As filed with the Securities and Exchange Commission on OCTOBER 26, 1995.
1933 Act File No. 2-57953
1940 Act File No. 811-2474
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 51
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 42
BULL & BEAR FUNDS II, INC.
(Formerly Bull & Bear Incorporated)
(Exact Name of Registrant as Specified in Charter)
11 Hanover Square
New York, New York 10005
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 1-212-785-0900
Copies to:
WILLIAM J. MAYNARD R. DARRELL MOUNTS, ESQ.
Bull & Bear Advisers, Inc. Kirkpatrick & Lockhart
11 Hanover Square 1800 M Street, N.W.
New York, New York 10005 South Lobby - Ninth Floor
(Name and Address of Washington, D.C. 20036-5891
Agent for Service)
It is proposed that this filing will become effective:
ON OCTOBER 26, 1995 PURSUANT TO RULE 485(B)
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Notice required by Rule 24f-2 for the fiscal year ended June 30,
1995 was filed on August 29, 1995.
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
TITLE OF SECURITIES BEING REGISTERED AMOUNT OF MAXIMUM MAXIMUM AMOUNT OF
SHARES BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED PER UNIT(1) OFFERING PRICE(2) FEE(2)
Shares of Common Stock of Bull & 15,030,065 $1.00 $290,000 $100.00
Bear Funds II, Inc., Par Value $0.01,
designated Bull & Bear Dollar Reserves,
Bull & Bear GlobaL Income Fund and
Bull & Bear U.S. Government Securities
Fund.
</TABLE>
(1)The fee for the shares to be registered by this filing has been computed on
the basis of the price in effect on October 16, 1995 pursuant to Rule 457(d)
under the Securities Act of 1933. Fund and Bull & Bear U.S.
(2)Calculation of the proposed maximum aggregate offering price has been made
pursuant to Rule 24e-2 under the Investment Company Act of 1940. During its
fiscal year ended June 30, 1995, Registrant redeemed or repurchased 543,497,477
shares. Registrant used 528,757,412 of the shares it redeemed or repurchased
during its fiscal year ended June 30, 1995 for a reduction pursuant to paragraph
(c) of Rule 24f-2 under the Investment Company Act of 1940 (shares sold;
excluding shares issued in reinvestment of dividends). Registrant is using this
post-effective amendment to register the remaining 14,740,065 shares redeemed or
repurchased during its fiscal year ended June 30, 1995 plus 290,000 shares
($290,000/$1.00). During the current fiscal year, the Registrant has filed no
other post-effective amendments for the purpose of the reduction pursuant to
paragraph (a) of Rule 24e- 2.
<PAGE>
BULL & BEAR FUNDS II, INC.
CONTENTS OF REGISTRATION STATEMENT
This registration statement consists of the following papers and documents.
Cover Sheet
Calculation of Registration Fee Sheet
Table of Contents
Cross Reference Sheet - Bull & Bear Dollar Reserves
Cross Reference Sheet - Bull & Bear Global Income Fund
Cross Reference Sheet - Bull & Bear U.S. Government Securities Fund
Bull & Bear Dollar Reserves
Part A - Prospectus
Part B - Statement of Additional Information
Bull & Bear Global Income Fund
Part A - Prospectus
Part B - Statement of Additional Information
Bull & Bear U.S. Government Securities Fund
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
BULL & BEAR FUNDS II, INC.
CROSS REFERENCE SHEET
BULL & BEAR DOLLAR RESERVES
Part A. Item No. Prospectus Caption
1 Cover Page
2 Expense Tables
3 Financial Highlights
Yield Information
4 General
The Fund's Investment Program
Capital Stock
Cover Page
5 The Investment Manager
Custodian and Transfer Agent
6 Cover Page
General
The Investment Manager
Distributions and Taxes
Determination of Net Asset Value
Shareholder Services
Capital Stock
Back Cover Page
7 How to Purchase Shares
Shareholder Services
Determination of Net Asset Value
Distribution of Shares
Back Cover Page
8 How to Redeem Shares
Determination of Net Asset Value
9 Not Applicable
BULL & BEAR FUNDS II, INC.
<PAGE>
CROSS REFERENCE SHEET
BULL & BEAR DOLLAR RESERVES
Statement of Additional
Part B. Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Cover Page
13 The Fund's Investment Program
Investment Restrictions
Appendix
14 Officers and Directors
15 Officers and Directors
The Investment Manager
16 Officers and Directors
The Investment Manager
Investment Management Agreement
Distribution of Shares
Custodian, Transfer and Dividend
Disbursing Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Purchase of Shares
Determination of Net Asset Value
20 Dividends and Taxes
21 Distribution of Shares
22 Performance Information
23 Financial Statements
<PAGE>
BULL & BEAR FUNDS II, INC.
CROSS REFERENCE SHEET
BULL & BEAR GLOBAL INCOME FUND
Part A. Item No. Prospectus Caption
1 Cover Page
2 Expense Tables
3 Financial Highlights
Performance Information
4 General
The Fund's Investment Program
Capital Stock
Cover Page
5 General
The Investment Manager
Custodian and Transfer Agent
5A Performance Information
6 Cover Page
General
The Investment Manager
Distributions and Taxes
Determination of Net Asset Value
Shareholder Services
Capital Stock
Back Cover Page
7 How to Purchase Shares
Shareholder Services
Determination of Net Asset Value
Distribution of Shares
Back Cover Page
8 How to Redeem Shares
Determination of Net Asset Value
9 Not Applicable
<PAGE>
BULL & BEAR FUNDS II, INC.
CROSS REFERENCE SHEET
BULL & BEAR GLOBAL INCOME FUND
Statement of Additional
Part B. Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Cover Page
13 The Fund's Investment Program
Investment Restrictions
Options, Futures And Forward Currency Contract
Strategies
14 Officers and Directors
15 Officers and Directors
The Investment Manager
16 Officers and Directors
The Investment Manager
Investment Management Agreement
Distribution of Shares
Custodian, Transfer and Dividend
Disbursing Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Purchase of Shares
Determination of Net Asset Value
20 Distributions and Taxes
21 Distribution of Shares
22 Performance Information
<PAGE>
23 Financial Statements
<PAGE>
BULL & BEAR FUNDS II, INC.
CROSS REFERENCE SHEET
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
Part A. Item No. Prospectus Caption
1 Cover Page
2 Expense Tables
3 Financial Highlights
Performance Information
4 General
The Fund's Investment Program
Capital Stock
Cover Page
5 General
The Investment Manager
Custodian and Transfer Agent
5A Performance Information
6 Cover Page
General
The Investment Manager
Distributions and Taxes
Determination of Net Asset Value
Shareholder Services
Capital Stock
Back Cover Page
7 How to Purchase Shares
Shareholder Services
Determination of Net Asset Value
Distribution of Shares
Back Cover Page
8 How to Redeem Shares
Determination of Net Asset Value
9 Not Applicable
<PAGE>
BULL & BEAR FUNDS II, INC.
CROSS REFERENCE SHEET
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
Statement of Additional
Part B. Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Cover Page
13 The Fund's Investment Program
Investment Restrictions
14 Officers and Directors
15 Officers and Directors
The Investment Manager
16 Officers and Directors
The Investment Manager
Investment Management Agreement
Distribution of Shares
Custodian, Transfer and Dividend
Disbursing Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Purchase of Shares
Determination of Net Asset Value
20 Distributions and Taxes
21 Distribution of Shares
22 Performance Information
23 Financial Statements
<PAGE>
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. In addition, 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.
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 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.
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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
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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.
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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 ten business day delay to allow the check or transfer to
clear. The ten 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
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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.
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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
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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
2
<PAGE>
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
3
<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
4
<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.
5
<PAGE>
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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<PAGE>
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 ten business day delay to allow the check or transfer to
clear. The ten 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
13
<PAGE>
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
14
<PAGE>
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
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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
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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 ten business day delay to allow the check or transfer to
clear. The ten 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 $1,000 invested in the Fund at the beginning of each of the
specified periods, assuming the reinvestment of any dividends and distributions
paid by the Fund during such periods. The investment returns and principal value
of an investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. The Fund's yield and total
return is based upon historical performance information and is not predictive of
future performance. Additional information regarding the Fund's performance is
available in the Fund's Annual Report to Shareholders, which is available at no
charge upon request to Investor Service Center, 1-800-847-4200.
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CAPITAL STOCK
The Fund is a series of Bull & Bear Funds II, Inc. (the "Corporation"), a
Maryland corporation incorporated in 1974. Prior to October 29, 1993, the
Corporation operated under the name Bull & Bear Incorporated. The Corporation is
a series investment company and is authorized to issue up to 1,000,000,000
shares ($.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.
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[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 November 1, 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>
<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.
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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. 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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GLOBAL SAI: 10/20/95, 2pm
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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GLOBAL SAI: 10/20/95, 2pm
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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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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GLOBAL SAI: 10/20/95, 2pm
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.
<PAGE>
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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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GLOBAL SAI: 10/20/95, 2pm
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.
<PAGE>
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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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GLOBAL SAI: 10/20/95, 2pm
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.
<PAGE>
GLOBAL SAI: 10/20/95, 2pm
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.
<PAGE>
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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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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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. 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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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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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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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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(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.
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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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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>
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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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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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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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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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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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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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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.
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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.
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
BULL & BEAR FUNDS II, INC.
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part A of this Registration
Statement for Bull & Bear Dollar Reserves, Bull & Bear Global
Income Fund, and Bull & Bear U.S.
Government Securities Fund:
Financial Highlights
The Annual Report to Shareholders of each Fund for the fiscal year
ended June 30, 1995 containing financial statements as of and for
the fiscal year ended June 30, 1995 is incorporated into each
Fund's Statement of Additional Information by reference and filed
as an attachment to this Registration Statement.
(b) Exhibits
(1) Amended and Restated Articles of Incorporation
(filed herewith)
(2) Amended By-Laws (filed herewith)
(3) Voting trust agreement -- none
(4) Specimen securities (filed herewith)
(5) Investment Management Agreement (filed herewith)
(6) (a) Distribution agreement (filed herewith)
(b) Form of Broker Services Agreement (filed herewith)
(7) Bonus, profit-sharing or pension plans--none.
(8) (a) Custodian Agreement (filed herewith)
(b) Service and Agency Agreement (filed herewith)
(9) (a) Shareholder services agreement (filed herewith)
(b) Transfer Agency Agreement (filed herewith)
(c) Agency Agreement (filed herewith)
(10) (a) Opinion of counsel. Previously filed.
(b) Opinion of counsel pursuant to Section 24(e)(1)
(filed herewith)
(11) Other opinions, appraisals, rulings and consents -
Accountants' consents (filed herewith)
(12) Financial statements omitted from Item 23 - not applicable
(13) Agreement for providing initial capital -- not applicable
(14) Prototype retirement plans
(a) Standardized Profit Sharing Adoption Agreement (filed
herewith)
(b) Defined Contribution Basic Plan Document (filed
herewith)
(c) Standardized Money Purchase Adoption Agreement (filed
herewith)
(d) Simplified Profit Sharing Adoption Agreement (filed
herewith)
(e) Simplified Money Purchase Adoption Agreement (filed
herewith)
(f) 403(b) Tax-Sheltered Custodial Account Agreement
(filed herewith)
<PAGE>
(g) SEP Basic Plan Document (filed herewith)
(h) SEP Adoption Agreement (filed herewith)
(15) (a) Plan pursuant to Rule 12b-1 (filed herewith)
(b) Related Agreement to Plan of Distribution pursuant
to Rule 12b-1 between Investor Service Center,
Inc. and Hanover Direct Advertising Company, Inc.
(filed herewith)
(16) Schedule for computation of performance quotations
(a) Basic information. Previously filed.
(b) Supplemental information. Incorporated herein by
reference to corresponding exhibit of Post Effect-
ive Amendment No. 50 to the
Registration Statement, SEC File No. 2-57953.
(17) Financial Data Schedule (filed herewith)
(18) Not applicable
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of October 19, 1995)
-------------- ------------------------
Shares of Common Stock,
$0.01 par value
Dollar Reserves 4,076
Global Income Fund 4,206
U.S. Government Securities Fund 1,519
Item 27. Indemnification
The Registrant is incorporated under Maryland law. Section 2-418 of
the Maryland General Corporation Law requires the Registrant to indemnify its
directors, officers and employees against expenses, including legal fees, in a
successful defense of a civil or criminal proceeding. The law also permits
indemnification of directors, officers, employees and agents unless it is proved
that (a) the act or omission of the person was material and was committed in bad
faith or was the result of active or deliberate dishonesty, (b) the person
received an improper personal benefit in money, property or services or (c) in
the case of a criminal action, the person had reasonable cause to believe that
the act or omission was unlawful.
Registrant's amended and restated Articles of Incorporation: (1)
provide that, to the maximum extent permitted by applicable law, a director or
officer will not be liable to the Registrant or its stockholders for monetary
damages; (2) require the Registrant to indemnify and advance expense as provided
in the By-laws to its present and past directors, officers, employees and
agents, and persons who are serving or have served at the request of the
Registrant in similar capacities for other entities in advance of final
disposition of any
<PAGE>
action against that person to the extent permitted by Maryland law and the 1940
Act; (3) allow the corporation to purchase insurance for any present or past
director, officer, employee, or agent; and (4) require that any repeal or
modification of the amended and restated Articles of Incorporation by the
shareholders, or adoption or modification of any provision of the Articles of
Incorporation inconsistent with the indemnification provisions, be prospective
only to the extent such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of or
indemnification available to any person covered by the indemnification
provisions of the amended and restated Articles of Incorporation.
Section 11.01 of Article XI of the By-Laws sets forth the
procedures by which the Registrant will indemnify its directors, officers,
employees and agents. Section 11.02 of Article XI of the By-Laws further
provides that the Registrant may purchase and maintain insurance or other
sources of reimbursement to the extent permitted by law on behalf of any person
who is or was a director or officer of the Registrant, or is or was serving at
the request of the Registrant as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in or arising out of his
or her position.
Registrant's Investment Management Agreement between the Registrant
and Bull & Bear Advisers, Inc. (the "Investment Manager"), with respect to Bull
& Bear Dollar Reserves, Bull & Bear Global Income Fund and Bull & Bear U.S.
Government Securities Fund, provides that the Investment Manager shall not be
liable to the Registrant or its series or any shareholder of the Registrant or
its series for any error of judgment or mistake of law or for any loss suffered
by the Registrant in connection with the matters to which the Investment
Management Agreement relates. However, the Investment Manager is not protected
against any liability to the Registrant or to the series by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under the
Investment Management Agreement.
Section 9 of the Distribution Agreement between Bull & Bear Funds
II, Inc. and Investor Service Center, Inc. ("Service Center") provides that the
Registrant will indemnify Service Center and its officers, directors and
controlling persons against all liabilities arising from any alleged untrue
statement of material fact in the Registration Statement or from any alleged
omission to state in the Registration Statement a material fact required to be
stated in it or necessary to make the statements in it, in light of the
circumstances under which they were made, not misleading, except insofar as
liability arises from untrue statements or omissions made in reliance upon and
in conformity with information furnished by Service Center to the Registrant for
use in the Registration Statement; and provided that this indemnity agreement
shall not protect any such persons against liabilities arising by reason of
their bad faith, gross negligence or willful misfeasance; and shall not inure to
the benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public policy
as expressed in the Securities Act of 1933. Section 9 of the Distribution
Agreement also provides that Service Center agrees to indemnify, defend and hold
the Registrant, its officers and Directors free and harmless
<PAGE>
of any claims arising out of any alleged untrue statement or any alleged
omission of material fact contained in information furnished by Service Center
for use in the Registration Statement or arising out of any agreement between
Service Center and any retail dealer, or arising out of supplementary literature
or advertising used by Service Center in connection with the Distribution
Agreement.
The Registrant undertakes to carry out all indemnification
provisions of its Articles of Incorporation and By-Laws and the above-described
Investment Management Agreement in accordance with Investment Company Act
Release No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
The directors and officers of Bull & Bear Advisers, Inc., the
Investment Manager, are also directors and officers of the other Funds managed
by the Investment Manager, a wholly-owned subsidiary of Bull & Bear Group, Inc.
(the "Bull & Bear Funds"). In addition, such officers are officers and directors
of Bull & Bear Group, Inc. and its other subsidiaries: Investor Service Center,
Inc., the distributor of the Bull & Bear Funds and a registered broker/dealer;
Midas Management Corporation, a registered investment adviser; and Bull & Bear
Securities, Inc., a discount brokerage firm. Bull & Bear Group, Inc.'s
predecessor was organized in 1976. In 1978, it acquired control of and
subsequently merged with Investors Counsel, Inc., a registered investment
adviser organized in 1959. The principal business of both companies since their
founding has been to serve as investment manager to registered investment
companies. The Investment Manager serves as investment manager of Bull & Bear
Dollar Reserves, Bull & Bear Global Income Fund, and Bull & Bear U.S. Government
Securities Fund, each a series of shares issued by Bull & Bear Funds II, Inc.;
Bull & Bear Municipal Income Fund, a series of shares issued by Bull & Bear
Municipal Securities, Inc.; Bull & Bear Gold Investors Ltd.; Bull & Bear U.S.
and Overseas Fund, and Bull & Bear Quality Growth Fund, each a series of Bull &
Bear Funds I, Inc.; and Bull & Bear Special Equities Fund, Inc.
<PAGE>
Item 29. Principal Underwriters
a) In addition to the Registrant, Investor Service Center, Inc. serves as
principal underwriter of Bull & Bear Gold Investors Ltd., Bull & Bear Special
Equities Fund, Inc., Bull & Bear Funds I, Inc., Bull & Bear Municipal
Securities, Inc., and Midas Fund, Inc.
b) Service Center will serve as the Registrant's principal underwriter with
respect to Bull & Bear Dollar Reserves, Bull & Bear Global Income Fund, and Bull
& Bear U.S. Government Securities Fund. The directors and officers of Service
Center, their principal business addresses, their positions and offices with
Service Center and their positions and offices with the Registrant (if any) are
set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Principal Position and Offices with Investor Position and Offices
Business Address Service Center, Inc. with Registrant
Bassett S. Winmill n/a Chairman of the Board
11 Hanover Square
New York, NY 10005
Robert D. Anderson Vice Chairman and Director Vice Chairman and Director
11 Hanover Square
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Brett B. Sneed Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Chairman, Director and Chief Co-President, Director, and Chief
11 Hanover Square Financial Officer Financial Officer
New York, NY 10005
Thomas B. Winmill President, Director, General Co-President, Director, and
11 Hanover Square Counsel General Counsel
New York, NY 10005
Kathleen B. Fliegauf Vice President and Assistant None
11 Hanover Square Treasurer
New York, NY 10005
William J. Maynard Vice President, Secretary, Chief Vice President, Secretary, Chief
11 Hanover Square Compliance Officer Compliance Officer
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
William K. Dean Treasurer, Chief Accounting Treasurer, Chief Accounting
11 Hanover Square Officer Officer
New York, NY 10005
Michael J. McManus Vice President None
11 Hanover Square
New York, NY 10005
H. Matthew Kelly Vice President None
11 Hanover Square
New York, NY 10005
</TABLE>
Item 30. Location of Accounts and Records
The minute books of Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and its Investment Manager). All other records required by Section
31(a) of the Investment Company Act of 1940 are located at Investors Bank &
Trust Company, 89 South Street, Boston, MA 02111 (the offices of Registrant's
custodian) and DST Systems, Inc., 1055 Broadway, Kansas City, MO 64105-1594 (the
offices of the Registrant's Transfer and Dividend Disbursing Agent). Copies of
certain of the records located at Investors Bank & Trust Company & DST Systems,
Inc. are kept at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and the Investment Manager).
Item 31. Management Services -- none
Item 32. Undertakings -- none
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City, County and State of New York on this 26th day of
October, 1995.
BULL & BEAR FUNDS II, INC.
Thomas B. Winmill
By: Thomas B. Winmill
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Mark C. Winmill Director, Co-President and Co-Chief October 26, 1995
- ---------------
Mark C. Winmill Executive Officer
Thomas B. Winmill Director, Co-President and Co-Chief October 26, 1995
- -----------------
Thomas B. Winmill Executive Officer
Bassett S. Winmill Director, Chairman of the October 26, 1995
- ------------------
Bassett S. Winmill Board of Directors
William K. Dean Treasurer, Principal October 26, 1995
- ---------------
William K. Dean Accounting Officer
Robert D. Anderson Director, Vice Chairman October 26, 1995
- ------------------
Robert D. Anderson
Bruce B. Huber Director October 26, 1995
Bruce B. Huber
James E. Hunt Director October 26, 1995
James E. Hunt
Frederick A. Parker, Jr. Director October 26, 1995
- ------------------------
Frederick A. Parker, Jr.
John B. Russell Director October 26, 1995
John B. Russell
Russell E. Burke III Director October 26, 1995
- --------------------
Russell E. Burke III
</TABLE>
<PAGE>
[LOGO OF DOLLAR RESERVES APPEARS HERE]
11 HANOVER SQUARE, NEW YORK, NY 10005 1-800-847-4200 1-212-363-1100 E-MAIL:
[email protected]
August 15, 1995
Fellow Shareowners:
It is a pleasure to submit this Annual Report and to welcome our many new
shareowners who have joined us since our last Report by opening regular,
Gifts/Transfers to Minors, and qualified retirement plan accounts, plus Bull &
Bear Securities discount brokerage customers whose cash balances have been
automatically swept into the Fund. Interestingly, shareholder investments
through Bull & Bear IRA, SEP-IRA, Profit Sharing/Money Purchase, 403(b) and
Keogh accounts represent more than 22% of the Fund's total net assets. We
believe the Fund's approach of investing exclusively in short term U.S.
Government securities, the income from which is generally free from all state
income and personal property taxes, make it a sound choice for safety-conscious
investors seeking a combination of high quality, low risk, tax advantages,
daily income paid monthly, and the extra convenience of free, unlimited
checkwriting.
We are pleased to report the Fund's 7-day compound yield at June 30, 1995 was
5.15%, up from 3.23% at June 30, 1994 and from 2.38% at June 30, 1993.
The most significant factor impacting short term interest rates during the
first half of the year was the reversal of policy by the Federal Reserve from
tightening to easing credit. In February, it had raised short term interest
rates for the 7th time since a policy of monetary restraint began one year
earlier. In early July, however, recognition that the outlook for inflation no
longer required such a restrictive policy led to a cut in the Federal funds
rate target from 6.00% to 5.75%. While there is a possibility of a further
loosening we are looking for basically stable rates over the balance of the
year.
The ongoing strategy for Dollar Reserves will be to continue to invest for
consistent returns in short term U.S. Government instruments which have a high
degree of safety and liquidity, with the goal of optimizing shareowner results
by investing in those securities which offer the highest level of relative
value at time of purchase. To take advantage of this, we recommend building
your account on a regular basis, which can be done safely, automatically and
conveniently through the Bull & Bear Bank Transfer Plan, the Bull & Bear Salary
Investing Plan, and the Bull & Bear Government Direct Deposit Plan. For
information on these free services, simply give us a call and we will help you
get started.
If you have any questions or would like information on any of the Bull & Bear
Funds, the Bull & Bear No-Fee IRA SM or opening a discount brokerage account at
Bull & Bear Securities, we would be pleased to hear from you. Just call 1-800-
847-4200, and an Investor Service Representative will be glad to assist you, as
always, without any obligation on your part.
Sincerely,
/s/ Robert D. Anderson /s/ Steven A. Landis
Robert D. Anderson Steven A. Landis
Vice Chairman Senior Vice President
Portfolio Manager
<PAGE>
[LOGO OF BULL & BEAR APPEARS HERE]
- -------------------------------------------------------------------------------
INCOME . BULL & BEAR DOLLAR A high quality money market fund
FUNDS--MONEY RESERVES investing in U.S. Government
MARKET, U.S. securities. Income is generally free
GOVERNMENT, from state income and intangible
MUNICIPAL property taxes. (For Bull & Bear
AND GLOBAL Performance Plus(R) discount brokerage
. Monthly ----
Dividends accounts, the check writing minimum is
. Free, $100.)
Unlimited -----------------------------------------------------------------
Check . BULL & BEAR U.S. Investing for a high level of current
Writing $250 GOVERNMENT income, liquidity and safety of
minimum SECURITIES FUND principal.
per check) -----------------------------------------------------------------
. BULL & BEAR Investing for the highest possible
MUNICIPAL INCOME income exempt from Federal income tax
FUND that is consistent with preservation of
principal.
-----------------------------------------------------------------
. BULL & BEAR GLOBAL Investing for a high level of income
INCOME FUND from a global portfolio of primarily
investment grade fixed income
securities.
- -------------------------------------------------------------------------------
GROWTH . BULL & BEAR Investing in quality companies for
FUNDS-- QUALITY GROWTH growth of capital and income.
U.S., GLOBAL FUND
AND PRECIOUS -----------------------------------------------------------------
METALS . BULL & BEAR U.S. Invests worldwide for the highest
AND OVERSEAS FUND possible total return.
-----------------------------------------------------------------
. BULL & BEAR Invests aggressively for maximum
SPECIAL EQUITIES capital appreciation.
FUND
-----------------------------------------------------------------
. BULL & BEAR GOLD Seeks long term capital appreciation in
INVESTORS investments with the potential to
provide a hedge against inflation and
preserve the purchasing power of the
dollar.
-----------------------------------------------------------------
Call our toll-free number for a prospectus containing more
complete information, including charges and expenses. Please
read it carefully before you invest.
- -------------------------------------------------------------------------------
DISCOUNT . BULL & BEAR Investors receive the investment
BROKERAGE SECURITIES, INC. information they need and the low
SERVICES commissions they expect. Commission
savings of up to 84% and more over full
cost firms and guaranteed 20% lower
than Charles Schwab & Co. on every
stock, bond and option trade.
(Transactions are subject to a low $31
minimum commission; comparisons are
CALL TOLL FREE based on a July 1995 survey of standard
1-800-VIP-4200 telephone orders; full cost firms and
larger discount brokers may offer
additional services not available from
Bull & Bear Securities and rates may
vary markedly for other types of
products.)
-----------------------------------------------------------------
Total Return Performance. For the period ended June 30, 1995,
Bull & Bear Dollar Reserves' 7-day compound yield was 5.15% on
a current yield of 5.02%. For the period ended June 30, 1994,
the 7-day compound yield was 3.23% on a current yield of
3.18%. For the period ended June 30, 1993, the 7-day compound
yield was 2.38% on a current yield of 2.35%. Past performance
does not guarantee future results. Investment return will
fluctuate, so shares when redeemed may be worth more or less
than their cost. Dollar cost averaging does not assure a
profit or protect against loss in a declining market, and
investors should consider their ability to make purchases when
prices are low.
2
<PAGE>
BULL & BEAR DOLLAR RESERVES
Schedule of Portfolio Investments--June 30, 1995
<TABLE>
<CAPTION>
ANNUALIZED
YIELD ON
PRINCIPAL DATE OF
AMOUNT PURCHASE VALUE*
----------- ---------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (10.5%)
$ 6,900,000 U.S. Treasury Bills, 5.33%, due 8/24/95.... 5.44% $ 6,844,811
-----------
6,844,811
-----------
U.S. GOVERNMENT AGENCIES (89.5%)
12,000,000 Federal Home Loan Banks, due 7/07/95....... 5.92 11,988,258
20,000,000 Federal Home Loan Banks, due 7/14/95....... 5.96 19,957,652
10,000,000 Federal Home Loan Banks, due 7/18/95....... 5.98 9,972,328
11,600,000 Federal Home Loan Banks, due 7/31/95....... 5.90 11,543,547
5,000,000 Federal Home Loan Banks, due 8/17/95....... 6.03 4,961,617
-----------
58,423,402
-----------
TOTAL INVESTMENTS (100.0%)................. $65,268,213
===========
</TABLE>
- --------
* Cost of investments for financial reporting and for Federal income tax
purposes is the same as value.
See accompanying notes to financial statements.
3
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at value which equals amortized cost (note 1)........... $65,268,213
Cash................................................................ 87,941
Receivable for capital stock redeemed............................... 1,613
Prepaid expenses.................................................... 11,927
-----------
Total assets....................................................... 65,369,694
-----------
LIABILITIES:
Payable for distributions to shareholders........................... 3,087
Accrued management fees............................................. 13,192
Accrued expenses.................................................... 75,120
-----------
Total liabilities.................................................. 91,399
-----------
NET ASSETS: (applicable to 65,208,343 outstanding shares: 500,000,000
shares of $.01 par value authorized)................................ $65,278,295
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($65,278,295 / 65,208,343).......................................... $1.00
=====
At June 30, 1995 net assets consisted of:
Paid-in capital..................................................... $65,207,859
Accumulated net realized gain on investments........................ 70,436
-----------
$65,278,295
===========
</TABLE>
STATEMENT OF OPERATIONS
Year Ended June 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $3,592,826
----------
EXPENSES:
Investment management (note 3).................................... 339,025
Distribution (note 3)............................................. 169,513
Transfer agent.................................................... 143,080
Shareholder administration (note 3)............................... 70,937
Custodian......................................................... 53,253
Registration (note 3)............................................. 50,183
Professional (note 3)............................................. 42,224
Insurance......................................................... 30,383
Directors......................................................... 12,204
Printing.......................................................... 7,270
Miscellaneous..................................................... 25,955
----------
Total........................................................... 944,027
Investment management fees and distribution plan expenses waived
(note 3)....................................................... (339,026)
----------
Net expenses.................................................... 605,001
----------
Net investment income........................................... 2,987,825
----------
NET REALIZED GAIN FROM SECURITY TRANSACTIONS....................... 33,028
----------
Net increase in net assets resulting from operations............ $3,020,853
==========
</TABLE>
----------------
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30,
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 2,987,825 $ 1,849,630
Net realized gain (loss) from security
transactions................................... 33,028 (17,465)
------------- -------------
Net increase in net assets resulting from
operations..................................... 3,020,853 1,832,165
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions ($.044 and $.026 per share,
respectively).................................. (2,987,825) (1,849,630)
CAPITAL SHARE TRANSACTIONS:
Change in net assets resulting from capital
share transactions (a)......................... (11,105,880) 11,695,910
------------- -------------
Total increase (decrease) in net assets......... (11,072,852) 11,678,445
NET ASSETS:
Beginning of period............................. 76,351,147 64,672,702
------------- -------------
End of period................................... $ 65,278,295 $ 76,351,147
============= =============
</TABLE>
- --------
(a) Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Shares sold..................................... $ 526,864,067 $ 548,276,909
Shares issued in reinvestment of distributions.. 2,711,471 1,697,751
Shares redeemed................................. (540,681,418) (538,278,750)
------------- -------------
Net increase (decrease)......................... $ (11,105,880) $ 11,695,910
============= =============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) The Fund is a diversified series of common stock of Bull & Bear Funds II,
Inc. (the "Company") which is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. Bull & Bear
Global Income Fund and Bull & Bear U.S. Government Securities Fund are the
other two series of the Company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The market value of the Fund's portfolio securities is
cost adjusted for amortization of premiums and accretion of discounts.
Dividends from net investment income (investment income less expenses plus or
minus all realized gains or losses on the Fund's portfolio securities) are
declared daily and reinvested or paid monthly. Security transactions are
accounted for on the trade date (the date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
(2) The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable investment income and net capital gains, if
any, after utilization of any capital loss carryforward, to its shareholders
and therefore no Federal income tax provision is required.
(3) The Fund retains Bull & Bear Advisers, Inc. as its Investment Manager.
Under the terms of the Investment Management Agreement, the Investment Manager
receives a management fee, payable monthly, based on the average daily net
assets of the Fund, at the annual rate of .50 of 1% of the first $250 million,
.45 of 1% from $250 million to $500 million, and .40 of 1% over $500 million.
The Investment Manager has undertaken that the operating expenses of the Fund
for each fiscal year (including management fees but excluding taxes, interest,
brokerage commissions and distribution plan expenses), expressed as a
percentage of average daily net assets, will not exceed the lowest rate
prescribed by any state in which shares of the Fund are qualified for sale.
Currently, such limitation is 2 1/2% of the first $30 million of such assets,
2% of the next $70 million and 1 1/2% of any net assets in excess of $100
million. If the Fund's expenses exceed such rates, the Investment Manager will
reimburse the Fund for any excess. Although not required by the expense
limitation, the Investment Manager voluntarily waived $169,513 of its
management fee for the year ended June 30, 1995. Certain officers and directors
of the Fund are officers and directors of the Investment Manager and Investor
Service Center, Inc. (formerly Bull & Bear Service Center, Inc.), the Fund's
distributor. The Fund reimbursed the Investment Manager $19,900 for providing
certain administrative and accounting services at cost for the year ended June
30, 1995.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"). Pursuant to the Plan, the Fund may
pay the Distributor a fee in an 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. None of these fees were paid by the Fund to the Distributor for
the year ended June 30, 1995. Investor Service Center also received $70,937 for
shareholder administration services it provided to the Fund at cost for the
year ended June 30, 1995.
(4) The Fund has an uncommitted bank line of credit for temporary or emergency
purposes. As part of the agreement, the Fund is required to pledge securities
it holds in its portfolio if there is an outstanding balance. There were no
borrowings during the year ended June 30, 1995.
5
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of
period........................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment operations:
Net investment income............ .044 .026 .026 .042 .062
Less distributions:
Distributions from net investment
income........................... (.044) (.026) (.026) (.042) (.062)
------- ------- ------- ------- -------
Net asset value at end of period.. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
TOTAL RETURN...................... 4.53% 2.59% 2.63% 4.28% 6.41%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's
omitted).......................... $65,278 $76,351 $64,673 $63,832 $77,982
======= ======= ======= ======= =======
Ratio of expenses to average net
assets (a)........................ .89% .89% .75% .80% .85%
======= ======= ======= ======= =======
Ratio of net investment income to
average net assets (b)............ 4.41% 2.56% 2.59% 4.24% 6.30%
======= ======= ======= ======= =======
</TABLE>
- --------
(a) Ratio prior to waiver by the Investment Manager and Distributor was 1.39%,
1.39%, 1.25%, 1.22% and 1.23% for the years ended June 30, 1995, 1994,
1993, 1992 and 1991, respectively.
(b) Ratio prior to waiver by the Investment Manager and Distributor was 3.91%,
2.06%, 2.09%, 3.82% and 5.92% for the years ended June 30, 1995, 1994,
1993, 1992 and 1991, respectively.
6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Bull & Bear Funds II, Inc.:
We have audited the accompanying statement of assets and liabilities of Bull
& Bear Dollar Reserves, a series of common stock of Bull & Bear Funds II, Inc.,
including the schedule of portfolio investments as of June 30, 1995, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Bull
& Bear Dollar Reserves as of June 30, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 14, 1995
7
<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
- --------------------------------------------------------------------------------
Annual Report
June 30, 1995
[LOGO OF BULL & BEAR APPEARS HERE]
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, exchanging among the
Bull & Bear Funds, and to obtain information concerning your account.
1-800-847-4200 1-212-363-1100
- --------------------------------------------------------------------------------
Independent Accountants
TAIT, WELLER & BAKER
Printed on recycled paper [RECYCLED PAPER LOGO APPEARS HERE]
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. The report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective Prospectus.
<PAGE>
[LOGO OF GLOBAL INCOME FUND APPEARS HERE]
11 HANOVER SQUARE, NEW YORK, NY 10005 1-800-847-4200 1-212-363-1100
E-MAIL:[email protected]
August 15, 1995
Fellow Shareowners:
It is a pleasure to submit this Annual Report and to welcome our many new
shareowners who have joined us since our last Report by opening regular,
Gifts/Transfers to Minors, and qualified retirement plan accounts.
Interestingly, shareholder investments through Bull & Bear IRA, SEP-IRA, Profit
Sharing/Money Purchase, 403(b) and Keogh accounts represent more than 27% of
the Fund's total net assets. We believe the Fund's approach of investing for a
high level of income from a professionally managed, well-diversified global
portfolio of primarily investment grade fixed income securities, make it
attractive for conservative investors seeking an attractive level of monthly
income, with the added convenience of unlimited, free check writing in amounts
of $250 or more against the value of their account. Reflecting rising interest
rates for most of the year ended June 30, 1995, the Fund's total return for the
past 12 months, 6 months and 3 months, were 4.52%, 4.33% and 7.28%,
respectively.
The uncharacteristic volatility in global fixed income markets during the
year ended June 30, 1995 can be attributed to several factors. One significant
feature was the anticipation, and then the reality, of a reversal of monetary
policy by the Federal Reserve, which in February raised interest rates for the
7th time since a policy of monetary restraint began one year earlier. This
reflected concerns about a continued high rate of resource utilization, despite
some evidence of slowing in the economy. In early July, the Federal Reserve
lowered its target for the Federal Funds rate by one quarter of one percent,
from 6.00% to 5.75%, citing only the easing of inflationary pressures as its
reason. It is important to recognize that during this time period, yields on
thirty year Treasury bonds fell from 7.9% to close to 6.5%, as the U.S. economy
showed numerous signs of weakening. Also, the political climate in Washington
shifted, increasing the likelihood of meaningful reduction in the Federal
deficit, which is already at its lowest level in 15 years. Additionally,
protracted weakness in the U.S. dollar, the deterioration of the Japanese
economy, and uncertainty regarding the economies and debt of less developed
countries all contributed during the period to volatility in the international
debt markets.
Looking ahead, we believe that the economy will be characterized by moderate
growth, low levels of inflation, a stable to improving dollar and lower levels
of volatility than experienced over the past 12 months. The investment strategy
for the Global Income Fund will continue to emphasize asset allocation with a
goal of maximizing shareholder returns through issue and sector selection, by
investing in a diversified portfolio of securities that offer attractive
relative value at appropriate levels of risk and reward, and lengthening or
shortening the Fund's average maturity depending on our view of interest rate
trends. To take advantage of this, we recommend building your account on a
regular basis, which can be done safely, automatically and conveniently through
the Bull & Bear Bank Transfer Plan, the Bull & Bear Salary Investing Plan and
the Bull & Bear Government Direct Deposit Plan. For information on these free
services, simply give us a call and we will help you get started.
<PAGE>
If you have any questions or would like information on any of the Bull & Bear
Funds, the Bull & Bear No-Fee IRASM or opening a discount brokerage account at
Bull & Bear Securities, we would be pleased to hear from you. Just call 1-800-
847-4200, and an Investor Service Representative will be glad to assist you, as
always, without any obligation on your part.
Sincerely,
/s/ Robert D. Anderson /s/ Steven A. Landis
Robert D. Anderson Steven A. Landis
Vice Chairman Senior Vice President
Portfolio Manager
TOTAL RETURN PERFORMANCE GRAPHS
Bull & Bear Global Income Fund ("Fund")
Lehman Aggregate Bond Index ("LABI")
The graph shows results of investing $10,000 in Bull & Bear Global Income Fund
and Lehman Aggregate Bond Index for the 10 years ended June 30, 1995 with
dividends reinvested. The Fund invests for a high level of income in a
diversified worldwide portfolio of primarily investment grade fixed income
corporate and government securities and may invest in money market instruments
for defensive purposes. The Index is fully invested and represents an aggregate
of the Lehman Government/Corporate, Mortgage-Backed and Asset-Backed Indexes.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
FINAL VALUE TOTAL RETURN RETURN
----------- ------------ -------
<S> <C> <C> <C>
_____ Fund $15,883 58.83% 4.74%
----- LABI 25,958 159.58 10.01
</TABLE>
Source: Morningstar, Inc.
-----------------------------------
<TABLE>
<CAPTION>
Global Income LB Aggregate
<S> <C> <C>
6/30/95 15,883 25,958
15,744 25,769
4/30/95 15,097 24,809
3/31/95 14,805 24,467
2/28/95 14,844 24,318
1/31/95 14,554 23,753
12/31/94 15,222 23,292
11/30/94 15,603 23,132
10/31/94 15,584 23,183
9/30/94 15,584 23,204
8/31/94 15,603 23,550
7/31/94 15,362 23,522
6/30/94 15,196 23,063
5/31/94 15,673 23,114
4/30/94 15,799 23,116
3/31/94 15,854 23,303
2/28/94 16,986 23,893
1/31/94 17,861 24,316
12/31/93 17,595 23,992
11/30/93 16,997 23,863
10/31/93 17,189 24,068
9/30/93 16,945 23,979
8/31/93 16,669 23,979
7/31/93 16,291 23,915
6/30/93 16,017 23,503
5/31/93 15,441 23,370
4/30/93 15,290 22,955
3/31/93 15,073 22,765
2/28/93 14,824 22,670
1/31/93 14,410 22,280
12/31/92 14,082 21,861
11/30/92 13,806 21,518
10/31/92 13,806 21,514
9/30/92 14,030 21,804
8/31/92 13,967 21,548
7/31/92 13,825 21,332
6/30/92 13,417 20,906
5/31/92 13,215 20,621
4/30/92 12,967 20,239
3/31/92 12,890 20,094
2/28/92 12,874 20,207
1/31/92 12,554 20,077
12/31/91 12,450 20,353
11/30/91 12,346 19,766
10/31/91 12,391 19,586
9/30/91 12,169 19,371
8/31/91 11,950 18,986
7/31/91 11,646 18,584
6/30/91 11,460 18,330
5/31/91 11,231 18,339
4/30/91 11,216 18,233
3/31/91 10,963 18,038
2/28/91 10,893 17,915
1/31/91 10,569 17,764
12/31/90 10,555 17,764
11/30/90 10,433 17,278
10/31/90 10,446 16,914
9/30/90 10,712 16,702
8/31/90 10,924 16,565
7/31/90 11,354 16,790
6/30/90 11,186 16,561
5/31/90 10,892 16,300
4/30/90 10,575 15,832
3/31/90 10,537 15,979
2/28/90 10,463 15,968
1/31/90 10,622 15,917
12/31/89 10,886 16,108
11/30/89 10,922 16,065
10/31/89 10,957 15,914
9/30/89 11,252 15,532
8/31/89 11,333 15,453
7/31/89 11,263 15,685
6/30/89 11,125 15,358
5/31/89 10,899 14,904
4/30/89 10,876 14,523
3/31/89 10,887 14,226
2/28/89 11,128 14,165
1/31/89 11,183 14,267
12/31/88 11,225 14,065
11/30/88 11,289 14,049
10/31/88 11,363 14,221
9/30/88 11,271 13,959
8/31/88 11,141 13,651
7/31/88 10,993 13,615
6/30/88 10,988 13,686
5/31/88 10,806 13,364
4/30/88 10,815 13,454
3/31/88 10,726 13,527
2/28/88 10,833 13,656
1/31/88 10,790 13,495
12/31/87 10,692 13,036
11/30/87 10,797 12,861
10/31/87 10,843 12,759
9/30/87 11,470 12,321
8/31/87 11,780 12,589
7/31/87 11,669 12,657
6/30/87 11,678 12,667
5/31/87 11,650 12,495
4/30/87 11,783 12,544
3/31/87 11,976 12,897
2/28/87 11,847 12,956
1/31/87 11,657 12,867
12/31/86 11,428 12,687
11/30/86 11,347 12,640
10/31/86 11,597 12,465
9/30/86 11,429 12,287
8/31/86 11,404 12,409
7/31/86 11,355 12,108
6/30/86 11,774 12,002
5/31/86 11,722 11,695
4/30/86 11,601 11,923
3/31/86 11,467 11,860
2/28/86 11,276 11,502
1/31/86 10,897 11,066
12/31/85 10,781 11,005
11/30/85 10,524 10,678
10/31/85 10,320 10,428
9/30/85 10,287 10,213
8/31/85 10,188 10,152
7/31/85 10,054 9,965
6/30/85 10,000 10,000
</TABLE>
The change from the preceding fiscal year, when the Fund selected the Lehman
Corporate/ Government bond index ("LCGI"), is to reflect the broad diversity
of fixed income securities in which the Fund may invest. For the 10 years
ended June 30, 1995, the LCGI's final value was $25,840, total return was
158.40%, and average annual return was 9.96%.
Total returns for the Fund reflect its policy during the 1995 fiscal year to
maintain monthly distributions of $.05 per share and its investment
strategies of investing in a global portfolio of higher quality fixed income
securities and utilizing currency hedging techniques, producing income
levels and currency losses which led to distributions from paid-in capital
during the fiscal year of $.43 per share.
<PAGE>
[LOGO OF BULL & BEAR APPEARS HERE]
- -------------------------------------------------------------------------------
INCOME . BULL & A high quality money market fund
FUNDS-- BEAR investing in U.S. Government
MONEY DOLLAR RESERVES securities. Income is generally free
MARKET, U.S. from state income and intangible
GOVERNMENT, property taxes. (For Bull & Bear
MUNICIPAL Performance Plus(R) discount
AND GLOBAL ----
brokerage accounts, the check
. Monthly writing minimum is $100.)
Dividends -----------------------------------------------------------------
. BULL & Investing for a high level of
. Free, BEAR current income, liquidity and safety
Unlimited U.S. GOVERNMENT of principal.
Check SECURITIES FUND
Writing -----------------------------------------------------------------
($250 . BULL & Investing for the highest possible
minimum BEAR income exempt from Federal income
per MUNICIPAL INCOME tax that is consistent with
check) FUND preservation of principal.
-----------------------------------------------------------------
. BULL & Investing for a high level of income
BEAR from a global portfolio of primarily
GLOBAL INCOME FUND investment grade fixed income
securities.
- -------------------------------------------------------------------------------
GROWTH . BULL & Investing in quality companies for
FUNDS--U.S., BEAR growth of capital and income.
GLOBAL QUALITY GROWTH FUND
AND PRECIOUS -----------------------------------------------------------------
METALS . BULL & BEAR Invests worldwide for the highest
U.S. AND possible total return.
OVERSEAS FUND
-----------------------------------------------------------------
. BULL & BEAR Invests aggressively for maximum
SPECIAL EQUITIES capital appreciation.
FUND
-----------------------------------------------------------------
. BULL & Seeks long term capital appreciation
BEAR GOLD in investments with the potential to
INVESTORS provide a hedge against inflation
and preserve the purchasing power of
the dollar.
----------------------------------------------------------------
Call our toll-free number for a prospectus containing more
complete information, including charges and expenses. Please
read it carefully before you invest.
- -------------------------------------------------------------------------------
DISCOUNT . BULL & Investors receive the investment
BROKERAGE BEAR information they need and the low
SERVICES SECURITIES, commissions they expect. Commission
INC. savings of up to 84% and more over
full cost firms and guaranteed 20%
lower than Charles Schwab & Co. on
every stock, bond and option trade.
(Transactions are subject to a low
$31 minimum commission; comparisons
are based on a July 1995 survey of
standard telephone orders; full cost
firms and larger discount brokers
may offer additional services not
available from Bull & Bear
Securities and rates may vary
Call Toll Free markedly for other types of
1-800-VIP-4200 products.)
----------------------------------------------------------------
Total Return Performance. For the periods ended June 30, 1995,
Bull & Bear Global Income Fund's total return for one year was
4.52%, average annual total return for the past five years was
7.27% and for the past ten years was 4.74%. Past performance
does not guarantee future results. Investment return will
fluctuate, so shares when redeemed may be worth more or less
than their cost. Dollar cost averaging does not assure a
profit or protect against loss in a declining market, and
investors should consider their ability to make purchases when
prices are low.
3
<PAGE>
BULL & BEAR GLOBAL INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- JUNE 30, 1995
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
----------------- ------------
<C> <S> <C>
BONDS (40.5%)
AUSTRALIA (2.4%)
$A1,500,000 New South Wales Treasury Corp., 7%, due
4/1/04(1).................................... $ 925,049
----------
CANADA (2.1%)
C$1,200,000 Province of Ontario, 7.25%, due 9/27/05 (1)... 794,831
----------
DENMARK (2.5%)
Kr5,000,000 Kingdom of Denmark, 9%, due 11/15/00 (1)...... 960,740
----------
GERMANY (5.2%)
DM1,500,000 Deutschland Republic Debentures, 6.25%, due
1/4/24 (1)................................... 917,910
DM1,500,000 Deutschland Republic Debentures, 6.75%, due
7/15/04 (1).................................. 1,064,321
----------
1,982,231
----------
UNITED KINGDOM (3.7%)
(Pounds)1,000,000 United Kingdom Treasury, 6.75%, due 11/26/04
(1).......................................... 1,412,918
----------
UNITED STATES (24.6%)
500,000 Allnet Communication Services, Inc., 9% Senior
Subordinated Notes, due 5/15/03.............. 535,000
1,000,000 Fleet Mortgage Group, 6.50% Notes, due
6/15/00...................................... 996,048
1,000,000 Ford Motor Credit Corp., 6.50% Notes, due
2/15/06...................................... 964,429
1,000,000 Giant Industries, Inc., 9.75% Senior
Subordinated Notes, due 11/15/03............. 967,500
500,000 Home Holdings Inc., 8.625% Senior Notes, due
12/15/03..................................... 363,750
500,000 International Technology Corp., 9.375% Senior
Notes, due 7/01/96........................... 499,375
1,000,000 Midland Fund II, 13.25% Debentures, due
7/23/06...................................... 1,032,018
1,000,000 Mobile Telecommunication Technologies Corp.,
13.50% Senior Notes, due 12/15/02............ 1,067,500
1,000,000 Seagram Co. Ltd., 8.35% Debentures, due
11/15/06..................................... 1,102,092
1,000,000 USG Corp., 8.75% Debentures, due 3/1/17....... 962,500
1,000,000 Viacom International Inc., 8% Subordinated
Debentures, due 7/07/06...................... 975,000
----------
9,465,212
----------
Total Bonds (cost: $15,280,463)............... 15,540,981
----------
U.S. GOVERNMENT SECURITIES (53.5%)
2,390,000 Federal National Mortgage Association, 5.90%,
due 7/05/95.................................. 2,388,433
9,000,000 U.S. Treasury Bonds, 7.75%, due 1/31/00....... 9,621,549
2,000,000 U.S. Treasury Notes, 6.25%, due 5/31/00....... 2,023,122
4,000,000 U.S. Treasury Notes, 7.50%, due 2/15/05....... 4,358,744
2,000,000 Federal Home Loan Banks, 7.59%, due 3/10/05... 2,159,988
----------
Total U.S. Government Securities (cost:
$20,314,437)................................. 20,551,836
----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------- ------------
<C> <S> <C>
COMMON STOCK AND WARRANTS (4.7%)
100,000 Arethusa (Off-Shore) Ltd................................. $ 1,800,000
1,000 Minger Series B warrants (2)(3).......................... 13,140
-----------
Total Common Stock and Warrants (cost: $1,513,130)....... 1,813,140
-----------
PREFERRED STOCK (1.3%)
1,000 Consolidated Hydro Inc., 13.5%, Pfd. Units (3)........... 485,000
-----------
Total Preferred Stock (cost: $513,320)................... 485,000
-----------
TOTAL INVESTMENTS (COST: $37,621,350) (100.0%)........... $38,390,957
===========
</TABLE>
- --------
(1) Par value of foreign denominated obligations stated in local currency,
market value stated in U.S. dollars.
(2) Private placement.
(3) Non-income producing securities.
See accompanying notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
<TABLE>
<S> <C>
ASSETS:
Investment at market value (cost:
$37,621,350) (note 1)..................... $38,390,957
Cash........................................ 1,886
Receivables:
Investment securities sold................ 2,126,234
Interest and dividends.................... 918,372
Fund shares sold.......................... 2,433
Other..................................... 11,644
-----------
Total assets.......................... 41,451,526
-----------
LIABILITIES:
Payables:
Investment securities purchased........... 2,103,394
Fund shares redeemed...................... 45,368
Open forward currency contracts
(note 6)................................ 19,438
Accrued management and distribution fees.... 24,431
Accrued expenses............................ 79,264
-----------
Total liabilities..................... 2,271,895
-----------
NET ASSETS: (applicable to 4,896,231
outstanding shares: 250,000,000 shares of
$.01 par value authorized)................. $39,179,631
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ($39,179,631 / 4,896,231).. $8.00
=====
At June 30, 1995 net assets consisted of:
Paid-in capital............................ $96,396,889
Accumulated deficit in net investment
income................................... (1,419,941)
Accumulated net realized loss on
investments.............................. (56,553,832)
Net unrealized appreciation on
investments and foreign currencies....... 756,515
-----------
$39,179,631
===========
</TABLE>
STATEMENT OF OPERATIONS
Year Ended June 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................... $ 3,456,247
Dividends................................... 8,541
-----------
Total investment income.................... 3,464,788
-----------
EXPENSES
Investment management (note 3).............. 288,533
Distribution (note 3)....................... 206,095
Transfer agent ............................. 132,132
Shareholder administration (note 3)......... 75,315
Custodian .................................. 74,234
Professional (note 3)....................... 55,115
Registration (note 3)....................... 21,541
Insurance................................... 20,004
Directors................................... 12,170
Printing.................................... 9,890
Interest (note 5)........................... 2,441
Other....................................... 13,211
-----------
Total ..................................... 910,681
-----------
Net investment income...................... 2,554,107
-----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES:
Net realized loss from security
transactions.............................. (3,601,859)
Net realized loss from foreign currency
transactions.............................. (2,051,139)
Unrealized appreciation of investments and
foreign currencies during the period...... 4,799,978
-----------
Net realized and unrealized loss on
investments and foreign currencies.... (853,020)
-----------
Net increase in net assets resulting
from operations....................... $ 1,701,087
===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income............................... $ 2,554,107 $ 3,559,573
Net realized gain (loss) from security and foreign
currency transactions............................... (5,652,998) 1,544,452
Unrealized appreciation (depreciation) of
investments and foreign currencies during the
period............................................. 4,799,978 (7,280,517)
----------- -----------
Net change in net assets resulting from operations. 1,701,087 (2,176,492)
NET EQUALIZATION CREDITS (NOTE 1).................... -- 13,715
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.17 and
$.60 per share, respectively)...................... (862,298) (3,430,960)
Distributions in excess of net realized gains ($.12
per share).......................................... -- (691,088)
Distributions from paid-in capital ($.43 per share). (2,201,712) --
CAPITAL SHARE TRANSACTIONS:
Change in net assets resulting from capital share
transactions (a).................................... (3,812,731) (1,127,948)
----------- -----------
Total change in net assets......................... (5,175,654) (7,412,773)
NET ASSETS:
Beginning of period................................. 44,355,285 51,768,058
----------- -----------
End of period (including accumulated deficit in net
investment income of $1,419,941 and $309,103,
respectively)...................................... $39,179,631 $44,355,285
=========== ===========
</TABLE>
- --------
(a) Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold.............. 1,520,831 $ 12,155,579 6,112,650 $ 58,622,567
Shares issued in
reinvestment of
distributions........... 260,866 2,082,054 282,095 2,632,857
Shares redeemed.......... (2,260,096) (18,050,364) (6,530,870) (62,383,372)
---------- ------------ ---------- ------------
Net decrease............. (478,399) $ (3,812,731) (136,125) $ (1,127,948)
========== ============ ========== ============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) The Fund is a diversified series of common stock of Bull & Bear Funds II,
Inc. (the "Company"), which is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. Bull & Bear
Dollar Reserves and Bull & Bear U.S. Government Securities Fund are the other
series of the Company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. With respect to security valuation, securities traded on a national
securities exchange or the Nasdaq National Market System ("NMS") are valued at
the last reported sales price on the day the valuations are made. Such
securities that are not traded on a particular day and securities traded in the
over-the-counter market that are not on NMS are valued at the mean between the
current bid and asked prices. Certain of the securities in which the Fund
invests are priced through pricing services which may utilize a matrix pricing
system which takes into consideration factors such as yields, prices,
maturities, call features and ratings on comparable securities. Bonds may be
valued according to prices quoted by a dealer in bonds which offers pricing
services. Debt obligations with remaining maturities of 60 days or less are
valued at cost adjusted for amortization of premiums and accretion of
discounts. Securities of foreign issuers denominated in foreign currencies are
translated into U.S. dollars at prevailing exchange rates. Forward currency
contracts are undertaken to hedge certain assets denominated in foreign
currencies. Forward contracts are marked to market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When a
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the value of
the currency changes unfavorably. Investment transactions are accounted for on
the trade date (the date the order to buy or sell is executed). Interest income
is recorded on the accrual basis. Discounts and premiums on securities
purchased are amortized over the life of the respective securities. Dividends
and distributions to shareholders are recorded on the ex-dividend date. The
Fund follows the accounting practice of "equalization," whereby part of the
proceeds from capital share transactions, equivalent to a proportionate share
of the distributable investment income on the date of the transaction, is
transferred to or from the undistributed net investment income account.
Undistributed net investment income is therefore unaffected by capital share
transactions.
(2) The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable investment income and net capital gains, if
any, after utilization of any capital loss carryforward, to its shareholders
and therefore no Federal income tax provision is required. At June 30, 1995,
the Company had an unused capital loss carryforward of approximately
$53,640,000 of which $3,453,000 expires in 1996, $17,987,000 in 1997,
$17,712,000 in 1998, $8,549,000 in 1999, $1,656,000 in 2000, $4,110,000 in 2001
and $173,000 in 2003. Based upon Federal income tax cost of $37,621,350, gross
unrealized appreciation and gross unrealized depreciation were $1,071,204 and
$301,597, respectively, at June 30, 1995. Distributions paid to shareholders
during the year ended June 30, 1995 differ from net investment income and net
gains (losses) from security and foreign currency transactions as determined
for financial reporting purposes principally as a result of the
characterization of realized foreign currency gains (losses) for tax/book
purposes, the taxability of unrealized appreciation (depreciation) on certain
forward currency contracts, and the utilization of capital loss carryforwards.
These distributions are classified as "distributions from paid-in capital" in
the Statement of Changes in Net Assets.
8
<PAGE>
(3) The Fund retains Bull & Bear Advisers, Inc. as its Investment Manager.
Under the terms of the Investment Management Agreement, the Investment Manager
receives a management fee, payable monthly, based on the average daily net
assets of the Fund, at the annual rate of 7/10 of 1% of the first $250
million, 5/8 of 1% from $250 million to $500 million, and 1/2 of 1% over $500
million. The Investment Manager has undertaken that the operating expenses of
the Fund for each fiscal year (including management fees but excluding taxes,
interest, brokerage commissions and distribution plan expenses), expressed as
a percentage of average monthly net assets, will not exceed the lowest rate
prescribed by any state in which shares of the Fund are qualified for sale.
Currently such limitation is 2 1/2% of the first $30 million of such assets,
2% of the next $70 million and 1 1/2% of the remaining net assets. If the
Fund's expenses exceed such rates, the Investment Manager will reimburse the
Fund for any excess. Certain officers and directors of the Fund are officers
and directors of the Investment Manager and Investor Service Center, Inc.
(formerly Bull & Bear Service Center, Inc.), the Fund's Distributor. During
the year ended June 30, 1995, the Fund paid $958 to Bull & Bear Securities,
Inc., an affiliate of the Investment Manager, as commissions for brokerage
services. The Fund reimbursed the Investment Manager $16,064 for providing
certain administrative and accounting services at cost for the year ended June
30, 1995.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"). Pursuant to the Plan, the Fund
pays the Distributor a fee in an 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 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 to cover all
other activities and expenses primarily intended to result in the sale of the
Fund's shares. Investor Service Center also provides shareholder
administration services to the Fund at cost for which it received $75,315 for
the year ended June 30, 1995.
(4) Purchases and sales of securities other than short term notes aggregated
$147,356,958 and $152,709,850, respectively, for the year ended June 30, 1995.
(5) The Fund has an uncommitted bank line of credit in an amount which may
vary from time to time pursuant to the Fund's investment policies. As part of
the agreement, the Fund is required to pledge securities it holds in its
portfolio if there is an outstanding balance. At June 30, 1995, there was no
balance outstanding and the interest rate was the prime rate minus 20 basis
points. For the year ended June 30, 1995, the weighted average interest rate
was 8.3% based on the balances outstanding during the year and the weighted
average amount outstanding was $22,715.
9
<PAGE>
(6) At June 30, 1995, open forward currency contracts outstanding consisted of:
<TABLE>
<CAPTION>
UNREALIZED
FACE VALUE CONTRACT VALUE APPRECIATION
(U.S. DOLLARS) PRICE DATE (DEPRECIATION)
-------------- -------- -------- --------------
<S> <C> <C> <C> <C>
Australian Dollar (Sell)....... $1,001,980 0.7157 08/08/95 $ 11,697
Canadian Dollar (Sell)......... 798,258 1.3780 08/23/95 (1,125)
German Deutsche Mark (Sell).... 923,584 1.40756 07/19/95 (16,785)
German Deutsche Mark (Sell).... 1,079,447 1.3896 07/31/95 (6,093)
British Pound (Sell)........... 1,431,540 1.5906 07/10/95 (306)
Danish Krone (Sell)............ 964,418 5.4437 07/26/95 (6,826)
---------- --------
Total Open Forward Currency
Contracts, net................. $6,199,227 $(19,438)
========== ========
</TABLE>
----------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA*
Net asset value at beginning of
period.......................... $ 8.25 $ 9.39 $ 8.56 $ 7.97 $ 8.67
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income.......... .17 .60 .66 .77 .81
Net realized and unrealized
gain (loss) on investments..... .18 (1.02) .92 .54 (.64)
------- ------- ------- ------- -------
Total from investment
operations..................... .35 (.42) 1.58 1.31 .17
------- ------- ------- ------- -------
Less distributions:
Distributions from net
investment income.............. (.17) (.60) (.66) (.72) (.82)
Distributions in excess of net
realized gains................. -- (.12) (.09) -- --
Distributions from paid-in
capital........................ (.43) -- -- -- (.05)
------- ------- ------- ------- -------
Total distributions............ (.60) (.72) (.75) (.72) (.87)
------- ------- ------- ------- -------
Net asset value at end of
period.......................... $ 8.00 $ 8.25 $ 9.39 $ 8.56 $ 7.97
======= ======= ======= ======= =======
TOTAL RETURN.................... 4.52% (5.12)% 19.39% 17.09% 2.45%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(000's omitted)................. $39,180 $44,355 $51,768 $44,323 $42,515
======= ======= ======= ======= =======
Ratio of expenses to average net
assets.......................... 2.21% 1.98% 1.95% 1.93% 1.95%
======= ======= ======= ======= =======
Ratio of net investment income
to average net assets........... 6.20% 6.58% 7.44% 9.25% 10.08%
======= ======= ======= ======= =======
Portfolio turnover rate......... 385% 223% 172% 206% 555%
======= ======= ======= ======= =======
</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.
10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Bull & Bear Funds II, Inc.:
We have audited the accompanying statement of assets and liabilities of Bull
& Bear Global Income Fund, a series of common stock of Bull & Bear Funds II,
Inc., including the schedule of portfolio investments as of June 30, 1995, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of June 30, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Bull & Bear Global Income Fund as of June 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 14, 1995
11
<PAGE>
GLOBAL INCOME FUND
================================================================================
Seeking a High
Level of Income from a
Global Portfolio of
Investment Grade
Fixed Income Securities
- --------------------------------------------------------------------------------
Annual Report
June 30, 1995
[LOGO OF BULL & BEAR APPEARS HERE]
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, transfers among the
Bull & Bear Funds and to obtain information concerning your account.
1-800-847-4200 1-212-363-1100
- --------------------------------------------------------------------------------
Independent Accountants
TAIT, WELLER & BAKER
Printed on recycled paper [RECYCLED PAPER LOGO APPEARS HERE]
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. The report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective Prospectus.
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
================================================================================
11 HANOVER SQUARE, NEW YORK, NY 10005 1-800-847-4200 1-212-363-1100 E-MAIL:
BULBEAR@AOLCOM
August 15, 1995
Fellow Shareowners:
It is a pleasure to submit this Annual Report and to welcome our many new
shareowners who have joined us since our last Report by opening regular,
Gifts/Transfers to Minors and qualified retirement plan accounts.
Interestingly, shareholder investments through Bull & Bear IRA, SEP-IRA, Profit
Sharing/Money Purchase, 403(b) and Keogh accounts represent more than 35% of
the Fund's total net assets. We believe the Fund's approach of investing in
U.S. Government securities with attractive yields makes it a sound high quality
investment choice for safety-conscious investors seeking a combination of
safety of principal and daily income paid monthly, plus unlimited free check
writing in amounts of $250 or more.
We are also pleased to report that Bull & Bear U.S. Government Securities
Fund produced a total return for the year ended June 30, 1995 of 9.93%. This
compares with a total return of 9.39% for the Morningstar U.S. Government
General Bond Fund Average. For periods ended June 30, 1995, the Fund's average
annual compound total return for the past 12 months was 9.41%, for the past
five years was 8.05% and since inception, on March 7, 1986, was 7.71%.
Reflecting these gratifyingly consistent results is the long term record of the
Fund illustrated in the accompanying chart. As shown, an initial investment of
$10,000 with subsequent investments of $100 per month resulted in an ending
value of $35,868, 70% more than the investments for the period of $21,100.
The most significant factor impacting interest rates during the first half of
the year was the reversal of policy by the Federal Reserve from tightening to
easing credit. In February, it had raised short term interest rates for the
seventh time since a policy of monetary restraint began one year earlier. In
early July, however, recognition that the
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND
RESULTS OF AN INITIAL INVESTMENT OF $10,000 WITH
SUBSEQUENT INVESTMENTS OF $100 A MONTH FROM INCEPTION,
MARCH 7, 1986, THROUGH JUNE 30, 1995 WITH DIVIDENDS
REINVESTED. INVESTMENTS FOR THE PERIOD TOTAL $21,100.
