As filed with the Securities and Exchange Commission on November 1, 1996.
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. 68
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 31
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: NOVEMBER 1, 1996 PURSUANT
TO RULE 485(B).
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Notice required by Rule 24f- 2 for the fiscal year ended June 30,
1996 was filed on August 28, 1996.
<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 Investment Manager
Subadviser
Custodian and Transfer Agent
6 Cover Page
General
Investment Manager
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
Investment Manager
16 Officers and Directors
Investment Manager
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 ("Fund") 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 a portfolio
manager of the Fund. Based in London (U.K.), the Subadviser is 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 November 1, 1996, has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference in
this prospectus. It is available at no charge by calling 1-800-847-4200. The SEC
maintains a Web site (http://www.sec.gov) that contains the Fund's Statement of
Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the SEC, as does
the Fund. Fund shares are not bank deposits or obligations of, or guaranteed or
endorsed by any bank or any affiliate of any bank, and are not Federally insured
by, obligations of or otherwise supported by the U.S. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
EXPENSE TABLES. The tables 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 within 30 days of purchase......................1.00%
Redemption Fee after 30 days of purchase........................NONE
Exchange Fees...................................................NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................................0.91%
12b-1 Fees.....................................................1.00%
Other Expenses.................................................1.02%
Total Fund Operating Expenses..................................2.93%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming a
5% annual return and a redemption at the end of each time period:
1 year 3 years 5 years 10 years
- ------ ------- ------- --------
$30 $91 $154 $325
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
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, 1996. 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 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, 1996 Annual Report to
Shareholders and incorporated by reference in the Statement of Additional
Information.
<TABLE>
YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net asset value at beginning of
period $13.13 $15.71 $16.98 $11.62 $12.49 $13.36 $13.27 $14.31 $18.76 $ 9.98
Income from investment operations:
Net investment income (loss) (.22) -- (.11) (.03) (.10) .03 .10 .02 .02 (.02)
Net realized and unrealized
gain (loss) investments 2.72 (1.13) (1.05) 5.39 (.72) (.87) .12 (1.03) (3.08) 8.83
---- ------ ---- ----- ----- --- ------ ------ ----
Total from investment
operations: 2.50 (1.13) (1.16) 5.36 (.82) (.84) .22 (1.01) (3.06) 8.81
Less distributions: ---- ------ ------ ---- ----- ----- --- ------ ------ ----
Distributions from net
investment income -- -- -- --- (.05) (.03) (.13) (.03) --- (.03)
Distributions from net
realized gains (1.61) (1.45) (.11) -- -- -- -- -- (.35) --
Distributions from paid-in
capital -- -- -- -- -- -- -- -- (1.04)(c) --
--- ---- ---- ---- ---- ---- ---- ---- --------- ---
Total distributions......... (1.61) (1.45) (.11) -- (.05) (.03) (.13) (.03) (1.39) (.03)
------ ------ ----- ---- ----- ----- ----- ----- ------ -----
Net asset value at end of period $14.02 $13.13 $15.71 $16.98 $11.62 $12.49 $13.36 $13.27 $14.31 $18.76
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN.................... 21.01% (8.01)% (6.92)% 46.13% (6.57)% (6.23)% 1.51% (7.04)% (16.77)% 88.48%
- ------------ ====== ======= ======= ====== ======= ======= ===== ======= ======== ======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(000's omitted) $27,489 $29,007 $36,603 $47,489 $24,939 $33,133 $40,301 $37,791 $47,732 $62,256
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average
net assets (a) 2.93% 2.82% 2.54% 3.01% 2.96% 2.59% 2.62% 2.46% 2.33% 2.46%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Ratio of net investment income
(loss)average net assets(b).....(1.49)% 0.12% (.65)% (.27)% (.61)% .34% .65% .17% .10% (.21)%
======= ===== ====== ====== ====== ==== ==== ==== ==== ======
Portfolio turnover rate......... 61% 158% 129% 156% 97% 95% 65% 60% 52% 66%
=== ==== ==== ==== === === === === === ===
Average commission per share....$0.0201
</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:
<TABLE>
Amount of Debt Average Amount of Average Number of Average Amount of
Fiscal Year Ended Outstanding at End Debt Outstanding Shares Outstanding Debt Per Share
June 30 of Period During the Period During the Period During the Period
<S> <C> <C> <C> <C> <C>
1996 $0 $501,113 2,115,363 $0.24
1995 0 464,223 2,446,903 0.19
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>
TABLE OF CONTENTS
Expense Tables...........................2 Distributions and Taxes...........16
Financial Highlights.....................2 Determination of Net Asset Value..17
General..................................3 Investment Manager and Subadviser.17
The Fund's Investment Program............4 Distribution of Shares............18
Risk Factors.............................6 Performance Information...........18
How to Purchase Shares...................9 Capital Stock.....................19
Shareholder Services....................11 Custodian and Transfer Agent......19
How to Redeem Shares....................14
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 pursue 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 investments in bullion and gold mining shares 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.
2
<PAGE>
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. Generally, at least 65% of the Fund's
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 its 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, 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. Pending investment or for temporary defensive purposes, the Fund may
commit all or a portion of its assets to cash (U.S. dollars and/or foreign
currencies) or invest in money market instruments of U.S. and foreign issuers,
including repurchase agreements.
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 sub stantial 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
3
<PAGE>
securities may include long, intermediate and short maturities, depending on the
Investment Manager's evaluation of market patterns and trends. 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 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 fluctuations in price 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, the Fund may lend
portfolio securities or other assets to other parties limited to one third of
the Fund's total assets. If the Fund engages in lending transactions, it will
enter into 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 to be of good
standing. 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, 1996 and 1995
the Fund's portfolio turnover rate was 61% and 158%, respectively. A higher
portfolio turnover rate involves correspondingly greater transaction costs and
increases the potential for short term capital gains and taxes (see
"Distributions and Taxes" below).
4
<PAGE>
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 securities in which the Fund may
invest.
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, the CIS and China are three major producers of gold and platinum,
changes in political, social and economic conditions affecting these countries
pose certain risks to the Fund's investments. The social upheaval and related
economic difficulties in South Africa, the CIS and China, may, from time to
time, influence the price of gold and platinum and the share values of mining
companies involved in South Africa, the CIS, China and elsewhere. For example,
South Africa depends significantly on gold sales for the foreign exchange
necessary to finance its imports. Accordingly, 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. National economic and political
developments could affect South Africa's policy regarding gold sales and in turn
the price of gold and the share values of mining companies involved in South
Africa.
3. CONCENTRATION. As a matter of fundamental investment policy, the Fund
concentrates its investments in (i) securities of companies primarily involved,
directly or indirectly in, or that derive a portion of their gross revenues,
directly or indirectly from, the business of mining, processing, fabricating,
distributing or otherwise dealing in gold, silver, platinum, or other natural
resources and (ii) gold, silver and platinum bullion. Such concentration
subjects the Fund's shares to greater risk than a fund whose portfolio is not so
concentrated in that the Fund's shares will be affected by economic, political,
legislative and regulatory developments impacting the companies or bullion in
which it may invest. As a result of such concentration the Fund may experience
increased problems of liquidity and the value of Fund shares may fluctuate more
than if it invested in a greater number of industries.
4. PRIVATE PLACEMENTS. The Fund may invest in securities that are sold in
private placement transactions between the issuers and their purchasers and that
are neither listed on an exchange nor traded in the secondary market. In many
cases, privately placed securities will be subject to contractual or legal
restrictions on transfer. As a result of the absence of a public trading market,
privately placed securities may in turn be less liquid and more difficult to
value than publicly traded securities. Although privately placed securities may
be resold in privately negotiated transactions, the prices realized from the
sales could, due to illiquidity, be less than if such securities were more
widely traded. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded. If any privately
placed securities held by the Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration.
5. SMALL CAPITALIZATION COMPANIES. The Fund may invest in companies that are
small or thinly capitalized, and may have a limited operating history. As a
result, investment in these securities involves greater risks and may be
considered speculative. For example, such companies may have more limited
product lines, markets or financial resources than companies with larger
capitalizations, and may be more dependent on a small management group. In
addition, the securities of such companies may trade less frequently and in
smaller volume, and may be subject to more abrupt or erratic price movements,
than securities of large companies. The Fund's positions in securities of such
companies may be substantial in relation to the market of such securities.
Accordingly, it may be difficult
5
<PAGE>
for the Fund to dispose of securities of these companies at prevailing market
prices. Full development of these companies takes time, and for this reason the
Fund should be considered a long term investment and not a vehicle for seeking
short term profit. The securities of small or thinly capitalized companies may
also be more sensitive to market changes than the securities of large companies.
Such companies may not be well known to the investing public and may not have
institutional ownership. Such companies may also be more vulnerable than larger
companies to adverse business or economic developments.
6. BORROWING. The Fund may borrow money from banks (including its custodian
bank) to purchase and carry securities and will pay interest thereon. Such
borrowing is referred to as leverage, is speculative, and increases both
investment opportunity and investment risk. 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. The 1940 Act requires the Fund to maintain
asset coverage of at least 300% (including the amount borrowed) 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.
7. 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.
8. 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.
9. FOREIGN SECURITIES, MARKETS AND CURRENCIES. All or a portion of the Fund's
assets may be invested in foreign securities. 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;
non-negotiable brokerage commissions; 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 (which may include suspension of the ability to transfer
currency from a given country), and currency restrictions; and the possible
greater political, economic, and social instability of developing as well as
developed countries, including 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.
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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.
Because 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.
When purchasing foreign securities, the Fund will ordinarily purchase
securities which are traded in the U.S. or purchase American Depository
Receipts, which are certificates issued by U.S. banks representing the right to
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receive securities of a foreign issuer deposited with that bank or a
correspondent bank. However, the Fund may purchase foreign securities directly
in foreign markets so long as in management's judgment an established public
trading market exists (that is, there are a sufficient number of shares traded
regularly relative to the number of shares to be purchased by the Fund).
10. 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 these strategies. 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.
11. LACK OF INCOME ON GOLD, SILVER, AND PLATINUM INVESTMENTS. Investments in
gold, silver and platinum bullion do not generate income and will subject the
Fund to taxes and insurance, shipping and storage costs. The sole source of
return to the Fund from such investments would be gains realized on sales, and a
negative return would be realized if such investments are sold at a loss.
HOW TO PURCHASE SHARES
The Fund's shares are sold on a continuing basis at the net asset value per
share next determined after receipt and acceptance of the order by Investor
Service Center (see "Determination of Net Asset Value"). The minimum initial
investment is $1,000 for regular and Uniform Gifts/Transfers to Minors Act
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). The Fund in its
discretion may waive or lower the investment minimums.
INITIAL INVESTMENT. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
drawn to the order of Gold Investors, mailed to Investor Service Center, Box
419789, Kansas City, MO 64141-6789. Initial investments also may be made by
having your bank wire money, as set forth below, in order to avoid mail delays.
ADDITIONAL INVESTMENTS. Additional investments may be made conveniently at any
time by any one or more of the following methods:
o BULL & BEAR AUTOMATIC INVESTMENT PROGRAM. With the Bull & Bear Automatic
Investment Program, 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.
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In the BULL & BEAR SALARY INVESTING PLAN, part or all of your salary
may be invested electronically in Fund shares on each pay date,
depending upon your employer's direct deposit program.
The BULL & BEAR GOVERNMENT DIRECT DEPOSIT PLAN allows you to deposit
automatically part or all of certain U.S. Government payments into your
Fund account. Eligible U.S. Government payments include Social
Security, pension benefits, military or retirement benefits, salary,
veteran's benefits and most other recurring payments.
For more information concerning these Plans, or to request the necessary
authorization form(s), please call Investor Service Center, 1-800-847-4200. You
may modify or terminate the Bank Transfer Plan at any time by written notice
received at least 10 days prior to the scheduled investment date. To modify or
terminate the Salary Investing Plan or Government Direct Deposit Plan, you
should contact, respectively, your employer or the appropriate U.S. Government
agency. The Fund reserves the right to redeem any account if participation in
the Program is terminated and the account's value is less than $500. The Program
and the Plans do 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), drawn to
the order of Gold Investors, together with a Bull & Bear FastDeposit form to
Investor Service Center, Box 419789, Kansas City, MO 64141- 6789. If you do
not use that form, please send a letter indicating the Fund and account
number to which the subsequent investment is to be credited, and name(s) of
the registered owner(s).
o ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional
shares of the Fund quickly and simply, just by calling Investor Service
Center, 1-800-847-4200. We will contact the bank you designate on your
Account Application or Authorization Form to arrange for the EFT, which is
done through the Automated Clearing House system, to your Fund account. For
requests received by 4 p.m., eastern time, the investment will be credited
to your Fund account ordinarily within two business days. There is a $100
minimum for each EFT investment. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account information
must be submitted in writing with a voided check or deposit slip.
o FEDERAL FUNDS WIRE. You may wire money, by following the procedures set forth
below, to receive that day's net asset value per share.
INVESTING BY WIRE. For an initial investment by wire, you must first telephone
Investor Service Center, 1-800- 847-4200, to give the name(s) under which the
account is to be registered, tax identification number, the name of the bank
sending the wire, and to be assigned a Bull & Bear 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 Investor Service
Center, Box 419789, Kansas City, MO 64141-6789. This service is not available on
days when the Federal Reserve wire system is closed. Subsequent investments by
wire may be made at any time without having to call Investor Service Center by
simply following the same wiring procedures.
SHAREHOLDER ACCOUNTS. When you invest in the Fund, your account will be credited
with all full and fractional shares (to three decimal places), together with any
dividends and other distributions that are paid in additional shares (see
"Distributions and Taxes"). For joint tenant accounts, any account owner has the
authority to act on the account without notice to the other account owners.
Investor Service Center in its sole discretion and for its protection may, but
is not obligated to, require the written consent of all account owners of a
joint tenant account prior to acting upon the instructions of any account owner.
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
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you do not request certificates. You will receive transaction confirmations upon
purchasing or selling shares, and quarterly statements.
WHEN ORDERS ARE EFFECTIVE. The purchase price for Fund shares is the net asset
value of such shares next determined after receipt and acceptance by Investor
Service Center of a purchase order in proper form. All purchases are accepted
subject to collection at full face value in Federal funds. Checks must be drawn
in U.S. dollars on a U.S. bank. No third party checks will be accepted and the
Fund reserves the right to reject any order for any reason. Accounts are charged
$30 by the Transfer Agent for submitting checks for investment which are not
honored by the investor's bank.
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, Investor 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 and other distributions 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 other distributions paid by the Fund in any
other Bull & Bear Fund. Shares of the other Bull & Bear Fund will be purchased
at the current net asset value calculated on the payment date. For more
information concerning this privilege and the other Bull & Bear Funds, or to
request a Dividend Sweep Authorization Form, please call Investor Service
Center, 1-800-847-4200. You may cancel this privilege by mailing written
notification to Investor Service Center, Box 419789, Kansas City, MO 64141-6789.
To select a new Bull & Bear Fund after cancellation, you must submit a new
Authorization Form. Enrollment in or cancellation of this privilege is generally
effective three business days following receipt. This privilege is available
only for existing accounts and may not be used to open new accounts.
SYSTEMATIC WITHDRAWAL PLAN. If you own Fund shares with a value of at least
$20,000 you may elect an automatic monthly or quarterly withdrawal of cash from
your Fund account in fixed or variable amounts, subject to a minimum amount of
$100. Under the Systematic Withdrawal Plan, all dividends and other
distributions, if any, are reinvested in the Fund.
ASSIGNMENT. Fund shares may be transferred to another owner. Instructions are
available from Investor Service Center, 1-800-847-4200.
EXCHANGE PRIVILEGE. You may exchange at least $500 worth of Fund shares for
shares of any Bull & Bear Fund listed below (provided the registration is
exactly the same, the shares may be sold in your state of residence, and the
exchange may otherwise legally be made).
To exchange shares, please call Investor Service Center 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 information
including address, account number and taxpayer identification number;
percentage, number, or dollar value of
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shares to be redeemed; name and, if different, the account number of the Bull &
Bear Fund to be purchased; and your identity and telephone number. The other
Bull & Bear Funds are:
o BULL & BEAR DOLLAR RESERVES is a high quality money market fund investing in
U.S. Government securities. Income is generally free from most state and
local income taxes. 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 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 net asset values of the Fund
and the other Bull & Bear Fund as determined at the close of the next Fund
business day. The Fund is designed as a long term investment, and short term
trading is discouraged. Accordingly, if shares of the Fund held for 30 days or
less are redeemed or exchanged, the Fund will deduct a redemption fee equal to
one percent of the net asset value of shares redeemed or exchanged. The fee will
be retained by the Fund and used to offset the transaction costs that short term
trading imposes on the Fund and its shareholders. If an account contains shares
with different holding periods (i.e. some shares held 30 days or less, some
shares held 31 days or more), the shares with the longest holding period will be
redeemed first to determine if the Fund's redemption fee applies. If you are
unable to reach Investor Service Center at the above telephone number you may,
in emergencies, call 1-212-363-1100 or communicate by fax to 1-212-363-1103 or
cable to the address BULLNBEAR NEWYORK. Exchanges may be difficult or impossible
to implement during periods of rapid changes in economic or market conditions.
Exchange privileges may be terminated or modified by the Fund without notice.
For tax purposes, an exchange is treated as a redemption and purchase of shares.
