.90
5. Siemens AG Motors & Generators 2.73
6. Standard Chartered plc Foreign Banks, Branches & Agencies 2.59
7. Credit Suisse Group Foreign Banks, Branches & Agencies 2.51
8. Huaneng Power International, Inc. Electric Services 2.44
9. Koninklijki (Royal) Philips Electronics N.V. Radio & Television Communications Equipment 2.33
10. Zurich Financial Services AG Insurance Carriers 2.30
</Table>
- ----------
* Top ten holdings are provided for informational purposes only and should
not be deemed as a recommendation to purchase or sell securities mentioned.
The Portfolio is actively managed, therefore holdings may not be current.
Bear, Stearns & Co. Inc. or its affiliates may hold positions in or may
seek to perform investment banking services for the companies listed.
20
<Page>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 100.68%
AUTO & HOME SUPPLY STORES - 2.09%
360,000 AutoZone, Inc.+ $ 30,949,200
---------------
BANK HOLDING COMPANIES - 3.64%
280,000 Bank of America Corp.++ 22,674,400
1,120,000 MBNA Corp. 30,945,600
---------------
53,620,000
---------------
BIOLOGICAL PRODUCTS - 2.32%
590,000 Amgen Inc.+* 34,320,300
---------------
BLAST FURNACES & STEEL MILLS - 0.83%
330,000 United States Steel Corp.++ 12,299,100
---------------
BOTTLED & CANNED SOFT DRINKS - 0.91%
250,000 PepsiCo, Inc. 13,462,500
---------------
CABLE & OTHER PAY TV SERVICES - 2.09%
1,110,000 Comcast Corp., Special Class A* 30,946,800
---------------
COMMERCIAL BANKS - 2.62%
750,000 Citigroup Inc. 38,775,000
---------------
COMPUTER PERIPHERAL EQUIPMENT - 2.02%
1,270,000 Cisco Systems, Inc.* 29,870,400
---------------
COMPUTER RELATED SERVICES - 3.74%
5,330,000 CNET Networks, Inc.^* 55,058,900
---------------
COMPUTERS, PERIPHERALS & SOFTWARE - 1.43%
230,000 International Business Machines Corp. 21,123,200
---------------
CRUDE PETROLEUM & NATURAL GAS - 2.34%
800,000 Apache Corp.+ 34,536,000
---------------
DEPARTMENT STORES - 2.86%
530,000 Neiman Marcus Group, Inc. (The),
Class A 28,588,200
780,500 Saks Inc.*++ 13,736,800
---------------
42,325,000
---------------
DRILLING OIL & GAS WELLS - 1.94%
1,020,000 ENSCO International Inc.* 28,733,400
---------------
DRUGS, PROPRIETARIES & SUNDRIES - 2.01%
430,000 Cardinal Health, Inc. 29,627,000
---------------
ELECTRIC SERVICES - 2.15%
3,860,000 Reliant Resources, Inc.* $ 31,690,600
---------------
ELECTROMEDICAL EQUIPMENT - 1.97%
610,000 Medtronic, Inc.* 29,127,500
---------------
ELECTRONIC RESISTORS - 2.17%
1,500,000 Vishay Intertechnology, Inc.* 32,010,000
---------------
FIRE, MARINE & CASUALTY INSURANCE - 2.18%
710,000 Allstate Corp. (The) 32,276,600
---------------
GAS TRANSMISSION & DISTRIBUTION - 1.46%
2,250,000 Williams Cos., Inc. (The)++ 21,532,500
---------------
HOLDING OFFICES - 1.62%
2,510,000 America West Holdings Corp.,
Class B+*(a) 23,920,300
---------------
HOSPITAL & MEDICAL SERVICE PLANS - 2.52%
880,000 Coventry Health Care, Inc.* 37,250,400
---------------
INFORMATION RETRIEVAL SERVICES - 0.52%
130,000 Bankrate, Inc.^* 2,588,300
3,870,000 SportsLine.com, Inc.^*(a) 5,147,100
---------------
7,735,400
---------------
INVESTMENT ADVISORY SERVICE - 2.04%
790,000 Eaton Vance Corp.+ 30,114,800
---------------
LUMBER & OTHER BUILDING MATERIALS - 2.05%
810,000 Home Depot, Inc. (The)+ 30,261,600
---------------
MEASURING & CONTROLLING DEVICES - 1.22%
750,000 MKS Instruments, Inc.* 18,007,500
---------------
MEDICAL & HOSPITAL EQUIPMENT - 1.13%
750,000 Cytyc Corp.* 16,687,500
---------------
MEDICINALS & BOTANICALS - 1.61%
500,000 Celgene Corp.* 23,825,000
---------------
MOTOR VEHICLE PARTS & ACCESSORIES - 1.85%
440,000 Lear Corp.+* 27,262,400
---------------
PETROLEUM REFINING - 2.53%
900,000 Exxon Mobil Corp. 37,431,000
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
21
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICAL PREPARATIONS - 2.80%
1,180,000 Pfizer Inc. $ 41,359,000
---------------
PLASTICS, MATERIALS & RESINS - 2.04%
750,000 Dow Chemical Co. (The)* 30,210,000
---------------
POWER DRIVEN HAND TOOLS - 2.00%
520,000 Black & Decker Corp. (The)* 29,608,800
---------------
PREPACKAGED SOFTWARE - 4.67%
700,000 Adobe Systems Inc. 27,601,000
1,360,000 E.piphany, Inc.^* 9,819,200
1,500,000 Sybase, Inc.* 31,485,000
---------------
68,905,200
---------------
PRIMARY BATTERIES, DRY & WET - 2.28%
1,180,000 Rayovac Corp.* 33,748,000
---------------
RADIO & TV COMMUNICATIONS EQUIPMENT - 2.07%
460,000 QUALCOMM Inc. 30,553,200
---------------
RADIO BROADCASTING - 0.41%
300,000 Cumulus Media Inc., Class A* 5,997,000
---------------
RADIO, TV & ELECTRONIC STORES - 2.17%
620,000 Best Buy Co., Inc. 32,066,400
---------------
RADIOTELEPHONE COMMUNICATIONS - 3.50%
1,100,000 Nextel Communications, Inc., Class A* 27,203,000
1,930,000 Nextel Partners, Inc., Class A* 24,433,800
---------------
51,636,800
---------------
REAL ESTATE INVESTMENT TRUSTS - 2.04%
480,000 Chelsea Property Group, Inc.++ 30,211,200
---------------
REFRIGERATION & HEATING EQUIPMENT - 2.00%
260,000 American Standard Cos. Inc.* 29,575,000
---------------
SECURITY BROKERS & DEALERS - 2.13%
380,000 Lehman Brothers Holdings Inc. (b) 31,490,600
---------------
SECURITY SYSTEMS SERVICES - 2.06%
1,060,000 Tyco International Ltd.++ 30,369,000
---------------
SEMICONDUCTORS & RELATED DEVICES - 3.59%
500,000 Analog Devices, Inc. $ 24,005,000
1,070,000 Intel Corp. 29,104,000
---------------
53,109,000
---------------
SOAP & OTHER DETERGENTS - 2.09%
295,000 Procter & Gamble Co. (The) 30,939,600
---------------
SPECIAL INDUSTRY MACHINERY - 0.14%
100,000 Applied Materials, Inc.* 2,138,000
---------------
SURETY INSURANCE - 2.00%
400,000 Ambac Financial Group, Inc.+ 29,512,000
---------------
SURGICAL & MEDICAL INSTRUMENTS - 1.50%
1,300,000 Intuitive Surgical, Inc.+* 22,100,000
---------------
TELEPHONE COMMUNICATIONS - 1.35%
400,000 ALLTEL Corp. 19,956,000
---------------
WINES, BRANDY & BRANDY SPIRITS - 1.98%
910,000 Constellation Brands, Inc., Class A*(b) 29,211,000
---------------
Total Common Stocks
(cost - $1,318,756,700) 1,487,475,700
---------------
SHORT-TERM INVESTMENT -- 0.00%
INVESTMENT COMPANY - 0.00%
37,486 Federated Government Obligations 0.90%**
(cost - $37,486) 37,486
---------------
Total Investments -- 100.68%
(cost - $1,318,794,186) 1,487,513,186
Securities Lending
Collateral (c) -- 3.06% 45,234,068
Liabilities in excess of other
assets -- (3.74)% (55,310,168)
---------------
Net Assets -- 100.00% $ 1,477,437,086
===============
SHORT SALES OF COMMON STOCKS -- (1.80)%
ADVERTISING - (0.44)%
250,000 Monster Worldwide Inc.+++* $ 6,550,000
---------------
BREAD, CAKE & RELATED PRODUCTS - (0.87)%
1,130,000 Interstate Bakeries Corp.+++ 12,848,100
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
22
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
SHORT SALES OF COMMON STOCKS (CONTINUED)
COMPUTER PERIPHERAL EQUIPMENT - (0.32)%
650,000 Extreme Networks, Inc.+++* $ 4,686,500
---------------
TIRES & INNER TUBES - (0.17)%
300,000 Goodyear Tire & Rubber Co.
(The)+++* 2,562,000
---------------
Total Short Sales of Common Stocks
(proceeds received - $27,696,773) $ 26,646,600
===============
</Table>
- ----------
Unless otherwise indicated, all common stocks held long are ranked as five
stars.
+ Currently ranked as four stars.
++ Currently ranked as three stars.
+++ Currently ranked as one star.
^ Not ranked by stars.
* Non-income producing security.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
(a) Affiliated company; see additional disclosure in the financial statements
and notes thereto.
(b) A portion of this security is used as collateral for securities sold short.
(c) Cash collateral invested in various money market mutual funds.
S&P STARS RANKING:
Five stars -- Buy -- Expect to be among best performers over next 12 months and
to rise in price.
Four stars -- Accumulate -- Expect to be an above average performer.
Three stars -- Hold -- Expect to be an average performer.
Two stars -- Avoid -- Expect to be a below average performer.
One star -- Sell -- Expect to be a well below average performer and to fall
in price.
The accompanying notes are an integral part of the financial statements.
23
<Page>
S&P STARS Opportunities Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 100.24%
AUTO & HOME SUPPLY STORES - 2.03%
62,000 CSK Auto Corp.* $ 1,122,820
---------------
BLAST FURNACES & STEEL MILLS - 2.12%
19,000 Nucor Corp. 1,168,120
---------------
CHEMICALS & ALLIED PRODUCTS - 2.33%
30,000 FMC Corp.* 1,284,600
---------------
COLLEGES & UNIVERSITIES - 2.27%
38,000 Corinthian Colleges, Inc.* 1,256,280
---------------
COMPUTER RELATED SERVICES - 2.24%
120,000 CNET Networks, Inc.^* 1,239,600
---------------
CONSTRUCTION MACHINERY - 1.81%
70,000 JLG Industries, Inc.++ 1,001,000
---------------
CRUDE PETROLEUM & NATURAL GAS - 4.26%
18,000 Burlington Resources Inc. 1,145,340
35,000 Evergreen Resources, Inc.* 1,202,250
---------------
2,347,590
---------------
DATA PROCESSING & PREPARATION - 2.16%
23,000 Affiliated Computer Services, Inc.,
Class A* 1,193,700
---------------
DEPARTMENT STORES - 1.95%
20,000 Neiman Marcus Group, Inc. (The),
Class A 1,078,800
---------------
DRILLING OIL & GAS WELLS - 1.99%
39,000 ENSCO International Inc.* 1,098,630
---------------
EATING PLACES - 2.08%
67,000 Ryan's Family Steak Houses, Inc.* 1,146,370
---------------
ELECTRIC SERVICES - 2.08%
140,000 Reliant Resources, Inc.* 1,149,400
---------------
ELECTRONIC RESISTORS - 2.16%
56,000 Vishay Intertechnology, Inc.* 1,195,040
---------------
FERROALLOY ORES - 2.07%
33,000 Inco Ltd.+* 1,142,790
---------------
GAS TRANSMISSION & DISTRIBUTION - 1.96%
113,000 Williams Cos., Inc. (The)++ $ 1,081,410
---------------
HEALTH SERVICES - 2.25%
140,000 WebMD Corp.^* 1,244,600
---------------
HOLDING OFFICES - 1.12%
65,000 America West Holdings Corp.,
Class B+* 619,450
---------------
HOSPITAL & MEDICAL SERVICE PLANS - 2.11%
27,500 Coventry Health Care, Inc.* 1,164,075
---------------
HOSPITALS - 1.93%
34,500 Triad Hospitals, Inc.* 1,063,290
---------------
HOTELS, MOTELS & TOURIST COURTS - 1.77%
130,000 La Quinta Corp.* 980,200
---------------
INDUSTRIAL VALVES - 2.20%
52,000 Watts Water Technologies, Inc., Class A 1,216,280
---------------
INFORMATION RETRIEVAL SERVICES - 2.70%
75,000 Bankrate, Inc.^* 1,493,250
---------------
INVESTMENT ADVISORY SERVICE - 4.00%
20,250 Affiliated Managers Group, Inc.+* 1,105,245
29,000 Eaton Vance Corp.+ 1,105,480
---------------
2,210,725
---------------
MEASURING & CONTROLLING DEVICES - 2.13%
49,000 MKS Instruments, Inc.* 1,176,490
---------------
MEDICAL & HOSPITAL EQUIPMENT - 2.22%
55,000 Cytyc Corp.* 1,223,750
---------------
MEDICINALS & BOTANICALS - 2.07%
24,000 Celgene Corp.* 1,143,600
---------------
MEN'S & BOYS' CLOTHING - 2.02%
51,000 Quiksilver, Inc.* 1,114,350
---------------
MISC. BUSINESS CREDIT INSTITUTIONS - 1.30%
55,000 Providian Financial Corp.* 720,500
---------------
PHARMACEUTICAL PREPARATIONS - 1.92%
39,000 Andrx Corp.* 1,060,800
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
24
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PLASTICS, FOAM PRODUCTS - 1.98%
22,000 Sealed Air Corp.* $ 1,094,060
---------------
POWER DRIVEN HAND TOOLS - 2.06%
20,000 Black & Decker Corp. (The)* 1,138,800
---------------
PREPACKAGED SOFTWARE - 5.35%
29,000 Adobe Systems Inc. 1,143,470
51,000 BEA Systems, Inc.* 650,760
55,000 Sybase, Inc.* 1,154,450
---------------
2,948,680
---------------
PRIMARY BATTERIES, DRY & WET - 2.28%
44,000 Rayovac Corp.* 1,258,400
---------------
RADIO BROADCASTING - 1.99%
55,000 Cumulus Media Inc., Class A* 1,099,450
---------------
RADIO, TV & ELECTRONIC STORES - 2.15%
23,000 Best Buy Co., Inc. 1,189,560
---------------
RADIOTELEPHONE COMMUNICATIONS - 2.15%
94,000 Nextel Partners, Inc., Class A* 1,190,040
---------------
REAL ESTATE INVESTMENT TRUSTS - 3.97%
17,500 Chelsea Property Group, Inc.++ 1,101,450
18,000 Vornado Realty Trust 1,088,640
---------------
2,190,090
---------------
REFRIGERATION & HEATING EQUIPMENT - 4.15%
10,000 American Standard Cos. Inc.* 1,137,500
39,000 Manitowoc Co., Inc. (The) 1,153,620
---------------
2,291,120
---------------
SAVINGS & LOAN ASSOCIATIONS - 1.84%
28,000 IndyMac Bancorp, Inc. 1,016,120
---------------
SECURITY BROKERS & DEALERS - 1.97%
13,100 Lehman Brothers Holdings Inc. 1,085,597
---------------
SEMICONDUCTORS & RELATED DEVICES - 2.09%
48,000 Fairchild Semiconductor International,
Inc., Class A+* 1,153,440
---------------
SINGLE-FAMILY HOUSING CONSTRUCTION - 0.98%
10,000 Lennar Corp. $ 540,300
---------------
SURETY INSURANCE - 2.00%
15,000 Ambac Financial Group, Inc.+ 1,106,700
---------------
WINES, BRANDY & BRANDY SPIRITS - 2.03%
35,000 Constellation Brands, Inc., Class A* 1,123,500
---------------
Total Common Stocks
(cost - $50,194,038) 55,363,367
---------------
SHORT-TERM INVESTMENT -- 0.15%
INVESTMENT COMPANY - 0.15%
82,780 Federated Government Obligations 0.90%^**
(cost - $82,780) 82,780
---------------
Total Investments -- 100.39%
(cost - $50,276,818) 55,446,147
Liabilities in excess of other
assets -- (0.39)% (216,067)
---------------
Net Assets -- 100.00% $ 55,230,080
===============
</Table>
- ----------
Unless otherwise indicated, all common stocks held long are ranked as five
stars.
+ Currently ranked as four stars.
++ Currently ranked as three stars.
^ Not ranked by stars.
* Non-income producing security.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
S&P STARS RANKING:
Five stars -- Buy -- Expect to be among best performers over next 12 months and
to rise in price.
Four stars -- Accumulate -- Expect to be an above average performer.
Three stars -- Hold -- Expect to be an average performer.
Two stars -- Avoid -- Expect to be a below average performer.
One star -- Sell -- Expect to be a well below average performer and to fall
in price.
The accompanying notes are an integral part of the financial statements.
25
<Page>
The Insiders Select Fund
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 89.43%
ACCIDENT & HEALTH INSURANCE - 2.98%
27,800 AFLAC Inc. $ 1,115,892
---------------
ADVERTISING AGENCIES - 0.86%
21,000 Interpublic Group of Cos., Inc. (The) 322,980
---------------
AIRCRAFT ENGINES & ENGINE PARTS - 3.25%
14,100 United Technologies Corp. 1,216,830
---------------
BANK HOLDING COMPANIES - 10.19%
7,300 Bank of America Corp. 591,154
15,600 Comerica Inc. 847,392
22,100 PNC Financial Services Group, Inc. (The) 1,224,782
27,000 Washington Mutual, Inc. 1,153,170
---------------
3,816,498
---------------
COMMUNICATIONS EQUIPMENT - 2.67%
49,300 Nokia Corp., ADR 999,804
---------------
CREDIT REPORTING SERVICES - 2.64%
18,500 Dun & Bradstreet Corp. (The)* 989,750
---------------
CRUDE PETROLEUM & NATURAL GAS - 4.46%
16,700 Anadarko Petroleum Corp. 866,062
18,634 Apache Corp. 804,430
---------------
1,670,492
---------------
DEPARTMENT STORES - 2.55%
27,600 May Department Stores Co. (The) 954,408
---------------
EATING PLACES - 0.58%
7,600 McDonald's Corp. 217,132
---------------
ELECTRIC SERVICES - 1.50%
8,400 FPL Group, Inc. 561,540
---------------
ELEVATORS & MOVING STAIRWAYS - 0.57%
5,500 Dover Corp. 213,235
---------------
FINANCE SERVICES - 2.27%
20,200 First Data Corp. 851,632
---------------
FIRE, MARINE & CASUALTY INSURANCE - 1.94%
42,400 Travelers Property Casualty Corp.,
Class A 727,160
---------------
FLAT GLASS - 2.99%
19,200 PPG Industries, Inc. $ 1,119,360
---------------
FOOD & KINDRED PRODUCTS - 1.43%
16,700 Kraft Foods Inc., Class A 534,567
---------------
HOLDING OFFICES - 3.16%
18,400 MGIC Investment Corp. 1,181,832
---------------
INSURANCE AGENTS, BROKERS & SERVICES - 2.31%
18,700 Marsh & McLennan Cos., Inc. 865,810
---------------
LIFE INSURANCE - 2.53%
20,000 Lincoln National Corp. 946,400
---------------
LUMBER & OTHER BUILDING MATERIALS - 2.64%
26,500 Home Depot, Inc. (The) 990,040
---------------
MOTION PICTURE & VIDEO PRODUCTION - 1.28%
43,837 Liberty Media Corp., Class A* 480,015
---------------
MOTORS & GENERATORS - 1.17%
7,300 Emerson Electric Co. 437,416
---------------
NATIONAL BANKS - 4.22%
35,200 FleetBoston Financial Corp. 1,580,480
---------------
NEWSPAPERS - 1.54%
7,900 Knight-Ridder, Inc. 578,675
---------------
PAPER MILLS - 1.90%
16,800 International Paper Co. 709,968
---------------
PERSONAL CREDIT INSTITUTIONS - 3.52%
25,400 American Express Co. 1,316,990
---------------
PETROLEUM REFINING - 6.22%
12,000 ConocoPhillips 837,720
23,900 Sunoco, Inc. 1,490,882
---------------
2,328,602
---------------
SANITARY PAPER PRODUCTS - 2.98%
17,700 Kimberly-Clark Corp. 1,116,870
---------------
SECURITY SYSTEMS SERVICES - 2.31%
30,200 Tyco International Ltd. 865,230
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
26
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SURETY INSURANCE - 3.01%
18,000 MBIA Inc. $ 1,128,600
---------------
TELEPHONE COMMUNICATIONS - 1.69%
34,300 Sprint Corp. (FON Group) 632,149
---------------
U.S. GOVERNMENT AGENCY - 1.85%
9,300 Fannie Mae 691,455
---------------
WOMEN'S READY-TO-WEAR STORES - 4.99%
42,700 Limited Brands, Inc. 854,000
41,300 TJX Cos., Inc. (The) 1,014,328
---------------
1,868,328
---------------
WOODWORKING MACHINERY - 1.23%
7,800 Pentair, Inc. 460,200
---------------
Total Common Stocks
(cost - $24,567,827) 33,490,340
---------------
SHORT-TERM INVESTMENTS -- 11.05%
INVESTMENT COMPANY - 1.70%
637,148 Federated Government Obligations
0.90%** $ 637,148
---------------
<Caption>
PRINCIPAL
AMOUNT
(000'S)
- ---------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 9.35%
$ 3,500 Freddie Mac, Discount Notes
0.99%, 04/01/04 3,500,000
---------------
Total Short-Term Investments
(cost - $4,137,148) 4,137,148
---------------
Total Investments -- 100.48%
(cost - $28,704,976) 37,627,488
Liabilities in excess of other
assets -- (0.48)% (180,638)
---------------
Net Assets -- 100.00% $ 37,446,850
===============
</Table>
- ----------
ADR American Depositary Receipts.
* Non-income producing security.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
The accompanying notes are an integral part of the financial statements.
27
<Page>
Intrinsic Value Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.01%
ADVERTISING AGENCIES - 0.92%
65,600 Interpublic Group of Cos., Inc. (The) $ 1,008,928
---------------
AIRCRAFT ENGINES & ENGINE PARTS - 1.51%
19,200 United Technologies Corp. 1,656,960
---------------
BANK HOLDING COMPANIES - 10.03%
60,000 Bank of America Corp. 4,858,800
54,100 J.P. Morgan Chase & Co. 2,269,495
25,827 Washington Mutual, Inc. 1,103,071
48,900 Wells Fargo & Co. 2,771,163
---------------
11,002,529
---------------
CABLE & OTHER PAY TV SERVICES - 1.47%
56,000 Comcast Corp., Class A* 1,609,440
---------------
CEREAL BREAKFAST FOODS - 1.15%
27,000 General Mills, Inc. 1,260,360
---------------
CIGARETTES - 2.08%
41,800 Altria Group, Inc. 2,276,010
---------------
COMMERCIAL BANKS - 4.88%
103,433 Citigroup Inc. 5,347,486
---------------
COMMUNICATIONS EQUIPMENT - 2.57%
138,900 Nokia Corp., ADR 2,816,892
---------------
COMPUTER RELATED SERVICES - 0.63%
35,700 Electronic Data Systems Corp. 690,795
---------------
CRUDE PETROLEUM & NATURAL GAS - 1.66%
35,200 Anadarko Petroleum Corp. 1,825,472
---------------
DEPARTMENT STORES - 1.89%
45,900 Target Corp. 2,067,336
---------------
ELECTRIC & ELECTRONIC EQUIPMENT - 2.55%
91,800 General Electric Co. 2,801,736
---------------
ELECTRONIC COMPUTERS - 1.71%
81,900 Hewlett-Packard Co. 1,870,596
---------------
FINANCE SERVICES - 2.18%
56,600 First Data Corp. 2,386,256
---------------
FIRE, MARINE & CASUALTY INSURANCE - 7.22%
51,000 Allstate Corp. (The) $ 2,318,460
40,200 American International Group, Inc. 2,868,270
159,200 Travelers Property Casualty Corp.,
Class A 2,730,280
---------------
7,917,010
---------------
GENERAL MEDICAL & SURGICAL HOSPITALS - 2.61%
70,600 HCA Inc. 2,867,772
---------------
HOLDING OFFICES - 1.43%
24,500 MGIC Investment Corp. 1,573,635
---------------
INSURANCE AGENTS, BROKERS & SERVICES - 2.52%
59,600 Marsh & McLennan Cos., Inc. 2,759,480
---------------
LIFE INSURANCE - 1.59%
32,500 Torchmark Corp. 1,748,175
---------------
LUMBER & OTHER BUILDING MATERIALS - 1.62%
47,500 Home Depot, Inc. (The) 1,774,600
---------------
MEDICAL PRODUCTS - 3.70%
80,000 Johnson & Johnson 4,057,600
---------------
MOTION PICTURE & VIDEO PRODUCTION - 4.43%
374,006 Liberty Media Corp., Class A* 4,095,366
45,100 Time Warner Inc.* 760,386
---------------
4,855,752
---------------
NATIONAL BANKS - 2.06%
81,700 U.S. Bancorp 2,259,005
---------------
OFFICE MACHINES - 1.17%
30,200 Pitney Bowes Inc. 1,286,822
---------------
PAPER MILLS - 2.60%
67,500 International Paper Co. 2,852,550
---------------
PERSONAL CREDIT INSTITUTIONS - 2.49%
52,600 American Express Co. 2,727,310
---------------
PETROLEUM REFINING - 7.96%
28,356 ChevronTexaco Corp. 2,489,090
32,900 ConocoPhillips 2,296,749
94,800 Exxon Mobil Corp. 3,942,732
---------------
8,728,571
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
28
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICAL PREPARATIONS - 4.17%
38,300 Abbott Laboratories $ 1,574,130
13,300 Merck & Co., Inc. 587,727
68,900 Pfizer Inc. 2,414,945
---------------
4,576,802
---------------
SANITARY PAPER PRODUCTS - 2.20%
38,300 Kimberly-Clark Corp. 2,416,730
---------------
SECURITY BROKERS & DEALERS - 0.94%
18,000 Morgan Stanley 1,031,400
---------------
SECURITY SYSTEMS SERVICES - 2.12%
81,000 Tyco International Ltd. 2,320,650
---------------
SHIP BUILDING & REPAIRING - 0.86%
10,600 General Dynamics Corp. 946,898
---------------
TELEPHONE COMMUNICATIONS - 3.85%
62,300 BellSouth Corp. 1,725,087
46,100 SBC Communications Inc. 1,131,294
37,500 Verizon Communications Inc. 1,370,250
---------------
4,226,631
---------------
U.S. GOVERNMENT AGENCY - 1.91%
28,200 Fannie Mae 2,096,670
---------------
WOMEN'S READY-TO-WEAR STORES - 4.33%
116,800 Limited Brands, Inc. 2,336,000
98,200 TJX Cos., Inc. (The) 2,411,792
---------------
4,747,792
---------------
Total Common Stocks
(cost - $90,334,433) 106,392,651
---------------
SHORT-TERM INVESTMENT -- 2.89%
INVESTMENT COMPANY - 2.89%
3,172,949 Federated Government Obligations 0.90%**
(cost - $3,172,949) $ 3,172,949
---------------
Total Investments -- 99.90%
(cost - $93,507,382) 109,565,600
Other assets in excess of
liabilities -- 0.10% 107,446
---------------
Net Assets -- 100.00% $ 109,673,046
===============
</Table>
- ----------
ADR American Depositary Receipts.
