Bull & Bear Dollar Reserves (the "Fund") is a high quality no-load money
market fund investing exclusively in obligations of the U.S. Government, its
agencies and instrumentalities. The Fund's objective is to provide its
shareholders maximum current income consistent with preservation of capital and
maintenance of liquidity. The monthly dividends the Fund pays to individuals are
generally exempt from state and local income taxes. Also, the value of an
individual's Fund shares is generally exempt from state intangible personal
property taxes.
THE FUND IS MANAGED TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE,
ALTHOUGH THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO. AN INVESTMENT
IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
The Fund waives the minimum initial investment of $1,000 if you invest $100
or more per month through the Bull & Bear Automatic Investment Program.
This prospectus contains information you should know about the Fund before
you invest. Please keep it for future reference. The Fund's Statement of
Additional Information, dated November 1, 1995, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
prospectus. It is available at no charge by calling 1-800-847-4200. Fund shares
are not bank deposits or obligations of, or guaranteed or endorsed by any bank
or any affiliate of any bank.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE TABLES. The tables below are designed to help you understand the costs
and expenses that you will bear directly or indirectly as an investor in the
Fund. A $2 account fee is charged if your monthly balance is less than $500,
unless you are in the Bull & Bear Automatic Investment Program (see "How to
Purchase Shares").
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................................NONE
Sales Load Imposed on Reinvested Dividends.................................NONE
Deferred Sales Load........................................................NONE
Redemption Fee.............................................................NONE
Exchange Fees..............................................................NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver)............................................0.25%
12b-1 Fees (after waiver).................................................0.00%
Other Expenses............................................................0.64%
Total Fund Operating Expenses.............................................0.89%
EXAMPLE You would pay the following expenses on a $1,000 investment, assuming
5% annual return and a redemption at the end of each time period
1 year 3 years 5 years 10 years
------ ------- ------- --------
$9 $28 $49 $110
The example set forth above assumes reinvestment of all dividends and other
distributions and uses an assumed 5% annual rate of return as required by the
Securities and Exchange Commission ("SEC"). THE EXAMPLE IS AN ILLUSTRATION ONLY
AND SHOULD NOT BE CONSIDERED AN INDICATION OF PAST OR FUTURE RETURNS AND
EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The percentages given for "Annual Fund Operating Expenses" are based on the
Fund's expenses (after waivers of 12b-1 fees and management fees) and average
daily net assets during its fiscal year ended June 30, 1995. Without such
waivers, management fees, 12b-1 fees, and total Fund operating expenses would
have been 0.50%, 0.25% and 1.39%, respectively. "Other Expenses" include amounts
paid to the Fund's custodian and transfer agent and reimbursed to the Investment
Manager and Investor Service Center, the Distributor, and does not include
interest expense from the Fund's bank borrowing. As of June 30, 1995, the
Distributor intended to waive its 12b-1 fee during the fiscal year ending June
30, 1996.
FINANCIAL HIGHLIGHTS for a share of capital stock outstanding throughout the
period. The following information is supplemental to the Fund's financial
statements and report thereon of Tait, Weller & Baker, independent accountants,
appearing in the June 30, 1995 Annual Report to Shareholders and incorporated by
reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net asset value at beginning of
period .......................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income.......... 0.044 0.026 0.026 0.042 0.062 0.078 0.077 0.064 0.055 0.073
Less dividends:
Dividends from net investment
income ..................... (0.044) (0.026) (0.026) (0.042) (0.062) (0.078) (0.077) (0.064) (0.055) (0.073)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value at end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN..................... 4.53% 2.59% 2.63% 4.28% 6.41% 8.10% 8.04% 6.58% 5.63% 7.61%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(000's omitted) .............. $65,278 $76,351 $64,673 $63,832 $77,984 $94,474 $103,97 5$102,684 $89,685 $76,250
======= ======= ======= ======= ======= ======= ======= ========= ======= =======
Ratio of expenses to average
net assets (a) 0.89% 0.89% 0.75% 0.80% 0.85% 0.65% 1.10% 1.25% 1.17% 1.14%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Ratio of net investment income
to average net assets (b) 4.41% 2.56% 2.59% 4.24% 6.30% 7.91% 7.62% 6.37% 5.50% 6.97%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
(a) Ratio prior to waivers by the Investment Manager and Distributor was 1.20%,
1.31%, 1.32%, 1.13%, 1.00%, 0.97% , 1.00%, 1.14% and 1.39% in 1986, 1987,
1989, 1990, 1991, 1992 ,1993, 1994 and 1995, respectively.
(b) Ratio prior to waivers by the Investment Manager and Distributor was 6.91%,
5.36%, 7.40%, 7.43%, 6.15%, 4.07%, 2.34%, 2.31% and 3.91% in 1986, 1987,
1989, 1990, 1991, 1992, 1993, 1994 and 1995, respectively.
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TABLE OF CONTENTS
Expense Tables.....................2 Dividends and Taxes...................10
Financial Highlights...............2 Determination of Net Asset Value......11
General............................3 The Investment Manager................11
The Fund's Investment Program......3 Yield Information.....................11
How to Purchase Shares.............4 Distribution of Shares................12
Shareholder Services...............6 Capital Stock.........................12
How to Redeem Shares...............9 Custodian and Transfer Agent..........13
GENERAL
PURPOSES OF THE FUND. The Fund, a no load mutual fund, is designed to provide an
economical and convenient way to invest cash reserves for maximum current income
consistent with preservation of capital and maintenance of liquidity. All Fund
net income from its exclusively U.S. Government money market investments is
accrued daily to each shareholder's account and distributed monthly.
CHECK WRITING PRIVILEGE FOR EASY ACCESS. Shareholders have the convenience of
making redemptions without charge simply by writing a check for $250 or more.
Shareholders with a discount brokerage Bull & Bear Performance Plus Account(R)
may write a check without charge for $100 or more. There is no limit on the
number of checks a shareholder may write.
YIELD INFORMATION. Please call 1-800-847-4200 for the Fund's yield.
THE FUND'S INVESTMENT PROGRAM
The Fund's investment objective is to provide its shareholders maximum
current income consistent with preservation of capital and maintenance of
liquidity. The Fund invests exclusively in obligations of the U.S. Government,
its agencies and instrumentalities ("U.S. Government Securities"). The monthly
dividends the Fund pays to individuals are generally exempt from state and local
income taxes. In addition, the value of an individual's Fund shares is generally
exempt from state intangible personal property taxes. There can be no assurance
that the Fund will achieve its investment objective. In periods of declining
interest rates, the Fund's yields will tend to be somewhat higher than
prevailing market rates, and in periods of rising rates the opposite will be
true. Also, when interest rates are falling, net cash inflows from the
continuous sale of the Fund's shares are likely to be invested in portfolio
instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing its yield. In periods of rising interest rates, the opposite
can be true.
The U.S. Government Securities in which the Fund may invest include U.S.
Treasury notes and bills and certain agency securities that are backed by the
full faith and credit of the U.S. Government. The Fund may also invest without
limit in securities issued by U.S. Government agencies and instrumentalities
that may have different degrees of government backing as to principal or
interest but which are not backed by the full faith and credit of the U.S.
Government. While the risks associated with investment in U.S. Government
Securities are minimal, an investment in the Fund is not completely risk free.
The U.S. Government is not obligated by law to provide financial support to
certain agencies, and securities issued by them may involve risk of loss of
principal and interest. For example, securities issued by the Federal Farm
Credit Banks are supported by the agency's limited right to borrow money from
the U.S. Treasury under certain circumstances and securities issued by the
Federal Home Loan Banks are supported only by the credit of the agency that
issued them. The Fund invests in these securities only when satisfied that the
issuer's credit risk is minimal. The Fund is managed so the dollar-weighted
average maturity of its portfolio does not exceed 90 days, and all investments
have a remaining maturity of less than 397 days.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a "when-issued"
basis. In such transactions delivery and payment occur at a date subsequent to
the date of the commitment to make the purchase. The Fund
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will only make commitments to purchase U.S. Government Securities maturing in
less than 397 days from the date of the commitment. Although the Fund will enter
into when-issued transactions with the intention of acquiring the securities,
the Fund may sell the securities prior thereto for investment reasons, which may
result in a gain or loss. Acquiring securities in this manner involves a risk
that yields available on the delivery date may be higher than those received in
such transactions, as well as the risk of price fluctuation. When the Fund
purchases securities on a when-issued basis, its custodian will set aside in a
segregated account cash or U.S. Government Securities with a market value at
least equal to the amount of the commitment. If necessary, assets will be added
to the account daily so that the value of the account will not be less than the
amount of the Fund's purchase commitment. Failure of the issuer to deliver the
security may result in the Fund incurring a loss or missing an opportunity to
make an alternative investment.
LENDING. Pursuant to an arrangement with its custodian bank, the Fund may lend
portfolio securities or other assets of the Fund to other parties limited to one
third of the Fund's total assets. If the Fund engages in lending transactions,
it will enter into lending agreements that require that the loans be
continuously secured by cash, U.S. Government Securities, or any combination of
cash and such securities, as collateral equal at all times to at least the
market value of the assets lent. To the extent of such activities, the custodian
will apply credits against its custodial charges. There are risks to the Fund of
delay in receiving additional collateral and risks of delay in recovery of, and
failure to recover, the assets lent should the borrower fail financially or
otherwise violate the terms of the lending agreement. Loans will be made only to
borrowers deemed by the Investment Manager to be of good standing and when, in
the judgment of the Investment Manager, the consideration which can be earned
currently from such lending transactions justifies the attendant risk. Any loan
made by the Fund will provide that it may be terminated by either party upon
reasonable notice to the other party.
VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase variable and
floating rate U.S. Government Securities. The yield on these securities is
adjusted in relation to changes in specific rates, such as the prime rate, and
different securities may have different adjustment rates. The Fund's investments
in these securities must comply with conditions established by the SEC under
which they may be considered to have remaining maturities of 13 months or less.
OTHER INFORMATION. The Fund's investment objective is fundamental and may not be
changed without shareholder approval. The Fund is also subject to certain
investment restrictions, set forth in the Statement of Additional Information,
that are fundamental and cannot be changed without shareholder approval. The
Fund's other investment policies are not fundamental and may be changed by the
Board of Directors without shareholder approval. The Fund operates in accordance
with a nonfundamental policy which complies with Rule 2a-7 under Investment
Company Act of 1940 (the "1940 Act") that limits the amount the Fund may invest
in the securities of any one issue to 5% of the Fund's total assets. The Fund is
also subject to a fundamental limitation that provides the Fund the ability to
invest, with respect to 25% of the Fund's assets, more than 5% of its total
assets in any one issuer. The Fund will operate in accordance with this
fundamental limitation only in the event that Rule 2a-7 is amended and the
Fund's Board amends the nonfundamental policy discussed above. The Fund may
borrow money from banks for temporary or emergency purposes (not for leveraging
or investment), but not in excess of an amount equal to one third of the Fund's
total assets. The Fund may also invest up to 10% of its net assets in illiquid
assets, and up to 10% of its total assets in restricted securities.
HOW TO PURCHASE SHARES
The Fund's shares are sold on a continuing basis at the net asset value per
share next determined after receipt and acceptance of the order by Investor
Service Center (see "Determination of Net Asset Value"). The minimum initial
investment is $1,000 for regular and gifts/transfers to minors custody accounts,
and $500 for Bull & Bear Retirement Plans, which include Individual Retirement
Accounts ("IRAs"), SEP-IRAs, rollover IRAs, profit sharing and money purchase
plans, and 403(b) plan accounts. The minimum subsequent investment is $100. The
initial investment minimums are waived if you elect to invest $100 or more each
month in the Fund through the Bull & Bear Automatic Investment Program (see
"Additional Investments" below).
INITIAL INVESTMENT. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
payable to Dollar Reserves, mailed to Investor Service Center, Box
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419789, Kansas City, MO 64141-6789. Initial investments also may be made by
having your bank wire money, as set forth below, in order to avoid mail delays.
ADDITIONAL INVESTMENTS. Additional investments may be made conveniently at any
time by any one or more of the following methods:
o BULL & BEAR AUTOMATIC INVESTMENT PROGRAM. With the Bull & Bear Automatic
Investment Program (the "Program"), you can establish a convenient and
affordable long term investment program through one or more of the Plans
explained below. Each Plan is designed to facilitate an automatic monthly
investment of $100 or more into your Fund account.
The BULL & BEAR BANK TRANSFER PLAN lets you purchase Fund shares on a
certain day each month by transferring electronically a specified
dollar amount from your regular checking account, NOW account, or bank
money market deposit account.
In the BULL & BEAR SALARY INVESTING PLAN, part or all of your salary
may be invested electronically in Fund shares on each pay date,
depending upon your employer's direct deposit program.
The BULL & BEAR GOVERNMENT DIRECT DEPOSIT PLAN allows you to deposit
automatically part or all of certain U.S. Government payments into
your Fund account. Eligible U.S. Government payments include Social
Security, pension benefits, military or retirement benefits, salary,
veteran's benefits and most other recurring payments.
For more information concerning these Plans, or to request the necessary
authorization form(s), please call Investor Service Center, 1-800-847-4200. You
may modify or terminate the Bank Transfer Plan at any time by written notice
received at least 10 days prior to the scheduled investment date. To modify or
terminate the Salary Investing Plan or Government Direct Deposit Plan, you
should contact, respectively, your employer or the appropriate U.S. government
agency. The Fund reserves the right to redeem any account if participation in
the Program is terminated and the account's value is less than $500. The Program
does not assure a profit or protect against loss in a declining market.
o CHECK. Mail a check or other negotiable bank draft ($100 minimum), made
payable to Dollar Reserves, together with a Bull & Bear FastDeposit form to
Investor Service Center, Box 419789, Kansas City, MO 64141- 6789. If you do
not use that form, please send a letter indicating the Fund and account
number to which the subsequent investment is to be credited, and name(s) of
the registered owner(s).
o ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional
shares of the Fund quickly and simply, just by calling Investor Service
Center, 1-800-847-4200. We will contact the bank you designate on your
Account Application or Authorization Form to arrange for the EFT, which is
done through the Automated Clearing House system, to your Fund account. For
requests received by 4 p.m., eastern time, the investment will be credited
to your Fund account ordinarily within two business days. There is a $100
minimum for each EFT investment. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account information
must be submitted in writing with a voided check or deposit slip.
o FEDERAL FUNDS WIRE. You may wire money, by following the procedures set
forth below, to begin accruing income on your investment as soon as
possible.
INVESTING BY WIRE. For an initial investment by wire, you must first telephone
Investor Service Center, 1-800- 847-4200, to give the name(s) under which the
account is to be registered, tax identification number, the name of the bank
sending the wire, and to be assigned a Bull & Bear Dollar Reserves account
number. You may then purchase shares by requesting your bank to transmit
immediately available funds ("Federal funds") by wire to: United Missouri Bank
NA, ABA #10-10-00695; for Account 98-7052-724-3; Dollar Reserves. Your account
number and name(s) must be specified in the wire as they are to appear on the
account registration. You should then enter your account number on your
completed Account Application and promptly forward it to Investor Service
Center, Box 419789, Kansas City, MO 64141-6789. This service is not available on
days when the Federal Reserve wire system is closed. Subsequent investments by
wire may be made at any time without having to call Investor Service Center by
simply following the same wiring procedures.
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SHAREHOLDER ACCOUNTS. When you invest in the Fund, your account will be credited
with all full and fractional shares (to two decimal places), together with any
dividends that are paid in additional shares (see "Dividends and Taxes"). Stock
certificates will be issued only for full shares when requested in writing. In
order to facilitate redemptions and exchanges and provide safekeeping, we
recommend that you do not request certificates. You will receive transaction
confirmations upon purchasing or selling shares, and quarterly statements.
WHEN ORDERS ARE EFFECTIVE. The purchase price for Fund shares is the net asset
value of such shares next determined after receipt and acceptance by Investor
Service Center of a purchase order in proper form. Purchase orders submitted in
proper form along with payment in Federal funds available to the Fund for
investment by 11 a.m. eastern time on any Fund business day will be of record at
the close of business that day and entitled to receive that day's dividends. A
"Fund business day" is any day on which the New York Stock Exchange is open for
business. The following are not Fund business days: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. All purchases are accepted subject to collection at full face
value in Federal funds. Checks must be drawn in U.S. dollars on a U.S. bank. The
Fund reserves the right to reject any order. Accounts are charged $30 by the
Transfer Agent for submitting checks for investment which are not honored by the
investor's bank. The Fund may in its discretion waive or lower the invest ment
minimums.
SHAREHOLDER SERVICES
You may modify or terminate your participation in any of the Fund's special
plans or services at any time. Shares or cash should not be withdrawn from any
tax-advantaged retirement plan described below, however, without consulting a
tax adviser concerning possible adverse tax consequences. Additional information
regarding any of the following services is available from Investor Service
Center, 1-800-847-4200.
CHECK WRITING PRIVILEGE FOR EASY ACCESS. The Fund's Check Writing Privilege
enables you to continue receiving dividends on shares redeemed by check until
such time as the check is presented to the Transfer Agent's bank for payment.
You may establish an account in either of two ways for check writing:
o BULL & BEAR FUND ACCOUNTS. Upon request, shareholders will receive FREE,
UNLIMITED check writing with only a $250 minimum per check. The Fund will
arrange for shareholder checks to be honored by UMB Bank for this purpose.
o BULL & BEAR PERFORMANCE PLUS ACCOUNT(R). Bull & Bear Securities, Inc.
offers discount brokerage services. Investors purchasing Fund shares
through a Bull & Bear Performance Plus Account(R) with $5,000 minimum
equity receive upon request FREE, UNLIMITED CHECK WRITING WITH ONLY A $100
MINIMUM PER CHECK, by arrangement with U.S. Clearing Corp. and Chemical
Bank. Call Investor Service Center, 1-800-847-4200, for a Bull & Bear
Securities discount brokerage Account Application.
With both types of accounts, the check clearing bank has the right to refuse
any checks which do not conform with its requirements. The shareholder will be
subject to the bank's rules and regulations governing checking accounts,
including a $20 charge for refused checks, which may change without notice. When
such a check is presented for payment, a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the check
will be redeemed. The Fund generally will not honor a check written by a
shareholder that requires the redemption of recently purchased shares for up to
10 days or until the Fund is reasonably assured of payment of the check
representing the purchase. Since the value of your account, including daily
dividends, changes each day, you should not attempt to close an account by
writing a check.
ELECTRONIC FUNDS TRANSFER (EFT). You automatically have the privilege of linking
your bank account designated on your Account Application or Authorization Form
and your Fund account through Bull & Bear's EFT service. With EFT, you use the
Automated Clearing House system to electronically transfer money quickly and
safely between your bank and Fund accounts. EFT may be used for purchasing and
redeeming Fund shares, direct deposit of dividends into your bank account, the
Automatic Investment Program, the Systematic Withdrawal Plan, and systematic IRA
distributions. You may decline this privilege by checking the indicated box on
the Account Application. Any subsequent changes in bank account information must
be submitted in writing (and the Transfer Agent may require the signature to be
guaranteed) with a voided check.
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DIVIDEND SWEEP PRIVILEGE. You may elect to have all dividends paid by the Fund
automatically invested in any other Bull & Bear Fund. Shares of the other Bull &
Bear Fund will be purchased at the current net asset value calculated on the
payment date. For more information concerning this privilege and the other Bull
& Bear Funds, or to request a Dividend Sweep Authorization Form, please call
Investor Service Center, 1-800-847-4200. You may cancel this privilege by
mailing written notification to Investor Service Center, Box 419789, Kansas
City, MO 64141-6789. To select a new Bull & Bear Fund after cancellation, you
must submit a new Authorization Form. Enrollment in or cancellation of this
privilege is generally effective three business days following receipt. This
privilege is available only for existing accounts and may not be used to open
new accounts.
SYSTEMATIC WITHDRAWAL PLAN. If you own Fund shares with a value of at least
$20,000 you may elect an automatic monthly or quarterly withdrawal of cash from
your Fund account in fixed or variable amounts, subject to a minimum amount of
$100. Under the Systematic Withdrawal Plan, all dividends are reinvested in the
Fund.
ASSIGNMENT. Fund shares may be transferred to another owner. Instructions are
available from Investor Service Center, 1-800-847-4200.
EXCHANGE PRIVILEGE. You may exchange at least $500 worth of shares of the Fund
for shares of any Bull & Bear Fund listed below (provided the registration is
exactly the same, the shares may be sold in your state of residence, and the
exchange may otherwise legally be made).
To exchange shares, please call Investor Service Center at 1-800-847-4200
between 9 a.m. and 5 p.m. eastern time on any Fund business day and provide the
following information: account registration including address and number;
taxpayer identification number; percentage, number, or dollar value of shares to
be redeemed; name and, if different, the account number of the Bull & Bear Fund
to be purchased; and your identity and telephone number. The other Bull & Bear
Funds are:
o BULL & BEAR U.S. GOVERNMENT SECURITIES FUND invests for a high level of
current income, liquidity, and safety of principal. Free unlimited check
writing ($250 minimum per check). Pays monthly dividends.
o BULL & BEAR MUNICIPAL INCOME FUND invests for the highest possible income
exempt from Federal income tax consistent with preservation of principal.
Free unlimited check writing ($250 minimum per check). Pays monthly
dividends.
o BULL & BEAR GLOBAL INCOME FUND seeks a high level of income from a global
portfolio of primarily investment grade fixed income securities. Free
unlimited check writing ($250 minimum). Pays monthly dividends.
o BULL & BEAR QUALITY GROWTH FUND seeks growth of capital and income from a
portfolio of common stocks of large, quality companies with potential for
significant growth of earnings and dividends.
o BULL & BEAR U.S. AND OVERSEAS FUND invests worldwide for the highest
possible total return.
o BULL & BEAR SPECIAL EQUITIES FUND invests aggressively for maximum capital
appreciation.
o BULL & BEAR GOLD INVESTORS seeks long term capital appreciation in
investments with the potential to provide a hedge against inflation and
preserve the purchasing power of the dollar.
Exchange requests received between 9 a.m. and 4 p.m. eastern time on any
Fund business day will be effected at the net asset values of the Fund and the
other Bull & Bear Fund as determined at the close of that business day. Exchange
requests received between 4 p.m. and 5 p.m. eastern time on any Fund business
day will be effected at the net asset values of the Fund and the other Bull &
Bear Fund as determined at the close of the next Fund business day. If you are
unable to reach Investor Service Center at the above telephone number you may,
in emergencies, call 1-212-363-1100 or communicate by fax to 1-212-363-1103 or
cable to the address BULLNBEAR NEWYORK. Exchanges may be difficult or impossible
to implement during periods of rapid changes in economic or market conditions.
Exchange privileges may be terminated or modified by the Fund without notice. A
free prospectus containing more complete information including charges, expenses
and performance, on any of the Bull & Bear Funds listed above is available from
Investor Service Center, 1-800-847-4200. The other Bull & Bear Fund's prospectus
should be read carefully before exchanging shares. You may give exchange
instructions to Investor Service Center by telephone without further
documentation. If you have requested share
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certificates, this procedure may be utilized only if, prior to giving telephone
instructions, you deliver the certificates to the Transfer Agent for deposit
into your account.
o BULL & BEAR SECURITIES (DISCOUNT BROKERAGE ACCOUNT) TRANSFERS. If you have
an account at Bull & Bear Securities, Inc., an affiliate of the Investment
Manager and a wholly owned subsidiary of Bull & Bear Group, Inc. offering
discount brokerage services, you may access your investment in any Bull &
Bear Fund to pay for securities purchased in your brokerage account and have
proceeds of securities sold in your brokerage account used to purchase
shares of any Bull & Bear Fund. You may request a Discount Brokerage Account
Application from Bull & Bear Securities, Inc., 1-800-262-5800.
TAX-ADVANTAGED RETIREMENT PLANS. These plans provide an opportunity to set aside
money for retirement in a tax-advantaged account in which earnings can be
compounded without incurring a tax liability until the money and earnings are
withdrawn. Contributions may be fully or partially deductible for Federal income
tax purposes as noted below. For Information on any of the plans, please call
Investor Service Center, 1-800-847-4200.
The minimum investment to establish a Bull & Bear Retirement Plan is $500.
Minimum subsequent investments are $100. The initial investment minimums are
waived if you elect to invest $100 or more each month in the Fund through the
Bull & Bear Automatic Investment Program. There are no set-up fees for any Bull
& Bear Retirement Plan. Subject to change on 30 days' notice, the plan custodian
charges Bull & Bear Retirement Plans a $10 annual fiduciary fee, $10 for each
distribution prior to age 59 1/2, and a $20 plan termination fee; however, the
annual fiduciary fee is waived for Bull & Bear Retirement Plans with assets of
$10,000 or more or if you invest regularly through the Bull & Bear Automatic
Investment Program.
|X| IRA AND SEP-IRA ACCOUNTS. Anyone with earned income who is less than age 70
1/2at the end of the tax year, even if also participating in another type
of retirement plan, may establish an IRA and contribute each year up to
$2,000 or 100% of earned income, whichever is less, and an aggregate of up
to $2,250 when a non-working spouse is also covered in a separate spousal
account. If each spouse has at least $2,000 of earned income each year,
they may contribute up to $4,000 annually. Employers may also make
contributions to an IRA on behalf of an individual under a Simplified
Employee Pension Plan ("SEP") in any amount up to 15% of up to $150,000 of
compensation. Generally, taxpayers may contribute to an IRA during the tax
year and through the next year until the income tax return for that year is
due, without regard to extensions. Thus, most individuals may contribute
for the 1996 tax year from January 1, 1996 through April 15, 1997.
BULL & BEAR NO-FEE IRA(R). The $10 annual fiduciary fee is waived if your
Bull & Bear IRA or Bull & Bear SEP-IRA has assets of $10,000 or more or if
you invest through the Bull & Bear Automatic Investment Program.
DEDUCTIBILITY. IRA contributions are fully deductible for many taxpayers.
For a taxpayer who is an active participant in an employer-maintained
retirement plan (or whose spouse is), a portion of IRA contributions is
deductible if adjusted gross income (before the IRA deductions) is
$40,000-$50,000 (if married) and $25,000- $35,000 (if single). Only IRA
contributions by a taxpayer who is an active participant in an
employer-maintained retirement plan (or whose spouse is) and has adjusted
gross income of more than $50,000 (if married) and $35,000 (if single) will
not be deductible at all. An eligible individual may establish a Bull & Bear
IRA under the prototype plan available through the Fund, even though such
individual or spouse actively participates in an employer-maintained
retirement plan.
o IRA TRANSFER AND ROLLOVER ACCOUNTS. Special forms are available from
Investor Service Center, 1-800- 847-4200, which make it easy to transfer or
roll over IRA assets to a Bull & Bear IRA. An IRA may be transferred from
one financial institution to another without adverse tax consequences.
Similarly, no taxes need be paid on a lump-sum distribution which you may
receive as a payment from a qualified pension or profit sharing plan due to
retirement, job termination or termination of the plan, so long as the
assets are put into an IRA Rollover account within 60 days of the receipt
of the payment. Withholding for Federal income tax is required at the rate
of 20% for "eligible rollover distributions" made from any retirement plan
(other than an IRA) that are not directly transferred to an "eligible
retirement plan," such as a Bull & Bear Rollover Account.
o PROFIT SHARING AND MONEY PURCHASE PLANS. These Plans provide an opportunity
to accumulate earnings on a tax-deferred basis by permitting corporations,
self-employed individuals (including partners) and their employees
generally to contribute (and deduct) up to $30,000 annually or, if less,
25% (15% for profit sharing
8
<PAGE>
plans) of compensation or self-employment earnings of up to $150,000.
Corporations and partnerships, as well as all self-employed persons, are
eligible to establish these Plans. In addition, a person who is both
salaried and self-employed, such as a college professor who serves as a
consultant, may adopt these retirement plans based on self-employment
earnings.
|X| SECTION 403(B) ACCOUNTS. Section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), permits the establishment of custodial accounts
on behalf of employees of public school systems and certain tax-exempt
organizations. A participant in such a plan does not pay taxes on any
contributions made by the participant's employer to the participant's
account pursuant to a salary reduction agreement, up to a maximum amount,
or "exclusion allowance." The exclusion allowance is generally computed by
multiplying the participant's years of service times 20% of the
participant's compensation included in gross income received from the
employer (reduced by any amount previously contributed by the employer to
any 403(b) account for the benefit of the participant and excluded from the
participant's gross income). However, the exclusion allow ance may not
exceed the lesser of 25% of the participant's compensation (limited as
above) or $30,000. Contributions and subsequent earnings thereon are not
taxable until withdrawn, when they are received as ordinary income.
HOW TO REDEEM SHARES
Generally, you may redeem by any of the methods explained below. Requests
for redemption should include the following information: your account
registration information including address, account number and taxpayer
identification number; dollar value, number or percentage of shares to be
redeemed; how and to where the proceeds are to be sent; if applicable, the
bank's name, address, ABA routing number, bank account registration and account
number, and a contact person's name and telephone number; and your daytime
telephone number.
BY MAIL. You may request that the Fund redeem any amount of shares by submitting
a written request to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, signed by the record owner(s). If the written request is sent to the
Fund, it will be forwarded to the above address. If stock certificates have been
issued for shares being redeemed, they must accompany the written request.
CHECK WRITING PRIVILEGE. See "Shareholder Services" above for redemption of
shares by writing free, unlimited, personalized checks, provided by the Fund, in
amounts of $250 or more for regular accounts and amounts of $100 or more for
investors with discount brokerage Bull & Bear Performance Plus Account(R).
BY TELEPHONE. You may telephone Investor Service Center, 1-800-847-4200 to
expedite redemption of Fund shares if share certificates have not been issued.
You may redeem as little as $250 worth of shares by requesting Bull & Bear's
Electronic Funds Transfer (EFT) service. With EFT, you can redeem Fund shares
quickly and conveniently because Investor Service Center will contact the bank
designated on your Account Application or Authorization Form to arrange for the
electronic transfer of your redemption proceeds (through the Automated Clearing
House system) to your bank account. EFT proceeds are ordinarily available in
your bank account within two business days.
If you are redeeming $1,000 or more worth of shares, you may request that
the proceeds be mailed to your address of record or mailed or wired to your
authorized bank.
Telephone requests received on Fund business days by 4 p.m. eastern time
will be redeemed from your account that day, and if after, on the next Fund
business day. Any subsequent changes in bank account information must be
submitted in writing, signature guaranteed, with a voided check or deposit slip.
If you are unable to reach Investor Service Center at the above telephone number
you may, in emergencies, call 1-212- 363-1100 or communicate by fax to
1-212-363-1103 or cable to the address BULLNBEAR NEWYORK. Redemptions by
telephone may be difficult or impossible to implement during periods of rapid
changes in economic or market conditions.
REDEMPTION PRICE. The redemption price is the net asset value per share next
determined after receipt of the redemption request in proper form. Registered
broker/dealers, investment advisers, banks, and insurance companies may open
accounts and redeem shares by telephone or wire and may impose a charge for
handling purchases and redemptions when acting on behalf of others.
9
<PAGE>
REDEMPTION PAYMENT. Payment for shares redeemed will be made as soon as
possible, ordinarily within seven days after receipt of the redemption request
in proper form. The right of redemption may not be suspended, or date of payment
delayed more than seven days, except for any period (i) when the New York Stock
Exchange is closed or trading thereon is restricted as determined by the SEC;
(ii) under emergency circumstances as determined by the SEC that make it not
reasonably practicable for the Fund to dispose of securities owned by it or
fairly to determine the value of its assets; or (iii) as the SEC may otherwise
permit. The mailing of proceeds on redemption requests involving any shares
purchased by personal, corporate, or government check or EFT transfer is
generally subject to a fifteen business day delay to allow the check or transfer
to clear. The fifteen day clearing period does not affect the trade date on
which a purchase or redemption order is priced, or any dividends to which you
may be entitled through the date of redemption. The clearing period does not
apply to purchases made by wire. Due to the relatively higher cost of
maintaining small accounts, the Fund reserves the right, upon 60 days' notice,
to redeem any account, other than Bull & Bear Retirement Plan accounts, worth
less than $500 except if solely from market action, unless an investment is made
to restore the minimum value.
TELEPHONE PRIVILEGES. You automatically have all telephone privileges to, among
other things, authorize purchases, redemptions and exchanges, with EFT or by
other means, unless declined on the Account Application or otherwise in writing.
Neither the Fund nor Investor Service Center shall be liable for any loss or
damage for acting in good faith upon instructions received by telephone and
believed to be genuine. The Fund employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and if it does not, it may be
liable for losses due to unauthorized or fraudulent transactions. These
procedures include requiring personal identification prior to acting upon
telephone instructions, providing written confirmation of such transactions, and
tape recording telephone conversations. The Fund may modify or terminate any
telephone privileges or shareholder services (except as noted) at any time
without notice.
SIGNATURE GUARANTEES. No signature guarantees are required when payment is to be
made to you at your address of record. If the redemption proceeds are to be paid
to a non-shareholder of record, or to an address other than your address of
record, or the shares are to be assigned, the Transfer Agent may require that
your signature be guaranteed by an entity acceptable to the Transfer Agent, such
as a commercial bank or trust company or member firm of a national securities
exchange or of the NASD. A notary public may not guarantee signatures. The
Transfer Agent may require further documentation, and may restrict the mailing
of redemption proceeds to your address of record within 30 days of such address
being changed unless you provide a signature guarantee as described above.
DIVIDENDS AND TAXES
Dividends. The Fund declares dividends each day from net investment income to
shareholders of record as of the close of regular trading on the New York Stock
Exchange on that day. The Fund also annually distributes to its shareholders any
net short term capital gains. Shareholders submitting purchase orders in proper
form and payment in Federal funds available to the Fund for investment by 11
a.m. eastern time are entitled to receive that day's dividend. Shares redeemed
by 11 a.m. eastern time are not entitled to that day's dividend, but proceeds of
the redemption normally are available to shareholders by Federal funds wire the
same day. Shares redeemed after 11 a.m. eastern time and before the close of
regular trading on the New York Stock Exchange are entitled to that day's
dividend, and proceeds of the redemption normally are available to shareholders
by Federal funds wire the next Fund business day. Distributions of declared
dividends are made the last business day of each month in additional shares of
the Fund, unless you elect to receive dividends in cash on the Account
Application or so elect subsequently by calling Investor Service Center,
1-800-847-4200. For Federal income tax purposes, such distributions are
generally taxable as ordinary income, whether or not a shareholder receives such
dividends in additional shares or elects to receive cash. Any election will
remain in effect until you notify Investor Service Center to the contrary. The
Fund does not expect to realize net long term capital gains and thus does not
anticipate payment of any long term capital gain distributions.
TAXES. According to Tait, Weller & Baker, the Fund's auditors, individual Fund
shareholders residing in most states are exempt from state income tax on
dividends from the Fund, because the Fund derives its income from direct U.S.
Government securities and, where applicable, the Fund meets the state income,
investment, and reporting criteria required to maintain exempt status. For
Massachusetts corporate shareholders, however, dividends paid by the Fund are
not exempt from state income tax. Also, to the extent the Fund may invest in
10
<PAGE>
securities other than "direct" U.S. Government obligations (such as U.S.
Treasury obligations), dividends paid to shareholders attributable to the
interest on these investments are taxable in some states. In some states,
shareholders also may be subject to local taxes on the shares they own or on
distributions from the Fund.
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its investment company taxable income (generally consisting
of net investment income and net short term capital gains) that is distributed
to its shareholders. Shareholders not subject to Federal income tax on their
income will generally not be required to pay tax on amounts distributed to them
by the Fund. The Fund is required to withhold 31% of all dividends payable to
any individuals and certain other noncorporate shareholders who do not provide
the Fund with a correct taxpayer identification number or who otherwise are
subject to backup withholding. Each shareholder is advised promptly after each
calendar year of the dollar amount and taxable status of the year's
distributions received by such shareholder. The foregoing is only a summary of
some of the important income tax considerations generally affecting the Fund and
its shareholders; see the Statement of Additional Information for a further
discussion. Because other tax considerations may apply, you should consult your
tax adviser.
DETERMINATION OF NET ASSET VALUE
The value of a share of the Fund is based on the value of its net assets.
The Fund's net assets are the total of the Fund's investments and all other
assets minus any liabilities. The value of one share is determined by dividing
the net assets by the total number of shares outstanding. This is referred to as
"net asset value per share" and is determined at 11 a.m. eastern time and as of
the close of regular trading on the New York Stock Exchange (currently 4 p.m.
eastern time, unless weather, equipment failure or other factors contribute to
an earlier closing) each Fund business day. The Fund values its portfolio
securities using the amortized cost method of valuation, under which market
value is approximated by amortizing the difference between the acquisition cost
and value at maturity of an instrument on a straight-line basis over its
remaining life.
THE INVESTMENT MANAGER
Bull & Bear Advisers, Inc. (the "Investment Manager") acts as general
manager of the Fund, being responsible for the various functions assumed by it,
including the regular furnishing of advice with respect to portfolio
transactions. The Investment Manager manages the investment and reinvestment of
the Fund's assets, subject to the control and oversight of the Board of
Directors. For its services, the Investment Manager receives a management fee,
payable monthly, based on the average daily net assets of the Fund, at the
annual rate of 0.50 of 1% of the first $250 million, 0.45 of 1% from $250
million to $500 million, and 0.40 of 1% over $500 million. From time to time,
the Investment Manager may waive all or part of this fee to improve the Fund's
yield and total return. The Investment Manager provides certain administrative
services to the Fund at cost. During the fiscal year ended June 30, 1995, the
investment management fees paid by the Fund represented approximately 0.25% of
its average daily net assets (net of the Investment Manager's waiver). The
Investment Manager is a wholly owned subsidiary of Bull & Bear Group, Inc.
("Group"). Group, a publicly owned company whose securities are listed on Nasdaq
and traded in the over the counter market, is a New York based manager of mutual
funds and discount brokerage services. Bassett S. Winmill may be deemed a
controlling person of Group and, therefore, may be deemed a controlling person
of the Investment Manager.
YIELD INFORMATION
From time to time the Fund advertises its current yield and its effective
yield. All advertised current yield or effective yield figures are based upon
historical earnings and are not intended to indicate future performance. The
current yield of the Fund refers to the income generated by an investment in the
Fund over a seven day period (which period will be stated in the advertisement).
This income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52 week
period and is shown as a percentage of the investment. The effective yield is
the annualized current yield which is compounded by assuming the current income
to be reinvested. For the Fund's yield, please call 1-800-847-4200.
THE FUND'S STATE TAX-FREE YIELD VERSUS TAXABLE YIELDS. Assuming an
investor's yield from the Fund would be state tax-free (see "Dividends and
Taxes"), the investor's yield from the Fund may actually be higher than other
state-taxable investments stating a higher pre-tax yield.
11
<PAGE>
For example, if an investor's minimum state tax rate is 11% and the Fund's
yield was 3%, the Fund's AFTER STATE TAX YIELD IS ACTUALLY HIGHER than a
state-taxable investment with a yield of 3.37% or less. The computation is:
The Fund's Yield = Your Taxable Equivalent Yield
100% minus Your State Tax Rate
3% = 3.3708%
100% - 11%
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Investor Service
Center, Inc. (the "Distributor"), the Distributor acts as the Fund's principal
agent for the sale of Fund shares. The Fund has also adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Pursuant to
the Plan, the Fund pays the Distributor monthly a fee in the amount of one
quarter of one percent per annum of the Fund's average daily net assets as
compensation for distribution and service activities. The fee is intended to
cover personal services provided to shareholders in the Fund and the maintenance
of shareholder accounts and all other activities and expenses primarily intended
to result in the sale of the Fund's shares. The fee may be retained or passed
through by the Distributor to brokers, banks and others who provide services to
Fund shareholders. The Fund will pay the fees to the Distributor until either
the Plan is terminated or not renewed. In that event, the Distributor's expenses
in excess of fees received or accrued through the termination day will be the
Distributor's sole responsibility and not obligations of the Fund. During the
period they are in effect, the Distribution Agreement and Plan obligate the Fund
to pay fees to the Distributor as compensation for its service and distribution
activities. If the Distributor's expenses exceed the fees, the Fund will not be
obligated to pay any additional amount to the Distributor and, if the
Distributor's expenses are less than such fees, it may realize a profit. As of
the date hereof, the Distributor intends to waive the fee during the fiscal year
ending June 30, 1996. Such waiver, however, may be discontinued at any time.
