As filed with the Securities and Exchange Commission on August 29, 1997.
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. 69
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32
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 STUART H. COLEMAN, ESQ.
Bull & Bear Advisers, Inc. Stroock & Stroock & Lavan LLP
11 Hanover Square 180 Maiden Lane
New York, New York 10005-3401 New York, New York 10038
(Name and Address of
Agent for Service)
It is proposed that this filing will become effective: SEPTEMBER 1, 1997
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,
1997 was filed on August 29, 1997.
<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
Custodian and Transfer Agent
6 Cover Page
General
Investment Manager
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
Investment Management Agreement
Distribution of Shares
Custodian, Transfer and Dividend
Disbursing Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Purchase of Shares
20 Distributions and Taxes
21 Not Applicable
22 Performance Information
23 Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
Bull & Bear Gold Investors seeks long term capital appreciation in
investments with the potential to provide a hedge against inflation and preserve
the purchasing power of the dollar. The Fund invests primarily in gold, platinum
and silver bullion and a global portfolio of securities of companies involved
directly or indirectly in mining, processing or dealing in gold or other
precious metals ("gold mining shares"). Income is a secondary objective. The
Fund may hold cash in foreign currencies and may invest in gold, platinum, and
silver coins. There is no assurance the Fund will achieve its objectives.
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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5
<PAGE>
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 September 1, 1997, 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 toll-free at
1-888-503-FUND (1-888-503-3863). 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.
6
<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..................................................... ......0.93%
12b-1 Fees.................................................................1.00%
Other Expenses.............................................................0.84%
Total Fund Operating Expenses..............................................2.77%
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
------ ------- ------- --------
$28 $85 $146 $308
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, 1997. 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, 1997 Annual Report to
Shareholders and incorporated by reference in the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value at beginning $14.02 $13.13 $15.71 $16.98 $11.62 $12.49 $13.36 $13.27 $14.31 $18.76
of period ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss).. (.25) (.22) -- (.11) (.03) (.10) .03 .10 .02 .02
Net realized and unrealized
gain(loss) on investments..... (4.36) 2.72 (1.13) (1.05) 5.39 (.72) (.87) .12 (1.03) (3.08)
------ ---- ------ ------ ---- ----- ----- --- ------ ------
Total from investment operations(4.61) 2.50 (1.13) (1.16) 5.36 (.82) (.84) .22 (1.01) (3.06)
------ ---- ------ ------ ---- ----- ----- --- ------ ------
Less distributions:
Distributions from net
investment income --- --- --- ---- --- (.05) (.03) (.13) (.03) ---
Distributions from net
realized gains (2.27) (1.61) (1.45) (.11) -- -- -- -- -- (.35)
Distributions from
paid-in-capital -- -- -- -- -- -- -- -- -- (1.04)(c)
---- ---- ---- ---- ---- ---- ---- ---- ---- ---------
Total distributions.......... (2.27) (1.61) (1.45) (.11) -- (.05) (.03) (.13) (.03) (1.39)
------ ------ ------ ----- ---- ----- ----- ----- ----- ------
Net asset value at end of period. $7.14 $14.02 $13.13 $15.71 $16.98 $11.62 $12.49 $13.36 $13.27 $14.31
===== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN.....................(37.81%) 21.01% (8.01)% (6.92)% 46.13% (6.57)% (6.23)% 1.51% (7.04)% (16.77)%
- ------------ ======== ====== ======= ======= ====== ======= ======= ===== ======= ========
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (000's omitted)......... $15,217 $27,489 $29,007 $36,603 $47,489 $24,939 $33,133 $40,301 $37,791 $47,732
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average
net asssets(a)................. 2.77% 2.93% 2.82% 2.54% 3.01% 2.96% 2.59% 2.62% 2.46% 2.33%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
7
<PAGE>
Ratio of net investment income
(loss) to average net assets(b).. (1.89)% (1.49)% 0.12% (.65)% (.27)% (.61)% .34% .65% .17% .10%
======= ======= ===== ====== ====== ====== ==== ==== ==== ====
Portfolio turnover rate.......... 37% 61% 158% 129% 156% 97% 95% 65% 60% 52%
=== === ==== ==== ==== === === === === ===
Average commission per share..... $0.0180 $0.0202
======= =======
</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>
<CAPTION>
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>
1997 $1,276,840 $471,972 2,086,047 $0.23
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>
8
<PAGE>
TABLE OF CONTENTS
Expense Tables................. 2 Distributions and Taxes...........15
Financial Highlights........... 2 Determination of Net Asset Value..16
General........................ 3 Investment Manager................17
The Fund's Investment Program.. 3 Distribution of Shares............17
Risk Factors................... 5 Performance Information...........18
How to Purchase Shares......... 9 Capital Stock.....................18
Shareholder Services...........10 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.
PORTFOLIO MANAGEMENT. Investment decisions for the Fund have since September 1,
1997 been made by the Investment Policy Committee of Bull & Bear Advisers, Inc.
("Investment Manager").
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 believes 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.
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
9
<PAGE>
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 believes 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 substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund has no specific limitation on the percentage of
assets it may commit to foreign currency exchange contracts, except that it will
not attempt to enter into a forward contract if the amount of assets set aside
to cover the contract would impede portfolio management or the Fund's ability to
meet redemption requests.
FIXED INCOME SECURITIES. When seeking to achieve its secondary objective of
income, the Fund will normally invest in investment grade fixed income
securities. Investment grade securities are those rated in the top four
categories by a nationally recognized statistical rating organization such as
Standard & Poor's Ratings Group or Moody's Investors Service, Inc., ("Moody's")
or, if unrated, are determined by the Investment Manager to be of comparable
quality. Moody's considers securities in the fourth highest category to have
speculative characteristics. Such securities may include long, intermediate and
short maturities, depending on the Investment Manager's evaluation of market
patterns and trends. The Fund may invest 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 agree ments that require that the loans be continuously secured by
cash, securities issued or guaranteed by the U.S.
10
<PAGE>
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 ("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, 1997 and 1996,
the Fund's portfolio turnover rate was 37% and 61%, 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).
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.
11
<PAGE>
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 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.
12
<PAGE>
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.
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
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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
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 cur rency 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.
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<PAGE>
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 or its agent (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 accompanying 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.
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 toll-free at
1-888-503-FUND (1-888-503-3863). 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 toll-free at 1-888-503-VOICE (1-888-503-8642). We will contact
the bank you designate on your Account Application or Authorization
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<PAGE>
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 toll-free at 1-888- 503-FUND (1-888-503-3863), to give
the name(s) under which the account is to be registered, tax identification
number and 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 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.
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SHAREHOLDER SERVICES
You may modify or terminate your participation in any of the Fund's special
plans or services at any time. Shares or cash should not be withdrawn from any
tax-advantaged retirement plan described below, however, without consulting a
tax adviser concerning possible adverse tax consequences. Additional information
regarding any of the following services is available from Investor Service
Center by calling toll-free at 1-888-503-FUND (1-888-503-3863).
DIRECT ACCESS. Investor Service Center's free Direct Access service gives you
instant 24 hour access to your Fund investments either by toll-free telephone or
by using your personal computer for Internet access. With Direct Access you can
monitor your investments, check your account balance and account activity,
retrieve your account history, exchange between Funds offered by Investor
Service Center, review recent transactions, and make transfers using EFT from or
to your authorized bank account. For Direct Access by phone, just dial toll-free
at 1-888-503-VOICE (1- 888-503-8642) and follow the prompts. For Internet Direct
Access, visit Investor Service Center's Internet site at www.mutualfunds.net and
select "Access Your Fund Account." You will need your account number and your
Personal Identification Number ("PIN"), which is the last 4 digits of the social
security number or taxpayer identification number associated with your account
number. If you would like a different PIN, just call an Investor Service
Representative toll-free at 1-800-345-0051. There is no charge for using Direct
Access, and your account information is based on the most recent Fund prices,
updated every business day. Any transactions you request are carried out at the
Fund's net asset value next determined after receipt of your order. You will
receive in the mail written confirmations for all transactions you request
through Direct Access, and if you purchase or redeem Fund shares using EFT, your
bank statement will reflect the appropriate electronic credit or debit.
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.
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
toll-free at 1-888-503-FUND (1-888-503-3863). 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 by calling toll-free at 1-888-503-FUND
(1-888-503-3863).
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
1-888-503-VOICE (1-888-503-8642) between 9 a.m. and 5 p.m. eastern time on any
business day of the Fund and provide your account registration information
including address, account number and taxpayer identification number;
percentage, number, or dollar value of shares to be redeemed; name and, if
different, the account number of the Bull & Bear Fund to be purchased; and your
identity and telephone number. The other Bull & Bear Funds are:
o BULL & BEAR DOLLAR RESERVES is a high quality money market fund investing in
U.S. Government securities. Income is generally free from most state and
local income taxes. 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.
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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 toll-free at 1-888-503-VOICE (1-888-503-8642). 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 by calling toll-free at
1-888-503-FUND (1-888-503-3863). 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 1-888-503- FUND
(1-888-503-3863).
The minimum investment to establish a Bull & Bear IRA or other retirement
plan is $500. Minimum subsequent investments are $100. The initial investment
minimums are waived if you elect to invest $100 or more each month in the Fund
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 1/2at the end of the tax year,even if also participating in
another type of retirement plan, may establish an IRA and contribute
each year up to $2,000 or 100% of earned income, whichever is less. For
married couples, each spouse may contribute up to $2,000 into an IRA
regardless of whether each spouse has $2,00 of earned income, provided,
however, that their aggregate earned income is at least $4,000 (where
such income is less than $4,000, special rules apply). 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. Also, as of January 1, 1997, a small
employer with 100 or fewer employees may establish a Savings Incentive
Match Plan for Employees of Small
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<PAGE>
Employers ("SIMPLE"), which will allow certain eligible employees to
make elective contributions to a SIMPLE IRA of up to $6,000 per year
and will require the employer to make either matching or non-matching
contributions.
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
1997 tax year through April 15, 1998 and for the 1998 tax year from January
1, 1998 through April 15, 1999.
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 by calling toll-free at 1-888-503-FUND
(1-888-503-3863), 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 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.
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 participants 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 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
allowance may not exceed the lesser of 25%of the participant's compensation
(limited as above) or $30,000. Contributions and subsequent earnings
thereon are not taxable until withdrawn, when they are received as ordinary
income.
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HOW TO REDEEM SHARES
Generally, you may redeem by any of the methods explained below. Requests
for redemption should include the following information: your account
registration information including address, account number and taxpayer
identification number; dollar value, number or percentage of shares to be
redeemed; how and to where the proceeds are to be sent; if applicable, the
bank's name, address, ABA routing number, bank account registration and account
number, and a contact person's name and telephone number; and your daytime
telephone number.
BY MAIL. You may request that the Fund redeem any amount of shares by submitting
a written request to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, signed by the record owner(s). If the written request is sent to the
Fund, it will be forwarded to the above address. If stock certificates have been
issued for shares being redeemed, they must accompany the written request.
BY TELEPHONE. You may telephone Investor Service Center toll-free at
1-888-503-VOICE (1-888-503-8642) 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 toll-free at 1-888-503-VOICE (1-888- 503-8642).
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 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 by calling toll-free at 1-888-503-FUND (1-888-503-
3863). 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
20
<PAGE>
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
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 60 days of such address
being changed unless you provide a signature guarantee as described above.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. The Fund pays dividends annually to its shareholders from its net
investment income, if any. The Fund also makes an annual distribution to its
shareholders out of any net realized capital gains, after offsetting any capital
loss carryover, and any net realized gains from foreign currency transactions.
Dividends and other distributions, if any, are declared and payable to
shareholders of record on a date in December of each year. Such distributions
may be paid in January of the following year, in which event they will be deemed
received by the shareholders on the preceding December 31 for tax purposes. The
Fund may also make an additional distribution following the end of its fiscal
year out of any undistributed income and capital gains.