* Non-income producing security.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
The accompanying notes are an integral part of the financial statements.
29
<Page>
Small Cap Value Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 104.24%
AIRCRAFT ENGINES & ENGINE PARTS - 1.63%
11,400 Woodward Governor Co. $ 726,636
---------------
ALUMINUM EXTRUDED PRODUCTS - 1.29%
39,400 Tredegar Corp. 576,422
---------------
ANALYTICAL INSTRUMENTS - 2.20%
52,100 Molecular Devices Corp.* 981,564
---------------
BANK HOLDING COMPANIES - 14.31%
65,200 BankAtlantic Bancorp, Inc., Class A 1,105,792
30,000 Commercial Federal Corp. 828,000
38,100 Greater Bay Bancorp 1,114,424
20,300 MAF Bancorp, Inc. 882,238
35,200 Provident Bankshares Corp. 1,104,576
49,650 Republic Bancorp, Inc. 698,079
25,100 Susquehanna Bancshares, Inc. 643,313
---------------
6,376,422
---------------
BIOLOGICAL PRODUCTS - 5.60%
55,000 Abgenix, Inc.* 730,950
22,000 Connetics Corp.* 487,740
57,800 Nabi Biopharmaceuticals* 898,790
9,200 Techne Corp.* 375,452
---------------
2,492,932
---------------
COATINGS & PAINT - 0.03%
374 Kronos Worldwide, Inc. 11,333
---------------
COMPUTER INTEGRATED SYSTEMS DESIGN - 3.29%
31,400 JDA Software Group, Inc.* 456,870
53,900 Scientific Games Corp.* 1,009,008
---------------
1,465,878
---------------
COMPUTERS, PERIPHERALS & SOFTWARE - 2.17%
20,200 ScanSource, Inc.* 968,388
---------------
COPPER FOUNDRIES - 1.55%
20,300 Mueller Industries, Inc. 689,997
---------------
CRUDE PETROLEUM & NATURAL GAS - 5.50%
116,900 Magnum Hunter Resources, Inc.* 1,185,366
67,100 Swift Energy Co.* 1,264,835
---------------
2,450,201
---------------
DATA PROCESSING & PREPARATION - 2.21%
60,100 eFunds Corp.* $ 985,640
---------------
DEPARTMENT STORES - 2.85%
32,800 Stage Stores, Inc.* 1,269,032
---------------
DIRECT MAIL ADVERTISING SERVICES - 1.71%
23,600 ADVO, Inc.* 760,392
---------------
ELECTRIC SERVICES - 1.13%
20,500 UniSource Energy Corp. 503,685
---------------
ELECTROMEDICAL EQUIPMENT - 2.68%
24,000 InVision Technologies, Inc.* 1,192,080
---------------
ELECTRONIC COMPUTERS - 4.23%
117,500 Adaptec, Inc.* 1,029,300
75,800 Fargo Electronics, Inc.* 856,540
---------------
1,885,840
---------------
FIRE, MARINE & CASUALTY INSURANCE - 1.71%
21,700 Selective Insurance Group, Inc. 761,019
---------------
FREIGHT TRANSPORTATION ARRANGEMENT - 3.13%
56,400 Genesee & Wyoming Inc., Class A* 1,393,080
---------------
GAMES, TOYS & CHILDREN'S VEHICLES - 1.74%
16,700 Shuffle Master, Inc.* 776,383
---------------
GAS TRANSMISSION & DISTRIBUTION - 2.37%
25,600 Energen Corp. 1,056,000
---------------
INFORMATION RETRIEVAL SERVICES - 1.54%
16,100 FactSet Research Systems Inc. 685,216
---------------
INORGANIC PIGMENTS - 1.64%
52,400 NL Industries, Inc. 728,360
---------------
JEWELRY STORES - 1.51%
10,900 Zale Corp.* 670,895
---------------
KIDNEY DIALYSIS CENTERS - 1.90%
18,500 Renal Care Group, Inc.* 846,560
---------------
MANAGEMENT SERVICES - 2.16%
36,300 SOURCECORP, Inc.* 961,950
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
30
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MOTOR VEHICLE PARTS & ACCESSORIES - 0.63%
7,900 Superior Industries International, Inc. $ 279,976
---------------
NONFERROUS WIRE DRAWING & INSULATING - 2.22%
56,400 Andrew Corp.* 987,000
---------------
OIL & GAS FIELD SERVICES - 2.93%
118,700 Key Energy Services, Inc.* 1,305,700
---------------
PHARMACEUTICAL PREPARATIONS - 2.66%
38,100 Adolor Corp.* 572,643
30,600 Perrigo Co. 613,530
---------------
1,186,173
---------------
PREPACKAGED SOFTWARE - 4.48%
44,800 Electronics For Imaging, Inc.* 1,100,736
64,200 NetIQ Corp.* 896,232
---------------
1,996,968
---------------
PUMPS & PUMPING EQUIPMENT - 1.90%
40,500 Flowserve Corp.* 848,475
---------------
RADIO, TV & ELECTRONIC STORES - 1.28%
40,700 InterTAN, Inc.* 568,579
---------------
REAL ESTATE INVESTMENT TRUSTS - 5.07%
10,100 Colonial Properties Trust 412,080
35,800 Glenborough Realty Trust Inc. 800,130
43,000 Keystone Property Trust 1,045,330
---------------
2,257,540
---------------
REFUSE SYSTEMS - 2.56%
44,500 Headwaters Inc.* 1,140,090
---------------
SAVINGS & LOAN ASSOCIATIONS - 1.21%
18,000 First Financial Holdings, Inc. 538,020
---------------
SECURITY BROKERS & DEALERS - 1.21%
30,200 SWS Group, Inc. 540,882
---------------
SEMICONDUCTORS & RELATED DEVICES - 5.73%
65,200 Lattice Semiconductor Corp.* 569,196
65,000 Microsemi Corp.* 889,200
54,600 OSI Systems, Inc.* 1,092,000
---------------
2,550,396
---------------
TRANSPORTATION EQUIPMENT - 1.12%
19,600 Arctic Cat Inc. $ 499,604
---------------
WOMEN'S READY-TO-WEAR STORES - 1.16%
25,800 Cato Corp. (The), Class A 518,064
---------------
Total Common Stocks
(cost - $34,492,387) 46,433,372
---------------
SHORT-TERM INVESTMENT -- 0.01%
INVESTMENT COMPANY - 0.01%
3,080 Federated Government Obligations 0.90%**
(cost - $3,080) 3,080
---------------
Total Investments -- 104.25%
(cost - $34,495,467) 46,436,452
Liabilities in excess of other
assets -- (4.25)% (1,893,636)
---------------
Net Assets -- 100.00% $ 44,542,816
===============
</Table>
- ----------
* Non-income producing security.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
The accompanying notes are an integral part of the financial statements.
31
<Page>
Alpha Growth Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 98.75%
BALL & ROLLER BEARINGS - 1.84%
47,300 Ingersoll-Rand Co. Ltd., Class A $ 3,199,845
---------------
BANK HOLDING COMPANIES - 3.47%
30,267 Golden West Financial Corp. 3,388,391
108,700 Synovus Financial Corp. 2,657,715
---------------
6,046,106
---------------
BANKS, SAVINGS INSTITUTIONS - 2.18%
111,000 New York Community Bancorp, Inc. 3,805,080
---------------
CIRCUIT BOARDS - 3.44%
197,200 Flextronics International Ltd.* 3,395,784
235,800 Sanmina-SCI Corp.* 2,596,158
---------------
5,991,942
---------------
COAL, OTHER MINERALS & ORES - 1.79%
166,586 BHP Billiton Ltd., ADR 3,128,485
---------------
COLLEGES & UNIVERSITIES - 2.14%
43,392 Apollo Group, Inc., Class A* 3,736,485
---------------
COMMUNICATIONS EQUIPMENT - 2.62%
164,300 Telefonaktiebolaget LM Ericsson, ADR 4,559,325
---------------
COMPUTER INTEGRATED SYSTEMS DESIGN - 2.24%
952,200 Lucent Technologies Inc.* 3,913,542
---------------
COMPUTER PERIPHERAL EQUIPMENT - 1.67%
123,958 Cisco Systems, Inc.* 2,915,492
---------------
CONSTRUCTION MACHINERY - 3.44%
37,600 Caterpillar Inc. 2,973,032
53,808 PACCAR Inc. 3,026,162
---------------
5,999,194
---------------
COPPER ORES - 1.92%
40,900 Phelps Dodge Corp.* 3,339,894
---------------
DATA PROCESSING & PREPARATION - 1.62%
54,400 Affiliated Computer Services, Inc.,
Class A* 2,823,360
---------------
ELECTRONIC COMPONENTS - 3.33%
123,900 American Power Conversion Corp. $ 2,850,939
101,900 Koninklijke (Royal) Philips Electronics N.V.,
NY Registered Shares 2,953,062
---------------
5,804,001
---------------
FERROALLOY ORES - 1.55%
78,100 Inco Ltd.* 2,704,603
---------------
FOOTWEAR - 2.07%
46,300 NIKE, Inc., Class B 3,605,381
---------------
GAS & OIL EXPLORATION SERVICES - 1.76%
91,500 Petroleo Brasileiro S.A. - Petrobras, ADR 3,065,250
---------------
GOLD ORES - 6.68%
67,200 AngloGold Ltd., ADR 2,840,544
72,100 Freeport-McMoRan Copper & Gold, Inc.,
Class B 2,818,389
63,869 Newmont Mining Corp. 2,978,211
167,600 Placer Dome Inc. 3,011,772
---------------
11,648,916
---------------
INFORMATION RETRIEVAL SYSTEM - 1.86%
66,600 Yahoo! Inc.* 3,236,094
---------------
LUMBER & OTHER BUILDING MATERIALS - 1.81%
56,200 Lowe's Cos., Inc. 3,154,506
---------------
MANUFACTURING INDUSTRIES - 2.23%
86,345 International Game Technology 3,882,071
---------------
MEDICAL PRODUCTS - 1.91%
45,200 Zimmer Holdings, Inc.* 3,334,856
---------------
MISC. FOOD STORES - 2.00%
92,344 Starbucks Corp.* 3,485,986
---------------
MISC. HOME FURNISHINGS STORES - 1.76%
73,303 Bed Bath & Beyond Inc.* 3,061,133
---------------
MORTGAGE BANKERS & CORRESPONDENTS - 2.31%
42,000 Countrywide Financial Corp. 4,027,800
---------------
MOTOR VEHICLE PARTS & ACCESSORIES - 1.83%
56,750 Eaton Corp. 3,188,783
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
32
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MOTOR VEHICLES & CAR BODIES - 4.92%
98,800 AB Volvo, ADR $ 3,270,280
189,300 Ford Motor Co. 2,568,801
58,100 General Motors Corp. 2,736,510
---------------
8,575,591
---------------
OFFICE MACHINES - 1.85%
221,300 Xerox Corp.* 3,224,341
---------------
PERSONAL CREDIT INSTITUTIONS - 2.13%
49,300 Capital One Financial Corp. 3,718,699
---------------
PREPACKAGED SOFTWARE - 3.53%
86,394 Symantec Corp.* 4,000,042
80,300 VERITAS Software Corp.* 2,160,873
---------------
6,160,915
---------------
RADIO & TV COMMUNICATIONS EQUIPMENT - 2.21%
57,876 QUALCOMM Inc. 3,844,124
---------------
RADIOTELEPHONE COMMUNICATIONS - 1.52%
107,500 Nextel Communications, Inc., Class A* 2,658,475
---------------
SAVINGS & LOAN ASSOCIATIONS - 1.58%
128,400 Sovereign Bancorp, Inc. 2,750,328
---------------
SEMICONDUCTORS & RELATED DEVICES - 11.66%
135,000 Altera Corp.* 2,760,750
64,400 Analog Devices, Inc. 3,091,844
94,600 Intel Corp. 2,573,120
71,900 Linear Technology Corp. 2,661,738
59,700 Maxim Integrated Products, Inc. 2,811,273
77,100 National Semiconductor Corp.* 3,425,553
103,600 Texas Instruments Inc. 3,027,192
---------------
20,351,470
---------------
SINGLE-FAMILY HOUSING CONSTRUCTION - 2.05%
66,000 Lennar Corp., Class A 3,565,980
---------------
SOFTWOOD VENEER & PLYWOOD - 1.95%
101,100 Georgia-Pacific Corp. 3,406,059
---------------
STATIONERY & OFFICE SUPPLIES - 1.78%
122,400 Staples, Inc. 3,107,736
---------------
SURGICAL APPLIANCES & SUPPLIES - 1.85%
36,418 Stryker Corp. $ 3,224,086
---------------
TELECOMMUNICATION EQUIPMENT - 2.25%
660,300 Nortel Networks Corp.* 3,922,182
---------------
Total Common Stocks
(cost - $160,040,779) 172,168,116
---------------
SHORT-TERM INVESTMENT -- 1.15%
INVESTMENT COMPANY - 1.15%
1,998,531 Federated Government Obligations 0.90%**
(cost - $1,998,531) 1,998,531
---------------
Total Investments -- 99.90%
(cost - $162,039,310) 174,166,647
Other assets in excess of
liabilities -- 0.10% 168,237
---------------
Net Assets -- 100.00% $ 174,334,884
===============
</Table>
- ----------
ADR American Depositary Receipts.
* Non-income producing security.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
The accompanying notes are an integral part of the financial statements.
33
<Page>
International Equity Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 98.71%
AUSTRALIA - 2.19%
COMMERCIAL SERVICES - 0.39%
49,100 Brambles Industries Ltd. $ 210,293
---------------
DIVERSIFIED MINERALS - 0.81%
47,282 BHP Billiton Ltd. 442,555
---------------
FIRE, MARINE & CASUALTY INSURANCE - 0.99%
189,100 Promina Group Ltd. 535,607
---------------
Total Australia (cost - $1,026,379) 1,188,455
---------------
AUSTRIA - 0.80%
FOREIGN BANKS, BRANCHES & AGENCIES - 0.80%
2,900 Erste Bank der oesterreichischen
Sparkassen AG* (cost - $221,376) 434,072
---------------
BRAZIL - 0.68%
METAL ORES - 0.68%
6,700 Companhia Vale do Rio Doce, ADR
(cost - $403,567) 367,830
---------------
CANADA - 3.53%
COMPUTER - INTEGRATED SYSTEMS - 3.53%
20,500 Research in Motion Ltd.*
(cost - $521,600) 1,912,855
---------------
CAYMAN ISLANDS - 0.46%
INFORMATION RETRIEVAL SERVICES - 0.46%
6,600 SINA Corp.* (cost - $111,724) 249,678
---------------
CHINA - 7.09%
DRILLING OIL & GAS WELLS - 1.01%
1,416,000 China Petroleum & Chemical Corp.,
Class H 545,238
---------------
ELECTRIC SERVICES - 2.44%
670,000 Huaneng Power International, Inc. 1,324,332
---------------
INSURANCE CARRIERS - 0.46%
400,000 China Life Insurance Co., Ltd.* 251,569
---------------
OIL & GAS EXPLORATION SERVICES - 1.20%
1,294,000 PetroChina Co. Ltd., Class H 651,891
---------------
RADIO & TELEPHONE COMMUNICATIONS - 1.47%
2,256,000 China Telecom Corp., Ltd., Class H 796,293
---------------
WATER TRANSPORTATION - 0.51%
400,000 China Shipping Development Co., Ltd.,
Class H $ 274,672
---------------
Total China (cost - $2,211,726) 3,843,995
---------------
DENMARK - 0.65%
WATER TRANSPORTATION - 0.65%
49 A.P. Moller - Maersk A/S
(cost - $380,682) 349,408
---------------
FRANCE - 4.96%
HEAVY CONSTRUCTION CONTRACTORS - 0.38%
1,500 Technip S.A. 202,768
---------------
INSURANCE CARRIERS - 2.90%
75,300 AXA 1,571,264
---------------
WINES, BRANDY & BRANDY SPIRITS - 1.68%
12,400 LVMH Moet Hennessy Louis Vuitton SA 911,254
---------------
Total France (cost - $2,247,110) 2,685,286
---------------
GERMANY - 7.76%
COMPUTERS, PERIPHERALS & SOFTWARE - 1.83%
6,300 SAP AG 990,985
---------------
CRUDE PETROLEUM & NATURAL GAS - 1.09%
13,200 RWE AG 592,084
---------------
ELECTRIC, GAS & SANITARY SERVICES - 0.30%
2,500 E.ON AG 164,980
---------------
MAILING, REPRODUCTION & STENOGRAPHIC - 0.24%
5,800 Deutsche Post AG* 129,936
---------------
MISC. RETAIL - 0.73%
9,300 Metro AG 397,721
---------------
MOTORS & GENERATORS - 2.73%
20,000 Siemens AG 1,477,137
---------------
TELEPHONE COMMUNICATIONS - 0.84%
38,300 T-Online International AG* 452,313
---------------
Total Germany (cost - $3,791,432) 4,205,156
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
34
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
GREECE - 1.22%
BANKING - 1.22%
21,500 Alpha Bank A.E. (cost - $529,253) $ 662,119
---------------
HONG KONG - 9.00%
FOREIGN BANKS, BRANCHES & AGENCIES - 1.49%
78,400 Bank of East Asia, Ltd. 236,978
299,000 Boc Hong Kong (Holdings) Ltd. 569,900
---------------
806,878
---------------
MOTOR VEHICLE & OTHER VEHICLES - 0.50%
234,000 Denway Motors Ltd. 270,308
---------------
REAL ESTATE - 5.44%
57,000 Cheung Kong (Holdings) Ltd. 479,201
216,000 Sun Hung Kai Properties Ltd. 1,975,332
165,000 Wharf (Holdings) Ltd. (The) 495,565
---------------
2,950,098
---------------
TELEPHONE COMMUNICATIONS - 0.43%
260,000 China Unicom Ltd. 235,268
---------------
WHOLESALE TRADE - DURABLE GOODS - 1.14%
404,000 Li & Fung Ltd. 617,063
---------------
Total Hong Kong (cost - $4,597,930) 4,879,615
---------------
INDIA - 0.30%
COMPUTERS, PERIPHERALS & SOFTWARE - 0.30%
2,000 Infosys Technologies Ltd., ADR
(cost - $175,285) 163,400
---------------
ITALY - 0.81%
FOREIGN BANKS, BRANCHES & AGENCIES - 0.81%
38,600 Sanpaolo IMI S.p.A. (cost - $385,697) 439,727
---------------
JAPAN - 25.74%
ADVERTISING - 0.47%
84 Dentsu Inc. 256,760
---------------
AUDIO/VIDEO PRODUCTS - 0.73%
9,400 Sony Corp. 393,944
---------------
COMMERCIAL BANKS - 2.14%
117 Mitsubishi Tokyo Financial Group, Inc. $ 1,158,360
---------------
CONSTRUCTION MACHINERY - 0.40%
34,000 Komatsu Ltd. 215,697
---------------
ELECTRIC & ELECTRONIC EQUIPMENT - 0.55%
53,000 Mitsubishi Electric Corp. 300,572
---------------
ELECTRONIC COMPONENTS & ACCESSORIES - 0.37%
2,400 Kyocera Corp. 201,624
---------------
EQUIPMENT PROVIDERS - 0.88%
7,500 Murata Manufacturing Co., Ltd. 476,522
---------------
FINANCIAL SERVICES - 3.05%
3,300 Acom Co., Ltd. 241,073
6,200 Aiful Corp. 635,882
105 Sumitomo Mitsui Financial Group Inc. 777,142
---------------
1,654,097
---------------
FIRE, MARINE & CASUALTY INSURANCE - 1.67%
58 Millea Holdings, Inc. 903,158
---------------
HOUSEHOLD AUDIO & VIDEO EQUIPMENT - 1.91%
58,000 Sharp Corp. 1,036,401
---------------
INTERNET SERVICE PROVIDER - 5.09%
226 Yahoo Japan Corp.* 2,758,879
---------------
MEASURING & CONTROLLING DEVICES - 0.41%
2,700 Advantest Corp. 221,377
---------------
MISC. GENERAL MERCHANDISE STORES - 1.26%
15,000 Ito Yokado Co. Ltd. 683,424
---------------
OPTICAL INSTRUMENTS & LENSES - 0.43%
2,400 Hoya Corp. 234,152
---------------
PAINT, GLASS & WALLPAPER STORES - 0.52%
26,000 Asahi Glass Co., Ltd. 280,905
---------------
PRINTING - COMMERCIAL - 1.35%
57,000 Toppan Printing Co., Ltd. 734,724
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
35
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
REAL ESTATE - 2.03%
81,000 Mitsubishi Estate Co., Ltd. $ 1,098,582
---------------
SECURITY BROKERS & DEALERS - 1.68%
137,000 Nikko Cordial Corp. 908,637
---------------
SHORT TERM BUSINESS CREDIT - 0.80%
3,900 ORIX Corp. 431,480
---------------
Total Japan (cost - $10,639,287) 13,949,295
---------------
NETHERLANDS - 6.45%
ELECTRONIC COMPONENTS & ACCESSORIES - 1.93%
57,100 ASML Holding N.V.* 1,046,237
---------------
INSURANCE CARRIERS - 1.26%
31,100 ING Groep N.V. 683,352
---------------
LIFE INSURANCE - 0.62%
26,200 AEGON N.V.* 334,851
---------------
RADIO & TELEVISION COMMUNICATIONS EQUIPMENT - 2.33%
43,700 Koninklijki (Royal) Philips Electronics N.V. 1,263,630
---------------
SURGICAL & MEDICAL INSTRUMENTS - 0.31%
12,600 QIAGEN N.V.* 164,906
---------------
Total Netherlands (cost - $3,199,760) 3,492,976
---------------
PORTUGAL - 1.72%
FOREIGN BANKS, BRANCHES & AGENCIES - 0.67%
147,700 Banco Comercial Portugues, S.A.* 364,832
---------------
TELEPHONE COMMUNICATIONS - 1.05%
50,700 Portugal Telecom, SGPS, S.A. 566,978
---------------
Total Portugal (cost - $966,083) 931,810
---------------
RUSSIA - 2.16%
NATURAL GAS DISTRIBUTION - 1.00%
14,300 Gazprom, ADR (a) 540,540
---------------
TELEPHONE COMMUNICATIONS - 1.16%
4,800 Mobile Telesystems, ADR 631,200
---------------
Total Russia (cost - $586,422) 1,171,740
---------------
SINGAPORE - 1.76%
CIRCUIT BOARDS - 0.87%
27,400 Flextronics International Ltd.* $ 471,828
---------------
FOREIGN BANKS, BRANCHES & AGENCIES - 0.48%
30,000 DBS Group Holdings Ltd. 257,718
---------------
REAL ESTATE OPERATORS/DEVELOPERS - 0.41%
61,000 City Developments Ltd. 221,984
---------------
Total Singapore (cost - $845,635) 951,530
---------------
SOUTH KOREA - 1.60%
ELECTRONIC COMPONENTS & ACCESSORIES - 1.60%
3,500 Samsung Electronics Co., Ltd., GDR (a)
(cost - $600,120) 866,250
---------------
SPAIN - 2.13%
TELEPHONE COMMUNICATIONS - 2.13%
76,198 Telefonica S.A. (cost - $800,745) 1,152,705
---------------
SWEDEN - 1.89%
AIR & GAS COMPRESSORS - 0.31%
4,700 Atlas Copco AB, Class A 167,027
---------------
COMMUNICATIONS EQUIPMENT - 1.12%
220,100 Telefonaktiebolaget LM Ericsson* 609,986
---------------
SECURITY SERVICES - 0.46%
17,100 Securitas AB, Class B 247,159
---------------
Total Sweden (cost - $1,041,113) 1,024,172
---------------
SWITZERLAND - 6.20%
FOREIGN BANKS, BRANCHES & AGENCIES - 3.90%
39,200 Credit Suisse Group 1,358,393
10,200 UBS AG 757,643
---------------
2,116,036
---------------
INSURANCE CARRIERS - 2.30%
7,900 Zurich Financial Services AG* 1,245,629
---------------
Total Switzerland (cost - $2,527,651) 3,361,665
---------------
THAILAND - 0.85%
FOREIGN BANKS, BRANCHES & AGENCIES - 0.43%
98,000 Bangkok Bank Public Co. Ltd.* 235,708
---------------
</Table>
The accompanying notes are an integral part of the financial statements.
