<PAGE>
Filed with the Securities and Exchange Commission on April 13, 1995.
1933 Act File No. 2-88608
1940 Act File No. 811-3934
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 22
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 21
BULL & BEAR MUNICIPAL SECURITIES, INC.
(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: 212 785-0900
Copies to:
WILLIAM J. MAYNARD R. DARRELL MOUNTS, ESQ.
Bull & Bear Advisers, Inc. Kirkpatrick & Lockhart
11 Hanover Square 1800 M Street, N.W.
New York, New York 10005 South Lobby - Ninth Floor
(Name and Address of Washington, D.C. 20036- 5891
Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to Rule 485(b).
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The notice required by such Rule for its
most recent fiscal year was filed on February 27, 1995.
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed Proposed
Title of Securities Being Regis- Amount of Maximum Maximum Aggregate Amount of
tered Shares Being Offering Offering Registration
Registered Price Per Unit(1) Price(2) Fee(2)
<S> <C> <C> <C> <C>
Shares of Common Stock of Bull & 220,335 $16.21 $290,000 $100.00
Bear Municipal Securities, Inc.,
Par Value $0.01, designated Bull &
Bear Tax-Free Income Fund
(authorized to do business as Bull
& Bear Municipal Income Fund).
</TABLE>
(1) The fee for the above shares to be registered by this filing has been
computed on the basis of the price in effect on April 10, 1995 pursuant to
Rule 457(d) under th Securities Act of 1933.
(2) Calculation of the proposed maximum aggregate offering price has been
made pursuant to Rule 24e-2 under the Investment Company Act of 1940.
During its fiscal year ended December 31, 1994, Registrant redeemed or
repurchased 4,651,821 shares. Registrant used 4,449,376 of the shares it
redeemed or repurchased during its fiscal year ended December 31, 1994, for
a reduction pursuant to paragraph (c) of Rule 24f-2 under the Investment
Company Act of 1940 (shares sold; excluding shares issued in reinvestment
of dividends). Registrant is using this post-effective amendment to
register the remaining 202,445 shares redeemed or repurchased during its
fiscal year ended December 31, 1994 plus 17,890 shares ($290,000/$16.21).
During the current fiscal year, the Registrant has filed no other post-
effective amendments for the purpose of the reduction pursuant to paragraph
(a) of Rule 24e-2.
<PAGE>
BULL & BEAR MUNICIPAL SECURITIES, INC.
Contents of Registration Statement
This registration statement consists of the following papers and
documents.
Cover Sheet
Calculation of Registration Fee under Rule 24e-2
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 MUNICIPAL SECURITIES, INC.
Cross Reference Sheet
PART A - PROSPECTUS
Part A. Item No. Prospectus Caption
1 Cover Page
2 Expense Table
3 Financial Highlights
General
Tax-Free Versus Taxable
Yields
Performance Information
4 General
The Fund's Investment Program
Back Cover Page
5 The Investment Manager
Custodian and Transfer
Agent
6 General
The 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 MUNICIPAL SECURITIES, INC.
Cross Reference Sheet
PART B - STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional
Part B. Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Not Applicable
13 The Fund's Investment
Program
Investment Restrictions
14 Officers and Directors
15 Officers and Directors
The Investment Manager
16 Officers and Directors
The Investment Manager
Investment Management
Agreement
The Bull & Bear Funds
Distribution of Shares
Custodian and Transfer Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Purchase of Shares
Determination of Net Asset
Value
20 Distributions and Taxes
21 Not Applicable
22 Yield and Performance
Information
23 Financial Statements
<PAGE>
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>
The objective of Bull & Bear Municipal Income Fund is to obtain for its
shareholders the highest possible income exempt from Federal income tax
that is consistent with the preservation of principal. The Fund invests
primarily in a diversified portfolio of municipal securities of varying
maturities, depending on the Investment Manager's evaluation of current and
anticipated market conditions. There is no assurance that the Fund will
achieve its objective.
Dividends are declared daily and paid monthly.
NEWSPAPER LISTING. Shares of the Fund are
sold at the net asset value per share which
is shown daily in the mutual fund section
of newspapers under the "Bull & Bear Group"
heading.
This prospectus contains information you should know about the Fund
before you invest. Please keep it for future reference. The Fund's
Statement of Additional Information, dated April 15, 1995, has been filed
with the Securities and Exchange Commission and is incorporated by
reference in this prospectus. It is available at no charge by calling: 1-
800-847-4200.
Shares of the Fund 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.
<PAGE>
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.
<PAGE>
Expense Table. The tables and example below are designed to help you
understand the various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. A $2 monthly account fee is charged
if your average monthly balance is less than $500, except for accounts in
the Bull & Bear Automatic Investment Program (see "How to Purchase
Shares"). Accounts are charged $9 for outgoing wires.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shareholder Transaction Expenses Annual Fund Operating Expenses
Sales Load Imposed on Purchases . . . . . . . . . . NONE (as a percentage of average net assets)
Sales Load Imposed on Reinvested Dividends . . . NONE Management Fees (after waiver). . . . . . . . 0.49%
Deferred Sales Load . . . . . . . . . . . . . . . . NONE 12b-1 Fees . . . . . . . . . . . . . . . . . 0.35%
Redemption Fees . . . . . . . . . . . . . . . . . NONE Other Expenses . . . . . . . . . . . . . . . 0.76%
Exchange Fees . . . . . . . . . . . . . . . . . . . NONE Total Fund Operating Expenses (after waiver). 1.60%
</TABLE>
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual $16 $50 $87 $190
return and a redemption at the end of
each time period
</TABLE>
The example set forth above assumes reinvestment of all dividends and
distributions and uses an assumed 5% annual rate of return as required by
the Securities and Exchange Commission ("SEC"). The example is an
illustration only and should not be considered an indication of past or
future returns and expenses. Actual returns and expenses may be greater or
less than those shown. The percentages given for annual Fund expenses are
based on the Fund's operating expenses and average daily net assets during
its fiscal year ended December 31, 1994. Without the Investment Manager's
expense guarantee, investment management fees and total operating expenses
would have been 0.60% and 1.71% of average net assets, respectively. Long
term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.'s ("NASD") rules regarding investment companies. "Other
Expenses" includes amounts paid to the Fund's Custodian (net of brokerage
commission credits pursuant to an arrangement not anticipated to increase
materially brokerage commissions paid by the Fund -- see "The Investment
Manager") and Transfer Agent and reimbursable to the Investment Manager and
the Distributor for certain administrative and shareholder services, and
does not include interest expense from the Fund's bank borrowing.
Financial Highlights are presented below for a share of capital stock
outstanding throughout each year for the past ten years. The following
information is supplemental to the Fund's financial statements and report
thereon of Tait, Weller & Baker, independent accountants, appearing in the
December 31, 1994 Annual Report to Shareholders and incorporated by
reference in the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
PER SHARE DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $17.63 $17.06 $17.27 $16.91 $17.29 $17.44 $16.74 $18.17 $16.88 $15.04
Income from investment operations:
Net investment income .68 .75 .89 1.02 1.01 1.11 1.22 1.26 1.32 1.39
Net realized and unrealized gain (2.38) 1.02 .11 1.23 (.38) .40 .67 (1.43) 1.86 1.84
Total from investment operations (1.70) 1.77 1.00 2.25 .63 1.51 1.89 (.17) 3.18 3.23
Less distributions:
Distributions from net investment (.68) (.75) (.89) (1.03)(1.01) (1.14) (1.19) (1.26) (1.31) (1.39)
Distributions from net realized gains --- (.45) (.32) (.86) --- (.52) --- --- (.58) ---
Total distributions (.68) (1.20)(1.21) (1.89)(1.01) (1.66) (1.19) (1.26) (1.89) (1.39)
Net asset value at end of period $15.25 $17.63$17.06 $17.27$16.91 $17.29 $17.44 $16.74 $18.17 $16.88
TOTAL RETURN (9.76) 10.59% 6.04% 13.69% 3.88% 8.93% 11.63% (.91%) 19.63% 22.45%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's $15,92 $21,34$20,78 $20,45$20,56 $20,48 $19,24 $16,14 $21,77$11,011
Ratio of expenses to average net as- 1.60% 1.61% 1.60% 1.60% 1.50% 1.35% 1.27%1.18% 1.18% 1.02%
Ratio of net investment income to 4.23% 4.25% 5.19% 5.86% 5.94% 6.35% 7.11%7.18% 7.29% 8.70%
Portfolio turnover rate 275% 74% 320% 511% 172% 188% 70% 62% 60% 46%
</TABLE>
__________________________________
(a) Ratio prior to reimbursement by the Investment Manager was 1.71%,
1.62%, 1.62%, 1.63%, 1.86%, and 1.76% respectively, for 1994, 1993,
1991, 1990, 1989, and 1988.
(b) Ratio prior to reimbursement by the Investment Manager was 4.12%,
4.24%, 5.84%, 5.81%, 5.84%, and 6.62% respectively, for 1994, 1993,
1991, 1990, 1989, and 1988.
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
December 31 of Period During the Period During the Period During the Period
<C> <C> <C> <C> <C>
1994 $0 $113,655 1,157,754 $0.10
1993 $0 $115,984 1,235,288 $0.09
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Transaction and Operating Expenses . . . . . . . 2 How to Redeem Shares . . . . . . . . . .10
Financial Highlights . . . . . . . . . . . . . . .2 Determination of Net Asset Value . . . .12
General . . . . . . . . . . . . . . . . . . . . . .3 The Investment Manager . . . . . . . . .12
The Fund's Investment Program . . . . . . . . . . .4 Distribution of Shares . . . . . . . . .12
Distributions and Taxes . . . . . . . . . . . . . .6 Performance Information . . . . . . . . .13
Tax-Free versus Taxable Yields . . . . . . . . . .7 Capital Stock . . . . . . . . . . . . . .14
How to Purchase Shares . . . . . . . . . . . . . .7 Custodian and Transfer Agent . . . . . .14
Shareholder Services . . . . . . . . . . . . . . .9
</TABLE>
GENERAL
Purposes of the Fund. The Fund is for investors seeking the highest
possible income exempt from Federal income tax, but who are concerned with
preservation of principal. By investing in the Fund, you may seek these
benefits, plus diversification, liquidity, and professional management,
without having to become involved with the detailed accounting and
safekeeping procedures normally associated with direct investment in
municipal securities. The Fund is not intended for investors who wish to
speculate on short term swings in the municipal bond market, or for tax-
advantaged retirement plans or tax-exempt entities. The Fund's yield and
net asset value will fluctuate with interest rates and the market value of
its portfolio securities.
Check Writing Privilege for Easy Access. Upon your request, you may write
checks on your account for $250 or more. The checks may be made payable to
anyone you wish, and there is no limit on the number of checks you may
write.
Certain Economies of Size. Purchases or sales of municipal securities often
entail disproportionately large costs on small transactions. Due to the
size and volume of its transactions, the Fund, as compared with most
individuals investing for their own accounts, generally is able to execute
transactions to produce better net prices, thus effecting important
savings.
Taxation of Dividends. Income dividends you receive from the Fund are
generally derived from interest on municipal securities, the income from
which is exempt from Federal income tax, though possibly an item of tax
preference ("ITP") for purposes of the Federal alternative minimum tax
("AMT"). The Fund's income is thus Federally tax-free to you if you are not
subject to AMT. The Fund's dividends may be subject to state and local
taxes. Dividends paid from taxable investments and capital gain
distributions, if any, will be subject to Federal income tax and may also
be subject to state and local taxes.
Monthly Dividends and Other Distributions. The Fund declares dividends from
net investment income daily and distributes such dividends to shareholders
monthly. The Fund may also realize net capital gains from the sale of
securities, and it distributes any such gains to shareholders annually.
Dividends and other distributions are reinvested in additional shares of
the Fund or, at your option, paid in cash.
Yield Information. Please call 1-800-847-4200 or 1-212-363-1100 to obtain
the Fund's yield.
Portfolio Management. The Fund's Portfolio Manager is Steven A. Landis.
Mr. Landis is Senior Vice President and a member of the Investment Policy
Committee of Bull & Bear Advisers, Inc. (the "Investment Manager") with
overall responsibility for the Bull & Bear fixed income funds. Mr. Landis
was formerly Associate Director -- Proprietary Trading at Barclays De Zoete
Wedd Securities Inc. and Director, Bond Arbitrage at WG Trading Company.
Mr. Landis received his MBA in Finance from Columbia University.
THE FUND'S INVESTMENT PROGRAM
The Fund seeks to obtain for its shareholders the highest possible
income exempt from Federal income tax that is consistent with preservation
of principal. The Fund seeks to achieve this objective by investing
principally in a diversified portfolio of municipal bonds rated at the time
of purchase within the four highest grades assigned by Fitch Investors
Service, Inc. ("Fitch") (AAA, AA, A and BBB), Moody's Investors Service,
Inc. ("Moody's") (Aaa, Aa, A, and Baa), or Standard & Poor's Ratings Group
("Standard & Poor's") (AAA, AA, A and BBB) or, if unrated, determined by
the Investment Manager to be of comparable quality. Municipal bonds rated
Baa or BBB are medium grade securities and 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 municipal securities. The Fund may also invest
in municipal notes rated at the time of purchase within the three highest
grades assigned by Moody's (MIG1/VMIG1, MIG2/VMIG2, and MIG3/VMIG3), Fitch
(F-1+, F-1, and F-2) or Standard & Poor's (SP1+, SP1, and SP2), tax-free
commercial paper rated at the time of purchase within the two highest
grades assigned by Moody's (P-1 and P-2) or the top three grades assigned
by Fitch (F-1+, F-1, and F-2) or Standard & Poor's (A-1+, A-1, and A-2) and
unrated municipal notes and tax-free commercial paper determined by the
Investment Manager to be of comparable quality. Descriptions of Fitch's,
Moody's and Standard & Poor's ratings appear in the Appendix to the
Statement of Additional Information. The Fund may not invest more than 20%
of its total assets in unrated securities unless such securities are
secured by the full faith and credit of the U.S. Government.
The Fund's portfolio will consist of long, short, and intermediate term
municipal securities. The proportion invested in each category is expected
to vary within wide limits depending upon the Investment Manager's
evaluation of anticipated market conditions. The dollar-weighted average
maturity of the Fund's portfolio is expected to normally range from five to
more than 25 years. As a matter of fundamental investment policy, which may
not be changed without shareholder approval, at least 80% of the Fund's
income during any fiscal year will be exempt from Federal income tax. Also,
as a matter of fundamental policy, the Fund will not purchase any security
if, as a result, less than 80% of the Fund's total assets (exclusive of
cash) would be invested in securities the income from which is exempt from
Federal income tax, except that the Fund may temporarily invest more than
20% of its total assets in taxable obligations during periods of abnormal
market conditions. While at least 80% of the income from the Fund's
investments will normally be exempt from Federal income tax, such income
may nevertheless be subject to the AMT. Because the objective of the Fund
is to provide income exempt from Federal income tax, the Fund will invest
<PAGE>
in taxable obligations only when the Investment Manager believes it would
be in the best interest of shareholders.
Municipal Securities. Municipal securities include obligations issued by or
on behalf of states, territories, and possessions of the United States and
the District of Columbia, and their political subdivisions, agencies, and
instrumentalities, the interest on which is generally exempt from Federal
income tax, though possibly an ITP for purposes of the AMT. The Fund's
portfolio may consist of any combination of general obligation bonds,
revenue bonds, industrial development bonds ("IDBs") and private activity
bonds ("PABs"). The percentage of such bonds in the Fund's portfolio will
vary. The Fund will not, however, invest more than 25% of its total assets
in municipal securities issued by agencies of the same state or issued to
finance a particular project. While the Fund may invest up to 50% of its
assets in IDBs, the Fund will not invest more than 25% of its assets in
IDBs whose nongovernmental users are in any one industry.
General obligation bonds are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities financed by the bonds to meet its financial
obligations and secured by the pledge, if any, of real and personal
property so financed. IDBs and PABs are issued by or on behalf of public
authorities to finance various privately operated facilities, such as
airport or pollution control facilities. PABs generally are such bonds
issued after August 15, 1986. These obligations are included within the
term "municipal bonds" if the interest paid thereon is exempt from Federal
income tax in the opinion of the bond issuer's counsel. IDBs and PABs are
in most cases revenue bonds and thus are not payable from the unrestricted
revenues of the issuer. The credit quality of IDBs and PABs is usually
directly related to the credit standing of the user of the facilities being
financed.
Risk Considerations. The Fund may not be suitable or appropriate for all
investors. While the Fund seeks to reduce risk by investing in a
diversified portfolio, such diversification does not eliminate risk. There
is no assurance that the Fund will achieve its investment objective. Yields
on municipal securities are dependent on a variety of factors, including
the general conditions of the municipal and fixed income security markets,
the financial condition of the issuer, the size of a particular offering,
the maturity of the obligation, the credit quality and rating of the issue,
and expectations regarding changes in tax rates. Municipal securities with
longer maturities tend to produce higher rates of interest paid and are
generally subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and lower interest
rates. An increase in interest rates will generally reduce the value of
portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. The Fund's ability to achieve
its investment objective depends also on the continuing ability of the
issuers of municipal securities in which the Fund invests to meet their
obligations to pay interest and principal due. Municipal securities have
also traditionally not been subject to regulation by or registration with
the SEC.
Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the U.S. Bankruptcy Code. In addition,
the obligations of such issuers may become subject to laws enacted in the
<PAGE>
future by Congress, state legislators, or referendum extending the time for
payment of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes.
Litigation, if any, or other conditions may also materially affect an
issuer's ability to pay when due the principal of and interest on its
municipal securities.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements on up to 25% of its assets. In a reverse repurchase agreement,
the Fund sells a security (known as the "underlying security") to a
well-established securities dealer or a bank which is a member of the
Federal Reserve System and agrees to repurchase it at an agreed-upon date
and price reflecting a market rate of interest. Reverse repurchase
agreements are considered borrowings. Such borrowing is referred to as
leverage, is speculative, and increases both investment opportunity and
investment risk. Such agreements are subject to the risk that the value of
the security purchased with the proceeds of the sale by the Fund will be
less than the Fund's obligation to repurchase the underlying security. The
Board of Directors believes, however, that this is a sufficiently
attractive investment strategy to justify its use in seeking a high level
of current income for shareholders. The Fund will maintain a segregated
account with its custodian or subcustodian consisting of cash, U.S.
Government securities or other liquid, high grade debt securities with a
market value at least equal to its commitment to repurchase securities in
reverse repurchase agreements. The Investment Company Act of 1940 ("1940
Act") currently permits a mutual fund to borrow from a bank, provided that
the fund maintain asset coverage for all borrowings of at least 300%, and
should such asset coverage at any time fall below 300%, the fund reduce its
borrowings within three days (excluding Sundays and holidays) to the extent
necessary so such asset coverage be at least 300%. To reduce its borrowing
the Fund might be required to sell securities at a disadvantageous time.
Interest on money borrowed is an expense of the Fund which it would not
otherwise incur, and it may have little or no investment income during
periods when its borrowings are substantial.
When-Issued Securities. The Fund may purchase securities on a "when-issued"
basis. In such transactions the commitment to make delivery or payment is
contingent upon the issuance of the purchased securities at a future date.
Although the Fund will enter into when-issued transactions with the
intention of accepting delivery of and paying for the securities, the Fund
may terminate the commitment prior thereto for investment reasons, which
may result in a gain or loss. When-issued transactions involve a risk that
yields available on the delivery date may be higher than those received on
the commitment date. When the Fund agrees to purchase securities on a when-
issued basis, its custodian will set aside in a segregated account cash,
U.S. Government securities or other liquid, high grade debt securities with
a market value at least equal to the amount of the commitment. If
necessary, assets will be added to the account daily so that the value of
the account will not be less than the amount of the Fund's commitment. If
the issuer fails to deliver the security, the Fund may incur a loss or
miss an opportunity to make an alternative investment.
Other Information. Although the Fund's policy is to invest for the long
term, its portfolio turnover rate will vary from year to year depending on
market conditions. For the fiscal years ended December 31, 1994 and
December 31, 1993, the Fund's portfolio turnover rate was 275% and 74%,
<PAGE>
respectively. The rate was lower in 1993 due to less realization of gains
and repositioning of the Fund's portfolio in light of a comparatively less
volatile interest rate environment. Higher turnover may result in
increased transaction costs and an increase in taxable income from realized
gains. When the Investment Manager deems it advisable, the Fund may for
temporary defensive or emergency purposes, such as when interest rates are
rising sharply, hold cash or invest all or a portion of its assets in
taxable money market instruments, including obligations of the U.S.
