As filed with the Securities and Exchange Commission on June 27, 1995.
1933 Act File No. 2-14486
1940 Act File No. 811-835
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 66
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29
BULL & BEAR GOLD INVESTORS LTD.
(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 10005-3401 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: 60 days after filing
pursuant to Rule 485(a).
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,
1994 was filed on August 17, 1994.
<PAGE>
BULL & BEAR GOLD INVESTORS LTD.
Contents of Registration Statement
This registration statement consists of the following papers and
documents.
Cover Sheet
Table of Contents
Cross Reference Sheets
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
BULL & BEAR GOLD INVESTORS LTD.
Cross Reference Sheet
Part A. Item No. Prospectus Caption
---------------- ------------------
1 Cover Page
2 Expense Table
3 Financial Highlights
Performance Information
4 General
The Fund's Investment Program
Back Cover Page
Risk Factors
5 The Investment Manager
The Subadviser
Custodian and Transfer Agent
6 Cover Page
General
The Investment Manager
The Subadviser
Distributions and Taxes
Determination of Net Asset Value
Shareholder Services
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 GOLD INVESTORS LTD.
Cross Reference Sheet
Part B. Item No. Statement of Additional Information Caption
- ---------------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Restrictions
The Fund's Investment Program
Allocation of Brokerage
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
The Subadviser
Investment Management Agreement
Distribution of Shares
Custodian, Transfer and Dividend
Disbursing Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Purchase of Shares
20 Distributions and Taxes
21 Not Applicable
22 Performance Information
23 Financial Statements
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
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. The Fund invests primarily in gold, platinum
and silver bullion and a global portfolio of securities of companies involved
directly or indirectly in mining, processing or dealing in gold or other
precious metals ("gold mining shares"). Income is a secondary objective. The
Fund may hold cash in foreign currencies and may invest in gold, platinum, and
silver coins. There is no assurance the Fund will achieve its objectives.
Bull & Bear Advisers, Inc. is the Fund's Investment Manager and Lion
Resource Management Limited is the Fund's Subadviser. Since August 1995, Mr.
Kjeld Thygesen, Managing Director of the Subadviser, has been the portfolio
manager of the Fund. Based in London (U.K.), the Subadviser is a part of Lion
Mining Group, which specializes in gold mining and resource company investment
management, corporate finance and consulting.
The Fund's investments may include foreign securities which may be highly
volatile and subject to risks relating to adverse political and economic
developments abroad, fluctuations in currency exchange rates, and differing
characteristics of foreign economies and markets. Investments in gold mining
shares and gold, platinum, and silver bullion are considered speculative and
subject to substantial price fluctuations and other risks. The Fund may also
borrow money from banks from time to time to purchase or carry securities. Such
borrowing is speculative and increases both investment opportunity and
investment risk. See "Risk Factors."
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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.
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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 August __, 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 Table. The tables and example below are designed to help you understand
the various 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 average
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 - 30 days or more after purchase............................NONE
Early Redemption Fee - 29 days or less after purchase......................1.0%
(Early redemption fee applies after August 14, 1995)
Exchange Fees..............................................................NONE
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees............................................................ %
12b-1 Fees................................................................. %
Other Expenses............................................................. %
---
Total Fund Operating Expenses.............................................. %
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
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:
</TABLE>
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 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 ("NASD") rules regarding investment companies. "Other
Expenses" includes amounts paid to the Fund's custodian (net of brokerage
commission credits pursuant to an arrangement not anticipated to increase
materially brokerage commissions paid by the Fund -- see "The Investment
Manager") and Transfer Agent and reimbursable to the Investment Manager and the
Distributor for certain administrative and shareholder services, 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.
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning
of period $ $ 16.98 $ 11.62 $ 12.49 $ 13.36 $ 13.27 14.31 $ 18.76 $ 9.98 $ 10.21
--- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (.11) (.03) (.10) .03 .10 .02 .02 (.02) .02
Net realized and unrealized
gain (loss) on investments (1.05) 5.39 (.72) (.87) .12 (1.03) (3.08) 8.83 (.21)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations (1.16) 5.36 (.82) (.84) .22 (1.01) (3.06) 8.81 (.19)
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Distributions from net
investment income . -- -- (.05) (.03) (.13) (.03) -- (.03) (.04)
Distributions from net
realized gains (.11) -- -- -- -- -- (.35) -- --
Distributions from paid-in-
capital -- -- -- -- -- -- (1.04)(c) -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (.11) -- (.05) (.03) (.13) (.03) (1.39) (.03) (.04)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value at end of period $ $ 15.71 $ 16.98 $ 11.62 $ 12.49 $ 13.36 $ 13.27 $ 14.31 $ 18.76 $ 9.98
=== ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (6.92)% 46.13% (6.57)% (6.23)% 1.51% (7.04)% (16.77)% 88.48% (1.87)%
======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(000's omitted) $ $36,603 $47,489 $24,939 $33,133 $40,301 $37,791 $47,732 $62,256 $20,595
=== ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average
net assets(a) % 2.57% 3.01% 2.96% 2.59% 2.62% 2.46% 2.33% 2.46% 2.39%
=== ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of net investment income
(loss) to average net assets(b) % (.68)% (.29)% (.63)% .34% .65% .17% .10% (.21)% .18%
=== ======= ======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover rate % 129% 156% 97% 95% 65% 60% 52% 66% 32%
=== ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a) Ratio prior to reimbursement by the Investment Manager was 2.52% in 1987,
2.44% in 1988, and 2.70% in 1989.
(b) Ratio prior to reimbursement by the Investment Manager was (.27%) in 1987,
(.01%) in 1988, and (.07%) in 1989.
(c) The distribution represents amounts required to be distributed to avoid
imposition of excise taxes on realized capital gains.
Information relating to outstanding debt during the fiscal periods shown below:
2
<PAGE>
<TABLE>
<CAPTION>
Amount of Debt Average Amount of Average Number of Average Amount of
Fiscal Years Ended Outstanding at End Debt Outstanding Shares Outstanding Debt Per Share
June 30 of Period During the Period During the Period During the Period
------- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1995 $ $ $
1994 0 232,392 2,820,198 0.08
1993 0 76,436 2,296,254 0.03
1992 0 104,041 2,398,765 0.04
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Transaction and Operating Expenses ..2 Distributions and Taxes .............15
Financial Highlights ................2 Determination of Net Asset Value ....16
General .............................4 The Investment Manager ..............17
The Fund's Investment Program .......4 The Subadviser ......................17
Risk Factors ........................4 Distribution of Shares ..............18
How to Purchase Shares ..............9 Performance Information .............18
Shareholder Services ...............11 Capital Stock .......................19
How to Redeem Shares ...............14 Custodian and Transfer Agent ........19
- --------------------------------------------------------------------------------
GENERAL
Purpose of the Fund. The Fund is designed for investors seeking long term
capital appreciation through holdings of gold, platinum and silver bullion, a
global portfolio of gold mining shares, and other investments considered to be
inflation hedges.
Gold Investing. The Investment Manager and the Subadviser believe that
investments in gold, platinum and silver bullion and gold mining shares offer an
opportunity to achieve the long term capital appreciation necessary to protect
wealth against eroding monetary values. Modern history indicates that many
leading industrial nations are now pursuing policies with potentially
irreversible inflationary consequences worldwide. In these nations the leaders
of government, business, labor, and consumer groups are seeking increasingly
differing objectives, making the concerted efforts necessary to control
inflation more elusive than ever. As a result, political pressures to counteract
economic slowdowns have resulted in long term increases in government deficits
and high rates of growth of monetary reserves and credit, along with other
factors such as increases in wage and benefit payments exceeding increases in
productivity. These conditions have been major factors in the inflationary
cycles experienced over the past thirty years in the United States and abroad.
During periods of accelerating inflation or currency uncertainty, worldwide
investment demand for gold and gold mining shares tends to increase and during
periods of decelerating inflation and currency stability, it tends to decrease.