36
<Page>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
THAILAND (CONTINUED)
RADIO & TELEPHONE COMMUNICATIONS - 0.42%
106,000 Advanced Info Service Public Co., Ltd. $ 225,274
---------------
Total Thailand (cost - $286,337) 460,982
---------------
UNITED KINGDOM - 8.76%
BANK HOLDING COMPANIES - 0.90%
32,400 HSBC Holdings plc, Ord 0.27p 488,634
---------------
COAL, OTHER MINERALS & ORES - 1.43%
58,000 Xstrata plc, Ord 0.27p 772,816
---------------
FIRE, MARINE & CASUALTY INSURANCE - 0.32%
18,100 Aviva plc, Ord 25p 175,640
---------------
FOREIGN BANKS, BRANCHES & AGENCIES - 2.59%
83,800 Standard Chartered plc, Ord 0.27p 1,403,048
---------------
GAS & OTHER SERVICES COMBINED - 0.39%
50,000 Centrica plc, Ord 5.55p 209,745
---------------
LUMBER & OTHER BUILDING PRODUCTS - 0.50%
51,262 Kingfisher plc, Ord 15.71p 271,801
---------------
MEDICAL - DRUGS - 0.49%
27,300 Shire Pharmaceuticals Group plc,
Ord 5p* 266,420
---------------
MEDICAL INSTRUMENTS & SUPPLIES - 0.48%
26,500 Smith & Nephew plc, Ord 12.222p 260,805
---------------
RADIO & TELEPHONE COMMUNICATIONS - 0.97%
222,700 Vodafone Group plc, Ord 0.05p 526,960
---------------
TELEPHONE COMMUNICATIONS - 0.69%
216,700 COLT Telecom Group plc, Ord 2.5p* 370,384
---------------
Total United Kingdom
(cost - $4,574,133) 4,746,253
---------------
Total Common Stocks
(cost - $42,671,047) 53,490,974
---------------
SHORT-TERM INVESTMENT -- 1.08%
UNITED STATES - 1.08%
INVESTMENT COMPANY - 1.08%
587,050 Federated Government Obligations
0.90%** (cost - $587,050) $ 587,050
---------------
Total Investments -- 99.79%
(cost - $43,258,097) 54,078,024
Other assets in excess of
liabilities -- 0.21% 113,802
---------------
Net Assets -- 100.00% $ 54,191,826
===============
</Table>
- ----------
ADR American Depositary Receipts.
GDR Global Depositary Receipts.
* Non-income producing security.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
(a) SEC Rule 144A security. Such securities are traded only among qualified
institutional buyers. These securities have been determined to be liquid in
accordance with procedures adopted by the Fund's Board.
The accompanying notes are an integral part of the financial statements.
37
<Page>
This page is intentionally left blank.
<Page>
THE BEAR STEARNS FUNDS
STATEMENTS OF ASSETS & LIABILITIES
MARCH 31, 2004
<Table>
<Caption>
S&P STARS INTRINSIC
S&P STARS OPPORTUNITIES THE INSIDERS VALUE
PORTFOLIO PORTFOLIO SELECT FUND PORTFOLIO
---------------- ---------------- ---------------- ----------------
ASSETS
Investments, at value (cost -
$1,318,794,186, $50,276,818,
$28,704,976, $93,507,382,
$34,495,467, $162,039,310 and
$43,258,097, respectively) $ 1,487,513,186 $ 55,446,147 $ 37,627,488 $ 109,565,600
Deposit with broker for securities
sold short 27,823,764 -- -- --
Collateral received for securities loaned 45,234,068 -- -- --
Dividend, interest and reclaims
receivable 974,299 20,644 42,174 156,392
Receivable for Portfolio shares sold 612,482 19,768 8,096 270,615
Receivable from investment adviser -- 1,132 -- --
Prepaid expenses and other assets 10,070 48,884 23,773 22,345
---------------- ---------------- ---------------- ----------------
Total assets 1,562,167,869 55,536,575 37,701,531 110,014,952
---------------- ---------------- ---------------- ----------------
LIABILITIES
Securities sold short, at value
(proceeds received - $27,696,773) 26,646,600 -- -- --
Loan payable 4,800,000 -- -- --
Payable upon return for securities
loaned 45,234,068 -- -- --
Payable for Portfolio shares
repurchased 3,830,672 137,489 128,262 98,384
Advisory fee payable 619,315 -- 6,137 33,306
Administration fee payable 175,744 5,017 4,750 14,239
Distribution and service fees payable
(Class A, B, and C Shares) 2,832,157 112,786 71,806 162,616
Custodian fee payable 13,546 6,072 1,685 2,136
Trustees' fees payable 2,010 871 822 1,308
Accrued expenses 576,671 44,260 41,219 29,917
---------------- ---------------- ---------------- ----------------
Total liabilities 84,730,783 306,495 254,681 341,906
---------------- ---------------- ---------------- ----------------
NET ASSETS
Capital stock, $0.001 par value
(unlimited shares of beneficial
interest authorized) 63,985 3,647 2,141 5,209
Paid-in capital 2,314,980,127 49,698,195 30,221,648 94,031,328
Undistributed net investment
income/(loss) -- -- 8,801 357,628
Accumulated net realized gain/(loss)
from investments, foreign currency
related transactions and securities
sold short, if any (1,007,376,199) 358,909 (1,708,252) (779,337)
Net unrealized appreciation on
investments, foreign currency
related transactions and securities
sold short, if any 169,769,173 5,169,329 8,922,512 16,058,218
---------------- ---------------- ---------------- ----------------
Net assets $ 1,477,437,086 $ 55,230,080 $ 37,446,850 $ 109,673,046
---------------- ---------------- ---------------- ----------------
<Caption>
SMALL CAP ALPHA INTERNATIONAL
VALUE GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ----------------
ASSETS
Investments, at value (cost -
$1,318,794,186, $50,276,818,
$28,704,976, $93,507,382,
$34,495,467, $162,039,310 and
$43,258,097, respectively) $ 46,436,452 $ 174,166,647 $ 54,078,024
Deposit with broker for securities
sold short -- -- --
Collateral received for securities loaned -- -- --
Dividend, interest and reclaims
receivable 32,659 162,113 173,418
Receivable for Portfolio shares sold 19,963 665,071 156,664
Receivable from investment adviser -- -- --
Prepaid expenses and other assets 12,660 30,172 14,677
---------------- ---------------- ----------------
Total assets 46,501,734 175,024,003 54,422,783
---------------- ---------------- ----------------
LIABILITIES
Securities sold short, at value
(proceeds received - $27,696,773) -- -- --
Loan payable 230,000 -- --
Payable upon return for securities
loaned -- -- --
Payable for Portfolio shares
repurchased 1,594,976 279,480 69,953
Advisory fee payable 14,693 46,813 23,107
Administration fee payable 6,560 21,352 6,845
Distribution and service fees payable
(Class A, B, and C Shares) 67,315 282,009 75,924
Custodian fee payable 2,364 5,590 13,544
Trustees' fees payable 1,246 1,225 1,510
Accrued expenses 41,764 52,650 40,074
---------------- ---------------- ----------------
Total liabilities 1,958,918 689,119 230,957
---------------- ---------------- ----------------
NET ASSETS
Capital stock, $0.001 par value
(unlimited shares of beneficial
interest authorized) 2,338 8,416 3,722
Paid-in capital 38,103,553 147,017,583 94,879,737
Undistributed net investment
income/(loss) -- -- (679,696)
Accumulated net realized gain/(loss)
from investments, foreign currency
related transactions and securities
sold short, if any (5,504,060) 15,181,548 (50,843,545)
Net unrealized appreciation on
investments, foreign currency
related transactions and securities
sold short, if any 11,940,985 12,127,337 10,831,608
---------------- ---------------- ----------------
Net assets $ 44,542,816 $ 174,334,884 $ 54,191,826
---------------- ---------------- ----------------
</Table>
The accompanying notes are an integral part of the financial statements.
39
<Page>
<Table>
<Caption>
S&P STARS INTRINSIC
S&P STARS OPPORTUNITIES THE INSIDERS VALUE
PORTFOLIO PORTFOLIO SELECT FUND PORTFOLIO
---------------- ---------------- ---------------- ----------------
CLASS A
Net assets $ 580,543,443 $ 22,709,480 $ 18,530,076 $ 41,249,833
---------------- ---------------- ---------------- ----------------
Shares of beneficial interest
outstanding 24,804,285 1,486,462 1,036,093 1,951,488
---------------- ---------------- ---------------- ----------------
Net asset value per share $ 23.40 $ 15.28 $ 17.88 $ 21.14
================ ================ ================ ================
Maximum offering price per share
(net asset value plus sales charge of
5.50%* of the offering price) $ 24.76 $ 16.17 $ 18.92 $ 22.37
================ ================ ================ ================
CLASS B
Net assets $ 420,693,957 $ 18,331,412 $ 11,651,256 $ 19,990,007
---------------- ---------------- ---------------- ----------------
Shares of beneficial interest
outstanding 18,633,598 1,218,668 681,425 967,278
---------------- ---------------- ---------------- ----------------
Net asset value and offering
price per share** $ 22.58 $ 15.04 $ 17.10 $ 20.67
================ ================ ================ ================
CLASS C
Net assets $ 305,175,725 $ 13,483,323 $ 6,884,520 $ 21,323,718
---------------- ---------------- ---------------- ----------------
Shares of beneficial interest
outstanding 13,526,257 895,724 402,860 1,025,633
---------------- ---------------- ---------------- ----------------
Net asset value and offering
price per share** $ 22.56 $ 15.05 $ 17.09 $ 20.79
================ ================ ================ ================
CLASS Y
Net assets $ 171,023,961 $ 705,865 $ 380,998 $ 27,109,488
---------------- ---------------- ---------------- ----------------
Shares of beneficial interest
outstanding 7,020,972 45,805 20,706 1,264,786
---------------- ---------------- ---------------- ----------------
Net asset value, offering and
redemption price per share $ 24.36 $ 15.41 $ 18.40 $ 21.43
================ ================ ================ ================
<Caption>
SMALL CAP ALPHA INTERNATIONAL
VALUE GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ----------------
CLASS A
Net assets $ 15,572,276 $ 108,361,187 $ 11,011,935
---------------- ---------------- ----------------
Shares of beneficial interest
outstanding 808,726 5,171,583 753,050
---------------- ---------------- ----------------
Net asset value per share $ 19.26 $ 20.95 $ 14.62
================ ================ ================
Maximum offering price per share
(net asset value plus sales charge of
5.50%* of the offering price) $ 20.38 $ 22.17 $ 15.47
================ ================ ================
CLASS B
Net assets $ 6,626,246 $ 31,840,068 $ 5,271,458
---------------- ---------------- ----------------
Shares of beneficial interest
outstanding 359,158 1,567,313 371,142
---------------- ---------------- ----------------
Net asset value and offering
price per share** $ 18.45 $ 20.32 $ 14.20
================ ================ ================
CLASS C
Net assets $ 10,595,872 $ 34,133,629 $ 17,251,356
---------------- ---------------- ----------------
Shares of beneficial interest
outstanding 573,377 1,676,921 1,212,399
---------------- ---------------- ----------------
Net asset value and offering
price per share** $ 18.48 $ 20.35 $ 14.23
================ ================ ================
CLASS Y
Net assets $ 11,748,422 -- $ 20,657,077
---------------- ---------------- ----------------
Shares of beneficial interest
outstanding 596,788 -- 1,385,147
---------------- ---------------- ----------------
Net asset value, offering and
redemption price per share $ 19.69 -- $ 14.91
================ ================ ================
</Table>
- ----------
* On investments of $50,000 or more, the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
40
<Page>
THE BEAR STEARNS FUNDS
STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
<Table>
<Caption>
S&P STARS INTRINSIC
S&P STARS OPPORTUNITIES THE INSIDERS VALUE
PORTFOLIO PORTFOLIO SELECT FUND PORTFOLIO
---------------- ---------------- ---------------- ----------------
INVESTMENT INCOME
Dividends $ 10,326,387 $ 344,822 $ 643,116 $ 1,903,892
Interest 134,866 4,159 11,651 37,457
Securities lending income 68,827 -- 40 448
Less: Foreign taxes withheld -- -- -- --
---------------- ---------------- ---------------- ----------------
10,530,080 348,981 654,807 1,941,797
---------------- ---------------- ---------------- ----------------
EXPENSES
Advisory fees 10,585,546 412,405 193,004 695,563
Administration fees 1,993,704 82,482 51,215 139,114
Distribution and service fees - Class A 2,860,860 116,484 84,219 163,096
Distribution and service fees - Class B 3,959,099 175,149 103,534 155,543
Distribution and service fees - Class C 3,004,944 133,865 65,282 183,464
Transfer agent fees and expenses 3,089,514 183,010 163,539 182,627
Accounting fees 494,000 19,246 11,118 32,460
Legal and auditing fees 105,580 71,842 73,499 70,397
Custodian fees and expenses 161,704 39,493 9,615 20,339
Federal and state registration fees 53,197 45,563 42,919 43,634
Reports and notices to shareholders 223,677 9,000 4,599 15,724
Trustees' fees and expenses 18,300 14,279 14,198 15,190
Insurance expenses 10,239 1,512 7,290 7,303
Other 278,933 5,283 2,902 6,000
---------------- ---------------- ---------------- ----------------
Total expenses before waivers and
related reimbursements, if any 26,839,297 1,309,613 826,933 1,730,454
Less: waivers and related
reimbursements (2,855,170) (333,323) (180,927) (299,785)
---------------- ---------------- ---------------- ----------------
Total expenses after waivers and
related reimbursements, if any 23,984,127 976,290 646,006 1,430,669
---------------- ---------------- ---------------- ----------------
Net investment income/(loss) (13,454,047) (627,309) 8,801 511,128
---------------- ---------------- ---------------- ----------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain/(loss) from:
Investments 44,434,317 15,703,875 (70,186) 2,295,339
Foreign currency related transactions -- -- -- --
Securities sold short (7,591,949) (339,013) -- --
Net change in unrealized depreciation on:
Investments and foreign
currency related transactions, if any 505,157,801 5,340,960 12,222,828 26,788,726
Securities sold short 1,422,970 54,642 -- --
---------------- ---------------- ---------------- ----------------
Net realized and unrealized gain
on investments 543,423,139 20,760,464 12,152,642 29,084,065
---------------- ---------------- ---------------- ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 529,969,092 $ 20,133,155 $ 12,161,443 $ 29,595,193
================ ================ ================ ================
<Caption>
SMALL CAP ALPHA INTERNATIONAL
VALUE GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ----------------
INVESTMENT INCOME
Dividends $ 532,510 $ 1,523,833 $ 989,648
Interest 7,469 1,436 49
Securities lending income 2,339 60 --
Less: Foreign taxes withheld -- -- (81,119)
---------------- ---------------- ----------------
542,318 1,525,329 908,578
---------------- ---------------- ----------------
EXPENSES
Advisory fees 420,753 768,292 624,348
Administration fees 84,151 177,299 93,653
Distribution and service fees - Class A 75,043 347,964 78,894
Distribution and service fees - Class B 63,372 251,259 48,740
Distribution and service fees - Class C 112,903 234,798 156,902
Transfer agent fees and expenses 167,269 180,680 158,611
Accounting fees 19,635 41,370 21,853
Legal and auditing fees 74,060 65,908 79,197
Custodian fees and expenses 15,309 45,738 100,670
Federal and state registration fees 43,699 50,720 41,206
Reports and notices to shareholders 8,428 21,409 8,980
Trustees' fees and expenses 15,002 14,651 13,917
Insurance expenses 7,434 7,293 7,644
Other 4,426 4,730 7,206
---------------- ---------------- ----------------
Total expenses before waivers and
related reimbursements, if any 1,111,484 2,212,111 1,441,821
Less: waivers and related
reimbursements (221,960) (312,897) (375,742)
---------------- ---------------- ----------------
Total expenses after waivers and
related reimbursements, if any 889,524 1,899,214 1,066,079
---------------- ---------------- ----------------
Net investment income/(loss) (347,206) (373,885) (157,501)
---------------- ---------------- ----------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain/(loss) from:
Investments 4,784,363 17,013,630 9,423,139
Foreign currency related transactions -- -- (819,100)
Securities sold short -- -- --
Net change in unrealized depreciation on:
Investments and foreign
currency related transactions, if any 17,591,457 14,332,976 13,603,783
Securities sold short -- -- --
---------------- ---------------- ----------------
Net realized and unrealized gain
on investments 22,375,820 31,346,606 22,207,822
---------------- ---------------- ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 22,028,614 $ 30,972,721 $ 22,050,321
================ ================ ================
</Table>
The accompanying notes are an integral part of the financial statements.
41
<Page>
THE BEAR STEARNS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
S&P STARS PORTFOLIO S&P STARS OPPORTUNITIES PORTFOLIO
---------------------------------- ----------------------------------
FOR THE FOR THE
FISCAL YEARS FISCAL YEARS
ENDED MARCH 31, ENDED MARCH 31,
---------------------------------- ----------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income/(loss) $ (13,454,047) $ (18,437,027) $ (627,309) $ (690,819)
Net realized gain/(loss) from investments, foreign
currency related transactions and securities
sold short, if any 36,842,368 (534,691,972) 15,364,862 (14,094,234)
Net change in unrealized appreciation/(depreciation)
on investments, foreign currency related
transactions and securities sold short, if any 506,580,771 (349,377,257) 5,395,602 (4,665,677)
--------------- --------------- --------------- ---------------
Net increase/(decrease) in net assets, resulting
from operations 529,969,092 (902,506,256) 20,133,155 (19,450,730)
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares -- -- -- --
Class B shares -- -- -- --
Class C shares -- -- -- --
Class Y shares -- -- -- --
--------------- --------------- --------------- ---------------
-- -- -- --
--------------- --------------- --------------- ---------------
Net realized capital gains
Class A shares -- -- -- (358,229)
Class B shares -- -- -- (258,797)
Class C shares -- -- -- (203,086)
Class Y shares -- -- -- (16,521)
--------------- --------------- --------------- ---------------
-- -- -- (836,633)
--------------- --------------- --------------- ---------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares 123,594,414 163,983,729 5,801,219 24,602,311
Cost of shares repurchased (347,027,437) (687,251,200) (18,405,028) (27,421,582)
Shares issued in reinvestment of dividends and
distributions -- -- -- 775,281
--------------- --------------- --------------- ---------------
Net increase/(decrease) in net assets derived from
shares of beneficial interest transactions (223,433,023) (523,267,471) (12,603,809) (2,043,990)
--------------- --------------- --------------- ---------------
Total increase/(decrease) in net assets 306,536,069 (1,425,773,727) 7,529,346 (22,331,353)
NET ASSETS
Beginning of year 1,170,901,017 2,596,674,744 47,700,734 70,032,087
--------------- --------------- --------------- ---------------
End of year* $ 1,477,437,086 $ 1,170,901,017 $ 55,230,080 $ 47,700,734
=============== =============== =============== ===============
<Caption>
THE INSIDERS SELECT FUND
----------------------------------
FOR THE
FISCAL YEARS
ENDED MARCH 31,
----------------------------------
2004 2003
--------------- ---------------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income/(loss) $ 8,801 $ 53,550
Net realized gain/(loss) from investments, foreign
currency related transactions and securities
sold short, if any (70,186) (1,496,027)
Net change in unrealized appreciation/(depreciation)
on investments, foreign currency related
transactions and securities sold short, if any 12,222,828 (9,619,724)
--------------- ---------------
Net increase/(decrease) in net assets, resulting
from operations 12,161,443 (11,062,201)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares (50,676) --
Class B shares -- --
Class C shares -- --
Class Y shares (2,672) --
--------------- ---------------
(53,348) --
--------------- ---------------
Net realized capital gains
Class A shares -- (25,126)
Class B shares -- (15,796)
Class C shares -- (11,229)
Class Y shares -- (640)
--------------- ---------------
-- (52,791)
--------------- ---------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares 6,625,445 13,299,638
Cost of shares repurchased (8,703,429) (13,545,245)
Shares issued in reinvestment of dividends and
distributions 45,985 48,418
--------------- ---------------
Net increase/(decrease) in net assets derived from
shares of beneficial interest transactions (2,031,999) (197,189)
--------------- ---------------
Total increase/(decrease) in net assets 10,076,096 (11,312,181)
NET ASSETS
Beginning of year 27,370,754 38,682,935
--------------- ---------------
End of year* $ 37,446,850 $ 27,370,754
=============== ===============
</Table>
- ----------
* Includes undistributed net investment income as follows:
<Table>
<Caption>
FOR THE FISCAL YEARS ENDED
-------------------------------
MARCH 31, 2004 MARCH 31, 2003
-------------- --------------
The Insiders Select Fund $ 8,801 $ 53,348
Intrinsic Value Portfolio 357,628 368,133
Small Cap Value Portfolio -- 185,345
</Table>
The accompanying notes are an integral part of the financial statements.
42
<Page>
<Table>
<Caption>
INTRINSIC VALUE PORTFOLIO SMALL CAP VALUE PORTFOLIO
---------------------------------- ----------------------------------
FOR THE FOR THE
FISCAL YEARS FISCAL YEARS
ENDED MARCH 31, ENDED MARCH 31,
---------------------------------- ----------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income/(loss) $ 511,128 $ 591,558 $ (347,206) $ 185,699
Net realized gain/(loss) from investments, foreign
currency related transactions and securities
sold short, if any 2,295,339 (2,993,556) 4,784,363 (10,169,674)
Net change in unrealized appreciation/(depreciation)
on investments, foreign currency related
transactions and securities sold short, if any 26,788,726 (17,383,948) 17,591,457 (16,055,862)
--------------- --------------- --------------- ---------------
Net increase/(decrease) in net assets, resulting
from operations 29,595,193 (19,785,946) 22,028,614 (26,039,837)
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares (211,744) (124,710) (26,135) --
Class B shares (29,005) (26,585) -- --
Class C shares (39,765) (30,467) -- --
Class Y shares (241,119) (252,926) (159,210) --
--------------- --------------- --------------- ---------------
(521,633) (434,688) (185,345) --
--------------- --------------- --------------- ---------------
Net realized capital gains
Class A shares -- -- -- (1,262,957)
Class B shares -- -- -- (427,272)
Class C shares -- -- -- (826,472)
Class Y shares -- -- -- (1,639,686)
--------------- --------------- --------------- ---------------
-- -- -- (4,156,387)
--------------- --------------- --------------- ---------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares 45,343,332 31,578,358 9,366,152 17,139,387
Cost of shares repurchased (25,478,203) (18,042,549) (34,503,342) (24,768,254)
Shares issued in reinvestment of dividends and
distributions 457,163 406,998 160,549 3,708,819
--------------- --------------- --------------- ---------------
Net increase/(decrease) in net assets derived from
shares of beneficial interest transactions 20,322,292 13,942,807 (24,976,641) (3,920,048)
--------------- --------------- --------------- ---------------
Total increase/(decrease) in net assets 49,395,852 (6,277,827) (3,133,372) (34,116,272)
NET ASSETS
Beginning of year 60,277,194 66,555,021 47,676,188 81,792,460
--------------- --------------- --------------- ---------------
End of year* $ 109,673,046 $ 60,277,194 $ 44,542,816 $ 47,676,188
=============== =============== =============== ===============
<Caption>
ALPHA GROWTH PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO
---------------------------------- ----------------------------------
FOR THE FOR THE
FISCAL YEARS FISCAL YEARS
ENDED MARCH 31, ENDED MARCH 31,
---------------------------------- ----------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income/(loss) $ (373,885) $ (177,537) $ (157,501) $ 347,940
Net realized gain/(loss) from investments, foreign
currency related transactions and securities
sold short, if any 17,013,630 2,029,943 8,604,039 (17,232,117)
Net change in unrealized appreciation/(depreciation)
on investments, foreign currency related
transactions and securities sold short, if any 14,332,976 (11,016,230) 13,603,783 (6,833,766)
--------------- --------------- --------------- ---------------
Net increase/(decrease) in net assets, resulting
from operations 30,972,721 (9,163,824) 22,050,321 (23,717,943)
--------------- --------------- --------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares -- -- -- --
Class B shares -- -- -- --
Class C shares -- -- -- --
Class Y shares -- -- -- --
--------------- --------------- --------------- ---------------
-- -- -- --
--------------- --------------- --------------- ---------------
Net realized capital gains
Class A shares -- -- -- --
Class B shares -- -- -- --
Class C shares -- -- -- --
Class Y shares -- -- -- --
--------------- --------------- --------------- ---------------
-- -- -- --
--------------- --------------- --------------- ---------------
SHARES OF BENEFICIAL INTEREST
Net proceeds from the sale of shares 100,443,859 60,680,183 24,910,907 18,424,391
Cost of shares repurchased (26,194,071) (21,187,371) (47,230,469) (22,089,897)
Shares issued in reinvestment of dividends and
distributions -- -- -- --
--------------- --------------- --------------- ---------------
Net increase/(decrease) in net assets derived from
shares of beneficial interest transactions 74,249,788 39,492,812 (22,319,562) (3,665,506)
--------------- --------------- --------------- ---------------
Total increase/(decrease) in net assets 105,222,509 30,328,988 (269,241) (27,383,449)
NET ASSETS
Beginning of year 69,112,375 38,783,387 54,461,067 81,844,516
--------------- --------------- --------------- ---------------
End of year* $ 174,334,884 $ 69,112,375 $ 54,191,826 $ 54,461,067
=============== =============== =============== ===============
</Table>
43
<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 year indicated. This information has been derived
from information provided in the financial statements.