Government, its agencies or instrumentalities; certificates of deposit,
bankers' acceptances, and other short term debt obligations of U.S. banks
with total domestic assets of at least $1,000,000,000; and commercial paper
rated F-2 or better by Fitch, P-2 or better by Moody's or A-2 or better by
Standard & Poor's. The Fund's investment objective is fundamental and may
not be changed without shareholder approval. The Fund is also subject to
fundamental investment restrictions, set forth in the Statement of
Additional Information, that may not be changed without shareholder
approval. These investment restrictions, among other things, permit the
Fund, in addition to the reverse repurchase agreements described above, to
borrow money from banks for temporary purposes in an amount not exceeding
10% of its assets. Unless otherwise noted, all other investment policies
may be changed by the Board of Directors without shareholder approval.
DISTRIBUTIONS AND TAXES
Distributions. Dividends from the Fund's net investment income are declared
daily and paid monthly. Distributions of substantially all of the Fund's
net realized capital gain, if any, after deducting any capital loss
carryovers, 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 but will be deemed to have been received by shareholders on
December 31 for Federal income tax purposes. The Fund may also make an
additional distribution following the end of its fiscal year out of
undistributed income and capital gain. You will be advised promptly after
each calendar year of the dollar amount and taxable status of the
distributions you received during the year.
Dividends and other distributions will be made in additional shares of
the Fund, unless you elect to receive cash on the Account Application or so
elect subsequently by calling Bull & Bear Service Center, 1-800-847-4200.
Any election will remain in effect until you notify Bull & Bear Service
Center to the contrary.
Taxes. The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of Federal income tax on that part of
its investment company taxable income (consisting generally of taxable net
investment income and any net short term capital gains) and net capital
gain, (the excess of net long term capital gain over net short term capital
loss), if any, that is distributed to shareholders. The Fund's
distributions of net interest earned on tax-exempt securities, designated
by the Fund as "exempt-interest dividends," are not subject to Federal
income tax. In order to pay exempt-interest dividends, the Fund must (and
intends to continue to) satisfy the requirement that at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of tax-exempt securities. Dividends from interest earned on
taxable securities and any net short term capital gains are taxable as
ordinary income whether received in cash or additional shares.
Distributions of the Fund's net capital gains, if any, when designated as
such, are taxable to shareholders as long term capital gains, whether
<PAGE>
received in cash or additional shares and regardless of the length of time
the Fund's shares are owned. Interest on indebtedness to purchase or carry
Fund shares is not deductible for Federal income tax purposes to the extent
the Fund's distributions consist of exempt-interest dividends. Tax-exempt
interest attributable to certain PABs (including, in the case of a RIC
receiving interest on such bonds, a proportionate part of the exempt-
interest dividends paid by that RIC) is an ITP for purposes of the AMT.
Exempt-interest dividends received by a corporate shareholder may be
subject to the AMT in any event. Fund dividends may be subject to taxes of
states and other taxing authorities. The foregoing is only a summary of
some of the important Federal tax considerations generally affecting the
Fund and its shareholders; see the Statement of Additional Information.
Because other Federal, state and local tax considerations may apply, you
should consult your tax adviser.
TAX-FREE VERSUS TAXABLE YIELDS
The table below illustrates, at 1994 Federal tax rates, the yield you
would have to obtain from taxable investments to equal tax-free yields
ranging from 5% to 8%. The stated maximum tax rate does not take into
account the phaseout of deductions for personal exemptions or the limit on
itemized deductions and does not reflect state and local income taxes.
<TABLE>
<CAPTION>
Tax Brackets Based on Filing To Equal a Federal Tax-Free Yield of
Status:
(Taxable Income)
<S> <C> <C> <C> <C> <C> <C>
Joint Single Marginal 5% 6% 7% 8%
Tax Rate A Taxable Investment Must Earn
$0-$38,000 $0-$22,750 15% 5.88% 7.06% 8.24% 9.41%
$38,001-$91,850 $22,751-$55,100 28% 6.94% 8.33% 9.72% 11.11%
$91,851-$140,000 $55,101-$115,000 31% 7.25% 8.70% 10.14% 11.59%
$140,001- $115,001- 36% 7.81% 9.38% 10.94% 12.50%
$250,000 $250,000
Over $250,000 Over $250,000 39.6% 8.28% 9.93% 11.59% 13.25%
</TABLE>
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 an order by Bull
& Bear Service Center (see "Determination of Net Asset Value"). The minimum
initial investment is $1,000. The minimum subsequent investment is $100.
The $1,000 minimum initial investment is waived if you elect to invest $100
or more each month in the Fund through the Bull & Bear Automatic Investment
Program.
Bull & Bear Automatic Investment Program. By participating in the Bull &
Bear Automatic Investment Program, you can establish a convenient and
affordable long term investment program. Under the Program, investments of
<PAGE>
$100 or more are transferred electronically each month into your Fund
account.
The Bull & Bear Bank Transfer Plan lets you automatically purchase Fund
shares each month by transferring a specified dollar amount from your
regular checking account, NOW account, or bank money market deposit
account.
Through the Bull & Bear Salary Investing Plan, part or all of your
salary may be invested electronically in shares of the Fund at each pay
period, depending upon the direct deposit program of your employer.
The Bull & Bear Government Direct Deposit Plan allows you to deposit
automatically part or all of certain U.S. Government checks in your Fund
account. Eligible U.S. Government checks include payments for Social
Security, pension benefits, military or retirement benefits, salary,
veteran's benefits and most other recurring payments.
For more information concerning this Program, or to request the
necessary authorization form(s), please call Bull & Bear Service Center, 1-
800-847-4200. You may terminate participation in the Program at any time by
written notice received at least 10 days prior to the scheduled investment
date. 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
Plans do not assure a profit or protect against loss in a declining market.
Initial Investment. The Account Application that accompanies this
Prospectus should be completed, signed and, with a check or other
negotiable bank draft payable to Municipal Income Fund, mailed to Bull &
Bear Service Center, P.O. Box 419789, Kansas City, MO 64141-6789. Initial
investments also may be made by having your bank wire money, as set forth
below, in order to avoid mail delays.
Subsequent Investments. Subsequent investments may be made at any time by
wiring money as set forth below, or by mailing a check or other negotiable
bank draft ($100 minimum), made payable to Municipal Income Fund, together
with a Bull & Bear FastDeposit form to Bull & Bear Service Center, P.O. Box
419789, Kansas City, MO 64141-6789. If that form is not used, a letter
should indicate the Fund and account number to which the subsequent
investment is to be credited, and name(s) of the registered owner(s).
Investment by Telephone. You may purchase additional shares of the Fund by
telephone through the Automated Clearing House (ACH) system as long as your
bank is a member of the ACH system and you have a completed, approved
authorization on file. The funding for the purchase will be automatically
deducted from the bank account designated on your authorization. For
requests received by 3:00 p.m., eastern time, the investment will normally
be credited to your Fund account on the next business day of the Fund.
There is a minimum of $100 for each investment by telephone. Any subsequent
changes in bank information must be submitted in writing and accompanied by
a sample voided check or deposit slip. To initiate an investment by
telephone, please call 1-800-847-4200.
Investing by Wire. For an initial investment by wire, you must first
telephone Bull & Bear Service Center, 1-800-847-4200, to give the name(s)
under which the account is to be registered, tax identification number, the
name of the bank sending the wire, and to be assigned a Bull & Bear
Municipal Income Fund account number. You may then purchase shares by
requesting your bank to transmit immediately available funds ("Federal
<PAGE>
funds") by wire to the Transfer Agent at: United Missouri Bank NA, ABA #10-
10-00695; for Account 98-7052-724-3 Municipal Income Fund. Your account
number and name(s) must be specified in the wire as they are to appear on
the account registration. You should then enter your account number on your
completed Account Application and promptly forward it to Bull & Bear
Service Center, P.O. Box 419789, Kansas City, MO 64141-6789. After your
first purchase of shares by wire, you may make additional wire purchases
without having to call Bull & Bear 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 paid in additional shares. Stock certificates
will be issued only for full shares when requested in writing. In order to
facilitate redemptions and transfers, we recommend that you not request
certificates. You will receive quarterly statements showing monthly
dividends and confirmation statements upon purchase or sale of shares.
When Orders are Effective. The purchase price for Fund shares is the net
asset value of such shares next determined after receipt and acceptance by
Bull & Bear Service Center of a purchase order in proper form. All checks
are accepted subject to collection at full face value in Federal funds and
must be drawn in U.S. dollars on a U.S. bank. The Fund reserves the right
to reject any order. Accounts are charged $30 by the Transfer Agent for
submitting checks for investment which are not honored by the investor's
bank. The Fund may in its discretion waive or lower the investment
minimums.
SHAREHOLDER SERVICES
You may terminate or modify your participation in any of the Fund's
special plans or services at any time. Additional information regarding any
of the following services is available from the Fund's Distributor, Bull &
Bear Service Center, 1-800-847-4200.
Check Writing Privilege for Easy Access. Upon request, you can receive
personalized checks drawn against your Fund account through UMB Bank that
may be made payable to anyone's order in any amount of $250 or more. The
Bank has the right to refuse any checks which do not conform with its
requirements. You will be subject to the Bank's rules and regulations
governing checking accounts, including a $20 charge for refused checks,
which may change without notice. When such a check is presented for
payment, the Transfer Agent, as your agent, will cause the Fund to redeem a
sufficient number of full and fractional shares in your account to cover
the amount of the check. This Check Writing Privilege enables you to
continue receiving dividends on shares redeemed by check until such time as
the check is presented to the Transfer Agent for payment. The Fund may not
honor for up to 10 days a check written by a shareholder that requires
shares recently purchased by check to be redeemed or until it is reasonably
assured of payment of the check representing the purchase. Since the value
of an account changes daily, you should not attempt to close an account by
writing a check.
Dividend Sweep Privilege. You may elect to have invested automatically
either all dividends, or all dividends and any capital gain distributions
paid by the Fund in any other Bull & Bear Fund. Shares of the other Bull &
Bear Fund will be purchased at the current net asset value calculated on
<PAGE>
the payment date. For more information concerning this Privilege and the
other Bull & Bear Funds, or to request a Dividend Sweep Authorization Form,
please call Bull & Bear Service Center, 1-800-847-4200. You may cancel this
Privilege by mailing written notification to Bull & Bear Service Center,
P.O. Box 419789, Kansas City, MO 64141-6789. To select a new Fund after
cancellation, you must submit a new Authorization Form. Enrollment in or
cancellation of this Privilege is generally effective three business days
following receipt. This Privilege is available only for existing accounts
and may not be used to open new accounts. The Fund may modify or terminate
this Privilege at any time or charge a service fee. No such fee currently
is contemplated.
Systematic Withdrawal Plan. If you own Fund shares with a value of at least
$20,000 you may elect an automatic withdrawal of cash in fixed or variable
amounts from your Fund account at monthly or quarterly intervals in a
minimum amount of $100. Under the Systematic Withdrawal Plan all dividends
and distributions, if any, are reinvested in the Fund.
Assignment. Shares of the Fund may be transferred to another owner.
Instructions are available from Bull & Bear Service Center, 1-800-847-4200.
Exchange Privileges. You may exchange your investment by exchanging at
least $500 worth of shares of the Fund for shares of any other Bull & Bear
Fund (provided the registration is exactly the same, the shares may be sold
in your state of residence, and the exchange may otherwise legally be
made). Information, including a free prospectus, on any of the Funds listed
below is available from Bull & Bear Service Center, 11 Hanover Square, New
York, NY 10005, 1-800-847-4200. The other Fund's prospectus should be read
in advance.
To exchange shares, call Bull & Bear Service Center toll-free at 1-800-
847-4200 and provide the following information: account registration
including address and number; taxpayer identification number; percentage,
number, or dollar value of shares to be redeemed; name and, if different,
the account number of the Bull & Bear Fund to be purchased; and your
identity and telephone number. The other Bull & Bear Funds are:
Bull & Bear Dollar Reserves is a high quality money market fund
investing in U.S. Government securities. Income is free from state
income taxes. Free unlimited check writing ($250 minimum per check).
Pays monthly dividends.
Bull & Bear U.S. Government Securities Fund invests for a high level of
current income, liquidity, and safety of principal. Free unlimited check
writing ($250 minimum per check). Pays monthly dividends.
Bull & Bear Global Income Fund seeks a high level of income from a
global portfolio of primarily investment grade fixed income securities.
Free unlimited check writing ($250 minimum per check). Pays monthly
dividends.
Bull & Bear Quality Growth Fund seeks growth of capital and income from
a portfolio of common stocks of large, quality companies with potential
for significant growth of earnings and dividends.
Bull & Bear U.S. and Overseas Fund invests worldwide for the highest
possible total return.
Bull & Bear Special Equities Fund invests aggressively for maximum
capital appreciation.
<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.
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 regular
trading on that business day. Exchange requests received between 4 p.m. and
5 p.m. eastern time, on any business day of the Fund will be effected at
the close of regular trading on the next business day of the Fund. If you
are unable to reach Bull & Bear Service Center at the above telephone
number you may, in emergencies, call 1-212-363-1100 or communicate by fax
1-212-363-1103 or cable to the address BULLNBEAR NEWYORK. Transfers may be
difficult or impossible to implement during periods of rapid changes in
economic or market conditions. Transfer privileges may be terminated or
modified by the Fund upon 60 days' notice. For tax purposes, transfers are
treated as a redemption and purchase of shares. You may give transfer
instructions to Bull & Bear Service Center by telephone without further
documentation. If you have requested share certificates, this procedure may
be utilized only if, prior to giving telephone instructions, you deliver
the certificates to the Transfer Agent for deposit into your account.
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 invest-
ment in any Bull & Bear Fund to pay for securities purchased in your
brokerage account, and use proceeds of securities sold in your brokerage
account to purchase shares of any Bull & Bear Fund. You may request a
Discount Brokerage Account Application from Bull & Bear Securities,
Inc., 1-800-262-5800.
HOW TO REDEEM SHARES
Liquidity. Generally, you may request that the Fund redeem your shares by
submitting a written request to Bull & Bear Service Center, P.O. Box
419789, Kansas City, MO 64141-6789, signed by the record owner(s). If a
written redemption 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. In addition, you may
redeem shares by writing checks against your Fund account and also expedite
redemption requests by telephoning as described below.
Redemption by Telephone. You may redeem shares by telephone and receive the
proceeds through the ACH system as long as your bank is a member of the ACH
system and you have a completed, approved authorization on file. The
proceeds of your redemption will be automatically deducted from your Fund
account. The proceeds will normally be credited to your bank account within
two business days following the telephone request. The request must be
received no later than 3:00 p.m., eastern time. There is a minimum of $250
for each redemption by telephone. Any subsequent changes in bank
information must be submitted in writing and accompanied by a sample voided
check or deposit slip. To initiate a redemption by telephone, please call
1-800-847-4200.
Check Writing Privilege. See "Shareholder Services" above for redemption of
shares by writing free, unlimited, personalized checks, provided by the
<PAGE>
Fund, in amounts of $250 or more.
Expedited Redemption. If you are redeeming at least $1,000 worth of shares
(for which certificates have not been issued) you may obtain expedited
redemption by calling Bull & Bear Service Center, 1-800-847-4200. You may
request that payment be sent to your bank designated on the authorization
by Federal funds wire (or if a check is requested, by regular mail) or to
your address of record by regular mail.
For expedited redemption, call Bull & Bear Service Center toll-free at
1-800-847-4200 between 9 a.m. and 5 p.m. eastern time, and provide the
following information: Fund account registration including address, account
number, and taxpayer identification number; number, percentage, or dollar
value of shares to be redeemed; whether the proceeds are to be mailed to
your address of record, or mailed or wired to your bank; the bank name,
address, ABA routing number, bank account registration and account number,
and a contact person's name and telephone number; and your identity and
telephone number. If you are unable to reach Bull & Bear Service Center at
the above telephone number you may, in emergencies, call 1-212-363-1100 or
communicate by fax 1-212-363-1103 or cable to the address BULLNBEAR
NEWYORK. Expedited redemptions may be difficult or impossible to implement
during periods of rapid changes in economic or market conditions. Expedited
redemption privileges may be terminated or modified by the Fund upon 60
days' notice.
Redemption Price. The redemption price is the net asset value per share
next determined after receipt of the redemption request in proper form.
Registered broker/dealers, investment advisers, banks, and insurance
companies may open accounts and redeem shares by telephone or wire and may
impose a charge for handling purchases and redemptions when acting on
behalf of others. Payment for shares redeemed will be made as soon as
possible, ordinarily within 7 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 7 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 is generally subject to a 10 day delay to allow the
check to clear. The 10 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. Fund check writing redemption checks received during the 10 day
clearing period will be rejected and marked "uncollected." The clearing
period does not apply to purchases made by wire, the Bull & Bear Automatic
Investment Program, or cashier's, treasurer's, or certified checks. Due to
the relatively higher cost of maintaining small accounts, the Fund reserves
the right, upon 60 days' notice, to redeem any account 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 an expedited redemption or transfer, unless
declined on the Account Application or otherwise in writing. Neither the
<PAGE>
Fund nor Bull & Bear Service Center shall be liable for any loss or damage
for acting in good faith upon instructions received by telephone and
believed to be genuine. The Fund employs reasonable procedures to confirm
that instructions communicated by telephone are genuine, including
requiring some form of personal identification prior to acting upon
instructions received by telephone, providing written confirmation of such
transactions, or tape recording of telephone instructions. The Fund may
modify or terminate any telephone privilege or shareholder service (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 proceeds of the redemp-
tion 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 documenta-
tion. The Transfer Agent may restrict the mailing of redemption proceeds to
your address of record within 30 days of such address being changed unless
you provide a signature guarantee as described above.
DETERMINATION OF NET ASSET VALUE
The value of a share of the Fund is based on the value of its net
assets. The Fund's net assets are the total of the Fund's investments and
all other assets minus any liabilities. The value of one share is
determined by dividing the net assets by the total number of shares
outstanding. This is referred to as "net asset value per share," and is
determined as of the close of regular trading on the New York Stock
Exchange (currently, 4 p.m. eastern time, unless weather, equipment failure
or other factors contribute to an earlier closing) each business day of the
Fund. A business day of the Fund is any day on which the New York Stock
Exchange is open for business. The following are not business days of the
Fund: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities and other assets of the Fund are valued primarily
on the basis of market quotations, if available. Because market quotations
are often unavailable, assets are usually valued by a method that the Board
of Directors believes accurately reflects fair value.
THE INVESTMENT MANAGER
Bull & Bear Advisers, Inc. (the "Investment Manager") acts as general
manager of the Fund and is responsible for various functions assumed by it
including regularly furnishing advice with respect to portfolio transac-
tions. The Investment Manager manages the investment and reinvestment of
the assets of the Fund, subject to the control and final direction of the
Board of Directors. The Investment Manager may allocate brokerage
transactions by taking into account the sales of shares of the Fund and the
other Bull & Bear Funds. The Investment Manager may also allocate
portfolio transactions to broker/dealers that remit a portion of their
commissions as a credit against the Fund's charges.
For its services, the Investment Manager receives a management fee,
payable monthly, based on the average daily net assets of the Fund, at the
<PAGE>
annual rate of .60% on the first $500 million and .50% over $500 million.
From time to time, the Investment Manager may waive all or part of this fee
or reimburse the Fund monthly to improve the Fund's yield and total return.
The Investment Manager provides certain administrative services at cost to
the Fund. During the fiscal year ended December 31, 1994, the management
fees paid by the Fund were .60% of average daily net assets.
The Investment Manager is a wholly-owned subsidiary of Bull & Bear
Group, Inc. ("Group"). Group, a publicly-owned company whose securities are
listed on NASDAQ and traded in the over-the-counter market, is a New York-
based manager of mutual funds and discount brokerage services. Bassett S.