Other uncertain and unstable political and social conditions have also
stimulated demand for gold. The Investment Manager and the Subadviser believe
that the accelerating growth of monetary reserves and credit in industrial
markets may favorably affect gold and gold mining share prices.
Adding the Fund to Your Portfolio. Although investing in bullion, gold mining
shares and foreign securities may involve special considerations and additional
investment risks (see "Risk Factors"), the Investment Manager and the Subadviser
believe that these investments may offer greater capital appreciation potential
during inflationary and politically unstable periods. Additionally, since the
market action of gold mining shares has tended to move independently of or
against the market trends of other sectors of the economy, adding an investment
in the Fund to your portfolio may increase your overall return and may reduce
overall fluctuations in portfolio value. You should not, however, consider a
purchase of Fund shares to be a complete investment program. There is no
assurance that the Fund will achieve its objectives.
THE FUND'S INVESTMENT PROGRAM
In seeking to achieve its primary investment objective of long term capital
appreciation, the Fund will concentrate its investments in gold mining shares
and gold, platinum, and silver bullion. This means at least 25% will, and up to
100% of its assets may, be so invested. Normally, at least 65% of the Fund's
4
<PAGE>
total assets will be invested in equity securities (including common stocks,
convertible securities and warrants) of companies involved directly or
indirectly in mining, processing or dealing in gold or other precious metals,
gold, platinum and silver bullion and gold coins. Currently, the Fund limits
bullion investments to less than 25% of total assets.
The Fund may invest up to 35% of its total assets in securities of
companies that own or develop natural resources and other basic commodities, in
securities of selected growth companies, and securities issued by the U.S.
Government and its agencies or instrumentalities. Natural resources include
ferrous and non-ferrous metals (such as iron, aluminum and copper), strategic
metals (such as uranium and titanium), hydrocarbons (such as coal, oil and
natural gases), chemicals, forest products, real estate, food products and other
basic commodities, which historically have been produced and marketed profitably
during periods of rising inflation. Selected growth companies in which the Fund
may invest typically have earnings or tangible assets which are expected to grow
faster than the rate of inflation over time. The Investment Manager and the
Subadviser believe that such investments can also offer excellent opportunities
to provide hedges against inflation.
Options, Futures, and Forward Currency Contracts. 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
covered straddles, purchase and write put and call options on stock and 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, stock and 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 futures contracts.
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 attempt to 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.
Fixed Income Securities. When seeking to achieve its secondary objective of
income, the Fund will normally invest in investment grade fixed income
securities. Investment grade securities are those rated in the top four
categories by a nationally recognized statistical rating organization such as
Standard & Poor's Ratings Group or Moody's Investors Service, Inc., ("Moody's")
or, if unrated, are determined by the Investment Manager to be of comparable
quality. Moody's considers securities in the fourth highest category to have
speculative characteristics. Such securities may include long, intermediate and
short maturities, depending on the Investment Manager's evaluation of market
patterns and trends. The Fund may invest for temporary defensive purposes in
high grade fixed income securities. The Fund may invest up to 35% of its assets
in fixed income securities rated below investment grade, although it has no
current intention of investing more than 5% of its assets in such securities
during the coming year. The Fund may also invest without limit in unrated
securities if such securities offer, in the Investment Manager's opinion, the
opportunity for a high overall return by reason of their yield, discount at
purchase, or potential for capital appreciation without undue risk. Securities
rated below investment grade and many unrated securities may be considered
predominantly speculative and subject to greater market fluctuations and risks
of loss of income and principal than higher rated fixed income securities. The
5
<PAGE>
market value of fixed income securities usually is affected by changes in the
level of interest rates. An increase in interest rates tends to reduce the
market value of such investments, and a decline in interest rates tends to
increase their value. In addition, fixed income securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater capital appreciation and depreciation than obligations with shorter
maturities. Fluctuations in the market value of fixed income securities
subsequent to their acquisition do not affect cash income from such securities
but are reflected in the Fund's net asset value.
Lending. Pursuant to an arrangement with its custodian bank, the Fund may lend
up to one third of its total assets to other parties. 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 Investment Manager's judgment, 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.
Other Information. The Fund is "non-diversified," as defined in the Investment
Company Act of 1940 (the "1940 Act"), but intends to continue to qualify as a
regulated investment company for Federal income tax purposes. This means, in
general, that more than 5% of the Fund's total assets may be invested in the
securities of one issuer (including a foreign government), but only if at the
close of each quarter of the Fund's taxable year, the aggregate amount of such
holdings is less than 50% of the value of its total assets and no more than 25%
of the value of its total assets is invested in the securities of a single
issuer. To the extent that the Fund's portfolio at times may include the
securities of a smaller number of issuers than if it were "diversified," as
defined in the 1940 Act, the Fund will at such times be subject to greater risk
with respect to its portfolio securities than an investment company that invests
in a broader range of securities, in that changes in the financial condition or
market assessment of a single issuer may cause greater fluctuation in the Fund's
total return. The Fund may invest (i) up to 15% of its net assets in illiquid
securities, including repurchase agreements with a maturity of more than seven
days and (ii) up to 10% of its total assets in restricted securities. In
addition to the Fund's fundamental investment objectives and concentration
policy, the Fund has adopted certain investment restrictions set forth in the
Statement of Additional Information that are fundamental and may not 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. For the fiscal years ended June 30, 1995 and 1994 the Fund's portfolio
turnover rate was ___% and 129%, respectively. A higher portfolio turnover rate
involves correspondingly greater transaction costs and increases the potential
for short term capital gains and taxes.
RISK FACTORS
Because of the following considerations, Fund shares should be considered
speculative and are not a complete investment program. Risks in the Fund's
investment policies include:
1. Price Fluctuations in Bullion. The value of the Fund's investments may be
affected by changes in the price of gold, platinum, and silver. Gold, platinum,
and silver have been subject to substantial price fluctuations over short
periods of time. The prices have been influenced by industrial and commercial
demand, investment and speculation, and monetary and fiscal policies of central
banks and governmental and international agencies. Price fluctuations in bullion
have also caused large price fluctuations in gold mining shares.
6
<PAGE>
2. Concentration of Source of Supply and Control of Sales. Currently, there are
only six major producers of gold: the Republic of South Africa ("South Africa"),
the United States, Australia, the Commonwealth of Independent States (the "CIS,"
formerly the Union of Soviet Socialist Republics), Canada, and China. As South
Africa and the CIS are two major producers of gold and platinum, changes in
political, social and economic conditions affecting either country pose certain
risks to the Fund's investments. The social upheaval and related economic
difficulties in South Africa and the CIS, may, from time to time, influence the
price of gold and platinum and the share values of mining companies involved in
South Africa and the CIS and elsewhere. Investors should understand the special
considerations and risks related to such an investment emphasis, and its
potential effect on the Fund's per share value. South Africa depends
predominantly on gold sales for the foreign exchange necessary to finance its
imports, and its sales policy is necessarily subject to national economic and
political developments. The Fund's ability to invest in South Africa may also be
affected by changes in U.S. laws or regulations relating to South Africa or
foreign investments generally.
3. Concentration. As a matter of fundamental investment policy, the Fund
concentrates its investments in gold mining shares and in gold, platinum, and
silver bullion. Such concentration involves additional investment risks,
increased problems of liquidity, and causes the value of Fund shares to
fluctuate more than if it invested in a greater number of industries.
4. Borrowing. The Fund may borrow money from banks (including its custodian
bank) to purchase and carry securities and will pay interest thereon. If the
investment income on securities purchased with borrowed money exceeds the
interest paid on the borrowing, the Fund's income will be correspondingly
higher. If the investment income fails to cover the Fund's costs, including
interest on borrowings, or if there are losses, the net asset value of the
Fund's shares will decrease faster than would otherwise be the case. Such
borrowing is referred to as leverage, is speculative, and increases both
investment opportunity and investment risk. The 1940 Act requires the Fund to
maintain asset coverage of at least 300% for all such borrowings, and should
such asset coverage at any time fall below 300%, the Fund will be required to
reduce its borrowing within three days to the extent necessary to meet the
requirements of the 1940 Act. To reduce its borrowing the Fund might be required
to sell securities at a disadvantageous time. Interest on money borrowed is an
expense the Fund would not otherwise incur, and it may therefore have little or
no investment income during periods of substantial borrowings.