A free prospectus containing more complete information including charges,
expenses and performance, on any of the Funds listed above is available from
Investor Service Center, 1-800-847-4200. The other Fund's prospectus should be
read carefully before exchanging shares. You may give exchange instructions to
Investor Service Center by telephone without further documentation. If you have
requested share certificates, this procedure may be utilized only if, prior to
giving telephone instructions, you deliver the certificates to the Transfer
Agent for deposit into your account.
o BULL & BEAR SECURITIES (DISCOUNT BROKERAGE ACCOUNT) TRANSFERS. If you have
an account at Bull & Bear Securities, Inc., an affiliate of the Investment
Manager and a wholly owned subsidiary of Bull & Bear Group, Inc. offering
discount brokerage services, you may access your investment in any Bull &
Bear Fund to pay for securities purchased in your brokerage account and have
proceeds of securities sold in your brokerage account used to purchase
shares of any Bull & Bear Fund. You may request a Discount Brokerage Account
Application from Bull & Bear Securities, Inc. by calling toll-free at
1-800-262-5800.
TAX-ADVANTAGED RETIREMENT PLANS. These plans provide an opportunity to set aside
money for retirement in a tax-advantaged account in which earnings can be
compounded without incurring a tax liability until the money and earnings are
withdrawn. Contributions may be fully or partially deductible for Federal income
tax purposes as noted below. Information on any of these plans is available from
Investor Service Center by calling toll-free at 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
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in the Fund 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.
|X| IRA AND SEP-IRA ACCOUNTS. Anyone with earned income who is less than
age 70 1/2 at 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.
For tax years beginning after December 31, 1996, a married couple may
contribute an aggregate amount of up to $4,000 to an IRA each year
regardless of whether each spouse has $2,000 of earned income, provided,
however, that their aggregate earned income is at least $4,000. Also,
although a Salary Reduction SEP ("SARSEP") may no longer be established
after that date, a small employer instead may establish a Savings Incentive
Match Plan for Employees ("SIMPLE"), which will allow certain employees to
make elective contributions of up to $6,000 per year and will require the
employer to make matching contributions up to 3% of each such employee's
salary.
Generally, taxpayers may contribute to an IRA during the tax year and
through the next year until the income tax return for that year is due,
without regard to extensions. Thus, most individuals may contribute for the
1996 tax year through April 15, 1997 and for the 1997 tax year from January
1, 1997 through April 15, 1998.
BULL & BEAR NO-FEE IRA(R). The $10 annual fiduciary fee is waived if your
Bull & Bear IRA or Bull & Bear SEP- IRA has assets of $10,000 or more or if
you invest through the Bull & Bear Automatic Investment Program.
DEDUCTIBILITY. IRA contributions are fully deductible for most taxpayers.
For a taxpayer who is an active participant in an employer-maintained
retirement plan (or whose spouse is), a portion of IRA contributions is
deductible if adjusted gross income (before the IRA deductions) is
$40,000-$50,000 (if married) and $25,000- $35,000 (if single). Only IRA
contributions by a taxpayer who is an active participant in an
employer-maintained retirement plan (or whose spouse is) and has adjusted
gross income of more than $50,000 (if married) and $35,000 (if single) will
not be deductible at all. An eligible individual may establish a Bull & Bear
IRA under the prototype plan available through the Fund, even though such
individual or spouse actively participates in an employer-maintained
retirement plan.
o IRA TRANSFER AND ROLLOVER ACCOUNTS. Special forms are available from
Investor Service Center, 1-800- 847-4200, which make it easy to transfer or
roll over IRA assets to a Bull & Bear IRA. An IRA may be transferred from
one financial institution to another without adverse tax consequences.
Similarly, no taxes need be paid on a lump-sum distribution that 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
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as all self-employed persons, are eligible to establish these Plans. In
addition, a person who is both salaried and self-employed, such as a college
professor who serves as a consultant, may adopt these retirement plans based
on self-employment earnings.
|X| SECTION 403(B) ACCOUNTS. Section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), permits the establishment of custodial accounts
on behalf of employees of public school systems and certain tax-exempt
organizations. A participant in such a plan does not pay taxes on any
contributions made by the participant's employer to the participant's
account pursuant to a salary reduction agreement, up to a maximum amount,
or "exclusion allowance." The exclusion allowance is generally computed by
multiplying the participant's years of service times 20% of the
participant's compensation included in gross income received from the
employer (reduced by any amount previously contributed by the employer to
any 403(b) account for the benefit of the participant and excluded from the
participant's gross income). However, the exclusion allow ance may not
exceed the lesser of 25% of the participant's compensation (limited as
above) or $30,000. Contributions and subsequent earnings thereon are not
taxable until withdrawn, when they are received as ordinary income.
HOW TO REDEEM SHARES
Generally, you may redeem by any of the methods explained below. Requests
for redemption should include the following information: your account
registration information including address, account number and taxpayer
identification number; dollar value, number or percentage of shares to be
redeemed; how and to where the proceeds are to be sent; if applicable, the
bank's name, address, ABA routing number, bank account registration and account
number, and a contact person's name and telephone number; and your daytime
telephone number.
BY MAIL. You may request that the Fund redeem any amount of shares by submitting
a written request to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, signed by the record owner(s). If the written request is sent to the
Fund, it will be forwarded to the above address. If stock certificates have been
issued for shares being redeemed, they must accompany the written request.
BY TELEPHONE. You may telephone Investor Service Center, 1-800-847-4200 to
expedite redemption of Fund shares if share certificates have not been issued.
You may redeem as little as $250 worth of shares by requesting Bull & Bear's
Electronic Funds Transfer (EFT) service. With EFT, you can redeem Fund shares
quickly and conveniently because Investor Service Center will contact the bank
designated on your Account Application or Authorization Form to arrange for the
electronic transfer of your redemption proceeds (through the Automated Clearing
House system) to your bank account. EFT proceeds are ordinarily available in
your bank account within two business days.
If you are redeeming $1,000 or more worth of shares, you may request that
the proceeds be mailed to your address of record or mailed or wired to your
authorized bank.
Telephone requests received on Fund business days by 4 p.m. eastern time
will be redeemed from your account that day, and if after, on the next Fund
business day. Any subsequent changes in bank account information must be
submitted in writing, signature guaranteed, with a voided check or deposit slip.
If you are unable to reach Investor Service Center at the above telephone number
you may, in emergencies, call 1-212-363-1100 or communicate by fax to
1-212-363-1103 or cable to the address BULLNBEAR NEWYORK. Redemptions by
telephone may be difficult or impossible to implement during periods of rapid
changes in economic or market conditions.
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
(there is no check writing minimum for Bull & Bear Securities Performance
Plus(R) discount brokerage
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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 Investor Service Center,
1-800-847-4200.
Please read the prospectus carefully before exchanging.
REDEMPTION PRICE AND FEES. The redemption price is the net asset value per share
next determined after receipt of the redemption request in proper form. The Fund
is designed as a long term investment, and short term trading is discouraged.
Accordingly, if shares of the Fund held for 30 days or less are redeemed or
exchanged, the Fund will deduct a redemption fee equal to one percent of the net
asset value of shares redeemed or exchanged. The fee will be retained by the
Fund and used to offset the transaction costs that short term trading imposes on
the Fund and its shareholders. If an account contains shares with different
holding periods (i.e. some shares held 30 days or less, some shares held 31 days
or more), the shares with the longest holding period will be redeemed first to
determine if the Fund's redemption fee applies. Shares acquired through the
Dividend Sweep Privilege and the reinvestment of dividends and capital gains or
redeemed under the Systematic Withdrawal Plan are exempt from the redemption
fee. Registered broker/dealers, investment advisers, banks, and insurance
companies may open accounts and redeem shares by telephone or wire and may
impose a charge for handling purchases and redemptions when acting on behalf of
others.
REDEMPTION PAYMENT. Payment for shares redeemed will ordinarily be made within
seven days after receipt of the redemption request in proper form. The right of
redemption may not be suspended, or date of payment delayed more than seven
days, except for any period (i) when the New York Stock Exchange is closed or
trading thereon is restricted as determined by the SEC; (ii) under emergency
circumstances as determined by the SEC that make it not reasonably practicable
for the Fund to dispose of securities owned by it or fairly to determine the
value of its assets; or (iii) as the SEC may otherwise permit. The mailing of
proceeds on redemption requests involving any shares purchased by personal,
corporate, or government check or EFT transfer is generally subject to a fifteen
business day delay to allow the check or transfer to clear. The fifteen day
clearing period does not affect the trade date on which a purchase or redemption
order is priced, or any dividends and capital gain distributions to which you
may be entitled through the date of redemption. The clearing period does not
apply to purchases made by wire. Due to the relatively higher cost of
maintaining small accounts, the Fund reserves the right, upon 60 days' notice,
to redeem any account, other than 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 Investor Service Center shall be liable for any loss or
damage for acting in good faith upon instructions received by telephone and
believed to be genuine. The Fund employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and if it does not, it may be
liable for losses due to unauthorized or fraudulent transactions. These
procedures include requiring personal identification prior to acting upon
telephone instructions, providing written confirmation of such transactions, and
tape recording telephone conversations. The Fund may modify or terminate any
telephone privileges or shareholder services (except as noted) at any time
without notice.
SIGNATURE GUARANTEES. No signature guarantees are required when payment is to be
made to you at your address of record. If the redemption proceeds are to be paid
to a non-shareholder of record, or to an address other than your address of
record, or the shares are to be assigned, the Transfer Agent may require that
your signature be guaranteed by an entity acceptable to the Transfer Agent, such
as a commercial bank or trust company or member firm of a national securities
exchange or of the NASD. A notary public may not guarantee signatures. The
Transfer Agent may require further documentation, and may restrict the mailing
of redemption proceeds to your address of record within 30 days of such address
being changed unless you provide a signature guarantee as described above.
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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.
Dividends and other distributions are paid in additional Fund shares or
shares of another Bull & Bear Fund pursuant to the Dividend Sweep Privilege,
unless you elect to receive cash on the Account Application or so elect
subsequently by calling Investor 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 shares of the Fund or another Bull & Bear
Fund or in cash. Any election will remain in effect until you notify Investor
Service Center to the contrary.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its investment company taxable income (generally consisting
of net investment income, net short term capital gains, and net gains from
certain foreign currency transactions) and net capital gain (the excess of net
long term capital gain over net short term capital loss) that is distributed to
its shareholders.
Dividends paid by the Fund from its investment company taxable income
(whether paid in cash or in additional shares) generally are taxable to its
shareholders, other than shareholders that are not subject to tax on their
income, as ordinary income to the extent of the Fund's earnings and profits; 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 shares) when designated as such by the Fund, are taxable
to its shareholders as long term capital gains, regardless of how long they have
held their Fund shares. The Fund notifies its shareholders following the end of
each calendar year of the amounts of dividends and capital gain distributions
paid (or deemed paid) that year 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 tax.
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. Withholding at that rate also is required from
dividends and capital gain distributions payable to such shareholders who are
otherwise subject to backup withholding.
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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 its investments and all other assets
minus any liabilities. The value of one share is determined by dividing the net
assets by the total number of shares outstanding. This is referred to as "net
asset value per share" and is determined as of the close of regular trading on
the New York Stock Exchange (currently, 4 p.m. eastern time, unless weather,
equipment failure or other factors contribute to an earlier closing) each
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.
INVESTMENT MANAGER AND SUBADVISER
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 also furnishes or obtains on behalf of the Fund all
services necessary for the proper conduct of the Fund's business and
administration. The Investment Manager retains final discretion in the
investment and reinvestment of the Fund's assets, subject to the control and
oversight of the Board of Directors. The Investment Manager is authorized to
place portfolio transactions with Bull & Bear Securities, Inc., an affiliate of
the Investment Manager, and may allocate brokerage transactions by taking into
account the sales of shares of the Fund and other affiliated investment
companies. The Investment Manager may also allocate 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, 1996, the investment
management fees paid by the Fund represented approximately 0.91% 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 Investment Manager has entered into a subadvisory 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
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<PAGE>
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 Fund's investments may include securities of
companies for which Lion Mining Group provides technical, consulting, and
investor relations services. Although the Subadviser has not served directly as
an investment adviser to a U.S. mutual fund, the Managing Director of the
Subadviser, Kjeld Thygesen, has been the portfolio manager of another U.S.
mutual fund since January 1992. Mr. Thygesen serves as the Fund's portfolio
manager together with the Investment Manager's Investment Policy Committee. Mr.
Thygesen has been Managing Director of Lion Resource Management Limited since
1989.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Investor Service
Center, Inc., 11 Hanover Square, New York, NY 10005 (the "Distributor"), the
Distributor acts as the Fund's principal agent for the sale of Fund shares. The
Investment Manager is an affiliate of the Distributor. The Fund has also adopted
a plan of distribution (the "Plan") pursuant to Rule 12b-1 under the 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 0.35% 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
Advertisements and other sales literature for the Fund may refer to the
Fund's "average annual total return" and "cumulative total return." All such
quotations are based upon historical earnings and are not intended to indicate
future performance. The investment return on and principal value of an
investment in the Fund will fluctuate, so that an investor's shares when
redeemed may be worth more or less than their original cost. In addition to
advertising average annual total return and cumulative total return, comparative
performance information may be used from time to time in advertising the Fund's
shares, including data from Morningstar, Inc., Lipper Analytical Services, Inc.
and other sources. "Average annual total return" is the average annual
compounded rate of return on a hypothetical $1,000 investment made at the
beginning of the advertised period. In calculating average annual total return,
all dividends and other distributions are assumed to be reinvested. "Cumulative
total return" is calculated by subtracting a hypothetical $1,000 payment to the
Fund from the ending redeemable value of such payment (at the end of the
relevant advertised period), dividing such difference by $1,000 and multiplying
the quotient by 100. In
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<PAGE>
calculating ending redeemable value, all dividends and other distributions are
assumed to be reinvested in additional Fund shares. Although the Fund imposes a
1% redemption fee on the redemption of shares held for 30 days or less, all of
the periods for which performance is quoted are longer than 30 days, and
therefore the 1% fee is not reflected in the performance calculations. In
addition, there is no sales charge upon reinvestment of dividends or other
distributions. Additional information regarding the Fund's performance is
available in its Annual Report to Shareholders, which is available at no charge
upon request to Investor Service Center, 1-800-847-4200.
CAPITAL STOCK
The Fund, a non-diversified open-end management investment company organized
as a Maryland corporation in 1987, commenced investment operations in January
1988 when it merged with Bull & Bear Gold Investors Ltd. (formerly Golconda
Investors Ltd.), a New York corporation. The Fund is authorized to issue up to
500,000,000 shares of common stock ($.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., 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. The Fund may also enter into agreements with brokers, banks
and others who may perform on behalf of their customers certain shareholder
services not otherwise provided by the Transfer Agent or the Distributor.
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[Left Side of Back Cover Page]
GOLD
INVESTORS
- -----------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-847-4200 1-212-363-1100
E-MAIL: [email protected]
- -----------------------------------------------------
CALL TOLL-FREE FOR FUND PERFORMANCE,
TELEPHONE PURCHASES, EXCHANGES AMONG THE
BULL & BEAR FUNDS AND TO OBTAIN INFORMATION
CONCERNING YOUR ACCOUNT.
1-800-847-4200 1-212-363-1100
- -----------------------------------------------------
[Right Side of Back Cover Page]
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
- ---------------------------------------------------------
MINIMUM INITIAL INVESTMENT:
REGULAR ACCOUNTS, $1,000;
IRAS, $500; AUTOMATIC
INVESTMENT PROGRAM, $100
MINIMUM SUBSEQUENT INVESTMENTS:
$100
- ---------------------------------------------------------
PROSPECTUS
NOVEMBER 1, 1996
BULL & BEAR
- -----------------------------------------
PERFORMANCE DRIVEN(R)
19
<PAGE>
Statement of Additional Information November 1, 1996
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 November 1, 1996. The Prospectus is
available to prospective investors without charge upon request to Investor
Service Center, Inc., the Fund's Distributor, by calling 1-800- 847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM..............................................2
INVESTMENT RESTRICTIONS....................................................5
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES..................6
THE INVESTMENT COMPANY COMPLEX............................................13
OFFICERS AND DIRECTORS....................................................13
INVESTMENT MANAGER........................................................14
INVESTMENT MANAGEMENT AGREEMENT...........................................15
SUBADVISER AND SUBADVISORY AGREEMENT......................................15
PERFORMANCE INFORMATION...................................................16
DISTRIBUTION OF SHARES....................................................19
DETERMINATION OF NET ASSET VALUE..........................................21
PURCHASE OF SHARES........................................................21
ALLOCATION OF BROKERAGE...................................................21
DISTRIBUTIONS AND TAXES...................................................23
REPORTS TO SHAREHOLDERS...................................................24
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.........................25
AUDITORS .................................................................25
FINANCIAL STATEMENTS......................................................25
APPENDIX--DESCRIPTIONS OF BOND RATINGS....................................26
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THE FUND'S INVESTMENT PROGRAM
The following information supplements the information concerning the
investment objectives, policies and limitations of the Fund found in the
Prospectus.
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 that 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 that 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, as amended ("1933 Act"), 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 seven 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 Securities
and Exchange Commission ("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 Note, there might be a
period of as long as five 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 that the Fund might
purchase will bear interest 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 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
2
<PAGE>
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 1933
Act. The term "illiquid assets" for this purpose includes securities that cannot
be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities.