Winmill may be deemed a controlling person of Group and, therefore, may be
deemed a controlling person of the Investment Manager.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, the Fund has appointed Bull & Bear
Service Center, Inc. as Distributor to act as its principal agent for the
sale of its shares. The Fund has also adopted a plan of distribution (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Pursuant to the Plan,
the Fund may reimburse the Distributor for expenditures incurred in
connection with the Distributor's service activities in an amount up to
one-quarter of one percent per annum of the Fund's average daily net assets
and for expenditures incurred in connection with the Distributor's
distribution activities in an amount up to one-quarter of one percent per
annum of the Fund's average daily net assets. From time to time, the
Distributor may limit all or a portion of this reimbursement to improve the
Fund's yield and total return. Such expenditures may include advertising,
direct mail and promotional expenses; fulfillment expenses including the
cost of printing and mailing prospectuses and sales literature to
prospective investors; payments to third parties who sell shares of the
Fund; reimbursement of and compensation to brokers, dealers, banks, and
other intermediaries for administrative and accounting services; and
telephone, office expenses, salaries, which may include persons who are
officers or employees of the Distributor and the Investment Manager, their
affiliates, or of the Fund, and any other costs of effectuating the Plan.
In addition, the Distributor and the Investment Manager may make similar
payments from their own resources.
Certain advertising and sales materials may be prepared which relate
only to the promotion of the sale of the Fund's shares, although they may
mention the other Bull & Bear Funds (e.g., with reference to the transfer
privilege among the Bull & Bear Funds) or the discount brokerage services
offered by Bull & Bear Securities, Inc. as an additional service offered to
Fund shareholders and others. The cost of such materials will be borne by
the Fund. Certain other advertising and sales materials may be prepared
which relate to the promotion of the sale of shares of the Fund and one or
more other Bull & Bear Funds. In such cases, the expenses will be allocated
among the Funds involved based on the inquiries resulting from the
materials or other factors deemed appropriate by the Board of Directors.
The costs of personnel and facilities of the Distributor to respond to
inquiries by shareholders and prospective shareholders will also be
allocated based on such relative inquiries or other factors. There is no
certainty that the allocation of any of the foregoing expenses will
precisely allocate to the Fund costs commensurate with the benefits it
receives, and it may be that the other Funds and Bull & Bear Securities,
Inc. will benefit therefrom.
<PAGE>
From time to time, the Distributor may have incurred expenses in
distributing shares of the Fund in excess of the amounts currently
reimbursed by the Fund pursuant to the Plan, which expenses may be
reimbursed in the future. At December 31, 1994, approximately $428,500 in
distribution expenses had been incurred which had not yet been reimbursed
to the Distributor by the Fund which may be reimbursed in the future. Such
amount is equal to approximately 2.7% of the Fund's net assets as of
December 31, 1994. Because there is no requirement under the Plan that the
Distributor be reimbursed for all its expenses or any requirement that the
Plan be continued from year to year, such amount is not treated as a
liability of the Fund. The Fund is not charged interest or financing
charges for unreimbursed or carried over amounts. If the Plan is terminated
for any reason other than adoption of a new plan, the Fund will not
reimburse the Distributor for any expenses incurred in excess of the amount
accrued by the Fund under the Plan prior to the effective date of such
termination.
The Fund treats as an expense all amounts accrued under the Plan during
a year whether or not paid to reimburse the Distributor during the same
year so that such accruals will be available to reimburse the Distributor
for expenditures in subsequent periods. Expenditures in excess of amounts
paid by the Fund during a year are not charged as an expense for such year
but are charged in subsequent years as and if accrued and paid by the Fund.
Therefore, if you purchase shares after the expenses have been incurred you
will nevertheless contribute to payment thereof to the extent there remain
carryover expenses, while shareholders who held shares when the expenses
were incurred but redeem thereafter will not contribute to the
reimbursement of any carryover expenses outstanding at the date of
redemption. If amounts are accrued but not utilized before you redeem, you
will have contributed to distribution expenditures not actually incurred
while you were a shareholder.
PERFORMANCE INFORMATION
From time to time the Fund may advertise its current yield, its
compounded yield and a tax-equivalent yield. Current yield is computed by
dividing the Fund's net investment income per share for the most recent
month, determined in accordance with SEC rules and regulations, by the net
asset value per share on the last day of such month and annualizing the
result. Compounded yield is the annualized current yield which is compound-
ed by assuming the current income to be reinvested. Tax-equivalent yield is
the current yield you would have to obtain from taxable investments for
stated tax brackets to equal the Federal income tax-free current yield of
the Fund. The Fund may also publish a dividend distribution rate in sales
material from time to time. The dividend distribution rate of the Fund is
the current rate of distribution paid per share by the Fund during a
specified period divided by the net asset value per share at the end of
such period and annualizing the result. When considering the Fund's
performance, fluctuations in share value must be considered together with
any published dividend distribution rate. Whenever the Fund advertises its
current yield, compounded yield, tax-equivalent yield and its dividend
distribution rate, it will also advertise its "average annual total return"
or "average annual compound total return" over specified periods. For these
purposes, total return is based on an increase (or decrease) in a
hypothetical $1,000 invested in the Fund at the beginning of each of the
specified periods, assuming the reinvestment of any dividends and
distributions paid by the Fund during such periods. Advertisements may show
such total return as a percentage rate or as the value of a hypothetical
<PAGE>
investment at the end of the period. The Fund's performance may be compared
to the performance of broad groups of comparable mutual funds, or the
performance of unmanaged indexes of comparable securities. The Fund does
not impose any initial sales charge or redemption fee on the purchase or
redemption of its shares. The investment returns and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. All advertised yield or
total return figures are based upon historical performance information and
are not intended to indicate future performance. The Fund's annual report
to shareholders contains further information about the Fund's performance.
The annual report is available upon request and free of charge.
CAPITAL STOCK
The Fund is presently the only series of shares issued by Bull & Bear
Municipal Securities, Inc. (the "Company"), a diversified open-end
management investment company organized as a Maryland corporation in 1983.
The Company is authorized to issue up to 1 billion shares ($.01 par value),
of which 50 million shares have been designated Bull & Bear Tax-Free Income
Fund (doing business as Bull & Bear Municipal Income Fund). The Board of
Directors of the Company may establish one or more new series. The Fund's
stock is fully paid and non-assessable and is freely assignable by way of
pledge (for example, for collateral purposes), gift, settlement of an
estate, and also by an investor to another investor. In case of dissolution
or other liquidation of the Fund or the Company, shareholders will be
entitled to receive ratably per share the net assets of the Fund. Each
share entitles the holder to one vote for all purposes. Shares have no
preemptive or conversion rights.
In accordance with the General Corporation Law of the State of Maryland
applicable to open-end investment companies incorporated in Maryland and
registered under the 1940 Act, as is the Company, the Company's By-Laws
provide that there will be no annual meeting of shareholders in any year
except as required by law. 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 Company's shares may call a meeting at any time.
There will normally be no meetings of shareholders for the purpose of
electing Directors unless fewer than a majority of the Directors holding
office have been elected by shareholders. Shareholder meetings will be held
in years in which shareholder approval of the Fund's investment management
agreement, plan of distribution, or changes in its fundamental investment
objective, policies or restrictions is required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02109, 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 custodian also
performs certain accounting services for the Fund.
The Fund's transfer and dividend disbursing agent is Supervised Service
Company, P.O. Box 419789, Kansas City, MO 64141-6789. The Distributor
provides certain shareholder services to the Fund and is reimbursed its
<PAGE>
cost by the Fund. Such services include receiving and responding to
shareholder inquiries concerning their accounts and processing shareholder
telephone requests for transfers, purchases, redemptions, changes of
address and similar matters. The costs of facilities, personnel and other
related expenses are allocated among the Bull & Bear Funds based on the
relative number of inquiries and other factors deemed appropriate by the
Board of Directors.
<PAGE>
[Left Side of Back Cover Page]
MUNICIPAL
INCOME
FUND
11 Hanover Square
New York, NY 10005
1-800-847-4200 1-212-363-1100
Call toll-free for Fund performance information, purchases, exchanges among
the Bull & Bear Funds and to obtain information concerning your account.
1-800-847-4200 1-212-363-1100
Printed on recycled paper
[Right Side of Back Cover Page]
MUNICIPAL
INCOME
FUND
Investing for the Highest
Possible Income Exempt
from Federal Income Tax
that is Consistent with
Preservation of Principal
Monthly Dividends
Check Writing Privileges
No Exchange Charges
Minimum Initial Investment:
Regular Accounts: $1,000
Automatic Investment Programs: $100
Minimum Subsequent Investments: $100
Prospectus
April 15, 1995
BULL
& BEAR
Performance Driven
<PAGE>
Statement of Additional Information April 15, 1995
BULL & BEAR MUNICIPAL INCOME FUND
11 Hanover Square
New York, NY 10005
1-212-363-1100
1-800-847-4200
Bull & Bear Municipal Income Fund (the "Fund") is a diversified series
of Bull & Bear Municipal Securities, Inc. (the "Corporation"). This
Statement of Additional Information regarding the Fund is not a prospectus
and should be read in conjunction with the Fund's Prospectus dated April
15, 1995. The Prospectus is available to prospective investors without
charge upon request to Bull & Bear Service Center, 11 Hanover Square, New
York, NY 10005, 1-800-847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . 3
THE BULL & BEAR FUNDS . . . . . . . . . . . . . . . . . . . . . . . 4
OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 4
THE INVESTMENT MANAGER . . . . . . . . . . . . . . . . . . . . . . 8
INVESTMENT MANAGEMENT AGREEMENT . . . . . . . . . . . . . . . . . . 8
YIELD AND PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . 9
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . .15
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . .18
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . .18
ALLOCATION OF BROKERAGE . . . . . . . . . . . . . . . . . . . . . .18
DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . .20
REPORTS TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . .22
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . .22
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . .23
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
<PAGE>
THE FUND'S INVESTMENT PROGRAM
Repurchase Agreements. The Fund may enter into repurchase agreements with
U.S. banks or dealers involving securities in which the Fund is authorized
to invest. A repurchase agreement is an instrument under which the Fund
purchases securities from a bank or dealer and simultaneously commits to
resell the securities to the bank or dealer at an agreed upon date and
price. The Fund's custodian maintains custody of the underlying securities
until their repurchase; thus the obligation of the bank or dealer to pay
the repurchase price is, in effect, secured by such securities. The Fund's
risk is limited to the ability of the seller to pay the agreed upon amount
on the repurchase date; if the seller defaults, the security constitutes
collateral for the seller's obligation to pay. If, however, the seller
defaults and the value of the collateral declines, the Fund may incur loss
and expenses in selling the collateral. To attempt to limit the risk in
engaging in repurchase agreements, the Fund enters into repurchase
agreements only with banks and dealers believed by the Investment Manager
to present minimum credit risks in accordance with guidelines established
by the Board of Directors. The Fund will not enter into a repurchase
agreement with a maturity of more than seven days if, as a result, more
than 15% of its net assets would then be invested in such agreements and
other illiquid assets. The Fund currently intends to limit repurchase
agreements to less than 5% of its total net assets.
Borrowings. Subject to the 10% limit on borrowing (see item 13 in the
section below entitled "Investment Restrictions") the Fund may incur
overdrafts at its Custodian (see section below entitled "Custodian and
Transfer Agent") from time to time in connection with redemptions and/or
the purchase of portfolio securities. In lieu of paying interest to the
Custodian, the Fund may maintain cash balances prior or subsequent to
incurring such overdrafts. If aggregate cash balances exceed overdrafts,
the Custodian may credit the 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, 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. 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.
Credit Ratings. Fitch Investors Service, Inc. ("Fitch"), Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group, Inc. ("S&P")
are private services that provide ratings of the credit quality of debt
obligations, including issues of municipal securities. A description of
ratings assigned to municipal bonds, municipal notes and commercial paper
by Fitch, Moody's and S&P is included in the Appendix to this Statement of
Additional Information. The Investment Manager may refer to these ratings
in determining whether to purchase, sell or hold a security. It should be
emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, securities with the same maturity,
interest rate and rating may have different market prices. 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. Subsequent to its purchase by
the Fund, an issue of municipal securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Investment Manager will consider such an event in determining
whether the Fund should continue to hold the obligation.
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions have been adopted by the Fund and may not be
changed without the approval of the lesser of (a) 67% or more of the voting
securities of the Fund present at a meeting if the holders of more than 50%
of the outstanding voting securities of the Fund are present or represented
by proxy or (b) more than 50% of the outstanding voting securities of the
Fund. Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an
excess over the percentage occurs immediately after, and is caused by, an
acquisition of securities or assets of, or borrowing by, the Fund. The Fund
may not:
1. Purchase any security if, as a result, more than 5% of the value of the
Fund's total assets would be invested in the securities of a single
issuer, except securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities. For purposes of this
limitation and that set forth in (2) below, the Fund will regard the
entity which has the ultimate responsibility for the payment of interest
and principal as the issuer.
2. Purchase any security if, as a result, more than 10% of the outstanding
securities of any issuer would be held by the Fund, except securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities.
3. Purchase any security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities, or
to municipal securities, certificates of deposit, or banker's
acceptances.
4. Purchase any security if, as a result, more than 5% of the value of the
Fund's total assets would be invested in the securities of issuers which
at the time of purchase had been in operation for less than three years,
except obligations issued or guaranteed by the U.S. Government, or its
agencies, and municipal securities (for this purpose, the period of
operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer).
5. Purchase equity securities, or securities convertible into equity
securities.
6. Purchase securities with legal or contractual conditions on resale.
7. Purchase or sell real estate (although it may purchase municipal and
other debt securities secured by real estate or interests therein).
8. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization.
9. Purchase or sell commodities or commodity contracts.
10. Purchase participations or other direct interest in oil, gas, or
other mineral exploration or development programs.
11. Make short sales of securities or purchase securities on margin,
except for such short term credit as may be necessary for the
clearance of purchases of portfolio securities.
12. Make loans, although it may purchase issues of debt securities.
<PAGE>
13. Borrow money, except for temporary purposes and then only from
banks in amounts not exceeding 10% of the market value of its
assets, except that the Fund may enter into reverse repurchase
agreements on up to an additional 25% of its assets, provided in
either case that immediately thereafter there is an asset coverage
of at least 300%.
14. Mortgage, pledge, hypothecate or, in any other manner, transfer as
security for indebtedness any security owned by the Fund, except
as may be necessary in connection with permissible borrowings
mentioned in (13) above, in which event such mortgaging, pledging,
or hypothecating may not exceed 15% of the Fund's assets, valued
at market.
15. Underwrite any issue of securities, except to the extent that the
purchase of municipal securities, or other permitted investments,
directly from the issuer thereof and the later disposition of such
securities in accordance with the Fund's investment program may be
deemed to be an underwriting.
16. Invest in the securities of any issuer for the purpose of
exercising management or control.
17. Purchase or retain the securities of any issuer if, to the
knowledge of the Fund's management, any of the officers or
directors of the Fund, or its Investment Manager, owns
beneficially more than 1/2 of 1% of such issuer's securities,
together own beneficially more than 5% of such securities.
18. Invest in puts, calls, straddles, spreads, or any combination
thereof.
19. Issue any class of securities senior to any other class of
securities, except to the extent reverse repurchase agreements may
be deemed to involve the issuance of senior securities.
THE BULL & BEAR FUNDS
The Bull & Bear Funds are:
Bull & Bear Dollar Reserves
Bull & Bear U.S. Government Securities Fund
Bull & Bear Municipal Income Fund
Bull & Bear Global Income Fund
Bull & Bear Quality Growth Fund
Bull & Bear U.S. and Overseas Fund
Bull & Bear Special Equities Fund
Bull & Bear Gold Investors
OFFICERS AND DIRECTORS
The officers and Directors of the Corporation, their respective offices
and principal occupations during the last five years are set forth below.
Unless otherwise noted, the address of each is 11 Hanover Square, New York,
NY 10005.
BASSETT S. WINMILL* -- Chairman of the Board. He is Chairman of the Board
of the other four investment companies in the Bull & Bear Funds Complex
(the "Bull & Bear Funds Complex") and of the parent of the Investment
Manager, Bull & Bear Group, Inc. ("Group"). He was born February 10, 1930.
He is a member of the New York Society of Security Analysts, the
Association for Investment Management and Research and the International
Society of Financial Analysts. He is the father of Mark C. Winmill and
Thomas B. Winmill.
<PAGE>
ROBERT D. ANDERSON* -- Vice Chairman and Director. He is Vice Chairman
and a Director of the Bull & Bear Funds Complex and of the Investment Manager
and its affiliates. He was born December 7, 1929. He is a member of the
Board of Governors of the Mutual Fund Education Alliance, and of its
predecessor, the No-Load Mutual Fund Association. He has also been a member
of the District #12, District Business Conduct and Investment Companies
Committees of the NASD.
BRUCE B. HUBER, CLU -- Director. 298 Broad Street, Red Bank, NJ 07701. He
is President of Huber-Hogan Consulting, Inc. financial consultants and
insurance planners. He was born February 7, 1930. From 1988 to 1990, he was
Chairman of Bruce Huber Associates. From 1987 to 1988, he was Chairman of
Economic Benefits Corporation, and prior thereto President of Bruce Huber
Associates, Inc., a financial and insurance consulting firm specializing in
estate, corporate, and executive benefit planning. He is also a Director of
the Bull & Bear Funds Complex.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017.
He is a principal of Kenny, Kindler, Hunt & Howe, Inc., executive
recruiting consultants. He was born December 14, 1930. From 1976 until
1983 he was Vice President of Russell Reynolds Associates, Inc., also
executive recruiting consultants. He is also a Director of the Bull & Bear
Funds Complex.
FREDERICK A. PARKER, JR. -- Director. 219 East 69th Street, New York, NY
10021. He is President and Chief Executive Officer of American Pure Water
Corporation, a manufacturer of water purifying equipment. He was born
November 14, 1926. He is also a Director of the Bull & Bear Funds Complex.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC
27514. He was Executive Vice President and a Director of Dan River, Inc., a
diversified textile company, from 1969 until he retired in 1981. He was
born February 9, 1923. He is a Director of Wheelock, Inc., a manufacturer
of signal products, and a consultant for the National Executive Service
Corps in the health care industry. He is also a Director of the Bull & Bear
Funds Complex.
MARK C. WINMILL -- Co-President, Co-Chief Executive Officer, and Chief
Financial Officer. He is Co-President, Co-Chief Executive Officer, and
Chief Financial Officer of the Bull & Bear Funds Complex and of Group and
certain of its affiliates, Chairman of the Investment Manager and Bull &
Bear Service Center, Inc. (the "Distributor"), and President of Bull & Bear
Securities, Inc. ("BBSI"). He was born November 26, 1957. He received his
M.B.A. from the Fuqua School of Business at Duke University in 1987. From
1983 to 1985 he was Assistant Vice President and Director of Marketing of
E.P. Wilbur & Co., Inc., a real estate development and syndication firm and
Vice President of E.P.W. Securities, its broker/dealer subsidiary. He is a
son of Bassett S. Winmill and brother of Thomas B. Winmill. He is also a
Director of two of the other investment companies in the Bull & Bear Funds
Complex.
THOMAS B. WINMILL -- Co-President, Co-Chief Executive Officer, and General
Counsel. He is Co-President, Co-Chief Executive Officer, and General
Counsel of the Bull & Bear Funds Complex and of Group and certain of its
affiliates, President of the Investment Manager and the Distributor, and
Chairman of BBSI. He was born June 25, 1959. He was associated with the law
firm of Harris, Mericle & Orr from 1984 to 1987. He is a member of the New
York State Bar. He is a son of Bassett S. Winmill and brother of Mark C.
Winmill. He is also a Director of certain of the other Bull & Bear Funds.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of
the Bull & Bear Funds Complex, the Investment Manager and certain of its
affiliates. He was born March 1, 1955. From 1993 to 1995, he was Associate
Director -- Proprietary Trading at Barclays De Zoete Wedd Securities Inc.,
<PAGE>
from 1992 to 1993 he was Director, Bond Arbitrage at WG Trading Company,
and from 1989 to 1992 he was Vice President of Wilkinson Boyd Capital
Markets.
BRETT B. SNEED, CFA -- Senior Vice President. He is Senior Vice President
of the Bull & Bear Funds Complex, the Investment Manager and certain of its
affiliates. He was born June 11, 1941. He is a Chartered Financial Analyst,
a member of the Association for Investment Management and Research, and a
member of the New York Society of Security Analysts. From 1986 to 1988, he
managed private accounts, from 1981 to 1986, he was Vice President of
Morgan Stanley Asset Management, Inc. and prior thereto was a portfolio
manager and member of the Finance and Investment Committees of American
International Group, Inc., an insurance holding company.