5. Tax or Currency Laws. Changes in tax or currency laws of the United States or
foreign countries, such as imposition of withholding taxes or other taxes or of
exchange controls on foreign currencies, may inhibit or increase the cost of the
Fund's pursuit of its investment program.
6. Unpredictable International Monetary Policies, Economic and Political
Conditions. Under unusual international monetary or political conditions, the
Fund's assets might be less liquid and the change in value of its assets more
volatile than would be the case with other investments. In particular, because
the price of gold and platinum may be affected by unpredictable international
monetary policies and economic conditions there may be greater likelihood of a
more dramatic impact upon the market prices of securities of companies mining,
processing or dealing in gold and other precious metals than would occur in
other industries.
7. Foreign Securities, Markets and Currencies. You should understand and
consider carefully the substantial risks involved in foreign investing.
Investing in 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
7
<PAGE>
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. 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 Fund's expense ratio can be expected to be higher than
for investment companies investing exclusively in domestic securities.
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. Certain emerging markets countries may also restrict
investment opportunities in issuers in industries deemed important to national
interests.
The Fund may purchase securities on U.S. and foreign stock exchanges or in
the over-the-counter market. Foreign stock markets are generally not as
developed or efficient as those in the United States. In most foreign markets
volume and liquidity are less than in the United States and, at times,
volatility of price can be greater than in the United States. Fixed commissions
on some foreign stock exchanges are higher than the negotiated commissions on
U.S. exchanges. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and companies than in the United States. If the
Fund invests in countries in which settlement of transactions is subject to
delay, the Fund's ability to purchase and sell portfolio securities at the time
it desires may be hampered. Delays in settlement practices in foreign countries
may also affect the Fund's liquidity, making it more difficult to meet
redemption requests, or require the Fund to maintain a greater portion of its
assets in money market instruments in order to meet such requests. Some of the
securities in which the Fund invests may not be widely traded, and the Fund's
position in such securities may be substantial in relation to the market for
such securities. Accordingly, it may be difficult for the Fund to dispose of
such securities at prevailing market prices in order to meet redemption
requests.
Since investment in foreign securities usually involves foreign currencies
and since the Fund may temporarily hold cash in bank deposits in foreign
currencies in order to facilitate portfolio transactions, the value of the
Fund's assets 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.
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The Fund may hold a portion or all of its cash in the form of foreign
currencies. Since investments in foreign currencies, bullion and coins do not
yield income, the Fund may not achieve its secondary objective during periods
when it holds significant positions in such investments. The Fund purchases or
sells gold, platinum, and silver bullion primarily of standard weight at the
best available prices in the New York bullion market (see "Determination of Net
Asset Value"). The Investment Manager retains discretion, however, to purchase
or sell bullion in other markets, including foreign markets, if better prices
can be obtained.
8. Options, Futures, and Forward Currency Contracts. 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 set aside to cover
its obligations under options, futures, or forward currency contracts could
impede effective portfolio management or the ability to meet redemption or other
current obligations.
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 Bull & Bear
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 Gold Investors, mailed to Bull & Bear Service Center, P.O. 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, 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.
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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 Bull & Bear 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 Gold Investors, together with a Bull & Bear FastDeposit form to
Bull & Bear Service Center, P.O. 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 Bull & Bear 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
Bull & Bear 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 Gold Investors 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; Gold Investors. 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 Bull & Bear Service
Center, P.O. 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 Bull & Bear
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 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 Bull & Bear
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
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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 the Fund's
Distributor, Bull & Bear Service Center, 1-800-847-4200.
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 Bull & Bear Service
Center, 1-800-847-4200. You may cancel this privilege by mailing written
notification to Bull & Bear Service Center, P.O. Box 419789, Kansas City, MO
64141-6789. To select a new 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 Bull & Bear Service Center, 1-800-847-4200.
Exchange Privilege. You may exchange at least $500 worth of shares of the Fund
for shares of any other Bull & Bear Fund (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 Bull & Bear Service Center toll-free at
1-800-847-4200 between 9 a.m. and 5 p.m. eastern time on any business day of the
Fund 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:
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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 and
local 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 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.
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.
Exchange requests received between 9 a.m. and 4 p.m. eastern time on any
business day of the Fund 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
business day of the Fund will be effected at the close of the next business day
of the Fund. If you are unable to reach Bull & Bear 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, exchanges are treated as a
redemption and purchase of shares. A free prospectus containing more complete
information including charges, expenses and performance, on any of the Funds
listed above is available from Bull & Bear Service Center, 1-800-847-4200. The
other Fund's prospectus should be read carefully before exchanging. You may give
exchange instructions to Bull & Bear 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 the plans described below is
available from Bull & Bear Service Center, 1-800-847-4200.
The minimum investment to establish a Bull & Bear IRA or other 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
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through the Bull & Bear Automatic Investment Program. There are no set-up fees
for any Bull & Bear Retirement Plans. Subject to change on 30 days' notice, the
plan custodian charges Bull & Bear IRAs 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 if your IRA has assets of $10,000 or more or if
you invest regularly through the Bull & Bear Automatic Investment Program.
o Individual Retirement 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 1995 tax year from January 1, 1995 through April 15, 1996.
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 Bull &
Bear 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.
o 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
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participant's gross income). However, the exclusion allowance 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 Bull & Bear Service Center, P.O. 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.
By Telephone. You may telephone Bull & Bear 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 Bull & Bear 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 Bull & Bear 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.
Check Writing Access. You may exchange a minimum of $500 at any time by
toll-free telephone call into Bull & Bear Dollar Reserves, Bull & Bear's money
market fund, offering free personalized checks, a $250 check writing minimum
($100 minimum for Bull & Bear Securities Performance PlusSM discount brokerage
accounts), and no limit on the number of checks that may be written. A signature
card, which should be submitted for the check writing privilege, and a free Bull
& Bear Dollar Reserves prospectus containing more complete information including
yield, charges and expenses is available from Bull & Bear Service Center, 1-
800-847-4200. Please read the prospectus carefully before exchanging.
Redemption Price and Fee. 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 less than 30 days 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 Fund will retain the fee and
use it to offset the transaction costs that short term trading imposes on the
Fund and its shareholders and other Fund expenses. If an account contains shares
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with different holding periods (i.e. some shares held 29 days or less, some
shares held 30 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 IRA and other Bull & Bear
prototype 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 Bull & Bear 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.
DISTRIBUTIONS AND TAXES
Distributions. The Fund pays dividends annually to its shareholders from its net
investment income, if any. The Fund also makes an annual distribution to its
shareholders out of any net realized capital gains, after offsetting any capital
loss carryover, and any net realized gains from foreign currency transactions.
Dividends and other distributions, if any, are declared and payable to
shareholders of record on a date in December of each year. Such distributions
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 gains.
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Dividends and other distributions are made in additional Fund shares,
unless you elect to receive cash on the Account Application or so elect
subsequently by calling Bull & Bear Service Center, 1-800-847-4200. For Federal
income tax purposes, dividends and other distributions are treated in the same
manner whether received in additional Fund shares or in cash. Any election will
remain in effect until you notify Bull & Bear 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
distribution, although similar in effect to a return of capital, will be subject
to taxes.
The Fund's investments in gold, platinum and silver bullion and coins may
cause it to fail certain income or asset tests that must be satisfied to qualify
as a regulated investment company under the Code. Accordingly, the Investment
Manager will endeavor to manage the Fund's portfolio so that (1) income and
gains derived from investments in bullion and coins (and any other
"non-qualified" income) will not exceed 10% of the Fund's gross annual income
and (2) less than 50% of the value of the Fund's total assets as of the close of
each quarter of its taxable year will be invested in bullion and coins (and any
other "non-qualified assets"). If the Fund did not qualify for taxation as a
regulated investment company, it would be required to pay Federal income tax on
its net income, which would reduce the amount available for distribution to
shareholders.