Illiquid restricted securities may be sold by the Fund only in
privately negotiated transactions or in a public offering with respect to which
a registration statement is in effect under the 1933 Act. Such securities
include those that are subject to restrictions contained in the securities laws
of other countries. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. Securities
that are freely marketable in the country where they are principally traded, but
would not be freely marketable in the United States, 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. ("NASD"). An insufficient number of qualified buyers
interested in purchasing certain restricted securities held by the Fund,
however, could affect adversely the marketability of such portfolio securities,
and the Fund might be unable to dispose of such securities promptly or at
favorable prices.
The 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
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(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
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
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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 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) The Fund may not purchase or retain securities of any issuer if to the
knowledge of the Fund, those officers or Directors of the Fund or its
investment manager who each own beneficially more than 1/2 of 1% of the
securities of an issuer, own beneficially more than 5% of the
securities of that issuer;
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<PAGE>
(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; and
(xi) With respect to financial and foreign currency futures and related
options (including options traded on a commodities exchange), the Fund
will not purchase or sell futures contracts or related options other
than for bona fide hedging purposes if, immediately thereafter, the sum
of the amount of initial margin deposits on the Fund's existing futures
positions and related options and premiums paid for related options
would exceed 5% of the Fund's total assets.
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
REGULATION OF THE USE OF OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT
STRATEGIES. As discussed in the Prospectus, the Investment Manager may engage in
certain options strategies to attempt to enhance return or for hedging purposes.
The Investment Manager also may use securities index futures contracts, interest
rate futures contracts, foreign currency futures contracts (collectively,
"futures contracts" or "futures"), options on futures contracts and forward
currency contracts for hedging purposes or in other circumstances permitted by
the Commodity Futures Trading 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.
The Fund's ability to use options, forward contracts and futures 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 hedging or yield or income enhancement strategy used will be
successful. The Fund's ability to successfully utilize these instruments will
depend on the Investment Manager's ability to predict accurately movements in
the prices of the assets being hedged and movements in securities, interest
rates, foreign currency exchange rates and precious metals prices. There is no
assurance that a liquid secondary market for options and futures will always
exist, and the correlation between hedging instruments and the assets being
hedged may be imperfect. It also may be necessary to defer closing out hedged
positions to avoid adverse tax consequences.
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 or liquid assets 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 United States 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
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<PAGE>
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 pre determined exercise price; thus, the potential
for loss to the Fund below the exercise price is limited to the option premium
paid. If the market price of the underlying security is higher than the exercise
price of the put option, any profit the Fund realizes on the sale of the
security would be reduced by the premium paid for the put option less any amount
for which the put option may be sold.
The Fund may on certain occasions wish to hedge against a decline in
the market value of securities held in its portfolio at a time when put options
on those particular securities are not available for purchase. The Fund may
therefore purchase a put option on other carefully selected securities, the
values of which historically have a high degree of positive correlation to the
value of such portfolio securities. If the Investment Manager's judgment is
correct, changes in the value of the put options should generally offset changes
in the value of the portfolio securities being hedged. However, the correlation
between the two values may not be as close in these transactions as in
transactions in which the Fund purchases a put option on a security held in its
portfolio. If the Investment Manager's judgment is not correct, the value of the
securities underlying the put option may decrease less than the value of the
Fund's portfolio securities and therefore the put option may not provide
complete protection against a decline in the value of the Fund's portfolio
securities below the level sought to be protected by the put option.
The Fund may write covered call options on securities in which it is
authorized to invest for hedging or to increase return in the form of premiums
received from the purchasers of the options. A call option gives the purchaser
of the option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the exercise price during 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 repur chase 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
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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 assets in a segregated account with its custodian equivalent in value to
the amount, if any, by which the put is "in-the-money," that is, that amount by
which the exercise price of the put exceeds the current market value of the
underlying security.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Fund may take positions
in options on foreign currencies to hedge against the risk of foreign exchange
rate fluctuations on foreign securities that the Fund holds in its portfolio or
that it intends to purchase. For example, if the Fund enters into a contract to
purchase securities denominated in a foreign currency, it could effectively fix
the maximum U.S. dollar cost of the securities by purchasing call options on
that foreign currency. Similarly, if the Fund held securities denominated in a
foreign currency and anticipated a decline in the value of that currency against
the U.S. dollar, the Fund could hedge against such a decline by purchasing a put
option on the currency involved. The Fund's ability to establish and close out
positions in such options is subject to the maintenance of a liquid secondary
market. Although many options on foreign currencies are exchange-traded, the
majority are traded on the OTC market. The Fund will not purchase or write such
options unless, in the Investment Manager's opinion, the market for them is
sufficiently liquid to ensure that the risks in connection with such options are
not greater than the risks in connection with the underlying currency. In
addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and invest ments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quota tions available through
dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (that is, less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
To the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they reopen.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell securi ties or currencies under a put or a call option it has written,
the Fund may purchase a put or a call option of the same series (that is, an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified securities or currencies under a call or put
option it has purchased, the Fund may sell an option of the same series as the
option held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge the
Fund's portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things,
the current market price of the underlying security, securities index or
currency, the time remaining until expiration, the relationship of the exercise
price to the market price, the historical price volatility of the underlying
security, securities index or currency and general market conditions. For this
reason, the successful use of options depends upon the Investment Manager's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets or, in the case of securities index options,
fluctuations in the market sector repre sented by the selected index.
(2) Options normally have expiration dates of up to three years. The
exercise price of the options may be below, equal to or above the current market
value of the underlying security, securities index or currency. Purchased
options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, the Fund will realize a loss in the amount of the premium paid
and any transaction costs.
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(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
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 or 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 as permitted by the CFTC. The Fund may purchase an
interest rate futures contract when it intends to purchase debt securities but
has not yet done so. This strategy may minimize the effect of all or part of an
increase in the market price of the debt security that the Fund intends to
purchase in the future. A rise in the price of the debt security prior to its
purchase may either be offset by an increase in the value of the futures
contract purchased by the Fund or avoided by taking delivery of the debt
securities under the futures contract. Conversely, a fall in the market price of
the underlying debt security may result in a corresponding decrease in the value
of the futures position. The Fund may sell an interest rate futures contract in
order to continue to receive the income from a debt security, while endeavoring
to avoid part or all of the decline in market value of that security that would
accompany an increase in interest rates.
The Fund may purchase a call option on an interest rate futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The purchase of a call option on an interest
rate futures contract is analogous to the purchase of a call option on an
individual debt security, which can be used as a temporary substitute for a
position in the security itself. The Fund also may write covered put options on
interest rate futures contracts as a partial anticipatory hedge and may write
covered call options on interest rate futures contracts as a partial hedge
against a decline in the price of debt securities held in the Fund's portfolio.
The Fund may also purchase put options on interest rate futures contracts in
order to hedge against a decline in the value of debt securities held in the
Fund's portfolio.
The Fund may sell securities index futures contracts in anticipation of
a general market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a portion of the Fund's
portfolio correlates with a given index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus provide
an alternative to the liquidation of securities positions. For example, if the
Fund correctly anticipates a general market decline and sells securities index
futures to hedge against this risk, the gain in the futures position should
offset some or all of the decline in the value of the portfolio. The Fund may
purchase securities index futures contracts if a market or market sector advance
is anticipated. Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual securities, which securities may then
be purchased in an orderly fashion. This strategy may minimize the effect of all
or part of an increase in the market price of securities that the Fund intends
to purchase. A rise in the price of the securi ties should be in part or wholly
offset by gains in the futures position.
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
9
<PAGE>
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 tempo rary 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 or liquid assets 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 or certain liquid securities whose
value is marked to the market daily 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 accor dance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin on futures contracts does not involve borrowing to finance the
futures transactions. Rather, initial margin on futures contracts is in the
nature of a perfor mance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures or options position varies, a process known as "marking
to the market." For example, when the Fund purchases a contract and the value of
the contract rises, the Fund receives from the broker a variation margin payment
equal to that increase in value. Conversely, if the value of the futures
position declines, the Fund is required 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.
10
<PAGE>
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses,
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for the Fund to
close a position and, in the event of adverse price movements, the Fund would
have to make daily cash payments of variation margin (except in the case of
purchased options). However, if futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the contracts can
be ter minated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
In considering the Fund's use of futures contracts and related options,
particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Investment Manager's ability to predict movements in the
direction of the overall securities, currencies and interest rate markets, which
requires different skills and techniques than predicting changes in the prices
of individual securities. Moreover, futures contracts relate not only to the
current price level of the underlying instrument or currency but also to the
anticipated price levels at some point in the future. There is, in addition, the
risk that the movements in the price of the futures contract will not correlate
with the movements in the prices of the securities or currencies being hedged.
For example, if the price of the securities index futures contract moves less
than the price of the securities that are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, the advantage may be partially offset by losses
in the futures position. In addition, if the Fund has insufficient cash, it may
have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect a rising market. Consequently, the Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract moves more than the price of the underlying securities, the
Fund will experience either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of the securities that
are the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price move ments 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 curren cies and the futures
markets may occur. Second, because the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the futures
market; such speculative activity in the futures market also may cause temporary
price distortions. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts over the
short term. In addition, activities of large traders in both the futures and
securities markets involving arbitrage and other investment strategies may
result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an
exchange or board of trade that provides a secondary market for such futures
contracts. Although the Fund intends to purchase and sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract at any particular time. In
such event, it may not be possible to close a futures positions, and in the
event of adverse price movements, the Fund would continue to be required to make
variation margin payments.
(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 se curities 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
11
<PAGE>
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 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
23.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the security exceeds the amount of foreign currency the Fund
is obligated to deliver. The projection of short term 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 elimi nate fluctuations
in the prices of the underlying securities the Fund owns or intends to acquire,
but it does fix a rate of exchange in advance. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currencies, at the same time they limit any potential gain that might
result should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Bull & Bear Group, Inc. (the
"Investment Company Complex") are:
Bull & Bear Funds I, Inc., whose sole series is Bull & Bear U.S. and Overseas
Fund.
Bull & Bear Funds II, Inc., whose series include Bull & Bear
Dollar Reserves and Bull & Bear Global Income Fund. Bull & Bear
Gold Investors Ltd.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Midas Fund, Inc.
The Rockwood Growth Fund, Inc.
OFFICERS AND DIRECTORS
The officers and Directors of the Fund, their respective offices, dates
of birth 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 six
of the other investment companies in the Investment Company 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 of the
other investment companies in the Investment Company Complex and of the
Investment Manager and its affiliates. He was born December 7, 1929. He is a
member of the Board of Governors of the Mutual Fund Education Alliance, and of
its predecessor, the No-Load Mutual Fund Association. He has also been a member
of the District #12, District Business Conduct and Investment Companies
Committees of the NASD.
RUSSELL E. BURKE III -- Director. 900 Park Avenue, New York, NY 10021. He was
born August 23, 1946. He is President of Russell E. Burke III, Inc. Fine Art,
New York, New York. From 1988 to 1991, he was President of Altman Burke Fine
Arts, Inc. From 1983 to 1988, he was Senior Vice President of Kennedy Galleries.
He is also a Director of three of the other investment companies in the
Investment Company Complex.
BRUCE B. HUBER, CLU, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is Senior Consultant with The Berger Financial Group, LLC specializing in
financial, estate and insurance matters. From March 1995 to December 31, 1995 he
was President of Huber Hogan Knotts Consulting, Inc. From 1990 to March 1995 he
was president of Huber-Hogan Associates. He was born February 7, 1930. He is
also a Director of the other investment companies in the Investment Company
Complex.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Kenny, Kindler, Hunt & Howe, Inc., executive recruiting
consultants. He was born December 14, 1930. From 1976 until 1983 he was Vice
President of Russell Reynolds Associates, Inc., also executive recruiting
consultants. He is also a Director of the other investment companies in the
Investment Company Complex.
FREDERICK A. PARKER, JR. -- Director. 219 East 69th Street, New York, NY 10021.
He is President and Chief Executive Officer of American Pure Water Corporation,
a manufacturer of water purifying equipment. He was born November 14, 1926. He
is also a Director of the other investment companies in the Investment Company
Complex.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He was Executive Vice President and a Director of Dan River, Inc., a diversified
textile company, from 1969 until he retired in 1981. He was born February 9,
1923. He is a Director of Wheelock, Inc., a manufacturer of signal products, and
a consultant for the National Executive Service Corps in the health care
industry. He is also a Director of the other investment companies in the
Investment Company Complex.
12
<PAGE>
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 Investment Company Complex and of Group and
certain of its affiliates, Chairman of the Investment Manager and Investor
Service Center, Inc. (the "Distributor"), and President of Bull & Bear
Securities, Inc. ("BBSI"). He was born November 26, 1957. He received his M.B.A.
from the Fuqua School of Business at Duke University in 1987. From 1983 to 1985
he was Assistant Vice President and Director of Marketing of E.P. Wilbur & Co.,
Inc., a real estate development and syndication firm and Vice President of
E.P.W. Securities, its broker/dealer subsidiary. He is a son of Bassett S.
Winmill and brother of Thomas B. Winmill. He is also a Director of three of the
other investment companies in the Investment Company Complex.
THOMAS B. WINMILL* -- Director, Co-President, Co-Chief Executive Officer, and
General Counsel. He is Co-President, Co- Chief Executive Officer, and General
Counsel of the Investment Company Complex and of Group and certain of its
affiliates, President of the Investment Manager and the Distributor, and
Chairman of BBSI. He was born June 25, 1959. He was associated with the law firm
of Harris, Mericle & Orr from 1984 to 1987. He is a member of the New York State
Bar and the SEC Rules Committee of the Investment Company Institute. He is a son
of Bassett S. Winmill and brother of Mark C. Winmill. He is also a Director of
four of the other investment companies in the Investment Company Complex.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born March 1, 1955. From 1993 to 1995, he was Associate
Director -- Proprietary Trading at Barclays De Zoete Wedd Securities Inc., from
1992 to 1993 he was Director, Bond Arbitrage at WG Trading Company, and from
1989 to 1992 he was Vice President of Wilkinson Boyd Capital Markets.
BRETT B. SNEED, CFA -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born June 11, 1941. He is a Chartered Financial Analyst, a
member of the Association for Investment Management and Research, and a member
of the New York Society of Security Analysts. From 1986 to 1988, he managed
private accounts, from 1981 to 1986, he was Vice President of Morgan Stanley
Asset Management, Inc. and prior thereto was a portfolio manager and member of
the Finance and Investment Committees of American International Group, Inc., an
insurance holding company.
JOSEPH LEUNG, CPA -- Treasurer and Chief Accounting Officer (since 1995). He is
Treasurer and Chief Accounting Officer of the Investment Company Complex, the
Investment Manager and its affiliates. From 1992 to 1995 he held various
positions with Coopers & Lybrand L.L.P., a public accounting firm. From 1991 to
1992, he was the accounting supervisor at Retirement Systems Group, a mutual
fund company. From 1987 to 1991, he held various positions with Ernst & Young, a
public accounting firm. He is a member of the American Institute of Certified
Public Accountants. He was born September 15, 1965.
WILLIAM J. MAYNARD -- Vice President and Secretary. He is Vice President and
Secretary of the Investment Company Complex, the Investment Manager and its
affiliates. He was born September 13, 1964. From 1991 to 1994 he was associated
with the law firm of Skadden, Arps, Slate, Meagher & Flom. He is a member of the
New York State Bar.
* Bassett S. Winmill, Robert D. Anderson, Mark C. Winmill and Thomas B. Winmill
are "interested persons" of the Fund as defined by the 1940 Act, because of
their positions and other relationships with the Investment Manager.
COMPENSATION TABLE
<TABLE>
Total Compensation
From Registrant and
<S> <C> <C> <C> <C>
Pension or Retirement Estimated Annual Investment Company
Aggregate Compensa- Benefits Accrued as Part Benefits Upon Complex Paid to
NAME OF PERSON, POSITION tion From Registrant of Fund Expenses Retirement Directors
Russell E. Burke III $2,000 None None $9,000 from
Director 4 Investment Companies
Bruce B. Huber $2,000 None None $12,500 from
Director 7 Investment Companies
James E. Hunt $2,000 None None $12,500 from
Director 7 Investment Companies
Frederick A. Parker $2,000 None None $12,500 from
Director 7 Investment Companies
John B. Russell $2,000 None None $12,500 from
Director 7 Investment Companies
</TABLE>
Information in the above table is based on fees paid during the year
ended June 30, 1996.
No officer, Director or employee of the Investment Manager receives any
compensation from the Fund for acting as an officer, Director or employee of the
Fund. As of October 15, 1996, officers and Directors of the Fund owned less than
1%
13
<PAGE>
of the outstanding shares of the Fund. As of October 15, 1996, the following
owner of record owned more than 5% of the outstanding shares of the Fund:
Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA 94104-4122,
6.21%.
INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the regular
furnishing of advice with respect to portfolio transactions. The other principal
subsidiaries of Group include Investor Service Center, Inc., the Fund's
Distributor and a registered broker/dealer, Midas Management Corporation and
Rockwood Advisers, Inc., registered investment advisers, and BBSI, a registered
broker/dealer providing discount brokerage services.
Group is a publicly owned company whose securities are listed on the
Nasdaq Stock Market ("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
investment companies in the Investment Company Complex, each of which is managed
by the Investment Manager or its affiliates, had net assets in excess of
$417,000,000 as of October 28, 1996.
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, 1994, 1995,
and 1996 the Fund paid to the Investment Manager aggregate investment management
fees of $405,964, $328,140 and $276,798, respectively. No reimbursement was made
to the Fund by the Investment Manager for the fiscal years ended June 30, 1994,
1995 and 1996 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, 1994, 1995 and
1996 was $19,383, $12,514 and $15,141, 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.