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 toll-free at 1-888-503-FUND
(1-888-503-3863). For Federal income tax purposes, dividends and other
distributions are treated in the same manner whether received in additional
shares of the Fund
21
<PAGE>
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.
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, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
22
<PAGE>
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
Bull & Bear Advisers, Inc. ("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. 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, 1997, the
investment management fees paid by the Fund represented approximately 0.93% 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 the Nasdaq Stock Market and traded in the
over-the-counter market, is a New York based manager of mutual funds and
discount brokerage services. Bassett S. Winmill may be deemed a controlling
person of Group and, therefore, may be deemed a controlling person of the
Investment Manager.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Investor Service
Center, Inc., 11 Hanover Square, New York, NY 10005 ("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 ("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 0.75% per annum of the Fund's average daily net assets and a
service fee in an amount of 0.25% 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 generally at the rate of
0.35% per annum 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
23
<PAGE>
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 $1,000 and multiplying
the quotient by 100. In calculating ending redeemable value, all dividends and
other distributions are assumed to be reinvested in additional Fund shares.
Although the Fund imposes a 1% redemption fee on the redemption of shares held
for 30 days or less, all of the periods for which performance is quoted are
longer than 30 days, and therefore the 1% fee is not reflected in the
performance calculations. In addition, there is no sales charge upon
reinvestment of dividends or other distributions. Additional information
regarding the Fund's performance is available in its Annual Report to
Shareholders, which is available at no charge upon request to Investor Service
Center by calling toll-free at 1-888-503-FUND (1-888-503-3863).
CAPITAL STOCK
The Fund, a non-diversified open-end management investment company organized
as a Maryland corporation in 1987, commenced investment operations in January
1988 when it merged with Bull & Bear Gold Investors Ltd. (formerly Golconda
Investors Ltd.), a New York corporation. The Fund is authorized to issue up to
500,000,000 shares of common stock ($.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.
24
<PAGE>
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 811 Main, 11th Floor, Kansas City, MO
64105-1716, 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.
25
<PAGE>
[Left Side of Back Cover Page]
GOLD
INVESTORS
- ---------------------------------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
- ---------------------------------------------------------------------------
FOR FUND PROSPECTUSES AND OTHER INVESTMENT INFORMATION, CALL TOLL-FREE
1-888-503-FUND
1-888-503-3863
FOR SHAREHOLDER SERVICES BY DIRECT ACCESS, CALL TOLL-FREE
1-888-503-VOICE
1-888-503-8642
OR, ACCESS THE FUND ON THE WEB AT
WWW.MUTUALFUNDS.NET
- ---------------------------------------------------------------------------
26
<PAGE>
[Right Side of Back Cover Page]
GOLD
INVESTORS
- ---------------------------------------------------------------------------
SEEKS LONG TERM CAPITAL
APPRECIATION IN INVESTMENTS
WITH THE POTENTIAL TO
PROVIDE A HEDGE AGAINST
INFLATION AND PRESERVE
THE PURCHASING POWER
OF THE DOLLAR
ELECTRONIC FUNDS TRANSFERS
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS: IRA, SEP-IRA, QUALIFIED PROFIT SHARING/MONEY
PURCHASE, 403(B), KEOGH
- --------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT:
REGULAR ACCOUNTS, $1,000;
IRAS, $500; AUTOMATIC
INVESTMENT PROGRAMS, $100
MINIMUM SUBSEQUENT INVESTMENTS: $100
- --------------------------------------------------------------------------
PROSPECTUS
SEPTEMBER 1, 1997
BULL
&
BEAR
Performance Driven(R) ---------------
GL-147-11-7
27
<PAGE>
Statement of Additional Information September 1, 1997
BULL & BEAR GOLD INVESTORS LTD.
11 Hanover Square
New York, NY 10005
1-888-503-FUND
This Statement of Additional Information regarding Bull & Bear Gold Investors
Ltd. ("Fund") is not a prospectus and should be read in conjunction with the
Fund's Prospectus dated September 1, 1997. The Prospectus is available to
prospective investors without charge upon request to Investor Service Center,
Inc., the Fund's Distributor, by calling toll-free at 1-888-503-FUND
(1-888-503-3863).
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM.................................................2
INVESTMENT RESTRICTIONS.......................................................5
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES.....................7
THE INVESTMENT COMPANY COMPLEX...............................................15
OFFICERS AND DIRECTORS.......................................................15
INVESTMENT MANAGER...........................................................17
INVESTMENT MANAGEMENT AGREEMENT..............................................17
PERFORMANCE INFORMATION......................................................18
DISTRIBUTION OF SHARES.......................................................21
DETERMINATION OF NET ASSET VALUE.............................................22
PURCHASE OF SHARES...........................................................23
ALLOCATION OF BROKERAGE......................................................23
DISTRIBUTIONS AND TAXES......................................................25
REPORTS TO SHAREHOLDERS......................................................27
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT............................27
AUDITORS.....................................................................27
FINANCIAL STATEMENTS.........................................................27
APPENDIX - DESCRIPTIONS OF BOND RATINGS......................................28
28
<PAGE>
THE FUND'S INVESTMENT PROGRAM
The following information supplements the information found in the Prospectus
concerning the Fund's investment objectives, policies and limitations.
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 "Deter mination of Net
Asset Value"), the possible imposition of withholding taxes by foreign
governments on dividend or interest income payable on the securities held in the
portfolio, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of dividends
or principal and interest on securities in the portfolio.
The Fund may invest in foreign securities by purchasing American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities
29
<PAGE>
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 institu tional
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.
("Investment Manager") pursuant to guidelines approved by the Board. The
Investment Manager takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades and quotes for the security,
(2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (3) dealer undertakings to make a market
in the security, and the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on such decisions to the Board of Directors.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities which
are bonds, debentures, notes, preferred stocks or other securities that may be
converted into or exchanged for a specified amount of common stock of the same
or a different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics and
(iii) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security will sell at a premium over its conversion value determined
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security.
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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 restruc turing or default. There can be no
assurance that such decline in price will not recur. The market for lower rated
debt securities may be thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at their
fair value in response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the value and liquidity of lower rated securities,
especially in a thinly traded market.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions that
may not be changed without the approval of the lesser of (a) 67% or more of the
voting securities of the Fund present at a meeting if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy or (b) more than 50% of the outstanding voting securities of the Fund.
Any investment restriction which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. The Fund may not:
(1) Borrow money, except to the extent permitted by the Investment Company
Act of 1940 ("1940 Act");
(2) Underwrite the securities of other issuers, except to the extent that
the Fund may be deemed to be an underwriter under the Federal securities
laws in connection with the disposition of the Fund's authorized
investments;
(3) Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real
estate or interests therein or issued by companies which invest in real
estate or interests therein;
(4) Purchase or sell commodities (other than precious metals) or commodity
futures contracts, although it may enter into (a) financial, foreign
currency, and precious metals futures contracts and options thereon, (b)
options on foreign currencies and precious metals, and (c) forward
contracts on foreign currencies and precious metals;
(5) Lend its assets, provided however, that the following are not
prohibited: (a) the making of time or demand deposits with banks, (b)
the purchase of debt securities such as bonds, debentures, commercial
paper, repurchase agreements and short term obligations in accordance
with the Fund's investment objectives and policies, and (c) engaging in
securities, precious metals, and other asset loan transactions up to
one-third of the Fund's total assets; or
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(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 ("SEC"), (i) the establishment or use of a margin account
with a broker for the purpose of effecting securities transactions on
margin and (ii) short sales.
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;
(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 secur ities 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
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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 opportuni ties 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 supple mented 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, curren cies 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 of the
securities underlying the option. Failure by the dealer to do so would result in
the loss of any premium paid by the Fund as well as the loss of the expected
benefit of the transaction.
The Fund may purchase call options on securities (both equity and debt) that
the Investment Manager intends to include in the Fund's portfolio in order to
fix the cost of a future purchase. Call options also may be used as a means of
enhancing returns by, for example, participating in an anticipated price
increase of a security. In the event of a decline in the price of the underlying
security, use of this strategy would serve to limit the potential loss to the
Fund to the option premium paid; conversely, if the market price of the
underlying security increases above the exercise price and the Fund either sells
or exercises the option, any profit eventually realized would be reduced by the
premium paid.
The Fund may purchase put options on securities in order to hedge against a
decline in the market value of securities held in its portfolio or to attempt to
enhance return. The put option enables the Fund to sell the underlying security
at the predetermined exercise price; thus, the potential for loss to the Fund
below the exercise price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise price of the put
option, any profit the Fund realizes on the sale of the security would be
reduced by the premium paid for the put option less any amount for which the put
option may be sold.
The Fund may on certain occasions wish to hedge against a decline in the
market value of securities held in its portfolio at a time when put options on
those particular securities are not available for purchase. The Fund may
therefore purchase a put option on other carefully selected securities, the
values of which historically have a high degree of positive correlation to the
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 secur ities above the exercise price of the call
option because such an increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the current market value).
Portfolio securities used to cover OTC options written also may be considered
illiquid, and therefore subject to the Fund's limitation on investing no more
than 15% of its net assets in illiquid securities, unless the OTC options are
sold to qualified dealers who agree that the Fund may repurchase any OTC options
it writes for a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
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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 securi ties
included in the index and fluctuates with changes in such values. Settlements of
securities index options are effected with cash payments and do not involve
delivery of securities. Thus, upon settlement of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the index. The
effectiveness of hedging techniques using securities index options will depend
on the extent to which price movements in the securities index selected
correlate with price movements of the securities in which the Fund invests.
The Fund may purchase and write covered straddles on securities indexes. A
long straddle is a combination of a call and a put purchased on the same
security where the exercise price of the put is less than or equal to the
exercise price on the call. The Fund would enter into a long straddle when the
Investment Manager believes that it is likely that securities prices will be
more volatile during the term of the options than is implied by the option
pricing. A short straddle is a combination of a call and a put written on the
same security where the exercise price on the put is less than or equal to the
exercise price of the call where the same issue of the security is considered
"cover" for both the put and the call. The Fund would enter into a short
straddle when the Investment Manager believes that it is unlikely that
securities prices will be as volatile during the term of the options as is
implied by the option pricing. In such case, the Fund will set aside cash and/or
liquid 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 investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (that is, less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
To the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they reopen.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell securities or currencies under a put or a call option it has written,
the Fund may purchase a put or a call option of the same series (that is, an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified securities or currencies under a call or put
option it has purchased, the Fund may sell an option of the same series as the
option held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge the Fund's
portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security, securities index or currency,
the time remaining until expiration, the relationship of the exercise price to
the market price, the historical price volatility of the underlying security,
securities index or currency and general market conditions. For this reason, the
successful use of options depends upon the Investment Manager's
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ability to forecast the direction of price fluctuations in the underlying
securities or currency markets or, in the case of securities index options,
fluctuations in the market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. The exercise
price of the options may be below, equal to or above the current market value of
the underlying security, securities index or currency. Purchased options that
expire unexercised have no value. Unless an option purchased by the Fund is
exercised or unless a closing transaction is effected with respect to that
position, the Fund will realize a loss in the amount of the premium paid and any
transaction costs.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Most
exchange-listed options relate to stocks. Although the Fund intends to purchase
or write only those exchange-traded options for which there appears to be a
liquid secondary market, there is no assurance that a liquid secondary market
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 securities should be in part or wholly
offset by gains in the futures position.