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. Such withholding also is required with respect
to shareholders who are otherwise 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. Since 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)
16
<PAGE>
each business day of the Fund. A business day of the Fund is any day on which
the New York Stock Exchange is open for trading. The following are not business
days of the Fund: 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 regularly furnishing advice with respect to portfolio transactions.
The Investment Manager manages the investment and reinvestment of the Fund's
assets, 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 the other Bull & Bear Funds. The Investment Manager may also allocate
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 average daily net assets of the Fund, at the
annual rate of 1% on the first $10 million, 7/8 of 1% over $10 million up to $30
million, 3/4 of 1% over $30 million up to $150 million, 5/8 of 1% over $150
million up to $500 million, and 1/2 of 1% over $500 million. This fee is higher
than that paid by most investment companies. From time to time, the Investment
Manager may reimburse all or part of this fee to improve the Fund's 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.___% 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.
THE SUBADVISER
The Investment Manager has entered into a sub-advisory agreement with the
Subadviser for certain subadvisory services. The Subadviser advises and consults
with the Investment Manager regarding the selection, clearing and safekeeping of
the Fund's portfolio investments and assists in pricing and generally monitoring
such investments. The Subadviser also provides the Investment Manager with
advice as to allocating the Fund's portfolio assets among various countries,
including the United States, and among equities, bullion, and other types of
investments, including recommendations of specific investments. The Investment
Manager, not the Fund, pays the Subadviser monthly a percentage of the
Investment Manager's net fees based upon the Fund's performance and its total
net assets ranging from five to fifty percent. The Subadviser, whose principal
business address is 7 - 8 Kendrick Mews, London, U.K. SW7 3HG, is a
majority-owned subsidiary of Lion Mining Group, which is controlled by Andrew F.
Malim. The Subadviser, although having no experience as an investment adviser to
U.S. mutual funds, advises over $___ million in client portfolios, specializing
in global gold and natural resources investments.
17
<PAGE>
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Bull & Bear
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 distribution fee in an amount
of three-quarters of one percent per annum of the Fund's average daily net
assets and a service fee in an amount of one-quarter of one percent per annum of
the Fund's average daily net assets. The service fee portion is intended to
cover personal services provided to Fund shareholders and maintenance of
shareholder accounts. The distribution fee portion is intended to cover all
other activities and expenses primarily intended to result in the sale of the
Fund's shares. These fees may be retained by the Distributor or passed through
to brokers, banks and others who provide services to their customers who are
Fund shareholders at the rate of thirty-five basis points on such customer
balances. 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. If the Distributor's
expenses are less than such fees, it may realize a profit. Certain other
advertising and sales materials may be prepared to promote the sale of Fund
shares and shares of one or more other Bull & Bear Funds. 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 the
other Funds and Bull & Bear Securities, Inc. will benefit therefrom.
PERFORMANCE INFORMATION
From time to time the Fund may advertise its "average annual total return"
or "total return" (which may be referred to as cumulative total return or
cumulative growth) over specified periods. Average annual total return is
calculated pursuant to a standardized formula which assumes a hypothetical
$10,000 investment in the Fund was redeemed at the end of a stated period of
time, after giving effect to the reinvestment of dividends and distributions
during the period. The return is expressed as a percentage rate which, if
applied on a compounded annual basis, would result in the redeemable value of
the investment at the end of the period. Total return is computed on a per share
basis, assumes the reinvestment of dividends and distributions, and is
calculated by combining the income and principal changes for a specified period
and dividing by the net asset value per share at the beginning of the period.
Advertisements may show total return as a percentage rate or as the value of a
hypothetical investment at the end of the period. The Fund's performance may be
compared to the performance of broad groups of comparable mutual funds, or the
performance of unmanaged indexes of comparable securities. The Fund's total
return is based upon historical performance information and is not intended to
indicate future performance.
18
<PAGE>
The Fund's performance during the year generally reflected primarily
fluctuations in the prices of gold and other precious metals. Although prices
increased during the past fiscal year, short term fluctuations displayed
substantial up and down volatility in response to global economic and political
events. Commodity and hedge fund speculation, changing Far East economic demand
and political developments, European currency turmoil, international trade
activity, jewelry manufacturing levels, and central bank policies all tended to
affect price levels over the recent fiscal year period. Over the fiscal year,
the Fund engaged in futures and options transactions to fix the costs of future
investments, to hedge against potential price declines in the market value of
certain portfolio securities, and to enhance returns. The Fund did not invest in
coins, although it is permitted to do so.
-------------------------------
Average Annual Total Return for
Periods Ended June 30, 1995
One Year: %
Five Years %
Ten Years %
-------------------------------
CAPITAL STOCK
The Fund, a non-diversified open-end management investment company
organized as a Maryland corporation in 1987, commenced investment operations in
January 1988 when it merged with Bull & Bear Gold Investors Ltd. (formerly
Golconda Investors Ltd.), a New York corporation. The Fund is authorized to
issue up to 500,000,000 shares of common stock ($.01 par value). The Fund's
stock 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. Each share has equal dividend, voting, liquidation and redemption
rights with every other share. The shares have no preemptive, conversion or
cumulative voting rights and they are not subject to further call or assessment.
The Board of Directors of the Fund may establish additional series or classes of
shares, although it has no current intention of doing so.
The Fund'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 Fund'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 vote on the Fund's investment management
agreement, plan of distribution, or 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 of such arrangements and depositories will increase
the Fund's expenses (see the special considerations involving foreign securities
discussed above). All of the Fund's gold, platinum, and silver bullion is held
by Wilmington Trust Company, Rodney Square North, Wilmington, DE 19890. The
custodian also performs certain accounting services for the Fund.
The Fund's transfer and dividend disbursing agent is DST Systems, Inc.,
P.O. Box 419789, Kansas City, MO 64141-6789. The Distributor provides certain
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.
19
<PAGE>
[Left Side of Back Cover Page]
GOLD
INVESTORS
- --------------------------------------------------------------------------------
11 Hanover Square
New York, NY 10005
1-800-847-4200 1-212-363-1100
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
<PAGE>
[Right Side of Back Cover Page]
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
Electronic Funds Transfers
Automatic Investment Program
Retirement Plans: IRA, SEP-IRA,
Qualified Profit Sharing/Money
Purchase, 403(b), Keogh
- --------------------------------------------------------------------------------
Minimum Initial Investment:
Regular Accounts, $1,000;
IRAs, $500; Automatic
Investment Programs, $100
Minimum Subsequent Investments: $100
- --------------------------------------------------------------------------------
Prospectus
August __, 1995
[LOGO]
Performance Driven(R)
<PAGE>
Statement of Additional Information August __, 1995
BULL & BEAR GOLD INVESTORS LTD.
11 Hanover Square
New York, NY 10005
1-800-847-4200
1-212-363-1100
This Statement of Additional Information regarding Bull & Bear Gold
Investors Ltd. (the "Fund") is not a prospectus and should be read in
conjunction with the Fund's Prospectus dated August __, 1995. The Prospectus is
available to prospective investors without charge upon request to Bull & Bear
Service Center, Inc., Distributor, 11 Hanover Square, New York, NY 10005,
1-800-847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM................................................. 2
INVESTMENT RESTRICTIONS....................................................... 5
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES..................... 7
THE BULL & BEAR FUNDS.........................................................14
OFFICERS AND DIRECTORS........................................................15
THE INVESTMENT MANAGER........................................................17
INVESTMENT MANAGEMENT AGREEMENT...............................................17
THE SUBADVISER AND THE SUBADVISORY AGREEMENT..................................18
PERFORMANCE INFORMATION.......................................................19
DISTRIBUTION OF SHARES........................................................22
DETERMINATION OF NET ASSET VALUE..............................................24
PURCHASE OF SHARES............................................................24
ALLOCATION OF BROKERAGE.......................................................24
DISTRIBUTIONS AND TAXES.......................................................26
REPORTS TO SHAREHOLDERS.......................................................28
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.............................28
AUDITORS .....................................................................28
FINANCIAL STATEMENTS..........................................................28
APPENDIX--DESCRIPTIONS OF BOND RATINGS........................................29
1
<PAGE>
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.