[PLOT POINTS TO COME FROM CLIENT]
- --------------------------------------------------------------------------------
<PAGE>
outlook for inflation no longer required such a restrictive policy led to a cut
in the Federal funds rate target from 6.00% to 5.75%. While there is a
possibility of a further loosening we are looking for basically stable rates
over the balance of the year. Over the 12 months ended June 30, 1995, the
Fund's strategy in the face of rising interest rates and relatively volatile
conditions was to invest in securities with higher coupon rates and to
generally shorten maturities, and as we moved towards an easing of rates, to
lengthen maturities in lower coupon securities.
Looking ahead the Fund will continue to invest for consistent returns in U.S.
Government securities which have a high degree of safety and liquidity, with
the goal of optimizing shareowner results by investing in those securities
which offer the highest level of relative value at time of purchase. To take
advantage of this, we recommend building your account on a regular basis, which
can be done safely, automatically and conveniently through the Bull & Bear Bank
Transfer Plan, the Bull & Bear Salary Investing Plan and the Bull & Bear
Government Direct Deposit Plan. For information on these free services, simply
give us a call and we will help you get started.
If you have any questions or would like information on any of the Bull & Bear
Funds, the Bull & Bear No-Fee IRA SM or opening a discount brokerage account at
Bull & Bear Securities, we would be pleased to hear from you. Just call 1-800-
847-4200, and an Investor Service Representative will be glad to assist you, as
always, without any obligation on your part.
Sincerely,
/s/ Robert D. Anderson /s/ Steven A. Landis
Robert D. Anderson Senior Vice President
Vice Chairman Portfolio Manager
- --------------------------------------------------------------------------------
TOTAL RETURN PERFORMANCE GRAPHS
-------------------------------
Bull & Bear U.S. Government Securities Fund ("Fund")
Lehman Government Bond Index ("LGBI")
The Fund invests in U.S. Government securities and may also invest in
repurchase agreements on such securities. The Fund is not insured by or an
obligation of the U.S. Government. The LGBI is unmanaged and fully invested in
U.S. Government bonds. Performance graphs begin on April 1, 1986, the start of
the first month following the Fund's inception on March 7, 1986. Results in
each case reflect reinvestment of dividends and distributions.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
AVERAGE
FINAL TOTAL ANNUAL
VALUE RETURN RETURN
------- -------- --------
<S> <C> <C> <C>
_____ Fund $19,621 96.21% 7.56%
..... LGBI 21,196 111.96 8.46
</TABLE>
Source: Morningstar Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund LGBI
<S> <C> <C>
6/30/95 19,621 21,196
5/31/95 19,512 21,034
4/30/95 18,771 20,219
3/31/95 18,535 19,958
2/28/95 18,504 19,833
1/31/95 18,104 19,415
12/31/94 17,848 19,061
11/30/94 17,731 18,945
10/31/94 17,744 18,979
9/30/94 17,786 18,993
8/31/94 18,114 19,264
7/31/94 18,185 19,260
6/30/94 17,934 18,912
5/31/94 17,990 18,956
4/30/94 18,069 18,981
3/31/94 18,234 19,132
2/28/94 18,566 19,572
1/31/94 18,841 19,996
12/31/93 18,725 19,726
11/30/93 18,660 19,649
10/31/93 18,989 19,868
9/30/93 18,943 19,793
8/31/93 18,852 19,718
7/31/93 18,373 19,288
6/30/93 18,245 19,171
5/31/93 17,662 18,754
4/30/93 17,690 18,775
3/31/93 17,641 18,632
2/28/93 18,586 18,570
1/31/93 17,242 18,206
12/31/92 16,978 17,826
11/30/92 16,774 17,532
10/31/92 16,737 17,562
9/30/92 16,990 17,818
8/31/92 16,859 17,571
7/31/92 16,773 17,409
6/30/92 16,478 16,981
5/31/92 16,206 16,741
4/30/92 15,826 16,439
3/31/92 15,689 16,336
2/28/92 15,867 16,431
1/31/92 15,718 16,367
12/31/91 16,131 16,627
11/30/91 15,619 16,079
10/31/91 15,536 15,919
9/30/91 15,379 15,780
8/31/91 15,013 15,456
7/31/91 14,668 15,105
6/30/91 14,440 14,928
5/31/91 14,492 14,949
4/30/91 14,399 14,891
3/31/91 14,294 14,729
2/28/91 14,252 14,654
1/31/91 14,127 14,571
12/31/90 14,003 14,417
11/30/90 13,739 14,197
10/31/90 13,537 13,888
9/30/90 13,366 13,665
8/31/90 13,290 13,536
7/31/90 13,498 13,726
6/30/90 13,312 13,553
5/31/90 13,111 13,342
4/30/90 12,691 12,980
3/31/90 12,887 13,095
2/28/90 12,883 13,098
1/31/90 12,823 13,072
12/31/89 12,985 13,260
11/30/89 12,928 13,237
10/31/89 12,807 13,140
9/30/89 12,603 12,779
8/31/89 12,537 12,725
7/31/89 12,676 12,942
6/30/89 12,507 12,675
5/31/89 12,215 12,265
4/30/89 11,980 11,982
3/31/89 11,782 11,731
2/28/89 11,782 11,660
1/31/89 11,887 11,755
12/31/88 11,762 11,608
11/30/88 11,858 11,564
10/31/88 11,940 11,702
9/30/88 11,770 11,499
8/31/88 11,727 11,254
7/31/88 11,832 11,232
6/30/88 11,797 11,309
5/31/88 11,740 11,064
4/30/88 11,714 11,143
3/31/88 11,649 11,203
2/28/88 11,623 11,319
1/31/88 11,505 11,199
12/31/87 11,245 10,845
11/30/87 11,051 10,717
10/31/87 10,882 10,665
9/30/87 10,730 10,266
8/31/87 11,016 10,469
7/31/87 10,937 10,528
6/30/87 10,885 10,550
5/31/87 10,679 10,428
4/30/87 10,682 10,473
3/31/87 10,881 10,737
2/28/87 10,821 10,801
1/31/87 10,693 10,728
12/31/86 10,665 10,612
11/30/86 10,607 10,593
10/31/86 10,535 10,473
9/30/86 10,345 10,330
8/31/86 10,299 10,494
7/31/86 10,179 10,205
6/30/86 10,009 10,132
5/31/86 9,902 9,813
4/30/86 10,076 10,043
3/31/86 10,000 10,000
</TABLE>
2
<PAGE>
[LOGO OF BULL & BEAR APPEARS HERE]
================================================================================
INCOME FUNDS-- . BULL & BEAR A high quality money market fund
MONEY MARKET, DOLLAR RESERVES investing in U.S. Government
U.S. GOVERNMENT, securities. Income is generally free
MUNICIPAL AND from state income and intangible
GLOBAL property taxes. (For Bull & Bear
Performance Plus(R) discount
. Monthly Dividends ----
brokerage accounts, the check
. Free, Unlimited writing minimum is $100.)
Check Writing --------------------------------------------------------------
($250 minimum . BULL & BEAR Investing for a high level of
per check) U.S. GOVERNMENT current income, liquidity and safety
SECURITIES FUND of principal.
--------------------------------------------------------------
. BULL & BEAR Investing for the highest possible
MUNICIPAL INCOME FUND income exempt from Federal income
tax that is consistent with
preservation of principal.
--------------------------------------------------------------
. BULL & BEAR Investing for a high level of income
GLOBAL INCOME FUND from a global portfolio of primarily
investment grade fixed income
securities.
================================================================================
GROWTH FUNDS-- . BULL & BEAR Investing in quality companies for
U.S., GLOBAL AND QUALITY GROWTH FUND growth of capital and income.
PRECIOUS METALS --------------------------------------------------------------
. BULL & BEAR Invests worldwide for the highest
U.S. AND OVERSEAS FUND possible total return.
--------------------------------------------------------------
. BULL & BEAR Invests aggressively for maximum
SPECIAL EQUITIES FUND capital appreciation.
--------------------------------------------------------------
. BULL & BEAR Seeks long term capital appreciation
GOLD INVESTORS in investments with the potential to
provide a hedge against inflation
and preserve the purchasing power of
the dollar.
--------------------------------------------------------------
Call our toll-free number for a prospectus containing more
complete information, including charges and expenses. Please
read it carefully before you invest.
================================================================================
DISCOUNT . BULL & BEAR Investors receive the investment
BROKERAGE SECURITIES, INC. information they need and the low
SERVICES commissions they expect. Commission
savings of up to 84% and more over
full cost firms and guaranteed 20%
lower than Charles Schwab & Co. on
every stock, bond and option trade.
(Transactions are subject to a low
$31 minimum commission; comparisons
CALL TOLL FREE are based on a July 1995 survey of
1-800-VIP-4200 standard telephone orders; full cost
firms and larger discount brokers
may offer additional services not
available from Bull & Bear
Securities and rates may vary
markedly for other types of
products.)
--------------------------------------------------------------
Total Return Performance. For the periods ended June 30,
1995, Bull & Bear U.S. Government Securities Fund's total
return for one year was 9.41%, average annual total return
for the past five years was 8.05% and for the life of the
Fund (from March 7, 1986) was 7.71%. Past performance does
not guarantee future results. Investment return will
fluctuate, so shares when redeemed may be worth more or less
than their cost. Dollar cost averaging does not assure a
profit or protect against loss in a declining market, and
investors should consider their ability to make purchases
when prices are low.
3
<PAGE>
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- JUNE 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (74.61%)
$6,900,000 U.S. Treasury Bonds, 7.75%, due 1/31/00.............. $ 7,376,521
2,000,000 U.S. Treasury Notes, 6.25%, due 5/31/00.............. 2,023,122
2,400,000 U.S. Treasury Notes, 7.50%, due 2/15/05.............. 2,615,246
-----------
Total U.S. Government Obligations (cost:
$11,866,789)......................................... 12,014,889
-----------
U.S. GOVERNMENT AGENCIES (25.39%)
1,000,000 Federal Home Loan Mortgage Corp., 7.35%, due 3/22/05. 1,060,858
2,000,000 Tennessee Valley Authority, 6.375%, due 6/15/05...... 1,977,482
Government National Mortgage Association, 7%, due
1,064,498 6/15/23 -- 5/15/24................................... 1,050,191
-----------
Total U.S. Government Agencies (cost: $3,996,032).... 4,088,531
-----------
TOTAL INVESTMENTS (COST: $15,862,821) (100.0%)....... $16,103,420
===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment at market value (cost: $15,862,821) (note 1)......... $16,103,420
Cash............................................................ 52,735
Receivables:
Interest........................................................ 331,588
Fund shares sold................................................ 4,197
Prepaid expenses................................................ 4,042
-----------
Total assets................................................... 16,495,982
-----------
LIABILITIES:
Payables:
Fund shares redeemed............................................ 65,652
Distributions................................................... 12,626
Accrued management and distribution fees........................ 9,844
Accrued expenses................................................ 30,576
-----------
Total liabilities.............................................. 118,698
-----------
NET ASSETS: (applicable to 1,077,524 outstanding shares:
250,000,000 shares of $.01 par value authorized)................ $16,377,284
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($16,377,284 / 1,077,524)....................................... $15.20
======
At June 30, 1995 net assets consisted of:
Paid-in capital................................................. $18,837,214
Accumulated net investment income............................... 1,377
Accumulated net realized loss on investments.................... (2,701,906)
Net unrealized appreciation on investments...................... 240,599
-----------
$16,377,284
===========
</TABLE>
STATEMENT OF OPERATIONS
Year Ended June 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $1,158,324
----------
EXPENSES:
Investment management (note 3).................................... 116,437
Transfer agent.................................................... 43,269
Distribution (note 3)............................................. 41,585
Professional (note 3)............................................. 33,441
Shareholder administration (note 3)............................... 28,758
Custodian......................................................... 24,232
Registration (note 3)............................................. 18,136
Printing.......................................................... 7,576
Directors......................................................... 3,139
Miscellaneous..................................................... 16,104
----------
Total............................................................ 332,677
----------
Net investment income............................................ 825,647
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from security transactions...................... (217,869)
Unrealized appreciation of investments during the period.......... 821,547
----------
Net realized and unrealized gain on investments.................. 603,678
----------
Net increase in net assets resulting from operations............. $1,429,325
==========
</TABLE>
----------------
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income............................... $ 825,647 $ 868,262
Net realized gain (loss) from security transactions. (217,869) 452,960
Unrealized appreciation (depreciation) of invest-
ments during the period............................ 821,547 (1,564,736)
----------- -----------
Net change in net assets resulting from operations.. 1,429,325 (243,514)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.76 and
$.65 per share, respectively)...................... (859,743) (871,759)
CAPITAL SHARE TRANSACTIONS:
Change in net assets resulting from capital share
transactions (a)................................... (1,969,546) (3,743,527)
----------- -----------
Total change in net assets.......................... (1,399,964) (4,858,800)
NET ASSETS:
Beginning of period................................. 17,777,248 22,636,048
----------- -----------
End of period (including accumulated net investment
income of $1,377 and $35,473, respectively)........ $16,377,248 $17,777,248
=========== ===========
</TABLE>
- --------
(a) Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
SHARES VALUE SHARES VALUE
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold..................... 372,514 $ 5,445,720 314,208 $ 4,875,810
Shares issued in reinvestment of
distributions.................. 46,042 671,549 45,003 694,323
Shares redeemed................. (555,963) (8,086,815) (602,218) (9,313,660)
-------- ----------- -------- -----------
Net decrease.................... (137,407) $(1,969,546) (243,007) $(3,743,527)
======== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) The Fund is a diversified series of common stock of Bull & Bear Funds II,
Inc. (the "Company"), which is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. Bull & Bear
Dollar Reserves and Bull & Bear Global Income Fund are the other series of the
Company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. With respect to security valuation, securities listed or traded on
a national securities exchange or the Nasdaq National Market System ("NMS") are
valued at the last quoted sales price on the day the valuations are made. Such
listed securities that are not traded on a particular day and securities traded
in the over-the-counter market that are not on the NMS are valued at the mean
between the current bid and asked prices. Securities for which quotations from
the national securities exchange or the NMS are not readily available or
reliable and other assets may be valued based on over-the-counter quotations or
at fair value as determined in good faith by or under the direction of the
Board of Directors. Debt obligations with remaining maturities of 60 days or
less are valued at cost adjusted for amortization of premiums and accretion of
discounts. Investment transactions are accounted for on the trade date (date
the order to buy or sell is executed). Interest income is recorded on the
accrual basis.
(2) The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable investment income and net capital gains, if
any, after utilization of any capital loss carryforward, to its shareholders
and therefore no Federal income tax provision is required. At June 30, 1995,
the Fund had an unused capital loss carryforward of approximately $2,388,000,
of which $311,000 expires in 1997, $1,716,000 in 1998 and $361,000 in 2003.
Based upon Federal income tax cost of $15,872,040, gross unrealized
appreciation and gross unrealized depreciation were $283,381 and $52,001,
respectively at June 30, 1995.
(3) The Fund retains Bull & Bear Advisers, Inc. as its Investment Manager.
Under the terms of the Investment Management Agreement, the Investment Manager
receives a management fee, payable monthly, based on the average daily net
assets of the Fund, at the annual rate of 7/10 of 1% of the first $250 million,
5/8 of 1% from $250 million to $500 million, and 1/2 of 1% over $500 million.
The Investment Manager has undertaken that the operating expenses of the Fund
for each fiscal year (including management fees, but excluding taxes, interest,
brokerage commissions and distribution plan expenses), expressed as a
percentage of average daily net assets, will not exceed the lowest rate
prescribed by any state in which shares of the Fund are qualified for sale.
Currently, such limitation is 2 1/2% of the first $30 million of such assets,
2% of the next $70 million and 1 1/2% of the remaining net assets. If the
Fund's expenses exceed such rates, the Investment Manager will reimburse the
Fund for any excess. Certain officers and directors of the Fund are officers
and directors of the Investment Manager and Investor Service Center, Inc.
(formerly Bull & Bear Service Center, Inc.), the Fund's distributor. The Fund
reimbursed the Investment Manager $12,514 for providing certain administrative
and accounting services at cost for the year ended June 30, 1995.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"). Pursuant to the Plan, the Fund
pays the Distributor a fee in an 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
6
<PAGE>
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. Investor Service Center also received $28,758 for shareholder
administration services which it provided to the Fund at cost for the year
ended June 30, 1995.
(4) Purchases and proceeds of sales of U.S. government obligations other than
short term investments aggregated $75,114,529 and $76,571,925, respectively,
for the year ended June 30, 1995.
(5) The Fund has an uncommitted bank line of credit for temporary or
emergency purposes. As part of the agreement, the Fund is required to pledge
securities it holds in its portfolio if there is an outstanding balance. At
June 30, 1995, there was no balance outstanding and the interest rate was the
prime rate less 20 basis points. For the year ended June 30, 1995, the weighted
average interest rate was 8.7% based on the balances outstanding during the
year and the weighted average amount outstanding was $2,468.
----------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of
period.......................... $ 14.63 $ 15.53 $ 14.80 $ 13.82 $ 13.69
Income from investment
operations:
Net investment income.......... .73 .78 .78 .90 .98
Net realized and unrealized
gain (loss) on investments..... .60 (1.03) .75 1.00 .13
------- ------- ------- ------- -------
Total from investment
operations..................... 1.33 (.25) 1.53 1.90 1.11
Less distributions:
Distributions from net
investment income.............. (.76) (.65) (.80) (.92) (.98)
------- ------- ------- ------- -------
Increase (decrease) in net
asset value.................... .57 (.90) .73 .98 .13
------- ------- ------- ------- -------
Net asset value at end of
period.......................... $ 15.20 $ 14.63 $ 15.53 $ 14.80 $ 13.82
======= ======= ======= ======= =======
TOTAL RETURN.................... 9.40% (1.76)% 10.75% 14.10% 8.48%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(000's omitted)................. $16,377 $17,777 $22,636 $26,187 $31,496
======= ======= ======= ======= =======
Ratio of expenses to average net
assets.......................... 2.00% 1.85% 1.91% 1.86% 1.86%
======= ======= ======= ======= =======
Ratio of net investment income
to average net assets........... 4.96% 4.16% 5.38% 6.40% 7.14%
======= ======= ======= ======= =======
Portfolio turnover rate......... 482% 261% 176% 140% 407%
======= ======= ======= ======= =======
</TABLE>
7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of Bull & Bear Funds II, Inc.:
We have audited the accompanying statement of assets and liabilities of Bull
& Bear U.S. Government Securities Fund, a series of common stock of Bull & Bear
Funds II, Inc., including the schedule of portfolio investments as of June 30,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Bull
& Bear U.S. Government Securities Fund as of June 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 14, 1995
8
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
================================================================================
Investing for a High Level of Current Income, Liquidity, and
Safety of Principal
- --------------------------------------------------------------------------------
Annual Report
June 30, 1995
[LOGO OF BULL & BEAR APPEARS HERE]
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
- --------------------------------------------------------------------------------
Independent Accountants
TAIT, WELLER & BAKER
Printed on recycled paper [RECYCLED PAPER LOGO APPEARS HERE]
This report and the financial statements contained herein are
submitted for the general information of the shareholders of the Fund.
The report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective Prospectus.
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BULL & BEAR FUNDS II, INC.
FIRST: (1) The name and post office address of the incorporator is
Robert D. Anderson, 103 East Front Street, Red Bank, New Jersey 07701.
(2) The said incorporator is at least eighteen years of age.
(3) The said incorporator is forming the Corporation named in
these Articles of Incorporation under the general laws of the State of Maryland.
SECOND: The name of the Corporation is:
BULL & BEAR FUNDS II, INC.
THIRD: (1) The Corporation is formed for the following purpose or purposes:
(a) To conduct, operate and carry on the business of an open-end
management investment company registered as such with the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940, as amended;
and
(b) To exercise and enjoy all powers, rights and privileges
granted to and conferred upon corporations by the Maryland General Corporation
Law, now or hereafter in force.
(2) The foregoing clauses shall be construed as powers as well as objects
and purposes.
FOURTH: The address of the principal office of the Corporation within the
State of Maryland is 11 East Chase Street, Baltimore, Maryland 21202, and the
resident agent of the Corporation in the State of Maryland at this address is
Prentice-Hall Corporation System.
1
<PAGE>
FIFTH: (1) The total number of shares of capital stock which the
Corporation has authority to issue is one billion (1,000,000,000) ($.01) par
value per share ("Shares"), having an aggregate par value of $10,000,000,
comprising five hundred million (500,000,000) Shares in the Bull & Bear Dollar
Reserves series, two hundred fifty million (250,000,000) Shares in the Bull &
Bear Global Income Fund series, and two hundred fifty million (250,000,000)
Shares in the Bull & Bear U.S. Government Securities Fund series.
The Board of Directors of the Corporation shall have full power and
authority to create and establish and to classify or to reclassify, as the case
may be, any Shares of the Corporation in separate and distinct series ("Series")
and classes of Series ("Classes"). The Shares of said Series or Classes of stock
shall have such preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption as shall be
fixed and determined from time to time by the Board of Directors. The
establishment of any Series or Class shall be effective upon the adoption of a
resolution by the Board of Directors setting forth such establishment and
designation and the relative rights and preferences of the Shares of such Series
or Class. At any time that there are no Shares outstanding of any particular
Series or Class previously established and designated, the Directors may abolish
that Series or Class and the establishment and designation thereof.
The Board of Directors is hereby expressly granted authority to increase or
decrease the number of Shares of any Series or Class, but the number of Shares
of any Series or Class shall not be decreased by the Board of Directors below
the number of Shares thereof then outstanding, and, from time to time to
designate or redesignate the name of any Class or Series whether or not Shares
of such Class or Series are outstanding. The Corporation may hold as treasury
shares, reissue for such consideration and on such terms as the Board of
Directors may determine, or cancel, at their discretion from time to time, any
Shares reacquired by the Corporation. No holder of any of the Shares shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any Shares
of the Corporation which the Corporation proposes to issue or reissue.
The Corporation shall have authority to issue any additional Shares
hereafter authorized by resolution of the Board of Directors and any Shares
redeemed or repurchased by the Corporation. All Shares of any Series or Class
when properly issued in accordance with these Articles of Incorporation shall be
fully paid and nonassessable.
(2) The Board of Directors is hereby authorized to issue and sell from time
to time Shares of the Corporation for cash or securities or other property as
the Board of Directors may deem advisable in the manner and to the extent now or
hereafter permitted by the laws of the State of Maryland; provided, however,
that the
2
<PAGE>
consideration per share (exclusive of any selling commission) to be received by
the Corporation upon the issuance or sale of any Shares of its capital stock
shall not be less than the par value per share and shall not be less than the
net asset value per share of such capital stock determined as hereinafter
provided. No such Shares, whether now or hereafter authorized, shall be required
to be first offered to the then existing stockholders and no stockholder shall
have any preemptive right to purchase or subscribe to any unissued shares of the
Corporation's capital stock or for any additional shares whether now or
hereafter authorized.
(3) At all meetings of stockholders, each holder of Shares shall be
entitled to one vote for each Share standing in the holder's name on the books
of the Corporation on the date fixed in accordance with the By-Laws for
determination of stockholders entitled to vote thereat; provided, however, that
when required by the Investment Company Act of 1940 or rules thereunder or when
the Board of Directors has determined that the matter affects only the interest
of one Series or Class, matters may be submitted to a vote of the holders of
Shares of a particular Series or Class, and each holder of Shares thereof shall
be entitled to votes equal to the Shares of the Series or Class standing in the
holder's name on the books of the Corporation. The presence in person or by
proxy of the holders of one-third (1/3) of the Shares outstanding and entitled
to vote shall constitute a quorum at any meeting of the stockholders except
where a matter is to be voted on by a Series or Class, one-third of the Shares
of that Series or Class outstanding and entitled to vote shall constitute a
quorum for the transaction of business by that Series or Class.
(4) Each holder of Shares shall be entitled at such times as may be
permitted by the Corporation to require the Corporation to redeem any or all of
the holder's Shares at a redemption price per share equal to the net asset value
per share less such charges as are determined by the Board of Directors, at such
time as the Board of Directors shall have prescribed by resolution. The Board of
Directors may specify conditions, prices, places and manner and form of payment
of redemption, and may specify requirements for the proper form or forms of
requests for redemption. The Board of Directors may postpone payment of the
redemption price and may suspend the right of the holders of Shares to require
the Corporation to redeem Shares during any period or at any time when and to
the extent permissible under the Investment Company Act of 1940.
(5) The Board of Directors may cause the Corporation to redeem at current
net asset value all shares owned or held by any one stockholder having an
aggregate current net asset value of any amount. Such redemptions shall be
effected in accordance with such procedures as the Board of Directors may adopt.
Upon redemption of shares pursuant to this Section, the Corporation shall
promptly cause payment of the full redemption price to be made to the holder of
shares so redeemed.
3
<PAGE>
(6) Dividends and distributions on Shares may be declared, calculated and
paid with such frequency and in such form, manner and amount as the Board of
Directors may from time to time determine.
(7) Net asset value, as used herein, shall be determined on such days and
at such times and by such methods as the Board of Directors shall determine,
subject to the Investment Company Act of 1940 and the applicable rules and
regulations promulgated thereunder. Such determination may be made on a
Series-by-Series basis or made or adjusted on a Class-by-Class basis, as
appropriate.
SIXTH: Notwithstanding any provision of law requiring a greater proportion
than a majority of the votes of all Shares of the Corporation to take or
authorize any action, any action (including amendment of these Articles of
Incorporation) may be taken or authorized by the Corporation upon the
affirmative vote of a majority of the Shares entitled to vote thereon.
SEVENTH: (1) To the maximum extent permitted by applicable law (including
Maryland law and the Investment Company Act of 1940) as currently in effect or
as may hereafter be amended;
(a) No director or officer of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages; and
(b) The Corporation shall indemnify and advance expenses as provided in the
By-Laws to its present and past directors, officers, employees and agents, and
persons who are serving or have served at the request of the Corporation as a
director, officer, employee or agent in similar capacities for other entities.
(2) The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity or arising out of his or her
status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability.
(3) Any repeal or modification of this Article SEVENTH, by the
stockholders of the Corporation, or adoption or modification of any other
provision of the Articles of Incorporation or By-Laws inconsistent with this
Section, shall be prospective only, to the extent that such repeal or
modification would, if applied retrospectively, adversely affect any limitation
on the liability of any director or officer of the Corporation or
indemnification available to any person covered by these provisions with respect
to any act or omission which occurred prior to such repeal, modification or
4
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adoption.
EIGHTH: The name "Bull & Bear" included in the name of the Corporation and
its Series shall be used pursuant to a royalty-free nonexclusive license from
Bull & Bear Group, Inc. or a subsidiary of Bull & Bear Group, Inc. The license
may be withdrawn by Bull & Bear Group, Inc. or its subsidiary in the event the
Investment Manager of the Corporation shall not be Bull & Bear Advisers, Inc. or
some other corporation controlling, controlled by or under common control with
Bull & Bear Group, Inc., in which case the Corporation shall have no further
right to use the name "Bull & Bear" in its corporate name or otherwise and the
Corporation, the holders of its capital stock and its officers and directors,
shall promptly take whatever action may be necessary to change its name
accordingly.
NINTH: (1) All corporate powers and authority of the Corporation shall be
vested in and exercised by the Board of Directors except as otherwise provided
by statute, these Articles, or the Bylaws of the Corporation. The number of
directors of the Corporation, until such number shall be increased or decreased
pursuant to the By-Laws of the Corporation, shall be nine (9). The number of
directors shall never be less than the number prescribed by the General
Corporation Law of the State of Maryland.
(2) The names of the persons who shall act as directors of the
Corporation until their respective successors are elected and qualified are:
Bassett S. Winmill; Robert D. Anderson; Russell E. Burke III; Bruce B. Huber;
James E. Hunt; Frederick A. Parker; John B. Russell; Mark C. Winmill; Thomas B.
Winmill.
(3) Subject to the provisions of these Articles of Incorporation and
the provisions of the Investment Company Act of 1940, any director, officer or
employee, individually, or any partnership of which any director, officer or
employee may be a member, or any corporation or association of which any
director, officer or employee of this Corporation may be an officer, director,
trustee, employee or stockholder may be a party to or may be pecuniarily
interested in any contract or transaction of the Corporation, and in the absence
of fraud, no contract or other transaction shall be thereby affected or
invalidated, provided that the facts shall be disclosed or shall have been known
to the Board of Directors or a majority thereof and any director of the
Corporation who is so interested or who is also a director, officer, trustee,
employee or stockholder of such corporation or association or a member of such
partnership which is so interested may be counted in determining the existence
of a quorum at any meeting of the Directors of the Corporation which shall
authorize any such contract or transaction and may vote thereat on any such
contract or transaction with like force and effect as if he were not such
director, officer, trustee, employee or stockholder of such corporation,
association so interested or not a member of a partnership so interested, or so
interested individually.
5
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[signatures omitted]
6
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AMENDED BY-LAWS
of
BULL & BEAR FUNDS II, INC.
A Maryland Corporation
December 8, 1993
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE I - NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL..............2
Section 1.01. Name...............................................2
Section 1.02. Principal Offices..................................2
Section 1.03. Seal...............................................2
ARTICLE II - STOCKHOLDERS..................................................2
Section 2.01. Annual Meetings....................................2
Section 2.02. Special Meetings...................................2
Section 2.03. Notice of Meetings.................................3
Section 2.04. Quorum and Adjournment of Meetings.................3
Section 2.05. Voting and Inspectors..............................3
Section 2.06. Validity of Proxies................................4
Section 2.07. Stock Ledger and List of Stockholders..............4
Section 2.08. Action Without Meeting.............................4
ARTICLE III- BOARD OF DIRECTORS............................................5
Section 3.01. General Powers.....................................5
Section 3.02. Power to Issue and Sell Stock......................5
Section 3.03. Power to Declare Dividends.........................5
Section 3.04. Number and Term of Directors.......................5
Section 3.05. Election...........................................6
Section 3.06. Vacancies and Newly Created Directorships..........6
Section 3.07. Removal............................................6
Section 3.08. Regular Meetings...................................6
Section 3.09. Special Meetings...................................6
Section 3.10. Waiver of Notice...................................7
Section 3.11. Quorum and Voting..................................7
Section 3.12. Action Without a Meeting...........................7
Section 3.13. Compensation of Directors..........................7
ARTICLE IV - COMMITTEES....................................................7
Section 4.01. Organization.......................................7
Section 4.02. Powers of the Executive Committee..................7
Section 4.03. Powers of Other Committees of the Board of Directors.7
Section 4.04. Proceedings and Quorum..............................8
Section 4.05. Other Committees....................................8
ARTICLE V - OFFICERS........................................................8
Section 5.01. Officers............................................8
Section 5.02. Election, Tenure and Qualifications.................8
Section 5.03. Vacancies and Newly Created Offices.................8
Section 5.04. Removal and Resignation.............................8
Section 5.05. Chairman of the Board...............................9
Section 5.06. Vice Chairman of the Board..........................9
Section 5.07. President, Co-President.............................9
Section 5.08. Vice President......................................9
Section 5.09. Treasurer and Assistant Treasurers..................9
Section 5.10. Secretary and Assistant Secretaries................10
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Section 5.11. Subordinate Officers..............................10
Section 5.12. Remuneration......................................10
Section 5.13. Surety Bonds......................................10
ARTICLE VI - EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES...............10
Section 6.01. General...........................................10
Section 6.02. Checks, Notes, Drafts, Etc........................11
Section 6.03. Voting of Securities..............................11
ARTICLE VII - CAPITAL STOCK...............................................11
Section 7.01. Certificates of Stock.............................11
Section 7.02. Transfer of Shares................................11
Section 7.03. Transfer Agents and Registrars....................12
Section 7.04. Fixing of Record Date.............................12
Section 7.05. Lost, Stolen or Destroyed Certificates............12
ARTICLE VIII - CONFLICT OF INTEREST TRANSACTIONS..........................12
Section 8.01. Validity of Contract or Transactions..............12
Section 8.02. Dealings..........................................13
ARTICLE IX - FISCAL YEAR AND ACCOUNTANT...................................13
Section 9.01. Fiscal Year.......................................13
Section 9.02. Accountant........................................13
ARTICLE X - CUSTODY OF SECURITIES.........................................14
Section 10.01. Employment of a Custodian........................14
Section 10.02. Termination of Custodian Agreement...............14
Section 10.03. Provisions of Custodian Contract.................14
Section 10.04. Other Arrangements...............................14
ARTICLE XI - INDEMNIFICATION AND INSURANCE................................15
Section 11.01. Indemnification of Officers, Directors,
Employees and Agents..................................15
Section 11.02. Insurance of Officers, Directors,
Employees and Agents..................................16
Section 11.03. Non-exclusivity..................................16
Section 11.04. Amendment........................................16
ARTICLE XII - AMENDMENTS..................................................16
Section 12.01. General..........................................16
Section 12.02. By Stockholders Only.............................16
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As approved December 8, 1993
BY-LAWS
OF
BULL & BEAR FUNDS II, INC.
(A MARYLAND CORPORATION)
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1.01. Name. The name of the Corporation is Bull & Bear Funds II, Inc.
Section 1.02. Principal Offices. The principal office of the Corporation in the
State of Maryland shall be located in Baltimore, Maryland. The Corporation may,
in addition, establish and maintain such other offices and places of business as
the board of directors may, from time to time, determine.
Section 1.03. Seal. The corporate seal of the Corporation shall consist of two
(2) concentric circles, between which shall be the name of the Corporation, and
in the center shall be inscribed the year of its incorporation, and the words
"Corporate Seal." The form of the seal shall be subject to alteration by the
board of directors and the seal may be used by causing it or a facsimile to be
impressed or affixed or printed or otherwise reproduced. Any officer or director
of the Corporation shall have authority to affix the corporate seal of the
Corporation to any document requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings. There shall be no stockholders' meetings for the
election of directors and the transaction of other proper business except as
required by law or as hereinafter provided.
Section 2.02. Special Meetings. Special meetings of stockholders may be called
at any time by the chairman of the board or the president or a co-president and
shall be held at such time and place as may be stated in the notice of the
meeting.
Unless otherwise required by law, special meetings of the stockholders shall be
called by the secretary upon the written request of the holders of shares
entitled to not less than 10 percent of all the votes entitled to be cast at
such meeting, provided that (a) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (b) the stockholders
requesting such meeting shall have paid to the Corporation the reasonably
estimated cost of preparing and mailing the notice thereof, which the secretary
shall determine and specify to such stockholders. No special meeting need be
called upon the request of stockholders to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
stockholders held during the preceding twelve months, unless requested by the
holders of a majority of all shares entitled to be voted at such meeting.
Section 2.03. Notice of Meetings. The secretary shall cause notice of the place,
date and hour and, in the case of a special meeting or as otherwise required by
law, the purpose or purposes for which the
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As approved December 8, 1993
meeting is called, to be served personally or to be mailed, postage prepaid, not
less than 10 nor more than 90 days before the date of the meeting, to each
stockholder entitled to vote at such meeting at his address as it appears on the
records of the Corporation at the time of such mailing. Notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholders as aforesaid.
Notice of any stockholders' meeting need not be given to any stockholder who
shall sign a written waiver of such notice whether before or after the time of
such meeting, which waiver shall be filed with the records of such meeting, or
to any stockholder who is present at such meeting in person or by proxy. Notice
of adjournment of a stockholders' meeting to another time or place need not be
given if such time and place are announced at the meeting.
Irregularities in the notice of any meeting to, or the nonreceipt of any such
notice by, any of the stockholders shall not invalidate any action otherwise
properly taken by or at any such meeting.
Section 2.04. Quorum and Adjournment of Meetings. The presence at any
stockholders' meeting, in person or by proxy, of stockholders entitled to cast
one-third of all votes entitled to be cast thereat shall be necessary and
sufficient to constitute a quorum for the transaction of business, provided that
with respect to any matter to be voted upon separately by any Series (as defined
in the Articles of Incorporation) or class of shares, a quorum shall consist of
the holders of one-third of the shares of that Series or class outstanding and
entitled to vote on the matter. In the absence of a quorum, the stockholders
present in person or by proxy or, if no stockholder entitled to vote is present
in person or by proxy, any officer present entitled to preside or act as
secretary of such meeting may adjourn the meeting without determining the date
of the new meeting or from time to time without further notice to a date not
more than 120 days after the original record date. Any business that might have
been transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 2.05. Voting and Inspectors. At every stockholders' meeting, each
stockholder shall be entitled to one vote for each share and a fractional vote
for each fraction of a share of stock of the Corporation validly issued and
outstanding and standing in his name on the books of the Corporation on the
record date fixed in accordance with Section 7.05 hereof, either in person or by
proxy appointed by instrument in writing subscribed by such stockholder or his
duly authorized attorney, except that no shares held by the Corporation shall be
entitled to a vote; provided, however, that (a) as to any matter with respect to
which a separate vote of any series is required by the Investment Company Act of
1940, as amended, or by the Maryland General Corporation Law, such requirement
as to a separate vote by that series shall apply; (b) in the event that the
separate vote requirements referred to in (a) above apply with respect to one or
more series, then, subject to (c) below, the shares of all other such one or
more series shall vote as a single series; and (c) as to any matter which
affects the interest of only a particular series, only the holders of shares of
the one or more affected series shall be entitled to vote.
If no record date has been fixed, the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be the later of the close of business on the day on which notice of the meeting
is mailed or the 30th day before the meeting, or, if notice is waived by all
stockholders, at the close of business on the 11th day preceding the day on
which the meeting is held.
Except as otherwise specifically provided in the Articles of Incorporation or
these By-laws or as required by provisions of the Investment Company Act of
1940, as amended, all matters shall be decided by a vote of the majority of the
votes validly cast at a meeting at which a quorum is present. The vote upon
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As approved December 8, 1993
any question shall be by ballot whenever requested by any person entitled to
vote, but, unless such a request is made, voting may be conducted in any way
approved by the meeting.
At any meeting at which there is an election of directors, the chairman of the
meeting may appoint two inspectors of election who shall first subscribe an oath
or affirmation to execute faithfully the duties of inspectors at such election
with strict impartiality and according to the best of their ability, and shall,
after the election, make a certificate of the result of the vote taken. No
candidate for the office of director shall be appointed as an inspector.
Section 2.06. Validity of Proxies. The right to vote by proxy shall exist only
if the instrument authorizing such proxy to act shall have been signed by the
stockholder or by his duly authorized attorney. Unless a proxy provides
otherwise, it shall not be valid more than 11 months after its date. All proxies
shall be delivered to the secretary of the Corporation or to the person acting
as secretary of the meeting before being voted, who shall decide all questions
concerning qualification of voters, the validity of proxies, and the acceptance
or rejection of votes. If inspectors of election have been appointed by the
chairman of the meeting, such inspectors shall decide all such questions. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of such proxy
the Corporation receives from any one of them a specific written notice to the
contrary and a copy of the instrument or order which so provides. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged at or prior to its exercise.
Section 2.07. Stock Ledger and List of Stockholders. It shall be the duty of the
secretary or assistant secretary of the Corporation to cause an original or
duplicate stock ledger containing the names and addresses of all the
stockholders and the number of shares held by them, respectively, to be
maintained at the office of the Corporation's transfer agent. Such stock ledger
may be in written form or any other form capable of being converted into written
form within a reasonable time for visual inspection. Any one or more persons,
each of whom has been a stockholder of record of the Corporation for more than
six months next preceding such request, who owns in the aggregate five percent
or more of the outstanding capital stock of the Corporation, may submit (unless
the Corporation at the time of the request maintains a duplicate stock ledger at
its principal office in Maryland) a written request to any officer of the
Corporation or its resident agent in Maryland for a list of the stockholders of
the Corporation. Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office in Maryland a list containing
the names and addresses of all stockholders of the Corporation and the number of
shares of each class held by each stockholder, certified as correct by an
officer of the Corporation, by its stock transfer agent, or by its registrar.
Section 2.08. Action Without Meeting. Any action required or permitted to be
taken by stockholders at a meeting of stockholders may be taken without a
meeting if (a) all stockholders entitled to vote on the matter consent to the
action in writing, (b) all stockholders entitled to notice of the meeting but
not entitled to vote at it sign a written waiver of any right to dissent, and
(c) the consents and waivers are filed with the records of the meetings of
stockholders. Such consent shall be treated for all purposes as a vote at the
meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers. Except as otherwise provided by operation of law,
by the Articles of Incorporation, or by these By-laws, the property, business
and affairs of the Corporation shall be
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<PAGE>
As approved December 8, 1993
managed under the direction of and all the powers of the Corporation shall be
exercised by or under authority of its board of directors.
Section 3.02. Power to Issue and Sell Stock. The board of directors may from
time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration as
the board of directors shall deem advisable, subject to the provisions of the
Articles of Incorporation.
Section 3.03. Power to Declare Dividends. The board of directors, from time to
time as they may deem advisable, may declare and pay dividends in stock, cash or
other property of the Corporation, out of any source available for dividends, to
the stockholders according to their respective rights and interests in
accordance with the provisions of the Articles of Incorporation. The board of
directors may prescribe from time to time that dividends declared may be payable
at the election of any of the stockholders (exercisable before or after the
declaration of the dividend), either in cash or in shares of the Corporation,
provided that the sum of the cash dividend actually paid to any stockholder and
the asset value of the shares received (determined as of such time as the board
of directors shall have prescribed, pursuant to the Articles of Incorporation,
with respect to shares sold on the date of such election) shall not exceed the
full amount of cash to which the stockholder would be entitled if he elected to
receive only cash. The board of directors shall cause to be accompanied by a
written statement any dividend payment wholly or partly from any source other
than:
(a) the Corporation's accumulated undistributed net income (determined
in accordance with good accounting practice and the rules and
regulations of the Securities and Exchange Commission then in effect)
and not including profits or losses realized upon the sale of
securities or other properties; or
(b) the Corporation's net income so determined for the current or
preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Securities and
Exchange Commission may prescribe.
Section 3.04. Number and Term of Directors. Except for the initial board of
directors, the board of directors shall consist of not fewer than three nor more
than fifteen directors, as specified by a resolution of a majority of the entire
board of directors and at least one member of the board of directors shall be a
person who is not an "interested person" of the Corporation, as that term is
defined in the Investment Company Act of 1940, as amended. All other directors
may be interested persons of the Corporation if the requirements of Section
10(d) of the Investment Company Act of 1940, as amended, are met by the
Corporation and its investment manager. Each director shall hold office until
his successor is elected and qualified or until his earlier death, resignation
or removal.
All acts done at any meeting of the directors or by any person acting as a
director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as a
director or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Directors need not be stockholders of the Corporation.
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<PAGE>
As approved December 8, 1993
Section 3.05. Election. The initial director or directors shall be that person
or persons named as such in the Articles of Incorporation. Thereafter, except as
provided otherwise by these By-laws, the director shall be elected by the
stockholders on a date fixed by the board of directors. A plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
Section 3.06. Vacancies and Newly Created Directorships. If any vacancies shall
occur in the board of directors by reason of death, resignation, removal or
otherwise, or if the authorized number of directors shall be increased, the
directors then in office shall continue to act, and such vacancies (if not
previously filled by the stockholders) may be filled by a majority of the
directors then in office, although less than a quorum, except that a newly
created directorship may be filled only by a majority vote of the entire board
of directors; provided, however, that immediately after filling such vacancy, at
least two-thirds (2/3) of the directors then holding office shall have been
elected to such office by the stockholders of the Corporation. In the event that
at any time, other than the time preceding the first annual stockholders'
meeting, less than a majority of the directors of the Corporation holding office
at that time were elected by the stockholders, a meeting of the stockholders
shall be held promptly and in any event within 60 days for the purpose of
electing directors to fill any existing vacancies in the board of directors,
unless the Securities and Exchange Commission shall by order extend such period.
Section 3.07. Removal. At any stockholders' meeting duly called, provided a
quorum is present, the stockholders may remove any director from office (either
with or without cause) by the affirmative vote of a majority of all votes
represented at the meeting, and at the same meeting a duly qualified successor
or successors may be elected to fill any resulting vacancies by a plurality of
the votes validly cast.
Section 3.08. Regular Meetings. The meeting of the board of directors for
choosing officers and transacting other proper business, and all other meetings,
shall be held at such time and place, within or outside the state of Maryland,
as the board may determine and as provided by resolution. Except as otherwise
provided in the Investment Company Act of 1940, as amended, notice of such
meetings need not be given, following the annual meeting of stockholders, if
any, provided that notice of any change in the time or place of such meetings
shall be sent promptly to each director not present at the meeting at which such
change was made, in the manner provided for notice of special meetings. Except
as otherwise provided under the Investment Company Act of 1940, as amended,
members of the board of directors or any committee designated thereby may
participate in a meeting of such board or committee by means of a conference
telephone or similar communications equipment that allows all persons
participating in the meeting to hear each other at the same time; and
participation by such means shall constitute presence in person at a meeting.
Section 3.09. Special Meetings. Special meetings of the board of directors shall
be held whenever called by the chairman of the board or the president or a
co-president (or, in the absence or disability of the chairman of the board or
the president or a co-president, by any officer or director, as they so
designate) at the time and place (within or outside of the State of Maryland)
specified in the respective notice or waivers of notice of such meetings. At
least three days before the day on which a special meeting is to be held, notice
of special meetings, stating the time and place, shall be (a) mailed to each
director at his residence or regular place of business or (b) delivered to him
personally or transmitted to him by telegraph, telefax, telex, cable or
wireless.
Section 3.10. Waiver of Notice. No notice of any meeting need be given to any
director who is present at the meeting or who waives notice of such meeting in
writing (which waiver shall be filed with the records of such meeting), either
before or after the time of the meeting.
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As approved December 8, 1993
Section 3.11. Quorum and Voting. At all meetings of the board of directors, the
presence of one-half of the number of directors then in office shall constitute
a quorum for the transaction of business, provided that there shall be present
at least two directors. In the absence of a quorum, a majority of the directors
present may adjourn the meeting, from time to time, until a quorum shall be
present. The action of a majority of the directors present at a meeting at which
a quorum is present shall be the action of the board of directors, unless
concurrence of a greater proportion is required for such action by law, by the
Articles of Incorporation or by these By-laws.
Section 3.12. Action Without a Meeting. Except as otherwise provided in the
Investment Company Act of 1940, as amended, any action required or permitted to
be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting if a written consent to such action is signed by
all members of the board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the board or
committee.
Section 3.13. Compensation of Directors. Directors may receive such compensation
for their services as may from time to time be determined by resolution of the
board of directors.
ARTICLE IV
COMMITTEES
Section 4.01. Organization. By resolution adopted by the board of directors, the
board may designate one or more committees of the board of directors, including
an Executive Committee, each consisting of at least two directors. Each member
of a committee shall be a director and shall hold committee membership at the
pleasure of the board. The chairman of the board, if any, shall be a member of
the Executive Committee. The board of directors shall have the power at any time
to change the members of such committees and to fill vacancies in the
committees.
Section 4.02. Powers of the Executive Committee. Unless otherwise provided by
resolution of the board of directors, when the board of directors is not in
session the Executive Committee shall have and may exercise all powers of the
board of directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by an Executive Committee except the
power to declare a dividend or distribution on stock, authorize the issuance of
stock, recommend to stockholders any action requiring stockholders' approval,
amend these By-laws, approve any merger or share exchange which does not require
stockholder approval or approve or terminate any contract with an "investment
adviser" or "principal underwriter," as those terms are defined in the
Investment Company Act of 1940, as amended, or to take any other action required
by the Investment Company Act of 1940, as amended, to be taken by the board of
directors. Notwithstanding the above, such Executive Committee may make such
dividend calculations and payments as are consistent with applicable law,
including Maryland corporate law.
Section 4.03. Powers of Other Committees of the Board of Directors. To the
extent provided by resolution of the board, other committees of the board of
directors shall have and may exercise any of the powers that may lawfully be
granted to the Executive Committee.
Section 4.04. Proceedings and Quorum. In the absence of an appropriate
resolution of the board of directors, each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that a quorum shall not be less than two
directors. In the event any member of any committee is absent from any meeting,
the
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<PAGE>
As approved December 8, 1993
members thereof present at the meeting, whether or not they constitute a quorum,
may appoint a member of the board of directors to act in the place of such
absent member.
Section 4.05. Other Committees. The board of directors may appoint other
committees, each consisting of one or more persons, who need not be directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the board of directors, but shall not
exercise any power which may lawfully be exercised only by the board of
directors or a committee thereof.
ARTICLE V
OFFICERS
Section 5.01. Officers. The officers of the Corporation shall be a president or
co-presidents, a secretary, and a treasurer, and may include one or more vice
presidents (including executive and senior vice presidents), assistant
secretaries or assistant treasurers, and such other officers as may be appointed
in accordance with the provisions of Section 5.11 hereof. The board of directors
may, but shall not be required to, elect a chairman and vice chairman of the
board.
Section 5.02. Election, Tenure and Qualifications. The officers of the
Corporation (except those appointed pursuant to Section 5.11 hereof) shall be
elected by the board of directors at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting, and thereafter at
regular board meetings, as required by applicable law. If any officers are not
elected at any annual meeting, such officers may be elected at any subsequent
meetings of the board. Except as otherwise provided in this Article V, each
officer elected by the board of directors shall hold office until his or her
successor shall have been elected and qualified. Any person may hold one or more
offices of the Corporation except that no one person may serve concurrently as
both the president or a co-president and vice president. A person who holds more
than one office in the Corporation may not act in more than one capacity to
execute, acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer. The chairman of the board
shall be chosen from among the directors of the Corporation and may hold such
office only so long as he continues to be a director. No other officer need be a
director.
Section 5.03. Vacancies and Newly Created Offices. If any vacancy shall occur in
any office by reason of death, resignation, removal, disqualification or other
cause, or if any new office shall be created, such vacancies or newly created
offices may be filled by the chairman of the board at any meeting or, in the
case of any office created pursuant to Section 5.11 hereof, by any officer upon
whom such power shall have been conferred by the board of directors.
Section 5.04. Removal and Resignation. At any meeting called for such purpose,
the Executive Committee may remove any officer from office (either with or
without cause) by the affirmative vote, given at the meeting, of a majority of
the members of the Committee. Any officer may resign from office at any time by
delivering a written resignation to the board of directors, the president or a
co-president, the secretary, or any assistant secretary. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 5.05. Chairman of the Board. The chairman of the board, if there be such
an officer, shall be the senior officer of the Corporation, shall preside at all
stockholders' meetings and at all meetings of the board of directors and shall
be ex officio a member of all committees of the board of directors. He
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<PAGE>
As approved December 8, 1993
shall have such other powers and perform such other duties as may be assigned to
him from time to time by the board of directors.
Section 5.06. Vice Chairman of the Board. The board of directors may from time
to time elect a vice chairman who shall have such powers and perform such duties
as from time to time may be assigned to him by the board of directors, chairman
of the board or the president or a co-president. At the request of, or in the
absence or in the event of the disability of the chairman of the board, the vice
chairman may perform all the duties of the chairman of the board or the
president or a co-president and, when so acting, shall have all the powers of
and be subject to all the restrictions upon such respective officers.
Section 5.07. President, Co-President. The president or co-presidents shall be
the chief executive officer or co-chief executive officers, as the case may be,
of the Corporation and, in the absence of the chairman of the board or vice
chairman or if no chairman of the board or vice chairman has been chosen, shall
preside at all stockholders' meetings and at all meetings of the board of
directors and shall in general exercise the powers and perform the duties of the
chairman of the board. Subject to the supervision of the board of directors, the
president or the co-presidents shall have general charge of the business,
affairs and property of the Corporation and general supervision over its
officers, employees and agents. Except as the board of directors may otherwise
order, the president or a co- president may sign in the name and on behalf of
the Corporation all deeds, bonds, contracts, or agreements. The president or a
co-president shall exercise such other powers and perform such other duties as
from time to time may be assigned by the board of directors.
Section 5.08. Vice President. The board of directors may from time to time elect
one or more vice presidents (including executive and senior vice presidents) who
shall have such powers and perform such duties as from time to time may be
assigned to them by the board of directors or the president or a co-presidents.
At the request of, or in the absence or in the event of the disability of, the
president or both co-presidents, the vice president (or, if there are two or
more vice presidents, then the senior of the vice presidents present and able to
act) may perform all the duties of the president or co- presidents and, when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president or co-presidents.
Section 5.09. Treasurer and Assistant Treasurers. The treasurer shall be the
chief accounting officer of the Corporation and shall have general charge of the
finances and books of account of the Corporation. The treasurer shall render to
the board of directors, whenever directed by the board, an account of the
financial condition of the Corporation and of all transactions as treasurer; and
as soon as possible after the close of each financial year he shall make and
submit to the board of directors a like report for such financial year. The
treasurer shall cause to be prepared annually a full and complete statement of
the affairs of the Corporation, including a balance sheet and a financial
statement of operations for the preceding fiscal year, which shall be submitted
at the annual meeting of stockholders (when, and if, such meeting is held) and
filed within 20 days thereafter at the principal office of the Corporation in
the state of Maryland, except that for any year when an annual meeting of
stockholders is not held, such statement of affairs shall be filed at the
Corporation's principal office within 120 days after the end of the fiscal year.
The treasurer shall perform all acts incidental to the office of treasurer,
subject to the control of the board of directors.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the board of directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
- 8 -
<PAGE>
As approved December 8, 1993
Section 5.10. Secretary and Assistant Secretaries. The secretary shall attend to
the giving and serving of all notices of the Corporation and shall record all
proceedings of the meetings of the stockholders and directors in books to be
kept for that purpose. The secretary shall keep in safe custody the seal of the
Corporation, and shall have responsibility for the records of the Corporation,
including the stock books and such other books and papers as the board of
directors may direct and such books, reports, certificates and other documents
required by law to be kept, all of which shall at all reasonable times be open
to inspection by any director. The secretary shall perform such other duties
which appertain to this office or as may be required by the board of directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the board of directors may assign, and, in the absence of the
secretary, may perform all the duties of the secretary.
Section 5.11. Subordinate Officers. The chairman of the board from time to time
may appoint such other officers or agents as he may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the board of directors may determine. The chairman of the
board from time to time may delegate to one or more officers or agents the power
to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. Any officer or agent
appointed in accordance with the provisions of this Section 5.11 may be removed,
either with or without cause, by any officer upon whom such power of removal
shall have been conferred by the board of directors.
Section 5.12. Remuneration. The salaries or other compensation of the officers
of the Corporation shall be fixed from time to time by resolution of the board
of directors, except that the board of directors may by resolution delegate to
any person or group of persons the power to fix the salaries or other
compensation of any subordinate officers or agents appointed in accordance with
the provisions of Section 5.11 hereof.
Section 5.13. Surety Bonds. The board of directors may require any officer or
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the Investment Company Act of 1940, as amended, and the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder) to the Corporation in such sum and with such surety or sureties as
the board of directors may determine, conditioned upon the faithful performance
of his or her duties to the Corporation, including responsibility for negligence
and for the accounting of any of the Corporation's property, funds or securities
that may come into his hands.
ARTICLE VI
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 6.01. General. Subject to the provisions of Sections 5.05, 6.02, and
7.03 hereof, all deeds, documents, transfers, contracts, agreements and other
instruments requiring execution by the Corporation shall be signed by the
president or a co-president, a vice president (including executive and senior
vice presidents) or vice chairman and by the treasurer or secretary or an
assistant treasurer or an assistant secretary, or as the board of directors may
otherwise, from time to time, authorize. Any such authorization may be general
or confined to specific instances.
Section 6.02. Checks, Notes, Drafts, Etc. So long as the Corporation shall
employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the board of directors, all requisitions or orders for
the assignment of securities
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<PAGE>
As approved December 8, 1993
standing in the name of the custodian or its nominee, or for the execution of
powers to transfer the same, shall be signed in the name of the Corporation by
any two of the following: the president or a co-president, vice president
(including executive and senior vice presidents), treasurer or an assistant
treasurer, provided that no one person may sign in the capacity of two such
officers. Promissory notes, checks or drafts payable to the Corporation may be
endorsed only to the order of the custodian or its nominee and only by any two
of the following: the treasurer, the president or a co-president, a vice
president (including executive and senior vice presidents) or by such other
person or persons as shall be authorized by the board of directors, provided
that no one person may sign in the capacity of two such officers.
Section 6.03. Voting of Securities. Unless otherwise ordered by the board of
directors, the president or a co-president, or any vice president (including
executive and senior vice presidents) shall have full power and authority on
behalf of the Corporation to attend and to act and to vote, or in the name of
the Corporation to execute proxies to vote, at any meeting of stockholders of
any company in which the Corporation may hold stock. At any such meeting such
officer shall possess and may exercise (in person or by proxy) any and all
rights, powers and privileges incident to the ownership of such stock. The board
of directors may by resolution from time to time confer like powers upon any
other person or persons in accordance with the laws of the State of Maryland.
ARTICLE VII
CAPITAL STOCK
Section 7.01. Certificates of Stock. The interest of each stockholder of the
Corporation may be, but shall not be required to be, evidenced by certificates
for shares of stock in such form not inconsistent with the Articles of
Incorporation as the board of directors may from time to time authorize. No
certificate shall be valid unless it is signed in the name of the Corporation by
a president or a co- president or a vice president and countersigned by the
secretary or an assistant secretary or the treasurer or an assistant treasurer
of the Corporation and sealed with the seal of the Corporation, or bears the
facsimile signatures of such officers and a facsimile of such seal. In case any
officer who shall have signed any such certificate, or whose facsimile signature
has been placed thereon, shall cease to be such an officer (because of death,
resignation or otherwise) before such certificate is issued, such certificate
may be issued and delivered by the Corporation with the same effect as if he
were such officer at the date of issue.
The number of each certificate issued, the name and address of the person owning
the shares represented thereby, the number of such shares and the date of
issuance shall be entered upon the stock ledger of the Corporation at the time
of issuance.
Every certificate exchanged, surrendered for redemption or otherwise returned to
the Corporation shall be marked "canceled" with the date of cancellation.
Section 7.02. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder of record thereof (in
person or by his duly authorized attorney or legal representative) (a) if a
certificate or certificates have been issued, upon surrender duly endorsed or
accompanied by proper instruments of assignment and transfer, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require, or (b) as otherwise prescribed by the board of directors.
Except as otherwise provided in the Articles of Incorporation, the shares of
stock of the Corporation may be freely transferred, subject to the charging of
customary transfer fees, and the board of directors may, from time to time,
adopt rules and regulations with reference to the
- 10 -
<PAGE>
As approved December 8, 1993
method of transfer of the shares of stock of the Corporation. The Corporation
shall be entitled to treat the holder of record of any share of stock as the
absolute owner thereof for all purposes, and accordingly shall not be bound to
recognize any legal, equitable or other claim or interest in such share on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise expressly provided by law or the statutes of the
State of Maryland.
Section 7.03. Transfer Agents and Registrars. The board of directors may from
time to time appoint or remove transfer agents or registrars of transfers for
shares of stock of the Corporation, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment being made all
certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
Section 7.04. Fixing of Record Date. The board of directors may fix in advance a
date as a record date for the determination of the stockholders entitled to
notice of or to vote at any stockholders' meeting or any adjournment thereof, or
to express consent to corporate action in writing without a meeting, or to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, provided that
(a) such record date shall be within 90 days prior to the date on which the
particular action requiring such determination will be taken, except that a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice to a date not more than 120
days after the original record date; (b) the transfer books shall not be closed
for a period longer than 20 days; and (c) in the case of a meeting of
stockholders, the record date shall be at least 10 days before the date of the
meeting.
Section 7.05. Lost, Stolen or Destroyed Certificates. Before issuing a new
certificate for stock of the Corporation alleged to have been lost, stolen or
destroyed, the board of directors or any officer authorized by the board may, in
its discretion, require the owner of the lost, stolen or destroyed certificate
(or his legal representative) to give the Corporation a bond or other indemnity,
in such form and in such amount as the board or any such officer may direct and
with such surety or sureties as may be satisfactory to the board or any such
officer, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VIII
CONFLICT OF INTEREST TRANSACTIONS
Section 8.01. Validity of Contract or Transactions. In the event that any
officer or director of the Corporation shall have any interest, direct or
indirect, in any other firm, association or corporation as officer, employee,
director or stockholder, no transaction or contract made by the Corporation with
any such other firm, association or corporation shall be valid unless such
interest shall have been disclosed or made known to all of the directors or to a
majority of the directors and such transaction or contract shall have been
approved by a majority of a quorum of directors, which majority shall consist of
directors not having any such interest or a majority of the directors in office,
including directors having such an interest.
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<PAGE>
As approved December 8, 1993
Section 8.02. Dealings. No officer, director or employee of the Corporation
shall deal for or on behalf of the Corporation with himself, as principal or
agent, or with any corporation or partnership in which he has a financial
interest, except that:
(a) Such prohibition shall not prevent officers, directors or
employees of the Corporation from having a financial interest in the
Corporation, or the sponsor, or a distributor of the shares of the
Corporation, or the investment manager or counsel of the Corporation;
(b) Such prohibition shall not prevent the purchase of securities for
the portfolio of the Corporation or the sale of securities owned by
the Corporation through a securities broker, one or more of whose
partners, officers or directors is an officer, director or employee of
the Corporation, provided such transactions are handled in the
capacity of broker, only, and provided they are performed in
accordance with applicable law;
(c) Such prohibition shall not prevent the employment of legal
counsel, registrar, transfer agent, dividend disbursing agent, or
custodian or trustee having a partner, officer or director who is an
officer, director or employee of the Corporation, provided only
customary fees are charged for services rendered for the benefit of
the Corporation;
(d) Such prohibition shall not prevent the purchase for the portfolio
of the Corporation of securities issued by an issuer having an
officer, director or security holder who is an officer, director or
employee of the Corporation or of the manager or investment counsel of
the Corporation, unless at the time of such purchase one or more of
such officers, directors or employees owns beneficially more than
one-half of one per cent (1/2%) of the shares or securities, or both,
of such issuer and such officers, directors and employees owning more
than one-half of one per cent (1/2%) of such shares or securities
together own beneficially more than five per cent (5%) of such shares
or securities.
ARTICLE IX
FISCAL YEAR AND ACCOUNTANT
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall, unless
otherwise ordered by the board of directors, be twelve calendar months ending on
the 30th day of June.
Section 9.02. Accountant. The Corporation shall employ an independent public
accountant or a firm of independent public accountants as its accountant to
examine the accounts of the Corporation and to sign and certify financial
statements filed by the Corporation. The accountant's certificates and reports
shall be addressed both to the board of directors and to the stockholders. The
employment of the accountant shall be conditioned upon the right of the
Corporation to terminate the employment forthwith without any penalty by vote of
a majority of the outstanding voting securities at any stockholders' meeting
called for that purpose.
A majority of the members of the board of directors who are not "interested
persons" (as defined in the Investment Company Act of 1940, as amended) of the
Corporation shall select the accountant at any meeting held within 90 days
before or after the beginning of the fiscal year of the Corporation or before
the annual stockholders' meeting (if any) in that year. The selection shall be
submitted for ratification or rejection at the next succeeding annual
stockholders' meeting, if any, when and if such meeting is held. If the
selection is rejected at that meeting, the accountant shall be selected by
majority vote of
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<PAGE>
As approved December 8, 1993
the Corporation's outstanding voting securities, either at the meeting at which
the rejection occurred or at a subsequent meeting of stockholders called for the
purpose of selecting an accountant.
Any vacancy occurring between annual meetings, if any, due to the death or
resignation of the accountant may be filled by the vote of a majority of the
members of the board of directors who are not interested persons.
ARTICLE X
CUSTODY OF SECURITIES
Section 10.01. Employment of a Custodian. Unless otherwise required by law or
the Articles of Incorporation, all securities and cash owned by the Corporation
from time to time shall be deposited with and held by a custodian or
subcustodian qualified to act as such in accordance with the requirements of the
Investment Company Act of 1940, as amended.
Section 10.02. Termination of Custodian Agreement. Upon termination of the
agreement for services with the custodian or inability of the custodian to
continue to serve, the board of directors shall promptly appoint a successor
custodian, but in the event that no successor custodian can be found who has the
required qualifications and is willing to serve, the board of directors shall
call as promptly as possible a special meeting of the stockholders to determine
whether the Corporation shall function without a custodian or shall be
liquidated. If so directed by resolution of the board of directors or by vote of
the holders of a majority of the outstanding shares of stock of the Corporation,
the custodian shall deliver and pay over all property of the Corporation held by
it as specified in such vote.
Section 10.03. Provisions of Custodian Contract. The board of directors shall
cause to be delivered to the custodian all securities owned by the Corporation
or to which it may become entitled, and shall order the same to be delivered by
the custodian only in completion of a sale, exchange, transfer, pledge, or other
disposition thereof, all as the board of directors may generally or from time to
time require to approve or to a successor custodian; and the board of directors
shall cause all funds owned by the Corporation or to which it may become
entitled to be paid to the custodian, and shall order the same disbursed only
for investment against delivery of the securities acquired, or in payment of
expenses, including management compensation, and liabilities of the Corporation,
including distributions to shareholders, or to a successor custodian.