As in the case of a purchase of a securities index futures contract, the Fund
may purchase a call option on a securities index futures contract to hedge
against a market advance in securities that the Fund plans to acquire at a
future date. The Fund may write covered put options on securities
35
<PAGE>
index futures as a partial anticipatory hedge and may write covered call options
on securities index futures as a partial hedge against a decline in the price of
securities held in the Fund's portfolio. This is analogous to writing covered
call options on securities. The Fund also may purchase put options on securities
index futures contracts. The purchase of put options on securities index futures
contracts is analogous to the purchase of protective put options on individual
securities where a level of protection is sought below which no additional
economic loss would be incurred by the Fund.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of foreign currency in relation to the
U.S. dollar. In addition, the Fund may sell foreign currency futures contracts
when the Investment Manager anticipates a general weakening of the foreign
currency exchange rate that could adversely affect the market value of the
Fund's foreign securities holdings or interest payments to be received in that
foreign currency. In this case, the sale of futures contracts on the underlying
currency may reduce the risk to the Fund of a reduction in market value caused
by foreign currency exchange rate variations and, by so doing, provide an
alternative to the liquidation of securities positions and resulting transaction
costs. When the Investment Manager anticipates a significant foreign exchange
rate increase while intending to invest in a security denominated in that
currency, the Fund may purchase a foreign currency futures contract to hedge
against the increased rates pending completion of the anticipated transaction.
Such a purchase would serve as a temporary measure to protect the Fund against
any rise in the foreign currency exchange rate that may add additional costs to
acquiring the foreign security position. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign currency
exchange rate at limited risk. The Fund may purchase a call option on a foreign
currency futures contract to hedge against a rise in the foreign currency
exchange rate while intending to invest in a security denominated in that
currency. The Fund may purchase put options on foreign currency futures
contracts as a hedge against a decline in the foreign currency exchange rates or
the value of its foreign portfolio securities. The Fund may write a covered put
option on a foreign currency futures contract as a partial anticipatory hedge
and may write a covered call option on a foreign currency futures contract as a
partial hedge against the effects of declining foreign currency exchange rates
on the value of foreign securities.
The Fund may also write put options on interest rate, securities index or
foreign currency futures contracts while, at the same time, purchasing call
options on the same interest rate, securities index or foreign currency futures
contract in order to synthetically create an interest rate, securities index or
foreign currency futures contract. The options will have the same strike prices
and expiration dates. The Fund will only engage in this strategy when it is more
advantageous to the Fund to do so as compared to purchasing the futures
contract.
The Fund may also purchase and write covered straddles on interest rate or
securities index futures contracts. A long straddle is a combination of a call
and a put purchased on the same security at the same exercise price. The Fund
would enter into a long straddle when it believes that it is likely that
securities prices will be more volatile during the term of the options than is
implied by the option pricing. A short straddle is a combination of a call and
put written on the same futures contract at the same exercise price where the
same security or futures contract is considered "cover" for both the put and the
call. The Fund would enter into a short straddle when it believes that it is
unlikely that securities prices will be as volatile during the term of the
options as is implied by the option pricing. In such case, the Fund will set
aside cash 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 accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin on futures contracts does not involve borrowing to finance the
futures transactions. Rather, initial margin on futures contracts is in the
nature of a performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent 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.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for the Fund to close a
position and, in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, if futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, there is no guarantee that the price of the securities will, in fact,
correlate with the price movements in the contracts and thus provide an offset
to losses on the contracts.
36
<PAGE>
In considering the Fund's use of futures contracts and related options,
particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and related options will
depend upon the Investment Manager's ability to predict movements in the
direction of the overall securities, currencies and interest rate markets, which
requires different skills and techniques than predicting changes in the prices
of individual securities. Moreover, futures contracts relate not only to the
current price level of the underlying instrument or currency but also to the
anticipated price levels at some point in the future. There is, in addition, the
risk that the movements in the price of the futures contract will not correlate
with the movements in the prices of the securities or currencies being hedged.
For example, if the price of the securities index futures contract moves less
than the price of the securities that are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, the advantage may be partially offset by losses
in the futures position. In addition, if the Fund has insufficient cash, it may
have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect a rising market. Consequently, the Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract moves more than the price of the underlying securities, the
Fund will experience either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of the securities that
are the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities or currencies being hedged, movements in the prices
of futures contracts may not correlate perfectly with movements in the prices of
the hedged securities or currencies due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities or currencies that cause this situation to occur. First, as noted
above, all participants in the futures market are subject to initial and
variation margin requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts through offsetting transactions, distortions in the
normal price relationship between the securities or currencies and the futures
markets may occur. Second, because the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the futures
market; such speculative activity in the futures market also may cause temporary
price distortions. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts over the
short term. In addition, activities of large traders in both the futures and
securities markets involving arbitrage and other investment strategies may
result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts.
Although the Fund intends to purchase and sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract at any particular time. In such event, it
may not be possible to close a futures positions, and in the event of adverse
price movements, the Fund would continue to be required to make variation margin
payments.
(4) Like options on securities and currencies, options on futures contracts
have limited life. The ability to establish and close out options on futures
will be subject to the development and maintenance of liquid secondary markets
on the relevant exchanges or boards of trade. There can be no certainty that
such markets for all options on futures contracts will develop.
(5) Purchasers of options on futures contracts pay a premium at the time of
purchase. This amount and the transaction costs are all that is at risk. Sellers
of options on futures contracts, however, must post initial margin and are
subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying securities index value or the securities or currencies being hedged.
(6) As is the case with options, the Fund's activities in the futures markets
may result in a higher portfolio turnover rate and additional transaction costs
in the form of added brokerage commissions and taxes; however, the Fund also may
save on commissions by using futures contracts or options thereon as a hedge
rather than buying or selling individual securities or currencies in
anticipation or as a result of market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above.
Options on foreign currency futures contracts may involve certain additional
risks. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Compared to the
purchase or sale of foreign currency futures contracts, the purchase of call or
put options thereon involves less potential risk to the Fund because the maximum
amount at risk is the premium paid for the option (plus transaction costs).
However, there may be circumstances when the purchase of a call or put option on
a foreign currency futures contract would result in a loss, such as when there
is no movement in the price of the underlying currency or futures contract, when
the purchase of the underlying futures contract would not result in such a loss.
FORWARD CURRENCY CONTRACTS. The Fund may use forward currency contracts to
protect against uncertainty in the level of future foreign currency
exchange rates.
The Fund may enter into forward currency contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or the Fund anticipates
the receipt in a foreign currency of dividend or interest payments on a security
that it holds or anticipates purchasing the Fund may desire to "lock in" the
U.S. dollar price of the security or the
37
<PAGE>
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 25.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the security exceeds the amount of foreign currency the Fund
is obligated to deliver. The projection of short term currency market movements
is extremely difficult and the successful execution of a short term hedging
strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transaction costs. Under normal
circumstances, consideration of the prospects for currency parities will be
incorporated into the longer term decisions made with regard to overall
investment strategies. However, the Investment Manager believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Fund will be served.
At or before the maturity date of a forward contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
prices of the underlying securities the Fund owns or intends to acquire, but it
does fix a rate of exchange in advance. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Bull & Bear Group, Inc.
("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 sole series is Bull & Bear
Dollar Reserves.
Bull & Bear Global Income Fund, Inc.
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.
Rockwood 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
seven 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
38
<PAGE>
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 National Association of Securities Dealers, Inc.
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 five 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 eight 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 Hunt & Howe, Inc., executive recruiting consultants. He was born
December 14, 1930. He is also a Director of eight 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 eight 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 eight other investment companies in the
Investment Company Complex.
MARK C. WINMILL* -- Director, Co-President, Co-Chief Executive Officer, and
Chief Financial Officer. He is Co-President, Co-Chief Executive Officer,and
Chief Financial Officer of the Investment Company Complex and of Group and
certain of its affiliates, Chairman of the Investment Manager and 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 four 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 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 five 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.
JOSEPH LEUNG, CPA -- Treasurer and Chief Accounting Officer. 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.
39
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
NAME OF PERSON, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation From
POSITION From Fund Benefits Accrued as Benefits Upon Fund and Investment
Part of Fund Expenses Retirement Company Complex Paid To
Directors
<S> <C> <C> <C> <C>
Russell E. Burke III, $9,500 from 6 Investment
Director $2,000 None None Companies
Bruce B. Huber, $12,500 from 9 Investment
Director $2,000 None None Companies
James E. Hunt, $12,500 from 9 Investment
Director $2,000 None None Companies
Frederick A. Parker, $12,500 from 9 Investment
Director $2,000 None None Companies
John B. Russell, $12,500 from 9 Investment
Director $2,000 None None Companies
====================== =================== ================== =================== ==========================
</TABLE>
Information in the above table is based on fees paid during the fiscal year
ended June 30, 1997.
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 August 14, 1997, officers and Directors of the Fund owned less than
1% of the outstanding shares of the Fund. As of August 14, 1997, 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,
6.18%.
INVESTMENT MANAGER
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 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 $330,000,000
as of August 12, 1997.
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 Fund is not subject to any such state-imposed limitation. 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, 1995, 1996, and 1997, the Fund paid to the Investment Manager
aggregate investment management fees of $328,140, $276,798 and $222,365,
respectively. No reimbursement was made to the Fund by the Investment Manager
for the fiscal years ended June 30, 1995, 1996 and 1997 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, 1995, 1996 and 1997 was
$12,514, $15,141 and $9,615, respectively.
The Investment Management Agreement provides that the Investment Manager will
not be liable to the Fund or any Fund shareholder 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, may be construed to protect the Investment
Manager against any liability to the Fund by reason of the Investment Manager's
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.
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
40
<PAGE>
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 various service
marks including "Bull & Bear," "Bull & Bear Performance Driven," and
"Performance Driven" under certain terms and conditions on a royalty free basis.
Such license will be withdrawn in the event the investment manager of the Fund
shall not be the Investment Manager or another subsidiary of Group. If the
license is terminated, the Fund will eliminate all reference to "Bull & Bear" in
its corporate name and cease to use any of such service marks or any similar
service marks in its business.
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, 1997 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
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, 1997 was -37.81%, -1.20% and -4.25%, 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, 1997.
ENDING VALUE ENDING VALUE OF
START OF PERIODS AVERAGE ANNUAL TOTAL OF A $1,000 A $10,000
ENDING 6/30/97 TOTAL RETURN RETURN INVESTMENT INVESTMENT
------------------------------------------------------------------------------
July 1, 1996 -37.81% -37.81% $ 621.95 $ 6,219.51
July 1, 1995 -13.25% -24.74% $ 752.61 $ 7,526.13
July 1, 1994 -11.54% -30.77% $ 692.31 $ 6,923.09
July 1, 1993 -10.40% -35.56% $ 644.41 $ 6,444.06
July 1, 1992 -1.20% -5.83% $ 941.66 $ 9,416.59
July 1, 1991 -2.11% -12.02% $ 879.81 $ 8,798.05
July 1, 1990 -2.71% -17.50% $ 824.99 $ 8,249.91
July 1, 1989 -2.19% -16.25% $ 837.45 $ 8,374.51
July 1, 1988 -2.74% -22.15% $ 778.51 $ 7,785.11
July 1, 1987 -4.25% -35.20% $ 647.97 $ 6,479.69
41
<PAGE>
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. 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 which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond Index -- is comprised of all bonds covered by the
Lehman Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar Investor, Morningstar Mutual Funds and Morningstar Principia,
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.
42
<PAGE>
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Finance, a monthly magazine frequently reporting mutual fund data.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indices, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a valueweighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
Salomon Brothers Broad Investment-Grade Bond Index -- is a market-weighted index
that contains approximately 4,700 individually priced investmentgrade 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.
Smart Money, a monthly magazine frequently reporting mutual fund data.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to 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.
The Wall Street Journal, a nationally distributed newspaper which regularly
covers financial news.
The Wall Street Transcript, a periodical reporting on financial markets and
securities.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
Indices prepared by the research departments of such financial organizations
as Salomon Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., Bear
Stearns & Co., Inc., and Ibbotson Associates may be used, as well as information
provided by the Federal Reserve Board.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc.