Metal-Indexed Notes and Precious Metals. The Fund may invest in notes, the
principal amount or redemption price of which is indexed to and thus varies
directly with, changes in the market price of gold bullion or other precious
metals ("Metal-Indexed Notes"). It is expected that the value of Metal-Indexed
Notes will be as volatile as the price of the underlying metal.
The Fund will only purchase Metal-Indexed Notes which are rated, or are
issued by issuers that have outstanding debt obligations rated, investment grade
(that is, rated in one of the top four rating categories by any nationally
recognized statistical rating organization) or commercial paper rated in the top
rating category by any nationally recognized statistical rating organization or
of issuers that the Investment Manager has determined to be of similar
creditworthiness. Debt obligations rated in the fourth highest rating category
by a nationally recognized statistical rating organization are considered to
have some speculative characteristics. The Metal-Indexed Notes might be backed
by a bank letter of credit, performance bond, or might be otherwise secured, and
any such additional credit support, which would be held by the Fund's custodian,
would be taken into account in determining the creditworthiness of the
securities. The Fund may purchase unsecured Metal-Indexed Notes if the issuer
thereof met the Fund's credit standards without any such additional credit
support. While the principal amount or redemption price of Metal-Indexed Notes
would vary with the price of the resource, such securities would not be secured
by a pledge of the resource or any other security interest in or claim on the
resource. In the case of Metal-Indexed Notes not backed by a performance bond,
letter of credit or similar credit support, it is expected that such securities
generally would not be secured by any other specific assets.
The Fund anticipates that if Metal-Indexed senior securities were to be
purchased, they would be issued by precious metals or commodity brokers or
dealers, by mining companies, by commercial banks or by other financial
institutions. Such issuers would issue notes to hedge their inventories and
reserves of the resource, or to borrow money at a relatively low cost (which
would include the nominal rate of interest paid on Metal-Indexed Notes,
described below, and the cost of hedging the issuer's precious metals exposure).
The Fund would not purchase a Metal-Indexed Note issued by a broker or dealer if
as a result of such purchase more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer. The Fund might
purchase Metal-Indexed Notes from brokers or dealers which are not also
securities brokers or dealers. Precious metals or commodity brokers or dealers
are not subject to supervision or regulation by any governmental authority or
self-regulatory organization in connection with the issuance of Metal-Indexed
Notes.
Until recently, there were no Metal-Indexed Notes outstanding and
consequently there is no secondary trading market for such securities. Although
a limited secondary market might develop among institutional traders, there is
no assurance that such a market will develop. No public market is expected to
develop, since the Fund expects that Metal-Indexed Notes will not be registered
under the Securities Act of 1933, and therefore disposition of such securities,
other than to the issuer thereof (as described below) would be dependent upon
the availability of an exemption from such registration.
Metal-Indexed Notes purchased by the Fund will generally have maturities of
one year or less. Such notes, however, will be subject to being called for
redemption by the issuer on relatively short notice. In addition, it is expected
that the Metal-Indexed Notes will be subject to being put by the Fund to the
issuer or to a stand-by broker meeting the credit standards set forth above,
with payments being received by the Fund on no more than 7 days notice. A
stand-by broker may be a securities broker-dealer, in which case the Fund's
investment will be limited by applicable regulations of the SEC. The put feature
of the Metal-Indexed Notes will ensure liquidity even in the absence of a
secondary trading market. The securities will be repurchased upon exercise of
the holder's put at the price determined in the manner described above, less
repurchase fees, if any, which are not expected to exceed 1% of the redemption
or repurchase proceeds. Depending on the terms of the particular Metal-Indexed
Notes, there might be a period of as long as 5 days between the date that the
Fund notifies the issuer of the exercise of the put and determination of the
sale price.
It is expected that any Metal-Indexed Notes which the Fund might purchase
will bear interest or pay preferred dividends at relatively nominal rates under
2% per annum. The Fund's holdings of such senior securities therefore would not
generate any appreciable current income, and the return from such senior
securities would be primarily from any profit on the sale or maturity thereof at
a time when the price of the relevant precious metal is higher than it was when
2
<PAGE>
the senior securities were purchased. The Fund will not invest in Metal-Indexed
Notes that are not publicly traded until it is certain how the Internal Revenue
Service would characterize income derived from such notes.
Foreign Securities. Because the Fund may invest in foreign securities,
investment in the Fund involves investment risks of adverse political and
economic developments that are different from an investment in a fund which
invests only in the securities of U.S. issuers. Such risks may include adverse
movements in the market value of foreign securities during days on which the
Fund's net asset value per share is not determined (see "Determination of Net
Asset Value"), the possible imposition of withholding taxes by foreign
governments on dividend or interest income payable on the securities held in the
portfolio, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of dividends
or principal and interest on securities in the portfolio.
The Fund may invest in foreign securities by purchasing American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement.
Borrowing. 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 principal ly 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.
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 buyers interested
3
<PAGE>
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 Board of Directors of the Fund 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.
Convertible Securities. The Fund may invest in convertible securities which
are bonds, debentures, notes, preferred stocks or other 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 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.
Preferred Securities. The Fund may invest in preferred stocks of U.S. and
foreign issuers that, in the Investment Manager's judgment, offer potential for
growth of capital and income. Such equity securities involve greater risk of
loss of income than debt securities because issuers are not obligated to pay
dividends. In addition, equity securities are subordinate to debt securities,
and are more subject to changes in economic and industry conditions and in the
financial condition of the issuers of such securities.
Lower Rated Debt Securities. The Fund is authorized to invest up to 35% of
its total assets in debt securities rated below investment grade, although it
has no current intention of investing more than 5% of its total assets in such
securities during the coming year. Ratings of investment grade or better include
the four highest ratings of Standard & Poor's Ratings Group ("S&P") (AAA, AA, A,
or BBB) and Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A, or Baa).
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 interest payments
than is the case for higher grade debt securities. Debt securities rated below
4
<PAGE>
investment grade are deemed by these rating agencies to be predominantly
speculative with respect to the issuers' capacity to pay interest and repay
principal and may involve major risk exposure to adverse conditions. Debt
securities rated lower than B may include securities that are in default or face
the risk of default with respect to principal or interest.
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the 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 interest payments and do not evaluate the risks 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 current financial
condition may be better or worse than the rating indicates. See the Appendix to
this Statement of Additional Information for further information regarding S&P's
and Moody's ratings.
Lower rated debt securities generally offer a higher current yield than
that available from 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
adverse 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 interest and principal and increase the possibility of default. In
addition, the market for lower rated securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt 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 decline in price will not recur. The market for lower rated
debt securities may be thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at their
fair value in response to changes in the economy or the 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions that
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) Borrow money, except to the extent permitted by the Investment Company Act
of 1940 ("1940 Act");
(2) 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;
(3) 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;
(4) Purchase or sell commodities (other than precious metals) or commodity
futures contracts, although it may enter into (a) financial, foreign
currency, and precious metals futures contracts and options thereon, (b)
options on foreign currencies and precious metals, and (c) forward
contracts on foreign currencies and precious metals;
(5) 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 objectives and policies, and (c) engaging in securities,
precious metals, and other asset loan transactions up to one-third of the
Fund's total assets; or
(6) Issue senior securities as defined in the 1940 Act. The following will not
be deemed to be senior securities prohibited by this provision: (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
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transactions, and (d) to the extent consistent with the 1940 Act and
applicable rules and policies adopted by the Securities and Exchange
Commission, (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.
The Fund's Board of Directors has established the following non-fundamental
investment limitations 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 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 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 1933 Act;
(v) The Fund may not make short sales of securities, except (a) the Fund may
buy and sell options, futures contracts, options on futures contracts,
and forward contracts, and (b) 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;
(vi) 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
contracts and other derivative instruments shall not be deemed to
constitute purchasing securities on margin;
(vii) TheFund 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 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 invest more than 25% of its total assets in precious
metals;
(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; or
(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.