Section 10.04. Other Arrangements. The Corporation may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLE XI
INDEMNIFICATION AND INSURANCE
Section 11.01. Indemnification of Officers, Directors, Employees and Agents. In
accordance with applicable law, including the Investment Company Act of 1940, as
amended, and Maryland Corporate law, the Corporation shall indemnify each person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact that he or
she is or was a director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, partner, trustee or agent of another corporation, partnership, joint
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<PAGE>
As approved December 8, 1993
venture, trust, or other enterprise, against all reasonable expenses (including
attorneys' fees) actually incurred, and judgments, fines, penalties and amounts
paid in settlement in connection with such Proceeding to the maximum extent
permitted by law, now existing or hereafter adopted. Notwithstand ing the
foregoing, the following provisions shall apply with respect to indemnification
of the Corporation's directors, officers, and investment manager (as defined in
the Investment Company Act of 1940, as amended):
(a) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for
any liability arising by reason of such person's willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office or under any contract or
agreement with the Corporation ("disabling conduct").
(b) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the Proceeding was
brought (a) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (b) reaches a final
decision on the merits that such person was not liable by reason
of disabling conduct; or
(2) absent such a decision, a reasonable determination is made,
based upon a review of the facts, by (a) the vote of a majority
of a quorum of the directors of the Corporation who are neither
interested persons of the Corporation as defined in the
Investment Company Act of 1940, as amended, nor parties to the
Proceeding, or (b) if such quorum is not obtainable, or even if
obtainable, if a majority of a quorum of directors described
above so directs, based upon a written opinion by independent
legal counsel, that such person was not liable by reason of
disabling conduct.
(c) Reasonable expenses (including attorneys' fees) incurred in
defending a Proceeding involving any such person will be paid by the
Corporation in advance of the final disposition thereof upon an
undertaking by such person to repay such expenses unless it is
ultimately determined that he or she is entitled to indemnification,
if:
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the directors of the Corporation
who are neither interested persons of the Corporation as defined
in the Investment Company Act of 1940, as amended, nor parties to
the Proceeding, or independent legal counsel in a written
opinion, shall determine, based on a review of readily available
facts, that there is reason to believe that such person will be
found to be entitled to indemnification.
Section 11.02. Insurance of Officers, Directors, Employees and Agents. The
Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in or arising out of his position.
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<PAGE>
As approved December 8, 1993
Section 11.03. Non-exclusivity. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article XI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, agreement, vote of stockholders or directors, or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office.
Section 11.04. Amendment. No amendment, alteration or repeal of this Article or
the adoption, alteration or amendment of any other provisions to the Articles of
Incorporation or By-laws inconsistent with this Article shall adversely affect
any right or protection of any person under this Article with respect to any act
or failure to act which occurred prior to such amendment, alteration, repeal or
adoption.
ARTICLE XII
AMENDMENTS
Section 12.01. General. Except as provided in Section 12.02 of this Article XII
and subject to the provisions concerning stockholder voting in Article II
hereof, all By-laws of the Corporation, whether adopted by the board of
directors or the stockholders, shall be subject to amendment, alteration or
repeal, and new By-laws may be made by the affirmative vote of either: (a) the
holders of record of a majority of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-law; or (b) a majority of directors, at any meeting the notice
or waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-law.
Section 12.02. By Stockholders Only. No amendment of any section of these
By-laws shall be made except by the stockholders of the Corporation if the
By-laws provide that such section may not be amended, altered or repealed except
by the stockholders. From and after the issuance of any shares of the capital
stock of the Corporation no amendment, alteration or repeal of this Article XII
shall be made except by the stockholders of the Corporation.
- 15 -
NUMBER SHARES
BULL & BEAR DOLLAR RESERVES
INCORPORATED UNDER THE LAWS OF MARYLAND
THIS CERTIFIES THAT ACCOUNT NUMBER
CUSIP NUMBER
120173 20 8
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CAPITAL STOCK, PAR VALUE $0.01 PER
SHARE, OF BULL & BEAR DOLLAR RESERVES SERIES OF SHARES OF BULL & BEAR FUNDS II,
INC.
Herein called the "Corporation", transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
the surrender of this certificate properly endorsed. The Corporation will
furnish to any shareholder upon request and without charge a full statement of
the designations, relative rights, preferences and limitations of the shares of
each series and class authorized to be issued. This certificate is not valid
unless countersigned by the Transfer Agent. Witness the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers.
Dated:
COUNTERSIGNED:
CO-PRESIDENT TREASURER
COUNTERSIGNED:
DST SYSTEMS, INC.
(KANSAS CITY, MISSOURI) TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
<PAGE>
<PAGE>
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE(S) MUST BY
DULY GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY, SAVINGS AND LOAN
ASSOCIATION, FEDERAL SAVINGS BANK, MEMBER FIRM OF A NATIONAL SECURITIES EXCHANGE
OR OTHER ELIGIBLE FINANCIAL INSTITUTION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations: TEN COM - as tenants in common UNIF
GIFT MIN ACT - Custodian TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship under Uniform Gifts to
Minors Act and not as tenants in common (State) Additional abbreviations may
also be used though not in the above list. For value received, do hereby sell,
assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING
NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP
CODE, OF ASSIGNEE) Shares of capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint Attorney to
transfer the said shares on the books of the within-named Corporation with full
power of substitution in the premises. Dated,
Owner
Signature of Co-Owner, if any
IMPORTANT BEFORE SIGNING, READ AND COMPLY CAREFULLY WITH NOTICE PRINTED ABOVE
Signature(s) guaranteed by:
<PAGE>
NUMBER SHARES
BULL & BEAR GLOBAL INCOME FUND
INCORPORATED UNDER THE LAWS OF MARYLAND
THIS CERTIFIES THAT ACCOUNT NUMBER
CUSIP NUMBER
120173 30 7
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CAPITAL STOCK, PAR VALUE $0.01 PER
SHARE, OF BULL & BEAR GLOBAL INCOME SERIES OF SHARES OF BULL & BEAR FUNDS II,
INC.
Herein called the "Corporation", transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
the surrender of this certificate properly endorsed. The Corporation will
furnish to any shareholder upon request and without charge a full statement of
the designations, relative rights, preferences and limitations of the shares of
each series and class authorized to be issued. This certificate is not valid
unless countersigned by the Transfer Agent. Witness the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers.
Dated:
COUNTERSIGNED:
CO-PRESIDENT TREASURER
COUNTERSIGNED:
DST SYSTEMS, INC.
(KANSAS CITY, MISSOURI) TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE(S) MUST BY DULY
GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY, SAVINGS AND LOAN ASSOCIATION,
FEDERAL SAVINGS BANK, MEMBER FIRM OF A NATIONAL SECURITIES EXCHANGE OR OTHER
ELIGIBLE FINANCIAL INSTITUTION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations: TEN COM - as tenants in common UNIF
GIFT MIN ACT - Custodian TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship under Uniform Gifts to
Minors Act and not as tenants in common (State) Additional abbreviations may
also be used though not in the above list. For value received, do hereby sell,
assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING
NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP
CODE, OF ASSIGNEE) Shares of capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint Attorney to
transfer the said shares on the books of the within-named Corporation with full
power of substitution in the premises. Dated,
Owner
Signature of Co-Owner, if any
IMPORTANT BEFORE SIGNING, READ AND COMPLY CAREFULLY WITH NOTICE PRINTED ABOVE
Signature(s) guaranteed by:
<PAGE>
NUMBER SHARES
BULL & BEAR U.S. GOVERNMENT SECURITIES
INCORPORATED UNDER THE LAWS OF MARYLAND
THIS CERTIFIES THAT ACCOUNT NUMBER
CUSIP NUMBER
120173 40 6
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CAPITAL STOCK, PAR VALUE $0.01 PER
SHARE, OF BULL & BEAR U.S. GOVERNMENT SECURITIES SERIES OF SHARES OF BULL & BEAR
FUNDS II, INC.
Herein called the "Corporation", transferable on the books of the Corporation by
the holder hereof in person or by duly authorized attorney upon the surrender of
this certificate properly endorsed. The Corporation will furnish to any
shareholder upon request and without charge a full statement of the
designations, relative rights, preferences and limitations of the shares of each
series and class authorized to be issued. This certificate is not valid unless
countersigned by the Transfer Agent. Witness the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers.
Dated:
COUNTERSIGNED:
CO-PRESIDENT TREASURER
COUNTERSIGNED:
DST SYSTEMS, INC.
(KANSAS CITY, MISSOURI) TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE(S) MUST BY DULY
GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY, SAVINGS AND LOAN ASSOCIATION,
FEDERAL SAVINGS BANK, MEMBER FIRM OF A NATIONAL SECURITIES EXCHANGE OR OTHER
ELIGIBLE FINANCIAL INSTITUTION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations: TEN COM - as tenants in common UNIF
GIFT MIN ACT - Custodian TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship under Uniform Gifts to
Minors Act and not as tenants in common (State) Additional abbreviations may
also be used though not in the above list. For value received, do hereby sell,
assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING
NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP
CODE, OF ASSIGNEE) Shares of capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint Attorney to
transfer the said shares on the books of the within-named Corporation with full
power of substitution in the premises. Dated,
Owner
Signature of Co-Owner, if any
IMPORTANT BEFORE SIGNING, READ AND COMPLY CAREFULLY WITH NOTICE PRINTED ABOVE
Signature(s) guaranteed by:
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of November, 1993, by and between BULL &
BEAR INCORPORATED, a Maryland corporation (the "Corporation") and BULL & BEAR
ADVISERS, INC., a Delaware corporation (the "Investment Manager").
WHEREAS the Corporation is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company and offers for public sale distinct series of shares of common stock
("Series"), each corresponding to a distinct portfolio; and
WHEREAS the Corporation desires to retain the Investment Manager to
furnish certain investment advisory and portfolio management services to the
Corporation and each Series as now exists and as hereafter may be established,
and the Investment Manager desires to furnish such services;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed between the parties hereto as
follows:
1. The Corporation hereby employs the Investment Manager to manage the
investment and reinvestment of the assets of each Series, including the regular
furnishing of advice with respect to the Series' portfolio transactions subject
at all times to the control and final direction of the Corporation's Board of
Directors, for the period and on the terms set forth in this Agreement. The
Investment Manager hereby accepts such employment and agrees during such period
to render the services and to assume the obligations herein set forth, for the
compensation herein provided. The Investment Manager shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Corporation or any Series in any way, or otherwise be deemed an agent of the
Corporation or any Series.
1
<PAGE>
2. Each Series assumes and shall pay all the expenses (or such Series'
proportionate share of such expenses) required for the conduct of its business
including, but not limited to, salaries of administrative and clerical
personnel, brokerage commissions, taxes, insurance, fees of the transfer agent,
custodian, legal counsel and auditors, association fees, costs of filing,
printing and mailing proxies, reports and notices to shareholders, preparing,
filing and printing the prospectus and statement of additional information,
payment of dividends, costs of stock certificates, costs of shareholders
meetings, fees of the independent directors, necessary office space rental, all
expenses relating to the registration or qualification of shares of the Series
under applicable Blue Sky laws and reasonable fees and expenses of counsel in
connection with such registration and qualification and such non-recurring
expenses as may arise, including, without limitation, actions, suits or
proceedings affecting the Corporation or the Series and the legal obligation
which the Corporation may have to indemnify its officers and directors with
respect thereto.
3. The Investment Manager may, but shall not be obligated to, pay or
provide for the payment of expenses which are primarily intended to result in
the sale of a Series' shares or the servicing and maintenance of shareholder
accounts, including, without limitation, payments for: advertising, direct mail
and promotional expenses; compensation to and expenses, including overhead and
telephone and other communication expenses, of the Investment Manager and its
affiliates, the Corporation, 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
Investment Manager and its affiliates and allocated to efforts to distribute
shares of the Series such as office rent and equipment, employee salaries,
employee bonuses and other overhead expenses. Such payments may be for the
Investment Manager's own account or may be made on behalf of the Series pursuant
to a written plan of distribution adopted pursuant to Rule 12b-1 under the 1940
Act.
2
<PAGE>
4. If requested by the Corporation's Board of Directors, the Investment
Manager may provide other services to a Series 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 Series and the costs of the Investment Manager in
rendering such services shall be reimbursed by the Series, subject to
examination by those directors of the Corporation who are not interested persons
of the Investment Manager or any affiliate thereof.
5. The services of the Investment Manager are not to be deemed
exclusive, and the Investment Manager shall be free to render similar services
to others in addition to the Corporation and its Series so long as its services
hereunder are not impaired thereby.
6. The Investment Manager shall create and maintain all necessary books
and records in accordance with all applicable laws, rules and regulations,
including but not limited to records required by Section 31(a) of the 1940 Act
and the rules thereunder, as the same may be amended from time to time,
pertaining to the investment management services performed by it hereunder and
not otherwise created and maintained by another party pursuant to a written
contract with the Corporation. Where applicable, such records shall be
maintained by the Investment Manager for the periods and in the places required
by Rule 31a-2 under the 1940 Act. The books and records pertaining to a Series
which are in the possession of the Investment Manager shall be the property of
the Corporation. The Corporation, or the Corporation's authorized
representatives, shall have access to such books and records at all times during
the Investment Manager's normal business hours. Upon the reasonable request of
the Corporation, copies of any such books and records shall be provided by the
Investment Manager to the Corporation or the Corporation's authorized
representatives.
7. A. As compensation for its services provided pursuant to this
Agreement, with respect to the Series identified below, the Corporation will pay
to the Investment Manager a fee from the assets of the appropriate Series, such
fee to be computed daily and paid monthly at the annual rate of such Series' net
assets as set forth below:
3
<PAGE>
(i) Bull & Bear Dollar Reserves:
Up to $250 million of average daily net assets .............0.50%
From $250 million to $500 million ..........................0.45%
Over $500 million ..........................................0.40%
(ii) Bull & Bear U.S. Government Securities Fund:
Up to $250 million of average daily net assets .............0.70%
From $250 million to $500 million .........................0.625%
Over $500 million ..........................................0.50%
(iii) Bull & Bear Global Income Fund:
Up to $250 million of average daily net assets .............0.70%
From $250 million to $500 million .........................0.625%
Over $500 million ..........................................0.50%
B. As compensation for its services provided pursuant to this
Agreement, with respect to any Series hereafter established, the Corporation
will pay to the Investment Manager from the assets of such Series a fee in an
amount to be agreed upon in a written fee agreement ("Fee Agreement") executed
by the Corporation on behalf of the Series and by the Investment Manager. All
such Fee Agreements shall provide that they are subject to all terms and
conditions of this Agreement.
C. The aggregate net assets for a Series each day shall be computed
by subtracting the liabilities of the Series from the value of its assets, such
amount to be computed as of the calculation of the net asset value per share on
each business day.
D. If this Agreement becomes effective or terminates with respect to
a Series before the end of any month, the fee for the period from the effective
date to the end of the month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
4
<PAGE>
which such period bears to the full month in which such effectiveness or
termination occurs.
8. The Investment Manager shall direct 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 shares of a Series and shares of the other Bull & Bear
Funds. The Investment Manager may also allocate portfolio transactions to
broker/dealers that remit a portion of their commissions as a credit against
Series expenses. With respect to brokerage and research services, the Investment
Manager may consider in the selection of broker/dealers 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, or other applicable law are met. 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 shall seek the best value for a Series on each trade that
circumstances in the market place permit, including the value inherent in
on-going relationships with quality brokers. To the extent any such brokerage or
research services may be deemed to be additional compensation to the Investment
Manager from the Series, it is authorized by this Agreement. The Investment
Manager may place brokerage for a Series through an affiliate of the Investment
Manager, provided that: the Series not deal with such affiliate in any
transaction in which such affiliate acts as principal; the commissions, fees or
other remuneration received by such affiliate 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; and such
brokerage be undertaken in compliance with applicable law. The Investment
Manager's fees under this Agreement shall not be reduced by reason of any
commissions, fees or other remuneration received by such affiliate from the
Series.
5
<PAGE>
9. The Investment Manager shall waive all or part of its fee or
reimburse a Series monthly if and to the extent the aggregate operating expenses
of the Series exceed the most restrictive limit imposed by any state in which
shares of the Series are qualified for sale. In calculating the limit of
operating expenses, all expenses excludable under state regulation or otherwise
shall be excluded. If this Agreement is in effect for less than all of a fiscal
year, any such limit will be applied proportionately.
10. Subject to and in accordance with the Articles of Incorporation and
By-laws of the Corporation and of the Investment Manager, it is understood that
directors, officers, agents and shareholders of the Corporation are or may be
interested in the Corporation as directors, officers, shareholders or otherwise,
that the Investment Manager is or may be interested in the Corporation as a
shareholder or otherwise and that the effect and nature of any such interests
shall be governed by law and by the provisions, if any, of said Articles of
Incorporation or By-laws.
11. A. This Agreement shall become effective upon the date hereinabove
written provided that, with respect to any Series, this Agreement shall not take
effect unless it has first been approved (i) by a vote of a majority of the
Directors of the Corporation who are not parties to this Agreement, or
interested persons of any such party and (ii) by vote of the holders of a
majority of that Series' outstanding voting securities.
B. Unless sooner terminated as provided herein, this Agreement
shall continue in effect for two years from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Directors of the
Corporation who are not parties to this Agreement, or interested persons of any
such party and (ii) by the Board of Directors of the Corporation or with respect
to any given Series by the vote of the holders of a majority of the outstanding
voting securities of such Series.
C. This Agreement may be terminated without penalty at any time
either by vote of the Board of Directors of the
6
<PAGE>
Corporation or by vote of the holders of a majority of the out standing voting
securities of such Series on 60 days' written notice to the Investment Manager,
or by the Investment Manager on 60 days' written notice to the Corporation.
Termination of this Agreement with respect to any given Series shall in no way
affect the continued validity of this Agreement or the performance thereunder
with respect to any other Series. This Agreement shall immediately terminate in
the event of its assignment.
12. The Investment Manager shall not be liable to the Corporation or
any Series or any shareholder of the Corporation for any error of judgment or
mistake of law or for any loss suffered by the Corporation or any Series or the
Corporation's shareholders in connection with the matters to which this Agree
ment relates, but nothing herein contained shall be construed to protect the
Investment Manager against any liability to the Corporation or a Series or the
Corporation's shareholders 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 this Agreement.
13. As used in this Agreement, the terms "interested person,"
"assignment," and "majority of the outstanding voting securities" shall have the
meanings provided therefor in the 1940 Act, and the rules and regulations
thereunder.
14. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held or
made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
15. This Agreement shall be construed in accordance with and governed
by the laws of the State of New York, provided, however, that nothing herein
shall be construed in a manner inconsistent with the 1940 Act or any rule or
regulation promul gated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
7
<PAGE>
[signatures omitted]
8
<PAGE>
DISTRIBUTION AGREEMENT
AGREEMENT made as of __________________, 1995, between BULL & BEAR
FUNDS II, INC. ("Fund"), a corporation organized and existing under the laws of
the State of Maryland, and Investor Service Center, Inc. ("Distributor"), a
corporation organized and existing under the laws of the State of Delaware.
WHEREAS the Fund is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company; and
WHEREAS the Fund desires to retain the Distributor as principal
distributor in connection with the offering and sale of the shares of common
stock ("Shares") and of such other series as may hereafter be designated
("Series") by the Fund's Board of Directors ("Board"); and
WHEREAS the Distributor is willing to act as principal distributor for
each such Series on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Distributor as its
exclusive agent to be the principal distributor to sell and to arrange for
the sale of the Shares on the terms and for the period set forth in this
Agreement. The Distributor hereby accepts such appointment and agrees to
act hereunder.
2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell the Shares on a best
efforts basis from time to time during the term of this Agreement as agent for
the Fund and upon the terms described in the Registration Statement. As used in
this Agreement, the term "Registration Statement" shall mean the currently
effective registration statement of the Fund, and any supplements thereto, under
the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
(b) Upon the later of the date of this Agreement or the
initial offering of the Shares to the public by a Series, the Distributor will
hold itself available to receive purchase orders, satisfactory to the
Distributor for Shares of that Series and will accept such orders on behalf of
the Fund as of the time of receipt of such orders and promptly transmit such
orders as are accepted to
<PAGE>
the Fund's transfer agent. Purchase orders shall be deemed effective at the time
and in the manner set forth in the Regis tration Statement.
(c) The Distributor in its discretion may enter into
agreements to sell Shares to such registered and qualified retail dealers, as it
may select. In making agreements with such dealers, the Distributor shall act
only as principal and not as agent for the Fund.
(d) The offering price of the Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at the Distributor's principal office. The Fund shall promptly
furnish the Distributor with a statement of each computation of net asset value.
(e) The Distributor shall not be obligated to sell any
certain number of Shares.
(f) The Distributor shall provide ongoing shareholder
services, which include responding to shareholder inquiries, providing
shareholders with information on their investments in the Series and any other
services now or hereafter deemed to be appropriate subjects for the payments of
"service fees" under Section 26(d) of the National Association of Securities
Dealers, Inc. ("NASD") Rules of Fair Practice (collectively, "service
activities").
(g) The Distributor shall have the right to use any lists of
shareholders of the Fund or any other lists of investors which it obtains in
connection with its provision of services under this Agreement; provided,
however, that the Distributor shall not sell or knowingly provide such lists of
shareholders to any unaffiliated person unless reasonable payment is made to the
Fund.
3. Authorization to Enter into Dealer Agreements and to Delegate Duties
as Distributor. With respect to any or all Series, the Distributor may enter
into a dealer agreement with respect to sales of the Shares or the provision of
service activities with any registered and qualified dealer. In a separate
contract or as part of any such dealer agreement, the Distributor also may
delegate to another registered and qualified dealer ("sub-distributor") any or
all of its duties specified in this Agreement, provided that such separate
contract or dealer agreement imposes on the sub-distributor bound thereby all
applicable duties and conditions to which the Distributor is subject under this
<PAGE>
Agreement, and further provided that such separate contract meets all
requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by the Distributor
hereunder are not to be deemed exclusive and the Distributor shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of the Distributor, who may also be a
director, officer or employee of the Fund, to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar or a dissimilar nature.
5. Compensation for Distribution and Service Activities.
(a) As compensation for its distribution and service
activities under this Agreement with respect to each Series and its
shareholders, the Distributor shall receive from the Fund a fee (or fees) at the
rate and under the terms and conditions of the Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act ("Plan") adopted by the Fund with respect to the
Series, as such Plan is amended from time to time, and subject to any further
limitations on such fee as the Board may impose.
(b) The Distributor may reallow any or all of the fees it is
paid to such dealers as the Distributor may from time to time determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw
offering Shares of any or all Series by written notice to the Distributor at its
principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Shares to be issued unless so requested by
shareholders. If such request is transmitted by the Distributor, the Fund will
cause certificates evidencing Shares to be issued in such names and
denominations as the Distributor shall from time to time direct.
(c) The Fund shall keep the Distributor fully informed of its
affairs and shall make available to the Distributor copies of all information,
financial statements, and other papers which the Distributor may reasonably
<PAGE>
request for use in connection with the distribution of Shares, including,
without limitation, certified copies of any financial statements prepared for
the Fund by its independent public accountant and such reasonable number of
copies of the most current prospectus, statement of additional information, and
annual and interim reports of any Series as the Distributor may request, and the
Fund shall cooperate fully in the efforts of the Distributor to sell and arrange
for the sale of the Shares of the Series and in the performance of the
Distributor's duties under this Agreement.
(d) The Fund shall take, from time to time, all necessary
action, including payment of the related filing fee, as may be necessary to
register Shares of each Series under the 1933 Act to the end that there will be
available for sale such number of Shares as the Distributor may be expected to
sell. The Fund agrees to file, from time to time, such amendments, reports, and
other documents as may be necessary in order that there will be no untrue
statement of a material fact in the Registration Statement, nor any omission of
a material fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Shares of each Series for
sale under the securities laws of such states or other jurisdictions as the
Distributor and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Articles of Incorporation or By-Laws to comply with the
laws of any jurisdiction, to maintain an office in any jurisdiction, to change
the terms of the offering of the Shares in any jurisdic tion from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Shares. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Shares with the Securities and Exchange Commission and state and
other regulatory bodies, and shall assume expenses related to communications
with shareholders of each Series, including (i) fees and disbursements of its
counsel and independent public accountant; (ii) the preparation, filing and
printing of registration statements and/or prospectuses or statements of
additional information required under the federal securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses, statements
of additional information and proxy materials to shareholders; and (iv) the
<PAGE>
qualifications of Shares for sale and of the Fund as a broker or dealer under
the securities laws of such jurisdictions as shall be selected by the Fund and
the Distributor pursuant to Paragraph 6(e) hereof, and the costs and expenses
payable to each such jurisdiction for continuing qualification therein.
8. Expenses of the Distributor. Distributor shall bear all costs and
expenses of (i) preparing, printing and distributing any materials not prepared
by the Fund and other materials used by the Distributor in connection with the
sale of Shares under this Agreement, including the additional cost of printing
copies of prospectuses, statements of additional information, and annual and
interim shareholder reports other than copies thereof required for distribution
to existing shareholders or for filing with any Federal or state securities
authorities; (ii) any expenses of advertising incurred by the Distributor in
connection with such offering; (iii) the expenses of registration or
qualification of the Distributor as a broker or dealer under federal or state
laws and the expenses of continuing such registration or qualification; and (iv)
all compensation paid to the Distributor's employees and others for selling
Shares, and all expenses of the Distributor, its employees and others who engage
in or support the sale of Shares as may be incurred in connection with their
sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements therein not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by the
Distributor to the Fund for use in the Registration Statement; provided,
however, that this indemnity agreement shall not inure to the benefit of any
person who is also an officer or director of the Fund or who controls the Fund
within the meaning of Section 15 of the 1933 Act, unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
<PAGE>
precedent, that such result would not be against public policy as expressed in
the 1933 Act; and further provided, that in no event shall anything contained
herein be so construed as to protect the Distributor against any liability to
the Fund or to the shareholders of any Series to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Agreement. The Fund shall not be liable
to the Distributor under this indemnity agreement with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other such person shall have notified the Fund in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the
Distributor or such other person (or after the Distributor or the person shall
have received notice of service on any designated agent). However, failure to
notify the Fund of any claim shall not relieve the Fund from any liability which
it may have to the Distributor or any person against whom such action is brought
otherwise than on account of this indemnity agreement. The Fund shall be
entitled to participate at its own expense in the defense or, if it so elects,
to assume the defense of any suit brought to enforce any claims subject to this
indemnity agreement. If the Fund elects to assume the defense of any such claim,
the defense shall be conducted by counsel chosen by the Fund and satisfactory to
indemnified defendants in the suit whose approval shall not be unreasonably
withheld. In the event that the Fund elects to assume the defense of any suit
and retain counsel, the indemnified defendants shall bear the fees and expenses
of any additional counsel retained by them. If the Fund does not elect to assume
the defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Fund agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of any of its Shares.
(b) The Distributor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates (including any loss arising out
of the receipt by the Distributor of inadequate consideration in connection with
an order to purchase Shares whether in the form of fraudulent check, draft or
wire; a check returned for insufficient funds; or any other inadequate
consideration (hereinafter "Check Loss")), except a loss resulting from the
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement; provided, however, that the Fund shall not be
liable for Check Loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Distributor.
<PAGE>
(c) The Distributor agrees to indemnify, defend, and hold the
Fund, its officers and directors and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its directors or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between the Distributor and any retail dealer, or arising out of any
supplemental sales literature or advertising used by the Distributor in
connection with its duties under this Agreement. The Distributor shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if the
Distributor elects to assume the defense, the defense shall be conducted by
counsel chosen by the Distributor and satisfactory to the indemnified defendants
whose approval shall not be unreasonably withheld. In the event that the
Distributor elects to assume the defense of any suit and retain counsel, the
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them. If the Distributor does not elect to assume the
defense of any suit, it will reimburse the indemnified defendants in the suit
for the reasonable fees and expenses of any counsel retained by them.
10. Services Provided to the Fund by Employees of the Distributor. Any
person, even though also an officer, director, employee or agent of the
Distributor who may be or become an officer, director, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting for solely the
Fund and not as an officer, director, employee or agent or one under the control
or direction of the Distributor even though paid by the Distributor.
11. Duration and Termination.
(a) This Agreement shall become effective upon the date
hereabove written, provided that, with respect to any Series, this Agreement
shall not take effect unless such action has first been approved by vote of a
majority of the Board and by vote of a majority of those directors of the Fund
who are not interested persons of the Fund, and have no direct or indirect
financial interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such directors collectively being referred to
herein as the "Independent Directors"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this
Agreement shall continue in effect for one year from the above written date.
Thereafter, if not terminated, this Agreement shall continue automatically for
successive periods of twelve months each, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of the
Independent Directors, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board or with respect to any given
Series by vote of a majority of the outstanding voting securities of such
Series.
(c) Notwithstanding the foregoing, with respect to any Series,
this Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board, by vote of a majority of the Independent
Directors or by vote of a majority of the outstanding voting securities of the
Shares of such Series on sixty days' written notice to the Distributor or by the
Distributor at any time, without the payment of any penalty, on sixty days'
written notice to the Fund or such Series. This Agreement will automatically
terminate in the event of its assignment.
(d) Termination of this Agreement with respect to any given
Series shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series.
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York and the 1940 Act. To the extent that the
applicable laws of the State of New York conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Notice. Any notice required or permitted to be given by
<PAGE>
either party to the other shall be deemed sufficient upon receipt in writing at
the other party's principal offices.
15. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first above
written.
ATTEST: BULL & BEAR FUNDS II, INC.
By:
ATTEST: INVESTOR SERVICE CENTER, INC.
By:
<PAGE>
AGREEMENT BETWEEN
INVESTOR SERVICE CENTER, INC.
AND
HANOVER DIRECT ADVERTISING COMPANY, INC.
AGREEMENT made this ___ day of _____, 1995 by and between INVESTOR
SERVICE CENTER, INC., a corporation organized under the laws of the State of
Delaware (the "Distributor") and HANOVER DIRECT ADVERTISING COMPANY, INC., a
corporation organized under the laws of the State of Delaware ("HDAC").
WHEREAS, the Distributor and HDAC are affiliates of Bull & Bear
Advisers, Inc. (the "Investment Manager"), the investment manager to Bull & Bear
Funds II, Inc. (the "Fund"); and
WHEREAS, pursuant to a Distribution Agreement between the Fund and 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
HDACAGMT.F2
<PAGE>
12b-1 under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, HDAC is an advertising agency and desires to provide the
Distributor with marketing services; and
WHEREAS, the Distributor desires to enter into an agreement with HDAC
related to the Plan;
NOW THEREFORE, in accordance with Rule 12b-1 of the 1940 Act, the
Distributor and HDAC hereby enter into this agreement (the "Agreement") on the
following terms and conditions:
1. HDAC will provide services to the Distributor on behalf of the Fund and the
other investment companies.
2. All expenses incurred hereunder shall be deemed expenses incurred under the
Plan.
3. HDAC shall bill the Distributor at standard industry rates, which includes
commissions. HDAC will absorb any of its costs exceeding such commissions.
HDACAGMT.F2
2
<PAGE>
4. This Agreement shall not take effect until it has been approved by the vote
of a majority of both (i) those directors of the Fund who are not
"interested persons" of the Fund (as defined in the 1940 Act) and have no
direct or indirect financial inter est in the operation of this Agreement
or the Plan or any other agreement related to it (the "12b-1 Directors"),
and (ii) all of the directors then in office, cast in person at a meeting
(or meetings) called for the purpose of voting on this Agreement and such
related Agreements.
5. This Agreement shall continue in effect for one year from its execution or
adoption and thereafter for so long as such continuance is specifically
approved at least annually in the manner provided for approval of the Plan.
6. HDAC shall provide to the Board of Directors of the Fund and the directors
shall review, at least quarterly, a written report of all expenditures made
pursuant to this Agreement, and the purposes for which such expenditures
were made.
7. HDAC shall use its best efforts in rendering services to the Distributor
and the Fund hereunder, but in the absence of willful
HDACAGMT.F2
3
<PAGE>
misfeasance, bad faith, or gross negligence in the performance of its
duties or reckless disregard of its obligations and duties hereunder, HDAC
shall not be liable to the Distributor or the Fund or to any shareholder of
the Fund for any act or failure to act by HDAC or any affiliated person of
HDAC or for any loss sustained by the Fund or its shareholders.
8. Nothing contained in this Agreement shall prevent HDAC or any affiliated
person of HDAC from performing services similar to those to be performed
hereunder for any other person, firm, corporation or for its or their own
accounts or for the accounts of others.
9. This Agreement may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities of the Fund. This Agreement shall automatically terminate in the
event of its assignment, as defined in the 1940 Act.
10. This Agreement may not be modified in any manner which would materially
increase the amount of money to be spent pursuant to the Plan and no
material amendment to this Agreement shall be
HDACAGMT.F2
4
<PAGE>
made unless approved in the manner provided for approval and annual renewal
above.
11. The Fund shall preserve copies of this Agreement and all reports made
pursuant to paragraph 6 hereof, for a period of not less than six years
from the date of this Agreement, the first two years in an easily
accessible place.
12. This Agreement shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the 1940 Act. To the extent
the applicable law of the State of New York, or any of the provisions
herein, conflict with the applicable provisions of the 1940 Act, the latter
shall control.
HDACAGMT.F2
5
<PAGE>
IN WITNESS WHEREOF, the Distributor and HDAC have executed this
Agreement on the day and year set forth above in the City and State of New York.
INVESTOR SERVICE CENTER, INC.
By: ________________________________
HANOVER DIRECT ADVERTISING COMPANY, INC.
By: ________________________________
HDACAGMT.F2
6
<PAGE>
AMENDED AND RESTATED
CUSTODIAN AGREEMENT
Between
Bull & Bear Funds II, Inc.
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
1. Bank Appointed Custodian..................................................4
2. Definitions...............................................................4
2.1 Authorized Person.......................................................4
2.2 Security................................................................4
2.3 Portfolio Security......................................................5
2.4 Officers' Certificate...................................................5
2.5 Book-Entry System.......................................................5
2.6 Depository..............................................................5
2.7 Proper Instructions.....................................................5
3. Separate Accounts.........................................................6
4. Certification as to Authorized Persons....................................6
5. Custody of Cash...........................................................6
5.1 Purchase of Securities..................................................6
5.3 Distributions and Expenses of Fund......................................7
5.4 Payment in Respect of Securities........................................7
5.5 Repayment of Loans......................................................7
5.6 Repayment of Cash.......................................................7
5.8 Other Authorized Payments...............................................7
5.9 Termination.............................................................8
6. Securities................................................................8
6.1 Segregation and Registration............................................8
6.2 Voting and Proxies......................................................8
6.3 Book-Entry System.......................................................8
6.4 Use of a Depository....................................................10
6.5 Use of Book-Entry System for Commercial Paper..........................11
6.6 Use of Immobilization Programs.........................................12
6.7 Eurodollar CDs.........................................................12
6.8 Options and Futures Transactions.......................................12
6.9 Segregated Account.....................................................13
6.10 Interest Bearing Call or Time Deposits................................14
6.11 Transfer of Securities................................................15
7. Redemptions..............................................................16
8. Merger. Dissolution. etc. of Fund........................................17
9. Actions of Bank Without Prior Authorization..............................17
10. Collections and Defaults................................................18
<PAGE>
11. Maintenance of Records and Accounting Services...........................18
12. Fund Evaluation..........................................................18
13. Concerning the Bank......................................................19
13.1 Performance of Duties and Standard of Care.............................19
13.2 Agents and Subcustodians with Respect to Property of the Fund
Held in the United States..............................................20
13.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States................................................21
(a) Appointment of Foreign Sub-Custodians..........................21
(b) Foreign Securities Depositories................................21
(c) Segregation of Securities......................................21
(d) Agreements with Foreign Banking Institutions...................21
(e) Access of Independent Accountants of the Fund..................22
(f) Reports by Bank................................................22
(g) Transactions in Foreign Custody Account........................22
(h) Liability of Selected Foreign Sub-Custodians...................23
(i) Liability of Bank..............................................23
(j) Monitoring Responsibilities....................................23
(k) Tax Law........................................................24
13.4 Insurance..............................................................24
13.5. Fees and Expenses of Bank.............................................24
13.6 Advances by Bank.......................................................24
14. Termination..............................................................25
15. Confidentiality..........................................................25
16. Notices..................................................................26
17. Amendments...............................................................26
18. Parties..................................................................26
19. Governing Law............................................................26
20. Counterparts.............................................................26
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this day of August, 1995, between Bull & Bear Funds
II, Inc., a corporation (the "Fund") and INVESTORS BANK & TRUST COMPANY (the
"Bank").
WHEREAS, the Fund is an open-end management investment company, and the
Bank has at least the minimum qualifications required by Section 17(f)(1) of the
Investment Company Act of 1940 (the "1940 Act") to act as custodian of the
portfolio securities and cash of the Fund; and
WHEREAS, the Fund and the Bank now desire to enter into this Custodian
Agreement hereby referred to herein as the "Agreement";
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian
of the Fund's portfolio securities and cash delivered to the Bank as hereinafter
described and the Bank agrees to act as such upon the terms and conditions
hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of
the Fund by appropriate resolution of its Board of Directors or the Board
of Trustees ("the Board"), and set forth in a certificate as required by
Section 4 hereof.
2.2 Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933, as
amended, including, without
4
<PAGE>
limitation, any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option, or privilege on any security, certificate of deposit, or
group or index of securities (including any interest therein or based on
the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to a foreign
currency, or, in general, any interest or instrument commonly known as a
"security", or any certificate of interest or participation in, temporary
or interim certificate for, receipt for, guarantee of, or warrant or right
to subscribe to, or option contract to purchase or sell any of the
foregoing, and futures, forward contracts and options thereon.
2.3 Portfolio Security. Portfolio Security will mean any security
owned by the Fund.
2.4 Officers' Certificate. Officers' Certificate will mean, unless
other- wise indicated, any request, direction, instruction, or
certification in writing signed by any two Authorized Persons of the Fund.
2.5 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank,
its successor or successors and its nominee or nominees.
2.6 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934
("Exchange Act"), its successor or successors and its nominee or nominees.
The term "Depository" shall further mean and include any other person
authorized to act as a depository under the 1940 Act, its successor or
successors and its nominee or nominees, specifically identified in a
certified copy of a resolution of the Board.
2.7 Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized
Person as shall have been designated in an Officers' Certificate, such
instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by
such two or more persons from time to time designated in an Officers'
Certificate as having been authorized by the Board. Oral instructions will
be considered Proper Instructions if the Bank reasonably believes them to
have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be promptly
5
<PAGE>
confirmed in writing. The Bank shall act upon and comply with any
subsequent Proper Instruction which modifies a prior instruction and the
sole obligation of the Bank with respect to any follow-up or confirmatory
instruction shall be to make reasonable efforts to detect any discrepancy
between the original instruction and such confirmation and to report such
discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to
correct any such discrepancy or error, and to the extent such action
requires the Bank to act the Fund shall give the Bank specific Proper
Instructions as to the action required. Upon receipt of an Officers'
Certificate as to the authorization by the Board accompanied by a detailed
description of procedures approved by the Fund, Proper Instructions may
include communication effected directly between electro-mechanical or
electronic devices provided that the Board and the Bank are satisfied that
such procedures afford adequate safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon).
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund, will sign a new or amended certification setting forth
the change and the new, additional or omitted names or signatures. The Bank will
be entitled to rely and act upon any Officers' Certificate given to it by the
Fund which has been signed by Authorized Persons named in the most recent
certification.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Section 13.2 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding shares of common stock of the Fund, notification from
the Fund's transfer agent as provided in Section 7, requesting such payment,
designating the payee or the account or accounts to which the Bank will release
funds for deposit, and stating that it is for a purpose permitted under the
terms of this Section 5, specifying the applicable subsection, the Bank will
make payments of cash held for the accounts of the Fund, insofar as funds are
available for that purpose, only as permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Fund,
6
<PAGE>
against contemporaneous receipt of such securities by the Bank or,
against delivery of such securities to the Bank in accordance with
generally accepted settlement practices and customs in the jurisdiction or
market in which the transaction occurs, registered in the name of the Fund
or in the name of, or properly endorsed and in form for transfer to, the
Bank, or a nominee of the Bank, or receipt for the account of the Bank
pursuant to the provisions of Section 6 below, each such payment to be made
at the purchase price shown on a broker's confirmation (or transaction
report in the case of Book Entry Paper) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the
Proper Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the repurchase
or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account
of the Fund of dividends or other distributions to shareholders as may from
time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services
hereunder and reimbursement of the expenses and liabilities of the Bank as
provided hereunder, fees of any transfer agent, fees for legal, accounting,
and auditing services, or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but,
in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund
certificates borrowed from the Fund representing Portfolio Securities, but
only upon redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such
Proper Instructions to specify the currency broker or banking institution
(which may be the Bank, or any other subcustodian or agent hereunder,
acting as principal) with which the contract or option is made, and the
Bank shall have no duty with respect to the selection of such currency
brokers or banking institutions with which the Fund deals or for their
failure to comply with the terms of any contract or option.
5.8 Other Authorized Payments. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund
purposes;
7
<PAGE>
provided that before making any such payment the Bank will also
receive a certified copy of a resolution of the Board signed by an
Authorized Person (other than the Person certifying such resolution) and
certified by its Secretary or Assistant Secretary, naming the person or
persons to whom such payment is to be made, and either describing the
transaction for which payment is to be made and declaring it to be an
authorized transaction of the Fund, or specifying the amount of the
obligation for which payment is to be made, setting forth the purpose for
which such obligation was incurred and declaring such purpose to be a
proper corporate purpose.
5.9 Termination: upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 14 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed
pursuant to Section 13.2 hereof, the Bank as custodian, will receive and
hold pursuant to the provisions hereof, in a separate account or accounts
and physically segregated at all times from those of other persons, any and
all Portfolio Securities which may now or hereafter be delivered to it by
or for the account of the Fund. All such Portfolio Securities will be held
or disposed of by the Bank for, and subject at all times to, the
instructions of the Fund pursuant to the terms of this Agreement. Subject
to the specific provisions herein relating to Portfolio Securities that are
not physically held by the Bank, the Bank will register all Portfolio
Securities (unless otherwise directed by Proper Instructions or an
Officers' Certificate), in the name of a registered nominee of the Bank as
defined in the Internal Revenue Code and any Regulations of the Treasury
Department issued thereunder, and will execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Fund will from time to time
furnish to the Bank appropriate instruments to enable it to hold or deliver
in proper form for transfer, or to register in the name of its registered
nominee, any Portfolio Securities which may from time to time be registered
inthe name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in
accordance with Proper Instructions or an Officers' Certificate. The Bank
will execute and deliver, or cause to be executed and delivered, to the
Fund all notices, proxies and proxy soliciting materials with respect to
such Securities, such proxies to be executed by the registered holder of
such Securities (if registered otherwise than in the name of the Fund), but
without indicating the manner in which such proxies are to be voted.
6.3 Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund
assets
8
<PAGE>
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an
account ("Account") of the Bank (or its agent) in such System which
shall not include any assets of the Bank (or such agent) other than
assets held as a fiduciary, custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or
any such agent) will identify by book entry Portfolio Securities which
are included with other securities deposited in the Account and shall
at all times during the regular business hours of the Bank (or such
agent) be open for inspection by duly authorized officers, employees
or agents of the Fund. Where securities are transferred to the Fund's
account, the Bank shall also, by book entry or otherwise, identify as
belonging to the Fund a quantity of securities in fungible bulk of
securities (i) registered in the name of the Bank or its nominee, or
(ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund upon (i) receipt of
advice from the Book-Entry System that such Securities have been
transferred to the Account, and (ii) the making of an entry on the
records of the Bank (or its agent) to reflect such payment and
transfer for the account of the Fund. The Bank (or its agent) shall
transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash
collateral against the delivery of securities loaned by the Fund
has been transferred to the Account; and
(ii) the making of an entry on the records of the Bank (or
its agent) to reflect such transfer and payment for the account
of the Fund. Copies of all advices from the Book-Entry System of
transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Bank and
shall be provided to the Fund at its request. The Bank shall send
the Fund a confirmation, as defined by Rule 17f-4 of the 1940
Act, of any transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Book-Entry System. The Bank
will provide the Fund and cause any such agent to provide, at such
times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, including
Securities deposited in the Book-Entry System, relating to the
services provided by the
9
<PAGE>
Bank or such agent under the Agreement;
(e) The Bank shall be liable to the Fund for any loss or damage
to the Fund resulting from use of the Book-Entry System by reason of
any negligence, willful misfeasance or bad faith of the Bank or any of
its agents or of any of its or their employees or from any reckless
disregard by the Bank or any such agent of its duty to use its best
efforts to enforce such rights as it may have against the Book-Entry
System; at the election of the Fund, it shall be entitled to be
subrogated for the Bank in any claim against the Book-Entry System or
any other person which the Bank or its agent may have as a consequence
of any such loss or damage if and to the extent that the Fund has not
been made whole for any loss or damage;
6.4 Use of a Depository. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits
in DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities
including stock dividends, rights and other items of like nature, and
to receive and remit to the Bank on behalf of the Fund all income and
other payments thereon and to take all steps necessary and proper in
connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio
Securities, payment will be made only upon delivery of the securities
to or for the account of the Fund and the Bank shall pay cash
collateral from the account of the Fund against the return of
Portfolio Securities loaned bythe Fund only upon delivery of the
Securities to or for the account of the Fund; and upon any sale of
Portfolio Securities, delivery of the Securities will be made only
against payment thereof or, in the event Portfolio Securities are
loaned, delivery of Securities will be made only against receipt of
the initial cash collateral to or for the account of the Fund; and
(d) The Bank shall be subject to the same liability and duty to
the Fund and its shareholders with respect to all securities of the
Fund, and all cash, stock dividends, rights and items of like nature
to which the Fund is entitled, held or received by a central
securities system as agent for the Bank, pursuant to the foregoing
authorization, as if the same were held or received by the Bank at its
own offices. In this connection, with respect to the use of the
Depository by the Bank but without limiting the foregoing duty or
liability, the Bank, without cost to the Fund, shall ensure that:
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(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security
is lost, destroyed, wrongfully taken or otherwise not available
to be returned to the Bank upon its request;
(ii) Any proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository
are forwarded immediately to the Bank for prompt transmittal to
the Fund;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and
of the appropriate book entry made by such Depository to the
Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations
and duties hereunder as may be necessary for the Fund to comply
with the recordkeeping requirements of Section 31 (a) of the 1940
Act and Rule 3 l(a) thereunder; and
(v) Such Depository delivers to the Bank and the Fund all
internal accounting control reports, whether or not audited by an
independent public accountant, as well as such other reports as
the Fund may reasonably request in order to verify the Portfolio
Securities held by such Depository.
6.5 Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board
specifically approving participation in a system maintained by the Bank for
the holding of commercial paper in book-entry form ("Book-Entry Paper") and
(ii) for each year following such approval the Board has received and
approved the arrangements, upon receipt of Proper Instructions and upon
receipt of confirmation from an Issuer (as defined below) that the Fund has
purchased such Issuer's Book-entry Paper, the Bank shall issue and hold in
book-entry form, on behalf of the Fund, commercial paper issued by issuers
with whom the Bank has entered into a book-entry agreement (the "Issuers").
In maintaining its Book-entry Paper System, the Bank agrees that:
(a) the Bank will maintain all Book-Entry Paper held by the Fund
in an account of the Bank that includes only assets held by it for
customers;
(b) the records of the Bank with respect to the Fund's purchase
of Book-entry Paper through the Bank will identify, by book-entry,
Commercial Paper belonging to the Fund which is included in the
Book-entry Paper System and shall at all times during the regular
business hours of the Bank be open for inspection by duly authorized
officers, employees or agents of the Fund;
(c) the Bank shall pay for Book-Entry Paper purchased for the
account
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of the Fund upon contemporaneous (i) receipt of advice from the
Issuer that such sale of Book-Entry Paper has been effected, and (ii)
the making of an entry on the records of the Bank to reflect such
payment and transfer for the account of the Fund;
(d) the Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that
payment for such Book-Entry Paper has been transferred to the Fund,
and (ii) the making of an entry on the records of the Bank to reflect
such payment for the account of the Fund;
(e) the Bank shall transmit to the Fund a transaction journal
confirming each transaction in Book-Entry Paper for the account of the
Fund on the next business day following the transaction; and
(f) the Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper
System as the Fund may reasonably request from time to time.
6.6 Use of Immobilization Programs. Provided (i) the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated
by a bank which meets the requirements of the 1940 Act, and (ii) for each
year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter
into such immobilization program with such bank acting as a subcustodian
hereunder.
6.7 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Securities are identified on the books of the Bank as
belonging to the Fund and that the books of the Bank identify the European
Branch holding such Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subsection 6.7, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund, and shall have no liability to the
Fund or its shareholders with respect to the actions, inactions, whether
negligent or otherwise of such European Branch in connection with such
Eurodollar CDs, except for any loss or damage to the Fund resulting from
the Bank's own negligence, willful misfeasance or bad faith in the
performance of its duties hereunder.
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. Upon receipt of Proper Instructions the Bank shall take action
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as to put options ("puts") and call options ("calls") purchased or
sold (written) by the Fund regarding escrow or other arrangements (i) in
accordance with the provisions of any agreement entered into between the
Bank, any broker-dealer registered under the Exchange Act and a member of
the National Association of Securities Dealers, Inc. (the "NASD"), and, if
necessary, the Fund relating to the compliance with the rules of the
Options Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank shall be
under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection
with any option, nor shall the Bank be under duty or obligation to present
such option to the broker for exercise unless it receives Proper
Instructions from the Fund. The Bank shall have no responsibility for the
legality of any put or call purchased or sold on behalf of the Fund, the
propriety of any such purchase or sale, or the adequacy of any collateral
delivered to a broker in connection with an option or deposited to or
withdrawn from a Segregated Account (as defined in subsection 6.9 below).
The Bank specifically, but not by way of limitation, shall not be under any
duty or obligation to: (i) periodically check or notify the Fund that the
amount of such collateral held by a broker or held in a Segregated Account
is sufficient to protect such broker of the Fund against any loss; (ii)
effect the return of any collateral delivered to a broker; or (iii) advise
the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
1. Upon receipt of Proper Instructions, the Bank shall take action as
to puts, calls and futures contracts ("Futures") purchased or sold by the
Fund in accordance with the provisions of any agreement among the Fund, the
Bank and a Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in connection
with transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to futures,
puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth
in subparagraph (a)(2) of this Section 6.8 as if such subparagraph referred
to Futures Commission Merchants rather than brokers, and Futures and puts
and calls thereon instead of options.
6.9 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for
and on behalf of the Fund, into which Account or Accounts may be
transferred upon receipt of Proper Instructions cash and/or Portfolio
Securities:
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(a) in accordance with the provisions of any agreement among the
Fund, the Bank and a broker-dealer registered under the Exchange Act
and a member of the NASD or any Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation and of any registered
national securities exchange or the Commodity Futures Trading
Commission or any registered Contract Market, or of any similar
organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(b) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity
futures purchased or written by the Fund,
(c) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a
market value (marked to market on a daily basis) at all times equal to
not less than the aggregate purchase price due on the settlement dates
of all the Fund's then outstanding forward commitment or "when-issued"
agreements relating to the purchase of Portfolio Securities and all
the Fund's then outstanding commitments under reverse repurchase
agreements entered into with broker-dealer firms;
(d) for the deposit of any Portfolio Securities which the Fund
has agreed to sell on a forward commitment basis, and; .
(e) for other proper corporate purposes, but only n the case of
this clause (f), upon receipt of, in addition to Proper Instructions,
a certified copy of a resolution of the Board, or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such Segregated Account and declaring such purposes to be
proper corporate purposes.
(f) Segregated accounts established and maintained hereunder
shall comply with the procedures required by Investment Company Act,
including Release No. 10666, or any subsequent release or releases of
the Securities and Exchange Commission relating to the maintenance of
Segregated Accounts by registered investment companies;
(g) Assets may be withdrawn from the Segregated Account pursuant
to Proper Instructions only
(i) in accordance with the provisions of any agreements
referenced in (a) or (b) above;
(ii) for sale or delivery to meet the Fund's obligations under
outstanding firm commitment or when-issued agreements for
the purchase of Portfolio Securities and under reverse
repurchase agreements;
(iii) for exchange for other liquid assets of equal or
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greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward commitment
or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those
in the Segregated Account; or
(v) for delivery upon settlement of a forward commitment agreement
for the sale of Portfolio Securities.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated
in such Proper Instructions. The Bank shall include in its records with
respect to the assets of the Fund appropriate notation as to the amount of
each such deposit, the banking institution with which such deposit is made
(the "Deposit Bank"), and shall retain such forms of advice or receipt
evidencing the deposit, if any, as may be forwarded to the Bank by the
Deposit Bank. Such deposits shall be deemed Portfolio Securities of the
Fund and the responsibility of the Bank therefore shall be the same as and
no greater than the Bank's responsibility in respect of other Portfolio
Securities of the Fund.
6.11 Transfer of Securities. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section the Bank will
receive Proper Instructions requesting such transfer, exchange or delivery
stating that it is for a purpose permitted under the terms of this Section
6.11, specifying the applicable subsection, or describing the purpose of
the transaction with sufficient particularity to permit the Bank to
ascertain the applicable subsection, only
(a) upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor
in full, or, against payment to the Bank in accordance with generally
accepted settlement practices and customs in the jurisdiction or
market in which the transaction occurs, each such payment to be in the
amount of the sale price shown in a broker's confirmation of sale of
the Portfolio Securities received by the Bank before such payment is
made, as confirmed in the Proper Instructions received by the Bank
before such payment is made;
(b) in exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of
subscription, purchase or sale or other similar rights represented by
such Portfolio Securities, or for the purpose of tendering shares in
the event of a tender offer therefor, provided
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however that in the event of an offer of exchange, tender offer,
or other exercise of rights requiring the physical tender or delivery
of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are
received by the Bank at least two business days prior to the date
required for tender, and unless the Bank (or its agent or subcustodian
hereunder) has actual possession of such Security at least two
business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) for the purpose of redeeming in kind shares of the Fund upon
authorization from the Fund;
(e) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to
the Fund by any bank, including the Bank; provided, however, that such
Portfolio Securities will be released only upon payment to the Bank
for the account of the Fund of the moneys borrowed, except that in
cases where additional collateral is required to secure a borrowing
already made, and such fact is made to appear in the Proper
Instructions, further Portfolio Securities may be released for that
purpose without any such payment. In the event that any such pledged
Portfolio Securities are held by the Bank, they will be so held for
the account of the lender, and after notice to the Fund from the
lender in accordance with the normal procedures of the lender, that an
event of deficiency or default on the loan has occurred, the Bank may
deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of
the fair market value of such security, as set forth in the Proper
Instructions received by the Bank before such payment is made;
(i) for the purpose of delivering portfolio securities lent by
the Fund to a bank or broker dealer, but only against receipt in
accordance with street delivery custom as set forth in Proper
Instructions and subject to as may be otherwise provided herein, of
adequate collateral as agreed upon from time to time by the Fund and
the Bank, and upon receipt of payment in connection with any
repurchase agreement relating to such portfolio securities entered
into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer,
the Bank will also receive a certified copy of resolutions of the
Board, signed by an authorized officer of the Fund (other than the
officer certifying such resolution) and certified by its Secretary or
Assistant Secretary, specifying
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the Portfolio Securities to be delivered, setting forth the
transaction in or purpose for which such delivery is to be made,
declaring such transaction to be an authorized transaction of the Fund
or such purpose to be a proper corporate purpose, and naming the
person or persons to whom delivery of such portfolio securities shall
be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b), (c),
(e), (f), (g), (h) and (i) securities or cash receivable in exchange therefor
shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of its
outstanding common shares, the Bank will rely on notification by the Fund's
transfer agent of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Articles and By-laws of the Fund, from assets
available for said purpose.
8. Merger. Dissolution. etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company where
the Fund is not the surviving entity, the sale by the Fund of all, or
substantially all, of its assets to another investment company, or the
liquidation or dissolution of the Fund and distribution of its assets, the Bank
will deliver the Portfolio Securities held by it under this Agreement and
disburse cash only upon the order of the Fund set forth in an Officers'
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable
instruments or other orders for the payment of money received by it for the
account of the Fund and hold for the account of the Fund all income,
dividends, interest and other payments or distribution of cash with respect
to the Portfolio Securities held thereunder;
9.2 Present for payment all coupons and other income items held by it
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for the account of the Fund which call for payment upon presentation
and hold the cash received by it upon such payment for the account of the
Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the
laws of any state, now or hereafter in effect, inserting the Fund's name on
such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so and as may be required to obtain payment in
respect thereof The Bank will execute and deliver such certificates in
connection with Portfolio Securities delivered to it or by it under this
Agreement as may be required under the provisions of the Internal Revenue
Code and any Regulations of the Treasury Department issued thereunder, or
under the laws of any state;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it
upon payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use all reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held by it which is more than
ten days overdue on the date of such report and which has not previously been
reported.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act and will furnish the Fund daily
with a statement of condition of the Fund. The Bank will furnish to the Fund at
the end of every month, and at the close of each quarter of the Fund's fiscal
year, a list of the Portfolio Securities and the aggregate amount of cash held
by it for the Fund. The books and records of the Bank pertaining to its actions
under this Agreement and reports by the Bank or its independent accountants
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concerning its accounting system, procedures for safeguarding securities and
internal accounting controls will be open to inspection and audit at reasonable
times by officers of or auditors employed by the Fund and will be preserved by
the Bank in the manner and in accordance with the applicable rules and
regulations under the 1940 Act.
The Bank shall keep the books of account and render statements or copies
from time to time as reasonably requested by the Treasurer or any executive
officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation. The Bank shall compute and, unless otherwise directed
by the Board, determine as of the close of business on the New York Stock
Exchange on each day on which said Exchange is open for unrestricted trading and
as of such other hours, if any, as may be authorized by the Board the net asset
value and the public offering price of a share of capital stock of the Fund,
such determination to be made in accordance with the provisions of the Articles
and By-laws of the Fund and Prospectus and Statement of Additional Information
relating to the Fund, as they may from time to time be amended, and any
applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Fund, the proper exchange and the NASD or such other
persons as the Fund may request of the results of such computation and
determination.
The Bank shall use reasonable care in computing the net asset value
hereunder, and the Bank shall be liable and shall hold the fund harmless for any
losses to the Fund occasioned by the Bank's own negligence in the performance of
its duties under this paragraph, provided however that the Bank may rely in good
faith upon information furnished to it by any Authorized Person in respect of
(i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board of Directors or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any source pursuant to (iii) above, provided the
Bank has timely supplied the Fund with such variance reports as are specifically
set forth on Schedule B annexed hereto.
13. Concerning the Bank.
13.1 Performance of Duties and Standard of Care.
In performing its duties hereunder and any other duties listed on any
Schedule hereto, if any, the Bank will be entitled to receive and act upon the
advice of independent counsel of its own selection, which may be counsel for the
Fund, and will be without liability for any action taken or thing done or
omitted to be done in accordance with this Agreement in good faith in conformity
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with such advice. Except as otherwise expressly provided in Section 12, in
the performance of its duties hereunder, the Bank will be protected and not be
liable, and will be indemnified and held harmless for any action taken or
omitted to be taken by it in good faith reliance upon the terms of this
Agreement, any Officers' Certificate, Proper Instructions, resolution of the
Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine and for any other loss to the Fund except in
the case of its negligence, willful misfeasance or bad faith in the performance
of its duties or reckless disregard of its obligations and duties hereunder.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities purchased by
or for the Fund, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for the
Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Fund
or the sufficiency of the amount to be received therefor except to the
extent provided in Section 12;
(d) the legality of the repurchase of any common shares of the Fund or
the propriety of the amount to be paid therefor except to the extent
provided in Section 12;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event shall
the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from acts of God,
earthquakes, fires, floods, storms or other disturbances of nature, epidemics,
strikes, riots, nationalization, expropriation, currency restrictions, acts of
war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation,
the interruption, loss or malfunction of utilities, transportation, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence; or
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(b) for special, punitive or consequential damages arising from the
provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
13.2 Agents and Subcustodians with Respect to Property of the Fund Held in
the United States. The Bank may employ agents in the performance of its duties
hereunder and shall be responsible for the acts and omissions of such agents as
if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ Subcustodians,
provided that any such subcustodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Fund or any other person by reason of any act or
omission of any such subcustodian and the Fund shall indemnify the Bank and hold
it harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any such subcustodian. Upon
request of the Bank, the Fund shall assume the entire defense of any action,
suit, or claim subject to the foregoing indemnity. The Fund shall pay all fees
and expenses of any subcustodian.
13.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Sub-Custodians. The Fund hereby authorizes
and instructs the Bank to employ as sub-custodians for the Fund's Portfolio
Securities and other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories designated on the
Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Upon
receipt of Proper Instructions, together with a certified resolution of the
Fund's Board of Trustees, the Bank and the Fund may agree to designate
additional foreign banking institutions and foreign securities depositories to
act as Selected Foreign Sub-Custodians hereunder. Upon receipt of Proper
Instructions, the Fund may instruct the Bank to cease the employment of any one
or more such Selected Foreign Sub-Custodians for maintaining custody of the
Fund's assets, and the Bank shall so cease to employ such sub-custodian as soon
as alternate custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Bank and the Fund, assets of the Fund shall be maintained
in foreign securities depositories only through arrangements implemented by the
foreign banking institutions serving as Selected Foreign Sub-Custodians pursuant
to the terms hereof. Where possible, such arrangements shall include entry into
agreements containing the provisions set forth in subparagraph (d) hereof.
Notwithstanding the foregoing, except as may otherwise be agreed upon in writing
by the Bank and the Fund, the Fund authorizes the deposit in Euroclear, the
securities clearance and depository facilities operated by Morgan Guaranty Trust
Company of New York in Brussels, Belgium, of Foreign Portfolio Securities
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eligible for deposit therein and to utilize such securities depository in
connection with settlements of purchases and sales of securities and deliveries
and returns of securities, until notified to the contrary pursuant to
subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its books as
belonging to the Fund the Foreign Portfolio Securities held by each Selected
Foreign Sub-Custodian. Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such institution establish a
custody account for the Bank and hold in that account, Foreign Portfolio
Securities and other assets of the Fund, and, in the event that such institution
deposits Foreign Portfolio Securities in a foreign securities depository, that
it shall identify on its books as belonging to the Bank the securities so
deposited.
(d) Agreements with Foreign Banking Institutions. Each of the agreements
pursuant to which a foreign banking institution holds assets of the Fund (each,
a "Foreign Sub-Custodian Agreement") shall be substantially in the form
previously made available to the Fund and shall provide that: (a) the Fund's
assets will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of the foreign banking institution or its creditors
or agent, except a claim of payment for their safe custody or administration
(including, without limitation, any fees or taxes payable upon transfers or
reregistration of securities); (b) beneficial ownership of the Fund's assets
will be freely transferable without the payment of money or value other than for
custody or administration (including, without limitation, any fees or taxes
payable upon transfers or reregistration of securities); (c) adequate records
will be maintained identifying the assets as belonging to Bank; (d) officers of
or auditors employed by, or other representatives of the Bank, including to the
extent permitted under applicable law, the independent public accountants for
the Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Bank; and (e)
assets of the Fund held by the Selected Foreign Sub-Custodian will be subject
only to the instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Fund. Upon request of the
Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-Custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time to time, as
mutually agreed upon, statements in respect of the securities and other assets
of the Fund held by Selected Foreign Sub-Custodians, including but not limited
to an identification of entities having possession of the Foreign Portfolio
Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Account. Transactions with respect
22
<PAGE>
to the assets of the Fund held by a Selected Foreign Sub-Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable Foreign Sub-Custodian Agreement. If
at any time any Foreign Portfolio Securities shall be registered in the name of
the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold any
such nominee harmless from any liability by reason of the registration of such
securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for Foreign Portfolio Securities received for the account of the
Fund and delivery of Foreign Portfolio Securities maintained for the account of
the Fund may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
In connection with any action to be taken with respect to the Foreign
Portfolio Securities held hereunder, including, without limitation, the exercise
of any voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications with respect to such
Rights, and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign
Sub-Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Fund from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-Custodian Agreement. The Fund acknowledges
that the Bank, as a participant in Euroclear, is subject to the Terms and
Conditions Governing the Euroclear System, a copy of which has been made
available to the Fund. The Fund acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or
23
<PAGE>
assert any and all rights or claims in respect of actions or omissions of,
or the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euroclear in connection with the Fund's securities and
other assets.
(i) Liability of Bank. The Bank shall have no more or less responsibility
or liability on account of the acts or omissions of any Selected Foreign
Sub-Custodian employed hereunder than any such Selected Foreign Sub-Custodian
has to the Bank and, without limiting the foregoing, the Bank shall not be
liable for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism, political risk (including, but not limited to, exchange control
restrictions, confiscation, insurrection, civil strife or armed hostilities)
other losses due to Acts of God, nuclear incident or any loss where the Selected
Foreign Sub-Custodian has otherwise exercised reasonable care.