WILLIAM K. DEAN, CPA -- Treasurer and Chief Accounting Officer. He is
Treasurer and Chief Accounting Officer of the Bull & Bear Funds Complex,
the Investment Manager and its affiliates. He was born September 5, 1955.
From 1984 to 1995 he held various positions with The Dreyfus Corporation, a
mutual fund company. He is a member of the American Institute of Certified
Public Accountants and the New York State Society of Certified Public
Accountants.
WILLIAM J. MAYNARD -- Vice President and Secretary. He is Vice President
and Secretary of the Bull & Bear Funds Complex, the Investment Manager and
its affiliates. He was born September 13, 1964. From 1991 to 1994 he was
associated with the law firm of Skadden, Arps, Slate, Meagher & Flom. He is
a member of the New York State Bar.
* Bassett S. Winmill and Robert D. Anderson are "interested persons"
of the Fund as defined by the 1940 Act, because of their positions with the
Investment Manager.
<PAGE>
Compensation Table
Name of Aggregate Pension or Estimated Total
Person, Compensa- Retirement Annual Compensa-tion
Position tion From Benefits Benefits Upon From
Registrant Accrued as Retirement Registrant
Part of Fund and Fund
Expenses Complex Paid
to Directors
Bassett S. None None None None
Winmill
Chairman
Robert D. None None None None
Anderson
Vice Chairman
Bruce B. $500 None None $10,000
Huber from 5 Funds
Director
James E. Hunt $500 None None $10,000 from
Director 5 Funds
Frederick A. $500 None None $11,000 from
Parker 6 Funds
Director
John B. $500 None None $10,000 from
Russell 5 Funds
Director
Mark C. None None None None
Winmill
Co-President
Thomas B. None None None None
Winmill
Co-President
Steven A. None None None None
Landis
Senior Vice
President
Brett B. None None None None
Sneed
Senior Vice
President
Information in the above table is based on fees paid during the year
ended December 31, 1994. Directors who are not "interested persons" of the
Corporation may elect to defer receipt of fees for serving as a Director of
the Corporation. During the year ended December 31, 1994, Messrs. Huber and
Hunt deferred such fees pursuant to this arrangement.
<PAGE>
No officer, Director or employee of the Fund's Investment Manager
receives any compensation from the Fund for acting as an officer, Director
or employee of the Fund. As of March 31, 1995, officers and Directors of
the Fund owned less than 1% of the outstanding shares of the Fund. As of
March 31, 1995, no owner of record owned more than 5% of the outstanding
shares of the Fund.
THE INVESTMENT MANAGER
The Fund's Investment Manager is Bull & Bear Advisers, Inc., 11 Hanover
Square, New York, NY 10005. The Investment Manager, a registered investment
adviser, is a wholly-owned subsidiary of Group. The other principal
subsidiaries of Group include Bull & Bear Service Center, Inc., the Fund's
Distributor and a registered broker/dealer, and Bull & Bear Securities,
Inc., a registered broker/dealer providing discount brokerage services.
Group is a publicly-owned company whose securities are listed on NASDAQ
and traded in the over-the-counter market. Bassett S. Winmill may be deemed
a controlling person, as that term is defined by the rules and regulations
of the 1940 Act, of Group and the Investment Manager on the basis of his
ownership of 100% of Group's voting stock. The Bull & Bear Funds, each of
which is managed by the Investment Manager, had net assets of approximately
$235 million as of April 5, 1995.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays all
expenses required for the conduct of its business including, but not
limited to, custodian and transfer agency fees, accounting and legal fees,
investment management fees, fees of disinterested Directors, association
fees, printing, salaries of certain administrative and clerical personnel,
necessary office space, all expenses relating to the registration or
qualification of the shares of the Fund under Blue Sky laws and reasonable
fees and expenses of counsel in connection with such registration and
qualification, miscellaneous expenses and such non-recurring expenses as
may arise, including actions, suits or proceedings affecting the Fund and
the legal obligation which the Company may have to indemnify its officers
and Directors with respect thereto. For the fiscal years ended December 31,
1992, 1993, and 1994 the Fund paid to the Investment Manager aggregate
investment management fees of $123,802, $133,084 and $112,479 respectively,
of which $0, $1,667 and $19,178, respectively, were waived by the
Investment Manager pursuant to the investment management fee waiver
described below.
The Investment Manager has agreed in the Investment Management Agreement
that it will guarantee that the operating expenses of the Fund (including
investment management fees but excluding taxes, interest, brokerage
commissions, expenses incurred pursuant to a distribution plan under Rule
12b-1 of the 1940 Act, and certain extraordinary expenses), expressed as a
percentage of average daily net assets, will not exceed for each fiscal
year the lowest rate prescribed by any state in which shares of the Fund
are qualified for sale. Currently such limitation is 2.5% of the first $30
million of the Fund's net assets, 2% of the next $70 million of such
assets, and 1.5% of such assets above $100 million. Currently, the
Investment Manager has voluntarily agreed to waive its management fee to
the extent, if any, that such expenses exceed an annual rate of 1.25% of
the average daily net assets of the Fund.
If requested by the Company'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
<PAGE>
Fund, subject to examination by those directors of the Fund who are not
interested persons of the Investment Manager or any affiliate thereof. For
such services, the Fund reimbursed the Investment Manager $6,622, $14,449
and $12,187 for the fiscal years ended December 31, 1992, 1993, and 1994,
respectively.
The Investment Management Agreement is not assignable and terminates
automatically in the event of its assignment. The Investment Management
Agreement may also be terminated without penalty on 60 days' written notice
at the option of either party thereto or by a vote of the Fund's
shareholders. The Investment Management Agreement provides that the
Investment Manager shall not be liable to the Fund or any shareholder of
the Fund for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with any investment policy or the
purchase, sale or retention of any security on the recommendation of the
Investment Manager. Nothing contained in the Investment Management
Agreement, however, shall be construed to protect the Investment Manager
against any liability to the Fund by reason of willful malfeasance, bad
faith, or gross negligence in the performance of its duties or by reason of
its reckless disregard of obligations and duties under the Investment
Management Agreement.
Group has granted the Fund a non-exclusive license to use the service
mark "Bull & Bear" under certain terms and conditions on a royalty free
basis. Such license may be withdrawn by Group 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.
YIELD AND PERFORMANCE INFORMATION
Advertised or published yield, distribution rate, average annual total
return, and total return figures are historical performance information and
are not intended to indicate future performance. The investment returns of
an investment will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Consequently,
quotations of yield, distribution rate, average annual total return, and
total return should not be considered as representative of what the Fund's
yield or total return will be in the future. Performance is a function of
the type and quality of portfolio securities and will reflect general
market conditions and operating expenses. This Statement of Additional
Information may be in use for a full year and performance results for
periods subsequent to December 31, 1994 may vary substantially from those
shown below. The Fund does not impose any redemption fee on the redemption
of its shares. In addition, there is no sales charge upon reinvestment of
dividends or other distributions. The Fund may quote its performance in
various ways. Total returns, yields, and other performance information may
be quoted numerically, or in a table, graph, or similar illustration.
Yield
Set forth below are the Fund's current yield and effective compounded
yield based on the Fund's investment income (determined in accordance with
Securities and Exchange Commission rules and regulations) for the period
ending on December 31, 1994 (and the tax-equivalent yield they represent
using the applicable tax rate of 39.6% for 1994) equivalent yield is
calculated by subtracting the maximum tax rate from 1 and dividing the
<PAGE>
current and compound 30 day yield by the result (1 - .396 = .604;
4.79%/.604 = 7.93%; 4.90%/.604 = 8.11%).
Yield Tax-Equivalent Yield
Current 4.79% 7.93%
Effective 4.90% 8.11%
Compounded
Yield is calculated as follows: Divide the net investment income per
share earned by the Fund during a 30-day (or one month) period by the net
asset value per share on the last day of the period and annualize the
result on a semi-annual basis by adding one to the quotient, raise the sum
to the power of six, subtract one from the result and then doubling the
difference. The Fund's net investment income per share earned during the
period is based on the average daily number of shares outstanding during
the period entitled to receive dividends and includes interest earned
during the period minus expenses accrued for the period, net of waivers.
This calculation can be expressed as follows:
Yield = [ (8 a-b/cd + 1)/6/ - 1]
Where: a = interest earned during the period.
b = expenses accrued for the period (net of waivers).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = net asset value per share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), interest earned on debt obligations
held by the Fund is calculated by computing the yield to maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and
dividing the result by 360 and multiplying the quotient by the market value
of the obligation (including actual accrued interest). For purposes of this
calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted from time
to time to reflect changes in the market value of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as
a dividend shortly thereafter.
Yield information is useful in reviewing the Fund's performance, but
may not provide a basis for comparison with bank deposits, which may be
insured, or other investments which provide a fixed yield, since an
investment in the Fund is not insured and yield and per share net asset
value, which normally will fluctuate daily, are not guaranteed. Yield for a
prior period should not be considered a representation of future return,
which will change in response to fluctuations in per share net asset value,
<PAGE>
interest rates on portfolio investments, the quality, type and maturity of
such investments, the Fund's expenses and by the investment of a net inflow
of new money at interest rates different than those being earned from the
Fund's then current holdings.
Total Return and Average Annual Total Return
Whenever the Fund advertises its yield, it will also advertise its
average annual total return (or "average annual compound total return")
over specified periods. The Fund computes its average annual total return
by determining the average annual compounded rate of return during
specified periods that compares the initial amount invested to the ending
redeemable value of such investment. This is done by dividing the ending
redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of
years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as
follows:
T= (ERV/P)1/n - 1
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period which
assumes all dividends and other distributions by
the Fund are reinvested on the reinvestment date
during the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Fund's average annual total return for the one and five year periods
ended March 31, 1995, and for the period March 7, 1984 (commencement of
operations) through March 31, 1995 was respectively 3.94%, 6.03%, and 8.81%
(3.86%, 5.99%, and 8.55% without the Investment Manager's fee waiver).
The Fund's "total return" or "cumulative total return" or "cumulative
growth" 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. For
the Fund, "total return" or "cumulative total return" or "cumulative
growth," expressed as a percentage rate and as the value of a hypothetical
$1,000 and $10,000 initial investment at the end of the period, for the
period commencing on the dates set forth and ending December 31, 1994, are
set forth below:
Start of Periods Average Total Ending Value Ending Value
Ending Dec. 31, Annual Return of a $1,000 of a $10,000
1994 Return Investment Investment
<PAGE>
March 7, 1984 8.36% 138.41% $2,384.14 $23,841.39
January 1, 1985 8.23% 120.57% $2,384.14 $23,841.39
January 1, 1986 6.76% 80.14% $1,801.41 $18,041.06
January 1, 1987 5.25% 50.61% $1,506.12 $15,061.21
January 1, 1988 6.16% 52.00% $1,519.97 $15,199.68
January 1, 1989 5.28% 36.17% $1,361.70 $13,617.03
January 1, 1990 4.56% 24.97% $1,249.74 $12,497.38
January 1, 1991 4.73% 20.31% $1,203.10 $12,031.03
January 1, 1992 1.90% 5.82% $1,058.20 $10,581.98
January 1, 1993 -0.10% -0.21% $997.91 $9,979.14
January 1, 1994 -9.76% -9.76% $902.39 $9,023.88
Without the Investment Manager's fee waiver.
Start of Average Ending Value Ending Value
Periods Ending Annual Total of a $1,000 of a $10,000
Dec. 31, 1994 Return Return Investment Investment
March 7, 1984 8.10% 132.27% $2,322.67 $23,226.67
January 1, 1985 8.01% 116.11% $2,161.11 $21,611.08
January 1, 1986 6.59% 77.56% $1,775.59 $17,755.88
January 1, 1987 5.10% 48.88% $1,488.80 $14,887.97
January 1, 1988 6.04% 50.74% $1,507.40 $15,074.02
January 1, 1989 5.17% 35.31% $1,353.13 $13,531.33
January 1, 1990 4.51% 24.67% $1,246.67 $12,466.72
January 1, 1991 4.71% 20.22% $1,202.25 $12,022.49
January 1, 1992 1.88% 5.75% $1,057.45 $10,574.50
January 1, 1993 -0.14% -0.28% $997.21 $9,972.13
January 1, 1994 -9.82% -9.82% $901.81 $9,018.09
The Fund may provide the above described standard total return for a period
which ends as of not earlier than the most recent calendar quarter end and
which begins either one or five years 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 a recent month or
quarter. For example, the Fund's nonstandardized total return for the three
months ended December 31, 1994 was -0.63% (with and without the Investment
Manager's fee waiver). Nonstandardized total returns are computed as
otherwise described above except that no annualization is made.
The Fund may also provide performance information based on an initial
investment in the Fund and/or of cumulative investments of varying amounts
over periods of time. Some or all of this information may be provided
either graphically or in tabular form.
<PAGE>
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 Index (20 year) Bond.
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.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
mutual funds.
Composite Index - 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
Composite Index - 35% Standard & Poor's 500 Index and 65% Salomon Brothers
High Grade Bond Index.
Composite Index - 65% Standard & Poor's 500 Index and 35% Salomon Brothers
High Grade Bond Index.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Donoghue's Money Fund Report, a weekly publication of money market fund
total net assets, yield, and portfolio composition.
Financial Times, Europe's business newspaper, which from time to time
reports the performance of specific investment companies in the mutual fund
industry.
Financial World, a national business publication that 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.
<PAGE>
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Investment Advisor, a monthly publication reviewing performance of mutual
funds.
Investor's Business Daily, a nationally distributed newspaper which
regularly covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed
of government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the
Lehman Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing
mutual funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a
variety of bond indices.
Money, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Inc., a publication periodically reviewing mutual funds
industry-wide by means of various methods of analysis.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performances, rates funds, and discusses investment strategies for mutual
fund investors.
Personal Investor, a monthly investment advisory publication that includes
a special section reporting on mutual fund performance, yields, indexes,
and portfolio holdings.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government
National Mortgage Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-
weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
Salomon Brothers Broad Investment Grade Bond Index -- is a widely used
index composed of U.S. domestic government, corporate, and mortgage backed
securities.
<PAGE>
Salomon Brothers "Market Performance" is a monthly publication which tracks
the principal return, total return and yield of the Salomon Brothers Broad
Investment Grade Bond Index and the components of the Index.
Salomon Brothers World Bond Index and related sub-indices -- provides
detailed compound returns for individual countries and a market weighted
index beginning in 1978. Returns are broken down into local market and
currency components.
Salomon Brothers World Government Bond Index and related sub-indices --
provides detailed compound returns for individual countries and a market
weighted index beginning in 1985. Returns are broken down into local market
and currency components.
Standard & Poor's 500 Composite Stock Price Index -- is a widely recognized
index composed of the capitalization weighted average of the price of 500
of the largest publicly traded stocks.
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
Success, a monthly magazine targeted to the world of entrepreneurs and
growing businesses, often featuring mutual fund performance data.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S.
domiciled companies commonly traded on the New York Stock Exchange and
American Stock Exchange 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.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports
mutual fund performance data.
Wall Street Journal, a nationally distributed newspaper which regularly
covers financial news.
Wilshire 5000 Equity Index -- 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.
<PAGE>
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Bull & Bear Service Center, Inc.
acts as the Distributor of the Fund's shares. Under the Distribution
Agreement, the Distributor shall use its best efforts, consistent with its
other businesses, to sell shares of the Fund. Fund shares are sold
continuously. The Fund has also adopted a plan of distribution (the "Plan")
pursuant to Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides
in substance that a mutual fund may not engage directly or indirectly in
financing any activity which is primarily intended to result in the sale of
its shares except through a plan adopted under the Rule. The Plan is
designed to (a) permit the Fund to reimburse the Distributor for certain
selling activities and (b) protect against any claim that certain other
expenses are an indirect expenditure by the Fund for distribution purposes.
As to its first purpose, the Plan provides that the Fund may reimburse
the Distributor for distribution activities in an amount up to one-quarter
of one percent per annum of the Fund's average daily net assets and for
service activities up to one-quarter of one percent per annum of the Fund's
average daily net assets. Such payments may include (1) advertising, direct
mail and promotional expenses; (2) fulfillment expenses including the cost
of printing and mailing prospectuses and sales literature to prospective
investors; (3) payments to third parties who sell shares of the Fund; (4)
reimbursement of and/or compensation to brokers, dealers, banks and other
intermediaries for administrative and accounting services; and (5)
telephone, office expenses, salaries, which may include persons who are
officers or employees of the Distributor and/or the Investment Manager,
their affiliates, or of the Fund, and any other costs of effectuating the
Plan. In addition, the Distributor and the Investment Manager may make
similar payments from their own resources.
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.
As to its second purpose, the Plan provides that to the extent any of
the following payments are considered under the Rule to be "primarily
intended to result in the sale of shares" issued by the Fund, such payments
are authorized under the Plan: (1) the costs of preparation, printing and
mailing of proxy statements, all required reports and notices to
shareholders, confirmations of shares sold or redeemed, share certificates,
and reports of share balances, irrespective of whether such reports or
notices contain or are accompanied by material intended to result in the
sale of shares of the Fund or other funds or other investments and
investment services; (2) fees and expenses of registering shares of the
Fund under Federal or state laws regulating the sale of securities and
costs of preparing, printing and mailing Prospectuses and Statements of
Additional Information; (3) fees and expenses of registering the Fund as a
broker/dealer or of registering an agent of the Fund under Federal or state
laws regulating the sale of securities; (4) fees of registering, at the
request of the Fund, agents or representatives of the Distributor or a
principal underwriter of the Fund under Federal or state laws regulating
the sale of securities, provided that no sales commission or "load" is
charged on sales of shares of the Fund; (5) all fees under the 1940 Act and
the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of Fund
<PAGE>
shares; (6) all fees, assessments and voluntary contributions to the
Investment Company Institute or any similar organization, whether or not
designed to provide sales assistance; (7) costs of providing shareholder
services; (8) costs of responding to telephone or mail inquiries of
investors or prospective investors; and (9) any transfer agent, legal,
accounting or other professional fees and expenses. The second purpose of
the Plan also recognizes that the Distributor or the Investment Manager may
make payments for distribution expenses or the other expenses described
above from their own resources. In that regard, it is recognized that the
profits, if any, of the Investment Manager in relation to the Fund are
dependent primarily upon the investment management fees paid by the Fund.
If and to the extent that any investment management fees paid by the Fund
might, in view of the foregoing, be considered as indirectly financing
selling activities by the Fund, such payments are authorized. Should any
payment described above relating to the second purpose of the Plan be
deemed by a court or agency having jurisdiction to be payment by the Fund
of expenses primarily intended to result in the sale of shares issued by
the Fund, they shall be considered to be expenses contemplated by and
included in the Plan but not included within the one-half of one percent
per annum of average daily net assets limitation prescribed therein.
With the approval of the vote of a majority of the entire Board of
Directors and of the Plan Directors (defined below) 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 be reimbursed its costs in the same manner as the
Distributor is reimbursed under the Plan by the Fund.
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 investment management fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make a
reimbursement to the Fund under the expense guaranty described on page 8,
and eliminating or reducing the contribution, if any, made by the
Investment Manager to marketing expenses.
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 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 such costs. Nevertheless, the net effect
<PAGE>
of the Plan is to increase overall expenses. The Board of Directors is
provided with and reviews at least quarterly a written report of all
expenditures by the Fund pursuant to the Plan and the purposes for which
such expenditures were made.
Of the amounts reimbursed to the Distributor during the Fund's fiscal
year ended December 31, 1994, approximately $14,833 represented
reimbursement of expenses incurred for advertising, $34,148 for printing
and mailing prospectuses and other information to other than current
shareholders, $9,496 for salaries of marketing and sales personnel, $577
for payments to third parties who sold shares of the Fund and provided
certain services in connection therewith, and $6,559 for overhead and
miscellaneous expenses.