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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 Commission ("CFTC"). Certain special
characteristics of and risks associated with using these instruments are
discussed below. In addition to the non-fundamental investment restrictions
described above in sections (xi) and (xii), 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 may 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 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 coverage of these strategies by either (1) setting 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) holding
securities, currencies or other options or futures contracts whose values are
expected to offset ("cover") its obligations thereunder. Securities, currencies
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 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 predetermined 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.
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
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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 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 and the option is exercised, the Fund would be obligated to sell the
security at less than its market value. The Fund would give up the ability sell
any portfolio securities used to cover the call option while the call option was
outstanding. 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).
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
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
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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 quotations 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 securities 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 represented 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 market
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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
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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 securities should be in part or wholly
offset by gains in the futures position.
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 price 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 securities 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,
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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 performance 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 pay ments,
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 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
terminated. 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
of 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 requirements. 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
12
<PAGE>
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.
(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 securities 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 result
in such a loss.
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
13
<PAGE>
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 or 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 22.
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 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 decisions made with regard to overall
investment 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 eliminate 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 BULL & BEAR FUNDS
The Bull & Bear Funds are:
Bull & Bear Dollar Reserves
Bull & Bear U.S. Government Securities Fund
Bull & Bear Municipal Income Fund
Bull & Bear Global Income Fund
Bull & Bear Quality Growth Fund
Bull & Bear U.S. and Overseas Fund
Bull & Bear Special Equities Fund
Bull & Bear Gold Investors
14
<PAGE>
OFFICERS AND DIRECTORS
The officers and Directors of the Fund, 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 the
other four investment companies in the Bull & Bear Funds Complex (the "Bull &
Bear Funds Complex") and of the parent of the Investment Manager, Bull & Bear
Group, Inc. ("Group"). 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 the Bull & Bear Funds 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 ________. 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 certain of the other Bull & Bear Funds.
BRUCE B. HUBER, CLU -- Director. 298 Broad Street, Red Bank, NJ 07701. He is
President of Huber, Hogan & Knotts, Inc. financial consultants and insurance
planners. He was born February 7, 1930. From 1988 to 1990, he was Chairman of
Bruce Huber Associates. From 1987 to 1988, he was Chairman of Economic Benefits
Corporation, and prior thereto President of Bruce Huber Associates, Inc., a
financial and insurance consulting firm specializing in estate, corporate, and
executive benefit planning. He is also a Director of the Bull & Bear Funds
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 Bull & Bear Funds 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 Bull & Bear Funds 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 Bull & Bear Funds 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 Bull & Bear Funds Complex and of Group and
certain of its affiliates, Chairman of the Investment Manager and Bull & Bear
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 two of the
other investment companies in the Bull & Bear Funds 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 Bull & Bear Funds 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 certain of the other Bull & Bear Funds.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Bull & Bear Funds Complex, the Investment Manager and certain of its affiliates.
He was born March 1, 1955. From 1993 to 1995, he was Associate Director --
15
<PAGE>
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
Bull & Bear Funds 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 Bull & Bear Funds 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 Bull & Bear Funds 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 Fund as defined by the 1940 Act, because of
their positions with the Investment Manager.
Compensation Table
<TABLE>
<CAPTION>
===================================================================================================================================
Total Compensation
Pension or Retirement Estimated Annual From Registrant and
Aggregate Compensa- Benefits Accrued as Benefits Upon Fund Complex Paid to
Name of Person, Position tion From Registrant Part of Fund Expenses Retirement Directors
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bassett S. Winmill None None None None
Chairman
- -----------------------------------------------------------------------------------------------------------------------------------
Robert D. Anderson None None None None
Vice Chairman
- -----------------------------------------------------------------------------------------------------------------------------------
Russell E. Burke III $3,000 None None $_,000 from _ Funds
Director
- -----------------------------------------------------------------------------------------------------------------------------------
Bruce B. Huber $3,000 None None $_,000 from _ Funds
Director
- -----------------------------------------------------------------------------------------------------------------------------------
James E. Hunt $3,000 None None $_,000 from _ Funds
Director
- -----------------------------------------------------------------------------------------------------------------------------------
Frederick A. Parker $3,000 None None $_,000 from _ Funds
Director
- -----------------------------------------------------------------------------------------------------------------------------------
John B. Russell $3,000 None None $_,000 from _ Funds
Director
- -----------------------------------------------------------------------------------------------------------------------------------
Mark C. Winmill None None None None
Director
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas B. Winmill None None None None
Director, Co-President
- -----------------------------------------------------------------------------------------------------------------------------------
Steven A. Landis None None None None
Senior Vice President
- -----------------------------------------------------------------------------------------------------------------------------------
Brett B. Sneed None None None None
Senior Vice President
===================================================================================================================================
</TABLE>
16
<PAGE>
Information in the above table is based on fees paid during the year ended
June 30, 1995. 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 year
ended June 30, 1995, Messrs. Huber and Hunt deferred such fees pursuant to this
arrangement.
No officer, Director or employee of the Fund's Investment Manager receives
any compensation from the Fund for acting as an officer, Director or employee of
the Fund. As of May 31, 1994, officers and Directors of the Fund owned less than
1% of the outstanding shares of the Fund. As of May 31, 1995, the following
owners of record owned more than 5% of the outstanding shares of the Fund:
Charles Schwab & Co. Inc., 101 Montgomery St., San Francisco, CA 94104, 8.08%.
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 other principal subsidiaries of Group include Bull & Bear
Service Center, Inc., the Fund's Distributor and a registered broker/dealer, and
BBSI, a registered broker/dealer providing discount brokerage services.
Group is a publicly owned company whose securities are listed on the
National Association of Securities Dealers Automated Quotations system
("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 Bull & Bear Funds,
each of which is managed by the Investment Manager, had net assets in excess of
$250,000,000 as of October 10, 1994.
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, 1992, 1993, and 1994
the Fund paid to the Investment Manager aggregate investment management fees of
$256,444, $244,629 and $405,964 respectively. No reimbursement was made to the
Fund by the Investment Manager for the fiscal years ended June 30, 1992, 1993
and 1994 pursuant to the expense guaranty described above.
If requested by the Fund'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 Fund who are not interested persons of the Investment Manager
or any affiliate thereof. The cost of such services billed to the Fund by the
Investment Manager for the fiscal years ended June 30, 1992, 1993 and 1994 was
$6,017, $10,090 and $19,383, respectively.
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.
17
<PAGE>
The Investment Management Agreement will continue in effect, unless sooner
terminated as described below, for two years from the date of shareholder
approval, April 29, 1993. Thereafter, if not terminated, the Investment
Management Agreement will continue automatically for successive periods of
twelve months, provided such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund 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 Fund 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 Fund 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 Fund 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 Fund shall not be the
Investment Manager or another subsidiary of Group. If the license is terminated,
the Fund 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.
THE SUBADVISER AND THE SUBADVISORY AGREEMENT
The Investment Manager has entered into a subadvisory agreement with Lion
Resource Management Limited (the "Subadviser") for certain subadvisory services.
The Subadviser advises and consults with the Investment Manager regarding the
selection, clearing and safekeeping of the Fund's portfolio investments and
assists in pricing and generally monitoring such investments. The Subadviser
also provides the Investment Manager with advice as to allocating the Fund's
portfolio assets among various countries, including the United States, and among
equities, bullion, and other types of investments, including recommendations of
specific investments. The Investment Manager, not the Fund, pays the Subadviser
monthly a fee based upon the Fund's performance and its total net assets. The
Subadviser, whose principal business address is 7 - 8 Kendrick Mews, London,
U.K. SW7 3HG, is a wholly-owned subsidiary of The Lion Mining Group, a mining
finance and natural resource investment manager.