(j) Monitoring Responsibilities. The Bank shall furnish annually to the
Fund, information concerning the Selected Foreign Sub-Custodians employed
hereunder for use by the Fund in evaluating such Selected Foreign Sub-Custodians
to ensure compliance with the requirements of Rule 17f-5 of the Act. In
addition, the Bank will promptly inform the Fund in the event that the Bank is
notified by a Selected Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any other capital adequacy
test applicable to it by exemptive order, or if the Bank has actual knowledge of
any material loss of the assets of the Fund held by a Foreign Sub-Custodian.
(k) Tax Law. The Bank shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Bank as custodian of the
Fund by the tax laws of any jurisdiction, and it shall be the responsibility of
the Fund to notify the Bank of the obligations imposed on the Fund or the Bank
as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of jurisdictions for which the Fund has provided such
information.
13.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property and will maintain insurance in accordance
with industry practice but it need not maintain any special insurance for the
benefit of the Fund.
13.5. Fees and Expenses of Bank. The Fund will pay or reimburse the Bank
from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
24
<PAGE>
and charges made or incurred by the Bank in the performance of this
Agreement (including any duties listed on any Schedule hereto, if any) including
any indemnities for any loss, liabilities or expense to the Bank as provided
above. For the services rendered by the Bank hereunder, the Fund will pay to the
Bank such compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time. The Bank will also be entitled
to reimbursement by the Fund for all reasonable out of pocket expenses incurred
in conjunction with termination of this Agreement by the Fund.
13.6 Advances by Bank. The Bank may, in its sole discretion, advance funds
on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any Proper Authorization for such payments by the Fund. Should such a
payment or payments, with advanced funds, result in an overdraft (due to
insufficiencies of the Fund's account with the Bank, or for any other reason)
this Agreement deems any such overdraft or related indebtedness, a loan made by
the Bank to the Fund payable on demand and bearing interest at the current rate
charged by the Bank for such loans unless the Fund shall provide the Bank with
agreed upon compensating balances. The Fund agrees that the Bank shall have a
continuing lien and security interest to the extent of any overdraft or
indebtedness, in and to any property at any time held by it for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in its sole discretion, at
any time to charge any overdraft or indebtedness, together with interest due
thereon against any balance of account standing to the credit of the Fund on the
Bank's books.
14. Termination.
14.1 This Agreement may be terminated at any time without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such sixty days this Agreement will
terminate; provided, however, that the effective date of such termination may be
postponed to a date not more than ninety days from the date of delivery of such
notice (i) by the Bank in order to prepare for the transfer by the Bank of all
of the assets of the Fund held hereunder, and (ii) by the Fund in order to give
the Fund an opportunity to make suitable arrangements for a successor custodian.
At any time after the termination of this Agreement, the Fund will, at its
request, have access to the records of the Bank relating to the performance of
its duties as custodian.
14.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
25
<PAGE>
Fund held by it directly to such successor custodian will commence as soon
as such successor is appointed and will continue until completed as aforesaid.
If the Fund does not select a successor custodian within ninety (90) days from
the date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (14.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of its own selection which
meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported
capital, surplus and undivided profits aggregating not less than $2,000,000, to
be held as the property of the Fund under terms similar to those on which they
were held by the Bank, whereupon such bank or trust company so selected by the
Bank will become the successor custodian of such assets of the Fund with the
same effect as though selected by the Board.
14.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank.
15. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, without bond or other security, to an injunction or injunctions to
prevent breaches of this provision.
16. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Bull & Bear Funds II, Inc.
11 Hanover Square
New York, New York 10005
Attn: President
26
<PAGE>
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Henry Joyce
or at such other place as such party may from time to time designate in
writing.
17. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.
18. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by the Board; and provided further
that termination proceedings pursuant to Section 14 hereof will not be deemed to
be an assignment within the meaning of this provision.
19. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts. 20. Counterparts. his
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but such counterparts shall, together, constitute only
one instrument.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
Bull & Bear Funds II, Inc.
By:_____________________________
Name:
Title:
ATTEST:
-----------------------------
Investors Bank & Trust Company
By:_____________________________
Name:
Title:
ATTEST:
-----------------------------
DATE: _______________________
28
<PAGE>
<TABLE>
<CAPTION>
Foreign Subcustodian Network
Securities Depository /
Country Subcustodian Clearing Agency
<S> <C> <C>
Argentina Citibank, N. A., Buenos Aires Caja de Valores
Citibank New York Agreement November 15, 1990
Australia National Australia Bank Limited Austraclear
Agreement December 1990 CHESS
RITS
Austria Euroclear / Creditanstalt Bankverein OEKB
Euroclear Agreement May 1, 1990
Bangladesh Standard Chartered Bank, Dhaka None
Standard Chartered Regional Agreement July 23, 1992
Belgium Euroclear / General de Banque CIK
Euroclear Agreement May 1, 1990 Banque
Nationale
de Belge
Botswana Barclays Bank PLC/Barclays Bank of Botswana Ltd. None
Barclays Regional Agreement November 21, 1994
Brazil Banco de Boston, Sao Paulo BOVESPA
Agreement BVRJ
Canada Euroclear / Royal Bank of Canada CDS
Euroclear Agreement May 1, 1990
Canada Royal Trust Corporation of Canada CDS
Agreement October 22,1991
China Standard Chartered Bank, Shanghai SSCCRC
Standard Chartered Regional Agreement July 23, 1992
China Standard Chartered Bank, Shenzhen Shenzen
Central
Standard Chartered Regional Agreement July 23, 1992
Registrars Co.
Colombia Cititrust Colombia S. A. Sociedad Fiduciaria, Bogota None
Citibank New York Agreement November 15, 1990
Czech Republic Chase Manhattan, N. A. / Ceskoslovenska Obchodni Banka
SCP
Chase New York Agreement March 1, 1994
Denmark Euroclear / Den Danske Bank
Vardipapercentralen
Euroclear Agreement May 1, 1990
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Egypt Chase Manhattan, N. A. / National Bank of Egypt None
Chase New York Agreement March 1, 1994
Finland Euroclear / Kansallis-Osake-Pankki Central Share
Registry
Euroclear Agreement May 1, 1990 Helsinki Money
Market
France Euroclear / Morgan Guaranty Paris, Societe Generale
Sicovam
Euroclear Agreement May 1, 1990 Banque de
France
Germany Euroclear / Deutsche Bank A. G. Kassenverein
Euroclear Agreement May 1, 1990
Ghana Barclays Bank PLC / Barclays Bank of Ghana Ltd. None
Barclays Regional Agreement November 21,1994
Greece Citibank, N. A., Athens CSD
Citibank New York Agreement November 15, 1990
Hong Kong Standard Chartered Bank, Hong Kong CCASS
Standard Chartered Regional Agreement July 23, 1992
Hungary Citibank, Rt., Budapest Keler
Citibank New York Agreement November 15, 1990
Indonesia Standard Chartered Bank, Jakarta PT Klering
Dep Efek
Standard Charterd Regional Agreement July 23, 1992
Ireland Bank of Ireland Securities Services Gilts Settlement
Of fice
Agreement February 22, 1995
Israel Chase Manhattan, N.A. / Bank Leumi le-Israel The Stock
Exchange
Chase New York Agreement March 1, 1994 Clearing
House Ltd.
Italy Citibank, N. A., Milan Monte Titoli
Citibank New York Agreement November 15, 1990 Banca
d'Italia
Italy Euroclear / Credito Italiano Banca d'Italia
EuroclearAgreementMay 1, 1990
Japan Standard Chartered Bank, Tokyo JASDEC
Standard Chartered Regional Agreement July 23, 1992 Bank of
Japan
Jordan Citibank, N. A., Amman None
Citibank New York Agreement November 15,1990
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Korea Standard Chartered Bank, Seoul KSD
Standard Chartered Regional Agreement July 23, 1992
Luxembourg Euroclear / Banque et Caisse d'Epargne de l'Etat None
Euroclear Agreement May 1, 1990
Malaysia Standard Chartered Bank Malaysia Berhad, Kuala Lumpur
MCD
Standard Chartered Regional Agreement July 23, 1992
Mauritius Chase Manhattan, N. A. / Hongkong Shanghai Banking Corp.
None
Chase New York Agreement March 1, 1994
Mexico Bancomer, S. A. S. D. Indeval
Agreement October 7,1994 Banco de Mexico
Morocco Chase Manhattan, N. A. / Banque Commercial du Maroc
None
Chase New York Agreement March 1, 1994
Netherlands Euroclear / ABN Amro Bank NECIGEF
Euroclear Agreement May 1, 1990 De
Nederlandsche Bank
New Zealand National Australia Bank Austraclear
AgreementDecember, 1990
Norway Euroclear I Christiania Bank VPS
Euroclear Agreement May 1, 1990
Pakistan Standard Chartered Bank, Karachi None
Standard Chartered Regional Agreement July 23, 1992
Peru Citibank, N. A., Lima CAVAL
Citibank New York Agreement November 15, 1990
Philippines Standard Chartered Bank, Manila None
Standard Chartered Regional Agreement July 23, 1992
Poland Citibank (Poland), S.A., Warsaw National
Depository of
Citibank New York Agreement November 15, 1990 Securities
Portugal Citibank Portugal S. A., Lisbon Central de
Valores
Citibank New York Agreement November 15,1990
Mobiliarios
Portugal Euroclear / Banco Comercial Portugues Central de
Valores
Euroclear Agreement May 1,1990 Mobiliarios
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Singapore Standard Chartered Bank, Singapore CDS
Standard Chartered Regional Agreement July 23, 1992
South Africa Chase Manhattan N. A. / Standard Bank of South Africa None
Chase New York Agreement March 1, 1994
Spain Euroclear I Banco Santander SCLV
Euroclear Agreement May 1, 1990 Banco de Espana
Sri Lanka Standard Chartered Bank, Colombo Central
Depository
Standard Chartered Regional Agreement July 23,1992 System
Sweden Euroclear I Skandinaviska Enskilda Banken
Vardepapperscentralen
Euroclear Agreement May 1, 1990
Switzerland Citibank (Switzerland), Zurich SEGA
Citibank New York Agreement November 15, 1990
Switzerland Euroclear I Credit Suisse SEGA
EuroclearAgreementMay 1, 1990
Taiwan Standard Chartered Bank, Taipei Taiwan
Securities
Standard Chartered Regional Agreement July 23, 1992
Depository
Thailand Standard Chartered Bank, Bangkok SDC
Standard Chartered Regional Agreement July 23,1992
Turkey Chase Manhattan N. A., Istanbul IMKB
Chase New York Agreement March 1, 1994
Transnational Investors Bank & Trust Company Euroclear
United Kingdom Barclays Bank PLC CGO
Barclays Bank Regionl Agreement November 21,1994 CMO
Venezuela Citibank, N. A., Caracas None
Citibank New York Agreement November 15, 1990
Zambia Barclays Bank PLC None
Barclays Bank Regional Agreement November 21, 1994
Zimbabwe Barclays Bank PLC None
Barclays Bank Regional Agreement November 21,1994
</TABLE>
<PAGE>
AGENCY AGREEMENT
This Agency Agreement is made as of November 19, 1994 by and between
Bull & Bear Funds II, Inc., a Maryland corporation, having its principal office
and place of business at 11 Hanover Square, New York, New York 10005
(hereinafter referred to as "Bull & Bear"), and Supervised Service Company,
Inc., a Delaware corporation, having its principal office and place of business
at 120 South LaSalle, Chicago, IL (hereinafter referred to as the "Agent").
WHEREAS, Agent is the transfer agent of Bull & Bear's mutual funds
("Funds"), which Funds are listed on the attached Exhibit A; and
WHEREAS, Bull & Bear is the sponsor of certain Individual Retirement
Accounts (the "Accounts") in the Funds; and
WHEREAS, Bull & Bear wishes to retain the Agent to perform certain
recordkeeping and other duties which have been delegated to Bull & Bear by
Investors Bank & Trust Company ("IBT") as Custodian for the Accounts pursuant to
the Service and Agency Agreement ("SAA") attached hereto as Exhibit B and the
Agent wishes to perform such duties.
NOW, THEREFORE, Bull & Bear and the Agent agree as follows:
1. Bull & Bear hereby retains and employs the Agent to perform the
duties described herein. The Agent accepts such employment and agrees to perform
such duties.
2. The Agent shall, in fulfilling its duties hereunder, act in good
faith, with due diligence, and without negligence. The Agent shall perform its
duties in accordance with the copy of the Individual Retirement Account
Custodial Agreement which is attached hereto and made a part hereof ("Custodial
Agreement") and present and future requirements of Section 408(a) of the
Internal Revenue Code and any rule or regulation issued in interpretation of
Section 408(a) and applicable law ("IRS Requirements").
3. The duties of the Agent will include the following:
(a) Receiving all Accounts which are in existence, opening new
Accounts and receiving cash contributions for Accounts;
(b) Making distributions from Accounts as well as withholding tax
in accordance with the provisions of the Custodial Agreement and
IRS Requirements.
(c) Preparing and delivering all returns, reports, proxies,
valuations, and accounting in accordance with IRS Requirements
and as reasonably required by Bull & Bear or by IBT. (d)
Maintaining all records for the Accounts in accordance with IRS
Requirements and as reasonably required by Bull & Bear or by IBT;
and
(e) assuming all duties and obligations of Bull & Bear as set
forth in Article 4.4(a) of the SAA.
4. Agent agrees to permit Bull & Bear and IBT to conduct review
procedures as either may deem necessary to monitor the activities of the Agent
under this Agreement. The Agent also agrees to perform or have performed such
audit review procedures of those activities as Bull & Bear and IBT may
reasonably request at the expense of Bull & Bear.
5. No provision of this Agreement shall modify or supersede any
provision of the Transfer Agency Agreements executed by the Agent and Bull &
Bear.
6. Bull & Bear agrees to indemnify and exonerate, save and hold Agent
harmless from and against any and all claims (whether with or without basis in
fact or law), demands, expenses (including reasonable attorneys' fees) and
liabilities of any nature which Agent may sustain or incur unless such claims,
demands, expenses, and liabilities are caused as a result of Agent's bad faith,
willful misconduct, negligence or failure to perform its duties hereunder in
accordance with the standards set forth herein.
7. This Agreement may be terminated at any time by mutual consent of
the parties hereto or upon thirty (30) days' written notice by either party.
Further, this Agreement may be immediately terminated by either party in the
event the Bull & Bear appoints a successor Custodian as provided in the
Custodial Agreement. Upon
1
<PAGE>
termination, Agent shall transfer the records of the Accounts as directed by
Bull & Bear at Bull & Bear's expense.
8. For its services hereunder, Agent shall be entitled to receive 75%
of all annual maintenance (fiduciary) fees collected from the accounts.
9. No modification or amendment of this Agreement shall be valid or
binding on the parties unless made in writing and signed on behalf of each of
the parties by their respective duly authorized officers or representatives.
10. Notices shall be communicated by fax and first class mail, or by
such other means as the parties may agree, to the persons and addresses
specified below or to such other persons and addresses as the parties may
specify in writing.
If to Bull & Bear Funds II, Inc.
11 Hanover Square
New York, NY 10005
with copy to: Bull & Bear Service Center, Inc.
11 Hanover Square
New York, NY 10005
Attn: Legal Department
If to Agent: Supervised Service Company, Inc.
Attn: Robert W. Ciarlelli
811 Main Street
Kansas City, Missouri 64105
with copy to: Supervised Service Company, Inc.
Legal Department
Attn: Walter R. Randall, Jr.
811 Main Street
Kansas City, Missouri 64105
11. This Agreement shall be governed by the laws of the State
of Missouri.
12. This Agreement may be executed in any number of
2
<PAGE>
counterparts, and by the parties hereto on separate counterparts, each of which
when so executed shall be deemed an original and all of which when taken
together shall constitute one and the same agreement.
Executed by the parties on the date(s) set forth below.
BULL & BEAR FUNDS II, INC.
"BULL & BEAR"
By: /s/
Thomas B. Winmill
Its: Co-President
Date: 11/14/95
SUPERVISED SERVICE COMPANY, INC.
"AGENT"
By: /s/
Its: Senior Vice President
Date: 11/15/94
3
<PAGE>
EXHIBIT A - Dated November 19, 1994
Bull & Bear Dollar Reserves
Bull & Bear Global Income Fund
Bull & Bear Gold Investors Ltd.
Bull & Bear Municipal Income Fund
Bull & Bear Quality Growth Fund
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. and Overseas Fund
Bull & Bear U.S. Government Securities Fund
4
<PAGE>
SHAREHOLDER SERVICES AGREEMENT
AGREEMENT made as of October 29, 1993 between Bull & Bear Funds II,
Inc., a Maryland corporation ("Fund"), and Bull & Bear Service Center, Inc.
("BBSC"), a Delaware corporation.
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund desires to retain BBSC to provide certain shareholder
services for the Fund and each Series of shares now existing or as hereinafter
may be established; and
WHEREAS, as a convenience to the Fund and its shareholders BBSC is
willing to furnish such services at cost and without a view to profit thereby;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints BBSC as agent to perform the
services for the period and on the terms set forth in this Agreement. BBSC
accepts such appointment and agrees to furnish the services herein set forth, in
return for the reimbursement specified in paragraph 3 of this Agreement. BBSC
agrees to comply with all relevant provisions of the 1940 Act and the Securities
Exchange Act of 1934, as amended ("1934 Act"), and applicable rules and
regulations thereunder in performing such services.
2. Services and Duties of BBSC. BBSC shall be responsible for the
following services relating to shareholders of the Fund ("Shareholders"): (a)
assisting the transfer agent in receiving and responding to written and
telephone Shareholder inquiries concerning their accounts; (b) processing
Shareholder telephone requests for transfers, purchases, redemptions, changes of
address and similar matters; (c) assisting as necessary in proxy solicitation;
(d) providing a service center for coordinating, researching and answering
general inquiries, as well as those required by legal
1
<PAGE>
process, regarding Shareholder account data; and (e) administering and
correcting Fund records as authorized by the Board of Directors of the Fund.
3. Reimbursement. For the performance of its obligations hereunder, the
Fund will reimburse BBSC the actual costs incurred with respect thereto,
including, without limitation, the following costs and all other expenses
related to the performance of BBSC's obligations hereunder: (a) benefits,
payroll taxes, and search costs of BBSC personnel; (b) telephone; (c) rent; (d)
equipment, including telephone PBX, answering machine, call distributor,
conversation recording machine and maintenance thereon; (e) blue sky
registration and filing for BBSC and its registered representatives; (f) travel
and meals; (g) mail, postage, and overnight delivery services; (h) allocated E&O
and fidelity bond insurance; (i) publications, memberships, and subscriptions;
(j) office supplies; (k) printing; (l) Shareholder service related training
courses; and (m) corporate audit and franchise taxes. Such costs and expenses
shall be allocated among the Fund and the other Bull & Bear Funds based on the
relative number of open Shareholder accounts and other factors deemed
appropriate by the Board of Directors of the Fund.
4. Cooperation with Accountants. BBSC shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such accountants for the expression of their
unqualified opinion, including but not limited to the opinion included in the
Fund's semi-annual reports on Form N-SAR.
5. Equipment Failures. In the event of failures beyond
BBSC's control, BBSC shall take reasonable steps to minimize
service interruptions but shall have no liability with respect
thereto.
6. Responsibility of BBSC. BBSC shall be under no duty to take any
action on behalf of the Fund or any Series except as specifically set forth
herein or as may be specifically agreed to by BBSC in writing. In the
performance of its duties hereunder, BBSC shall be obligated to exercise care
and diligence, but shall not be liable for any act or omission which does not
constitute
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willful misfeasance, bad faith or gross negligence on the part of BBSC or
reckless disregard by BBSC of its duties under this Agreement. Without limiting
the generality of the foregoing or of any other provision of this Agreement, in
connection with its duties under this Agreement, BBSC shall not be liable for
delays or errors occurring by reason of circumstances beyond BBSC's control,
including acts of civil or military authorities, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
7. Indemnification. The Fund agrees to indemnify and hold harmless BBSC
and its agents from all taxes, charges, expenses, assessments, claims and
liabilities including (without limitation) liabilities arising under the
Securities Act of 1933, as amended, the 1934 Act and any state and foreign
securities and blue sky laws and regulations, all as or to be amended from time
to time, and expenses, including (without limitation) attorneys' fees and
disbursements arising directly or indirectly from any action or matter which
BBSC takes or does or omits to take or do.
8. Duration and Termination. This Agreement shall continue until
terminated by the Fund with respect to any or all Series thereof, or by BBSC.
Termination of this Agreement with respect to any given Series shall in no way
affect the continued validity of this Agreement or the performance thereunder
with respect to any other Series.
9. Amendments. This Agreement or any part thereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
10. Miscellaneous. This Agreement embodies the entire contract and
understanding between the parties hereto. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions thereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above written.
ATTEST: BULL & BEAR FUNDS II, INC.
By: Fredda E. Ackerman Mark C. Winmill
Secretary Co-President
ATTEST: BULL & BEAR SERVICE CENTER, INC.
By: Fredda E. Ackerman Thomas B. Winmill
Secretary Co-President
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TRANSFER AGENCY AGREEMENT
This Agreement made as of the 30th of August, 1994 between Bull & Bear Funds II,
Inc., a Maryland corporation ("Fund"), whose series include: Bull & Bear Dollar
Reserves; Bull & Bear Global Income Fund; and Bull & Bear U.S. Government
Securities Fund, having its principal office and place of business at 11 Hanover
Square, New York, New York 10005 and Supervised Service Company Inc., ("SSC") a
Delaware corporation having its principal office and place of business at 120
South LaSalle, Chicago IL 60603 (hereinafter referred to as the "Transfer
Agent").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth, the
parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the
following meanings:
1. "APPROVED INSTITUTION" shall mean an entity so named in a
Certificate. From time to time the Fund may amend a previously delivered
Certificate by delivering to the Transfer Agent a Certificate naming an
additional entity or deleting any entity named in a previously delivered
Certificate.
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2. THE "BOARD OF DIRECTORS" shall mean the Board of Directors of
the Fund.
3. "CERTIFICATE" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Transfer Agent by the Fund which is signed by any Officer, as hereinafter
defined, and actually received by the Transfer Agent.
4. "CUSTODIAN" shall mean the financial institution appointes as
custodian under the terms and conditions of the Custody Agreement between the
financial institution and the Fund, or its successor(s).
5. "FUND BUSINESS DAY" shall be deemed to be each day on which the New
York Stock Exchange, Inc. is open for trading.
6. "OFFICER" shall be deemed to be the Fund's President, any Vice
President of the Fund, the Fund's Secretary, the Fund's Treasurer, the Fund's
Controller, any Assistant Controller of the Fund, any Assistant Treasurer of the
Fund and any Assistant Secretary of the Fund, and any other person duly
authorized by the Board of Directors of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund and named in the
Certificate annexed hereto as Appendix A, as such Certificate may be amended
from time to time, and any person
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reasonably believed by the Transfer Agent to be such a person.
7. "OUT-OF-POCKET EXPENSES" means amounts reasonably necessary and
actually incurred by Transfer Agent in the provision of Transfer Agent services
or pursuant to this Agreement for the following purposes: postage (and first
class mail insurance in connection with mailing share certificates), envelopes,
check forms, continuous forms, forms for reports and statements, stationery, and
other similar items, telephone and telegraph charges incurred in answering
inquiries from dealers or shareholders, microfilm used to record transactions in
shareholder accounts and computer tapes used for permanent storage of records
and cost of insertion of materials in mailing envelopes by outside firms.
Transfer Agent may, at its option, arrange to have various service providers
submit invoices directly to the Fund for payment of out-of-pocket expenses
reimbursable hereunder; and such other expenses paid or incurred by Transfer
Agent at the request of the Fund. Any charges associated with special or
exception processing shall also be considered Out-of-Pocket Expenses. 8.
"PROSPECTUS" shall mean the most recent Fund prospectus actually received by the
Transfer Agent from the Fund with respect to which the Fund has indicated a
registration statement under the Federal Securities Act of 1933 has becomes
effective, including the
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Statement of Additional Information, incorporated by reference therein.
9. "SHARES" shall mean all or any part of each class or series of the
shares of common stock of the Fund or Portfolio listed in the Certificate as to
which the Transfer Agent acts as transfer agent hereunder, as may be amended
from time to time, which are authorized and/or issued by the Fund.
10. "TRANSFER AGENT" shall mean Supervised Service Company, Inc.,
("SSC"), as transfer agent and dividend disbursing agent under the terms and
conditions of this Agreement, its successor(s) or assign(s).
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Fund hereby constitutes and appoints the Transfer Agent as
transfer agent of all the Shares of the Fund and as dividend disbursing agent
during the period of this Agreement.
2. The Transfer Agent hereby accepts appointment as transfer agent and
dividend disbursing agent and agrees to perform duties thereof as hereinafter
set forth.
3. In connection with such appointment, the Fund upon the request of the
Transfer Agent, shall deliver the following documents to the Transfer Agent:
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(i) A copy of the Articles of Incorporation of the Fund
and all amendments thereto certified by the Secretary of the Fund;
(ii) A copy of the By-Laws of the Fund certified by the
Secretary of the Fund;
(iii) A copy of a resolution of the Board of Directors of the
Fund certified by the Secretary of the Fund appointing the Transfer Agent and
authorizing the execution of this Transfer Agency Agreement;
(iv) A Certificate signed by the Secretary of the Fund
specifying: the number of authorized Shares, the number of such authorized
Shares issued, the number of such authorized Shares issued and currently
outstanding; the names and specimen signatures of the Officers of the Fund; and
the name and address of the legal counsel for the Fund;
(v) Specimen Share certificate for each or series class of
Shares in the form approved by the Board of Directors of the Fund (and in a
format compatible with the Transfer Agent's system), together with a Certificate
signed by the Secretary of the Fund as to such approval;
(vi) Copies of the Fund's Registration Statement, as amended
to date, and the most recently filed Post-Effective Amendment thereto, filed by
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the Fund with the Securities and Exchange Commission under the Securities Act of
1933, as amended, and under the Investment Company Act of 1940, as amended,
together with any applications filed in connection therewith; and
(vii) Opinion of counsel for the Fund with respect to the
validity of the authorized and outstanding Shares, whether such Shares are fully
paid and non-assessable and the status of such Shares under the Securities Act
of 1933, as amended, and any other applicable federal law or regulation (i.e.,
if subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor.)
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Fund shall deliver to the Transfer Agent the following documents
on or before the effective date of any increase or decrease in the total number
of Shares authorized to be issued:
(a) A certified copy of the amendment to the Articles of
Incorporation giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel for the
Fund with respect to the validity of the Shares of the Fund and the status of
such Shares under the Securities Act of 1933, as amended, and any other
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<PAGE>
applicable federal law or regulation (i.e., if subject to registration, that
they have been registered and that the Registration Statement has become
effective or, if exempt, the specific grounds therefor); and
(c) In the case of an increase, if the appointment of the
Transfer Agent was theretofore expressly limited, a certified copy of a
resolution of the Board of Directors of the Fund increasing the authority of the
Transfer Agent.
2. Prior to the issuance of any additional Shares of the Fund pursuant
to stock dividends or stock splits, etc., and prior to any reduction in the
number of shares outstanding, the Fund shall deliver the following documents to
the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the Board
of Directors and/or the shareholders of the Fund authorizing such issuance of
additional Shares of the Fund or such reduction, as the case may be, and
(b) An opinion of counsel for the Fund with respect to the
validity of the Shares of the Fund and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that they have been registered and
that the Registration Statement has become effective, or, if exempt, the
7
<PAGE>
specific grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates, the
Transfer Agent will issue Share certificates in the new form in exchange for, or
upon transfer of, outstanding Share certificates in the old form, upon
receiving:
(a) A Certificate authorizing the issuance of the Share
certificates in the new form;
(b) A certified copy of any amendment to the Articles of
Incorporation with respect to the change;
(c) Specimen Share certificates for each class of Shares in
the new form approved by the Board of Directors of the Fund, with a Certificate
signed by the Secretary of the Fund as to such approval; and
(d) An opinion of counsel for the Fund with respect to
the validity of the Shares in the new form and the status of such Shares under
the Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that the Shares have been
registered and that the Registration Statement has become effective or, if
exempt, the
8
<PAGE>
specific grounds therefor.)
2. The Fund at its expense shall furnish the Transfer Agent with a
sufficient supply of blank Share certificates in the new form and from time to
time will replenish such supply upon the request of the Transfer Agent. Such
blank Share certificates shall be compatible with the Transfer Agent's system
and shall be properly signed by facsimile or otherwise by Officers of the Fund
authorized by law or by the By-Laws to sign Share certificates and, if required
shall bear the corporate Seal or facsimile thereof. The Fund agrees to indemnify
and exonerate, save and hold the Transfer Agent harmless, from and against any
and all claims or demands that may be asserted against the Transfer Agent with
respect to the genuineness of any Share certificate supplied to the Transfer
Agent by the Fund pursuant to this section 2.
ARTICLE V
ISSUANCE,
REDEMPTION AND TRANSFER OF SHARES
1. (a) The Transfer Agent acknowledges that it has received a copy of
the Fund's Prospectus, which Prospectus describes how sales and redemption of
shares of the Fund shall be made, and the Transfer Agent agrees to accept
purchase orders and redemption requests with respect to Fund shares on each Fund
Business Day in
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accordance with such Prospectus. The Fund agrees to provide the Transfer Agent
with sufficient advance notice to enable the Transfer Agent to effect any
changes in the procedures set forth in the Prospectus regarding such purchase
and redemption procedure; provided, however, that in no event will such advance
notice be less than 30 days.
(b) The Transfer Agent shall also accept with respect to each
Fund Business Day, at such times as are agreed upon from time to time by the
Transfer Agent and the Fund, a computer tape or electronic data transmission
consistent in all respects with the Transfer Agent's record format, as amended
from time to time, which is reasonably believed by the Transfer Agent to be
furnished by or on behalf of any Approved Institution. The Transfer Agent shall
not be liable for any losses or damages to the Fund or its shareholders in the
event that a computer tape or electronic data transmission from an Approved
Institution is unable to be processed for any reason beyond the control of the
Transfer Agent, or if any of the information on such tape or transmission is
found to be incorrect.
2. On each Fund Business Day the Transfer Agent shall, as of the
time at which the Fund computes the net asset value of the Fund, issue to and
redeem from the accounts specified in a purchase
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<PAGE>
order, redemption request, or computer tape or electronic data transmission,
which in accordance with the Prospectus is effective on such Fund Business Day,
the appropriate number of full and fractional Shares based on the net asset
value per Share of such Fund specified in an advice received on such Fund
Business Day from the Fund. Notwithstanding the foregoing, if a redemption
specified in a computer tape or electronic data transmission is for a dollar
value of Shares in excess of the dollar value of uncertificated Shares in the
specified account, the Transfer Agent shall not effect such redemption in whole
or in part and shall within twenty-four hours orally advise the Approved
Institution which supplied such tape of the discrepancy.
3. In connection with a reinvestment of a dividend or distribution of
Shares of the Fund, the Transfer Agent shall as of each Fund Business Day, as
specified in a Certificate or resolution described in paragraph 1 of succeeding
Article VI, issue Shares of the Fund based on the net asset value per Share of
such Fund specified in an advice received from the Fund on such Fund Business
Day.
4. On each Fund Business Day the Transfer Agent shall supply
the Fund with a statement specifying with respect to the immediately preceding
Fund Business Day: the total number of
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<PAGE>
Shares of the Fund (including fractional Shares) issued and outstanding at the
opening of business on such day; the total number of Shares of the Fund sold on
such day, pursuant to preceding paragraph 2 of this Article; the total number of
Shares of the Fund redeemed from Shareholders by the Transfer Agent on such day;
the total number of Shares of the Fund, if any, sold on such day pursuant to
preceding paragraph 3 of this Article, and the total number of Shares of the
Fund issued and outstanding.
5. In connection with each purchase and each redemption of Shares, the
Transfer Agent shall send such statements as are prescribed by the Federal
Securities laws applicable to transfer agents or as described in the Prospectus.
If the Prospectus indicates that certificates for Shares are available and if
specifically requested in writing by any shareholder, or if otherwise required
hereunder, the Transfer Agent will countersign, issue and mail to such
shareholder at the address set forth in the records of the Transfer Agent a
Share certificate for any full Share requested.
6. As of each Fund Business Day the Transfer Agent shall furnish the
Fund with an advice setting forth the number and dollar amount of Shares to be
redeemed on such Fund Business Day in accordance with paragraph 2 of this
Article.
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7. Upon receipt of a proper redemption request and moneys paid to it by
the Custodian in connection with a redemption of Shares, the Transfer Agent
shall cancel the redeemed Shares and after making appropriate deduction for any
withholding of taxes required of it by applicable law (a) in the case of a
redemption of Shares pursuant to a redemption described in preceding paragraph
1(a) of this Article, make payment in accordance with the Fund's redemption and
payment procedures described in the Prospectus, and (b) in the case of a
redemption of Shares pursuant to a computer tape or electronic data transmission
described in preceding paragraph 1(b) of this Article, make payment by directing
a federal funds wire order to the account previously designated by the Approved
Institution specified in said computer tape or electronic data transmission.
8. The Transfer Agent shall not be required to issue any Shares after
it has received from an Officer of the Fund or from an appropriate federal or
state authority written notification that the sale of Shares has been suspended
or discontinued, and the Transfer Agent shall be entitled to rely upon such
written notification.
9. Upon the issuance of any Shares in accordance with this
Agreement the Transfer Agent shall not be responsible for the
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<PAGE>
payment of any original issue or other taxes required to be paid by the Fund in
connection with such issuance of any Shares.
10. The Transfer Agent shall accept a computer tape or electronic data
transmission consistent with the Transfer Agent's record format, as amended from
time to time, which is reasonably believed by the Transfer Agent to be furnished
by or on behalf of any Approved Institution and is represented to be
instructions with respect to the transfer of Shares from one account of such
Approved Institution to another such account, and shall effect the transfers
specified in said computer tape or electronic data transmission. The Transfer
Agent shall not be liable for any losses to the Fund or its shareholders in the
event that a computer tape or electronic data transmission from an Approved
Institution is unable to be processed for any reason beyond the control of the
Transfer Agent, or if any of the information on such tape or transmission is
found to be incorrect.
11.(a) Except as otherwise provided in sub-paragraph (b) of this
paragraph and in paragraph 13 of this Article, Shares will be transferred or
redeemed upon presentation to the Transfer Agent of Share certificates or
instructions properly endorsed for transfer or redemption, accompanied by such
documents as the Transfer Agent deems necessary to evidence the authority of the
person making such
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<PAGE>
transfer or redemption, and bearing satisfactory evidence of the payment of
stock transfer taxes. In the case of small estates where no administration is
contemplated, the Transfer Agent may, when furnished with an appropriate surety
bond, and without further approval of the Fund, transfer or redeem Shares
registered in the name of a decedent where the current market value of the
Shares being transferred does not exceed such amount as may from time to time be
prescribed by various states. The Transfer Agent reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the endorsement on the
stock certificate or instructions is valid and genuine, and for that purpose it
will require, unless otherwise instructed by an authorized officer of the Fund,
a guarantee of signature by an "Eligible Guarantor Institution" as that term is
defined by SEC Rule 17Ad-15 under the Securities Exchange Act of 1934. The
Transfer Agent also reserves the right to refuse to transfer or redeem Shares
until it is satisfied that the requested transfer or redemption is legally
authorized, and it shall incur no liability for the refusal, in good faith, to
make transfers or redemptions which the Transfer Agent, in its judgement, deems
improper or unauthorized, or until it is satisfied that there is no basis to any
claims adverse to such transfer or redemption. The Transfer Agent may, in
effecting
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transfers and redemptions of Shares, rely upon those provisions of the Uniform
Act for the Simplification of Fiduciary Security Transfers or the Uniform
Commercial Code, as the same may be amended from time to time, applicable to the
transfer of securities, and the Fund shall indemnify the Transfer Agent for any
act done or omitted by it in good faith in reliance upon such laws. In no event
will the Fund indemnify the Transfer Agent for any act done by it as a result of
willful misfeasance, bad faith, negligence or reckless disregard of its duties.
(b) Notwithstanding the foregoing or any other provision contained in
this Agreement to the contrary, the Transfer Agent shall be fully protected by
the Fund in not requiring any instruments, documents, assurances, endorsements
or guarantees, including, without limitation, any signature guarantees, in
connection with a redemption, or transfer, of Shares whenever the Transfer Agent
reasonably believes that requiring the same would be inconsistent with the
transfer and redemption procedures as described in the Prospectus.
12. Notwithstanding any provision contained in this agreement
to the contrary, the Transfer Agent shall not be required or expected to
require, as a condition to any transfer of any Shares pursuant to paragraph 13
of this Article or any redemption of any
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Shares pursuant to a computer tape or electronic data transmission described in
this Agreement, any documents, including, without limitation, any documents of
the kind described in sub-paragraph (a) of paragraph 13 of this Article, to
evidence the authority of the person requesting the transfer or redemption
and/or the payment of any stock transfer taxes, and shall be fully protected in
acting in accordance with the applicable provisions of this Article.
13. (a) As used in this Agreement, the terms "computer tape or
electronic data transmission" and "computer tape believed by the Transfer Agent
to be furnished by an Approved Institution", shall include any tapes generated
by the Transfer Agent to reflect information believed by the Transfer Agent to
have been input by an Approved Institution, via a remote terminal or other
similar link, into a data processing, storage, or collection system, or similar
system (the "System"), located on the Transfer Agent's premises. For purposes of
paragraph 1 of this Article, such a computer tape or electronic data
transmission shall be deemed to have been furnished at such times as are agreed
upon from time to time by the Transfer Agent and Fund only if the information
reflected thereon was input to the System at such times as are agreed upon in
writing from time to time by the Transfer Agent and the Fund.
(b) Nothing contained in this Agreement shall constitute any
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<PAGE>
agreement or representation by the Transfer Agent to permit, or to agree to
permit, any Approved Institution to input information into a System.
(c) The Transfer Agent reserves the right to approve, in advance, any
Approved Institution, such approval not to be unreasonably withheld. The
Transfer Agent also reserves the right to terminate any and all automated data
communications, at its discretion, upon a reasonable attempt to notify the Fund
when in the reasonable opinion of the Transfer Agent continuation of such
communications would jeopardize the accuracy and/or integrity of the Fund's
records on the System.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a resolution
of its Board of Directors, certified by the Secretary or any Assistant
Secretary, either (i) setting forth the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, thereof, the
record date as of which Shareholders entitled to payment, or accrual, as the
case may be, shall be determined, the amount per Share of such dividend or
distribution, the payment date on which all previously accrued and unpaid
dividends are to be paid, and the total amount, if any,
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payable to the Transfer Agent on such payment date, or (ii) authorizing the
declaration of dividends and distributions on a daily or other periodic basis
and authorizing the Transfer Agent to rely on a Certificate setting forth the
information described in subsection (i) of this paragraph.
2. Upon the mail date specified in such Certificate or resolution, as
the case may be, the Fund shall, in the case of a cash dividend or distribution,
cause the Custodian to deposit in an account in the name of the Transfer Agent
on behalf of the Fund an amount of cash, if any, sufficient for the Transfer
Agent to make the payment, as of the mail date, specified in such Certificate or
resolution, as the case may be, to the Shareholders who were of record on the
record date. The Transfer Agent will, upon receipt of any such cash, make
payment of such cash dividends or distributions to the shareholders of record as
of the record date by: (i) mailing a check, payable to the registered
shareholder, to the address of record or dividend mailing address, or (ii)
wiring such amounts to the accounts previously designated by an Approved
Institution, as the case may be. The Transfer Agent shall not be liable for any
improper payments made in good faith and without negligence, in accordance with
a Certificate or resolution described in the preceding paragraph. If the
Transfer Agent shall
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not receive from the Custodian sufficient cash to make payments of any cash
dividend or distribution to all shareholders of the Fund as of the record date,
the Transfer Agent shall, upon notifying the Fund, withhold payment to all
shareholders of record as of the record date until sufficient cash is provided
to the Transfer Agent.
3. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or capital
gain distributions due to the shareholders. It is expressly agreed and
understood that the Transfer Agent is not liable for any loss as a result of
processing a distribution based on information provided in the Certificate that
is incorrect. The Fund agrees to pay the Transfer Agent for any and all costs,
both direct and out-of-pocket expenses, incurred in such corrective work as
necessary to remedy such error.
4. It is understood that the Transfer Agent shall file such appropriate
information returns concerning the payment of dividend and capital gain
distributions with the proper federal, state and local authorities as are
required by law to be filed by the Fund but shall in no way be responsible for
the collection or withholding of taxes due on such dividends or distributions
due to shareholders, except and only to the extent, required by
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applicable law.
ARTICLE VII
CONCERNING THE FUND
1. The Fund represents to the Transfer Agent that:
(a) It is a corporation duly organized and existing under the
laws of the State of Maryland.
(b) It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement.
(c) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the Investment
Company Act of 1940, as amended.
(e) A registration statement under the Securities Act of 1933, as
amended, with respect to the Shares is effective. The Fund shall
notify the Transfer Agent if such registration statement or any
state securities registrations have been terminated or a stop
order has been entered with respect to the Shares.
2. Each copy of the Articles of Incorporation of the Fund and copies of all
amendments thereto shall be certified by the Secretary of State (or other
appropriate official) of the state of organization, and if such Articles of
Incorporation and/or
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amendments are required by law also to be filed with a county or other officer
or official body, a certificate of such filing shall be filed with a certified
copy submitted to the Transfer Agent. Each copy of the By-Laws and copies of all
amendments thereto, and copies of resolutions of the Board of Directors of the
Fund, shall be certified by the Secretary of the Fund.
3. The Fund shall promptly deliver to the Transfer Agent written notice
of any change in the Officers authorized to sign Share Certificates,
notifications or requests, together with a specimen signature of each new
Officer. In the event any Officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such Share certificates, the
Transfer Agent may issue such Share certificates of the Fund notwithstanding
such death, resignation or removal, and the Fund shall promptly deliver to the
Transfer Agent such approval, adoption or ratification as may be required by
law.
4. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent the Fund's currently effective Prospectus and, for purposes of
this Agreement, the Transfer Agent shall not be deemed to have notice of any
information contained in such Prospectus until a reasonable time, not to exceed
ten (10)
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business days, after it is actually received by the Transfer Agent.
ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents and warrants to the Fund that:
(a) It is a corporation duly organized and existing under the
laws of the State of Delaware.
(b) It is empowered under applicable law and by its Charter and
By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under Section 17A
of the Securities Exchange Act of 1934, as amended.
2. The Transfer Agent shall not be liable and shall be indemnified in
acting upon any computer tape or electronic data transmission, writing or
document reasonably believed by it to be genuine and to have been signed or made
by an Officer of the Fund or person designated by the Fund and shall not be held
to have any notice of any change of authority of any person until receipt of
written notice thereof from the Fund or such person. It shall also be protected
in processing Share certificates which bear the proper countersignature of the
Transfer Agent and which it reasonably
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believes to bear the proper manual or facsimile signature of the Officers of the
Fund.
3. The Transfer Agent upon reasonable notice to the Fund may establish
such additional procedures, rules and regulations governing the transfer or
registration of Share certificates as it may deem advisable and consistent with
such rules and regulations generally adopted by mutual fund transfer agents.
4. The Transfer Agent shall keep such records as are specified in
Schedule II hereto in the form and manner, and for such period, as it may deem
advisable and is agreeable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Rules 31a-2 and
31a-3 under the Investment Company Act of 1940, as amended. The Transfer Agent
acknowledges that such records are the property of the Fund. The Transfer Agent
may deliver to the Fund from time to time at its discretion, for safekeeping or
disposition by the Fund in accordance with law, such records, papers, documents
accumulated in the execution of its duties as such Transfer Agent, as the
Transfer Agent may deem expedient, other than those which the Transfer Agent is
itself required to maintain pursuant to applicable laws and regulations. The
Fund shall assume all responsibility for any failure thereafter to produce any
record, paper, cancelled Share
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<PAGE>
certificate, or other document so returned, if and when required. The records
specified in Schedule II hereto maintained by the Transfer Agent pursuant to
this paragraph 4, which have not been previously delivered to the Fund pursuant
to the foregoing provisions of this paragraph 4, shall be considered to be the
property of the Fund, shall be made available upon request for inspection by the
officers, employees, auditors of the Fund, or such staff of applicable
regulatory agencies as the Fund may designate, and records shall be delivered to
the Fund upon request and in any event upon the date of termination of this
Agreement, as specified in Article IX of this Agreement, in the form and manner
kept by the Transfer Agent on such date of termination or such earlier date as
may be requested by the Fund.
5. The Transfer Agent shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its bad faith,
negligence, willful misfeasance, gross negligence or reckless disregard of its
duties under this agreement.
6 (a) The Fund shall indemnify and exonerate, save and hold harmless
the Transfer Agent from and against any and all claims (whether with or without
basis in fact or law), demands,
25
<PAGE>
expenses (including reasonable attorney's fees) and liabilities of any and every
nature which the Transfer Agent may sustain or incur or which may be asserted
against the Transfer Agent by any person by reason of or as a result of any
action taken or omitted to be taken by any prior transfer agent of the Fund or
as a result of any action taken or omitted to be taken by the Transfer Agent in
good faith and without negligence or willful misconduct or in reliance upon (i)
any provision of this Agreement; (ii) the Prospectus; (iii) any instruction or
order including, without limitation, any computer tape or electronic data
transmission reasonably believed by the Transfer Agent to have been received
from an Approved Institution; (iv) any instrument, order or Share certificate
reasonably believed by it to be genuine and to be signed, countersigned or
executed by any duly authorized Officer of the Fund; (v) any Certificate or
other instructions of an Officer; or (vi) any opinion of legal counsel for the
Fund or the Transfer Agent. The Fund shall indemnify and exonerate, save and
hold the Transfer Agent harmless from and against any and all claims (whether
with or without basis in fact or law), demands, expenses (including reasonable
attorney's fees) and liabilities of any and every nature which the Transfer
Agent may sustain or incur or which may be asserted against the Transfer Agent
by any person by reason
26
<PAGE>
of or as a result of any action taken or omitted to be taken by the Transfer
Agent in good faith and without negligence in connection with its appointment or
in reliance upon any law, act, regulation or any interpretation of the same even
though such law, act or regulation may thereafter have been altered, changed,
amended or repealed.
(b) The Transfer Agent shall not settle any claim, demand,
expense or liability to which it may seek indemnity pursuant to paragraph 6(a)
above (each, an "Indemnifiable Claim") without the express written consent of an
Officer of the Fund. The Transfer Agent shall notify the Fund within 15 days of
receipt of notification of an Indemnifiable Claim, provided that the failure by
the Transfer Agent to furnish such notification shall not impair its right to
seek indemnification from the Fund unless the Fund is unable to adequately
defend the Indemnifiable Claim as a result of such failure, or if as a result of
the Transfer Agent's failure to provide the Fund with timely notice of the
institution of litigation a judgment by default is entered. The Fund shall have
the right to defend any Indemnifiable Claim at its own expense, provided that
such defense shall be conducted by counsel selected by the Fund. The Transfer
Agent may join in such defense at its own expense, but to the extent that it
shall so desire the Fund
27
<PAGE>
shall direct such defense. The Fund shall not settle any Indemnifiable Claim
without the express written consent of the Transfer Agent if the Transfer Agent
determines that such settlement would have an adverse effect on the Transfer
Agent beyond the scope of this Agreement. In the event the Transfer Agent does
not provide its written consent, each of the Fund and the Transfer Agent shall
be responsible for their own defense at their own cost and expense, and such
claim shall not be deemed an Indemnifiable Claim hereunder. If the Fund shall
fail or refuse to defend an Indemnifiable Claim, the Transfer Agent may provide
its own defense at the cost and expense of the Fund. Anything in this Agreement
to the contrary notwithstanding, the Fund shall not indemnify the Transfer Agent
against any liability or expense arising out of the Transfer Agent's willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
The Transfer Agent shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Transfer Agent as a result of the Transfer Agent's
lack of good faith, negligence or willful misconduct.
28
<PAGE>
7. The Transfer Agent shall not be liable to the Fund with respect to
any redemption draft on which the signature of the drawer is forged and which
the Fund's Custodian or Cash Management Bank has advised the Transfer Agent to
honor the redemption. Provided that the Transfer Agent inspects redemption
drafts with reasonable care to verify the drawer's signature against signatures
on file, the Transfer Agent shall not be liable for any material alteration or
absence or forgery of any endorsement.
8. There shall be excluded from the consideration of whether the
Transfer Agent has been negligent or has breached this Agreement, any period of
time, and only such period of time, during which the Transfer Agent's
performance is materially affected, by reason of circumstances beyond its
control and not reasonably foreseeable in that the Transfer Agent could not
reasonable have made back-up or alternative arrangements (collectively,
"Causes"), including, without limitation (except as provided below), mechanical
breakdowns of equipment (including any alternative power supply and operating
systems software), flood or catastrophe, acts of God, failures of
transportation, communication or power supply, strikes, lockouts, work stoppages
or other similar circumstances.
9. At any time the Transfer Agent may apply to an Officer of the
Fund for written instructions with respect to any matter
29
<PAGE>
arising in connection with the Transfer Agent's duties and obligations under
this Agreement, and the Transfer Agent shall not be liable for any action taken
or permitted by it in good faith in accordance with such written instructions.
Such application by the Transfer Agent for written instructions from an Officer
of the Fund may set forth in writing any action proposed to be taken or omitted
by the Transfer Agent with respect to its duties or obligations under this
Agreement and the date on and/or after which such action shall be taken. The
Transfer Agent shall not be liable for any action taken or omitted in accordance
with a proposal included in any such application on or after the date specified
therein unless, prior to taking or omitting any such action, the Transfer Agent
has received written instructions in response to such application specifying the
action to be taken or omitted. The Transfer Agent may consult counsel of the
Fund, or if acceptable to the Fund, its own counsel, at the expense of the Fund
and shall be fully protected with respect to anything done or omitted by it in
good faith in accordance with the advice or opinion of counsel to the Fund or
its own counsel.
10. The Transfer Agent may issue new Share certificates in place of
certificates represented to have been lost, stolen, or destroyed upon receiving
written instructions from the shareholder
30
<PAGE>
accompanied by proof of an indemnity or surety bond issued by a recognized
insurance institution specified by the Fund or the Transfer Agent. If the
Transfer Agent receives written notification from the shareholder or broker
dealer that the certificate issued was never received, and such notification is
made within 30 days of the date of issuance, the Transfer Agent may reissue the
certificate without requiring a surety bond. The Transfer Agent may also reissue
certificates which are represented as lost, stolen, or destroyed without
requiring a surety bond provided that the notification is in writing and
accompanied by an indemnification signed on behalf of a member firm of the New
York Stock Exchange and signed by an officer of said firm with the signature
guaranteed. Notwithstanding the foregoing, the Transfer Agent will reissue a
certificate upon written authorization from an Officer of the Fund.
11. In case of any requests or demands for the inspection of the
shareholder records of the Fund, the Transfer Agent will endeavor to notify the
Fund promptly and to secure instructions from an Officer as to such inspection.
The Transfer Agent reserves the right, however, to exhibit the shareholder
records to any person whenever it receives an opinion from its counsel that
there is a reasonable likelihood that the Transfer Agent will be held
31
<PAGE>
liable for the failure to exhibit the shareholder records to such person;
provided, however, that in connection with any such disclosure the Transfer
Agent shall promptly notify the Fund that such disclosure has been made or is to
be made.
12. At the request of an Officer of the Fund the Transfer Agent
will address and mail such appropriate notices to shareholders as the Fund may
direct.
13. Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of the
Approved Institution or of the Fund, as the case may be, to request such sale or
issuance;
(b) The legality of a transfer of Shares, or of a redemption
of any Shares, the propriety of the amount to be paid therefor, or the authority
of the Approved Institution or of the Fund, as the case may be, to request such
transfer or redemption;
(c) The legality of the declaration of any dividend by
the Fund, or the legality of the issue of any Shares in payment of
any stock dividend; or
(d) The legality of any recapitalization or readjustment
32
<PAGE>
of Shares.
14. The Transfer Agent shall be entitled to receive and the Fund hereby
agrees to pay to the Transfer Agent for its performance hereunder, including its
performance of the duties and functions set forth in Schedule I hereto, (i) its
reasonable out-of-pocket expenses (including reasonable legal expenses and
attorney's fees) incurred in connection with its performance hereunder and (ii)
such compensation as may be agreed upon in writing from time to time by the
Transfer Agent and the Fund.
15. The Transfer Agent shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Transfer Agent.
16. Purchase and Prices of Services.
(a) The Fund will compensate the Transfer Agent for, and
Transfer Agent will provide, beginning on the execution date of this Agreement
and continuing until the termination of this Agreement as provided hereinafter,
the Services set forth in Schedule I.
(b) The current unit prices for the Services are set
forth in Schedule III (the "Schedule III Fee Schedule"). Once in
33
<PAGE>
each calendar year, after the third anniversary of the date hereof, the Transfer
Agent may elect to raise the Schedule III Fees upon ninety (90) days prior
notice to the Fund. Notwithstanding the annual right to raise the Schedule III
Fees, the Transfer Agent may increase prices due to changes in legal or
regulatory requirements subject to the approval of the Fund, which approval
shall not be unreasonably withheld.
17. Billing and Payment.
(a) The Transfer Agent shall bill the Fund as follows: (i)
monthly in arrears for Accounts maintained and Out-of-Pocket Expenses; and (ii)
monthly in advance for estimated postage expenses to be incurred by the Transfer
Agent for the following month. Documentation to support reconciliation of actual
postage expense charges will be provided to the Fund monthly. The Transfer Agent
may from time to time request the Fund to make additional advances when
appropriate.
(b) The Fund shall pay the Transfer Agent in immediately
available funds at United Missouri Bank in Kansas City, Missouri within thirty
(30) days of the date of the bill and receipt of supporting documents. Any
amounts due under this Agreement which are not paid within said thirty (30) day
period shall bear interest at the rate of one and one-half percent (1 1/2%) per
month from
34
<PAGE>
such date until paid in full.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of receipt of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Directors of the Fund, certified by
the Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating the successor transfer agent or transfer agents. In the event
such notice is given by the Transfer Agent, the Fund shall on or before the
termination date, deliver to the Transfer Agent a copy of a resolution of its
Board of Directors certified by the Secretary or any Assistant Secretary
designating a successor transfer agent or transfer agents. In the absence of
such designation by the Fund, the Fund shall upon the date specified in the
notice of termination of this Agreement and delivery of the records maintained
hereunder, be deemed to be its own transfer agent and the Transfer Agent shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement.
In the event this Agreement is terminated as provided herein,
35
<PAGE>
the Transfer Agent, upon the written request of the Fund, shall deliver the
records of the Fund on electromagnetic media to the Fund or its successor
transfer agent. The Fund shall be responsible to the Transfer Agent for the
reasonable costs and expenses associated with the preparation and delivery of
such media.
ARTICLE X
MISCELLANEOUS
1. The Fund agrees that prior to effecting any change in the Prospectus
which would increase or alter the duties and obligations of the Transfer Agent
hereunder, it shall advise the Transfer Agent of such proposed change at least
30 days prior to the intended date of the same, and shall proceed with such
change only if it shall have received the written consent of the Transfer Agent
thereto, which consent shall not be unreasonably withheld.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address first
above written, or at such other place as the Fund may from time to time
designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Transfer Agent shall
36
<PAGE>
be sufficiently given if addressed to the Transfer Agent and mailed or delivered
to the Secretary at 120 South LaSalle, Chicago, IL, with a copy to the President
at 811 Main Street, Kansas City, MO, or at such other place as the Transfer
Agent may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the formality of this
Agreement.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns. This Agreement shall not be
assignable by either party without the written consent of the other party,
except that the Transfer Agent may assign this Agreement to a corporate
affiliate with advance written notice to and consent by the Fund, which consent
shall not be unreasonably withheld.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois.
7. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be
37
<PAGE>
granted to any other person by virtue of this Agreement.
9. (a) The Transfer Agent will endeavor to assist in
resolving shareholder inquiries and errors relating to the period during which
prior transfer agents acted as such for the Fund. Any such inquiries or errors
which cannot be expediently resolved by the Transfer Agent will be referred to
the Fund.
(b) The Transfer Agent shall only be responsible for the
safekeeping and maintenance of transfer agency records, cancelled certificates
and correspondence of the Fund created or produced prior to the time of
conversion which are under its control and acknowledged in a writing to the Fund
to be in its possession. Any expenses or liabilities incurred by the Transfer
Agent as a result of shareholder inquiries, regulatory compliance or audits
related to such records and not caused as a result of Transfer Agent's bad
faith, willful malfeasance or negligence shall be the responsibility of the Fund
as provided in Article VIII herein.
10. The Transfer Agent shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
periodic backup or computer files and data with respect to the Fund and
emergency use of electronic data processing equipment. In the event of equipment
failures the Transfer Agent shall at no additional expense to the Fund, take all
38
<PAGE>
reasonable steps to minimize service interruptions, the Transfer Agent shall
have no liability with respect to the loss of data or service interruptions
caused by equipment failures, provided such loss or interruption is not caused
by the negligence of the Transfer Agent and provided further that the Transfer
Agent has complied with the provisions of this Paragraph.
11. The Transfer Agent agrees on its own behalf and that of its
employees to make reasonable efforts to keep confidential all records of the
Fund and information relating to the Fund and its shareholders (past, present
and future), its investment advisor and its principal underwriter, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund prior to its release. The Fund agrees that such consent shall not be
unreasonably withheld, and may not be withheld where Transfer Agent may be
exposed to civil or criminal contempt proceedings or when required to divulge
such information or records to duly constituted authorities.
12. The Transfer Agent shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement, the contracts of insurance shall take precedence, and
no provision
39
<PAGE>
of this Agreement shall be construed to relieve an insurer of any obligation to
pay claims to the Fund, the Transfer Agent or other insured party which would
otherwise be a covered claim in the absence of any provision of this Agreement.
13. The Transfer Agent represents and warrants that, to the best of its
knowledge, the various procedures and systems which the Transfer Agent has
implemented with regard to the safeguarding from loss or damage attributable to
fire, theft or any other cause (including provision for twenty-four hours a day
restricted access) of the Fund's blank checks, certificates, records and other
data and the Transfer Agent's equipment, facilities and other property used in
the performance of its obligations hereunder are adequate, and that it will make
such changes therein from time to time as in its judgment are required for the
secure performance of its obligations hereunder. The Transfer Agent shall review
such systems and procedures on a periodic basis and the Fund shall have access
to review these systems and procedures.
IN WITNESS WHEREOF, the parties hereto have caused this
40
<PAGE>
Agreement to be executed by their respective corporate officer, thereunto duly
authorized and their respective corporate seals to be hereunto affixed, as the
day and year first above written.
SUPERVISED SERVICEBULL & BEAR FUNDS II, INC.
By: _________________________ By: _______________________
(Signature) (Signature)
-------------------------- -----------------------
(Name) (Name)
-------------------------- -----------------------
(Title) (Title)
41
<PAGE>
SCHEDULE I
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at such
times as Fund and Transfer Agent may agree, Transfer Agent will provide the
services set forth below:
Examine and Process New Accounts, Subsequent Payments, Liquidations,
Exchanges, Telephone Transactions, Check Redemptions, Automatic Withdrawals,
Certificate Issuance, Wire Order Trades, Dividends, Dividend Statements, Dealer
Statements.
DAILY ACTIVITY
Maintain the following shareholder information in such a manner as the
Transfer Agent shall determine:
Name and Address, ncluding Zip Code
Balance of Uncertificated Shares
Balance of Certificated Shares
Certificate number, number of shares, issuance date of each certificate
outstanding and cancellation date for each certificate date for each
certificate no longer outstanding, if issued
Balance of dollars available for redemption
Dividend code (daily accrual, monthly reinvest, monthly cash
or quarterly cash)
Type of account code
Establishment date indicating the date an account was opened,
carrying forward pre-conversion data as available
Original establishment date for accounts opened by exchange
W-9 withholding status and periodic reporting
State of residence code
42
<PAGE>
Social Security or taxpayer identification number, and
indication of certification
Historical transactions on the account for the most recent 18 months,
or other period as mutually agreed to from time-to-time
Indication as to whether phone transactions can be accepted
for this account. Beneficial owner code, i.e. male, female,
joint tenant, etc.
An alternate or "secondary" account number issued by a dealer
(or bank, etc.) to a customer for use, inquiry and transaction
input by "remote accessors"
FUNCTIONS
Answer investor and dealer telephone and/or written inquiries, except
those concerning Fund policy, or requests for investment advice which
will be referred to the Fund, or those which the Fund chooses to answer
Deposit Fund share certificates into accounts upon receipt of
instructions from the investor or other authorized person, if issued
Examine and process transfers of shares insuring that all transfer
requirements and legal documents have been supplied
Process and confirm address changes
Process standard account record changes as required, i.e.
Dividend Codes, etc.
Microfilm source documents for transactions, such as account
applications and correspondence
Perform backup withholding for those accounts which federal
government regulations indicate is necessary
Perform withholdings on liquidations, if applicable, for
43
<PAGE>
employee benefit plans. Prepare and mail 5498s and 1099R's
Solicit missing taxpayer identification numbers
Provide remote access inquiry to Fund records via Fund supplied
hardware (Fund responsible for connection line and monthly fee)
REPORTS PROVIDED
Daily Journals Reflecting all shares and
dollar activity for the previous day
Blue Sky Report Supply information monthly for Fund's
preparation of Blue Sky Reporting
N-SAR Report Supply monthly correspondence,
redemption and liquidation
information for use in fund's
N-SAR Report
Additionally, monthly average daily balance reports will be provided at
the Fund's request to the Fund at no charge. Prepare and mail copies of
summary statements to dealers and investment advisers
Generate and mail confirmation statements for financial
transactions
DIVIDEND ACTIVITY
Reinvest or pay in cash including reinvesting in other funds within the
fund group serviced by the Transfer Agent as described in each Fund
Prospectus
Distribute capital gains simultaneously with income dividends
DEALER SERVICES
44
<PAGE>
Prepare and mail confirmation statements to dealers daily
Prepare and mail copies of statements to dealers, same
frequency as investor statements
ANNUAL MEETINGS
Assist Fund in obtaining a qualified service to: address and mail
proxies and related material, tabulate returned proxies and supply
daily reports when sufficient proxies have been received
Prepare certified list of stockholders, hard copy or microform
PERIODIC ACTIVITIES
Mail transaction confirmation statements daily to investors
Address and mail four (4) periodic financial reports (material must be
adaptable to Transfer Agent's mechanical equipment as reasonably
specified by the Transfer Agent)
Mail periodic statement to investors
Compute, prepare and furnish all necessary reports to
Governmental authorities: Forms 1099R, 1099DIV, 1099B, 1042
and 1042S
Enclose various marketing material as designated by the Fund in
statement mailings, i.e. monthly and quarterly statements (material
must be adaptable to mechanical equipment as reasonably specified by
the Transfer Agent)
45
<PAGE>
SCHEDULE II
RECORDS MAINTAINED BY TRANSFER AGENT
- Account applications
- Cancelled certificates plus stock powers and supporting
documents
- Checks including check registers, reconciliation records,
any adjustment records and tax withholding documentation
- Indemnity bonds for replacement of lost or missing stock
certificates and checks
- Liquidation, redemption, withdrawal and transfer requests
including stock powers, signature guarantees and any
supporting documentation
46
<PAGE>
SERVICE AND AGENCY AGREEMENT
This Service and Agency Agreement (The "Agreement") is among Investors Bank &
Trust Company (hereinafter referred to as "Investors Bank & Trust Company") and
Bull & Bear Funds II, Inc. (hereinafter referred to as "Bull & Bear"), and is
effective as of November 19, 1994. As of its effective date, this Agreement
supersedes any prior agreement relating to the subject matter hereof.
Article 1: Recitals
1.1 Bull & Bear has developed certain materials that may be used by an
individual to establish an individual retirement custodial account ("IRA").
These Bull & Bear materials use the provisions of IRS Form 5305-A, Individual
Retirement Custodial Account, provisions developed by Bull & Bear in Article
VIII of Form 5305-A, an IRA disclosure statement and related forms and materials
(and such materials are hereinafter collectively called the"IRA Materials"), and
the provisions of IRS Form 5305-SEP, Simplified Employee Pension - Individual
Retirement Accounts Contribution Agreement, and related informational or other
materials (and such materials are hereafter referred to collectively as the "SEP
Materials." In addition, Bull & Bear has developed or contracted for certain
materials that may be used by an individual to establish a 403(b)(7) custodial
account (the "403(b) Account Materials") and master or prototype qualified plan
materials that may be used by an Employer to establish a tax-qualified profit
sharing or money purchase pension plan (the "Prototype Plan Materials"). The IRA
Materials, the SEP Materials, the 403(b) Account Materials, and the Prototype
Plan Materials are hereinafter referred to collectively as the "Materials".