Certain other advertising and sales materials may be prepared which relate to
the promotion of the sale of shares of the Fund and one or more other affiliated
investment companies. In such cases, the expenses will be allocated among the
investment companies involved based on the inquiries resulting from the
materials or other factors deemed appropriate by the Board of Directors. The
costs of personnel and facilities of the Distributor to respond to inquiries by
shareholders and prospective shareholders will also be allocated based on such
relative inquiries or other factors. There is no certainty that the allocation
of any of the foregoing expenses will precisely allocate to the Fund costs
commensurate with the benefits it receives, and it may be that other affiliated
investment companies and Bull & Bear Securities, Inc. will benefit therefrom.
CAPITAL STOCK
The Fund is a series of Bull & Bear Funds II, Inc. (the "Corporation"), a
Maryland corporation incorporated in 1974. Prior to October 29, 1993, the
Corporation operated under the name Bull & Bear Incorporated. The Corporation is
a series investment company, and is authorized to issue up to 1,000,000,000
shares ($.01 par value). The Board of Directors has designated 500,000,000
shares as Bull & Bear Dollar Reserves, 250,000,000 shares as Bull & Bear Global
Income Fund, and 250,000,000 shares as Bull & Bear U.S. Government Securities
Fund. The Board of Directors of the Corporation may establish one or more new
series, although it has no current intention to do so.
The Fund's stock is fully paid and non-assessable and is freely assignable
by way of pledge (as, for example, for collateral purposes), gift, settlement of
an estate, and also by an investor to another investor. In case of dissolution
or other liquidation of the Fund or the Corporation, shareholders will be
entitled to receive ratably per share the net assets of the Fund. Shareholders
of all series of the Corporation vote for Directors with each share entitled to
one vote. Each share entitles the holder to one vote for all purposes. Shares
have no preemptive or conversion rights. Except to the extent that the Board of
Directors might provide by resolution that the holders of shares of a particular
series are entitled to vote as a class on specified matters, and except for
approval of investment management agreements, plans of distribution, and changes
in fundamental investment objectives and limitations which are voted upon by
each series, separately as a class, there will be no right for any series
12
<PAGE>
to vote as a class unless such right exists under Maryland law. The
Corporation's Articles of Incorporation contain no provision entitling the
holders of the present classes of capital stock to a vote as a class on any
matter other than the foregoing. Where a matter is to be voted upon separately
by series, the matter is effectively acted upon for such series if a majority of
the outstanding voting securities of that series approves the matter,
notwithstanding that: (1) the matter has not been approved by a majority of the
outstanding voting securities of any other series, or (2) the matter has not
been approved by a majority of the outstanding voting securities of the
Corporation.
In accordance with the General Corporation Law of the State of Maryland
applicable to open-end investment companies incorporated in Maryland and
registered under the 1940 Act, as is the Corporation, the Corporation's By-Laws
provide that there will be no annual meeting of shareholders in any year except
as required by law. In practical effect, this means that the Fund will not hold
an annual meeting of shareholders in years in which the only matters which would
be submitted to shareholders for their approval are the election of Directors
and ratification of the Directors' selection of accountants, although holders of
10% of the Corporation's shares may call a meeting at any time. There will
normally be no meetings of shareholders for the purpose of electing Directors
unless fewer than a majority of the Directors holding office have been elected
by shareholders. Shareholder meetings will be held in years in which shareholder
approval of the Fund's investment management agreement, plan of distribution, or
changes in its fundamental investment objective, policies or restrictions is
required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111, acts as
custodian of the Fund's assets. The custodian also performs certain accounting
services for the Fund. The Fund's transfer and dividend disbursing agent is DST
Systems, Inc., Box 419789, Kansas City, MO 64141-6789. The Distributor provides
shareholder administration services to the Fund and is reimbursed its cost by
the Fund. The costs of facilities, personnel and other related expenses are
allocated among the Fund and other affiliated investment companies based on the
relative number of inquiries and other factors deemed appropriate by the Board
of Directors.
13
<PAGE>
[Left Side of Back Cover Page]
DOLLAR
RESERVES
- -----------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-847-4200 1-212-363-1100
E-MAIL: [email protected]
- ----------------------------------------------------
CALL TOLL-FREE FOR FUND PERFORMANCE, TELEPHONE PURCHASES, EXCHANGES AMONG THE
BULL & BEAR FUNDS AND TO OBTAIN INFORMATION CONCERNING YOUR ACCOUNT.
1-800-847-4200 1-212-363-1100
- -----------------------------------------------------
[Right Side of Back Cover Page]
DOLLAR
RESERVES
- ---------------------------------------------------------
A HIGH QUALITY
MONEY MARKET FUND
INVESTING IN U.S. GOVERNMENT
SECURITIES- INCOME IS GENERALLY
FREE FROM STATE AND LOCAL
INCOME TAXES
HIGH DAILY INCOME
ELECTRONIC FUNDS TRANSFERS
RETIREMENT PLANS
NO-LOAD
FREE CHECK WRITING
- ---------------------------------------------------------
MINIMUM INVESTMENTS
o REGULAR ACCOUNTS, $1,000
o IRAS, $500
o AUTOMATIC INVESTMENT PROGRAM, $100
o SUBSEQUENT INVESTMENTS, $100
- ---------------------------------------------------------
PROSPECTUS
NOVEMBER 1, 1995
BULL & BEAR
- -----------------------------------------
PERFORMANCE DRIVEN(R)
Printed on recycled paper
DR-148/11/5
14
<PAGE>
Bull & Bear Global Income Fund (the "Fund") seeks to provide shareholders a
high level of income. Capital appreciation is a secondary objective. The Fund
seeks to achieve its objectives by investing primarily in a global portfolio of
investment grade fixed income securities. Dividends are paid monthly.
By investing in both domestic and international fixed income markets, the
Fund can expand investment horizons while providing an effective means of
reducing volatility associated with concentration in a single country or region.
Because the economies, interest rates, and currency exchange rates of foreign
countries often follow different cycles, the resulting variation of performance
by the world's fixed income markets may provide an effective means of balancing
your portfolio. The Fund cannot guarantee it will achieve its investment
objectives.
------------------------------------------------------------------------------
NEWSPAPER LISTING. Shares of the Fund are sold at
the net asset value per share which is shown
daily in the mutual fund section of newspapers
under the "Bull & Bear Group" heading.
------------------------------------------------------------------------------
This prospectus contains information you should know about the Fund before
you invest. Please keep it for future reference. The Fund's Statement of
Additional Information, dated November 1, 1995, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
prospectus. It is available at no charge by calling 1-800-847-4200. FUND SHARES
ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK
OR ANY AFFILIATE OF ANY BANK, AND ARE NOT FEDERALLY INSURED BY, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
EXPENSE TABLES. The tables below are designed to help you understand the costs
and expenses that you will bear directly or indirectly as an investor in the
Fund. A $2 monthly account fee is charged if your monthly balance is less than
$500, unless you are in the Bull & Bear Automatic Investment Program.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases.......................................NONE
Sales Load Imposed on Reinvested Dividends............................NONE
Deferred Sales Load...................................................NONE
Redemption Fee within 30 days of purchase............................1.00%
Redemption Fee after 30 days of purchase.............................NONE
Exchange Fees.........................................................NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees......................................................0.70%
12b-1 Fees...........................................................0.50%
Other Expenses.......................................................1.01%
Total Fund Operating Expenses........................................2.21%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and a redemption at the end of each time period
1 year 3 years 5 years 10 years
------ ------- ------- --------
$22 $69 $118 $254
The example set forth above assumes reinvestment of all dividends and other
distributions and assumes a 5% annual rate of return as required by the
Securities and Exchange Commission ("SEC"). THE EXAMPLE IS AN ILLUSTRATION ONLY
AND SHOULD NOT BE CONSIDERED AN INDICATION OF PAST OR FUTURE RETURNS AND
EXPENSES. Actual returns and expenses may be greater or less than those shown.
The percentages given for annual Fund expenses are based on the Fund's operating
expenses and average daily net assets during its fiscal year ended June 30,
1995. Long term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc.'s rules for investment companies. "Other Expenses"
includes amounts paid to the Fund's custodian and transfer agent and reimbursed
to the Investment Manager and the Distributor, and does not include interest
expense from the Fund's bank borrowing.
FINANCIAL HIGHLIGHTS are presented below for a share of capital stock
outstanding throughout each period. The following information is supplemental to
the Fund's financial statements and report thereon of Tait, Weller & Baker,
independent accountants, appearing in the June 30, 1995 Annual Report to
Shareholders and incorporated by reference in the Statement of Additional
Information. Until October 29, 1992, the Fund's investment objective was to
obtain for its shareholders the highest income over the long term and the Fund
followed a policy of investing primarily in lower rated debt securities of U.S.
companies.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA* 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net asset value at beginning of period $8.25 $9.39 $8.56 $7.97 $8.67 $9.73 $10.83 $13.04 $14.96 $14.42
Income from investment operations:
Net investment income .17 .60 .66 .77 .81 .99 1.27 1.41 1.76 1.89
Net realized and unrealized gain
(loss) on investments .18 (1.02) .92 .54 (.64) (.97) (1.13) (2.19 (1.92) .54
--- ---- --- --- ----- ---- ---- ---- ----
Total from investment operations .35 (.42) 1.58 1.31 .17 .02 .14 (.78) (.16) 2.43
----- ------- ---- ---- ----- ----- ------ ------ ------ ----
Less distributions:
Distributions from net investment
income (.17) (.60) (.66) (.72) (.82) (.98) (1.24) (1.43) (1.74) (1.89)
Distributions in excess of net
realized gains --- (.12) (.09) --- --- --- --- --- --- ---
Distributions from paid-in-capital (.43) --- --- --- (.05) (.10) --- --- --- ---
------- ------ ------ ----- ------ ----- ------ ---- ---- ---
Total distributions (.60) (.72) (.75) (.72) (.87) (1.08) (1.24) (1.43) (1.76) (1.89)
Net asset value at end of period $8.00 $8.25 $9.39 $8.56 $7.97 $8.67 $9.73 $10.83 $13.04 $14.96
TOTAL RETURN 4.52% 5.12)% 19.39% 17.09% 2.45% .54% 1.34% (5.99)% (1.01)% 17.99%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(000's omitted) $39,180 $44,355 $51,768 $44,323 $42,515 $51,318 $82,520 $124,095 $206,251 $113,026
Ratio of expenses to average
net assets(a) 2.21% 1.98% 1.95% 1.93% 1.95% 1.72% 1.68% 1.71% 1.50% 1.37%
Ratio of net investment income to
average net assets (b) 6.20% 6.58% 7.44% 9.25% 10.08% 10.99% 12.08% 11.96% 12.40% 13.45%
Portfolio turnover rate 385% 223% 172% 206% 555% 134% 122% 124% 85% 77%
</TABLE>
- ---------
*Per share income and operating expenses and net realized and unrealized gain
(loss) on investments have been computed using the average number of shares
outstanding. These computations had no effect on net asset value per share. (a)
Ratio prior to waiver by the Investment Manager was 1.74% in 1989. (b) Ratio
prior to waiver by the Investment Manager was 12.02% in 1989.
Information relating to outstanding debt during the fiscal periods shown below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amount of Debt Average Amount of Debt Average Number of Average Amount of
Fiscal Year Ended Outstanding at Outstanding During the Shares Outstanding Debt Per Share During
June 30 End of Period Period During the Period the Period
1995 $0 $22,715 $5,133,937 $0.00
1994 0 204,441 5,715,428 0.04
1993 886,000 45,252 5,158,922 0.01
1992 0 189,119 5,256,156 0.04
1988 0 3,157,043 12,044,033 0.26
</TABLE>
TABLE OF CONTENTS
Expense Tables...................2 Distributions and Taxes................15
Financial Highlights.............2 Determination of Net Asset Value.......16
General..........................3 The Investment Manager.................16
The Fund's Investment Program....3 Distribution of Shares.................16
How to Purchase Shares...........9 Performance Information................17
Shareholder Services.............1 Capital Stock..........................17
How to Redeem Shares.............4 Custodian and Transfer Agent...........18
GENERAL
GLOBAL INCOME INVESTING. For more than three decades, the growth rate of many
foreign economies has exceeded that of the United States. At times, a number of
foreign fixed income markets have outperformed their U.S. counterparts. Although
there can be no assurances, foreign fixed income markets could continue to offer
attractive investment opportunities from time to time relative to the U.S.
market. For the individual investor, buying foreign debt securities can be
difficult: access to international markets is complicated; few individuals have
the time or resources to evaluate foreign economies, markets and securities; and
transaction costs are generally high.
PURPOSES OF THE FUND. The Fund is for long term investors seeking the yields
offered worldwide by a portfolio consisting primarily of investment grade fixed
income securities, together with the advantages of professional management,
diversification, and liquidity. The net asset value of the Fund will change as
interest rates and currency prices fluctuate and the Fund is subject to risks
unique to global investing. The Fund should not be considered a complete
investment program, and there is no assurance it will achieve its objectives.
CHECK WRITING PRIVILEGE FOR EASY ACCESS. Shareholders have the convenience of
making redemptions without charge by writing a check for $250 or more. There is
no limit on the number of checks a shareholder may write.
DIVIDENDS AND DISTRIBUTIONS. The Fund pays monthly dividends to its shareholders
from the income it earns on its investments and from any net foreign currency
gains. The Fund also distributes to shareholders annually substantially all net
realized gains from the sale of securities and foreign currencies, if any, after
offsetting any capital loss carryforward. Distributions may be reinvested in
shares of the Fund or any other Bull & Bear Fund (see "Dividend Sweep
Privilege"), or at your option, paid in cash.
YIELD INFORMATION. Please call 1-800-847-4200 for the Fund's yield.
PORTFOLIO MANAGEMENT. The Fund's Portfolio Manager since March 1995 is Steven A.
Landis. Mr. Landis is Senior Vice President and a member of the Investment
Policy Committee of Bull & Bear Advisers, Inc. (the "Investment Manager") with
overall responsibility for the Bull & Bear fixed income funds. Mr. Landis was
formerly Associate Director -- Proprietary Trading at Barclays De Zoete Wedd
Securities Inc. and Director, Bond Arbitrage at WG Trading Company. Mr. Landis
received his MBA in Finance from Columbia University.
THE FUND'S INVESTMENT PROGRAM
The Fund's primary investment objective, which may not be changed without
shareholder approval, is to seek to provide shareholders a high level of income.
The Fund's secondary objective, which may be changed by the Board of Directors
without shareholder approval, is capital appreciation. An investor's return will
consist of monthly dividends, capital appreciation or depreciation on the Fund's
portfolio securities, and distributions of realized net capital gains and net
foreign currency gains or losses, if any.
The Fund will normally invest at least 65% of its net assets in investment
grade fixed income securities which are rated, at the time of purchase, BBB or
better by Standard & Poor's, Baa or better by Moody's Investors Service, Inc.
("Moody's") or, if unrated, are determined by the Investment Manager to be of
comparable quality. The Fund may also invest up to 35% of its assets in fixed
income securities rated BB, B, or CCC by Standard & Poor's or Ba, B, or Caa by
Moody's and in other securities (including common stocks, warrants, options and
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securities convertible into common stock), when such investments are consistent
with its investment objectives or are acquired as part of a unit consisting of a
combination of fixed income securities and other securities. The Fund currently
expects to invest predominately in the United States, Western Europe, Latin
America, the Pacific Rim, South Africa, and Canada. The Fund will normally
invest in at least three different countries, but may invest in fixed income
securities of only one country for temporary defensive purposes. When the
Investment Manager believes unusual circumstances warrant a defensive posture,
the Fund may commit all or any portion of its assets to cash (U.S. dollars
and/or foreign currencies) or money market instruments of U.S. and foreign
issuers, including repurchase agreements. In seeking to identify the world's
best performing bonds and other fixed income securities, the Investment Manager
bases its investment decisions on fundamental market attractiveness, interest
rates and trends, currency trends, and credit quality.
The Investment Manager undertakes several measures in seeking to achieve the
Fund's objectives:
o First, the fixed income securities purchased by the Fund will be primarily
rated at the time of purchase in the top four categories by Standard &
Poor's or Moody's or, if unrated, are determined by the Investment Manager
to be of comparable quality. Ratings are not a guarantee of quality and
ratings can change after a security is purchased by the Fund. Moreover,
securities rated Baa by Moody's are deemed by that rating agency to have
speculative characteristics.
o Second, the Investment Manager actively manages the average maturity of the
Fund's portfolio in response to expected interest rate movements in pursuit
of capital appreciation or to protect against depreciation. Debt securities
generally change in value inversely to changes in interest rates. Increases
in interest rates generally cause the market values of debt securities to
decrease, and vice versa. Movements in interest rates typically have a
greater effect on the prices of longer term bonds than on those with
shorter maturities. When anticipating a decline in interest rates, the
Investment Manager will attempt to lengthen the portfolio's maturity to
capitalize on the appreciation potential of such securities. Conversely,
when anticipating rising rates, the Investment Manager will seek to shorten
the Fund's maturity to protect against capital depreciation. The Fund's
portfolio may consist of long, intermediate, and short maturities.
Consistent with seeking to maximize current income, the proportion invested
in each category can be expected to vary depending upon the Investment
Manager's evaluation of the market outlook.
o Third, the Investment Manager may employ certain investment techniques to
seek to reduce the Fund's exposure to risks involving foreign currency
exchange rates. An increase in value of a foreign currency relative to the
U.S. dollar (the dollar weakens) will increase the U.S. dollar value of
securities denominated in that foreign currency. Conversely, a decline in
the value of a foreign currency relative to the U.S. dollar (the dollar
strengthens) causes a decline in the U.S. dollar value of these securities.
The percentage of the Fund's investments in foreign securities that will be
hedged back to the U.S. dollar will vary depending on anticipated trends in
currency prices and the relative attractiveness of such techniques and
other strategies.
There is, of course, no guarantee that these investment strategies will
accomplish their objectives.
FOREIGN INVESTMENTS. Investors should understand and consider carefully the
substantial risks involved in foreign investing. Foreign securities, which are
generally denominated in foreign currencies, and utilization of forward
contracts on foreign currencies involve certain considerations comprising both
risk and opportunity not typically associated with investing in U.S. securities.
These considerations include: fluctuations in currency exchange rates;
restrictions on foreign investment and repatriation of capital; costs of
converting foreign currency into U.S. dollars; greater price volatility and
trading illiquidity; less public information on issuers of securities;
difficulty in enforcing legal rights outside of the United States; lack of
uniform accounting, auditing, and financial reporting standards; the possible
imposition of foreign taxes, exchange controls, and currency restrictions; and,
the possible greater political, economic, and social instability of developing
as well as developed countries including without limitation nationalization,
expropriation of assets, and war. Furthermore, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments position. Securities of many foreign
companies may be less liquid and their prices more volatile than securities
issued by comparable U.S. issuers. Transactions in foreign securities may be
subject to less efficient settlement practices. These risks are often heightened
when the Fund's investments are concentrated in a small number of countries. In
addition, because transactional and custodial expenses for foreign securities
are generally higher than for domestic securities, the expense ratio of the Fund
can be expected to be higher than investment companies investing
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<PAGE>
exclusively in domestic securities. Foreign securities trading practices,
including those involving securities settlement where Fund assets may be
released prior to receipt of payment, may expose the Fund to increased risk in
the event of a failed trade or insolvency of a foreign broker/dealer. Legal
remedies for defaults and disputes may have to be pursued in foreign courts,
whose procedures differ substantially from those of U.S. courts.
Since investments in foreign securities usually involve foreign currencies
and since the Fund may temporarily hold funds in bank deposits in foreign
currencies in order to facilitate portfolio transactions, the value of the
assets of the Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations. For example, if the value of the U.S. dollar decreases relative to
a foreign currency in which a Fund investment is denominated or which is
temporarily held by the Fund to facilitate portfolio transactions, the value of
such Fund assets and the Fund's net asset value per share will increase, all
else being equal. Conversely, an increase in the value of the U.S. dollar
relative to such a foreign currency will result in a decline in the value of
such Fund assets and its net asset value per share. The Fund may incur
additional costs in connection with conversions of currencies and securities
into U.S. dollars. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis, or through entering into
forward contracts. The Fund generally will not enter into a forward contract
with a term of greater than one year.
The Fund may invest in securities of issuers located in emerging market
countries. The risks of investing in foreign securities may be greater with
respect to securities of issuers in, or denominated in the currencies of,
emerging market countries. The economies of emerging market countries generally
are heavily dependent upon international trade and accordingly, have been and
may continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been and may continue to be adversely affected by economic conditions
in the countries with which they trade. The securities markets of emerging
market countries are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the U.S. and other developed countries.
Disclosure and regulatory standards in many respects are less stringent in
emerging market countries than in the U.S. and other major markets. There also
may be a lower level of monitoring and regulation of emerging markets and the
activities of investors in such markets, and enforcement of existing regulations
may be extremely limited. Investing in local markets, particularly in emerging
market countries, may require the Fund to adopt special procedures, seek local
government approvals or take other actions, each of which may involve additional
costs to the Fund. Emerging markets countries may also restrict investment
opportunities in issuers in industries deemed important to national interests.
U.S. AND FOREIGN GOVERNMENT SECURITIES. The U.S. Government securities in which
the Fund may invest include direct obligations of the U.S. Government (such as
U.S. Treasury bills, notes and bonds) and obligations issued by U.S. Government
agencies and instrumentalities. Agencies and instrumentalities include executive
departments of the U.S. Government or independent Federal organizations
supervised by Congress. The types of support for these obligations can range
from the full faith and credit of the United States (for example, U.S. Treasury
securities), to the creditworthiness of the issuer (for example, securities of
the Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority). In the case of obligations not
backed by the full faith and credit of the United States, the Fund must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitments. Accordingly, these securities may involve more risk than
securities backed by the U.S.
Government's full faith and credit.
The foreign government securities in which the Fund invests generally consist
of obligations supported by national, state or provincial governments or similar
political subdivisions. The foreign government securities in which the Fund may
also invest include the obligations of supranational agencies, such as the
International Bank for Reconstruction and Development (the World Bank).
Supranational agencies rely on funds from participating countries, often
including the United States, from which they must request funds. Such requests
may not always be honored. The obligations of supranational agencies, depending
on where and how are issued, may be subject to some of the risks discussed above
with respect to foreign securities.
Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to pay interest or repay interest or repay
principal when due in accordance with the terms of such debt, and the Fund may
have limited
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<PAGE>
legal recourse in the event of default. Political conditions, especially a
sovereign entity's willingness to meet the terms of its debt obligations, are of
considerable significance.
SECURITIES OF PRIVATE ISSUERS. The securities of U.S. and foreign private
issuers in which the Fund invests may be denominated in U.S. dollars or other
currencies, including obligations of U.S. and foreign issuers payable in U.S.
dollars outside the United States ("Euros") and obligations of foreign issuers
payable in U.S. dollars and issued in the United States ("Yankees"). The
securities of private issuers may include corporate bonds, notes and commercial
paper, as well as certificates of deposit, time deposits, bankers' acceptances
and other obligations of U.S. banks and their branches located outside the
United States, U.S. branches of foreign banks, foreign branches of foreign banks
and U.S. agencies of foreign banks and wholly owned banking subsidiaries of
foreign banks located in the United States. The securities of private issuers
also may include common stocks and other equity securities such as warrants,
options and securities convertible into common stock, when such investments are
consistent with the Fund's investment objectives or are acquired as part of a
unit consisting of fixed income and equity securities.
FIXED INCOME SECURITIES. The Fund is permitted to purchase investment grade
fixed income securities. Securities rated BBB or better by Standard & Poor's or
Baa or better by Moody's are investment grade but Moody's considers securities
rated Baa to have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity for such
securities to make principal and income payments than is the case for
higher-rated securities. The Fund also may invest up to 35% of its assets in
fixed income securities rated below investment grade but not lower than CCC by
Standard & Poor's or Caa by Moody's. These securities are deemed by those
agencies to be in poor standing and predominantly speculative; the issuers may
be in default on such securities or deemed without capacity to make scheduled
payments of income or repay principal, involving major risk exposure to adverse
conditions. The Fund is also permitted to purchase fixed income securities that
are not rated by Standard & Poor's or Moody's but that the Investment Manager
determines to be of comparable quality to that of rated securities in which the
Fund may invest. Such securities are included in percentage limitations
applicable to the comparable rated securities.
Ratings of fixed income securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality, and may be lowered
after a fund has acquired the security. The Investment Manager will consider
such an event in determining whether the Fund should continue to hold the
security but is not required to dispose of it. Credit ratings attempt to
evaluate the safety of principal and income payments and do not evaluate the
risk of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's financial condition may be better or worse than the rating indicates.
See the Appendix to the Statement of Additional Information for a further
description of Standard & Poor's and Moody's ratings.
Lower rated fixed income securities generally offer a higher current yield
than that available on higher grade issues. However, lower rated securities
involve higher risks, in that they are especially subject to adverse changes in
general economic conditions and in the industries in which the issuers are
engaged, to changes in the financial condition of the issuers, and to price
fluctuations in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of principal and income and increase the possibility of default.
In addition, such issuers may not have more traditional methods of financing
available to them, and may be unable to repay debt at maturity by refinancing.
The risk of loss due to default by such issuers is significantly greater because
such securities frequently are unsecured and subordinated to the prior payment
of senior indebtedness. The market for lower rated securities has expanded
rapidly in recent years, and its growth paralleled a long economic expansion.
The prices of many lower rated securities have declined substantially in the
past, reflecting an expectation that many issuers of such securities might
experience financial difficulties. As a result, the yields on lower rated
securities rose dramatically, but such higher yields did not reflect the value
of the income stream that holders of such securities expected, but rather the
risk that holders of such securities could lose a substantial portion of their
value as a result of the issuers' financial restructuring or default. There can
be no assurance that such price declines will not recur. The market for lower
rated issues generally is thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the value and liquidity of lower rated securities,
especially in a thinly traded market.
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During its fiscal year ended June 30, 1995, the Fund invested 77% of its
average annual net assets in debt securities that had received a rating from
Standard & Poor's. The remaining 23% can be classified as non-rated debt
securities, other fixed income securities, equities and other net assets. The
Fund had the following percentages of its average net assets invested in rated
securities: AAA -- 36%, AA -- 7%, A -- 7%, BBB -- 4%, BB -- 9%, B -- 14%; CCC --
0%. It should be noted that this information reflects the average composition of
the Fund's assets during the fiscal year ended June 30, 1995 and is not
necessarily representative of the Fund's assets as of the end of that fiscal
year, the current year or at any time in the future.
PREFERRED SECURITIES. The fixed income securities in which the Fund may invest
includes preferred share issues of U.S. and foreign companies. Such securities
involve greater risk of loss of income than debt securities because issuers are
not obligated to pay dividends. In addition, preferred securities are
subordinate to debt securities, and are more subject to changes in economic and
industry conditions and in the financial conditions of the issuers of such
securities.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities which are
bonds, debentures, notes, preferred stocks or other fixed income securities that
may be converted into or exchanged for a specified amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. A convertible security entitles the holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics and
(iii) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security will sell at a premium over its conversion value determined
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security. The Fund will
exchange or convert the convertible securities held in its portfolio into shares
of the underlying common stock when, in the Investment Manager's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objectives. Otherwise, the Fund may hold or trade
convertible securities. In selecting convertible securities for the Fund, the
Investment Manager evaluates the investment characteristics of the convertible
security as a fixed income instrument and the investment potential of the
underlying equity security for capital appreciation. In evaluating these matters
with respect to a particular convertible security, the Investment Manager
considers numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability and
practices.
HEDGING AND INCOME STRATEGIES. The Fund may purchase call options on securities
that the Investment Manager intends to include in the Fund's portfolio in order
to fix the cost of a future purchase or to attempt to enhance return by, for
example, participating in an anticipated price increase of a security. The Fund
may purchase put options to hedge against a decline in the market value of
securities held in the Fund's portfolio or to attempt to enhance return. The
Fund may write (sell) covered put and call options on securities in which it is
authorized to invest. The Fund may purchase and write straddles, purchase and
write put and call options on bond indexes, and take positions in options on
foreign currencies to hedge against the risk of foreign exchange rate
fluctuations on foreign securities the Fund holds in its portfolio or that it
intends to purchase. The Fund may purchase and sell interest rate futures
contracts, bond index futures contracts and foreign currency futures contracts,
and may purchase put and call options and write covered put and call options on
such contracts.
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The Fund may enter into forward currency contracts to set the rate at which
currency exchanges will be made for contemplated or completed transactions. The
Fund might also enter into forward currency contracts in amounts approximating
the value of one or more portfolio positions to fix the U.S. dollar value of
those positions. For example, when the Investment Manager believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund has no specific limitation on the percentage of
assets it may commit to foreign currency exchange contracts, except that it will
not enter into a forward contract if the amount of assets set aside to cover the
contract would impede portfolio management or the Fund's ability to meet
redemption requests.
Strategies with options, financial futures, and forward currency contracts
may be limited by market conditions, regulatory limits and tax considerations,
and the Fund might not employ any of the strategies described above. There can
be no assurance that any strategy used will be successful. The loss from
investing in futures transactions is potentially unlimited. Options and futures
may fail as hedging techniques in cases where price movements of the securities
underlying the options and futures do not follow the price movements of the
portfolio securities subject to the hedge. Gains and losses on investments in
options and futures depend on the Investment Manager's ability to predict
correctly the direction of stock prices, interest rates, and other economic
factors. In addition, the Fund will likely be unable to control losses by
closing its position where a liquid secondary market does not exist and there is
no assurance that a liquid secondary market for hedging instruments will always
exist. It also may be necessary to defer closing out hedged positions to avoid
adverse tax consequences. The percentage of the Fund's assets segregated to
cover its obligations under options, futures, or forward currency contracts
could impede effective portfolio management or meeting redemptions or other
current obligations.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with U.S.
banks or dealers involving securities in which the Fund is authorized to invest.
A repurchase agreement is an instrument under which the Fund purchases
securities from a bank or dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed upon date and price. The Fund's
custodian maintains custody of the underlying securities until their repurchase;
thus the obligation of the bank or dealer to pay the repurchase price is, in
effect, secured by such securities. The Fund's risk is limited to the ability of
the seller to pay the agreed upon amount on the repurchase date; if the seller
defaults, the security constitutes collateral for the seller's obligation to
pay. If, however, the seller defaults and the value of the collateral declines,
the Fund may incur loss and expenses in selling the collateral. To attempt to
limit the risk in engaging in repurchase agreements, the Fund enters into
repurchase agreements only with banks and dealers believed by the Investment
Manager to present minimum credit risks in accordance with guidelines
established by the Board of Directors. The Fund will not enter into a repurchase
agreement with a maturity of more than seven days if, as a result, more than 15%
of its net assets would then be invested in such agreements and other illiquid
securities.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements. In such agreements, the Fund sells the underlying security to a
creditworthy securities dealer or bank and the Fund agrees to repurchase it at
an agreed-upon date and price reflecting a market rate of interest. Such
agreements are considered to be borrowings and involve leveraging which is
speculative and increases both investment opportunity and investment risk. The
Fund will limit its investments in reverse repurchase agreement transactions and
other borrowings to one third of the total value of the Fund's assets taken at
market value, less liabilities other than borrowings. When the Fund enters into
reverse repurchase agreements, its custodian will set aside in a segregated
account cash or securities of the U.S. Government, its agencies or
instrumentalities with a market value at least equal to the repurchase price. If
necessary, assets will be added to the account daily so that the value of the
account will not be less than the amount of the Fund's purchase commitment. Such
agreements are subject to the risk that the benefit of purchasing a security
with the proceeds of the sale by the Fund will be less than the cost to the Fund
of transacting the reverse repurchase agreement. Such agreements will be entered
into when, in the judgment of the Investment Manager, the risk is justified by
the potential advantage of total return.
PRIVATE PLACEMENTS AND RULE 144A SECURITIES. The Fund may purchase securities in
private placements or pursuant to the Rule 144A exemption from Federal
registration requirements. Because an active trading market may not exist for
such securities, the sale of such securities may be subject to delay and greater
discounts than the sale of registered securities. Investing in such securities
could have the effect of increasing the level of Fund illiquidity to the extent
that qualified institutional buyers become less interested in buying these
securities. The
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Fund will not invest more than 15% of its net assets in illiquid assets and will
not invest more than 10% of its total assets in assets that are illiquid due to
restrictions on the sale of such securities to the public without registration
under the Securities Act of 1933.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a "when-issued"
basis. In such transactions delivery and payment occur at a date subsequent to
the date of the commitment to make the purchase. Although the Fund will enter
into when-issued transactions with the intention of acquiring the securities,
the Fund may sell the securities prior thereto for investment reasons, which may
result in a gain or loss. Acquiring securities in this manner involves a risk
that yields available on the delivery date may be higher than those received in
such transactions, as well as the risk of price fluctuation. When the Fund
purchases securities on a when-issued basis, its custodian will set aside in a
segregated account cash or securities of the U.S. Government, its agencies or
instrumentalities with a market value at least equal to the amount of the
commitment. If necessary, assets will be added to the account daily so that the
value of the account will not be less than the amount of the Fund's purchase
commitment. Failure of the issuer to deliver the security may result in the Fund
incurring a loss or missing an opportunity to make an alternative investment.
LENDING. Pursuant to an arrangement with its custodian, the Fund may lend
portfolio securities or other assets of the Fund to other parties limited to one
third of the Fund's total assets. If the Fund engages in lending transactions,
it will enter into lending agreements that require that the loans be
continuously secured by cash, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or any combination of cash and
such securities, as collateral equal at all times to at least the market value
of the assets lent. To the extent of such activities, the custodian will apply
credits against its custodial charges. There are risks to the Fund of delay in
receiving additional collateral and risks of delay in recovery of, and failure
to recover, the assets lent should the borrower fail financially or otherwise
violate the terms of the lending agreement. Loans will be made only to borrowers
deemed by the Investment Manager to be of good standing and when, in the
judgment of the Investment Manager, the consideration which can be earned
currently from such lending transactions justifies the attendant risk. Any loan
made by the Fund will provide that it may be terminated by either party upon
reasonable notice to the other party.
PORTFOLIO TURNOVER. Given the investment objectives of the Fund, the rate of
portfolio turnover will not be a limiting factor when the Investment Manager
deems changes in the composition of the portfolio appropriate, and the
investment strategy pursued by the Fund therefore includes the possibility of
short term transactions. The Fund's portfolio turnover rate will vary from year
to year depending on world market conditions. For the fiscal years ended June
30, 1995 and 1994, the portfolio's turnover rate was 385% and 223%,
respectively. Higher portfolio turnover involves correspondingly greater
transaction costs and increases the potential for short term capital gains and
taxes (see "Distributions and Taxes" below).
OTHER INFORMATION. In addition to the Fund's primary investment objective, the
Fund has adopted certain investment restrictions, set forth in the Statement of
Additional Information, that are fundamental and cannot be changed without
shareholder approval. The Fund's secondary investment objective and all other
investment policies are nonfundamental and may be changed by the Board of
Directors without shareholder approval. The Fund may borrow money from banks for
temporary or emergency purposes (not for leveraging or investment) but not in
excess of an amount to one third of the Funds total assets. The Fund may not
purchase securities for investment while any bank borrowing equaling 5% or more
of its total assets is outstanding.
HOW TO PURCHASE SHARES
The Fund's shares are sold on a continuing basis at the net asset value per
share next determined after receipt and acceptance of the order by Investor
Service Center (see "Determination of Net Asset Value"). The minimum initial
investment is $1,000 for regular and gifts/transfers to minors custody accounts,
and $500 for Bull & Bear Retirement Plans, which include Individual Retirement
Accounts ("IRAs"), SEP-IRAs, rollover IRAs, profit sharing and money purchase
plans, and 403(b) plan accounts. The minimum subsequent investment is $100. The
initial investment minimums are waived if you elect to invest $100 or more each
month in the Fund through the Bull & Bear Automatic Investment Program (see
"Additional Investments" below).
INITIAL INVESTMENT. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
payable to Global Income Fund, mailed to Investor Service Center, Box 419789,
Kansas City, MO 64141-6789. Initial investments also may be made by having your
bank wire money, as set forth below, in order to avoid mail delays.
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ADDITIONAL INVESTMENTS. Additional investments may be made conveniently at any
time by any one or more of the following methods:
o BULL & BEAR AUTOMATIC INVESTMENT PROGRAM. With the Bull & Bear Automatic
Investment Program (the "Program"), you can establish a convenient and
affordable long term investment program through one or more of the Plans
explained below. Each Plan is designed to facilitate an automatic monthly
investment of $100 or more into your Fund account.
The BULL & BEAR BANK TRANSFER PLAN lets you purchase Fund shares on a
certain day each month by transferring electronically a specified
dollar amount from your regular checking account, NOW account, or bank
money market deposit account.
In the BULL & BEAR SALARY INVESTING PLAN, part or all of your salary
may be invested electronically in Fund shares on each pay date,
depending upon your employer's direct deposit program.
The BULL & BEAR GOVERNMENT DIRECT DEPOSIT PLAN allows you to deposit
automatically part or all of certain U.S. Government payments into
your Fund account. Eligible U.S. Government payments include Social
Security, pension benefits, military or retirement benefits, salary,
veteran's benefits and most other recurring payments.
For more information concerning these Plans, or to request the necessary
authorization form(s), please call Investor Service Center, 1-800-847-4200. You
may modify or terminate the Bank Transfer Plan at any time by written notice
received at least 10 days prior to the scheduled investment date. To modify or
terminate the Salary Investing Plan or Government Direct Deposit Plan, you
should contact, respectively, your employer or the appropriate U.S. government
agency. The Fund reserves the right to redeem any account if participation in
the Program is terminated and the account's value is less than $500. The Program
does not assure a profit or protect against loss in a declining market, and you
should consider your ability to make purchases when prices are low.
o CHECK. Mail a check or other negotiable bank draft ($100 minimum), made
payable to Global Income Fund, together with a Bull & Bear FastDeposit form
to Investor Service Center, Box 419789, Kansas City, MO 64141- 6789. If you
do not use that form, please send a letter indicating the Fund and account
number to which the subsequent investment is to be credited, and name(s) of
the registered owner(s).
o ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional
shares of the Fund quickly and simply, just by calling Investor Service
Center, 1-800-847-4200. We will contact the bank you designate on your
Account Application or Authorization Form to arrange for the EFT, which is
done through the Automated Clearing House system, to your Fund account. For
requests received by 4 p.m., eastern time, the investment will be credited
to your Fund account ordinarily within two business days. There is a $100
minimum for each EFT investment. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account
information must be submitted in writing with a voided check or deposit
slip.
o FEDERAL FUNDS WIRE. You may wire money, by following the procedures set
forth below, to receive that day's net asset value per share.
