BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
11 Hanover Square
New York, New York 10005
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Bull & Bear U.S. Government Securities Fund (the "Fund") at a.m. on , 1996 at
the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York,
New York.
At the Special Meeting, Fund shareholders will consider a proposal to
convert the Fund, a diversified series of Bull & Bear Funds II, Inc., from an
open-end, management investment company to a closed-end, diversified management
investment company. The Fund's investment objective will remain unchanged. As a
closed-end fund, we would expect its shares to be traded on the American Stock
Exchange or over-the-counter on Nasdaq and no longer redeemable at net asset
value. The enclosed Proxy Statement provides detailed information concerning the
proposal and should be read carefully and retained for future reference.
The Board of Directors has unanimously approved the proposal
and recommends that shareholders vote in favor of it. The proposal is intended
to provide the Fund with greater flexibility to seek its investment objective of
a high level of current income, liquidity, and safety of principal. The Fund
will have greater capacity as a closed-end fund to employ leverage and lend
portfolio securities, which could offer the potential to enhance the Fund's
yields and total returns. Moreover, the Board anticipates that conversion to
closed-end status will permit the Fund to reduce its operating expenses.
Approval of the proposal requires the lesser of (a) the
majority of the Fund's outstanding shares or (b) at least 66 2/3% of the shares
present and voting on the proposal, provided that at least a majority of the
shares outstanding on the record date are present at the Special Meeting. You
are requested to give this matter your prompt attention and to sign, date and
mail the accompanying proxy as soon as possible in the return envelope provided
for your convenience to ensure its receipt before the Special Meeting.
Very truly yours,
The Board of Directors
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING OF SHAREHOLDERS, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS
POSSIBLE IN THE ENCLOSED POSTPAID ENVELOPE.
<PAGE>
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
11 Hanover Square
New York, New York 10005
Toll-Free 1-800-847-4200
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on __________ __, 1996
----------------
To the Shareholders of
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
Notice is hereby given that a Special Meeting of Shareholders of Bull &
Bear U.S. Government Securities Fund (the "Fund") will be held at the offices of
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022
on ___________ __, 1996 at a.m., to consider and vote upon the following:
The conversion of the Fund from a diversified series of a
registered open-end, management investment company to a
registered closed-end, diversified management investment
company.
No other business may come before said meeting or any adjournment thereof.
The proposal is discussed in greater detail in the attached Proxy
Statement.
The close of business on __________ __, 1996 has been fixed as the
record date for the determination of shareholders entitled to notice of and to
vote at the meeting and any adjournments thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE
FUND. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, WE ASK THAT YOU
PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHICH NEEDS NO POSTAGE IF MAILED IN THE CONTINENTAL UNITED
STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE SET FORTH ON THE
INSIDE COVER.
By Order of the Directors
--------------------------
William J. Maynard
Secretary
___________ __, 1996
<PAGE>
[Inside Front Cover]
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid expenses to the Fund involved in validating your vote if you fail
to sign your proxy card properly.
1. Individual Accounts: Sign you name exactly as it appears in the registration
on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to a name shown in the registration.
3. All Other Accounts: The capacity of the individuals signing the proxy card
should be indicated unless it is reflected in the form of registration. For
example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp............................. ABC Corp.
(2) ABC Corp............................. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer............ John Doe
(4) ABC Corp., Profit Sharing Plan....... John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust............................ Jane Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78..................... Jane Doe
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA...... John B. Smith
(2) John B. Smith........................ John B. Smith, Jr. Executor
<PAGE>
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
---------------------------
SPECIAL MEETING OF SHAREHOLDERS
___________ __, 1996
---------------------------
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Directors of Bull & Bear Funds II, Inc. (the "Company") for use
at a Special Meeting of Shareholders of Bull & Bear U.S. Government Securities
Fund (the "Fund") to be held on ______ __, 1996, at a.m. at the offices of
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, ____ floor, New York,
New York 10022, and at any adjournments thereof (the "Meeting"). A notice of
Special Meeting of Shareholders and a proxy card accompany this Proxy Statement.
The business to be considered at the Meeting is:
A proposal to convert the Fund from a diversified series of a
registered open-end, management investment company to a registered
closed-end, diversified management investment company.
If the proposal is approved, the Directors will determine the date of
conversion.
The Fund is currently a diversified series of an open-end, management
investment company. The Fund's investment objective is to provide its
shareholders with a high level of current income, liquidity and safety of
principal. The Fund seeks to achieve its investment objective by investing
principally in a diversified managed portfolio of securities backed by the full
faith and credit of the United States. No assurances can be given that the
Fund's objective will be achieved. Skadden, Arps, Slate, Meagher & Flom, counsel
to the Fund, believes that the conversion will not be a taxable event to the
Fund or its shareholders.