Contributions to an IRA, 403(b) Account or Employer Plan established using the
IRA Materials, the 403(b) Account Materials or the Prototype Plan Materials (as
the case may be) may be invested in shares of open-end regulated investment
companies in the Bull & Bear Funds Group ("Shares").
1.2 Bull & Bear desires to have Investors Bank & Trust Company serve as
Custodian of IRAs or 403(b) Accounts established using the IRA Materials or the
403(b) Account Materials, and to serve as Trustee of Employer Plans established
using the Prototype Plan Materials. Investors Bank & Trust Company is willing to
serve as such Custodian or Trustee in accordance with the terms and conditions
of this Agreement. For purposes of this
<PAGE>
Agreement, in its capacity as Custodian or Trustee of a Customer Arrangement
hereunder, Investors Bank & Trust Company will be referred to as the "Custodian"
(even though with respect to Employer Plans, Investors Bank & Trust Company is
serving as
Trustee).
1.3 Investors Bank & Trust represents to Bull & Bear that it is and, as
long as any Customer Arrangements established hereunder are in effect, will be a
"bank" as defined in Section 408(n)(1) of the Internal Revenue Code of 1986, as
amended.
Article 2: Definitions
As used in this Agreement, the following terms have the following meanings:
2.1 "Customer" means an individual or business maintaining a Customer IRA,
Customer 403(b) Account, or Employer Plan.
2.2 "Customer Arrangement" means a Customer IRA, a Customer 403(b) Account,
or an Employer Plan.
2.3 "Customer IRA" means the individual retirement custodial account, as
hereafter adopted by an individual using the IRA Materials.
2.4 "Customer 403(b) Account" means the 403(b)(7) custodial account, as
hereafter adopted by an individual using the 403(b) Account Materials.
2.5 "Employer" means an entity (whether incorporated or not) that has
established an Employer SEP or an Employer Plan.
2.6 "Employer Plan" means a tax-qualified prototype profit sharing or money
purchase pension plan as hereafter established by an Employer using the
Prototype Plan Materials.
2.7 "Employer SEP" means a simplified employee pension plan, as hereafter
established by an Employer using the SEP Materials.
Article 3: IRA Materials
3.1 Bull & Bear will be responsible for preparing and maintaining all of
the Materials. Bull & Bear will be responsible for the legal and tax effect of
<PAGE>
such Materials, and will take all steps necessary to ensure that all the
Materials contain such terms and conditions and meet such other requirements as
are necessary to comply with all provisions of the Internal Revenue Code and any
other laws applicable to individual retirement accounts, simplified employee
pension plans, 403(b)(7) custodial accounts or tax-qualified profit sharing or
money purchase pension plans, in order to achieve tax deferral for Customers who
establish or employees or owner-employees who participate in a Customer
Arrangement and to achieve tax deductibility for the Employer for any
contributions to any such Customer Arrangement (within applicable limitations).
This responsibility will include (without limitation) timely amending the
Materials and causing amended Materials to be distributed to and if necessary
signed by Customers and/or Employers. All costs and expense of the preparation
and maintenance of the Materials will be borne by Bull & Bear.
Bull & Bear may contract for or arrange with a vendor selected with
reasonable care by Bull & Bear for the provision of any or all the Materials,
provided that, as between Bull & Bear and Investors Bank & Trust Company, Bull &
Bear will be responsible for all the Materials as provided in the preceding
paragraph and for all other purposes of this Agreement.
The Materials (and all explanatory, advertising, marketing or other
Materials used in connection with any Customer Arrangement) will provide that
Investors Bank & Trust Company as Custodian of any Customer Arrangement will
have no investment responsibilities and no fiduciary or other responsibility or
liability for the selection of investments for any Customer Arrangement, and
will not serve as the "plan administrator" (as defined in the Employee
Retirement Income Security Act of 1974, as amended) of any Customer Arrangement.
Article 4: Employment of Investors Bank & Trust Company as Custodian
4.1 Investors Bank & Trust Company agrees to serve as Custodian of any
Customer Arrangement hereafter established by a Customer using the Materials. As
such Custodian, Investors Bank & Trust Company will be designated as the owner
of the Shares purchased for each Customer Arrangement on the records of Bull &
Bear. Bull & Bear represents and warrants to Investors Bank & Trust Company that
the Shares will meet all applicable legal
<PAGE>
requirements, including registration in accordance with the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, in order
to be legal investments for Customer Arrangements.
4.2 Records of the Custodian's ownership of Shares will be maintained by
Bull & Bear in the name of Investors Bank & Trust Company as Custodian (or its
nominee) and no physical shares will be issued.
4.3 Investors Bank & Trust Company and Bull & Bear acknowledge and agree
that:
(a) Under the Materials, Investors Bank & Trust Company as Custodian
has no investment responsibility for the selection of Shares for any
Customer Arrangement and Investors Bank & Trust Company will have no
liability for any investments made for a Customer Arrangement.
(b) Investors Bank & Trust Company will not serve as "plan
administrator" (as defined in the Employee Retirement Income Security Act
of 1974, as amended) of any Customer Arrangement whatsoever, or in any
other administrative capacity or other capacity except as Custodian
thereof.
(c) Bull & Bear agrees that, in any written, oral, or electronic
communications from Bull & Bear to any prospective or actual Customer or
Employer, it will not state or represent that Investors Bank & Trust
Company has any investment discretion or other power concerning investments
of any Customer Arrangement, or that Investors Bank & Trust Company will
serve as plan administrator or have any administrative or other
responsibility for the administration or operation of any Customer
Arrangement.
4.4 (a) Investors Bank & Trust Company hereby delegates to Bull & Bear all
record keeping and other duties of the Custodian as are specified in any of the
Materials or as may be necessary or convenient to administer and maintain any
Customer Arrangement. With respect to any Customer Arrangement, such duties
include, without implied limitation, receiving and maintaining copies of the
signed Materials and other documentation necessary to reflect the establishment
of and activity in each Customer Arrangement, processing all contributions to a
Customer Arrangement (including rollover or
<PAGE>
direct rollover contributions), properly investing all such contributions in
Shares in accordance with the Customer's instructions, processing investment
transfers among Shares in accordance with the Customer's instructions,
processing distributions and rollovers or transfers from the Customer
Arrangement, providing periodic Customer Arrangement account statements
(including a year-end statement), performing all required government reporting
in a timely manner in accordance with applicable requirements, including timely
filing Form 5498 and Form 1099R (where applicable) with the Customer and the
Internal Revenue Service, performing income tax withholding, where applicable,
timely providing a Schedule P to each Employer with an Employer Plan to be filed
with the Annual Report of the Employer Plan to the Internal Revenue Service, and
responding to all Customer and other inquiries concerning a Customer
Arrangement. With respect to Employer SEPs and Employer Plans, such duties may
include, without implied limitation, receiving Employer SEP or Employer Plan
contributions and properly allocating such contributions to participants'
accounts or (in the case of an Employer SEP) individual retirement accounts
operating in connection with such Employer SEP or Employer Plan, and responding
to all Employer and other inquiries concerning an Employer SEP or Employer Plan.
Bull & Bear will perform all such duties, and will do so with the same degree of
care that Investors Bank & Trust Company would be required to exercise if it
were performing such duties itself.
(b) Bull & Bear may delegate any of its duties under the preceding
subsection (a) to a third party service provider or service bureau (which may
include an affiliate of Bull & Bear or the transfer agent or distributor of the
Shares) selected by Bull & Bear with reasonable care. Notwithstanding any such
delegation, Bull & Bear will remain responsible to Investors Bank & Trust
Company for the complete and proper performance of Bull & Bear's duties under
the preceding subsection (a).
4.5 Bull & Bear will upon reasonable advance notice make available access
to its facilities and access to or copies of such records to Investors Bank &
Trust Company as Investors Bank & Trust Company may request in order that
Investors Bank & Trust Company may determine that Bull & Bear is properly
performing its duties and obligations hereunder or as may be necessary to comply
with bank regulatory or other legal requirements to which Investors Bank & Trust
Company is subject; Investors Bank & Trust Company's right of access under this
sentence will include access
<PAGE>
to any service provider or service bureau performing any of Bull & Bear's duties
and obligations under this Agreement on behalf of Bull & Bear.
Article 5: Reviews of Materials
5.1 Bull & Bear will submit to Investors Bank & Trust Company and await its
advance approval of all Materials and of any other materials concerning
Investors Bank & Trust Company or the duties of the Custodian which will be used
by Bull & Bear in marketing the Materials to prospective or actual Customers or
Employers or in communicating with Customers or Employers. Investors Bank &
Trust Company will not unreasonably withhold its approval of any such materials.
5.2 Any approvals by Investors Bank & Trust Company under Section 5.1 will
constitute Investors Bank & Trust Company's acquiescence to the use of such
materials and not its approval of their contents or their effect. Bull & Bear
will assume full responsibility to Investors Bank & Trust Company and to all
other interested persons (including Customers and Employers) for such contents
and such effect.
Article 6: Applications and Correspondence
6.1 Investors Bank & Trust Company will sign all applications to establish
a Customer Arrangement or other documents related to Customer Arrangements which
Bull & Bear submits to Investors Bank & Trust Company for its signature.
However, Investors Bank & Trust Company may in writing authorize Bull & Bear or
Bull & Bear's designee to execute Investors Bank & Trust Company's name to one
or more specific documents or categories of documents (and such authorization
may be a blanket or standing authorization until revoked by Investors Bank &
Trust Company). In no event will Bull & Bear sign Investors Bank & Trust
Company's name on any application or other document without Investors Bank &
Trust Company's prior written approval.
6.2 Upon receipt, Investors Bank & Trust Company will promptly forward or
refer all written and oral inquiries from Customers, Employers and/or other
parties to Bull & Bear. Bull & Bear will appropriately handle all inquiries
directed to the Custodian.
<PAGE>
Article 7: Returns and Reports
7.1 Bull & Bear will timely prepare and file all returns, reports and
statements relating to Customer Arrangements required by the Code and
regulations thereunder or any other applicable federal or state law, or as
agreed to in the relevant Materials relating to a Customer Arrangement.
Article 8: Fees and Expenses
8.1 In consideration for Investors Bank & Trust Company's service as
Custodian hereunder, Bull & Bear will pay Investors Bank & Trust Company such
compensation as is specified in attached Schedule A. In addition, Investors Bank
& Trust Company will be entitled to be reimbursed by Bull & Bear for Investors
Bank & Trust Company's reasonable expenses (including fees of legal counsel or
other advisors) incurred in performing any services under this Agreement other
than serving as Custodian of a Customer Arrangement (such as, by way of an
example of a reimbursable expense and not by way of limitation, fees of legal
counsel to review the Materials) or any services requested by Bull & Bear.
8.2 Investors Bank & Trust Company will receive reimbursement for any
expenses it incurs in connection with serving as Custodian of any Customer
Arrangement to the extent provided for under the relevant Materials and as
Custodian will have the right to charge such expenses directly to a Customer
Arrangement (or an account thereunder) as provided for under the relevant
Materials. To the extent that Investors Bank & Trust Company does not collect
the entire amount of any such expense from the Customer Arrangement involved,
Bull & Bear will pay such shortfall to Investors Bank & Trust Company.
Article 9: Indemnification of Investors Bank & Trust Company
9.1 Bull & Bear and its successors and assigns will at all times jointly
and severally indemnify and hold Investors Bank & Trust Company and its
successors and assigns harmless from any and all liability, claims, actions,
loss, costs or expense (including (a) reasonable fees for counsel, (b) taxes,
penalties, expenses or fees, and (c) any liability imposed directly or
indirectly as a consequence of limiting investment options available under any
Customer Arrangement to the Shares), hereinafter referred to as "Losses", which
Investors Bank & Trust
<PAGE>
Company incurs in any manner arising directly or indirectly from or out of or in
connection with the performance or non-performance by Bull & Bear of Bull &
Bear's duties and obligations under this Agreement or applicable law, or arising
directly or indirectly from, out of or in connection with Investors Bank & Trust
Company's being named Custodian of any Customer Arrangement under this Agreement
or under any of the Materials.
The indemnification of Investors Bank & Trust Company (and its successors
and assigns) provided for in the preceding paragraph will include
indemnification for any Losses arising directly or indirectly from or out of or
in connection with the performance or non-performance by either any third-party
service provider or service bureau to whom Bull & Bear has delegated any of its
duties under Section 4.4(b) or any provider or vendor with whom Bull & Bear has
contracted for the provision of any of the Materials under Section 3.1.
9.2 No Losses which might be subject to the indemnification provision in
Section 9.1 will be confessed, settled or compromised by Investors Bank & Trust
Company until Investors Bank & Trust Company gives Bull & Bear at least ten
business days' written notice of the material facts as then known to Investors
Bank & Trust Company, and Bull & Bear will have the right, upon written demand
given to Investors Bank & Trust Company within ten business days after the date
of such notice from Investors Bank & Trust Company, to confess or defend against
such Losses at its expense.
Article 10: Resignation or Removal of Custodian
10.1 If at any time hereafter, Bull & Bear chooses to discontinue
performing any of its duties and obligations described in or contemplated by
this Agreement, either of a general nature or in respect to any or all Customer
Arrangements, it will give Investors Bank & Trust Company at least 90 days'
written notice prior to such discontinuance. Investors Bank & Trust Company may
thereupon resign as Custodian in respect to any or all Customer Arrangements in
accordance with the provisions of the relevant Materials. If within 30 days
after Investors Bank & Trust Company receives such a notice from Bull & Bear, or
if any other time prior to receipt of any such notice from Bull & Bear,
Investors Bank & Trust Company chooses to resign as Custodian of any or all
Customer Arrangements, Bull & Bear will promptly
<PAGE>
distribute the notice of Investors Bank & Trust Company's resignation to such
persons and in such manner as are called for under the applicable provisions of
the relevant Materials and in form and content satisfactory to Investors Bank &
Trust Company. Bull & Bear will continue to perform such duties and obligations
in respect to such Customer Arrangements at least until Investors Bank & Trust
Company's resignation takes effect and the assets have been transferred to its
successor custodian or trustee or have been distributed.
Article 11: Miscellaneous
11.1 No party to this Agreement will be liable to any other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder
(provided that this Section 11.1 is not intended to and will not be construed to
reduce or terminate in any way Bull & Bear's indemnification obligation under
Section 9.1).
11.2 This Agreement will become effective as of the date stated above and
will continue in full force while Investors Bank & Trust Company serves as
Custodian of any Customer Arrangements, and will terminate when Investors Bank &
Trust Company no longer serves as Custodian of any such Customer Arrangement;
provided, however, that the indemnification provisions of Article 9 will
continue to apply after termination of this Agreement with respect to any act or
omission which is alleged to have occurred while this Agreement was in effect.
11.3 This Agreement may be amended from time to time by mutual written
agreement of the parties. Any such amendment must be in writing and signed by
both parties. Schedules appended hereto may be amended by written agreement
between the parties without re-execution of this Agreement.
11.4 Bull & Bear represents and warrants to Investors Bank & Trust Company
that it has power under its Articles of Incorporation and by-laws (or
equivalent) to enter into and perform its obligations under this Agreement, and
has duly executed this Agreement so as to constitute its valid and binding
obligation.
11.5 Notices and other writings will be delivered or mailed
postage prepaid to:
Bull & Bear at
11 Hanover Square
New York, NY 10005
<PAGE>
Attn: Thomas B. Winmill, President
Investors Bank & Trust Company at
P.O. Box 1537 - ADM27
Boston, MA 02205
Attn: Henry N. Joyce, Managing Director
or to such other addresses Bull & Bear or Investors Bank & Trust
Company may hereafter specify to the other in writing.
11.6 This Agreement will be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts. Bull & Bear hereby submits to the jurisdiction of the courts
located in the Commonwealth of Massachusetts, including any appellate court
thereof or the federal district court located therein with respect to any
litigation involving this Agreement.
11.7 Unless otherwise required by law, each party agrees to maintain in
confidence any confidential or proprietary information of any other party and
not to disclose any such information without the consent of the party owning
such information. IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
and to be duly attested.
ATTEST:
BULL & BEAR FUNDS II, INC.
By: _______________________ ---------------------------------------
Authorized Signer
INVESTORS BANK & TRUST COMPANY
_______________________ By:
---------------------------------------
Authorized Signer
<PAGE>
SCHEDULE A
In consideration for Investors Bank & Trust Company's service as Custodian, Bull
& Bear will pay Investors Bank & Trust Company the per account or per
participant amount shown below per calendar year or any portion thereof that
Investors Bank & Trust Company is serving as Custodian of one or more Customer
Arrangements:
Customer IRAs (including SEP - IRAs):
$1.00 Per Customer IRA
Customer 403(b) Accounts:
$1.00 per Customer 403(b) Account
Employer Plans
$10.00 Per Participant in the Employer Plan
<PAGE>
December 1994
<PAGE>
October 18, 1995
Bull & Bear Funds II, Inc.
11 Hanover Square
New York, New York 10005
Dear Sir or Madam:
Bull & Bear Funds II, Inc. ("Company") is a corporation organized under
the laws of the State of Maryland. The Company currently has three series of
shares of capital stock outstanding: Bull & Bear Dollar Reserves, Bull & Bear
Global Income Fund and Bull & Bear U.S. Government Securities Fund. We
understand that the Company is about to file Post-Effective Amendment No. 51 to
its registration statement on Form N- 1A for the purpose of registering
additional shares of capital stock of the Company under the Securities Act of
1933, as amended ("1933 Act"), pursuant to Section 24(e)(1) of the Investment
Company Act of 1940, as amended ("1940 Act").
We have, as counsel, participated in various corporate and other
proceedings relating to the Company. We have examined copies, either certified
or otherwise proved to be genuine, of the Company's Articles of Incorporation
and By-Laws, as now in effect, and other documents relating to its organization
and operation. Based upon the foregoing, it is our opinion that the shares of
capital stock of the Company currently being registered pursuant to Section
24(e)(1) as reflected in Post-Effective Amendment No. 51, when sold in
accordance with the Company's Articles of Incorporation and ByLaws, will be
legally issued, fully paid and non-assessable, subject to compliance with the
1933 Act, the 1940 Act and applicable state laws regulating the offer and sale
of securities.
We hereby consent to this opinion accompanying Post-Effective Amendment
No. 51 to the Company's registration statement which you are about to file with
the Securities and Exchange Commission.
Sincerely,
KIRKPATRICK & LOCKHART LLP
By: /Arthur J. Brown/
Arthur J. Brown
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated July 14, 1995 on the financial
statements and financial highlights of Bull & Bear Dollar Reserves, a series of
common stock of Bull & Bear Funds II, Inc. Such financial statements and
financial highlights appear in the 1995 Annual Report to Shareholders which is
incorporated by reference in the Statement of Additional Information filed in
Post-Effective Amendment No. 51 under the Securities Act of 1933 and Amendment
No. 42 under the Investment Company Act of 1940 to the Registration Statement on
Form N-1A of Bull & Bear Dollar Reserves. We also consent to the references to
our Firm in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 16, 1995
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated July 14, 1995 on the financial
statements and financial highlights of Bull & Bear Global Income Fund, a series
of common stock of Bull & Bear Funds II, Inc. Such financial statements and
financial highlights appear in the 1995 Annual Report to Shareholders which is
incorporated by reference in the Statement of Additional Information filed in
Post-Effective Amendment No. 51 under the Securities Act of 1933 and Amendment
No. 42 under the Investment Company Act of 1940 to the Registration Statement on
Form N-1A of Bull & Bear Global Income Fund. We also consent to the references
to our Firm in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 16, 1995
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated July 14, 1995 on the financial
statements and financial highlights of Bull & Bear U.S. Government Securities
Fund, a series of common stock of Bull & Bear Funds II, Inc. Such financial
statements and financial highlights appear in the 1995 Annual Report to
Shareholders which is incorporated by reference in the Statement of Additional
Information filed in Post-Effective Amendment No. 51 under the Securities Act of
1933 and Amendment No. 42 under the Investment Company Act of 1940 to the
Registration Statement on Form N-1A of Bull & Bear U.S. Government Securities
Fund. We also consent to the references to our Firm in the Registration
Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 16, 1995
<PAGE>
Standardized Profit Sharing Plan
ADOPTION AGREEMENT
_____________________________________________________________________________
SECTION 1. EMPLOYER INFORMATION
Name of Employer:______________________________________________________
Address_______________________________________________________________
City: _______________________State:______________________ Zip: _____________
Telephone: _________________ Federal Tax Identification Number______________
Income Tax Year End __________________________
Type of Business (Check only one) [ ] Sole Proprietorship
[ ] Partnership [ ] Corporation [ ] Other (Specify)_______________
Nature of Business
(Describe)_______________________________________________
Plan Sequence No. __________ (Enter 001 if this is the first qualified plan
the Employer has ever maintained, enter 002 if it is the second, etc.)
For a plan which covers only the owner of the business, please provide the
following information about the owner:
Social Security No._________________ Date Business Established ____________
Date of Birth________________________ Marital Status_______________________
Home Address _______________________________________________________________
SECTION 2. EFFECTIVE DATES Check and complete Option A or B
Option A: [ ] This is the initial adoption of a profit sharing plan by
the Employer. The Effective Date of this Plan is ________, 19 .
NOTE: The effective date is usually the first day of the Plan
Year in which this Adoption Agreement is signed.
Option B: [ ] This is an amendment and restatement of an existing
profit sharing plan (a Prior Plan). The Prior Plan was initially
effective on _____________. The Effective Date of this amendment
and restatement is ________________. NOTE: The effective date
is usually the first day of the Plan Year in which this Adoption
Agreement is signed.
SECTION 3. ELIGIBILITY REQUIREMENTS Complete Parts A, B and C
Part A. Years of Eligibility Service Requirement:
An Employee will be eligible to become a Participant in the Plan after
completing _______ (enter 0, 1 or 2) Years of Eligibility Service.
NOTE: If more than 1 year is selected, the immediate 100% vesting
schedule of Section 5, Option C will automatically apply. If left
blank, the Years of Eligibility Service required will be deemed to be 0.
Part B. Age Requirement:
An Employee will be eligible to become a Participant in the Plan after
attaining age ____________ (no more than 21). NOTE: If left blank, it
will be deemed there is no age requirement for eligibility.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
Part C. Class of Employees Eligible to Participate:
All Employees shall be eligible to become a Participant in the Plan,
except the following (if checked):
[ ] Those Employees included in a unit of Employees covered by the
terms of a collective bargaining agreement between Employee
representatives (the term "Employee representatives" does not
include any organization more than half of whose members are
Employees who are owners, officers or executives of the Employer)
and the Employer under which retirement benefits were the subject
of good faith bargaining unless the agreement provides that such
Employees are to be included in the Plan, and except those
Employees who are non-resident aliens pursuant to Section 410(b)
(3)(C) of the Code and who received no earned income from the
Employer which constitutes income from sources within the United
States.
SECTION 4. EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
Part A. Contribution Formula
For each Plan Year the Employer will contribute an amount to be
determined from year to year.
Part B. Allocation Formula: (Check Option 1 or 2)
Option 1: [ ] Pro Rata Formula. Employer Contributions and Forfeitures
shall be allocated to the Individual Accounts of qualifying
Participants in the ratio that each qualifying Participant's
Compensation for the Plan Year bears to the total Compensation
of all qualifying Participants for the Plan Year.
Option 2: [ ] Integrated Formula: Employer Contributions and Forfeitures
shall be allocated as follows (Start with Step 3 if this Plan
is not a Top-Heavy Plan):
Step 1. Employer Contributions and Forfeitures shall first be
allocated pro rata to qualifying Participants in the
manner described in Section 4, Part B, Option 1. The
percent so allocated shall not exceed 3% of each
qualifying Participant's Compensation.
Step 2. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 1 shall be allocated to each
qualifying Participant's Individual Account in the ratio
that each qualifying Participant's Compensation for the
Plan Year in excess of the integration level bears to all
qualifying Participants' Compensation in excess of the
integration level, but not in excess of 3%.
Step 3. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 2 shall be allocated to each
qualifying Participant's Individual Account in the ratio
that the sum of each qualifying Participant's total
Compensation and Compensation in excess of the
integration level bears to the sum of all qualifying
Participants' total Compensation and Compensation in
excess of the integration level, but not in excess of the
profit sharing maximum disparity rate as described in
Section 3.01(B)(3) of the Plan.
Step 4. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 3 shall be allocated pro
rata to qualifying Participants in the manner described
in Section 4, Part B, Option 1.
The integration level shall be (Choose one):
Option 1: [ ] The Taxable Wage Base
Option 2: [ ] $______ (a dollar amount less than the Taxable Wage Base)
Option 3: [ ] ______% of the Taxable Wage Base
NOTE: If no box is checked, the integration level shall be the Taxable
Wage Base.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
SECTION 5. VESTING
A Participant shall become Vested in his or her Individual Account
attributable to Employer Contributions and Forfeitures as follows
(Choose one):
_____________________________________________________________________
YEARS OF VESTING SERVICE
Option A [ ] Option B [ ] Option C [ ] Option D [ ] (Complete if Chosen)
___________________________________________________________________________
VESTED PERCENTAGE
1 0% 0% 100% ____%
2 0% 20% 100% ____%
3 100% 40% 100% ____% (not less than 20%)
4 100% 60% 100% ____% (not less than 40%)
5 100% 80% 100% ____% (not less than 60%)
6 100% 100% 100% ____% (not less than 80%)
_____________________________________________________________________
_________
NOTE: If left blank, Option C, 100% vesting, will be deemed to be selected.
SECTION 6. NORMAL RETIREMENT AGE
The Normal Retirement Age under the Plan is age _____ (not to exceed 65).
NOTE: If left blank, the Normal Retirement Age will be deemed to be age
59 1/2.
SECTION 7. HOURS REQUIRED Complete Parts A and B
Part A. ________ Hours of Service (no more than 1,000) shall be required
to constitute a Year of Vesting Service or a Year of Eligibility
Service.
Part B. ________ Hours of Service (no more than 500) must be exceeded to
avoid a Break in Vesting Service or a Break in Eligibility
Service.
NOTE: The number of hours in Part A must be greater than the
number of hours in Part B.
SECTION 8. OTHER OPTIONS Answer "Yes" or "No" to each of the following
questions by checking the appropriate box. If a box is not
checked for a question, the answer will be deemed to be "No."
A. Loans: Will loans to Participants pursuant to Section 6.08 of the
Plan be permitted? [ ] Yes [ ] No
B. Participant Direction of Investments: Will Participants be permitted
to direct the investment of their Individual Accounts pursuant to
Section 5.14 of the Plan? [ ] Yes [ ] No
C. In-Service Withdrawals: Will Participants be permitted to make
withdrawals during service pursuant to Section 6.01(A)(3) of the
Plan? [ ] Yes [ ] No
NOTE: If the Plan is being adopted to amend and replace a Prior Plan
which permitted in-service withdrawals you must answer "Yes."
Check here if such withdrawals will be permitted only on account of
hardship. [ ]
SECTION 9. JOINT AND SURVIVOR ANNUITY
Part A. Retirement Equity Act Safe Harbor:
Will the safe harbor provisions of Section 6.05(F) of the Plan
apply (Choose only one Option)?
Option 1: [ ] Yes
Option 2: [ ] No
NOTE: You must select "No" if you are adopting this Plan as an
amendment and restatement of a Prior Plan that was subject to the
joint and survivor annuity requirements.
Part B. Survivor Annuity Percentage: (Complete only if your answer in
Section 9, Part A is "No.")
The survivor annuity portion of the Joint and Survivor Annuity
shall be a percentage equal to _____ (at least 50% but no more
than 100%) of the amount paid to the Participant prior to his or
her death.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
SECTION 10. ADDITIONAL PLANS
An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Section 419(e) of
the Code, which provides post-retirement medical benefits allocated
to separate accounts for key employees as defined in Section 419A(d)
(3) of the Code or an individual medical account, as defined in
Section 415(1)(2) of the Code) in addition to this Plan (other than a
paired standardized profit sharing plan using Basic Plan Document No.
03) may not rely on the opinion letter issued by the National Office
of the Internal Revenue Service as evidence that this Plan is
qualified under Section 401 of the Code. If the Employer who adopts
or maintains multiple plans wishes to obtain reliance that the
Employer's plan(s) are qualified, application for a determination
letter should be made to the appropriate Key District Director of
Internal Revenue.
This Adoption Agreement may be used only in conjunction with Basic
Plan Document No. 03.
SECTION 11. EMPLOYER SIGNATURE Important: Please read before signing
I am an authorized representative of the Employer named above and I
state the following:
1. I acknowledge that I have relied upon my own advisors regarding
the completion of this Adoption Agreement and the legal and tax
implications of adopting this Plan.
2. I understand that my failure to properly complete this Adoption
Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any
amendments made to the Plan and will notify me should it
discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the
corresponding Basic Plan Document.
Signature for Employer_____________________________Date
Signed_______________
Type
Name________________________________________________________________
____
SECTION 12. TRUSTEE OR CUSTODIAN Check and complete only one option
Option A. [ ] Financial Organization as Trustee or Custodian
Check One: [ ] Custodian, [ ] Trustee without full trust powers,
or [ ] Trustee with full trust powers
NOTE: Custodian will be deemed selected if no box is checked.
Financial Organization
__________________________________________________
Signature_____________________________________________________________
____
Type
Name________________________________________________________________
Option B. [ ] Individual Trustee(s)
Signature _____________________________
Signature_________________________
Type Name _____________________________ Type
Name_________________________
SECTION 13. PROTOTYPE SPONSOR
Name of Prototype Sponsor
Address_______________________________________________________________
___
Telephone
Number_________________________________________________________
SECTION 14. LIMITATION ON ALLOCATIONS - More Than One Plan
If you maintain or ever maintained another qualified plan (other than a
paired standardized money purchase pension plan using Basic Plan Document
No. 03) in which any Participant in this Plan is (or was) a Participant
or could become a Participant, you must complete this section. You must
also complete this section if you maintain a welfare benefit fund, as
defined in Section 419(e) of the Code, or an individual medical account,
as defined in Section 415(l)(2) of the Code, under which amounts are
treated as annual additions with respect to any Participant in this Plan.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
Part A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master
or prototype plan:
1. [ ] The provisions of Section 3.05(B)(1) through 3.05(B)(6) of
the Plan will apply as if the other plan were a master or
prototype plan.
2. [ ] Other method. (Provide the method under which the plans
will limit total annual additions to the maximum permissible
amount, and will properly reduce any excess amounts, in a
manner that precludes Employer discretion.) ________________
____________________________________________________________
Part B. If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide
below the language which will satisfy the 1.0 limitation of
Section 415(e) of the Code. Such language must preclude Employer
discretion. (Complete)____________________________________________
Part C. Compensation will mean all of each Participant's (Choose one):
Option 1: [ ] Section 3121(a) wages
Option 2: [ ] Section 3401(a) wages
Option 3: 415 safe-harbor compensation
NOTE: If no box is checked, Option 2 will be deemed to be selected.
Part D. The limitation year is the following 12-consecutive month period:
_______________________________________
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
QUALIFIED RETIREMENT PLAN AND TRUST
Defined Contribution Basic Plan Document 03
_______________________________________________________________________________
SECTION ONE DEFINITIONS
The following words and phrases when used in the Plan with initial capital
letters shall, for the purpose of this Plan, have the meanings set forth
below unless the context indicates that other meanings are intended:
1.01 ADOPTION AGREEMENT
Means the document executed by the Employer through which it adopts
the Plan and Trust and thereby agrees to be bound by all terms and
conditions of the Plan and Trust.
1.02 BASIC PLAN DOCUMENT
Means this prototype Plan and Trust document.
1.03 BREAK IN ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee fails to
complete more than 500 Hours of Service (or such lesser number of
Hours of Service specified in the Adoption Agreement for this
purpose).
1.04 BREAK IN VESTING SERVICE
Means a Plan Year during which an Employee fails to complete more than
500 Hours of Service (or such lesser number of Hours of Service
specified in the Adoption Agreement for this purpose).
1.05 CODE
Means the Internal Revenue Code of 1986 as amended from time-to-time.
1.06 COMPENSATION
For Plan Years beginning on or after January 1, 1989, the following
definition of Compensation shall apply:
Compensation will mean Compensation as that term is defined in Section
3.05(E)(2) of the Plan. For any Self-Employed Individual covered under the
Plan, Compensation will mean Earned Income. Compensation shall include only
that Compensation which is actually paid to the Participant during the
applicable period. Except as provided elsewhere in this Plan, the applicable
period shall be the Plan Year unless the Employer has selected another
period in the Adoption Agreement.
Unless otherwise indicated in the Adoption Agreement, Compensation shall
<PAGE>
include any amount which is contributed by the Employer pursuant to a salary
reduction agreement and which is not includible in the gross income of the
Employee under Sections 125, 402(a)(8), 402(h) or 403(b) of the Code.
For years beginning after December 31, 1988, the annual Compensation of each
Participant taken into account under the Plan for any year shall not exceed
$200,000. This limitation shall be adjusted by the Secretary at the same
time and in the same manner as under Section 415(d) of the Code, except that
the dollar increase in effect on January 1 of any calendar year is effective
for years beginning in such calendar year and the first adjustment to the
$200,000 limitation is effected on January 1, 1990. If a Plan determines
Compensation on a period of time that contains fewer than 12 calendar
months, then the annual Compensation limit is an amount equal to the annual
Compensation limit for the calendar year in which the compensation period
begins multiplied by the ratio obtained by dividing the number of full
months in the period by 12.
<PAGE>
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply, except
in applying such rules, the term "family" shall include only the spouse of
the Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the year.
If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then (except for purposes of determining the portion
of Compensation up to the integration level if this Plan provides for
permitted disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as
determined under this Section prior to the application of this limitation.
If Compensation for any prior Plan Year is taken into account in determining
an Employee's contributions or benefits for the current year, the
Compensation for such prior year is subject to the applicable annual
Compensation limit in effect for that prior year. For this purpose, for
years beginning before January 1, 1990, the applicable annual Compensation
limit is $200,000.
Unless otherwise indicated in the Adoption Agreement, where an Employee
enters the Plan (and thus becomes a Participant) on an Entry Date other than
the Entry Date in a Plan Year, his Compensation will include any such
earnings paid to him during the whole of such Plan Year.
Where this Plan is being adopted as an amendment and restatement to bring a
Prior Plan into compliance with the Tax Reform Act of 1986, such Prior
Plan's definition of Compensation shall apply for Plan Years beginning
before January 1, 1989.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93
annual Compensation limit. The OBRA '93 annual Compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with Section 401(a)(17)(B) of the Internal Revenue
Code. The cost-of-living adjustment in effect for a calendar year applies to
any period, not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual Compensation
limit will be multiplied by a fraction, the numerator of which is the number
of months in the determination period, and the denominator of which is 12.
<PAGE>
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA '93 annual Compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual Compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of
the first Plan Year beginning on or after January 1, 1994 the OBRA '93
annual Compensation limit is $150,000.
<PAGE>
1.07 CUSTODIAN
Means an entity specified in the Adoption Agreement as Custodian or
any duly appointed successor as provided in Section 5.09.
1.08 DISABILITY
Means the inability to engage in any substantial, gainful activity by
reason of any medically determinable physical or mental impairment
that can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months.
The permanence and degree of such impairment shall be supported by
medical evidence.
1.09 EARNED INCOME
Means the net earnings from self-employment in the trade or business
with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor. Net
earnings will be determined without regard to items not included in
gross income and the deductions allocable to such items. Net earnings
are reduced by contributions by the Employer to a qualified plan to
the extent deductible under Section 404 of the Code.
1.09 EARNED INCOME
Means the net earnings from self-employment in the trade or business
with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor. Net
earnings will be determined without regard to items not included in
gross income and the deductions allocable to such items. Net earnings
are reduced by contributions by the Employer to a qualified plan to
the extent deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction allowed
to the Employer by Section 164(f) of the Code for taxable years
beginning after December 31, 1989.
<PAGE>
1.10 EFFECTIVE DATE
Means the date the Plan becomes effective as indicated in the Adoption
Agreement. However, where a separate date is stated in the Plan as of
which a particular Plan provision becomes effective, such date will
control with respect to that provision.
1.11 ELIGIBILITY COMPUTATION PERIOD
An Employee's initial Eligibility Computation Period shall be the 12
consecutive month period commencing with the date such Employee first
performs an Hour of Service (employment commencement date). His
subsequent Eligibility Computation Periods shall be the 12 consecutive
month periods commencing on the anniversaries of his employment
commencement date; provided, however, if pursuant to the Adoption
Agreement, an Employee is required to complete one or less Years of
Eligibility Service to become a Participant, then his subsequent
Eligibility Computation Periods shall be the Plan Years commencing
with the Plan Year beginning during his initial Eligibility
Computation Period.
1.12 EMPLOYEE
Means any person employed by an Employer maintaining the Plan or of
any other employer required to be aggregated with such Employer under
Sections 414(b), (c), (m) or (o) or the Code.
The term Employee shall also include any Leased Employee deemed to be
an Employee of any Employer described in the previous paragraph as
provided in Section 414(n) or (o) of the Code.
1.13 EMPLOYER
Means any corporation, partnership, sole-proprietorship or other
entity named in the Adoption Agreement and any successor who by
merger, consolidation, purchase or otherwise assumes the obligations
of the Plan. A partnership is considered to be the Employer of each of
the partners and a sole-proprietorship is considered to be the
Employer of a sole proprietor.
1.14 EMPLOYER CONTRIBUTION
Means the amount contributed by the Employer each year as determined
under this Plan.
1.15 ENTRY DATES
Means the first day of the Plan Year and the first day of the seventh
month of the Plan Year, unless the Employer has specified more
frequent dates in the Adoption Agreement.
<PAGE>
1.16 ERISA
Means the Employee Retirement Income Security Act of 1974 as amended
from time-to-time.
1.17 FORFEITURE
Means that portion of a Participant's Individual Account as derived
from Employer Contributions which he or she is not entitled to receive
(i.e., the nonvested portion).
1.18 FUND
Means the Plan assets held by the Trustee for the Participants'
exclusive benefit.
1.19 HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee includes highly compensated
active employees and highly compensated former employees.
A highly compensated active employee includes any Employee who
performs service for the Employer during the determination year and
who, during the look-back year: (a) received Compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Section 415(d)
of the Code); (b) received Compensation from the Employer in excess of
$50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a
member of the top-paid group for such year; or (c) was an officer of
the Employer and received Compensation during such year that is
greater than 50% of the dollar limitation in effect under Section
415(b)(1)(A) of the Code. The term Highly Compensated Employee also
includes: (a) Employees who are both described in the preceding
sentence if the term "determination year" is substituted for the term
"look-back year" and the Employee is one of the 100 Employees who
received the most Compensation from the Employer during the
determination year; and (b) Employees who are 5% owners at any time
during the look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated
Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the 12 month period immediately preceding the
determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
<PAGE>
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active employee for
either the separation year or any determination year ending on or
after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5% owner who is an active or former Employee
or a Highly Compensated Employee who is one of the 10 most
<PAGE>
Highly Compensated Employees ranked on the basis of Compensation paid
by the Employer during such year, then the family member and the 5%
owner or top 10 Highly Compensated Employee shall be aggregated. In
such case, the family member and 5% owner or top 10 Highly Compensated
Employee shall be treated as a single Employee receiving Compensation
and Plan contributions or benefits equal to the sum of such
Compensation and contributions or benefits of the family member and 5%
owner or top 10 Highly Compensated Employee. For purposes of this
Section, family member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the
top-paid group, the top 100 Employees, the number of Employees treated
as officers and the Compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the regulations
there-under.
1.20 HOURS OF SERVICE - Means
A. Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours will
be credited to the Employee for the computation period in which
the duties are performed; and
B. Each hour for which an Employee is paid, or entitled to payment, by
the Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or leave
of absence. No more than 501 Hours of Service will be credited
under this paragraph for any single continuous period (whether or
not such period occurs in a single computation period). Hours under
this paragraph shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which is
incorporated herein by this reference;
<PAGE>
and
C. Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same
Hours of Service will not be credited both under paragraph (A) or
paragraph (B), as the case may be, and under this paragraph (C).
These hours will be credited to the Employee for the computation
period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement, or
payment is made.
D. Solely for purposes of determining whether a Break in Eligibility
Service or a Break in Vesting Service has occurred in a computation
period (the computation period for purposes of determining whether
a Break in Vesting Service has occurred is the Plan Year), an
individual who is absent from work for maternity or paternity
reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such
absence, or in any case in which such hours cannot be determined, 8
Hours of Service per day of such absence. For purposes of this
paragraph, an absence from work for maternity or paternity reasons
means an absence (1) by reason of the pregnancy of the individual,
(2) by reason of a birth of a child of the individual, (3) by
reason of the placement of a child with the individual in
connection with the adoption of such child by such individual, or
(4) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of Service
credited under this paragraph shall be credited (1) in the
Eligibility Computation Period or Plan Year in which the absence
begins if the crediting is necessary to prevent a Break in
Eligibility Service or a Break in Vesting Service in the applicable
period, or (2) in all other cases, in the following Eligibility
Computation Period or Plan Year.
E. Hours of Service will be credited for employment with other members
of an affiliated service group (under Section 414(m) of the Code),
a controlled group of corporations (under Section 414(b) of the
Code), or a group of trades or businesses under common control
(under Section 414(c) of the Code) of which the adopting Employer
is a member, and any other entity required to be aggregated with
the Employer pursuant to Section 414(o) of the Code and the
regulations thereunder.
Hours of Service will also be credited for any individual
considered an Employee for purposes of this Plan under Code
<PAGE>
Sections 414(n) or 414(o) and the regulations thereunder.
F. Where the Employer maintains the plan of a predecessor employer,
service for such predecessor employer shall be treated as service
for the Employer.
G. The above method for determining Hours of Service may be altered
as specified in the Adoption Agreement.
1.21 INDIVIDUAL ACCOUNT
Means the account established and maintained under this Plan for each
Participant in accordance with Section 4.01.
1.22 INVESTMENT FUND
Means a subdivision of the Fund established pursuant to Section 5.05.
1.23 KEY EMPLOYEE
Means any person who is determined to be a Key Employee under Section
10.08.
1.24 LEASED EMPLOYEE
Means any person (other than an Employee of the recipient) who
pursuant to an agreement between the recipient and any other person
("leasing organization") has performed services for the recipient (or
for the recipient and related persons determined in accordance with
Section 414(n)(6) of the Code) on a substantially full time basis for
a period of at least one year, and such services are of a type
historically performed by Employees in the business field of the
recipient Employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to
services performed for the recipient Employer shall be treated as
provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the recipient
if: (1) such employee is covered by a money purchase pension plan
providing: (a) a nonintegrated employer contribution rate of at least
10% of compensation, as defined in Section 415(c)(3) of the Code, but
including amounts contributed pursuant to a salary reduction agreement
which are excludable from the employee's gross income under Section
125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code,
(b) immediate participation, and (c) full and immediate vesting; and
(2) Leased Employees do not constitute more than 20% of the
recipient's nonhighly compensated work force.
1.25 NORMAL RETIREMENT AGE
<PAGE>
Means the age specified in the Adoption Agreement. However, if the
Employer enforces a mandatory retirement age which is less than the
Normal Retirement Age, such mandatory age is deemed to be the Normal
Retirement Age. If no age is specified in the Adoption Agreement, the
Normal Retirement Age shall be age 59 1/2.
1.26 OWNER - EMPLOYEE
Means an individual who is a sole proprietor, or who is a partner
owning more than 10% of either the capital or profits interest of the
partnership.
<PAGE>
1.27 PARTICIPANT
Means any Employee or former Employee of the Employer who has met the
Plan's eligibility requirements, has entered the Plan and who is or
may become eligible to receive a benefit of any type from this Plan or
whose Beneficiary may be eligible to receive any such benefit.
1.28 PLAN
Means the prototype defined contribution plan adopted by the Employer.
The Plan consists of this Basic Plan Document plus the corresponding
Adoption Agreement as completed and signed by the Employer.
1.29 PLAN ADMINISTRATOR
Means the person or persons determined to be the Plan Administrator in
accordance with Section 8.01.
1.30 PLAN YEAR
Means the 12 consecutive month period which coincides with the
Employer's tax year or such other 12 consecutive month period as is
designated in the Adoption Agreement.
1.31 PRIOR PLAN
Means a plan which was amended or replaced by adoption of this Plan
document as indicated in the Adoption Agreement.
1.32 PROTOTYPE SPONSOR
Means the entity specified in the Adoption Agreement. Such entity must
meet the definition of a sponsoring organization set forth in Section
3.07 of Revenue Procedure 89-13.
1.33 SELF-EMPLOYED INDIVIDUAL
Means an individual who has Earned Income for the taxable year from
the trade or business for which the Plan is established; also, an
individual who would have had Earned Income but for the fact that the
<PAGE>
trade or business had no net profits for the taxable year.
1.34 SEPARATE FUND
Means a subdivision of the Fund held in the name of a particular
Participant representing certain assets held for that Participant. The
assets which comprise a Participant's Separate Fund are those assets
earmarked for him and those assets subject to the Participant's
individual direction pursuant to Section 5.14.
1.35 TAXABLE WAGE BASE
Means, with respect to any taxable year, the maximum amount of
earnings which may be considered wages for such year under Section
3121(a)(1) of the Code.
1.36 TERMINATION OF EMPLOYMENT
A Termination of Employment of an Employee of an Employer shall occur
whenever his status as an Employee of such Employer ceases for any
reason other than his death. An Employee who does not return to work
for the Employer on or before the expiration of an authorized leave of
absence from such Employer shall be deemed to have incurred a
Termination of Employment when such leave ends.
1.37 TOP-HEAVY PLAN
This Plan is a Top-Heavy Plan for any Plan Year if it is determined to
be such pursuant to Section 10.08.
1.38 TRUSTEE
Means an individual, individuals or corporation specified in the
Adoption Agreement as Trustee or any duly appointed successor as
provided in Section 5.09. Trustee shall mean Custodian in the event
the financial organization named as Trustee does not have full trust
powers.
1.39 VALUATION DATE
Means the last day of the Plan Year and each other date designated by
the Plan Administrator which is selected in a uniform and
non-discriminatory manner when the assets of the Fund are valued at
their then fair market value.
1.40 VESTED
Means nonforfeitable, that is, a claim which is unconditional and
legally enforceable against the Plan obtained by a Participant or his
Beneficiary to that part of an immediate or deferred benefit under the
Plan which arises from a Participant's Years of Vesting Service.
<PAGE>
1.41 YEAR OF ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation period during which an Employee completes at
least 1,000 Hours of Service (or such lesser number of Hours of
Service specified in the Adoption Agreement for this purpose).
1.42 YEAR OF VESTING SERVICE
Means a Plan Year during which an Employee completes at least 1,000
Hours of Service (or such lesser number of Hours of Service specified
in the Adoption Agreement for this purpose).
In the case of a Participant who has 5 or more consecutive Breaks in
Vesting Service, all Years of Vesting Service after such Breaks in
Vesting Service will be disregarded for the purpose of determining the
Vested portion of his Individual Account derived from Employer
Contributions that accrued before such breaks. Such Participant's
prebreak service will count in vesting the postbreak Individual
Account derived from Employer Contributions only if either:
(A) such Participant had any Vested right to any portion of his
Individual Account derived from Employer Contributions at the
time of his Termination of Employment; or
(B) upon returning to service, the number of consecutive Breaks in
Vesting Service is less than his number of Years of Vesting
Service before such breaks.
Separate subaccounts will be maintained for the Participant's
<PAGE>
prebreak and postbreak portions of his Individual Account derived from
Employer Contributions. Both subaccounts will share in the gains and
losses of the Fund.
Years of Vesting Service shall not include any period of time excluded
from Years of Vesting Service in the Adoption Agreement.
In the event the Plan Year is changed to a new 12-month period,
Employees shall receive credit for Years of Vesting Service, in
accordance with the preceding provisions of this definition, for each
of the Plan Years (the old and new Plan Years) which overlap as a
result of such change.
SECTION TWO ELIGIBILITY AND PARTICIPATION
<PAGE>
2.01 ELIGIBILITY TO PARTICIPATE
Each Employee of the Employer, except those Employees who belong to a
class of Employees which is excluded from participation as indicated
in the Adoption Agreement, shall be eligible to participate in this
Plan upon the satisfaction of the age and Years of Eligibility Service
requirements specified in the Adoption Agreementment.
2.02 PLAN ENTRY
A. If this Plan is a replacement of a Prior Plan by amendment or
restatement, each Employee of the Employer who was a Participant in
said Prior Plan before the Effective Date shall continue to be a
Participant in this Plan.
B. An Employee will become a Participant in the Plan as of the
Effective Date if he has met the eligibility requirements of
Section 2.01 as of such date. After the Effective Date, each
Employee shall become a Participant on the first Entry Date
following the date the Employee satisfies the eligibility
requirements of Section 2.01.
C. The Plan Administrator shall notify each Employee who becomes
eligible to be a Participant under this Plan and shall furnish him
with the application form, enrollment forms or other documents
which are required of Participants. The eligible Employee shall
execute such forms or documents and make available such information
as may be required in the administration of the Plan.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS
If an Employee who had been a Participant becomes ineligible to
participate because he is no longer a member of an eligible class of
Employees, but has not incurred a Break in Eligibility Service, such
Employee shall participate immediately upon his return to an eligible
class of Employees. If such Employee incurs a Break in Eligibility
Service, his eligibility to participate shall be determined by Section
2.04.
An Employee who is not a member of the eligible class of Employees
will become a Participant immediately upon becoming a member of the
eligible class provided such Employee has satisfied the age and Years
of Eligibility Service requirements. If such Employee has not
satisfied the age and Years of Eligibility Service requirements as of
the date he becomes a member of the eligible class, he shall become a
Participant on the first Entry Date following the date he satisfies
said requirements.
<PAGE>
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILITY SERVICE
A. Employee Not Participant Before Break - If an Employee incurs a
Break in Eligibility Service before satisfying the Plan's
eligibility requirements, such Employee's Years of Eligibility
Service before such Break in Eligibility Service will not be taken
into account.
B. Nonvested Participants - In the case of a Participant who does not
have a Vested interest in his Individual Account derived from
Employer Contributions, Years of Eligibility Service before a
period of consecutive Breaks in Eligibility Service will not be
taken into account for eligibility purposes if the number of
consecutive Breaks in Eligibility Service in such period equals or
exceeds the greater of 5 or the aggregate number of Years of
Eligibility Service before such break. Such aggregate number of
Years of Eligibility Service will not include any Years of
Eligibility Service disregarded under the preceding sentence by
reason of prior breaks.
If a Participant's Years of Eligibility Service are disregarded
pursuant to the preceding paragraph, such Participant will be
treated as a new Employee for eligibility purposes. If a
Par-ticipant's Years of Eligibility Service may not be disregarded
pursuant to the preceding paragraph, such Participant shall
continue to participate in the Plan, or, if terminated, shall
participate immediately upon reemployment.
C. Vested Participants - A Participant who has sustained a Break in
Eligibility Service and who had a Vested interest in all or a
portion of his Individual Account derived from Employer
Contributions shall continue to participate in the Plan, or, if
terminated, shall participate immediately upon reemployment.
2.05 DETERMINATIONS UNDER THIS SECTION
The Plan Administrator shall determine the eligibility of each
Employee to be a Participant. This determination shall be conclusive
and binding upon all persons except as otherwise provided herein or by
law.
2.06 TERMS OF EMPLOYMENT
Neither the fact of the establishment of the Plan nor the fact that a
common law Employee has become a Participant shall give to that common
law Employee any right to continued employment; nor shall
<PAGE>
either fact limit the right of the Employer to discharge or to deal
otherwise with a common law Employee without regard to the effect such
treatment may have upon the Employee's rights under the Plan.
SECTION THREE CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. Obligation to Contribute - The Employer shall make contributions to
the Plan in accordance with the contribution formula specified in
the Adoption Agreement. If this Plan is a profit sharing plan, the
Employer shall, in its sole discretion, make contributions without
regard to current or accumulated earnings or profits.
B. Allocation Formula and the Right to Share in the Employer Profit
Sharing Contribution -
1. General - The Employer Contribution for any Plan Year will be
allocated or contributed to the Individual Accounts of
qualifying Participants in accordance with the allocation or
contribution formula specified in the Adoption Agreement. The
Employer Contribution for any Plan Year will be allocated to
each Participant's Individual Account as of the last day of that
Plan Year.
<PAGE>
Any Employer Contribution for a Plan Year must satisfy Section
401(a)(4) and the regulations thereunder for such Plan Year.
2. Qualifying Participants - A Participant is a qualifying
Participant and is entitled to share in the Employer
Contribution for any Plan Year if (1) he was a Participant on at
least one day during the Plan Year, (2) if this Plan is a
nonstandardized plan, he completes a Year of Vesting Service
during the Plan Year and (3) where the Employer has selected the
"last day requirement" in the Adoption Agreement, he is an
Employee of the Employer on the last day of Plan Year (except
that this last requirement (3) shall not apply if the
Participant has died during the Plan Year or incurred a
Termination of Employment during the Plan Year after having
reached his Normal Retirement Age or having incurred a
Disability). Notwithstanding anything in this paragraph to the
contrary, a Participant will not be a qualifying Participant for
a Plan Year if he incurs a Termination of Employment during such
Plan Year with not more than 500 Hours of Service if he is not
an Employee on the last day of the Plan Year. The determination
of whether a Participant
<PAGE>
is entitled to share in the Employer Contribution shall be made
as of the last day of each Plan Year.
3. Special Rules for Integrated Plans - If the Employer has
selected the integrated contribution or allocation formula in
the Adoption Agreement, then the maximum disparity rate shall be
determined in accordance with the following table.
MAXIMUM DISPARITY RATE
Top-Heavy Nontop-Heavy
Integration Level Money Purchase Profit Sharing Profit Sharing
- ---------------------------------------------------------------------
- ----------
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more
than X* 5.7% 2.7% 5.7%
More than X* of TWB but
not more than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but
not more than TWB 5.4% 2.4% 5.4%
* X means the greater of $10, 000 or 20% of TWB.
C. Allocation of Forfeitures - Forfeitures for a Plan Year which arise
as a result of the application of Section 6.01(D) shall be allo-
cated as follows:
1. Profit Sharing Plan - If this is a profit sharing plan,
Forfeitures shall be allocated in the manner provided in Section
3.01 (B) (for Employer Contributions) to the Individual Accounts
of Participants who are entitled to share in the Employer
Contribution for such Plan Year.
2. Money Purchase Pension and Target Benefit Plan - If this Plan is
a money purchase plan or a target benefit plan, Forfeitures shall
be applied towards the reduction of Employer Contributions to the
Plan. However, if the Employer has indicated in the Adoption
Agreement that Forfeitures shall be allocated to the Individual
Accounts of Participants, then Forfeitures shall be allocated in
the manner provided in Section 3.01(B) (for
<PAGE>
Employer Contributions) to the Individual Accounts of
Participants who are entitled to share in the Employer
Contributions for such Plan Year.
D. Timing of Employer Profit Sharing Contribution - The Employer
Contribution for each Plan Year shall be delivered to the Trustee
(or Custodian, if applicable) not later than the due date for filing
the Employer's income tax return for its fiscal year in which the
Plan Year ends, including extensions thereof.
E. Minimum Allocation for Top-Heavy Plans - The contribution and
allocation provisions of this Section 3.01(E) shall apply for any
Plan Year with respect to which this Plan is a Top-Heavy Plan.
1. Except as otherwise provided in (3) and (4) below, the Employer
Contributions and Forfeitures allocated on behalf of any
Participant who is not a Key Employee shall not be less than the
lesser of 3% of such Participant's Compensation or (in the case
where the Employer has no defined benefit plan which designates
this Plan to satisfy Section 401 of the Code) the largest
percentage of Employer Contributions and Forfeitures, as a
percentage of the first $200,000 (increased by any cost of living
adjustment made by the Secretary of Treasury or his delegate) of
the Key Employee's Compensation, allocated on behalf of any Key
Employee for that year. The minimum allocation is determined
without regard to any Social Security contribution. This minimum
allocation shall be made even though under other Plan provisions,
the Participant would not otherwise be entitled to receive an
allocation, or would have received a lesser allocation for the
year because of (a) the Participant's failure to complete 1,000
Hours of Service (or any equivalent provided in the Plan), or (b)
the Participant's failure to make mandatory Employee
Contributions to the Plan, or (c) Compensation less than a stated
amount.
2. For purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in Section 1.06 of the Plan.
3. The provision in (1) above shall not apply to any Participant
who was not employed by the Employer on the last day of the Plan
Year.
4. The provision in (1) above shall not apply to any Participant to
the extent the Participant is covered under any other plan or
plans of the Employer and the Employer has provided in the adop-
<PAGE>
tion agreement that the minimum allocation or benefit requirement
applicable to Top-Heavy Plans will be met in the other plan or
plans.
5. The minimum allocation required under this Section 3.01(E) and
Section 3.01(F)(1) (to the extent required to be nonforfeitable
under Code Section 416(b)) may not be forfeited under Code
Section 411(a)(3)(B) or 411(a)(3)(D).
F. Special Requirements for Paired Plans - The Employer maintains
paired plans if the Employer has adopted both a standardized profit
sharing plan and a standardized money purchase pension plan using
this Basic Plan Document.
<PAGE>
1. Minimum Allocation - The mandatory minimum allocation provision
of Section 3.01(E) shall not apply to any Participant if the
Employer maintains paired plans. Rather, for each Plan Year, the
Employer will provide a minimum contribution equal to 3% of
Compensation for each non-Key Employee who is entitled to a
minimum contribution. Such minimum contribution will only be made
to one of the Plans. If an Employee is a Participant in only one
of the Plans, the minimum contribution shall be made to that
Plan. If the Employee is a Participant in both Plans, the minimum
contribution shall be made to the money purchase plan.
2. Only One Plan Can Be Integrated - If the Employer maintains
paired plans, only one of the Plans may provide for the disparity
in contributions which is permitted under Section 401(l) of the
Code. In the event that both Adoption Agreements provide for such
integration, only the money purchase pension plan shall be deemed
to be integrated.
G. Return of the Employer Contribution to the Employer Under Special
Circumstances - Any contribution made by the Employer because of a
mistake of fact must be returned to the Employer within one year of
the contribution.
In the event that the Commissioner of Internal Revenue determines
that the Plan is not initially qualified under the Code, any
contributions made incident to that initial qualification by the
Employer must be returned to the Employer within one year after the
date the initial qualification is denied., but only if the
application for qualification is made by the time prescribed by law
for filing the Employer's return for the taxable year in which the
Plan is adopted, or such later date as the Secretary of the Treasury
may
<PAGE>
prescribe.
In the event that a contribution made by the Employer under this
Plan is conditioned on deductibility and is not deductible under
Code Section 404, the contribution, to the extent of the amount
disallowed, must be returned to the Employer within one year after
the deduction is disallowed.
H. Omission of Participant
1. If the Plan is a money purchase plan or a target benefit plan
and, if in any Plan Year, any Employee who should be included as
a Participant is erroneously omitted and discovery of such
omission is not made until after a contribution by the Employer
for the year has been made and allocated, the Employer shall make
a subsequent contribution with respect to the omitted Employee in
the amount which the Employer would have contributed with respect
to that Employee had he not been omitted.
2. If the Plan is a profit sharing plan, and if in any Plan Year,
any Employee who should be included as a Participant is
erroneously omitted and discovery of such omission is not made
until after the Employer Contribution has been made and
allocated, then the Plan Administrator must re-do the allocation
(if a correction can be made) and inform the Employee.
Alternatively, the Employer may choose to contribute for the
omitted Employee the amount which the Employer would have
contributed for him.
3.02 EMPLOYEE CONTRIBUTIONS
This Plan will not accept nondeductible employee contributions and
matching contributions for Plan Years beginning after the Plan Year in
which this Plan is adopted by the Employer. Employee contributions for
Plan Years, beginning after December 31, 1986, together with any
matching contributions as defined in Section 401(m) of the Code, will
be limited so as to meet the nondiscrimination test of Section 401(m)
of the Code.
A separate account will be maintained by the Plan Administrator for the
nondeductible employee contributions of each Participant.
A Participant may, upon a written request submitted to the Plan
Administrator withdraw the lesser of the portion of his Individual
Account attributable to his nondeductible employee contributions or the
amount he contributed as nondeductible employee contributions.
<PAGE>
Employee contributions and earnings thereon will be nonforfeitable at
all times. No Forfeiture will occur solely as a result of an Employee's
withdrawal of employee contributions.
The Plan Administrator will not accept deductible employee
contributions which are made for a taxable year beginning after
December 31, 1986. Contributions made prior to that date will be
maintained in a separate account which will be nonforfeitable at all
times. The account will share in the gains and losses of the Fund in
the same manner as described in Section 4.03 of the Plan. No part of
the deductible employee contribution account will be used to purchase
life insurance. Subject to Section 6.05, joint and survivor annuity
requirements (if applicable), the Participant may withdraw any part of
the deductible employee contribution account by making a written
application to the Plan Administrator.
3.03 ROLLOVER CONTRIBUTIONS
If the Plan Administrator so permits in a uniform and nondiscriminatory
manner, an Employee may contribute a rollover contribution to the Plan;
provided that such Employee submits a written certification,
satisfactory to the Trustee (or Custodian), that the contribution
qualifies as a rollover contribution.
A separate account shall be maintained by the Plan Administrator for
each Employee's rollover contributions which will be nonforfeitable at
all times. Such account will share in the income and gains and losses
of the Fund in the manner described in Section 4.03 and shall be
subject to the Plan's provisions governing distributions.
For purposes of this Section 3.03, "rollover contribution" means a
contribution described in Sections 402(a)(5), 403(a)(4) or 408(d)(3) of
the Code or in any other provision which may be added to the Code which
may authorize rollovers to the Plan.
3.04 TRANSFER CONTRIBUTIONS
If the Plan Administrator so permits in a uniform and nondiscriminatory
manner, the Trustee (or Custodian, if applicable) may receive any
amounts transferred to it from the trustee or custodian of another plan
qualified under Code Section 401(a).
A separate account shall be maintained by the Plan Administrator for
each Employee's transfer contributions which will be nonforfeitable at
all times. Such account will share in the income and gains and losses
of the Fund in the manner described in Section 4.03 and shall be
<PAGE>
subject to the Plan's provisions governing distributions.
3.05 LIMITATION ON ALLOCATIONS
A. If the Participant does not participate in, and has never
participated in another qualified plan maintained by the Employer
or a welfare benefit fund, as defined in Section 419(e) of the Code
maintained by the Employer, or an individual medical account, as
defined in Section 415(l)(2) of the Code, maintained by the
Employer, which provides an annual addition as defined in Section
3.08(E)(1), the following rules shall apply:
<PAGE>
1. The amount of annual additions which may be credited to the
Par-ticipant's Individual Account for any limitation year will
not exceed the lesser of the maximum permissible amount or any
other limitation contained in this Plan. If the Employer
Contribution that would otherwise be contributed or allocated to
the Partici-pant's Individual Account would cause the annual
additions for the limitation year to exceed the maximum
permissible amount, the amount contributed or allocated will be
reduced so that the annual additions for the limitation year
will equal the maximum permissible amount.
2. Prior to determining the Participant's actual compensation for
the limitation year, the Employer may determine the maximum
permissible amount for a Participant on the basis of a
reasonable estimation of the Participant's Compensation for the
limitation year, uniformly determined for all participants
similarly situated.
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
Participant's actual compensation for the limitation year.
4. If pursuant to Section 3.08(A)(3) or as a result of the
allocation of Forfeitures there is an excess amount, the excess
will be disposed of as follows:
a. Any nondeductible voluntary employee contributions, to the
extent they would reduce the excess amount, will be returned
to the Participant;
b. If after the application of paragraph (a) an excess amount
still exists, and the Participant is covered by the Plan at
the end of the limitation year, the excess amount in the
<PAGE>
Participant's Individual Account will be used to reduce
Employer Contributions (including any allocation of
Forfeitures) for such Participant in the next limitation
year, and each succeeding limitation year if necessary.
c. If after the application of paragraph (b) an excess amount
still exists, and the Participant is not covered by the Plan
at the end of a limitation year, the excess amount will be
held unallocated in a suspense account. The suspense
account will be applied to reduce future Employer Contri-
butions (including allocation of any Forfeitures) for all
remaining Participants in the next limitation year, and each
succeeding limitation year if necessary;
d. If a suspense account is in existence at any time during a
limitation year pursuant to this Section, it will not par-
ticipate in the allocation of the Fund's investment gains
and losses. If a suspense account is in existence at any
time during a particular limitation year, all amounts in the
suspense account must be allocated and reallocated to Par-
ticipants' Individual Accounts before any Employer Contribu-
tions or any Employee contributions may be made to the Plan
for that limitation year. Excess amounts may not be distri-
buted to Participants or former Participants.