<Table>
<Caption>
NET NET
ASSET REALIZED AND DISTRIBUTIONS
VALUE, NET UNREALIZED FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON REALIZED
OF YEAR LOSS*(1) INVESTMENTS*(2) CAPITAL GAINS
------------------ ------------------ ------------------ ------------------
S&P STARS PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 15.81 $ (0.17) $ 7.76 --
For the fiscal year ended March 31, 2003 25.11 (0.21) (9.09) --
For the fiscal year ended March 31, 2002 27.85 (0.30) (2.44) --
For the fiscal year ended March 31, 2001 36.42 (0.27) (7.82) $ (0.48)
For the fiscal year ended March 31, 2000 24.39 (0.21) 12.53 (0.29)
CLASS B
For the fiscal year ended March 31, 2004 15.32 (0.27) 7.53 --
For the fiscal year ended March 31, 2003 24.46 (0.29) (8.85) --
For the fiscal year ended March 31, 2002 27.26 (0.41) (2.39) --
For the fiscal year ended March 31, 2001 35.83 (0.37) (7.72) (0.48)
For the fiscal year ended March 31, 2000 24.11 (0.27) 12.28 (0.29)
CLASS C
For the fiscal year ended March 31, 2004 15.31 (0.28) 7.53 --
For the fiscal year ended March 31, 2003 24.45 (0.31) (8.83) --
For the fiscal year ended March 31, 2002 27.25 (0.42) (2.38) --
For the fiscal year ended March 31, 2001 35.82 (0.38) (7.71) (0.48)
For the fiscal year ended March 31, 2000 24.10 (0.30) 12.31 (0.29)
CLASS Y
For the fiscal year ended March 31, 2004 16.37 (0.05) 8.04 --
For the fiscal year ended March 31, 2003 25.82 (0.09) (9.36) --
For the fiscal year ended March 31, 2002 28.49 (0.16) (2.51) --
For the fiscal year ended March 31, 2001 37.05 (0.14) (7.94) (0.48)
For the fiscal year ended March 31, 2000 24.68 (0.12) 12.78 (0.29)
</Table>
- ----------
* Calculated based on shares outstanding on the first and last day of the
respective years, except for dividends and distributions, if any, which are
based on the actual shares outstanding on the dates of distributions.
(1) Reflects waivers and related reimbursements, if any.
(2) The amounts shown for a share outstanding throughout the respective years
are not in accord with the changes in the aggregate gains and losses on
investments during the respective years because of the timing of the sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective years. Net realized and unrealized gain/(loss)
on investments include short sale transactions, if any.
The accompanying notes are an integral part of the financial statements.
44
<Page>
<Table>
<Caption>
NET
ASSET
VALUE, TOTAL NET ASSETS, RATIO OF
END OF INVESTMENT END OF YEAR EXPENSES TO
YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1)
------------------ ------------------ ------------------ ---------------------
S&P STARS PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 23.40 48.01% $ 580,543 1.50%
For the fiscal year ended March 31, 2003 15.81 (37.06) 484,873 1.50
For the fiscal year ended March 31, 2002 25.11 (9.80) 1,151,482 1.50
For the fiscal year ended March 31, 2001 27.85 (22.36) 1,173,464 1.50
For the fiscal year ended March 31, 2000 36.42 50.82 673,550 1.50
CLASS B
For the fiscal year ended March 31, 2004 22.58 47.39 420,694 2.00
For the fiscal year ended March 31, 2003 15.32 (37.37) 323,425 2.00
For the fiscal year ended March 31, 2002 24.46 (10.27) 672,833 2.00
For the fiscal year ended March 31, 2001 27.26 (22.73) 620,784 2.00
For the fiscal year ended March 31, 2000 35.83 50.13 300,693 2.00
CLASS C
For the fiscal year ended March 31, 2004 22.56 47.35 305,176 2.00
For the fiscal year ended March 31, 2003 15.31 (37.38) 253,391 2.00
For the fiscal year ended March 31, 2002 24.45 (10.28) 568,726 2.00
For the fiscal year ended March 31, 2001 27.25 (22.74) 540,150 2.00
For the fiscal year ended March 31, 2000 35.82 50.15 314,794 2.00
CLASS Y
For the fiscal year ended March 31, 2004 24.36 48.81 171,024 1.00
For the fiscal year ended March 31, 2003 16.37 (36.60) 109,212 1.00
For the fiscal year ended March 31, 2002 25.82 (9.37) 203,633 1.00
For the fiscal year ended March 31, 2001 28.49 (21.95) 176,235 1.00
For the fiscal year ended March 31, 2000 37.05 51.61 154,015 1.00
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND
NET INVESTMENT NET INVESTMENT LOSS RATIOS PORTFOLIO
LOSS TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
-------------------------- -------------------------- ---------
S&P STARS PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 (0.76)% 0.20% 127.25%
For the fiscal year ended March 31, 2003 (0.95) 0.16 122.29
For the fiscal year ended March 31, 2002 (1.12) 0.08 110.80
For the fiscal year ended March 31, 2001 (1.04) 0.10 42.93
For the fiscal year ended March 31, 2000 (1.12) 0.18 54.67
CLASS B
For the fiscal year ended March 31, 2004 (1.26) 0.20 127.25
For the fiscal year ended March 31, 2003 (1.44) 0.16 122.29
For the fiscal year ended March 31, 2002 (1.65) 0.08 110.80
For the fiscal year ended March 31, 2001 (1.58) 0.10 42.93
For the fiscal year ended March 31, 2000 (1.63) 0.18 54.67
CLASS C
For the fiscal year ended March 31, 2004 (1.26) 0.20 127.25
For the fiscal year ended March 31, 2003 (1.44) 0.16 122.29
For the fiscal year ended March 31, 2002 (1.65) 0.08 110.80
For the fiscal year ended March 31, 2001 (1.58) 0.10 42.93
For the fiscal year ended March 31, 2000 (1.63) 0.18 54.67
CLASS Y
For the fiscal year ended March 31, 2004 (0.26) 0.20 127.25
For the fiscal year ended March 31, 2003 (0.43) 0.16 122.29
For the fiscal year ended March 31, 2002 (0.65) 0.08 110.80
For the fiscal year ended March 31, 2001 (0.47) 0.10 42.93
For the fiscal year ended March 31, 2000 (0.56) 0.18 54.67
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each year reported and includes reinvestment of dividends and
distributions, if any.
45
<Page>
<Table>
<Caption>
NET NET
ASSET REALIZED AND DISTRIBUTIONS
VALUE, NET UNREALIZED FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON REALIZED
OF PERIOD LOSS**(1) INVESTMENTS**(2) CAPITAL GAINS
--------- ---------- --------------- ---------------
S&P STARS OPPORTUNITIES PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 10.49 $ (0.14) $ 4.93 --
For the fiscal year ended March 31, 2003 14.27 (0.12) (3.49) $ (0.17)
For the period October 1, 2001* through March 31, 2002 12.00 (0.04) 2.31 --
CLASS B
For the fiscal year ended March 31, 2004 10.40 (0.20) 4.84 --
For the fiscal year ended March 31, 2003 14.23 (0.18) (3.48) (0.17)
For the period October 1, 2001* through March 31, 2002 12.00 (0.06) 2.29 --
CLASS C
For the fiscal year ended March 31, 2004 10.40 (0.20) 4.85 --
For the fiscal year ended March 31, 2003 14.23 (0.18) (3.48) (0.17)
For the period October 1, 2001* through March 31, 2002 12.00 (0.06) 2.29 --
CLASS Y
For the fiscal year ended March 31, 2004 10.56 (0.06) 4.91 --
For the fiscal year ended March 31, 2003 14.30 (0.08) (3.49) (0.17)
For the period October 1, 2001* through March 31, 2002 12.00 (0.02) 2.32 --
</Table>
- ----------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on the actual shares outstanding on the dates of distributions.
(1) Reflects waivers and related reimbursements, if any.
(2) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses on
investments during the respective periods because of the timing of the
sales and repurchases of Portfolio shares in relation to fluctuating net
asset values during the respective periods. Net realized and unrealized
gain/(loss) on investments include short sale transactions, if any.
The accompanying notes are an integral part of the financial statements.
46
<Page>
<Table>
<Caption>
NET
ASSET
VALUE, TOTAL NET ASSETS, RATIO OF
END OF INVESTMENT END OF PERIOD EXPENSES TO
PERIOD RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1)
------- ---------- -------------- ---------------------
S&P STARS OPPORTUNITIES PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 15.28 45.66% $ 22,710 1.50%
For the fiscal year ended March 31, 2003 10.49 (25.36) 20,521 1.50
For the period October 1, 2001* through March 31, 2002 14.27 18.92 30,004 1.50(4)
CLASS B
For the fiscal year ended March 31, 2004 15.04 44.62 18,331 2.00
For the fiscal year ended March 31, 2003 10.40 (25.79) 14,784 2.00
For the period October 1, 2001* through March 31, 2002 14.23 18.58 21,094 2.00(4)
CLASS C
For the fiscal year ended March 31, 2004 15.05 44.71 13,483 2.00
For the fiscal year ended March 31, 2003 10.40 (25.79) 11,638 2.00
For the period October 1, 2001* through March 31, 2002 14.23 18.58 16,412 2.00(4)
CLASS Y
For the fiscal year ended March 31, 2004 15.41 45.93 706 1.00
For the fiscal year ended March 31, 2003 10.56 (25.03) 758 1.00
For the period October 1, 2001* through March 31, 2002 14.30 19.17 2,522 1.00(4)
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND NET
NET INVESTMENT INVESTMENT LOSS RATIOS PORTFOLIO
LOSS TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
--------------------- ---------------------- -----------
S&P STARS OPPORTUNITIES PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 (0.86)% 0.61% 225.79%
For the fiscal year ended March 31, 2003 (0.92) 0.44 174.82
For the period October 1, 2001* through March 31, 2002 (0.90)(4) 0.85(4) 66.89
CLASS B
For the fiscal year ended March 31, 2004 (1.36) 0.61 225.79
For the fiscal year ended March 31, 2003 (1.42) 0.44 174.82
For the period October 1, 2001* through March 31, 2002 (1.48)(4) 0.85(4) 66.89
CLASS C
For the fiscal year ended March 31, 2004 (1.36) 0.61 225.79
For the fiscal year ended March 31, 2003 (1.42) 0.44 174.82
For the period October 1, 2001* through March 31, 2002 (1.43)(4) 0.85(4) 66.89
CLASS Y
For the fiscal year ended March 31, 2004 (0.36) 0.61 225.79
For the fiscal year ended March 31, 2003 (0.45) 0.44 174.82
For the period October 1, 2001* through March 31, 2002 (0.40)(4) 0.85(4) 66.89
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) Annualized.
47
<Page>
<Table>
<Caption>
NET NET
ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS
VALUE, NET UNREALIZED FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED
OF YEAR INCOME/(LOSS)*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS
---------- ----------------- --------------- ---------- -------------
THE INSIDERS SELECT FUND
CLASS A
For the fiscal year ended March 31, 2004 $ 12.33 $ 0.05 $ 5.55 $ (0.05) --
For the fiscal year ended March 31, 2003 16.87 0.06 (4.58) -- $ (0.02)
For the fiscal year ended March 31, 2002 17.84 (0.01) 0.73 -- (1.69)
For the fiscal year ended March 31, 2001 16.90 0.01 3.05 -- (2.12)
For the fiscal year ended March 31, 2000 17.02 -- 0.07 -- (0.19)
CLASS B
For the fiscal year ended March 31, 2004 11.82 (0.03) 5.31 -- --
For the fiscal year ended March 31, 2003 16.24 (0.01) (4.39) -- (0.02)
For the fiscal year ended March 31, 2002 17.32 (0.07) 0.68 -- (1.69)
For the fiscal year ended March 31, 2001 16.54 (0.05) 2.95 -- (2.12)
For the fiscal year ended March 31, 2000 16.75 (0.05) 0.03 -- (0.19)
CLASS C
For the fiscal year ended March 31, 2004 11.80 (0.03) 5.32 -- --
For the fiscal year ended March 31, 2003 16.24 (0.01) (4.41) -- (0.02)
For the fiscal year ended March 31, 2002 17.32 (0.08) 0.69 -- (1.69)
For the fiscal year ended March 31, 2001 16.54 (0.07) 2.97 -- (2.12)
For the fiscal year ended March 31, 2000 16.74 (0.05) 0.04 -- (0.19)
CLASS Y
For the fiscal year ended March 31, 2004 12.73 0.16 5.63 (0.12) --
For the fiscal year ended March 31, 2003 17.27 0.14 (4.66) -- (0.02)
For the fiscal year ended March 31, 2002 18.13 0.07 0.76 -- (1.69)
For the fiscal year ended March 31, 2001 17.09 0.09 3.07 -- (2.12)
For the fiscal year ended March 31, 2000 17.33 -- 0.13 (0.18) (0.19)
</Table>
- ----------
* Calculated based on shares outstanding on the first and last day of the
respective years, except for dividends and distributions, if any, which are
based on the actual shares outstanding on the dates of distributions.
(1) Reflects waivers and related reimbursements, if any.
(2) The amounts shown for a share outstanding throughout the respective years
are not in accord with the changes in the aggregate gains and losses on
investments during the respective years because of the timing of the sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective years.
The accompanying notes are an integral part of the financial statements.
48
<Page>
<Table>
<Caption>
NET
ASSET
VALUE, TOTAL NET ASSETS, RATIO OF
END OF INVESTMENT END OF YEAR EXPENSES TO
YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1)
---------- ---------- --------------- ---------------------
THE INSIDERS SELECT FUND
CLASS A
For the fiscal year ended March 31, 2004 $ 17.88 45.41% $ 18,530 1.65%
For the fiscal year ended March 31, 2003 12.33 (26.80) 13,049 1.65
For the fiscal year ended March 31, 2002 16.87 4.62 19,060 1.65
For the fiscal year ended March 31, 2001 17.84 17.92 17,372 1.65
For the fiscal year ended March 31, 2000 16.90 0.40 15,187 1.65
CLASS B
For the fiscal year ended March 31, 2004 17.10 44.67 11,651 2.15
For the fiscal year ended March 31, 2003 11.82 (27.10) 8,392 2.15
For the fiscal year ended March 31, 2002 16.24 4.11 10,357 2.15
For the fiscal year ended March 31, 2001 17.32 17.32 7,378 2.15
For the fiscal year ended March 31, 2000 16.54 (0.13) 5,469 2.15
CLASS C
For the fiscal year ended March 31, 2004 17.09 44.83 6,885 2.15
For the fiscal year ended March 31, 2003 11.80 (27.22) 5,543 2.15
For the fiscal year ended March 31, 2002 16.24 4.11 8,566 2.15
For the fiscal year ended March 31, 2001 17.32 17.32 7,328 2.15
For the fiscal year ended March 31, 2000 16.54 (0.07) 6,908 2.15
CLASS Y
For the fiscal year ended March 31, 2004 18.40 45.51 381 1.15
For the fiscal year ended March 31, 2003 12.73 (26.18) 387 1.15
For the fiscal year ended March 31, 2002 17.27 5.17 701 1.15
For the fiscal year ended March 31, 2001 18.13 18.30 805 1.15
For the fiscal year ended March 31, 2000 17.09 0.72 796 1.15
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND NET
NET INVESTMENT INVESTMENT INCOME/(LOSS) RATIOS PORTFOLIO
INCOME TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
--------------------- ------------------------------- ---------
THE INSIDERS SELECT FUND
CLASS A
For the fiscal year ended March 31, 2004 0.27% 0.53% 22.52%
For the fiscal year ended March 31, 2003 0.40 0.52 30.81
For the fiscal year ended March 31, 2002 (0.04) 1.23 57.26
For the fiscal year ended March 31, 2001 0.08 1.14 99.36
For the fiscal year ended March 31, 2000 0.10 0.81 76.06
CLASS B
For the fiscal year ended March 31, 2004 (0.23) 0.53 22.52
For the fiscal year ended March 31, 2003 (0.08) 0.52 30.81
For the fiscal year ended March 31, 2002 (0.49) 1.23 57.26
For the fiscal year ended March 31, 2001 (0.42) 1.14 99.36
For the fiscal year ended March 31, 2000 (0.40) 0.81 76.06
CLASS C
For the fiscal year ended March 31, 2004 (0.23) 0.53 22.52
For the fiscal year ended March 31, 2003 (0.10) 0.52 30.81
For the fiscal year ended March 31, 2002 (0.52) 1.23 57.26
For the fiscal year ended March 31, 2001 (0.42) 1.14 99.36
For the fiscal year ended March 31, 2000 (0.40) 0.81 76.06
CLASS Y
For the fiscal year ended March 31, 2004 0.77 0.53 22.52
For the fiscal year ended March 31, 2003 0.88 0.52 30.81
For the fiscal year ended March 31, 2002 0.39 1.23 57.26
For the fiscal year ended March 31, 2001 0.58 1.14 99.36
For the fiscal year ended March 31, 2000 0.60 0.81 76.06
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each year reported and includes reinvestment of dividends and
distributions, if any.
49
<Page>
<Table>
<Caption>
NET NET
ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS
VALUE, NET UNREALIZED FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED
OF YEAR INCOME/(LOSS)*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS
---------- ----------------- --------------- ---------- -------------
INTRINSIC VALUE PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 14.81 $ 0.09 $ 6.35 $ (0.11) --
For the fiscal year ended March 31, 2003 20.04 0.14 (5.26) (0.11) --
For the fiscal year ended March 31, 2002 19.63 0.04 0.87 (0.01) $ (0.49)
For the fiscal year ended March 31, 2001 16.71 0.11 3.85 (0.13) (0.91)
For the fiscal year ended March 31, 2000 19.74 0.11 (0.94) (0.10) (2.10)
CLASS B
For the fiscal year ended March 31, 2004 14.50 -- 6.20 (0.03) --
For the fiscal year ended March 31, 2003 19.65 0.05 (5.16) (0.04) --
For the fiscal year ended March 31, 2002 19.35 (0.02) 0.81 -- (0.49)
For the fiscal year ended March 31, 2001 16.49 0.03 3.78 (0.04) (0.91)
For the fiscal year ended March 31, 2000 19.51 0.01 (0.93) -- (2.10)
CLASS C
For the fiscal year ended March 31, 2004 14.58 0.01 6.24 (0.04) --
For the fiscal year ended March 31, 2003 19.74 0.06 (5.18) (0.04) --
For the fiscal year ended March 31, 2002 19.43 (0.01) 0.81 -- (0.49)
For the fiscal year ended March 31, 2001 16.55 0.02 3.80 (0.03) (0.91)
For the fiscal year ended March 31, 2000 19.57 0.01 (0.93) -- (2.10)
CLASS Y
For the fiscal year ended March 31, 2004 14.97 0.16 6.47 (0.17) --
For the fiscal year ended March 31, 2003 20.17 0.22 (5.23) (0.19) --
For the fiscal year ended March 31, 2002 19.67 0.11 0.91 (0.03) (0.49)
For the fiscal year ended March 31, 2001 16.73 0.26 3.80 (0.21) (0.91)
For the fiscal year ended March 31, 2000 19.78 0.22 (0.97) (0.20) (2.10)
</Table>
- ----------
* Calculated based on shares outstanding on the first and last day of the
respective years, except for dividends and distributions, if any, which are
based on the actual shares outstanding on the dates of distributions.
(1) Reflects waivers and related reimbursements, if any.
(2) The amounts shown for a share outstanding throughout the respective years
are not in accord with the changes in the aggregate gains and losses on
investments during the respective years because of the timing of the sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective years.
The accompanying notes are an integral part of the financial statements.
50
<Page>
<Table>
<Caption>
NET
ASSET
VALUE, TOTAL NET ASSETS, RATIO OF
END OF INVESTMENT END OF YEAR EXPENSES TO
YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1)
---------- ---------- --------------- ---------------------
INTRINSIC VALUE PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 21.14 43.53% $ 41,250 1.50%
For the fiscal year ended March 31, 2003 14.81 (25.60) 17,734 1.50
For the fiscal year ended March 31, 2002 20.04 4.72 20,953 1.50
For the fiscal year ended March 31, 2001 19.63 23.79 11,983 1.50
For the fiscal year ended March 31, 2000 16.71 (4.91) 7,950 1.50
CLASS B
For the fiscal year ended March 31, 2004 20.67 42.79 19,990 2.00
For the fiscal year ended March 31, 2003 14.50 (26.02) 10,489 2.00
For the fiscal year ended March 31, 2002 19.65 4.17 9,733 2.00
For the fiscal year ended March 31, 2001 19.35 23.19 3,687 2.00
For the fiscal year ended March 31, 2000 16.49 (5.41) 1,379 2.00
CLASS C
For the fiscal year ended March 31, 2004 20.79 42.86 21,324 2.00
For the fiscal year ended March 31, 2003 14.58 (25.95) 11,123 2.00
For the fiscal year ended March 31, 2002 19.74 4.20 13,528 2.00
For the fiscal year ended March 31, 2001 19.43 23.16 5,675 2.00
For the fiscal year ended March 31, 2000 16.55 (5.39) 3,359 2.00
CLASS Y
For the fiscal year ended March 31, 2004 21.43 44.41 27,109 1.00
For the fiscal year ended March 31, 2003 14.97 (24.92) 20,931 1.00
For the fiscal year ended March 31, 2002 20.17 5.28 22,341 1.00
For the fiscal year ended March 31, 2001 19.67 24.38 7,038 1.00
For the fiscal year ended March 31, 2000 16.73 (4.51) 3,438 1.00
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND
NET INVESTMENT NET INVESTMENT INCOME/(LOSS) RATIOS PORTFOLIO
INCOME/(LOSS) TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
--------------------- ----------------------------------- ---------
INTRINSIC VALUE PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 0.59% 0.32% 53.78%
For the fiscal year ended March 31, 2003 0.93 0.43 52.98
For the fiscal year ended March 31, 2002 0.38 0.75 20.60
For the fiscal year ended March 31, 2001 0.72 1.50 60.46
For the fiscal year ended March 31, 2000 0.56 1.78 55.66
CLASS B
For the fiscal year ended March 31, 2004 0.09 0.32 53.78
For the fiscal year ended March 31, 2003 0.45 0.43 52.98
For the fiscal year ended March 31, 2002 (0.07) 0.75 20.60
For the fiscal year ended March 31, 2001 0.15 1.50 60.46
For the fiscal year ended March 31, 2000 0.03 1.75 55.66
CLASS C
For the fiscal year ended March 31, 2004 0.09 0.32 53.78
For the fiscal year ended March 31, 2003 0.44 0.43 52.98
For the fiscal year ended March 31, 2002 0.02 0.75 20.60
For the fiscal year ended March 31, 2001 0.11 1.50 60.46
For the fiscal year ended March 31, 2000 0.03 1.75 55.66
CLASS Y
For the fiscal year ended March 31, 2004 1.09 0.32 53.78
For the fiscal year ended March 31, 2003 1.44 0.43 52.98
For the fiscal year ended March 31, 2002 0.92 0.75 20.60
For the fiscal year ended March 31, 2001 1.65 1.50 60.46
For the fiscal year ended March 31, 2000 0.98 1.77 55.66
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each year reported and includes reinvestment of dividends and
distributions, if any.
51
<Page>
<Table>
<Caption>
NET NET
ASSET REALIZED AND DIVIDENDS DISTRIBUTIONS
VALUE, NET UNREALIZED FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT REALIZED
OF YEAR INCOME/(LOSS)*(1) INVESTMENTS*(2) INCOME CAPITAL GAINS
---------- ----------------- --------------- ---------- -------------
SMALL CAP VALUE PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004** $ 12.90 $ (0.12) $ 6.51 $ (0.03) --
For the fiscal year ended March 31, 2003 20.39 0.04 (6.47) -- $ (1.06)
For the fiscal year ended March 31, 2002 18.13 (0.04) 3.30 -- (1.00)
For the fiscal year ended March 31, 2001 23.10 (0.14) (2.61) -- (2.22)
For the fiscal year ended March 31, 2000 17.93 (0.15) 6.69 -- (1.37)
CLASS B
For the fiscal year ended March 31, 2004** 12.40 (0.20) 6.25 -- --
For the fiscal year ended March 31, 2003 19.82 (0.04) (6.32) -- (1.06)
For the fiscal year ended March 31, 2002 17.76 (0.12) 3.18 -- (1.00)
For the fiscal year ended March 31, 2001 22.80 (0.20) (2.62) -- (2.22)
For the fiscal year ended March 31, 2000 17.71 (0.24) 6.60 -- (1.27)
CLASS C
For the fiscal year ended March 31, 2004** 12.42 (0.19) 6.25 -- --
For the fiscal year ended March 31, 2003 19.83 (0.04) (6.31) -- (1.06)
For the fiscal year ended March 31, 2002 17.77 (0.12) 3.18 -- (1.00)
For the fiscal year ended March 31, 2001 22.80 (0.22) (2.59) -- (2.22)
For the fiscal year ended March 31, 2000 17.70 (0.26) 6.62 -- (1.26)
CLASS Y
For the fiscal year ended March 31, 2004** 13.20 (0.02) 6.62 (0.11) --
For the fiscal year ended March 31, 2003 20.73 0.12 (6.59) -- (1.06)
For the fiscal year ended March 31, 2002 18.34 0.05 3.34 -- (1.00)
For the fiscal year ended March 31, 2001 23.23 (0.03) (2.64) -- (2.22)
For the fiscal year ended March 31, 2000 18.03 (0.05) 6.72 -- (1.47)
</Table>
- ----------
* Calculated based on shares outstanding on the first and last day of the
respective years, except for dividends and distributions, if any, which are
based on the actual shares outstanding on the dates of distributions.
** Calculated based on shares outstanding.
(1) Reflects waivers and related reimbursements, if any.
(2) The amounts shown for a share outstanding throughout the respective years
are not in accord with the changes in the aggregate gains and losses on
investments during the respective years because of the timing of the sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective years.
The accompanying notes are an integral part of the financial statements.