In connection with the conversion to closed-end status, application will be
made to list the Fund's shares on the American Stock Exchange (the "AMEX") under
the symbol "BBG", or if such listing is not available, to trade over-the-counter
on Nasdaq with the symbol "BBGO". Although there is no current trading market
for shares of the Fund's common stock, it is expected that "when issued" trading
of such shares will com mence approximately four business days prior to the date
of conversion. Shares of closed-end investment companies frequently trade at a
discount to net asset value. The Fund cannot predict whether its shares will
trade at, below or above net asset value after converting to closed-end status.
The address of the Fund is 11 Hanover Square, New York, New York 10005 and
the toll-free telephone number is 1-800-847-4200.
REQUIRED VOTE: APPROVAL OF THE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF
THE LESSER OF (A) A MAJORITY OF THE OUTSTANDING SHARES OF THE FUND OR (B) AT
LEAST 66 2/3% OF THE SHARES PRESENT AND VOTING ON THE PROPOSAL, PROVIDED THAT
1
<PAGE>
AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON THE RECORD DATE ARE PRESENT AT
THE MEETING.
THIS PROXY STATEMENT SETS FORTH CONCISELY CERTAIN INFORMATION ABOUT THE
FUND AND THE PROPOSAL THAT SHAREHOLDERS SHOULD KNOW BEFORE GIVING A PROXY AND IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
______ __, 1996
2
<PAGE>
GENERAL VOTING INFORMATION
In addition to the solicitation of proxies by mail, officers and regular
employees of the Fund, Bull & Bear Advisers, Inc. (the "Investment Manager"),
affiliates of the Investment Manager, and other representatives of the Fund may
also solicit proxies by telephone, telegraph or in person. In addition, the Fund
has retained Shareholder Communications Corporation to assist in the
solicitation of proxies for a fee estimated at $_____ plus reimbursement of
expenses. The costs of solicitation and the expenses incurred in connection with
preparing this Proxy Statement and its enclosures will be paid by the Fund. The
Fund will reimburse brokerage firms and others for its expenses in forwarding
solicitation materials to the beneficial owners of shares.
If the enclosed proxy is properly executed and returned in time to be voted
at the Meeting, the shares represented thereby will be voted in accordance with
the instructions marked thereon. Unless instructions to the contrary are marked
thereon, the proxy will be voted FOR the proposal. Any shareholder who has given
a proxy has the right to revoke it at any time prior to its exercise either by
attending the Meeting and voting his or her shares in person or by submitting a
letter of revocation or a proxy to the Fund at the above address prior to the
date of the Meeting.
In the event a quorum is present at the Meeting but sufficient votes to
approve the proposed transaction are not received, the persons named as proxies
may propose one or more adjournments of such Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares present at the Meeting in person or by proxy. If a
quorum is present, the persons named as proxies will vote those proxies which
they are entitled to vote FOR such proposal in favor of such an adjournment and
will vote those proxies required to be voted for rejection of such proposal
against any such adjournment.
The close of business on ________ __, 1996 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meeting and all adjournments thereof.
Each shareholder is entitled to one vote for each full share and an
appropriate fraction of a vote for each fractional share held on each matter to
be voted upon. On _________ __, 1996, there were ________ shares of the Fund
outstanding.
To the knowledge of the management of the Fund as of __________ __, 1996,
no person owns of record or beneficially 5% or more of the shares of the Fund.
This Proxy Statement is first being mailed to shareholders on or about
_______ __, 1996.
3
<PAGE>
PROPOSAL:
TO APPROVE THE CONVERSION OF BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
FROM A DIVERSIFIED SERIES OF A REGISTERED OPEN-END, MANAGEMENT INVEST
MENT COMPANY TO A REGISTERED CLOSED-END, DIVERSIFIED MANAGEMENT
INVESTMENT COMPANY.
THE CONVERSION
The Board of Directors of Bull & Bear Funds II, Inc. (the "Company"), of
which the Fund is a series, is unanimously recommending that shareholders of the
Fund vote to approve changing the Fund from open-end status, i.e. a mutual fund
that continuously redeems its shares at net asset value, to closed-end status,
i.e. an investment company whose shares trade at market price and whose
shareholders do not have the right to require the repurchase of their shares by
the Fund (the "Conversion").
In order to implement the Conversion, the Company, on behalf of the Fund,
will enter into an Asset Transfer Agreement (the "Agreement") with Bull & Bear
U.S. Government Securities Fund, Inc., a newly-formed Maryland corporation
organized as a closed-end, diversified management investment company (the "New
Fund"). The Agreement will provide for the transfer of all the assets and
liabilities of the Fund (the "Assets") at net asset value to the New Fund and,
in exchange therefore, the Fund will simultaneously receive from the New Fund
the same number and aggregate net asset value of voting common stock in the New
Fund (the "Shares") as the number and aggregate net asset value of the shares
held by the Fund's shareholders. The Fund will terminate and windup, and the
Shares will be distributed pro rata to the Fund's shareholders, who will become
shareholders in the New Fund (the "Shareholders"). The Conversion will occur as
soon as practicable after approval by shareholders of the proposal (the "Closing
Date"), which is currently contemplated to be _____ __, 1996.