The Plan was approved by the vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Fund and by the vote of a
majority of both those Directors of the Fund who are not "interested
persons" of the Fund (as defined in the 1940 Act) and have no direct or
indirect financial interest in the operation of the Plan or any agreement
related to it (the "Plan Directors"), and all of the Directors then in
office, cast in person at a meeting called for the purpose of voting on the
Plan. Any agreements related to the Plan must be approved by a vote of a
majority of the entire Board of Directors and the Plan Directors. The Plan
will continue in effect for so long as such continuance is specifically
approved at least annually by the entire Board of Directors and the Plan
Directors, unless terminated by a vote of a majority of the Plan Directors,
or by a vote of a majority of the outstanding voting securities of the
Fund. The Plan may not be amended to increase materially the limit upon
distribution expenses described above unless approved by the shareholders,
and no other material amendment to the Plan shall be made unless approved
by the entire Board of Directors and the Plan Directors. While the Plan is
in effect, the selection and nomination of Directors who are not interested
persons (as defined in the 1940 Act) of the Fund will be committed to the
discretion of the Directors who are not interested persons. Other than as
described above, 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of regular
trading on the New York Stock Exchange each day the Exchange is open for
trading ("Business Day"). The following are not Business Days of the Fund:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Municipal securities with remaining maturities of more than 60 days are
valued in accordance with valuations furnished by the pricing service
employed by the Fund that are based on a computerized matrix system or
appraisals by the pricing service. Debt obligations with remaining
maturities or 60 days or less are valued at cost adjusted for amortization
of premiums and accretions of discounts. All other assets will be valued at
fair value as determined in good faith by or under the direction of the
Board of Directors.
PURCHASE OF SHARES
The Fund will not issue shares for consideration other than cash. The
Fund reserves the right to reject any order, to cancel any order due to
nonpayment, to accept initial orders by telephone or telegram, and to waive
the limit on subsequent orders by telephone, with respect to any person or
class of persons. Orders to purchase shares are not binding on the Fund
until they are confirmed by the Transfer Agent. In order to permit the
Fund's shareholder base to expand, to avoid certain shareholder hardships,
to correct transactional errors, and to address similar exceptional situa-
<PAGE>
tions, 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. Fund transactions in municipal and over-the-counter
securities generally are with dealers acting as principals at net prices
with little or no brokerage costs. In certain circumstances, however, the
Fund may engage a broker as agent for a commission to effect transactions
for such securities. Transactions are directed to brokers and dealers
qualified to execute orders or provide research, brokerage or other
services, and who may sell shares of the Fund or the other Bull & Bear
Funds. The Investment Manager may also allocate portfolio transactions to
other broker/dealers that remit a portion of their commissions as a credit
against the custodian's charges. No formula exists and no arrangement is
made with or promised to any broker/dealer which commits either a stated
volume or percentage of brokerage business based on research, brokerage or
other services furnished to the Investment Manager or upon sale of Fund
shares. Purchases of securities from underwriters include a commission or
concession paid by the issuer to the underwriter, and purchases from
dealers include a spread between the bid and asked price. While the
Investment Manager generally seeks competitive spreads or commissions, the
Fund will not necessarily be paying the lowest spread or commission
available.
The Investment Manager directs portfolio transactions to broker/dealers
for execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided
by a particular broker/dealer, including brokerage and research services,
sales of Fund shares and shares of the other Bull & Bear Funds, and
allocation of commissions to the Fund's custodian. With respect to
brokerage and research services, consideration may be given in the
selection of broker/dealers to brokerage or research services provided and
payment may be made of a fee higher than that charged by another
broker/dealer which does not furnish brokerage or research services or
which furnishes brokerage or research services deemed to be of lesser
value, so long as the criteria of Section 28(e) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), or other applicable law are met.
Section 28(e) of the 1934 Act was adopted in 1975 and specifies that a
person with investment discretion shall not be "deemed to have acted
unlawfully or to have breached a fiduciary duty" solely because such person
has caused the account to pay a higher commission than the lowest available
under certain circumstances. To obtain the benefit of Section 28(e), the
person so exercising investment discretion must make a good faith
determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided ... viewed in terms
of either that particular transaction or his overall responsibilities with
respect to the accounts as to which he exercises investment discretion."
Thus, although the Investment Manager may direct portfolio transactions
without necessarily obtaining the lowest price at which such broker/dealer,
or another, may be willing to do business, the Investment Manager seeks the
best value for the Fund on each trade that circumstances in the market
place permit, including the value inherent in on-going relationships with
quality brokers.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for brokerage or research
services might exceed commissions that would be payable for execution
alone, nor generally can the value of such services to the Fund be
measured, except to the extent such services have a readily ascertainable
market value. There is no certainty that services so purchased, or the sale
of Fund shares, if any, will be beneficial to the Fund, and it may be that
the other Bull & Bear Funds will derive benefit therefrom. Such services
being largely intangible, no dollar amount can be attributed to benefits
realized by the Fund or to collateral benefits, if any, conferred on
affiliated entities. Those services may include (1) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or
<PAGE>
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 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.
During the fiscal years ended December 31, 1992, 1993, and 1994 the Fund
did not pay any brokerage commissions and no transactions were directed to
broker/dealers during such periods for selling shares of the Fund or any of
the other Bull & Bear Funds.
Investment decisions for the Fund and for the other Funds managed by
subsidiaries of Group are made independently of each other in the light of
differing conditions. The same investment decision, however, may
occasionally be made for two or more of such Funds. In such cases,
simultaneous transactions may occur. Purchase or sales are then averaged as
to price and allocated as to amount according to a formula deemed equitable
to each Fund. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the Fund is
concerned, in other cases it is believed to be beneficial to the Fund.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Bull & Bear Funds do
business with may, from time to time, own more than 5% of the publicly
traded Class A non-voting Common Stock of Group, the parent of the
Investment Manager, and may provide clearing services to BBSI.
The Fund's portfolio turnover rate may vary from year to year and will
not be a limiting factor when Bull & Bear Advisers, Inc. (the "Investment
Manager") deems portfolio changes appropriate. The portfolio turnover rate
is calculated by dividing the lesser of the Fund's annual sales or
purchases of portfolio securities (exclusive of purchases or sales of
securities whose maturities at the time of acquisition were one year or
less) by the monthly average value of securities in the portfolio during
the year.
DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the
right to credit the shareholder's account with additional shares of the
Fund at the then current net asset value in lieu of the cash payment and to
thereafter issue such shareholder's distributions in additional shares of
the Fund.
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as
amended ("Code"). To qualify for this treatment, the Fund must distribute
<PAGE>
to its shareholders for each taxable year at least 90% of the sum of its
net interest income excludable from gross income under section 103(a) of
the Code ("tax-exempt interest") plus its investment company taxable income
(consisting generally of taxable net investment income and net short term
capital gain) and must meet several additional requirements. Among these
requirements are the following: (1) at least 90% of the Fund's gross income
each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition
of securities, or other income derived with respect to its business of
investing in securities ("Income Requirement"); (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities that were held for less than three months
("Short-Short Limitation"); and (3) the Fund's investments must satisfy
certain diversification requirements. In any year during which the
applicable requirements of the Code are satisfied, the Fund will not be
liable for Federal income tax on income and capital gain that is
distributed to its shareholders. If for any taxable year the Fund does not
qualify for treatment as a RIC, all of its taxable income will be taxed at
corporate rates and all distributions to its shareholders (including the
portion thereof attributable to tax-exempt interest) will be fully taxable
to them.
Dividends paid by the Fund will qualify as "exempt-interest" dividends,
and thus will be excludable from gross income by its shareholders, if the
Fund satisfies the additional requirement that, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of securities the interest on which is tax-exempt; the Fund
intends to continue to satisfy this requirement. The aggregate amount
annually designated by the Fund as exempt-interest dividends may not exceed
its tax-exempt interest. The shareholders' treatment of dividends from the
Fund under state and local income tax laws may differ from the treatment
thereof under the Code.
Dividends and other distributions declared by the Fund in October,
November or December of any year and payable to shareholders of record on a
date in any of those months will be deemed to have been paid by the Fund
and received by the shareholders on December 31 of that year if the
distributions are paid by the Fund during the following January. The Fund
invests exclusively in debt securities and receives no dividend income;
accordingly, no portion of the dividends or other distributions paid by the
Fund is eligible for the dividends-received deduction allowed to
corporations.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares; and the portion, if any, that is not
disallowed will be treated as long term, instead of short term, capital
loss to the extent of any capital gain distributions received thereon.
Investors also should be aware that if shares are purchased shortly before
the record date for a taxable dividend or capital gain distribution, the
shareholder will pay full price for the shares and receive some portion of
the price back as a taxable distribution.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of
its ordinary (taxable) income for that year and capital gain net income for
the 12 month period ending on October 31 of that year, plus certain other
amounts.
Interest received on certain otherwise tax-exempt securities (so-called
"private activity" bonds) issued after August 7, 1986, which are used for
purposes other than those generally performed by governmental units, e.g.,
bonds used for commercial or housing purposes, is a tax preference item for
purposes of the Federal alternative minimum tax ("AMT") for both
individuals and corporations. The Fund will report to its shareholders
after its fiscal year-end the portion of its dividends paid during the
preceding year that is a tax-preference item for these purposes.
<PAGE>
Corporations also may be subject to the AMT based in part on certain
differences between taxable income as adjusted for other tax preferences
and "adjusted current earnings." Because exempt-interest dividends paid by
the Fund will be included in adjusted current earnings, a corporate
shareholder may be required to pay AMT on exempt-interest dividends paid by
the Fund, without regard to whether those dividends are derived to any
extent from interest on private activity bonds.
Entities or other persons who are "substantial users" (or persons
related to "substantial users") of facilities financed by private activity
bonds or industrial development bonds should consult their tax advisers
before purchasing Fund shares because, for users of certain of these
facilities, the interest on such bonds is not exempt from Federal income
tax. For these purposes, the term "substantial user" is defined generally
to include a "non-exempt person" who regularly uses in trade or business a
part of a facility financed from the proceeds of such bonds.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income
(including income from tax-exempt sources such as the Fund) plus 50% of
their benefits exceeds certain base amounts. Exempt-interest dividends from
the Fund still are tax-exempt to the extent described above; they are only
included in the calculation of whether a recipient's income exceeds the
established amounts.
If the Fund invests in any instruments that generate taxable income,
under the circumstances described in the Prospectus, distributions of the
interest earned thereon will be taxable to the Fund's shareholders as
ordinary income to the extent of the Fund's earnings and profits. Moreover,
if the Fund realizes capital gain as a result of market transactions, any
distributions of such gain will be taxable to its shareholders.
The Fund is required to withhold 31% of all taxable 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. The Fund also is required to
withhold 31% of all taxable dividends and capital gain distributions
payable to such shareholders who otherwise are subject to backup
withholding.
From time to time, proposals have been introduced before Congress that
would restrict or eliminate the Federal income tax exemption for interest
on municipal securities, and it can be expected that similar proposals may
continue to be introduced. Should such a proposal be enacted, both the
availability and value of municipal securities would be affected and the
Board of Directors would consider possible changes for shareholder approval
in the Fund's investment objective and policies.
The foregoing discussion of Federal income 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 December 31 each year.
<PAGE>
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02109, has
been retained to act as custodian of the Fund's investments and may appoint
one or more subcustodians, provided such subcustodianship is in compliance
with the rules and regulations promulgated under the 1940 Act. The
custodian also performs accounting services for the Fund. As part of its
agreement with the Fund, 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. Supervised Service Company,
Kansas City, MO 64141-6789, acts as 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. Among other such services, the Distributor currently
receives and responds to shareholder inquiries concerning their accounts
and processes shareholder telephone requests such as telephone transfers,
purchases and redemptions, changes of address and similar matters. For
shareholder services, the Fund paid the Distributor for the fiscal years
ended December 31, 1992, 1993, and 1994 approximately $11,057, $12,179, and
$16,280, respectively.
AUDITORS
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia, PA
19102-1707, are the independent accountants for the Fund. Financial
statements of the Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December 31,
1994, together with the Report of the Fund's independent accountants
thereon, appear in the Fund's Annual Report to Shareholders and are
incorporated herein by reference.
<PAGE>
APPENDIX
Ratings of Municipal Bonds
Fitch Investors Service, Inc. AAA rated bonds are considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. AA rated bonds
are considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal, is very strong,
although not quite as strong as bonds rated AAA. A rated bonds are
considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings. BBB rated bonds are
considered to be investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Moody's Investors Service, Inc. 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 by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues. 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
risks appear somewhat larger than the Aaa securities. Bonds which are rated
A possess many favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future. 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.
Standard & Poor's Ratings Group, Inc. Debt rated AAA has the highest
rating assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong. Debt rated AA has a very strong capacity to
pay interest and repay principal and differs from the higher rated issues
only in small degree. Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
<PAGE>
Ratings of Municipal Notes
Fitch Investors Service, Inc. F-1+: (Exceptionally strong credit quality)
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment. F-1: (Very strong credit quality) Issues
assigned this rating reflect an assurance of timely payment only slightly
less in degree than issues rated F-1+. F-2: (Good credit quality) Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned F-
1+ and F-1 ratings. F-3: (Fair credit quality) Issues assigned this rating
have characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause these
securities to be rated below investment grade.
Moody's Investors Service, Inc. MIG-1: This designation denotes best
quality. There is present strong protection by established cash flows,
superior liquidity support or demonstrated broad based access to the market
for refinancing. MIG-2: This designation denotes high quality, with margins
of protection ample although not so large as in the preceding group. MIG-3:
This designation denotes favorable quality, with all security elements
accounted for, but lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Standard & Poor's Ratings Group. SP-1: Very strong or strong capacity to
pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest. SP-3: Speculative
capacity to pay principal and interest.
Ratings of Commercial Paper
Fitch Investors Service, Inc. F-1+: (Exceptionally strong credit quality)
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment. F-1: (Very strong credit quality) Issues
assigned this rating reflect an assurance of timely payment only slightly
less in degree than issues rated F-1+. F-2: (Good credit quality) Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned F-
1+ and F-1 ratings.
Moody's Investors Service, Inc. Issuers rated Prime-1 (or supporting
institutions) have a superior capacity for repayment of senior short term
debt obligations. Prime-1 repayment capacity will often be evidenced by
many of the following characteristics: leading marketing positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and
ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established
access to a range of financial markets and assured sources of alternate
liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's Ratings Group, Inc. A-1: This designation indicates that
the degree of safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety characteristics are denoted
with a plus sign (+) designation. A-2: Capacity for timely payment on
issues with this designation is satisfactory. However, the relative degree
of safety is not as high as for issues designated "A-1."
<PAGE>
MUNICIPAL INCOME FUND
11 Hanover Square, New York, NY 10005 1-800-847-4200 1-212-363-1100
February 17, 1995
Fellow Shareholders:
It is a pleasure to welcome our many new shareholders who have opened a Bull
& Bear Municipal Income Fund account since our last Report.
With the Federal Reserve boosting interest rates six times in 1994, current
yields on municipal, corporate and government fixed income securities increased
significantly over the year. Since this caused principal values to decline,
overall total return results, which represent a combination of income
and principal change, were negative for all general municipal bond funds for
the year, according to Lipper Analytical Services, Inc., a leading mutual fund
rating service. Although the Fund closed the year with a negative total return
of 9.76%, thus far in 1995 it has scored a positive total return of 4.98%,
recovering more than half of last year's result in approximately a month and a
half. The Fund's average annual total return for the past five years was 4.56%,
for the past 10 years, 8.01% and since inception March 7, 1984, 8.10%. Total
return for the same periods ended December 31, 1994, were 24.97%, 120.57% and
138.41%. The Fund's strategy in 1994 was to shorten the portfolio's average
maturity in seeking to limit price declines in a rising interest rate
environment and to selectively upgrade portfolio holdings.
Reflecting these consistent average annual and cumulative total returns of
the Fund since inception are the long term results shown in the accompanying
chart. An initial investment of $10,000 with sub-sequent investments of $100
per
<PAGE>
month produced an ending value of $41,823, 82.63% more than the investments for
the period of $22,900. We continue to stress the importance of adding regularly
to your account and feel very strongly that it is the soundest approach to
building capital for the future. As we have noted regularly in past Reports,
Bull & Bear makes available without charge three exceptionally convenient ways
to add to your account automatically: the Bull & Bear Bank Transfer Plan, the
Bull & Bear Salary Investing Plan and the Bull & Bear Government Direct Deposit
Plan. For information on these free services, simply give us a call and we will
help you get started.
With respect to the outlook, inflation as measured by the Consumer Price
Index appears to be in check and the economy gives evidence of moving ahead at
a sustainable, moderate rate of growth with little threat of over-heating.
Given this background, we look for basically stable longer term interest rates
over the balance of the year. With respect to the recent past, of interest is
the fact that the Fund had no involvement with the Orange County, California,
default and bankruptcy.
If you have any questions or would like information on any of the Bull & Bear
Funds, the Bull & Bear No-Fee IRA SM or opening a discount brokerage account at
Bull & Bear Securities, we would be pleased to hear from you. Just call
1-800-847-4200, and a Bull & Bear Service Representative will be glad to assist
you, as always, without any obligation on your part.
Sincerely,
Robert D. Anderson
Vice Chairman
G. Clifford McCarthy, Jr.
Senior Vice President
Portfolio Manager
Total Return Performance Graphs
- - -------------------------------
*Bull & Bear Municipal Income Fund ("Fund")
*Lehman Municipal Bond Index ("LMBI")
*Morningstar Municipal National Average
("Muni")
A municipal bond index is unmanaged and fully invested in municipal bonds. The
Fund invests in municipal securities and may also own taxable obligations and
hold cash for defensive purposes. The Fund is not insured by or an obligation
of the U.S. Government, whereas U.S. Treasury Bills are a direct obligation of
the U.S. Government. The Fund's inception was March 7, 1984. Performance Graphs
begin on March 1, 1984 and results in each case reflect reinvestment of
dividends and distributions.
AVERAGE
FINAL TOTAL ANNUAL
VALUE RETURN RETURN
------- -------- -------
Fund $23,510 135.10% 8.28%
LMBI 26,520 165.20 9.42
Muni 23,886 138.86 8.37
Source: Morningstar Inc.
<PAGE>
- - -------------------------------------------------------------------------------
INCOME FUNDS-
MONEY MARKET,
U.S. GOVERNMENT,
MUNICIPAL AND
GLOBAL
Monthly Dividends
Free, Unlimited
Check Writing
($250 minimum
per check)
Bull & Bear
Dollar Reserves
A high quality money market fund investing in U.S. Government securities.
Income is generally free from state income and intangible personal property
taxes. (The check writing minimum for Bull & Bear Performance Plus(SM) discount
brokerage accounts is $100.)
- - -------------------------------------------------------------------------------
Bull & Bear
U.S. Government
Securities Fund
Investing for a high level of current income, liquidity and safety of
principal.
- - -------------------------------------------------------------------------------
Bull & Bear
Municipal Income Fund
Investing for the highest possible income exempt from Federal income tax that
is consistent with preservation of principal.
- - -------------------------------------------------------------------------------
Bull & Bear
Global Income Fund
Investing for a high level of income from a global portfolio of primarily
investment grade fixed income securities.
- - -------------------------------------------------------------------------------
GROWTH FUNDS-U.S., GLOBAL
AND PRECIOUS
METALS
Bull & Bear
Quality Growth Fund
Investing in quality companies for growth of capital and
income.
- - -------------------------------------------------------------------------------
Bull & Bear
U.S. and Overseas Fund
Invests worldwide for the highest possible total return.
- - -------------------------------------------------------------------------------
Bull & Bear
Special Equities Fund
Invests aggressively for maximum capital appreciation.
- - -------------------------------------------------------------------------------
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.
- - -------------------------------------------------------------------------------
Call our toll-free number for a prospectus containing more complete
information, including charges and expenses. Please read it carefully before
you invest.
- - -------------------------------------------------------------------------------
DISCOUNT
BROKERAGE
SERVICES
Call Toll Free
1-800-VIP-4200
Bull & Bear
Securities, Inc.
Investors receive the investment information they need and the low commissions
they expect. Commission savings of up to 84% and more over full cost firms and
guaranteed 20% lower than Charles Schwab & Co. on every stock, bond and option
trade. (Transactions are subject to a low $31 minimum commission; comparisons
are based on a January 1995 survey of standard telephone orders; full cost
firms and larger discount brokers may offer additional services not available
from Bull & Bear Securities and rates may vary markedly for other types of
products.)