In consideration of the Subadviser's services, the Investment Manager, and
not the Fund, pays to the Subadviser a percentage of the Investment Manager's
Net Fees. "Net Fees" are defined as the actual amounts received by the
Investment Manager as compensation less reimbursements, if any, pursuant to the
guaranty of the Investment Management Agreement and waivers of such compensation
by the Investment Manager. The amount of the percentage is determined by the
grid and accompanying definitions set forth as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
RELATIVE PERFORMANCE(A)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS(B) More than 50 basis points Within 50 basis points More than 50 basis
better than BTR of BTR points below BTR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<=$50,000,000 30% 17.5% 5%
- -----------------------------------------------------------------------------------------------------------------------------------
>$50,000,000 and 40% 30% 20%
<=$150,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
>$150,000,000 and 45% 35% 25%
<=$250,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
>$250,000,000 50% 40% 30%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A. "Relative Performance" is determined from comparing the total return
performance of the Fund and the total return performance of the "Benchmark
Performance" of the objective category of "precious metals" funds ("BTR")
as determined by Morningstar, Inc., or, if unavailable, other similar
service acceptable to the parties and the Fund. The Relative Performance is
determined as of the last calendar day of each month ("Performance
Determination Date") and measures the Relative Performance for the most
recent 12 month period ("Measurement Period"), except that for the first 12
months of the Subadvisory Agreement, Relative Performance is based upon
annualized returns, the first three Performance Determination Dates are the
next three calendar quarter ends after the effective date of the
18
<PAGE>
Subadvisory Agreement, and the Measurement Periods are the most recent
three months and the fourth Performance Determination Date is the next
calendar quarter end and the Measurement Period is the most recent twelve
months.
B. "Total Net Assets" is the total net assets of the Fund as of the
Performance Determination Date.
The Subadvisory Agreement is not assignable and automatically terminates in
the event of its assignment, or in the event of the termination of the
Investment Management Agreement. The Subadvisory Agreement may also be
terminated without penalty on 60 days' written notice at the option of either
party thereto or by the Fund, by the Board of Directors or by a vote of Fund
shareholders. The Subadvisory Agreement provides that the Subadviser shall not
be liable to the Fund for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with any investment policy or the
purchase, sale or retention of any security on the recommendation of the
Subadviser. Nothing contained in the Subadvisory Agreement, however, shall be
construed to protect the Subadviser against any liability to the Fund by reason
of willful malfeasance, bad faith, or gross negligence in the performance of its
duties or by reason of its reckless disregard of obligations and duties under
the Subadvisory Agreement.
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 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, 1994 may vary
substantially from those shown below.
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/p)i/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 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 -6.92%, % and %, 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 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 July 1 of the years shown) at the end of the periods
through June 30, 1995.
19
<PAGE>
<TABLE>
<CAPTION>
Average Ending Value of a Ending Value
Start of Periods Annual Total $1,000 of a $10,000
Ending 6/30/95 Total Return Return Investment Investment
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
July 1, 1994
July 1, 1993
July 1, 1992
July 1, 1991
July 1, 1990
July 1, 1989
July 1, 1988
July 1, 1987
July 1, 1986
July 1, 1985
</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 three months
or the year to date. For example, the Fund's nonstandardized total return for
the three year period ended September 30, 1994 was 16.45%. 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 the other Bull & Bear Funds, which Funds 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 data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Index (20 year) Bond. 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.
Composite Index -- 70% Standard & Poor's 500 Composite Stock Price Index ("S&P
500") and 30% Nasdaq Industrial Index.
Composite Index -- 35% S&P 500 Index and 65% Salomon Brothers High Grade Bond
Index.
Composite Index -- 65% S&P 500 Index and 35% Salomon Brothers High Grade Bond
Index.
20
<PAGE>
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.
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 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 3000 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.
21
<PAGE>
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 -- is a market-weighted index that
contains approximately 4700 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.
S&P 500 -- is a well diversified list of 500 companies representing the U.S.
Stock Market.
Standard & Poor's 100 Composite Stock Price Index -- is a well diversified list
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 S&P 500.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement Bull & Bear 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 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
22
<PAGE>
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 the vote 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.
Prior to October 28, 1993, the Fund was subject to a plan of distribution
pursuant to which the Fund reimbursed or compensated the Distributor in an
amount up to one-half of one percent per annum of the Fund's average daily net
assets for expenditures that were primarily intended to result in the sale of
Fund shares. Of the amounts reimbursed or compensated to the Distributor during
the Fund's fiscal year ended June 30, 1995, approximately $ represented
reimbursement of expenses incurred for advertising, $ for printing and mailing
prospectuses and other information to other than current shareholders, $ for
salaries of marketing and sales personnel, $ for payments to third parties who
sold shares of the Fund and provided certain services in connection therewith,
and $ for overhead and miscellaneous expenses.
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.
23
<PAGE>
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) each business day of the Fund. The following are not business days
of the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Because a
substantial portion of the Fund's net assets may be invested in gold, platinum
and silver bullion, foreign securities and/or foreign currencies, trading in
each of which is also conducted in foreign markets which are not necessarily
closed on days when the NYSE is closed, the net asset value per share may be
significantly affected on days when shareholders have no access to the Fund or
its transfer agent.
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
as 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 and bullion, if any, are valued at the price in a
principal market where they are traded, or, if last sale 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 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
by the Transfer Agent. 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, payment of the lowest spread or commission is not
necessarily consistent with obtaining the bet 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, sales of
Fund shares and shares of the other Bull & Bear Funds, 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
24
<PAGE>
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 the other Bull & Bear Funds 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.
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
25
<PAGE>
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 $194,519, $320,836, and $__ respectively. For the
fiscal year ended June 30, 1995, $__ in brokerage commissions (representing $__
in portfolio transactions) was allocated to broker/dealers that provided
research services. No transactions were directed to broker/dealers during such
periods for selling shares of the Fund or any of the other Bull & Bear Funds.
During the Fund's fiscal years ended June 30, 1993, 1994 and 1995 the Fund paid
brokerage commissions of $20,808, $53,103, and $__ respectively, to BBSI,
representing approximately 10.7%, 16.55%, and --% respectively, of the total
brokerage commissions paid by the Fund and 18.8%, 19.27%, and __% respectively,
of the aggregate dollar amount of Fund transactions involving the payment of
commissions.
Investment decisions for the Fund and for the other Funds managed by the
Investment Manager 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 Bull & Bear Funds 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.
From time to time, certain brokers may be paid a fee for recordkeeping,
shareholder communications and other services provided by them to investors
purchasing shares of the Fund through the "no transaction fee" programs offered
by such brokers. This fee is based on the average daily value of the investments
in the Fund made by such brokers on behalf of investors participating in their
"no transaction fee" programs. The Fund's directors have further authorized the
Investment Manager to place a portion of the Fund's brokerage transactions with
any of such brokers, if the Investment Manager reasonaby believes that, in
effecting the Fund's transactions in portfolio securities, such broker or
brokers are able to provide the best execution of orders at the most favorable
prices. Commissions earned by such brokers from executing portfolio transactions
on behalf of the Fund may be credited by them against the fee they charge the
Fund, on a basis which has resulted from negotiations between the Investment
Manager and such brokers.
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) 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
26
<PAGE>
Fund will not be liable for Federal income taxes 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 portion of the dividends from the Fund's investment company taxable
income (whether paid in cash or in additional Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
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 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.
Dividends and 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
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 would be subject to the distribution
requirements described above. In most instances it will be very difficult, if
not impossible, to make this election because of certain requirements thereof.
Three bills passed by Congress in 1991 and 1992 and vetoed by President
Bush would have substantially modified the taxation of U.S. shareholders of
foreign corporations, including eliminating the provisions described above
dealing with PFICs and replacing them (and other provisions) with a regulatory
scheme involving entities called "passive foreign corporations." The "Tax
Simplification Bill and Technical Corrections of 1993," passed in May 1994 by
the House of Representatives contains the same modifications. It is unclear at
this time whether, and in what form, the proposed modifications may be enacted
into law.
27
<PAGE>
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 the 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 $__ respectively.
AUDITORS
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia, PA
19101-1707, 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.