52
<Page>
<Table>
<Caption>
NET
ASSET
VALUE, TOTAL NET ASSETS, RATIO OF
END OF INVESTMENT END OF YEAR EXPENSES TO
YEAR RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1)
---------- ---------- --------------- ---------------------
SMALL CAP VALUE PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004** $ 19.26 49.55% $ 15,572 1.64%
For the fiscal year ended March 31, 2003 12.90 (31.94) 12,771 1.50
For the fiscal year ended March 31, 2002 20.39 18.51 23,902 1.50
For the fiscal year ended March 31, 2001 18.13 (11.64) 17,194 1.50
For the fiscal year ended March 31, 2000 23.10 38.21 24,086 1.50
CLASS B
For the fiscal year ended March 31, 2004** 18.45 48.79 6,626 2.14
For the fiscal year ended March 31, 2003 12.40 (32.52) 4,975 2.00
For the fiscal year ended March 31, 2002 19.82 17.76 6,944 2.00
For the fiscal year ended March 31, 2001 17.76 (12.12) 4,301 2.00
For the fiscal year ended March 31, 2000 22.80 37.53 4,030 2.00
CLASS C
For the fiscal year ended March 31, 2004** 18.48 48.79 10,596 2.14
For the fiscal year ended March 31, 2003 12.42 (32.45) 9,204 2.00
For the fiscal year ended March 31, 2002 19.83 17.75 16,112 2.00
For the fiscal year ended March 31, 2001 17.77 (12.07) 11,460 2.00
For the fiscal year ended March 31, 2000 22.80 37.54 13,399 2.00
CLASS Y
For the fiscal year ended March 31, 2004** 19.69 50.08 11,748 1.14
For the fiscal year ended March 31, 2003 13.20 (31.59) 20,726 1.00
For the fiscal year ended March 31, 2002 20.73 19.02 34,834 1.00
For the fiscal year ended March 31, 2001 18.34 (11.22) 33,449 1.00
For the fiscal year ended March 31, 2000 23.23 38.86 31,091 1.00
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND
NET INVESTMENT NET INVESTMENT INCOME/(LOSS) RATIOS PORTFOLIO
INCOME/(LOSS) TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
--------------------- ----------------------------------- ---------
SMALL CAP VALUE PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004** (0.72)% 0.39% 61.30%
For the fiscal year ended March 31, 2003 0.23 0.48 92.42
For the fiscal year ended March 31, 2002 (0.24) 0.53 75.76
For the fiscal year ended March 31, 2001 (0.63) 1.02 65.32
For the fiscal year ended March 31, 2000 (0.75) 0.65 65.85
CLASS B
For the fiscal year ended March 31, 2004** (1.22) 0.39 61.30
For the fiscal year ended March 31, 2003 (0.26) 0.48 92.42
For the fiscal year ended March 31, 2002 (0.74) 0.53 75.76
For the fiscal year ended March 31, 2001 (1.14) 1.02 65.32
For the fiscal year ended March 31, 2000 (1.24) 0.65 65.85
CLASS C
For the fiscal year ended March 31, 2004** (1.22) 0.39 61.30
For the fiscal year ended March 31, 2003 (0.27) 0.48 92.42
For the fiscal year ended March 31, 2002 (0.74) 0.53 75.76
For the fiscal year ended March 31, 2001 (1.14) 1.02 65.32
For the fiscal year ended March 31, 2000 (1.24) 0.65 65.85
CLASS Y
For the fiscal year ended March 31, 2004** (0.12) 0.39 61.30
For the fiscal year ended March 31, 2003 0.74 0.48 92.42
For the fiscal year ended March 31, 2002 0.26 0.53 75.76
For the fiscal year ended March 31, 2001 (0.13) 1.02 65.32
For the fiscal year ended March 31, 2000 (0.24) 0.65 65.85
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each year reported and includes reinvestment of dividends and
distributions, if any.
53
<Page>
<Table>
<Caption>
NET NET NET
ASSET REALIZED AND ASSET
VALUE, NET UNREALIZED VALUE,
BEGINNING INVESTMENT GAIN/(LOSS) ON END OF
OF YEAR LOSS*(1) INVESTMENTS*(2) YEAR
---------- ---------- --------------- ----------
ALPHA GROWTH PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 15.57 $ (0.02) $ 5.40 $ 20.95
For the fiscal year ended March 31, 2003 18.84 (0.02) (3.25) 15.57
For the fiscal year ended March 31, 2002 16.75 (0.03) 2.12 18.84
For the fiscal year ended March 31, 2001 21.21 (0.09) (4.37) 16.75
For the fiscal year ended March 31, 2000 17.32 (0.07) 3.96 21.21
CLASS B
For the fiscal year ended March 31, 2004 15.17 (0.10) 5.25 20.32
For the fiscal year ended March 31, 2003 18.41 (0.08) (3.16) 15.17
For the fiscal year ended March 31, 2002 16.46 (0.06) 2.01 18.41
For the fiscal year ended March 31, 2001 20.93 (0.17) (4.30) 16.46
For the fiscal year ended March 31, 2000 17.18 (0.16) 3.91 20.93
CLASS C
For the fiscal year ended March 31, 2004 15.19 (0.09) 5.25 20.35
For the fiscal year ended March 31, 2003 18.42 (0.06) (3.17) 15.19
For the fiscal year ended March 31, 2002 16.46 (0.06) 2.02 18.42
For the fiscal year ended March 31, 2001 20.94 (0.17) (4.31) 16.46
For the fiscal year ended March 31, 2000 17.19 (0.18) 3.93 20.94
</Table>
- ----------
* Calculated based on shares outstanding on the first and last day of the
respective years, except for dividends and distributions, if any, which are
based on the actual shares outstanding on the dates of distributions.
(1) Reflects waivers and related reimbursements, if any.
(2) The amounts shown for a share outstanding throughout the respective years
are not in accord with the changes in the aggregate gains and losses on
investments during the respective years because of the timing of the sales
and repurchases of Portfolio shares in relation to fluctuating net asset
values during the respective years.
The accompanying notes are an integral part of the financial statements.
54
<Page>
<Table>
<Caption>
TOTAL NET ASSETS, RATIO OF
INVESTMENT END OF YEAR EXPENSES TO
RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1)
---------- --------------- ---------------------
ALPHA GROWTH PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 34.55% $ 108,361 1.40%
For the fiscal year ended March 31, 2003 (17.36) 39,817 1.40
For the fiscal year ended March 31, 2002 12.48 23,176 1.40
For the fiscal year ended March 31, 2001 (21.03) 17,316 1.40
For the fiscal year ended March 31, 2000 22.46 22,580 1.40
CLASS B
For the fiscal year ended March 31, 2004 33.95 31,840 1.90
For the fiscal year ended March 31, 2003 (17.60) 16,059 1.90
For the fiscal year ended March 31, 2002 11.85 9,061 1.90
For the fiscal year ended March 31, 2001 (21.36) 7,441 1.90
For the fiscal year ended March 31, 2000 21.83 9,124 1.90
CLASS C
For the fiscal year ended March 31, 2004 33.97 34,134 1.90
For the fiscal year ended March 31, 2003 (17.54) 13,236 1.90
For the fiscal year ended March 31, 2002 11.91 6,546 1.90
For the fiscal year ended March 31, 2001 (21.40) 4,973 1.90
For the fiscal year ended March 31, 2000 21.81 6,398 1.90
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND
NET INVESTMENT NET INVESTMENT LOSS RATIOS PORTFOLIO
LOSS TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
--------------------- -------------------------- ---------
ALPHA GROWTH PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 (0.11)% 0.27% 92.58%
For the fiscal year ended March 31, 2003 (0.15) 0.56 185.33
For the fiscal year ended March 31, 2002 (0.42) 1.06 82.40
For the fiscal year ended March 31, 2001 (0.46) 0.97 81.37
For the fiscal year ended March 31, 2000 (0.63) 1.33 56.26
CLASS B
For the fiscal year ended March 31, 2004 (0.61) 0.27 92.58
For the fiscal year ended March 31, 2003 (0.65) 0.56 185.33
For the fiscal year ended March 31, 2002 (0.92) 1.06 82.40
For the fiscal year ended March 31, 2001 (0.96) 0.97 81.37
For the fiscal year ended March 31, 2000 (1.11) 1.33 56.26
CLASS C
For the fiscal year ended March 31, 2004 (0.61) 0.27 92.58
For the fiscal year ended March 31, 2003 (0.63) 0.56 185.33
For the fiscal year ended March 31, 2002 (0.92) 1.06 82.40
For the fiscal year ended March 31, 2001 (0.96) 0.97 81.37
For the fiscal year ended March 31, 2000 (1.09) 1.33 56.26
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each year reported and includes reinvestment of dividends and
distributions, if any.
55
<Page>
<Table>
<Caption>
NET NET
ASSET REALIZED AND DISTRIBUTIONS
VALUE, NET UNREALIZED FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON REALIZED
OF PERIOD INCOME/(LOSS)**(1) INVESTMENTS**(2) CAPITAL GAINS
---------- ------------------ ---------------- --------------
INTERNATIONAL EQUITY PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 10.31 $ (0.07) $ 4.38 --
For the fiscal year ended March 31, 2003 14.64 0.07 (4.40) --
For the fiscal year ended March 31, 2002 17.55 (0.04) (2.87) --
For the fiscal year ended March 31, 2001 27.84 (0.06) (9.92) $ (0.31)
For the fiscal year ended March 31, 2000 15.14 (0.05) 12.98 (0.23)
CLASS B
For the fiscal year ended March 31, 2004 10.02 (0.10) 4.28 --
For the fiscal year ended March 31, 2003 14.32 0.01 (4.31) --
For the fiscal year ended March 31, 2002 17.26 (0.12) (2.82) --
For the fiscal year ended March 31, 2001 27.52 (0.18) (9.77) (0.31)
For the fiscal year ended March 31, 2000 15.05 (0.10) 12.80 (0.23)
CLASS C
For the fiscal year ended March 31, 2004 10.03 (0.10) 4.30 --
For the fiscal year ended March 31, 2003 14.32 0.01 (4.30) --
For the fiscal year ended March 31, 2002 17.25 (0.10) (2.83) --
For the fiscal year ended March 31, 2001 27.52 (0.15) (9.81) (0.31)
For the fiscal year ended March 31, 2000 15.05 (0.09) 12.79 (0.23)
CLASS Y
For the fiscal year ended March 31, 2004 10.42 0.03 4.46 --
For the fiscal year ended March 31, 2003 14.69 0.12 (4.39) --
For the period July 5, 2001* through March 31,
2002 16.75 0.06 (2.12) --
</Table>
- ----------
* Commencement of initial public offering.
** 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) Reflects waivers and related reimbursements, if any.
(2) The amounts shown for a share outstanding throughout the respective periods
are not in accord with the changes in the aggregate gains and losses on
investments during the respective periods because of the timing of the
sales and repurchases of Portfolio shares in relation to fluctuating net
asset values during the respective periods.
The accompanying notes are an integral part of the financial statements.
56
<Page>
<Table>
<Caption>
NET
ASSET
VALUE, TOTAL NET ASSETS, RATIO OF
END OF INVESTMENT END OF PERIOD EXPENSES TO
PERIOD RETURN(3) (000'S OMITTED) AVERAGE NET ASSETS(1)
---------- ---------- --------------- ---------------------
INTERNATIONAL EQUITY PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 $ 14.62 41.80% $ 11,012 1.75%
For the fiscal year ended March 31, 2003 10.31 (29.58) 20,518 1.75
For the fiscal year ended March 31, 2002 14.64 (16.58) 31,455 1.75
For the fiscal year ended March 31, 2001 17.55 (35.99) 54,096 1.75
For the fiscal year ended March 31, 2000 27.84 85.67 61,508 1.75
CLASS B
For the fiscal year ended March 31, 2004 14.20 41.72 5,272 2.25
For the fiscal year ended March 31, 2003 10.02 (30.03) 4,218 2.25
For the fiscal year ended March 31, 2002 14.32 (17.03) 7,751 2.25
For the fiscal year ended March 31, 2001 17.26 (36.30) 11,754 2.25
For the fiscal year ended March 31, 2000 27.52 84.66 15,656 2.25
CLASS C
For the fiscal year ended March 31, 2004 14.23 41.87 17,251 2.25
For the fiscal year ended March 31, 2003 10.03 (29.96) 13,257 2.25
For the fiscal year ended March 31, 2002 14.32 (16.99) 21,025 2.25
For the fiscal year ended March 31, 2001 17.25 (36.34) 25,833 2.25
For the fiscal year ended March 31, 2000 27.52 84.65 18,238 2.25
CLASS Y
For the fiscal year ended March 31, 2004 14.91 43.09 20,657 1.25
For the fiscal year ended March 31, 2003 10.42 (29.07) 16,468 1.25
For the period July 5, 2001* through March 31,
2002 14.69 (12.30)(4) 21,614 1.25(4)(5)
<Caption>
INCREASE/(DECREASE)
REFLECTED IN
RATIO OF EXPENSE AND
NET INVESTMENT NET INVESTMENT INCOME/(LOSS) RATIOS PORTFOLIO
INCOME/(LOSS) TO DUE TO WAIVERS AND TURNOVER
AVERAGE NET ASSETS(1) RELATED REIMBURSEMENTS RATE
--------------------- ----------------------------------- ---------
INTERNATIONAL EQUITY PORTFOLIO
CLASS A
For the fiscal year ended March 31, 2004 (0.30)% 0.60% 155.68%
For the fiscal year ended March 31, 2003 0.55 0.57 147.32
For the fiscal year ended March 31, 2002 (0.09) 0.57 168.32
For the fiscal year ended March 31, 2001 (0.31) 0.53 168.04
For the fiscal year ended March 31, 2000 (0.77) 1.12 96.36
CLASS B
For the fiscal year ended March 31, 2004 (0.80) 0.60 155.68
For the fiscal year ended March 31, 2003 0.07 0.57 147.32
For the fiscal year ended March 31, 2002 (0.59) 0.57 168.32
For the fiscal year ended March 31, 2001 (0.81) 0.53 168.04
For the fiscal year ended March 31, 2000 (1.27) 1.12 96.36
CLASS C
For the fiscal year ended March 31, 2004 (0.80) 0.60 155.68
For the fiscal year ended March 31, 2003 0.05 0.57 147.32
For the fiscal year ended March 31, 2002 (0.59) 0.57 168.32
For the fiscal year ended March 31, 2001 (0.81) 0.53 168.04
For the fiscal year ended March 31, 2000 (1.27) 1.12 96.36
CLASS Y
For the fiscal year ended March 31, 2004 0.20 0.60 155.68
For the fiscal year ended March 31, 2003 1.05 0.57 147.32
For the period July 5, 2001* through March 31,
2002 0.55(4)(5) 0.51(4)(5) 168.32
</Table>
- ----------
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and includes reinvestment of dividends and
distributions, if any. Total investment return is not annualized.
(4) The total investment return and ratios for a class of shares are not
necessarily comparable to those of any other outstanding class of shares,
due to the timing differences in the commencement of initial public
offerings.
(5) Annualized.
57
<Page>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
S&P STARS Opportunities Portfolio
The Insiders Select Fund
Intrinsic Value Portfolio
Small Cap Value Portfolio
Alpha Growth Portfolio
International Equity 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 "SEC") under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), as an open-end management investment company. The
Fund currently consists of ten separate portfolios: six diversified portfolios,
Prime Money Market Portfolio, Intrinsic Value Portfolio ("Intrinsic Value"),
Small Cap Value Portfolio ("Small Cap"), International Equity Portfolio
("International Equity"), Income Portfolio and High Yield Total Return
Portfolio, and four non-diversified portfolios, The Insiders Select Fund
("Insiders Select"), Alpha Growth Portfolio ("Alpha Growth"), S&P STARS
Portfolio ("S&P STARS") and S&P STARS Opportunities Portfolio ("S&P STARS
Opportunities") (each a "Portfolio" and collectively, the "Portfolios"). As of
the date hereof, each Portfolio offers four classes of shares, which have been
designated as Class A, B, C and Y shares (except the Prime Money Market
Portfolio which only offers shares designated as Y). Class Y shares of Alpha
Growth have not commenced 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.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with their vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund expects that risk of loss to be remote.
MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP"), 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 as
of the close of regular trading on the New York Stock Exchange, Inc. (the
"Exchange") (generally 4:00 p.m. Eastern time) on each day that the Exchange is
open for trading.
Equity securities, including written covered call options, are valued each
business day at the last sale price as of the close of regular trading on the
Exchange by one or more independent pricing services ("Pricing Services")
approved by the Board of Trustees (the "Board"). Securities not listed on an
exchange or national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked prices,
except in the case of open short positions where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
Other assets and securities for which no quotations are readily available or
which are restricted as to sale (or resale) are valued by such methods as the
Fund's Board deems in good faith to reflect the fair value. Restricted
securities, as well as securities or other assets for which market quotations
are not readily available, or are not valued by a Pricing Service approved by
the Fund's Board,
58
<Page>
are valued at fair value as determined in good faith by Bear Stearns Asset
Management Inc.'s ("BSAM" or the "Adviser") Valuation Committee, pursuant to
procedures approved by the Fund's Board. The Board reviews the methods of
valuation quarterly.
Short-term investments (those acquired with remaining maturities of 60 days or
less) are valued at cost, plus or minus any amortized discount or premium, which
approximates market value.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from securities and foreign currency
related transactions, if any, are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on an accrual basis. Each Portfolio's net investment income (other than
distribution and service 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.
Expenses and fees, including the respective investment advisory, administration,
distribution and service 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 may differ.
SHORT SELLING--When the Portfolio makes a short sale, an amount equal to the
proceeds received by the Portfolio is recorded as a liability and is
subsequently adjusted to the current market value of the short sale. Until the
Portfolio replaces the borrowed security, the Portfolio will maintain a
segregated account with cash, U.S. government securities or other liquid
securities sufficient to cover its short position on a daily basis. Short sales
represent obligations of the Portfolio to make future delivery of specific
securities and correspondingly creates an obligation to purchase the security at
market prices prevailing at the later delivery date (or to deliver the security
if already owned by the Portfolio). Upon the termination of a short sale, the
Portfolio will recognize a gain, limited to the price at which the Portfolio
sold the security short, if the market price is less than the proceeds
originally received. The Portfolio will recognize a loss, unlimited in
magnitude, if the market price at termination is greater than the proceeds
originally received. As a result, short sales create the risk that the
Portfolio's ultimate obligation to satisfy the delivery requirements may exceed
the amount of the proceeds initially received or the liability recorded in the
financial statements.
S&P STARS and S&P STARS Opportunities are the only Portfolios that have engaged
in short sales for the fiscal year ended March 31, 2004.
S&P STARS has segregated sufficient liquid assets in a separate account as
collateral for open short sales. Securities sold short at March 31, 2004 for S&P
STARS were as follows:
<Table>
<Caption>
SECURITY PROCEEDS MARKET VALUE UNREALIZED GAIN/(LOSS)
- -------------------------------- ------------- ------------- ----------------------
Extreme Networks, Inc. $ 4,558,977 $ 4,686,500 $ (127,523)
Goodyear Tire & Rubber Co. (The) 2,341,438 2,562,000 (220,562)
Interstate Bakeries Corp. 15,450,870 12,848,100 2,602,770
Monster Worldwide Inc. 5,345,488 6,550,000 (1,204,512)
------------- ------------- -------------
Total $ 27,696,773 $ 26,646,600 $ 1,050,173
============= ============= =============
</Table>
S&P STARS Opportunities had no securities sold short at March 31, 2004.
SECURITIES LENDING--Loans of securities are required to be initially secured by
collateral at least equal to 100% of the market value of the securities on loan
and maintained at a level at least equal to the value of loaned securities.
However, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings. In the event that the borrower fails to return securities,
and cash collateral being maintained by the borrower is insufficient to cover
the value of loaned securities and provided such collateral insufficiency is not
the result of investment losses, the lending agent has agreed to pay the amount
of the shortfall to the Portfolios. The market value of securities on loan to
brokers at March 31, 2004, was as follows:
<Table>
<Caption>
MARKET VALUE OF
PORTFOLIO SECURITIES ON LOAN
- --------- ------------------
S&P STARS $ 43,751,026
</Table>
59
<Page>
In addition, Insider Select, Intrinsic Value, Small Cap and Alpha Growth engaged
in security lending transactions during the fiscal year ended March 31, 2004,
although none were outstanding at March 31, 2004. All such income is included in
the Statements of Operations. No other Portfolios had security lending
transactions during the fiscal year ended March 31, 2004.
Pursuant to an exemptive order received from the Securities and Exchange
Commission (the "Order"), Custodial Trust Company ("CTC"), a wholly-owned
subsidiary of The Bear Stearns Companies Inc. and custodian to each of the
Portfolios, and an affiliate of BSAM, Bear Stearns Funds Management Inc. ("BSFM"
or the "Administrator") and Bear, Stearns & Co. Inc., ("Bear Stearns" or the
"Distributor") served as the securities lending agent for the Portfolios and,
subject to the Order, participated in the lending income earned by the
Portfolios. For the fiscal year ended March 31, 2004, CTC has been compensated
approximately $16,955, $7, $109, $526 and $15 from S&P STARS, Insider Select,
Intrinsic Value, Small Cap and Alpha Growth, respectively. In addition, the
Order permits (subject to limitations) a Portfolio to loan securities to its
affiliates. For the fiscal year ended March 31, 2004, Bear, Stearns Securities
Corp., an affiliate to the Portfolios, received rebates in connection with such
loans amounting to $80,517, $79, $19 and $2,597 for S&P STARS, Insiders Select,
Intrinsic Value and Small Cap, respectively.
FOREIGN CURRENCY TRANSLATION--The books and records of the Portfolios are
maintained in U.S. dollars as follows: (1) the foreign currency 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 Statements of
Operations.
The Portfolios do not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
investments. However, the Portfolios do isolate the effect of 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 Portfolios may enter into
forward foreign currency exchange contracts ("forward currency contracts") to
hedge against adverse changes in the relationship of the U.S. dollar to foreign
currencies. The Portfolios may enter into these contracts to fix the U.S. dollar
value of a security that it has agreed to buy or sell for the period between the
date the trade was entered into and the date the security is delivered and paid
for. The Portfolios may also use these contracts to hedge the U.S. dollar value
of securities it already owns denominated in foreign currencies. Forward
currency contracts are valued at the forward rate, and are marked-to-market
daily. The change in market value is recorded by the Portfolio as an unrealized
gain or loss. When the contract is closed, the Portfolio records a realized gain
or loss equal to the difference between the value of the current contract at the
time it was opened and the value at the time it was closed. The use of forward
currency contracts does not eliminate fluctuations in the underlying prices of
the Portfolio's securities, but it does establish a rate of exchange that can be
achieved in the future. Although forward currency contracts limit the risk of
loss due to a decline in the value of the hedged currency, they also limit any
potential gain that might result should the value of currency increase. In
addition, the Portfolio could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts. For the fiscal year
ended March 31, 2004, only International Equity entered into such forward
currency contracts. There were no open forward currency contracts at March 31,
2004 in the International Equity Portfolio.
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. 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.
The tax character of dividends paid during the fiscal year ended March 31, 2004
were as follows:
<Table>
<Caption>
ORDINARY TOTAL
PORTFOLIO INCOME DISTRIBUTIONS
- -------------------- -------------- --------------
Insiders Select $ 53,348 $ 53,348
Intrinsic Value 521,633 521,633
Small Cap 185,345 185,345
</Table>
60
<Page>
The tax character of dividends and distributions paid during the fiscal year
ended March 31, 2003 were as follows:
<Table>
<Caption>
ORDINARY LONG-TERM TOTAL
PORTFOLIO INCOME CAPITAL GAIN DISTRIBUTIONS
- ------------------------- -------------- -------------- --------------
S&P STARS Opportunites $ 836,305 -- $ 836,305
Insiders Select 202 $ 52,589 52,791
Intrinsic Value 424,797 9,891 434,688
Small Cap 1,608,679 2,547,708 4,156,387
</Table>
At March 31, 2004, the components of distributable earnings on a tax basis were
as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED TOTAL
ORDINARY LONG-TERM CAPITAL AND UNREALIZED ACCUMULATED
PORTFOLIO INCOME CAPITAL GAINS OTHER LOSSES APPRECIATION EARNINGS/(DEFICIT)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ------------------
S&P STARS -- -- $ (979,519,265) $ 141,912,239 $ (837,607,026)
S&P STARS Opportunities -- $ 494,750 -- 5,033,488 5,528,238
Insiders Select $ 8,801 -- (1,655,166) 8,869,426 7,223,061
Intrinsic Value 439,819 -- -- 15,196,690 15,636,509
Small Cap -- -- (5,434,886) 11,871,811 6,436,925
Alpha Growth 3,241,601 11,953,969 -- 12,113,315 27,308,885
International Equity -- -- (51,468,673) 10,777,040 (40,691,633)
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales.
At March 31, 2004, the Portfolios indicated below had capital loss carryforwards
available as a reduction to the extent provided in regulations of any future net
capital gains realized before the end of fiscal year 2012. To the extent that
the capital loss carryforwards are used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders. The
Portfolios which had capital loss carryforwards at March 31, 2004 were as
follows:
<Table>
<Caption>
AMOUNT EXPIRING IN
GROSS CAPITAL LOSS --------------------------------------------------------------------------
PORTFOLIO CARRYFORWARD 2009 2010 2011 2012
- ----------------------- ------------------ ----------------- ----------------- ----------------- -----------------
S&P STARS $ 970,433,128 $ 75,578,721 $ 224,199,591 $ 545,785,145 $ 124,869,671
Insiders Select 802,777 -- -- 802,777 --
Small Cap 5,434,886 -- -- 5,434,886 --
International Equity 50,826,186 7,762,201 22,469,555 20,594,430 --
</Table>
For U.S. federal income tax purposes, net realized capital losses or foreign
exchange losses incurred after October 31, 2003, within the current fiscal year
are deemed to arise on the first day of the following fiscal year. S&P STARS,
Insiders Select, and International Equity incurred and elected to defer such
losses of $9,086,137, $852,389 and $642,487, respectively.
For U.S. federal income tax purposes, the cost of securities owned, gross
appreciation, gross depreciation and net unrealized appreciation of investments
at March 31, 2004 for each Portfolio were as follows:
<Table>
<Caption>
GROSS GROSS NET
PORTFOLIO COST APPRECIATION DEPRECIATION APPRECIATION
- ------------------------------ --------------- --------------- --------------- ---------------
S&P STARS $ 1,318,954,347 $ 206,024,140 $ (64,111,901) $ 141,912,239
S&P STARS Opportunities 50,412,659 5,860,657 (827,169) 5,033,488
Insiders Select 28,758,062 8,962,612 (93,186) 8,869,426
Intrinsic Value 94,368,910 16,428,121 (1,231,431) 15,196,690
Small Cap 34,564,641 12,105,300 (233,489) 11,871,811
Alpha Growth 162,053,332 19,551,110 (7,437,795) 12,113,315
International Equity 43,312,665 11,334,455 (569,096) 10,765,359
</Table>
61
<Page>
DIVIDENDS AND DISTRIBUTIONS--Each Portfolio intends to distribute at least
annually to shareholders substantially all of its net investment income.