The Investment Management Agreement will continue in effect, unless
sooner terminated as described below, for successive periods of twelve months,
provided such continuance is specifically approved at least annually by (a) the
Board of Directors of the 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
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<PAGE>
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.
SUBADVISER AND 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 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>
RELATIVE PERFORMANCEA
TOTAL NET ASSETSB 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> <C>
Lessd then or equal to $50,000,000 30% 17.5% 5%
Greater then $50,000,000 and 40% 30% 20%
Less then or equal to $150,000,000
Greater then $150,000,000 and 45% 35% 25%
Less then or equal to $250,000,000
Greater then $250,000,000 50% 40% 30%
</TABLE>
As a result of the Subadvisory Agreement's fee structure, the
Investment Manager retains more of its fee (and passes on a smaller percentage
of its fee to the Subadviser) when the Fund underperforms the BTR by more than
50 basis points than when the Fund outperforms the BTR by more than 50 basis
points.
The Subadvisory Agreement 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 liability to the Fund by reason of willful misfeasance, bad faith, or
gross negligence
15
<PAGE>
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, 1996 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 OVER P~) SUP {1 OVER n}~~-~~1
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period which
assumes all dividends and other distributions 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, 1996 was 21.01%, 7.18% and 6.98%, respectively.
The Fund's "total return" or "cumulative total return" or "cumulative
growth" is based on the increase or (decrease) in a hypothetical $1,000 invested
in the Fund at the beginning of each of the specified periods, assuming the
reinvestment of any dividends and other distributions paid by the Fund during
such periods. The return is calculated by subtracting the amount of the Fund's
net asset value per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of all distributions during the period), and dividing the result by
the net asset value per share at the beginning of the period. Such total return
information (together with average annual total return information) is expressed
below as a percentage rate and as the value of a hypothetical $1,000 and $10,000
initial investment (made on July 1 of the years shown) at the end of the periods
through June 30, 1996.
ENDING VALUE OF A ENDING VALUE
START OF PERIODS AVERAGE TOTAL $1,000 OF A $10,000
ENDING 6/30/96 ANNUAL RETURN INVESTMENT INVESTMENT
TOTAL RETURN
- -------------------------------------------------------------------------
July 1, 1995 21.01% 21.01% $1,210.09 $12,100.94
July 1, 1994 5.50% 11.31% $1,113.13 $11,131.32
July 1, 1993 1.19% 3.61% $1,036.12 $10,361.20
July 1, 1992 10.93% 51.40% $1,514.05 $15,140.48
July 1, 1991 7.18% 41.46% $1,414.59 $14,145.90
July 1, 1990 4.82% 32.65% $1,326.46 $13,264.60
July 1, 1989 4.34% 34.65% $1,346.49 $13,464.95
July 1, 1988 2.91% 25.79% $1,257.89 $12,578.88
July 1, 1987 0.46% 4.18% $1,041.84 $10,418.40
July 1, 1986 6.98% 96.37% $1,963.74 $19,637.39
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
16
<PAGE>
September 30, 1996 was 21.82%. 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 investment companies in the
Investment Company Complex, which have individual and institutional investors
throughout the United States and in 37 foreign countries.
The Fund may also provide performance information based on an initial
investment in the Fund and/or cumulative investments of varying amounts over
periods of time. Some or all of this information may be provided either
graphically or in tabular form.
SOURCE MATERIAL
From time to time, in marketing pieces and other Fund literature, the
Fund's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication that 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 Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
manage ment 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.
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 compa nies 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.
17
<PAGE>
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 that 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 perfor mance, 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, accounting for over 90% of the market value of publicly traded stocks in
the United States.
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 that regularly covers
financial news.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the United States 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, Investor Service Center,
Inc. (the "Distributor") acts as the principal 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 three-quarters of one percent per annum of the Fund's
average daily net assets as compensation for distribution activities and a fee
18
<PAGE>
in the amount of one-quarter of one percent per annum of the Fund's average
daily net assets as compensation for service activities.
In performing distribution and service activities pursuant to the Plan,
the Distributor may spend such amounts as it deems appropriate on any activities
or expenses primarily intended to result in the sale of the Fund's shares or the
servicing and maintenance of shareholder accounts, including, but not limited
to: advertising, direct mail, and promotional expenses; compensation to the
Distributor and its employees; compensation to and expenses, including overhead
and telephone and other communication expenses, of the Distributor, the
Investment Manager, the Fund, and selected dealers and their affiliates who
engage in or support the distribution of shares or who service shareholder
accounts; fulfillment expenses, including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing share holders; 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 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 redemp tions. 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 manage ment
fees (reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Fund had any direct or indirect financial
interest in the operation of the Plan or any related agreement.
Of the amounts compensated to the Distributor during the Fund's fiscal
year ended June 30, 1996, approximately $2,284 represented expenses incurred for
advertising, $24,226 for printing and mailing prospectuses and other information
to other than current shareholders, $28,014 for salaries of marketing and sales
personnel, $13,713 for payments to third parties who sold shares of the Fund and
provided certain services in connection therewith, and $13,279 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
19
<PAGE>
under the Plan. If, because of changes in law or regulation, or because of new
interpretations of existing law, a bank or the Fund were prevented from
continuing these arrangements, it is expected that other arrangements for these
services will be made. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading in equity securities 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 Nasdaq 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. Third
party checks and credit cards will not be accepted. The Fund reserves the right
to reject any order, to cancel any order due to nonpayment, to accept initial
orders by telephone or telegram, and to waive the limit on subsequent orders by
telephone, with respect to any person or class of persons. Orders to purchase
shares are not binding on the Fund until they are confirmed 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 best net results.
Accordingly, the Fund will not necessarily be paying the lowest spread or
commission available.
The Investment Manager directs portfolio transactions to broker/dealers
for execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular bro ker/dealer, including brokerage and research services, sales of
Fund shares and shares of other affiliated investment companies, and allocation
of commissions to the Fund's Custodian. With respect to brokerage and research
services, consideration may be given in the selection of broker/dealers to
brokerage or research provided and payment may be made of a fee higher than that
charged by another broker/dealer which does not furnish brokerage or research
services or which furnishes brokerage or research services deemed to be of
lesser value, so long as the criteria of Section 28(e) of the Securities
Exchange Act of 1934, as amended, or other applicable law are met. Section 28(e)
specifies that a person with investment
20
<PAGE>
discretion shall not be "deemed to have acted unlawfully or to have breached a
fiduciary duty" solely because such person has caused the account to pay a
higher commission than the lowest available under certain circumstances. To
obtain the benefit of Section 28(e), the person so exercising investment
discretion must make a good faith determination that the commissions paid are
"reasonable in relation to the value of the brokerage and research services
provided ... viewed in terms of either that particular transaction or his
overall responsibilities with respect to the accounts as to which he exercises
investment discretion." Thus, although the Investment Manager may direct
portfolio transactions without necessarily obtaining the lowest price at which
such broker/dealer, or another, may be willing to do business, the Investment
Manager seeks the best value to the Fund on each trade that circumstances in the
market place permit, including the value inherent in on-going relationships with
quality brokers.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for brokerage or research services
might exceed commissions that would be payable for execution alone, nor
generally can the value of such services to the Fund be measured, except to the
extent such services have a readily ascertainable market value. There is no
certainty that services so purchased, or the sale of Fund shares, if any, will
be beneficial to the Fund, and it may be that other affiliated investment
companies will derive benefit therefrom. Such services being largely intangible,
no dollar amount can be attributed to benefits realized by the Fund or to
collateral benefits, if any, conferred on affiliated entities. These services
may include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities, (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody). Pursuant to
arrangements with certain broker/dealers, such broker/dealers provide and pay
for various computer hardware, software and services, market pricing
information, investment subscriptions and memberships, and other third party and
internal research of assistance to the Investment Manager in the performance of
its investment decision-making responsibilities for transactions effected by
such broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
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 NASD.
In order for BBSI to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by BBSI must be reasonable
and fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. The Fund's Board of Directors has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
BBSI are reasonable and fair. Although BBSI's posted discount rates may be lower
than those charged by full cost brokers, such rates may be higher than some
other discount brokers and certain brokers may be willing to do business at a
lower commission rate on certain trades. The Fund's Board of Directors has
determined that portfolio transactions may be executed through BBSI if, in the
judgment of the Investment Manager, the use of BBSI is likely to result in price
and execution at least as favorable as those of other qualified broker/dealers
and if, in particular transactions, BBSI charges the Fund a rate consistent with
that charged to comparable unaffiliated customers in similar transactions.
Brokerage transactions with BBSI are also subject to such fiduciary standards as
may be imposed by applicable law. The Investment Manager's fees under its
agreement with the Fund are not reduced by reason of any brokerage commissions
paid to BBSI. In addition, the Distributor pays BBSI compensation monthly for
distribution and shareholder services in the amount of 0.25% per annum of Fund
assets held by customers of BBSI.
During the fiscal years ended June 30, 1994, 1995 and 1996 the Fund
paid total brokerage commissions of $320,836, $252,551, and $102,812,
respectively. For the fiscal year ended June 30, 1996, $79,100 in brokerage
commissions (representing $46,743,191 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
other affiliated investment company. During the Fund's fiscal years ended June
30, 1994, 1995 and 1996 the Fund paid brokerage commissions of $53,103, $117,507
and $23,712, respectively, to BBSI, representing approximately 16.55%, 46.53%
and 23.06% respectively, of the total brokerage commissions paid by the Fund and
19.27%, 41.81% and 24.17%, respectively, of the aggregate dollar amount of Fund
transactions involving the payment of commissions.
Investment decisions for the Fund and for other affiliated investment
companies managed by the Investment Manager or its affiliates are made
independently based on each Fund's investment objectives and policies. The same
investment decision, however, may occasionally be made for two or more Funds. In
such a case, the Investment Manager may combine orders for two or more Funds for
a particular security if it appears that a combined order would reduce brokerage
commissions and/or result in a more favorable transaction price. 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 quantity available of
the security with respect to the Fund, the Investment Manager believes that the
larger volume of combined orders can generally result in better execution and
prices.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Investment Company Complex does
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 record
keeping, 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 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
reasonably 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 that treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, or any of the following, that were held for
less than three months - options, futures, or forward contracts (other than
those on foreign currencies), or foreign currencies (or options, futures, or
forward contracts thereon) that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect
thereto) ("Short-Short Limitation"); and (3) the Fund's investments must satisfy
certain diversification requirements. In any year during which the applicable
provisions of the Code are satisfied, the Fund will not be liable for Federal
income tax on net income and gains that are distributed to its shareholders. If
for any taxable year the Fund does not qualify for treatment as a RIC, all of
its taxable income would 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.
21
<PAGE>
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year an
amount equal to the sum of (1) 98% of its ordinary income, (2) 98% of its
capital gain net income (determined on an October 31 fiscal year basis), plus
(3) generally, income and gain not distributed or subject to corporate tax in
the prior calendar year. The Fund intends to avoid imposition of the 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
likely would have to be distributed to satisfy the Distribution Requirement and
avoid imposition of the Excise Tax. In most instances it will be very difficult,
if not impossible, to make this election because of certain requirements
thereof.
Pursuant to proposed regulations, 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. Gains from the disposition of
foreign currencies (except certain gains that may be excluded by future
regulations), and gains from 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, forward contracts
and foreign currency positions 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
22
<PAGE>
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, 1994, 1995 and 1996
approximately $63,344, $68,552 and $37,801, 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,
1996, 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.
23
<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. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or 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.
Together with the Aaa group they 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 or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the 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 some time 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 CORPORATE BOND RATINGS
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitments on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than an obligation
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
CCC The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on the obligation
are being continued.
24
<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, 1996 containing financial statements as of and for
the fiscal period ended June 30, 1996 was filed with the Securities
and Exchange Commission on September 24, 1996 (Accession Number
0000042031-96-000001) and 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. 67, SEC File No. 2-14486, filed August 24, 1996.
(5) (a)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.
(b)Subadvisory Agreement. Incorporated herein by reference to corresponding
Exhibit of Post-Effective Amendment No. 67, SEC File No. 2-14486, filed August
24, 1996.
(c)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.
Part C p. 1
<PAGE>
(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) Precious Metals Storage Agreement. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 67, SEC File No. 2-
14486, filed August 24, 1996.
(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.
(e) Credit Agreement. Filed herewith.
(f) Licensing Agreement. Filed herewith.
(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.
Filed herewith.
(12)Financial statements omitted from Item 23 -- not applicable
(13)Agreement for providing initial capital -- not applicable
(14)(a)Standardized Profit Sharing Adoption Agreement. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment No. 67,
SEC File No. 2-14486, filed August 24, 1996.
(b)Defined Contribution Basic Plan Document. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment No. 67,
SEC File No. 2-14486, filed August 24, 1996.
(c)Standardized Money Purchase Adoption Agreement. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment No. 67,
SEC File No. 2-14486, filed August 24, 1996.
(d)Simplified Profit Sharing Adoption Agreement. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment No. 67,
SEC File No. 2-14486, filed August 24, 1996.
(e)Simplified Money Purchase Adoption Agreement. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment No. 67,
SEC File No. 2-14486, filed August 24, 1996.
(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 Investor 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.
Part C p. 2
<PAGE>
(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.
(17) Financial Data Schedule. Filed herewith.
(18) Not applicable
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of October 24, 1996)
Shares of Common Stock, 3,667
$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.
Part C p. 3
<PAGE>
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.
Section 9 of the Distribution Agreement between the Registrant and
Investor Service Center, Inc. ("Service Center") provides that the Registrant
will indemnify Service Center and its officers, directors and controlling
persons against all liabilities arising from any alleged untrue statement of
material fact in the Registration Statement or from any alleged omission to
state in the Registration Statement a material fact required to be stated in it
or necessary to make the statements in it, in light of the circumstances under
which they were made, not misleading, except insofar as liability arises from
untrue statements or omissions made in reliance upon and in conformity with
information furnished by Service Center to the Registrant for use in the
Registration Statement; and provided that this indemnity agreement shall not
protect any such persons against liabilities arising by reason of their bad
faith, gross negligence or willful misfeasance; and shall not inure to the
benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public policy
as expressed in the Securities Act of 1933. Section 9 of the Distribution
Agreement also provides that Service Center agrees to indemnify, defend and hold
the Registrant, its officers and Directors free and harmless 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
Part C p. 4
<PAGE>
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 the Investment Manager are also
directors and officers of other Funds managed by Midas Management Corporation
and Rockwood Advisers, Inc., both of which are wholly-owned subsidiaries of Bull
& Bear Group, Inc. (the "Funds"). In addition, such officers are officers and
directors of Bull & Bear Group, Inc. and its other subsidiaries; Service Center,
the distributor of the Registrant and the 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. Bull & Bear Advisers, Inc. serves as investment manager of Bull &
Bear Dollar Reserves and Bull & Bear Global Income Fund, each a series of shares
issued by Bull & Bear Funds II, Inc.; Bull & Bear Municipal Income Fund, Inc.;
Bull & Bear Gold Investors Ltd.; Bull & Bear U.S. and Overseas Fund, a series of
Bull & Bear Funds I, Inc.; Bull & Bear Special Equities Fund, Inc., and Bull &
Bear U.S. Government Securities Fund, Inc. Midas Management Corporation serves
as investment manager of Midas Fund, Inc., and Rockwood Advisers, Inc. serves as
investment adviser of The Rockwood Growth Fund, Inc.
Item 29. Principal Underwriters
a) In addition to the Registrant, Investor Service Center, Inc. serves as
principal underwriter of Bull & Bear Funds II, Inc., Bull & Bear Special
Equities Fund, Inc., Bull & Bear Funds I, Inc., Bull & Bear U.S. Government
Securities Fund, Inc., Bull & Bear Municipal Income Fund, Inc., Midas Fund, Inc.
and The Rockwood Growth Fund, 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.
Name and Principal Position and Offices with Position and Offices
Business Address Investor Service Center, Inc. with Registrant
- ---------------------- ------------------------------- ------------------------
Bassett S. Winmill n/a Chairman of the Board
11 Hanover Square
New York, NY 10005
Robert D. Anderson Vice Chairman and Director Vice Chairman and Director
11 Hanover Square
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Brett B. Sneed Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Chairman, Director and Co-President, Director,
11 Hanover Square Chief Financial Officer Chief Financial Officer
New York, NY 10005
Part C p. 5
<PAGE>
Thomas B. Winmill President, Director, Co-President, Director,
11 Hanover Square General Counsel and General 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
11 Hanover Square Compliance Officer Chief Compliance Officer
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
Joseph Leung Treasurer, Chief Accounting Officer Treasurer,
11 Hanover Square Chief Accounting
New York, NY 10005 Officer
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
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 1st day of
November, 1996.
BULL & BEAR GOLD INVESTORS LTD.
Thomas B. Winmill
By: Thomas B. Winmill
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Mark C. Winmill Director, Co-President and Co-Chief November 1, 1996
- ---------------
Mark C. Winmill Executive Officer
Thomas B. Winmill Director, Co-President and Co-Chief November 1, 1996
- -----------------
Thomas B. Winmill Executive Officer
Bassett S. Winmill Director, Chairman of the November 1, 1996
- ------------------
Bassett S. Winmill Board of Directors
Joseph Leung Treasurer, Principal November 1, 1996
Joseph Leung Accounting Officer
Robert D. Anderson Director, Vice Chairman November 1, 1996
- ------------------
Robert D. Anderson
Bruce B. Huber Director November 1, 1996
Bruce B. Huber
James E. Hunt Director November 1, 1996
James E. Hunt
Frederick A. Parker, Jr. Director November 1, 1996
- ------------------------
Frederick A. Parker, Jr.