INVESTING BY WIRE. For an initial investment by wire, you must first telephone
Investor Service Center, 1-800- 847-4200, to give the name(s) under which the
account is to be registered, tax identification number, the name of the bank
sending the wire, and to be assigned a Bull & Bear Global Income Fund account
number. You may then purchase shares by requesting your bank to transmit
immediately available funds ("Federal funds") by wire to: United Missouri Bank
NA, ABA #10-10-00695; for Account 98-7052-724-3; Global Income Fund. Your
account number and name(s) must be specified in the wire as they are to appear
on the account registration. You should then enter your account number on your
completed Account Application and promptly forward it to Investor Service
Center, Box 419789, Kansas City, MO 64141-6789. This service is not available on
days when the Federal Reserve wire system is closed. Subsequent investments by
wire may be made at any time without having to call Investor Service Center by
simply following the same wiring procedures.
SHAREHOLDER ACCOUNTS. When you invest in the Fund, your account will be credited
with all full and fractional shares (to three decimal places), together with any
dividends and other distributions that are paid in additional shares (see
"Distributions and Taxes"). Stock certificates will be issued only for full
shares when requested in writing. In order to facilitate redemptions and
exchanges and provide safekeeping, we recommend that you do
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not request certificates. You will receive transaction confirmations upon
purchasing or selling shares, and quarterly statements.
WHEN ORDERS ARE EFFECTIVE. The purchase price for Fund shares is the net asset
value of such shares next determined after receipt and acceptance by Investor
Service Center of a purchase order in proper form. All purchases are accepted
subject to collection at full face value in Federal funds. Checks must be drawn
in U.S. dollars on a U.S. bank. The Fund reserves the right to reject any order.
Accounts are charged $30 by the Transfer Agent for submitting checks for
investment which are not honored by the investor's bank. The Fund may in its
discretion waive or lower the investment minimums.
SHAREHOLDER SERVICES
You may modify or terminate your participation in any of the Fund's special
plans or services at any time. Shares or cash should not be withdrawn from any
tax-advantaged retirement plan described below, however, without consulting a
tax adviser concerning possible adverse tax consequences. Additional information
regarding any of the following services is available from Investor Service
Center, 1-800-847-4200.
CHECK WRITING PRIVILEGE FOR EASY ACCESS. The Transfer Agent will, upon request,
provide shareholders with FREE, UNLIMITED checks that may be made payable to the
order of anyone in any amount of not less than $250. The Fund will arrange for
the checks to be honored by United Missouri Bank ("UMB") for this purpose. This
Check Writing Privilege enables the shareholder to continue receiving dividends
on shares redeemed by check until such time as the check is presented to UMB for
payment. UMB has the right to refuse any checks which do not conform with its
requirements. The shareholder will be subject to UMB's rules and regulations
governing checking accounts, including a $20 charge for refused checks, which
may change without notice. When such a check is presented to UMB for payment,
the Transfer Agent, as the shareholder's agent, will cause the Fund to redeem a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check. The Fund generally will not honor for up to 10
days a check written by a shareholder that requires the redemption of shares
recently purchased by check or until it is reasonably assured of payment of the
check representing the purchase. Since the value of Fund shares and of a
shareholder's account changes daily, shareholders should not attempt to close an
account by writing a check.
ELECTRONIC FUNDS TRANSFER (EFT). You automatically have the privilege of linking
your bank account designated on your Account Application or Authorization Form
and your Fund account through Bull & Bear's EFT service. With EFT, you use the
Automated Clearing House system to electronically transfer money quickly and
safely between your bank and Fund accounts. EFT may be used for purchasing and
redeeming Fund shares, direct deposit of dividends into your bank account, the
Automatic Investment Program, the Systematic Withdrawal Plan, and systematic IRA
distributions. You may decline this privilege by checking the indicated box on
the Account Application. Any subsequent changes in bank account information must
be submitted in writing (and the Transfer Agent may require the signature to be
guaranteed), with a voided check or deposit slip.
DIVIDEND SWEEP PRIVILEGE. You may elect to have automatically invested either
all dividends or all dividends and capital gain distributions paid by the Fund
in any other Bull & Bear Fund. Shares of the other Bull & Bear Fund will be
purchased at the current net asset value calculated on the payment date. For
more information concerning this privilege and the other Bull & Bear Funds, or
to request a Dividend Sweep Authorization Form, please call Investor Service
Center, 1-800-847-4200. You may cancel this privilege by mailing written
notification to Investor Service Center, Box 419789, Kansas City, MO 64141-6789.
To select a new Bull & Bear Fund after cancellation, you must submit a new
Authorization Form. Enrollment in or cancellation of this privilege is generally
effective three business days following receipt. This privilege is available
only for existing accounts and may not be used to open new accounts.
SYSTEMATIC WITHDRAWAL PLAN. If you own Fund shares with a value of at least
$20,000 you may elect an automatic monthly or quarterly withdrawal of cash from
your Fund account in fixed or variable amounts, subject to a minimum amount of
$100. Under the Systematic Withdrawal Plan, all dividends and other
distributions, if any, are reinvested in the Fund.
ASSIGNMENT. Fund shares may be transferred to another owner. Instructions are
available from Investor Service Center, 1-800-847-4200.
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EXCHANGE PRIVILEGE. You may exchange at least $500 worth of shares of the Fund
for shares of any Bull & Bear Fund listed below (provided the registration is
exactly the same, the shares may be sold in your state of residence, and the
exchange may otherwise legally be made).
To exchange shares, please call Investor Service Center at 1-800-847-4200
between 9 a.m. and 5 p.m. eastern time on any Fund business day and provide the
following information: account registration including address and number;
taxpayer identification number; percentage, number, or dollar value of shares to
be redeemed; name and, if different, the account number of the Bull & Bear Fund
to be purchased; and your identity and telephone number. The other Bull & Bear
Funds are:
o BULL & BEAR DOLLAR RESERVES is a high quality money market fund investing
in U.S. Government securities. Income is generally free from most state
income taxes. Free unlimited check writing ($250 minimum per check). Pays
monthly dividends.
o BULL & BEAR U.S. GOVERNMENT SECURITIES FUND invests for a high level of
current income, liquidity, and safety of principal. Free unlimited check
writing ($250 minimum per check). Pays monthly dividends.
o BULL & BEAR MUNICIPAL INCOME FUND invests for the highest possible income
exempt from Federal income tax consistent with preservation of principal.
Free unlimited check writing ($250 minimum per check). Pays monthly
dividends.
o BULL & BEAR QUALITY GROWTH FUND seeks growth of capital and income from a
portfolio of common stocks of large, quality companies with potential for
significant growth of earnings and dividends.
o BULL & BEAR U.S. AND OVERSEAS FUND invests worldwide for the highest
possible total return.
o BULL & BEAR SPECIAL EQUITIES FUND invests aggressively for maximum capital
appreciation.
o BULL & BEAR GOLD INVESTORS seeks long term capital appreciation in
investments with the potential to provide a hedge against inflation and
preserve the purchasing power of the dollar.
Exchange requests received between 9 a.m. and 4 p.m. eastern time on any Fund
business day will be effected at the net asset values of the Fund and the other
Bull & Bear Fund as determined at the close of that business day. Exchange
requests received between 4 p.m. and 5 p.m. eastern time on any Fund business
day will be effected at the net asset values of the Fund and the other Bull &
Bear Fund as determined at the close of the next Fund business day. If you are
unable to reach Investor Service Center at the above telephone number you may,
in emergencies, call 1-212-363-1100 or communicate by fax to 1-212-363-1103 or
cable to the address BULLNBEAR NEWYORK. Exchanges may be difficult or impossible
to implement during periods of rapid changes in economic or market conditions.
Exchange privileges may be terminated or modified by the Fund without notice.
For tax purposes, an exchange is treated as a redemption and purchase of shares.
A free prospectus containing more complete information including charges,
expenses and performance, on any of the Bull & Bear Funds listed above is
available from Investor Service Center, 1-800-847-4200. The other Fund's
prospectus should be read carefully before exchanging shares. You may give
exchange instructions to Investor Service Center by telephone without further
documentation. If you have requested share certificates, this procedure may be
utilized only if, prior to giving telephone instructions, you deliver the
certificates to the Transfer Agent for deposit into your account.
o BULL & BEAR SECURITIES (DISCOUNT BROKERAGE ACCOUNT) TRANSFERS. If you have
an account at Bull & Bear Securities, Inc., an affiliate of the Investment
Manager and a wholly owned subsidiary of Bull & Bear Group, Inc. offering
discount brokerage services, you may access your investment in any Bull &
Bear Fund to pay for securities purchased in your brokerage account and
have proceeds of securities sold in your brokerage account used to purchase
shares of any Bull & Bear Fund. You may request a Discount Brokerage
Account Application from Bull & Bear Securities, Inc., 1-800-262-5800.
TAX-ADVANTAGED RETIREMENT PLANS. These plans provide an opportunity to set aside
money for retirement in a tax-advantaged account in which earnings can be
compounded without incurring a tax liability until the money and earnings are
withdrawn. Contributions may be fully or partially deductible for Federal income
tax purposes as noted below. Information on any of these plans is available from
Investor Service Center, 1-800-847-4200.
The minimum investment to establish a Bull & Bear Retirement Plan is $500.
Minimum subsequent investments are $100. The initial investment minimums are
waived if you elect to invest $100 or more each month in the Fund through the
Bull & Bear Automatic Investment Program. There are no set-up fees for any Bull
& Bear
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Retirement Plan. Subject to change on 30 days' notice, the plan custodian
charges Bull & Bear Retirement Plans a $10 annual fiduciary fee, $10 for each
distribution prior to age 59 1/2, and a $20 plan termination fee; however, the
annual fiduciary fee is waived for Bull & Bear Retirement Plans with assets of
$10,000 or more or if you invest regularly through the Bull & Bear Automatic
Investment Program.
|X| IRA AND SEP-IRA ACCOUNTS. Anyone with earned income who is less than age 70
1/2at the end of the tax year, even if also participating in another type
of retirement plan, may establish an IRA and contribute each year up to
$2,000 or 100% of earned income, whichever is less, and an aggregate of up
to $2,250 when a non-working spouse is also covered in a separate spousal
account. If each spouse has at least $2,000 of earned income each year,
they may contribute up to $4,000 annually. Employers may also make
contributions to an IRA on behalf of an individual under a Simplified
Employee Pension Plan ("SEP") in any amount up to 15% of up to $150,000 of
compensation. Generally, taxpayers may contribute to an IRA during the tax
year and through the next year until the income tax return for that year is
due, without regard to extensions. Thus, most individuals may contribute
for the 1996 tax year from January 1, 1996 through April 15, 1997.
BULL & BEAR NO-FEE IRA(R). The $10 annual fiduciary fee is waived if your
Bull & Bear IRA or Bull & Bear SEP-IRA has assets of $10,000 or more or if
you invest through the Bull & Bear Automatic Investment Program.
DEDUCTIBILITY. IRA contributions are fully deductible for most taxpayers.
For a taxpayer who is an active participant in an employer-maintained
retirement plan (or whose spouse is), a portion of IRA contributions is
deductible if adjusted gross income (before the IRA deductions) is
$40,000-$50,000 (if married) and $25,000- $35,000 (if single). Only IRA
contributions by a taxpayer who is an active participant in an
employer-maintained retirement plan (or whose spouse is) and has adjusted
gross income of more than $50,000 (if married) and $35,000 (if single) will
not be deductible at all. An eligible individual may establish a Bull &
Bear IRA under the prototype plan available through the Fund, even though
such individual or spouse actively participates in an employer-maintained
retirement plan.
o IRA TRANSFER AND ROLLOVER ACCOUNTS. Special forms are available from
Investor Service Center, 1-800- 847-4200, which make it easy to transfer or
roll over IRA assets to a Bull & Bear IRA. An IRA may be transferred from
one financial institution to another without adverse tax consequences.
Similarly, no taxes need be paid on a lump-sum distribution which you may
receive as a payment from a qualified pension or profit sharing plan due to
retirement, job termination or termination of the plan, so long as the
assets are put into an IRA Rollover account within 60 days of the receipt
of the payment. Withholding for Federal income tax is required at the rate
of 20% for "eligible rollover distributions" made from any retirement plan
(other than an IRA) that are not directly transferred to an "eligible
retirement plan," such as a Bull & Bear Rollover Account.
o PROFIT SHARING AND MONEY PURCHASE PLANS. These Plans provide an opportunity
to accumulate earnings on a tax-deferred basis by permitting corporations,
self-employed individuals (including partners) and their employees
generally to contribute (and deduct) up to $30,000 annually or, if less,
25% (15% for profit sharing plans) of compensation or self-employment
earnings of up to $150,000. Corporations and partnerships, as well as all
self-employed persons, are eligible to establish these Plans. In addition,
a person who is both salaried and self-employed, such as a college
professor who serves as a consultant, may adopt these retirement plans
based on self-employment earnings.
|X| SECTION 403(B) ACCOUNTS. Section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), permits the establishment of custodial accounts
on behalf of employees of public school systems and certain tax-exempt
organizations. A participant in such a plan does not pay taxes on any
contributions made by the participant's employer to the participant's
account pursuant to a salary reduction agreement, up to a maximum amount,
or "exclusion allowance." The exclusion allowance is generally computed by
multiplying the participant's years of service times 20% of the
participant's compensation included in gross income received from the
employer (reduced by any amount previously contributed by the employer to
any 403(b) account for the benefit of the participant and excluded from the
participant's gross income). However, the exclusion allow ance may not
exceed the lesser of 25% of the participant's compensation (limited as
above) or $30,000. Contributions and subsequent earnings thereon are not
taxable until withdrawn, when they are received as ordinary income.
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HOW TO REDEEM SHARES
Generally, you may redeem by any of the methods explained below. Requests for
redemption should include the following information: your account registration
information including address, account number and taxpayer identification
number; dollar value, number or percentage of shares to be redeemed; how and to
where the proceeds are to be sent; if applicable, the bank's name, address, ABA
routing number, bank account registration and account number, and a contact
person's name and telephone number; and your daytime telephone number.
BY MAIL. You may request that the Fund redeem any amount of shares by submitting
a written request to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, signed by the record owner(s). If the written request is sent to the
Fund, it will be forwarded to the above address. If stock certificates have been
issued for shares being redeemed, they must accompany the written request.
CHECK WRITING PRIVILEGE. See "Shareholder Services" above for redemption of
shares by writing free, unlimited, personalized checks, provided by the Fund, in
amounts of $250 or more for regular accounts.
BY TELEPHONE. You may telephone Investor Service Center, 1-800-847-4200 to
expedite redemption of Fund shares if share certificates have not been issued.
You may redeem as little as $250 worth of shares by requesting Bull & Bear's
Electronic Funds Transfer (EFT) service. With EFT, you can redeem Fund shares
quickly and conveniently because Investor Service Center will contact the bank
designated on your Account Application or Authorization Form to arrange for the
electronic transfer of your redemption proceeds (through the Automated Clearing
House system) to your bank account. EFT proceeds are ordinarily available in
your bank account within two business days.
If you are redeeming $1,000 or more worth of shares, you may request that the
proceeds be mailed to your address of record or mailed or wired to your
authorized bank.
Telephone requests received on Fund business days by 4 p.m. eastern time will
be redeemed from your account that day, and if after, on the next Fund business
day. Any subsequent changes in bank account information must be submitted in
writing, signature guaranteed, with a voided check or deposit slip. If you are
unable to reach Investor Service Center at the above telephone number you may,
in emergencies, call 1-212- 363-1100 or communicate by fax to 1-212-363-1103 or
cable to the address BULLNBEAR NEWYORK. Redemptions by telephone may be
difficult or impossible during periods of rapid changes in economic or market
conditions.
REDEMPTION PRICE AND FEES. The redemption price is the net asset value per share
next determined after receipt of the redemption request in proper form. The Fund
is designed as a long term investment, and short term trading is discouraged.
Accordingly, if shares of the Fund held for 30 days or less are redeemed or
exchanged, the Fund will deduct a redemption fee equal to one percent of the net
asset value of shares redeemed or exchanged. The fee will be retained by the
Fund and used to offset the transaction costs that short term trading imposes on
the Fund and its shareholders. If an account contains shares with different
holding periods (i.e. some shares held 30 days or less, some shares held 31 days
or more), the shares with the longest holding period will be redeemed first to
determine if the Fund's redemption fee applies. Shares acquired through the
Dividend Sweep Privilege and the reinvestment of dividends and capital gains or
redeemed under the Systematic Withdrawal Plan are exempt from the redemption
fee. Registered broker/dealers, investment advisers, banks, and insurance
companies may open accounts and redeem shares by telephone or wire and may
impose a charge for handling purchases and redemptions when acting on behalf of
others.
REDEMPTION PAYMENT. Payment for shares redeemed will be made as soon as
possible, ordinarily within seven days after receipt of the redemption request
in proper form. The right of redemption may not be suspended, or date of payment
delayed more than seven days, except for any period (i) when the New York Stock
Exchange is closed or trading thereon is restricted as determined by the SEC;
(ii) under emergency circumstances as determined by the SEC that make it not
reasonably practicable for the Fund to dispose of securities owned by it or
fairly to determine the value of its assets; or (iii) as the SEC may otherwise
permit. The mailing of proceeds on redemption requests involving any shares
purchased by personal, corporate, or government check or EFT transfer is
generally subject to a fifteen business day delay to allow the check or transfer
to clear. The fifteen day clearing period does not affect the trade date on
which a purchase or redemption order is priced, or any dividends and capital
gain distributions to which you may be entitled through the date of redemption.
The clearing period does not apply to purchases made by wire. Due to the
relatively higher cost of maintaining small accounts, the
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Fund reserves the right, upon 60 days' notice, to redeem any account, other than
Bull & Bear Retirement Plan accounts, worth less than $500 except if solely from
market action, unless an investment is made to restore the minimum value.
TELEPHONE PRIVILEGES. You automatically have all telephone privileges to, among
other things, authorize purchases, redemptions and exchanges, with EFT or by
other means, unless declined on the Account Application or otherwise in writing.
Neither the Fund nor Investor Service Center shall be liable for any loss or
damage for acting in good faith upon instructions received by telephone and
believed to be genuine. The Fund employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and if it does not, it may be
liable for losses due to unauthorized or fraudulent transactions. These
procedures include requiring personal identification prior to acting upon
telephone instructions, providing written confirmation of such transactions, and
tape recording telephone conversations. The Fund may modify or terminate any
telephone privileges or shareholder services (except as noted) at any time
without notice.
SIGNATURE GUARANTEES. No signature guarantees are required when payment is to be
made to you at your address of record. If the redemption proceeds are to be paid
to a non-shareholder of record, or to an address other than your address of
record, or the shares are to be assigned, the Transfer Agent may require that
your signature be guaranteed by an entity acceptable to the Transfer Agent, such
as a commercial bank or trust company or member firm of a national securities
exchange or of the National Association of Securities Dealers, Inc. ("NASD"). A
notary public may not guarantee signatures. The Transfer Agent may require
further documentation, and may restrict the mailing of redemption proceeds to
your address of record within 30 days of such address being changed unless you
provide a signature guarantee as described above.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. The Fund declares and pays monthly dividends to its shareholders
from its net investment income, if any. In any month in which the Fund fails to
earn net investment income equal to the average of the two lowest monthly
distributions in the preceding three months, the Fund will make an additional
distribution equal to such deficiency, payable initially from any net realized
gains from foreign currency transactions, secondly from any net realized short
term capital gains (after off setting any capital loss carryover), and lastly
from paid-in capital. The Fund also makes an annual distribution to its
shareholders of net long term and undistributed net short term capital gain
(after offsetting any capital loss carryover), if any, and any undistributed net
realized gains from foreign currency transactions. Such distributions, if any,
are declared and payable to shareholders of record on a date in December of each
year. Such amounts may be paid in January of the following year (in which event
they will be deemed received by the shareholders on the preceding December 31
for tax purposes). The Fund may also make an additional distribution following
the end of its fiscal year out of any undistributed income and capital gain.
Dividends and other distributions are made in additional shares of the Fund,
unless the shareholder elects to receive cash on the Account Application or so
elects subsequently by calling Investor Service Center, 1-800-847-4200. For
Federal income tax purposes, such dividends and other distributions are treated
in the same manner whether received in shares or cash. Any election will remain
in effect until you notify Investor Service Center to the contrary.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its investment company taxable income (generally consisting
of net investment income, net short term capital gains, and net gains from
certain foreign currency transactions) and net capital gain (the excess of net
long term capital gain over net short term capital loss) that is distributed to
its shareholders. Dividends paid by the Fund from its investment company taxable
income (whether paid in cash or in additional Fund shares) generally are taxable
to shareholders, other than shareholders that are not subject to tax on their
income, as ordinary income to the extent of the Fund's earnings and profits; a
portion of those dividends may be eligible for the corporate dividends-received
deduction. Distributions by the Fund of its net capital gain (whether paid in
cash or in additional Fund shares) when designated as such by the Fund, are
taxable to the shareholders as long term capital gains, regardless of how long
they have held their Fund shares. The Fund notifies its shareholders following
the end of each calendar year of the amounts of dividends and capital gain
distributions paid (or deemed paid) that year and of any portion of those
dividends that qualifies for the corporate dividends-received deduction. Any
dividend or other distribution paid by the Fund will reduce the net asset value
of Fund shares by the amount of the distribution. Furthermore, such a
distribution, although similar in effect to a return of capital, will be subject
to tax. The Fund is required to withhold 31% of all dividends, capital gain
distributions, and redemption proceeds payable to any individuals and certain
other noncorporate
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shareholders who do not provide the Fund with a correct taxpayer identification
number. Withholding at that rate also is required from dividends and capital
gain distributions payable to such shareholders who otherwise are subject to
backup withholding. The foregoing is only a summary of some of the important
Federal income tax considerations generally affecting the Fund and its
shareholders; see the Statement of Additional Information for a further
discussion. Because other Federal, state and local tax considerations may apply,
you should consult your tax adviser.
DETERMINATION OF NET ASSET VALUE
The value of a share of the Fund is based on the value of its net assets. The
Fund's net assets are the total of its investments and all other assets minus
any liabilities. The value of one share is determined by dividing the net assets
by the total number of shares outstanding. This is referred to as "net asset
value per share," and is determined as of the close of regular trading on the
New York Stock Exchange (currently, 4 p.m. eastern time, unless weather,
equipment failure or other factors contribute to an earlier closing) each Fund
business day. A Fund business day is any day on which the New York Stock
Exchange is open for trading. The following are not Fund business days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Portfolio securities and other assets of the Fund are valued primarily on the
basis of market quotations, if readily available. Foreign securities, if any,
are valued on the basis of quotations from a primary market in which they are
traded and are translated from the local currency into U.S. dollars using
current exchange rates. Securities and other assets for which quotations are not
readily available will be valued at fair value as determined in good faith by or
under the direction of the Board of Directors.
THE INVESTMENT MANAGER
Bull & Bear Advisers, Inc. (the "Investment Manager") acts as general manager
of the Fund, being responsible for the various functions assumed by it,
including the regular furnishing of advice with respect to portfolio
transactions. The Investment Manager manages the investment and reinvestment of
the assets of the Fund, subject to the control and final direction of the Board
of Directors. The Investment Manager is authorized to place portfolio
transactions with Bull & Bear Securities, Inc., an affiliate of the Investment
Manager, and may allocate brokerage transactions by taking into account the
sales of shares of the Fund and other affiliated investment companies. The
Investment Manager may also allocate portfolio transactions to broker/dealers
that remit a portion of their commissions as a credit against the Fund's
expenses. For its services, the Investment Manager receives an investment
management fee, payable monthly, based on the Fund's average daily net assets at
the annual rate of 0.70% of the first $250 million, 0.625% from $250 million to
$500 million, and 0.50% over $500 million. From time to time, the Investment
Manager may reimburse all or part of this fee to improve the Fund's yield and
total return. The Investment Manager provides certain administrative services to
the Fund at cost. During the fiscal year ended June 30, 1995, the investment
management fees paid by the Fund represented 0.70% of its average daily net
assets. The Investment Manager is a wholly owned subsidiary of Bull & Bear
Group, Inc. ("Group"). Group, a publicly owned company whose securities are
listed on Nasdaq and traded in the over-the-co unter market, is a New York based
manager of mutual funds and discount brokerage services. Bassett S. Winmill may
be deemed a controlling person of Group and, therefore, may be deemed a
controlling person of the Investment Manager.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Investor Service
Center, Inc. (the "Distributor") the Distributor acts as the Fund's exclusive
agent for the sale of its shares. The Investment Manager is an affiliate of the
Distributor. The Fund has also adopted a plan of distribution (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act"). Pursuant to the Plan, the Fund pays the Distributor monthly a fee in the
amount of one-quarter of one percent per annum of the Fund's average daily net
assets as compensation for service activities and a fee in an amount of up to
one-quarter of one percent per annum of the Fund's average daily net assets as
compensation for distribution activities. The fee for service activities is
intended to cover personal services provided to shareholders in the Fund and the
maintenance of shareholder accounts. The fee for distribution activities is
intended to cover all other activities and expenses primarily intended to result
in the sale of the Fund's shares. The fee may be retained or passed through by
the Distributor to brokers, banks and others who provide services to Fund
shareholders. The Fund will pay the fees to the Distributor until either the
Plan is terminated or not renewed. In that event, the Distributor's expenses in
excess of fees received
15
<PAGE>
or accrued through the termination day will be the Distributor's sole
responsibility and not obligations of the Fund. During the period they are in
effect, the Distribution Agreement and Plan obligate the Fund to pay fees to the
Distributor as compensation for its service and distribution activities. If the
Distributor's expenses exceed the fees, the Fund will not be obligated to pay
any additional amount to the Distributor and, if the Distributor's expenses are
less than such fees, it may realize a profit. Certain other advertising and
sales materials may be prepared which relate to the promotion of the sale of
shares of the Fund and one or more other affiliated investment companies. In
such cases, the expenses will be allocated among the investment companies
involved based on the inquiries resulting from the materials or other factors
deemed appropriate by the Board of Directors. The costs of personnel and
facilities of the Distributor to respond to inquiries by shareholders and
prospective shareholders will also be allocated based on such relative inquiries
or other factors. There is no certainty that the allocation of any of the
foregoing expenses will precisely allocate to the Fund costs commensurate with
the benefits it receives, and it may be that other affiliated investment
companies and Bull & Bear Securities, Inc. will benefit therefrom.
PERFORMANCE INFORMATION
From time to time the Fund advertises its current and compound yield. Current
yield is computed by dividing the Fund's net investment income per share for the
most recent month, determined in accordance with SEC rules and regulations, by
the net asset value per share on the last day of such month and annualizing the
result. Compounded yield is the annualized current yield which is compounded by
assuming the current income to be reinvested. The Fund may also publish a
dividend distribution rate in sales material from time to time. The dividend
distribution rate of the Fund is the current rate of distribution paid per share
by the Fund during a specified period divided by the net asset value per share
at the end of such period and annualizing the result. When considering the
Fund's performance, fluctuations in share value must be considered together with
any published dividend distribution rate. Whenever the Fund advertises its
current yield and its dividend distribution rate, it will also advertise its
average annual total return over specified periods. For these purposes, the
Fund's average annual total return is based on an increase (or decrease) in a
hypothetical $1,000 invested in the Fund at the beginning of each of the
specified periods, assuming the reinvestment of any dividends and distributions
paid by the Fund during such periods. The investment returns and principal value
of an investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Until October 29, 1992, the
Fund's investment objective was to obtain for its shareholders the highest
income over the long term and the Fund followed a policy of investing primarily
in lower rated debt securities of U.S. companies. The Fund's yield and total
return is based upon historical performance information and is not predictive of
future performance. Additional information regarding the Fund's performance is
available in the Fund's Annual Report to Shareholders, which is available at no
charge upon request to Investor Service Center, 1-800-847-4200.
CAPITAL STOCK
The Fund is a series of Bull & Bear Funds II, Inc. (the "Corporation"), a
Maryland corporation incorporated in 1974. Prior to October 29, 1993, the
Corporation operated under the name Bull & Bear Incorporated. The Corporation is
a series investment company and is authorized to issue up to 1,000,000,000
shares ($.01 par value). The Board of Directors has designated 500,000,000
shares as Bull & Bear Dollar Reserves, 250,000,000 shares as Bull & Bear Global
Income Fund, and 250,000,000 shares as Bull & Bear U.S. Government Securities
Fund. The Board of Directors of the Corporation may establish one or more new
series, although it has no current intention to do so. The Fund's stock is fully
paid and non-assessable and is freely assignable by way of pledge (as, for
example, for collateral purposes), gift, settlement of an estate, and also by an
investor to another investor. In case of dissolution or other liquidation of the
Fund or the Corporation, shareholders will be entitled to receive ratably per
share the net assets of the Fund. Shareholders of all series of the Corporation
vote for Directors with each share entitled to one vote. Each share entitles the
holder to one vote for all purposes. Shares have no preemptive or conversion
rights. Except to the extent that the Board of Directors might provide by
resolution that the holders of shares of a particular series are entitled to
vote as a class on specified matters, and except for approval of investment
management agreements, plans of distribution, and changes in fundamental
investment objectives and limitations which are voted upon by each series,
separately as a class, there will be no right for any series to vote as a class
unless such right exists under Maryland law. The Corporation's Articles of
Incorporation contain no provision entitling the holders of the present classes
of capital stock to a vote as a class on any matter other than the foregoing.
Where a matter is to be voted upon separately by series, the matter is
effectively acted upon for such series if a majority of the outstanding voting
securities of that series approves the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting
16
<PAGE>
securities of any other series, or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Corporation.
In accordance with the General Corporation Law of the State of Maryland
applicable to open-end investment companies incorporated in Maryland and
registered under the 1940 Act, as is the Corporation, the Corporation's By-Laws
provide that there will be no annual meeting of shareholders in any year except
as required by law. In practical effect, this means that the Fund will not hold
an annual meeting of shareholders in years in which the only matters which would
be submitted to shareholders for their approval are the election of Directors
and ratification of the Directors' selection of accountants, although holders of
10% of the Corporation's shares may call a meeting at any time. There will
normally be no meetings of shareholders for the purpose of electing Directors
unless fewer than a majority of the Directors holding office have been elected
by shareholders. Shareholder meetings will be held in years in which shareholder
approval of the Fund's investment management agreement, plan of distribution, or
changes in its fundamental investment objective, policies or restrictions is
required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111, acts as
custodian of the Fund's assets and may appoint one or more subcustodians
provided such subcustodianship is in compliance with the rules and regulations
promulgated under the 1940 Act. The Fund may maintain a portion of its assets in
foreign countries pursuant to such subcustodianships and related foreign
depositories. Utilization by the Fund of such foreign custodial arrangements
will increase the Fund's expenses. The custodian also performs certain
accounting services for the Fund. The Fund's transfer and dividend disbursing
agent is DST Systems, Inc., Box 419789, Kansas City, MO 64141-6789. The
Distributor provides shareholder administration services to the Fund and is
reimbursed its cost by the Fund. The costs of facilities, personnel and other
related expenses are allocated among the Fund and other affiliated investment
companies based on the relative number of inquiries and other factors deemed
appropriate by the Board of Directors.
17
<PAGE>
[Left Side of Back Cover Page]
GLOBAL
INCOME FUND
- -----------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-847-4200 1-212-363-1100
E-MAIL: [email protected]
- -----------------------------------------------------
CALL TOLL-FREE FOR FUND PERFORMANCE, TELEPHONE PURCHASES, EXCHANGES AMONG THE
BULL & BEAR FUNDS AND TO OBTAIN INFORMATION CONCERNING YOUR ACCOUNT.
1-800-847-4200 1-212-363-1100
- -----------------------------------------------------
[Right Side of Back Cover Page]
GLOBAL
INCOME FUND
- ---------------------------------------------------------
SEEKING A HIGH
LEVEL OF INCOME FROM A
GLOBAL PORTFOLIO OF
INVESTMENT GRADE
FIXED INCOME SECURITIES
MONTHLY DIVIDENDS
ELECTRONIC FUNDS TRANSFERS
RETIREMENT PLANS
FREE CHECK WRITING
- ---------------------------------------------------------
MINIMUM INVESTMENTS
o REGULAR ACCOUNTS, $1,000
o IRAS, $500
o AUTOMATIC INVESTMENT PROGRAM, $100
o SUBSEQUENT INVESTMENTS, $100
- ---------------------------------------------------------
PROSPECTUS
NOVEMBER 1, 1995
BULL & BEAR
- -----------------------------------------
PERFORMANCE DRIVEN(R)
Printed on recycled paper
GIF-147/11/5
18
<PAGE>
The investment objective of Bull & Bear U.S. Government Securities Fund (the
"Fund"), a no-load mutual fund, is to provide for its shareholders:
o A HIGH LEVEL OF CURRENT INCOME,
o LIQUIDITY, AND
o SAFETY OF PRINCIPAL.
The Fund pursues its investment objective by investing primarily in a
diversified, managed portfolio of securities backed by the full faith and credit
of the United States. Fund shares are not guaranteed or insured by the U.S.
Government or its agencies and there can be no assurance that the Fund will
achieve its investment objective. Monthly dividends are paid to shareholders
from the income the Fund earns on its investments.
- ---------------------------------------------------------------------
NEWSPAPER LISTING. Shares of the Fund are
sold at the net asset value per share which
is shown daily in the mutual fund section of
newspapers under the "Bull & Bear Group"
heading.
- ---------------------------------------------------------------------
This prospectus contains information you should know about the Fund before
you invest. Please keep it for future reference. The Fund's Statement of
Additional Information, dated November 1, 1995, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
prospectus. It is available at no charge by calling 1-800-847-4200. FUND SHARES
ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK
OR ANY AFFILIATE OF ANY BANK, AND ARE NOT FEDERALLY INSURED BY, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
EXPENSE TABLES. The tables below are designed to help you understand the costs
and expenses that you will bear directly or indirectly as an investor in the
Fund. A $2 monthly account fee is charged if your monthly balance is less than
$500, unless you are in the Bull & Bear Automatic Investment Program.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases........................................NONE
Sales Load Imposed on Reinvested Dividends.............................NONE
Deferred Sales Load....................................................NONE
Redemption Fee within 30 days of purchase 1.00%
Redemption Fee after 30 days of purchase NONE
Exchange Fees..........................................................NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees.......................................................0.70%
12b-1 Fees............................................................0.25%
Other Expenses........................................................1.05%
Total Fund Operating Expenses.........................................2.00%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and a redemption at the end of each time period
1 year 3 years 5 years 10 years
------ ------- ------- --------
$20 $63 $108 $233
The example set forth above assumes reinvestment of all dividends and other
distributions and assumes a 5% annual rate of return as required by the
Securities and Exchange Commission ("SEC"). THE EXAMPLE IS AN ILLUSTRATION ONLY
AND SHOULD NOT BE CONSIDERED AN INDICATION OF PAST OR FUTURE RETURNS AND
EXPENSES. Actual returns and expenses may be greater or less than those shown.
The percentages given for annual Fund expenses are based on the Fund's operating
expenses and average daily net assets during its fiscal year ended June 30,
1995. Long term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc.'s rules for investment companies. "Other Expenses"
includes amounts paid to the Fund's custodian and transfer agent and reimbursed
to the Investment Manager and the Distributor, and does not include interest
expense from the Fund's bank borrowing.
FINANCIAL HIGHLIGHTS for a share of capital stock outstanding throughout each
period. The following information is supplemental to the Fund's financial
statements and report thereon of Tait, Weller & Baker, independent accountants,
appearing in the June 30, 1995 Annual Report to Shareholders and incorporated by
reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ----- ----- ---- ----- ----- -----
PER SHARE DATA
Net asset value at beginning of period $14.63 $15.53 $14.80 $13.82 $13.69 $13.90 $14.36 $14.68 $14.84 $15.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income .73 .78 .78 .90 .98 1.07 1.22 1.44 1.47 .58
Net realized and unrealized gain
(loss) on investments .60 (1.03) .75 1.00 .13 (.21) (.43) (.27) (.21) (.27)
--- ------ ------ ----- ------ ------ ------ ------- ----- -----
Total from investment operations 1.33 (.25) 1.53 1.90 1.11 .86 .79 1.17 1.26 .31
Less distributions:
Distributions from net investment
income (.76) (.65) (.80) (.92) (.98) (1.07) (1.25) (1.49) (1.42) (.47)
----- -------- ------- ------ ------- ------ ------ ------- ----- -----
Increase (decrease)in net asset value .57 (.90) .73 .98 .13 (.21) (.46) (.32) (.16) (.16)
---- -------- ------- ------ ------- ------ ------ ------- ----- -----
Net asset value at end of period $15.20 $14.63 $15.53 $14.80 $13.82 $13.69 $13.90 $14.36 $14.68 $14.84
====== ====== ====== ====== ====== ====== ====== ====== ===== ======
TOTAL RETURN 9.40% (1.76)% 10.75% 14.10% 8.48% 6.42% 0.0587 8.45% 8.74% 6.80%
==== ====== ===== ===== ==== ==== ====== ==== ==== ====
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(000's omitted) $16,377 $17,777 $22,636 $26,187 $31,496 $33,001 $38,266 $63,451 $46,768 $8,794
Ratio of expenses to average net
assets(1) 2.00% 1.85% 1.91% 1.86% 1.86% 1.99% 1.74% 1.96% 2.06% 1.21%
Ratio of net investment income to average
net assets(2) 4.96% 4.16% 5.38% 6.40% 7.14% 7.86% 8.87% 9.95% 9.40% 10.40%
Portfolio turnover rate 482% 261% 176% 140% 407% 279% 217% 174% 185% 31%
- ---------
</TABLE>
1. Ratio prior to waiver by the Investment Manager was 2.18%, 2.36% and 1.99%,
in 1986, 1987 and 1988, respectively.
2. Ratio prior to waiver by the Investment Manager was 9.43%, 9.10% and 9.92%
in 1986, 1987 and 1988, respectively.
3. From commencement of operations, March 7, 1986.
4. Annualized.
Information relating to outstanding debt during the fiscal periods shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amount of Debt Average Amount of Average Number of Average Amount of
Fiscal Year Ended Outstanding at End Debt Outstanding Shares Outstanding Debt Per Share
June 30 of Period During the Period During the Period During Period
---------- --------- ------------------ ------------------- --------------
1995 $0 $2,468 1,146,132 $0.00
1992 0 96,885 1,851,772 0.05
1988 5,356,567 2,247,356 3,656,975 0.61
</TABLE>
2
<PAGE>
TABLE OF CONTENTS
Expense Tables.....................2 Distributions and Taxes................11
Financial Highlights...............2 Determination of Net Asset Value.......11
General............................3 The Investment Manager.................11
The Fund's Investment Program......3 Distribution of Shares.................12
How to Purchase Shares.............5 Performance Information................12
Shareholder Services...............6 Capital Stock..........................13
How to Redeem Shares...............9 Custodian and Transfer Agent...........13
GENERAL
PURPOSES OF THE FUND. The Fund, a no load mutual fund, is for long term
investors who wish to invest in a professionally managed portfolio consisting
primarily of securities backed by the full faith and credit of the United
States. Although the Fund's yield will vary, the Fund is not intended for
investors who wish to speculate on short term swings in interest rates or
appropriate as a complete investment program. There is no assurance the Fund
will achieve its investment objective. The net asset value of the Fund will
change as interest rates fluctuate.
CHECK WRITING PRIVILEGE FOR EASY ACCESS. Shareholders have the convenience of
making redemptions without charge by writing a check for $250 or more. There is
no limit on the number of checks a shareholder may write.
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund declares dividends from net
investment income daily and distributes such dividends to shareholders monthly,
together with any net short term capital gains. The Fund may also realize net
long term capital gains from the sale of securities and it distributes
substantially all of such gains, if any, to shareholders annually. Dividends and
other distributions may be reinvested in shares of the Fund or any other Bull &
Bear Fund (see "Dividend Sweep Privilege"), or at the shareholder's option, paid
in cash.
YIELD INFORMATION. Please call 1-800-847-4200 for the Fund's yield.
PORTFOLIO MANAGEMENT. The Fund's Portfolio Manager since March 1995 is Steven A.