Distributions of net realized gains, if any, will be declared and paid at least
annually. 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 GAAP. These
"book/tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within capital accounts based on their U.S. federal tax-basis
treatment; temporary differences do not require reclassification.
At March 31, 2004, the reclassifications within the composition of net assets
were as follows: S&P STARS and Small Cap reclassified from net investment losses
of $13,454,047 and $347,206, respectively, to paid-in capital. In addition,
Alpha Growth reclassified net investment loss of $373,885 to accumulated net
realized losses. International Equity reclassified foreign exchange losses of
$819,100 to net investment losses. In addition, International reclassified net
investment losses of $1,300,050 to paid-in capital. S&P STARS Opportunities
reclassified net investment loss of $627,309 to accumulated net realized losses
of $11,248 and to paid-in capital of $616,061.
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.
OTHER--Securities denominated in currencies other than U.S. dollars are subject
to changes in value due to fluctuations in exchange rates. Some countries in
which the Portfolios invest require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if there is a deterioration in a country's balance of
payments or for other reasons, a country may impose temporary restrictions on
foreign capital remittances abroad. The securities exchanges of certain foreign
markets are substantially smaller, less liquid and more volatile than the major
securities markets in the United States.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
For the fiscal year ended March 31, 2004, BSAM, a wholly owned subsidiary of The
Bear Stearns Companies Inc., served as the investment adviser pursuant to an
Investment Advisory Agreement with respect to each Portfolio. Under the terms of
the Investment Advisory Agreement, each Portfolio, except Insiders Select, has
agreed to pay BSAM a monthly fee at the annual rate of 0.75% of average daily
net assets for S&P STARS, S&P STARS Opportunities, Intrinsic Value and Small
Cap, 0.65% of average daily net assets for Alpha Growth, and 1.00% of average
daily net assets for International Equity.
For Insiders Select, BSAM is entitled to receive from the Portfolio a monthly
fee equal to an annual rate of 1.00% of the Portfolio's average daily net
assets. In addition, BSAM is entitled to a monthly performance adjustment fee
which may increase or decrease the total advisory fee by up to 0.50% per year of
the value of Insiders Select's average daily net assets. For the fiscal year
ended March 31, 2004, the performance adjustment fee decreased the total
advisory fee by $152,741 or 0.45% based on the value of Insider Select's average
daily net assets due to underperformance of such Portfolio on a trailing
12-month basis in comparison to the performance of the S&P MidCap 400 Index, the
Portfolio's benchmark index, for the year ended March 31, 2004. As a result the
annual rate was adjusted to 0.55% before any reduction for fee waivers or
expense reimbursements.
BSAM has engaged Marvin & Palmer Associates, Inc. ("Marvin & Palmer") as
International Equity's sub-investment adviser to manage the Portfolio's
day-to-day investment activities. Marvin & Palmer is entitled to receive a
monthly fee from BSAM (and not the Portfolio) calculated on an annual basis
equal to 0.20% of the Portfolio's total average daily net assets to the extent
the International Equity's average daily net assets are in excess of $25 million
and below $50 million at the relevant month end, 0.45% of the International
Equity's total average daily net assets to the extent the International Equity's
average daily net assets are in excess of $50 million and below $65 million at
the relevant month end and 0.60% of the International Equity's total average
daily net assets to the extent the International Equity's net assets in excess
of $65 million at the relevant month end. For the fiscal year ended March 31,
2004, Marvin & Palmer earned a fee of $107,512.
For the fiscal year ended March 31, 2004, BSFM served as administrator to each
Portfolio pursuant to an Administration Agreement. The Administrator is entitled
to receive from each Portfolio a monthly fee equal to an annual rate of 0.15% of
each Portfolio's average daily net assets up to $1 billion, 0.12% of the next $1
billion, 0.10% of the next $3 billion and 0.08% of the average daily net assets
above $5 billion.
62
<Page>
Effective August 1, 2003, BSAM has undertaken to limit each Portfolio's total
operating expenses (exclusive of brokerage commissions, taxes, interest and
extraordinary items) to a maximum annual level as a percent of each Portfolio's
average daily net assets as follows:
<Table>
<Caption>
PORTFOLIO CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES
- ------------------------------ --------------- --------------- --------------- ---------------
S&P STARS 1.50% 2.00% 2.00% 1.00%
S&P STARS Opportunities 1.50 2.00 2.00 1.00
Insiders Select 1.65 2.15 2.15 1.15
Intrinsic Value 1.50 2.00 2.00 1.00
Small Cap* 1.70 2.20 2.20 1.20
Alpha Growth 1.40 1.90 1.90 --
International Equity 1.75 2.25 2.25 1.25
</Table>
- ----------
*Prior to August 1, 2003 the expense limitations were 1.50%, 2.00%, 2.00% and
1.00% for Class A, B, C and Y shares, respectively.
As necessary, these limitations were 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, 2004, the advisory fee waivers and reimbursements of
expenses (in order to maintain the expense limitation) were as follows:
<Table>
<Caption>
PORTFOLIO ADVISORY FEE WAIVERS EXPENSE REIMBURSEMENTS
- ------------------------------ -------------------- ----------------------
S&P STARS $ 2,855,170 --
S&P STARS Opportunities 332,191 $ 1,132
Insiders Select 169,573 11,354
Intrinsic Value 299,785 --
Small Cap 221,960 --
Alpha Growth 312,897 --
International Equity 375,742 --
</Table>
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.
For the fiscal year ended March 31, 2004, Bear Stearns, an affiliate of the
Adviser and the Administrator, earned approximately $1,091,374, $74,491,
$12,399, $11,451, $7,137 and $93,350 in brokerage commissions from portfolio
transactions executed on behalf of S&P STARS, S&P STARS Opportunities, Insiders
Select, Intrinsic Value, Small Cap and Alpha Growth, respectively.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN
The Fund, on behalf of the Portfolios, has entered into a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act and a Shareholder
Servicing Plan which are as follows:
<Table>
<Caption>
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ---------------------------
DISTRIBUTION SHAREHOLDER DISTRIBUTION SHAREHOLDER DISTRIBUTION SHAREHOLDER
PORTFOLIO PLAN SERVICING PLAN SERVICING PLAN SERVICING
- ----------------------- ------------ ------------ ------------ ------------ ------------ ------------
S&P STARS 0.25% 0.25% 0.75% 0.25% 0.75% 0.25%
S&P STARS Opportunities 0.25 0.25 0.75 0.25 0.75 0.25
Insiders Select 0.25 0.25 0.75 0.25 0.75 0.25
Intrinsic Value 0.25 0.25 0.75 0.25 0.75 0.25
Small Cap 0.25 0.25 0.75 0.25 0.75 0.25
Alpha Growth 0.25 0.25 0.75 0.25 0.75 0.25
International Equity 0.25 0.25 0.75 0.25 0.75 0.25
</Table>
Such fees are based on the average daily net assets in each class of the
respective Portfolios and are accrued daily and paid quarterly or at such
intervals as the Board may determine. The fees paid to Bear Stearns under the
Distribution Plan are payable
63
<Page>
without regard to actual expenses incurred. Bear Stearns uses the distribution
fees to pay broker-dealers or other financial institutions whose clients hold
each Portfolio's shares and other distribution-related activities. Bear Stearns
uses shareholder servicing fees to pay broker-dealers or other financial
institutions that provide personal services in connection with the maintenance
of shareholder accounts.
For the fiscal year ended March 31, 2004, the distribution and shareholder
servicing fees paid to Bear Stearns under each Plan were as follows:
<Table>
<Caption>
PORTFOLIO DISTRIBUTION FEES SHAREHOLDER SERVICING FEES
- ------------------------------ ----------------- --------------------------
S&P STARS $ 6,653,464 $ 3,171,439
S&P STARS Opportunities 290,004 135,494
Insiders Select 168,655 84,380
Intrinsic Value 335,807 166,296
Small Cap 169,731 81,587
Alpha Growth 538,526 295,495
International Equity 193,682 90,854
</Table>
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. 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.
For the fiscal year ended March 31, 2004, Bear Stearns has advised each
Portfolio that it received the amounts noted below in front-end sales charges
resulting from sales of Class A shares and contingent deferred sales charges
("CDSC") upon certain redemptions by Class A, B and C shareholders,
respectively. The amounts were as follows:
<Table>
<Caption>
CDSC
FRONT-END SALES CHARGES ----------------------------------------------
PORTFOLIO CLASS A SHARES CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------- ------------------------- -------------- -------------- --------------
S&P STARS $ 756,538 $ 28,671 $ 1,815,355 $ 35,649
S&P STARS Opportunities 75,739 312 128,457 681
Insiders Select 42,899 -- 42,464 1,436
Intrinsic Value 88,804 1,995 40,575 4,858
Small Cap 11,899 -- 27,856 1,180
Alpha Growth 397,707 14,030 109,181 6,216
International Equity 5,864 -- 21,202 1,044
</Table>
INVESTMENTS IN SECURITIES
For the fiscal year ended March 31, 2004, aggregate purchases and sales of
investment securities (excluding short-term investments) for each Portfolio were
as follows:
<Table>
<Caption>
PORTFOLIO PURCHASES SALES
- ------------------------------ --------------- ---------------
S&P STARS $ 1,806,441,945 $ 2,067,622,023
S&P STARS Opportunities 122,884,250 135,119,260
Insiders Select 7,234,526 12,083,348
Intrinsic Value 66,482,142 46,793,306
Small Cap 32,506,638 51,947,546
Alpha Growth 180,878,619 108,644,113
International Equity 93,056,683 115,511,516
</Table>
64
<Page>
INVESTMENTS IN AFFILIATES
A summary of transactions for each issuer, which is or was an affiliate at or
during the fiscal year ended March 31, 2004, were as follows:
<Table>
<Caption>
NUMBER OF CAPITAL UNREALIZED
PORTFOLIO AFFILIATE SHARES LOSS LOSS VALUE
- --------- ------------------------------------ --------- ----------- ------------ ------------
S&P STARS America West Holdings Corp., Class B 2,510,000 $ 1,133,357 $ 8,826,581 $ 23,920,300
SportsLine.com, Inc. 3,870,000 -- 32,249,211 5,147,100
</Table>
SHARES OF BENEFICIAL INTEREST
Each Portfolio offers Class A, B, C and Y shares. Class A shares are sold with a
front-end sales charge of up to 5.50% 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. There is no sales
charge or CDSC on Class Y shares, which are offered primarily to institutional
investors.
Transactions in shares of beneficial interest for each Portfolio were as
follows:
<Table>
<Caption>
S&P STARS S&P STARS OPPORTUNITIES
------------------------------------------- -------------------------------------------
SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS
------------- ------------- ------------- ------------- ------------- -------------
CLASS A
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 2,125,429 7,993,517 -- 228,881 699,175 --
Value $ 42,295,179 $ 164,470,578 -- $ 3,025,451 $ 9,464,825 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 3,895,224 19,073,752 -- 878,968 1,055,372 30,110
Value $ 76,281,246 $ 347,895,463 -- $ 10,928,634 $ 12,146,430 $ 339,034
CLASS B
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 1,105,451 3,578,297 -- 122,581 325,609 --
Value $ 21,589,177 $ 71,379,887 -- $ 1,625,322 $ 4,429,223 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 1,674,642 8,079,666 -- 546,134 627,113 20,418
Value $ 31,438,483 $ 143,765,252 -- $ 6,865,066 $ 7,170,373 $ 228,272
CLASS C
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 1,008,420 4,032,071 -- 81,575 304,575 --
Value $ 19,829,027 $ 80,634,055 -- $ 1,050,086 $ 4,057,957 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 1,707,019 8,417,201 -- 532,785 584,820 17,250
Value $ 32,256,708 $ 149,851,445 -- $ 6,672,259 $ 6,669,475 $ 193,031
CLASS Y
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 1,794,154 1,446,600 -- 8,025 34,024 --
Value $ 39,881,031 $ 30,542,917 -- $ 100,360 $ 453,023 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 1,265,616 2,478,336 -- 11,479 117,341 1,320
Value $ 24,007,292 $ 45,739,040 -- $ 136,352 $ 1,435,304 $ 14,944
</Table>
65
<Page>
<Table>
<Caption>
INSIDERS SELECT INTRINSIC VALUE
------------------------------------------- -------------------------------------------
SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS
------------- ------------- ------------- ------------- ------------- -------------
CLASS A
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 227,670 252,194 2,619 1,188,300 442,336 8,297
Value $ 3,556,622 $ 4,076,028 $ 43,367 $ 22,161,212 $ 8,560,095 $ 162,794
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 381,563 455,090 1,714 513,159 368,820 7,061
Value $ 5,369,724 $ 6,163,183 $ 22,765 $ 8,715,103 $ 6,017,945 $ 114,948
CLASS B
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 126,281 155,033 -- 365,467 123,112 1,335
Value $ 1,917,398 $ 2,308,056 -- $ 6,871,491 $ 2,289,984 $ 25,643
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 383,024 311,664 1,163 496,503 269,735 1,505
Value $ 5,327,083 $ 3,978,471 $ 14,814 $ 8,340,638 $ 4,238,099 $ 23,997
CLASS C
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 67,615 134,297 -- 491,633 230,527 1,840
Value $ 1,051,425 $ 2,048,564 -- $ 9,104,627 $ 4,542,192 $ 35,547
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 191,683 250,383 802 298,748 223,304 1,770
Value $ 2,601,331 $ 3,264,497 $ 10,211 $ 5,076,626 $ 3,561,759 $ 28,400
CLASS Y
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 5,519 15,336 153 357,139 502,732 11,753
Value $ 100,000 $ 270,781 $ 2,618 $ 7,206,002 $ 10,085,932 $ 233,179
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 115 10,358 46 537,624 261,360 14,640
Value $ 1,500 $ 139,094 $ 628 $ 9,445,991 $ 4,224,746 $ 239,653
</Table>
<Table>
<Caption>
SMALL CAP ALPHA GROWTH
------------------------------------------- -------------------------------------------
SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS
------------- ------------- ------------- ------------- ------------- -------------
CLASS A
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 60,227 243,179 1,345 3,461,369 847,239 --
Value $ 1,003,814 $ 4,041,515 $ 24,004 $ 66,609,400 $ 16,278,827 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 364,832 625,507 78,806 2,127,629 800,655 --
Value $ 6,037,964 $ 9,671,143 $ 1,102,665 $ 35,129,114 $ 13,225,130 --
CLASS B
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 73,497 115,491 -- 821,415 312,939 --
Value $ 1,185,010 $ 1,915,533 -- $ 14,846,850 $ 5,709,547 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 230,356 208,957 29,431 893,338 326,659 --
Value $ 3,875,019 $ 3,154,162 $ 396,144 $ 14,555,453 $ 5,201,059 --
CLASS C
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 65,916 233,548 -- 1,028,108 222,799 --
Value $ 1,050,324 $ 3,963,220 -- $ 18,987,609 $ 4,205,697 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 165,696 289,911 52,759 686,358 170,113 --
Value $ 2,592,228 $ 4,318,724 $ 711,205 $ 10,995,616 $ 2,761,182 --
CLASS Y
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 350,046 1,330,890 7,490 -- -- --
Value $ 6,127,004 $ 24,583,074 $ 136,545 -- -- --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 291,446 507,414 105,401 -- -- --
Value $ 4,634,176 $ 7,624,225 $ 1,498,805 -- -- --
</Table>
66
<Page>
<Table>
<Caption>
INTERNATIONAL EQUITY
-------------------------------------------
SALES REPURCHASES REINVESTMENTS
------------- ------------- -------------
CLASS A
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 792,064 2,029,909 --
Value $ 9,089,145 $ 24,304,681 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 950,740 1,108,654 --
Value $ 11,728,521 $ 13,680,368 --
CLASS B
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 54,163 103,794 --
Value $ 639,952 $ 1,248,466 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 38,380 158,816 --
Value $ 492,186 $ 1,947,580 --
CLASS C
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 67,612 176,869 --
Value $ 805,269 $ 2,169,937 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 101,211 247,980 --
Value $ 1,369,054 $ 2,869,518 --
CLASS Y
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Shares 1,236,517 1,431,422 --
Value $ 14,376,541 $ 19,507,385 --
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
Shares 396,376 287,464 --
Value $ 4,834,630 $ 3,592,431 --
</Table>
67
<Page>
REDEMPTION FEES
The International Equity Portfolio imposes a redemption fee of 1.00% of the
total redemption amount (calculated at market value) if a shareholder sells
their shares 60 days or less after the purchase date. The redemption fee will
not apply to shares purchased through reinvested distributions (dividends and
capital gains), shares held in retirement plans or shares redeemed through
designated systematic withdrawal plans. The redemption fee is recorded as an
increase to paid-in-capital. The redemption fees paid to the portfolio for the
fiscal year ended March 31, 2004 were $26,716.
CREDIT FACILITY
The Fund has entered into a demand promissory note arrangement with JPMorgan
Chase Bank (the "Bank") to provide an uncommitted credit facility to the Fund
(on behalf of each Portfolio). The credit facility bears interest at the greater
of: (i) the rate otherwise in effect for such loan plus 2%, or (ii) that rate of
interest from time to time announced by the Bank at its principal office as its
prime commercial lending rate plus 2%, with such interest to be payable on
demand and upon payment in full of such principal. Each Portfolio as a
fundamental policy is permitted to borrow in an amount up to 33 1/3% of the
value of each Portfolio's total assets. However, each Portfolio intends to
borrow money only for temporary or emergency (not leveraging) purposes and only
in amounts not to exceed 15% of its net assets.
Each loan is payable on demand or upon termination of this credit facility or on
the last day of the interest period and, in any event, not later than 14 days
from the date the loan was advanced.
Amounts outstanding under the credit facility during the fiscal year ended March
31, 2004, were as follows:
<Table>
<Caption>
MAXIMUM LOAN AMOUNT NUMBER OF DAYS
PORTFOLIO AVERAGE LOAN BALANCE OUTSTANDING AVERAGE INTEREST RATE BORROWED
- ------------------------------ ---------------------- ---------------------- ---------------------- ----------------------
S&P STARS $ 15,025,519 $ 56,232,600 1.59% 313
S&P STARS Opportunities 81,472 1,600,000 1.53 68
Small Cap 61,035 3,000,000 1.51 15
Alpha Growth 1,205 200,000 1.53 8
International Equity 142,652 6,000,000 1.52 19
</Table>
S&P STARS and Small Cap had loan balances of $4,800,000 and $230,000,
respectively, outstanding under the line of credit facility at March 31, 2004.
None of the other Portfolios had any amounts outstanding under the line of
credit facility at or during March 31, 2004.
RESULTS OF SPECIAL SHAREHOLDER MEETINGS (UNAUDITED)
On November 18, 2003, BSAM and The Dreyfus Corporation, with its relevant
affiliates ("Dreyfus"), announced a strategic arrangement in which the
Portfolios will merge with new or existing Dreyfus funds that have the same or
similar investment objectives (the "Transaction").
The Transaction has received the approvals of the Board of Trustees of the Fund
and the Boards of the relevant Dreyfus funds.
A special joint meeting of each Portfolio's shareholders was held on March 11,
2004 at the offices of Bear Stearns, 383 Madison Avenue, New York, New York, to
seek shareholder approval for the merger of each Portfolio into a new or
existing Dreyfus fund with the same or similar investment objectives, as set
forth in the following table.
<Table>
<Caption>
PORTFOLIO CORRESPONDING DREYFUS FUND
- --------------------------------- -------------------------------------------
S&P STARS Portfolio Dreyfus Premier S&P STARS Fund
S&P STARS Opportunities Portfolio Dreyfus Premier S&P STARS Opportunities Fund
Insiders Select Fund Dreyfus Premier Intrinsic Value Fund
Intrinsic Value Portfolio Dreyfus Premier Intrinsic Value Fund
Small Cap Value Portfolio Dreyfus Premier Future Leaders Fund
Alpha Growth Portfolio Dreyfus Premier Alpha Growth Fund
International Equity Portfolio Dreyfus Premier International Value Fund
</Table>
68
<Page>
The following table shows the number of shares of each Portfolio that, as of the
record date of January 2, 2004, were outstanding and entitled to vote.
<Table>
<Caption>
PORTFOLIO NUMBER OF SHARES OUTSTANDING AND ENTITLED TO VOTE
- --------------------------------- -------------------------------------------------
S&P STARS Portfolio 67,255,244
S&P STARS Opportunities Portfolio 4,055,964
Insiders Select Fund 2,242,192
Intrinsic Value Portfolio 5,340,850
Small Cap Value Portfolio 3,245,331
Alpha Growth Portfolio 7,111,235
International Equity Portfolio 4,106,007
</Table>
Each reorganization required the affirmative vote of a majority of the relevant
Portfolio's shares outstanding and entitled to vote.
As of March 11, 2004, of the Portfolios listed above, only the Small Cap Value
and International Equity Portfolios had received sufficient votes to determine
whether to approve the reorganization. As a result, each other Portfolio's
meeting was adjourned until April 8, 2004.
The results of the voting at the March 11th meeting for the Small Cap Value and
International Equity Portfolios, are shown in the following table. Management
Information Services has independently certified the voting results for both
Portfolios. As indicated, each of these reorganizations received shareholder
approval at the March 11th meeting.
<Table>
<Caption>
FOR AGAINST ABSTAIN
---------------------- ---------------------- ----------------------
PORTFOLIO NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
- ------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Small Cap Value Portfolio 1,624,219 50.04% 56,983 1.76% 50,533 1.56%
International Equity Portfolio 2,182,966 53.17% 15,276 0.37% 27,181 0.66%
</Table>
SUBSEQUENT EVENT (UNAUDITED)
On April 8, 2004, each of the S&P STARS, S&P STARS Opportunities, Insiders
Select Fund, Intrinsic Value and Alpha Growth Portfolios reconvened a
shareholder meeting to vote on whether to approve the relevant reorganizations.
The results of the voting at the April 8th meeting for these Portfolios, as
independently certified by Management Information Services, are shown in the
following table. As indicated, each of these reorganizations received
shareholder approval at the April 8th meeting.
<Table>
<Caption>
FOR AGAINST ABSTAIN
---------------------- ---------------------- ----------------------
PORTFOLIO NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
- ------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
S&P STARS Portfolio 33,723,898 50.14% 1,687,112 2.51% 1,864,550 2.77%
S&P STARS Opportunities
Portfolio 2,072,929 51.11% 79,145 1.95% 142,005 3.50%
Insiders Select Fund 1,133,454 50.55% 84,661 3.78% 83,369 3.72%
Intrinsic Value Portfolio 2,976,276 55.73% 93,799 1.76% 132,109 2.47%
Alpha Growth Portfolio 3,677,469 51.71% 136,596 1.92% 165,099 2.32%
</Table>
Each reorganization that was approved on either March 11th or April 8th closed
after the close of business on April 30, 2004. Immediately after such date, the
assets of each Portfolio were transferred to its corresponding Dreyfus fund in
exchange for shares of that Dreyfus fund and those Dreyfus fund shares were then
distributed pro rata to each Portfolio shareholder, in complete liquidation of
the Portfolio.
69
<Page>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
S&P STARS Opportunities Portfolio
The Insiders Select Fund
Intrinsic Value Portfolio
Small Cap Value Portfolio
Alpha Growth Portfolio
International Equity Portfolio
INDEPENDENT AUDITORS' REPORT
To Board of Trustees and Shareholders,
S&P STARS Portfolio
S&P STARS Opportunities Portfolio
The Insiders Select Fund
Intrinsic Value Portfolio
Small Cap Value Portfolio
Alpha Growth Portfolio
International Equity Portfolio
(Series of The Bear Stearns Funds):
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of S&P STARS Portfolio, S&P STARS Opportunities
Portfolio, The Insiders Select Fund, Intrinsic Value Portfolio, Small Cap Value
Portfolio, Alpha Growth Portfolio, and International Equity Portfolio
(collectively, the "Portfolios") as of March 31, 2004, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2004, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios as of March 31, 2004, the results of their operations for the
year then ended, the changes in their net assets for each of the two years in
the period then ended and the financial highlights for each of the respective
stated periods, in conformity with accounting principles generally accepted in
the United States of America.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
April 28, 2004
70
<Page>
THE BEAR STEARNS FUNDS
The Insiders Select Fund
Intrinsic Value Portfolio
Small Cap Value 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, 2004) as to the U.S. federal tax status of distributions
received by the Portfolio's shareholders in respect of such fiscal year. During
the fiscal year ended March 31, 2004, the following dividends and distributions
per share were paid by each of the Portfolios:
<Table>
<Caption>
THE INSIDERS INTRINSIC SMALL CAP
SELECT FUND VALUE PORTFOLIO VALUE PORTFOLIO
------------ --------------- ---------------
Payment Date: 12/19/03 12/19/03 12/19/03
Net Investment Income:
Class A $ 0.0457 $ 0.1088 $ 0.0296
Class B -- 0.0323 --
Class C -- 0.0365 --
Class Y 0.1150 0.1741 0.1119
QDI percentage 37.6472% 55.7582% --
</Table>
Of the per share ordinary income dividend from December 19, 2003, a portion
represents qualifying dividend income ("QDI"), which is subject to a maximum
rate of 15%. The percentage of QDI per fund is listed in the table above.
Please note that to utilize the lower tax rate for QDI, shareholders must have
held their shares in the Fund for 60 days or more.
Ordinary income dividends, which include short-term capital gain distributions,
should be reported as dividend income on Form 1040. Income dividends are taxable
as ordinary income, as are short-term capital gain distributions.
Because each Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 2004. 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 2005.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their actual ordinary dividends. They will generally not be entitled
to a foreign tax credit or deduction for the withholding taxes paid by the
Portfolios, if any.
In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income for U.S. federal income tax purposes.
However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may
need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Portfolios.