John B. Russell Director November 1, 1996
John B. Russell
Russell E. Burke III Director November 1, 1996
- --------------------
Russell E. Burke III
Part C p. 7
<PAGE>
EXHIBIT INDEX
PAGE
EXHIBIT NUMBER
9 (e) Credit Agreement
9 (f) Licensing Agreement
11 Accountants' consent
17 Financial Data Schedule
Part C p. 8
<PAGE>
Form Of
CREDIT AGREEMENT
INVESTORS BANK & TRUST COMPANY
and
BULL & BEAR FUNDS I, INC.
BULL & BEAR FUNDS II, INC.
BULL & BEAR GOLD INVESTORS LTD.
BULL & BEAR MUNICIPAL SECURITIES, INC.
BULL & BEAR SPECIAL EQUITIES FUND, INC. and
MIDAS FUND, INC.
$20,000,000 REVOLVING CREDIT FACILITY
April 3, 1996
TABLE OF CONTENTS
Page
ARTICLE I. THE CREDIT FACILITY
1.01 The Credit Facility 1
1.02 Availability 3
1.03 Charges Against Accounts 3
1.04 Payments 3
1.05 Payment on Non-Business Days 3
1.06 Net Payments 3
1.07 Additional Amounts Payable 3
1.08 Source of Repayment; Payment of Fees and Other Charge 4
ARTICLE II. CONDITIONS
2.01 Conditions to Closing 5
2.02 Conditions of Making Loans 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.01 Organization 7
3.02 Authority 7
3.03 Approvals 8
3.04 Valid Obligations 8
3.05 Assets 8
3.06 Claims 8
3.07 Financial Statements 9
3.08 Taxes 9
3.09 Investment Company 9
3.10 Margin Stock 10
3.11 Representations Accurate 10
4.01 Affirmative Covenants Other Than
4.02 Negative Covenants 11
4.03 Reporting Requirements 13
ARTICLE V. EVENTS OF DEFAULT; REMEDIES
5.01 Events of Default 15
5.02 Remedies 16
5.03 Set-off 17
ARTICLE VI. MISCELLANEOUS
6.01 Right to Cure 17
6.02 Waivers 17
6.03 Delays 17
6.04 Notices 17
6.05 Captions 18
6.06 Jurisdiction 18
6.07 Execution 18
6.08 Governing Law 18
6.09 Fees 18
6.10 Binding Nature 18
6.11 Severability 18
6.12 Under Seal 19
ARTICLE VII. DEFINITIONS
7.01 Definitions 19
7.02 Use of Defined Terms 20
7.03 Accounting Terms 20
Exhibits
Exhibit A Form of Note
Exhibit B Form of Borrowing Notice
Exhibit C Designation of Portfolios
Schedules
Schedule A Additional Disclosure and Covenants
This Credit Agreement (the "Agreement") is made as of April 3, 1996
between Investors Bank & Trust Company, a Massachusetts trust company (the
"Bank"), and each of Bull & Bear Funds I, Inc., Bull & Bear Funds II, Inc., Bull
& Bear Gold Investors Ltd., Bull & Bear Municipal Securities, Inc., Bull & Bear
Special Equities Fund, Inc. and Midas Fund, Inc., each a Maryland corporation
with its principal office at 11 Hanover Square, New York, NY 10005 (each a
"Borrower" and collectively the "Borrowers").
WHEREAS, the Borrowers have requested that the Bank provide, and subject
to the terms and conditions of this Agreement and of the other agreements and
documents referred to herein, the Bank has agreed to provide, to the Borrowers a
credit facility (the "Credit Facility") of up to $20,000,000 to provide for the
short-term working capital requirements of the Borrowers;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Borrowers, in
order to induce the Bank to provide the Credit Facility, and intending to be
legally bound, hereby severally but not jointly agree with the Bank as follows:
ARTICLE I
THE CREDIT FACILITY
1.01.The Credit Facility. The Credit Facility shall consist of a revolving line
of credit pursuant to which the Bank may from time to time make Loans to the
Borrowers.
(a) Loans. Subject to the terms and conditions hereinafter set
forth, the Bank agrees to make Loans to any or all of the Borrowers and, with
respect to Borrowers composed of Portfolios, any and all of the Portfolios at
the Principal Office of the Bank on any Business Day prior to the Termination
Date, in such amounts as the Borrowers may request; provided, however, that any
such requests by the Borrowers or the Portfolios may not exceed the Aggregate
Eligible Loan Amount as to all Borrowers and Portfolios and the Eligible Loan
Amount as to any Borrower or Portfolio and further provided that the aggregate
of all Loans to any or all of the Borrowers outstanding shall at no time exceed
the lesser of (a) the Aggregate Eligible Loan Amount; or (b) $20,000,000. Within
the foregoing limits, subject to the terms and conditions of this Agreement, any
or all of the Borrowers and, with respect to Borrowers composed of Portfolios,
any and all of the Portfolios may obtain Loans, repay Loans in whole or in part
and obtain Loans again on one or more occasions. The Loans shall be evidenced by
the respective Note of each Borrower or Portfolio, dated as of the date hereof.
The Borrowers and Portfolios severally but not jointly hereby irrevocably
authorize the Bank to make or cause to be made, on a schedule to be attached to
the Notes or on the books of the Bank, at or following the time of making each
Loan and of receiving any payment of principal, an appropriate notation
reflecting such transaction and the then aggregate unpaid principal balance of
the Loans. The amount so noted shall constitute presumptive evidence as to the
amount owed by the Borrowers and the Portfolios with respect to the principal
amount of the Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrowers and the Portfolios hereunder or
under the Notes.
(b) Request for Loans. Each Borrower or Portfolio shall give the
Bank telephonic or written notice, specifying the amount and date of each Loan
requested, no later than 2:00 p.m. (Boston time) on the Business Day on which
the Borrower or Portfolio requests the proceeds of such Loan to be made
available by the Bank. Upon receipt from the Bank of a Borrowing Notice prepared
by the Bank in connection with such Loan request, the Borrower or Portfolio
shall execute such Borrowing Notice and return it promptly to the Bank.
(c) Repayment of Principal. Each Borrower or Portfolio shall
repay in full all Loans and all interest thereon upon the first to occur of (i)
the Termination Date; or (ii) an acceleration under Section 5.02(b) following an
Event of Default. Each Borrower or Portfolio may prepay, at any time, without
penalty, the whole or any portion of any Loans; provided that each such
prepayment shall be accompanied by a payment of all interest under the
respective Note or Notes accrued but unpaid to the date of prepayment.
(d) Interest Payments. Each Borrower and Portfolio will pay
interest on the principal amount of the aggregate Loans outstanding from time to
time, from the date of the initial Loan until payment of all Loans and the Notes
in full and the termination of the Credit Facility, such interest to be payable
monthly in arrears on the first Business Day of the next month, commencing with
May 1, 1996, and on the date of payment of the Loans in full. The rate of
interest so payable shall be a floating rate per annum equal to the Federal
Funds Rate plus one and three-quarters percent (1.75%) (but in no event in
excess of the maximum rate then permitted by applicable law), with a change in
such rate of interest to become effective on the same day on which any change in
the Federal Funds Rate is effective. Overdue principal and, to the extent
permitted by law, overdue interest shall bear interest at a floating rate per
annum which at all times shall be five percent (5%) plus the Federal Funds Rate
(but in no event in excess of the maximum rate from time to time then permitted
by applicable law), compounded monthly and payable on demand, with a change in
such rate of interest to become effective on the same day on which any change in
the Federal Funds Rate is effective.
(e) Commitment Fee. The Borrowers and Portfolios shall pay to the
Bank an annual commitment fee, in connection with the establishment and
maintenance of the Credit Facility at the rate of one-twentieth of one percent
(0.05%) per annum on the difference between (i) $20,000,000 and (ii) the average
daily amount of Loans outstanding under the Credit Facility, payable quarterly
in arrears on the first Business Day of the next calendar quarter.
(f) Use of Loan Proceeds. The proceeds of each Loan will be used
by the Borrowers and Portfolios solely to finance redemptions, purchase and hold
investment securities, finance working capital requirements and pay fund
expenses.
(g) Reduction or Termination of Credit Facility. The Borrowers and Portfolios
shall have the right, at any time for any reason and without penalty, upon no
less than ten (10) days' prior written notice to the Bank, to terminate or
reduce the amount of the Credit Facility. Any such reduction shall be in the
amount of $500,000 or a whole multiple thereof (or, if less, the maximum amount
of the Credit Facility) and shall be irrevocable. Each Borrower or Portfolio
shall have the right, at any time for any reason and without penalty, upon no
less than ten (10) days' prior written notice to the Bank, to terminate its
participation in the Credit Facility provided by this Agreement. Upon any such
termination of participation by any Borrower or Portfolio, the Bank shall have
the right, at any time for any reason and without liability, upon no less than
ten (10) days' prior written notice to the Borrowers and the Portfolios, to
terminate the Credit Facility.
1.02. Availability. The proceeds of all Loans shall be credited by the Bank to a
general deposit account of the respective Borrower or Portfolio with the Bank.
1.03. Charges Against Accounts. The Bank may charge any deposit account,
and, after the occurrence of any Event of Default by a Borrower or Portfolio,
any custody, trust or agency account, of such defaulting Borrower or Portfolio
at or with the Bank, if any, with such Borrower's or Portfolio's payments of
interest, principal and other sums due, from time to time, under this Agreement,
or due under such Borrower's or Portfolio's Note, and will thereafter notify the
Borrower or Portfolio of the amount so charged. The failure of the Bank so to
charge any account or to give any such notice shall not affect the obligation of
the Borrower or Portfolio to pay interest, principal or other sums as provided
herein or in the Notes.
1.04. Payments. Except as otherwise provided in this Agreement, all
payments of interest, principal and any other sum payable hereunder and/or the
Notes shall be made to the Bank at its Principal Office, in immediately
available funds or by check. All payments received by the Bank after 11:00 a.m.
Eastern time on any day shall be deemed received as of the next succeeding
Business Day. All monies received by the Bank hereunder shall be applied first
to fees, charges, costs and expenses payable to the Bank under this Agreement,
next to interest then accrued on account of the Loans and only thereafter to
principal of the Loans. Interest payable under the Notes shall be computed on
the basis of a 360-day year for the number of days actually elapsed.
1.05. Payment on Non-Business Days. Whenever any payment to be made to the
Bank hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on each such date shall include the amount thereof
which shall accrue during the period of such extension of time.
1.06. Net Payments. All payments to the Bank hereunder and/or in respect of the
Notes shall be made without deduction, set-off or counterclaim, notwithstanding
any claim which any Borrower or Portfolio may now or at any time hereafter have
against the Bank.
1.07. Additional Amounts Payable.
(a) If the adoption of or any change in any statute, rule,
regulation, order or policy of any government authority or agency or in the
interpretation or application thereof or compliance by the Bank with any request
or directive (whether or not having the force of law) from any central bank or
other government authority or agency made subsequent to the date hereof:
(i) shall subject the Bank to any tax of any kind whatsoever with respect to
this Agreement, any Note or any Loan or change the basis of taxation of payments
to the Bank in respect thereof (except for changes in the rate of tax on the
overall net income of the Bank).
(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other extensions of
credit by, or any other acquisition of funds, by, any office of the Bank; or
(iii) shall impose on the Bank any other condition affecting the Credit
Facility, this Agreement or any Loan;
and the result of any of the foregoing is to increase the cost to the Bank, by
an amount which the Bank deems to be material, of making, continuing or
maintaining Loans or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, each Borrower or Portfolio whose Loans or
access to Loans under the Credit Facility are affected by the foregoing shall
promptly pay to the Bank, upon demand therefor by the Bank, such additional
amount or amounts as will compensate the Bank for such increased cost or reduced
amount receivable for all periods commencing 60 days after the Bank has provided
notice thereof to the Borrowers.
(b) If the Bank shall have determined that the adoption of or any
change in any statute, rule, regulation, order or policy of any government
authority or agency regarding capital adequacy or in the interpretation or
application thereof or compliance by the Bank or any corporation controlling the
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) from any governmental authority or agency made
subsequent to the date hereof shall have the effect of reducing the rate of
return on the Bank's or such corporation's capital as a consequence of its
obligations hereunder to a level below that which the Bank or such corporation
could have achieved but for such adoption, change or compliance by an amount
deemed by the Bank to be material, then from time to time, the Borrowers and the
Portfolios shall promptly pay to the Bank, upon demand therefor by the Bank,
such additional amount or amounts as will compensate the Bank for such reduction
for all periods commencing 60 days after the Bank has provided notice thereof to
the Borrowers and the Portfolios.
(c) If the Bank claims any additional amounts pursuant to this
Section 1.07, it shall promptly notify the Borrowers and the Portfolios of the
event by reason of which it has become so entitled. A certificate of an
authorized officer of the Bank as to any additional amounts payable pursuant to
this subsection submitted by the Bank to the Borrowers and the Portfolios shall
be conclusive in the absence of manifest error.
1.08. Source of Repayment; Payment of Fees and Other Charges.
(a) Notwithstanding any other provision of this Agreement, the parties agree
that the assets and liabilities of each Portfolio of a Borrower are separate and
distinct from the assets and liabilities of each other Portfolio of such
Borrower, and no Portfolio shall be liable hereunder or shall be charged for any
debt, obligation, liability, fee, or expense hereunder arising out of or in
connection with a transaction entered into hereunder by or on behalf of any
other Portfolio.
(b) Notwithstanding any other provision of this Agreement, each
Borrower or Portfolio, as the case may be, shall be liable only for its portion
of the commitment fee or any other fee or amount payable under this Agreement
(including, without limitation, under Sections 1.07 and 6.09), and such Borrower
or Portfolio shall not be liable for any portion of the commitment fee or such
other fee or amount of any other Borrower or Portfolio hereunder. The Borrowers
and Portfolios shall notify the Bank at least two Business Days in advance of a
commitment fee or other payment date of the manner in which the fees or other
amounts to be paid on such payment date are to be allocated among the Borrowers
and Portfolios.
ARTICLE II
CONDITIONS
2.01. Conditions to Closing. The obligation of the Bank to make the
initial Loans to each Borrower and with respect to a Borrower composed of
Portfolios, each Portfolio is subject to the satisfaction of all of the
following conditions on or prior to the Closing Date:
(a) Documents. The Bank shall have received this Agreement and
the Notes duly executed and delivered by the Borrowers and, with respect to a
Borrower composed of Portfolios, the Borrower on behalf of each Portfolio.
(b) Warranties True; Covenants Performed. All warranties and
representations of each Borrower or Portfolio in this Agreement shall be true
and accurate on the date of the Closing as if then given, and each Borrower or
Portfolio shall have performed or observed all of the terms, covenants,
conditions and obligations under this Agreement which are required to be
performed or observed by them on or prior to such date.
(c) Closing Certificate. The Bank shall have received a
certificate, dated as of the Closing Date and executed by or on behalf of the
Co-Chief Executive Officer or Chief Accounting Officer of each Borrower or
Portfolio, in form and content satisfactory to the Bank, stating the substance
of Section 2.01(b).
(d) Other Documents. The Bank shall have received all other
documents and assurances required hereunder or which it may reasonably request
in connection with the transactions contemplated by this Agreement, and such
documents shall be certified, when appropriate, by the proper authorities or
representatives of each Borrower or Portfolio, including without limitation the
following, and all such documents and all proceedings to be taken in connection
with such transactions shall be reasonably satisfactory in form and substance to
the Bank and its counsel:
(i) Copies of all documents evidencing necessary corporate action or approvals,
if any, with respect to this Agreement, the Notes and such other matters,
including, without limitation, any required approvals of governmental
authorities and other persons or entities.
(ii) A certificate, signed by the Co-Chief Executive Officer or Chief Accounting
Officer of each Borrower or Portfolio, setting forth the names of the Co-Chief
Executive Officers, Chief Accounting Officer and any other persons authorized to
sign this Agreement, the Notes and any and all certificates, notices and reports
referred to herein on behalf of such Borrower or Portfolio; such certificate
shall state that the Bank may conclusively rely on the statements made therein
until the Bank shall receive a further certificate of a Co-Chief Executive
Officer or Chief Accounting Officer of such Borrower canceling or amending the
prior certificate.
(iii) A copy of the Certificate of Incorporation or comparable instrument of
each Borrower and all amendments thereto; a copy of the By-laws or comparable
instrument of each Borrower and Portfolio, as amended to date; a copy of the
prospectus and statement of additional information of each Borrower; as amended
to date; and a certificate of legal existence and good standing for each
Borrower issued as of a recent date by the appropriate public officials.
(iv) FR Forms U-1 executed by each Borrower or Portfolio and such other
documents which, in the opinion of the Bank or its counsel, are required to be
obtained in connection with the Loans under the Credit Facility by reason of the
provisions of any law or regulation applicable to the Bank, and the statements
made in such documents shall be such as, in the opinion of the Bank, will permit
such Loans under the Credit Facility from the Bank in accordance with such laws
and regulations.
(e) No Adverse Change. There shall have occurred no material adverse change
in the business, operations, properties, financial condition, or prospects of
any Borrower or Portfolio.
(f) Legal Opinion. All legal matters incident to this Agreement shall be
reasonably satisfactory to the Bank's counsel, and the Bank shall have received
at the Closing the legal opinion of counsel to the Borrowers and Portfolios in
form and substance reasonably satisfactory to the Bank.