The New Fund presently has no assets and was created solely as a vehicle
for implementing the Conversion. The New Fund's investment objective is
identical to the Fund's, i.e., to provide its shareholders with a high level of
current income, liquidity and safety of principal through investment in a
diversified, managed portfolio of securities backed by the full faith and credit
of the United States. The Conversion will not result in a change in investment
objective. No assurance can be given that such investment objective will be
achieved.
The number of Shares that Shareholders will own and the fair market value
of the net assets of the New Fund will be the same as for the Fund. The New Fund
is expected to be registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), and will elect to be taxed as a "regulated investment
company" as defined in the Internal Revenue Code of 1986, as amended (the
"Code").
The affirmative vote by the lesser of (a) a majority of the outstanding
shares of the Fund or (b) at least 66 2/3% of the shares present and voting on
the proposal, provided that at least a majority of the shares outstanding on the
record date are present at the Meeting, is necessary to implement the
Conversion.
4
<PAGE>
REASONS FOR THE CONVERSION
The Directors believe that the Conversion will provide the Fund with
greater flexibility to seek its investment objective with lower operating
expenses.
Investment Flexibility. As an open-end fund, the Fund is not permitted to
issue senior securities (as defined in the 1940 Act), except insofar as it may
be deemed to have issued a senior security by reason of (i) bank borrowings and
then only if such borrowings do not exceed 33 1/3% of the Fund's total assets,
(ii) the issuance of additional series or classes of securities which may be
established, (iii) futures, options, and forward currency transactions, and (iv)
to the extent consistent with the 1940 Act and applicable rules and policies
adopted by the SEC, (A) the establishment or use of a margin account with a
broker for the purpose of effecting securities transactions on margin and (B)
short sales. Closed-end funds, however, have greater flexibility in issuing
senior securities, including debt or preferred stock, so long as such preferred
securities do not exceed 1/2, and such debt does not exceed 1/3, of such fund's
total assets. In accordance with SEC staff guidelines, such debt or preferred
stock may be convertible, which may permit the New Fund to obtain leverage at
more attractive rates. Use of leverage by the New Fund would increase the New
Fund's total return to Shareholders if the New Fund's returns on its investments
out of the proceeds of such leverage exceed the cost of such leverage. Although
in the past the Fund has not used leverage and there can be no assurance that if
employed by the New Fund it will be successful, the Directors and Bull & Bear
Advisers, Inc., the Fund's Investment Manager, believe that increased capacity
to employ leverage may potentially increase yields and total returns to
shareholders.
The Fund is prohibited from lending its portfolio securities, except to the
extent such lending involves the making of time or demand deposits with banks,
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 engaging in securities and other asset
loan transactions limited to one third of the Fund's total assets. Closed-end
funds, however, are not restricted as to the type and percentage of assets they
are permitted to lend. Inasmuch as interest is earned on the portfolio
securities lent, the Directors and the Investment Manager believe that although
under current market conditions portfolio securities lending income, if any,
will not be material, removal of this investment restriction may potentially
enhance yields and total returns to shareholders should market conditions change
favorably in the future. If the New Fund engages in such transactions, it will
enter into lending agreements that require that the loans be secured
continuously 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 at least to the market value of the
assets lent. The New Fund typically will receive the dividends and interest, if
any, paid on the assets lent, while simultaneously earning interest on the
collateral comprised of cash and fees to the extent of non-cash collateral. The
New Fund, in turn, may pay lending fees to broker/dealers to effect such
transactions. Any loan made by the New Fund will provide that it may be
terminated by either party upon reasonable notice to the other party.
Using leverage and lending portfolio securities entail certain risks. With
respect to leveraging, there are two primary risks. The first risk is that the
use of leverage magnifies the impact on the common shareholders of changes in
net asset value. For example, a fund that uses leverage of one third of its
total assets will show a 1.5% increase or decline in net asset value for each 1%
increase or decline in the value of its total assets. The second risk is that if
the cost of leverage exceeds the return on the securities acquired
5
<PAGE>
with the proceeds of that leverage, it will diminish rather than enhance the
return to common shareholders. These two risks would generally make the New
Fund's total return to Shareholders more volatile. However, if the New Fund is
able to provide total returns on its assets exceeding the costs of leverage, the
use of leverage would over the longer term enhance the New Fund's yields and
total returns, although there can be no assurance that this can be achieved.
Risks involved in lending portfolio securities include the risk of default
by the borrower. The New Fund will be protected, to a large degree, from such
default risk as a result of such loans being fully collateralized with liquid
high-grade securities and marked-to-market, as required by the SEC. There are
also risks of delay in receiving 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. However, 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.
Although under current market conditions portfolio securities lending income
will not have a material effect on yields or total returns, the New Fund would
have a greater capacity to utilize this strategy to seek enhanced yield and
total returns should market conditions change in the future.