71
<Page>
TRUSTEES AND OFFICERS
The following information is provided for each Trustee, Officer and the Advisory
Trustee of The Bear Stearns Funds (the "Trust") as of March 31, 2004. Each
Trustee oversees all 10 portfolios of the Trust. The mailing address of the
Trustees and Officers is 383 Madison Avenue, New York, New York 10179.
<Table>
<Caption>
POSITION(S) WITH THE
NAME AND TRUST AND LENGTH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AGE OF TIME SERVED(1) IN THE PAST 5 YEARS HELD BY TRUSTEE
- -------------------------- ---------------------------- --------------------------------------------------- ------------------------
INDEPENDENT TRUSTEES
John S. Levy - 68 Trustee, since 2000 Managing Partner, Fayerweather Capital Partners SL Green Realty Corp.
(private investment partnership)
M.B. Oglesby, Jr. - 61 Trustee, since 1995 Consultant; Vice Chairman, BKSH & Associates, None
Washington DC (government lobbyists) (2002-
present); Formerly, Chief of Staff to United
States Trade Representative, Executive Office of
the President (2001-2002); Consultant, Chairman,
Oglesby Properties, Inc.; President and Chief
Executive Officer, Association of American
Railroads; Vice Chairman, Cassidy & Associates
Robert E. Richardson - 62 Trustee, since 2000 Retired; Formerly, Vice President, Broker/Dealer None
Department, Mellon Bank (1991-1999)
"INTERESTED" TRUSTEE(2)
Michael Minikes - 60 Chairman of the Board, Treasurer, The Bear Stearns Companies Inc. and None
and Trustee, since 1999 Bear, Stearns& Co. Inc. ("Bear Stearns"); Senior
Managing Director, Bear Stearns; Co-President,
Bear, Stearns Securities Corporation
(1999-present); Director, Custodial Trust
Company and Bear Stearns Bank plc
</Table>
(1) The term of office for a Trustee is indefinite, until he or she resigns,
is removed or a successor is elected and qualified.
(2) The Interested Trustee and Officer is considered to be "interested
person" (as defined by the Investment Company Act of 1940, as amended),
because of his employment with the Trust's adviser or principal
underwriter.
72
<Page>
<Table>
<Caption>
POSITION(S) WITH THE
NAME AND TRUST AND LENGTH
AGE OF TIME SERVED(1) PRINCIPAL OCCUPATION(S) IN THE PAST 5 YEARS
- -------------------------- ------------------------------------ ------------------------------------------------------------------
ADVISORY TRUSTEE
Alan J. Dixon - 77 Advisory Trustee, since 1995 Partner - Corporate Business and Legislative Law, Bryan Cave (law
firm); Formerly, United States Senator (1981-1992)
OFFICERS WHO ARE NOT TRUSTEES
Barry Sommers - 34 President, since November 2003; Senior Managing Director (since 2000); Head of Marketing and Sales
Executive Vice President, from for the Trust (since 1997) and Managing Director (1997-2000), Bear
1998 to November 2003 Stearns.
Stephen A. Bornstein - 60 Vice President and Secretary, General Counsel, Managing Director/Principal and Executive Vice
since 1995 President, Bear Stearns Asset Management Inc. ("BSAM"); Managing
Director/Principal, Bear Stearns; Vice President, General Counsel
and Secretary, Bear Stearns Funds Management Inc. ("BSFM")
Frank J. Maresca - 45 Vice President and Treasurer, President and Chief Executive Officer, BSFM; Senior Managing
since 1995 Director, Bear Stearns (since 2001); Managing Director, Bear Stearns
Vincent L. Pereira - 38 Assistant Treasurer, since 1995 Executive Vice President, BSFM; Managing Director, (since 1999) and
Associate Director (1997-1999), Bear Stearns
Alaina V. Metz - 36 Assistant Secretary, since 2002 Chief Administrative Officer of BISYS Fund Services
</Table>
(1) The term of the office for a Trustee or Officer is indefinite, until he
or she resigns, is removed or a successor is elected and qualified.
73
<Page>
THE BEAR STEARNS FUNDS
S&P STARS Portfolio
S&P STARS Opportunities Portfolio
The Insiders Select Fund
Intrinsic Value Portfolio
Small Cap Value Portfolio
Alpha Growth Portfolio
International Equity Portfolio
PRIVACY NOTICE
While information is the cornerstone of our ability to provide superior service,
our most important assets are our shareholders and the trust that they place in
us. Keeping shareholder information secure and using it only as our shareholders
would want us to are top priorities at The Bear Stearns Funds.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
personal information about you. This is the information we collect from you on
applications or other forms, and from the transactions you make with us or third
parties. It may include your name, address, social security number, account
transactions and balances, and information on investment goals and risk
tolerance.
We do not disclose any information about you or about former customers to anyone
except as permitted by law. Specifically, we may disclose the information we
collect to companies that perform services on our behalf, such as the transfer
agent that processes shareholder accounts and mailers that assist us in the
distribution of shareholder materials. This allows us to continue to meet your
investing needs, and to effect transactions that you request or authorize.
These companies will use this information only for the services for which we
hired them, and are not permitted to use or share this information for any other
purpose. To protect your personal information internally, we permit access only
by authorized employees and maintain physical, electronic and procedural
safeguards to guard your personal information.
You may have received communications regarding information privacy on policies
from other financial institutions that gave you the opportunity to "opt-out" of
certain information sharing with companies that are not affiliated with that
financial institution. The Bear Stearns Funds does not share information with
other companies for purposes of marketing solicitations. Therefore, The Bear
Stearns Funds does not provide opt-out options to its shareholders.
We reserve the right to change our privacy policy at any time. The examples
contained within this notice are illustrations; they are not intended to be
exclusive. This notice complies with a recently enacted Federal law and SEC
regulations regarding privacy. You may have additional rights under foreign or
other domestic laws that may apply to you.
74
<Page>
The
Bear Stearns
Funds
383 MADISON AVENUE, NEW YORK, NY 10179 1.800.766.4111
Michael Minikes Chairman of the Board and Trustee
Barry Sommers President
John S. Levy Trustee
M. B. Oglesby, Jr. Trustee
Robert E. Richardson Trustee
Stephen A. Bornstein Vice President and Secretary
Frank J. Maresca Vice President and Treasurer
Vincent L. Pereira Assistant Treasurer
Alaina V. Metz Assistant Secretary
INVESTMENT ADVISER DISTRIBUTOR
Bear Stearns Asset Bear, Stearns & Co. Inc.
Management Inc. 383 Madison Avenue
383 Madison Avenue New York, NY 10179
New York, NY 10179
COUNSEL
SUB-ADVISER Kramer Levin
INTERNATIONAL EQUITY Naftalis & Frankel LLP
PORTFOLIO 919 Third Avenue
Marvin & Palmer New York, NY 10022
Associates, Inc.
1201 N. Market Street TRANSFER AND DIVIDEND
Suite 2300 DISBURSEMENT AGENT
Wilmington, DE 19801 PFPC Inc.
301 Bellevue Parkway
ADMINISTRATOR Wilmington, DE 19809
Bear Stearns Funds
Management Inc. INDEPENDENT AUDITORS
383 Madison Avenue Deloitte & Touche LLP
New York, NY 10179 1700 Market Street
Philadelphia, PA 19103
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540
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.
"Standard & Poor's(R)" and "S&P(R)" are trademarks of The McGraw-Hill Companies,
Inc. and have been licensed for use by Bear, Stearns & Co. Inc. S&P STARS
Portfolio and S&P STARS Opportunities Portfolio are not sponsored, managed,
advised, sold or promoted by Standard & Poor's.
<Page>
THE BEAR STEARNS FUNDS
- - PRIME MONEY
- - MARKET PORTFOLIO
ANNUAL REPORT
MARCH 31, 2004
[BEAR STEARNS LOGO]
BSF-R-017-14
<Page>
THE BEAR STEARNS FUNDS
Prime Money Market Portfolio
LETTER TO SHAREHOLDERS
April 8, 2004
Dear Shareholders:
We are pleased to present the annual report for the Prime Money Market Portfolio
(the "Portfolio") for the fiscal year ended March 31, 2004. The Portfolio's
performance for the fiscal year ranked in the 28th percentile of its peer group
(a universe of 258 tier-one institutional money market funds) as represented by
iMoneyNet.
The start of the fiscal year was marked by a great deal of uncertainty. Concerns
about the war with Iraq and the SARS epidemic weighed heavily on the economy.
Unemployment was on the rise and consumer confidence was just beginning to
recover from very low levels preceding the beginning of the Iraqi campaign.
Furthermore, concerns about disinflation and deflation had begun to take root in
the financial markets. The Federal Reserve confirmed this at its May 2003
meeting, stating that economic conditions were more weighted toward disinflation
than inflation, but that the economy's growth remained balanced. While
investors' expectation that the Fed would begin to buy back Treasury securities
in the open market in order to stave off deflation proved incorrect, the Fed did
reduce the targeted Federal Funds rate by 25 basis points, to 1.0%, at its June
meeting.
Economic activity began to pick up with the conclusion of full scale hostilities
in Iraq. Historically low interest rates on mortgages drove a refinancing boom
that, when combined with additional tax cuts, helped keep consumer spending
levels strong. This, coupled with a long-awaited return to business spending,
fueled a very robust annualized GDP growth rate of 8.2% for the third quarter --
the fastest rate of growth since 1983. This positive impetus carried over to the
fourth quarter as GDP grew at a solid annualized rate of 4.1%. Strong corporate
profits toward the end of 2003 led to increased equity valuations, and consumer
confidence was further boosted by rising real estate values -- the result of
continued strength in demand for housing.
As the economic recovery became more entrenched and the U.S. federal budget
deficit soared, investors came to expect the Fed to raise short-term rates in
the early spring of 2004. However, with inflation at very low levels, excess
capacity remaining in the economy, and a notable absence of new jobs growth, the
Fed continued to maintain its accommodative stance.
Sincerely,
/s/ Barry Sommers
Barry Sommers
President
The Bear Stearns Funds
1
<Page>
THE BEAR STEARNS FUNDS
Prime Money Market Portfolio
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
<Table>
<Caption>
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE(S) DATE(S) VALUE
- -------------------------------------------------------------------------------------------------------------------------------
BANKERS ACCEPTANCE -- 0.32%
BANKS - DOMESTIC - 0.32%
$ 5,222 JPMorgan Chase [A-1+, P-1]
(cost - $5,219,012) 1.031% 04/21/04 $ 5,219,012
----------------
CERTIFICATES OF DEPOSIT -- 30.65%
BANKS - DOMESTIC - 0.56%
9,000 Bank of America N.A. [A-1+, P-1] 1.130 05/10/04 9,000,000
----------------
BANKS - EURO - AUSTRALIA - 0.81%
13,000 National Australia Bank [A-1+, P-1] 1.170 10/13/04 13,005,434
----------------
BANKS - EURO - FRANCE - 2.62%
15,000 Credit Agricole Indosuez [A-1+, P-1] 1.270 12/31/04 15,004,009
27,000 Societe Generale [A-1+, P-1] 1.080 - 1.130 04/06/04 - 12/20/04 26,999,382
----------------
42,003,391
----------------
BANKS - EURO - GERMANY - 1.00%
8,000 Deutsche Bank [A-1+, P-1] 1.120 12/14/04 7,999,974
8,000 Landesbank Hessen-Thuringen Girozentrale [A-1+, P-1] 1.270 09/13/04 7,998,787
----------------
15,998,761
----------------
BANKS - EURO - UNITED KINGDOM - 6.87%
43,000 Barclays Bank plc [A-1+, P-1] 1.095 - 1.170 04/12/04 - 12/09/04 43,001,280
39,000 HBOS Treasury Services plc [A-1+, P-1] 1.060 - 1.210 04/22/04 - 06/11/04 39,001,184
16,000 HSBC Bank plc [A-1+, P-1] 1.230 06/14/04 16,002,275
12,000 Lloyds TSB Bank plc [A-1+, P-1] 1.400 08/05/04 12,000,207
----------------
110,004,946
----------------
BANKS - YANKEE - CANADA - 2.50%
32,000 Canadian Imperial Bank of Commerce [A-1, P-1] 1.240 - 1.310 05/17/04 - 08/13/04 32,002,599
8,000 Toronto Dominion Bank NY [A-1, P-1] 1.380 08/27/04 7,999,341
----------------
40,001,940
----------------
BANKS - YANKEE - FRANCE - 2.34%
22,250 BNP Paribas [A-1+, P-1] 1.390 08/05/04 22,258,958
15,250 Societe Generale [A-1+, P-1] 1.300 04/15/04 15,250,678
----------------
37,509,636
----------------
BANKS - YANKEE - GERMANY - 6.99%
34,500 Bayerische Landesbank Girozentrale* [A-1+, P-1] 1.050 - 1.090 04/26/04 - 06/21/04 34,500,424
36,000 Norddeutsche Landesbank Girozentrale [A-1+, P-1] 1.100 - 1.170 07/06/04 - 08/20/04 35,990,214
21,000 Westdeutsche Landesbank Girozentrale [A-1+, P-1] 1.320 - 1.400 04/15/04 - 08/05/04 21,004,315
20,500 Westdeutsche Landesbank Girozentrale* [A-1+, P-1] 1.055 04/01/04 20,500,000
----------------
111,994,953
----------------
</Table>
The accompanying notes are an integral part of the financial statements.
2
<Page>
<Table>
<Caption>
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE(S) DATE(S) VALUE
- -------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (CONTINUED)
BANKS - YANKEE - NETHERLANDS - 1.00%
$ 16,000 Rabobank Nederland N.V. [A-1+, P-1] 1.310 - 1.370% 08/06/04 - 08/27/04 $ 16,001,163
----------------
BANKS - YANKEE - SWEDEN - 2.12%
34,000 Svenska Handelsbanken [A-1, P-1] 1.120 - 1.250 04/07/04 - 12/10/04 34,001,051
----------------
BANKS - YANKEE - SWITZERLAND - 2.69%
12,000 Credit Suisse First Boston [A-1, P-1] 1.050 05/04/04 12,000,000
6,500 Credit Suisse First Boston* [A-1, P-1] 1.190 04/06/04 6,502,965
24,500 UBS A.G. [A-1+, P-1] 1.315 - 1.410 08/03/04 - 01/07/05 24,515,888
----------------
43,018,853
----------------
BANKS - YANKEE - UNITED KINGDOM - 1.15%
7,500 HSBC Bank plc [A-1+, P-1] 1.090 07/06/04 7,499,766
11,000 Royal Bank of Scotland plc [A-1+, P-1] 1.340 09/30/04 10,996,694
----------------
18,496,460
----------------
Total Certificates of Deposit
(cost - $491,036,588) 491,036,588
----------------
COMMERCIAL PAPER -- 15.79%
BANKS - YANKEE - SWITZERLAND - 1.19%
19,000 Credit Suisse First Boston [A-1, P-1] 1.031 - 1.041 04/12/04 - 04/29/04 18,990,561
----------------
COMMERCIAL FINANCE - 0.62%
10,000 UBS Finance LLC [A-1+, P-1] 1.031 04/05/04 9,998,856
----------------
DIVERSIFIED RECEIVABLES CONDUIT - 12.13%
18,000 Alpine Securitization Corp. [A-1, P-1] 1.031 04/01/04 - 04/15/04 17,995,994
19,441 Barton Capital Corp. [A-1+, P-1] 1.031 - 1.051 04/12/04 - 04/26/04 19,431,002
33,500 Blue Ridge Asset Corp. [A-1, P-1] 1.030 - 1.041 04/07/04 - 04/26/04 33,487,283
9,000 Delaware Funding Corp. [A-1+, P-1] 1.031 04/28/04 8,993,048
4,000 Govco, Inc. [A-1+, P-1] 1.031 04/26/04 3,997,139
16,000 Liberty Street Funding [A-1, P-1] 1.060 04/01/04 15,999,999
14,360 Mont Blanc Capital Corp. [A-1+, P-1] 1.031 04/15/04 - 04/26/04 14,351,416
19,274 Old Line Funding Corp. [A-1+, P-1] 1.031 - 1.051 04/19/04 - 04/26/04 19,262,197
7,000 Park Avenue Receivables Corp. [A-1, P-1] 1.031 04/15/04 6,997,196
20,500 Preferred Receivables Funding [A-1, P-1] 1.030 - 1.031 04/06/04 - 04/21/04 20,491,488
33,422 Sheffield Receivables Corp. [A-1+, P-1] 1.031 - 1.041 04/13/04 - 04/23/04 33,406,017
----------------
194,412,779
----------------
GAS & OIL - 0.75%
12,000 Koch Industries, Inc. [A-1+, P-1] 1.020 04/12/04 11,996,260
----------------
</Table>
The accompanying notes are an integral part of the financial statements.
3
<Page>
<Table>
<Caption>
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE(S) DATE(S) VALUE
- -------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (CONTINUED)
INVESTMENT STRUCTURE - 0.10%
$ 1,600 Sigma Finance, Inc. [A-1+, P-1] 1.041% 04/20/04 $ 1,599,122
----------------
SECURITY BROKERS & DEALERS - 1.00%
16,000 Goldman Sachs Group, Inc. (The) [A-1, P-1] 1.050 04/13/04 15,994,400
----------------
Total Commercial Paper
(cost - $252,991,978) 252,991,978
----------------
CORPORATE OBLIGATIONS -- 13.64%
BANKS - DOMESTIC - 6.33%
15,500 American Express Centurion* [A-1, P-1] 1.040 04/13/04 15,500,000
8,000 Bank One N.A.* [A-1, P-1] 1.120 04/19/04 8,005,331
12,000 First USA Bank* [A-1, P-1] 1.295 - 1.350 04/21/04 - 05/06/04 12,010,291
23,750 Southtrust Bank N.A.* [A-1, P-1] 1.190 - 1.200 05/24/04 - 06/21/04 23,755,789
20,070 US Bank N.A.* [A-1+, P-1] 1.290 - 1.340 04/05/04 - 04/13/04 20,077,003
22,000 Wells Fargo Bank N.A.* [A-1+, P-1] 1.040 04/01/04 21,999,999
----------------
101,348,413
----------------
COMMERCIAL FINANCE - 1.73%
27,650 General Electric Capital Corp.* [A-1+, P-1] 1.170 - 1.250 04/19/04 - 06/15/04 27,673,482
----------------
INSURANCE - 2.18%
35,000 Travelers Insurance Co.* (2) [A-1+, P-1] 1.160 - 1.190 04/28/04 35,000,000
----------------
INVESTMENT STRUCTURE - 2.03%
32,500 Sigma Finance, Inc.* (1) [A-1+, P-1] 1.050 - 1.051 04/01/04 - 04/19/04 32,498,772
----------------
SECURITY BROKERS & DEALERS - 1.37%
11,500 Goldman Sachs Group, Inc. (The)* (2) [A-1, P-1] 1.120 04/16/04 11,500,000
10,500 Merrill Lynch & Co., Inc.* [A-1, P-1] 1.350 04/28/04 10,507,159
----------------
22,007,159
----------------
Total Corporate Obligations
(cost - $218,527,826) 218,527,826
----------------
<Caption>
SHARES
- -----------
INVESTMENT COMPANY -- 0.00%
1,153 Federated Trust Prime Obligations Fund** [AAAm/Aaa]
(cost - $1,153) 0.930 -- 1,153
----------------
</Table>
The accompanying notes are an integral part of the financial statements.
4
<Page>
<Table>
<Caption>
PRINCIPAL INTEREST/
AMOUNT DISCOUNT MATURITY
(000'S) RATE(S) DATE(S) VALUE
- -------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS*** -- 34.80%
$ 77,663 ABN-AMRO Inc. [A-1+, P-1] 1.070% 04/01/04 $ 77,663,000
151,000 Goldman Sachs Group, Inc. (The) [A-1, P-1] 1.080 04/01/04 151,000,000
127,000 JPMorgan Securities Inc. [A-1, P-1] 1.080 04/01/04 127,000,000
202,000 Wachovia Securities Inc. [A-1, P-1] 1.080 04/01/04 202,000,000
----------------
Total Repurchase Agreements
(cost - $557,663,000) 557,663,000
----------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 5.12%
FANNIE MAE - 2.59%
41,500 Unsecured Notes 1.080 - 1.400 07/23/04 - 02/25/05 41,500,000
----------------
FEDERAL HOME LOAN BANK - 2.53%
40,500 Unsecured Bonds 1.300 - 1.470 02/23/05 - 04/29/05 40,500,000
----------------
Total U.S. Government Agency Obligations
(cost - $82,000,000) 82,000,000
----------------
Total Investments -- 100.32%
(cost - $1,607,439,557)**** 1,607,439,557
Liabilities in excess of other assets -- (0.32)% (5,184,432)
----------------
Net Assets -- 100.00% $ 1,602,255,125
================
</Table>
- ----------
(1) SEC Rule 144A security. Such securities are traded only among qualified
institutional buyers. These securities have been determined to be liquid in
accordance with procedures adopted by the Fund's Board.
(2) SEC Rule 144A security. These securities have been determined to be
illiquid and can only be sold to the issuer.
* Variable Rate Obligations -- The rate shown is the rate as of March 31,
2004 and the maturity date as shown is the date the interest rate resets.
** Money market fund; interest rate reflects SEC seven-day yield at March 31,
2004.
*** See notes to financial statements for description of underlying collateral.
**** The cost of investments for federal income tax purposes is substantially
the same for financial reporting purposes.
The accompanying notes are an integral part of the financial statements.
5
<Page>
THE BEAR STEARNS FUNDS
Prime Money Market Portfolio
STATEMENT OF ASSETS & LIABILITIES
MARCH 31, 2004
<Table>
ASSETS
Investments, at amortized cost which approximates market value
(identified and tax cost - $1,607,439,557) $ 1,607,439,557
Interest receivable 3,204,746
Prepaid expenses 86,540
---------------
Total assets 1,610,730,843
---------------
LIABILITIES
Payable for investments purchased 7,000,000
Dividends payable 1,190,587
Advisory fee payable 121,162
Administration fee payable 68,823
Custodian fee payable 22,505
Accrued expenses 72,641
---------------
Total liabilities 8,475,718
---------------
NET ASSETS
Capital stock, $0.001 par value (unlimited shares of beneficial interest authorized) 1,602,282
Paid-in capital 1,600,679,773
Accumulated net realized loss from investments (26,930)
---------------
Net assets $ 1,602,255,125
===============
CLASS Y
Net Assets $ 1,602,255,125
---------------
Shares of beneficial interest outstanding 1,602,282,055
---------------
Net asset value, offering and redemption price per share $ 1.00
===============
</Table>
The accompanying notes are an integral part of the financial statements.
6
<Page>
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 2004
<Table>
INVESTMENT INCOME
Interest $ 24,284,625
---------------
EXPENSES
Advisory fees 4,150,143
Administration fees 1,037,517
Accounting fees 341,357
Custodian fees and expenses 230,700
Legal and auditing fees 106,908
Federal and state registration fees 49,623
Transfer agent fees and expenses 41,499
Reports and notices to shareholders 22,900
Trustees' fees and expenses 18,213
Insurance expenses 9,194
Other 56,317
---------------
Total expenses before waivers 6,064,371
Less: waivers (1,904,930)
---------------
Total expenses after waivers 4,159,441
---------------
Net investment income 20,125,184
---------------
NET REALIZED GAIN FROM INVESTMENTS 4,352
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 20,129,536
===============
</Table>
The accompanying notes are an integral part of the financial statements.
7
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE FISCAL
YEARS ENDED MARCH 31,
------------------------------------
2004 2003
---------------- ----------------
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income $ 20,125,184 $ 38,051,689
Net realized gain from investments 4,352 4,464
---------------- ----------------
Net increase in net assets resulting from operations 20,129,536 38,056,153
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income (20,125,184) (38,051,689)
---------------- ----------------
SHARES OF BENEFICIAL INTEREST*
Net proceeds from the sale of shares 7,554,322,920 8,240,980,188
Cost of shares repurchased (8,390,744,571) (8,491,253,839)
Shares issued in reinvestment of dividends 17,104,179 34,116,859
---------------- ----------------
Net decrease in net assets derived from shares of
beneficial interest transactions (819,317,472) (216,156,792)
---------------- ----------------
Total decrease in net assets (819,313,120) (216,152,328)
NET ASSETS
Beginning of year 2,421,568,245 2,637,720,573
---------------- ----------------
End of year $ 1,602,255,125 $ 2,421,568,245
================ ================
</Table>
- ----------
* Share transactions at net asset value of $1.00 per share.
The accompanying notes are an integral part of the financial statements.
8
<Page>
THE BEAR STEARNS FUNDS
Prime Money Market Portfolio
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for each share
outstanding, total investment return, ratios to average net assets and other
supplemental data for each year indicated. This information has been derived
from information provided in the financial statements.
<Table>
<Caption>
FOR THE FISCAL YEARS ENDED MARCH 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
Net investment income(1) 0.0096 0.0158 0.0308 0.0622 0.0526
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations 0.0096 0.0158 0.0308 0.0622 0.0526
------------ ------------ ------------ ------------ ------------
Dividends to shareholders from net
investment income (0.0096) (0.0158) (0.0308) (0.0622) (0.0526)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
============ ============ ============ ============ ============
Total investment return(2) 0.97% 1.59% 3.13% 6.40% 5.39%
============ ============ ============ ============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000's omitted) $ 1,602,255 $ 2,421,568 $ 2,637,721 $ 1,963,646 $ 913,907
Ratio of expenses to
average net assets(1) 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of net investment income
to average net assets(1) 0.97% 1.57% 2.95% 6.15% 5.36%
Increase/(decrease) reflected in above
expense and net investment
income ratios due to waivers and
related reimbursements 0.09% 0.09% 0.10% 0.13% 0.17%
</Table>
- ----------
(1) Reflects waivers and related reimbursements.
(2) Total investment return is calculated assuming a purchase of shares on
the first day and a sale of shares on the last day of each year reported
and includes reinvestment of dividends.
The accompanying notes are an integral part of the financial statements.