(g) Borrowing Notice. Each Borrower or Portfolio requesting a Loan on the
Closing Date shall have executed and delivered to the Bank a Borrowing Notice.
2.02. Conditions of Making Loans. The obligation of the Bank to make any
Loans to any Borrower or Portfolio subsequent to the Closing Date is subject to
the satisfaction of the following conditions precedent on or before the date of
each such subsequent advance (the "Borrowing Date"):
(a) Representations and Warranties. The representations and warranties of such
Borrower or Portfolio in this Agreement and otherwise made by such Borrower or
Portfolio in writing in connection with the transactions contemplated by this
Agreement shall have been correct as of the date on which made and shall also be
correct at and as of such Borrowing Date with the same effect as if made at and
as of such time, except as may have been disclosed in writing to the Bank by
such Borrower or Portfolio and to which the Bank has consented in writing and to
the extent that the facts upon which such representations and warranties are
based may in the ordinary course be changed by the transactions permitted or
contemplated hereby.
(b) Performance. Such Borrower or Portfolio shall have performed
and complied with all terms and conditions herein required to be performed or
complied with by it prior to or on such Borrowing Date, and on such Borrowing
Date there shall exist no Event of Default or condition which would, with any or
all the giving of notice or the lapse of time, result in an Event of Default
upon consummation of the subsequent advance to be made on such Borrowing Date.
(c) Borrowing Notice. Such Borrower or Portfolio shall have executed and
delivered to the Bank a Borrowing Notice.
Each request by any Borrower or Portfolio for a Loan subsequent to the Closing
Date shall constitute a certification by such Borrower or Portfolio that the
conditions specified in this Section 2.02 will be duly satisfied on the date of
the making of such Loan with respect to such Borrower or Portfolio.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrowers and Portfolios severally but not jointly represent and
warrant as follows:
3.01. Organization. Each Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland. Other
than as disclosed in Schedule A, each Borrower: (i) is duly qualified to do
business and in good standing in each jurisdiction where such qualification is
required, except those jurisdictions where the failure to so qualify will not
have a material adverse effect on such Borrower's business, prospects or
financial condition; (ii) has all requisite power and authority to conduct its
business as presently being conducted and as proposed to be conducted after the
Closing and to own its properties now and after the Closing; and (iii) has all
requisite power and authority to execute and deliver, and to perform all of its
obligations under, this Agreement and its respective Note provided, however,
that the Borrowers and Portfolios do not have the requisite authority to pledge
all of their assets as may be required by the Bank pursuant to Section 4.01(g)
of this Agreement..
3.02. Authority. The execution, delivery and performance by each Borrower and
Portfolio of this Agreement and its respective Note: (i) have been duly
authorized by all necessary corporate action; (ii) do not contravene any
provision of such Borrower's Certificate of Incorporation or comparable
instrument, or By-laws, prospectus, statement of additional information or
comparable documents provided, however, that certain Borrowers and Portfolios
are limited by investment limitations contained in their prospectuses or
statements of additional information that limit their ability to pledge or
otherwise grant a security interest in their assets; (iii) do not violate any
provision of any law, rule or regulation or any judgment, determination or award
provided, however, that the Borrowers and Portfolios are limited by law, rule or
regulation that limit their ability to pledge or otherwise grant a security
interest in their assets; (iv) do not and will not result in a breach or
constitute a default (or constitute an event which with the passage of time or
giving of notice or both could constitute an event of default) under any
agreement to which such Borrower or Portfolio is a party or by which any of its
properties are bound, including, without limitation, any indenture, loan or
credit agreement, lease, debt instrument or mortgage; and (v) do not and will
not result in or require the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance of any
nature upon or with respect to any of the properties of the Borrower or
Portfolio except in accordance with the terms of this Agreement. No Borrower or
Portfolio is in default under its Certificate of Incorporation or comparable
instrument, or By-laws, prospectus, statement of additional information or
comparable documents as now in effect, or any law, rule or regulation, order,
writ, judgment, injunction, decree, determination, award or agreement referred
to above, and no Borrower or Portfolio will be in any such default by virtue of
the transactions to be entered into at the Closing, other than a default that
will not have a material adverse effect on such Borrower's or Portfolio's
operations, assets or financial condition.
3.03. Approvals. No authorization, consent, approval, license or exemption
of, or filing a registration with, any court or governmental department or
commission, board, bureau, agency, instrumentality or other person or entity,
domestic or foreign, is or will be necessary for the valid execution, delivery
or performance by each Borrower or Portfolio of this Agreement and/or its
respective Note other than filings which have already been made and consents or
approvals which have already been received.
3.04. Valid Obligations. This Agreement and the respective Notes have been
duly executed and delivered by each Borrower and, with respect to a Borrower
composed of Portfolios, each Portfolio and constitute legal, valid and binding
obligations of such Borrower or Portfolio, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles are applied in
a court of equity or at law.
3.05. Assets. Each Borrower and Portfolio has good and valid title in and
to its respective assets, subject to no security interest, mortgage, pledge,
lien, lease, encumbrance, charge, easement, restriction or encroachment except
for Permitted Liens and for defects and claims which, in the aggregate, could
not have a material adverse effect on the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio. Each Borrower's
and Portfolio's principal place of business is maintained at its Principal
Office at the location indicated in the preamble to this Agreement.
3.06. Claims. There are no actions, suits, proceedings or investigations pending
or threatened against any Borrower or Portfolio before any court or any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which could prevent or hinder the consummation of the
transactions contemplated hereby or call into question the validity of this
Agreement, any of the Notes or any other document or instrument provided for or
contemplated by this Agreement or any action taken or to be taken in connection
with the transactions contemplated hereby or thereby, or which in any single
case or in the aggregate might result in any material adverse change in the
business, operations, properties, financial condition or prospects of such
Borrower or Portfolio or any material impairment of the right or ability of such
Borrower or Portfolio to carry on its operations as now conducted or proposed to
be conducted after the Closing.
3.07. Financial Statements. The Borrowers and Portfolios have previously
delivered to the Bank the audited financial statements of each Borrower and
Portfolio as of the end of its most recently completed fiscal year. All such
financial statements were prepared in accordance with GAAP, and accurately
reflect the financial condition of each such Borrower and Portfolio as of such
date. No Borrower or Portfolio has any liability, contingent or otherwise, that
could materially adversely affect its financial condition which is not reflected
in the financial statements previously delivered by the Borrower or Portfolio to
the Bank. Since the end of such Borrower's or Portfolio's most recently
completed fiscal year, there has not been a material adverse change in the
business, operations, property, financial condition or prospects of any Borrower
or Portfolio.
3.08. Taxes. Each Borrower and Portfolio has filed all federal, foreign,
state, local and other tax returns, reports and estimates which are required to
be filed and has paid all taxes, fees and other governmental charges shown on
such returns, reports and estimates and on all assessments received by it, to
the extent that such taxes have become due, except for any tax or assessment
which is being contested by such Borrower or Portfolio in good faith and by
appropriate proceedings and such Borrower or Portfolio has set aside on its
books sufficient reserves with respect thereto. All of such tax returns are
accurate and complete in all material respects. All other taxes and assessments
of any nature with respect to which each Borrower or Portfolio is obligated and
which have become due are being paid or adequate accruals have been set up
therefor. There are in effect no waivers of applicable statutes of limitations
for federal, state or local taxes for any period. No Borrower or Portfolio is
delinquent in the payment of any tax, assessment or governmental charge and no
Borrower or Portfolio has requested any extension of time within which to file
any tax return, which return has not since been filed, and no deficiencies for
any tax, assessment or governmental charge have been asserted or assessed, and
no Borrower or Portfolio knows of any material liability or basis therefor.
3.09. Investment Company. Each Borrower or Portfolio is duly registered as an
investment company pursuant to the Investment Company Act of 1940, as amended
(the "1940 Act") and is in compliance with all regulations, rules and orders
issued or promulgated pursuant to the 1940 Act, other than such regulations,
rules, and orders the non-compliance with which will not have a material adverse
effect on such Borrower's or Portfolio's operations, assets or financial
condition. Each Borrower and Portfolio is in compliance with its respective
prospectus and the investment policies and other policies described therein,
other than such investment policies, investment restrictions, other policies and
other requirements the non-compliance with which will not have a material
adverse effect on such Borrower's or Portfolio's operations, assets or financial
condition.
3.10. Margin Stock. Each Borrower and Portfolio has executed and delivered
to the Bank an executed FR Form U-1 (as defined in Regulation U of the Board of
Governors of the Federal Reserve System).
3.11. Representations Accurate. No representation or warranty made by any
Borrower or Portfolio herein, in any Note or in any other agreement, document,
instrument or certificate furnished from time to time in connection herewith or
therewith contains any misrepresentation of a material fact or omits to state
any material fact necessary to make the statements herein or therein (taken as a
whole in conjunction with all such documents) not misleading when made.
ARTICLE IV
COVENANTS
4.01. Affirmative Covenants Other Than Reporting Requirements. Without
limiting any other covenants and provisions hereof, each Borrower and, with
respect to a Borrower composed of Portfolios, each Portfolio severally but not
jointly covenant and agree that, so long as any Note, any Loan or any obligation
of such Borrower or Portfolio to the Bank, in any capacity, remains unpaid:
(a) Payments. Each Borrower or Portfolio shall duly and
punctually make the payments required under this Agreement and its respective
Note and shall perform and observe all of its other obligations under the
foregoing documents, in each case within any applicable grace period or cure
period provided for in Section 5.01 hereof.
(b) Payment of Taxes and Trade Debt. Each Borrower or Portfolio
will promptly pay and discharge all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profit or upon any property,
real, personal or mixed, belonging to it; provided, however, that such Borrower
or Portfolio shall not be required to pay any such tax, assessment, charge or
levy if the same shall not at the time be due and payable or if the same can be
paid thereafter without penalty or if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if such Borrower or
Portfolio shall have made adequate provision on its books for the payment of
such tax, assessment, charge or levy. Each Borrower or Portfolio will pay in a
timely manner all of its trade payables.
(c) Maintain Rights. Each Borrower or Portfolio shall:
(i) keep in full force and effect its corporate existence;
(ii)keep in full force and effect all material rights, registrations, licenses,
leases and franchises reasonably necessary to the conduct of its business;
provided that nothing in this Section 4.01(c)(ii) shall prevent the abandonment
or termination of any right, registration, license, lease or franchise, if, in
the reasonable opinion of the Board of Directors of the
applicable Borrower or Portfolio, such abandonment or termination is in the best
interest of such Borrower or Portfolio and not disadvantageous to the Bank;
(iii) duly observe and conform to all applicable material
laws, statutes, regulations, decrees, judgments, orders, writs and other
requirements of all governmental authorities in any way relating to it or the
conduct of its business (including without limitation the 1940 Act and the
regulations, rules and orders issued or promulgated thereunder), except where
the failure to so comply could not have a material adverse affect on the
business, operations, properties or financial condition or prospects of such
Borrower or Portfolio; and
(iv) abide by the additional covenants set forth in Schedule A.
(d) Books and Records. Each Borrower or Portfolio will (i) keep
proper books of record and account in which entries therein are full, true and
correct in all material respects in conformity with GAAP and all requirements of
law and shall be made of all material dealings and transactions in relation to
its business and activities, and (ii) permit representatives of the Bank to
visit and inspect any of its properties and to examine and make abstracts from
any of their books and records upon reasonable notice, at any reasonable time
during normal business hours and as often as may reasonably be desired, and to
discuss the business, operations, properties and financial condition of such
Borrower or Portfolio with its officers and employees and with their independent
certified public accountants.
(e) Compliance. Each Borrower or Portfolio will comply with its
respective prospectus, statement of additional information and other comparable
documents or instruments and all investment policies and other policies
described therein, other than such investment policies, investment restrictions,
other policies and other requirements the non-compliance with which will not
have a material adverse effect on such Borrower's or Portfolio's operations,
assets or financial condition.
(f) Use of Proceeds. Each Borrower or Portfolio shall use the proceeds of
each Loan solely for the purposes set forth in Section 1.01(f) hereof.
(g) Security. Immediately upon the request of the Bank in
accordance with Section 5.02(a) hereof, each Borrower or Portfolio shall execute
and deliver to the Bank a pledge agreement or security agreement and all other
documents, each in form and substance reasonably satisfactory to the Bank,
granting to the Bank a security interest in all assets of such Borrower or
Portfolio. In addition, such Borrower or Portfolio, at its expense, shall
execute, file and record all such further instruments (including without
limitation UCC-1 financing statements), and perform such other acts, as the Bank
may reasonably determine are necessary or advisable to maintain the priority of
the security interests in favor of the Bank created by the such documents on all
property subject thereto.
4.02. Negative Covenants. Without limiting any other covenants and provisions
hereof, each Borrower and, with respect to a Borrower composed of Portfolios,
each Portfolio severally but not jointly covenant and agree that, so long as any
Note or any Loan is outstanding or any obligation of such Borrower or Portfolio
to the Bank, in any capacity, have not been fully performed:
(a) Liens. No Borrower or Portfolio will create, incur, assume or
suffer to exist any security interest, lien, mortgage, deed of trust, pledge,
levy, attachment, claim or other charge or encumbrance of any nature whatsoever
upon or with respect to any of its assets, whether now owned or hereafter
acquired, or assign or otherwise convey any right to receive income from any of
such assets ("Lien"), except for (1) Liens in favor of the Bank, (2)
restrictions under applicable securities laws, and agreements (such as
securities lending, stockholder voting or stock restriction agreements) entered
into by such Borrower or Portfolio in the ordinary course of its business, (3)
Liens for current taxes not delinquent or taxes being contested in good faith
and by appropriate proceedings and as to which reserves or other appropriate
provisions required by GAAP are being maintained, (4) Liens as are necessary in
connection with a secured letter of credit opened by such Borrower or Portfolio
in connection with such Borrower's or Portfolio's directors' and officers'
errors and omissions liability insurance policy, and (5) Liens in connection
with the payment of initial and variation margin in connection with futures and
options transactions and collateral arrangements with respect to options,
futures contracts, options on futures contracts, forward contracts, swaps, caps,
collars, floors, when-issued or delayed delivery securities or other authorized
investments ("Permitted Liens").
(b) Transfers. No Borrower or Portfolio shall sell, lease,
transfer or otherwise dispose of any of its assets, provided that such Borrower
or Portfolio may from time to time sell, lend or distribute its assets in the
ordinary course of such Borrower's or Portfolio's business absent the prior
written consent of the Bank.
(c) Mergers. No Borrower or Portfolio will enter into any
transaction of merger or consolidation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), without the prior written consent of
the Bank, which shall not be unreasonably withheld, other than a merger or
consolidation with another person in accordance with 17 C.F.R. Section 270.17a-8
if (1) such merger or consolidation complies in all respects with the
requirements of 17 C.F.R. Section 270.17a-8 and all rules promulgated in
connection therewith, and (2) the surviving entity assumes all of the
obligations to the Bank of the merging or consolidating Borrower(s) or
Portfolio(s).
(d) Indebtedness. No Borrower or Portfolio will incur any
additional Indebtedness, except for (1) Indebtedness to the Bank, (2) pursuant
to such Borrower's or Portfolio's securities lending activities conducted in the
ordinary course of its business and (3) reverse repurchase transactions entered
into in the ordinary course of its business in an amount not exceeding that
permitted by such Borrower's or Portfolio's investment policies and
restrictions.
(e) Bankruptcy. No Borrower or Portfolio will petition for relief
under the United States Bankruptcy Code or institute any similar bankruptcy,
insolvency, or receivership proceedings under any other federal or state law.
(f) No Amendment. No Borrower or Portfolio shall amend in any
material respect its respective registration statement, prospectus or investment
or other policies described therein if such amendment would materially and
adversely affect the Bank's rights under this Agreement or the respective Notes
without the prior written consent of the Bank, which shall not be unreasonably
withheld.
(g) No Change. No Borrower or Portfolio shall change or replace
its investment adviser, administrator, distributor or sponsor, without the prior
written consent of the Bank, which shall not be unreasonably withheld. No
Borrower or Portfolio shall change or replace its custodian without the prior
written consent of the Bank.
4.03. Reporting Requirements. So long as any Loan or any Note shall be
outstanding or any other obligation of each Borrower, or with respect to a
Borrower composed of Portfolios, each Portfolio to the Bank, in any capacity,
shall remain unpaid, such Borrower or Portfolio shall:
(a) Financial Reports. Furnish to the Bank:
(i) as soon as available, but in any event within ninety (90) days after
the end of each fiscal year of such Borrower or Portfolio, a copy of the audited
statement of assets and liabilities of such Borrower or Portfolio as at the end
of such fiscal year and the related audited statements of operations and cash
flows for such fiscal year, in each case setting forth in comparative form the
figures for the previous year, reported on by independent certified public
accountants of nationally recognized standing or otherwise reasonably acceptable
to the Bank, without a "going concern" or similar qualification or exception or
qualification as to the scope of the audit, together with any letter from the
management of such Borrower or Portfolio prepared in connection with such
Borrower's or Portfolio's annual audit report; and
(ii) as soon as available, but in any event within thirty (30) days after
the end of the first six months of each fiscal year of such Borrower or
Portfolio, copies of the unaudited statement of assets and liabilities of such
Borrower or Portfolio as at the end of such six-month period, together with the
related unaudited statement of operations for the portion of the fiscal year of
such Borrower or Portfolio through such six-month period, in each case certified
by the Chief Accounting Officer of such Borrower or Portfolio as presenting
fairly the financial condition and results of operations of such Borrower or
Portfolio, in conformity with GAAP (subject to normal year-end audit adjustments
and to the fact that such financial statements may be condensed and may not
include footnotes);
all such financial statements to be complete and correct in all material
respects and prepared in reasonable detail and, except as provided in (ii)
above, in conformity with GAAP applied consistently throughout the periods
reflected therein.
