Bear Stearns told clients in its two battered hedge funds late yesterday that their investments, worth an estimated $1.5 billion at the end of 2006, are almost entirely gone. In phone calls to anxious investors, Bear Stearns brokers reported yesterday that May and June had been devastating months for the portfolios.

The more conservative fund, the High-Grade Structured Credit Strategies Fund, was down 91 percent by the end of June, investors were told. The High-Grade Structured Credit Strategies Enhanced Leverage Fund, which used extensive borrowings and assumed more risk, has no investor capital left, the firm said.

“In light of these returns, we will seek an orderly wind-down of the funds over time,” a letter to Bear Stearns clients said.

Overseen by Bear Stearns Asset Management, the hedge funds had been stellar performers until this spring when the mortgage securities market began to falter. Delinquencies on loans made to risky borrowers, known as subprime mortgages, started climbing in February; since then the value of the securities have spiraled downward.