Landis. Mr. Landis is Senior Vice President and a member of the Investment
Policy Committee of Bull & Bear Advisers, Inc. (the "Investment Manager") with
overall responsibility for the Bull & Bear fixed income funds. Mr. Landis was
formerly Associate Director -- Proprietary Trading at Barclays De Zoete Wedd
Securities Inc. and Director, Bond Arbitrage at WG Trading Company. Mr. Landis
received his MBA in Finance from Columbia University.
THE FUND'S INVESTMENT PROGRAM
The Fund's investment objective is to provide a high level of current
income, liquidity, and safety of principal. The Fund pursues its investment
objective by investing at least 65% of its total assets in securities backed by
the full faith and credit of the United States ("U.S. Government Securities"),
including direct obligations of the United States (such as U.S. Treasury bills,
notes, and bonds) and certain agency securities, such as those issued by the
Government National Mortgage Association ("GNMA"). There can be no assurance
that the Fund will achieve its investment objective.
The Fund may also invest up to 35% of its total assets in securities issued
by agencies and instrumentalities of the U.S. Government that may have different
levels of government backing but that are not backed by the full faith and
credit of the U.S. Government. Such securities include, for example, those that
are supported by the agency's limited right to borrow money from the U.S.
Treasury under certain circumstances, such as securities issued by the Federal
National Mortgage Association ("FNMA"), those that are supported only by the
credit of the agency that issued them, such as securities issued by the Federal
Home Loan Bank, and those supported primarily or solely by specific pools of
assets and the creditworthiness of a U.S. Government-related issuer, such as
mortgage-backed securities (including collateralized mortgage obligations
("CMOs")) issued by FNMA, the Federal Home Loan Mortgage Corporation, or the
Resolution Trust Corporation. The Fund may also invest in certain zero coupon
securities that are U.S. Treasury notes and bonds that have been stripped of
their unmatured
3
<PAGE>
interest coupon receipts or interests in such U.S. Treasury securities or
coupons, including Certificates of Accrual Treasury Securities and Treasury
Income Growth Receipts. There is no guarantee that the U.S. Government will
support securities not backed by its full faith and credit. Accordingly, these
securities may involve greater risk than U.S. Government Securities backed by
the U.S. Government's full faith and credit.
The securities purchased by the Fund may have long, intermediate, and short
maturities. Consistent with seeking to maximize current income, the proportion
invested in each category can be expected to vary depending upon the Investment
Manager's evaluation of the market outlook. All securities in which the Fund
invests are subject to variations in market value due to interest rate
fluctuations. If interest rates fall, the market value of such securities tend
to rise; if interest rates rise, the value of such securities tend to fall. The
longer the remaining maturity of such a security, the greater the effect of
interest rate changes on the market value of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. The CMOs in which the Fund
invests are collateralized by GNMA certificates or other government
mortgage-backed securities (such collateral are called mortgage assets).
Multi-class pass-through securities are interests in trusts that are comprised
of mortgage assets and that have multiple classes similar to those in CMOs.
Unless the context indicates otherwise, references herein to CMOs include
multi-class pass-through securities. Payments of principal and interest on the
mortgage assets, and any reinvestment income thereon, provide the means to pay
debt service on the CMOs or to make scheduled distributions on the multi-class
pass-through securities. Principal prepayments on the mortgage assets may cause
the CMOs to be retired substantially earlier than their stated maturities or
final distribution dates.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with U.S.
banks and dealers involving securities in which the Fund is authorized to
invest. A repurchase agreement is an instrument under which the Fund purchases
securities from a bank or dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed upon date and price. The Fund's
custodian maintains custody of the underlying securities until their repurchase;
thus the obligation of the bank or dealer to pay the repurchase price is, in
effect, secured by such securities. The Fund's risk is limited to the ability of
the seller to pay the agreed upon amount on the repurchase date; if the seller
defaults, the underlying securities constitute collateral for the seller's
obligation to pay. If, however, the seller defaults and the value of the
collateral declines, the Fund may incur loss and expenses in selling the
collateral. To attempt to limit the risk in engaging in repurchase agreements,
the Fund enters into repurchase agreements only with banks and dealers believed
by the Investment Manager to present minimum credit risks in accordance with
guidelines established by the Board of Directors. The Fund will not enter into a
repurchase agreement with a maturity of more than seven days if, as a result,
more than 15% of the value of its net assets would then be invested in illiquid
securities including such agreements.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a "when-issued"
basis. In such transactions delivery and payment occur after the date of the
commitment to make the purchase. Although the Fund will enter into when-issued
transactions with the intention of acquiring the securities, the Fund may sell
the securities prior thereto for investment reasons, which may result in a gain
or loss. Acquiring securities in this manner involves a risk that yields
available on the delivery date may be higher than those received in such
transactions, as well as the risk of price fluctuation. When the Fund purchases
securities on a when-issued basis, its custodian will set aside in a segregated
account cash or securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities with a market value at least equal to the amount
of the commitment. If necessary, assets will be added to the account daily so
that the value of the account will not be less than the amount of the Fund's
purchase commitment. Failure of the issuer to deliver the security may result in
the Fund incurring a loss or missing an opportunity to make an alternative
investment.
LENDING. Pursuant to an arrangement with its custodian, the Fund may lend
portfolio securities or other assets of the Fund to other parties limited to one
third of the Fund's total assets. If the Fund engages in lending transactions,
it will enter into lending agreements that require that the loans be
continuously secured by cash, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or any combination of cash and
such securities, as collateral equal at all times to at least the market value
of the assets lent. To the extent of such activities, the custodian will apply
credits against its custodial charges. There are risks to the Fund of delay in
receiving additional collateral and risks of delay in recovery of, and failure
to recover, the assets lent should the borrower fail financially or otherwise
violate the terms of the lending agreement. Loans will be made only to borrowers
deemed by the Investment Manager to be of good standing and when, in the
judgment of the
4
<PAGE>
Investment Manager, the consideration which can be earned currently from such
lending transactions justifies the attendant risk. Any loan made by the Fund
will provide that it may be terminated by either party upon reasonable notice to
the other party.
PORTFOLIO TURNOVER. The Fund does not intend to purchase securities for short
term trading. The Fund may sell any of its portfolio securities that have been
held for a short time, however, if the Investment Manager believes the
security's market value will decline or when the Investment Manager believes
there is a more attractive security to acquire or in order to satisfy redemption
requests. For the fiscal years ended June 30, 1995 and 1994, the Fund's
portfolio turnover rate was 482% and 261%, respectively. Higher portfolio
turnover involves correspondingly greater Fund transaction costs and increases
the potential for short term capital gains and taxes payable by shareholders.
See "Distributions and Taxes".
OTHER INFORMATION. The Fund's investment objective is fundamental and may not be
changed without shareholder approval. The Fund is also subject to certain
investment restrictions, set forth in the Statement of Additional Information,
that are fundamental and cannot be changed without shareholder approval. The
Fund's other investment policies described herein, unless otherwise stated, are
not fundamental and may be changed by the Board of Directors without shareholder
approval. The Fund may borrow money from banks for temporary or emergency
purposes (not for leveraging or investment) and engage in reverse repurchase
agreements, but not in excess of an amount equal to one third of the Fund's
total assets. The Fund may not purchase securities for investment while any bank
borrowing equaling more than 5% of its total assets is outstanding.
HOW TO PURCHASE SHARES
The Fund's shares are sold on a continuing basis at the net asset value per
share next determined after receipt and acceptance of the order by Investor
Service Center (see "Determination of Net Asset Value"). The minimum initial
investment is $1,000 for regular and gifts/transfers to minors custody accounts,
and $500 for Bull & Bear Retirement Plans, which include Individual Retirement
Accounts ("IRAs"), SEP-IRAs, rollover IRAs, profit sharing and money purchase
plans, and 403(b) plan accounts. The minimum subsequent investment is $100. The
initial investment minimums are waived if you elect to invest $100 or more each
month in the Fund through the Bull & Bear Automatic Investment Program (see
"Additional Investments" below).
INITIAL INVESTMENT. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
payable to U.S. Government Securities Fund, mailed to Investor Service Center,
Box 419789, Kansas City, MO 64141-6789. Initial investments also may be made by
having your bank wire money, as set forth below, in order to avoid mail delays.
ADDITIONAL INVESTMENTS. Additional investments may be made conveniently at any
time by any one or more of the following methods:
o BULL & BEAR AUTOMATIC INVESTMENT PROGRAM. With the Bull & Bear Automatic
Investment Program (the "Program"), you can establish a convenient and
affordable long term investment program through one or more of the Plans
explained below. Each Plan is designed to facilitate an automatic monthly
investment of $100 or more into your Fund account.
The BULL & BEAR BANK TRANSFER PLAN lets you purchase Fund shares on a
certain day each month by transferring electronically a specified
dollar amount from your regular checking account, NOW account, or bank
money market deposit account.
In the BULL & BEAR SALARY INVESTING PLAN, part or all of your salary
may be invested electronically in Fund shares on each pay date,
depending upon your employer's direct deposit program.
The BULL & BEAR GOVERNMENT DIRECT DEPOSIT PLAN allows you to deposit
automatically part or all of certain U.S. Government payments into
your Fund account. Eligible U.S. Government payments include Social
Security, pension benefits, military or retirement benefits, salary,
veteran's benefits and most other recurring payments.
For more information concerning these Plans, or to request the necessary
authorization form(s), please call Investor Service Center, 1-800-847-4200. You
may modify or terminate the Bank Transfer Plan at any time by written notice
received at least 10 days prior to the scheduled investment date. To modify or
terminate the Salary Investing Plan or Government Direct Deposit Plan, you
should contact, respectively, your employer or the
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appropriate U.S. government agency. The Fund reserves the right to redeem any
account if participation in the Program is terminated and the account's value is
less than $500. The Program does not assure a profit or protect against loss in
a declining market, and you should consider your ability to make purchases when
prices are low.
o CHECK. Mail a check or other negotiable bank draft ($100 minimum), made
payable to U.S. Government Securities Fund, together with a Bull & Bear
FastDeposit form to Investor Service Center, Box 419789, Kansas City, MO
64141-6789. If you do not use that form, please send a letter indicating
the Fund and account number to which the subsequent investment is to be
credited, and name(s) of the registered owner(s).
o ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional
shares of the Fund quickly and simply, just by calling Investor Service
Center, 1-800-847-4200. We will contact the bank you designate on your
Account Application or Authorization Form to arrange for the EFT, which is
done through the Automated Clearing House system, to your Fund account. For
requests received by 4 p.m., eastern time, the investment will be credited
to your Fund account ordinarily within two business days. There is a $100
minimum for each EFT investment. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account
information must be submitted in writing with a voided check or deposit
slip.
o FEDERAL FUNDS WIRE. You may wire money, by following the procedures set
forth below, to receive that day's net asset value per share.
INVESTING BY WIRE. For an initial investment by wire, you must first telephone
Investor Service Center, 1-800-847-4200, to give the name(s) under which the
account is to be registered, tax identification number, the name of the bank
sending the wire, and to be assigned a Bull & Bear U.S. Government Securities
Fund account number. You may then purchase shares by requesting your bank to
transmit immediately available funds ("Federal funds") by wire to: United
Missouri Bank NA, ABA #10-10-00695; for Account 98-7052-724-3; U.S. Government
Securities Fund. Your account number and name(s) must be specified in the wire
as they are to appear on the account registration. You should then enter your
account number on your completed Account Application and promptly forward it to
Investor Service Center, Box 419789, Kansas City, MO 64141-6789. This service is
not available on days when the Federal Reserve wire system is closed. Subsequent
investments by wire may be made at any time without having to call Investor
Service Center by simply following the same wiring procedures.
SHAREHOLDER ACCOUNTS. When you invest in the Fund, your account will be credited
with all full and fractional shares (to three decimal places), together with any
dividends and other distributions that are paid in additional shares (see
"Distributions and Taxes"). Stock certificates will be issued only for full
shares when requested in writing. In order to facilitate redemptions and
exchanges and provide safekeeping, we recommend that you do not request
certificates. You will receive transaction confirmations upon purchasing or
selling shares, and quarterly statements.
WHEN ORDERS ARE EFFECTIVE. The purchase price for Fund shares is the net asset
value of such shares next determined after receipt and acceptance by Investor
Service Center of a purchase order in proper form. All purchases are accepted
subject to collection at full face value in Federal funds. Checks must be drawn
in U.S. dollars on a U.S. bank. The Fund reserves the right to reject any order.
Accounts are charged $30 by the Transfer Agent for submitting checks for
investment which are not honored by the investor's bank. The Fund may in its
discretion waive or lower the investment minimums.
SHAREHOLDER SERVICES
You may modify or terminate your participation in any of the Fund's special
plans or services at any time. Shares or cash should not be withdrawn from any
tax-advantaged retirement plan described below, however, without consulting a
tax adviser concerning possible adverse tax consequences. Additional information
regarding any of the following services is available from Investor Service
Center, 1-800-847-4200.
CHECK WRITING PRIVILEGE FOR EASY ACCESS. The Transfer Agent will, upon request,
provide shareholders with FREE, UNLIMITED checks that may be made payable to the
order of anyone in any amount of not less than $250. The Fund will arrange for
the checks to be honored by United Missouri Bank ("UMB") for this purpose. This
Check Writing Privilege enables the shareholder to continue receiving dividends
on shares redeemed by check until such time as the check is presented to UMB for
payment. UMB has the right to refuse any checks which do not conform with its
requirements. The shareholder will be subject to UMB's rules and regulations
governing checking
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accounts, including a $20 charge for refused checks, which may change without
notice. When such a check is presented to UMB for payment, the Transfer Agent,
as the shareholder's agent, will cause the Fund to redeem a sufficient number of
full and fractional shares in the shareholder's account to cover the amount of
the check. The Fund generally will not honor for up to 10 days a check written
by a shareholder that requires the redemption of shares recently purchased by
check or until it is reasonably assured of payment of the check representing the
purchase. Since the value of Fund shares and of a shareholder's account changes
daily, shareholders should not attempt to close an account by writing a check.
ELECTRONIC FUNDS TRANSFER (EFT). You automatically have the privilege of linking
your bank account designated on your Account Application or Authorization Form
and your Fund account through Bull & Bear's EFT service. With EFT, you use the
Automated Clearing House system to electronically transfer money quickly and
safely between your bank and Fund accounts. EFT may be used for purchasing and
redeeming Fund shares, direct deposit of dividends into your bank account, the
Automatic Investment Program, the Systematic Withdrawal Plan, and systematic IRA
distributions. You may decline this privilege by checking the indicated box on
the Account Application. Any subsequent changes in bank account information must
be submitted in writing (and the Transfer Agent may require the signature to be
guaranteed), with a voided check or deposit slip.
DIVIDEND SWEEP PRIVILEGE. You may elect to have automatically invested either
all dividends or all dividends and capital gain distributions paid by the Fund
in any other Bull & Bear Fund. Shares of the other Bull & Bear Fund will be
purchased at the current net asset value calculated on the payment date. For
more information concerning this privilege and the other Bull & Bear Funds, or
to request a Dividend Sweep Authorization Form, please call Investor Service
Center, 1-800-847-4200. You may cancel this privilege by mailing written
notification to Investor Service Center, Box 419789, Kansas City, MO 64141-6789.
To select a new Bull & Bear Fund after cancellation, you must submit a new
Authorization Form. Enrollment in or cancellation of this privilege is generally
effective three business days following receipt. This privilege is available
only for existing accounts and may not be used to open new accounts.
SYSTEMATIC WITHDRAWAL PLAN. If you own Fund shares with a value of at least
$20,000 you may elect an automatic monthly or quarterly withdrawal of cash from
your Fund account in fixed or variable amounts, subject to a minimum amount of
$100. Under the Systematic Withdrawal Plan, all dividends and other
distributions, if any, are reinvested in the Fund.
ASSIGNMENT. Fund shares may be transferred to another owner. Instructions are
available from Investor Service Center, 1-800-847-4200.
EXCHANGE PRIVILEGE. You may exchange at least $500 worth of shares of the Fund
for shares of any Bull & Bear Fund listed below (provided the registration is
exactly the same, the shares may be sold in your state of residence, and the
exchange may otherwise legally be made).
To exchange shares, please call Investor Service Center at 1-800-847-4200
between 9 a.m. and 5 p.m. eastern time on any Fund business day and provide the
following information: account registration including address and number;
taxpayer identification number; percentage, number, or dollar value of shares to
be redeemed; name and, if different, the account number of the Bull & Bear Fund
to be purchased; and your identity and telephone number. The other Bull & Bear
Funds are:
o BULL & BEAR DOLLAR RESERVES is a high quality money market fund investing
in U.S. Government securities. Income is generally free from most state
income taxes. Free unlimited check writing ($250 minimum per check). Pays
monthly dividends.
o BULL & BEAR MUNICIPAL INCOME FUND invests for the highest possible income
exempt from Federal income tax consistent with preservation of principal.
Free unlimited check writing ($250 minimum per check). Pays monthly
dividends.
o BULL & BEAR GLOBAL INCOME FUND seeks a high level of income from a global
portfolio of primarily investment grade fixed income securities. Free
unlimited check writing ($250 minimum per check). Pays monthly dividends.
o BULL & BEAR QUALITY GROWTH FUND seeks growth of capital and income from a
portfolio of common stocks of large, quality companies with potential for
significant growth of earnings and dividends.
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o BULL & BEAR U.S. AND OVERSEAS FUND invests worldwide for the highest
possible total return.
o BULL & BEAR SPECIAL EQUITIES FUND invests aggressively for maximum capital
appreciation.
o BULL & BEAR GOLD INVESTORS seeks long term capital appreciation in
investments with the potential to provide a hedge against inflation and
preserve the purchasing power of the dollar.
Exchange requests received between 9 a.m. and 4 p.m. eastern time on any
Fund business day will be effected at the net asset values of the Fund and the
other Bull & Bear Fund as determined at the close of that business day. Exchange
requests received between 4 p.m. and 5 p.m. eastern time on any Fund business
day will be effected at the net asset values of the Fund and the other Bull &
Bear Fund as determined at the close of the next Fund business day. If you are
unable to reach Investor Service Center at the above telephone number you may,
in emergencies, call 1-212-363-1100 or communicate by fax to 1-212-363-1103 or
cable to the address BULLNBEAR NEWYORK. Exchanges may be difficult or impossible
to implement during periods of rapid changes in economic or market conditions.
Exchange privileges may be terminated or modified by the Fund without notice.
For tax purposes, an exchange is treated as a redemption and purchase of shares.
A free prospectus containing more complete information including charges,
expenses and performance, on any of the Bull & Bear Funds listed above is
available from Investor Service Center, 1-800-847-4200. The other Fund's
prospectus should be read carefully before exchanging shares. You may give
exchange instructions to Investor Service Center by telephone without further
documentation. If you have requested share certificates, this procedure may be
utilized only if, prior to giving telephone instructions, you deliver the
certificates to the Transfer Agent for deposit into your account.
o BULL & BEAR SECURITIES (DISCOUNT BROKERAGE ACCOUNT) TRANSFERS. If you have
an account at Bull & Bear Securities, Inc., an affiliate of the Investment
Manager and a wholly owned subsidiary of Bull & Bear Group, Inc. offering
discount brokerage services, you may access your investment in any Bull &
Bear Fund to pay for securities purchased in your brokerage account and
have proceeds of securities sold in your brokerage account used to purchase
shares of any Bull & Bear Fund. You may request a Discount Brokerage
Account Application from Bull & Bear Securities, Inc., 1-800-262-5800.
TAX-ADVANTAGED RETIREMENT PLANS. These plans provide an opportunity to set aside
money for retirement in a tax-advantaged account in which earnings can be
compounded without incurring a tax liability until the money and earnings are
withdrawn. Contributions may be fully or partially deductible for Federal income
tax purposes as noted below. Information on any of these plans is available from
Investor Service Center, 1-800-847-4200.
The minimum investment to establish a Bull & Bear Retirement Plan is $500.
Minimum subsequent investments are $100. The initial investment minimums are
waived if you elect to invest $100 or more each month in the Fund through the
Bull & Bear Automatic Investment Program. There are no set-up fees for any Bull
& Bear Retirement Plan. Subject to change on 30 days' notice, the plan custodian
charges Bull & Bear Retirement Plans a $10 annual fiduciary fee, $10 for each
distribution prior to age 59 1/2, and a $20 plan termination fee; however, the
annual fiduciary fee is waived for Bull & Bear Retirement Plans with assets of
$10,000 or more or if you invest regularly through the Bull & Bear Automatic
Investment Program.
|X| IRA AND SEP-IRA ACCOUNTS. Anyone with earned income who is less than age 70
1/2at the end of the tax year, even if also participating in another type
of retirement plan, may establish an IRA and contribute each year up to
$2,000 or 100% of earned income, whichever is less, and an aggregate of up
to $2,250 when a non-working spouse is also covered in a separate spousal
account. If each spouse has at least $2,000 of earned income each year,
they may contribute up to $4,000 annually. Employers may also make
contributions to an IRA on behalf of an individual under a Simplified
Employee Pension Plan ("SEP") in any amount up to 15% of up to $150,000 of
compensation. Generally, taxpayers may contribute to an IRA during the tax
year and through the next year until the income tax return for that year is
due, without regard to extensions. Thus, most individuals may contribute
for the 1996 tax year from January 1, 1996 through April 15, 1997.
BULL & BEAR NO-FEE IRA(R). The $10 annual fiduciary fee is waived if your
Bull & Bear IRA or Bull & Bear SEP-IRA has assets of $10,000 or more or if
you invest through the Bull & Bear Automatic Investment Program.
DEDUCTIBILITY. IRA contributions are fully deductible for most taxpayers.
For a taxpayer who is an active participant in an employer-maintained
retirement plan (or whose spouse is), a portion of IRA contributions is
deductible if adjusted gross income (before the IRA deductions) is
$40,000-$50,000 (if married) and $25,000- $35,000 (if single). Only IRA
contributions by a taxpayer who is an active participant in an
employer-maintained
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retirement plan (or whose spouse is) and has adjusted gross income of more
than $50,000 (if married) and $35,000 (if single) will not be deductible at
all. An eligible individual may establish a Bull & Bear IRA under the
prototype plan available through the Fund, even though such individual or
spouse actively participates in an employer-maintained retirement plan.
o IRA TRANSFER AND ROLLOVER ACCOUNTS. Special forms are available from
Investor Service Center, 1-800- 847-4200, which make it easy to transfer or
roll over IRA assets to a Bull & Bear IRA. An IRA may be transferred from
one financial institution to another without adverse tax consequences.
Similarly, no taxes need be paid on a lump-sum distribution which you may
receive as a payment from a qualified pension or profit sharing plan due to
retirement, job termination or termination of the plan, so long as the
assets are put into an IRA Rollover account within 60 days of the receipt
of the payment. Withholding for Federal income tax purposes is required at
the rate of 20% for "eligible rollover distributions" made from any
retirement plan (other than an IRA) that are not directly transferred to an
"eligible retirement plan," such as a Bull & Bear Rollover Account.
o PROFIT SHARING AND MONEY PURCHASE PLANS. These Plans provide an opportunity
to accumulate earnings on a tax-deferred basis by permitting corporations,
self-employed individuals (including partners) and their employees
generally to contribute (and deduct) up to $30,000 annually or, if less,
25% (15% for profit sharing plans) of compensation or self-employment
earnings of up to $150,000. Corporations and partnerships, as well as all
self-employed persons, are eligible to establish these Plans. In addition,
a person who is both salaried and self-employed, such as a college
professor who serves as a consultant, may adopt these retirement plans
based on self-employment earnings.
|X| SECTION 403(B) ACCOUNTS. Section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), permits the establishment of custodial accounts
on behalf of employees of public school systems and certain tax-exempt
organizations. A participant in such a plan does not pay taxes on any
contributions made by the participant's employer to the participant's
account pursuant to a salary reduction agreement, up to a maximum amount,
or "exclusion allowance." The exclusion allowance is generally computed by
multiplying the participant's years of service times 20% of the
participant's compensation included in gross income received from the
employer (reduced by any amount previously contributed by the employer to
any 403(b) account for the benefit of the participant and excluded from the
participant's gross income). However, the exclusion allow ance may not
exceed the lesser of 25% of the participant's compensation (limited as
above) or $30,000. Contributions and subsequent earnings thereon are not
taxable until withdrawn, when they are received as ordinary income.
HOW TO REDEEM SHARES
Generally, you may redeem by any of the methods explained below. Requests
for redemption should include the following information: your account
registration information including address, account number and taxpayer
identification number; dollar value, number or percentage of shares to be
redeemed; how and to where the proceeds are to be sent; if applicable, the
bank's name, address, ABA routing number, bank account registration and account
number, and a contact person's name and telephone number; and your daytime
telephone number.
BY MAIL. You may request that the Fund redeem any amount of shares by submitting
a written request to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, signed by the record owner(s). If the written request is sent to the
Fund, it will be forwarded to the above address. If stock certificates have been
issued for shares being redeemed, they must accompany the written request.
CHECK WRITING PRIVILEGE. See "Shareholder Services" above for redemption of
shares by writing free, unlimited, personalized checks, provided by the Fund, in
amounts of $250 or more for regular accounts.
BY TELEPHONE. You may telephone Investor Service Center, 1-800-847-4200 to
expedite redemption of Fund shares if share certificates have not been issued.
You may redeem as little as $250 worth of shares by requesting Bull & Bear's
Electronic Funds Transfer (EFT) service. With EFT, you can redeem Fund shares
quickly and conveniently because Investor Service Center will contact the bank
designated on your Account Application or Authorization Form to arrange for the
electronic transfer of your redemption proceeds (through the Automated Clearing
House system) to your bank account. EFT proceeds are ordinarily available in
your bank account within two business days.
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If you are redeeming $1,000 or more worth of shares, you may request that
the proceeds be mailed to your address of record or mailed or wired to your
authorized bank.
Telephone requests received on Fund business days by 4 p.m. eastern time
will be redeemed from your account that day, and if after, on the next Fund
business day. Any subsequent changes in bank account information must be
submitted in writing, signature guaranteed, with a voided check or deposit slip.
If you are unable to reach Investor Service Center at the above telephone number
you may, in emergencies, call 1-212- 363-1100 or communicate by fax to
1-212-363-1103 or cable to the address BULLNBEAR NEWYORK. Redemptions by
telephone may be difficult or impossible to implement during rapid changes in
economic or market conditions.
REDEMPTION PRICE AND FEES. The redemption price is the net asset value per share
next determined after receipt of the redemption request in proper form. The Fund
is designed as a long term investment, and short term trading is discouraged.
Accordingly, if shares of the Fund held for 30 days or less are redeemed or
exchanged, the Fund will deduct a redemption fee equal to one percent of the net
asset value of shares redeemed or exchanged. The fee will be retained by the
Fund and used to offset the transaction costs that short term trading imposes on
the Fund and its shareholders. If an account contains shares with different
holding periods (i.e. some shares held 30 days or less, some shares held 31 days
or more), the shares with the longest holding period will be redeemed first to
determine if the Fund's redemption fee applies. Shares acquired through the
Dividend Sweep Privilege and the reinvestment of dividends and capital gains or
redeemed under the Systematic Withdrawal Plan are exempt from the redemption
fee. Registered broker/dealers, investment advisers, banks, and insurance
companies may open accounts and redeem shares by telephone or wire and may
impose a charge for handling purchases and redemptions when acting on behalf of
others.
REDEMPTION PAYMENT. Payment for shares redeemed will be made as soon as
possible, ordinarily within seven days after receipt of the redemption request
in proper form. The right of redemption may not be suspended, or date of payment
delayed more than seven days, except for any period (i) when the New York Stock
Exchange is closed or trading thereon is restricted as determined by the SEC;
(ii) under emergency circumstances as determined by the SEC that make it not
reasonably practicable for the Fund to dispose of securities owned by it or
fairly to determine the value of its assets; or (iii) as the SEC may otherwise
permit. The mailing of proceeds on redemption requests involving any shares
purchased by personal, corporate, or government check or EFT transfer is
generally subject to a fifteen business day delay to allow the check or transfer
to clear. The fifteen day clearing period does not affect the trade date on
which a purchase or redemption order is priced, or any dividends and capital
gain distributions to which you may be entitled through the date of redemption.
The clearing period does not apply to purchases made by wire. Due to the
relatively higher cost of maintaining small accounts, the Fund reserves the
right, upon 60 days' notice, to redeem any account, other than Bull & Bear
Retirement Plan accounts, less than $500 except if solely from market action,
unless an investment restores the minimum value.
TELEPHONE PRIVILEGES. You automatically have all telephone privileges to, among
other things, authorize purchases, redemptions and exchanges, with EFT or by
other means, unless declined on the Account Application or otherwise in writing.
Neither the Fund nor Investor Service Center shall be liable for any loss or
damage for acting in good faith upon instructions received by telephone and
believed to be genuine. The Fund employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and if it does not, it may be
liable for losses due to unauthorized or fraudulent transactions. These
procedures include requiring personal identification prior to acting upon
telephone instructions, providing written confirmation of such transactions, and
tape recording telephone conversations. The Fund may modify or terminate any
telephone privileges or shareholder services (except as noted) at any time
without notice.
SIGNATURE GUARANTEES. No signature guarantees are required when payment is to be
made to you at your address of record. If the redemption proceeds are to be paid
to a non-shareholder of record, or to an address other than your address of
record, or the shares are to be assigned, the Transfer Agent may require that
your signature be guaranteed by an entity acceptable to the Transfer Agent, such
as a commercial bank or trust company or member firm of a national securities
exchange or of the National Association of Securities Dealers, Inc. ("NASD"). A
notary public may not guarantee signatures. The Transfer Agent may require
further documentation, and may restrict the mailing of redemption proceeds to
your address of record within 30 days of such address being changed unless you
provide a signature guarantee as described above.
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DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. The Fund declares dividends daily from net investment income and
distributes such dividends monthly to its shareholders. The Fund also makes an
annual distribution to its shareholders out of net long term and net short term
capital gain (after offsetting any capital loss carryover), if any. Such
distributions, if any, are declared and payable to shareholders of record on a
date in December of each year and may be paid in January of the following year
(in which event they will be deemed received by the shareholders on the
preceding December 31 for tax purposes). The Fund may also make an additional
distribution following the end of its fiscal year out of any undistributed
income and capital gain. Dividends and other distributions are made in
additional shares of the Fund, unless the shareholder elects to receive cash on
the Account Application or so elects subsequently by calling Investor Service
Center, 1-800-847-4200. For Federal income tax purposes, such dividends and
other distributions are treated in the same manner whether received in shares or
cash. Any election will remain in effect until you notify Investor Service to
the contrary.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its investment company taxable income (consisting generally
of net investment income and net short term capital gain) and net capital gain
(the excess of net long term capital gain over net short term capital loss,
taking into account any capital loss carryover) that is distributed to its
shareholders. Dividends paid by the Fund from its investment company taxable
income (whether paid in cash or in additional Fund shares) generally are taxable
to its shareholders, other than shareholders that are not subject to tax on
their income, as ordinary income to the extent of the Fund's earnings and
profits. Distributions by the Fund of its net capital gain (whether paid in cash
or in additional Fund shares) when designated as such by the Fund, are taxable
to its shareholders as long term capital gains, regardless of how long they have
held their Fund shares. The Fund notifies its shareholders following the end of
each calendar year of the amounts of dividends and capital gain distributions
paid (or deemed paid) that year. Any dividend or other distribution paid by the
Fund will reduce the net asset value of Fund shares by the amount of the
distribution. Furthermore, such distribution, although similar in effect to a
return of capital, will be subject to tax. The Fund is required to withhold 31%
of all dividends, capital gain distributions, and redemption proceeds payable to
any individuals and certain other noncorporate shareholders who do not provide
the Fund with a correct taxpayer identification number. Withholding at that rate
also is required from dividends and capital gain distributions payable to such
shareholders who otherwise are subject to backup withholding. The foregoing is
only a summary of some of the important Federal income tax considerations
generally affecting the Fund and its shareholders; see the Statement of
Additional Information for a further discussion. Because other Federal, state
and local tax considerations may apply, you should consult your tax adviser.
DETERMINATION OF NET ASSET VALUE
The value of a share of the Fund is based on the value of its net assets.
The Fund's net assets are the total of the Fund's investments and all other
assets minus any liabilities. The value of one share is determined by dividing
the net assets by the total number of shares outstanding. This is referred to as
"net asset value per share," and is determined as of the close of regular
trading on the New York Stock Exchange (currently, 4 p.m. eastern time, unless
weather, equipment failure or other factors contribute to an earlier closing)
each Fund business day. A Fund business day is any day on which the New York
Stock Exchange is open for trading. The following are not Fund business days:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities and other assets of the Fund are valued primarily on
the basis of market quotations, if readily available. Securities and other
assets for which quotations are not readily available or reliable will be valued
at fair value as determined in good faith by or under the direction of the Board
of Directors.
THE INVESTMENT MANAGER
Bull & Bear Advisers, Inc. (the "Investment Manager") acts as general
manager of the Fund, being responsible for the various functions assumed by it,
including the regular furnishing of advice with respect to portfolio
transactions. The Investment Manager manages the investment and reinvestment of
the assets of the Fund, subject to the control and final direction of the Board
of Directors. The Investment Manager may allocate brokerage transactions by
taking into account the sales of shares of the Fund and other affiliated
investment companies. The Investment Manager may also allocate portfolio
transactions to broker/dealers that remit a portion
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of their commissions as a credit against the Fund's expenses. For its services,
the Investment Manager receives an investment management fee, payable monthly,
based on the average daily net assets of the Fund, at the annual rate of 0.70%
of the first $250 million, 0.625% from $250 million to $500 million, and 0.50%
over $500 million. From time to time, the Investment Manager may reimburse all
or part of this fee to improve the Fund's yield and total return. The Investment
Manager provides certain administrative services to the Fund at cost. During the
fiscal year ended June 30, 1995, the investment management fees paid by the Fund
represented 0.70% of its average daily net assets. The Investment Manager is a
wholly owned subsidiary of Bull & Bear Group, Inc. ("Group"). Group, a publicly
owned company whose securities are listed on Nasdaq and traded in the
over-the-counter market, is a New York based manager of mutual funds and
discount brokerage services. Bassett S. Winmill may be deemed a controlling
person of Group and, therefore, may be deemed a controlling person of the
Investment Manager.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, between the Fund and Investor Service
Center, Inc. (the "Distributor"), the Distributor acts as the Fund's exclusive
agent for the sale of its shares. The Investment Manager is an affiliate of the
Distributor. The Fund has also adopted a plan of distribution (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act"). Pursuant to the Plan, the Fund pays the Distributor monthly a fee in the
amount of one quarter of one percent per annum of the Fund's average daily net
assets as compensation for distribution and service activities. The fee is
intended to cover personal services provided to shareholders in the Fund and the
maintenance of shareholder accounts and all other activities and expenses
primarily intended to result in the sale of the Fund's shares. The fee may be
retained or passed through by the Distributor to brokers, banks and others who
provide services to Fund shareholders. The Fund will pay the fees to the
Distributor until either the Plan is terminated or not renewed. In that event,
the Distributor's expenses in excess of fees received or accrued through the
termination day will be the Distributor's sole responsibility and not
obligations of the Fund. During the period they are in effect, the Distribution
Agreement and Plan obligate the Fund to pay fees to the Distributor as
compensation for its service and distribution activities. If the Distributor's
expenses exceed the fees, the Fund will not be obligated to pay any additional
amount to the Distributor and, if the Distributor's expenses are less than such
fees, it may realize a profit. Certain other advertising and sales materials may
be prepared which relate to the promotion of the sale of shares of the Fund and
one or more other affiliated investment companies. In such cases, the expenses
will be allocated among the Funds involved based on the inquiries resulting from
the materials or other factors deemed appropriate by the Board of Directors. The
costs of personnel and facilities of the Distributor to respond to inquiries by
shareholders and prospective shareholders will also be allocated based on such
relative inquiries or other factors. There is no certainty that the allocation
of any of the foregoing expenses will precisely allocate to the Fund costs
commensurate with the benefits it receives, and it may be that other affiliated
investment companies and Bull & Bear Securities, Inc. will benefit therefrom.
PERFORMANCE INFORMATION
From time to time the Fund advertises its current and compound yield.
Current yield is computed by dividing the Fund's net investment income per share
for the most recent month, determined in accordance with SEC rules and
regulations, by the net asset value per share on the last day of such month and
annualizing the result. Compounded yield is the annualized current yield which
is compounded by assuming the current income to be reinvested. The Fund may also
publish a dividend distribution rate in sales material from time to time. The
dividend distribution rate of the Fund is the current rate of distribution paid
per share by the Fund during a specified period divided by the net asset value
per share at the end of such period and annualizing the result. When considering
the Fund's performance, fluctuations in share value must be considered together
with any published dividend distribution rate. Whenever the Fund advertises its
current yield and its dividend distribution rate, it will also advertise its
average annual total return over specified periods. For these purposes, the
Fund's average annual total return is based on an increase (or decrease) in a
hypothetical $1,000 invested in the Fund at the beginning of each of the
specified periods, assuming the reinvestment of any dividends and distributions
paid by the Fund during such periods. The investment returns and principal value
of an investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. The Fund's yield and total
return is based upon historical performance information and is not predictive of
future performance. Additional information regarding the Fund's performance is
available in the Fund's Annual Report to Shareholders, which is available at no
charge upon request to Investor Service Center, 1-800-847-4200.
12
<PAGE>
CAPITAL STOCK
The Fund is a series of Bull & Bear Funds II, Inc. (the "Corporation"), a
Maryland corporation incorporated in 1974. Prior to October 29, 1993, the
Corporation operated under the name Bull & Bear Incorporated. The Corporation is
a series investment company and is authorized to issue up to 1,000,000,000
shares ($.01 par value). The Board of Directors has designated 500,000,000
shares as Bull & Bear Dollar Reserves, 250,000,000 shares as Bull & Bear Global
Income Fund, and 250,000,000 shares as Bull & Bear U.S. Government Securities
Fund. The Board of Directors of the Corporation may establish one or more new
series, although it has no current intention to do so.
The Fund's stock is fully paid and non-assessable and is freely assignable
by way of pledge (as, for example, for collateral purposes), gift, settlement of
an estate, and also by an investor to another investor. In case of dissolution
or other liquidation of the Fund or the Corporation, shareholders will be
entitled to receive ratably per share the net assets of the Fund. Shareholders
of all series of the Corporation vote for Directors with each share entitled to
one vote. Each share entitles the holder to one vote for all purposes. Shares
have no preemptive or conversion rights. Except to the extent that the Board of
Directors might provide by resolution that the holders of shares of a particular
series are entitled to vote as a class on specified matters, and except for
approval of investment management agreements, plans of distribution, and changes
in fundamental investment objectives and limitations which are voted upon by
each series, separately as a class, there will be no right for any series to
vote as a class unless such right exists under Maryland law. The Corporation's
Articles of Incorporation contain no provision entitling the holders of the
present classes of capital stock to a vote as a class on any matter other than
the foregoing. Where a matter is to be voted upon separately by series, the
matter is effectively acted upon for such series if a majority of the
outstanding voting securities of that series approves the matter,
notwithstanding that: (1) the matter has not been approved by a majority of the
outstanding voting securities of any other series, or (2) the matter has not
been approved by a majority of the outstanding voting securities of the
Corporation.