(b) Other Financial Reports. Furnish to the Bank:
(i) concurrently with the delivery of each set of the financial statements
referred to above, a certificate of the Chief Accounting Officer of such
Borrower or Portfolio stating that, to the best of such person's knowledge,
during the period covered by such set of financial statements the Borrower or
Portfolio has observed or performed in all respects all of its covenants and
agreements contained in this Agreement and its respective Note to be observed,
performed or satisfied by it, and that such person has obtained no knowledge of
any default or Event of Default (except as specified in such certificate);
(ii) promptly after the same are sent, copies of all other financial
statements of such Borrower or Portfolio, if any, which it sends to its
stockholders;
(iii) within thirty (30) days of the end of each quarter, a
schedule of such Borrower's or Portfolio's investment assets stating the cost
and fair market value of all such investments;
(iv) promptly, such additional financial and other information as the Bank
may from time to time reasonably request; and
(v) as soon as available, a copy of each other report submitted to such
Borrower or Portfolio by its certified public accountants in connection with any
annual, interim or special audit made by them of the books of such Borrower or
Portfolio.
(c) Notices. Give notice to the Bank, within five days of knowledge
thereof, of: (i) the occurrence of any Event of Default under this Agreement;
(ii) any default or event of default under any other contractual obligations of
such Borrower or Portfolio which, if not paid or remedied by such Borrower or
Portfolio or waived by the obligee thereon, could result in liability to such
Borrower or Portfolio in excess of $500,000 in any single instance or $1,000,000
in the aggregate;
(iii) any pending or threatened litigation, investigation or
proceeding of which such Borrower or Portfolio has received written notice which
may exist at any time between such Borrower or Portfolio and any other party
(including without limitation any governmental authority) which may have a
material adverse effect on the business, operations, property or financial
condition of such Borrower or Portfolio, or any material adverse development in
previously disclosed litigation, and such Borrower or Portfolio shall furnish
the Bank with copies of all legal process served upon such Borrower or
Portfolio;
(iv) a material adverse change in the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio; and
(v) the revocation, expiration or loss of any material license,
registration, permit or other governmental authorization of such Borrower or
Portfolio;
each notice pursuant to paragraphs (i) through (v) of this Section 4.03(c)to be
accompanied by a statement of the Chief Accounting Officer of such Borrower or
Portfolio setting forth details of the occurrence referred to therein and
stating what action, if any, such Borrower or Portfolio proposes to take with
respect thereto.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
5.01. Events of Default. The occurrence of each of the following shall
constitute an Event of Default with respect to a Borrower or, with respect to a
Borrower composed of Portfolios, a Portfolio under this Agreement and under the
Notes:
(a) Failure to Make Payment. Such Borrower or Portfolio shall
fail to make any payment of principal or interest on its respective Note, any
payment of the commitment fee hereunder or any other obligation in respect
hereof or thereof on or before the date when due; provided that any failure to
make any payment of interest on its respective Note shall not constitute an
Event of Default under this Agreement until such failure shall have continued
uncured for five (5) days.
(b) Representations and Warranties. Any representation or
warranty made by such Borrower or Portfolio in this Agreement, in any Note, or
in any certificate or writing in connection with this Agreement shall prove to
have been incorrect in any material respect when made, or any information
furnished in writing by such Borrower or Portfolio to the Bank, whether in this
Agreement or in any certificate or other writing required or contemplated by
this Agreement or by any of the Notes, shall prove to be untrue in any material
respect on the date on which it is or was given.
(c) Covenants. Such Borrower or Portfolio shall fail to perform
or observe any covenant or condition contained or referred to in this Agreement,
and such failure shall continue uncured for ten days after the Bank has provided
written notice thereof to such Borrower or Portfolio.
(d) Other Defaults. Any default shall exist and remain unwaived
or uncured with respect to other Indebtedness of such Borrower or Portfolio
which permits the acceleration of the maturity of any such Indebtedness in an
amount in excess of $500,000.
(e) Liens. Any lien, security interest, levy or assessment (other
than a Permitted Lien) is filed, recorded or perfected with respect to any
material part of the assets of such Borrower or Portfolio and is not released,
canceled, revoked, removed, repealed or otherwise terminated within thirty (30)
days after such filing or recording.
(f) Seizure of Assets. Any substantial part of the assets or
other property of such Borrower or Portfolio comes within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors.
(g) Judgments. Any judgment, order or writ in excess of $500,000
is rendered or entered against such Borrower or Portfolio or property of such
Borrower or Portfolio and not paid, satisfied or otherwise discharged within
sixty (60) days of the date such judgment, order or writ becomes final and
non-appealable.
(h) Insolvency. Such Borrower or Portfolio shall be generally
unable to pay its debts as they become due; the dissolution, termination of
existence, cessation of normal business operations or insolvency of such
Borrower or Portfolio; the appointment of a receiver of any part of the property
of, legal or equitable assignment, conveyance or transfer of property for the
benefit of creditors by, or the commencement of any proceedings under any
bankruptcy or insolvency laws by or against, such Borrower or Portfolio.
5.02. Remedies. Upon the occurrence of any Event of Default with respect
to any Borrower or Portfolio and at any time thereafter so long as the Event of
Default continues, in addition to any other rights and remedies available to the
Bank hereunder or otherwise, the Bank may exercise any one or more of the
following rights and remedies with respect to such Borrower or Portfolio (all of
which shall be cumulative):
(a) Require the defaulting Borrower or Portfolio to provide to
the Bank collateral security for the performance of its obligations to the Bank,
in form, substance and amount satisfactory to the Bank in its sole discretion.
(b) Declare the entire unpaid principal amount of the respective
Note then outstanding, all interest accrued and unpaid thereon and all other
amounts payable under this Agreement, and all other Indebtedness of the
defaulting Borrower or Portfolio to the Bank, forthwith due and payable,
whereupon the same shall become forthwith due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by each Borrower or Portfolio.
(c) Terminate the Credit Facility established by this Agreement
with respect to the defaulting Borrower or Portfolio.
(d) Enforce the provisions of this Agreement and any Note or
Notes by legal proceedings for the specific performance of any covenant or
agreement contained herein or for the enforcement of any other appropriate legal
or equitable remedy, and the Bank may recover damages caused by any breach by
the defaulting Borrower or Portfolio from such Borrower or Portfolio of the
provisions of this Agreement and any Note or Notes, including court costs,
reasonable attorneys' fees and other costs and expenses incurred in the
enforcement of the obligations of that Borrower or Portfolio hereunder.
(e) Exercise all rights and remedies hereunder, under the Notes
and under any other agreement with such Borrower or Portfolio; and exercise all
other rights and remedies which the Bank may have under applicable law.
5.03. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any rights, after the occurrence
of any Event of Default, the Bank is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to the
defaulting Borrower or Portfolio or to any other person or entity, all of which
are hereby expressly waived, to set off and to appropriate and apply any and all
deposits (general or special), securities and other property and any other
Indebtedness at any time in the possession of, or held or owing by, the Bank to
or for the credit or the account of such Borrower or Portfolio against and on
account of the obligations and liabilities of the defaulting Borrower or
Portfolio to the Bank under this Agreement or otherwise, without regard for the
availability or adequacy of other collateral. The defaulting Borrower or
Portfolio agrees to grant to the Bank, upon its request therefor after the
occurrence of any Event of Default, a security interest in and to all deposits
and all securities or other property of such Borrower or Portfolio in the
possession of the Bank from time to time, to secure the prompt and full payment
and performance of any and all obligations of such Borrower or Portfolio to the
Bank.
ARTICLE VI
MISCELLANEOUS
6.01. Right to Cure. In the event that any Borrower or Portfolio shall
fail to pay any tax, assessment, governmental charge or levy, except as the same
may be otherwise permitted hereunder, or in the event that any lien, encumbrance
or security interest prohibited hereby shall not be paid in full or discharged,
or in the event that any Borrower or Portfolio shall fail to pay or comply with
any other obligation hereunder, the Bank may, but shall not be required to, pay,
satisfy, perform, discharge or bond the same for the account of such Borrower or
Portfolio, and all moneys so paid by the Bank shall be payable on demand and
shall bear interest at the lesser of (i) a floating rate per annum equal to five
percent (5%) plus the Federal Funds Rate, with a change in such rate of interest
to become effective on the same day on which any change in the Federal Funds
Rate is effective, or (ii) the maximum rate permitted by the applicable law.
6.02. Waivers. This Agreement and the Notes may not be changed, waived,
discharged or terminated orally. The performance or observance by the Bank, on
the one hand, or any Borrower or Portfolio, on the other hand, of any term of
this Agreement or any of the Notes may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the prior written consent of the Borrower or Portfolio, on the one hand,
or the Bank, on the other hand.
6.03. Delays. No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any partial exercise or waiver of any privilege or right hereunder preclude any
further exercise of such privilege or right or the exercise of any other right,
power or privilege. The rights and remedies expressed in this Agreement and in
the Notes are cumulative and not exclusive of any right or remedy which any
party hereto may otherwise have.
6.04. Notices. Any notices, consents or other communications to be given under
this Agreement or under the Notes shall be in writing and shall be deemed given
when mailed to therespective parties by overnight courier or by registered mail
addressed, in the case of each Borrower or Portfolio, to Bull & Bear Funds,
attention of the Co-President, at the address set forth on the first page of
this Agreement, with a copy to the Chief Accounting Officer at the same address,
and in the case of the Bank to the Bank, attention of David F. Flynn, Managing
Director, at 89 South Street, Boston, MA 02111, with a copy to Mark D. Smith at
Testa, Hurwitz & Thibeault, 125 High Street, High Street Tower, Boston, MA 02110
or to such other addresses as either party may from time to time designate for
that purpose.
6.05. Captions. Section headings and defined terms in this Agreement are
included for convenience only and are not intended to modify or define any term
or provision of any such instrument.
6.06. Jurisdiction. The Borrowers and Portfolios accept for themselves and
in conjunction with their properties, unconditionally, the non-exclusive
jurisdiction of any state or federal court of competent jurisdiction in the
Commonwealth of Massachusetts in any action, suit, or proceeding of any kind,
including agreements waiving the right to a trial by jury, against them, which
arises out of or by reason of this Agreement.
6.07. Execution. This Agreement may be signed in any number of
counterparts, which together will be one and the same instrument. This Agreement
shall become effective whenever each party shall have signed at least one such
counterpart.
6.08. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts (without reference to the conflicts of laws or
choice of law provisions thereof) and for all purposes shall be construed in
accordance with the laws of such Commonwealth.
6.09. Fees. Whether or not any funds are disbursed hereunder, the
Borrowers and Portfolios shall pay all of the Bank's reasonable costs and
expenses in connection with the preparation, execution, delivery, review, and
enforcement of this Agreement and the Notes, and in connection with any
subsequent amendments thereto or waivers thereof, including reasonable legal
fees and disbursements, provided, however, that the amount of such legal fees
through the Closing Date shall not exceed $7,500.
6.10. Binding Nature. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns; provided that the rights and obligations under this Agreement and under
any of the Notes may not be assigned by any Borrower or Portfolio without the
written consent of the Bank or by the Bank without the written consent of each
Borrower and Portfolio (other than assignments by the Bank to entities meeting
the definition of "bank" in Section 2(a)(5) of the 1940 Act where written notice
of such assignment has been provided to each Borrower and Portfolio prior to or
contemporaneous with such assignment).
6.11. Severability. In the event that any provision of this Agreement or the
application hereof to any person, entity property or circumstances shall be held
to any extent to be invalid orunenforceable, the remainder of this Agreement,
and the application of such provision to persons, entities, properties or
circumstances other than those as to which it has been held invalid or
unenforceable, shall not be affected thereby, and each provision of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
6.12.Under Seal. This Agreement shall be deemed to be an instrument under seal.
ARTICLE VII
Definitions
7.01.Definitions. For purposes of this Agreement and of the Notes, the following
additional definitions shall apply:
"Aggregate Eligible Loan Amount" shall mean the total of all
Eligible Loan Amounts.
"Borrowing Notice" shall mean a written notice from any Borrower
or Portfolio to the Bank substantially in the form of Exhibit B-1 or Exhibit B-2
attached hereto.
"Business Day" shall mean any day which is not a Saturday, a
Sunday or a public holiday under the laws of the United States of America or the
Commonwealth of Massachusetts applicable to banks or banking associations.
"Closing" shall mean a closing held at 10:00 A.M., in the offices
of Testa, Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, on April 3, 1996, or such other date, time and place as the
parties hereto mutually agree.
"Closing Date" shall mean the date on which the Closing shall occur.
"Credit Facility" shall have the meaning specified in the preamble to this
Agreement.
"Eligible Loan Amount" shall mean the lesser of (i) $9,500,000 or
(ii) 33% of the net assets of the applicable Borrower or Portfolio.
"Event of Default" shall have the meaning specified in Section 5.01 hereof.
"Federal Funds Rate" shall mean the prevailing target Federal
Funds rate established by the Board of Governors or the Open Market Committee of
the Federal Reserve System for loans in the domestic U.S. overnight bank funds
market. For any day on which such target Federal Funds rate has not been
established or cannot be determined, then "Federal Funds Rate" shall mean the
Federal Funds Effective Rate for such day displayed on Bloomberg screen FEDL at
index:HP.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"Indebtedness" shall mean with respect to any Borrower or
Portfolio (i) all indebtedness or other obligations of such Borrower or
Portfolio for borrowed money, other than for trade accounts payable incurred in
the ordinary course of such Borrower's or Portfolio's businesses; and (ii) all
lease obligations of the Borrower or Portfolio which are required, in accordance
with GAAP, to be capitalized on the books of the lessee.
"Loan" shall mean a loan made by the Bank to any Borrower or
Portfolio pursuant to Section 1.01(a) of this Agreement.
"1940 Act" shall have the meaning given that term in Section 3.09
hereof.
"Note" or "Notes" shall mean the promissory note of each
respective Borrower or Portfolio substantially in the form of Exhibit A-1 or
Exhibit A-2 attached hereto.
"Permitted Liens" shall have the meaning given that term in
Section 4.02 hereof.
"Portfolio" means each series or class of shares of a Borrower
that constitutes a series under the 1940 Act, which such Borrower has previously
identified to the Bank as a Portfolio in a certificate substantially in the form
of Exhibit C hereto.
"Principal Office" shall mean, for the Borrowers and Portfolios,
the office at the location set forth in the preamble to this Agreement, and for
the Bank, the office located at 89 South Street, Boston, MA 02111.
"Termination Date" shall mean the earlier of (i) March 31, 1997,
(ii) such date on which the Borrowers and Portfolios terminate the Credit
Facility pursuant to Section 1.01(g) hereof or (iii) such date on which the Bank
terminates the Credit Facility pursuant to Section 1.01(g) or Section 5.02
hereof. The Bank may, in its sole and absolute discretion and with the consent
of the Borrowers and Portfolios, extend the Termination Date for successive
one-year periods, but no term or provision hereof shall be deemed to create any
implication that the Bank will or is required to extend the Termination Date.
7.02. Use of Defined Terms. Any defined term used in the plural preceded
by the definite article shall be taken to encompass all members of the relevant
class. Any defined term used in the singular preceded by "any" shall be taken to
indicate any number of the members of the relevant class.
7.03. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with United States generally accepted
accounting principles consistently applied on the basis used by the Borrowers in
prior years.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Credit
Agreement to be executed by their duly authorized officers as of the date first
above written.
INVESTORS BANK & TRUST COMPANY
By:______________________________
David F. Flynn
Managing Director
BULL & BEAR FUNDS I, INC.
By:________________________________
Name:
Title:
BULL & BEAR FUNDS II, INC.
By:________________________________
Name:
Title:
BULL & BEAR GOLD INVESTORS LTD.
By:________________________________
Name:
Title:
BULL & BEAR MUNICIPAL SECURITIES, INC.
By:________________________________
Name:
Title:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:________________________________
Name:
Title:
MIDAS FUND, INC.
By:________________________________
Name:
Title:
NOTE
$ 9,500,000.00 April 3, 1996
For value received, the undersigned, Midas Fund, Inc., a Maryland corporation
(the "Borrower"), hereby promises to pay Investors Bank & Trust Company (the
"Bank"), at its principal office at 89 South Street, Boston, MA 02111 or at such
other place as may be designated from time to time in writing by the Bank, the
principal sum of Nine Million Five Hundred Thousand dollars ($ 9,500,000.00), or
such lesser amount as may be from time to time outstanding, together with
interest in arrears from and including the date hereof on the unpaid principal
balance hereunder, computed daily, at the Federal Funds Rate as defined in the
Credit Agreement as hereinafter defined (the "Federal Funds Rate"), such rate of
interest to change with and as of each change in the Federal Funds Rate, payable
as set forth below. At the option of the Bank and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be five percent (5%) per annum above
the Federal Funds Rate. Interest shall be calculated on the basis of actual
number of days elapsed and a year of 360 days. Notwithstanding any other
provision of this Note, the Bank does not intend to charge and the Borrower
shall not be required to pay any interest or other fees or charges in excess of
the maximum permitted by applicable law; any payments in excess of such maximum
shall be refunded to the Borrower or credited to reduce principal hereunder. All
payments received by the Bank hereunder will be applied first to costs of
collection and fees, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
Principal shall be paid in accordance with Section 1.01(c) of the Credit
Agreement. Interest shall be paid monthly in arrears commencing on May 1, 1996,
and continuing on the first Business Day (as defined in the Credit Agreement) of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal. If any day on which a payment is due
pursuant to the terms of this Note is not a Business Day, such payment shall be
due on the next Business Day following.