Moreover, to assist the Fund in meeting redemption requests, the Fund has
generally maintained a certain percentage of its assets in highly liquid but
lower-yielding securities. This investment strategy is considered important by
the Fund in managing redemption risk in the open-end format but would become
unnecessary if the Fund were to become closed-end. As a closed-end fund, the New
Fund is able to invest substantially all of its assets in accordance with its
investment objective, thereby potentially increasing yields and total returns to
Shareholders.
As consistent with both the Fund's and the New Funds' investment
objectives, the New Fund intends to utilize the additional investment
flexibility afforded by operating in a closed-end format, depending on the
Investment Manager's evaluation of current and anticipated market conditions,
but there can be no assurance that such additional flexibility will be utilized
or, if utilized, enhance the New Fund's performance in relation to that of the
Fund or materially affect its yields or total returns. Although to some extent
these changes could have been adopted by the Fund, the capacity of the New Fund,
as a closed-end fund, to employ leverage and lend portfolio securities is
greater.
Reduced Fund Expenses. The Conversion should enable the Fund to reduce
certain operating expenses.
As a closed-end fund, the New Fund will save money by not having to
maintain registrations in each state for sales of its shares, by terminating its
shareholder administration agreement and by terminating its plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act. However, these cost savings
will be partially offset by fees associated with the requirement of annual
meetings and listing of the New Fund's shares on the AMEX or Nasdaq.
The impact of the elimination or reduction of those expenses of the Fund
which are not assessed as a percentage of net assets, including the shareholder
administration and state registration fees described above, and other such costs
such as registration under the Securities Act of 1933, as amended, transfer
agency and net asset value calculation accounting, depends greatly upon the
total net assets of the New Fund.
6
<PAGE>
Accordingly, since it is impossible to predict whether and to what extent net
redemptions of shares of the Fund may occur prior to the Conversion, the expense
ratio after the Conversion cannot be stated with certainty. If net assets
decrease, the operating expense ratios will increase. Moreover, although to the
extent the New Fund employs leverage its expenses will increase, leverage would
only be employed with the intention to at least commensurately increase the New
Fund's gross income and net income and thereby increase the New Fund's yields
and total returns.
At meetings on June 13, 1996 and June 26, 1996, the Directors considered
the Fund's investment objective and policies in view of its recent operating
results, total net assets, prospects, market conditions, and other factors and
alternatives to the proposed Conversion and, in connection therewith, the
difference in investment restrictions between the Fund and the New Fund,
together with features and characteristics of closed-end funds generally and pro
forma and other information pertaining to the Fund and the New Fund, including
an assessment of risks, costs, and expenses pertaining to the Conversion. After
consideration of these and other relevant matters, the Directors unanimously
approved the proposal and have recommended that shareholders of the Fund vote in
favor of the proposal. The Directors believe that the Conversion is in the best
interest of the shareholders and that the benefits thereof outweigh its costs
and risks. For a description of the costs and expenses relating to the
Conversion, see "The Conversion Expenses", below.
MANNER OF EFFECTING THE CONVERSION
On the Closing Date, pursuant to the Agreement, the Fund will transfer all
of its Assets to the New Fund, and the New Fund will transfer to the Fund Shares
having an aggregate net asset value equivalent to the aggregate net asset value
of the Assets transferred. The Company, on behalf of the Fund, will then endorse
the Share Cross-Receipt to the New Fund's transfer agent. The transfer agent
will enter on its records the names of the Fund's shareholders and each
shareholder's pro rata interest in the Shares, as such shareholder's portion of
the Fund's dissolution distribution. Only those persons who are shareholders of
record of the Fund, as reported by the Fund's transfer agent, as of the Closing
Date will be eligible to receive Shares from the New Fund. No shares of the Fund
will be sold on the Closing Date.
Immediately thereafter, the Fund will apply to terminate its registration
under the 1940 Act and wind up.
Unless waived in accordance with the Agreement, the obligations of the
parties thereto are subject to, among other things: (a) approval of the
Conversion by the Fund's shareholders; and (b) the right of either party to
abandon and terminate the Agreement if any legal, administrative or other
proceedings seeking to restrain or otherwise prohibit the transactions
contemplated by the Agreement are instituted or pending between the date of the
Agreement and the Closing Date.
The Agreement may be amended or supplemented by the mutual consent of the
parties thereto either before or after approval thereof by the shareholders of
the Fund, provided that no such amendment or supplement after such approval
shall affect the rights of such shareholders in a materially adverse manner. The
Agreement may also be terminated if there has been a misrepresentation, breach
of warranty or failure of any condition to closing.
7
<PAGE>
THE CONVERSION EXPENSES
The costs related to the Conversion, including the costs of this Proxy
Statement, the fees and expenses of counsel, and printing and listing fees are
estimated to be approximately $____ . These costs will be borne by the Fund. See
also "The Reasons for the Conversion - Reduced Fund Expenses" herein.