In accordance with the General Corporation Law of the State of Maryland
applicable to open-end investment companies incorporated in Maryland and
registered under the 1940 Act, as is the Corporation, the Corporation's By-Laws
provide that there will be no annual meeting of shareholders in any year except
as required by law. In practical effect, this means that the Fund will not hold
an annual meeting of shareholders in years in which the only matters which would
be submitted to shareholders for their approval are the election of Directors
and ratification of the Directors' selection of accountants, although holders of
10% of the Corporation's shares may call a meeting at any time. There will
normally be no meetings of shareholders for the purpose of electing Directors
unless fewer than a majority of the Directors holding office have been elected
by shareholders. Shareholder meetings will be held in years in which shareholder
approval of the Fund's investment management agreement, plan of distribution, or
changes in its fundamental investment objective, policies or restrictions is
required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111, acts as
custodian of the Fund's assets. The custodian also performs certain accounting
services for the Fund. The Fund's transfer and dividend disbursing agent is DST
Systems, Inc., Box 419789, Kansas City, MO 64141-6789. The Distributor provides
shareholder administration services to the Fund and is reimbursed its cost by
the Fund. The costs of facilities, personnel and other related expenses are
allocated among the Bull & Bear Funds based on the relative number of inquiries
and other factors deemed appropriate by the Board of Directors.
13
<PAGE>
[Left Side of Back Cover Page]
U.S. GOVERNMENT
SECURITIES FUND
- -----------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-847-4200 1-212-363-1100
E-MAIL: [email protected]
- -----------------------------------------------------
CALL TOLL-FREE FOR FUND PERFORMANCE, TELEPHONE PURCHASES, EXCHANGES AMONG THE
BULL & BEAR FUNDS AND TO OBTAIN INFORMATION CONCERNING YOUR ACCOUNT.
1-800-847-4200 1-212-363-1100
- -----------------------------------------------------
[Right Side of Back Cover Page]
U.S. GOVERNMENT
SECURITIES FUND
- --------------------------------------------------------
INVESTING FOR A HIGH LEVEL OF
CURRENT INCOME, LIQUIDITY AND
SAFETY OF PRINCIPAL
HIGH DAILY INCOME
ELECTRONIC FUNDS TRANSFERS
RETIREMENT PLANS
NO-LOAD
FREE CHECK WRITING
- ---------------------------------------------------------
MINIMUM INVESTMENTS
o REGULAR ACCOUNTS, $1,000
o IRAS, $500
o AUTOMATIC INVESTMENT PROGRAM, $100
o SUBSEQUENT INVESTMENTS, $100
- --------------------------------------------------------
PROSPECTUS
NOVEMBER 1, 1995
BULL & BEAR
- -----------------------------------------
PERFORMANCE DRIVEN(R)
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Statement of Additional Information October 26, 1995
BULL & BEAR DOLLAR RESERVES
11 Hanover Square
New York, NY 10005
1-800-847-4200
Bull & Bear Dollar Reserves (the "Fund") is a diversified series of
Bull & Bear Funds II, Inc. (the "Corporation"), an open-end management
investment company organized as a Maryland corporation. This Statement of
Additional Information regarding the Fund is not a prospectus and should be read
in conjunction with the Fund's prospectus dated November 1, 1995. The prospectus
is available without charge upon request to Investor Service Center, Inc.,
Distributor, 11 Hanover Square, New York, NY 10005, telephone 1-800-847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM......................................2
INVESTMENT RESTRICTIONS............................................2
THE INVESTMENT COMPANY COMPLEX.....................................3
OFFICERS AND DIRECTORS.............................................4
THE INVESTMENT MANAGER.............................................6
INVESTMENT MANAGEMENT AGREEMENT....................................6
YIELD AND PERFORMANCE INFORMATION .................................7
DISTRIBUTION OF SHARES.............................................9
DETERMINATION OF NET ASSET VALUE..................................10
PURCHASE OF SHARES................................................11
ALLOCATION OF BROKERAGE...........................................11
DIVIDENDS AND TAXES...............................................11
REPORTS TO SHAREHOLDERS...........................................12
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.................12
AUDITORS..........................................................12
FINANCIAL STATEMENTS..............................................12
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THE FUND'S INVESTMENT PROGRAM
The investment objective of the Fund is to provide its shareholders
maximum current income consistent with preservation of capital and maintenance
of liquidity. The Fund seeks to achieve this objective by investing exclusively
in securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"). Although the Fund's investment
policies permit the Fund to also invest in bank obligations and instruments
secured thereby, high quality commercial paper, high grade corporate
obligations, and repurchase agreements pertaining to these securities and U.S.
Government Securities, the Board of Directors has determined that the Fund shall
not do so until and after 60 days' notice to shareholders. There can be no
assurance that the Fund will achieve its investment objective.
THE FUND IS MANAGED TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE,
ALTHOUGH THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO. AN INVESTMENT
IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
In all states, dividends from net investment income paid by the Fund
are exempt from state income taxes to the extent such income is derived from
holding debt securities of the U.S. Government, its agencies or
instrumentalities, the income from which is state tax exempt to individual
shareholders by Federal law, although taxable to corporate shareholders in
Massachusetts. The following states currently have no state individual income
tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. This
information is current as of the date of this Statement of Additional
Information and is subject to change.
BORROWING. Subject to the limit on borrowing described in Investment
Restriction (5) below, the Fund may incur overdrafts at its custodian bank from
time to time in connection with redemptions and/or the purchase of portfolio
securities. In lieu of paying interest to the custodian bank, the Fund may
maintain equivalent cash balances prior or subsequent to incurring such
overdrafts. If cash balances exceed such overdrafts, the custodian bank may
credit interest thereon against fees.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions may not be changed
without the approval of the lesser of (a) 67% or more of the voting securities
of the Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy or
(b) more than 50% of the outstanding voting securities of the Fund. Any
investment restriction which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. The Fund may not:
(1) Purchase the securities of any one issuer if, as a result, more than 5%
of the Fund's total assets would be invested in the securities of such
issuer, or the Fund would own or hold 10% or more of the outstanding
voting securities of that issuer, except that up to 25% of the Fund's
total assets may be invested without regard to these limitations and
provided that these limitations do not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
(2) Issue senior securities as defined in the Investment Company Act of
1940 ("1940 Act"). The following will not be deemed to be senior
securities for this purpose: (a) evidences of indebtedness that the
Fund is permitted to incur, (b) the issuance of additional series or
classes of securities that the Board of Directors may establish, (c)
the Fund's futures, options, and forward currency transactions, and (d)
to the extent consistent with the 1940 Act and applicable rules and
policies adopted by the Securities and Exchange Commission ("SEC"), (i)
the establishment or use of a margin account with a broker for the
purpose of effecting securities transactions on margin and (ii) short
sales;
(3) Lend its assets, provided however, that the following are not
prohibited: (a) the making of time or demand deposits with banks, (b)
the purchase of debt securities such as bonds, debentures, commercial
paper, repurchase agreements and short term obligations in accordance
with the Fund's investment objective and policies and (c) engaging in
securities and other asset loan transactions limited to one third of
the Fund's total assets;
(4) Underwrite the securities of other issuers, except to the extent that
the Fund may be deemed to be an underwriter under the Federal
securities laws in connection with the disposition of the Fund's
authorized investments;
(5) Borrow money, except to the extent permitted by the 1940 Act;
(6) Purchase or sell commodities or commodity futures contracts, although
it may enter into (i) financial and foreign currency futures contracts
and options thereon, (ii) options on foreign currencies, and (iii)
forward contracts on foreign currencies;
(7) Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real
estate or interests therein or issued by companies which invest in real
estate or interests therein; or
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(8) Purchase any securities, other than obligations of domestic branches of
U.S. or foreign banks, or the U.S. Government or its agencies or
instrumentalities, if, immediately after such purchase, more than 25%
of the value of the Fund's total assets would be invested in the
securities of issuers in the same industry.
The Fund, notwithstanding any other investment policy or restrictions
(whether or not fundamental), may, as a matter of fundamental policy, invest all
of its assets in the securities or beneficial interests of a singled pooled
investment fund having substantially the same investment objective, policies and
restrictions as the Fund.
The Corporation's Board of Directors has established the following
non-fundamental investment limitations with respect to the Fund that may be
changed by the Board without shareholder approval:
(i) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets, which amount
may include warrants which are not listed on the New York Stock
Exchange or American Stock Exchange provided that such warrants, valued
at the lower of cost or market, do not exceed 2% of the Fund's net
assets;
(ii) The Fund may not purchase the securities of any one issuer if as a
result more than 5% of the Fund's total assets would be invested in the
securities of such issuer, provided that this limitation does not apply
to securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
(iii) The Fund may not invest in interests in oil, gas or other mineral
exploration or development programs or leases, although it may invest
in the securities of issuers which invest in or sponsor such programs
or such leases;
(iv) The Fund may not invest more than 5% of its total assets in securities
of companies having a record of less than three years continuous
operations (including operations of predecessors);
(v) The Fund may not purchase or otherwise acquire any security or invest
in a repurchase agreement if, as a result, more than 10% of the Fund's
net assets (taken at current value) would be invested in illiquid
assets, including repurchase agreements not entitling the holder to
payment of principal within seven days;
(vi) The Fund may not purchase or retain securities of any issuer if to the
knowledge of the Fund, those officers or Directors of the Corporation
or its investment manager who each own beneficially more than 1/2 of 1%
of the securities of an issuer, own beneficially together more than 5%
of the securities of that issuer;
(vii) The Fund may not purchase the securities of any investment company
except (a) by purchase in the open market where no commission or
profits to a sponsor or dealer results from such purchase provided that
immediately after such purchase no more than: 10% of the Fund's total
assets are invested in securities issued by investment companies, 5% of
the Fund's total assets are invested in securities issued by any one
investment company, or 3% of the voting securities of any one such
investment company are owned by the Fund, and (b) when such purchase is
part of a plan of merger, consolidation, reorganization, or acquisition
of assets;
(viii) The Fund may not borrow money, except from a bank for temporary or
emergency purposes (not for leveraging or investment), provided
however, that such borrowing does not exceed an amount equal to one
third of the total value of the Fund's assets taken at market value,
less liabilities other than the borrowing. The Fund may not purchase
securities for investment while any bank borrowing equaling 5% or more
of its total assets is outstanding. If at any time the Fund's borrowing
comes to exceed the limitation set forth in (5) above, such borrowing
will be promptly (within three days, not including Sundays and
holidays) reduced to the extent necessary to comply with this
limitation; and
(ix) The Fund may not purchase securities on margin except that the Fund may
obtain such short term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits made
in connection with transactions in options, futures contracts, forward
currency contracts, and other derivative instruments shall not be
deemed to constitute purchasing securities on margin.
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Bull & Bear Group, Inc.
(the "Investment Company Complex") are:
Bull & Bear Funds I, Inc., whose series include Bull & Bear Quality
Growth Fund and Bull & Bear U.S. and Overseas Fund.
Bull&Bear Funds II, Inc., whose series include Bull & Bear Dollar
Reserves, Bull & Bear U.S. Government Securities Fund and Bull &
Bear Global Income Fund.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear Municipal Securities, Inc., whose sole series is Bull &
Bear Municipal Income Fund.
Bull & Bear Gold Investors Ltd.
Midas Fund, Inc.
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OFFICERS AND DIRECTORS
The Corporation's officers and Directors, their respective offices and
principal occupations during the last five years are set forth below. Unless
otherwise noted, the address of each is 11 Hanover Square, New York, NY 10005.
BASSETT S. WINMILL* -- Chairman of the Board. He is Chairman of the Board of
four of the other investment companies in the Investment Company Complex and of
Bull & Bear Group, Inc. ("Group"), the parent of Bull & Bear Advisers, Inc. (
the "Investment Manager"),. He was born February 10, 1930. He is a member of the
New York Society of Security Analysts, the Association for Investment Management
and Research and the International Society of Financial Analysts. He is the
father of Mark C. Winmill and Thomas B. Winmill.
ROBERT D. ANDERSON* -- Vice Chairman and Director. He is Vice Chairman and a
Director of four of the other investment companies in the Investment Company
Complex and of the Investment Manager and its affiliates. He was born December
7, 1929. He is a member of the Board of Governors of the Mutual Fund Education
Alliance, and of its predecessor, the No-Load Mutual Fund Association. He has
also been a member of the District #12, District Business Conduct and Investment
Companies Committees of the NASD.
RUSSELL E. BURKE III -- Director. 36 East 72nd Street, New York, NY 10021. He
was born August 23, 1946. He is President of Russell E. Burke III, Inc. Fine
Art, New York, New York. From 1988 to 1991, he was President of Altman Burke
Fine Arts, Inc. From 1983 to 1988, he was Senior Vice President of Kennedy
Galleries. He is also a Director of two of the other investment companies in the
Investment Company Complex.
BRUCE B. HUBER, CLU -- Director. 298 Broad Street, Red Bank, NJ 07701. He is
President of Huber o Hogan o Knotts Consulting, Inc. financial consultants
specializing in executive benefits, estate preservation, and asset management.
From 1990 to 1994, he was President of Huber Hogan Associates. He was born
February 7, 1930. He is also a Director of the other investment companies in the
Investment Company Complex.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Kenny, Kindler, Hunt & Howe, Inc., executive recruiting
consultants. He was born December 14, 1930. From 1976 until 1983 he was Vice
President of Russell Reynolds Associates, Inc., also executive recruiting
consultants. He is also a Director of the other investment companies in the
Investment Company Complex.
FREDERICK A. PARKER, JR. -- Director. 219 East 69th Street, New York, NY 10021.
He is President and Chief Executive Officer of American Pure Water Corporation,
a manufacturer of water purifying equipment. He was born November 14, 1926. He
is also a Director of the other investment companies in the Investment Company
Complex.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He was Executive Vice President and a Director of Dan River, Inc., a diversified
textile company, from 1969 until he retired in 1981. He was born February 9,
1923. He is a Director of Wheelock, Inc., a manufacturer of signal products, and
a consultant for the National Executive Service Corps in the health care
industry. He is also a Director of the other investment companies in the
Investment Company Complex.
MARK C. WINMILL* -- Director, Co-President, Co-Chief Executive Officer, and
Chief Financial Officer. He is Co-President, Co- Chief Executive Officer, and
Chief Financial Officer of the other investment companies in the Investment
Company Complex and of Group and certain of its affiliates, Chairman of the
Investment Manager and Investor Service Center, Inc. (the "Distributor"), and
President of Bull & Bear Securities, Inc. ("BBSI"). He was born November 26,
1957. He received his M.B.A. from the Fuqua School of Business at Duke
University in 1987. From 1983 to 1985 he was Assistant Vice President and
Director of Marketing of E.P. Wilbur & Co., Inc., a real estate development and
syndication firm and Vice President of E.P.W. Securities, its broker/dealer
subsidiary. He is a son of Bassett S. Winmill and brother of Thomas B. Winmill.
He is also a Director of one other investment company in the Investment Company
Complex.
THOMAS B. WINMILL* -- Director, Co-President, Co-Chief Executive Officer, and
General Counsel. He is Co-President, Co-Chief Executive Officer, and General
Counsel of the other investment companies in the Investment Company Complex and
of Group and certain of its affiliates, President of the Investment Manager and
the Distributor, and Chairman of BBSI. He was born June 25, 1959. He was
associated with the law firm of Harris, Mericle & Orr from 1984 to 1987. He is a
member of the New York State Bar. He is a son of Bassett S. Winmill and brother
of Mark C. Winmill. He is also a Director of two of the other investment
companies in the Investment Company Complex.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born March 1, 1955. From 1993 to 1995, he was Associate
Director --Proprietary Trading at Barclays De Zoete Wedd Securities Inc., from
1992 to 1993 he was Director, Bond Arbitrage at WG Trading Company, and from
1989 to 1992 he was Vice President of Wilkinson Boyd Capital Markets.
BRETT B. SNEED, CFA -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born June 11, 1941. He is a Chartered Financial Analyst, a
member of the Association for Investment Management and Research, and a member
of the New York Society of Security Analysts.
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From 1986 to 1988, he managed private accounts, from 1981 to 1986, he was Vice
President of Morgan Stanley Asset Management, Inc. and prior thereto was a
portfolio manager and member of the Finance and Investment Committees of
American International Group, Inc., an insurance holding company.
WILLIAM K. DEAN, CPA -- Treasurer and Chief Accounting Officer. He is Treasurer
and Chief Accounting Officer of the other investment companies in the Investment
Company Complex, the Investment Manager and its affiliates. He was born
September 5, 1955. From 1984 to 1995 he held various positions with The Dreyfus
Corporation, a mutual fund company. He is a member of the American Institute of
Certified Public Accountants and the New York State Society of Certified Public
Accountants.
WILLIAM J. MAYNARD -- Vice President and Secretary. He is Vice President and
Secretary of the other investment companies in the Investment Company Complex,
the Investment Manager and its affiliates. He was born September 13, 1964. From
1991 to 1994 he was associated with the law firm of Skadden, Arps, Slate,
Meagher & Flom. He is a member of the New York State Bar.
* Bassett S. Winmill, Robert D. Anderson, Mark C. Winmill and Thomas B. Winmill
are "interested persons" of the Corporation as defined by the 1940 Act, because
of their positions with the Investment Manager.
Information in the following table is based on fees paid during the
year ended June 30, 1995.
COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C>
Total Compensation
Pension or Retirement Estimated Annual From Registrant and
Aggregate Compensa- Benefits Accrued as Part Benefits Upon Fund Complex Paid to
NAME OF PERSON, POSITION tion From Registrant of Fund Expenses Retirement Directors
Bassett S. Winmill None None None None
Chairman
Robert D. Anderson None None None None
Vice Chairman
Russell E. Burke III $4,500 None None $5,500 from
Director 2 Investment
Companies
Bruce B. Huber $4,500 None None $10,000 from
Director 5 Investment
Companies
James E. Hunt $4,500 None None $10,000 from
Director 5 Investment
Companies
Frederick A. Parker $4,500 None None $10,000 from
Director 5 Investment
Companies
John B. Russell $4,500 None None $10,000 from
Director 5 Investment
Companies
Mark C. Winmill None None None None
Director
Thomas B. Winmill None None None None
Director, Co-President
</TABLE>
Directors who are not "interested persons" of the Fund may elect to
defer receipt of fees for serving as a Director of the Fund. During the fiscal
year ended June 30, 1995, Messrs. Huber and Hunt deferred such Director's fees
pursuant to this arrangement.
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No officer, Director or employee of the Investment Manager receives any
compensation from the Fund for acting as an officer, Director or employee of the
Fund. As of October 10, 1995, officers and Directors of the Fund owned less than
1% of the outstanding shares of the Fund. As of October 6, 1995, the following
owners of record owned more than 5% of the outstanding shares of the Fund: U.S.
Clearing Corp., 26 Broadway, New York, NY 10004, 29.54%.
THE INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the regular
furnishing of advice with respect to portfolio transactions. The other principal
subsidiaries of Group include Investor Service Center, Inc., the Fund's
Distributor and a registered broker/dealer, Midas Management Corporation, a
registered investment adviser, and BBSI, a registered broker/dealer providing
discount brokerage services.
Group is a publicly owned company whose securities are listed on the
Nasdaq and traded in the OTC market. Bassett S. Winmill may be deemed a
controlling person of Group on the basis of his ownership of 100% of Group's
voting stock and, therefore, of the Investment Manager. The Fund and its
affiliated investment companies had net assets in excess of $245,000,000 as of
September 26, 1995.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays
all expenses required for the conduct of its business including, but not limited
to, custodian and transfer agency fees, accounting and legal fees, investment
management fees, fees of disinterested Directors, association fees, printing,
salaries of certain administrative and clerical personnel, necessary office
space, all expenses relating to the registration or qualification of the shares
of the Fund under Blue Sky laws and reasonable fees and expenses of counsel in
connection with such registration and qualification, miscellaneous expenses and
such non-recurring expenses as may arise, including actions, suits or
proceedings affecting the Fund and the legal obligation which the Corporation
may have to indemnify its officers and Directors with respect thereto.
The Investment Manager has agreed in the Investment Management
Agreement that it will waive all or part of its fee or reimburse the Fund
monthly if, and to the extent that, the Fund's aggregate operating expenses
exceed the most restrictive limit imposed by any state in which shares of the
Fund are qualified for sale. Currently, the most restrictive such limit
applicable to the Fund is 2.5% of the first $30 million of the Fund's average
daily net assets, 2.0% of the next $70 million of its average daily net assets
and 1.5% of its average daily net assets in excess of $100 million. Certain
expenses, such as brokerage commissions, taxes, interest, distribution fees,
certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended June 30, 1993, 1994 and 1995 the Investment Manager received $332,160,
$360,939 and $339,025, respectively, in management fees from the Fund and
reimbursed $166,313, 180,469 and $169,513, respectively, of such fees to improve
the Fund's yield.
If requested by the Corporation's Board of Directors, the Investment
Manager may provide other services to the Fund such as, without limitation, the
functions of billing, accounting, certain shareholder communications and
services, administering state and Federal registrations, filings and controls
and other administrative services. Any services so requested and performed will
be for the account of the Fund and the costs of the Investment Manager in
rendering such services shall be reimbursed by the Fund, subject to examination
by those directors of the Corporation who are not interested persons of the
Investment Manager or any affiliate thereof. For the fiscal years ended June 30,
1993, 1994 and 1995 the Fund reimbursed the Investment Manager $12,355, $24,378
and $19,900, respectively, for such services.
General expenses of the Corporation (such as costs of maintaining
corporate existence, proxy and annual meeting costs, etc.) will be allocated
among the Fund, Bull & Bear Global Income Fund, and Bull & Bear U.S. Government
Securities Fund in proportion to their relative number of shareholders or net
assets, as appropriate. Expenses that relate specifically to the Fund will be
borne by it directly. The expense limitation provision applies separately to the
Fund without including assets or expenses of other series of the Corporation.
The Investment Management Agreement provides that the Investment
Manager will not be liable to the Fund or any shareholder of the Fund for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the agreement relates. Nothing contained in
the Investment Management Agreement, however, shall be construed to protect the
Investment Manager against any liability to the Fund by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of obligations and duties under the
Investment Management Agreement.
The Investment Management Agreement will continue in effect, unless
sooner terminated as described below, for successive periods of twelve months,
provided such continuance is specifically approved at least annually by (a) the
Board of Directors of the Corporation or by the holders of a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act and (b) a
vote of a majority of the Directors of the Corporation who are not parties to
the Investment Management Agreement, or interested persons of any such party.
The Investment Management Agreement may be
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terminated without penalty at any time either by a vote of the Board of
Directors of the Corporation or the holders of a majority of the outstanding
voting securities of the Fund, as defined in the 1940 Act, on 60 days' written
notice to the Investment Manager, or by the Investment Manager on 60 days'
written notice to the Fund, and shall immediately terminate in the event of its
assignment.
Group has granted the Corporation a non-exclusive license to use the
service marks "Bull & Bear," "Bull & Bear Performance Driven," and "Performance
Driven" under certain terms and conditions on a royalty free basis. Such license
will be withdrawn in the event the investment manager of the Corporation shall
not be the Investment Manager or another subsidiary of Group. If the license is
terminated, the Corporation will eliminate all reference to "Bull & Bear" in its
corporate name and cease to use any of such service marks or any similar service
marks in its business.
YIELD AND PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials represents past performance and is not intended to indicate future
performance. Yield will fluctuate and, although the Fund is managed to maintain
a net asset value of $1.00 per share, there can be no assurance that it will be
able to do so. Consequently, quotations of yield should not be considered as
representative of what the Fund's yield may be for any specified period in the
future. Since performance will vary, these results are not necessarily
representative of future results. Performance is a function of the type and
quality of portfolio securities and will reflect general market conditions and
operating expenses. See "The Fund's Investment Program" in the prospectus. This
Statement of Additional Information may be in use for a full year and
performance results for periods subsequent to June 30, 1995 may vary
substantially from those shown below. An investment in the Fund, a series of
Bull & Bear Funds II, Inc., is neither insured nor guaranteed by the U.S.
Government as is a bank account or certificate of deposit.
The Fund's yield used in advertisements, sales material and shareholder
communications, reflecting the payment of a dividend each month, may be
calculated in two ways in order to show Current Yield and Effective Yield, in
each case to two decimal places. Investors wishing to obtain the Fund's yield
may call 1-800-847-4200.
Current Yield refers to the income generated by an investment in the
Fund over a seven-day period (which period will be stated in the advertisement).
This income is then "annualized," that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The Effective Yield is
the annualized current yield which is compounded by assuming the current income
to be reinvested.
Set forth below is a statement of the Fund's Current Yield, and
Effective Yield for the seven calendar days ended June 30, 1995.
Current Yield 5.02%
Effective Yield 5.15%
Yield information is useful in reviewing the Fund's performance, but
may not provide a basis for comparison with bank deposits, which may be insured,
since an investment in the Fund is not insured and its yield is not guaranteed.
Yield for a prior period should not be considered a representation of future
performance, which will change in response to fluctuations in interest rates on
portfolio investments, the quality, type and maturity of such investments, the
Fund's expenses and by the investment of a net inflow of new money at interest
rates different than those being earned from the Fund's then current holdings.
The Investment Manager and certain of its affiliates serve as
investment managers to the Fund and other affiliated investment companies, which
have individual and institutional investors throughout the United States and in
37 foreign countries. The Fund may also provide performance information based on
an initial investment in the Fund and/or cumulative investments of varying
amounts over periods of time. Some or all of this information may be provided
either graphically or in tabular form.
SOURCE MATERIAL
From time to time, in marketing pieces and other Fund literature, the
Fund's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
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Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
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The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indexes, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
Salomon Brothers Broad Investment-Grade Bond Index -- is a market-weighted index
that contains approximately 4,700 individually priced investment-grade corporate
bonds rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
Salomon Brothers Market Performance tracks the Salomon Brothers bond index.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
Wall Street Journal, a nationally distributed newspaper which regularly covers
financial news.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement Investor Service Center, Inc. acts
as the Distributor of the Fund's shares. Under the Distribution Agreement, the
Distributor shall use its best efforts, consistent with its other businesses, to
sell shares of the Fund. Fund shares are offered continuously. Pursuant to a
Plan of Distribution ("Plan") adopted pursuant to Rule 12b-1 under the 1940 Act,
the Fund pays the Distributor monthly a fee in the amount of one-quarter of one
percent per annum of the Fund's average daily net assets as compensation for
distribution and service activities.
In performing distribution and service activities pursuant to the Plan,
the Distributor may spend such amounts as it deems appropriate on any activities
or expenses primarily intended to result in the sale of the Fund's shares or the
servicing and maintenance of shareholder accounts, including, but not limited
to: advertising, direct mail, and promotional expenses; compensation to the
Distributor and its employees; compensation to and expenses, including overhead
and telephone and other communication expenses, of the Distributor, the
Investment Manager, the Fund, and selected dealers and their affiliates who
engage in or support the distribution of shares or who service shareholder
accounts; fulfillment expenses, including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and internal costs incurred by the
Distributor and allocated by the Distributor to its efforts to distribute shares
of the Fund accounts such as office rent and equipment, employee salaries,
employee bonuses and other overhead expenses.
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Among other things, the Plan provides that (1) the Distributor will
submit to the Fund's Board of Directors at least quarterly, and the Directors
will review, reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made, (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment or agreement related thereto is approved, by the Fund's Board of
Directors, including those Directors who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan or any agreement related to the Plan ("Plan Directors"), acting in
person at a meeting called for that purpose, unless terminated by vote of a
majority of the Plan Directors, or by vote of a majority of the outstanding
voting securities of the Fund, (3) payments by the Fund under the Plan shall not
be materially increased without the affirmative vote of the holders of a
majority of the outstanding voting securities of the Fund and (4) while the Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund shall be committed to the discretion of the
Directors who are not interested persons of the Fund.
With the approval of a majority of the entire Board of Directors and of
the Plan Directors of the Fund, the Distributor has entered into a related
agreement with Hanover Direct Advertising Company, Inc. ("Hanover Direct"), a
wholly owned subsidiary of Group, in an attempt to obtain cost savings on the
marketing of the Fund's shares. Hanover Direct will provide services to the
Distributor on behalf of the Fund and the other Bull & Bear Funds at standard
industry rates, which includes commissions. The amount of Hanover Direct's
commissions over its cost of providing Fund marketing will be credited to the
Fund's distribution expenses and represent a saving on marketing, to the benefit
of the Fund. To the extent Hanover Direct's costs exceed such commissions,
Hanover Direct will absorb any of such costs.
It is the opinion of the Board of Directors that the Plan is necessary
to maintain a flow of subscriptions to offset redemptions. Redemptions of mutual
fund shares are inevitable. If redemptions are not offset by subscriptions, a
fund shrinks in size and its ability to maintain quality shareholder services
declines. Eventually, redemptions could cause a fund to become uneconomic.
Furthermore, an extended period of significant net redemptions may be
detrimental to orderly management of the portfolio. Offsetting redemptions
through sales efforts benefits shareholders by maintaining the viability of a
fund. In periods where net sales are achieved, additional benefits may accrue
relative to portfolio management and increased shareholder servicing capability.
In addition, increased assets enable the establishment and maintenance of a
better shareholder servicing staff which can respond more effectively and
promptly to shareholder inquiries and needs. While net increases in total assets
are desirable, the primary goal of the Plan is to prevent a decline in assets
serious enough to cause disruption of portfolio management and to impair the
Fund's ability to maintain a high level of quality shareholder services.
The Plan increases the overall expense ratio of the Fund; however, a
substantial decline in Fund assets is likely to increase the portion of the
Fund's expense ratio comprised of management fees and fixed costs (i.e., costs
other than the Plan) while a substantial increase in Fund assets would be
expected to reduce the portion of the expense ratio comprised of management fees
(reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Fund had any direct or indirect financial
interest in the operation of the Plan or any related agreement.
During the fiscal year ended June 30, 1995, the Distributor waived the
entire fee it was entitled to receive under the Plan.
The Glass-Steagall Act prohibits certain banks from engaging in the
business of underwriting, selling, or distributing securities such as shares of
a mutual fund. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in the Distributor's opinion it should not
prohibit banks from being paid for administrative and accounting services under
the Plan. If, because of changes in law or regulation, or because of new
interpretations of existing law, a bank or the Fund were prevented from
continuing these arrangements, it is expected that other arrangements for these
services will be made. In addition, state securities laws on this issue may
differ from the interpretation of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of 11:00 a.m.
eastern time and as of the close of regular trading on the New York Stock
Exchange ("NYSE") (currently 4:00 p.m. eastern time) on each Fund business day.
The following days are not Fund business days: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share is determined by dividing the value of
the net assets of the Fund by the total number of shares outstanding.
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The Fund has adopted the amortized cost method of valuing portfolio
securities provided by Rule 2a-7 under the 1940 Act. To use amortized cost to
value its portfolio securities, the Fund must adhere to certain conditions under
that Rule relating to the Fund's investments. Amortized cost is an approximation
of market value of an instrument, whereby the difference between its acquisition
cost and value at maturity is amortized on a straight-line basis over the
remaining life of the instrument. The effect of changes in the market value of a
security as a result of fluctuating interest rates is not taken into account and
thus the amortized cost method of valuation may result in the value of a
security being higher or lower than its actual market value. In the event that a
large number of redemptions take place at a time when interest rates have
increased, the Fund might have to sell portfolio securities prior to maturity
and at a price that might not be desirable.
The Board of Directors may authorize the use of one or more pricing
services which provide bid valuations (some of which may be "readily available
market quotations") on certain of the securities in which the Fund invests. Such
pricing services may employ electronic data processing techniques including the
use of a matrix pricing system which takes into consideration factors such as
yields, prices, maturities, call features and ratings on comparable securities.
Information obtained from such services may be used by the Fund both in the fair
valuation of securities for which there are no readily available market
quotations and in connection with the determination of the market prices of
securities held in the Fund's portfolio.
PURCHASE OF SHARES
The Fund will not issue shares for consideration other than cash. Third party
checks, except those payable to an existing shareowner who is a natural person
(as opposed to a corporation or partnership), credit cards, and cash will not be
accepted. The Fund reserves the right to reject any order and, to cancel any
order due to nonpayment or otherwise, with respect to any person or class of
persons. Orders to purchase shares are not binding on the Fund until they are
confirmed.
ALLOCATION OF BROKERAGE
Under present investment policies the Fund is not expected to incur any
substantial brokerage commission costs. For the fiscal years ended June 30,
1993, 1994 and 1995 the Fund did not pay any brokerage commissions. The Fund is
not currently obligated to deal with any particular broker, dealer or group
thereof.
The Fund seeks to obtain prompt execution of orders at the most
favorable net prices. The Fund may purchase portfolio securities from dealers
and underwriters as well as from issuers. Purchases of securities include a
commission or concession paid to the underwriter, and purchases from dealers
include a spread between the bid and asked price. When securities are purchased
directly from an issuer, no commissions or discounts are paid.
Transactions may be directed to dealers who provide research and other
services in the execution of orders. There is no certainty that such services
provided, if any, will be beneficial to the Fund, and it may be that other
affiliated investment companies will derive benefit therefrom. It is not
possible to place a dollar value on such services received by the Investment
Manager from dealers effecting transactions in portfolio securities. Such
services may permit the Investment Manager to supplement its own research and
other activities and to make available to the Investment Manager the opinions
and information of individuals and research staffs of other securities firms.
Portfolio transactions will not be directed to dealers solely on the basis of
research services provided. The Fund will not purchase portfolio securities at a
higher price or sell such securities at a lower price in connection with
transactions effected with a dealer, who furnishes research services to the
Investment Manager than would be the case if no weight were given by the
Investment Manager to the dealer's furnishing of such services.
Generally, investment decisions for the Fund and for other affiliated
investment companies are made independently of each other in the light of
differing conditions. The same investment decision, however, may occasionally be
made for two or more of such Funds. In such cases, simultaneous transactions may
occur. Combined purchase or sale orders are then averaged as to price and
allocated as to amount according to a formula deemed equitable to each Fund.
While in some cases this practice could have a detrimental effect upon the price
or value of the security as far as the Fund is concerned, in other cases it is
believed to be beneficial to the Fund.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund and its affiliates do
business with may, from time to time, own more than 5% of the publicly traded
Class A non-voting Common Stock of Group, the parent of the Investment Manager,
and may provide clearing services to BBSI.
DIVIDENDS AND TAXES
DIVIDENDS. All of the net income of the Fund is declared daily as dividends to
shareholders of record as of the close of regular trading on the NYSE each
Business Day. Net income of the Fund (during the period commencing at the time
of the immediately preceding dividend declaration) consists of accrued interest
or earned discount (including both original issue and market discounts) on the
assets of the Fund for so long as the Fund utilizes the amortized cost method of
valuing portfolio securities, less the estimated expenses of the Fund applicable
to that period. The Fund's net income is determined by the Custodian on a daily
basis as of the close of regular trading on the NYSE on each Business Day (See
"Determination of Net Asset Value").
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If the Fund incurs or anticipates any unusual expense, loss or
depreciation that could adversely affect the Fund's income or net asset value,
the Corporation's Board of Directors would at that time consider whether to
adhere to the present income accrual and distribution policy described above or
to revise it in light of then prevailing circumstances. For example, under such
unusual circumstances the Directors might reduce or suspend declaration of daily
dividends in order to prevent to the extent possible the per share net asset
value of the Fund from being reduced below $1.00. Thus, such expenses or losses
or depreciation may result in a shareholder receiving less income.
If the U.S. Postal Service cannot deliver a shareholder's check, or if
a shareholder's check remains uncashed for six months, the Fund reserves the
right to credit the shareholder's account with additional shares of the Fund at
the then current net asset value in lieu of the cash payment and to thereafter
issue such shareholder's distributions in additional shares of the Fund.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for this treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (generally consisting of net investment income and net short-term
capital gains) and must meet several additional requirements. Among these
requirements are the following: (1) at least 90% of the Fund's gross income each
taxable year must be derived from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities, or
other income derived with respect to its business of investing in securities;
(2) the Fund must derive less than 30% of its gross income each taxable year
from the sale or other disposition of securities that were held for less than
three months; and (3) the Fund's investments must satisfy certain
diversification requirements. In any year during which the applicable provisions
of the Code are satisfied, the Fund will not be liable for Federal income tax on
net income and gains that are distributed to its shareholders. If for any
taxable year the Fund does not qualify for treatment as a RIC, all of its
taxable income will be taxed at corporate rates.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year an amount equal to the
sum of (1) 98% of its ordinary income, (2) 98% of its capital gain net income
(determined on an October 31 fiscal year basis), plus (3) generally, income and
gain not distributed or subject to corporate tax in the prior calendar year. The
Fund intends to avoid imposition of this excise tax by making adequate
distributions.
The foregoing discussion of Federal tax consequences is based on the
tax law in effect on the date of this Statement of Additional Information, which
is subject to change by legislative, judicial, or administrative action. The
Fund may be subject to state or local tax in jurisdictions in which it may be
deemed to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
income and expense, and changes in net assets of the Fund. The Fund's fiscal
year ends on June 30.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, P.O. Box 2197, Boston, MA 02111 has
been retained by the Corporation to act as Custodian of the Fund's investments
and may appoint one or more subcustodians. The Custodian also performs certain
accounting services for the Fund. As part of its agreement with the Corporation,
the Custodian may apply credits or charges for its services to the Fund for,
respectively, positive or deficit cash balances maintained by the Fund with the
Custodian. DST Systems, Inc., Box 419789, Kansas City, Missouri 64141-6789, is
the Fund's Transfer and Dividend Disbursing Agent. The Distributor provides
certain administrative and shareholder services to the Fund pursuant to the
Shareholder Services Agreement and is reimbursed by the Fund the actual costs
incurred with respect thereto. For shareholder services, the Fund paid the
Distributor for the fiscal years ended June 30, 1993, 1994, and 1995
approximately $50,745, $67,487 and $70,937, respectively.
AUDITORS
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia, PA
19102-1707, are the independent accountants for the Fund. Financial statements
of the Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended June 30,
1995, together with the Report of the Fund's independent accountants thereon,
appear in the Fund's Annual Report to Shareholders and are incorporated herein
by reference.
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Statement of Additional Information November 1, 1995
BULL & BEAR GLOBAL INCOME FUND
11 Hanover Square
New York, NY 10005
1-800-847-4200
Bull & Bear Global Income Fund (the "Fund") is a diversified series of
Bull & Bear Funds II, Inc. (the "Corporation"), an open-end management
investment company organized as a Maryland corporation. This Statement of
Additional Information regarding the Fund is not a prospectus and should be read
in conjunction with the Fund's prospectus dated November 1, 1995. The prospectus
is available without charge upon request to Investor Service Center, Inc.,
Distributor, 11 Hanover Square, New York, NY 10005, telephone 1-800-847-4200.
THE FUND'S INVESTMENT PROGRAM........................................2
INVESTMENT RESTRICTIONS.....................................3
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES...5
THE INVESTMENT COMPANY COMPLEX......................................12
OFFICERS AND DIRECTORS.....................................12
THE INVESTMENT MANAGER.....................................14
INVESTMENT MANAGEMENT AGREEMENT............................14
YIELD AND PERFORMANCE INFORMATION..........................15
DISTRIBUTION OF SHARES.....................................20
DETERMINATION OF NET ASSET VALUE...........................21
PURCHASE OF SHARES.........................................22
ALLOCATION OF BROKERAGE.............................................22
DISTRIBUTIONS AND TAXES....................................23
REPORTS TO SHAREHOLDERS....................................25
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT..........25
AUDITORS...................................................26
FINANCIAL STATEMENTS.......................................26
APPENDIX - DESCRIPTIONS OF BOND RATINGS.............................27
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THE FUND'S INVESTMENT PROGRAM
The following information supplements the information concerning the
investment objectives, policies and limitations of the Fund found in the
prospectus.
LOAN PARTICIPATIONS. The Fund may invest in loan participations in
which the Fund purchases from a lender a portion of a larger loan to a U.S. or
foreign private or governmental entity. The Fund receives a portion of the
amount due the lender, except for any servicing fees received by the lender.
Investing in loan participations may enable the Fund to obtain undivided
interests in loans that Bull & Bear Advisers, Inc. (the "Investment Manager")
considers attractive, but which would not be available to the Fund otherwise.