This Note may be prepaid at any time, without premium or penalty, in whole or in
part. Any prepayment of principal shall be accompanied by a payment of accrued
interest in respect of the principal being prepaid.
This Note is entitled to the benefits of a Credit Agreement (the "Credit
Agreement") by and among the Borrower on behalf of the Portfolio, the other
Borrowers and Portfolios identified therein and the Bank of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Credit Agreement)
by or with respect to the Borrower, the Bank may declare any or all obligations
or liabilities of the Borrower on behalf of the Portfolio to the Bank (including
the unpaid principal hereunder and any interest due thereon) immediately due and
payable without presentment, demand, protest or notice.
In accordance with Section 5.03 of the Credit Agreement, after the occurrence of
an Event of Default, the Bank may set off or apply any deposits, securities or
other assets at any time held, credited by or due from the Bank to or for the
Borrower against this Note and any other liability now existing or hereafter
arising of the Borrower to the Bank.
If this Note is not paid in accordance with its terms, the Borrower shall pay to
the Bank, in addition to principal and accrued interest thereon, all costs of
collection of the principal and accrued interest, including, but not limited to,
reasonable attorneys' fees, court costs and other costs for the enforcement of
payment of this Note.
No waiver of any obligation of the Borrower under this Note shall be effective
unless it is in a writing signed by the Bank. A waiver by the Bank of any right
or remedy under this Note on any occasion shall not be a bar to exercise of the
same right or remedy on any subsequent occasion or of any other right or remedy
at any time.
Any notice required or permitted under this Note shall be in writing and shall
be deemed to have been given on the date of delivery, if personally delivered to
the party to whom notice is to be given, or if mailed to the party to whom
notice is to be given, by registered mail, return receipt requested, postage
prepaid, and addressed to the addressee at the address of the addressee set
forth in the Credit Agreement, or to the most recent address, specified by
written notice, given to the sender pursuant to this paragraph.
This Note is delivered in and shall be enforceable in accordance with the laws
of the Commonwealth of Massachusetts (without reference to the conflicts of laws
or choice of law provision thereof), and shall be construed in accordance
therewith, and shall have the effect of a sealed instrument.
The Borrower hereby expressly waives presentment, demand, and protest, notice of
demand, dishonor and nonpayment of this Note, and all other notices or demands
of any kind in connection with the delivery, acceptance, performance, default or
enforcement hereof, and hereby consents to any delays, extensions of time,
renewals, waivers or modifications that may be granted or consented to by the
holder hereof with respect to the time of payment or any other provision hereof
or of the Credit Agreement.
In the event any one or more of the provisions of this Note shall for any reason
be held to be invalid, illegal or unenforceable, in whole or in part or in any
respect, or in the event that any one or more of the provisions of this Note
operate or would prospectively operate to invalidate this Note, then and in any
such event, such provision(s) only shall be deemed null and void and shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
BORROWER:
MIDAS FUND, INC.
By: __________________________
Name:
Title:
ATTESTED:
By: ________________
Name:
Title:
EXHIBIT A-2
NOTE
$ April 3, 1996
For value received, the undersigned, , a Maryland corporation (the
"Borrower"), on behalf of the Portfolio designated below ("Portfolio"), hereby
promises to pay Investors Bank & Trust Company (the "Bank"), at its principal
office at 89 South Street, Boston, MA 02111 or at such other place as may be
designated from time to time in writing by the Bank, the principal sum ($
), or such lesser amount as may be from time to time outstanding,
together with interest in arrears from and including the date hereof on the
unpaid principal balance hereunder, computed daily, at the Federal Funds Rate as
defined in the Credit Agreement as hereinafter defined (the "Federal Funds
Rate"), such rate of interest to change with and as of each change in the
Federal Funds Rate, payable as set forth below. At the option of the Bank and to
the extent permitted by applicable law, the rate of interest on any unpaid
principal or interest not paid when due and payable hereunder shall be five
percent (5%) per annum above the Federal Funds Rate. Interest shall be
calculated on the basis of actual number of days elapsed and a year of 360 days.
Notwithstanding any other provision of this Note, the Bank does not intend to
charge and the Borrower on behalf of the Portfolio shall not be required to pay
any interest or other fees or charges in excess of the maximum permitted by
applicable law; any payments in excess of such maximum shall be refunded to the
Borrower on behalf of the Portfolio or credited to reduce principal hereunder.
All payments received by the Bank hereunder will be applied first to costs of
collection and fees, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
Principal shall be paid in accordance with Section 1.01(c) of the Credit
Agreement. Interest shall be paid monthly in arrears commencing on May 1, 1996,
and continuing on the first Business Day (as defined in the Credit Agreement) of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal. If any day on which a payment is due
pursuant to the terms of this Note is not a Business Day, such payment shall be
due on the next Business Day following.
This Note may be prepaid at any time, without premium or penalty, in whole
or in part. Any prepayment of principal shall be accompanied by a payment of
accrued interest in respect of the principal being prepaid.
This Note is entitled to the benefits of a Credit Agreement (the "Credit
Agreement") by and among the Borrower on behalf of the Portfolio, the other
Borrowers and Portfolios identified therein and the Bank of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Credit Agreement)
by or with respect to the Borrower on behalf of the Portfolio the Bank may
declare any or all obligations or liabilities of the Borrower on behalf of
the Portfolio to the Bank (including the unpaid principal hereunder and any
interest due thereon) immediately due and payable without presentment, demand,
protest or notice.
In accordance with Section 5.03 of the Credit Agreement, after the
occurrence of an Event of Default, the Bank may set off or apply any deposits,
securities or other assets at any time held, credited by or due from the Bank to
or for the Borrower on behalf of the Portfolio against this Note and any other
liability now existing or hereafter arising of the Borrower on behalf of the
Portfolio to the Bank.
If this Note is not paid in accordance with its terms, the Borrower on
behalf of the Portfolio shall pay to the Bank, in addition to principal and
accrued interest thereon, all costs of collection of the principal and accrued
interest, including, but not limited to, reasonable attorneys' fees, court costs
and other costs for the enforcement of payment of this Note.
No waiver of any obligation of the Borrower on behalf of the Portfolio
under this Note shall be effective unless it is in a writing signed by the Bank.
A waiver by the Bank of any right or remedy under this Note on any occasion
shall not be a bar to exercise of the same right or remedy on any subsequent
occasion or of any other right or remedy at any time.
Any notice required or permitted under this Note shall be in writing and
shall be deemed to have been given on the date of delivery, if personally
delivered to the party to whom notice is to be given, or if mailed to the party
to whom notice is to be given, by registered mail, return receipt requested,
postage prepaid, and addressed to the addressee at the address of the addressee
set forth in the Credit Agreement, or to the most recent address, specified by
written notice, given to the sender pursuant to this paragraph.
This Note is delivered in and shall be enforceable in accordance with the
laws of the Commonwealth of Massachusetts (without reference to the conflicts of
laws or choice of law provision thereof), and shall be construed in accordance
therewith, and shall have the effect of a sealed instrument.
The Borrower on behalf of the Portfolio hereby expressly waives
presentment, demand, and protest, notice of demand, dishonor and nonpayment of
this Note, and all other notices or demands of any kind in connection with the
delivery, acceptance, performance, default or enforcement hereof, and hereby
consents to any delays, extensions of time, renewals, waivers or modifications
that may be granted or consented to by the holder hereof with respect to the
time of payment or any other provision hereof or of the Credit Agreement.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, or in the event that any one or more of the provisions of this
Note operate or would prospectively operate to invalidate this Note, then and in
any such event, such provision(s) only shall be deemed null and void and shall
not affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
BORROWER:
on behalf of
-----------------------------------
(Name of Portfolio)
By: __________________________
Name:
Title:
ATTESTED:
By:_______________________
Name:
Title:
EXHIBIT B-1
BORROWING NOTICE
___________________________ (the "Borrower") hereby certifies as follows:
This Borrowing Notice is furnished to Investors Bank & Trust Company (the
"Bank") pursuant to the Credit Agreement dated as of April 3, 1996 by and among
the Bank, the Borrower and the other Borrowers and Portfolios party thereto (the
"Credit Agreement"). Unless otherwise defined herein, the terms used in this
Borrowing Notice have the meanings given them in the Credit Agreement.
The following information is correct as of the close of business on
_____________________________, 199__:
1. Maximum availability of all Borrowers and Portfolios: $________
(Lesser of (a) $20,000,000 or (b) Aggregate
Eligible Loan Amounts of all Borrowers and Portfolios)
2. Loans outstanding to all Borrowers and Portfolios: $________
3. Current availability of all Borrowers and Portfolios: $________
(Line 1 minus Line 2)
4. Net assets of the Borrower: $________
5. Eligible Loan Amount of the Borrower: $________
(Lesser of (a) $9,500,000 or
(b) 33% of Line 4)
6. Loans outstanding to the Borrower: $________
7. Current availability of the Borrower: $_______
(Line 5 minus Line 6)
8. Loan requested by the Borrower: $_______
(Cannot be larger than either
Line 3 or Line 7)
The conditions contained or referred to Sections 2.02(a) and (b) of the
Credit Agreement with respect to the undersigned Borrower have been satisfied on
and as of the date of this Borrowing Notice.
EXHIBIT B-2
BORROWING NOTICE
___________________________ (the "Borrower") hereby certifies as follows:
This Borrowing Notice is furnished to Investors Bank & Trust Company
(the "Bank") pursuant to the Credit Agreement dated as of April 3, 1996 by and
among the Bank, the Borrower on behalf of the Portfolio designated below and the
other Borrowers and Portfolios party thereto (the "Credit Agreement"). Unless
otherwise defined herein, the terms used in this Borrowing Notice have the
meanings given them in the Credit Agreement.
The following information is correct as of the close of business on
_____________________________, 199__:
1. Maximum availability of all Borrowers and Portfolios: $___________
(Lesser of (a) $20,000,000 or (b) Aggregate
Eligible Loan Amounts of all Borrowers and Portfolios)
2. Loans outstanding to all Borrowers and Portfolios: $___________
3. Current availability of all Borrowers and Portfolios: $___________
(Line 1 minus Line 2)
4. Net assets of the Portfolio: $__________
5. Eligible Loan Amount of the Portfolio: $___________
(Lesser of (a) $9,500,000 or
(b) 33% of Line 4)
6. Loans outstanding to the Portfolio: $___________
7. Current availability of the Portfolio: $___________
(Line 5 minus Line 6)
8. Loan requested by the Portfolio: $___________
(Cannot be larger than either
Line 3 or Line 7)
The conditions contained or referred to Sections 2.02(a) and (b) of the
Credit Agreement with respect to the undersigned Borrower on behalf of the
Portfolio designated below have been satisfied on and as of the date of this
Borrowing Notice.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
__________ day of _________________________, 199____.
BORROWER
-----------------------
(Name of Borrower)
on behalf of
-----------------------
(Name of Portfolio)
By: __________________________
Name:
Title:
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
Any of the following designated Portfolios of Bull & Bear
Funds I, Inc. (the "Borrower") may hereafter utilize the proceeds of the Loans
made to the Borrower under the Credit Agreement dated as of April 3, 1996:
Bull & Bear Quality Growth Fund
Bull & Bear U.S. and Overseas Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date written
above.
Bull & Bear Funds I,
Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
Any of the following designated Portfolios of Bull & Bear
Funds II, Inc. (the "Borrower") may hereafter utilize the proceeds of the Loans
made to the Borrower under the Credit Agreement dated as of April 3, 1996:
Bull & Bear Global Income Fund
Bull & Bear U.S. Government
Securities Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date
written above.
Bull & Bear Funds II,
Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
The following designated Portfolio of Bull & Bear
Municipal Securities, Inc. (the "Borrower") may hereafter utilize the
proceeds of the Loans made to the Borrower under the Credit Agreement dated as
of April 3, 1996:
Bull & Bear Municipal Income Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date written
above.
Bull & Bear
Municipal Securities, Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
FORM OF
NON-EXCLUSIVE LICENSE AGREEMENT
AGREEMENT dated as of _______, 1996 between BULL & BEAR GROUP, INC., a
Delaware corporation (the "Licensor") and BULL & BEAR GOLD INVESTORS LTD., a
Maryland corporation (the "Licensee").
W I T N E S S E T H
WHEREAS, the Licensor is the owner of all right, title and interest in
and to the service marks listed on Annex A hereto, as such Annex may be amended
from time to time, (hereinafter collectively referred to as the "Licensed
Marks"), and
WHEREAS, the Licensee has requested a non-exclusive license to use the
Licensed Marks in connection with its activities as a registered closed-end
management investment company, and
WHEREAS, the Licensor has agreed that the Licensee may use the Licensed
Marks on a non-exclusive basis so long as a corporation affiliated with the
Licensor is the Investment Manager of the Licensee.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Licensor grants to the Licensee the non-exclusive right to use the
Licensed Marks in connection with its activities as an investment company.
2. The grant of the license provided for in paragraph 1 herein is personal,
indivisible, non-exclusive and not subject to succession or transfer.
3. The Licensee agrees to follow all rules reasonably imposed by the Licensor
to protect the Licensor's rights in the Licensed Marks.
4. The Licensee agrees that the nature and quality of all services rendered by
the Licensee in connection with the Licensed Marks shall conform to
standards set by the Licensor and be under control of the Licensor.
5. The license provided for in this Agreement may be terminated in the event
the Investment Manager of the Licensee shall not be Bull & Bear Advisers,
Inc. or some other corporation controlling, controlled by, or under the
common control of the Licensor.
EXHIBIT.9F
1
<PAGE>
6. In the event of termination as provided for in paragraph 5 herein, the
Licensee agrees to do all such acts and things as may be necessary to
terminate its use of the Licensed Marks and will, after such
termination, make no further reference to the Licensed Marks or any
confusingly similar term in its business.
7. The Licensor and the Licensee agree to do all such further acts and things to
effect the purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
BULL & BEAR GROUP, INC.
By: _________________________________
BULL & BEAR GOLD INVESTORS LTD.
By: _________________________________
EXHIBIT.9F
2
<PAGE>
ANNEX A
1. Bull & Bear Performance Account
2. Bull & Bear Performance Plus Account
3. Performance
4. Bull & Bear
5. Performance Driven
6. Bull & Bear Performance Driven
7. Bull & Bear Stockfax
8. Bull & Bear No-Fee IRA
9. Performance Plus
EXHIBIT.9F
3
<PAGE>
Consent of Independent Certified Public Accounts
We Consent to the Use of our report dated July 12, 1996 on the financial
statements financial highlights of Bull & Bear Gold Investors Ltd. Such
financial statements and financial highlights appear in the 1996 Annual Report
to Shareholders which is incorporated by reference in the Statement of
Additional Information filed in Post-Effective No. 68 under the Securities Act
of 1933 and Amendment No. 31 under the Investment Company Act of 1940 to the
Registration Statement on Form N-1A of Bull & Bear Gold Investors Ltd. We also
consent to the reference to our firm in the Registration Statement and
Prospectus.
/s/ Tait, Weller & Baker
Tait, Weller & Baker
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Bull &
Bear Gold Investors Ltd. Annual Report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000042031
<NAME> Bull & Bear Gold Investors Ltd.
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-START> Jul-01-1996
<PERIOD-END> Jun-30-1996
<INVESTMENTS-AT-COST> 20,446,237
<INVESTMENTS-AT-VALUE> 26,266,108
<RECEIVABLES> 305,180
<ASSETS-OTHER> 1,359,344
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,930,632
<PAYABLE-FOR-SECURITIES> 307,574
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 134,064
<TOTAL-LIABILITIES> 441,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,775,693
<SHARES-COMMON-STOCK> 1,960,355
<SHARES-COMMON-PRIOR> 2,224,853
<ACCUMULATED-NII-CURRENT> (4,030)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,902,296
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,815,035
<NET-ASSETS> 27,488,994
<DIVIDEND-INCOME> 408,945
<INTEREST-INCOME> 26,755
<OTHER-INCOME> 0
<EXPENSES-NET> 925,224
<NET-INVESTMENT-INCOME> (489,524)
<REALIZED-GAINS-CURRENT> 3,091,376
<APPREC-INCREASE-CURRENT> 3,477,953
<NET-CHANGE-FROM-OPS> 6,079,805
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3,216,598
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,753,718
<NUMBER-OF-SHARES-REDEEMED> 5,246,276
<SHARES-REINVESTED> 244,202
<NET-CHANGE-IN-ASSETS> (518,000)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (45,956)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 876,798
<INTEREST-EXPENSE> 35,907
<GROSS-EXPENSE> 925,244
<AVERAGE-NET-ASSETS> 30,368,813
<PER-SHARE-NAV-BEGIN> 13.13
<PER-SHARE-NII> (.22)
<PER-SHARE-GAIN-APPREC> 2.72
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.61)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.02
<EXPENSE-RATIO> 2.93
<AVG-DEBT-OUTSTANDING> 501,113
<AVG-DEBT-PER-SHARE> .26
</TABLE>