("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 0.75% per annum of the Fund's average daily net assets as
compensation for distribution activities and a fee in the amount of 0.25% 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 shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and internal costs incurred by the
Distributor and allocated by the Distributor to its efforts to distribute shares
of the Fund such as office rent and equipment, employee salaries, employee
bonuses and other overhead expenses.
43
<PAGE>
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 may 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 will be
committed to the discretion of the Directors who are not interested persons of
the Fund.
With the approval of the vote of a majority of the entire Board of Directors
and of the Plan Directors of the Fund, the Distributor has entered into a
related agreement with Hanover Direct Advertising Company, Inc. ("Hanover
Direct"), a wholly-owned subsidiary of Group, in an attempt to obtain cost
savings on the marketing of the Fund's shares. Hanover Direct will provide
services to the Distributor on behalf of the Fund and the other Bull & Bear
Funds at standard industry rates, which includes commissions. The amount of
Hanover Direct's commissions over its cost of providing Fund marketing will be
credited to the Fund's distribution expenses and represent a saving on
marketing, to the benefit of the Fund. To the extent Hanover Direct's costs
exceed such commissions, Hanover Direct will absorb any of such costs.
It is the opinion of the Board of Directors that the Plan is necessary to
maintain a flow of subscriptions to offset redemptions. Redemptions of mutual
fund shares are inevitable. If redemptions are not offset by subscriptions, a
fund shrinks in size and its ability to maintain quality shareholder services
declines. Eventually, redemptions could cause a fund to become uneconomic.
Furthermore, an extended period of significant net redemptions may be
detrimental to orderly management of the portfolio. Offsetting redemptions
through sales efforts benefits shareholders by maintaining the viability of a
fund. In periods where net sales are achieved, additional benefits may accrue
relative to portfolio management and increased shareholder servicing capability.
In addition, increased assets enable the establishment and maintenance of a
better shareholder servicing staff which can respond more effectively and
promptly to shareholder inquiries and needs. While net increases in total assets
are desirable, the primary goal of the Plan is to prevent a decline in assets
serious enough to cause disruption of portfolio management and to impair the
Fund's ability to maintain a high level of quality shareholder services.
The Plan increases the overall expense ratio of the Fund; however, a
substantial decline in Fund assets is likely to increase the portion of the
Fund's expense ratio comprised of management fees and fixed costs (i.e., costs
other than the Plan) while a substantial increase in Fund assets would be
expected to reduce the portion of the expense ratio comprised of management fees
(reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Fund had any direct or indirect financial
interest in the operation of the Plan or any related agreement.
Of the amounts compensated to the Distributor during the Fund's fiscal year
ended June 30, 1997, approximately $2,922 represented expenses incurred for
advertising, $80,331 for printing and mailing prospectuses and other information
to other than current shareholders, $94,443 for salaries of marketing and sales
personnel, $23,997 for payments to third parties who sold shares of the Fund and
provided certain services in connection therewith, and $38,157 for overhead and
miscellaneous expenses.
The Glass-Steagall Act prohibits certain banks from engaging in the business
of underwriting, selling, or distributing securities such as shares of a mutual
fund. Although the scope of this prohibition under the Glass-Steagall Act has
not been fully defined, in the Distributor's opinion it should not prohibit
banks from being paid for administrative and accounting services under the Plan.
If, because of changes in law or regulation, or because of new interpretations
of existing law, a bank or the Fund were prevented from continuing these
arrangements, it is expected that other arrangements for these services will be
made. In addition, state securities laws on this issue may differ from the
interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
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, Martin Luther King, Jr. 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 Fund's net asset value per share may be significantly affected on
days when shareholders have no access to the Fund or its transfer agent.
Securities owned by the Fund are valued by various methods depending on the
market or exchange on which they trade. Securities traded on the NYSE, the
American Stock Exchange and the Nasdaq Stock Market 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.
44
<PAGE>
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 only issue shares upon payment of the purchase price by check
made drawn to the Fund's order in U.S. dollars on a U.S. bank, or by Federal
Reserve wire transfer. Second and third party checks, credit cards, and cash
will not be accepted. The Fund reserves the right to reject any order, to cancel
any order due to nonpayment, to accept initial orders by telephone or telegram,
and to waive the limit on subsequent orders by telephone, with respect to any
person or class of persons. Orders to purchase shares are not binding on the
Fund until they are confirmed by the Fund's transfer agent. If an order is
canceled because of non-payment or because the purchaser's check does not clear,
the purchaser will be responsible for any loss the Fund incurs. If the purchaser
is already a shareholder, the Fund can redeem shares from the purchaser's
account to reimburse the Fund for any loss. In addition, the purchaser may be
prohibited or restricted from placing future purchase orders in the Fund or any
of the other Funds in the Investment Company Complex. 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 broker/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 discretion shall not be "deemed to have
acted unlawfully or to have breached a fiduciary duty" solely because such
person has caused the account to pay a higher commission than the lowest
available under certain circumstances. To obtain the benefit of Section 28(e),
the person so exercising investment discretion must make a good faith
determination that the commissions paid are "reasonable in relation to the value
of the brokerage and research services provided ... viewed in terms of either
that particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion." Thus, although the
Investment Manager may direct portfolio transactions without necessarily
obtaining the lowest price at which such broker/dealer, or another, may be
willing to do business, the Investment Manager seeks the best value to the Fund
on each trade that circumstances in the market place permit, including the value
inherent in on-going relationships with quality brokers.
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for brokerage or research services might exceed
commissions that would be payable for execution alone, nor generally can the
value of such services to the Fund be measured, except to the extent such
services have a readily ascertainable market value. There is no certainty that
services so purchased, or the sale of Fund shares, if any, will be beneficial to
the Fund, and it may be that other affiliated investment companies will derive
benefit therefrom. Such services being largely intangible, no dollar amount can
be attributed to benefits realized by the Fund or to collateral benefits, if
any, conferred on affiliated entities. These services may include (1) furnishing
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities and the availability of securities or
purchasers or sellers of securities, (2) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (3) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody). Pursuant to arrangements with certain
broker/dealers, such broker/dealers provide and pay for various computer
hardware, software and services, market pricing information, investment
subscriptions and memberships, and other third party and internal research of
assistance to the Investment Manager in the performance of its investment
decision-making responsibilities for transactions effected by such
broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
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<PAGE>
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, 1995, 1996 and 1997, the Fund paid
total brokerage commissions of $252,551, $102,812 and $50,095, respectively. For
the fiscal year ended June 30, 1997, $44,964 in brokerage commissions
(representing $51,825,910 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,
1995, 1996 and 1997, the Fund paid brokerage commissions of $117,507, $23,712
and $5,131, respectively, to BBSI, representing approximately 46.53%, 23.06% and
10.24%, respectively, of the total brokerage commissions paid by the Fund and
41.81%, 24.17% and 3.44%, 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 Fund shares at the then
current net asset value in lieu of the cash payment and to thereafter issue such
shareholder's distributions in additional Fund shares. No interest will accrue
on amounts represented by uncashed distribution or redemption checks.
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
46
<PAGE>
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"), although
this requirement will no longer apply to the Fund after June 30, 1998; 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.
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 or marking-to-market 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.
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.
Recently enacted legislation added constructive sale provisions that may
apply if the Fund enters into short sales, or futures, forwards, or offsetting
notional principal contracts with respect to appreciated stock and certain debt
obligations that it holds. In such event, the Fund will be taxed as if the
appreciated property were sold at its fair market value on the date the Fund
entered into such short sale or contract. Such legislation similarly may apply
if the Fund has entered into a short sale, option, futures or forward contract,
or other position with respect to property, that position has appreciated in
value, and the Fund acquires that same or substantially identical property. In
such event, the Fund will be taxed as if the
47
<PAGE>
appreciated position were sold at its fair market value on the date of such
acquisition. Transactions that are identified hedging or straddle transactions
under other provisions of the Code can be subject to the constructive sale
provisions.
The foregoing discussion of Federal tax consequences is based on the tax law
in effect on the date of this Statement of Additional Information, which is
subject to change by legislative, judicial, or administrative action. The Fund
may be subject to state or local tax in jurisdictions in which it may be deemed
to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
income and expense, and changes in net assets of the Fund. The Fund's fiscal
year ends on June 30.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company, 811 Main, 11th Floor, Kansas City, MO
64105-1716 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, 1995, 1996 and 1997
approximately $68,552, $37,801 and $25,056, 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, 1997,
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.
48
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APPENDIX - DESCRIPTIONS OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. 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.
49
<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, 1997 containing financial statements as of and for
the fiscal period ended June 30, 1997 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 PostEffective 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) Custodial and Investment Accounting Agreement.
Filed herewith.
(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.
Part C p. 1
<PAGE>
(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. Incorporated herein by reference
to corresponding Exhibit of Post-Effective
Amendment No. 68 to the Registration Statement,
SEC File No. 2-14486, filed November 1, 1996.
(f) Licensing Agreement. Incorporated herein by
reference to corresponding Exhibit of Post-
Effective Amendment No. 68 to the Registration
Statement, SEC File No. 2-14486, filed November 1,
1996.
(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) (a) Accountants' consent. Filed herewith.
(b) Opinion of counsel with respect to eligibility for
effectiveness under paragraph (b) of Rule 485.
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.
(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
Part C p. 2
<PAGE>
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of August 22, 1997)
-------------- -----------------------
Shares of Common Stock, 2,999
$0.01 par value
Item 27. Indemnification
The Registrant is incorporated under Maryland law. Section 2-418 of
the Maryland General Corporation Law requires the Registrant to indemnify its
directors, officers and employees against expenses, including legal fees, in a
successful defense of a civil or criminal proceeding. The law also permits
indemnification of directors, officers, employees and agents unless it is proved
that (a) the act or omission of the person was material and was committed in bad
faith or was the result of active or deliberate dishonesty, (b) the person
received an improper personal benefit in money, property or services or (c) in
the case of a criminal action, the person had reasonable cause to believe that
the act or omission was unlawful.
Registrant's amended and restated Articles of Incorporation: (1)
provide that, to the maximum extent permitted by applicable law, a director or
officer will not be liable to the Registrant or its stockholders for monetary
damages; (2) require the Registrant to indemnify and advance expense as provided
in the By-laws to its present and past directors, officers, employees and
agents, and persons who are serving or have served at the request of the
Registrant in similar capacities for other entities in advance of final
disposition of any action against that person to the extent permitted by
Maryland law and the 1940 Act; (3) allow the corporation to purchase insurance
for any present or past director, officer, employee, or agent; and (4) require
that any repeal or modification of the amended and restated Articles of
Incorporation by the shareholders, or adoption or modification of any provision
of the Articles of Incorporation inconsistent with the indemnification
provisions, be prospective only to the extent such repeal or modification would,
if applied retrospectively, adversely affect any limitation on the liability of
or indemnification available to any person covered by the indemnification
provisions of the amended and restated Articles of Incorporation.
Section 11.01 of Article XI of the By-Laws sets forth the procedures
by which the Registrant will indemnify its directors, officers, employees and
agents. Section 11.02 of Article XI of the By-Laws further provides that the
Registrant may purchase and maintain insurance or other sources of reimbursement
to the extent permitted by law on behalf of any person who is or was a director
or officer of the Registrant, or is or was serving at the request of the
Registrant as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in or arising out of his or her position.