B. If, in addition to this Plan, the Participant is covered under
another qualified master or prototype defined contribution plan
maintained by the Employer, a welfare benefit fund, as defined in
Section 419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2) of the
Code, maintained by the Employer, which provides an annual addition
as defined in Section 3.05(E)(1), during any limitation year, the
following rules apply:
1. The annual additions which may be credited to a Participant's
Individual Account under this Plan for any such limitation year
will not exceed the maximum permissible amount reduced by the
annual additions credited to a Participant's Individual Account
under the other plans and welfare benefit funds for the same
limitation year. If the annual additions with respect to the
Participant under other defined contribution plans and welfare
benefit funds maintained by the employer are less than the maximum
permissible amount and the Employer Contribution that would
otherwise be contributed or allocated to the Participant's
Individual Account under this Plan would cause the annual
additions for the limitation year to exceed this limitation, the
amount contributed
<PAGE>
or allocated will be reduced so that the annual additions under
all such plans and funds for the limitation year will equal the
maximum permissible amount. If the annual additions with respect
to the Participant under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater
than the maximum permissible amount, no amount will be contributed
or allocated to the Participant's Individual Account under this
Plan for the limitation year.
2. Prior to determining the Participant's actual compensation for the
limitation year, the Employer may determine the maximum
permissible amount for a Participant in the manner described in
Section 3.05(A)(2).
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the limitation
year will be determined on the basis of the Participant's actual
compensation for the limitation year.
4. If, pursuant to Section 3.05(B)(3) or as a result of the
allocation of Forfeitures a Participant's annual additions under
this Plan and such other plans would result in an excess amount
for a limitation year, the excess amount will be deemed to consist
of the annual additions last allocated, except that annual
additions attributable to a welfare benefit fund or individual
medical account will be deemed to have been allocated first
regardless of the actual allocation date.
5. If an excess amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation
date of another plan, the excess amount attributed to this Plan
will be the product of,
a. the total excess amount allocated as of such date, times
b. the ration of (i) the annual additions allocated to the Parti-
cipant for the limitation year as of such date under this Plan
to (ii) the total annual additions allocated to the
Participant for the limitation year as of such date under this
and all the other qualified prototype defined contribution
plans.
6. Any excess amount attributed to this Plan will be disposed in the
manner described in Section 3.05(A)(4).
C. If the Participant is covered under another qualified defined contri-
bution plan maintained by the Employer which is not a master or pro-
<PAGE>
totype plan, annual additions which may be credited to the
Partici-pant's Individual Account under this Plan for any limitation
year will be limited in accordance with Sections 3.05(B)(1) through
3.08(B)(6) as though the other plan were a master or prototype plan
unless the Employer provides other limitations in the Section of the
Adoption Agreement titled "Limitation on Allocation - More Than One
Plan."
<PAGE>
D. If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the sum
of the Participant's defined benefit plan fraction and defined
contribution plan fraction will not exceed 1.0 in any limitation
year. The annual additions which may be credited to the Participant's
Individual Account under this Plan for any limitation year will be
limited in accordance with the Section of the Adoption Agreement
titled "Limitation on Allocation - More Than One Plan."
E. The following terms shall have the following meanings when used in
this Section 3.05:
1. Annual additions: The sum of the following amounts credited to a
Participant's Individual Account for the limitation year:
a. Employer Contributions,
b. Employee contributions,
c. Forfeitures, and
d. amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Section 415(l)(2) of the Code,
which is part of a pension or annuity plan maintained by the
Employer are treated as annual additions to a defined contri-
bution plan. Also amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after
such date, which are attributable to post-retirement medical
benefits, allocated to the separate account of a key employee,
as defined in Section 419A(d)(3) of the Code, under a welfare
benefit fund, as defined in Section 419(e) of the Code, main-
tained by the Employer are treated as annual additions to a
defined contribution plan.
For this purpose, any excess amount applied under Section
3.05(A)(4) or 3.05(B)(6) in the limitation year to reduce
Employer Contributions will be considered annual additions for
<PAGE>
such limitation year.
2. Compensation: As elected by the Employer in the Adoption Agreem-
ent (and if no election is made, Section 3401(a) wages will be
deemed to have been selected), Compensation shall mean all of a
Participant's:
a. Section 3121 wages. Wages as defined in Section 3121(a) of
the Code, for purposes of calculating Social Security taxes,
but determined without regard to the wage base limitation in
Section 3121(a)(1), the special rules in Section 3121(v), any
rules that limit covered employment based on the type or loca-
tion of an Employee's Employer, and any rules that limit the
remuneration included in wages based on familial relationship
or based on the nature or location of the employment or the
services performed (such as the exceptions to the definition
of employment in Section 3121(b)(1) through (2)).
b. Section 3401(a) wages. Wages as defined in Section 3401(a) of
the Code, for the purposes of income tax withholding at the
source but determined without regard to any rules that limit
the remuneration included in wages based on the nature or
location of the employment or the services performed (such as
the exception for agricultural labor in Section 3401(a)(2)).
c. 415 safe-harbor compensation. Wages, salaries, and fees for
professional services and other amounts received (without
regard to whether or not an amount is paid in cash) for per-
sonal services actually rendered in the course of employment
with the Employer maintaining the Plan to the extent that the
amounts are includable in gross income (including, but not
limited to, commissions paid salesmen, compensation for ser-
vices on the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits, reimburse-
ments, and expense allowances), and excluding the following:
1. Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or employer
contributions under a simplified employee pension plan to
the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred
compensation;
2. Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the
<PAGE>
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
3. Amounts realized from the sale, exchange or other disposit-
ion of stock acquired under a qualified stock option; and
4. Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity described in Section 403(b) of the Code (whether or
not the amounts are actually excludable from the gross
income of the Employee).
For any Self-Employed Individual, Compensation will mean
Earned Income. For limitation years beginning after
Decem-ber 31, 1991, for purposes of applying the
limitations of this Section 3.05, compensation for a
limitation year is the compensation actually paid or
includible in gross income during such limitation year.
Notwithstanding the preceding sentence, compensation for a
Participant in a defined contribution plan who is
permanently and totally disabled (as defined in Section
22(e)(3) of the Code) is the compensation such Participant
would have received for the limitation year if the
Participant had been paid at the rate of compensation paid
immediately before becoming permanently and totally
disabled; such imputed compensation for the disabled
participant may be taken into account only if the
Participant is not a Highly Compensated Employee (as
defined in Section 414(q) of the Code) and contributions
made on behalf of such Participant are nonforfeitable when
made.
3. Defined benefit fraction: A fraction, the numerator of which is
the sum of the Participant's projected annual benefits under all
the defined benefit plans (whether or not terminated) maintained
by the Employer, and the denominator of which is the lesser of
125% of the dollar limitation determined for the limitation year
under Section 415(b) and (d) of the Code or 140% of the highest
average compensation, including any adjustments under Section
415(b) of the Code.
Notwithstanding the above, if the Participant was a Participant as
of the first day of the first limitation year beginning after
<PAGE>
<PAGE>
December 31, 1986, in one or more defined benefit plans maintained
by the employer which were in existence on May 6, 1986, the
denominator of this fraction will not be less than 125% of the sum
of the annual benefits under such plans which the participant had
accrued as of the close of the last limitation year beginning
before January 1, 1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Section 415 of the Code
for all limitation years beginning before January 1, 1987.
4. Defined contribution dollar limitation: $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth in
Section 415(b)(1) of the Code as in effect for the limitation
year.
5. Defined contribution fraction: A fraction, the numerator of which
is the sum of the annual additions to the Participant's account
under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all
prior limitation years (including the annual additions
attributable to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in Section
419(e) of the Code, and individual medical accounts, as defined in
Section 415(l)(2) of the Code, maintained by the Employer), and
the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior limitation years of service
with the Employer (regardless of whether a defined contribution
plan was maintained by the Employer). The maximum aggregate amount
in any limitation year is the lesser of 125% of the dollar
limitation determined under Section 415(b) and (d) of the Code in
effect under Section 415(c)(1)(A) of the Code or 35% of the
Participant's compensation for such year.
If the Employee was a participant as of the end of the first day
of the first limitation year beginning after December 31, 1986, in
one or more defined contribution plans maintained by the Employer
which were in existence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of this fraction and the
defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over 1.0
times (2) the denominator of this fraction, will be permanently
subtracted from the numerator of this fraction. The adjustment is
<PAGE>
calculated using the fractions as they would be computed as of the
end of the last limitation year beginning before January 1, 1987,
and disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the Section 415 limitation
applicable to the first limitation year beginning on or after
January 1, 1987.
The annual addition for any limitation year beginning before
Jan-uary 1, 1987, shall not be recomputed to treat all employee
contributions as annual additions.
6. Employer: For purposes of this Section 3.05, Employer shall mean
the Employer that adopts this Plan, and all members of a
controlled group of corporations (as defined in Section 414(b) of
the Code as modified by Section 415(h)), all commonly controlled
trades or businesses (as defined in Section 414(c) as modified by
Section 415(h)) or affiliated service groups (as defined in
Section 414(m)) of which the adopting Employer is a part, and any
other entity required to be aggregated with the Employer pursuant
to regulations under Section 414(o) of the Code.
7. Excess amount: The excess of the Participant's annual additions
for the limitation year over the maximum permissible amount.
8. Highest average compensation: The average compensation for the
three consecutive years of service with the Employer that produces
the highest average.
9. Limitation year: A calendar year, or the 12-consecutive month
period elected by the Employer in the Section of the Adoption
Agreement titled "Limitation on Allocation - More Than One Plan."
All qualified plans maintained by the Employer must use the same
limitation year. If the limitation year is amended to a different
12-consecutive month period, the new limitation year must begin on
a date within the limitation year in which the amendment is made.
10. Master or prototype plan: A plan the form of which is the subject
of a favorable notification letter from the Internal Revenue
Service.
11. Maximum permissible amount: The maximum annual addition that may
be contributed or allocated to a Participant's Individual Account
under the Plan for any limitation year shall not exceed the lesser
of:
<PAGE>
a. the defined contribution dollar limitation, or
b. 25% of the Participant's compensation for the limitation year.
The compensation limitation referred to in (b) shall not apply to
any contribution for medical benefits (within the meaning of
Section 401(h) or Section 419A(f)(2) of the Code) which is
otherwise treated as an annual addition under Section 415(l)(1) or
419A(d)(2) of the Code.
If a short limitation year is created because of an amendment
changing the limitation year to a different 12-consecutive month
period, the maximum permissible amount will not exceed the defined
contribution dollar limitation multiplied by the following
fraction:
Number of months in the short limitation year / 12
12. Projected annual benefit: The annual retirement benefit (adjusted
to an actuarially equivalent straight life annuity if such benefit
is expressed in a form other than a straight life annuity or
qualified joint and survivor annuity) to which the Participant
would be entitled under the terms of the Plan assuming:
a. the Participant will continue employment until normal retire-
ment age under the Plan (or current age, if later), and
b. the Participant's compensation for the current limitation year
and all other relevant factors used to determine benefits
under the Plan will remain constant for all future limitation
years.
<PAGE>
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator shall establish and maintain an Individual
Account in the name of each Participant to reflect the total
value of his interest in the Fund. Each Individual Account
established hereunder shall consist of such subaccounts as may be
needed for each Participant including:
1. a subaccount to reflect Employer Contributions and Forfeitures
allocated on behalf of a Participant;
2. a subaccount to reflect a Participant's rollover contributions;
<PAGE>
3. a subaccount to reflect a Participant's transfer contributions;
4. a subaccount to reflect a Participant's nondeductible employee
contributions; and
5. a subaccount to reflect a Participant's deductible employee
contributions.
B. The Plan Administrator may establish additional accounts as it may
deem necessary for the proper administration of the Plan, including,
but not limited to, a suspense account for Forfeitures as required
pursuant to Section 6.01(D).
4.02 VALUATION OF FUND
The Fund will be valued each Valuation Date at fair market value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. Where all or a portion of the assets of a Participant's Individual
Account are invested in a Separate Fund for the Participant, then
the value of that portion of such Participant's Individual Account
at any relevant time equals the sum of the fair market values of
the assets in such Separate Fund, less any applicable charges or
penalties.
B. The fair market value of the remainder of each Individual Account
is determined in the following manner:
1. First, the portion of the Individual Account invested in each
Investment Fund as of the previous Valuation Date is
determined. Each such portion is reduced by any withdrawal made
from the applicable Investment Fund to or for the benefit of a
Participant or his Beneficiary, further reduced by any amounts
forfeited by the Participant pursuant to Section 6.01(D) and
further reduced by any transfer to another Investment Fund
since the previous Valuation Date and is increased by any
amount transferred from another Investment Fund since the
previous Valuation Date. The resulting amounts are the net
Individual Account portions invested in the Investment Funds.
2. Secondly, the net Individual Account portions invested in each
Investment Fund are adjusted upwards or downwards, pro rata
(i.e., ratio of each net Individual Account portion to the sum
of all net Individual Account portions) so that the sum of all
the net Individual Account portions invested in an Investment
Fund will equal the then fair market value of the Investment
<PAGE>
Fund. Notwithstanding the previous sentence, for the first Plan
Year only, the net Individual Account portions shall be the sum
of all contributions made to each Participant's Individual
Account during the first Plan Year.
3. Thirdly, any contributions to the Plan and Forfeitures are
allocated in accordance with the appropriate allocation
provisions of Section 3. For purposes of Section 4,
contributions made by the Employer for any Plan Year but after
that Plan Year will be considered to have been made on the last
day of that Plan Year regardless of when paid to the Trustee
(or Custodian, if applicable).
Amounts contributed between Valuation Dates will not be
credited with investment gains or losses until the next
following Valuation Date.
4. Finally, the portions of the Individual Account invested in
each Investment Fund (determined in accordance with (1), (2)
and (3) above) are added together.
4.04 SEGREGATION OF ASSETS
If a Participant elects a mode of distribution other than a lump sum,
the Plan Administrator may place that Participant's account balance
into a segregated Investment Fund for the purpose of maintaining the
necessary liquidity to provide benefit installments on a periodic
basis.
4.05 STATEMENT OF INDIVIDUAL ACCOUNTS
No later than 270 days after the close of each Plan Year, the Plan
Administrator shall furnish a statement to each Participant
indicating the Individual Account balances of such Participant as of
the last Valuation Date in such Plan Year.
4.06 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS If necessary
or appropriate, the Plan Administrator may establish different or
additional procedures (which shall be uniform and non-discriminatory)
for determining the fair market value of the Individual Accounts.
SECTION FIVE TRUSTEE OR CUSTODIAN
<PAGE>
5.01 CREATION OF FUND
By adopting this Plan, the Employer establishes the Fund which shall
consist of the assets of the Plan held by the Trustee (or Custodian,
if applicable) pursuant to this Section 5. Assets within the Fund may
be pooled on behalf of all Participants, earmarked on behalf of each
Participant or be a combination of pooled and earmarked. To the
extent that assets are earmarked for a particular Participant, they
will be held in a Separate Fund for that Participant.
No part of the corpus or income of the Fund may be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
5.02 INVESTMENT AUTHORITY
Except as provided in Section 5.14 (relating to individual direction
of investments by Participants), the Employer, not the Trustee (or
<PAGE>
Custodian, if applicable), shall have exclusive management and
control over the investment of the Fund into any permitted
investment. Notwithstanding the preceding sentence, a Trustee with
full trust powers (under applicable law) may make an agreement with
the Employer whereby the Trustee will manage the investment of all or
a portion of the Fund. Any such agreement shall be in writing and set
forth such matters as the Trustee deems necessary or desirable.
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL
TRUST POWERS
This Section 5.03 applies where a financial organization has
indicated in the Adoption Agreement that it will serve, with respect
to this Plan, as Custodian or as Trustee without full trust powers
(under applicable law). Hereinafter, a financial organization Trustee
without full trust powers (under applicable law) shall be referred to
as a Custodian.
A. Permissible Investments - The assets of the Plan shall be invested
only in those investments which are available through the
Custodian in the ordinary course of business which the Custodian
may legally hold in a qualified plan and which the Custodian
chooses to make available to Employers for qualified plan
investments.
B. Responsibilities of the Custodian - The responsibilities of the
Custodian shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest
the Fund without distinction between principal and interest;
<PAGE>
provided, however, that nothing in this Plan shall require the
Custodian to maintain physical custody of stock certificates
(or other indicia of ownership of any type of asset)
representing assets within the Fund;
2. To maintain accurate records of contributions, earnings, with-
drawals and other information the Custodian deems relevant with
respect to the Plan;
3. To make disbursements from the Fund to Participants or Benefic-
iaries upon the proper authorization of the Plan Administrator;
and
4. To furnish to the Plan Administrator a statement which reflects
the value of the investments in the hands of the Custodian as
of the end of each Plan Year.
C. Powers of the Custodian - Except as otherwise provided in this Plan,
the Custodian shall have the power to take any action with respect to
the Fund which it deems necessary or advisable to discharge its
responsibilities under this Plan including, but not limited to, the
following powers:
1. To invest all or a portion of the Fund (including idle cash
balances) in time deposits, savings accounts, money market
accounts or similar investments bearing a reasonable rate of
interest in the Custodian's own savings department or the savings
department of another financial organization;
2. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges or
subscription rights and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in,
corporate reorganizations or other changes affecting corporate
securities, and to pay any assessment or charges in connection
therewith; and generally to exercise any of the powers of an owner
with respect to stocks, bonds, securities or other property;
3. To hold securities or other property of the Fund in its own name,
in the name of its nominee or in bearer form; and
4. To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that
may be necessary or appropriate to carry out the powers herein
<PAGE>
granted.
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND
INDIVIDUAL
TRUSTEE
This Section 5.04 applies where a financial organization has
indicated in the Adoption Agreement that it will serve as Trustee
with full trust powers. This Section also applies where one or more
individuals are named in the Adoption Agreement to serve as
Trustee(s).
A. Permissible Investments - The Trustee may invest the assets of the
Plan in property of any character, real or personal, including,
but not limited to the following: stocks, including shares of
open-end investment companies (mutual funds); bonds; notes;
debentures; options; limited partnership interests; mortgages;
real estate or any interests therein; unit investment trusts;
Treasury Bills, and other U.S. Government obligations; common
trust funds, combined investment trusts, collective trust funds or
commingled funds maintained by a bank or similar financial
organization (whether or not the Trustee hereunder); savings
accounts, time deposits or money market accounts of a bank or
similar financial organization (whether or not the Trustee
hereunder); annuity contracts; life insurance policies; or in such
other investments as is deemed proper without regard to
investments authorized by statute or rule of law governing the
investment of trust funds but with regard to ERISA and this Plan.
Notwithstanding the preceding sentence, the Prototype Sponsor may,
as a condition of making the Plan available to the Employer for
adoption, limit the types of property in which the Trustee (other
than a financial organization Trustee with full trust powers), is
permitted to invest.
B. Responsibilities of the Trustee - The responsibilities of the Trustee
shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest the
Fund without distinction between physical and interest; provided,
however, that nothing in this Plan shall require the Trustee to
maintain physical custody of stock certificates (or other indicia
of ownership) representing assets within the Fund;
2. To maintain accurate records of contributions, earnings, with-
drawals and other information the Trustee deems relevant with re-
<PAGE>
spect to the Plan;
3. To make disbursements from the Fund to Participants or Beneficiar-
ies upon the proper authorization of the Plan Administrator; and
4. To furnish to the Plan Administrator a statement which reflects
the value of the investments in the hands of the Trustee as of the
end of each Plan Year.
C. Powers of the Trustee - Except as otherwise provided in this Plan,
the Trustee shall have the power to take any action with respect to
the Fund which it deems necessary or advisable to discharge its
responsibilities under this Plan including, but not limited to, the
following powers:
<PAGE>
1. To hold any securities or other property of the Fund in its own
name, in the name of its nominee or in bearer form;
2. To purchase or subscribe for securities issued, or real property
owned, by the Employer or any trade or business under common
control with the Employer but only if the prudent investment and
diversification requirements of ERISA are satisfied;
3. To sell, exchange, convey, transfer or otherwise dispose of any
securities or other property held by the Trustee, by private
contract or at public auction. No person dealing with the Trustee
shall be bound to see to the application of the purchase money or
to inquire into the validity, expediency, or propriety of any such
sale or other disposition, with or without advertisement;
4. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges or
subscription rights and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in,
corporate reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay any
assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks,
bonds, securities or other property;
5. To invest any part or all of the Fund (including idle cash
balances) in certificates of deposit, demand or time deposits,
savings accounts, money market accounts or similar investments of
the Trustee (if the Trustee is a bank or similar financial
organiza-
<PAGE>
tion), the Prototype Sponsor or any affiliate of such Trustee or
Prototype Sponsor, which bear a reasonable rate of interest;
6. To provide sweep services without the receipt by the Trustee of
additional compensation or other consideration (other than
reimbursement of direct expenses properly and actually incurred in
the performance of such services);
7. To hold in the form of cash for distribution or investment such
portion of the Fund as, at any time and from time-to-time, the
Trustee shall deem prudent and deposit such cash in interest
bearing or noninterest bearing accounts.;
8. To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that
may be necessary or appropriate to carry out the powers herein
granted;
9. To settle, compromise, or submit to arbitration any claims, debts,
or damages due or owing to or from the Plan, to commence or defend
suits or legal or administrative proceedings, and to represent the
Plan in all suits and legal and administrative proceedings;
10. To employ suitable agents and counsel, to contract with agents to
perform administrative and recordkeeping duties and to pay their
reasonable expenses, fees and compensation, and such agent or
counsel may or may not be agent or counsel for the Employer;
11. To cause any part or all of the Fund, without limitation as to
amount, to be commingled with the funds of other trusts (including
trusts for qualified employee benefit plans) by causing such money
to be invested as a part of any pooled, common, collective or
commingled trust fund heretofore or hereafter created by any
trustee (if the Trustee is a bank), by the Prototype Sponsor, by
any affiliate bank of such a Trustee or by such a Trustee or the
Prototype Sponsor, or by such an affiliate in participation with
others; the instrument or instruments establishing such trust fund
or funds, as amended, being made part of this Plan and trust so
long as any portion of the Fund shall be invested through the
medium thereof.
12. Generally to do all such acts, execute all such instruments,
initiate such proceedings, and exercise all such rights and
privileges with relation to property constituting the Fund as if
the Trustee were the absolute owner thereof.
<PAGE>
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS
The Employer may direct the Trustee (or Custodian) from time-to-time
to divide and redivide the Fund into one or more Investment Funds.
Such Investment Funds may include, but not be limited to, Investment
Funds representing the assets under the control of an investment
manager pursuant to Section 5.12 and Investment Funds representing
investment options available for individual direction by Participants
pursuant to Section 5.14. Upon each division or redivision, the
Employer may specify the part of the Fund to be allocated to each
such Investment Fund and the terms and conditions, if any, under
which the assets in such Investment Fund shall be invested.
5.06 COMPENSATION AND EXPENSES
The Trustee (or Custodian, if applicable) shall receive such
reasonable compensation as may be agreed upon by the Trustee (or
Custodian) and the Employer. The Trustee (or Custodian) shall be
entitled to reimbursement by the Employer for all proper expenses
incurred in carrying out his duties under this Plan, including
reasonable legal, accounting and actuarial expenses. If not paid by
the Employer, such compensation and expenses may be charged against
the Fund.
All taxes of any kind that may be levied or assessed under existing
or future laws upon, or in respect of, the Fund or the income thereof
shall be paid from the Fund.
5.07 NOT OBLIGATED TO QUESTION DATA
The Employer shall furnish the Trustee (or Custodian, if applicable)
and Plan Administrator the information which each party deems
necessary for the administration of the Plan including, but not
limited to, changes in a Participant's status, eligibility, mailing
addresses and other such data as may be required. The Trustee (or
Custodian) and Plan Administrator shall be entitled to act on such
information as is supplied them and shall have no duty or
responsibility to further verify or question such information.
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS
The Plan Administrator shall be responsible for withholding federal
income taxes from distributions from the Plan, unless the Participant
(or Beneficiary, where applicable) elects not to have such taxes
withheld. However, the Trustee (or Custodian) shall act as agent for
the Plan Administrator to withhold such taxes and to make the
appropriate distribution reports, subject to the Plan Administrator's
obligation to furnish all the necessary information to so withhold to
the Trustee (or Custodian).
<PAGE>
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN) The Trustee (or
Custodian, if applicable) may resign at any time by giving 30 days
advance written notice to the Employer. The resignation shall become
effective 30 days after receipt of such notice unless a shorter
period is agreed upon.
The Employer may remove any Trustee (or Custodian) at any time by
giving written notice to such Trustee (or Custodian) and such removal
shall be effective 30 days after receipt of such notice unless a
shorter period is agreed upon. The Employer shall have the power to
appoint a successor Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed Trustee
(or Custodian) is the sole Trustee (or Custodian), he shall transfer
all of the assets of the Fund then held by him as expeditiously as
possible to the successor Trustee (or Custodian) after paying or
reserving such reasonable amount as he shall deem necessary to
provide for the expense in the settlement of the accounts and the
amount of any compensation due him and any sums chargeable against
the Fund for which he may be liable. If the Funds as reserved are not
sufficient for such purpose, then he shall be entitled to
reimbursement from the successor Trustee (or Custodian) out of the
assets in the successor Trustee's (or Custodian's) hands under this
Plan. If the amount reserved shall be in excess of the amount
actually needed, the former Trustee (or Custodian) shall return such
excess to the successor Trustee (or Custodian).
Upon receipt of such assets, the successor Trustee (or Custodian)
shall thereupon succeed to all of the powers and responsibilities
given to the Trustee (or Custodian) by this Plan.
The resigning or removed Trustee (or Custodian) shall render an
accounting to the Employer and unless objected to by the Employer
within 30 days of its receipt, the accounting shall be deemed to have
been approved and the resigning or removed Trustee (or Custodian)
<PAGE>
shall be released and discharged as to all matters set forth in the
accounting. Where a financial organization is serving as Trustee (or
Custodian) and it is merged with or bought by another organization
(or comes under the control of any federal or state agency), that
organization shall serve as the successor Trustee (or Custodian) of
this Plan, but only if it is the type of organization that can so
serve under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee or
<PAGE>
custodian pursuant to Section 1.401-12(n) of the Income Tax
Regulations, the Employer will appoint a successor Trustee (or
Custodian) upon notification by the Commissioner of Internal Revenue
that such substitution is required because the Trustee (or Custodian)
has failed to comply with the requirements of Section 1.401-12(n) or
is not keeping such records or making such returns or rendering such
statements as are required by forms or regulations.
5.10 DEGREE OF CARE
Limitations of Liability - The Trustee (or Custodian) shall not be
liable for any losses incurred by the Fund by any lawful direction to
invest communicated by the Employer, Plan Administrator or any
Participant or Beneficiary. The Trustee (or Custodian) shall be under
no liability for distributions made or other action taken or not
taken at the written direction of the Plan Administrator. It is
specifically understood that the Trustee (or Custodian) shall have no
duty or responsibility with respect to the determination of matters
pertaining to the eligibility of any Employee to become a Participant
or remain a Participant hereunder, the amount of benefit to which a
Participant or Beneficiary shall be entitled to receive hereunder,
whether a distribution to Participant or Beneficiary is appropriate
under the terms of the Plan or the size and type of any policy to be
purchased from any insurer for any Participant hereunder or similar
matters; it being understood that all such responsibilities under the
Plan are vested in the Plan Administrator.
5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR
CUSTODIAN)
Notwithstanding any other provision herein, and except as may be
otherwise provided by ERISA, the Employer shall indemnify and hold
harmless the Trustee (or Custodian, if applicable) and the Prototype
Sponsor, their officers, directors, employees, agents, their heirs,
executors, successors and assigns, from and against any and all
liabilities, damages, judgments, settlements, losses, costs, charges,
or expenses (including legal expenses) at any time arising out of or
incurred in connection with any action taken by such parties in the
performance of their duties with respect to this Plan, unless there
has been a final adjudication of gross negligence or willful
misconduct in the performance of such duties.
Further, except as may be otherwise provided by ERISA, the Employer
will indemnify the Trustee (or custodian) and Prototype Sponsor from
any liability, claim or expense (including legal expense) which the
Trustee (or Custodian) and Prototype Sponsor shall incur by reason of
or which results, in whole or in part, from the Trustee's (or Custo-
<PAGE>
dian's) or Prototype Sponsor's reliance on the facts and other
directions and elections the Employer communicates or fails to
communicate.
5.12 INVESTMENT MANAGERS
A. Definition of Investment Manager - The Employer may appoint one or
more investment managers to make investment decisions with respect
to all or a portion of the Fund. The investment manager shall be
any firm or individual registered as an investment adviser under
the Investment Advisers Act of 1940, a bank as defined in said Act
or an insurance company qualified under the laws of more than one
state to perform services consisting of the management,
acquisition or disposition of any assets of the Plan.
B. Investment Manager's Authority - A separate Investment Fund shall
be established representing the assets of the Fund invested at the
direction of the investment manager. The investment manager so
appointed shall direct the Trustee (or Custodian, if applicable )
with respect to the investment of such Investment Fund. The
investments which may be acquired at the direction of the
investment manager are those described in Section 5.03(A) (for
Custodians) or Section 5.04(A) (for Trustees).
C. Written Agreement - The appointment of any investment manager
shall be by written agreement between the Employer and the
investment manager and a copy of such agreement (and any
modification or termination thereof) must be given to the Trustee
(or Custodian).
The agreement shall set forth, among other matters, the effective
date of the investment manager's appointment and an
acknowledgement by the investment manager that it is a fiduciary
of the Plan under ERISA.
D. Concerning the Trustee (or Custodian) - Written notice of each
appointment of an investment manager shall be given to the Trustee
(or Custodian) in advance of the effective date of such
appointment. Such notice shall specify which portion of the Fund
will constitute the Investment Fund subject to the investment
manager's direction. The Trustee (or Custodian) shall comply with
the investment direction given to it by the investment manager and
will not be liable for any loss which may result by reason of any
action (or inaction) it takes at the direction of the investment
manager.
<PAGE>
5.13 MATTERS RELATING TO INSURANCE
A. If a life insurance policy is to be purchased for a Participant,
the aggregate premium for certain life insurance for each
Participant must be less than a certain percentage of the
aggregate Employer Contributions and Forfeitures allocated to a
Partici-pant's Individual Account at any particular time as
follows:
<PAGE>
1. Ordinary Life Insurance - For purposes of these incidental
insurance provisions, ordinary life insurance contracts are
contracts with both nondecreasing death benefits and
nonincreasing premiums. If such contracts are purchased, less
than 50% of the aggregate Employer Contributions and
Forfeitures allocated to any Participant's Individual Account
will be used to pay the premiums attributable to them.
2. Term and Universal Life Insurance - No more than 25% of the
aggregate Employer Contributions and Forfeitures allocated to
any Participant's Individual Account will be used to pay the
premiums on term life insurance contracts, universal life
insurance contracts, and all other life insurance contracts
which are not ordinary life.
3. Combination - The sum of 50% of the ordinary life insurance
premiums and all other life insurance premiums will not exceed
25% of the aggregate Employer Contributions and Forfeitures
allocated to any Participant's Individual Account.
B. Any dividends or credits earned on insurance contracts for a Partici-
pant shall be allocated to such Participant's Individual Account.
C. Subject to Section 6.05, the contracts on a Participant's life will
be converted to cash or an annuity or distributed to the Participant
upon commencement of benefits.
D. The Trustee (or Custodian, if applicable) shall apply for and will be
the owner of any insurance contract(s) purchased under the terms of
this Plan. The insurance contract(s) must provide that proceeds will
be payable to the Trustee (or Custodian), however, the Trustee (or
Custodian) shall be required to pay over all proceeds of the
contract(s) to the Participant's designated Beneficiary in accordance
with the distribution provisions of this Plan. A Participant's spouse
will be the designated Beneficiary of the proceeds in all
circumstances unless a qualified election has been made in accordance
with Section 6.05. Under no circumstances shall the Fund retain any
<PAGE>
part of the proceeds. In the event of any conflict between the terms
of this Plan and the terms of any insurance contract purchased
hereunder, the Plan provisions shall control.
E. The Plan Administrator may direct the Trustee (or Custodian) to sell
and distribute insurance or annuity contracts to a Participant (or
other party as may be permitted) in accordance with applicable law or
regulations.
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT
If so indicated in the Adoption Agreement, each Participant may
individually direct the Trustee (or Custodian, if applicable)
regarding the investment of part or all of his Individual Account. To
the extent so directed, the Employer, Plan Administrator, Trustee (or
Custodian) and all other fiduciaries are relieved of their fiduciary
responsibility under Section 404 of ERISA.
The Plan Administrator shall direct that a Separate Fund be
established in the name of each Participant who directs the
investment of part or all of his Individual Account. Each Separate
Fund shall be charged or credited (as appropriate) with the earnings,
gains, losses or expenses attributable to such Separate Fund. No
fiduciary shall be liable for any loss which results from a
Participant's individual direction. The assets subject to individual
direction shall not be invested in collectibles as that term is
defined in Section 408(m) of the Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it deems
necessary or advisable including, but not limited to, rules
describing (1) which portions of Participant's Individual Account can
be individually directed; (2) the frequency of investment changes;
(3) the forms and procedures for making investment changes; and (4)
the effect of a Participant's failure to make a valid direction.
Subject to the approval of the Prototype Sponsor, the Plan
Administrator may, in a uniform and nondiscriminatory manner, limit
the available investments for Participants' individual direction to
certain specified investment options (including, but not limited to,
certain mutual funds, investment contracts, deposit accounts and
group trusts). The Plan Administrator may permit, in a uniform and
nondiscriminatory manner, a Beneficiary of a deceased Participant to
individually direct in accordance with this Section.
<PAGE>
SECTION SIX VESTING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. When Distributable
1. Entitlement to Distribution - The Vested portion of a
Partici-pant's Individual Account shall be distributable to the
Participant upon the occurrence of any of the following events:
a. the Participant's Termination of Employment;
b. the Participant's attainment of Normal Retirement Age;
c. the Participant's Disability;
d. the termination of the Plan;
2. Written Request: When Distributed - A Participant entitled to
distribution who wishes to receive a distribution must submit a
written request to the Plan Administrator. Such request shall be
made upon a form provided by the Plan Administrator. Upon a valid
request, the Plan Administrator shall direct the Trustee (or
Custodian, if applicable) to commence distribution no later than
90 days following the later of:
a. the close of the Plan Year within which the event occurs which
entitles the Participant to distribution; or
b. the close of the Plan Year in which the request is received.
3. Special Rules for Withdrawals During Service - If this is a profit
sharing plan and the Adoption Agreement so provides, a Participant
who is not otherwise entitled to a distribution under Section 6.01
<PAGE>
(A)(1) may elect to receive a distribution of all or part of the
Vested portion of his Individual Account, subject to the
requirements of Section 6.05 and further subject to the following
limits:
a. Participant for 5 or more years. An Employee who has been a
Participant in the Plan for 5 or more years may withdraw up to
his entire Vested portion of his Individual Account.
b. Participant for less than 5 years. An Employee who has been a
Participant in the Plan for less than 5 years may withdraw
only the amount which has been in his Vested Individual
Account attributable to Employer Contributions for at least 2
<PAGE>
full Plan Years.
However, if the distribution is on account of hardship, the
Participant may withdraw up to his entire Vested portion of
his Individual Account. For purposes of the preceding
sentence, hardship is defined as an immediate and heavy
financial need of the Participant where such Participant lacks
other available resources. The following are the only
financial needs considered immediate and heavy: expenses
incurred or necessary for medical care, described in Section
213(d) of the Code, of the Employee, the Employee's spouse or
dependents; the purchase (excluding mortgage payments) of a
principal residence for the Employee; payment of tuition and
related educational fees for the next 12 months of
post-secondary education for the Employee, the Employee's
spouse, children or dependents; or the need to prevent the
eviction of the Employee from, or a foreclosure on the
mortgage of, the Employee's principal residence.
A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
1) The employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under
all plan maintained by the Employer;
2) The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any federal, state or local income taxes
or penalties reasonably anticipated to result from the
distribution)
4. Commencement of Benefits - Notwithstanding any other
provision, unless the Participant elects otherwise,
distribution of benefits will begin no later than the 60th day
after the latest of the close of the Plan Year in which:
a. the Participant attains Normal Retirement Age;
b. occurs the 10th anniversary of the year in which the Par-
ticipant commenced participation in the Plan; or
c. the Participant incurs a Termination of Employment.
B. Determining the Vested Portion - In determining the Vested portion of
<PAGE>
a Participant's Individual Account, the following rules apply:
1. Employer Contributions and Forfeitures - The Vested portion of
a Participant's Individual Account derived from Employer
Contributions and Forfeitures is determined by applying the
vesting schedule selected in the Adoption Agreement (or the
vesting schedule described in Section 6.01(C) if the Plan is a
Top-Heavy Plan).
2. Rollover and Transfer Contributions - A Participant is fully
Vested in his rollover contributions and transfer
contributions.
3. Fully Vested Under Certain Circumstances - A Participant is
fully Vested in his Individual Account if any of the following
occurs:
a. the Participant reaches Normal Retirement Age;
b. the Participant incurs a Disability;
c. the Participant dies;
d. the Plan is terminated or partially terminated; or
e. there exists a complete discontinuance of contributions
under the Plan.
4. Participants in a Prior Plan - If a Participant was a
participant in a Prior Plan on the Effective Date, his Vested
percentage shall not be less than it would have been under
such Prior Plan as computed on the Effective Date.
C. Minimum Vesting Schedule for Top-Heavy Plans - The following vesting
provisions apply for any Plan Year in which this Plan is a Top-Heavy
Plan.
Notwithstanding the other provisions of this Section 6.01 or the
vesting schedule selected in the Adoption Agreement (unless those
provisions or that schedule provide for more rapid vesting), a
Participant's Vested portion of his Individual Account attributable
to Employer Contributions and Forfeitures shall be determined in
accordance with the following minimum vesting schedule:
Years of Vesting Service Vested Percentage
1 0
2 20
3 40
4 60
<PAGE>
5 80
6 100
<PAGE>
This minimum vesting schedule applies to all benefits within the
meaning of Section 411(a)(7) of the Code, except those attributable
to employee contributions including benefits accrued before the
effective date of Section 416 of the Code and benefits accrued
before the Plan became a Top-Heavy Plan. Further, no decrease in a
Participant's Vested percentage may occur in the event the Plan's
status as a Top-Heavy Plan changes for any Plan Year. However, this
Section 6.01(C) does not apply to the Individual Account of any
Employee who does not have an Hour of Service after the Plan has
initially become a Top-Heavy Plan and such Employee's Individual
Account attributable to Employer Contributions and Forfeitures will
be determined without regard to this Section.
If this Plan ceases to be a Top-Heavy Plan, then in accordance with
the above restrictions, the vesting schedule as selected in the
Adoption Agreement will govern. If the vesting schedule under the
Plan shifts in or out of top-heavy status, such shift is an
amendment to the vesting schedule and the election in Section 9.04
applies.
D. Break in Vesting Service and Forfeitures - If a Participant incurs a
Termination of Employment, any portion of his Individual Account
which is not Vested shall be held in a suspense account. Such
suspense account shall share in any increase or decrease in the fair
market value of the assets of the Fund in accordance with Section 4
of the Plan. The disposition of such suspense account shall be as
follows:
1. No Breaks in Vesting Service - If a Participant neither receives
nor is deemed to receive a distribution pursuant to Section 6.01
(D)(2) or (3) and the Participant returns to the service of the
Employer before incurring 5 consecutive Breaks in Vesting Service,
there shall be no Forfeiture and the amount in such suspense
account shall be recredited to such Participant's Individual
Account.
2. Cash-out of Certain Participants - If the value of the Vested
portion of such Participant's Individual Account derived from
Employee and Employer Contributions does not exceed $3,500, the
Participant shall receive a distribution of the entire Vested
portion of such Individual Account and the portion which is not
Vested shall be treated as a Forfeiture and allocated in the year
of the cash-
<PAGE>
out. For purposes of this Section, if the value of the Vested
portion of a Participant's Individual Account is zero, the
Participant shall be deemed to have received a distribution of
such Vested Individual Account. A Participant's Vested Individual
Account balance shall not include accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code for Plan Years beginning prior to January 1, 1989.
3. Participants Who Elect to Receive Distributions - If such
Participant elects to receive a distribution, in accordance with
Section 6.02(B), of the value of the Vested portion of his
Individual Account derived from Employee and Employer
Contributions, the portion which is not Vested shall be treated as
a Forfeiture.
4. Re-employed Participants - If a Participant receives or is deemed
to receive a distribution pursuant to Section 6.01(D)(2) or (3)
above and the Participant resumes employment covered under this
Plan, the Participant's Employer-derived Individual Account
balance will be restored to the amount on the date of distribution
if the Participant repays to the Plan the full amount of the
distribution attributable to Employer Contributions before the
earlier of 5 years after the first date on which the Participant
is subsequently re-employed by the Employer, or the date the
Participant incurs 5 consecutive Breaks in Vesting Service
following the date of the distribution.
Amounts forfeited under Section 6.01(D) shall be allocated in
accordance with Section 3.01(C) as of the last day of the Plan
Year during which the Forfeiture arises. Any restoration of a
Participant's Individual Account pursuant to Section 6.01(D)(4)
shall be made from other Forfeitures, income or gain to the Fund
or contributions made by the Employer.
E. Distribution Prior to Full Vesting - If a distribution is made to a
Participant who was not then fully Vested in his Individual Account
derived from Employer Contributions and the Participant may increase
his Vested percentage in his Individual Account, then the following
rules shall apply:
1. a separate account will be established for the Participant's in-
terest in the Plan as of the time of the distribution, and
2. at any relevant time the Participant's Vested portion of the sep-
arate account will be equal to an amount ("X") determined by the
formula: X=P (AB + (R x D)) - (R x D) where "P" is the Vested
<PAGE>
percentage at the relevant time, "AB" is the separate account
balance at the relevant time; "D" is the amount of the
distribution; and "R" is the ratio of the separate account balance
at the relevant time to the separate account balance after
distribution.
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. Value of Individual Account Does Not Exceed $3,500 - If the value of
the Vested portion of a Participant's Individual Account derived from
Employee and Employer Contributions does not exceed $3,500,
distribution from the Plan shall be made to the Participant in a
single lump sum in lieu of all other forms of distribution from the
Plan.
B. Value of Individual Account Exceeds $3,500
1. If the value of the Vested portion of a Participant's Individual
Account derived from Employee and Employer Contributions exceeds
(or at the time of any prior distribution exceeded) $3,500, and
the Individual Account is immediately distributable, the
Participant and the Participants spouse (or where either the
Participant or the spouse died, the survivor) must consent to any
distribution of such Individual Account. The consent of the
Participant and the Participant's spouse shall be obtained in
writing within the 90-day period ending on the annuity starting
date. The annuity starting date is the first day of the first
period for which an amount is paid as an annuity or any other
form. The Plan Administrator shall notify the Participant and the
Participant's spouse of the right to defer any distribution until
the Participant's Individual Account is no longer immediately
distributable. Such notification shall include a general
description of the material features, and an explanation of the
relative values of, the optional forms of benefit available under
the Plan in a manner that would satisfy the notice requirements of
Section 417(a)(3) of the Code, and shall be provided no less than
30 days and no more than 90 days prior to the annuity starting
date. If a distribution is one to which Sections 401(a)(11) and
417 of the Internal Revenue Code do not apply, such distribution
may commence less than 30 days after the notice required under
Section 1.411(a)- 11(c) of the Income Tax Regulations is given,
provided that:
a. the Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not
to elect a distribution (and, if applicable, a particular
distribution option), and
<PAGE>
b. the Participant, after receiving the notice, affirmatively
elects a distribution.
<PAGE>
Notwithstanding the foregoing, only the Participant need consent
to the commencement of a distribution in the form of a qualified
joint and survivor annuity while the Individual Account is
immediately distributable. Neither the consent of the Participant
nor the Participant's spouse shall be required to the extent that
a distribution is required to satisfy Section 401(a)(9) or Section
415 of the Code. In addition, upon termination of this Plan if the
Plan does not offer an annuity option (purchased from a commercial
provider), the Participant's Individual Account may, without the
Participant's consent, be distributed to the Participant or
transferred to another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975 (e)(7) of
the Code) within the same controlled group.
An Individual Account is immediately distributable if any part of
the Individual Account could be distributed to the Participant (or
surviving spouse) before the Participant attains or would have
attained (if not deceased) the later of Normal Retirement Age or
age 62.
2. For purposes of determining the applicability of the foregoing
consent requirements to distributions, made before the first day
of the first Plan year beginning after December 31, 1988, the
Vested portion of a Participant's Individual Account shall not
include amounts attributable to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) o the
Code.
C. Other Forms of Distribution to Participant - If the value of the
Vested portion of a Participant's Individual Account exceeds $3,500
and the Participant has properly waived the joint and survivor
annuity, as described in Section 6.05, the Participant may request in
writing that the Vested portion of his Individual Account be paid to
him in one or more of the following forms of payment: 91) in a lump
sum; (2) in installment payments over a period not to exceed the life
expectancy of the Participant or the joint and last survivor life
expectancy of the Participant and his designated Beneficiary; or (3)
applied to the purchase of an annuity contract.
Notwithstanding anything in this Section 6.02 to the contrary, a
Participant cannot elect payments in the form of an annuity if the
safe harbor rules of Section 6.05(F) apply.
<PAGE>
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. Designation of Beneficiary - Spousal Consent - Each Participant may
designate, upon a form provided by and delivered to the Plan
Administrator, one or more primary and contingent Beneficiaries to
receive all or a specified portion of his Individual Account in the
event of his death. A Participant may change or revoke such
Beneficiary designation from time to time by completing and
delivering the proper form to the Plan Administrator.
In the event that a Participant wishes to designate a primary
Beneficiary who is not his spouse, his spouse must consent in writing
to such designation, and the spouse's consent must acknowledge the
effect of such designation and be witnessed by a notary public.
Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of the Plan Administrator that such
written consent may not be obtained because there is no spouse or the
spouse cannot be located, no consent shall be required. Any change of
Beneficiary will require a new spousal consent.
B. Payment to Beneficiary - If a Participant dies before his entire
Individual Account has been paid to him, such deceased Participant's
Individual Account shall be payable to any surviving Beneficiary
designated by the Participant, or, if no Beneficiary survives the
Participant, to the Participant's estate.
C. Written Request: When Distributed - A Beneficiary of a deceased
Participant entitled to a distribution who wishes to receive a
distribution must submit a written request to the Plan Administrator.
Such request shall be made upon a form provided by the Plan
Administrator. Upon a valid request, the Plan Administrator shall
direct the Trustee (or Custodian) to commence distribution no later
than 90 days following the later of:
1. the close of the Plan Year within which the Participant dies; or
2. the close of the Plan Year in which the request is received.
D. Location of Participant or Beneficiary Unknown - In the event that
all, or any portion, of the distribution payable to a Participant or
his Beneficiary hereunder shall, at the expiration of 5 years after
it becomes payable, remain unpaid solely by reason of the inability
of the Plan Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further
diligent effort, to ascertain the whereabouts of such Participant or
his
<PAGE>
Beneficiary, the amount so distributable shall be forfeited and
allocated in accordance with the terms of the Plan. In the event a
Participant or Beneficiary is located subsequent to his benefit being
forfeited, such benefit shall be restored; provided, however, if all
or a portion of such amount has been lost by reason of escheat under
state law, the Participant or Beneficiary shall cease to be entitled
to the portion so lost.
6.04 FORM OF DISTRIBUTION TO BENEFICIARY
A. Value of Individual Account Does Not Exceed $3,500 - If the value of
the Participant's Individual Account derived from Employee and
Employer Contributions does not exceed $3,500, the Plan Administrator
shall direct the Trustee (or Custodian, if applicable) to make a
distribution to the Beneficiary in a single lump sum in lieu of all
other forms of distribution from the Plan.
B. Value of Individual Account Exceeds $3,500 - If the value of a
Par-ticipant's Individual Account derived from Employee and Employer
Contributions exceeds $3,500 the preretirement survivor annuity
requirements of Section 6.05 shall apply unless waived in accordance
with that Section or unless the safe harbor rules of Section 6.05(F)
apply.
C. Other Forms of Distribution to Beneficiary - If the value of a
Participant's Individual Account exceeds $3,500 and the Participant
has properly waived the preretirement survivor annuity, as described
in Section 6.05 (if applicable), the Beneficiary may, subject to the
requirements of Section 6.06, request in writing that the
Participant's Individual Account be paid to him as follows: (1) in a
lump sum; or (2) in installment payments over a period not to exceed
the life expectancy of such Beneficiary.
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any Participant who is
credited with at least one Hour of Eligibility Service with the
Employer on or after August 23, 1984, and such other participants as
provided in Section 6.05(G).
<PAGE>
B. Qualified Joint and Survivor Annuity - Unless an optional form of
benefit is selected pursuant to a qualified election within the 90-
day period ending on the annuity starting date, a married
Partici-pant's Vested account balance will be paid in the form of a
qualified joint and survivor annuity and an unmarried Participant's
Vested
<PAGE>
account balance will be paid in the form of a life annuity. The
Participant may elect to have such annuity distributed upon
attainment of the earliest retirement age under the Plan.
C. Qualified Preretirement Survivor Annuity - Unless an option form of
benefit has been selected within the election period pursuant to a
qualified election, if a Participant dies before the annuity starting
date then the Participant's Vested account balance shall be applied
toward the purchase of an annuity for the life of the surviving
spouse. The surviving spouse may elect to have such annuity
distributed within a reasonable period after the Participant's death.
D. Definitions
1. Election Period - The period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the
date of the Participant's death. If a Participant separates from
service prior to the first day of the Plan Year in which age 35 is
attained, with respect to the account balance as of the date of
separation, the election period shall begin on the date of
separation.
Pre-age 35 waiver - A Participant who will not yet attain age 35
as of the end of any current Plan Year may make special qualified
election to waive the qualified preretirement survivor annuity for
the period beginning on the date of such election and ending on
the first day of the Plan Year in which the Participant will
attain age 35. Such election shall not be valid unless the
Participant receives a written explanation of the qualified
prere-tirement survivor annuity in such terms as are comparable to
the explanation required under Section 6.05(E)(1). Qualified
prere-tirement survivor annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the
Participant attains age 35. Any new waiver on or after such date
shall be subject to the full requirements of this Section 6.05.
2. Earliest Retirement Age - The earliest date on which, under the
Plan, the Participant could elect to receive retirement benefits.
3. Qualified Election - A waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity. Any waiver
of a qualified joint and survivor annuity or a qualified
prere-tirement survivor annuity shall not be effective unless: (a)
the Participant's spouse consents in writing to the election, (b)
the election designates a specific Beneficiary, including any
class of
<PAGE>
beneficiaries or any contingent beneficiaries, which may not be
changed without spousal consent (or the spouse expressly permits
designations by the Participant without any further spousal
consent); (c) the spouse's consent acknowledges the effect of the
election; and (d) the spouse's consent is witnessed by a plan
representative or notary public. Additionally, a Participant's
waiver of the qualified joint and survivor annuity shall not be
effective unless the election designates a form of benefit payment
which may not be changed without spousal consent (or the spouse
expressly permits designations by the Participant without any
further spousal consent). If it is established to the satisfaction
of a plan representative that there is no spouse or that the
spouse cannot be located, a waiver will be deemed a qualified
election.
Any consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be obtained)
shall be effective only with respect to such spouse. A consent
that permits designations by the Participant without any
requirement of further consent by such spouse must acknowledge
that the spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit where applicable, and
that the spouse voluntarily elects to relinquish either or both of
such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the spouse at any time before
the commencement of benefits. The number of revocations shall not
be limited. No consent obtained under this provision shall be
valid unless the Participant has received notice as provided in
Section 6.05(E) below.
4. Qualified Joint and Survivor Annuity - An immediate annuity for
the life of the Participant with a survivor annuity for the life
of the spouse which is not less than 50% and not more than 100% of
the amount of the annuity which is payable during the joint lives
of the Participant and the spouse and which is the amount of
beneficiary which can be purchased with the Participant's vested
account balance. The percentage of the survivor annuity under the
Plan shall be 50% (unless a different percentage is elected by the
Employer in the Adoption Agreement).
5. Spouse (surviving spouse) - The spouse or surviving spouse of the
Participant, provided that a former spouse will be treated as the
spouse or surviving spouse and a current spouse will not be
treated as the spouse or surviving spouse to the extent provided
under a qualified domestic relations order as described in Section
<PAGE>
414(p) of the Code.
6. Annuity Starting Date - The first day of the first period for
which an amount is paid as an annuity or any other form.
7. Vested Account Balance - The aggregate value of the Participant's
Vested account balances derived from Employer and Employee
contributions (including rollovers), whether Vested before or upon
death, including the proceeds of insurance contracts, if any, on
the Participant's life. The provisions of this Section 6.05 shall
apply to a Participant who is Vested in amounts attributable to
Employer Contributions, Employee contributions (or both) at the
time of death or distribution.
E. Notice Requirements
1. In the case of a qualified joint and survivor annuity, the Plan
Administrator shall no less than 30 days and not more than 90 days
prior to the annuity starting date provide each Participant a
written explanation of: (a) the terms and conditions of a
qualified joint and survivor annuity; (b) the Participant's right
to make and the effect of an election to waive the qualified joint
and survivor annuity form of benefit; (c) the rights of a
Partici-pant's spouse; and (d) the right to make, and the effect
of, a revocation of a previous election to waive the qualified
joint and survivor annuity.
2. In the case of a qualified preretirement annuity as described in
Section 6.05(C), the Plan Administrator shall provide each
Participant within the applicable period for such Participant a
written explanation of the qualified preretirement survivor
annuity in such terms and in such manner as would be comparable to
the explanation provided for meeting the requirements of Section
6.05(E)(1) applicable to a qualified joint and survivor annuity.
<PAGE>
The applicable period for a Participant is whichever of the
following periods ends last: (a) the period beginning with the
first day of the Plan Year in which the Participant attains age 32
and ending with the close of the Plan Year preceding the Plan Year
in which the Participant attains age 35; (b) a reasonable period
ending after the individual becomes a Participant; (c) a
reasonable period ending after Section 6.05(E)(3) ceases to apply
to the Participant; (d) a reasonable period ending after this
Section 6.05 first applies to the Participant. Notwithstanding the
foregoing, notice must be provided within a reasonable period
ending
<PAGE>
after separation from service in the case of a Participant who
separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (b), (c)
and (d) is the end of the two-year period beginning one year prior
to the date the applicable event occurs, and ending one year after
that date. In the case of a Participant who separates from service
before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to
separation and ending one year after separation. If such a
Participant thereafter returns to employment with the Employer,
the applicable period for such Participant shall be redetermined.
3. Notwithstanding the other requirements of this Section 6.05(E),
the respective notices prescribed by this Section 6.05(E), need
not be given to a Participant if (a) the Plan "fully subsidizes"
the costs of a qualified joint and survivor annuity or qualified
preretirement survivor annuity, and (b) the Plan does not allow
the Participant to waive the qualified joint and survivor annuity
or qualified preretirement survivor annuity and does not allow a
married Participant to designate a nonspouse beneficiary. For
purposes of this Section 6.05(E)(3), a plan fully subsidizes the
costs of a benefit if no increase in cost, or decrease in benefits
to the Participant may result from the Participants failure to
elect another benefit.
F. Safe Harbor Rules
1. If the Employer so indicates in the Adoption Agreement, this
Section 6.05(F) shall apply to a Participant in a profit sharing
plan, and shall always apply to any distribution, made on or after
the first day of the first Plan Year beginning after December 31,
1988, from or under a separate account attributable solely to
accumulated deductible employee contributions, as defined in
Section 72(o)(5)(B) of the Code, and maintained on behalf of a
Participant in a money purchase pension plan, (including a target
benefit plan) if the following conditions are satisfied:
a. the Participant does not or cannot elect payments in the form
of a life annuity; and
b. on the death of a participant, the Participant's Vested
account balance will be paid to the Participant's surviving
spouse, but if there is no surviving spouse, or if the sur-
<PAGE>
viving spouse has consented in a manner conforming to a
qualified election, then to the Participant's designated
beneficiary. The surviving spouse may elect to have
distribution of the Vested account balance commence within
the 90-day period following the date of the Participant's
death. The account balance shall be adjusted for gains or
losses occurring after the Participant's death in accordance
with the provisions of the Plan governing the adjustment of
account balances for other types of distributions. This
Section 6.05(F) shall not be operative with respect to a
Participant in a profit sharing plan if the plan is a direct
or indirect transferee of a defined benefit plan, money
purchase plan, a target benefit plan, stock bonus, or profit
sharing plan which is subject to the survivor annuity
requirements of Section 401(a)(11) and Section 417 of the
code. If this Section 6.05(F) is operative, then the
provisions of this Section 6.05 other than Section 6.05(G)
shall be inoperative.
2. The Participant may waive the spousal death benefit described in
this Section 6.05(F) at any time provided that no such waiver
shall be effective unless it satisfies the conditions of Section
6.05(D)(3) (other than the notification requirement referred to
therein) that would apply to the Participant's waiver of the
qualified preretirement survivor annuity.
3. For purposes of this Section 6.05(F), Vested account balance shall
mean, in the case of a money purchase pension plan or a target
benefit plan, the Participant's separate account balance
attributable solely to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code. In the case of a profit sharing plan, Vested account balance
shall have the same meaning as provided in Section 6.05(D)(7).
G. Transitional Rules
1. Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the
previous subsections of this Section 6.05 must be given the
opportunity to elect to have the prior subsections of this Section
apply if such Participant is credited with at least one Hour of
Service under this Plan or a predecessor plan in a Plan Year
beginning on or after January 1, 1976, and such Participant had at
least 10 Years of Vesting Service when he or she separated from
service.
<PAGE>
2. Any living Participant not receiving benefits on August 23, 1984,
who was credited with at least one Hour of Service under this Plan
or a predecessor plan on or after September 2, 1974, and who is
not otherwise credited with any service in a Plan Year beginning
on or after January 1, 1976, must be given the opportunity to have
his or her benefits paid in accordance with Section 6.05(G)(4).
3. The respective opportunities to elect (as described in Section
6.05(G)(1) and (2) above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984, and
ending on the date benefits would otherwise commence to said
Participants.
4. Any Participant who has elected pursuant to Section 6.05(G)(2) and
any Participant who does not elect under Section 6.05(G)(1) or who
meets the requirements of Section 6.05(G)(1) except that such
Participant does not have at least 10 Years of Vesting Service
when he or she separates from service, shall have his or her
benefits distributed in accordance with all of the following
requirements if benefits would have been payable in the form of a
life annuity:
a. Automatic Joint and Survivor Annuity - If benefits in the form
of a life annuity become payable to a married Participant who:
1. begins to receive payments under the Plan on or after Normal
Retirement Age; or
2. dies on or after Normal Retirement Age while still working
for the Employer; or
3. begins to receive payments on or after the qualified early
retirement age; or
<PAGE>
4. separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement age) and
after satisfying the eligibility requirements for the
payment of benefits under the Plan and thereafter dies
before beginning to receive such benefits;
then such benefits will be received under this Plan in the
form of a qualified joint and survivor annuity, unless the
Participant has elected otherwise during the election
period. The election period must begin at least 6 months
before the Participant attains qualified early retirement
age and ends not more than 90 days before the commencement
of
<PAGE>
benefits. Any election hereunder will be in writing and may
be changed by the Participant at any time.
b. Election of Early Survivor Annuity - A Participant who is
employed after attaining the qualified early retirement age
will be given the opportunity to elect, during the election
period, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under such
annuity must not be less than the payments which would have
been made to the spouse under the qualified joint and survivor
annuity if the Participant had retirement on the day before
his or her death. Any election under this provision will be in
writing and may be changed by the Participant at any time. The
election period begins on the later of (1) the 90th day before
the Participant attains the qualified early retirement age, or
92) the date on which participation begins, and ends on the
date the Participant terminates employment.
c. For purposes of Section 6.05(G)(4):
1. Qualified early retirement age is the latest of:
a. the earliest date, under the Plan, on which the Parti-
cipant may elect to receive retirement benefits,
b. the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age, or
c. the date the Participant begins participation.
2. Qualified joint and survivor annuity is an annuity for the
life of the Participant with a survivor annuity for the
life of the spouse as described in Section 6.05(D)(4) of
this Plan.
6.06 DISTRIBUTION REQUIREMENTS
A. General Rules
1. Subject to Section 6.05 Joint and Survivor Annuity Requirements, the
requirements of this Section shall apply to any distribution of a
Participant's interest and will take precedence over any
inconsistent provisions of this Plan. Unless otherwise specified,
the provisions of this Section 6.06 apply to calendar years
beginning after December 31, 1984.
2. All distributions required under this Section 6.06 shall be deter-
<PAGE>
mined and made in accordance with the Income Tax Regulations under
Section 401(a)(9), including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the regulations.
B. Required Beginning Date - The entire interest of a Participant must be
distributed or begin to be distributed no later than the Participant's
required beginning date.
C. Limits on Distribution Periods - As of the first distribution calendar
year, distributions, if not made in a single sum, may only be made over
one of the following periods (or a combination thereof):
1. the life of the Participant,
2. the life of the Participant and a designated Beneficiary,
3. a period certain not extending beyond the life expectancy of the
Participant, or
4. a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated Beneficiary.
D. Determination of Amount to be Distributed Each Year - If the
Partici-pant's interest is to be distributed in other than a single
sum, the following minimum distribution rules shall apply on or after
the required beginning date:
1. Individual Account
a. If a Participant's benefit is to be distributed over (1) a per-
iod not extending beyond the life expectancy of the Participant
or the joint life and last survivor expectancy of the Partici-
pant and the Participant's designated Beneficiary or (2) a per-
iod not extending beyond the life expectancy of the designated
Beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first dis-
tribution calendar year, must at least equal the quotient ob-
tained by dividing the Participant's benefit by the applicable
life expectancy.
b. For calendar years beginning before January 1, 1989, if the
Par-ticipant's spouse is not the designated Beneficiary, the
method of distribution selected must assure that at least 50% of
the present value of the amount available for distribution is
paid within the life expectancy of the Participant.
c. For calendar years beginning after December 31, 1988, the amount
to be distributed each year, beginning with distributions for
<PAGE>
the first distribution calendar year shall not be less than the
quotient obtained by dividing the Participant's benefit by the
lesser of (1) the applicable life expectancy or (2) if the
Par-ticipant's spouse is not the designated Beneficiary, the
applicable divisor determined from the table set forth in Q&A-4
of Section 1.401(a)(9)-2 of the Income Tax Regulations.
Distributions after the death of the Participant shall be
distributed using the applicable life expectancy in Section
6.05(D)(1)(a) above as the relevant divisor without regard to
regulations 1.401(a)(9)-2.
<PAGE>
d. The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the
Parti-cipant's required beginning date. The minimum distribution
for other calendar years, including the minimum distribution for
the distribution calendar year in which the Employee's required
beginning date occurs, must be made on or before December 31 of
that distribution calendar year.
2. Other Forms - If the Participant's benefit is distributed in the form
of an annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of
Section 401(a)(9) of the Code and the regulations thereunder.
E. Death Distribution Provisions
1. Distribution Beginning Before Death - If the Participant dies after
distribution of his or her interest has begun, the remaining portion
of such interest will continue to be distributed at least as rapidly
as under the method of distribution being used prior to the
Partici-pant's death.
2. Distribution Beginning After Death - If the Participant dies before
distribution of his or her interest begins, distribution of the
Par-ticipant's entire interest shall be completed by December 31 of
the calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election is made to
receive distributions in accordance with (a) or (b) below:
a. if any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the life
or over a period certain not greater than the life expectancy of
the designated Beneficiary commencing on or before December 31
of the calendar year immediately following the calendar year in
which the Participant died;
<PAGE>
b. if the designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the later of
(1) December 31 of the calendar year immediately following the
calendar year in which the Participant dies or (2) December 31
of the calendar year in which the Participant would have
attained age 70 1/2.
If the Participant has not made an election pursuant to this
Section 6.05(E)(2) by the time of his or her death, the
Par-ticipant's designated Beneficiary must elect the method of
distribution no later than the earlier of (1) December 31 of the
calendar year in which distributions would be required to begin
under this Section 6.05(E)(2), or (2) December 31 of the
calendar year which contains the fifth anniversary of the date
of death of the Participant. If the Participant has no
designated Beneficiary, or if the designated Beneficiary does
not elect a method of distribution, distribution of the
Participant's entire interest must be completed by December 31
of the calendar year containing the fifth anniversary of the
Participant's death.
3. For purposes of Section 6.06(E)(2) above, if the surviving spouse
dies after the Participant, but before payments to such spouse begin,
the provisions of Section 6.06(E)(2), with the exception of paragraph
(b) therein, shall be applied as if the surviving spouse were the
Participant.
4. For purposes of this Section 6.06(E), any amount paid to a child of
the Participant will be treated as if it had been paid to the
surviving spouse if the amount becomes payable to the surviving
spouse when the child reaches the age of majority.
5. For purposes of this Section 6.06(E), distribution of a Participant's
interest is considered to begin on the Participant's required
beginning date (or, if Section 6.06(E)(3) above is applicable, the
date distribution is required to begin to the surviving spouse
pursuant to Section 6.06(E)(2) above). If distribution in the form of
an annuity irrevocably commences to the Participant before the
required beginning date, the date distribution is considered to begin
is the date distribution actually commences.