- - -------------------------------------------------------------------------------
Total Return Performance. For the periods ended December 31, 1994, Bull & Bear
Municipal Income Fund's total return for one year was a negative 9.82%, average
annual total return for the past five years was 4.51% and for the past 10 years
was 8.01%, assuming in each case that the Investment Manager had not
voluntarily reimbursed certain fund expenses. Past performance does not
guarantee future results. Investment return will fluctuate, so shares when
redeemed may be worth more or less than their cost. Dollar cost averaging does
not assure a profit or protect against loss in a declining market, and
investors should consider their ability to make purchases when prices are low.
3
<PAGE>
BULL & BEAR MUNICIPAL INCOME FUND
Schedule of Portfolio Investments - December 31, 1994
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Value
- - ---------- --------- -----------
Municipal Bonds (79.1%)
California (9.3%)
California State General Obligation Bonds, 6.25%, due
<S> <C> <C> <C>
$1,000,000 10/1/19.................................................... A $1,006,400
California Waste Water Systems Revenue Bonds, 5.60%,
500,000 due 6/1/15................................................. AAA 437,745
-----------
1,444,145
-----------
Florida (4.1%)
Dade County School District General Obligation Bonds, 5%,
750,000 due 8/1/11................................................. AAA 637,462
-----------
Georgia (5.9%)
Georgia State Municipal Electric Authority Revenue Bonds,
800,000 Series B, 8.25%, due 1/1/11................................ A* 924,904
-----------
Hawaii (6.1%)
Honolulu City & County General Obligation Bonds, Series A,
800,000 8.75%, due 1/1/03.......................................... AA 951,088
-----------
Illinois (4.5%)
Metropolitan Pier & Exposition Authority Revenue Bonds,
750,000 6.5%, due 6/15/27.......................................... A+ 699,428
-----------
Massachusetts (2.9%)
Massachusetts State Water Resources Authority Revenue
500,000 Bonds, 6%, due 4/1/20...................................... A 448,665
-----------
New Jersey (6.4%)
Union County Utilities Authority Solid Waste Revenue Bonds,
1,000,000 7.15%, due 6/15/09......................................... A- 1,003,350
-----------
New York (14.6%)
City of New York General Obligation Bonds, 7.5%, due
500,000 2/1/16..................................................... A- 512,335
Metropolitan Transit Authority Revenue Bonds, 6.5%, due
500,000 7/1/18..................................................... AAA 494,065
New York State Dormitory Authority State University Revenue
500,000 Bonds, Series C, 7.375%, due 5/15/10....................... BBB+ 524,170
New York State Energy Research & Development Authority
750,000 Revenue Bonds, 7.125%, due 12/1/29......................... A+ 743,730
-----------
2,274,300
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Value
- - ---------- --------- -----------
<S> <C> <S> <C>
Pennsylvania (7.9%)
Lehigh County Development Authority Revenue Bonds,
$750,000 6.4%, due 9/1/29......................................... AAA $719,745
Pennsylvania Intergovernmental Coop Authority Special Tax
500,000 Bonds, 6.75%, due 6/15/24................................ AAA 501,835
-----------
1,221,580
-----------
Rhode Island (2.1%)
Rhode Island Depositors Economic Protection Corp. Special
400,000 Obligation Revenue Bonds, Series A, 5.75%, due 8/1/21.... A- 332,516
-----------
Tennessee (6.2%)
Memphis-Shelby County Airport Revenue Bonds, 6.75%, due
1,000,000 9/1/12................................................... BBB 970,800
-----------
Texas (2.9%)
Dallas-Fort Worth International Airport Revenue Bonds,
500,000 7.25%, due 11/1/30....................................... BB+ 452,095
-----------
Washington (2.9%)
Washington State Public Power Supply Revenue Bonds, 6%,
500,000 due 7/1/12............................................... AA 447,675
-----------
Wisconsin (3.3%)
Wisconsin State Clean Water Revenue Bonds, 6.875%, due
500,000 6/1/11................................................... AA 517,180
-----------
Total Municipal Bonds (cost: $12,493,053)................ 12,325,188
-----------
U.S. Government Obligations (20.9%)
4,000,000 U.S. Treasury Bonds, 6.25%, due 8/15/23.................. AAA 3,260,080
-----------
Total U.S. Government Obligations (cost: $3,182,813).... 3,260,080
-----------
Total Investments (cost: $15,675,866) (100.0%)......... $15,585,268
===========
- - ------------------------------------------------------------------------------------------
* Moody's rating.
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value (identified
cost: $15,675,866) (note 1)............. $15,585,268
Cash.................................... 772,349
Receivables:
Interest................................ 325,780
Fund shares sold........................ 3,740
Prepaid expense......................... 4,613
------------
Total assets............................ 16,691,750
------------
LIABILITIES:
Payables:
Investment securities purchased......... 704,440
Fund shares redeemed.................... 24,634
Distributions to shareholders........... 14,184
Accrued management and distribution
fees.................................... 9,192
Accrued expenses........................ 18,008
------------
Total liabilities....................... 770,458
------------
NET ASSETS: (applicable to 1,043,750
outstanding shares: 50,000,000 shares of
$.01 par value authorized).............. $15,921,292
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($15,921,292 ~ 1,043,750)............... $15.25
============
At December 31, 1994 net assets
consisted of:
Paid-in capital......................... $17,220,656
Net unrealized depreciation on
investments............................. (90,598)
Accumulated net realized loss on
investments............................. (1,208,766)
------------
$15,921,292
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME:
Interest................................. $1,102,191
-------------
EXPENSES:
Management fees (note 3)................. 112,479
Distribution plan expenses (note 3)...... 65,613
Professional fees (note 3)............... 33,037
Registration fees (note 3)............... 27,013
Transfer agent fees...................... 26,764
Shareholder servicing expenses (note 3).. 16,280
Custodian fees........................... 15,438
Interest (note 5)........................ 9,081
Printing................................. 6,723
Directors' fees.......................... 2,568
Other.................................... 14,035
-------------
Total expenses........................... 329,031
Management fees waived (note 3).......... (19,178)
-------------
Net expenses............................. 309,853
-------------
Net investment income.................... 792,338
-------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investments......... (1,267,250)
Unrealized depreciation of investments
during the period........................ (1,430,317)
-------------
Net realized and unrealized loss on
investments.............................. (2,697,567)
-------------
Net decrease in net assets resulting
from operations.......................... $(1,905,229)
=============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................................. $792,338 $941,834
Net realized gain (loss) on investments........................................... (1,267,250) 528,167
Unrealized appreciation (depreciation) of investments during the period........... (1,430,317) 813,351
------------ ------------
Net increase (decrease) in net assets resulting from operations................... (1,905,229) 2,283,352
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.68 and $.75 per share, respectively).. (792,722) (944,966)
Distribution from net realized gain on investments ($.45 per share)............... - (534,337)
CAPITAL SHARE TRANSACTIONS:
Decrease in net assets resulting from capital share transactions (a).............. (2,726,029) (239,819)
------------ ------------
Total change in net assets........................................................ (5,423,980) 564,230
NET ASSETS:
Beginning of period............................................................... 21,345,272 20,781,042
------------ ------------
End of period..................................................................... $15,921,292 $21,345,272
============ ============
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------- --------------------------
Shares Value Shares Value
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold..................................... 4,449,376 $71,964,789 1,951,992 $34,850,364
Shares issued in reinvestment of distributions.. 35,359 566,675 60,656 1,072,642
Shares redeemed................................. (4,651,821) (75,257,493) (2,020,193) (36,162,825)
------------ -------------- ------------ -------------
Net decrease.................................... (167,086) $(2,726,029) (7,545) $(239,819)
============ ============== ============ =============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
Notes to Financial Statements
(1) The Fund is a diversified series of common stock of Bull & Bear Municipal
Securities, Inc. (the "Company"), a Maryland corporation registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund is presently the only series of shares designated
by the Board of Directors of the Company. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements. With respect to security valuation,
municipal securities which have remaining maturities of more than 60 days and
for which market quotations are readily available are valued at the mean
between the most recently quoted bid and asked prices. Money market securities
which have remaining maturities of more than 60 days and for which market
quotations are readily available are valued at the most recent bid price or
yield equivalent. Debt obligations with remaining maturities of 60 days or less
are valued at cost adjusted for amortization of premiums and accretion of
discounts. Securities for which quotations are not readily available or
reliable and other assets may be valued as determined in good faith by or under
the direction of the Board of Directors. Investment transactions are accounted
for on the trade date (date the order to buy or sell is executed). Interest
income is recorded on the accrual basis.
(2) The Company intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable investment income and net capital gains, if
any, after utilization of any capital loss carryforward, to its shareholders
and therefore no Federal income tax provision is required. Based on Federal
income tax cost of $15,734,350, gross unrealized appreciation and gross
unrealized depreciation were $134,572 and $283,654, respectively, at December
31, 1994.
(3) The Fund retains Bull & Bear Advisers, Inc. as its Investment Manager.
Under the terms of the Investment Management Agreement, the Investment Manager
receives a management fee, payable monthly, based on the average daily net
assets of the Fund at the annual rate of 6/10 of 1% on the first $500 million
and 1/2 of 1% over $500 million. The Investment Manager has undertaken that the
operating expenses of the Fund for each fiscal year (including management fees
but excluding taxes, interest, brokerage commissions and distribution plan
expenses), expressed as a percentage of average daily net assets, will not
exceed the lowest rate prescribed by any state in which shares of the Fund are
qualified for sale. Currently such limitation is 21/2% of the first $30 million
of such assets, 2% of the next $70 million and 11/2% of the remaining net
assets. If the Fund's expenses exceed such rates, the Investment Manager will
reimburse the Fund for any excess. Currently, the Investment Manager has
voluntarily agreed to waive its management fee to the extent, if any, that such
expenses exceed an annual rate of 1.25% of the average daily net assets of the
Fund. For the year ended December 31, 1994, $19,178 of management fees were
waived. Certain officers and directors of the Fund are officers and directors
of the Investment Manager and Bull & Bear Service Center, Inc., the Fund's
Distributor. The Fund reimbursed the Investment Manager $12,187 for providing
certain administrative and accounting services at cost for the year ended
December 31, 1994.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"). Pursuant to the Plan, the Fund may
reimburse the Distributor in an amount up to one-half of one percent per annum
of the Fund's average daily net assets for expenditures which are primarily
intended to result in the sale of the Fund's shares. The Distributor has
voluntarily limited the amount of reimbursement to 0.35 of one percent per
annum of the Fund's daily net assets. Since the Distributor has incurred
reimbursable expenditures in excess of this limitation, it may be reimbursed
8
<PAGE>
by the Fund in future periods to the extent that total expenditures do not
exceed the amount accrued by the Fund. At December 31, 1994, the reimbursable
carryforward was approximately $428,500. Bull & Bear Service Center also
received $16,280 for certain shareholder services it provided to the Fund at
cost for the year ended December 31, 1994.
(4) Purchases and proceeds of sales of securities other than short term notes
aggregated $47,166,870 and $51,755,463, respectively, for the year ended
December 31, 1994.
(5) The Fund has an uncommitted bank line of credit for temporary or emergency
purposes. As part of the agreement, the Fund is required to pledge securities
it holds in its portfolio if there is an outstanding balance. At December 31,
1994, there was no balance outstanding and the interest rate was prime minus 20
basis points. For the year ended December 31, 1994, the weighted average
interest rate was 6.93% based on the balances outstanding during the year and
the weighted average amount outstanding was $113,655.
9
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1994 1993 1992 1991 1990
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period.................... $17.63 $17.06 $17.27 $16.91 $17.29
--------- -------- -------- -------- --------
Income from investment operations:
Net investment income..................................... .68 .75 .89 1.02 1.01
Net realized and unrealized gain (loss) on investments.... (2.38) 1.02 .11 1.23 (.38)
--------- -------- -------- -------- --------
Total from investment operations.......................... (1.70) 1.77 1.00 2.25 .63
--------- -------- -------- -------- --------
Less distributions:
Distributions from net investment income.................. (.68) (.75) (.89) (1.03) (1.01)
Distributions from net realized gains on investments...... - (.45) (.32) (.86) -
--------- -------- -------- -------- --------
Total distributions....................................... (.68) (1.20) (1.21) (1.89) (1.01)
--------- -------- -------- -------- --------
Net asset value at end of period.......................... $15.25 $17.63 $17.06 $17.27 $16.91
========= ======== ======== ======== ========
TOTAL RETURN.............................................. (9.76)% 10.59% 6.04% 13.69% 3.88%
========= ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)............... $15,921 $21,345 $20,781 $20,458 $20,560
========= ======== ======== ======== ========
Ratio of expenses to average net assets (a)............... 1.60% 1.61% 1.60% 1.60% 1.50%
========= ======== ======== ======== ========
Ratio of net investment income to average net assets (b).. 4.23% 4.25% 5.19% 5.86% 5.94%
========= ======== ======== ======== ========
Portfolio turnover rate................................... 275% 74% 320% 511% 172%
========= ======== ======== ======== ========
- - --------------------------------------------------------------------------------------------------------
</TABLE>
(a) Ratio prior to reimbursement by the Investment Manager was 1.71%, 1.62%,
1.62% and 1.63%, for the years ended December 31, 1994, 1993, 1991 and
1990, respectively.
(b) Ratio prior to reimbursement by the Investment Manager was 4.12%, 4.24%,
5.84% and 5.81%, for the years ended December 31, 1994, 1993, 1991 and
1990, respectively.
10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Bull & Bear Municipal Income Fund:
We have audited the accompanying statement of assets and liabilities of Bull
& Bear Municipal Income Fund, including the schedule of portfolio investments
as of December 31, 1994, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Bull
& Bear Municipal Income Fund as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 19, 1995
11
<PAGE>
BULL & BEAR MUNICIPAL SECURITIES, INC.
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 December 31, 1994 containing financial
statements as of and for the fiscal period ended December 31,
1994 is incorporated into the Statement of Additional
Information by reference.
(b) Exhibits
(1) Articles of Incorporation. Incorporated herein by
reference to corresponding Exhibit of the initial
Registration Statement, SEC
File No. 2-88608, filed December 28, 1983.
(2) By-Laws. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No.
19 to the Registration Statement, SEC File No.
2-88608, filed February 12, 1993.
(3) Voting trust agreement -- none
(4) Specimen security (filed herewith)
(5) (a) Investment advisory contract. Incorporated
herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 8 to the
Registration Statement, SEC File No.
2-88608, filed May 1, 1987.;
(b) Assignment agreement and consent.
Incorporated herein by reference to
corresponding Exhibit of Post-Effective
<PAGE>
Amendment No. 19 to the Registration Statement,
SEC File No. 2-88608, filed February 12, 1993.
(6) Underwriting agreement. Incorporated herein by
reference to corresponding Exhibit of Post-Effective
Amendment No. 22 to the Registration Statement,
SEC File No. 2-88608, filed April 15, 1994.
(7) Bonus, profit sharing or pension plans -- not applicable
(8) (a) Custodian agreement. Incorporated herein by
reference to corresponding Exhibit of
Post-Effective Amendment No. 13 to
the Registration Statement, SEC File No.
2-88608, filed February 23, 1990;
(b) Depository agreement. Incorporated herein by
reference to corresponding Exhibit of
Post-Effective Amendment No. 19 to
the Registration Statement, SEC File No.
2-88608, filed February 12, 1993.
(9) (a) Transfer Agency Agreement (filed herewith)
(b) Assignment Agreement (filed herewith)
(c Shareholder services agreement. Incorporated
herein by reference to corresponding Exhibit
of Post-Effective Amendment No. 19 to the
Registration Statement, SEC File No.
2-88608, filed February 12, 1993.
(10) (a) Opinion of counsel. Incorporated herein by
reference to corresponding Exhibit of the
initial Registration Statement,
SEC File No. 2-88608, filed December 28, 1983.
(b) Opinion of counsel pursuant to Section 24(e)(1)
(filed herewith)
(11) Other opinions, appraisals, rulings and consents
-Accountants' consent (filed herewith)
<PAGE>
(12) Financial statements omitted from Item 23 -- not
applicable
(13) Agreement for providing initial capital. Incorporated
herein by reference to corresponding Exhibit of
Post-Effective Amendment No.
8 to the Registration Statement, SEC File No.
2-88608, filed May 1, 1987.
(14) Prototype retirement plans. Incorporated by
reference from Post- Effective Amendment No. 44 to
the Registration Statement of Bull &
Bear Incorporated, SEC File No. 2-57953, filed
October 24, 1991.
(15) (a) Plan pursuant to Rule 12b-1
(b) Related Agreement to Plan of Distribution
pursuant to Rule 12b-1 between Bull & Bear
Service Center, Inc. and Hanover
Direct Advertising Company, Inc. Incorporated
herein by reference to corresponding Exhibit
of Post-Effective Amendment No. 22 to the
Registration Statement, SEC File No.
2-88608, filed April 15, 1994.
(c) Broker services agreements. Incorporated
herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 19 to the
Registration Statement, SEC File No.
2-88608, filed February 12, 1993.
(16) Schedule for computation of performance quotations
(a) Basic information. Incorporated herein by
reference to corresponding Exhibit of
Post-Effective Amendment No. 22 to
the Registration Statement, SEC File No.
2-88608, filed April 15, 1994.
(b) Supplemental information
Item 25. Persons Controlled by or under Common Control with
Registrant
Not applicable.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders (as of
Title of Class March 31, 1995)
<S> <C>
Shares of Common Stock, designated Bull & 918
Bear Tax-Free Income Fund (doing business
as Bull & Bear Municipal Income Fund)
$0.01 par value, number 50,000,000
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.
The Registrant's Articles of Incorporation Article EIGHTH,
paragraph (7) provide for indemnification against reasonable
costs and expenses incurred in connection with any action, suit
or proceeding to which the director or officer may be a party
by reason of his being or having been a director or
officer of the Corporation to the full extent permitted by the laws
of the State of Maryland and the provisions of the By-Laws of the
Registrant relating to indemnification.
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.
Paragraph 10 of the Investment Management Agreement between
the Registrant and Bull & Bear Advisers, Inc. (the "Investment
Manager") provides that the Investment Manager shall not be
liable to the Registrant or its series or any shareholder of
the Registrant or its series for any error of judgment or
mistake of law or for any loss suffered by the Registrant in
connection with any investment policy or the purchase, sale or
retention of any security on the recommendation of the
Investment Manager. However, the Investment Manager is not
protected against any liability to the Registrant or
to the series by reason of willful misfeasance, bad faith, or
gross negligence in the performance of its duties or by reason
of its reckless disregard of its obligations and duties under
the Investment Management Agreement.
<PAGE>
The Registrant undertakes to carry out all indemnification
provisions of its Articles of Incorporation and By-Laws and the
above-described contract in accordance with Investment Company
Act Release No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to directors,
officers and controlling persons of the Registrant, pursuant to the
foregoing provisions or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant with
the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against
the Registrant by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
The directors and officers of Bull & Bear Advisers,
Inc., the Investment Manager, are also directors and officers of
the other Funds managed by the Investment Manager, a wholly-owned
subsidiary of Bull & Bear Group, Inc. (the "Bull & Bear Funds").
In addition, such officers are officers and directors of Bull &
Bear Group, Inc. and its other subsidiaries; Bull & Bear
Service Center, Inc., the distributor of the Bull & Bear Funds
and a registered broker/dealer and Bull & Bear Securities, Inc.,
a discount brokerage firm. The principal business of both companies
<PAGE>
since their founding has been to serve as investment manager to
registered investment companies. The Investment Manager, also
serves as investment manager of Bull & Bear Dollar Reserves, Bull
& Bear Global Income Fund, and Bull & Bear U.S. Government
Securities Fund, each a series of Bull & Bear Funds II, Inc.; Bull
& Bear Special Equities Fund, Inc.; Bull & Bear Gold Investors Ltd.
and Bull & Bear U.S. and Overseas Fund and Bull & Bear Quality
Growth Fund, each a series of Bull & Bear Funds I, Inc.
Item 29. Principal Underwriters --
a) In addition to the Registrant, Bull & Bear Service
Center, Inc. serves as principal underwriter of Bull & Bear Gold
Investors Ltd., Bull & Bear Funds II, Inc., Bull & Bear Funds I,
Inc., and Bull & Bear Special Equities Fund, Inc.
b) Service Center will serve as the Registrant's principal
underwriter with respect to Bull & Bear Municipal Income Fund, Inc.