Although normally available without recourse to the lender, such loans may be
backed by a letter of credit and may include the right to demand accelerated
payment of principal and interest. Loan participations may be subject to credit
risks of the borrower, the lender or both. Loans to foreign borrowers may
involve risks not typically associated with domestic investments. Certain loan
participations may be considered illiquid securities, which are limited to 15%
of the Fund's net assets. The Fund has no current intention to engage in loan
participations in excess of 5% of total net assets of the Fund.
SHORT SALES. The Fund may engage in short sales if it owns or, by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind or amount. This investment technique is known as a short sale
"against the box." In a short sale, the Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Fund will not dispose of the securities underlying a short sale while a short
sale is outstanding. The Fund intends to engage in short sales against the box
for hedging purposes. The Investment Manager expects that the Fund will engage
in short sales against the box as a hedge when the Investment Manager believes
that the price of a security may decline, or when the Fund wants to sell the
security it owns at the current price, but wants to defer recognition of gain or
loss for tax purposes. The Investment Manager currently anticipates that no more
than 5% of the Fund's total assets would be involved in short sales against the
box.
BORROWING. Subject to the limit on borrowing described in Investment
Restriction (5) below, the Fund may incur overdrafts at its custodian bank from
time to time in connection with redemptions and/or the purchase of portfolio
securities. In lieu of paying interest to the custodian bank, the Fund may
maintain equivalent cash balances prior or subsequent to incurring such
overdrafts. If cash balances exceed such overdrafts, the custodian bank may
credit interest thereon against fees.
ILLIQUID ASSETS. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, (a) more than 15%
of the Fund's net assets (taken at current value) would be invested in illiquid
assets, including repurchase agreements not entitling the holder to payment of
principal within seven days, or (b) more than 10% of the Fund's total assets
would be invested in securities that are illiquid by virtue of restrictions on
the sale of such securities to the public without registration under the
Securities Act of 1933 ("1933 Act"). The term "illiquid assets" for this purpose
includes securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued the
securities.
Illiquid restricted securities may be sold by the Fund only in
privately negotiated transactions or in a public offering with respect to which
a registration statement is in effect under the 1933 Act. Such securities
include those that are subject to restrictions contained in the securities laws
of other countries. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. Securities
that are freely marketable in the country where they are principally traded, but
would not be freely marketable in the U.S., are not included within the meaning
of the term "illiquid assets."
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are either themselves exempt from
registration or sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
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Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional restricted securities markets may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment in order to satisfy share redemption orders
on a timely basis. Such markets might include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing certain restricted securities held by the Fund,
however, could affect adversely the marketability of such portfolio securities,
and the Fund might be unable to dispose of such securities promptly or at
reasonable prices.
The Board of Directors has delegated the function of making day-to-day
determinations of liquidity to Bull & Bear Advisers, Inc. (the "Investment
Manager") pursuant to guidelines approved by the Board. The Investment Manager
takes into account a number of factors in reaching liquidity decisions,
including (1) the frequency of trades and quotes for the security, (2) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers, (3) dealer undertakings to make a market in the
security, and the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on such decisions to the Board of Directors.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions may not be changed
without the approval of the lesser of (a) 67% or more of the voting securities
of the Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy or
(b) more than 50% of the outstanding voting securities of the Fund. Any
investment restriction which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. The Fund may not:
(1) Purchase a security if, as a result, more than 5% of the Fund's total
assets would be invested in the securities of any one issuer or the Fund
would own or hold 10% of the outstanding securities of that issuer, except
that up to 25% of the Fund's total assets may be invested without regard to
this limitation and provided that this limitation does not apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or securities of other investment companies;
(2) Purchase a security, if as a result, 25% or more of the value of the Fund's
total assets would be invested in the securities of issuers in a single
industry, provided that this limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities;
(3) Purchase or sell real estate (although it may purchase securities of
companies whose business involves the purchase or sale of real estate);
(4) Invest in commodities or commodities futures contracts, although it may
enter into financial and foreign currency futures contracts and options
thereon, options on foreign currencies, and forward contracts on foreign
currencies;
(5) Lend money or securities, provided however, that the following are not
prohibited: (a) the making of time or demand deposits with banks, (b) the
purchase of debt securities such as bonds, debentures, commercial paper,
repurchase agreements, and short term obligations in accordance with the
Fund's fundamental investment objective and policies, and (c) engaging in
securities loan transactions up to one third of the Fund's total assets;
(6) Borrow money, except to the extent permitted by the Investment Company Act
of 1940 ("1940 Act");
(7) Underwrite the securities of other issuers except to the extent the Fund
may be deemed to be an underwriter under the Federal securities laws in
connection with the disposition of the Fund's authorized investments; or
(8) Issue senior securities as defined in the 1940 Act. The following will not
be deemed to be senior securities for this purpose: (a) evidences of
indebtedness that the Fund is permitted to incur, (b) the issuance of
additional series or classes that the Directors may establish, (c) the
Fund's futures, options, and forward currency transactions, and (d) to the
extent consistent with the 1940 Act and applicable rules and policies
adopted by the Securities and Exchange Commission ("SEC") (i) the
establishment or use of a margin account with a broker for the purpose of
effecting securities transactions on margin and (ii) short sales.
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The Fund, notwithstanding any other investment policy or restriction
(whether or not fundamental), may invest all of its assets in the securities or
beneficial interests of a single pooled investment fund having substantially the
same investment objectives, policies and restrictions as the Fund.
The Corporation's Board of Directors has established the following
non-fundamental investment restrictions that may be changed by the Board without
shareholder approval:
(i) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets, which amount
may include warrants which are not listed on the New York Stock
Exchange or American Stock Exchange provided that such warrants, valued
at the lower of cost or market, do not exceed 2% of the Fund's net
assets;
(ii) The Fund may not purchase or sell real estate, provided that the Fund
may invest in securities (excluding limited partnership interests)
secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
(iii) The Fund may not invest in interests in oil, gas or other mineral
exploration or development programs or leases, although it may invest
in the securities of issuers which invest in or sponsor such programs
or such leases;
(iv) The Fund may not invest more than 5% of its assets in securities of
companies having a record of less than three years continuous
operations (including operations of predecessors);
(v) The Fund may not purchase or otherwise acquire any security or invest
in a repurchase agreement if, as a result, (a) more than 15% of the
Fund's net assets (taken at current value) would be invested in
illiquid assets, including repurchase agreements not entitling the
holder to payment of principal within seven days, or (b) more than 10%
of the Fund's total assets would be invested in securities that are
illiquid by virtue of restrictions on the sale of such securities to
the public without registration under the 1933 Act;
(vi) The Fund may not make short sales of securities or purchase securities
on margin, except (a) the Fund may buy and sell options, futures
contracts, options on futures contracts, and forward currency
contracts, (b) the Fund may obtain such short term credits as may be
necessary for the clearance of transactions, (c) the Fund may make
initial margin deposits and variation margin payments in connection
with transactions in futures contracts and options thereon, and forward
currency contracts, and (d) the Fund may sell "short against the box"
where, by virtue of its ownership of other securities, the Fund owns or
has the right to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is made upon
the same conditions;
(vii) The Fund may not purchase or retain securities of any issuer if to the
knowledge of the Fund, those officers or directors of the Fund or its
investment manager who each own beneficially more than 1/2 of 1% of the
securities of an issuer, own beneficially together more than 5% of the
securities of that issuer;
(viii) The Fund may not purchase the securities of any investment company
except (a) by purchase in the open market where no commission or profit
to a sponsor or dealer results from such purchase, provided that
immediately after such purchase no more than: 10% of the Fund's total
assets are invested in securities issued by investment companies, 5% of
the Fund's total assets are invested in securities issued by any one
investment company, or 3% of the voting securities of any one such
investment company are owned by the Fund, and (b) when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition
of assets;
(ix) The Fund may not borrow money, except (a) from a bank for temporary or
emergency purposes (not for leveraging or investment) or (b) by
engaging in reverse repurchase agreements, provided however, that
borrowing pursuant to (a) and (b) do not exceed an amount equal to
one-third of the total value of the Fund's assets taken at market
value, less liabilities other than borrowing. The Fund may not purchase
securities for investment while any bank borrowing equaling 5% or more
of its total assets is outstanding. If at any time the Fund's borrowing
come to exceed the limitation set forth in (6) above, such borrowing
will be promptly (within three days, not including Sundays and
holidays) reduced to the extent necessary to comply with this
limitation;
(x) With respect to options transactions, (a) the Fund will write only
covered options and each such option will remain covered so long as the
Fund is obligated under the option; (b) the Fund will not write call or
put options having aggregate exercise prices greater than 25% of its
net assets; and (c) the Fund may purchase a put or call option,
including any straddles or spreads, only if the value of its premium,
when aggregated with the premiums on all other options held by the
Fund, does not exceed 5% of the Fund's total assets; and
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(xi) With respect to financial and foreign currency futures and related
options (including options traded on a commodities exchange), the Fund
will not purchase or sell futures contracts or related options other
than for bona fide hedging purposes if, immediately thereafter, the sum
of the amount of initial margin deposits on the Fund's existing futures
positions and related options and premiums paid for related options
would exceed 5% of the Fund's total assets.
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
REGULATION OF THE USE OF OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT
STRATEGIES. As discussed in the prospectus, the Investment Manager may engage in
certain options strategies to attempt to enhance return or for hedging purposes.
The Investment Manager also may use securities index futures contracts, interest
rate futures contracts, foreign currency futures contracts (collectively,
"futures contracts" or "futures"), options on futures contracts and forward
currency contracts for hedging purposes or in other circumstances permitted by
the Commodity Futures Trading Commissions ("CFTC"). Certain special
characteristics of and risks associated with using these instruments are
discussed below. In addition to the investment guidelines (described below)
adopted by the Fund to govern investment in these instruments, use of options,
forward currency contracts and futures by the Fund is subject to the applicable
regulations of the SEC, the several options and futures exchanges upon which
such instruments may be traded, the CFTC and the various state regulatory
authorities.
In addition to the products, strategies and risks described below and
in the prospectus, the Investment Manager expects to discover additional
opportunities in connection with options, futures and forward currency
contracts. These new opportunities may become available as the Investment
Manager develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures and forward currency
contracts are developed. The Investment Manager may utilize these opportunities
to the extent they are consistent with the Fund's investment objective,
permitted by the Fund's investment limitations and permitted by the applicable
regulatory authorities. The Fund's registration statement will be supplemented
to the extent that new products and strategies involve materially different
risks than those described below and in the prospectus.
COVER FOR OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES.
The Fund will not use leverage in its options, futures and forward currency
contract strategies. Accordingly, the Fund will comply with guidelines
established by the SEC with respect to these strategies and will, when required,
either (1) set aside cash, U.S. Government or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount,
or (2) hold securities, currencies or other options or futures contracts whose
values are expected to offset ("cover") its obligations thereunder. Securities,
curren cies or other options or futures contracts used for cover and securities
held in a segregated account cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of the Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
OPTION INCOME AND HEDGING STRATEGIES. The Fund may purchase and write
(sell) both exchange-traded options and options traded on the over-the-counter
("OTC") market. Currently, options on debt securities are primarily traded on
the OTC market. Although many options on currencies are exchange-traded, the
majority of such options currently are traded on the OTC market. Exchange-traded
options in the U.S. are issued by a clearing organization affiliated with the
exchange on which the option is listed, which, in effect, guarantees completion
of every exchange-traded option transaction. In contrast, OTC options are
contracts between the Fund and its contra-party with no clearing organization
guarantee. Thus, when the Fund purchases an OTC option, it relies on the dealer
from which it has purchased the OTC option to make or take delivery of the
securities or currencies underlying the option. Failure by the dealer to do so
would result in the loss of any premium paid by the Fund as well as the loss of
the expected benefit of the transaction.
The Fund may purchase call options on securities (both equity and debt)
that the Investment Manager intends to include in the Fund's portfolio in order
to fix the cost of a future purchase. Call options also may be used as a means
of enhancing returns by, for example, participating in an anticipated price
increase of a security. In the event of a decline in the price of the underlying
security, use of this strategy would serve to limit the potential loss to the
Fund to the option premium paid; conversely, if the market price of the
underlying security increases above the exercise price and the Fund either sells
or exercises the option, any profit eventually realized would be reduced by the
premium paid.
The Fund may purchase put options on securities in order to hedge
against a decline in the market value of securities held in its portfolio or to
attempt to enhance return. The put option enables the Fund to sell the
underlying security at the pre determined exercise price; thus, the potential
for loss to the Fund below the exercise price is limited to the option premium
paid. If the market price of the underlying security is higher than the exercise
price of the put option, any profit the Fund realizes on the sale of the
security would be reduced by the premium paid for the put option less any amount
for which the put option may be sold.
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The Fund may on certain occasions wish to hedge against a decline in
the market value of securities held in its portfolio at a time when put options
on those particular securities are not available for purchase. The Fund may
therefore purchase a put option on other carefully selected securities, the
values of which historically have a high degree of positive correlation to the
value of such portfolio securities. If the Investment Manager's judgment is
correct, changes in the value of the put options should generally offset changes
in the value of the portfolio securities being hedged. However, the correlation
between the two values may not be as close in these transactions as in
transactions in which the Fund purchases a put option on a security held in its
portfolio. If the Investment Manager's judgment is not correct, the value of the
securities underlying the put option may decrease less than the value of the
Fund's portfolio securities and therefore the put option may not provide
complete protection against a decline in the value of the Fund's portfolio
securities below the level sought to be protected by the put option.
The Fund may write covered call options on securities in which it is
authorized to invest for hedging or to increase return in the form of premiums
received from the purchasers of the options. A call option gives the purchaser
of the option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the exercise price during or at the end of the option
period. The strategy may be used to provide limited protection against a
decrease in the market price of the security, in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, if the
market price of the underlying security held by the Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price of
the underlying security to a level in excess of the option's exercise price, and
the option is exercised, the Fund would be obligated to sell the security at
less than its market value. In addition, the Fund could lose the ability to
participate in an increase in the value of such securities above the exercise
price of the call option because such an increase would likely be offset by an
increase in the cost of closing out the call option (or could be negated if the
buyer chose to exercise the call option at an exercise price below the current
market value).
The Fund generally would give up the ability to sell any portfolio
securities used to cover the call option while the call option was outstanding.
Portfolio securities used to cover OTC options written also may be considered
illiquid, and therefore subject to the Fund's limitation on investing no more
than 15% of its net assets in illiquid securities, unless the OTC options are
sold to qualified dealers who agree that the Fund may repurchase any OTC options
it writes for a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
The Fund also may write covered put options on securities in which it
is authorized to invest. A put option gives the purchaser of the option the
right to sell, and the writer (seller) the obligation to buy, the underlying
security at the exercise price during the option period. So long as the
obligation of the writer continues, the writer may be assigned an exercise
notice by the broker/dealer through whom such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options. If the put
option is not exercised, the Fund will realize income in the amount of the
premium received. This technique could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be that the
market price of the underlying security would decline below the exercise price
less the premiums received, in which case the Fund would expect to suffer a
loss.
The Fund may purchase put and call options and write covered put and
call options on securities indexes in much the same manner as the more
traditional securities options discussed above, except that index options may
serve as a hedge against overall fluctuations in the securities markets (or a
market sector) rather than anticipated increases or decreases in the value of a
particular security. A securities index assigns values to the securities
included in the index and fluctuates with changes in such values. Settlements of
securities index options are effected with cash payments and do not involve
delivery of securities. Thus, upon settlement of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the index. The
effectiveness of hedging techniques using securities index options will depend
on the extent to which price movements in the securities index selected
correlate with price movements of the securities in which the Fund invests.
The Fund may purchase and write covered straddles on securities
indexes. A long straddle is a combination of a call and a put purchased on the
same security where the exercise price of the put is less than or equal to the
exercise price on the call. The Fund would enter into a long straddle when the
Investment Manager believes that it is likely that securities prices will be
more volatile during the term of the options than is implied by the option
pricing. A short straddle is a combination of a call and a put written on the
same security where the exercise price on the put is less than or equal to the
exercise price of the call where the same issue of the security is considered
"cover" for both the put and the call. The Fund would enter into a short
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straddle when the Investment Manager believes that it is unlikely that
securities prices will be as volatile during the term of the options as is
implied by the option pricing. In such case, the Fund will set aside cash and/or
liquid, high-grade debt securities in a segregated account with its custodian
equivalent in value to the amount, if any, by which the put is "in-the-money,"
that is, that amount by which the exercise price of the put exceeds the current
market value of the underlying security.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Fund may take positions
in options on foreign currencies to hedge against the risk of foreign exchange
rate fluctuations on foreign securities that the Fund holds in its portfolio or
that it intends to purchase. For example, if the Fund enters into a contract to
purchase securities denominated in a foreign currency, it could effectively fix
the maximum U.S. dollar cost of the securities by purchasing call options on
that foreign currency. Similarly, if the Fund held securities denominated in a
foreign currency and anticipated a decline in the value of that currency against
the U.S. dollar, the Fund could hedge against such a decline by purchasing a put
option on the currency involved. The Fund's ability to establish and close out
positions in such options is subject to the maintenance of a liquid secondary
market. Although many options on foreign currencies are exchange-traded, the
majority are traded on the OTC market. The Fund will not purchase or write such
options unless, in the Investment Manager's opinion, the market for them is
sufficiently liquid to ensure that the risks in connection with such options are
not greater than the risks in connection with the underlying currency. In
addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quota tions available through
dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (that is, less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
To the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they reopen.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell securi ties or currencies under a put or a call option it has written,
the Fund may purchase a put or a call option of the same series (that is, an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified securities or currencies under a call or put
option it has purchased, the Fund may sell an option of the same series as the
option held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge the
Fund's portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things,
the current market price of the underlying security, securities index or
currency, the time remaining until expiration, the relationship of the exercise
price to the market price, the historical price volatility of the underlying
security, securities index or currency and general market conditions. For this
reason, the successful use of options depends upon the Investment Manager's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets or, in the case of securities index options,
fluctuations in the market sector repre sented by the selected index.
(2) Options normally have expiration dates of up to three years. The
exercise price of the options may be below, equal to or above the current market
value of the underlying security, securities index or currency. Purchased
options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, the Fund will realize a loss in the amount of the premium paid
and any transaction costs.
(3) A position in an exchange-listed option may be closed out only on
an exchange that provides a secondary market for identical options. Most
exchange-listed options relate to stocks. Although the Fund intends to purchase
or write only those exchange-traded options for which there appears to be a
liquid secondary market, there is no assurance that a liquid secondary
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market will exist for any particular option at any particular time. Closing
transactions may be effected with respect to options traded in the OTC markets
(currently the primary markets for options on debt securities and a significant
market for foreign currencies) only by negotiating directly with the other party
to the option contract or in a secondary market for the option if such market
exists. Although the Fund will enter into OTC options with dealers that agree to
enter into, and that are expected to be capable of entering into, closing
transactions with the Fund, there can be no assurance that the Fund would be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. In the event of insolvency of the contra-party, the Fund may be
unable to liquidate an OTC option. Accordingly, it may not be possible to effect
closing transactions with respect to certain options, which would result in the
Fund having to exercise those options that it has purchased in order to realize
any profit. With respect to options written by the Fund, the inability to enter
into a closing transaction may result in material losses to the Fund. For
example, because the Fund must maintain a covered position with respect to any
call option it writes on a security, currency or securities index, the Fund may
not sell the underlying securities or currency (or invest any cash securities
used to cover the option) during the period it is obligated under such option.
This requirement may impair the Fund's ability to sell a portfolio security or
make an investment at a time when such a sale or investment might be
advantageous.
(4) Securities index options are settled exclusively in cash. If the
Fund writes a call option on an index, the Fund will not know in advance the
difference, if any, between the closing value of the index on the exercise date
and the exercise price of the call option itself and thus will not know the
amount of cash payable upon settlement. In addition, a holder of a securities
index option who exercises it before the closing index value for that day is
available, runs the risk that the level of the underlying index may subsequently
change.
(5) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs and taxes; however, the
Fund also may save on commissions by using options as a hedge rather than buying
or selling individual securities in anticipation or as a result of market
movements.
FUTURES AND RELATED OPTIONS STRATEGIES. The Fund may engage in futures
strategies for hedging purposes to attempt to reduce the overall investment risk
that would normally be expected to be associated with ownership of the
securities in which it invests. This may involve, among other things, using
futures strategies to manage the effective duration of the Fund. If the
Investment Manager wishes to shorten the effective duration of the Fund, the
Fund may sell a futures contract or a call option thereon, or purchase a put
option on that futures contract. If the Investment Manager wishes to lengthen
the effective duration of the Fund, the Fund may buy a futures contract or a
call option thereon, or sell a put option.
The Fund may use interest rate futures contracts and options thereon to
hedge its portfolio against changes in the general level of interest rates and
in other circumstances permitted by the CFTC. The Fund may purchase an interest
rate futures contract when it intends to purchase debt securities but has not
yet done so. This strategy may minimize the effect of all or part of an increase
in the market price of the debt security that the Fund intends to purchase in
the future. A rise in the price of the debt security prior to its purchase may
either be offset by an increase in the value of the futures contract purchased
by the Fund or avoided by taking delivery of the debt securities under the
futures contract. Conversely, a fall in the market price of the underlying debt
security may result in a corresponding decrease in the value of the futures
position. The Fund may sell an interest rate futures contract in order to
continue to receive the income from a debt security, while endeavoring to avoid
part or all of the decline in market value of that security that would accompany
an increase in interest rates.
The Fund may purchase a call option on an interest rate futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The purchase of a call option on an interest
rate futures contract is analogous to the purchase of a call option on an
individual debt security, which can be used as a temporary substitute for a
position in the security itself. The Fund also may write covered put options on
interest rate futures contracts as a partial anticipatory hedge and may write
covered call options on interest rate futures contracts as a partial hedge
against a decline in the price of debt securities held in the Fund's portfolio.
The Fund may also purchase put options on interest rate futures contracts in
order to hedge against a decline in the value of debt securities held in the
Fund's portfolio.
The Fund may sell securities index futures contracts in anticipation of
a general market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a portion of the Fund's
portfolio correlates with a given index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus provide
an alternative to the liquidation of securities positions. For example, if the
Fund correctly anticipates a general market decline and sells securities index
futures to hedge against this risk, the gain in the futures position should
offset some or all of the decline in the value of the portfolio. The Fund may
purchase securities index futures contracts if a market or market sector advance
is anticipated. Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual securities, which securities may then
be purchased in an orderly fashion. This strategy may minimize the effect of all
or part of an increase in the market price of securities that the Fund intends
to purchase. A rise in the price of the securi ties should be in part or wholly
offset by gains in the futures position.
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As in the case of a purchase of a securities index futures contract,
the Fund may purchase a call option on a securities index futures contract to
hedge against a market advance in securities that the Fund plans to acquire at a
future date. The Fund may write covered put options on securities index futures
as a partial anticipatory hedge and may write covered call options on securities
index futures as a partial hedge against a decline in the prices of securities
held in the Fund's portfolio. This is analogous to writing covered call options
on securities. The Fund also may purchase put options on securities index
futures contracts. The purchase of put options on securities index futures
contracts is analogous to the purchase of protective put options on individual
securities where a level of protection is sought below which no additional
economic loss would be incurred by the Fund.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of foreign currency in relation to the
U.S. dollar. In addition, the Fund may sell foreign currency futures contracts
when the Investment Manager anticipates a general weakening of the foreign
currency exchange rate that could adversely affect the market value of the
Fund's foreign securities holdings or interest payments to be received in that
foreign currency. In this case, the sale of futures contracts on the underlying
currency may reduce the risk to the Fund of a reduction in market value caused
by foreign currency exchange rate variations and, by so doing, provide an
alternative to the liquidation of securities positions and resulting transaction
costs. When the Investment Manager anticipates a significant foreign exchange
rate increase while intending to invest in a security denominated in that
currency, the Fund may purchase a foreign currency futures contract to hedge
against the increased rates pending completion of the anticipated transaction.
Such a purchase would serve as a temporary measure to protect the Fund against
any rise in the foreign currency exchange rate that may add additional costs to
acquiring the foreign security position. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign currency
exchange rate at limited risk. The Fund may purchase a call option on a foreign
currency futures contract to hedge against a rise in the foreign currency
exchange rate while intending to invest in a security denominated in that
currency. The Fund may purchase put options on foreign currency futures
contracts as a hedge against a decline in the foreign currency exchange rates or
the value of its foreign portfolio securities. The Fund may write a covered put
option on a foreign currency futures contract as a partial anticipatory hedge
and may write a covered call option on a foreign currency futures contract as a
partial hedge against the effects of declining foreign currency exchange rates
on the value of foreign securities.
The Fund may also write put options on interest rate, securities index
or foreign currency futures contracts while, at the same time, purchasing call
options on the same interest rate, securities index or foreign currency futures
contract in order to synthetically create an interest rate, securities index or
foreign currency futures contract. The options will have the same strike prices
and expiration dates. The Fund will only engage in this strategy when it is more
advantageous to the Fund to do so as compared to purchasing the futures
contract.
The Fund may also purchase and write covered straddles on interest rate
or securities index futures contracts. A long straddle is a combination of a
call and a put purchased on the same security at the same exercise price. The
Fund would enter into a long straddle when it believes that it is likely that
securities prices will be more volatile during the term of the options than is
implied by the option pricing. A short straddle is a combination of a call and
put written on the same futures contract at the same exercise price where the
same security or futures contract is considered "cover" for both the put and the
call. The Fund would enter into a short straddle when it believes that it is
unlikely that securities prices will be as volatile during the term of the
options as is implied by the option pricing. In such case, the Fund will set
aside cash and/or liquid, high grade debt securi ties in a segregated account
with its custodian equal in value to the amount, if any, by which the put is
"in-the-money," that is the amount by which the exercise price of the put
exceeds the current market value of the underlying security.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS
TRADING. No price is paid upon entering into a futures contract. Instead, upon
entering into a futures contract, the Fund is required to deposit with its
custodian in a segregated account in the name of the futures broker through whom
the transaction is effected an amount of cash, U.S. Government securities or
other liquid, high-grade debt instruments generally equal to 10% or less of the
contract value. This amount is known as "initial margin." When writing a call or
a put option on a futures contract, margin also must be deposited in accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin on futures contracts does not involve borrowing to finance the
futures transactions. Rather, initial margin on futures contracts is in the
nature of a perfor mance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures or options position varies, a process known as "marking
to the market." For example, when the Fund purchases a contract and the value of
the contract rises, the Fund receives from the broker a variation margin payment
equal to that increase in value. Conversely, if the value of the futures
position declines, the Fund is required
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to make a variation margin payment to the broker equal to the decline in value.
Variation margin does not involve borrowing to finance the futures transaction
but rather represents a daily settlement of the Fund's obligations to or from a
clearing organization.
Buyers and sellers of futures positions and options thereon can enter
into offsetting closing transactions, similar to closing transactions on options
on securities, by selling or purchasing an offsetting contract or option.
Futures contracts or options thereon may be closed only on an exchange or board
of trade providing a secondary market for such futures contracts or options.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses,
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for the Fund to
close a position and, in the event of adverse price movements, the Fund would
have to make daily cash payments of variation margin (except in the case of
purchased options). However, if futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the contracts can
be ter minated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
In considering the Fund's use of futures contracts and related options,
particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Investment Manager's ability to predict movements in the
direction of the overall securities, currencies and interest rate markets, which
requires different skills and techniques than predicting changes in the prices
of individual securities. Moreover, futures contracts relate not only to the
current price level of the underlying instrument or currency but also to the
anticipated price levels at some point in the future. There is, in addition, the
risk that the movements in the price of the futures contract will not correlate
with the movements in the prices of the securities or currencies being hedged.
For example, if the price of the securities index futures contract moves less
than the price of the securities that are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, the advantage may be partially offset by losses
in the futures position. In addition, if the Fund has insufficient cash, it may
have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect a rising market. Consequently, the Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract moves more than the price of the underlying securities, the
Fund will experience either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of the securities that
are the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities or currencies being hedged, movements in the prices
or futures contracts may not correlate perfectly with movements in the prices of
the hedged securities or currencies due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities or currencies that cause this situation to occur. First, as noted
above, all participants in the futures market are subject to initial and
variation margin require ments. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts through offsetting transactions, distortions in the
normal price relationship between the securities or currencies and the futures
markets may occur. Second, because the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the futures
market; such speculative activity in the futures market also may cause temporary
price distortions. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts over the
short term. In addition, activities of large traders in both the futures and
securities markets involving arbitrage and other investment strategies may
result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an
exchange or board of trade that provides a secondary market for such futures
contracts. Although the Fund intends to purchase and sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract at any particular time. In
such event, it may not be possible to close a futures positions, and in the
event of adverse price movements, the Fund would continue to be required to make
variation margin payments.
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(4) Like options on securities and currencies, options on futures
contracts have limited life. The ability to establish and close out options on
futures will be subject to the development and maintenance of liquid secondary
markets on the relevant exchanges or boards of trade. There can be no certainty
that such markets for all options on futures contracts will develop.
(5) Purchasers of options on futures contracts pay a premium at the
time of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on futures contracts, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying securities index value or the sec urities or currencies being hedged.
(6) As is the case with options, the Fund's activities in the futures
markets may result in a higher portfolio turnover rate and additional
transaction costs in the form of added brokerage commissions and taxes; however,
the Fund also may save on commissions by using futures contracts or options
thereon as a hedge rather than buying or selling individual securities or
currencies in anticipation or as a result of market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above.
Options on foreign currency futures contracts may involve certain
additional risks. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a foreign currency futures contract would result in a loss, such as
when there is no movement in the price of the underlying currency or futures
contract, when the purchase of the underlying futures contract would not.
FORWARD CURRENCY CONTRACTS. The Fund may use forward currency contracts
to protect against uncertainty in the level of future foreign currency exchange
rates.
The Fund may enter into forward currency contracts with respect to
specific transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or the Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on a security that it holds or anticipates purchasing, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such payment, as the case may be, by entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the
amount of foreign currency involved in the underlying transaction. The Fund will
thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received.
The Fund also may hedge by using forward currency contracts in
connection with portfolio positions to lock in the U.S. dollar value of those
positions, to increase the Fund's exposure to foreign currencies that the
Investment Manager believes may rise in value relative to the U.S. dollar, or to
shift the Fund's exposure to foreign currency fluctuations from one country to
another. For example, when the Investment Manager believes that the currency of
a particular foreign country may suffer a substantial decline relative to the
U.S. dollar or another currency, it may enter into a forward contract to sell
the amount of the former foreign currency approximating the value of some of all
of the Fund's portfolio securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used. Certain of these strategies may result in income
subject to the "Short-Short Limitation". See "Distributions and Taxes" on page
23.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the security exceeds the amount of foreign currency the Fund
is obligated to deliver. The projection of short term
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GLOBAL SAI: 10/20/95, 2pm
currency market movements is extremely difficult and the successful execution of
a short term hedging strategy is highly uncertain. Forward contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and transaction costs.
Under normal circumstances, consideration of the prospects for currency parities
will be incorporated into the longer term investment decisions made with regard
to overall diver sification strategies. However, the Investment Manager believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be served.
At or before the maturity date of a forward contract requiring the Fund
to sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, the Fund
may close out a forward contract requiring it to purchase a specified currency
by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize
a gain or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period,
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not elimi nate fluctuations
in the prices of the underlying securities the Fund owns or intends to acquire,
but it does fix a rate of exchange in advance. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currencies, at the same time they limit any potential gain that might
result should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Bull & Bear Group,
Inc. (the "Investment Company Complex") are:
Bull & Bear Funds I, Inc., whose series include Bull & Bear Quality
Growth Fund and Bull & Bear U.S. and Overseas Fund.
Bull & Bear Funds II, Inc., whose series include Bull & Bear Dollar
Reserves, Bull & Bear U.S. Government Securities Fund and Bull &
Bear Global Income Fund.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear Municipal Securities, Inc., whose sole series is Bull &
Bear Municipal Income Fund.
Bull & Bear Gold Investors Ltd.
Midas Fund, Inc.
OFFICERS AND DIRECTORS
The Corporation's officers and Directors, their respective offices and
principal occupations during the last five years are set forth below. Unless
otherwise noted, the address of each is 11 Hanover Square, New York, NY 10005.
BASSETT S. WINMILL* -- Chairman of the Board. He is Chairman of the Board of
four of the other investment companies in the Investment Company Complex and of
Bull & Bear Group, Inc. ("Group"), the parent of Bull & Bear Advisers, Inc. (
the "Investment Manager"),. He was born February 10, 1930. He is a member of the
New York Society of Security Analysts, the Association for Investment Management
and Research and the International Society of Financial Analysts. He is the
father of Mark C. Winmill and Thomas B. Winmill.
ROBERT D. ANDERSON* -- Vice Chairman and Director. He is Vice Chairman and a
Director of four of the other investment companies in the Investment Company
Complex and of the Investment Manager and its affiliates. He was born December
7, 1929. He is a member of the Board of Governors of the Mutual Fund Education
Alliance, and of its predecessor, the No-Load Mutual Fund Association. He has
also been a member of the District #12, District Business Conduct and Investment
Companies Committees of the NASD.
RUSSELL E. BURKE III -- Director. 36 East 72nd Street, New York, NY 10021. He
was born August 23, 1946. He is President of Russell E. Burke III, Inc. Fine
Art, New York, New York. From 1988 to 1991, he was President of Altman Burke
Fine Arts,
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Inc. From 1983 to 1988, he was Senior Vice President of Kennedy Galleries. He is
also a Director of two of the other investment companies in the Investment
Company Complex.
BRUCE B. HUBER, CLU -- Director. 298 Broad Street, Red Bank, NJ 07701. He is
President of Huber o Hogan o Knotts Consulting, Inc. financial consultants
specializing in executive benefits, estate preservation, and asset management.
From 1990 to 1994, he was President of Huber Hogan Associates. He was born
February 7, 1930. He is also a Director of the other investment companies in the
Investment Company Complex.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Kenny, Kindler, Hunt & Howe, Inc., executive recruiting
consultants. He was born December 14, 1930. From 1976 until 1983 he was Vice
President of Russell Reynolds Associates, Inc., also executive recruiting
consultants. He is also a Director of the other investment companies in the
Investment Company Complex.
FREDERICK A. PARKER, JR. -- Director. 219 East 69th Street, New York, NY 10021.
He is President and Chief Executive Officer of American Pure Water Corporation,
a manufacturer of water purifying equipment. He was born November 14, 1926. He
is also a Director of the other investment companies in the Investment Company
Complex.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He was Executive Vice President and a Director of Dan River, Inc., a diversified
textile company, from 1969 until he retired in 1981. He was born February 9,
1923. He is a Director of Wheelock, Inc., a manufacturer of signal products, and
a consultant for the National Executive Service Corps in the health care
industry. He is also a Director of the other investment companies in the
Investment Company Complex.
MARK C. WINMILL* -- Director, Co-President, Co-Chief Executive Officer, and
Chief Financial Officer. He is Co-President, Co- Chief Executive Officer, and
Chief Financial Officer of the other investment companies in the Investment
Company Complex and of Group and certain of its affiliates, Chairman of the
Investment Manager and Investor Service Center, Inc. (the "Distributor"), and
President of Bull & Bear Securities, Inc. ("BBSI"). He was born November 26,
1957. He received his M.B.A. from the Fuqua School of Business at Duke
University in 1987. From 1983 to 1985 he was Assistant Vice President and
Director of Marketing of E.P. Wilbur & Co., Inc., a real estate development and
syndication firm and Vice President of E.P.W. Securities, its broker/dealer
subsidiary. He is a son of Bassett S. Winmill and brother of Thomas B. Winmill.
He is also a Director of one other investment company in the Investment Company
Complex.
THOMAS B. WINMILL* -- Director, Co-President, Co-Chief Executive Officer, and
General Counsel. He is Co-President, Co-Chief Executive Officer, and General
Counsel of the other investment companies in the Investment Company Complex and
of Group and certain of its affiliates, President of the Investment Manager and
the Distributor, and Chairman of BBSI. He was born June 25, 1959. He was
associated with the law firm of Harris, Mericle & Orr from 1984 to 1987. He is a
member of the New York State Bar. He is a son of Bassett S. Winmill and brother
of Mark C. Winmill. He is also a Director of two of the other investment
companies in the Investment Company Complex.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born March 1, 1955. From 1993 to 1995, he was Associate
Director --Proprietary Trading at Barclays De Zoete Wedd Securities Inc., from
1992 to 1993 he was Director, Bond Arbitrage at WG Trading Company, and from
1989 to 1992 he was Vice President of Wilkinson Boyd Capital Markets.
BRETT B. SNEED, CFA -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born June 11, 1941. He is a Chartered Financial Analyst, a
member of the Association for Investment Management and Research, and a member
of the New York Society of Security Analysts. From 1986 to 1988, he managed
private accounts, from 1981 to 1986, he was Vice President of Morgan Stanley
Asset Management, Inc. and prior thereto was a portfolio manager and member of
the Finance and Investment Committees of American International Group, Inc., an
insurance holding company.
WILLIAM K. DEAN, CPA -- Treasurer and Chief Accounting Officer. He is Treasurer
and Chief Accounting Officer of the other investment companies in the Investment
Company Complex, the Investment Manager and its affiliates. He was born
September 5, 1955. From 1984 to 1995 he held various positions with The Dreyfus
Corporation, a mutual fund company. He is a member of the American Institute of
Certified Public Accountants and the New York State Society of Certified Public
Accountants.
WILLIAM J. MAYNARD -- Vice President and Secretary. He is Vice President and
Secretary of the other investment companies in the Investment Company Complex,
the Investment Manager and its affiliates. He was born September 13, 1964. From
1991 to 1994 he was associated with the law firm of Skadden, Arps, Slate,
Meagher & Flom. He is a member of the New York State Bar.
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* Bassett S. Winmill, Robert D. Anderson, Mark C. Winmill and Thomas B. Winmill
are "interested persons" of the Corporation as defined by the 1940 Act, because
of their positions with the Investment Manager.
Information in the following table is based on fees paid during the
year ended June 30, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total Compensation
Pension or Retirement Estimated Annual From Registrant and
Aggregate Compensa- Benefits Accrued as Part Benefits Upon Fund Complex Paid to
NAME OF PERSON, POSITION tion From Registrant of Fund Expenses Retirement Directors
Bassett S. Winmill None None None None
Chairman
Robert D. Anderson None None None None
Vice Chairman
Russell E. Burke III $4,500 None None $5,500 from
Director 2 Investment
Companies
Bruce B. Huber $4,500 None None $10,000 from
Director 5 Investment
Companies
James E. Hunt $4,500 None None $10,000 from
Director 5 Investment
Companies
Frederick A. Parker $4,500 None None $10,000 from
Director 5 Investment
Companies
John B. Russell $4,500 None None $10,000 from
Director 5 Investment
Companies
Mark C. Winmill None None None None
Director
Thomas B. Winmill None None None None
Director, Co-President
</TABLE>
Directors who are not "interested persons" of the Fund may elect to
defer receipt of fees for serving as a Director of the Fund. During the fiscal
year ended June 30, 1995, Messrs. Huber and Hunt deferred such Director's fees
pursuant to this arrangement.
No officer, Director or employee of the Investment Manager receives any
compensation from the Fund for acting as an officer, Director or employee of the
Fund. As of October 11, 1995, officers and Directors of the Fund owned less than
1% of the outstanding shares of the Fund. As of October 6, 1995, the following
owners of record owned more than 5% of the outstanding shares of the Fund:
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104,
7.05%.
THE INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the regular
furnishing of advice with respect to portfolio transactions. The other principal
subsidiaries of Group include Investor Service Center, Inc., the Fund's
Distributor and a registered broker/dealer, Midas Management Corporation, a
registered investment adviser, and BBSI, a registered broker/dealer providing
discount brokerage services.