Registrant's amended Investment Management Agreement between the
Registrant and Bull & Bear Advisers, Inc. ("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
any series thereof 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
Part C p. 3
<PAGE>
Statement a material fact required to be stated in it or necessary to make the
statements in it, in light of the circumstances under which they were made, not
misleading, except insofar as liability arises from untrue statements or
omissions made in reliance upon and in conformity with information furnished by
Service Center to the Registrant for use in the Registration Statement; and
provided that this indemnity agreement shall not protect any such persons
against liabilities arising by reason of their bad faith, gross negligence or
willful misfeasance; and shall not inure to the benefit of any such persons
unless a court of competent jurisdiction or controlling precedent determines
that such result is not against public policy as expressed in the Securities Act
of 1933. Section 9 of the Distribution Agreement also provides that Service
Center agrees to indemnify, defend and hold the Registrant, its officers and
Directors free and harmless of any claims arising out of any alleged untrue
statement or any alleged omission of material fact contained in information
furnished by Service Center for use in the Registration Statement or arising out
of any agreement between Service Center and any retail dealer, or arising out of
supplementary literature or advertising used by Service Center in connection
with the Distribution Agreement.
The Registrant undertakes to carry out all indemnification
provisions of its Articles of Incorporation and By-Laws and the above-described
contract in accordance with Investment Company Act Release No. 11330 (September
4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
The directors and officers of 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. ("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, the sole 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, the sole series of shares issued by Bull &
Bear Funds I, Inc.; Bull & Bear Special Equities Fund, Inc., Bull & Bear Global
Income 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 Rockwood Fund, Inc.
Item 29. Principal Underwriters
Part C p. 4
<PAGE>
a) In addition to the Registrant, Service Center serves as principal
underwriter of Bull & Bear Funds II, Inc., Bull & Bear Special Equities Fund,
Inc., Bull & Bear Funds I, Inc., Midas Fund, Inc. and Rockwood 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 Vice Chairman
11 Hanover Square and Director and Director
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Chairman,Director and Chief Co-President, Director,
11 Hanover Square Financial Officer and Chief Financial Officer
New York, NY 10005
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 None
11 Hanover Square Assistant Treasurer
New York, NY 10005
William J. Maynard Vice President and Vice President and
11 Hanover Square Secretary Secretary
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
Joseph Leung Treasurer, Chief Accounting Treasurer, Chief
11 Hanover Square Officer Accounting Officer
New York, NY 10005
Michael J. McManus 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 Fiduciary
Trust Company, 811 Main, 11th Floor, Kansas City, MO 64105-1716 (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 Fiduciary 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 -- The Registrant hereby undertakes to furnish each
person to whom a prospectus is delivered with a copy of the
Registrant's annual report to shareholders upon request and without
charge.
Part C p. 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City, County and State of New York on this 29th day of
August, 1997.
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 August 29, 1997
- ---------------
Mark C. Winmill Co-Chief Executive Officer
Thomas B. Winmill Director, Co-President and August 29, 1997
- -----------------
Thomas B. Winmill Co-Chief Executive Officer
Bassett S. Winmill Director, Chairman of the August 29, 1997
- ------------------
Bassett S. Winmill Board of Directors
Joseph Leung Treasurer, Principal August 29, 1997
Joseph Leung Accounting Officer
Robert D. Anderson Director, Vice Chairman August 29, 1997
- ------------------
Robert D. Anderson
Bruce B. Huber Director August 29, 1997
Bruce B. Huber
James E. Hunt Director August 29, 1997
James E. Hunt
Frederick A. Parker, Jr. Director August 29, 1997
- ------------------------
Frederick A. Parker, Jr.
John B. Russell Director August 29, 1997
John B. Russell
Russell E. Burke III Director August 29, 1997
- --------------------
Russell E. Burke III
Part C p. 6
<PAGE>
EXHIBIT INDEX
PAGE
EXHIBIT NUMBER
8 (a) Custodial and Investment Accounting Agreement
11 (a) Accountants' consent
11 (b) Opinion of counsel with respect to eligibility for
effectiveness under paragraph (b) of Rule 485.
17 Financial Data Schedule
Part C p. 7
<PAGE>
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT made the 25th day of April, 1996, by and between INVESTORS
FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of the state
of Missouri, having its trust office located at l27 West 10th Street, Kansas
City, Missouri 64105 ("Custodian"), and each registered investment company
listed on Exhibit A hereto, as it may be amended from time to time, each a
having its principal office and place of business at 11 Hanover Square, New
York, NY 10005 (each a "Fund" and collectively the "Funds").
WITNESSETH:
WHEREAS, each Fund desires to appoint Investors Fiduciary Trust Company as
custodian of the securities and monies of such Fund's investment portfolio and
as its agent to perform certain investment accounting and recordkeeping
functions; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment; NOW THEREFORE, for and in consideration of the mutual promises
contained herein, the parties
hereto, intending to be legally bound, mutually covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN. Each Fund hereby constitutes and appoints
Custodian as:
A. Custodian of the securities and monies at any time owned by the
Fund; and
B. Agent to perform certain accounting and recordkeeping functions
relating to portfolio transactions required of a duly registered
investment company under Rule 31a of the Investment Company Act of
1940 (the "1940 Act") and to calculate the net asset value of the
Fund.
2. REPRESENTATIONS AND WARRANTIES.
A. Each Fund hereby represents, warrants and acknowledges to Custodian:
1. That it is a corporation duly organized and existing and in
good standing under the laws of its state of organization,
and that it is registered under the 1940 Act; and
2. That it has the requisite power and authority under
applicable law, its articles of incorporation and its
bylaws to enter into this Agreement; that it has taken all
requisite action necessary to appoint Custodian as
custodian and investment accounting and recordkeeping agent
for the Fund; that this Agreement has been duly executed
and delivered by Fund; and that this Agreement constitutes
a legal, valid and binding obligation of Fund, enforceable
in accordance with its terms.
B. Custodian hereby represents, warrants and acknowledges to the Funds:
1. That it is a trust company duly organized and existing and
in good standing under the laws of the State of Missouri
and
1
<PAGE>
2. That it has the requisite power and authority under
applicable law, its charter and its bylaws to enter into
and perform this Agreement; that this Agreement has been
duly executed and delivered by Custodian; and that this
Agreement constitutes a legal, valid and binding obligation
of Custodian, enforceable in accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Except as permitted by the 1940 Act, each Fund will deliver or cause
to be delivered to Custodian on the effective date of this
Agreement, or as soon thereafter as practicable, and from time to
time thereafter, all portfolio securities acquired by it and monies
then owned by it or from time to time coming into its possession
during the time this Agreement shall continue in effect. Custodian
shall have no responsibility or liability whatsoever for or on
account of securities or monies not so delivered.
B. Delivery of Accounts and Records
Each Fund shall turn over or cause to be turned over to Custodian
all of the Fund's relevant accounts and records previously
maintained. Custodian shall be entitled to rely conclusively on the
completeness and correctness of the accounts and records turned over
to it, and each Fund shall indemnify and hold Custodian harmless of
and from any and all expenses, damages and losses whatsoever arising
out of or in connection with any error, omission, inaccuracy or
other deficiency of such Fund's accounts and records or in the
failure of such Fund to provide, or to provide in a timely manner,
any accounts, records or information needed by the Custodian to
perform its functions hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of
each Fund delivered to it from time to time segregated in a separate
account, and if any Fund is comprised of more than one portfolio of
investment securities (each a "Portfolio") Custodian shall keep the
assets of each Portfolio segregated in a separate account. Custodian
will not deliver, assign, pledge or hypothecate any such assets to
any person except as permitted by the provisions of this Agreement
or any agreement executed by it according to the terms of Section
3.S. of this Agreement. Upon delivery of any such assets to a
subcustodian pursuant to Section 3.S. of this Agreement, Custodian
will create and maintain records identifying those assets which have
been delivered to the subcustodian as belonging to the applicable
Fund, by Portfolio if applicable. The Custodian is responsible for
the safekeeping of the securities and monies of
2
<PAGE>
the Funds only until they have been transmitted to and received by
other persons as permitted under the terms of this Agreement, except
for securities and monies transmitted to subcustodians appointed
under Section 3.S. of this Agreement, for which Custodian remains
responsible to the extent provided in Section 3.S. hereof. Custodian
may participate directly or indirectly through a subcustodian in the
Depository Trust Company (DTC), Treasury/Federal Reserve Book Entry
System (Fed System), Participant Trust Company (PTC) or other
depository approved by the Funds (as such entities are defined at 17
CFR Section 270.17f-4(b)) (each a "Depository" and collectively, the
"Depositories").
D. Registration of Securities
The Custodian shall at all times hold registered securities of the
Funds in the name of the Custodian, the applicable Fund, or a
nominee of either of them, unless specifically directed by
instructions to hold such registered securities in so-called "street
name," provided that, in any event, all such securities and other
assets shall be held in an account of the Custodian containing only
assets of the applicable Fund, or only assets held by the Custodian
as a fiduciary or custodian for customers, and provided further,
that the records of the Custodian at all times shall indicate the
Fund or other customer for which such securities and other assets
are held in such account and the respective interests therein. If,
however, any Fund directs the Custodian to maintain securities in
"street name", notwithstanding anything contained herein to the
contrary, the Custodian shall be obligated only to utilize its best
efforts to timely collect income due the Fund on such securities and
to notify the Fund of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange
offers. All securities, and the ownership thereof by the applicable
Fund, which are held by Custodian hereunder, however, shall at all
times be identifiable on the records of the Custodian. Each Fund
agrees to hold Custodian and its nominee harmless for any liability
as a shareholder of record of its securities held in custody.
E. Exchange of Securities
Upon receipt of instructions as defined herein in Section 4.A,
Custodian will exchange, or cause to be exchanged, portfolio
securities held by it for the account of a Fund for other securities
or cash issued or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of shares, change
of par value, conversion or otherwise, and will deposit any such
securities in accordance with the terms of any reorganization or
3
<PAGE>
protective plan. Without instructions, Custodian is authorized to
exchange securities held by it in temporary form for securities in
definitive form, to effect an exchange of shares when the par value
of the stock is changed, and, upon receiving payment therefor, to
surrender bonds or other securities held by it at maturity or when
advised of earlier call for redemption, except that Custodian shall
receive instructions prior to surrendering any convertible security.
F. Purchases of Investments of a Fund - Other Than Options and Futures
Each Fund will, on each business day on which a purchase of
securities (other than options and futures) shall be made by it,
deliver to Custodian instructions which shall specify with respect
to each such purchase:
1. If applicable, the name of the Portfolio making such
purchase;
2. The name of the issuer and description the security;
3. The number of shares and the principal amount
purchased, and accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission,
taxes and other expenses payable in connection with the
purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or dealer
through whom the purchase was made; and
9. Whether the security is to be received in certificated
form or via a specified Depository.
In accordance with such instructions, Custodian will pay for out of
monies held for the account of the applicable Fund, but only insofar
as such monies are available for such purpose, and receive the
portfolio securities so purchased by or for the account of the
applicable Fund, except that Custodian may in its sole discretion
advance funds to the Fund which may result in an overdraft because
the monies held by the Custodian on behalf of the Fund are
insufficient to pay the total amount payable upon such purchase.
Except as otherwise instructed by the applicable Fund, such payment
shall be made by the Custodian only upon receipt of securities: (a)
by the Custodian; (b) by a clearing corporation of a national
exchange of which the Custodian is a member; or (c) by a Depository.
Notwithstanding the foregoing, (i) in the case of a repurchase
agreement, the Custodian may release funds to a Depository prior to
the receipt of advice from the Depository that the
4
<PAGE>
securities underlying such repurchase agreement have been
transferred by book-entry into the account maintained with such
Depository by the Custodian, on behalf of its customers, provided
that the Custodian's instructions to the Depository require that the
Depository make payment of such funds only upon transfer by
book-entry of the securities underlying the repurchase agreement in
such account; (ii) in the case of time deposits, call account
deposits, currency deposits and other deposits, foreign exchange
transactions, futures contracts or options, the Custodian may make
payment therefor before receipt of an advice or confirmation
evidencing said deposit or entry into such transaction; and (iii) in
the case of the purchase of securities, the settlement of which
occurs outside of the United States of America, the Custodian may
make, or cause a subcustodian appointed pursuant to Section 3.S.2.
of this Agreement to make, payment therefor in accordance with
generally accepted local custom and market practice.