The directors and officers of Service Center, their principal
business addresses, their positions and offices with Service Center
and their positions and offices with the Registrant (if any) are
set forth below.
</TABLE>
<TABLE>
<CAPTION>
Position and Offices with
Name and Principal Bull & Bear Service Position and Offices
Business Address Center, Inc. with Registrant
<S> <S> <C>
Bassett S. Winmill Director Chairman of the Board
11 Hanover Square
New York, NY 10005
Robert D. Anderson Vice Chairman and Director Vice Chairman and Director
11 Hanover Square
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Brett B. Sneed Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Chairman, Director and Chief Co-President and Chief Financial
11 Hanover Square Financial Officer Officer
New York, NY 10005
<PAGE>
Thomas B. Winmill President, Director Co-President and General Counsel
11 Hanover Square
New York, NY 10005
William J Maynard Vice President and Secretary Vice President and Secretary
11 Hanover Square
New York, NY 10005
Kathleen B. Fliegauf Vice President and Assistant None
11 Hanover Square Secretary
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
William K. Dean Treasurer Treasurer
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 the Registrant and its Investment Manager). All
other records required by Section 31(a) of the Investment Company
Act of 1940 are located at Investors Bank & Trust Company, 89
South Street, Boston, MA 02109 (the offices of Registrant's
custodian) and at Supervised Service Company, P.O. Box 419789,
Kansas City, MO 64141-6789 (the offices of the Registrant's
transfer and dividend disbursing agent). Copies of certain of
the records located at Investors Bank & Trust Company and
Supervised Service Company are kept at 11 Hanover Square, New York,
NY 10005 (the offices of its Registrant and its Investment
Manager).
Item 31. Management Services -- none
Item 32. Undertakings -- none
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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,
thereunto duly authorized, in the City, County and State of New York on this
12th day of April, 1995.
BULL & BEAR MUNICIPAL SECURITIES, INC.
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 Co-President and Co-Chief April 12, 1995
Mark C. Winmill Executive Officer
Thomas B. Winmill Co-President and Co-Chief April 12, 1995
Thomas B. Winmill Executive Officer
Bassett S. Winmill Director, Chairman of the April 12, 1995
Bassett S. Winmill Board of Directors
William K. Dean Treasurer, Principal April 12, 1995
William K. Dean Accounting Officer
Robert D. Anderson Director April 12, 1995
Robert D. Anderson
Bruce B. Huber Director April 12, 1995
Bruce B. Huber
James E. Hunt Director April 12, 1995
James E. Hunt
Frederick A. Director April 12, 1995
Parker, Jr.
Frederick A.
Parker, Jr.
John B. Russell Director April 12, 1995
John B. Russell
<PAGE>
EXHIBIT INDEX
PAGE
EXHIBIT NUMBER
(4) Specimen security
(9) (a) Transfer Agency Agrement
(b) Assignment Agreement
(10) (b) Opinion of counsel pursuant to Section 24(e)(1)
(11) Other opinions, appraisals, rulings and consents -
Accountants' consent
(27) Financial Data Schedule
Annual Report to Shareholders of the Fund for the fiscal period
ended December 31, 1994 containing financial statements as and
for the fiscal period ended December 31, 1994 . . . . . . . . . . . .
</TABLE>
NUMBER SHARES
BULL & BEAR MUNICIPAL INCOME FUND
INCORPORATED UNDER THE LAWS OF MARYLAND
THIS CERTIFIES THAT ACCOUNT NUMBER
CUSIP NUMBER
120176102
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BULL & BEAR MUNICIPAL INCOME FUND
SERIES OF SHARES OF THE CAPITAL STOCK, PAR VALUE $0.01 PER SHARE OF BULL &
BEAR MUNICIPAL SECURITIES, INC.
Herein called the "Corporation", transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney upon the
surrender of this certificate properly endorsed. The Corporation will furnish
to any shareholder upon request and without charge a full statement of the
designations, relative rights, preferences and limitations of the shares of
each series and class authorized to be issued. This certificate is not valid
unless countersigned by the Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED:
CO-PRESIDENT TREASURER
COUNTERSIGNED:
SUPERVISED SERVICE COMPANY, INC.
(KANSAS CITY, MISSOURI) TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE(S) MUST BY DULY
GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY, SAVINGS AND LOAN ASSOCIATION,
FEDERAL SAVINGS BANK, MEMBER FIRM OF A NATIONAL SECURITIES EXCHANGE OR OTHER
ELIGIBLE FINANCIAL INSTITUTION.
The following abbreviations, when used in the inscription on the face of this
<PAGE>
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship under Uniform
Gifts to Minors Act
and not as tenants in common
(State)
Additional abbreviations may also be used though not in the above list.
For value received, do hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,
Owner
Signature of Co-Owner, if any
IMPORTANT BEFORE SIGNING, READ AND COMPLY CAREFULLY
WITH NOTICE PRINTED ABOVE
Signature(s) guaranteed by:
<PAGE>
TRANSFER AGENCY AGREEMENT
This Agreement made as of the _____ of ____________, 1994 between
Bull & Bear Municipal Securities, Inc., a Maryland corporation
("Fund"), whose series include: Bull & Bear Municipal Income Fund,
having its principal office and place of business at 11 Hanover
Square, New York, New York 10005 and Supervised Service Company
Inc., ("SSC") a Delaware corporation having its principal office
and place of business at 120 South LaSalle, Chicago IL 60603
(hereinafter referred to as the "Transfer Agent").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter
set forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases
shall have the following meanings:
1. "Approved Institution" shall mean an entity so named in
a Certificate. From time to time the Fund may amend a previously
delivered Certificate by delivering to the Transfer Agent a
Certificate naming an additional entity or deleting any entity
named in a previously delivered Certificate.
2. The "Board of Directors" shall mean the Board of
<PAGE>
Directors of the Fund.
3. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Transfer Agent by the Fund which is
signed by any Officer, as hereinafter defined, and actually
received by the Transfer Agent.
4. "Custodian" shall mean the financial institution
appointed as custodian under the terms and conditions of the
Custody Agreement between the financial institution and the Fund,
or its successor(s).
5. "Fund Business Day" shall be deemed to be each day on
which the New York Stock Exchange, Inc. is open for trading.
6. "Officer" shall be deemed to be the Fund's President, any
Vice President of the Fund, the Fund's Secretary, the Fund's
Treasurer, the Fund's Controller, any Assistant Controller of the
Fund, any Assistant Treasurer of the Fund and any Assistant
Secretary of the Fund, and any other person duly authorized by the
Board of Directors of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund and
named in the Certificate annexed hereto as Appendix A, as such
Certificate may be amended from time to time, and any person
<PAGE>
reasonably believed by the Transfer Agent to be such a person.
7. "Out-of-Pocket Expenses" means amounts reasonably
necessary and actually incurred by Transfer Agent in the provision
of Transfer Agent services or pursuant to this Agreement for the
following purposes: postage (and first class mail insurance in
connection with mailing share certificates), envelopes, check
forms, continuous forms, forms for reports and statements,
stationery, and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers or
shareholders, microfilm used to record transactions in shareholder
accounts and computer tapes used for permanent storage of records
and cost of insertion of materials in mailing envelopes by outside
firms. Transfer Agent may, at its option, arrange to have various
service providers submit invoices directly to the Fund for payment
of out-of-pocket expenses reimbursable hereunder; and such other
expenses paid or incurred by Transfer Agent at the request of the
Fund. Any charges associated with special or exception processing
shall also be considered Out-of-Pocket Expenses.
8. "Prospectus" shall mean the most recent Fund prospectus
actually received by the Transfer Agent from the Fund with respect
to which the Fund has indicated a registration statement under the
<PAGE>
Federal Securities Act of 1933 has becomes effective, including the
Statement of Additional Information, incorporated by reference
therein.
9. "Shares" shall mean all or any part of each class or
series of the shares of common stock of the Fund or Portfolio
listed in the Certificate as to which the Transfer Agent acts as
transfer agent hereunder, as may be amended from time to time,
which are authorized and/or issued by the Fund.
10. "Transfer Agent" shall mean Supervised Service Company,
Inc., ("SSC"), as transfer agent and dividend disbursing agent
under the terms and conditions of this Agreement, its successor(s)
or assign(s).
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Fund hereby constitutes and appoints the Transfer
Agent as transfer agent of all the Shares of the Fund and as
dividend disbursing agent during the period of this Agreement.
2. The Transfer Agent hereby accepts appointment as transfer
agent and dividend disbursing agent and agrees to perform duties
thereof as hereinafter set forth.
3. In connection with such appointment, the Fund upon the
request of the Transfer Agent, shall deliver the following
<PAGE>
documents to the Transfer Agent:
(i) A copy of the Articles of Incorporation of the
Fund and all amendments thereto certified by the Secretary of the
Fund;
(ii) A copy of the By-Laws of the Fund certified by the
Secretary of the Fund;
(iii) A copy of a resolution of the Board of Directors
of the Fund certified by the Secretary of the Fund appointing the
Transfer Agent and authorizing the execution of this Transfer
Agency Agreement;
(iv) A Certificate signed by the Secretary of the Fund
specifying: the number of authorized Shares, the number of such
authorized Shares issued, the number of such authorized Shares
issued and currently outstanding; the names and specimen signatures
of the Officers of the Fund; and the name and address of the legal
counsel for the Fund;
(v) Specimen Share certificate for each or series class
of Shares in the form approved by the Board of Directors of the
Fund (and in a format compatible with the Transfer Agent's system),
together with a Certificate signed by the Secretary of the Fund as
to such approval;
(vi) Copies of the Fund's Registration Statement, as
<PAGE>
amended to date, and the most recently filed Post-Effective
Amendment thereto, filed by the Fund with the Securities and
Exchange Commission under the Securities Act of 1933, as amended,
and under the Investment Company Act of 1940, as amended, together
with any applications filed in connection therewith; and
(vii) Opinion of counsel for the Fund with respect to the
validity of the authorized and outstanding Shares, whether such
Shares are fully paid and non-assessable and the status of such
Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (i.e., if subject to
registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the
specific grounds therefor.)
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Fund shall deliver to the Transfer Agent the
following documents on or before the effective date of any increase
or decrease in the total number of Shares authorized to be issued:
(a) A certified copy of the amendment to the Articles of
Incorporation giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel
for the Fund with respect to the validity of the Shares of the Fund
<PAGE>
and the status of such Shares under the Securities Act of 1933, as
amended, and any other applicable federal law or regulation (i.e.,
if subject to registration, that they have been registered and that
the Registration Statement has become effective or, if exempt, the
specific grounds therefor); and
(c) In the case of an increase, if the appointment of
the Transfer Agent was theretofore expressly limited, a certified
copy of a resolution of the Board of Directors of the Fund
increasing the authority of the Transfer Agent.
2. Prior to the issuance of any additional Shares of the
Fund pursuant to stock dividends or stock splits, etc., and prior
to any reduction in the number of shares outstanding, the Fund
shall deliver the following documents to the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the
Board of Directors and/or the shareholders of the Fund authorizing
such issuance of additional Shares of the Fund or such reduction,
as the case may be, and
(b) An opinion of counsel for the Fund with respect to
the validity of the Shares of the Fund and the status of such
Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (i.e., if subject to
registration, that they have been registered and that the
<PAGE>
Registration Statement has become effective, or, if exempt, the
specific grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization
or other capital adjustment requiring a change in the form of Share
certificates, the Transfer Agent will issue Share certificates in
the new form in exchange for, or upon transfer of, outstanding
Share certificates in the old form, upon receiving:
(a) A Certificate authorizing the issuance of the Share
certificates in the new form;
(b) A certified copy of any amendment to the Articles of
Incorporation with respect to the change;
(c) Specimen Share certificates for each class of Shares
in the new form approved by the Board of Directors of the Fund,
with a Certificate signed by the Secretary of the Fund as to such
approval; and
(d) An opinion of counsel for the Fund with respect to
the validity of the Shares in the new form and the status of such
Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (i.e., if subject to
registration, that the Shares have been registered and that the
<PAGE>
Registration Statement has become effective or, if exempt, the
specific grounds therefor.)
2. The Fund at its expense shall furnish the Transfer Agent
with a sufficient supply of blank Share certificates in the new
form and from time to time will replenish such supply upon the
request of the Transfer Agent. Such blank Share certificates shall
be compatible with the Transfer Agent's system and shall be
properly signed by facsimile or otherwise by Officers of the Fund
authorized by law or by the By-Laws to sign Share certificates and,
if required shall bear the corporate Seal or facsimile thereof.
The Fund agrees to indemnify and exonerate, save and hold the
Transfer Agent harmless, from and against any and all claims or
demands that may be asserted against the Transfer Agent with
respect to the genuineness of any Share certificate supplied to the
Transfer Agent by the Fund pursuant to this section 2.
ARTICLE V
ISSUANCE,
REDEMPTION AND TRANSFER OF SHARES
1. (a) The Transfer Agent acknowledges that it has received
a copy of the Fund's Prospectus, which Prospectus describes how
sales and redemption of shares of the Fund shall be made, and the
Transfer Agent agrees to accept purchase orders and redemption
<PAGE>
requests with respect to Fund shares on each Fund Business Day in
accordance with such Prospectus. The Fund agrees to provide the
Transfer Agent with sufficient advance notice to enable the
Transfer Agent to effect any changes in the procedures set forth in
the Prospectus regarding such purchase and redemption procedure;
provided, however, that in no event will such advance notice be
less than 30 days.
(b) The Transfer Agent shall also accept with respect to
each Fund Business Day, at such times as are agreed upon from time
to time by the Transfer Agent and the Fund, a computer tape or
electronic data transmission consistent in all respects with the
Transfer Agent's record format, as amended from time to time, which
is reasonably believed by the Transfer Agent to be furnished by or
on behalf of any Approved Institution. The Transfer Agent shall
not be liable for any losses or damages to the Fund or its
shareholders in the event that a computer tape or electronic data
transmission from an Approved Institution is unable to be processed
for any reason beyond the control of the Transfer Agent, or if any
of the information on such tape or transmission is found to be
incorrect.
2. On each Fund Business Day the Transfer Agent shall, as of
the time at which the Fund computes the net asset value of the
<PAGE>
Fund, issue to and redeem from the accounts specified in a purchase
order, redemption request, or computer tape or electronic data
transmission, which in accordance with the Prospectus is effective
on such Fund Business Day, the appropriate number of full and
fractional Shares based on the net asset value per Share of such
Fund specified in an advice received on such Fund Business Day from
the Fund. Notwithstanding the foregoing, if a redemption specified
in a computer tape or electronic data transmission is for a dollar
value of Shares in excess of the dollar value of uncertificated
Shares in the specified account, the Transfer Agent shall not
effect such redemption in whole or in part and shall within twenty-
four hours orally advise the Approved Institution which supplied
such tape of the discrepancy.
3. In connection with a reinvestment of a dividend or
distribution of Shares of the Fund, the Transfer Agent shall as of
each Fund Business Day, as specified in a Certificate or resolution
described in paragraph 1 of succeeding Article VI, issue Shares of
the Fund based on the net asset value per Share of such Fund
specified in an advice received from the Fund on such Fund Business
Day.
4. On each Fund Business Day the Transfer Agent shall supply
the Fund with a statement specifying with respect to the
<PAGE>
immediately preceding Fund Business Day: the total number of
Shares of the Fund (including fractional Shares) issued and
outstanding at the opening of business on such day; the total
number of Shares of the Fund sold on such day, pursuant to
preceding paragraph 2 of this Article; the total number of Shares
of the Fund redeemed from Shareholders by the Transfer Agent on
such day; the total number of Shares of the Fund, if any, sold on
such day pursuant to preceding paragraph 3 of this Article, and the
total number of Shares of the Fund issued and outstanding.
5. In connection with each purchase and each redemption of
Shares, the Transfer Agent shall send such statements as are
prescribed by the Federal Securities laws applicable to transfer
agents or as described in the Prospectus. If the Prospectus
indicates that certificates for Shares are available and if
specifically requested in writing by any shareholder, or if
otherwise required hereunder, the Transfer Agent will countersign,
issue and mail to such shareholder at the address set forth in the
records of the Transfer Agent a Share certificate for any full
Share requested.
6. As of each Fund Business Day the Transfer Agent shall
furnish the Fund with an advice setting forth the number and dollar
amount of Shares to be redeemed on such Fund Business Day in
<PAGE>
accordance with paragraph 2 of this Article.
7. Upon receipt of a proper redemption request and moneys
paid to it by the Custodian in connection with a redemption of
Shares, the Transfer Agent shall cancel the redeemed Shares and
after making appropriate deduction for any withholding of taxes
required of it by applicable law (a) in the case of a redemption of
Shares pursuant to a redemption described in preceding paragraph
1(a) of this Article, make payment in accordance with the Fund's
redemption and payment procedures described in the Prospectus, and
(b) in the case of a redemption of Shares pursuant to a computer
tape or electronic data transmission described in preceding
paragraph 1(b) of this Article, make payment by directing a federal
funds wire order to the account previously designated by the
Approved Institution specified in said computer tape or electronic
data transmission.
8. The Transfer Agent shall not be required to issue any
Shares after it has received from an Officer of the Fund or from an
appropriate federal or state authority written notification that
the sale of Shares has been suspended or discontinued, and the
Transfer Agent shall be entitled to rely upon such written
notification.
9. Upon the issuance of any Shares in accordance with this
<PAGE>
Agreement the Transfer Agent shall not be responsible for the
payment of any original issue or other taxes required to be paid by
the Fund in connection with such issuance of any Shares.
10. The Transfer Agent shall accept a computer tape or
electronic data transmission consistent with the Transfer Agent's
record format, as amended from time to time, which is reasonably
believed by the Transfer Agent to be furnished by or on behalf of
any Approved Institution and is represented to be instructions with
respect to the transfer of Shares from one account of such Approved
Institution to another such account, and shall effect the transfers
specified in said computer tape or electronic data transmission.
The Transfer Agent shall not be liable for any losses to the Fund
or its shareholders in the event that a computer tape or electronic
data transmission from an Approved Institution is unable to be
processed for any reason beyond the control of the Transfer Agent,
or if any of the information on such tape or transmission is found
to be incorrect.
11.(a) Except as otherwise provided in sub-paragraph (b) of
this paragraph and in paragraph 13 of this Article, Shares will be
transferred or redeemed upon presentation to the Transfer Agent of
Share certificates or instructions properly endorsed for transfer
or redemption, accompanied by such documents as the Transfer Agent
<PAGE>
deems necessary to evidence the authority of the person making such
transfer or redemption, and bearing satisfactory evidence of the
payment of stock transfer taxes. In the case of small estates
where no administration is contemplated, the Transfer Agent may,
when furnished with an appropriate surety bond, and without further
approval of the Fund, transfer or redeem Shares registered in the
name of a decedent where the current market value of the Shares
being transferred does not exceed such amount as may from time to
time be prescribed by various states. The Transfer Agent reserves
the right to refuse to transfer or redeem Shares until it is
satisfied that the endorsement on the stock certificate or
instructions is valid and genuine, and for that purpose it will
require, unless otherwise instructed by an authorized officer of
the Fund, a guarantee of signature by an "Eligible Guarantor
Institution" as that term is defined by SEC Rule 17Ad-15 under the
Securities Exchange Act of 1934. The Transfer Agent also reserves
the right to refuse to transfer or redeem Shares until it is
satisfied that the requested transfer or redemption is legally
authorized, and it shall incur no liability for the refusal, in
good faith, to make transfers or redemptions which the Transfer
Agent, in its judgement, deems improper or unauthorized, or until
it is satisfied that there is no basis to any claims adverse to
<PAGE>
such transfer or redemption. The Transfer Agent may, in effecting
transfers and redemptions of Shares, rely upon those provisions of
the Uniform Act for the Simplification of Fiduciary Security
Transfers or the Uniform Commercial Code, as the same may be
amended from time to time, applicable to the transfer of
securities, and the Fund shall indemnify the Transfer Agent for any
act done or omitted by it in good faith in reliance upon such laws.
In no event will the Fund indemnify the Transfer Agent for any act
done by it as a result of willful misfeasance, bad faith,
negligence or reckless disregard of its duties.
(b) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Transfer Agent
shall be fully protected by the Fund in not requiring any
instruments, documents, assurances, endorsements or guarantees,
including, without limitation, any signature guarantees, in
connection with a redemption, or transfer, of Shares whenever the
Transfer Agent reasonably believes that requiring the same would be
inconsistent with the transfer and redemption procedures as
described in the Prospectus.