9
<Page>
THE BEAR STEARNS FUNDS
Prime Money Market Portfolio
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Bear Stearns Funds (the "Fund") was organized as a Massachusetts business
trust on September 29,1994, and is registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), as an open-end management investment company. The
Fund currently consists of ten separate portfolios: six diversified portfolios,
Prime Money Market Portfolio (the "Portfolio"), Intrinsic Value Portfolio, Small
Cap Value Portfolio, International Equity Portfolio, Income Portfolio and High
Yield Total Return Portfolio, and four non-diversified portfolios, The Insiders
Select Fund, Alpha Growth Portfolio, S&P STARS Portfolio and S&P STARS
Opportunities Portfolio. As of the date hereof, the Portfolio offers one class
of shares, which has been designated as Class Y shares. 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.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with their vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund expects that risk of loss to be remote.
MANAGEMENT ESTIMATES--The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP") 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--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 from securities transactions 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. income taxes is required. In addition, by
distributing during each calendar year substantially all of its ordinary income
and capital gains, if any, the Portfolio intends not to be subject to a U.S.
federal excise tax.
The tax character of dividends paid during the fiscal years ended March 31, 2004
and March 31, 2003 were entirely from ordinary income.
At March 31, 2004, the components of distributable earnings on a tax basis were
equal to that shown on the Statement of Assets and Liabilities.
At March 31, 2004, the Portfolio had capital loss carryforwards available as a
reduction, to the extent provided in regulations, of any future net capital
gains realized before the end of fiscal year 2009. To the extent that the
capital loss carryforward is used to
10
<Page>
offset future capital gains, it is probable that the gains so offset will not be
distributed to shareholders. The Portfolio had capital loss carryforwards at
March 31, 2004 as follows:
<Table>
<Caption>
AMOUNT EXPIRING IN
GROSS CAPITAL LOSS -------------------------------------
CARRYFORWARD 2007 2008 2009
------------------ --------- --------- ---------
$ 26,930 $ 25,610 $ 1,279 $ 41
</Table>
DIVIDENDS AND DISTRIBUTIONS--Dividends from net investment income are declared
daily and paid monthly. Any net realized capital gains are distributed at least
annually if not offset by capital loss carryforwards. Income and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from GAAP. 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.
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 the 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.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
For the fiscal year ended March 31, 2004, Bear Stearns Asset Management Inc.
("BSAM" or the "Adviser"), a wholly-owned subsidiary of The Bear Stearns
Companies Inc., served as investment adviser pursuant to an Investment 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, 2004, 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 an annual rate of 0.05% of the
Portfolio's average daily net assets.
For the fiscal year ended March 31, 2004, the Adviser has undertaken to limit
the Portfolio's total 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. For the fiscal year
ended March 31, 2004, the Adviser waived advisory fees of $1,904,930 in order to
maintain the expense limitation.
The Portfolio will not pay BSAM at a later time for any amounts BSAM may waive,
nor will the Portfolio 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, BSFM and Bear, Stearns & Co. Inc. ("Bear
Stearns"), serves as custodian to the Portfolio.
SHARES OF BENEFICIAL INTEREST
The Portfolio currently offers Class Y shares. There is no sales charge or
contingent deferred sales charge on Class Y shares, which are offered primarily
to institutional investors.
11
<Page>
At March 31, 2004, there was an unlimited amount of $0.001 par value shares of
beneficial interest authorized for the Portfolio, of which Bear Stearns and its
affiliates owned 267,273,511 of Class Y shares or approximately 17% of the
shares outstanding.
COLLATERAL FOR REPURCHASE AGREEMENTS
Listed below is the collateral associated with the repurchase agreements
outstanding at March 31, 2004:
<Table>
<Caption>
PRINCIPAL ACCRUED
ISSUER AMOUNT MATURITY DATE(S) INTEREST RATE(S) MARKET VALUE INTEREST TOTAL VALUE
- ------ -------------- ------------------- --------------- -------------- ------------ --------------
ABN-AMRO INC.
Freddie Mac,
Pass-through Pools $ 78,081,000 11/01/05 - 12/16/10 2.41 - 4.50% $ 78,440,020 $ 776,422 $ 79,216,442
============== ============ ==============
GOLDMAN SACHS GROUP, INC.
(THE)
Fannie Mae,
Pass-through Pools $ 153,454,406 11/01/33 - 02/01/34 5.50% $ 153,333,662 $ 686,338 $ 154,020,000
============== ============ ==============
JPMORGAN SECURITIES INC.
Fannie Mae,
Pass-through Pools $ 85,915,000 02/01/19 - 03/01/34 5.00 - 5.50% $ 85,689,946 $ 344,125 $ 86,034,071
Gold,
Pass-through Pools 50,000,000 03/01/18 4.50 43,355,796 155,136 43,510,932
-------------- ------------ --------------
$ 129,045,742 $ 499,261 $ 129,545,003
============== ============ ==============
WACHOVIA SECURITES INC.
Fannie Mae,
Pass-through Pools $ 240,414,086 12/01/16 - 10/01/32 5.00 - 9.00% $ 173,029,080 $ 645,110 $ 173,674,190
Freddie Mac,
Pass-through Pools 28,908,304 01/01/32 - 10/01/32 5.50 - 6.00 32,238,539 127,271 32,365,810
-------------- ------------ --------------
$ 205,267,619 $ 772,381 $ 206,040,000
============== ============ ==============
</Table>
CREDIT FACILITY
The Fund has entered into a demand promissory note arrangement with JPMorgan
Chase Bank (the "Bank") to provide an uncommitted credit facility to the Fund
(on behalf of the Portfolio). The credit facility bears interest at the greater
of: (i) the rate otherwise in effect for such loan plus 2%, or (ii) that rate of
interest from time to time announced by the Bank at its principal office as its
prime commercial lending rate plus 2%, with such interest to be payable on
demand and upon payment in full of such principal. The Portfolio, as a
fundamental policy, is permitted to borrow in an amount up to 33 1/3 % of its
total assets.
Loans are payable on demand or upon termination of this credit facility 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 is advanced. The Portfolio had no
amounts outstanding under the credit facility at or for the fiscal year ended
March 31, 2004.
RESULTS OF THE SPECIAL SHAREHOLDER MEETING (UNAUDITED)
On November 18, 2003, BSAM and The Dreyfus Corporation (with its relevant
affiliates, "Dreyfus") announced a strategic arrangement in which the Portfolio
will merge with new or existing Dreyfus funds that have the same or similar
investment objectives (the "Transaction").
The Transaction has received the approvals of the Board of Trustees of the Fund
and the Boards of the relevant Dreyfus funds.
A special meeting of the Portfolio's shareholders was held on March 11, 2004 at
the offices of Bear Stearns, 383 Madison Avenue, New York, New York, to seek
shareholder approval for the merger of the Portfolio into the Bear Stearns Prime
Money Market Fund (the "New Dreyfus Fund"), a newly formed series of Dreyfus
Premier Manager Funds I, a newly formed investment company. The New Dreyfus Fund
has the same investment objective as the Portfolio.
12
<Page>
The Portfolio had 1,789,140,096 shares outstanding and entitled to vote as of
record date January 2, 2004.
The reorganization requires the affirmative vote of a majority of the
Portfolio's shares outstanding and entitled to vote. The results of the voting
at the shareholder meeting, as independently certified by Management Information
Services, are shown below.
<Table>
<Caption>
FOR AGAINST ABSTAIN
-------------------------- ------------------------- --------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
----------- ------------ ---------- ------------ ---------- ------------
973,700,177 54.42% 2,441,784 0.14% 53,219,871 2.98%
</Table>
SUBSEQUENT EVENT (UNAUDITED)
The reorganization described above closed after the close of business on April
30, 2004. Immediately after such date, the assets of the Portfolio were
transferred to the New Dreyfus Fund in exchange for shares of that New Dreyfus
Fund and those New Dreyfus Fund shares were then distributed pro rata to the
Portfolio's shareholders, in complete liquidation of the Portfolio.
13
<Page>
THE BEAR STEARNS FUNDS
Prime Money Market Portfolio
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Prime Money Market Portfolio
(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, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2004, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of March 31, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the respective stated
periods, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
April 28, 2004
14
<Page>
THE BEAR STEARNS FUNDS
TRUSTEES AND OFFICERS
The following information is provided for each Trustee, Officer and the Advisory
Trustee of The Bear Stearns Funds (the "Trust") as of March 31, 2004. Each
Trustee oversees all 10 portfolios of the Trust. The mailing address of the
Trustees and Officers is 383 Madison Avenue, New York, New York 10179.
<Table>
<Caption>
POSITION(S) WITH THE
NAME AND TRUST AND LENGTH PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AGE OF TIME SERVED(1) IN THE PAST 5 YEARS HELD BY TRUSTEE
- ------------------------- ----------------------- ----------------------------------------------------- ---------------------
INDEPENDENT TRUSTEES
John S. Levy - 68 Trustee, since 2000 Managing Partner, Fayerweather Capital Partners SL Green Realty Corp.
(private investment partnership)
M.B. Oglesby, Jr. - 61 Trustee, since 1995 Consultant; Vice Chairman, BKSH & Associates, None
Washington DC (government lobbyists) (2002-
present); Formerly, Chief of Staff to United States
Trade Representative, Executive Office of the
President (2001-2002); Consultant, Chairman,
Oglesby Properties, Inc.; President and Chief
Executive Officer, Association of American Railroads;
Vice Chairman, Cassidy & Associates
Robert E. Richardson - 62 Trustee, since 2000 Retired; Formerly, Vice President, Broker/Dealer None
Department, Mellon Bank (1991-1999)
"INTERESTED" TRUSTEE(2)
Michael Minikes - 60 Chairman of the Board Treasurer, The Bear Stearns Companies Inc. and None
and Trustee, since 1999 Bear, Stearns & Co. Inc. ("Bear Stearns"); Senior
Managing Director, Bear Stearns; Co-President,
Bear Stearns Securities Corporation (1999-present);
Director, Custodial Trust Company and Bear
Stearns Bank plc
</Table>
(1) The term of office for a Trustee is indefinite, until he or she resigns,
is removed or a successor is elected and qualified.
(2) The Interested Trustee is considered to be an "interested person" (as
defined by the Investment Company Act of 1940, as amended) because of his
employment with the Trust's adviser or principal underwriter.
15
<Page>
<Table>
<Caption>
POSITION(S) WITH THE
NAME AND TRUST AND LENGTH
AGE OF TIME SERVED(1) PRINCIPAL OCCUPATION(S) IN THE PAST 5 YEARS
- ------------------------- -------------------------- ---------------------------------------------------------------------------
ADVISORY TRUSTEE
Alan J. Dixon - 77 Advisory Trustee, since Partner - Corporate Business and Legislative Law, Bryan Cave (law firm);
1995 Formerly, United States Senator (1981-1992)
OFFICERS WHO ARE NOT TRUSTEES
Barry Sommers - 34 President, since Senior Managing Director (since 2000); Head of Marketing and Sales for the
November 2003; Trust (since 1997) and Managing Director (1997-2000), Bear Stearns
Executive Vice President,
from 1998 to November
2003
Stephen A. Bornstein - 60 Vice President and General Counsel, Managing Director/Principal and Executive Vice President,
Secretary, since 1995 Bear Stearns Asset Management Inc. ("BSAM"); Managing Director/Principal,
Bear Stearns; Vice President, General Counsel and Secretary, Bear Stearns
Funds Management Inc. ("BSFM")
Frank J. Maresca - 45 Vice President and President and Chief Executive Officer, BSFM; Senior Managing Director,
Treasurer, since 1995 Bear Stearns (since 2001); Managing Director, Bear Stearns
Vincent L. Pereira - 38 Assistant Treasurer, since Executive Vice President, BSFM; Managing Director (since 1999) and
1995 Associate Director (1997-1999), Bear Stearns
Alaina V. Metz - 36 Assistant Secretary, since Chief Administrative Officer of BISYS Fund Services
2002
</Table>
(1) The term of office for a Trustee or Officer is indefinite, until he or
she resigns, is removed or a successor is elected and qualified.
16
<Page>
THE BEAR STEARNS FUNDS
Prime Money Market Portfolio
PRIVACY NOTICE
While information is the cornerstone of our ability to provide superior service,
our most important assets are our shareholders and the trust that they place in
us. Keeping shareholder information secure and using it only as our shareholders
would want us to are top priorities at The Bear Stearns Funds.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
personal information about you. This is the information we collect from you on
applications or other forms, and from the transactions you make with us or third
parties. It may include your name, address, social security number, account
transactions and balances, and information investment goals and risk tolerance.
We do not disclose any information about you or about former customers to anyone
except as permitted by law. Specifically, we may disclose the information we
collect to companies that perform services on our behalf, such as the transfer
agent that processes shareholder accounts and mailers that assist us in the
distribution of shareholder materials. This allows us to continue to meet your
investing needs, and to effect transactions that you request or authorize.
These companies will use this information only for the services for which we
hired them, and are not permitted to use or share this information for any other
purpose. To protect your personal information internally, we permit access only
by authorized employees and maintain physical, electronic and procedural
safeguards to guard your personal information.
You may have received communications regarding information privacy on policies
from other financial institutions that gave you the opportunity to "opt-out" of
certain information sharing with companies that are not affiliated with that
financial institution. The Bear Stearns Funds does not share information with
other companies for purposes of marketing solicitations. Therefore, The Bear
Stearns Funds does not provide opt-out options to its shareholders.
We reserve the right to change our privacy policy at any time. The examples
contained within this notice are illustrations; they are not intended to be
exclusive. This notice complies with a recently enacted Federal law and SEC
regulations regarding privacy. You may have additional rights under foreign or
other domestic laws that may apply to you.
17
<Page>
THE BEAR STEARNS FUNDS
383 MADISON AVENUE, NEW YORK, NY 10179 1.800.766.4111
Michael Minikes Chairman of the Board and Trustee
Barry Sommers President
John S. Levy Trustee
M.B. Oglesby, Jr. Trustee
Robert E. Richardson Trustee
Stephen A. Bornstein Vice President and Secretary
Frank J. Maresca Vice President and Treasurer
Vincent L. Pereira Assistant Treasurer
Alaina V. Metz Assistant Secretary
INVESTMENT ADVISER DISTRIBUTOR
Bear Stearns Asset Bear, Stearns & Co. Inc.
Management Inc. 383 Madison Avenue
383 Madison Avenue New York, NY 10179
New York, NY 10179
TRANSFER AND DIVIDEND DISBURSEMENT AGENT
ADMINISTRATOR PFPC Inc.
Bear Stearns Funds 301 Bellevue Parkway
Management Inc. Wilmington, DE 19809
383 Madison Avenue
New York, NY 10179 INDEPENDENT AUDITORS
Deloitte & Touche LLP
CUSTODIAN 1700 Market Street
Custodial Trust Company Philadelphia, PA 19103
101 Carnegie Center
Princeton, NJ 08540
COUNSEL
Kramer Levin
Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
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.
<Page>
ITEM 2. CODE OF ETHICS.
Disclose whether, as of the end of the period covered by the report, the
registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. If the registrant has not adopted such a code of ethics,
explain why it has not done so.
THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER,
PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR
FUNCTIONS. THIS CODE OF ETHICS IS INCLUDED AS EXHIBIT 11 (a)(1).
EXHIBIT A OF THIS CODE OF ETHICS WAS REVISED ON MAY 13, 2004 TO REFLECT
THE APPOINTMENT OF BARRY SOMMERS AS PRESIDENT PRINCIPAL EXECUTIVE OFFICER
OF REGISTRANT.
The registrant must briefly describe the nature of any amendment, during
the period covered by the report, to a provision of its code of ethics that
applies to the registrant's principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these individuals are
employed by the registrant or a third party, and that relates to any
element of the code of ethics definition enumerated in paragraph (b) of
this Item. The registrant must file a copy of any such amendment as an
exhibit pursuant to Item 11(a)(1), unless the registrant has elected to
satisfy
<Page>
pargraph (f) of this Item by posting its code of ethics on its website
pursuant to paragraph (f)(2) of this Item, or by undertaking to provide its
code of ethics to any person without charge, upon request, pursuant to
paragraph (f)(3) of this Item.
If the registrant has, during the period covered by the report, granted a
waiver, including an implicit waiver, from a provision of the code of
ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, that relates
to one or more items set forth in paragraph (b) of this Item, the
registrant must briefly describe the nature of the waiver, the name of the
person to whom the waiver was granted, and the date of the waiver.
DURING THE PERIOD COVERED BY THE REPORT, WITH RESPECT TO THE REGISTRANT'S
CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL
FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS
PERFORMING SIMILAR FUNCTIONS; THERE HAVE BEEN NO AMENDMENTS TO, NOR ANY
WAIVERS GRANTED FROM, A PROVISION THAT RELATES TO ANY ELEMENT OF THE CODE
OF ETHICS DEFINITION ENUMERATED IN PARAGRAPH (b) OF THIS ITEM 2.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) Disclose that the registrant's board of directors has
determined that the registrant either:
(i) Has at least one audit committee financial expert serving
on its audit committee; or
(ii) Does not have an audit committee financial expert serving
on its audit committee.
(2) If the registrant provides the disclosure required by
paragraph (a)(1)(i) of this Item, it must disclose the name of the
audit committee financial expert and whether that person is
"independent." In order to be considered "independent" for
purposes of this Item, a member of an audit committee may not,
other than in his or her capacity as a member of the audit
committee, the board of directors, or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or
other compensatory fee from the issuer; or
(ii) Be an "interested person" of the investment company as
defined in Section 2(a)(19) of the Act (15 U.S.C.
80a-2(a)(19)).
(3) If the registrant provides the disclosure required by
paragraph (a)(1)(ii) of this Item, it must explain why it does not
have an audit committee financial expert.
THE BOARD OF TRUSTEES OF THE REGISTRANT HAS DETERMINED THAT THE
REGISTRANT DOES NOT HAVE AN AUDIT COMMITTEE FINANCIAL EXPERT
SERVING ON ITS AUDIT COMMITTEE. IN THIS REGARD, NO MEMBER OF THE
AUDIT COMMITTEE WAS IDENTIFIED AS HAVING ALL OF THE REQUIRED
TECHNICAL ATTRIBUTES IDENTIFIED IN INSTRUCTION 2(b) TO ITEM 3 OF
FORM N-CSR TO QUALIFY AS AN "AUDIT COMMITTEE FINANCIAL EXPERT,"
WHETHER THROUGH THE TYPE OF SPECIALIZED EDUCATION OR EXPERIENCE
REQUIRED BY THAT INSTRUCTION. AT THIS TIME, THE BOARD BELIEVES
THAT THE EXPERIENCE PROVIDED BY EACH MEMBER OF THE AUDIT
COMMITTEE COLLECTIVELY OFFERS THE REGISTRANT ADEQUATE OVERSIGHT
BY ITS AUDIT COMMITTEE GIVEN THE REGISTRANT'S LEVEL OF FINANCIAL
COMPLEXITY. THE BOARD WILL FROM TIME TO TIME REEXAMINE
SUCH BELIEF.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Disclose, under the caption AUDIT FEES, the aggregate fees billed
for each of the last two fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
2003 - $222,000
2004 - $237,300
(b) Disclose, under the caption AUDIT-RELATED FEES, the aggregate fees
billed in each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not reported under
paragraph (a) of this Item. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
2003 - $30,000 (17f-2 security counts)
2004 - $33,000 (17f-2 security counts)
<Page>
(c) Disclose, under the caption TAX FEES, the aggregate fees billed in
each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the fees
disclosed under this category.
2003 - $28,000 (tax compliance services)
2004 - $30,000 (tax compliance services)
(d) Disclose, under the caption ALL OTHER FEES, the aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant, other than the services reported in paragraphs (a)
through (c) of this Item. Registrants shall describe the nature of the services
comprising the fees disclosed under this category.
2003 - none
2004 - none
(e) (1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to the registrant's Audit Committee charter, periodically, as
the Audit Committee deems appropriate, the Committee considers and
approves any non-audit services to be provided to the registrant by the
independent accountants and the fees to be charged for the non-audit
services.
(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
2003 - 0%
2004 - 0%
(f) If greater than 50 percent, disclose the percentage of hours
expended on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant's full-time,
permanent employees.
0%
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
each of the last two fiscal years of the registrant.
2003 - $4,125,000
2004 - $7,175,000
(h) Disclose whether the registrant's audit committee of the board of
directors has considered whether the provision of nonaudit services that were
rendered to the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant's independence.
The Registrant's audit committee has considered that the provision of
non-audited related services that were rendered is compatible with maintaining
the auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) If the registrant is a listed issuer as defined in Rule 10A-3
under the Exchange Act (17CFR 240.10A-3), state whether or not the
registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange
Act (15 U.S.C. 78c(a)(58)(A)). If the registrant has such a
committee, however designated, identify each committee member. If
the entire board of directors is acting as the registrant's audit
committee as specified in Section 3(a)(58)(B) of the Exchange Act
(15 U.S.C. 78c(a)(58)(B)), so state.
(b) If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act (17CFR 240.10A-3(d)) regarding an exemption
from the listing standards for all audit committees.
NOT APPLICABLE.
ITEM 6. SCHEDULE OF INVESTMENTS.
<Page>
File Schedule I - Investments in securities of unaffiliated issuers as of the
close of the reporting period as set forth in Section 210.12-12 of Regulation
S-X, unless the schedule is included as part of the report to shareholders filed
under Item 1 of this Form.
NOT APPLICABLE.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
A closed-end management investment company that is filing an annual
report on this Form N-CSR must, unless it invests exclusively in non-voting
securities, describe the policies and procedures that it uses to determine how
to vote proxies relating to portfolio securities, including the procedures that
the company uses when a vote presents a conflict between the interests of its
shareholders, on the one hand, and those of the company's investment adviser;
principal underwriter; or any affiliated person (as defined in Section 2(a)(3)
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules
thereunder) of the company, its investment adviser, or its principal
underwriter, on the other. Include any policies and procedures of the company's
investment adviser, or any other third party, that the company uses, or that are
used on the company's behalf, to determine how to vote proxies relating to
portfolio securities.
NOT APPLICABLE.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
(a) If the registrant is a closed-end management investment company, provide the
information specified in paragraph (b) of this Item with respect to any purchase
made by or on behalf of the registrant or any "affiliated purchaser," as defined
in Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares
or other units of any class of the registrant's equity securities that is
registered by the registrant pursuant to Section 12 of the Exchange Act (15
U.S.C. 781).
NOT APPLICABLE.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Describe any material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors, where those changes
were implemented after the registrant last provided disclosure in response to
the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or
this Item.
NOT APPLICABLE
ITEM 10. CONTROLS AND PROCEDURES.
(a) Disclose the conclusions of the registrant's principal executive
and principal financial officers, or persons performing similar functions,
regarding the effectiveness of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) as
of a date within 90 days of the filing date of the report that includes the
disclosure required by this paragraph, based on the evaluation of these controls
and procedures required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or
240.15d-15(b)).
THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
HAVE CONCLUDED, BASED ON THEIR EVALUATION OF THE REGISTRANT'S DISCLOSURE
CONTROLS AND PROCEDURES AS CONDUCTED WITHIN 90 DAYS OF THE FILING DATE OF THIS
REPORT, THAT THESE DISCLOSURE CONTROLS AND PROCEDURES ARE ADEQUATELY DESIGNED
AND ARE OPERATING EFFECTIVELY TO ENSURE THAT INFORMATION REQUIRED TO BE
DISCLOSED BY THE REGISTRANT ON FORM N-CSR IS (i) ACCUMULATED AND COMMUNICATED TO
THE INVESTMENT COMPANY'S MANAGEMENT, INCLUDING ITS CERTIFYING OFFICERS, TO ALLOW
TIMELY DECISIONS REGARDING REQUIRED DISCLOSURE; AND (ii) RECORDED, PROCESSED,
SUMMARIZED AND REPORTED WITHIN THE TIME PERIODS SPECIFIED IN THE SECURITIES AND
EXCHANGE COMMISSION'S RULES AND FORMS.
(b) Disclose any change in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that
occurred during the registrant's last fiscal half-year (the registrant's second
fiscal half-year in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
THERE WERE NO CHANGES IN THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL
REPORTING THAT OCCURRED DURING THE REGISTRANT'S MOST RECENT FISCAL HALF-YEAR
(THE REGISTRANT'S SECOND FISCAL HALF-YEAR IN THE CASE OF AN ANNUAL REPORT) THAT
HAVE MATERIALLY AFFECTED OR ARE REASONABLY LIKELY TO MATERIALLY AFFECT, THE
REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING.
ITEM 11. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or
number the exhibits in the sequence indicated.
<Page>
(a)(1) Any code of ethics, or amendment thereto, that is the subject of
the disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit.
THE CODE OF ETHICS THAT IS THE SUBJECT OF THE DISCLOSURE REQUIRED BY ITEM 2 IS
ATTACHED HERETO.
(a)(2) A separate certification for each principal executive officer
and principal financial officer of the registrant as required by Rule 30a-2(a)
under the Act (17 CFR 270.30a-2). CERTIFICATIONS PURSUANT TO RULE 30A-2(a) ARE
ATTACHED HERETO.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1
under the Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. NOT APPLICABLE.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange
Act, provide the certifications required by rule 30a-2(b) under the Act as an
exchibit. A certification furnished pursuant to this paragraph will not be
deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise
subject to the liability of that section. Such certification will not be deemed
to be incorporated by reference into any filing under the Securities Act of 1933
or the Exchange Act, except to the extent that the registrant incorporates it by
reference. CERTIFICATIONS PURSUANT TO RULE 30A-2(b) ARE FURNISHED HEREWITH.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Bear Stearns Funds
--------------------------------------------------------------------
Frank J. Maresca,
By (Signature and Title)* /s/ Frank J. Maresca Vice President and Treasurer
-------------------------------------------------------
Date May 12, 2004
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Frank J. Maresca,
By (Signature and Title)* /s/ Frank J. Maresca Vice President and Treasurer
-------------------------------------------------------
Date May 12, 2004
---------------------------------
By (Signature and Title)* /s/ Barry Sommers Barry Sommers, President
-------------------------------------------------------
Date May 12, 2004
---------------------------------
* Print the name and title of each signing officer under his or her signature.