G. Sales and Deliveries of Investments of a Fund - Other Than Options
and Futures
-------------------------------------------------------------------
Each Fund will, on each business day on which a sale of investment
securities (other than options and futures) of such Fund has been
made, deliver to Custodian instructions specifying with respect to
each such sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or
other information identifying the securities sold and to be
delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission,taxes
or other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. The name and address of the broker or dealer through whom
or person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or
cause to be delivered the securities thus designated as sold for the
account of the applicable Fund to the broker or other person
specified in the instructions relating to such sale. Except as
otherwise instructed by the applicable Fund, such delivery shall be
made upon receipt of: (a) payment therefor in such form as is
satisfactory to the Custodian; (b) credit to the account of the
Custodian with
5
<PAGE>
a clearing corporation of a national securities exchange of which
the Custodian is a member; or (c) credit to the account of the
Custodian, on behalf of its customers, with a Depository.
Notwithstanding the foregoing: (i) in the case of securities held in
physical form, such securities shall be delivered in accordance with
"street delivery custom" to a broker or its clearing agent; or (ii)
in the case of the sale of securities, the settlement of which
occurs outside of the United States of America, the Custodian may
make, or cause a subcustodian appointed pursuant to Section 3.S.2.
of this Agreement to make, such delivery upon payment therefor in
accordance with generally accepted local custom and market practice.
H. Purchases or Sales of Options and Futures
Each Fund will, on each business day on which a purchase or sale of
the following options and/or futures shall be made by it, deliver
to Custodian instructions which shall specify with respect to each
such purchase or sale:
1. If applicable, the name of the Portfolio making such
purchase or sale;
2. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through
whom the sale or purchase was made.
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring or closing transaction;
h. Whether the transaction involves a put or call;
6
<PAGE>
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer
through whom the sale or purchase was made, or
other applicable settlement instructions.
4. Security Index Futures Contracts
a. The last trading date specified in the contract
and, when available, the closing level, thereof;
b. The index level on the date the contract is entered
into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in
addition to instructions,and if not already in the
possession of Custodian, Fund shall deliver a
substantially complete and executed custodial
safekeeping account and procedural agreement
which shall be incorporated by reference into this
Custody Agreement); and
f. The name and address of the futures commission
merchant through whom the sale or purchase was
made, or other applicable settlement instructions.
5. Options on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
If specifically allowed for in the prospectus of the applicable
Fund, and subject to such additional terms and conditions as
Custodian may require:
1. Upon receipt of instructions, Custodian will release or
cause to be released securities
held in custody to the pledgee designated in such
instructions by way of pledge or hypothecation to secure
any loan incurred by such Fund; provided, however, that the
securities shall be released only upon payment to Custodian
of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made, further securities may be released or caused
to be released for that
7
<PAGE>
purpose upon receipt of instructions. Upon receipt of
instructions, Custodian will pay, but only from funds
available for such purpose, any such loan upon redelivery
to it of the securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing such
loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in
such instructions; provided, however, that the securities
will be released only upon deposit with Custodian of full
cash collateral as specified in such instructions, and that
such Fund will retain the right to any dividends, interest
or distribution on such loaned securities. Upon receipt of
instructions and the loaned securities, Custodian will
release the cash collateral to the borrower.
J. Routine Matters
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution,
purchase, transfer, or other dealings with securities or other
property of the Funds except as may be otherwise provided in this
Agreement or directed from time to time by the applicable Fund in
writing.
K. Deposit Accounts
Custodian will open and maintain one or more special purpose deposit
accounts for each Fund in the name of Custodian ("Accounts"),
subject only to draft or order by Custodian upon receipt of
instructions. All monies received by Custodian from or for the
account of any Fund shall be deposited in the appropriate Accounts.
Barring events not in the control of the Custodian such as strikes,
lockouts or labor disputes, riots, war or equipment or transmission
failure or damage, fire, flood, earthquake or other natural
disaster, action or inaction of governmental authority or other
causes beyond its control, at 9:00 a.m., Kansas City time, on the
second business day after deposit of any check into an Account,
Custodian agrees to make Fed Funds available to the applicable Fund
in the amount of the check. Deposits made by Federal Reserve wire
will be available to the Fund immediately and ACH wires will be
available to the Fund on the next business day. Income earned on the
portfolio securities will be credited to the Fund based on the
schedule attached as Exhibit A. The Custodian will be entitled to
reverse any credited amounts where credits have been made and monies
are not finally collected. If monies are collected after such
reversal, the Custodian will credit the Fund in that amount.
Custodian may open and maintain Accounts in such banks or trust
companies as may be designated by it or by the applicable Fund in
writing, all
8
<PAGE>
such Accounts, however, to be in the name of Custodian and subject
only to its draft or order. Funds received and held for the account
of different Portfolios shall be maintained in separate Accounts
established for each Portfolio.
L. Income and Other Payments to the Funds
Custodian will:
1. Collect, claim and receive and deposit for the account of
the applicable Fund all income and other payments which
become due and payable on or after the effective date of
this Agreement with respect to the securities deposited
under this Agreement, and credit the account of such Fund
in accordance with the schedule attached hereto as Exhibit
A. If, for any reason, the Fund is credited with income
that is not subsequently collected, Custodian may reverse
that credited amount.
2. Execute ownership and other certificates and affidavits for
all federal, state and local tax purposes in connection
with the collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income
and other payments, including but not limited to
the presentation for payment of:
1. all coupons and other income items
requiring presentation; and
2. all other securities which may
mature or be called, redeemed,
retired or otherwise become
payable and regarding which the
Custodian has actual knowledge,
or should reasonably be expected
to have knowledge; and
b. the endorsement for collection, in the name of the
applicable Fund, of all checks, drafts or other
negotiable instruments.
Custodian, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt
of instructions and upon being indemnified to its satisfaction
against the costs and expenses of such suit or other actions.
Custodian will receive, claim and collect all stock dividends,
rights and other similar items and will deal with the same pursuant
to instructions.
M. Payment of Dividends and Other Distributions
On the declaration of any dividend or other distribution on the
shares of capital stock of any Fund ("Fund Shares") by the Board of
Directors of such Fund, such Fund shall deliver to Custodian
instructions with respect thereto. On the date specified in such
instructions for the payment of such dividend or other distribution,
Custodian will pay out of the monies held for
9
<PAGE>
the account of such Fund, insofar as the same shall be available for
such purposes, and credit to the account of the Dividend Disbursing
Agent for such Fund, such amount as may be specified in such
instructions.
N. Shares of a Fund Purchased by Such Fund
Whenever any Fund Shares are repurchased or redeemed by a Fund, such
Fund or its agent shall advise Custodian of the aggregate dollar
amount to be paid for such shares and shall confirm such advice in
writing. Upon receipt of such advice, Custodian shall charge such
aggregate dollar amount to the account of such Fund and either
deposit the same in the account maintained for the purpose of paying
for the repurchase or redemption of Fund Shares or deliver the same
in accordance with such advice. Custodian shall not have any duty or
responsibility to determine that Fund Shares have been removed from
the proper shareholder account or accounts or that the proper number
of Fund Shares have been canceled and removed from the shareholder
records.
O. Shares of a Fund Purchased from Such Fund
Whenever Fund Shares are purchased from any Fund, such Fund will
deposit or cause to be deposited with Custodian the amount received
for such shares. Custodian shall not have any duty or responsibility
to determine that Fund Shares purchased from any Fund have been
added to the proper shareholder account or accounts or that the
proper number of such shares have been added to the shareholder
records.
P. Proxies and Notices
Custodian will promptly deliver or mail or have delivered or mailed
to the applicable Fund all proxies properly signed, all notices of
meetings, all proxy statements and other notices, requests or
announcements affecting or relating to securities held by Custodian
for such Fund and will, upon receipt of instructions, execute and
deliver or cause its nominee to execute and deliver or mail or have
delivered or mailed such proxies or other authorizations as may be
required. Except as provided by this Agreement or pursuant to
instructions hereafter received by Custodian, neither it nor its
nominee will exercise any power inherent in any such securities,
including any power to vote the same, or execute any proxy, power of
attorney, or other similar instrument voting any of such securities,
or give any consent, approval or waiver with respect thereto, or
take any other similar action.
Q. Disbursements
10
<PAGE>
Custodian will pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other obligations
of each Fund (including but not limited to obligations in connection
with the conversion, exchange or surrender of securities owned by
such Fund, interest charges, dividend disbursements, taxes,
management fees, custodian fees, legal fees, auditors' fees,
transfer agents' fees, brokerage commissions, compensation to
personnel, and other operating expenses of such Fund) pursuant to
instructions of such Fund setting forth the name of the person to
whom payment is to be made, the amount of the payment, and the
purpose of the payment.
R. Daily Statement of Accounts
Custodian will, within a reasonable time, render to each Fund a
detailed statement of the amounts received or paid and of securities
received or delivered for the account of the Fund during each
business day. Custodian will, from time to time, upon request by any
Fund, render a detailed statement of the securities and monies held
for such Fund under this Agreement, and Custodian will maintain such
books and records as are necessary to enable it to do so. Custodian
will permit such persons as are authorized by any Fund, including
such Fund's independent public accountants, reasonable access to
such records or will provide reasonable confirmation of the contents
of such records, and if demanded, Custodian will permit federal and
state regulatory agencies to examine the securities, books and
records. Upon the written instructions of any Fund or as demanded by
federal or state regulatory agencies, Custodian will instruct any
subcustodian to permit such persons as are authorized by such Fund,
including such Fund's independent public accountants, reasonable
access to such records or to provide reasonable confirmation of the
contents of such records, and to permit such agencies to examine the
books, records and securities held by such subcustodian which relate
to such Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this Agreement, all
or any of the monies or securities of the Funds may be held
in Custodian's own custody or in the custody of one or more
other banks or trust companies acting as subcustodians as
may be selected by Custodian. Any such subcustodian
selected by the Custodian must have the qualifications
required for a custodian under the 1940 Act, as amended.
Custodian shall be responsible to the applicable Fund for
any loss, damage or expense
11
<PAGE>
suffered or incurred by the Fund resulting from the actions
or omissions of any subcustodians selected and appointed by
Custodian (except subcustodians appointed at the request of
the Fund and as provided in Subsection 2 below) to the same
extent Custodian would be responsible to the Fund under
Section 5. of this Agreement if it committed the act or
omission itself. Upon request of any Fund, Custodian shall
be willing to contract with other subcustodians reasonably
acceptable to the Custodian for purposes of (i) effecting
third-party repurchase transactions with banks, brokers,
dealers, or other entities through the use of a common
custodian or subcustodian, or (ii) providing depository and
clearing agency services with respect to certain variable
rate demand note securities, or (iii) for other reasonable
purposes specified by such Fund; provided, however, that
the Custodian shall be responsible to the Fund for any
loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of any such
subcustodian only to the same extent such subcustodian is
responsible to the Custodian. The Fund shall be entitled to
review the Custodian's contracts with any such
subcustodians appointed at its request. Custodian shall be
responsible to the applicable Fund for any loss, damage or
expense suffered or incurred by the Fund resulting from the
actions or omissions of any Depository only to the same
extent such Depository is responsible to Custodian.