MARKET TRADING; DISCOUNT TO NET ASSET VALUE
Open-end funds are redeemable at any time at net asset value and cannot be
sold at a premium or dis count in the marketplace. Closed-end funds, on the
other hand, are bought and sold in the securities markets and may trade at
either a premium to or discount from net asset value. Shares of closed-end funds
frequently trade at a discount from net asset value, which is a risk separate
and apart from the risk that the net asset value of the Fund's shares will
decrease. Prior to the Conversion, there will have been no market for the Shares
and no history of the Fund's investment performance as a closed-end fund,
increasing the likelihood of the risk that the Shares will trade at a discount
from net asset value. In addition, compared to other closed-end funds with
similar investment objective and policies, the New Fund's relatively smaller
amount of total net assets and shares outstanding also increases the risk of
trading at a discount. Shareholders should also bear in mind that they will
incur brokerage or other transaction costs if they sell shares of closed-end
funds in the securities markets, whereas the transaction costs of redemptions of
open-end funds are generally absorbed by the fund. The Investment Manager,
however, has arranged with its affiliate, Bull & Bear Securities, Inc., that for
two years after the Conversion, any shares in the Fund held by the Fund's
transfer agent in its book entry account may be sold at market value without
commission if sold through Bull & Bear Securities, Inc.
INVESTMENT MANAGEMENT SERVICES
INVESTMENT MANAGER
The Fund's Investment Manager is Bull & Bear Advisers, Inc., 11 Hanover
Square, New York, New York 10005. The Investment Manager, a registered
investment adviser, is a wholly-owned subsidiary of the Bull & Bear Group, Inc.
("Group"). Group is a publicly-owned company whose shares are traded on Nasdaq.
Bassett S. Winmill may be deemed a controlling person, as that term is defined
by the rules and regulations of the 1940 Act, of Group and the Investment
Manager on the basis of his ownership of 100% of Group's voting stock. The
investment companies (which includes the Fund) managed by the Investment Manager
and its affiliates had net assets in excess of $440 million as of May 31, 1996.
INVESTMENT MANAGEMENT AGREEMENT
Under the terms of the Fund's Investment Management Agreement, the
management fee is calculated based upon the average daily net assets of the
Fund; subsequent to the Conversion, net assets will be calculated weekly. The
New Fund's Investment Management Agreement therefore provides that the
management fee be calculated based upon the average weekly net assets of the New
Fund. In all other
8
<PAGE>
material respects, the terms of the Investment Management Agreements of the Fund
and the New Fund are the same.
DESCRIPTION OF COMMON STOCK OF THE NEW FUND
COMMON STOCK
Bull & Bear U.S. Government Securities Fund, Inc. was incorporated under
the laws of the State of Maryland on August __, 1996. The New Fund is authorized
to issue ten million shares of stock, par value $.01 per share. Each Share
represents an equal proportionate interest with each other Share in the assets
of the New Fund. Shares entitle their holders to one vote per Share. Unlike
shares in the Fund, the Shares are not redeemable at net asset value. Except as
set forth in "Articles of Incorporation" herein, the Shares have no cumulative
voting rights or preemptive rights, and otherwise carry the same rights as the
shares of the Fund.
LISTING OF SHARES
Application will be made to list the Shares on the AMEX upon notice of
issuance thereof with the symbol "BBG", or if such listing is not available, to
trade over-the-counter on Nasdaq with the symbol "BBGO". Although there is no
current trading market for the Shares, it is expected that "when issued" trading
of such shares will commence approximately four business days prior to the date
the Conversion takes place.
REPURCHASE OF SHARES
Shareholders will not have the right to have the New Fund redeem their
Shares as they presently do with the Fund. As a closed-end fund, however, the
New Fund will be able to repurchase Shares from time to time as and when it
deems such a repurchase advisable. Pursuant to the 1940 Act, the New Fund may
repurchase Shares on a securities exchange (provided that the New Fund has
informed the Shareholders within the preceding six months of its intention to
repurchase such Shares) or as otherwise permitted in accordance with Rule 23c-1
under the 1940 Act. Under that Rule, certain conditions must be met regarding,
among other things, distribution of net income from the preceding fiscal year,
identity of the seller, price paid, brokerage commissions, prior notice to the
Shareholders of an intention to purchase Shares and purchasing in a manner and
on a basis which does not discriminate unfairly against the other Shareholders
through their interest in the New Fund.
Shares repurchased by the New Fund will constitute authorized and unissued
shares of the New Fund available for reissuance. The New Fund may incur debt to
finance share repurchase transactions. Any gain in the value of the investments
of the New Fund during the term of the borrowing that exceeds the interest paid
on the amount borrowed would cause the net asset value of its shares to increase
more rapidly than in the absence of borrowing. Conversely, any decline in the
value of the investments of the New Fund would cause the net asset value of the
Shares to decrease more rapidly than in the absence of borrowing. Borrowing
money thus creates an opportunity for greater capital gain at the risk of
greater exposure to capital loss.