F. Definitions
1. Applicable Life Expectancy - The life expectancy (or joint and last
survivor expectancy) calculated using the attained age of the Parti-
<PAGE>
cipant (or designated Beneficiary) as of the Participant's (or
designated Beneficiary's) birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is
being recalculated, the applicable life expectancy shall be the life
expectancy as so recalculated. The applicable calendar year shall be
the first distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
2. Designated Beneficiary - The individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9) of
the Code and the regulations thereunder.
3. Distribution Calendar Year - A calendar year for which a minimum
distribution is required. For distributions beginning before the
Par-ticipant's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains
the Participant's required beginning date. For distributions
beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are
required to begin pursuant to Section 6.05(E) above.
4. Life Expectancy - Life expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the case
of distributions described in Section 6.05(E)(2)(b) above) by the
time distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Participant (or spouse) and shall apply to all subsequent years. The
life expectancy of a nonspouse Beneficiary may not be recalculated.
5. Participant's Benefit
a. The account balance as of the last valuation date in the
valuation calendar year (the calendar year immediately preceding
the distribution calendar year) increased by the amount of any
Contributions or Forfeitures allocated to the account balance as
of dates in the valuation calendar year after the valuation date
and decreased by distributions made in the valuation calendar
year after the valuation date.
<PAGE>
b. Exception for second distribution calendar year. For purposes
<PAGE>
of paragraph (a) above, if any portion of the minimum
distribution for the first distribution calendar year is made in
the second distribution calendar year on or before the required
beginning date, the amount of the minimum distribution made in
the second distribution calendar year shall be treated as if it
had been made in the immediately preceding distribution calendar
year.
6. Required Beginning Date
a. General Rule - The required beginning date of a Participant is
the first day of April of the calendar year following the
calendar year in which the Participant attains age 70 1/2.
b. Transitional Rules - The required beginning date of a
Participant who attains age 70 1/2 before January 1, 1988, shall
be determined in accordance with (1) or (2) below:
(1) Non 5% Owners - The required beginning date of a
Participant who is not a 5% owner is the first day of April
of the calendar year following the calendar year in which
the later of retirement or attainment of age 70 1/2 occurs.
(2) 5% Owners - The required beginning date of a Participant
who is a 5% owner during any year beginning after December
31, 1979, is the first day of April following the later of:
(a) the calendar year in which the Participant attains age
70 1/2, or
(b) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a
5% owner, or the calendar year in which the Participant
retires.
The required beginning date of a Participant who is not
a 5% owner who attains age 70 1/2 during 1988 and who
has not retired as of January 1, 1989, is April 1,
1990.
(c) 5% Owner - A Participant is treated as a 5% owner for
purposes of this Section 6.06(F)(6) if such Participant
is a 5% owner as defined in Section 416(i) of the Code
(determined in accordance with Section 416 but without
regard to whether the Plan is top-heavy) at any time
<PAGE>
during the Plan Year ending with or within the calendar
year in which such owner attains age 66 1/2 or any
subsequent Plan Year.
(d) Once distributions have begun to a 5% owner under this
Section 6.06(F)(6) they must continue to be
distributed, even if the Participant ceases to be a 5%
owner in a subsequent year.
G. Transitional Rule
1. Notwithstanding the other requirements of this Section 6.06 and
subject to the requirements of Section 6.05, Joint and Survivor
Annuity Requirements, distribution on behalf of any Employee,
including a 5% owner, may be made in accordance with all of the
following requirements (regardless of when such distribution
commences):
a. The distribution by the Fund is one which would not have
disqualified such Fund under Section 401(a)(9) of the Code as in
effect prior to amendment by the Deficit Reduction Act of 1984.
b. The distribution is in accordance with a method of distribution
designated by the Employee whose interest in the Fund is being
distributed or, if the Employee is deceased, by a Beneficiary of
such Employee.
c. Such designation was in writing, was signed by the Employee or the
Beneficiary, and was made before January 1, 1984.
d. The Employee had accrued a benefit under the Plan as of December
31, 1983.
e. The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made, and in
the case of any distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of priority.
2. A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Employee.
3. For any distribution which commences before January 1, 1984, but con-
tinues after December 31, 1983, the Employee, or the Beneficiary, to
<PAGE>
whom such distribution is being made, will be presumed to have
designated the method of distribution under which the distribution is
being made if the method of distribution was specified in writing and
the distribution satisfies the requirements in Sections 6.06(G)(1)(a)
and (e).
4. If a designation is revoked, any subsequent distribution must satisfy
the requirements of Section 401(a)(9) of the Code and the regulations
thereunder. If a designation is revoked subsequent to the date
distributions are required to begin, the Plan must distribute by the
end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would
have been required to have been distributed to satisfy Section
401(a)(9) of the Code and the regulations thereunder, but for the
Section 242 (b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in Section 1.401(a)(9)-2
of the Income Tax Regulations. Any changes in the designation will be
considered to be a revocation of the designation. However, the mere
substitution or addition of another Beneficiary (one not named in the
designation) under the designation will not be considered to be a
revocation of the designation, so long as such substitution or
addition does not alter the period over which distributions are to be
made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount
is transferred or rolled over from one plan to another plan, the
rules in Q&A J-2 and Q&A J-3 shall apply.
6.07 ANNUITY CONTRACTS
Any annuity contract distributed under the Plan (if permitted or required
by this Section 6) must be nontransferable. The terms of any annuity
contract purchased and distributed by the Plan to a Participant or spouse
shall comply with the requirements of the Plan.
<PAGE>
6.08 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may receive a loan
from the Fund, subject to the following rules:
A. Loans shall be made available to all Participants on a reasonably
equivalent basis.
B. Loans shall not be made available to Highly Compensated Employees (as
defined in Section 414(q) of the Code) in an amount greater than the
amount made available to other Employees.
<PAGE>
C. Loans must be adequately secured and bear a reasonable interest rate.
D. No Participant loan shall exceed the present value of the Vested por-
tion of a Participant's Individual Account.
E. A Participant must obtain the consent of his or her spouse, if any, to
the use of the Individual Account as security for the loan. Spousal
consent shall be obtained no earlier than the beginning of the 90 day
period that ends on the date on which the loan is to be so secured. The
consent must be in writing, must acknowledge the effect of the loan,
and must be witnessed by a plan representative or notary public. Such
consent shall thereafter be binding with respect to the consenting
spouse or any subsequent spouse with respect to that loan. A new
consent shall be required if the account balance is used for
renegotiation, extension, renewal, or other revision of the loan.
F. In the event of default, foreclosure on the note and attachment of se-
curity will not occur until a distributable event occurs in the Plan.
G. No loans will be made to any shareholder-employee or Owner-Employee.
For purposes of this requirement, a shareholder-employee means an
employee or officer of an electing small business (Subchapter S)
corporation who owns (or is considered as owning within the meaning of
Section 318(a)(1) of the Code), on any day during the taxable year of
such corporation, more than 5% of the outstanding stock of the
corporation.
If a valid spousal consent has been obtained in accordance with
6.08(E), then, notwithstanding any other provisions of this Plan, the
portion of the Participant's Vested Individual Account used as a
security interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of determining
the amount of the account balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the
loan. If less than 100% of the Participant's Vested Individual Account
(determined without regard to the preceding sentence) is payable to the
surviving spouse, then the account balance shall be adjusted by first
reducing the Vested Individual Account by the amount of the security
used as repayment of the loan, and then determining the benefit payable
to the surviving spouse.
No loan to any Participant can be made to the extent that such loan
when added to the outstanding balance of all other loans to the
Participant would exceed the lesser of (a) $50,000 reduced by the
excess (if any) of the highest outstanding balance of loans during the
one year
<PAGE>
period ending on the day before the loan is made, over the outstanding
balance of loans from the Plan on the date the loan is made, or (b) 50%
of the present value of the nonforfeitable Individual Account of the
Participant or, if greater, the total Individual Account up to $10,000.
For the purpose of the above limitation, all loans from all plans of
the Employer and other members of a group of employers described in
Sections 414(b), 414(c), and 414(m) of the Code are aggregated.
Furthermore, any loan shall by its terms require that repayment
(principal and interest) be amortized in level payments, not less
frequently than quarterly, over a period not extending beyond 5 years
from the date of the loan, unless such loan is used to acquire a
dwelling unit which within a reasonable time (determined at the time
the loan is made) will be used as the principal residence of the
Participant. An assignment or pledge of any portion of the
Participant's interest in the Plan and a loan, pledge, or assignment
with respect to any insurance contract purchased under the Plan, will
be treated as a loan under this paragraph.
The Plan Administrator shall administer the loan program in accordance
with a written document. Such written document shall include, at a
minimum, the following: (i) the identity of the person or positions
authorized to administer the Participant loan program; (ii) the
procedure for applying for loans; (iii) the basis on which loans will
be approved or denied; (iv) limitations (if any) on the types and
amounts of loans offered; (v) the procedure under the program for
determining a reasonable rate of interest; (vi) the types of collateral
which may secure a Participant loan; and (vii) the events constituting
default and the steps that will be taken to preserve Plan assets in the
event of such default.
6.09 DISTRIBUTION IN KIND
The Plan Administrator may cause any distribution under this Plan to be
made either in a form actually held in the Fund, or in cash by converting
assets other than cash into cash, or in any combination of the two
foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. Direct Rollover Option - This Section applies to distributions made on
or after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner prescribed
by the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
<PAGE>
B. Definitions
1. Eligible rollover distribution - An eligible rollover distribution
is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover
distribution does not include:
a. any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more;
b. any distribution to the extent such distribution is required un-
der Section 401(a)(9) of the Code; and
c. the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrea-
lized appreciation with respect to employer securities).
2. Eligible retirement plan - An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section 408(b) of
the
<PAGE>
Code, an annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
3. Distributee - A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as
defined in Section 414(p) of the Code, are distributees with regard
to the interest of the spouse or former spouse.
4. Direct rollover - A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
SECTION SEVEN CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
<PAGE>
A Participant or Beneficiary who desires to make a claim for the Vested
portion of the Participant's Individual Account shall file a written
request with the Plan Administrator on a form to be furnished to him by
the Plan Administrator for such purpose. The request shall set forth the
basis of the claim. The Plan Administrator is authorized to conduct such
examinations as may be necessary to facilitate the payment of any benefits
to which the Participant or Beneficiary may be entitled under the terms of
the Plan.
7.02 DENIAL OF CLAIM
Whenever a claim for a Plan distribution by any Participant or Beneficiary
has been wholly or partially denied, the Plan Administrator must furnish
such Participant or Beneficiary written notice of the denial within 60
days of the date the original claim was filed. This notice shall set forth
the specific reasons for the denial, specific reference to pertinent Plan
provisions on which the denial is based, a description of any additional
information or material needed to perfect the claim, an explanation of why
such additional information or material is necessary and an explanation of
the procedures for appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt of the
denial notice in which to make written application for review by the Plan
Administrator. The Participant or Beneficiary may request that the review
be in the nature of a hearing. The Participant or Beneficiary shall have
the right to representation, to review pertinent documents and to submit
comments in writing. The Plan Administrator shall issue a decision on such
review within 60 days after receipt of an application for review as
provided for in Section 7.02. Upon a decision unfavorable to the
Participant or Beneficiary, such Participant or Beneficiary shall be
entitled to bring such actions in law or equity as may be necessary or
appropriate to protect or clarify his right to benefits under this Plan.
SECTION EIGHT PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless the managing body
of the Employer designates a person or persons other than the Employer
as the Plan Administrator and so notifies the Prototype Sponsor and the
Trustee (or Custodian, if applicable). The Employer shall also be the
Plan Administrator if the person or persons so designated cease to be
the Plan Administrator.
B. If the managing body of the Employer designates a person or persons
other than the Employer as Plan Administrator, such person or persons
<PAGE>
shall serve at the pleasure of the Employer and shall serve pursuant to
such procedures as such managing body may provide. Each such person
shall be bonded as may be required by law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointment, allocate the duties of the
Plan Administrator among several individuals or entities. Such
appointments shall not be effective until the party designated accepts
such appointment in writing.
B. The Plan Administrator shall have the authority to control and manage
the operation and administration of the Plan. The Plan Administrator
shall administer the Plan for the exclusive benefit of the Participants
and their Beneficiaries in accordance with the specific terms of the
Plan.
C. The Plan Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the follow-
ing:
1. To determine all questions of interpretation or policy in a manner
consistent with the Plan's documents and the Plan Administrator's
construction or determination in good faith shall be conclusive and
binding on all persons except as otherwise provided herein or by
law. Any interpretation or construction shall be done in a
nondiscriminatory manner and shall be consistent with the intent
that the Plan shall continue to be deemed a qualified plan under the
terms of Section 401(a) of the Code, as amended from time-to-time,
and shall comply with the terms of ERISA, as amended from
time-to-time;
2. To determine all questions relating to the eligibility of Employees
to become or remain Participants hereunder;
3. To compute the amounts necessary or desirable to be contributed to
the Plan;
4. To compute the amount and kind of benefits to which a Participant or
Beneficiary shall be entitled under the Plan and to direct the
Trustee (or Custodian, if applicable) with respect to all
disbursements under the Plan, and, when requested by the Trustee (or
Custodian), to furnish the Trustee (or Custodian) with instructions,
in writing, on matters pertaining to the Plan and the Trustee (or
Custodian) may rely and act thereon;
<PAGE>
5. To maintain all records necessary for the administration of the
Plan;
6. To be responsible for preparing and filing such disclosure and tax
forms as may be required from time-to-time by the Secretary of Labor
or the Secretary of the Treasury; and
<PAGE>
7. To furnish each Employee, Participant or Beneficiary such notices,
information and reports under such circumstances as may be required
by law.
D. The Plan Administrator shall have all of the powers necessary or
appropriate to accomplish his duties under the Plan, including, but not
limited to, the following:
1. To appoint and retain such persons as may be necessary to carry out
the functions of the Plan Administrator;
2. To appoint and retain counsel, specialists or other persons as the
Plan Administrator deems necessary or advisable in the administra-
tion of the Plan;
3. To resolve all questions of administration of the Plan;
4. To establish such uniform and nondiscriminatory rules which it deems
necessary to carry out the terms of the Plan;
5. To make any adjustments in a uniform and nondiscriminatory manner
which it deems necessary to correct any arithmetical or accounting
errors which may have been made for any Plan Year; and
6. To correct any defect, supply any omission or reconcile any
inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of the Plan.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of administration including, but not limited to,
those involved in retaining necessary professional assistance may be paid
from the assets of the Fund. Alternatively, the Employer may, in its
discretion, pay such expenses. The Employer shall furnish the Plan
Administrator with such clerical and other assistance as the Plan
Administrator may need in the performance of his duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform his duties, the Employer shall
<PAGE>
supply full and timely information to the Plan Administrator (or his
designated agents) on all matters relating to the Compensation of all
Participants, their regular employment, retirement, death, Disability or
Termination of Employment, and such other pertinent facts as the Plan
Administrator (or his agents) may require. The Plan Administrator shall
advise the Trustee (or Custodian, if applicable) of such of the foregoing
facts as may be pertinent to the Trustee's (or Custodian's) duties under
the Plan. The Plan Administrator (or his agents) is entitled to rely on
such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
SECTION NINE AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, expressly delegates to the
Prototype Sponsor the power, but no the duty, to amend the Plan
without any further action or consent of the Employer as the Prototype
Sponsor deems necessary for the purpose of adjusting the Plan to
comply with all laws and regulations governing pension or profit
sharing plans. Specifically, it is understood that the amendments may
be made unilaterally by the Prototype Sponsor. However, it shall be
understood that the Prototype Sponsor shall be under no obligation to
amend the Plan documents and the Employer expressly waives any rights
or claims against the Prototype Sponsor for not exercising this power
to amend. For purposes of Prototype Sponsor amendments, the mass
sub-mitter shall be recognized as the agent of the Prototype Sponsor.
If the Prototype Sponsor does not adopt the amendments made by the
mass submitter, it will no longer be identical to or a minor modifier
of the mass submitter plan.
B. An amendment by the Prototype Sponsor shall be accomplished by giving
written notice to the Employer of the amendment to be made. The notice
shall set forth the text of such amendment and the date such amendment
is to be effective. Such amendment shall take effect unless within the
30 day period after such notice is provided, or within such shorter
period as the notice may specify, the Employer gives the Prototype
Sponsor written notice of refusal to consent to the amendment. Such
written notice of refusal shall have the effect of withdrawing the Plan
as a prototype plan and shall cause the Plan to be considered an
individually designed plan. The right of the Prototype Sponsor to cause
the Plan to be amended shall terminate should the Plan cease to conform
as a prototype plan as provided in this or any other section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
<PAGE>
The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when such
language is necessary to satisfy Section 415 or Section 416 of the Code
because of the required aggregation of multiple plans, and (3) add certain
model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the Plan to be
treated as individually designed. An Employer that amends the Plan for any
other reason, including a waiver of the minimum funding requirement under
Section 412(d) of the Code, will no longer participate in this prototype
plan and will be considered to have an individually designed plan.
An Employer who wishes to amend the Plan to change the options it has
chosen in the Adoption Agreement must complete and deliver a new Adoption
Agreement to the Prototype Sponsor and Trustee (or Custodian, if
applicable). Such amendment shall become effective upon execution by the
Employer and Trustee (or Custodian).
The Employer further reserves the right to replace the Plan in its
entirety by adopting another retirement plan which the Employer designates
as a replacement plan.
9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit. Notwithstanding the
preceding sentence, a Participant's Individual Account may be reduced to
the extent permitted under Section 412(c)(8) of the Code. For purposes of
this paragraph, a plan amendment which has the effect of decreasing a
Par-ticipant's Individual Account or eliminating an optional form of
benefit with respect to benefits attributable to service before the
amendment shall be treated as reducing an accrued benefit. Furthermore, if
the vesting schedule of a Plan is amended, in the case of an Employee who
is a Participant as of the later of the date such amendment is adopted or
the date it becomes effective, the Vested percentage (determined as of
such date) of such Employee's Individual Account derived from Employer
Contributions will not be less than the percentage computed under the Plan
without regard to such amendment.
<PAGE>
9.04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, or the Plan is amended in any
way that directly or indirectly affects the computation of the
Partici-pant's Vested percentage, or if the Plan is deemed amended by an
automatic change to or from a top-heavy vesting schedule, each Participant
with at least 3 Years of Vesting Service with the Employer may elect,
within the time set forth below, to have the Vested percentage computed
under the Plan without regard to such amendment.
<PAGE>
For Participants who do not have at least 1 Hour of Service in any Plan
Year beginning after December 31, 1988, the preceding sentence shall be
applied by substituting "5 Years of Vesting Service" for "3 Years of
Vesting Service" where such language appears.
The Period during which the election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end the later
of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of the amendment
by the Employer or Plan Administrator.
9.05 PERMANENCY
The Employer expects to continue this Plan and make the necessary
contributions thereto indefinitely, but such continuance and payment is
not assumed as a contractual obligation. Neither the Adoption Agreement
nor the Plan nor any amendment or modification thereof nor the making of
contributions hereunder shall be construed as giving any Participant or
any person whomsoever any legal or equitable right against the Employer,
the Trustee (or Custodian, if applicable) the Plan Administrator or the
Prototype Sponsor except as specifically provided herein, or as provided
by law.
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may be terminated by the Employer at any time by appropriate
action of its managing body. Such termination shall be effective on the
date specified by the Employer. The Plan shall terminate if the Employer
shall be dissolved, terminated, or declared bankrupt. Written notice of
the termination and effective date thereof shall be given to the Trustee
(or Custodian), Plan Administrator, Prototype Sponsor, Participants and
Beneficiaries of deceased Participants, and the required filings (such as
the Form 5500 series and others) must be made with the Internal Revenue
Service and any other regulatory body as required by current laws and
regulations. Until all of the assets have been distributed from the Fund,
the Employer must keep the Plan in compliance with current laws and
regulations by (a) making appropriate amendments to the Plan and (b)
taking such other measures as may be required.
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER
Notwithstanding the preceding Section 9.06, a successor of the Employer
may continue the Plan and be substituted in the place of the present
Employer. The successor and the present Employer (or, if deceased, the
executor of the estate of a deceased Self-Employed Individual who was the
<PAGE>
Employer) must execute a written instrument authorizing such substitution
and the successor must complete and sign a new plan document.
9.08 FAILURE OF PLAN QUALIFICATION
If the Plan fails to retain its qualified status, the Plan will no longer
be considered to be part of a prototype plan, and such Employer can no
longer participate under this prototype. In such event, the Plan will be
considered an individually designed plan.
SECTION TEN MISCELLANEOUS
10.01 STATE COMMUNITY PROPERTY LAWS
The terms and conditions of this Plan shall be applicable without regard
to the community property laws of any state.
10.02 HEADINGS
The headings of the Plan have been inserted for convenience of reference
only and are to be ignored in any construction of the provisions hereof.
10.03 GENDER AND NUMBER
Whenever any words are used herein in the masculine gender they shall be
construed as though they were also used in the feminine gender in all
cases where they would so apply, and whenever any words are used herein in
the singular form they shall be construed as though they were also used in
the plural form in all cases where they would so apply.
10.04 PLAN MERGER OR CONSOLIDATION
In the case of any merger or consolidation of the Plan with, or transfer
of assets or liabilities of such Plan to, any other plan, each Participant
shall be entitled to receive benefits immediately after the merger,
consolidation, or transfer (if the Plan had then terminated) which are
equal to or greater than the benefits he would have been entitled to
receive immediately before the merger, consolidation, or transfer (if the
Plan had then terminated). The Trustee (or Custodian) has the authority to
enter into merger agreements or agreements to directly transfer the assets
of this Plan but only if such agreements are made with trustees or
custodians of other retirement plans described in Section 401(a) of the
Code.
10.05 STANDARD OF FIDUCIARY CONDUCT
The Employer, Plan Administrator, Trustee and any other fiduciary under
this Plan shall discharge their duties with respect to this Plan solely in
the interests of Participants and their Beneficiaries and with the care,
skill, prudence and diligence under the circumstances then prevailing that
a prudent man acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like
<PAGE>
aims. No fiduciary shall cause the Plan to engage in any transaction
known as a "prohibited transaction" under ERISA.
10.06 GENERAL UNDERTAKING OF ALL PARTIES
All parties to this Plan and all persons claiming any interest whatsoever
hereunder agree to perform any and all acts and execute any and all
documents and papers which may be necessary or desirable for the carrying
out of this Plan and any of its provisions.
<PAGE>
10.07 AGREEMENT BINDS HEIRS, ETC.
This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns, as those terms shall apply to any and all parties
hereto, present and future.
10.08 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 31, 1983, this Plan is a
Top-Heavy Plan if any of the following conditions exist:
1. If the top-heavy ratio for this Plan exceeds 60% and this Plan is
not part of any required aggregation group or permissive aggregation
group of plans.
2. If this Plan is part of a required aggregation group of plans but
not part of a permissive aggregation group and the top-heavy ratio
for the group of plans exceeds 60%.
3. If this Plan is a part of a required aggregation group and part of a
permissive aggregation group of plans and the top-heavy ratio for
the permissive aggregation group exceeds 60%.
For purposes of this Section 10.08, the following terms shall have
the meanings indicated below:
B. Key Employee - Any Employee or former Employee (and the beneficiaries
of such Employee) who at any time during the determination period was
an officer of the Employer if such individual's annual compensation
exceeds 50% of the dollar limitation under Section 415(b)(1)(A) of the
Code, an owner (or considered an owner under Section 318 of the Code)
of one of the 10 largest interests in the Employer if such individual's
compensation exceeds 100% of the dollar limitation under Section 415(c)
(1)(A) of the Code, a 5% owner of the Employer, or a 1% owner of the
Employer who has an annual compensation of more than $150,000. Annual
compensation means compensation as defined in Section 415(c)(3) of the
Code, but including amounts contributed by the Employer pursuant to a
salary reduction agreement which are excludable from the Employee's
<PAGE>
gross income under Section 125, Section 402(a)(8), Section 402(h) or
Section 403(b) of the Code. The determination period is the Plan Year
containing the determination date and the 4 preceding Plan Years.
The determination of who is a Key Employee will be made in accordance
with Section 416(i)(1) of the Code and the regulations thereunder.
C. Top-heavy ratio
1. If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer
has not maintained any defined benefit plan which during the 5-year
period ending on the determination date(s) has or has had accrued
benefits, the top-heavy ratio for this Plan alone or for the
required or permissive aggregation group as appropriate is a
fraction, the numerator of which is the sum of the account balances
of all Key Employees as of the determination date(s) (including any
part of any account balance distributed in the 5-year period ending
on the determination date(s)), and the denominator of which is the
sum of all account balances (including any part of any account
balance distributed in the 5-year period ending on the determination
date(s)), both computed in accordance with Section 416 of the Code
and the regulations thereunder. Both the numerator and the
denominator of the top-heavy ratio are increased to reflect any
contribution not actually made as of the determination date, but
which is required to be taken into account on that date under
Section 416 of the Code and the regulations thereunder.
2. If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer
maintains or has maintained one or more defined benefit plans which
during the 5-year period ending on the determination date(s) has or
has had any accrued benefits, the top-heavy ratio for any required
or permissive aggregation group as appropriate is a fraction, the
numerator of which is the sum of account balances under the
aggregated defined contribution plan or plans for all Key Employees,
determined in accordance with (1) above, and the present value of
accrued benefits under the aggregated defined benefit plan or plans
for all Key Employees as of the determination date(s), and the
denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all Participants,
determined in accordance with (1) above, and the present value of
accrued benefits under the defined benefit plan or plans for all
Participants as of the determination date(s), all determined in
accordance with Section 416 of the Code and the regulations there-
<PAGE>
under. The accrued benefits under a defined benefit plan in both the
numerator and denominator of the top-heavy ratio are increased for
any distribution of an accrued benefit made in the 5-year period
ending on the determination date.
3. For purposes of (1) and (2) above, the value of account balances and
the present value of accrued benefits will be determined as of the
most recent valuation date that falls within or ends with the 12-
month period ending on the determination date, except as provided in
Section 416 of the Code and the regulations thereunder for the first
and second plan years of a defined benefit plan. The account
balances and accrued benefits of a Participant (a) who is not a Key
Employee but who was a Key Employee in a Prior Year, or (b) who has
not been credited with at least one Hour of Service with any
employer maintaining the plan at any time during the 5-year period
ending on the determination date will be disregarded. The
calculation of the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account will
be made in accordance with Section 416 of the Code and the
regulations thereunder. Deductible employee contributions will not
be taken into account for purposes of computing the top-heavy ratio.
When aggregating plans the value of account balances and accrued
benefits will be calculated with reference to the determination
dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall
be determined under (a) the method, if any, that uniformly applies
for accrual purposes under all defined benefit plans maintained by
the Employer, or (b) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted
under the fractional rule of Section 411(b)(1)(C) of the Code.
4. Permissive aggregation group: The required aggregation group of
plans plus any other plan or plans of the Employer which, when
considered as a group with the required aggregation group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410
of the Code.
<PAGE>
5. Required aggregation group: (a) Each qualified plan of the Employer
in which at least one Key Employee participates or participated at
any time during the determination period (regardless of whether the
Plan has terminated), and (b) any other qualified plan of the
Employer which enables a plan described in (a) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
<PAGE>
6. Determination date: For any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. For the first Plan
Year of the Plan, the last day of that year.
7. Valuation date: For purposes of calculating the top-heavy ratio,
the valuation date shall be the last day of each Plan Year.
8. Present value: For purposes of establishing the "present value" of
benefits under a defined benefit plan to compute the top-heavy
ratio, any benefit shall be discounted only for mortality and
interest based on the interest rate and mortality table specified
for this purpose in the defined benefit plan.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and the
plan established for other trades or businesses must, when looked at as a
single plan, satisfy Sections 401(a) and (d) of the Code for the employees
of those trades or businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan
which satisfies Sections 401(a) and (d) of the Code and which provides
contributions and benefits not less favorable than provided for
Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or
more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trade or business which is controlled must
be as favorable as those provided for him under the most favorable plan of
the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control a trade or business if
the Owner-Employee, or two or more Owner-Employees, together:
A. own the entire interest in a unincorporated trade or business, or
B. in the case of a partnership, own more than 50% of either the capital
interest or the profit interest in the partnership. For purposes of
the preceding sentence, an Owner-Employee, or two or more Owner-Employ-
ees, shall be treated as owning any interest in a partnership which is
<PAGE>
owned, directly or indirectly, by a partnership which such
Owner-Employee, or such two or more Owner-Employees, are considered to
control within the meaning of the preceding sentence.
10.10 INALIENABILITY OF BENEFITS
No benefit or interest available hereunder will be subject to assignment
or alienation, either voluntarily or involuntarily. The preceding sentence
shall also apply to the creation, assignment, or recognition of a right to
any benefit payable with respect to a Participant pursuant to a domestic
relations order, unless such order is determined to be a qualified
domestic relations order, as defined in Section 414(p) of the Code.
Generally, a domestic relations order cannot be a qualified domestic
relations order until January 1, 1985. However, in the case of a domestic
relations order entered before such date, the Plan Administrator:
(1) shall treat such order as a qualified domestic relations order if
such Plan Administrator is paying benefits pursuant to such order on
such date, and
(2) may treat any other such order entered before such date as a
qualified domestic relations order even if such order does not meet
the requirements of Section 414(p) of the Code.
#709 (1/94) 1994 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
National Standardized Money Purchase Pension Plan
ADOPTION AGREEMENT
______________________________________________________________________________
SECTION 1. EMPLOYER INFORMATION
Name of Employer:
_______________________________________________________________________________
Address:
_______________________________________________________________________________
City: __________________________ State:________________ Zip:_____________
Telephone _______________ Federal Tax Identification Number _____________
Income Tax Year End
Type of Business (Check only one)
[ ] Sole Proprietorship [ ] Partnership [ ] Corporation [ ] Other
(Specify)____________________________________________________
Nature of Business
(Describe)_____________________________________________
Plan Sequence No. (Enter 001 if this is the first qualified plan
the Employer has ever maintained, enter 002 if it is the second, etc.)
For a plan which covers only the owner of the business, please provide the
following information about the owner:
Social Security No._________________Date Business Established______________
Date of Birth_______________________Marital Status________________________
Home Address______________________________________________________________
SECTION 2. EFFECTIVE DATES Check and complete Option A or B
Option A: [ ] This is the initial adoption of a money purchase pension
plan by the Employer.
The Effective Date of this Plan is , 19 .
<PAGE>
NOTE: The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
Option B: [ ] This is an amendment and restatement of an existing
money purchase pension plan (a Prior Plan).
The Prior Plan was initially effective on ________, 19___. The
Effective Date of this amendment and restatement is ___, 19__.
NOTE: The effective date is usually the first day of the Plan Year
in which this Adoption Agreement is signed.
SECTION 3. ELIGIBILITY REQUIREMENTS Complete Parts A, B and C
Part A. Years of Eligibility Service Requirement:
An Employee will be eligible to become a Participant in the Plan after
completing (enter 0, 1 or 2) Years of Eligibility Service. NOTE: If
more than 1 year is selected, the immediate 100% vesting schedule of
Section 5, Option C will automatically apply. If left blank, the Years
of Eligibility Service required will be deemed to be 0.
#713(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
Part B. Age Requirement:
An Employee will be eligible to become a Participant in the Plan after
attaining age (no more than 21).
NOTE: If left blank, it will be deemed there is no age requirement
for eligibility.
Part C. Class of Employees Eligible to Participate:
All Employees shall be eligible to become a Participant in the Plan,
except those checked below:
[ ] Those Employees included in a unit of Employees covered by the
terms of a collective bargaining agreement between Employee
representatives (the term "Employee representatives" does not
include any organization more than half of whose members are
Employees who are owners, officers or executives of the
Employer) and the Employer under which retirement benefits were
the subject of good faith bargaining unless the agreement
provides that such Employees are to be included in the Plan, and
except those Employees who are non-resident aliens pursuant to
Section 410(b) (3)(C) of the Code and who received no earned
income from the Employer which constitutes income from sources
within the United States.
SECTION 4. EMPLOYER CONTRIBUTION FORMULA Check and Complete either
Option A or B
<PAGE>
Option A: [ ] Nonintegrated Formula: For each Plan Year the
Employer will contribute for each qualifying Participant an
amount equal to __% (not to exceed 25%) of the qualifying
Participant's Compensation for the Plan Year.
Option B: [ ] Integrated Formula: For each Plan Year, the Employer
will contribute for each qualifying Participant an amount
equal to the sum of the amounts determined in Step 1 and
Step 2:
Step 1. An amount equal to ___% (the base contribution per-
centage) of the Participant's Compensation for the
Plan Year up to the integration level, plus
Step 2. An amount equal to ___% (not to exceed the base
contribution percentage by more than the lesser of:
(1) the base contribution percentage, or (2) the
money purchase maximum disparity rate as described
in Section 3.01(b)(3) of the Plan) of such
Participant's Compensation for the Plan Year in
excess of the integration level.
The integration level shall be (Choose one):
Option 1: [ ] The Taxable Wage Base
Option 2: [ ] $________ (a dollar amount less than the Taxable Wage Base)
Option 3: [ ] ______% of the Taxable Wage Base
NOTE: If no box is checked, the integration level shall be the Taxable
Wage Base.
SECTION 5. VESTING Complete Parts A and B
A Participant shall become Vested in his or her Individual Account
attributable to Employer Contributions and Forfeitures as follows (Choose
one):
_______________________________________________________________________________
YEARS OF VESTING SERVICE
(Complete Option A [ ] Option B [ ] Option C [ ] Option D [ ] if Chosen)
_______________________________________________________________________________
VESTED PERCENTAGE
1 0% 0% 100% ____%
2 0% 20% 100% ____%
3 100% 40% 100% ____% (not less than 20%)
4 100% 60% 100% ____% (not less than 40%)
5 100% 80% 100% ____% (not less than 60%)
6 100% 100% 100% ____% (not less than 80%)
_______________________________________________________________________________
<PAGE>
NOTE: If left blank, Option C, 100% vesting, will be deemed to be selected.
#713(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 6. NORMAL RETIREMENT AGE
The Normal Retirement Age under the Plan is age (not to exceed 65).
NOTE: If left blank, the Normal Retirement Age will be deemed to be age
59 1/2.
SECTION 7. HOURS REQUIRED Complete Parts A and B
Part A. _____ Hours of Service (no more than 1,000) shall be required to
constitute a Year of Vesting Service or a Year of Eligibility
Service.
Part B. _____ Hours of Service (no more than 500) must be exceeded to avoid
a Break in Vesting Service or a Break in Eligibility Service.
NOTE: The number of hours in Part A must be greater than the number
of hours in Part B.
SECTION 8. OTHER OPTIONS Answer "Yes" or "No" to each of the following
questions by checking the appropriate box. If a box is not checked
for a question, the answer will be deemed to be "No."
A. Loans: Will loans to Participants pursuant to Section 6.08 of the Plan
be permitted? [ ] Yes [ ] No
B. Participant Direction of Investments: Will Participants be permitted
to direct the investment of their Individual Accounts pursuant to Sec-
tion 5.14 of the Plan? [ ] Yes [ ] No
SECTION 9. JOINT AND SURVIVOR ANNUITY
The survivor annuity portion of the Joint and Survivor Annuity shall be
a percentage equal to ____% (at least 50% but no more than 100%) of the
amount paid to the Participant prior to his or her death.
SECTION 10. ADDITIONAL PLANS
An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Section 419(e) of the
Code, which provides post-retirement medical benefits allocated to
separate accounts for key employees as defined in Section 419A(d)(3) of
the Code or an individual medical account, as defined in Section 415(1)
(2) of the Code) in addition to this Plan (other than a paired
standardized profit sharing plan using Basic Plan Document No. 03) may
not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Code. If the Employer who adopts or maintains
<PAGE>
multiple plans wishes to obtain reliance that the Employer's plan(s)
are qualified, application for a determination letter should be made to
the appropriate Key District Director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with Basic Plan
Document No. 03.
SECTION 11. EMPLOYER SIGNATURE Important: Please read before signing
I am an authorized representative of the Employer named above and I
state the following:
1. I acknowledge that I have relied upon my own advisors regarding the
completion of this Adoption Agreement and the legal and tax
implications of adopting this Plan.
2. I understand that my failure to properly complete this Adoption
Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any
amendments made to the Plan and will notify me should it
discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the corres-
ponding Basic Plan Document.
Signature for Employer___________________________Date Signed__________
Type Name_____________________________________________________________
SECTION 12. TRUSTEE OR CUSTODIAN Check and complete only one option
Option A. [ ] Financial Organization as Trustee or Custodian
Check One: [ ] Custodian, [ ] Trustee without full trust powers, or
[ ] Trustee with full trust powers
NOTE: Custodian will be deemed selected if no box is checked.
Financial Organization____________________________________________________
Signature_________________________________________________________________
Type Name_________________________________________________________________
#713(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
Option B. [ ] Individual Trustee(s)
Signature ________________________________________________________________
Signature_________________________________________________________________
Type Name________________________ Type Name_______________________________
SECTION 13. PROTOTYPE SPONSOR
Name of Prototype
Sponsor_______________________________________________________________________
Address_______________________________________________________________________
Telephone Number______________________________________________________________
SECTION 14. LIMITATION ON ALLOCATIONS - More Than One Plan If you maintain or
ever maintained another qualified plan (other than a paired standardized
profit sharing plan using Basic Plan Document No. 03) in which any
Participant in this Plan is (or was) a Participant or could become a
Participant, you must complete this section. You must also complete this
section if you maintain a welfare benefit fund, as defined in Section
419(e) of the Code, or an individual medical account, as defined in Section
415(l)(2) of the Code, under which amounts are treated as annual additions
with respect to any Participant in this Plan.
Part A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a regional
prototype plan:
1. [ ] The provisions of Section 3.05(B)(1) through 3.05(B)(6) of
the Plan will apply as if the other plan were a master or
prototype plan.
2. [ ] Other method. (Provide the method under which the plans will
limit total annual additions to the maximum permissible
amount, and will properly reduce any excess amounts, in a
manner that precludes Employer discretion.)_________________
____________________________________________________________
Part B. If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide
below the language which will satisfy the 1.0 limitation of Section
415(e) of the Code. Such language must preclude Employer discretion.
(Complete)_________________________________________________________
<PAGE>
Part C. Compensation will mean all of each Participant's (Choose one):
Option 1: [ ] Section 3121(a) wages
Option 2: [ ] Section 3401(a) wages
Option 3: 415 safe-harbor compensation
NOTE: If no box is checked, Option 2 will be deemed to be selected.
Part D. The limitation year is the following 12-consecutive month period:
________________________________________________________________
#713(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
Standardized Profit Sharing Plan
ADOPTION AGREEMENT
- -----------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
Name of Employer:
- -------------------------------------------------------
Address_______________________________________________________________
City: _______________________State:______________________ Zip:______________
Telephone: _________________ Federal Tax Identification Number______________
Income Tax Year End __________________________
Type of Business (Check only one) [ ] Sole Proprietorship [ ] Partnership [ ]
Corporation [ ] Other (Specify)_______________
Nature of Business
(Describe)_______________________________________________
Plan Sequence No. __________ (Enter 001 if this is the first qualified plan
the Employer has ever maintained, enter 002 if it is the second, etc.)
For a plan which covers only the owner of the business, please provide the
following information about the owner:
Social Security No._________________ Date Business Established ____________
Date of Birth________________________ Marital Status_______________________
Home Address
____________________________________________________________________________
SECTION 2. EFFECTIVE DATES Check and complete Option A or B
Option A: [ ] This is the initial adoption of a profit sharing plan by
the Employer. The Effective Date of this Plan is ________, 19 .
<PAGE>
NOTE: The effective date is usually the first day of the Plan
Year in which this Adoption Agreement is signed.
Option B: [ ] This is an amendment and restatement of an existing
profit sharing plan (a Prior Plan). The Prior Plan was initially
effective on _____________. The Effective Date of this amendment
and restatement is ________________. NOTE: The effective date
is usually the first day of the Plan Year in which this Adoption
Agreement is signed.
SECTION 3. ELIGIBILITY REQUIREMENTS Complete Parts A, B and C
Part A. Years of Eligibility Service Requirement:
An Employee will be eligible to become a Participant in the Plan after
completing _______ (enter 0, 1 or 2) Years of Eligibility Service. NOTE:
If more than 1 year is selected, the immediate 100% vesting schedule of
Section 5, Option C will automatically apply. If left blank, the Years of
Eligibility Service required will be deemed to be 0.
Part B. Age Requirement:
An Employee will be eligible to become a Participant in the Plan after
attaining age ____________ (no more than 21). NOTE: If left blank, it
will be deemed there is no age requirement for eligibility.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
Part C. Class of Employees Eligible to Participate:
All Employees shall be eligible to become a Participant in the Plan,
except the following (if checked):
[ ] Those Employees included in a unit of Employees covered by the
terms of a collective bargaining agreement between Employee
representatives (the term "Employee representatives" does not
include any organization more than half of whose members are
Employees who are owners, officers or executives of the Employer)
and the Employer under which retirement benefits were the subject
of good faith bargaining unless the agreement provides that such
Employees are to be included in the Plan, and except those
Employees who are non-resident aliens pursuant to Section 410(b)
(3)(C) of the Code and who received no earned income from the
Employer which constitutes income from sources within the United
States.
SECTION 4. EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
Part A. Contribution Formula
For each Plan Year the Employer will contribute an amount to be
determined from year to year.
<PAGE>
Part B. Allocation Formula: (Check Option 1 or 2)
Option 1: [ ] Pro Rata Formula. Employer Contributions and Forfeitures
shall be allocated to the Individual Accounts of qualifying
Participants in the ratio that each qualifying Participant's
Compensation for the Plan Year bears to the total Compensation
of all qualifying Participants for the Plan Year.
Option 2: [ ] Integrated Formula: Employer Contributions and
Forfeitures shall be allocated as follows (Start with Step 3 if
this Plan is not a Top-Heavy Plan):
Step 1. Employer Contributions and Forfeitures shall first be
allocated pro rata to qualifying Participants in the
manner described in Section 4, Part B, Option 1. The
percent so allocated shall not exceed 3% of each
qualifying Participant's Compensation.
Step 2. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 1 shall be allocated to each
qualifying Participant's Individual Account in the ratio
that each qualifying Participant's Compensation for the
Plan Year in excess of the integration level bears to all
qualifying Participants' Compensation in excess of the
integration level, but not in excess of 3%.
Step 3. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 2 shall be allocated to each
qualifying Participant's Individual Account in the ratio
that the sum of each qualifying Participant's total
Compensation and Compensation in excess of the
integration level bears to the sum of all qualifying
Participants' total Compensation and Compensation in
excess of the integration level, but not in excess of the
profit sharing maximum disparity rate as described in
Section 3.01(B)(3) of the Plan.
Step 4. Any Employer Contributions and Forfeitures remaining
after the allocation in Step 3 shall be allocated pro rata
to qualifying Participants in the manner described in
Section 4, Part B, Option 1.
The integration level shall be (Choose one):
Option 1: [ ] The Taxable Wage Base
Option 2: [ ] $______ (a dollar amount less than the Taxable Wage Base)
Option 3: [ ] ______% of the Taxable Wage Base
<PAGE>
NOTE: If no box is checked, the integration level shall be the Taxable
Wage Base.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 5. VESTING
A Participant shall become Vested in his or her Individual Account
attributable to Employer Contributions and Forfeitures as follows
(Choose one):
_______________________________________________________________________________
YEARS OF VESTING SERVICE
Option A [ ] Option B [ ] Option C [ ] Option D [ ] (Complete if Chosen)
_______________________________________________________________________________
VESTED PERCENTAGE
1 0% 0% 100% ____%
2 0% 20% 100% ____%
3 100% 40% 100% ____% (not less than 20%)
4 100% 60% 100% ____% (not less than 40%)
5 100% 80% 100% ____% (not less than 60%)
6 100% 100% 100% ____% (not less than 80%)
_______________________________________________________________________________
NOTE: If left blank, Option C, 100% vesting, will be deemed to be selected.
SECTION 6. NORMAL RETIREMENT AGE
The Normal Retirement Age under the Plan is age _____ (not to exceed 65).
NOTE: If left blank, the Normal Retirement Age will be deemed to be age
59 1/2.
SECTION 7. HOURS REQUIRED Complete Parts A and B
Part A. ________ Hours of Service (no more than 1,000) shall be
required to constitute a Year of Vesting Service or a Year of
Eligibility Service.
Part B. ________ Hours of Service (no more than 500) must be exceeded to
avoid a Break in Vesting Service or a Break in Eligibility
Service.
NOTE: The number of hours in Part A must be greater than the
number of hours in Part B.
<PAGE>
SECTION 8. OTHER OPTIONS Answer "Yes" or "No" to each of the following
questions by checking the appropriate box. If a box is not
checked for a question, the answer will be deemed to be "No."
A. Loans: Will loans to Participants pursuant to Section 6.08 of the
Plan be permitted? [ ] Yes [ ] No
B. Participant Direction of Investments: Will Participants be permitted
to direct the investment of their Individual Accounts pursuant to
Section 5.14 of the Plan? [ ] Yes [ ] No
C. In-Service Withdrawals: Will Participants be permitted to make
withdrawals during service pursuant to Section 6.01(A)(3) of the
Plan? [ ] Yes [ ] No
NOTE: If the Plan is being adopted to amend and replace a Prior Plan
which permitted in-service withdrawals you must answer "Yes."
Check here if such withdrawals will be permitted only on account of
hardship. [ ]
SECTION 9. JOINT AND SURVIVOR ANNUITY
Part A. Retirement Equity Act Safe Harbor:
Will the safe harbor provisions of Section 6.05(F) of the Plan
apply (Choose only one Option)?
Option 1: [ ] Yes
Option 2: [ ] No
NOTE: You must select "No" if you are adopting this Plan as an
amendment and restatement of a Prior Plan that was subject to the
joint and survivor annuity requirements.
Part B. Survivor Annuity Percentage: (Complete only if your answer in
Section 9, Part A is "No.")
The survivor annuity portion of the Joint and Survivor Annuity
shall be a percentage equal to _____ (at least 50% but no more
than 100%) of the amount paid to the Participant prior to his or
her death.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 10. ADDITIONAL PLANS
An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Section 419(e) of the
Code, which provides post-retirement medical benefits allocated to
separate accounts for key employees as defined in Section 419A(d) (3)
of the Code or an individual medical account, as defined in Section
415(1)(2) of the Code) in addition to this Plan (other than a paired
standardized profit sharing plan using Basic Plan Document No. 03) may
<PAGE>
not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Code. If the Employer who adopts or maintains
multiple plans wishes to obtain reliance that the Employer's plan(s)
are qualified, application for a determination letter should be made
to the appropriate Key District Director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with Basic
Plan Document No. 03.
SECTION 11. EMPLOYER SIGNATURE Important: Please read before signing
I am an authorized representative of the Employer named above and I
state the following:
1. I acknowledge that I have relied upon my own advisors regarding
the completion of this Adoption Agreement and the legal and tax
implications of adopting this Plan.
2. I understand that my failure to properly complete this Adoption
Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any
amendments made to the Plan and will notify me should it
discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the
corresponding Basic Plan Document.
Signature for Employer_____________________________Date Signed_______________
Type Name____________________________________________________________________
SECTION 12. TRUSTEE OR CUSTODIAN Check and complete only one option
Option A. [ ] Financial Organization as Trustee or Custodian
Check One: [ ] Custodian, [ ] Trustee without full trust powers,
or [ ] Trustee with full trust powers
NOTE: Custodian will be deemed selected if no box is checked.
Financial Organization____________________________________________________
Signature_________________________________________________________________
<PAGE>
Type Name_________________________________________________________________
Option B. [ ] Individual Trustee(s)
Signature ________________________________________________________________
Signature_________________________________________________________________
Type Name _____________________________ Type Name_________________________
SECTION 13. PROTOTYPE SPONSOR
Name of Prototype Sponsor
Address___________________________________________________________________
Telephone Number__________________________________________________________
SECTION 14. LIMITATION ON ALLOCATIONS - More Than One Plan If you maintain or
ever maintained another qualified plan (other than a paired standardized
money purchase pension plan using Basic Plan Document No. 03) in which any
Participant in this Plan is (or was) a Participant or could become a
Participant, you must complete this section. You must also complete this
section if you maintain a welfare benefit fund, as defined in Section
419(e) of the Code, or an individual medical account, as defined in
Section 415(l)(2) of the Code, under which amounts are
treated as annual additions with respect to any Participant in this Plan.
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
Part A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan:
1. [ ] The provisions of Section 3.05(B)(1) through 3.05(B)(6) of
the Plan will apply as if the other plan were a master or
prototype plan.
2. [ ] Other method. (Provide the method under which the plans
will limit total annual additions to the maximum permissible
amount, and will properly reduce any excess amounts, in a
manner that precludes Employer discretion.) ________________
____________________________________________________________
Part B. If the Participant is or has ever been a participant in a
<PAGE>
defined benefit plan maintained by the Employer, the Employer will
provide below the language which will satisfy the 1.0 limitation of
Section 415(e) of the Code. Such language must preclude Employer
discretion. (Complete)____________________________________________
Part C. Compensation will mean all of each Participant's (Choose one):
Option 1: [ ] Section 3121(a) wages
Option 2: [ ] Section 3401(a) wages
Option 3: 415 safe-harbor compensation
NOTE: If no box is checked, Option 2 will be deemed to be selected.
Part D. The limitation year is the following 12-consecutive month period:
____________________________________________________________________
#705(12/90)L90 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
Simplified Standardized Money Purchase Pension Plan
ADOPTION AGREEMENT
- ---------------------------------------------------------------------
EMPLOYER INFORMATION
Name of
Employer_____________________________Telephone________________________
Business
Address______________________________________________________________
City__________________________State________________________Zip_________
Federal Tax Identification Number_________________Income Tax Year
End_________
Type of Business (Check only one)
[ ] Sole Proprietorship [ ] Partnership [ ] Corporation [ ] Other
(Specify)__________________________________________
Plan Sequence No._________ Enter 001 if this is the first qualified plan the
Employer has ever maintained, enter 002 if it is the second, etc. For a Plan
which covers only the owner of the business, please provide the following
information about the owner:
Social Security No._________________Date Business
Established_________________
Date of Birth_______________________Marital
Status____________________________
Home Address_______________________________________________________________
EFFECTIVE DATES Check and complete Option A or B
Option A. [ ] This is the initial adoption of a money purchase pension plan
by the Employer.
The Effective Date of this Plan is ______________________, 19____.
NOTE: The effective date is usually the first day of the Plan Year
in which this Adoption Agreement is signed.
Option B. [ ] This is an amendment and restatement of an existing
<PAGE>
money purchase pension plan (a prior plan) NOTE: The effective
date is usually the first day of the Plan Year in which this
Adoption Agreement is signed.
The Prior Plan was initially effective on _________________, 19_____.
The Effective Date of this amendment and restatement is _____, 19___.
PLAN PROVISIONS Complete Parts A through E
Part A. Service Requirement: An Employee will be eligible to become a Par-
ticipant in the Plan after completing _____ (enter 0, 1 or 2) Years
of Eligibility Service. NOTE: If left blank, the Years of Eligibil-
ity Service required will be deemed to be 0.
Part B. Age Requirement: An Employee will be eligible to become a Partici-
pant in the Plan after attaining age _____ (no more than 21).
NOTE: If left blank, it will be deemed there is no age requirement
for eligibility.
Part C. 100% Vesting: A Participant shall be fully Vested at all times in
his or her Individual Account.
Part D. Normal Retirement Age: The Normal Retirement Age under the Plan is
age 59 1/2.
Part E. Contribution Formula: For each Plan Year the Employer will
contribute for each qualifying Participant an amount equal to ______%
(not to exceed 25%) of the qualifying Participant's Compensation for
the Plan Year.
#726(12/90) 1990 Universal Pensions, Inc., Brainerd, MN 56401
EMPLOYER SIGNATURE Important: Please read before signing
I am an authorized representative of the Employer named above and I state the
following:
1. I acknowledge that I have relied upon my own advisors regarding the
completion of this Adoption Agreement and the legal and tax implications of
adopting this Plan.
2. I understand that my failure to properly complete this Adoption Agreement
may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any amendments made
to the Plan and will notify me should it discontinue or abandon the Plan.
<PAGE>
4. I have received a copy of this Adoption Agreement and the corresponding
Basic Plan Document.
Signature for Employer_____________________Date
Signed_________________________
Type Name______________________________________________________
TRUSTEE OR CUSTODIAN
[ ] Check this box only if a financial organization is named as Trustee and
it has full trust powers.
Trustee or Custodian_______________________________________________
Signature________________________________________________________
Type Name______________________________________________________
PROTOTYPE SPONSOR
Name of Prototype Sponsor_________________________________________
Address____________________________
Telephone Number______________________
ADDITIONAL PLANS
An Employer who has ever maintained or who later adopts any plan (including a
welfare benefit fund, as defined in Section 419(e) of the Code, which provides
post-retirement medical benefits allocated to separate accounts for key
employees as defined in Section 419A(d)(3) of the Code or an individual medical
account, as defined in Section 415(l)(2) of the Code) in addition to this Plan
(other than a paired standardized profit sharing plan using Basic Plan Document
No. 03) may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under Section
401 of the Code. If the Employer who adopts or maintains multiple plans wishes
to obtain reliance that the Employer's plan(s) are qualified, application for a
determination letter should be made to the appropriate Key District Director of
Internal Revenue. This Adoption agreement may be used only in conjunction with
Basic Plan Document No. 03.
LIMITATION ON ALLOCATIONS More Than One Plan
If you maintain or ever maintained another qualified plan (other than a paired
standardized profit sharing plan using Basic Plan Document No. 03) in which any
Participant in this Plan is (or was) a participant or could become a
participant, you must complete this section. You must also complete this section
if you maintain a welfare benefit fund, as defined in Section 419(e) of the
code, or an individual medical account, as defined in Section 415(l)(2) of the
Code, under which amounts are treated as annual additions with respect to any
<PAGE>
Participant in this Plan.
#726(12/90) 1990 Universal Pensions, Inc., Brainerd, MN 56401
Part A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or prototype
plan:
1. [ ] The provisions of Sections 3.05(B)(1) through 3.05(b)(6) of the
Plan will apply as if the other plan were a master or prototype
plan.
2. [ ] Other method. (Provide the method under which the plans will lim-
it total annual additions to the maximum permissible amount, and
will properly reduce any excess amounts, in a manner that pre-
cludes Employer discretion.)____________________________________
Part B. If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide below the
language which will satisfy the 1.0 limitation of Section 415(e) of the Code.
Such language must preclude Employer discretion.
Part C. The limitation year is the following 12-consecutive month period:_____
- ---------------------------------------
#726(12/90) 1990 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
403(b) Tax-Sheltered
Custodial Account agreement
This Agreement allows you to establish a tax-sheltered custodial account
authorized under Section 403(b)(7) of the Internal Revenue Code. By electing to
reduce your Compensation and have your Employer/Payor contribute into your
tax-sheltered custodial Account, you will not be taxed on the amounts
contributed or earnings attributable to such amounts until the funds are
withdrawn from your Account.
SECTION ONE: DEFINITIONS
The following words and phrases when used in this Agreement with initial capital
letters shall have the meanings set forth below.
1.01 Account - Means the tax-sheltered custodial Account established pursuant to
this Agreement for the benefit of the Employee/Participant and when the
context so implies refers to the assets, if any, then held by the Custodian
hereunder.
1.02 Agreement - Means this 403(b)(7) Tax-Sheltered Custodial Account Agreement.
1.03 Beneficiary - Means the person or persons designated by the
Employee/Participant in accordance with Section 4.04 to receive any
distributions from the Account upon the Employee/Participant's death.
1.04 Code - Means the Internal Revenue Code of 1986, as amended from time to
time.
1.05 Custodian - Means Investors Bank and Trust Company or any successor thereto
which qualifies to serve as Custodian in the manner prescribed by Section
401(f)(2) of the Code.
1.06 Employer/ Payor - Means the entity so designated on the 403(b) Enrollment
Application. The Employer/Payor must be an entity described in Section
501(c)(3) of the Code which is exempt from tax under Section 501(a) of the
Code, an educational organization described in Section 170(b)(1)(A)(ii) of
the Code or any other entity eligible under Section 403(b) of the Code to
make contributions to tax-sheltered custodial accounts.
1.07 Employee/Participant - Means any person who is regularly employed by the
Employer/Payor who elects to participate in this Agreement by completing
and signing a Salary Deferral Agreement or such other form as may be
acceptable to the Employer/Payor.
1.08 Salary Deferral Agreement - Means the Salary Reduction Agreement signed by
the Employee/Participant and delivered to the Employer/Payor whereby the
Employee/Participant authorizes a reduction of salary to be contributed by
the Employer/Payor to the Employee/Participant's Account established
hereunder.
1.09 Sponsor - Means Investors Bank and Trust Company or any successor thereto.
SECTION TWO: CONTRIBUTIONS
2.01 Salary Deferral Agreement - The Custodian may accept contributions from the
Employer/Payor on behalf of a Employee/Participant made pursuant to a
Salary Deferral Agreement. A Employee/Participant shall designate the
amount or percentage of such Employee/Participant's compensation which is
to be deferred in the Salary Deferral Agreement. Such amount or percentage
shall be effective until otherwise modified in writing by the
Employee/Participant. A Employee/Participant may amend or terminate his or
her Salary Deferral Agreement at such times as may be permitted by the
Employer/Payor, however the Employee/Participant may not change his or her
election more than once per tax year.
2.02 Maximum Contribution Limits - In no event shall the contributions to the
Account for a tax year on behalf of a Employee/Participant exceed the
maximum allowable deferrals permitted under current law or regulation.
a. The maximum salary deferral made during a tax year on behalf of a
Employee/Participant, when aggregated with other salary deferral
amounts made through the Employer/Payor (or controlled group of
Employers/Payors under IRC 414(b), (c), (m) or (o)), shall not exceed
the lesser of the maximum permitted amount for a Employee/Participant
under Sections 403(b)(2) and 415(c) of the Code for that year.
b. The maximum of all salary deferrals made during the
Employee/Participant's tax year shall not exceed the limitations set
forth in Section 402(g) of the Code.
c. The maximum salary deferrals may be based on a valid election by the
Employee/Participant to use available special increase options.
2.03 Transfer to Custodial Account - The Employee/Participant may transfer (or
arrange for the transfer of) assets from another annuity contract or
custodial account described in Section 403(b) of the Code to this Account.
The transfer shall be accepted by the Custodian if the Employee/Participant
certifies the transaction satisfies all current requirements for such a
transaction. The Custodian may request the Employee/Participant to provide
such information it deems necessary prior to accepting the transfer. The
Custodian shall not be responsible for determining whether any transfer is
proper.
SECTION THREE: INVESTMENT OF CONTRIBUTIONS
3.01 Shares of Regulated Investment Companies - All Contributions by a
Employee/Participant to his or her Account shall be invested by the
Custodian pursuant to written instructions concerning investment delivered
by the Employee/Participant to the Custodian prior to or at the time a
contribution is made to the Account. The Custodian shall, within a
reasonable time following receipt of written instructions from the
Employee/Participant, invest such contributions in full or fractional
shares of certain regulated investment companies.
For purposes of this Agreement, "regulated investment companies" means any
regulated investment company or companies within the meaning of Section
851(a) of the Code or any series issued by such company which has an
investment advisory agreement and/or a distribution agreement with the
sponsor, or any of its affiliated or associated companies and which has
agreed to offer shares for use as funding vehicles for the Account.
If the investment instructions provided by the Employee/Participant to the
Custodian are not received by the Custodian or are, in the opinion of the
Custodian, ambiguous, the Custodian may hold or return all or a portion of
the contribution uninvested without liability for loss of income or
appreciation, without liability for interest, dividends or any other gain
whatsoever, pending receipt of proper instructions or clarification. The
Custodian shall advise the Employee/Participant of the form and manner in
which investment instructions must be given.
3.02 Employee/Participant Change of Investment - Subject to rules and procedures
adopted by the Custodian, a Employee/Participant may, at his or her
election, direct the Custodian to redeem any or all regulated investment
company shares held by the Custodian pursuant to this Agreement and to
reinvest the proceeds in such other regulated investment company shares as
directed. Transactions of this character must conform with the provisions
of the current prospectus for the regulated investment company shares
subject to purchase.
3.03 Dividends and Distributions - Dividends and other distributions received by
the Custodian on shares of any regulated investment company held in the
Account shall be reinvested in additional shares of the regulated
investment company from which the dividend or other distribution
originates, unless the Employee/Participant directs the Custodian to act
otherwise. Should a Employee/Participant have the choice of receiving a
distribution of shares from a regulated investment company in additional
shares, cash or other property, the Custodian shall nonetheless elect to
receive such distribution in additional shares.
3.04 Registered Owner, Voting Rights - All regulated investment company shares
acquired by the Custodian pursuant to this Agreement shall be registered in
the name of the Custodian or its nominee. The Custodian shall deliver or
cause to be executed and delivered to the Employee/Participant all notices,
prospectuses, financial statements, proxies and related proxy information.
The Custodian shall vote the shares in accordance with instructions from
the Employee/Participant.
3.05 Sales Charges - All sales charges, transfer fees, investment fees or other
administrative charges associated with the purchase of transfer of or sale
of regulated investment company shares shall be charged to the Account of
the Employee/Participant.
SECTION FOUR: DISTRIBUTIONS
4.01 Limitations on Distributions - Subject to the limitations described in this
Agreement, a Employee/Participant may request a distribution from the
Account. A Employee/Participant's Account may not be distributed prior to
the Employee/Participant's
(a) attainment of age 59 1/2,
(b) incurring a disability within the meaning of Section 72(m)(7) of the
Code, (c) death, (d) encountering a financial hardship, or (e) separation
from service.
No distribution shall be made to a Employee/Participant (or Beneficiary, if
applicable) until he or she completes such written forms and provides such
additional information and documentation as the Custodian, in its sole
discretion, may deem necessary.
If the value of the Account immediately preceding the 1989 Plan Year is
ascertainable, such pre-1989 amounts are not subject to the limitations of
Section 4.01.
4.02 Financial Hardship - For purposes of this Agreement, "financial hardship"
shall include a financial need incurred by the Employee/Participant due to
illness, temporary disability, purchase of a home, or educational expenses
of the Employee/Participant or any member of his or her immediate family,
or any other immediate and heavy financial need of the
Employee/Participant; provided, however, no financial hardship shall exceed
or otherwise not conform to the requirements of Section 403(b)(7) of the
Code. No distributions on account of financial hardship shall exceed the
amount determined to be required to meet the immediate financial need
created by the hardship which cannot be otherwise reasonably accommodated
from other resources of the Employee/Participant. Any distribution made on
account of a Employee/Participant's financial hardship shall be made to
such Employee/Participant in a single sum payment in cash pursuant to
written instructions in a form acceptable to the Custodian, and delivered
to the Custodian as may be provided in Section 403(b)(7) of the Code.
Hardship distributions may consist only of the amounts contributed pursuant
to a Employee/Participant's Salary Deferral Agreement.
4.03 Form of Distribution - Distributions for other than a financial hardship
shall be made in any one or more or any combination of the following forms:
(a) single lump sum payment;
(b) monthly, quarterly, semiannual or annual payments over a period
elected by the Employee/Participant not to extend beyond the
Employee/Participant's life expectancy; or
(c) in monthly, quarterly, semiannual or annual payments over a period
selected by the Employee/Participant not to exceed the joint life and
last survivor expectancy of the Employee/Participant and his or her
Beneficiary.
At any time prior to commencement of distribution, the Employee/Participant
may make or change the foregoing distribution forms by delivering a written
notice to the Custodian.
Notwithstanding any other provision to the contrary, the Custodian may make
an immediate single sum distribution to the Employee/Participant or
Beneficiary (if applicable) if the value of the Account does not exceed
$3,500.
At the discretion of the Custodian, other forms of distribution, if allowed
under applicable provisions of the Code, may be allowed.
In the event a Employee/Participant does not elect any of the methods of
distribution described above on or before such Employee/Participant's 70
1/2 birthday, the Employee/Participant shall be deemed to have elected
distribution made on his or her 70 1/2 birthday in the form of periodic
payments over the single life expectancy of the Employee/Participant using
the declining years method of determining the Employee/Participant's life
expectancy multiple; provided, however, the Custodian shall have no
liability to the Employee/Participant for any tax penalty or other damages
which may result from any inadvertent failure by the Custodian to make such
a distribution.
Notwithstanding anything in this Agreement to the contrary distributions
shall conform to the minimum distribution requirements of Section 401(a)(9)
of the Code and the regulations thereunder, including Treasury Regulations
Sections 1.401(a)(9)-2 and 1.403(b)-2.
If the value of the Account prior to 1987 is determinable, the pre-1987
amount need not be subject to a required minimum distribution until the
calendar year the Employee/Participant attains age 75, or such later date
as may be allowed by law or regulation.