2. Notwithstanding any other provisions of this Agreement,
each Fund's foreign
securities (as defined in Rule 17f-5(c)(1) under the 1940
Act) and each Fund's cash or cash equivalents, in amounts
deemed by the Fund to be reasonably necessary to effect
Fund's foreign securities transactions, may be held in the
custody of one or more banks or trust companies acting as
subcustodians, and thereafter, pursuant to a written
contract or contracts as approved by such Fund's Board of
Directors, may be transferred to accounts maintained by any
such subcustodian with eligible foreign custodians, as
defined in Rule 17f-5(c)(2). Custodian shall be responsible
to the Fund for any loss, damage or expense suffered or
incurred by the Fund resulting from the actions or
omissions of any foreign subcustodian only to the same
extent the foreign subcustodian is liable to the domestic
subcustodian with which the Custodian contracts for
foreign subcustody purposes.
T. Accounts and Records
12
<PAGE>
Custodian will prepare and maintain, with the direction and as
interpreted by each Fund, its accountants and/or other advisors, in
complete, accurate and current form all accounts and records (i)
required to be maintained by such Fund with respect to portfolio
transactions under Rule 31a of the 1940 Act, (ii) required to be
maintained as a basis for calculation of such Fund's net asset
value, and (iii) as otherwise agreed upon between the parties.
Custodian will preserve said records in the manner and for the
periods prescribed in the 1940 Act or for such longer period as is
agreed upon by the parties. Custodian relies upon each Fund to
furnish, in writing or its electronic or digital equivalent,
accurate and timely information needed by Custodian to complete such
Fund's records and perform daily calculation of such Fund's net
asset value. Custodian shall incur no liability and each Fund shall
indemnify and hold harmless Custodian from and against any liability
arising from any failure of such Fund to furnish such information in
a timely and accurate manner, even if such Fund subsequently
provides accurate but untimely information. It shall be the
responsibility of each Fund to furnish Custodian with the
declaration, record and payment dates and amounts of any dividends
or income and any other special actions required concerning each of
its securities when such information is not readily available from
generally accepted securities industry services or publications.
U. Accounts and Records Property of the Funds
Custodian acknowledges that all of the accounts and records
maintained by Custodian pursuant to this Agreement are the property
of the applicable Fund, and will be made available to such Fund for
inspection or reproduction within a reasonable period of time, upon
demand. Custodian will assist any Fund's independent auditors, or
upon approval of the Fund, or upon demand, any regulatory body, in
any requested review of the Fund's accounts and records but shall be
reimbursed by the Fund for all expenses and employee time invested
in any such review outside of routine and normal periodic reviews.
Upon receipt from any Fund of the necessary information or
instructions, Custodian will supply information from the books and
records it maintains for such Fund that the Fund needs for tax
returns, questionnaires, periodic reports to shareholders and such
other reports and information requests as such Fund and Custodian
shall agree upon from time to time.
V. Adoption of Procedures
13
<PAGE>
Custodian and each Fund may from time to time adopt procedures as
they agree upon, and Custodian may conclusively assume that no
procedure approved or directed by a Fund or its accountants or other
advisors conflicts with or violates any requirements of its
prospectus, articles of incorporation, bylaws, any applicable law,
rule or regulation, or any order, decree or agreement by which such
Fund may be bound. Each Fund will be responsible to notify Custodian
of any changes in statutes, regulations, rules, requirements or
policies which might necessitate changes in Custodian's
responsibilities or procedures.
W. Calculation of Net Asset Value
Custodian will calculate each Fund's net asset value, in accordance
with such Fund's prospectus. Custodian will price the securities and
foreign currency holdings of each Fund for which market quotations
are available by the use of outside services designated by such Fund
which are normally used and contracted with for this purpose; all
other securities and foreign currency holdings will be priced in
accordance with such Fund's instructions. Custodian will have no
responsibility for the accuracy of the prices quoted by these
outside services or for the information supplied by any Fund or for
acting upon such instructions.
X. Advances
In the event Custodian or any subcustodian shall, in its sole
discretion, advance cash or securities for any purpose (including
but not limited to securities settlements, purchase or sale of
foreign exchange or foreign exchange contracts and assumed
settlement) for the benefit of any Fund or Portfolio thereof, the
advance shall be payable by the applicable Fund or Portfolio on
demand. Any such cash advance shall be subject to an overdraft
charge at the rate set forth in the then-current fee schedule from
the date advanced until the date repaid. As security for each such
advance, each Fund hereby grants Custodian and such subcustodian a
lien on and security interest in all property at any time held for
the account of the Fund or applicable Portfolio, including without
limitation all assets acquired with the amount advanced. Should the
Fund fail to promptly repay the advance, the Custodian and such
subcustodian shall be entitled to utilize available cash and to
dispose of such Fund's or Portfolio's assets pursuant to applicable
law to the extent necessary to obtain reimbursement of the amount
advanced and any related overdraft charges.
Y. Exercise of Rights; Tender Offers
Upon receipt of instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to the agent of such issuer or trustee, for
14
<PAGE>
the purpose of exercise or sale, provided that the new securities,
cash or other assets, if any, are to be delivered to the Custodian;
and (b) deposit securities upon invitations for tenders thereof,
provided that the consideration for such securities is to be paid or
delivered to the Custodian or the tendered securities are to be
returned to the Custodian.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian
reasonably believes were given by a designated representative of any
Fund. Each Fund shall deliver to Custodian, prior to delivery of any
assets to Custodian and thereafter from time to time as changes
therein are necessary, written instructions naming one or more
designated representatives to give instructions in the name and on
behalf of such Fund, which instructions may be received and accepted
by Custodian as conclusive evidence of the authority of any
designated representative to act for such Fund and may be considered
to be in full force and effect(and Custodian will be fully protected
in acting in reliance thereon) until receipt by Custodian of notice
to the contrary. Unless such written instructions delegating
authority to any person to give instructions specifically limit such
authority to specific matters or require that the approval of anyone
else will first have been obtained, Custodian will be under no
obligation to inquire into the right of such person, acting alone,to
give any instructions whatsoever which Custodian may receive from
such person. If any Fund fails to provide Custodian any such
instructions naming designated representatives, any instructions
received by Custodian from a person reasonably believed to be an
appropriate representative of such Fund shall constitute valid and
proper instructions hereunder. "Designated representatives" of a
Fund may include its employees and agents, including investment
managers and their employees.
B. No later than the next business day immediately following each oral
instruction, the applicable Fund will send Custodian written
confirmation of such oral instruction. At Custodian's sole
discretion, Custodian may record on tape, or otherwise, any oral
instruction whether given in person or via telephone, each such
recording identifying the date and the time of the beginning and
ending of such oral instruction.
C. If Custodian shall provide any Fund any direct access to any
computerized recordkeeping and reporting system used hereunder or if
Custodian and any Fund shall agree to utilize any electronic system
of communication, such Fund shall be fully responsible for any and
all
15
<PAGE>
consequences of the use or misuse of the terminal device, passwords,
access instructions and other means of access to such system(s)
which are utilized by, assigned to or otherwise made available to
the Fund. Each Fund agrees to implement and enforce appropriate
security policies and procedures to prevent unauthorized or improper
access to or use of such system(s). Custodian shall be fully
protected in acting hereunder upon any instructions, communications,
data or other information received by Custodian by such means as
fully and to the same effect as if delivered to Custodian by written
instrument signed by the requisite authorized representative(s) of
the applicable Fund. Each Fund shall indemnify and hold Custodian
harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability which may be
suffered or incurred by Custodian as a result of the use or misuse,
whether authorized or unauthorized, of any such system(s) by such
Fund or by any person who acquires access to such system(s) through
the terminal device, passwords, access instructions or other means
of access to such system(s) which are utilized by, assigned to or
otherwise made available to the Fund, except to the extent
attributable to any negligence or willful misconduct by Custodian.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall at all times use reasonable care and due diligence
and act in good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the applicable Fund
shall indemnify and hold Custodian harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability which may be asserted against Custodian,
incurred by Custodian or for which Custodian may be held to be
liable, arising out of or attributable to: 1. All actions taken by
Custodian pursuant to this Agreement or any instructions
provided to it hereunder, provided that Custodian has acted
in good faith and with due diligence and reasonable care;
and
2. The Fund's refusal or failure to comply with the terms of
this Agreement (including without limitation the Fund's
failure to pay or reimburse Custodian under this
indemnification provision), the Fund's negligence or
willful misconduct, or the failure of any representation or
warranty of the Fund hereunder to be and remain true and
correct in all respects at all times.
B. Custodian may request and obtain at the expense of the applicable
Fund the advice and opinion of counsel for such Fund or of its own
counsel with respect to questions or matters
16
<PAGE>
of law, and it shall be without liability to such Fund for any
action taken or omitted by it in good faith, in conformity with such
advice or opinion. If Custodian reasonably believes that it could
not prudently act according to the instructions of any Fund or the
Fund's accountants or counsel, it may in its discretion, with notice
to the Fund, not act according to such instructions.
C. Custodian may rely upon the advice and statements of any Fund, its
accountants and officers or other authorized individuals, and other
persons believed by it in good faith to be expert in matters upon
which they are consulted, and Custodian shall not be liable for any
actions taken, in good faith, upon such advice and statements.
D. If any Fund requests Custodian in any capacity to take any action
which involves the payment of money by Custodian, or which might
make it or its nominee liable for payment of monies or in any other
way, Custodian shall be indemnified and held harmless by such Fund
against any liability on account of such action; provided, however,
that nothing herein shall obligate Custodian to take any such action
except in its sole discretion.
E. Custodian shall be protected in acting as custodian hereunder upon
any instructions, advice, notice, request, consent, certificate or
other instrument or paper appearing to it to be genuine and to have
been properly executed. Custodian shall be entitled to receive upon
request as conclusive proof of any fact or matter required to be
ascertained from any Fund hereunder a certificate signed by an
officer or designated representative of the Fund. Each Fund shall
also provide Custodian instructions with respect to any matter
concerning this Agreement requested by Custodian.
F. Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any securities purchased by or
for any Fund, the legality of the purchase of any
securities or foreign currency
positions or evidence of ownership required by any Fund to
be received by Custodian, or the propriety of the decision
to purchase or amount paid therefor;
2. The legality of the sale of any securities or foreign
currency positions by or for any Fund, or the propriety of
the amount for which the same are sold;
3. The legality of the issue or sale of any Fund Shares, or
the sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund
Shares, or the propriety of the amount to be paid
therefore; or
17
<PAGE>
5. The legality of the declaration of any dividend by any
Fund, or the legality of the issue of any Fund Shares in
payment of any stock dividend.
G. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the
payment of money to be received by it on behalf of the applicable
Fund until Custodian actually receives such money; provided,
however, that it shall advise such Fund promptly if it fails to
receive any such money in the ordinary course of business and shall
cooperate with the Fund toward the end that such money shall be
received.
H. Except as provided in Section 3.S., Custodian shall not be
responsible for loss occasioned by the acts, neglects, defaults or
insolvency of any broker, bank, trust company, or any other person
with whom Custodian may deal.
I. Custodian shall not be responsible or liable for the failure or
delay in performance of its obligations under this Agreement, or
those of any entity for which it is responsible hereunder, arising
out of or caused, directly or indirectly, by circumstances beyond
the affected entity's reasonable control, including, without
limitation: any interruption, loss or malfunction of any utility,
transportation, or communication service or computer (hardware or
software) services of third parties unrelated to Custodian;
inability to obtain labor, material, equipment or transportation,
or a delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; war, strike, riot,
emergency, civil disturbance, terrorism, vandalism, explosions,
labor disputes, freezes, floods, fires, tornados, acts of God or
public enemy, revolutions, or insurrection.
J. EXCEPT FOR VIOLATIONS OF SECTION 9, IN NO EVENT AND UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE TO
ANYONE, INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY, FOR
CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES FOR ANY ACT OR FAILURE TO
ACT UNDER ANY PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THIS
POSSIBILITY THEREOF.