9
<PAGE>
When the New Fund repurchases its Shares for a price below their net asset
value, the net asset value of those Shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding Shares will be affected, either positively or negatively. Further,
interest on borrowings to finance share repurchase transactions will reduce the
net income of the New Fund except to the extent the gross income attribute to
such Shares exceeds the costs of such borrowings.
Although the New Fund does not currently intend to repurchase Shares, no
assurance can be given that the New Fund will decide to repurchase Shares in the
future, or, if undertaken, that such repurchases will reduce any market discount
that may develop. While the New Fund does not currently intend to repurchase
Shares, its officers and directors and the Investment Manager and its affiliates
may do so from time to time.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The New Fund Directors have adopted a Dividend Reinvestment and Cash
Purchase Plan (the "Plan"). Under the Plan, distributions will be reinvested in
additional Shares automatically, unless such Shareholders elect to receive cash.
Each dividend and capital gains distribution, if any, declared by the New Fund
on outstanding Shares, unless elected otherwise by each Shareholder by notifying
the New Fund in writing at any time prior to the record date for a particular
dividend or distribution, will be paid on the payment date fixed by the New Fund
Directors in that number of additional Shares equal to (a) the amount of such
dividend divided by the New Fund's net asset value per Share if the average
closing market price on the five trading days prior to the date the Shares trade
ex-dividend (the "Market Price") is at or above such net asset value per Share
on the record date for such distribution and (b) the amount of such dividend
divided by the Market Price if the Market Price is less than such net asset
value per Share on the record date for such distribution. Upon a Shareholder's
request to receive a certificate for Shares, a certificate will be issued for
such Shares in whole share amounts and fractional Share amounts will be paid in
cash. There are no sales or other charges in connection with the reinvestment of
dividends and capital gains distributions. There is no fixed dividend rate and
there can be no assurance that the New Fund will pay any dividends or realize
any capital gains. However, the New Fund currently intends to pay dividends and
capital gains distributions, if any, on an annual basis.
CERTAIN PROVISIONS OF THE CHARTER OF THE NEW FUND
Under the New Fund Articles, a Shareholder does not have the right
continuously to acquire or redeem Shares at net asset value directly from the
New Fund; instead, Shares will be traded on the AMEX or Nasdaq.
The net asset value of each share of the New Fund's capital stock is the
current net asset value per share as determined in accordance with procedures
adopted from time to time by the New Fund Directors which comply with the 1940
Act. In the event of the liquidation or dissolution of the New Fund, the holders
of the common stock therein would be entitled to receive all the net assets of
the New Fund not attributable to other classes of stock through any preference.
On each matter submitted to a vote of Shareholders, each holder of a share
of capital stock of the New Fund would be entitled to one vote for each share
standing in such holder's name on the books of the New Fund. The New Fund
Articles provides that the New Fund Directors may classify or reclassify any
unissued
10
<PAGE>
capital stock from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of the stock.
Each person who at any time is or was an officer of the New Fund shall be
indemnified by the New Fund to the fullest extent permitted by the Maryland
General Corporation Law, as it may be amended or interpreted from time to time,
including the advancing of expenses, subject to any limitations imposed by the
1940 Act and the rules and regulations promulgated thereunder. Furthermore, to
the fullest extent permitted by the Maryland General Corporation Law, as it may
be amended or interpreted from time to time, subject to the limitations imposed
by the 1940 Act and the rules and regulations promulgated thereunder, no
director or officer of the New Fund is personally liable to the New Fund or the
Shareholders. No amendment of the New Fund Articles or repeal of any of its
provisions is permitted to limit or eliminate any of the benefits provided to
any person who at any time is or was a director or officer of the New Fund in
respect of any act or omission that occurred prior to such amendment or repeal.
The New Fund Directors have the exclusive authority to make, alter or
repeal from time to time any of the By-Laws of the New Fund except any
particular By-Law which is specified as not subject to alteration or repeal by
the New Fund Directors, subject to the requirements of the 1940 Act and the
rules and regulations promulgated thereunder.
As described in the following paragraphs, certain provisions of the New
Fund Articles could have the effect of limiting (i) the ability of other
entities or persons to acquire control of the New Fund, (ii) the New Fund's
freedom to engage in certain transactions, or (iii) the ability of the New Fund
Directors or the Shareholders to amend such Articles or effectuate changes in
the New Fund's management.
Except as otherwise provided in the New Fund Articles and notwithstanding
any provision of the Maryland General Corporation Law requiring approval by
shareholders (or any class of shareholders) of any action by the affirmative
vote of a greater proportion than a majority of the votes entitled to be cast on
the matter, any action may be taken or authorized upon the concurrence of a
majority of the number of votes entitled to be cast (or a majority of the votes
entitled to be cast as a separate class).