4.04 Designation of Beneficiary - Each Employee/Participant may designate, upon
a form provided by the Custodian, any person or persons (including an
entity other than a natural person) as primary or contingent Beneficiary to
receive all or a specified portion of the Employee/Participant's Account in
the event of the Employee/Participant's death. A Employee/Participant may
change or revoke such Beneficiary designation from time to time by
completing and delivering the proper form to the Custodian.
4.05 Distribution Upon Death of Employee/Participant - If a Employee/Participant
dies before his or her entire interest in the Account is distributed to him
or her, or if distribution has commenced to the Employee/Participant and
his or her surviving spouse and such surviving spouse dies before the
entire interest is distributed to such spouse, the entire interest or
remaining undistributed balance of such interest shall be distributed in
the form of a single sum cash payment, or other form of payment as
permitted under current applicable code or regulations, to the Beneficiary
or Beneficiaries, if any, designated by the Employee/Participant or his or
her spouse as the case may be. In the event no such Beneficiary has been
designated, the Employee/Participant's estate shall receive the balance of
the Account.
4.06 Distribution of Excess Amounts - The Custodian may make distribution of any
excess to the Employee/Participant.
4.07 Eligible Rollover Distributions - At the election of a Employee/Participant
(or the surviving spouse Beneficiary of a deceased Employee/Participant)
the Custodian shall pay any eligible rollover distribution to an individual
retirement plan described in Section 408 of the Code or another annuity
contract or custodial account described in Section 403(b) of the Code in a
direct rollover for that Employee/Participant (or beneficiary). The term
"eligible rollover distribution" shall have the meaning set forth in
Sections 402(c)(2) and (4) of the Code and Q&A-3 through Q&A-8 of Treasury
Regulations Section 1.402(c)-2T.
The Employee/Participant (or surviving spouse beneficiary) who desires a
direct rollover must specify the individual retirement plan or 403(b) plan
to which the eligible rollover distribution is to be paid and satisfy such
other reasonable requirements as the Custodian may impose.
SECTION FIVE: ADMINISTRATION
5.01 Duties of the Custodian - The Custodian shall have the following
obligations and responsibilities:
(a) To hold contributions to the Account it receives, invest such
contributions pursuant to the Employee/Participant's instructions and
distribute Account assets pursuant to this Agreement;
(b) To register any property held by the Custodian in its own name, or in
nominal bearer form, that will pass delivery;
(c) To maintain records of all relevant information as may be necessary
for the proper administration of the Account;
(d) To allocate earnings, if any, realized from such contributions and
such other data information as may be necessary;
(e) To file such returns, reports and other information with the Internal
Revenue Service and other government agencies as may be required of
the Custodian under applicable laws and regulations.
5.02 Reports - As soon as practicable after December 31st of each calendar year,
and whenever required by regulations under the Code, the Custodian shall
deliver to the Employee/Participant a written report of the Custodian's
transactions relating to the Account during the period from the last
previous accounting and shall file such other reports as may be required
under the Code.
On receipt of the Custodian's report referenced in the preceding paragraph
a Employee/Participant shall have a period of 60 days following receipt to
deliver a written objection to the Custodian concerning information
provided in the report. In the event the Employee/Participant neglects to
file such written objection, the report shall be deemed approved and in
such case, the Custodian shall be forever released and discharged with
respect to all matters and things included herein.
5.03 Custodian Not Responsible for Certain Actions - Notwithstanding the
foregoing, the Custodian shall have no responsibility for determining the
amount of or collecting contributions to the Account made pursuant to this
Agreement; determining the amount, character or timing of any distribution
to a Employee/Participant under this Agreement; determining a
Employee/Participant's maximum contribution amount; maintaining or
defending any legal action in connection with this Agreement, unless agreed
upon by the Custodian, Employer/Payor and Employee/Participant.
5.04 Indemnification of Custodian - The Employer/Payor and Employee/Participant
shall, to the extent permitted under law, indemnify and hold the Custodian
harmless from and against any liability which may occur in the
administration of the Account unless arising from the Custodian's breach of
its responsibilities under this Agreement. By execution of this Agreement,
it is the specific intention of the parties that no fiduciary duties be
conferred upon the Custodian nor shall any be implied from this Agreement
or the acts of this Custodian.
5.05 Custodian's Fees and Expenses - The Custodian may charge fees in connection
with the Account. In addition, the Custodian has the right to be reimbursed
for any taxes or expenses incurred by or on behalf of the Account. All such
fees, taxes or expenses may be charged against the Account or, at the
option of the Custodian, may be paid directly by the Employee/Participant
or Employer/Payor. The Custodian reserves the right to change its fee
schedule, or add new fees, at any time upon 30 days prior written notice to
the Employee/Participant.
SECTION SIX: AMENDMENT AND TERMINATION
6.01 Amendment of Agreement - This Agreement may be amended by an agreement in
writing between the Employee/Participant and Custodian. In addition, by
execution of this Agreement, the Employer/Payor and the
Employee/Participant delegate to the Custodian all authority to amend this
Agreement by written notification from the Custodian to the
Employee/Participant as to any term hereof, at any time (including
retroactively) except that no amendment shall be made which may operate to
disqualify the Account under Section 403(b)(7) of the Code. The effective
date of any amendment hereto shall be the date specified in said amendment
or 30 days subsequent to the time notification of amendment is delivered by
the Custodian to the Employee/Participant.
6.02 Termination by Employee/Participant - The Employee/Participant reserves the
right to terminate further contributions to his or her Account pursuant to
this Agreement by executing and delivering to the Custodian an executed
copy of an agreement terminating said contributions. The
Employee/Participant further reserves the right to terminate his or her
adoption of this Agreement in the event that he or she shall be unable to
secure a favorable ruling from the Internal Revenue Service with respect to
the Agreement. In the event of such termination, the Custodian shall
distribute the Account to the Employee/Participant.
6.03 Resignation or Removal of Custodian - The Custodian may resign as Custodian
of any Employee/Participant's Account upon 30 days written notice to the
Employee/Participant. The Employee/Participant may remove a Custodian upon
30 days prior written notice. Upon such resignation or removal, a successor
Custodian shall be named. Upon designation of a successor Custodian, the
Custodian shall transfer the assets held pursuant to the terms of this
Agreement to the successor Custodian. The Custodian may retain a portion of
the assets to the extent necessary to cover reasonable administrative fees
and expenses.
Where the Custodian is serving as a nonbank custodian pursuant to Section
1.401-12(n) of the Treasury Regulations, the Employee/Participant will
appoint a successor custodian upon notification by the Commissioner of
Internal Revenue that such substitution is required because the Custodian
has failed to comply with the requirements of Section 1.401-12(n) or is not
keeping such records or making such returns or rendering such statements as
are required by forms or regulations.
SECTION SEVEN: MISCELLANEOUS
7.01 Applicable Law - This Agreement is established with the intention that it
qualify as a tax-sheltered custodial account under Section 403(b)(7) of the
Code and that contributions to the same be treated accordingly. To the
extent not governed by Federal law, this Agreement shall be construed,
administered and enforced in accordance with the laws of the Custodian's
state of incorporation.
If any provision of this Agreement shall for any reason be deemed invalid
or unenforceable, the remaining provisions shall, nevertheless, continue in
full force and effect and shall not be invalidated.
7.02 Nonalienation - The assets of a Employee/Participant in his or her Account
shall be nonforfeitable at all times and shall not be subject to
alienation, assignment, trustee process, garnishment, attachment, execution
or levy of any kind, nor shall such assets be subject to the claims of the
Employee/Participant's creditors.
7.03 Terms of Employment - Neither the fact of the implementation of this
Agreement nor the fact that a common law employee has become a
Employee/Participant, shall give to such employee any right to continued
employment; nor shall either fact limit the right of the Employer/Payor to
discharge or to deal otherwise with an employee without regard to the
effect such treatment may have upon the employee's rights as a
Employee/Participant under this Agreement.
7.04 Notices - Any notice or other communication which the Custodian may give to
a Employee/Participant shall be deemed given when sent by first class mail
to the Employee/Participant's last known address on the Custodian's
records. Any notice or other communication to the Custodian shall not
become effective until the Custodian actually receives it.
7.05 Loans - If so permitted by the Custodian, the Employee/Participant may
borrow a portion of his or her Account pursuant to the applicable rules
under the Code. The Custodian may charge against the Account, any fees and
expenses incurred in connection with loan processing and/or recordkeeping.
The Employee/Participant acknowledges that failure to repay a loan in the
prescribed manner may result in the immediate taxability of the loan
amount.
7.06 Employer/Payor Contributions - The Employer/Payor may make contributions to
the Account on behalf of the Employee/Participant. The Custodian is not
obligated to operate the Account in accordance with any plan executed by
the Employer/Payor unless the Custodian so agrees and the Employer/Payor
notifies the Custodian and provides to the Custodian a copy of the Plan
Document.
7.07 Matters Relating to Divorce - Upon receipt of a domestic relations order,
the Custodian may retain an independent third party to determine whether
the order is a Qualified Domestic Relations Order pursuant to Section
414(p) of the Code. The Custodian may charge to the Account any and all
expenses associated with the determination.
SEP BASIC PLAN DOCUMENT
SECTION ONE: ESTABLISHMENT AND PURPOSE OF PLAN
1.01 PURPOSE The purpose of this Plan is to provide, in accordance with its
provisions, a Simplified Employee Pension Plan providing benefits upon
retirement for the individuals who are eligible to participate hereunder.
1.02 INTENT TO QUALIFY It is the intent of the Employer that this Plan shall be
for the exclusive benefit of its Employees and shall qualify for approval
under Section 408(k) of the Internal Revenue Code, as amended from time to
time (or corresponding provisions of any subsequent Federal law at that
time in effect). In case of any ambiguity, it shall be interpreted to
accomplish such result. It is further intended that it comply with the
provisions of the Employee Retirement Income Security Act of 1974 (ERISA)
as amended from time to time.
1.03 WHO MAY ADOPT An employer who has ever maintained a defined benefit plan
which is now terminated may not participate in this prototype Simplified
Employee Pension Plan. If, subsequent to adopting this Plan, any defined
benefit plan of the Employer terminates, the employer will no longer
participate in this prototype plan and will be considered to have an
individually designed plan.
1.04 USE WITH IRA This prototype Simplified Employee Pension Plan must be used
with an Internal Revenue Service model IRA (Form 5305 or Form 5305-A) or an
Internal Revenue Service approved master or prototype IRA.
1.05 FOR MORE INFORMATION To obtain more information concerning the rules
governing this Plan, contact the Prototype Sponsor listed in Section 5 of
the Adoption Agreement.
SECTION TWO: DEFINITIONS
2.01 ADOPTION AGREEMENT Means the document executed by the Employer through
which it adopts the Plan and thereby agrees to be bound by all terms and
conditions of the Plan.
2.02 CODE Means the Internal Revenue Code of 1986 as amended.
2.03 COMPENSATION Compensation for the purposes of the $300 limit of Section
408(k)(2)(C) of the Code shall be defined as Section 414(q)(7)
Compensation.
For all other purposes, Compensation shall mean all of a Participant's
wages as defined in Section 3401(a) of the Code for the purposes of income
tax withholding at the source (that is, W-2 wages) but determined without
regard to any rules that limit the remuneration included in wages based on
the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Section 3401(a)(2) of the Code).
For any Self-Employed Individual covered under the Plan, Compensation will
mean Earned Income.
Compensation shall include only that Compensation which is actually paid to
the Participant during the Plan Year.
Compensation shall include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not includible in the
gross income of the Employee under Sections 125, 402(a)(8), 402(h) or
403(b) of the Code.
The annual Compensation of each Participant taken into account under the
Plan for any year shall not exceed $200,000. This limitation shall be
adjusted by the Secretary at the same time and in the same manner as under
Section 415(d) of the Code, except the dollar increase in effect on January
1 of any calendar year is effective for years beginning in such calendar
year and the first adjustment to the $200,000 limitation is effected on
January 1, 1990. If a Plan determines Compensation on a period of time that
contains fewer than 12 calendar months, then the annual Compensation limit
is an amount equal to the annual Compensation limit for the calendar year
in which the compensation period begins multiplied by the ratio obtained by
dividing the number of full months in the period by 12.
In determining the Compensation of a Participant the rules of Section
414(q)(6) of the Code shall apply, except in applying such rules, the term
"family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the
close of the year. If, as a result of the application of such rules the
adjusted $200,000 limitation is exceeded, then (except for purposes of
determining the portion of Compensation up to the integration level if this
Plan provides for permitted disparity), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this section prior to the application of
this limitation.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the OBRA
'93 annual Compensation limit. The OBRA '93 annual Compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with Section 401(a)(17)(B) of the Internal Revenue
Code. The cost-of-living adjustment in effect for a calendar year applies
to any period, not exceeding 12 months, over which Compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual
Compensation limit will be multiplied by a fraction, the numerator of which
is the number of months in the determination period, and the denominator of
which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA '93 annual Compensation limit set forth in this provision.
2.04 EARNED INCOME Means the net earnings from self-employment in the trade or
business with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor. Net
earnings will be determined without regard to items not included in gross
income and the deductions allocable to such items. Net earnings are reduced
by contributions by the Employer to a qualified plan or to a Simplified
Employee Pension Plan to the extent deductible under Section 404 of the
Code.
Net earnings shall be determined with regard to the deduction allowed to
the Employer by Section 164(f) of the Code for taxable years beginning
after December 31, 1989.
2.05 EFFECTIVE DATE Means the date the Plan becomes effective as indicated in
the Adoption Agreement.
2.06 EMPLOYEE Means any person who is a natural person employed by the Employer
as a common law employee and if the Employer is a sole proprietorship or
partnership, any Self-Employed Individual who performs services with
respect to the trade or business of the Employer. Further, any employee of
any other employer required to be aggregated under Section 414(b), (c),
(m), or (o) of the Code and any leased employee required to be treated as
an employee of the Employer under Section 414(n) of the Code shall also be
considered an Employee.
2.07 EMPLOYER Means any corporation, partnership or sole proprietorship named in
the Adoption Agreement and any successor who by merger, consolidation,
purchase or otherwise assumes the obligations of the Plan. A partnership is
considered to be the Employer of each of the partners and a sole
proprietorship is considered to be the Employer of the sole proprietor.
2.08 EMPLOYER CONTRIBUTION Means the amount contributed by the Employer to this
Plan.
2.09 IRA Means the designated Individual Retirement Account or Individual
Retirement Annuity, which satisfies the requirements of Section 408 of the
Code, and which is maintained by a Participant with the Prototype Sponsor
(unless the Prototype Sponsor allows Participants to maintain their IRAs
with other organizations).
2.10 PARTICIPANT Means any Employee who has met the participation requirements
of Section 3.01 and who is or may become eligible to receive an Employer
Contribution.
2.11 PLAN Means this plan document plus the corresponding Adoption Agreement as
completed and signed by the Employer.
2.12 PLAN YEAR Means the calendar year or the 12 consecutive month period whic
coincides with the Employer's taxable year.
2.13 PRIOR PLAN Means a plan which was amended or replaced by adoption of this
plan document, as indicated in the Adoption Agreement.
2.14 PROTOTYPE SPONSOR Means the entity specified in the Adoption Agreement
which sponsors this prototype Plan.
2.15 SELF-EMPLOYED INDIVIDUAL Means an individual who has Earned Income for a
Plan Year from the trade or business for which the Plan is established;
also, an individual who would have had Earned Income but for the fact that
the trade or business had no net profits for the Plan Year.
2.16 SERVICE Means the performance of duties by an Employee for the Employer,
for any period of time, however short, for which the Employee is paid or
entitled to payment. When the Employer maintains the Plan of a predecessor
employer, an Employee's Service will include his or her service for such
predecessor employer.
2.17 TAXABLE WAGE BASE Means the maximum amount of earnings which may be
considered wages for a year under Section 3121(a)(1) of the Code in effect
as of the beginning of the Plan Year.
SECTION THREE: ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBILITY REQUIREMENTS Except for those Employees excluded pursuant to
Section 3.02, each Employee of the Employer who fulfills the eligibility
requirements specified in the Adoption Agreement shall, as a condition for
further employment, become a Participant. Each Participant must establish
an IRA with the Prototype Sponsor to which Employer Contributions under
this Plan will be made.
3.02 EXCLUSION OF CERTAIN EMPLOYEES If the Employer has so indicated in the
Adoption Agreement, the
following Employees shall not be eligible to become a participant in the
Plan: (a) Those Employees included in a unit of Employees covered by the
terms of a collective bargaining agreement, provided retirement benefits
were the subject of good faith bargaining; and (b) those Employees who are
nonresident aliens, who have received no earned income from the Employer
which constitutes earned income from sources within the United States.
3.03 ADMITTANCE AS A PARTICIPANT
A. Prior Plan If this Plan is an amendment or continuation of a Prior
Plan, each Employee of the Employer who immediately before the
Effective Date was a participant in said Prior Plan shall be a
Participant in this Plan as of said date.
B. Notification of Eligibility The Employer shall notify each Employee
who becomes a Participant of his or her status as a Participant in the
Plan and of his or her duty to establish an IRA with the Prototype
Sponsor to which Employer Contributions may be made.
C. Establishment of an IRA If a Participant fails to establish an IRA for
whatever reason, the Employer may execute any necessary documents to
establish an IRA on behalf of the Participant.
3.04 DETERMINATIONS UNDER THIS SECTION The Employer shall determine the
eligibility of each Employee to be a Participant. This determination shall
be conclusive and binding upon all persons except as otherwise provided
herein or by law.
3.05 LIMITATION RESPECTING EMPLOYMENT Neither the fact of the establishment of
the Plan nor the fact that a common-law employee has become a Participant
shall give to that common-law employee any right to continued employment;
nor shall either fact limit the right of the Employer to discharge or to
deal otherwise with a common-law employee without regard to the effect such
treatment may have upon the Employee's rights under the Plan.
SECTION FOUR: CONTRIBUTIONS AND ALLOCATIONS
4.01 EMPLOYER CONTRIBUTIONS
A. Allocation Formula - Employer Contributions shall be allocated in
accordance with the allocation formula selected in the Adoption
Agreement. Each Employee who has satisfied the eligibility
requirements pursuant to Section 3.01 (thereby becoming a Participant)
will share in such allocation.
If the Employer has selected the pro rata allocation formula in the
Adoption Agreement, then Employer Contributions for each Plan Year
shall be allocated to the IRA of each Participant in the same
proportion as such Participant's Compensation (not in excess of
$200,000, indexed for cost of living increases in accordance with
Section 408(k)(8) of the Code) for the Plan Year bears to the total
Compensation of all Participants for such year.
Employer Contributions made for a Plan Year on behalf of any
Participant shall not exceed the lesser of 15% of Compensation or the
limitation in effect under Code Section 415(c)(1)(A) (indexed for cost
of living increases in accordance with Code Section 415(d)).
B. Integrated Allocation Formula - If the Employer has selected the
integrated allocation formula in the Adoption Agreement, then Employer
Contributions for the Plan Year will be allocated to Participants' IRA
as follows:
Step 1: Employer Contributions will be allocated to each
Participant's IRA in the ratio that each Participant's total
Compensation bears to all Participants' total Compensation,
but not in excess of 3% of each Participant's Compensation.
Step 2: Any Employer Contributions remaining after the allocation
in Step 1 will be allocated to each Participant's IRA in the
ratio that each Participant's Compensation for the Plan Year
in excess of the integration level bears to the Compensation
of all Participants in excess of the integration level, but
not in excess of 3%.
Step 3: Any Employer Contributions remaining after the allocation
in Step 2 will be allocated to each Participant's IRA in the
ratio that the sum of each Participant's total Compensation
and Compensation in excess of the integration level bears to
the sum of all Participants' total Compensation and
Compensation in excess of the integration level, but not in
excess of the maximum disparity rate described in the table
below.
Step 4: Any Employer Contributions remaining after the allocation
in Step 3 will be allocated to each Participant's IRA in the
ratio that each Participant's total Compensation for the
Plan Year bears to all Participants' total Compensation for
that Plan Year.
The integration level shall be equal to the Taxable Wage Base or such
lesser amount elected by the Employer in the Adoption Agreement.
Integration Level Maximum Disparity Rate
Taxable Wage Base (TWB) 2.7% More than $0 but not more than X*
2.7% More than X* of TWB but not more than 80% of TWB 1.3% More
than 80% of TWB but not more than TWB 2.4%
*X mean the greater of $10,000 or 20% of TWB.
C. Timing of Employer Contribution Employer Contributions, if any, made
on behalf of Participants for a Plan Year shall be allocated and
deposited to the IRA of each Participant no later than the due date
for filing the Employer's tax return (including extensions).
4.02 DEDUCTIBILITY OF CONTRIBUTIONS Contributions to the Plan are deductible by
the Employer for the taxable year with or within which the Plan Year of the
Plan ends. Contributions made for a particular taxable year and contributed
by the due date of the Employer's income tax return, including extensions,
are deemed made in that taxable year.
4.03 VESTING, WITHDRAWAL RIGHTS TO CONTRIBUTIONS All Employer Contributions made
under the Plan on behalf of Employees shall be fully vested and
nonforfeitable at all times. Each Employee shall have an unrestricted right
to withdraw at any time all or a portion of the Employer Contributions made
on his or her behalf. However, withdrawals taken are subject to the same
taxation and penalty provisions of the Code which are applicable to IRA
distributions.
4.04 SIMPLIFIED EMPLOYER REPORTS The Employer shall furnish reports, relating to
contributions made under the Plan, in the time and manner and containing
the information prescribed by the Secretary of the Treasury, to
Participants. Such reports shall be furnished at least annually and shall
disclose the amount of the contribution made under the Plan to the
Participant's IRA.
SECTION FIVE: AMENDMENT OR TERMINATION OF PLAN
5.01 AMENDMENT BY EMPLOYER The Employer reserves the right to amend the
elections made or not made on the Adoption Agreement by executing a new
Adoption Agreement and delivering a copy of the same to the Prototype
Sponsor. The Employer shall not have the right to amend any nonelective
provision of the Adoption Agreement nor the right to amend provisions of
this plan document. If the Employer adopts an amendment to the Adoption
Agreement or plan document in violation of the preceding sentence, the Plan
will be deemed to be an individually designed plan and may no longer
participate in this prototype Plan.
5.02 AMENDMENT BY PROTOTYPE SPONSOR By adopting this Plan, the Employer
delegates to the Prototype Sponsor the power to amend or replace the
Adoption Agreement of the Plan to conform them to the provisions of any
law, regulations or administrative rulings pertaining to Simplified
Employee Pensions and to make such other changes to the Plan, which, in the
judgement of the Prototype Sponsor, are necessary or appropriate. The
Employer shall be deemed to have consented to all such amendments; provided
however, that no changes may be made without the consent of the Employer if
the effect would be to substantially change the costs or benefits under the
Plan. The Prototype Sponsor shall not have the obligation to exercise or
not to exercise the power delegated to it nor shall the Prototype Sponsor
incur liability of any nature for any act done or failed to be done by the
Prototype Sponsor in good faith in the exercise or nonexercise of the power
delegated hereunder. The Prototype Sponsor shall notify the Employer should
it discontinue sponsorship of the Plan.
5.03 LIMITATIONS ON POWER TO AMEND No amendment by either the Employer or the
Prototype Sponsor shall reduce or otherwise adversely affect any benefits
of a Participant or Beneficiary acquired prior to such amendment unless it
is required to maintain compliance with any law, regulation or
administrative ruling pertaining to Simplified Employee Pensions.
5.04 TERMINATION While the Employer expects to continue the Plan indefinitely,
the Employer shall not be under any obligation or liability to continue
contributions or to maintain the Plan for any given length of time. The
Employer may terminate this Plan at any time by appropriate action of its
managing body. This Plan shall terminate on the occurrence of any of the
following events:
A. Delivery to the Prototype Sponsor of a notice of termination executed
by the Employer specifying the effective date of the Plan's
termination.
B. Adjudication of the Employer as bankrupt or the liquidation or
dissolution of the Employer.
5.05 NOTICE OF AMENDMENT, TERMINATION Any amendment or termination shall be
communicated by the Employer to all appropriate parties as required by law.
Amendments made by the Prototype Sponsor shall be furnished to the Employer
and communicated by the Employer to all appropriate parties as required by
law. Any filings required by the Internal Revenue Service or any other
regulatory body relating to the amendment or termination of the Plan shall
be made by the Employer.
5.06 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER A successor of the Employer may
continue the Plan and be substituted in the place of the present Employer.
The successor and present Employer (or if deceased, the executor of the
estate of a deceased Self-Employed Individual who was the Employer) must
execute a written instrument authorizing such substitution and the
successor must complete and sign a new Adoption Agreement.
SECTION SIX: SALARY DEFERRAL SEP PROVISIONS
In addition to Sections 1 through 5, the provisions of this Section 6 shall
apply if the Employer is an Eligible Employer and has adopted a salary deferral
Simplified Employee Pension Plan by indicating in the Adoption Agreement that
Retirement Savings Contributions are permitted.
If the Employer has so indicated in the Adoption Agreement, the Employer agrees
to permit Retirement Savings Contributions to be made which will be contributed
by the Employer to the IRA established by or on behalf of each Contributing
Participant. This arrangement is intended to qualify as a salary reduction
simplified employee pension ("SARSEP") under Section 408(k)(6) of the Code and
the regulations thereunder.
The SARSEP portion of this Plan shall be effective upon adoption. No Retirement
Savings Contributions may be based on Compensation an Employee could have
received before adoption of the SARSEP and execution by the Employee of a
Retirement Savings Agreement.
6.100 DEFINITIONS
6.101 COMPENSATION Means Compensation as defined in Section 2.03 of the Plan
and shall include any amount which is contributed by the Employer as a
Retirement Savings Contribution pursuant to a Retirement Savings
Agreement which is not includible in the gross income of the Employee
under Section 402(h) of the Code.
6.102 CONTRIBUTING PARTICIPANT Means a person who has met the participation
requirements and who has enrolled as a Contributing Participant
pursuant to Section 6.201 and on whose behalf the Employer is
contributing Retirement Savings Contributions.
6.103 ELIGIBLE EMPLOYER Means an Employer which: (a) has no more than 25
Employees who are eligible to participate in the Plan (or would have
been eligible to participate if this Plan had been maintained) at any
time during the preceding Plan Year; (b) has no leased employees
within the meaning of Section 414(n)(2) of the Code; (c) is not a
state or local government or political subdivision thereof, or any
agency or instrumentality thereof, or an organization exempt from tax
under Subtitle A of the Code; and (d) does not currently maintain or
has not maintained a defined benefit plan, even if now terminated.
6.104 ENROLLMENT DATE Means the first day of any Plan Year, the first day of
the seventh month of any Plan Year and any more frequent dates as the
Employer may designate in a uniform and nondiscriminatory manner.
6.105 EXCESS CONTRIBUTION Means the amount of each Highly Compensated
Employee's Retirement Savings Contributions that exceeds the actual
deferral percentage test limits described in Section 6.303(B) of the
Plan for a Plan Year.
6.106 HIGHLY COMPENSATED EMPLOYEE Means a Participant described in Section
414(q) of the Code who during the current or preceding year: (a) was a
5% owner of the Employer as defined in Section 416(i)(1)(B)(i) of the
Code; (b) received Compensation in excess of $50,000, as adjusted
pursuant to Section 415(d), and was in the top-paid group (the top 20%
of Employees, by Compensation); (c) received Compensation in excess of
$75,000, as adjusted pursuant to section 415(d); or (d) was an officer
and received Compensation in excess of 50% of the dollar limit under
Section 415 of the Code for defined benefit plans.
6.107 KEY EMPLOYEE Means any Employee or former Employee or beneficiaries of
these Employees who at any time during the Plan Year or the four
preceding Plan Years is or was: (a) an officer of the Employer (if the
Employee's annual Compensation exceeds 50% of the dollar limitation
under Section 415(b)(1)(A) of the Code); (b) an owner of one of the 10
largest interests in the Employer (if the Employee's annual
Compensation exceeds 100% of the dollar limitation under Section
415(c)(1)(A) of the Code); (c) a 5% owner of the Employer as defined
in Section 416(i)(1)(B)(i) of the Code; or (d) a 1% owner of Employer
(if the Employee has annual Compensation in excess of $150,000).
6.108 RETIREMENT SAVINGS AGREEMENT Means an agreement, on a form provided by
the Employer, pursuant to which a Contributing Participant may elect
to have his or her Compensation reduced and paid as a Retirement
Savings Contribution to his or her IRA by the Employer.
6.109 RETIREMENT SAVINGS CONTRIBUTIONS Means contributions made by the
Employer on behalf of a Contributing Participant pursuant to Section
6.301. Retirement Savings Contributions shall be deemed to be Employer
Contributions for purposes of (a) the contribution limits described in
Section 4.01(A) of the Plan; (b) the vesting and withdrawal rights
described in Section 4.03 of the Plan; and (c) determining whether
this Plan is a Top-Heavy Plan.
6.110 TOP-HEAVY PLAN This Plan is a Top-Heavy Plan for any Plan Year if, as
of the last day of the previous Plan Year (or current Plan Year if
this is the first year of the Plan) the total of the Employer
Contributions made on behalf of Key Employees for all the years this
Plan has been in existence exceeds 60% of such contributions for all
Employees. If the Employer maintains (or maintained within the prior
five years) any other SEP or defined contribution plan in which a Key
Employee participates (or participated), the contributions or account
balances, whichever is applicable, must be aggregated with the
contributions made to the Plan. The contributions (and account
balances, if applicable) of an Employee who ceases to be a Key
Employee or of an individual who has not been in the employ of the
Employer for the previous five years shall be disregarded. The
identification of Key Employees and the top-heavy calculation shall be
determined in accordance with Section 416 of the Code and the
regulations thereunder.
6.200 CONTRIBUTING PARTICIPANT
6.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT
A. Enrollment Each Employee who becomes a Participant may enroll as a
Contributing Participant. A Participant shall be eligible to enroll as
a Contributing Participant on any Enrollment Date.
B. Initial Enrollment Notwithstanding the time set forth in Section
6.201(A) as of which a Participant may enroll as a Contributing
Participant, the Employer shall have the authority to designate, in a
uniform and nondiscriminatory manner, additional Enrollment Dates
during the twelve month period beginning on the Effective Date in
order that an orderly first enrollment might be completed.
6.202 MODIFICATION OF RETIREMENT SAVINGS AGREEMENT A Contributing
Participant may modify his or her Retirement Savings Agreement to
increase or decrease (within the limits placed on Retirement Savings
Contributions in the Adoption Agreement) the amount of his or her
Compensation deferred into his or her IRA under the Plan. Such
modification may only be prospectively made effective as of an
Enrollment Date, or as of any other more frequent date(s) if the
Employer so permits in a uniform and nondiscriminatory manner. A
Contributing Participant who desires to make such a modification shall
complete, sign and file a new Retirement Savings Agreement with the
Employer at least 30 days (or such lesser period of days as the
Employer shall permit in a uniform and nondiscriminatory manner)
before the modification is to become effective.
6.203 WITHDRAWAL AS A CONTRIBUTING PARTICIPANT A Participant may withdraw as
a Contributing Participant as of the last date preceding any
Enrollment Date (or as of any other date if the Employer so permits in
a uniform and nondiscriminatory manner) by revoking his or her
authorization to the Employer to make Retirement Savings Contributions
on his or her behalf. A Participant who desires to withdraw as a
Contributing Participant shall give written notice of withdrawal to
the Employer at least 30 days (or such lesser period of days as the
Employer shall permit in a uniform and nondiscriminatory manner)
before the effective date of withdrawal. A Participant shall cease to
be a Contributing Participant upon his or her termination of
employment, or on account of termination of the Plan.
6.204 RETURN AS CONTRIBUTING PARTICIPANT AFTER WITHDRAWAL
A Participant who has withdrawn as a Contributing Participant under Section
6.203 may not again become a Contributing Participant until the first day
of the first Plan Year following the effective date of his or her
withdrawal as Contributing Participant.
6.300 RETIREMENT SAVINGS CONTRIBUTIONS
6.301 SALARY DEFERRAL ARRANGEMENT The Employer shall contribute Retirement
Savings Contributions on behalf of all Contributing Participants for
each Plan Year that the following requirements are satisfied:
A. The Employer is an Eligible Employer; and
B. Not less than 50% of the Employees eligible to participate elect to
have Retirement Savings Contributions contributed to the Plan on their
behalf.
Subject to the limits described in Section 6.303, the amount of Retirement
Savings Contributions so contributed shall be the amount required by the
Retirement Savings Agreements of Contributing Participants.
No Retirement Savings Contribution may be based on Compensation a
Participant received, or had a right to receive, before execution of a
Retirement Savings Agreement by the Participant.
6.302 FAILURE TO SATISFY 50% PARTICIPATION REQUIREMENT If the 50%
participation requirement described in Section 6.301(B)is not
satisfied as of the end of any Plan Year, all the Retirement Savings
Contributions made by Employees for the Plan Year shall be considered
"Disallowed Deferrals", i.e., IRA contributions that are not SEP-IRA
contributions. The Employer shall notify each affected Employee,
within 2 1/2 months after the end of the Plan Year to which the
Disallowed Deferrals relate, that the deferrals are no longer
considered SEP-IRA contributions. Such notification shall specify the
amount of the Disallowed Deferrals and the calendar year of the
Employee in which they are includible in income and must provide an
explanation of applicable penalties if the Disallowed Deferrals are
not withdrawn in a timely fashion.
The notice to each affected Employee must state specifically: (a) the
amount of the Disallowed Deferrals; (b) that the Disallowed Deferrals are
includible in the Employee's gross income for the calendar year or years in
which the amounts deferred would have been received by the Employee in cash
had he or she not made an election to defer and that the income allocable
to such Disallowed Deferrals is includible in the year withdrawn from the
IRA; and (c) that the Employee must withdraw the Disallowed Deferrals (and
allocable income) from the SEP-IRA by April 15 following the calendar year
of notification by the Employer. Those Disallowed Deferrals not withdrawn
by April 15 following the year of notification will be subject to the IRA
contribution limitations of Sections 219 and 408 of the Code and thus may
be considered an excess contribution to the Employee's IRA. Disallowed
Deferrals may be subject to the 6% tax on excess contributions under
Section 4973 of the Code. If income allocable to a Disallowed Deferral is
not withdrawn by April 15 following the year of notification by the
Employer, the income may be subject to the 10% tax on early distributions
under Section 72(t) of the Code when withdrawn.
Disallowed Deferrals are reported in the same manner as are Excess
Contributions.
6.303 LIMITS ON RETIREMENT SAVINGS CONTRIBUTIONS
A. Maximum Amount No Contributing Participant shall be permitted to have
Retirement Savings Contributions made under this Plan during any
calendar year in excess of $7,000 (as indexed pursuant to Code Section
402(g)(5)). The $7,000 (indexed) limit applies to the total elective
deferrals the Contributing Participant makes for the calendar year
under this Plan and under any cash or deferred arrangement described
in Section 401(k) of the Code and any salary reduction arrangement
described in Section 403(b) of the Code. The limit may be increased to
$9,500 if the Contributing Participant makes elective deferrals to a
salary reduction arrangement under Section 403(b) of the Code.
Under no circumstances may an Employee's Retirement Savings
Contributions in any calendar year exceed the lesser of: (1) the
limitation under Section 402(g) of the Code based on all of the plans
of the Employer; or (2) 15% of his or her Compensation (less any
amount contributed by the Employer as a Retirement Savings
Contribution). Compute the amount of this 15% limit by using the
following formula:
Compensation (before subtracting Retirement Savings
Contributions) x 13.0435%.
If an Employer maintains any other SEP plan to which non-elective SEP
Employer Contributions are made for a Plan Year, or any qualified plan
to which contributions are made for such Plan Year, then an Employee's
Retirement Savings Contribution may be limited to the extent necessary
to satisfy the maximum contribution limitation under Section
415(c)(1)(A) of the Code.
In addition to the dollar limitation of Section 415(c)(1)(A), which is
$30,000 in 1991, Employer Contributions to this Plan, when aggregated
with contributions to all other SEP plans and qualified plans of the
Employer, generally may not exceed 15% of Compensation (less any
amount contributed by the Employer as a Retirement Savings
Contribution) for any Employee. If these limits are exceeded on behalf
of any Employee for a particular Plan Year, that Employee's Retirement
Savings Contributions for that year must be reduced to the extent of
the excess.
B. Actual Deferral Percentage (ADP) Test Limits Retirement Savings
Contributions by a Highly Compensated Employee must satisfy the actual
deferral percentage (hereinafter "ADP") limitation under Section
408(k)(6) of the Code. Amounts in excess of the ADP limitation will be
deemed Excess Contributions on behalf of the affected Highly
Compensated Employee or Employees. The ADP of any Highly Compensated
Employee who is eligible to be a Contributing Participant shall not be
more than the product obtained by multiplying the average of the ADPs
of all non-Highly Compensated Employees who are eligible to be
Contributing Participants by 1.25. For purposes of this Section 6.303,
an Employee's ADP is the ratio (expressed as a percentage) of his or
her Retirement Savings Contributions for the Plan Year to his or her
Compensation for the Plan Year. The ADP of an Employee who is eligible
to be a Contributing Participant, but who does not make Retirement
Savings Contributions during the Plan Year is zero. The determination
of the ADP for any Employee is to be made in accordance with Section
408(k)(6) of the Code and should satisfy such other requirements as
may be provided by the Secretary of the Treasury.
C. Special Rule for Family Members For purposes of determining the ADP of
a Highly Compensated Employee, the Retirement Savings Contributions
and Compensation of the Employee will also include the Retirement
Savings Contributions and Compensation of any family member. This
special rule applies only if the Highly Compensated Employee is in one
of the following groups: (a) a more than 5% owner of the Employer; or
(b) one of a group of the 10 most Highly Compensated Employees.
The Retirement Savings Contributions and Compensation of family
members used in this special rule do not count in computing the
average of the ADPs of non-Highly Compensated Employees.
For purposes of this special rule, a family member is an individual
who is related to a Highly Compensated Employee as a spouse, or as a
lineal ascendent or descendent or the spouses of such lineal
ascendents or descendents in accordance with Section 414(q) of the
Code and the regulations thereunder.
6.304 DISTRIBUTION OF EXCESS RETIREMENT SAVINGS CONTRIBUTIONS To the extent
that a Contributing Participant's Retirement Savings Contributions for
a calendar year exceed the limit described in Section 6.303(A) (i.e.,
the $7,000 (indexed) limit), the Contributing Participant must
withdraw the excess Retirement Savings Contributions (and any income
allocable to such amount) by April 15 following the year of the
deferral.
6.305 DISTRIBUTION OF EXCESS CONTRIBUTIONS The Employer shall notify each
Employee, no later than 2 1/2 months following the close of the Plan
Year of the amount, if any, of any Excess Contribution to that
Employee's IRA for such Plan Year. If the Employer does not so notify
Employees by such date, the Employer must pay a tax equal to 10% of
the Excess Contributions for the Plan Year pursuant to Section 4979 of
the Code. If the Employer fails to notify Employees by the end of the
Plan Year following the Plan Year of the Excess Contributions, the SEP
no longer will be considered to meet the requirements of Section
408(k)(6) of the Code. This means that the earnings on the SEP are
subject to tax immediately, that no more Retirement Savings
Contributions may be made under the SEP, and that Retirement Savings
Contributions of all Employees with uncorrected Excess Contributions
must be included in their income in that year. If the SEP no longer
meets the requirements of Section 408(k)(6), then any contribution to
an Employee's IRA will be subject to the IRA contribution limitations
of Section 219 and 408 of the Code and thus may be considered an
excess contribution to the Employee's IRA.
The Employer's notification to each affected Employee of the Excess
Contributions must specifically state in a manner calculated to be
understood by the average Plan Participant: (a) the amount of the Excess
Contributions attributable to that Employee's Retirement Savings
Contributions; (b) the Plan Year for which the Excess Contributions were
made; (c) that the Excess Contributions are includible in the affected
Employee's gross income for the calendar year in which such Excess
Contributions were made; and (d) that the Employee must withdraw the Excess
Contributions (and allocable income) from the IRA by April 15 following the
year of notification by the Employer. Those Excess Contributions not
withdrawn by April 15 following the year of notification will be subject to
the IRA contribution limitations of Sections 219 and 408 of the Code for
the preceding calendar year and thus may be considered an excess
contribution to the Employee's IRA. Such excess contributions may be
subject to the 6% tax on excess contributions under Section 4973 of the
Code. If income allocable to an Excess Contribution is not withdrawn by
April 15 following the year of notification by the Employer, the income may
be subject to the 10% tax on early distributions under Section 72(t) of the
Code when withdrawn. However, if the Excess Contributions (not including
allocable income) total less than $100, then the Excess Contributions are
includible in the Employee's gross income in the year of notification.
Income allocable to the Excess Contributions is includible in the year of
withdrawal from the IRA.
6.306 DETERMINATION OF INCOME For purposes of Sections 6.302, 6.304 and
6.305, the income allocable to Disallowed Deferrals, excess Retirement
Savings Contributions or Excess Contributions for a year shall be
determined by multiplying the income earned on the IRA for the period
which begins on the first day of such year and ends on the date of
distribution from the IRA by a fraction, the numerator of which is the
Disallowed Deferral, excess Retirement Savings Contribution or Excess
Contribution for such year and the denominator of which is the sum of
the account balance of the IRA as of the beginning of such year and
the total contributions made to the IRA for such year.
6.307 RESTRICTION ON TRANSFERS AND WITHDRAWALS The Employer shall notify
each Contributing Participant that, until the earlier of 2 1/2 months
after the end of a particular Plan Year or the date the Employer
notifies its employees that the actual deferral percentage limitations
have been calculated, any transfer or distribution from the
Contributing Participant's IRA of Retirement Savings Contributions (or
income on these contributions) attributable to Retirement Savings
Contributions made during that Plan Year will be includible in income
for purposes of Sections 72(t) and 408(d)(1) of the Code.
6.308 ALLOCATION OF RETIREMENT SAVINGS CONTRIBUTIONS Retirement Savings
Contributions made on behalf of Contributing Participants for a Plan
Year shall be allocated and deposited to the IRA of each Contributing
Participant by the Employer as soon as is administratively feasible.
6.400 SPECIAL RULES FOR TOP-HEAVY PLANS
6.401 MINIMUM ALLOCATION The following mandatory minimum allocation applies when
this Plan is a Top-Heavy Plan:
Unless another plan of the Employer is designated in the space below to
satisfy the top-heavy requirements of Section 416 of the Code, each year
this Plan is a Top-Heavy Plan, the Employer will make a minimum
contribution to the IRA of each Participant who is not a Key Employee,
which, in combination with other non-elective contributions, if any, is
equal to the lesser of 3% of such Participant's Compensation or a
percentage of Compensation equal to the percentage of Compensation at which
elective and non-elective contributions are made under the Plan for the
Plan Year for the Key Employee for whom such percentage is the largest.
The top-heavy minimum will be met in the following plan:
(If applicable, name the plan other than this Plan in which the minimum
top-heavy contribution will be made.)
6.402 RETIREMENT SAVINGS CONTRIBUTIONS CANNOT BE USED FOR MINIMUM
ALLOCATION For purposes of satisfying the minimum allocation
requirement of Section 416 of the Code, Retirement Savings
Contributions contributed for the benefit of Employees who are not Key
Employees may not be used to satisfy the minimum allocation
requirement.
SEP ADOPTION AGREEMENT
- --------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
Name of Employer
____________________________________________________________
Address
____________________________________________________________
City _____________ State ___________ Zip _______________
Telephone ______________________________
Federal Tax Identification Number ______________
Income Tax Year End __________________________
Plan Year End _______________________________
SECTION 2. EFFECTIVE DATES Check and complete Option A or B
Option A: [ ] This is the initial adoption of a Simplified
Employee Pension plan by the Employer. The Effective
Date of this Plan is _____________________, 19_______.
NOTE:The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
Option B: [ ] This is an amendment and restatement of an
existing Simplified Employee Pension plan (a Prior
Plan). The Prior Plan was initially effective on
________________________, 19________. The Effective
Date of this amendment and restatement is
________________, 19______.
NOTE:The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
SECTION 3. ELIGIBILITY REQUIREMENTS Complete Parts A, B and C
Part A. Service Requirement: An Employee will be eligible to
become a Participant in the Plan after having performed
Service for the Employer during at least _____ (enter
0, 1, 2 or 3) of the immediately preceding 5 Plan
Years. NOTE: If left blank, the Service Requirement
will be deemed to be 0.
Part B. Age Requirement: An Employee will be eligible to
become a Participant in the Plan after attaining age
_____ (no more than 21). NOTE: If left blank, it will
be deemed there is no age requirement for eligibility.
Part C. Class of Employees Eligible to Participate: All
Employees shall be eligible to become a Participant in
the Plan, except the following (if checked): [ ]
Employees covered by a collective bargaining agreement
and nonresident aliens, as described in Section 3.02 of
the Plan. [ ] Those Employees who have received less
than $300 (indexed for cost of living increases in
accordance with Section 408(k)(8) of the Code) of
Compensation from the Employer during the Plan Year.
SECTION 4. EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
Part A. Contribution Formula:
For each Plan Year the Employer will contribute an amount to be
determined from year to year.
Part B. Allocation Formula: Check Option 1, 2 or 3
Option 1: [ ] Pro Rata Formula. The Employer Contribution for
each Plan Year shall be allocated in the manner described in
Section 4.01(A) of the Plan.
Option 2: [ ] Flat Dollar Formula. The Employer Contribution for
each Plan Year allocated to the IRAs of Participants shall
be the same dollar amount for each Participant.
Option 3: [ ] Integrated Formula. Employer Contributions shall be
allocated in the manner described in Section 4.01(B) of the
Plan. For purposes of the integrated formula, the
integration level shall be (Choose one):
Option 1: [ ] The Taxable Wage Base (TWB) NOTE: If no box is
checked, the TWB integration level shall be the Taxable Wage
Base.
Option 2: [ ] _______% of
Part C. Retirement Savings Contributions: Check here [ ] and complete this
Part C only if a salary deferral arrangement is desired.
Option 1: [ ] Payroll Deduction Option. A Contributing Participant may
elect under a Retirement Savings Agreement to have his or her
Compensation reduced each pay period by an amount not in excess
of $________ or ________% of Compensation.
Option 2: [ ] Cash Bonus Option. A Contributing Participant may base
Retirement Savings Contributions on bonuses that, at the
Contributing Participant's election, may be contributed to an IRA
under the Plan or received by the Contributing Participant in
cash.
SECTION 5. EMPLOYER SIGNATURE ____________________ Date Signed____________
(Type Name)____________________________________________________
Name of Prototype Sponsor Investors Bank and Trust Company
Phone 1-800-847-4200
Address 89 South Street, 7th Floor
Boston, MA 02111
Note to Employer: Before signing this Adoption Agreement, you should
obtain the advice of a qualified attorney and tax advisor regarding
its completion and the legal and tax implications of adopting this
Plan.
PLAN OF DISTRIBUTION
WHEREAS Bull & Bear Incorporated (the "Corporation") is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an
open-end management investment company, and currently offers for public sale
three distinct series of shares of common stock ("Series"), which correspond to
distinct portfolios and have been designated as Bull & Bear Dollar Reserves
("Dollar Reserves"), Bull & Bear U.S. Government Securities Fund ("U.S.
Government Securities Fund") and Bull & Bear Global Income Fund ("Global Income
Fund"); and
WHEREAS the Corporation has entered into a Distribution Agreement
("Agreement") with Bull & Bear Service Center, Inc. (the "Distributor") pursuant
to which the Distributor has agreed to serve as the principal distributor for
each such Series;
NOW, THEREFORE, the Corporation hereby adopts this plan of distribution
("Plan") with respect to such Series in accordance with Rule 12b-1 under the
1940 Act.
1. As Distributor for each Series, the Distributor may spend such
amounts as it deems appropriate on any activities or expenses primarily intended
to result in the sale of the Series' 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 Series,
and selected broker/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 Series
or service shareholder accounts such as office rent and equipment, employee
salaries, employee bonuses and other overhead expenses.
1
<PAGE>
2. A. Dollar Reserves and U.S. Government Securities Fund is each
authorized to pay to the Distributor, as compensation for the Distributor's
distribution and service activities as defined in paragraph 12 hereof with
respect to each Series and its shareholders, a fee at the rate of 0.25% on an
annualized basis of its average daily net assets. All or a portion of such fee
may be designated by the Corporation's board of directors ("Board") as a fee for
service activities or as a fee for distribution activities.
B. Global Income Fund is authorized to pay to the Distributor, as
compensation for the Distributor's distribution activities as defined in
paragraph 12 hereof with respect to such Series, a fee at the rate of 0.25% on
an annualized basis of its average daily net assets.
C. Global Income Fund is authorized to pay to the Distributor, as
compensation for the Distributor's service activities as defined in paragraph 12
hereof with respect to such Series and its shareholders, a fee at the rate of
0.25% on an annualized basis of its average daily net assets.
D. The amount of the fees specified in this paragraph of this Plan
shall be calculated and accrued daily and paid monthly or at such other
intervals as the Board shall determine.
E. A Series may pay fees to the Distributor at a lesser rate than the
fees specified in this paragraph of this Plan in each case as mutually agreed to
by the Board and the Distributor and as approved in the manner specified in
paragraph 3B of this Plan.
3. This Plan shall not take effect with respect to a Series until it
has been approved by:
A. the vote of at least a majority of the outstanding voting
securities of the Series and
B. the vote cast in person at a meeting called for the purpose of
voting on this Plan of a majority of both (i) those directors of the Corporation
who are not interested persons of the Corporation and have no direct or indirect
financial interest in the operation of this Plan or any agreement related
2
<PAGE>
to it (the "Plan Directors"), and (ii) all of the directors then in office.
4. This Plan shall continue in effect for one year from its execution
or adoption and thereafter for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 3B.
5. The Distributor shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to each Series by the Distributor under this Plan and the purposes for
which such expenditures were made. A reasonable allocation of overhead and other
expenses of the Distributor related to its distribution activities and service
activities, including telephone and other communication expenses, may be
included in the information regarding amounts expended for such activities.
6. This Plan may not be amended to increase materially the amount of
fees provided for in paragraph 2 hereof unless such amendment is approved by a
vote of a majority of the outstanding voting securities of the affected Series,
and no material amendment to this Plan shall be made unless approved by the
Board and the Plan Directors in the manner provided for approval of this Plan in
paragraph 3B.
7. The amount of the fees payable by any Series to the Distributor
under paragraph 2 hereof is not related directly to expenses incurred by the
Distributor on behalf of such Series in serving as its distributor, and
paragraph 2 hereof does not obligate the Series to reimburse the Distributor for
such expenses. The fees set forth in paragraph 2 hereof will be paid by the
Series to the Distributor unless and until this Plan is terminated or not
renewed. If this Plan is terminated or not renewed with respect to any Series,
any expenses incurred by the Distributor on behalf of the Series in excess of
payments of the fees specified in paragraph 2 hereof which the Distributor has
received or accrued through the termination date are the sole responsibility and
liability of the Distributor, and are not obligations of the Series.
8. Any other agreements related to this Plan shall not take effect
until approved in the manner provided for approval of
3
<PAGE>
this Plan in paragraph 3B.
9. This Plan may be terminated with respect to any Series at any time
by vote of a majority of the Plan Directors, or by vote of a majority of the
outstanding voting securities of that Series.
10. While this Plan is in effect, the selection and nomina tion 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.
11. The Corporation shall preserve copies of this Plan and any other
agreements related to this Plan and all reports made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of this Plan, or
the date of any such agreement or of any such report, as the case may be, the
first two years in an easily accessible place.
12. For purposes of this Plan, "distribution activities" shall mean any
activities in connection with the Distributor's performance of its services
under this Plan or the Agreement that are not deemed "service activities."
"Service activities" shall mean activities covered by the definition of "service
fee" contained in amendments to Section 26(b) of the National Association of
Securities Dealers, Inc.'s Rules of Fair Practice.
13. As used in this Plan, the terms: "majority of the out standing
voting securities" and "interested person" shall have the same meaning as those
terms have in the 1940 Act.
IN WITNESS WHEREOF, the Corporation has executed this Plan on the day
and year set forth below in the City and State of New York.
DATE: November 1, 1993
[signature omitted]
4
<PAGE>
BROKER SERVICES AGREEMENT
Page 1
FORM OF
BROKER SERVICES AGREEMENT
AGREEMENT dated this _________, 1995 by and between Investor Service
Center, Inc. ("Service Center") with regard to each Fund listed in Exhibit A to
this Agreement (each a "Fund" and collectively the "Funds") and ________ (the
"Broker").
WHEREAS, each Fund is an open-end investment company registered under
the Investment Company Act of 1940, as amended, and its Shares are registered
under the Securities Act of 1933, as amended (the "1933 Act"),
WHEREAS, the Broker desires to provide certain services to its
customers who beneficially own shares of the Funds ("Shares") through one or
more omnibus or National Securities Clearing Corporation Networking accounts
("Accounts") registered in the name of the Broker or its nominee (such customers
hereinafter referred to as "Customer-Shareholders"),
WHEREAS, the Funds desire to facilitate the servicing of such
Customer-Shareholders,
NOW, THEREFORE, it is agreed as follows:
1. The Broker may establish Accounts with the Funds. The Broker will
perform certain services, as contemplated by Section 26(b)(9) of Article III of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. ("NASD"), for the Customer-Shareholders with regard to the Accounts,
including without limitation, personal services and/or the maintenance of
shareholder accounts and pay any costs in connection therewith.
2. As compensation for its services, Service Center will pay the Broker
a service fee as set forth in Exhibit A to this Agreement. This fee shall be
payable with respect to Shares of a Fund only after, for so long as, and to the
extent that Service Center has received an amount equal to the fee payable to
the Broker from such Fund for such Shares.
3. The Broker represents that at all times while this Agreement is in
effect it will have or cause to be furnished at its expense the necessary
facilities, equipment and personnel to perform its services hereunder in a
business-like and competent manner and in compliance with all applicable laws,
including those regarding the maintenance and retention of records. The Broker
shall provide security as necessary to prevent unauthorized use of any on-line
computer facilities, if applicable. As appropriate, the Broker may establish and
maintain records to identify the interests of Customer-Shareholders in the
Accounts; process in the Accounts purchase and sale of Shares requests by
Customer-Shareholders; confirm transactions in the Accounts to
Customer-Shareholders as required by rule 10b-10 of the Securities Exchange Act
of 1934 (the "1934 Act"); provide Customer-Shareholders with Fund information,
including periodic shareholder reports, prospectuses, and reports on the
taxability of Fund dividends and distributions; change dividend and distribution
reinvestment or disbursement options, account registrations, and addresses at
the request of Customer-Shareholders; withhold taxes as required by the Internal
Revenue Code of 1986; disburse to Customer-Shareholders or reinvest in Accounts
dividends and distributions; prepare and deliver to Customer-Shareholders and
applicable taxing authorities information as required by the Funds' prospectuses
or such taxing authorities with respect to such Customer-Shareholders.
4. The Broker agrees to abide by the Rules of Fair Practice of the NASD
and all applicable Federal and state laws. The signing of this Agreement and the
purchase of Shares pursuant hereto is a representation to Service Center that
the Broker is a member in good standing of the NASD and a properly registered
broker/dealer under the 1934 Act. Nothing in this Agreement shall be deemed or
construed to make the Broker an employee, agent, representative or partner of
any of the Funds or Service Center or be inferred as requiring the Funds or
Service Center to review the practices, procedures, or controls of the Broker.
The Broker is not authorized to act for the Funds or Service Center or to make
any representations on behalf of the Funds or Service Center. This Agreement
shall terminate automatically in the event of the Broker's ceasing to be a
member in good standing of the NASD or upon the occurrence of any event adverse
ly affecting the Broker's registration as a broker/dealer under the 1934 Act.
5. Where applicable, the Broker warrants and represents that all
Customer-Shareholders are aware that they are transacting business with the
Broker and not the Funds or Service Center, and that such Customer-Shareholders
will look only to the Broker for resolution of problems or discrepancies in the
Accounts. The Broker shall be solely responsible for any discrepancies between
the Accounts and any sub-accounts maintained by the Broker on behalf of its
customers. Service Center agrees to assist the Broker to resolve such
discrepancies. The records of the Fund regarding transactions in the Accounts
and Shares held in such Accounts shall be definitive. In all sales of Shares,
the Broker shall act as agent for its Customer-Shareholders and in no
transaction shall the Broker have any authority to act as agent for the Funds.
All
<PAGE>
BROKER SERVICES AGREEMENT
Page 2
orders for Shares are subject to acceptance or rejection by a Fund in its sole
discretion. Orders for Shares shall be effective only upon receipt in proper
form by the Fund.
6. It is understood that all Shares held in the Accounts will be
uncertificated and registered in the name of the Broker or its nominee by book
entry in the stock transfer books of the Fund or its transfer agent.
7. No person is authorized to make any representations concerning the
Shares except those contained in the Prospectus and Statement of Additional
Information and in such printed information subsequently issued by the Fund as
information supplemental to the Prospectus and Statement of Additional
Information, including without limitation, periodic shareholder reports and
proxy solicitation materials (collectively the "Materials"). The Broker will be
purchasing Shares as agent for its Customer-Shareholders in reliance solely on
the representations contained in the Materials.
8. Where applicable, the Broker agrees that it will not offer or sell
any Shares except under circumstances that will result in compliance with all
applicable Federal and state securities laws. In connection with sales and
offers to sell Shares, the introducing Broker or Broker agrees to furnish to
each person to whom any sale or offer is made, at or prior to the time of
offering or sale, a copy of the Prospectus and, if requested, the Statement of
Additional Information of the relevant Fund. The Broker agrees that it will not
furnish to any person any information relating to such Fund that is inconsistent
in any respect with the information contained in the relevant Prospectus and
Statement of Additional Information or cause any written material to be used in
connection with sales of Shares or any advertisement to be published in any
newspaper, broadcast by television, radio or other means or posted in any public
place without the prior written consent of the Fund, such consent not to be
unreasonably withheld.
9. Upon the Broker's request, Service Center will inform the Broker as
to the states and jurisdictions in which it believes the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states and jurisdictions, but Service Center assumes no
responsibility or obligation as to the Broker's right to sell Shares in any
state or jurisdiction.
10. The Broker shall indemnify the relevant Fund from and against any
and all claims, liability, expense, or loss in any way arising out of or in any
way connected with any unauthorized representation by the Broker concerning the
Shares described in paragraph 7 hereof, noncompliance by the Broker with the
matters set forth in paragraph 8 hereof, and non-qualified or non-exempt Shares
sales described in paragraph 9 hereof.
11. This Agreement may be terminated at any time without penalty by
Service Center or the Broker. This Agreement shall automatically terminate in
the event of its assignment. The provisions contained in paragraph 10 hereof
regarding indemnity shall survive the termination of this Agreement.
12. Except as otherwise noted, any notice to the other party hereto
shall be duly given if mailed or telecopied to such party at the address thereof
specified below. This Agreement shall be governed by and construed in accordance
with the laws (except for conflict of law rules) of the State of New York. Each
party hereto may enter into similar agreements with others without the consent
of the other party hereto. This Agreement shall be in substitution for any prior
agreements between the parties regarding Shares of the Funds. This Agreement is
not assignable by either party hereto. Nothing in this Agreement is intended to
confer upon any person other than the parties hereto and their successors, any
rights or remedies under or by reason of this Agreement. If any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder shall not be affected thereby.
13. The terms "Prospectus" and "Statement of Additional Information" as
used herein refer respectively to the prospectuses and statements of additional
information forming parts of the effective registration statements on Form N-1A
of the Funds under the 1933 Act, as then supplemented or amended.
<PAGE>
BROKER SERVICES AGREEMENT
Page 3
INVESTOR SERVICE CENTER, INC.
By: ________________________
Thomas B. Winmill
As: President
11 Hanover Square
New York, NY 10005
212-785-0900
AGREED AND ACCEPTED:
=======================
- -----------------------
- ----------------------------
Signature
- ----------------------------
Signer's Name
- ----------------------------
Signer's Title
EXHIBIT A
The service fee shall be payable monthly and computed on the aggregate
average monthly balances over $100,00 (except Midas Fund, Inc.) of the Broker's
Customer-Shareholders at the annual rate of:
0.35% for
Bull & Bear Gold Investors Ltd.
Bull & Bear Quality Growth Fund
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. and Overseas Fund
0.25% FOR
Midas Fund, Inc.
Bull & Bear Global Income Fund
Bull & Bear Municipal Income Fund
Bull & Bear U.S. Government Securities Fund
Bull & Bear Dollar Reserves
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BULL &
BEAR DOLLAR RESERVES' ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Bull & Bear Dollar Reserves
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 65,268,213
<INVESTMENTS-AT-VALUE> 65,268,213
<RECEIVABLES> 1,613
<ASSETS-OTHER> 87,941
<OTHER-ITEMS-ASSETS> 11,927
<TOTAL-ASSETS> 65,369,694
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91,399
<TOTAL-LIABILITIES> 91,399
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,207,859
<SHARES-COMMON-STOCK> 65,208,343
<SHARES-COMMON-PRIOR> 76,314,222
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 70,436
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 65,278,295
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,592,826
<OTHER-INCOME> 0
<EXPENSES-NET> 605,001
<NET-INVESTMENT-INCOME> 2,987,825
<REALIZED-GAINS-CURRENT> 33,028
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,020,853
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,987,825
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 526,864,067
<NUMBER-OF-SHARES-REDEEMED> 540,681,418
<SHARES-REINVESTED> 2,711,471
<NET-CHANGE-IN-ASSETS> (11,072,852)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 37,409
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 339,025
<INTEREST-EXPENSE> 946
<GROSS-EXPENSE> 944,027
<AVERAGE-NET-ASSETS> 67,805,112
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BULL &
BEAR DOLLAR RESERVES' ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> Bull & Bear Global Income Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 37,621,350
<INVESTMENTS-AT-VALUE> 38,390,957
<RECEIVABLES> 3,058,683
<ASSETS-OTHER> 1,886
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,451,526
<PAYABLE-FOR-SECURITIES> 2,103,394
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 168,501
<TOTAL-LIABILITIES> 2,271,895
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,396,889
<SHARES-COMMON-STOCK> 4,896,231
<SHARES-COMMON-PRIOR> 5,374,630
<ACCUMULATED-NII-CURRENT> (1,419,941)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (56,553,832)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 756,515
<NET-ASSETS> 39,179,631
<DIVIDEND-INCOME> 8,541
<INTEREST-INCOME> 3,456,247
<OTHER-INCOME> 0
<EXPENSES-NET> 910,681
<NET-INVESTMENT-INCOME> 2,554,107
<REALIZED-GAINS-CURRENT> (5,652,998)
<APPREC-INCREASE-CURRENT> 4,799,978
<NET-CHANGE-FROM-OPS> 1,701,087
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 862,298
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 2,201,712
<NUMBER-OF-SHARES-SOLD> 1,520,831
<NUMBER-OF-SHARES-REDEEMED> 2,260,096
<SHARES-REINVESTED> 260,866
<NET-CHANGE-IN-ASSETS> (5,175,654)
<ACCUMULATED-NII-PRIOR> (309,103)
<ACCUMULATED-GAINS-PRIOR> (66,206,447)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 288,533
<INTEREST-EXPENSE> 2,441
<GROSS-EXPENSE> 910,681
<AVERAGE-NET-ASSETS> 41,218,954
<PER-SHARE-NAV-BEGIN> 8.25
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> .18
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .43
<PER-SHARE-NAV-END> 8.00
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 22,715
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BULL &
BEAR U.S. GOVERNMENT SECURITIES FUND'S ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> Bull & Bear U.S. Government Securities Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 15,862,821
<INVESTMENTS-AT-VALUE> 16,103,420
<RECEIVABLES> 335,785
<ASSETS-OTHER> 52,735
<OTHER-ITEMS-ASSETS> 4,042
<TOTAL-ASSETS> 16,495,982
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 118,698
<TOTAL-LIABILITIES> 118,698
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,837,214
<SHARES-COMMON-STOCK> 1,077,524
<SHARES-COMMON-PRIOR> 1,214,931
<ACCUMULATED-NII-CURRENT> 1,377
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,701,906)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 240,599
<NET-ASSETS> 16,377,284
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,158,324
<OTHER-INCOME> 0
<EXPENSES-NET> 332,677
<NET-INVESTMENT-INCOME> 825,647
<REALIZED-GAINS-CURRENT> (217,869)
<APPREC-INCREASE-CURRENT> 821,547
<NET-CHANGE-FROM-OPS> 1,429,325
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 859,743
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 372,514
<NUMBER-OF-SHARES-REDEEMED> 555,963
<SHARES-REINVESTED> 46,042
<NET-CHANGE-IN-ASSETS> (1,399,964)
<ACCUMULATED-NII-PRIOR> 35,473
<ACCUMULATED-GAINS-PRIOR> (2,484,037)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 116,437
<INTEREST-EXPENSE> 488
<GROSS-EXPENSE> 825,647
<AVERAGE-NET-ASSETS> 16,633,793
<PER-SHARE-NAV-BEGIN> 14.63
<PER-SHARE-NII> .73
<PER-SHARE-GAIN-APPREC> .60
<PER-SHARE-DIVIDEND> .76
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.20
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 2,468
<AVG-DEBT-PER-SHARE> 0
</TABLE>