Group is a publicly owned company whose securities are listed on the
Nasdaq and traded in the OTC market. Bassett S. Winmill may be deemed a
controlling person of Group on the basis of his ownership of 100% of Group's
voting stock and, therefore, of the Investment Manager. The Fund and its
affiliated investment companies had net assets in
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excess of $245,000,000 as of September 26, 1995.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays
all expenses required for the conduct of its business including, but not limited
to, custodian and transfer agency fees, accounting and legal fees, investment
management fees, fees of disinterested Directors, association fees, printing,
salaries of certain administrative and clerical personnel, necessary office
space, all expenses relating to the registration or qualification of the shares
of the Fund under Blue Sky laws and reasonable fees and expenses of counsel in
connection with such registration and qualification, miscellaneous expenses and
such non-recurring expenses as may arise, including actions, suits or
proceedings affecting the Fund and the legal obligation which the Fund may have
to indemnify its officers and Directors with respect thereto.
The Investment Manager has agreed in the Investment Management
Agreement that it will waive all or part of its fee or reimburse the Fund
monthly if and to the extent that the Fund's aggregate operating expenses exceed
the most restrictive limit imposed by any state in which shares of the Fund are
qualified for sale. Currently, the most restrictive such limit applicable to the
Fund is 2.5% of the first $30 million of the Fund's average daily net assets,
2.0% of the next $70 million of its average daily net assets and 1.5% of its
average daily net assets in excess of $100 million. Certain expenses, such as
brokerage commissions, taxes, interest, distribution fees, certain expenses
attributable to investing outside the United States and extraordinary items, are
excluded from this limitation. For the fiscal years ended June 30, 1993, 1994
and 1995, the Fund paid to the Investment Manager investment management fees of
$319,181, $378,598 and $288,533, respectively.
If requested by the Corporation's Board of Directors, the Investment
Manager may provide other services to the Fund such as, without limitation, the
functions of billing, accounting, certain shareholder communications and
services, administering state and Federal registrations, filings and controls
and other administrative services. Any services so requested and performed will
be for the account of the Fund and the costs of the Investment Manager in
rendering such services shall be reimbursed by the Fund, subject to examination
by those directors of the Corporation who are not interested persons of the
Investment Manager or any affiliate thereof. For the fiscal years ended June 30,
1993, 1994 and 1995 the Fund reimbursed the Investment Manager $11,312, $20,581
and $16,064, respectively, for such services.
General expenses of the Corporation (such as costs of maintaining
corporate existence, proxy and annual meeting costs, etc.) will be allocated
among the Fund, Bull & Bear Dollar Reserves, and Bull & Bear U.S. Government
Securities Fund in proportion to their relative number of shareholders or net
assets, as appropriate. Expenses that relate specifically to the Fund will be
borne by it directly. The expense limitation provision applies separately to the
Fund without including assets or expenses of other series of the Corporation.
The Investment Management Agreement provides that the Investment
Manager will not be liable to the Fund or any shareholder of the Fund for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the agreement relates. Nothing contained in
the Investment Management Agreement, however, shall be construed to protect the
Investment Manager against any liability to the Fund by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of obligations and duties under the
Investment Management Agreement.
The Investment Management Agreement will continue in effect, unless
sooner terminated as described below, for successive periods of twelve months,
provided such continuance is specifically approved at least annually by (a) the
Board of Directors of the Corporation or by the holders of a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act and (b) a
vote of a majority of the Directors of the Corporation who are not parties to
the Investment Management Agreement, or interested persons of any such party.
The Investment Management Agreement may be terminated without penalty at any
time either by a vote of the Board of Directors of the Corporation or the
holders of a majority of the outstanding voting securities of the Fund, as
defined in the 1940 Act, on 60 days' written notice to the Investment Manager,
or by the Investment Manager on 60 days' written notice to the Fund, and shall
immediately terminate in the event of its assignment.
Group has granted the Corporation a non-exclusive license to use the
service marks "Bull & Bear," "Bull & Bear Performance Driven," and "Performance
Driven" under certain terms and conditions on a royalty free basis. Such license
will be withdrawn in the event the investment manager of the Corporation shall
not be the Investment Manager or another subsidiary of Group. If the license is
terminated, the Corporation will eliminate all reference to "Bull & Bear" in its
corporate name and cease to use any of such service marks or any similar service
marks in its business.
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YIELD AND PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials represents past performance and is not intended to indicate future
performance. Until October 29, 1992, the Fund's investment objective was to
obtain for its shareholders the highest income over the long term and the Fund
followed a policy of investing primarily in lower rated debt securities of U.S.
companies. The investment return and principal value of an investment in the
Fund will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than original cost. Performance is a function of the type and
quality of portfolio securities and will reflect general market conditions and
operating expenses. See "The Fund's Investment Program" in the prospectus. This
Statement of Additional Information may be in use for a full year and
performance results for periods subsequent to June 30, 1995 may vary
substantially from those shown below. An investment in the Fund, a series of
Bull & Bear Funds II, Inc., is neither insured nor guaranteed by the U.S.
Government as is a bank account or certificate of deposit.
YIELD AND DISTRIBUTION RATES
Set forth below is a statement of the Fund's current and compound yield
and distribution rates based on the formulas described below for the month ended
June 30, 1995:
Yield Distribution Rate
Current 4.47% 7.49%
Compound 4.56% 7.75%
Yield is calculated as follows: Divide the net investment income per
share earned by the Fund during a 30-day (or one month) period by the net asset
value per share on the last day of the period and annualize the result on a
semi-annual basis by adding one to the quotient, raise the sum to the power of
six, subtract one from the result and then doubling the difference. The Fund's
net investment income per share earned during the period is based on the average
daily number of shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
Yield = 2[{a-b} OVER cd+1) SUP 6 - 1]
Where : a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = net asset value per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest). For purposes of this calculation, it is assumed that each month
contains 30 days.
The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted from time to
time to reflect changes in the market value of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
Yield information is useful in reviewing the Fund's performance, but
may not provide a basis for comparison with bank deposits, which may be insured
or other investments which provide a fixed yield since an investment in the Fund
is not insured and yield and per share net asset value, which normally will
fluctuate daily, are not guaranteed. Yield for a prior period should not be
considered a representation of future return, which will change in response to
fluctuations in per share net asset value, interest rates on portfolio
investments, the quality, type and maturity of such investments, the
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Fund's expenses and by the investment of a net inflow of new money at interest
rates different than those being earned from the Fund's then current holdings.
In its sales literature, whenever the Fund advertises its average
annual total return as described below, the Fund may also quote its distribution
rate. This distribution rate is calculated by dividing total dividend
distributions during the most recent 12 month period by the net asset value as
of the end of the period to which the distribution relates. A distribution can
include gross investment income from debt obligations purchased at a premium and
in effect include a portion of the premium paid. A distribution can also include
gross short term capital gains without recognition of any unrealized capital
losses. Further, a distribution can include income from the sale of options by
the Fund even though such option income is not considered investment income
under generally accepted accounting principals. Because a distribution can
include such premiums, capital gains and option income, the amount of a
distribution may be susceptible to control by the Investment Manager through
transactions designed to increase the amount of such items. Also, because the
distribution rate is calculated in part by dividing the latest distribution by
the net asset value per share, the distribution rate will increase as the net
asset value declines. A distribution rate can be greater or less than the yield
rate.
TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN
Whenever the Fund advertises its yield or distribution rate, it will
also advertise its average annual total return over specified periods. The Fund
computes its average annual total return by determining the average annual
compounded rate of return during specified periods that compares the initial
amount invested to the ending redeemable value of such investment. This is done
by dividing the ending redeemable value of a hypothetical $1,000 initial payment
by $1,000 and raising the quotient to a power equal to one divided by the number
of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
T = (ERV OVER P) SUP {1 OVER n} - 1
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period which
assumes all dividends and distri butions by the Fund
are reinvested on the reinvestment date during the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Fund's average annual total return for the one, five and ten year
periods ended June 30, 1995, was 4.52%, 7.27% and 4.74%, respectively.
The Fund's "total return" or "cumulative total return" or "cumulative
growth" is based on the increase or (decrease) in a hypothetical $1,000 invested
in the Fund at the beginning of each of the specified periods, assuming the
reinvestment of any dividends and other distributions paid by the Fund during
such periods. The return is calculated by subtracting the amount of the Fund's
net asset value per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of all distributions during the period), and dividing the result by
the net asset value per share at the beginning of the period. Such total return
information (together with average annual total return information) is expressed
below as a percentage rate and as the value of a hypothetical $1,000 and $10,000
initial investment (made on various starting dates) at the end of the periods,
June 30, 1995. The various starting dates are the inception of operations on
September 1, 1983 and each July 1 of each year after September 1, 1983.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
START OF PERIODS AVERAGE TOTAL ENDING VALUE OF A ENDING VALUE OF A
ENDING 6/30/95 ANNUAL TOTAL RETURN $1,000 INVEST $10,000 INVEST
RETURN MENT MENT
July 1, 1994 4.52% 4.52% $1,045.22 $10,452.16
July 1, 1993 -0.41% -0.82% $ 991.75 $9,917.52
July 1, 1992 5.79% 18.40% $1,184.02 $11,840.16
July 1, 1991 8.51% 38.64% $1,386.40 $13,864.00
July 1, 1990 7.27% 42.03% $1,420.32 $14,203.20
July 1, 1989 6.12% 42.80% $1,427.95 $14,279.52
July 1, 1988 5.42% 44.72% $1,447.15 $14,471.52
July 1, 1987 3.89% 35.73% $1,357.28 $13,572.80
July 1, 1986 3.36% 34.65% $1,346.48 $13,464.80
July 1, 1985 4.74% 58.86% $1,588.60 $15,886.00
Since Inception - 5.87% 96.34% $1,963.42 $19,634.16
September 1, 1983
</TABLE>
The Fund may provide the above described standardized total return for
a period which ends as of not earlier than the most recent calendar quarter end
and which begins either twelve months before or at the time of commencement of
the Fund's operations. In addition, the Fund may provide nonstandardized total
return results for differing periods, such as for the most recent six months or
the year to date. For example, the Fund's nonstandardized total return for the
three year period ending August 31, 1995 was 15.01%. Such nonstandardized total
return is computed as otherwise described above except that no annualization is
made.
The Investment Manager and certain of its affiliates serve as
investment managers to the Fund and other affiliated investment companies, which
have individual and institutional investors throughout the United States and in
37 foreign countries. The Fund may also provide performance information based on
an initial investment in the Fund and/or cumulative investments of varying
amounts over periods of time. Some or all of this information may be provided
either graphically or in tabular form.
SOURCE MATERIAL
From time to time, in marketing pieces and other Fund literature, the
Fund's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
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Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indexes, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
Salomon Brothers Broad Investment-Grade Bond Index -- is a market-weighted index
that contains approximately 4,700 individually priced investment-grade corporate
bonds rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
Salomon Brothers Market Performance tracks the Salomon Brothers bond index.
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GLOBAL SAI: 10/20/95, 2pm
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
Wall Street Journal, a nationally distributed newspaper which regularly covers
financial news.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement Investor Service Center, Inc. acts
as the Distributor of the Fund's shares. Under the Distribution Agreement, the
Distributor shall use its best efforts, consistent with its other businesses, to
sell shares of the Fund. Fund shares are offered continuously. Pursuant to a
Plan of Distribution ("Plan") adopted pursuant to Rule 12b-1 under the 1940 Act,
the Fund pays the Distributor monthly a fee in the amount of one-quarter of one
percent per annum of the Fund's average daily net assets as compensation for
service activities and a fee in the amount of one-quarter of one percent per
annum of the Fund's average daily net assets as compensation for distribution
activities.
In performing distribution and service activities pursuant to the Plan,
the Distributor may spend such amounts as it deems appropriate on any activities
or expenses primarily intended to result in the sale of the Fund's shares or the
servicing and maintenance of shareholder accounts, including, but not limited
to: advertising, direct mail, and promotional expenses; compensation to the
Distributor and its employees; compensation to and expenses, including overhead
and telephone and other communication expenses, of the Distributor, the
Investment Manager, the Fund, and selected dealers and their affiliates who
engage in or support the distribution of shares or who service shareholder
accounts; fulfillment expenses, including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and internal costs incurred by the
Distributor and allocated by the Distributor to its efforts to distribute shares
of the Fund such as office rent and equipment, employee salaries, employee
bonuses and other overhead expenses.
Among other things, the Plan provides that (1) the Distributor will
submit to the Corporation's Board of Directors at least quarterly, and the
Directors will review, reports regarding all amounts expended under the Plan and
the purposes for which such expenditures were made, (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment or agreement related thereto is approved, by the Corporation's Board
of Directors, including those Directors who are not "interested persons" of the
Corporation and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related to the Plan ("Plan Directors"),
acting in person at a meeting called for that purpose, unless terminated by vote
of a majority of the Plan Directors, or by vote of a majority of the outstanding
voting securities of the Fund, (3) payments by the Fund under the Plan shall not
be materially increased without the affirmative vote of the holders of a
majority of the outstanding voting securities of the Fund and (4) while the Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Corporation shall be committed to the discretion of
the Directors who are not interested persons of the Corporation.
With the approval of a majority of the entire Board of Directors and of
the Plan Directors of the Fund, the Distributor has entered into a related
agreement with Hanover Direct Advertising Company, Inc. ("Hanover Direct"), a
wholly owned subsidiary of Group, in an attempt to obtain cost savings on the
marketing of the Fund's shares. Hanover Direct will provide services to the
Distributor on behalf of the Fund and the other Bull & Bear Funds at standard
industry rates, which includes commissions. The amount of Hanover Direct's
commissions over its cost of providing Fund marketing will be credited to the
Fund's distribution expenses and represent a saving on marketing, to the benefit
of the Fund. To the extent Hanover Direct's costs exceed such commissions,
Hanover Direct will absorb any of such costs.
It is the opinion of the Board of Directors that the Plan is necessary
to maintain a flow of subscriptions to offset redemptions. Redemptions of mutual
fund shares are inevitable. If redemptions are not offset by subscriptions, a
fund
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GLOBAL SAI: 10/20/95, 2pm
shrinks in size and its ability to maintain quality shareholder services
declines. Eventually, redemptions could cause a fund to become uneconomic.
Furthermore, an extended period of significant net redemptions may be
detrimental to orderly management of the portfolio. Offsetting redemptions
through sales efforts benefits shareholders by maintaining the viability of a
fund. In periods where net sales are achieved, additional benefits may accrue
relative to portfolio management and increased shareholder servicing capability.
In addition, increased assets enable the establishment and maintenance of a
better shareholder servicing staff which can respond more effectively and
promptly to shareholder inquiries and needs. While net increases in total assets
are desirable, the primary goal of the Plan is to prevent a decline in assets
serious enough to cause disruption of portfolio management and to impair the
Fund's ability to maintain a high level of quality shareholder services.
The Plan increases the overall expense ratio of the Fund; however, a
substantial decline in Fund assets is likely to increase the portion of the
Fund's expense ratio comprised of management fees and fixed costs (i.e., costs
other than the Plan) while a substantial increase in Fund assets would be
expected to reduce the portion of the expense ratio comprised of management fees
(reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Fund had any direct or indirect financial
interest in the operation of the Plan or any related agreement.
Of the amounts paid as compensation to the Distributor during the
Fund's fiscal year ended June 30, 1995, approximately $16,888 represented
amounts incurred by the Distributor for advertising, $68,799 for printing and
mailing prospectuses and other information to other than current shareholders,
$69,321 for compensation to sales personnel, $3,679 for compensation to dealers,
$47,408 for overhead and miscellaneous expenses, and $115,628 was retained by
the Distributor as compensation.
The Glass-Steagall Act prohibits certain banks from engaging in the
business of underwriting, selling, or distributing securities such as shares of
a mutual fund. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in the Distributor's opinion it should not
prohibit banks from being paid for administrative and accounting services under
the Plan. If, because of changes in law or regulation, or because of new
interpretations of existing law, a bank or the Fund were prevented from
continuing these arrangements, it is expected that other arrangements for these
services will be made. In addition, state securities laws on this issue may
differ from the interpretation of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.
eastern time) on each Fund business day. The following days are not Fund
business days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiv ing Day and Christmas Day.
Securities owned by the Fund are valued by various methods depending on
the market or exchange on which they trade. Securities traded on the NYSE, the
American Stock Exchange and the Nasdaq National Market System are valued at the
last sales price, or if no sale has occurred, at the mean between the current
bid and asked prices. Securities traded on other exchanges are valued as nearly
possible in the same manner. Securities traded only OTC are valued at the mean
between the last available bid and ask quotations, if available, or at their
fair value as determined in good faith by or under the general supervision of
the Board of Directors. Short term securities are valued either at amortized
cost or at original cost plus accrued interest, both of which approximate
current value.
Foreign securities are valued at the last sales price in a principal
market where they are traded, or, if last sales prices are unavailable, at the
mean between the last available bid and ask quotations. Foreign security prices
are expressed in their local currency and translated into U.S. dollars at
current exchange rates. Any changes in the value of forward contracts due to
exchange rate fluctuations are included in the determination of the net asset
value. Foreign currency exchange rates are generally determined prior to the
close of trading on the NYSE. Occasionally, events affecting the value of
foreign securities and such exchange rates occur between the time at which they
are determined and the close of trading on the NYSE, which events will not be
reflected in a computation of the Fund's net asset value on that day. If events
materially affecting the value of such securities or exchange rates occur during
such time period, the
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GLOBAL SAI: 10/20/95, 2pm
securities will be valued at their fair value as determined in good faith under
the direction of the Fund's Board of Directors.
Price quotations generally are furnished by pricing services, which may
also use a matrix system to determine valuations. This system considers such
factors as security prices, yields, maturities, call features, ratings, and
developments relating to specific securities in arriving at valuations.
PURCHASE OF SHARES
The Fund will not issue shares for consideration other than cash. Third party
checks, except those payable to an existing shareowner who is a natural person
(as opposed to a corporation or partnership), credit cards, and cash will not be
accepted. The Fund reserves the right to reject any order, to cancel any order
due to nonpayment, to accept initial orders by telephone or telegram, and to
waive the limit on subsequent orders by telephone, with respect to any person or
class of persons. Orders to purchase shares are not binding on the Fund until
they are confirmed. In order to permit the Fund's shareholder base to expand, to
avoid certain shareholder hardships, to correct transactional errors, and to
address similar exceptional situations, the Fund may waive or lower the
investment minimums with respect to any person or class of persons.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most
favorable net prices. The Fund is not currently obligated to deal with any
particular broker, dealer or group thereof. Fund transactions in debt and OTC
securities generally are with dealers acting as principals at net prices with
little or no brokerage costs. In certain circumstances, however, the Fund may
engage a broker as agent for a commission to effect transactions for such
securities. Purchases of securities from underwriters include a commission or
concession paid to the underwriter, and purchases from dealers include a spread
between the bid and asked price. While the Investment Manager generally seeks
reasonably competitive spreads or commissions, payments of the lowest spread or
commission is not necessarily consistent with obtaining the best net results.
Accordingly, the Fund will not necessarily be paying the lowest spread or
commission available.
The Investment Manager directs portfolio transactions to broker/dealers
for execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular bro ker/dealer, including brokerage and research services, sales of
Fund shares and shares of other affiliated investment companies, and allocation
of commissions to the Fund's Custodian. With respect to brokerage and research
services, consideration may be given in the selection of broker/dealers to
brokerage or research provided and payment may be made of a fee higher than that
charged by another broker/dealer which does not furnish brokerage or research
services or which furnishes brokerage or research services deemed to be of
lesser value, so long as the criteria of Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") or other applicable law are
met. Section 28(e) of the 1934 Act was adopted in 1975 and specifies that a
person with investment discretion shall not be "deemed to have acted unlawfully
or to have breached a fiduciary duty" solely because such person has caused the
account to pay a higher commission than the lowest available under certain
circumstances. To obtain the benefit of Section 28(e), the person so exercising
investment discretion must make a good faith determination that the commissions
paid are "reasonable in relation to the value of the brokerage and research
services provided ... viewed in terms of either that particular transaction or
his overall responsibilities with respect to the accounts as to which he
exercises investment discretion." Thus, although the Investment Manager may
direct portfolio transactions without necessarily obtaining the lowest price at
which such broker/dealer, or another, may be willing to do business, the
Investment Manager seeks the best value to the Fund on each trade that
circumstances in the market place permit, including the value inherent in
on-going relationships with quality brokers.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for brokerage or research services
might exceed commissions that would be payable for execution alone, nor
generally can the value of such services to the Fund be measured, except to the
extent such services have a readily ascertainable market value. There is no
certainty that services so purchased, or the sale of Fund shares, if any, will
be beneficial to the Fund, and it may be that other affiliated investment
companies will derive benefit therefrom. Such services being largely intangible,
no dollar amount can be attributed to benefits realized by the Fund or to
collateral benefits, if any, conferred on affiliated entities. These services
may include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities, (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody). Pursuant to
arrangements with certain broker/dealers, such broker/dealers provide and pay
for various computer hardware, software and services, market pricing
information, investment subscriptions and memberships, and other third party and
internal research of assistance to the Investment Manager in the performance of
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GLOBAL SAI: 10/20/95, 2pm
its investment decision-making responsibilities for transactions effected by
such broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
BBSI, a wholly owned subsidiary of Group and the Investment Manager's
affiliate, provides discount brokerage services to the public as an introducing
broker clearing through unaffiliated firms on a fully disclosed basis. The
Investment Manager is authorized to place Fund brokerage through BBSI at its
posted discount rates and indirectly through a BBSI clearing firm. The Fund will
not deal with BBSI in any transaction in which BBSI acts as principal. The
clearing firm will execute trades in accordance with the fully disclosed
clearing agreement between BBSI and the clearing firm. BBSI will be financially
responsible to the clearing firm for all trades of the Fund until complete
payment has been received by the Fund or the clearing firm. BBSI will provide
order entry services or order entry facilities to the Investment Manager,
arrange for execution and clearing of portfolio transactions through executing
and clearing brokers, monitor trades and settlements and perform limited
back-office functions including the maintenance of all records required of it by
the National Association of Securities Dealers, Inc. ("NASD").
In order for BBSI to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by BBSI must be reasonable
and fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. The Fund's Board of Directors has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
BBSI are reasonable and fair. Although BBSI's posted discount rates may be lower
than those charged by full cost brokers, such rates may be higher than some
other discount brokers and certain brokers may be willing to do business at a
lower commission rate on certain trades. The Fund's Board of Directors has
determined that portfolio transactions may be executed through BBSI if, in the
judgment of the Investment Manager, the use of BBSI is likely to result in price
and execution at least as favorable as those of other qualified broker/dealers
and if, in particular transactions, BBSI charges the Fund a rate consistent with
that charged to comparable unaffiliated customers in similar transactions.
Brokerage transactions with BBSI are also subject to such fiduciary standards as
may be imposed by applicable law. The Investment Manager's fees under its
agreement with the Fund are not reduced by reason of any brokerage commissions
paid to BBSI.
During the fiscal years ended June 30, 1993, 1994 and 1995 the Fund
paid total brokerage commissions of $17,018, $8,653 and $958, respectively. Of
such commissions $16,390, $2,753 and $0 were allocated to broker/dealers that
provided research in the years 1993, 1994 and 1995, respectively. No
transactions were directed to broker/dealers during such periods for selling
shares of the Fund or any other affiliated investment companies. During the
Fund's fiscal years ended June 30, 1993, 1994 and 1995 the Fund paid brokerage
commissions of $628, $4,278 and $958, respectively, to BBSI, representing
approximately 3.69%, 49.44% and 100%, respectively of the total commissions paid
by the Fund and involving approximately 3.51%, 76.36% and 100%, respectively, of
the aggregate dollar amount of transactions involving the payment of
commissions.
Generally, investment decisions for the Fund and for other affiliated
investment companies are made independently of each other in the light of
differing conditions. The same investment decision, however, may occasionally be
made for two or more of such Funds. In such cases, simultaneous transactions may
occur. Combined purchase or sale orders are then averaged as to price and
allocated as to amount according to a formula deemed equitable to each Fund.
While in some cases this practice could have a detrimental effect upon the price
or value of the security as far as the Fund is concerned, in other cases it is
believed to be beneficial to the Fund.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund and its affiliates do
business with may, from time to time, own more than 5% of the publicly traded
Class A non-voting Common Stock of Group, the parent of the Investment Manager,
and may provide clearing services to BBSI.
The Fund's portfolio turnover rate may vary from year to year and will
not be a limiting factor when the Investment Manager deems portfolio changes
appropriate. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of securities in the
portfolio during the year.
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DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if
a shareholder's check remains uncashed for six months, the Fund reserves the
right to credit the shareholder's account with additional shares of the Fund at
the then current net asset value in lieu of the cash payment and to thereafter
issue such shareholder's distributions in additional shares of the Fund.
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for this treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, or any of the following, that were held for
less than three months - options, futures, or forward contracts (other than
those on foreign currencies), or foreign currencies (or options, futures, or
forward contracts thereon) that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect
thereto) ("Short-Short Limitation"); and (3) the Fund's investments must satisfy
certain diversification requirements. In any year during which the applicable
provisions of the Code are satisfied, the Fund will not be liable for Federal
income tax on net income and gains that are distributed to its shareholders. If
for any taxable year the Fund does not qualify for treatment as a RIC, all of
its taxable income will be taxed at corporate rates.
A loss on the sale of Fund shares that were held for six months or less
will be treated as a long term (rather than a short term) capital loss to the
extent the seller received any capital gain distributions attributable to those
shares.
Any dividend or other distribution will have the effect of reducing the
net asset value of the Fund's shares on the payment date by the amount thereof.
Furthermore, any such dividend or other distribution, although similar in effect
to a return of capital, will be subject to taxes. Dividends and other
distributions may also be subject to state and local taxes.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year an
amount equal to the sum of (1) 98% of its ordinary income, (2) 98% of its
capital gain net income (determined on an October 31 fiscal year basis), plus
(3) generally, income and gain not distributed or subject to corporate tax in
the prior calendar year. The Fund intends to avoid imposition of this excise tax
by making adequate distributions.
Interest received by the Fund may be subject to income, withholding, or
other taxes imposed by foreign countries and U.S. possessions that would reduce
the yield on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of the Fund's total assets
at the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to, and may, file an election with the Internal
Revenue Service that would enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign and U.S.
possessions' income taxes paid by it. Pursuant to the election, the Fund would
treat those taxes as dividends paid to its shareholders and each shareholder
would be required to (1) include in gross income, and treat as paid by the
shareholder, the shareholder's proportionate share of those taxes, (2) treat the
shareholder's share of those taxes and of any dividend paid by the Fund that
represents income from foreign or U.S. possessions sources as the shareholder's
own income from those sources, and (3) either deduct the taxes deemed paid by
the shareholder in computing the shareholder's taxable income or, alternatively,
use the foregoing information in calculating the foreign tax credit against the
shareholder's Federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's income
from sources within, and taxes paid to, foreign countries and U.S. possessions
if it makes this election.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain from disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be
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GLOBAL SAI: 10/20/95, 2pm
included in the Fund's taxable income and, accordingly, will not be taxable to
it to the extent that income is distributed to its shareholders. If the Fund
invests in a PFIC and elects to treat the PFIC as a "qualified electing fund,"
then in lieu of the foregoing tax and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain (the excess of net
long term capital gain over net short term capital loss), even if they are not
distributed to the Fund; those amounts likely would have to be distributed to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Proposed regulations have been published pursuant to which open-end
RICs, such as the Fund, would be entitled to elect to "mark-to-market" their
stock in certain PFICs. "Marking-to-market," in this context, means recognizing
as gain for each taxable year the excess, as of the end of that year, of the
fair market value of each such PFIC's stock over the adjusted basis in that
stock (including mark-to-market gain for each prior year for which an election
was in effect).
OPTIONS, FUTURES, AND FORWARD CONTRACTS. The Fund's use of hedging strategies,
such as selling (writing) and purchasing options and futures contracts and
entering into forward contracts, involves complex rules that will determine for
income tax purposes the timing of recognition and character of the gains and
losses the Fund realizes in connection therewith. Income from foreign currencies
(except certain gains therefrom that may be excluded by future regulations), and
income from transactions in options, futures, and forward contracts derived by
the Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options, futures, and forward contracts
(other than those on foreign currencies) will be subject to the Short-Short
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward contracts
on foreign currencies, also will be subject to the Short-Short Limitation if
they are held for less than three months and are not directly related to the
Fund's principal business of investing in securities (or options and futures
with respect thereto).
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The Fund
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not so qualify, it may be
forced to defer the closing out of certain options, futures, and forward
contracts beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to continue to qualify as a RIC.
The foregoing discussion of Federal tax consequences is based on the
tax law in effect on the date of this Statement of Additional Information, which
is subject to change by legislative, judicial, or administrative action. The
Fund may be subject to state or local tax in jurisdictions in which it may be
deemed to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
income and expense, and changes in net assets of the Fund. The Fund's fiscal
year ends on June 30.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, P.O. Box 2197, Boston, MA 02111 has
been retained by the Corporation to act as Custodian of the Fund's investments
and may appoint one or more subcustodians. The Custodian also performs certain
accounting services for the Fund. As part of its agreement with the Corporation,
the Custodian may apply credits or charges for its services to the Fund for,
respectively, positive or deficit cash balances maintained by the Fund with the
Custodian. DST Systems, Inc., P.O. Box 419789, Kansas City, Missouri 64141-6789,
is the Fund's Transfer and Dividend Disbursing Agent. The Distributor provides
certain administrative and shareholder services to the Fund pursuant to the
Shareholder Services Agreement and is reimbursed by the Fund the actual costs
incurred with respect thereto. For shareholder services, the Fund paid the
Distributor for the fiscal years ended June 30, 1993, 1994, and 1995
approximately $39,273, $63,344 and $75,315, respectively.
AUDITORS
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia, PA
19102-1707, are the independent accountants for the Fund. Financial statements
of the Fund are audited annually.
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FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended June 30,
1995, together with the Report of the Fund's independent accountants thereon,
appear in the Fund's Annual Report to Shareholders and are incorporated herein
by reference.
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APPENDIX - DESCRIPTIONS OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality and carry the
smallest degree of investment risk. Interest payments are protected by a large
or an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all standards
and, together with the Aaa group, comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities of fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the longer term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
STANDARD & POOR'S CORPORATE BOND RATINGS
AAA This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay
interest and repay principal is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB Bonds rated BBB are regarded as having adequate capacity to pay interest and
repay principal. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this capacity
than for bonds in higher rated categories.
BB, B, CCC, CC AND C Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
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Statement of Additional Information November 1, 1995
BULL & BEAR U.S. GOVERNMENT
SECURITIES FUND
11 Hanover Square
New York, NY 10005
1-800-847-4200
Bull & Bear U.S. Government Securities Fund (the "Fund") is a
diversified series of Bull & Bear Funds II, Inc. (the "Corporation"), an
open-end management investment company organized as a Maryland corporation. This
Statement of Additional Information regarding the Fund is not a prospectus and
should be read in conjunction with the Fund's prospectus dated November 1, 1995.
The prospectus is available without charge upon request to Investor Service
Center, Inc., Distributor, 11 Hanover Square, New York, NY 10005, telephone
1-800-847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM......................................2
INVESTMENT RESTRICTIONS............................................4
THE INVESTMENT COMPANY COMPLEX.....................................6
OFFICERS AND DIRECTORS.............................................6
THE INVESTMENT MANAGER.............................................8
INVESTMENT MANAGEMENT AGREEMENT....................................8
YIELD AND PERFORMANCE INFORMATION..................................9
DISTRIBUTION OF SHARES............................................13
DETERMINATION OF NET ASSET VALUE..................................14
PURCHASE OF SHARES................................................15
ALLOCATION OF BROKERAGE...........................................15
DISTRIBUTIONS AND TAXES...........................................16
REPORTS TO SHAREHOLDERS...........................................16
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.................16
AUDITORS..........................................................17
FINANCIAL STATEMENTS..............................................17
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THE FUND'S INVESTMENT PROGRAM
The following information supplements the information concerning the
investment objective, policies and limitations of the Fund found in the
prospectus.
U.S. GOVERNMENT SECURITIES. The Fund will normally invest at least 65% of its
total assets in securities backed by the full faith and credit of the United
States ("U.S. Government Securities"). U.S. Government Securities include
basically two types:
U.S. TREASURY SECURITIES. Obligations issued directly by the U.S. Treasury
are referred to as "bills," "notes," and "bonds," depending on the length
of the maturity when issued. Bills mature in less than one year, notes in
from one to nine years and bonds in from 10 to 30 years.
U.S. TREASURY GUARANTEED SECURITIES. Obligations issued or guaranteed by
certain agencies and instrumentalities of the U.S. Government are of
varying maturities and include, but are not limited to, mortgage
participation certificates guaranteed by the Government National Mortgage
Association ("GNMA") and instruments of the Export-Import Bank of the
United States, Farmers' Home Administration, Federal Housing
Administration, General Services Administration, Maritime Administration,
Small Business Administration and Washington Metropolitan Transit Authority
which are unconditionally guaranteed as to timely payment of principal and
interest by the full faith and credit of the United States.
The Fund may invest a substantial portion of its assets in GNMA
certificates, popularly known as "Ginnie Maes," which represent an interest in a
pool of mortgage loans individually insured by the Federal Housing
Administration (FHA) or the Farmers' Home Administration, or guaranteed by the
Veterans Administration (VA). The Fund will only invest in certificates of the
fully modified pass-through type, which are guaranteed by GNMA and backed by the
full faith and credit of the United States.
Ginnie Maes are created by an "issuer," which is an FHA approved
mortgagee that also meets criteria imposed by GNMA. The issuer assembles a pool
of FHA, Farmers' Home Administration or VA insured or guaranteed mortgages which
are homogeneous as to interest rate, maturity and type of dwelling. Upon
application by the issuer, and after approval by GNMA of the pool, GNMA provides
its commitment to guarantee timely payment of principal and interest on the
Ginnie Maes backed by the mortgages included in the pool. The Ginnie Maes,
endorsed by GNMA, are then sold by the issuer through securities dealers. GNMA
is authorized under the National Housing Act to guarantee timely payment of
principal and interest on Ginnie Maes. This guarantee is backed by the full
faith and credit of the United States. GNMA may borrow U.S. Treasury funds to
the extent needed to make payments under its guarantee.
Ginnie Maes bear a stated "coupon rate" which represents the effective
FHA/VA mortgage rate at the time of issuance, less 0.5%, which constitutes the
GNMA's and issuer's fees. For providing its guarantee, the GNMA receives an
annual fee of 0.6% of the outstanding principal on certificates backed by single
family dwelling mortgages, and the issuer receives an annual fee of 0.44% for
assembling the pool and for passing through monthly payments of interest and
principal.
Payments to holders of Ginnie Maes consist of the monthly distributions
of interest and principal less the GNMA's and issuer's fees. The actual yield to
be earned by a holder of a Ginnie Mae is calculated by dividing such payments by
the purchase price paid for the Ginnie Mae (which may be at a premium or a
discount from the face value of the certificate). Monthly distributions of
interest, as contrasted to semi-annual distributions which are common for other
fixed interest investments, have the effect of compounding and thereby raising
the effective annual yield earned on Ginnie Maes. Because of the variation in
the life of the pools of mortgages which back various Ginnie Maes, and because
it is impossible to anticipate the rate of interest at which future principal
payments may be reinvested, the actual yield earned from a portfolio of Ginnie
Maes will differ significantly from the yield estimated by using an assumption
of a 12-year life for each Ginnie Mae included in such a portfolio as described
above.
Payments the Fund receives on Ginnie Maes include interest and partial
prepayments of principal, reflecting payments on the underlying mortgage loans.
Additional principal prepayments may also occur, reflecting refinancing,
prepayment or foreclosure of the underlying mortgages. Accordingly, the life of
the Ginnie Mae is likely to be substantially shorter than the stated maturity of
the mortgages in the underlying pool. Because of such variation in prepayment
rates, it is not possible to predict the life of a particular Ginnie Mae. The
majority of Ginnie Maes are backed by mortgages of this type, and accordingly
the generally accepted practice treats Ginnie Maes as 30-year securities which
prepay fully in the 12th year. As a result, although Ginnie Maes currently offer
yields higher than those available from other types of U.S. Government
securities, they may be less effective than other types of securities as a means
of locking in attractive long term rates of interest due to the need to reinvest
prepayments of principal generally and the possibility of significant
unscheduled prepayments resulting from declines in mortgage interest rates.
Because of this, Ginnie Maes may have less potential for capital appreciation
during periods of declining interest rates than other investments of comparable
maturities, while having a risk of decline comparable to such investments during
periods of rising interest rates.
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USG SAI: 10/20/95, 2pm
The Fund may also invest up to 35% of its total assets in securities
issued by agencies and instrumentalities of the U.S. Government that may have
different levels of government backing but which are not backed by the full
faith and credit of the U.S. Government, including securities that are supported
primarily or solely by specific pools of assets and the creditworthiness of a
U.S. Government-related issuer, such as mortgage-backed securities (including
collateralized mortgage obligations ("CMOs")).
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations collateralized
either by mortgage loans or mortgage pass-through securities (such collateral
collectively being called "Mortgage Assets"). Multi-class pass-through
securities are interests in trusts that are comprised of Mortgage Assets and
that have multiple classes similar to those in CMOs. Unless the context
indicates otherwise, references herein to CMOs include multi-class pass-through
securities. Payments of principal and interest on the Mortgage Assets (and, in
the case of CMOs, any reinvestment income thereon) provide the funds to pay debt
service on the CMOs or to make distributions on the multi-class pass-through
securities. The CMOs in which the Fund invests are those issued by U.S.
Government agencies or instrumentalities.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, also referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of a CMO (other
than any "principal-only" class) on a monthly, quarterly or semiannual basis.
The principal and interest on the Mortgage Assets may be allocated among the
several classes of a CMO in many ways. In one structure, payments of principal,
including any principal prepayments, on the Mortgage Assets are applied to the
classes of a CMO in the order of their respective stated maturities or final
distribution dates so that no payment of principal will be made on any class of
the CMO until all other classes having an earlier stated maturity or final
distribution date have been paid in full. In some CMO structures, all or a
portion of the interest attributable to one or more of the CMO classes may be
added to the principal amounts attributable to such classes, rather than passed
through to certificate holders on a current basis, until other classes of the
CMO are paid in full.
WRITING OPTIONS. To earn additional income on its portfolio, the Fund may sell
(write) covered call options on securities owned by the Fund having a value of
up to 25% of the Fund's total assets ("covered options" or "options"), and may
purchase call options to close option transactions, as described below. The Fund
has no current intention of writing call options having aggregate exercise
prices in excess of 5% of the Fund's total assets.
A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying security at the exercise price at
any time during the option period, regardless of the market price of the
security. The premium paid to the writer is the consideration for undertaking
the obligations under the option contract. When a covered call option is written
by the Fund, the Fund will make arrangements with the Fund's Custodian to
segregate the underlying securities until the option either is exercised,
expires or the Fund closes out the option as described below. The value of the
portfolio securities underlying covered call options written by the Fund will be
limited to an amount not in excess of 25% of the value of the Fund's net assets
at the time such options are written.
To close out a position, the Fund may make a "closing purchase
transaction", which involves purchasing a call option on the same security with
the same exercise price and expiration date as the option which it has
previously written on a particular security. The Fund will realize a profit (or
loss) from a closing purchase transaction if the amount paid to purchase a call
option is less (or more) than the amount received from the sale thereof.
However, because there is an inactive secondary market for options on the
securities in which the Fund may invest, the Fund as a writer of an option may
only be able to liquidate its obligation by negotiating with the holder of the
option.