The New Fund Articles provide that any business combination (including any
merger, consolidation, or share exchange with any interested shareholder or any
affiliate thereof) requires the affirmative vote of the holders of at least 80%
of the votes entitled to be cast by holders of voting stock, unless approved by
the vote of at least 80% of the New Fund Directors in which case such business
combination requires the affirmative vote of the holders of at least a majority
of the votes entitled to be cast by such holders.
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
authority of the direction of the New Fund Directors, as to the amount of
assets, obligations or liabilities of the New Fund, as to the amount of net
income of the New Fund from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged),
11
<PAGE>
as to the price of any security owned by the New Fund or as to any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the New Fund, and any reasonable
determination made in good faith by the New Fund Directors is final and
conclusive, and is binding upon the New Fund and all holders of its capital
stock past, present and future, and shares of capital stock of the New Fund are
issued and sold on the condition and understanding, evidenced by the purchase of
shares of capital stock or acceptance of share certificates, that any and all
such determinations shall be binding. No provision of the New Fund Articles is
effective to (a) require a waiver of compliance with any provision of the 1940
Act, or any valid rule, regulation or order of the SEC thereunder, or (b)
protect or purport to protect any New Fund Director or officer against any
liability to the New Fund or the Shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
The private property of Shareholders is not subject to payment of debts of
the New Fund to any extent whatsoever.
The affirmative vote of holders of at least 80% of the votes entitled to be
cast by holders of voting stock is necessary to authorize the conversion of the
New Fund from a closed-end to an open-end investment company, unless approved by
the vote of at least 80% of the New Fund Directors, in which case such
conversion requires the affirmative vote of the holders of at least a majority
of the votes entitled to be cast by such holders.
The New Fund reserves the right to amend, alter, change or repeal any
provision contained in the New Fund Articles, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders in such
Articles would be granted subject to this reservation. Notwithstanding any other
provisions of the New Fund Articles (and notwithstanding the fact that a lesser
percentage may be specified by law or by such Articles), the amendment or repeal
of Section 10 of Article V, Sections 1, 3, 4 and 5 of Article VI, Sections 1 and
2 of Article VIII, Article X, Article XI, Article XII, and Article XIII require
the affirmative vote of the holders of at least 80% of the votes entitled to be
cast by holders of voting stock, unless approved by the vote of at least 80% of
the New Fund Directors, in which case such amendment or repeal would require the
affirmative vote of the holders of at least a majority of the votes entitled to
be cast by such holders. These sections involve the applicability of the New
Fund Articles to its shareholders, number and classification of the New Fund
Directors, indemnification of the New Fund Directors and officers, actions taken
by concurrence of a majority vote of Shareholders, limited liability of
Shareholders, the duration of the New Fund, conversion to open-end status and
the amendment of the foregoing provisions.
The New Fund Articles provide for the New Fund Directors to be divided into
five classes, each having a term of five years (except, to ensure that the term
of a class of directors expires each year, the first class of the New Fund
Directors will serve an initial one-year term and five-year terms thereafter,
the second class of the New Fund Directors will serve an initial two-year term
and five-year terms thereafter, the third class of New Fund Directors will serve
an initial three-year term and five-year terms thereafter, and the fourth class
of New Fund Directors will serve an initial four-year term and five-year terms
thereafter). Each year the term of one class of the New Fund Directors expires.
Accordingly, only those New Fund Directors in one class may be changed in any
one year. Such system of electing the New Fund Directors may have
12
<PAGE>
the effect of maintaining continuity of management and, thus, make it more
difficult for Shareholders to change the majority of New Fund Directors.
13
<PAGE>
TAX MATTERS
SUBCHAPTER M AND OTHER TAX MATTERS
Skadden, Arps, Slate, Meagher & Flom, legal counsel for both the Fund and
the New Fund, believes, for U.S. Federal income tax purposes, that the
Conversion will not be a taxable event to the Fund, the New Fund, the
shareholders of the Fund or the shareholders of the New Fund.
The New Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Code. If the New Fund qualifies as a regulated investment
company and complies with certain distribution requirements, the New Fund will
not be subject to Federal income tax on that part of its net investment income
and realized capital gains which it distributes to its Shareholders.
To qualify as a regulated investment company, the New Fund must meet
certain relatively complex tests. The loss of status as a regulated investment
company would result in the New Fund being subject to Federal income tax on all
its taxable income and gains without regard to dividends and distributions paid
to Shareholders.
The New Fund will determine either to distribute or to retain for
reinvestment all or part of its net long-term capital gain. If any such gains
are retained, the New Fund will be subject to a Federal income tax of 35% of
such amount. In that event, the New Fund expects to designate the retained
amount as undistributed capital gains in a notice to Shareholders, each of whom
(a) will be required to include in income for tax purposes as long-term capital
gains its share of such undistributed amount, (b) will be entitled to credit its
proportionate share of the tax paid by the New Fund against its Federal income
tax liability and to claim refunds to the extent that the credit exceeds such
liability, and (c) will increase its tax basis in its Shares by an amount equal
to 65% of the amount of undistributed capital gains included in such
Shareholder's gross income.