28
<PAGE>
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 the 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 Ratings Group'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 principal and
interest.
AA Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest 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 principal interest, 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 principal
and interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this capacity than
for bonds in the A category.
BB, B, CCC, CC Bonds rated BB, B, CCC and CC 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 CC 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.
29
<PAGE>
BULL & BEAR GOLD INVESTORS LTD.
Cross Reference Sheet
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements in Part A of this Registration Statement:
Financial Highlights
Financial Statements Included in Part B of this Registration
Statement:
The Annual Report to Shareholders of the Fund for the fiscal period
ended June 30, 1994 containing financial statements as of and for the
fiscal period ended June 30, 1994 is incorporated into the Statement
of Additional Information by reference. The letter to shareholders and
other information contained on pages 1 through 2 of said Annual Report
to Shareholders is not incorporated in Part B by reference and is not
a part of this Registration Statement.
(b) Exhibits
(1) Articles of Incorporation. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 64 to the
Registration Statement, SEC File No. 2-14486, filed September 2,
1993.
(2) By-Laws. Incorporated herein by reference to corresponding
Exhibit of Post-Effective Amendment No. 64 to the Registration
Statement, SEC File No. 2-14486, filed September 2, 1993.
(3) Voting trust agreement -- none
(4) Specimen security. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 61 to the
Registration Statement, SEC File No. 2-14486, filed October 30,
1992.
(5) Investment Management Agreement. Incorporated herein by reference
to corresponding Exhibit of Post-Effective Amendment No. 64 to
the Registration Statement, SEC File No. 2-14486, filed September
2, 1993. Transfer agreement and consent. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment
No. 62 to the Registration Statement, SEC File No. 2-14486, filed
March 2, 1993.
(6) Underwriting agreement - none
(7) Bonus, profit sharing or pension plans -- none
(8) (a) Custodian Agreement. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 61 to
the Registration Statement, SEC File No. 2-14486, filed
October 30, 1992.
(b) Depository Agreements. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 63 to
the Registration Statement, SEC File No. 2-14486, filed
April 30, 1993.
(c) Wilmington Trust Company Agreement. Incorporated by
reference to corresponding Exhibit of Post-Effective
Amendment No. 58 to the Registration Statement, SEC File No.
2-14486, filed August 30, 1991.
Part C p.1
<PAGE>
(9) (a) Administration Agreement. Incorporated herein by reference
to corresponding Exhibit of Post-Effective Amendment No. 61
to the Registration Statement, SEC File No. 2-14486, filed
October 30, 1992.
(b) Amendments to Administration Agreement. Incorporated herein
by reference to corresponding Exhibit of Post-Effective
Amendment No. 61 to the Registration Statement, SEC File No.
2-14486, filed October 30, 1992.
(c) Shareholder Services Agreements. Incorporated herein by
reference to corresponding Exhibit of Post-Effective
Amendment No. 61 to the Registration Statement, SEC File No.
2-14486, filed October 30, 1992.
(d) Transfer Agency Agreement. Incorporated herein by reference
to corresponding Exhibit of Post-Effective Amendment No. 65
to the Registration Statement, SEC File No. 2-14486, filed
October 31, 1994.
(10) Opinion of counsel. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 61 to the
Registration Statement, SEC File No. 2-14486, filed October 30,
1992.
(11) Other opinions, appraisals, rulings and consents - Accountants'
consent. Incorporated herein by reference to corresponding
Exhibit of Post-Effective Amendment No. 65 to the Registration
Statement, SEC File No. 2-14486, filed October 31, 1994.
(12) Financial statements omitted from Item 23 -- not applicable
(13) Agreement for providing initial capital -- not applicable
(14) (a) Combined Profit Sharing-Money Purchase Plan and Trust.
Incorporated by reference to corresponding Exhibit of
Post-Effective Amendment No. 58 to the Registration
Statement, SEC File No. 2-14486, filed August 30, 1991.
(b) Qualified Retirement Plan Incorporated hereby by reference
to Post-Effective Amendment No. 46 to the Registration
Statement of Bull & Bear Incorporated, SEC File No. 2-57953,
filed September 3, 1992.
(15) (a) Plan pursuant to Rule 12b-1. Incorporated herein by
reference to corresponding Exhibit of Post-Effective
Amendment No. 64 to the Registration Statement, SEC File No.
2-14486, filed September 2, 1993.
(b) Related Agreement to Plan of Distribution between Bull &
Bear Service Center, Inc. and Hanover Direct Advertising
Company, Inc. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 58 to the
Registration Statement, SEC File No. 2-14486, filed August
30, 1991.
(c) Broker Services Agreements. Incorporated herein by reference
to corresponding Exhibit of Post-Effective Amendment No. 63
to the Registration Statement, SEC File No. 2-14486, filed
April 30, 1993.
(16) Schedule for computation of performance quotations
(a) Basic information. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 62 to
the Registration Statement, SEC File No. 2-14486, filed
March 2, 1993.
(b) Supplemental information. Incorporated herein by reference
to corresponding Exhibit of Post-Effective Amendment No. 65
to the Registration Statement, SEC File No. 2-14486, filed
October 31, 1994.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Part C p. 2
<PAGE>
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of June 9, 1995)
-------------- --------------------
Shares of Common Stock, 4,011
$0.01 par value
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
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 amended Investment Management Agreement between the Registrant
and Bull & Bear Advisers, Inc. (the "Investment Manager") 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.
Part C p. 3
<PAGE>
Section 9 of the Distribution Agreement between the Registrant and Bull &
Bear 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 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 contract 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; Bull & Bear Service Center,
Inc., the distributor of the Bull & Bear Funds and a registered broker/dealer
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
Part C p. 4
<PAGE>
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. and 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.
Item 29. Principal Underwriters
a) In addition to the Registrant, Bull & Bear Service Center, Inc. serves
as principal underwriter of Bull & Bear Funds II, Inc., Bull & Bear Special
Equities Fund, Inc., Bull & Bear Funds I, Inc., and Bull & Bear Municipal
Securities, Inc.
b) Service Center will serve as the Registrant's principal underwriter. 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>
Name and Principal Position and Offices with Bull & Bear Position and Offices
Business Address Service Center, Inc. with Registrant
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 Financial Co-President, Director, and Chief
11 Hanover Square Officer Financial Officer
New York, NY 10005
Thomas B. Winmill President, Director, General Counsel Co-President, Director, and General
11 Hanover Square Counsel
New York, NY 10005
Kathleen B. Fliegauf Vice President and Assistant Treasurer None
11 Hanover Square
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 Officer Treasurer, Chief Accounting Officer
11 Hanover Square
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>
Part C p. 5
<PAGE>
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
Part C p. 6
<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 June 26, 1995.
BULL & BEAR GOLD INVESTORS LTD.
By: Thomas B. Winmill
---------------------
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:
Mark C. Winmill Director, Co-President June 26, 1995
- --------------- and Co-Chief Executive
Mark C. Winmill Officer
Thomas B. Winmill Director, Co-President June 26, 1995
- ----------------- and Co-Chief Executive
Thomas B. Winmill Officer
Bassett S. Winmill Director, Chairman of the June 26, 1995
- ------------------ Board of Directors
Bassett S. Winmill
William K. Dean Treasurer, Principal June 26, 1995
- --------------- Accounting Officer
William K. Dean
Robert D. Anderson Director, Vice Chairman June 26, 1995
- ------------------
Robert D. Anderson
Bruce B. Huber Director June 26, 1995
- --------------
Bruce B. Huber
James E. Hunt Director June 26, 1995
- ------------
James E. Hunt
Frederick A. Parker, Jr. Director June 26, 1995
- ------------------------
Frederick A. Parker, Jr.
John B. Russell Director June 26, 1995
- ---------------
John B. Russell
Russell E. Burke III Director June 26, 1995
- --------------------
Russell E. Burke III
Part C p. 7
<PAGE>
EXHIBIT INDEX
PAGE
EXHIBIT NUMBER
- ------- ------
Part C p. 8