BORROWING. Subject to the limit on borrowing described in Investment Restriction
(5) below, the Fund may incur overdrafts at its custodian bank from time to time
in connection with redemptions and/or the purchase of portfolio securities. In
lieu of paying interest to the custodian bank, the Fund may maintain equivalent
cash balances prior or subsequent to incurring such overdrafts. If cash balances
exceed such overdrafts, the custodian bank may credit interest thereon against
fees.
ILLIQUID ASSETS. The Fund may not purchase or otherwise acquire any security or
invest in a repurchase agreement if, as a result, (a) more than 15% of the
Fund's net assets (taken at current value) would be invested in illiquid assets,
including repurchase agreements not entitling the holder to payment of principal
within seven days, or (b) more than 10% of the Fund's total assets would be
invested in securities that are illiquid by virtue of restrictions on the sale
of such securities to the public without registration under the Securities Act
of 1933 ("1933 Act"), such as 144A Securities, discussed below. The term
"illiquid assets" for this purpose includes securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities.
Illiquid restricted securities may be sold by the Fund only in
privately negotiated transactions or in a public offering with respect to which
a registration statement is in effect under the 1933 Act. Such securities
include those that are subject to restrictions contained in the securities laws
of other countries. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and
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USG SAI: 10/20/95, 2pm
the time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are either themselves exempt from
registration or sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers ("144A Securities"). Institutional restricted
securities markets may provide both readily ascertainable values for restricted
securities and the ability to liquidate an investment in order to satisfy share
redemption orders on a timely basis. Such markets might include automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc. ("NASD"). An insufficient
number of qualified buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the marketability
of such portfolio securities, and the Fund might be unable to dispose of such
securities promptly or at favorable prices.
The Corporation's Board of Directors has delegated the function of
making day-to-day determinations of liquidity of securities in the Fund's
portfolio to Bull & Bear Advisers, Inc. (the "Investment Manager") pursuant to
guidelines approved by the Board. The Investment Manager takes into account a
number of factors in reaching liquidity decisions, including (1) the frequency
of trades and quotes for the security, (2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers, (3)
dealer undertakings to make a market in the security, and (4) general liquidity
information (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on such decisions to the Board of Directors.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions may not be changed
without the approval of the lesser of (a) 67% or more of the voting securities
of the Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (b) more than 50% of the outstanding voting securities of the Fund. Any
investment restriction which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. The Fund may not:
(1) Purchase the securities of any one issuer if, as a result, more than 5%
of the Fund's total assets would be invested in the securities of such
issuer, or the Fund would own or hold 10% or more of the outstanding
voting securities of that issuer, except that up to 25% of the Fund's
total assets may be invested without regard to those limitations and
provided that those limitations do not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
(2) Issue senior securities as defined in the Investment Company Act of
1940 ("1940 Act"). The following will not be deemed to be senior
securities for this purpose: (a) evidences of indebtedness that the
Fund is permitted to incur, (b) the issuance of additional series or
classes of securities that the Board of Directors may establish, (c)
the Fund's futures, options, and forward currency transactions, and (d)
to the extent consistent with the 1940 Act and applicable rules and
policies adopted by the Securities and Exchange Commission ("SEC"), (i)
the establishment or use of a margin account with a broker for the
purpose of effecting securities transactions on margin and (ii) short
sales;
(3) Lend its assets, provided however, that the following are not
prohibited: (a) the making of time or demand deposits with banks, (b)
the purchase of debt securities such as bonds, debentures, commercial
paper, repurchase agreements and short term obligations in accordance
with the Fund's investment objective and policies and (c) engaging in
securities and other asset loan transactions limited to one third of
the Fund's total assets;
(4) Underwrite the securities of other issuers, except to the extent that
the Fund may be deemed to be an underwriter under the Federal
securities laws in connection with the disposition of the Fund's
authorized investments;
(5) Borrow money, except to the extent permitted by the 1940 Act;
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USG SAI: 10/20/95, 2pm
(6) Purchase or sell commodities or commodity futures contracts, although
it may enter into (i) financial and foreign currency futures contracts
and options thereon, (ii) options on foreign currencies, and (iii)
forward contracts on foreign currencies;
(7) Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real
estate or interests therein or issued by companies which invest in real
estate or interests therein; or
(8) Purchase a security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers in a
single industry, provided that this limitation does not apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The Fund, notwithstanding any other investment policy or restrictions
(whether or not fundamental), may invest all of its assets in the securities or
beneficial interests of a singled pooled investment fund having substantially
the same investment objectives, policies and restrictions as the Fund.
The Corporation's Board of Directors has established the following
non-fundamental investment limitations with respect to the Fund that may be
changed by the Board without shareholder approval:
(i) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets, which amount
may include warrants which are not listed on the New York Stock
Exchange or American Stock Exchange provided that such warrants, valued
at the lower of cost or market, do not exceed 2% of the Fund's net
assets;
(ii) The Fund may not invest in interests in oil, gas or other mineral
exploration or development programs or leases, although it may invest
in the securities of issuers which invest in or sponsor such programs
or such leases;
(iii) The Fund may not invest more than 5% of its total assets in securities
of companies having a record of less than three years continuous
operations (including operations of predecessors);
(iv) The Fund may not purchase or otherwise acquire any security or invest
in a repurchase agreement if, as a result, (a) more than 15% of the
Fund's net assets (taken at current value) would be invested in
illiquid assets, including repurchase agreements not entitling the
holder to payment of principal within seven days, or (b) more than 10%
of the Fund's total assets would be invested in securities that are
illiquid by virtue of restrictions on the sale of such securities to
the public without registration under the Securities Act of 1933;
(v) The Fund may not purchase or retain securities of any issuer if to the
knowledge of the Fund, those officers or Directors of the Corporation
or its investment manager who each own beneficially more than 1/2 of 1%
of the securities of an issuer, own beneficially together more than 5%
of the securities of that issuer;
(vi) The Fund may not purchase the securities of any investment company
except (a) by purchase in the open market where no commission or profit
to a sponsor or dealer results from such purchase, provided that
immediately after such purchase no more than: 10% of the Fund's total
assets are invested in securities issued by investment companies, 5% of
the Fund's total assets are invested in securities issued by any one
investment company, or 3% of the voting securities of any one such
investment company are owned by the Fund, and (b) when such purchase is
part of a plan of merger, consolidation, reorganization, or acquisition
of assets;
(vii) The Fund may not borrow money, except (a) from a bank for temporary or
emergency purposes (not for leveraging or investment) or (b) by
engaging in reverse repurchase agreements, provided however, that
borrowings pursuant to (a) and (b) do not exceed an amount equal to one
third of the total value of the Fund's assets taken at market value,
less liabilities other than borrowings. The Fund may not purchase
securities for investment while any bank borrowing equaling 5% or more
of its total assets is outstanding. If at any time the Fund's
borrowings come to exceed the limitation set forth in (5) above, such
borrowing will be promptly (within three days, not including Sundays
and holidays) reduced to the extent necessary to comply with this
limitation;
(viii) With respect to options transactions, (a) the Fund will write only
covered options and each such option will remain covered so long as the
Fund is obligated under the option; (b) the Fund will not write call or
put options having aggregate exercise prices greater than 25% of its
net assets; and (c) the Fund may purchase a put or call option,
including any straddles or spreads, only if the value of its premium,
when aggregated with the premiums on all other options held by the
Fund, does not exceed 5% of the Fund's total assets; and
(ix) The Fund may not purchase securities on margin, except that the Fund
may obtain such short term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits
made in connection with transactions in options, futures contracts,
forward currency contracts, and other derivative instruments shall not
be deemed to constitute purchasing securities on margin.
<PAGE>
USG SAI: 10/20/95, 2pm
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Bull & Bear Group, Inc. (the
"Investment Company Complex") are:
Bull & Bear Funds I, Inc., whose series include Bull & Bear Quality Growth
Fund and Bull & Bear U.S. and Overseas Fund.
Bull & Bear Funds II, Inc., whose series include Bull & Bear Dollar
Reserves, Bull & Bear U.S. Government Securities Fund and Bull & Bear
Global Income Fund.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear Municipal Securities, Inc., whose sole series is Bull & Bear
Municipal Income Fund.
Bull & Bear Gold Investors Ltd.
Midas Fund, Inc.
OFFICERS AND DIRECTORS
The Corporation's officers and Directors, their respective offices and
principal occupations during the last five years are set forth below. Unless
otherwise noted, the address of each is 11 Hanover Square, New York, NY 10005.
BASSETT S. WINMILL* -- Chairman of the Board. He is Chairman of the Board of
four of the other investment companies in the Investment Company Complex and of
Bull & Bear Group, Inc. ("Group"), the parent of Bull & Bear Advisers, Inc. (
the "Investment Manager"),. He was born February 10, 1930. He is a member of the
New York Society of Security Analysts, the Association for Investment Management
and Research and the International Society of Financial Analysts. He is the
father of Mark C. Winmill and Thomas B. Winmill.
ROBERT D. ANDERSON* -- Vice Chairman and Director. He is Vice Chairman and a
Director of four of the other investment companies in the Investment Company
Complex and of the Investment Manager and its affiliates. He was born December
7, 1929. He is a member of the Board of Governors of the Mutual Fund Education
Alliance, and of its predecessor, the No-Load Mutual Fund Association. He has
also been a member of the District #12, District Business Conduct and Investment
Companies Committees of the NASD.
RUSSELL E. BURKE III -- Director. 36 East 72nd Street, New York, NY 10021. He
was born August 23, 1946. He is President of Russell E. Burke III, Inc. Fine
Art, New York, New York. From 1988 to 1991, he was President of Altman Burke
Fine Arts, Inc. From 1983 to 1988, he was Senior Vice President of Kennedy
Galleries. He is also a Director of two of the other investment companies in the
Investment Company Complex.
BRUCE B. HUBER, CLU -- Director. 298 Broad Street, Red Bank, NJ 07701. He is
President of Huber o Hogan o Knotts Consulting, Inc. financial consultants
specializing in executive benefits, estate preservation, and asset management.
From 1990 to 1994, he was President of Huber Hogan Associates. He was born
February 7, 1930. He is also a Director of the other investment companies in the
Investment Company Complex.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Kenny, Kindler, Hunt & Howe, Inc., executive recruiting
consultants. He was born December 14, 1930. From 1976 until 1983 he was Vice
President of Russell Reynolds Associates, Inc., also executive recruiting
consultants. He is also a Director of the other investment companies in the
Investment Company Complex.
FREDERICK A. PARKER, JR. -- Director. 219 East 69th Street, New York, NY 10021.
He is President and Chief Executive Officer of American Pure Water Corporation,
a manufacturer of water purifying equipment. He was born November 14, 1926. He
is also a Director of the other investment companies in the Investment Company
Complex.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He was Executive Vice President and a Director of Dan River, Inc., a diversified
textile company, from 1969 until he retired in 1981. He was born February 9,
1923. He is a Director of Wheelock, Inc., a manufacturer of signal products, and
a consultant for the National Executive Service Corps in the health care
industry. He is also a Director of the other investment companies in the
Investment Company Complex.
MARK C. WINMILL* -- Director, Co-President, Co-Chief Executive Officer, and
Chief Financial Officer. He is Co-President, Co- Chief Executive Officer, and
Chief Financial Officer of the other investment companies in the Investment
Company Complex and of Group and certain of its affiliates, Chairman of the
Investment Manager and Investor Service Center, Inc. (the "Distributor"), and
President of Bull & Bear Securities, Inc. ("BBSI"). He was born November 26,
1957. He received his M.B.A. from the Fuqua School of Business at Duke
University in 1987. From 1983 to 1985 he was Assistant Vice President and
Director of Marketing of E.P. Wilbur & Co., Inc., a real estate development and
syndication firm and Vice President of E.P.W. Securities, its broker/dealer
subsidiary. He is a son of Bassett S. Winmill and brother of Thomas B. Winmill.
He is also a Director of one other investment company in the Investment Company
Complex.
THOMAS B. WINMILL* -- Director, Co-President, Co-Chief Executive Officer, and
General Counsel. He is Co-President, Co-Chief Executive Officer, and General
Counsel of the other investment companies in the Investment Company Complex and
of Group and certain of its affiliates, President of the Investment Manager and
the Distributor, and Chairman of BBSI. He was born June 25, 1959. He was
associated with the law firm of Harris, Mericle & Orr from 1984 to 1987. He is a
member of the
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USG SAI: 10/20/95, 2pm
New York State Bar. He is a son of Bassett S. Winmill and brother of Mark C.
Winmill. He is also a Director of two of the other investment companies in the
Investment Company Complex.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born March 1, 1955. From 1993 to 1995, he was Associate
Director --Proprietary Trading at Barclays De Zoete Wedd Securities Inc., from
1992 to 1993 he was Director, Bond Arbitrage at WG Trading Company, and from
1989 to 1992 he was Vice President of Wilkinson Boyd Capital Markets.
BRETT B. SNEED, CFA -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born June 11, 1941. He is a Chartered Financial Analyst, a
member of the Association for Investment Management and Research, and a member
of the New York Society of Security Analysts. From 1986 to 1988, he managed
private accounts, from 1981 to 1986, he was Vice President of Morgan Stanley
Asset Management, Inc. and prior thereto was a portfolio manager and member of
the Finance and Investment Committees of American International Group, Inc., an
insurance holding company.
WILLIAM K. DEAN, CPA -- Treasurer and Chief Accounting Officer. He is Treasurer
and Chief Accounting Officer of the other investment companies in the Investment
Company Complex, the Investment Manager and its affiliates. He was born
September 5, 1955. From 1984 to 1995 he held various positions with The Dreyfus
Corporation, a mutual fund company. He is a member of the American Institute of
Certified Public Accountants and the New York State Society of Certified Public
Accountants.
WILLIAM J. MAYNARD -- Vice President and Secretary. He is Vice President and
Secretary of the other investment companies in the Investment Company Complex,
the Investment Manager and its affiliates. He was born September 13, 1964. From
1991 to 1994 he was associated with the law firm of Skadden, Arps, Slate,
Meagher & Flom. He is a member of the New York State Bar.
* Bassett S. Winmill, Robert D. Anderson, Mark C. Winmill and Thomas B. Winmill
are "interested persons" of the Corporation as defined by the 1940 Act, because
of their positions with the Investment Manager.
Information in the following table is based on fees paid during the
year ended June 30, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total Compensation
Pension or Retirement Estimated Annual From Registrant and
Aggregate Compensa- Benefits Accrued as Part Benefits Upon Fund Complex Paid to
NAME OF PERSON, POSITION tion From Registrant of Fund Expenses Retirement Directors
Bassett S. Winmill None None None None
Chairman
Robert D. Anderson None None None None
Vice Chairman
Russell E. Burke III $4,500 None None $5,500 from
Director 2 Investment
Companies
Bruce B. Huber $4,500 None None $10,000 from
Director 5 Investment
Companies
James E. Hunt $4,500 None None $10,000 from
Director 5 Investment
Companies
Frederick A. Parker $4,500 None None $10,000 from
Director 5 Investment
Companies
John B. Russell $4,500 None None $10,000 from
Director 5 Investment
Companies
Mark C. Winmill None None None None
Director
Thomas B. Winmill None None None None
Director, Co-President
</TABLE>
<PAGE>
USG SAI: 10/20/95, 2pm
Directors who are not "interested persons" of the Fund may elect to
defer receipt of fees for serving as a Director of the Fund. During the fiscal
year ended June 30, 1995, Messrs. Huber and Hunt deferred such Director's fees
pursuant to this arrangement.
No officer, Director or employee of the Investment Manager receives any
compensation from the Fund for acting as an officer, Director or employee of the
Fund. As of October 11, 1995, officers and Directors of the Fund owned less than
1% of the outstanding shares of the Fund. As of October 6, 1995, no owners of
record owned more than 5% of the outstanding shares of the Fund.
THE INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the regular
furnishing of advice with respect to portfolio transactions. The other principal
subsidiaries of Group include Investor Service Center, Inc., the Fund's
Distributor and a registered broker/dealer, Midas Management Corporation, a
registered investment adviser, and BBSI, a registered broker/dealer providing
discount brokerage services.
Group is a publicly owned company whose securities are listed on the
Nasdaq and traded in the OTC market. Bassett S. Winmill may be deemed a
controlling person of Group on the basis of his ownership of 100% of Group's
voting stock and, therefore, of the Investment Manager. The Fund and its
affiliated investment companies had net assets in excess of $245,000,000 as of
September 26, 1995.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and
pays all expenses required for the conduct of its business including, but not
limited to, custodian and transfer agency fees, accounting and legal fees,
investment management fees, fees of disinterested Directors, association fees,
printing, salaries of certain administrative and clerical personnel, necessary
office space, all expenses relating to the registration or qualification of the
shares of the Fund under Blue Sky laws and reasonable fees and expenses of
counsel in connection with such registration and qualification, miscellaneous
expenses and such non-recurring expenses as may arise, including actions, suits
or proceedings affecting the Fund and the legal obligation which the Corporation
may have to indemnify its officers and Directors with respect thereto.
The Investment Manager has agreed in the Investment Management
Agreement that it will waive all or part of its fee or reimburse the Fund
monthly if, and to the extent that, the Fund's aggregate operating expenses
exceed the most restrictive limit imposed by any state in which shares of the
Fund are qualified for sale. Currently, the most restrictive such limit
applicable to the Fund is 2.5% of the first $30 million of the Fund's average
daily net assets, 2.0% of the next $70 million of its average daily net assets
and 1.5% of its average daily net assets in excess of $100 million. Certain
expenses, such as brokerage commissions, taxes, interest, distribution fees,
certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended June 30, 1993 ,1994 and 1995, the Fund paid to the Investment Manager
investment management fees of $168,720, $145,930 and $116,437, respectively.
If requested by the Corporation's Board of Directors, the Investment
Manager may provide other services to the Fund such as, without limitation, the
functions of billing, accounting, certain shareholder communications and
services, administering state and Federal registrations, filings and controls
and other administrative services. Any services so requested and performed will
be for the account of the Fund and the costs of the Investment Manager in
rendering such services shall be reimbursed by the Fund, subject to examination
by those directors of the Corporation who are not interested persons of the
Investment Manager or any affiliate thereof. For the fiscal years ended June 30,
1993, 1994 and 1995 the Fund reimbursed the Investment Manager $9,818, $12,812
and $12,514, respectively, for such services.
General expenses of the Corporation (such as costs of maintaining
corporate existence, proxy and annual meeting costs, etc.) will be allocated
among the Fund, Bull & Bear Global Income Fund, and Bull & Bear Dollar Reserves
in proportion to their relative number of shareholders or net assets, as
appropriate. Expenses that relate specifically to the Fund will be borne by it
directly. The expense limitation provision applies separately to the Fund
without including assets or expenses of other series of the Corporation.
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USG SAI: 10/20/95, 2pm
The Investment Management Agreement provides that the Investment
Manager will not be liable to the Fund or any shareholder of the Fund for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the agreement relates. Nothing contained in
the Investment Management Agreement, however, shall be construed to protect the
Investment Manager against any liability to the Fund by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of obligations and duties under the
Investment Management Agreement.
The Investment Management Agreement will continue in effect, unless
sooner terminated as described below, for successive periods of twelve months,
provided such continuance is specifically approved at least annually by (a) the
Board of Directors of the Corporation or by the holders of a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act and (b) a
vote of a majority of the Directors of the Corporation who are not parties to
the Investment Management Agreement, or interested persons of any such party.
The Investment Management Agreement may be terminated without penalty at any
time either by a vote of the Board of Directors of the Corporation or the
holders of a majority of the outstanding voting securities of the Fund, as
defined in the 1940 Act, on 60 days' written notice to the Investment Manager,
or by the Investment Manager on 60 days' written notice to the Fund, and shall
immediately terminate in the event of its assignment.
Group has granted the Corporation a non-exclusive license to use the
service marks "Bull & Bear," "Bull & Bear Performance Driven," and "Performance
Driven" under certain terms and conditions on a royalty free basis. Such license
will be withdrawn in the event the investment manager of the Corporation shall
not be the Investment Manager or another subsidiary of Group. If the license is
terminated, the Corporation will eliminate all reference to "Bull & Bear" in its
corporate name and cease to use any of such service marks or any similar service
marks in its business.
YIELD AND PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials represents past performance and is not intended to indicate future
performance. The investment return and principal value of an investment in the
Fund will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Performance is a function of the type and
quality of portfolio securities and will reflect general market conditions and
operating expenses. See "The Fund's Investment Program" in the prospectus. This
Statement of Additional Information may be in use for a full year and
performance results for periods subsequent to June 30, 1995 may vary
substantially from those shown below.
YIELD AND DISTRIBUTION RATES
Set forth below is a statement of the Fund's current and compound yield
and distribution rates based on the formulas described below for the month ended
June 30, 1995:
Yield Distribution Rate
Current 3.93% 4.34%
Compound 4.00% 4.43%
The yield rate is calculated as follows: Divide the net investment
income per share earned by the Fund during a 30-day (or one month) period by the
net asset value per share on the last day of the period and annualize the result
on a semi-annual basis by adding one to the quotient, raise the sum to the power
of six, subtract one from the result and then doubling the difference. The
Fund's net investment income per share earned during the period is based on the
average daily number of shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
Yield = 2[({a-b} OVER cd + 1) SUP 6 - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = net asset value per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of business on the last
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USG SAI: 10/20/95, 2pm
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest). For purposes of this calculation, it is
assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted from time to
time to reflect changes in the market value of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
Yield information is useful in reviewing the Fund's performance, but
may not provide a basis for comparison with bank deposits, which may be insured
or other investments which provide a fixed yield since an investment in the Fund
is not insured and yield and per share net asset value, which normally will
fluctuate daily, are not guaranteed. Yield for a prior period should not be
considered a representation of future return, which will change in response to
fluctuations in per share net asset value, interest rates on portfolio
investments, the quality, type and maturity of such investments, the Fund's
expenses and by the investment of a net inflow of new money at interest rates
different than those being earned from the Fund's then-current holdings.
In its sales literature, whenever the Fund advertises its average
annual total return as described below, the Fund may also quote its distribution
rate. This distribution rate is calculated by dividing total dividend
distributions during the most recent 12 month period by the net asset value as
of the end of the period to which the distribution relates. A distribution can
include gross investment income from debt obligations purchased at a premium and
in effect include a portion of the premium paid. A distribution can also include
gross short term capital gains without recognition of any unrealized capital
losses. Further, a distribution can include income from the sale of options by
the Fund even though such option income is not considered investment income
under generally accepted accounting principles. Because a distribution can
include such premiums, capital gains and option income, the amount of a
distribution may be susceptible to control by the Investment Manager through
transactions designed to increase the amount of such items. Also, because the
distribution rate is calculated in part by dividing the latest distribution by
the net asset value per share, the distribution rate will increase as the net
asset value declines. A distribution rate can be greater or less than the yield
rate.
TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN
Whenever the Fund advertises its yield or distribution rate, it will
also advertise its average annual total return over specified periods. The Fund
computes its average annual total return by determining the average annual
compounded rate of return during specified periods that compares the initial
amount invested to the ending redeemable value of such investment. This is done
by dividing the ending redeemable value of a hypothetical $1,000 initial payment
by $1,000 and raising the quotient to a power equal to one divided by the number
of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
T = (ERV OVER P) SUP {1 OVER n} - 1
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period which
assumes all dividends and other distributions, if
any, by the Fund are reinvested on the reinvestment
date during the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Fund's average annual total return since inception of operations on
March 7, 1986 through June 30, 1995, and for the five and one year periods ended
June 30, 1995, was 7.71%, 8.05% and 9.41%, respectively.
The Fund's "total return" or "cumulative total return" or "cumulative
growth" is based on the increase or (decrease) in a hypothetical $1,000 invested
in the Fund at the beginning of each of the specified periods, assuming the
reinvestment of any dividends and other distributions paid by the Fund during
such periods. The return is calculated by subtracting the amount of the Fund's
net asset value per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of all distributions during the period), and dividing the result by
the net asset value per share at the beginning of the period. Such total return
information (together with average annual
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USG SAI: 10/20/95, 2pm
total return information) is expressed below as a percentage rate and as the
value of a hypothetical $1,000 and $10,000 initial investment (made on various
starting dates) at the end of the periods, June 30, 1995. The various starting
dates are the inception of operations on March 7, 1986 and each July 1 of each
year after March 7, 1986.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
START OF PERIODS AVERAGE TOTAL ENDING VALUE OF ENDING VALUE OF
ENDING 6/30/95 ANNUAL TOTAL RETURN A $1,000 A $10,000
RETURN INVESTMENT INVESTMENT
July 1, 1994 9.41% 9.41% $1,094.08 $10,940.81
July 1, 1993 3.67% 7.48% $1,074.84 $10,748.38
July 1, 1992 5.97% 18.99% $1,189.86 $11,898.56
July 1, 1991 7.94% 35.76% $1,357.57 $13,575.73
July 1, 1990 8.05% 47.27% $1,472.67 $14,726.67
July 1, 1989 7.78% 56.72% $1,567.24 $15,672.42
July 1, 1988 7.50% 65.93% $1,659.26 $16,592.62
July 1, 1987 7.62% 79.94% $1,799.41 $17,994.06
July 1, 1986 7.74% 95.68% $1,956.83 $19,568.33
Since Inception- 7.71% 99.76% $1,997.61 $19,976.14
March 7, 1986
</TABLE>
The Fund may provide the above described standardized total return for
a period which ends as of not earlier than the most recent calendar quarter end
and which begins either twelve months before or at the time of commencement of
the Fund's operations. In addition, the Fund may provide nonstandardized total
return results for differing periods, such as for the most recent six months or
the year to date. For example, the Fund's nonstandardized total return for the
three year period ending August 31, 1995 was 16.94%. Such nonstandardized total
return is computed as otherwise described above except that no annualization is
made.
The Investment Manager and certain of its affiliates serve as
investment managers to the Fund and other affiliated investment companies, which
have individual and institutional investors throughout the United States and in
37 foreign countries. The Fund may also provide performance information based on
an initial investment in the Fund and/or cumulative investments of varying
amounts over periods of time. Some or all of this information may be provided
either graphically or in tabular form.
SOURCE MATERIAL
From time to time, in marketing pieces and other Fund literature, the
Fund's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
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USG SAI: 10/20/95, 2pm
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indexes, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
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USG SAI: 10/20/95, 2pm
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
Salomon Brothers Broad Investment-Grade Bond Index -- is a market-weighted index
that contains approximately 4,700 individually priced investment-grade corporate
bonds rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
Salomon Brothers Market Performance tracks the Salomon Brothers bond index.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
Wall Street Journal, a nationally distributed newspaper which regularly covers
financial news.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc.
acts as the Distributor of the Fund's shares. Under the Distribution Agreement,
the Distributor shall use its best efforts, consistent with its other
businesses, to sell shares of the Fund. Fund shares are offered continuously.
Pursuant to a Plan of Distribution ("Plan") adopted pursuant to Rule 12b-1 under
the 1940 Act, the Fund pays the Distributor monthly a fee in the amount of
one-quarter of one percent per annum of the Fund's average daily net assets as
compensation for its distribution and service activities.
In performing distribution and service activities pursuant to the Plan,
the Distributor may spend such amounts as it deems appropriate on any activities
or expenses primarily intended to result in the sale of the Fund's shares or the
servicing and maintenance of shareholder accounts, including, but not limited
to: advertising, direct mail, and promotional expenses; compensation to the
Distributor and its employees; compensation to and expenses, including overhead
and telephone and other communication expenses, of the Distributor, the
Investment Manager, the Fund, and selected dealers and their affiliates who
engage in or support the distribution of shares or who service shareholder
accounts; fulfillment expenses, including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and internal costs incurred by the
Distributor and allocated by the Distributor to its efforts to distribute shares
of the Fund or service shareholder accounts such as office rent and equipment,
employee salaries, employee bonuses and other overhead expenses.
Among other things, the Plan provides that (1) the Distributor will
submit to the Corporation's Board of Directors at least quarterly, and the
Directors will review, reports regarding all amounts expended under the Plan and
the purposes for which such expenditures were made, (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment or agreement related thereto is approved, by the Corporation's Board
of Directors, including those Directors who are not "interested persons" of the
Corporation and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related to the Plan ("Plan Directors"),
acting in person at a meeting called for that purpose, unless terminated by vote
of a majority of the Plan Directors, or by vote of a majority of the outstanding
voting securities of the Fund, (3) payments by the Fund under the Plan shall not
be materially increased without the affirmative vote of the holders of a
majority of the outstanding voting securities of the Fund and (4) while the Plan
remains
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USG SAI: 10/20/95, 2pm
in effect, the selection and nomination of Directors who are not "interested
persons" of the Corporation shall be committed to the discretion of the
Directors who are not interested persons of the Corporation.
With the approval of a majority of the entire Board of Directors and of
the Plan Directors of the Fund, the Distributor has entered into a related
agreement with Hanover Direct Advertising Company, Inc. ("Hanover Direct"), a
wholly owned subsidiary of Group, in an attempt to obtain cost savings on the
marketing of the Fund's shares. Hanover Direct will provide services to the
Distributor on behalf of the Fund and the other Bull & Bear Funds at standard
industry rates, which includes commissions. The amount of Hanover Direct's
commissions over its cost of providing Fund marketing will be credited to the
Fund's distribution expenses and represent a saving on marketing, to the benefit
of the Fund. To the extent Hanover Direct's costs exceed such commissions,
Hanover Direct will absorb any of such costs.
It is the opinion of the Board of Directors that the Plan is necessary
to maintain a flow of subscriptions to offset redemptions. Redemptions of mutual
fund shares are inevitable. If redemptions are not offset by subscriptions, a
fund shrinks in size and its ability to maintain quality shareholder services
declines. Eventually, redemptions could cause a fund to become uneconomic.
Furthermore, an extended period of significant net redemptions may be
detrimental to orderly management of the portfolio. The offsetting of
redemptions through sales efforts benefits shareholders by maintaining the
viability of a fund. In periods where net sales are achieved, additional
benefits may accrue relative to portfolio management and increased shareholder
servicing capability. Increased assets enable the Fund to further diversify its
portfolio, which spreads and reduces investment risk while increasing
opportunity. In addition, increased assets enable the establishment and
maintenance of a better shareholder servicing staff which can respond more
effectively and promptly to shareholder inquiries and needs. While net increases
in total assets are desirable, the primary goal of the Plan is to prevent a
decline in assets serious enough to cause disruption of portfolio management and
to impair the Fund's ability to maintain a high level of quality shareholder
services.
The Plan increases the overall expense ratio of the Fund; however, a
substantial decline in Fund assets is likely to increase the portion of the
Fund's expense ratio comprised of management fees and fixed costs (i.e., costs
other than the Plan), while a substantial increase in Fund assets would be
expected to reduce the portion of the expense ratio comprised of management fees
(reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Corporation has any direct or indirect
financial interest in the operation of the Plan or any related agreement.
Of the amounts paid as compensation to the Distributor during the
Fund's fiscal year ended June 30, 1995, approximately $5,367 represented amounts
incurred by the Distributor for advertising, $20,009 for printing and mailing
prospectuses and other information to other than current shareholders, $9,672
for compensation to sales personnel, $852 for compensation to dealers, $5,685
for overhead and miscellaneous expenses. The Distributor also spent an
additional $16,926 during the fiscal year.
The Glass-Steagall Act prohibits certain banks from engaging in the
business of underwriting, selling, or distributing securities such as shares of
a mutual fund. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in the Distributor's opinion it should not
prohibit banks from being paid for administrative and accounting services under
the Plan. If, because of changes in law or regulation, or because of new
interpretations of existing law, a bank or the Fund were prevented from
continuing these arrangements, it is expected that other arrangements for these
services will be made. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.
eastern time) on each Fund business day. The following days are not Fund
business days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiv ing Day and Christmas Day. Net asset
value per share is determined by dividing the value of the net assets of the
Fund by the total number of shares outstanding.
The Fund's portfolio securities are traded in the over-the-counter
market and are valued at the mean between the current bid and asked prices.
Securities and other assets for which quotations are not readily available or
reliable may be valued based on other over-the-counter quotations or at fair
value as determined in good faith by or under the general supervision of the
Board of Directors. Short term securities are valued either ar amortized cost or
at original cost plus accrued interest, both of which approximate current value.
<PAGE>
USG SAI: 10/20/95, 2pm
Price quotations generally are furnished by pricing services, which may
also use a matrix system to determine valuations. This system considers such
factors as security prices, yields, maturities, call features, ratings, and
developments relating to specific securities in arriving at valuations.
PURCHASE OF SHARES
The Fund will not issue shares for consideration other than cash. Third party
checks, except those payable to an existing shareowner who is a natural person
(as opposed to a corporation or partnership), credit cards, and cash will not be
accepted. The Fund reserves the right to reject any order and, to cancel any
order due to nonpayment or otherwise, with respect to any person or class of
persons. Orders to purchase shares are not binding on the Fund until they are
confirmed.
ALLOCATION OF BROKERAGE
Under present investment policies the Fund is not expected to incur any
substantial brokerage commission costs. For the fiscal years ended June 30,
1993, 1994 and 1995 the Fund did not pay any brokerage commissions.
The Fund seeks to obtain prompt execution of orders at the most
favorable net prices. The Fund is not currently obligated to deal with any
particular broker, dealer or group thereof. Fund transactions in debt and
over-the-counter securities generally are with dealers acting as principals at
net prices with little or no brokerage costs. In certain circumstances, however,
the Fund may engage a broker as agent for a commission to effect transactions
for such securities. Purchases of securities from underwriters include a
commission or concession paid to the underwriter, and purchases from dealers
include a spread between the bid and asked price. While the Investment Manager
generally seeks reasonably competitive spreads or commissions, payment of the
lowest spread or commission is not necessarily consistent with obtaining the
best net results. Accordingly, the Fund will not necessarily be paying the
lowest spread or commission available.
The Investment Manager directs portfolio transactions to broker/dealers
for execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular broker/dealer, including brokerage and research services and sales of
Fund shares and shares of other affiliated investment companies. With respect to
brokerage and research services, consideration may be given in the selection of
broker/dealers to brokerage or research provided and payment may be made of a
fee higher than that charged by another broker/dealer which does not furnish
brokerage or research services or which furnishes brokerage or research services
deemed to be of lesser value, so long as the criteria of Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") or other applicable
law are met. Section 28(e) of the 1934 Act was adopted in 1975 and specifies
that a person with investment discretion shall not be "deemed to have acted
unlawfully or to have breached a fiduciary duty" solely because such person has
caused the account to pay a higher commission than the lowest available under
certain circumstances. To obtain the benefit of Section 28(e), the person so
exercising investment discretion must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided ... viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts as to
which he exercises investment discretion." Thus, although the Investment Manager
may direct portfolio transactions without necessarily obtaining the lowest price
at which such broker/dealer, or another, may be willing to do business, the
Investment Manager seeks the best value to the Fund on each trade that
circumstances in the market place permit, including the value inherent in
on-going relationships with quality brokers.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for brokerage or research services
might exceed commissions that would be payable for execution alone, nor
generally can the value of such services to the Fund be measured, except to the
extent such services have a readily ascertainable market value. There is no
certainty that services so purchased, or the sale of Fund shares, if any, will
be beneficial to the Fund, and it may be that other affiliated investment
companies will derive benefit therefrom. Such services being largely intangible,
no dollar amount can be attributed to benefits realized by the Fund or to
collateral benefits, if any, conferred on affiliated entities. These services
may include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities, (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody). Pursuant to
arrangements with certain broker/dealers, such broker/dealers provide and pay
for various computer hardware, software and services, market pricing
information, investment subscriptions and memberships, and other third party and
internal research of assistance to the Investment Manager in the performance of
its investment decision-making responsibilities for transactions effected by
such broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
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USG SAI: 10/20/95, 2pm
Generally, investment decisions for the Fund and for other affiliated
investment companies are made independently of each other in the light of
differing conditions. The same investment decision, however, may occasionally be
made for two or more of such Funds. In such cases, simultaneous transactions may
occur. Combined purchase or sale orders are then averaged as to price and
allocated as to amount according to a formula deemed equitable to each Fund.
While in some cases this practice could have a detrimental effect upon the price
or value of the security as far as the Fund is concerned, in other cases it is
believed to be beneficial to the Fund.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund and its affiliates do
business with may, from time to time, own more than 5% of the publicly traded
Class A non-voting Common Stock of Group, the parent of the Investment Manager,
and may provide clearing services to BBSI.
The Fund's portfolio turnover rate may vary from year to year and will
not be a limiting factor when the Investment Manager deems portfolio changes
appropriate. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of securities in the
portfolio during the year.
DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if
a shareholder's check remains uncashed for six months, the Fund reserves the
right to credit the shareholder's account with additional shares of the Fund at
the then current net asset value in lieu of the cash payment and to thereafter
issue such shareholder's distributions in additional shares of the Fund.
The Fund intends to continue to qualify for treatment as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986, as
amended ("Code"). To qualify for this treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short term
capital gain) and must meet several additional requirements. Among these
requirements are the following: (1) at least 90% of the Fund's gross income each
taxable year must be derived from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities, or
other income (including gains from options) derived with respect to its business
of investing in securities ("Income Requirement"); (2) the Fund must derive less
than 30% of its gross income each taxable year from the sale or other
disposition of securities or options that were held for less than three months
("Short-Short Limitation"); and (3) the Fund's investments must satisfy certain
diversification requirements. In any year during which the applicable provisions
of the Code are satisfied, the Fund will not be liable for Federal income tax on
net income and gains that are distributed to its shareholders. If for any
taxable year the Fund does not qualify for treatment as a RIC, all of its
taxable income will be taxed at corporate rates.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year an amount equal to the
sum of (1) 98% of its ordinary income, (2) 98% of its capital gain net income
(determined on an October 31 fiscal year basis), plus (3) generally, income and
gain not distributed or subject to corporate tax in the prior calendar year. The
Fund intends to avoid imposition of this excise tax by making adequate
distributions.
OPTIONS. Writing (selling) and purchasing options involves complex rules that
will determine for income tax purposes the timing of recognition and character
of the gains and losses the Fund realizes in connection therewith. Income from
transactions in options derived by the Fund with respect to its business of
investing in securities will qualify as permissible income under the Income
Requirement. However, income from the disposition of options will be subject to
the Short-Short Limitation if they are held for less than three months.
The foregoing discussion of Federal tax consequences is based on the
tax law in effect on the date of this Statement of Additional Information, which
is subject to change by legislative, judicial, or administrative action. The
Fund mat be subject to state or local tax in jurisdictions in which it may be
deemed to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
income and expense, and changes in net assets of the Fund. The Fund's fiscal
year ends on June 30.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, P.O. Box 2197, Boston, MA 02111 has
been retained by the Corporation to act as Custodian of the Fund's investments
and may appoint one or more subcustodians. The Custodian also performs certain
accounting services for the Fund. As part of its agreement with the Corporation,
the Custodian may apply credits or charges for its services to the Fund for,
respectively, positive or deficit cash balances maintained by the Fund with the
Custodian. DST Systems, Inc., Box 419789, Kansas City, Missouri 64141-6789, is
the Fund's Transfer and Dividend
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USG SAI: 10/17/95, 3pm
Disbursing Agent. The Distributor provides certain administrative and
shareholder services to the Fund pursuant to the Shareholder Services Agreement
and is reimbursed by the Fund the actual costs incurred with respect thereto.
For shareholder services, the Fund paid the Distributor for the fiscal years
ended June 30, 1993, 1994, and 1995 approximately $9,818, $23,638 and $28,758,
respectively.
AUDITORS
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia, PA
19102-1707, are the independent accountants for the Fund. Financial statements
of the Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended June 30,
1995, together with the Report of the Fund's independent accountants thereon,
appear in the Fund's Annual Report to Shareholders and are incorporated herein
by reference.
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