Under the Code, amounts not distributed by a regulated investment company
on a timely basis in accordance with a calendar year distribution requirement
are subject to a 4% excise tax. To avoid the tax, the New Fund must distribute
during each calendar year, an amount equal to, at the minimum, the sum of (1)
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) 98% of its net capital gains for the twelve-month
period ending on October 31 of the Calendar year (unless an election is made by
a fund with a November or December year-end to use the fund's fiscal year), and
(3) all ordinary income and net capital gain for previous years that were not
previously distributed. A distribution will be treated as paid during the
calendar year if it is paid during the calendar year or declared by the New Fund
in October, November or December of the year, payable to Shareholders of record
on a date during such month and paid by the New Fund during January of the
following year. Any such distributions paid during January of the following year
will be deemed to be received on December 31 of the year the distributions are
declared, rather than when the distributions are received.
Gains or losses on the sales of securities by the New Fund will be
long-term capital gains or losses if the securities have been held by the New
Fund as capital assets for more than twelve months. Gains or losses on the sale
of securities held for twelve months or less will be short-term capital gains or
losses. In
14
<PAGE>
determining whether the New Fund held a particular capital asset for more or
less than twelve months, the holding period of the Fund will be taken into
account.
The New Fund will be required to make back-up withholding in an amount
equal to 31% of a Shareholder's dividend or capital gain distribution or the
proceeds of a redemption unless such Shareholder has furnished the New Fund with
his taxpayer identification number (a social security number in the case of an
individual) and certifies that the number is correct and that he has not been
notified by the Internal Revenue Services that he is subject to back-up
withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code applicable to a shareholder's investment in the Fund. Dividends and
distributions declared by the Fund may also be subject to state and local taxes.
Each shareholder is urged to consult its tax advisers concerning the Federal,
state and local tax consequences of its particular investment in the Fund.
THE DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS, HAVE UNANI
MOUSLY APPROVED THE PROPOSAL AND RECOMMEND THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL.
15
<PAGE>
ADDITIONAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund sends unaudited semi-annual and audited annual reports to their
respective shareholders, including a list of investments held.
The Fund will furnish, without charge, a copy of the Annual Report for the
fiscal year ended December 31, 1995 upon request to the Fund at 11 Hanover
Square, New York, New York 10005, toll-free telephone 1-800-847-4200.
BROKER NON-VOTES AND ABSTENTIONS
If a proxy which is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote" (that
is, a proxy from a broker or nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominee does
not have discretionary power), is unmarked or marked with an abstention
(collectively, "abstentions"), the shares represented thereby will be considered
to be present at the meeting for purposes of determining the existence of a
quorum for the transaction of business. Under Maryland law, abstentions do not
constitute a vote "for" or "against" a matter and will be disregarded in
determining the "votes cast" on an issue.
SHAREHOLDER PROPOSALS
Proposals by shareholders intended to be presented at the next annual
meeting (to be held in 1997) must be received by the Company on or before , 1997
(or 30 days before the annual meeting if such meeting is held after , 1997) in
order to be included in the proxy statement and proxy for that meeting.
ANNUAL MEETING REQUIREMENTS
Upon conversion and the Shares listing on the AMEX or the Nasdaq National
Market System, the New Fund will be required to hold annual shareholder
meetings.
OTHER MATTERS TO COME BEFORE THE MEETING
The Directors do not intend to present any other business at the Meeting,
nor are they aware that any shareholder intends to do so. If, however, any other
matters are properly brought before the Meeting, the persons named in the
accompanying form of proxy will vote thereon in accordance with their judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
16
<PAGE>
BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS
The undersigned hereby appoints Robert D. Anderson and Thomas B. Winmill,
and each of them, attorneys and proxies of the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of Bull & Bear U.S. Government Securities Fund
(the "Fund") which the undersigned is entitled to vote at the Special Meeting of
Shareholders (the "Meeting") of the Fund to be held at the offices of Skadden,
Arps, Slate, Meagher & Flom, 919 Third Avenue, floor, New York, New York 10022
on ________ __, 1996, at 10:00 a.m., and at any adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement and hereby instructs said attorneys and proxies
to vote said shares as indicated herein. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
Meeting.
A majority of the proxies present and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
AND RETURN IT IN THE ENCLOSED PAID ENVELOPE.
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
This proxy, if properly executed, will be voted in the manner directed by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR the proposal. Please refer to the Proxy Statement for a discussion of the
proposal.
Proposal:
TO APPROVE THE CONVERSION OF BULL & BEAR U.S. GOVERNMENT SECURITIES FUND
FROM OPEN-END TO CLOSED-END STATUS.
|_| FOR |_| AGAINST |_| ABSTAIN
Date:
(Sign exactly as name(s) appear above) IMPORTANT: If joint owners, EITHER
may sign this proxy. When signing as executor, administrator, trustee, guardian
or corporate officer, please give your FULL title.
<PAGE>