6. COMPENSATION. In consideration for its services hereunder as Custodian and
investment accounting and recordkeeping agent, each Fund will pay to
Custodian such compensation as shall be set forth in a separate fee
schedule to be agreed to by the Funds and Custodian from time to time. A
copy of the initial fee schedule is attached hereto and incorporated herein
by reference. Custodian shall also be entitled to receive, and each Fund
agrees to pay to Custodian, on demand,
18
<PAGE>
reimbursement for Custodian's cash disbursements and reasonable
out-of-pocket costs and expenses, including attorney's fees, incurred by
Custodian in connection with the performance of services hereunder.
Custodian may charge such compensation against monies held by it for the
account of the applicable Fund. Custodian will also be entitled to charge
against any monies held by it for the account of the applicable Fund the
amount of any loss, damage, liability, advance, overdraft or expense for
which it shall be entitled to reimbursement from such Fund, including but
not limited to fees and expenses due to Custodian for other services
provided to the Fund by Custodian. Custodian will be entitled to
reimbursement by the Fund for the losses, damages, liabilities, advances,
overdrafts and expenses of subcustodians only to the extent that (i)
Custodian would have been entitled to reimbursement hereunder if it had
incurred the same itself directly, and (ii) Custodian is obligated to
reimburse the subcustodian therefor.
7. TERM AND TERMINATION. The initial term of this Agreement shall be for a
period of one year. Thereafter, each Fund and Custodian may terminate the
same by notice in writing, delivered or mailed, postage prepaid, to the
other and received not less than ninety (90) days prior to the date
upon which such termination will take effect. Upon termination of this
Agreement, each applicable Fund will pay Custodian its fees and
compensation due hereunder and its reimbursable disbursements, costs and
expenses paid or incurred to such date and each applicable Fund shall
designate a successor custodian by notice in writing to Custodian by the
termination date. In the event no written order designating a successor
custodian has been delivered to Custodian on or before the date when such
termination becomes effective, then Custodian may, at its option, deliver
the securities, funds and properties of the Fund to a bank or trust
company at the selection of Custodian, and meeting the qualifications for
custodian set forth in the 1940 Act and having not less that Two Million
Dollars ($2,000,000) aggregate capital, surplus and undivided profits,
as shown by its last published report, or apply to a court of competent
jurisdiction for the appointment of a successor custodian or other proper
relief, or take any other lawful action under the circumstances; provided,
however, that the applicable Fund shall reimburse Custodian for its costs
and expenses, including reasonable attorney's fees, incurred in connection
therewith. Custodian will, upon termination of this Agreement and payment
of all sums due to Custodian from each applicable Fund hereunder or
otherwise, deliver to the successor custodian so specified or appointed,
or as specified by the court, at Custodian's office, all securities then
held by Custodian hereunder, duly endorsed and in form for transfer, and
all funds and other properties of each
19
<PAGE>
applicable Fund deposited with or held by Custodian hereunder, and
Custodian will co-operate in effecting changes in book-entries at all
Depositories. Upon delivery to a successor custodian or as specified by the
court, Custodian will have no further obligations or liabilities under this
Agreement. Thereafter such successor will be the successor custodian under
this Agreement and will be entitled to reasonable compensation for its
services. In the event that securities, funds and other properties remain
in the possession of the Custodian after the date of termination hereof
owing to failure of any Fund to appoint a successor custodian, the
Custodian shall be entitled to compensation as provided in the then-current
fee schedule hereunder for its services during such period as the Custodian
retains possession of such securities, funds and other properties, and the
provisions of this Agreement relating to the duties and obligations of the
Custodian shall remain in full force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
any Fund at 11 Hanover Square, New York, NY 10005, or at such other address
as the Funds may have designated to Custodian in writing, will be deemed to
have been properly given to such Fund hereunder; and notices, requests,
instructions and other writings addressed to Custodian at its offices at
127 West 10th Street, Kansas City, Missouri 64105, Attention: Custody
Department, or to such other address as it may have designated to the Funds
in writing, will be deemed to have been properly given to Custodian
hereunder.
9. CONFIDENTIALITY.
A. Each Fund shall preserve the confidentiality of the computerized
investment portfolio and custody recordkeeping and accounting
systems used by Custodian (the "Systems") and the tapes, books,
reference manuals, instructions, records, programs, documentation
and information of, and other materials relevant to, the Systems
and the business of Custodian ("Confidential Information"). Each
Fund agrees that it will not voluntarily disclose any such
Confidential Information to any other person other than its own
employees who reasonably have a need to know such information
pursuant to this Agreement. Each Fund shall return all such
Confidential Information to Custodian upon termination or
expiration of this Agreement.
B. Each Fund has been informed that the Systems are licensed for use by
Custodian from third parties ("Licensors"), and each Fund
acknowledges that Custodian and the Licensors have proprietary
rights in and to the Systems and all other Custodian or Licensor
programs, code,
20
<PAGE>
techniques, know-how, data bases, supporting documentation, data
formats, and procedures, including without limitation any changes or
modifications made at the request or expense or both of any Fund
(collectively, the "Protected Information"). Each Fund acknowledges
that the Protected Information constitutes confidential material and
trade secrets of Custodian and the Licensors. Each Fund shall
preserve the confidentiality of the Protected Information, and each
Fund hereby acknowledges that any unauthorized use, misuse,
disclosure or taking of Protected Information, residing or existing
internal or external to a computer, computer system, or computer
network, or the knowing and unauthorized accessing or causing to be
accessed of any computer, computer system, or computer network, may
be subject to civil liabilities and criminal penalties under
applicable law. Each Fund shall so inform employees and agents who
have access to the Protected Information or to any computer
equipment capable of accessing the same. The Licensors are intended
to be and shall be third party beneficiaries of the Funds'
obligations and undertakings contained in this paragraph.
10. MULTIPLE FUNDS AND PORTFOLIOS.
A. Each Fund, and as to any Fund which is comprised of more than one
Portfolio, each Portfolio, shall be regarded for all purposes
hereunder as a separate party apart from each other. Unless the
context otherwise requires,with respect to every transaction covered
by this Agreement, every reference herein to a Fund shall be deemed
to relate solely to the particular Fund, and, if applicable,
Portfolio thereof to which such transaction relates. Under no
circumstances shall the rights, obligations or remedies with
respect to a particular Fund or Portfolio constitute a right,
obligation or remedy applicable to any other. The use of this single
document to memorialize the separate agreement of each Fund is
understood to be for clerical convenience only and shall not
constitute any basis for joining the Funds for any reason.
B. Additional Funds and Portfolios may be added to this Agreement,
provided that Custodian consents to such addition. Rates or charges
for each additional Fund or Portfolio shall be as agreed upon by
Custodian and the applicable Fund in writing. Additional Funds may
be added hereto by execution of instruments amending Exhibit A to
add such Funds thereto.
11. MISCELLANEOUS.
21
<PAGE>
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws
principles thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9. hereof are intended to
and shall continue after and survive the expiration, termination or
cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and
executed by each party hereto.
E. The failure of any party to insist upon the performance of any terms
or conditions of this Agreement or to enforce any rights resulting
from any breach of any of the terms or conditions of this Agreement,
including the payment of damages, shall not be construed as a
continuing or permanent waiver of any such terms, conditions, rights
or privileges, but the same shall continue and remain in full force
and effect as if no such forbearance or waiver had occurred. No
waiver, release or discharge of any party's rights hereunder shall
be effective unless contained in a written instrument signed by the
party sought to be charged.
F. The captions in the Agreement are included for convenience of
reference only, and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
H. If any provision of this Agreement shall be determined to be invalid
or unenforceable, the remaining provisions of this Agreement shall
not be affected thereby, and every provision of this Agreement shall
remain in full force and effect and shall remain enforceable to the
fullest extent permitted by applicable law.
I. This Agreement may not be assigned by any Fund or Custodian without
the prior written consent of the other.
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between
Custodian and any Fund or Funds.
K. Except as specifically provided herein, this Agreement does not in
any way affect any other agreements entered into among the parties
hereto and any actions taken or omitted by either party hereunder
shall not affect any rights or obligations of the other party
hereunder.
22
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:
Title:
EACH REGISTERED INVESTMENT
COMPANY LISTED ON EXHIBIT A
HERETO
By:
Title:
23
<PAGE>
EXHIBIT A
LIST OF FUNDS
Bull & Bear Funds I, Inc.:
Bull & Bear U.S. and Overseas Fund
Bull & Bear Funds II, Inc.:
Bull & Bear Dollar Reserves
Bull & Bear Global Income Fund, Inc.
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear Gold Investors Ltd.
Bull & Bear Municipal Income Fund, Inc.
Midas Fund, Inc.
Rockwood Fund, Inc.
<PAGE>
Consent of Independent Certified Public Accountants
We consent to the use of our report dated July 11, 1997 on the financial
statements and financial highlights of Bull & Bear Gold Investors Ltd. Such
financial statements and financial highlights appear in the 1997 Annual Report
to Shareholders which is incorporated by reference in the Statement of
Additional Information filed in Post-Effective Amendment No. 69 under the
Securities Act of 1933 and Amendment No. 32 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 references to our Firm in the Registration Statement
and Prospectus.
/s/ Tait, Weller & Baker
Tait, Weller & Baker
Philadelphia, Pennsylvania
August 26, 1997
<PAGE>
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NY 10038-4982
PHONE 212-806-5400
FAX 212-806-6006
August 27, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are counsel to Bull & Bear Gold Investors Ltd. (the "Fund"), and in so acting
have reviewed Post-Effective Amendment No. 69 (the "Post-Effective Amendment")
to the Fund's Registration Statement on Form N-1A, Registration File No.
2-14486. Representatives of the Fund have advised us that the Fund will file the
Post-Effective Amendment pursuant to paragraph (b) of Rule 485 ("Rule 485")
promulgated under the Securities Act of 1933. In connection therewith, the Fund
has requested that we provide this letter.
In our examination of the Post-Effective Amendment, we have assumed the
conformity to the originals of all documents submitted to us as copies.
Based upon the foregoing, we hereby advise you that the prospectus included as
part of the Post-Effective Amendment does not include disclosure which we
believe would render it ineligible to become effective pursuant to paragraph (b)
of Rule 485.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
<PAGE>
<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.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Jun-30-1997
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 25,002,700
<INVESTMENTS-AT-VALUE> 16,506,028
<RECEIVABLES> 55,769
<ASSETS-OTHER> 3,699
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,565,496
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,348,838
<TOTAL-LIABILITIES> 1,348,838
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,884,713
<SHARES-COMMON-STOCK> 2,130,886
<SHARES-COMMON-PRIOR> 1,960,355
<ACCUMULATED-NII-CURRENT> (3,266)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 831,883
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,496,672)
<NET-ASSETS> 15,216,658
<DIVIDEND-INCOME> 203,350
<INTEREST-INCOME> 7,941
<OTHER-INCOME> 0
<EXPENSES-NET> 705,778
<NET-INVESTMENT-INCOME> (494,487)
<REALIZED-GAINS-CURRENT> 2,935,802
<APPREC-INCREASE-CURRENT> (12,311,707)
<NET-CHANGE-FROM-OPS> (9,870,392)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 4,153,125
<DISTRIBUTIONS-OTHER> 0
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<NUMBER-OF-SHARES-REDEEMED> 912,837
<SHARES-REINVESTED> 375,803
<NET-CHANGE-IN-ASSETS> (12,272,336)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,902,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 222,365
<INTEREST-EXPENSE> 40,797
<GROSS-EXPENSE> 705,778
<AVERAGE-NET-ASSETS> 23,985,047
<PER-SHARE-NAV-BEGIN> 14.02
<PER-SHARE-NII> (.25)
<PER-SHARE-GAIN-APPREC> (4.36)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (2.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.14
<EXPENSE-RATIO> 2.77
<AVG-DEBT-OUTSTANDING> 471,972
<AVG-DEBT-PER-SHARE> .22
</TABLE>