12. Notwithstanding any provision contained in this agreement
to the contrary, the Transfer Agent shall not be required or
expected to require, as a condition to any transfer of any Shares
<PAGE>
pursuant to paragraph 13 of this Article or any redemption of any
Shares pursuant to a computer tape or electronic data transmission
described in this Agreement, any documents, including, without
limitation, any documents of the kind described in sub-paragraph
(a) of paragraph 13 of this Article, to evidence the authority of
the person requesting the transfer or redemption and/or the payment
of any stock transfer taxes, and shall be fully protected in acting
in accordance with the applicable provisions of this Article.
13. (a) As used in this Agreement, the terms "computer tape
or electronic data transmission" and "computer tape believed by the
Transfer Agent to be furnished by an Approved Institution", shall
include any tapes generated by the Transfer Agent to reflect
information believed by the Transfer Agent to have been input by an
Approved Institution, via a remote terminal or other similar link,
into a data processing, storage, or collection system, or similar
system (the "System"), located on the Transfer Agent's premises.
For purposes of paragraph 1 of this Article, such a computer tape
or electronic data transmission shall be deemed to have been
furnished at such times as are agreed upon from time to time by the
Transfer Agent and Fund only if the information reflected thereon
was input to the System at such times as are agreed upon in writing
from time to time by the Transfer Agent and the Fund.
<PAGE>
(b) Nothing contained in this Agreement shall constitute any
agreement or representation by the Transfer Agent to permit, or to
agree to permit, any Approved Institution to input information into
a System.
(c) The Transfer Agent reserves the right to approve, in
advance, any Approved Institution, such approval not to be
unreasonably withheld. The Transfer Agent also reserves the right
to terminate any and all automated data communications, at its
discretion, upon a reasonable attempt to notify the Fund when in
the reasonable opinion of the Transfer Agent continuation of such
communications would jeopardize the accuracy and/or integrity of
the Fund's records on the System.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a
resolution of its Board of Directors, certified by the Secretary or
any Assistant Secretary, either (i) setting forth the date of the
declaration of a dividend or distribution, the date of accrual or
payment, as the case may be, thereof, the record date as of which
Shareholders entitled to payment, or accrual, as the case may be,
shall be determined, the amount per Share of such dividend or
distribution, the payment date on which all previously accrued and
<PAGE>
unpaid dividends are to be paid, and the total amount, if any,
payable to the Transfer Agent on such payment date, or (ii)
authorizing the declaration of dividends and distributions on a
daily or other periodic basis and authorizing the Transfer Agent to
rely on a Certificate setting forth the information described in
subsection (i) of this paragraph.
2. Upon the mail date specified in such Certificate or
resolution, as the case may be, the Fund shall, in the case of a
cash dividend or distribution, cause the Custodian to deposit in an
account in the name of the Transfer Agent on behalf of the Fund an
amount of cash, if any, sufficient for the Transfer Agent to make
the payment, as of the mail date, specified in such Certificate or
resolution, as the case may be, to the Shareholders who were of
record on the record date. The Transfer Agent will, upon receipt
of any such cash, make payment of such cash dividends or
distributions to the shareholders of record as of the record date
by: (i) mailing a check, payable to the registered shareholder, to
the address of record or dividend mailing address, or (ii) wiring
such amounts to the accounts previously designated by an Approved
Institution, as the case may be. The Transfer Agent shall not be
liable for any improper payments made in good faith and without
negligence, in accordance with a Certificate or resolution
<PAGE>
described in the preceding paragraph. If the Transfer Agent shall
not receive from the Custodian sufficient cash to make payments of
any cash dividend or distribution to all shareholders of the Fund
as of the record date, the Transfer Agent shall, upon notifying the
Fund, withhold payment to all shareholders of record as of the
record date until sufficient cash is provided to the Transfer
Agent.
3. It is understood that the Transfer Agent shall in no way
be responsible for the determination of the rate or form of
dividends or capital gain distributions due to the shareholders.
It is expressly agreed and understood that the Transfer Agent is
not liable for any loss as a result of processing a distribution
based on information provided in the Certificate that is incorrect.
The Fund agrees to pay the Transfer Agent for any and all costs,
both direct and out-of-pocket expenses, incurred in such corrective
work as necessary to remedy such error.
4. It is understood that the Transfer Agent shall file such
appropriate information returns concerning the payment of dividend
and capital gain distributions with the proper federal, state and
local authorities as are required by law to be filed by the Fund
but shall in no way be responsible for the collection or
withholding of taxes due on such dividends or distributions due
<PAGE>
to shareholders, except and only to the extent, required by
applicable law.
ARTICLE VII
CONCERNING THE FUND
1. The Fund represents to the Transfer Agent that:
(a) It is a corporation duly organized and existing
under the laws of the State of Maryland.
(b) It is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform
this Agreement.
(c) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the
Investment Company Act of 1940, as amended.
(e) A registration statement under the Securities Act of
1933, as amended, with respect to the Shares is effective. The
Fund shall notify the Transfer Agent if such registration statement
or any state securities registrations have been terminated or a
stop order has been entered with respect to the Shares.
2. Each copy of the Articles of Incorporation of the Fund
and copies of all amendments thereto shall be certified by the
Secretary of State (or other appropriate official) of the state of
<PAGE>
organization, and if such Articles of Incorporation and/or
amendments are required by law also to be filed with a county or
other officer or official body, a certificate of such filing shall
be filed with a certified copy submitted to the Transfer Agent.
Each copy of the By-Laws and copies of all amendments thereto, and
copies of resolutions of the Board of Directors of the Fund, shall
be certified by the Secretary of the Fund.
3. The Fund shall promptly deliver to the Transfer Agent
written notice of any change in the Officers authorized to sign
Share Certificates, notifications or requests, together with a
specimen signature of each new Officer. In the event any Officer
who shall have signed manually or whose facsimile signature shall
have been affixed to blank Share certificates shall die, resign or
be removed prior to issuance of such Share certificates, the
Transfer Agent may issue such Share certificates of the Fund
notwithstanding such death, resignation or removal, and the Fund
shall promptly deliver to the Transfer Agent such approval,
adoption or ratification as may be required by law.
4. It shall be the sole responsibility of the Fund to
deliver to the Transfer Agent the Fund's currently effective
Prospectus and, for purposes of this Agreement, the Transfer Agent
shall not be deemed to have notice of any information contained in
<PAGE>
such Prospectus until a reasonable time, not to exceed ten (10)
business days, after it is actually received by the Transfer Agent.
ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents and warrants to the Fund
that:
(a) It is a corporation duly organized and existing
under the laws of the State of Delaware.
(b) It is empowered under applicable law and by its
Charter and By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under
Section 17A of the Securities Exchange Act of 1934, as amended.
2. The Transfer Agent shall not be liable and shall be
indemnified in acting upon any computer tape or electronic data
transmission, writing or document reasonably believed by it to be
genuine and to have been signed or made by an Officer of the Fund
or person designated by the Fund and shall not be held to have any
notice of any change of authority of any person until receipt of
written notice thereof from the Fund or such person. It shall also
be protected in processing Share certificates which bear the proper
<PAGE>
countersignature of the Transfer Agent and which it reasonably
believes to bear the proper manual or facsimile signature of the
Officers of the Fund.
3. The Transfer Agent upon reasonable notice to the Fund may
establish such additional procedures, rules and regulations
governing the transfer or registration of Share certificates as it
may deem advisable and consistent with such rules and regulations
generally adopted by mutual fund transfer agents.
4. The Transfer Agent shall keep such records as are
specified in Schedule II hereto in the form and manner, and for
such period, as it may deem advisable and is agreeable to the Fund
but not inconsistent with the rules and regulations of appropriate
government authorities, in particular Rules 31a-2 and 31a-3 under
the Investment Company Act of 1940, as amended. The Transfer Agent
acknowledges that such records are the property of the Fund. The
Transfer Agent may deliver to the Fund from time to time at its
discretion, for safekeeping or disposition by the Fund in
accordance with law, such records, papers, documents accumulated in
the execution of its duties as such Transfer Agent, as the Transfer
Agent may deem expedient, other than those which the Transfer Agent
is itself required to maintain pursuant to applicable laws and
regulations. The Fund shall assume all responsibility for any
<PAGE>
failure thereafter to produce any record, paper, cancelled Share
certificate, or other document so returned, if and when required.
The records specified in Schedule II hereto maintained by the
Transfer Agent pursuant to this paragraph 4, which have not been
previously delivered to the Fund pursuant to the foregoing
provisions of this paragraph 4, shall be considered to be the
property of the Fund, shall be made available upon request for
inspection by the officers, employees, auditors of the Fund, or
such staff of applicable regulatory agencies as the Fund may
designate, and records shall be delivered to the Fund upon request
and in any event upon the date of termination of this Agreement, as
specified in Article IX of this Agreement, in the form and manner
kept by the Transfer Agent on such date of termination or such
earlier date as may be requested by the Fund.
5. The Transfer Agent shall not be liable for any loss or
damage, including counsel fees, resulting from its actions or
omissions to act or otherwise, except for any loss or damage
arising out of its bad faith, negligence, willful misfeasance,
gross negligence or reckless disregard of its duties under this
agreement.
6 (a) The Fund shall indemnify and exonerate, save and
hold harmless the Transfer Agent from and against any and all
<PAGE>
claims (whether with or without basis in fact or law), demands,
expenses (including reasonable attorney's fees) and liabilities of
any and every nature which the Transfer Agent may sustain or incur
or which may be asserted against the Transfer Agent by any person
by reason of or as a result of any action taken or omitted to be
taken by any prior transfer agent of the Fund or as a result of any
action taken or omitted to be taken by the Transfer Agent in good
faith and without negligence or willful misconduct or in reliance
upon (i) any provision of this Agreement; (ii) the Prospectus;
(iii) any instruction or order including, without limitation, any
computer tape or electronic data transmission reasonably believed
by the Transfer Agent to have been received from an Approved
Institution; (iv) any instrument, order or Share certificate
reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized Officer of the
Fund; (v) any Certificate or other instructions of an Officer; or
(vi) any opinion of legal counsel for the Fund or the Transfer
Agent. The Fund shall indemnify and exonerate, save and hold the
Transfer Agent harmless from and against any and all claims
(whether with or without basis in fact or law), demands, expenses
(including reasonable attorney's fees) and liabilities of any and
every nature which the Transfer Agent may sustain or incur or which
<PAGE>
may be asserted against the Transfer Agent by any person by reason
of or as a result of any action taken or omitted to be taken by the
Transfer Agent in good faith and without negligence in connection
with its appointment or in reliance upon any law, act, regulation
or any interpretation of the same even though such law, act or
regulation may thereafter have been altered, changed, amended or
repealed.
(b) The Transfer Agent shall not settle any claim,
demand, expense or liability to which it may seek indemnity
pursuant to paragraph 6(a) above (each, an "Indemnifiable Claim")
without the express written consent of an Officer of the Fund. The
Transfer Agent shall notify the Fund within 15 days of receipt of
notification of an Indemnifiable Claim, provided that the failure
by the Transfer Agent to furnish such notification shall not impair
its right to seek indemnification from the Fund unless the Fund is
unable to adequately defend the Indemnifiable Claim as a result of
such failure, or if as a result of the Transfer Agent's failure to
provide the Fund with timely notice of the institution of
litigation a judgment by default is entered. The Fund shall have
the right to defend any Indemnifiable Claim at its own expense,
provided that such defense shall be conducted by counsel selected
by the Fund. The Transfer Agent may join in such defense at its
<PAGE>
own expense, but to the extent that it shall so desire the Fund
shall direct such defense. The Fund shall not settle any
Indemnifiable Claim without the express written consent of the
Transfer Agent if the Transfer Agent determines that such
settlement would have an adverse effect on the Transfer Agent
beyond the scope of this Agreement. In the event the Transfer
Agent does not provide its written consent, each of the Fund and
the Transfer Agent shall be responsible for their own defense at
their own cost and expense, and such claim shall not be deemed an
Indemnifiable Claim hereunder. If the Fund shall fail or refuse to
defend an Indemnifiable Claim, the Transfer Agent may provide its
own defense at the cost and expense of the Fund. Anything in this
Agreement to the contrary notwithstanding, the Fund shall not
indemnify the Transfer Agent against any liability or expense
arising out of the Transfer Agent's willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations
under this Agreement.
The Transfer Agent shall indemnify and hold the Fund harmless
from and against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or
attributable to any action or failure or omission to act by the
Transfer Agent as a result of the Transfer Agent's lack of good
<PAGE>
faith, negligence or willful misconduct.
7. The Transfer Agent shall not be liable to the Fund with
respect to any redemption draft on which the signature of the
drawer is forged and which the Fund's Custodian or Cash Management
Bank has advised the Transfer Agent to honor the redemption.
Provided that the Transfer Agent inspects redemption drafts with
reasonable care to verify the drawer's signature against signatures
on file, the Transfer Agent shall not be liable for any material
alteration or absence or forgery of any endorsement.
8. There shall be excluded from the consideration of whether
the Transfer Agent has been negligent or has breached this
Agreement, any period of time, and only such period of time, during
which the Transfer Agent's performance is materially affected, by
reason of circumstances beyond its control and not reasonably
foreseeable in that the Transfer Agent could not reasonable have
made back-up or alternative arrangements (collectively, "Causes"),
including, without limitation (except as provided below),
mechanical breakdowns of equipment (including any alternative power
supply and operating systems software), flood or catastrophe, acts
of God, failures of transportation, communication or power supply,
strikes, lockouts, work stoppages or other similar circumstances.
9. At any time the Transfer Agent may apply to an Officer of
<PAGE>
the Fund for written instructions with respect to any matter
arising in connection with the Transfer Agent's duties and
obligations under this Agreement, and the Transfer Agent shall not
be liable for any action taken or permitted by it in good faith in
accordance with such written instructions. Such application by the
Transfer Agent for written instructions from an Officer of the Fund
may set forth in writing any action proposed to be taken or omitted
by the Transfer Agent with respect to its duties or obligations
under this Agreement and the date on and/or after which such action
shall be taken. The Transfer Agent shall not be liable for any
action taken or omitted in accordance with a proposal included in
any such application on or after the date specified therein unless,
prior to taking or omitting any such action, the Transfer Agent has
received written instructions in response to such application
specifying the action to be taken or omitted. The Transfer Agent
may consult counsel of the Fund, or if acceptable to the Fund, its
own counsel, at the expense of the Fund and shall be fully
protected with respect to anything done or omitted by it in good
faith in accordance with the advice or opinion of counsel to the
Fund or its own counsel.
10. The Transfer Agent may issue new Share certificates in
place of certificates represented to have been lost, stolen, or
<PAGE>
destroyed upon receiving written instructions from the shareholder
accompanied by proof of an indemnity or surety bond issued by a
recognized insurance institution specified by the Fund or the
Transfer Agent. If the Transfer Agent receives written
notification from the shareholder or broker dealer that the
certificate issued was never received, and such notification is
made within 30 days of the date of issuance, the Transfer Agent may
reissue the certificate without requiring a surety bond. The
Transfer Agent may also reissue certificates which are represented
as lost, stolen, or destroyed without requiring a surety bond
provided that the notification is in writing and accompanied by an
indemnification signed on behalf of a member firm of the New York
Stock Exchange and signed by an officer of said firm with the
signature guaranteed. Notwithstanding the foregoing, the Transfer
Agent will reissue a certificate upon written authorization from an
Officer of the Fund.
11. In case of any requests or demands for the inspection of
the shareholder records of the Fund, the Transfer Agent will
endeavor to notify the Fund promptly and to secure instructions
from an Officer as to such inspection. The Transfer Agent reserves
the right, however, to exhibit the shareholder records to any
person whenever it receives an opinion from its counsel that there
<PAGE>
is a reasonable likelihood that the Transfer Agent will be held
liable for the failure to exhibit the shareholder records to such
person; provided, however, that in connection with any such
disclosure the Transfer Agent shall promptly notify the Fund that
such disclosure has been made or is to be made.
12. At the request of an Officer of the Fund the Transfer
Agent will address and mail such appropriate notices to
shareholders as the Fund may direct.
13. Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation
to inquire into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority
of the Approved Institution or of the Fund, as the case may be, to
request such sale or issuance;
(b) The legality of a transfer of Shares, or of a
redemption of any Shares, the propriety of the amount to be paid
therefor, or the authority of the Approved Institution or of the
Fund, as the case may be, to request such transfer or redemption;
(c) The legality of the declaration of any dividend by
the Fund, or the legality of the issue of any Shares in payment of
any stock dividend; or
<PAGE>
(d) The legality of any recapitalization or readjustment
of Shares.
14. The Transfer Agent shall be entitled to receive and the
Fund hereby agrees to pay to the Transfer Agent for its performance
hereunder, including its performance of the duties and functions
set forth in Schedule I hereto, (i) its reasonable out-of-pocket
expenses (including reasonable legal expenses and attorney's fees)
incurred in connection with its performance hereunder and (ii) such
compensation as may be agreed upon in writing from time to time by
the Transfer Agent and the Fund.
15. The Transfer Agent shall have no duties or
responsibilities whatsoever except such duties and responsibilities
as are specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the Transfer
Agent.
16. Purchase and Prices of Services.
(a) The Fund will compensate the Transfer Agent for, and
Transfer Agent will provide, beginning on the execution date of
this Agreement and continuing until the termination of this
Agreement as provided hereinafter, the Services set forth in
Schedule I.
(b) The current unit prices for the Services are set
<PAGE>
forth in Schedule III (the "Schedule III Fee Schedule"). Once in
each calendar year, after the third anniversary of the date hereof,
the Transfer Agent may elect to raise the Schedule III Fees upon
ninety (90) days prior notice to the Fund. Notwithstanding the
annual right to raise the Schedule III Fees, the Transfer Agent may
increase prices due to changes in legal or regulatory requirements
subject to the approval of the Fund, which approval shall not be
unreasonably withheld.
17. Billing and Payment.
(a) The Transfer Agent shall bill the Fund as follows:
(i) monthly in arrears for Accounts maintained and Out-of-Pocket
Expenses; and (ii) monthly in advance for estimated postage
expenses to be incurred by the Transfer Agent for the following
month. Documentation to support reconciliation of actual postage
expense charges will be provided to the Fund monthly. The Transfer
Agent may from time to time request the Fund to make additional
advances when appropriate.
(b) The Fund shall pay the Transfer Agent in immediately
available funds at United Missouri Bank in Kansas City, Missouri
within thirty (30) days of the date of the bill and receipt of
supporting documents. Any amounts due under this Agreement which
are not paid within said thirty (30) day period shall bear interest
<PAGE>
at the rate of one and one-half percent (1 1/2%) per month from
such date until paid in full.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement
by giving to the other party a notice in writing specifying the
date of such termination, which shall be not less than ninety (90)
days after the date of receipt of such notice. In the event such
notice is given by the Fund, it shall be accompanied by a copy of
a resolution of the Board of Directors of the Fund, certified by
the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating the successor transfer agent or
transfer agents. In the event such notice is given by the Transfer
Agent, the Fund shall on or before the termination date, deliver to
the Transfer Agent a copy of a resolution of its Board of Directors
certified by the Secretary or any Assistant Secretary designating
a successor transfer agent or transfer agents. In the absence of
such designation by the Fund, the Fund shall upon the date
specified in the notice of termination of this Agreement and
delivery of the records maintained hereunder, be deemed to be its
own transfer agent and the Transfer Agent shall thereby be relieved
of all duties and responsibilities pursuant to this Agreement.
<PAGE>
In the event this Agreement is terminated as provided herein,
the Transfer Agent, upon the written request of the Fund, shall
deliver the records of the Fund on electromagnetic media to the
Fund or its successor transfer agent. The Fund shall be
responsible to the Transfer Agent for the reasonable costs and
expenses associated with the preparation and delivery of such
media.
ARTICLE X
MISCELLANEOUS
1. The Fund agrees that prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations
of the Transfer Agent hereunder, it shall advise the Transfer Agent
of such proposed change at least 30 days prior to the intended date
of the same, and shall proceed with such change only if it shall
have received the written consent of the Transfer Agent thereto,
which consent shall not be unreasonably withheld.
2. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be
sufficiently given if addressed to the Fund and mailed or delivered
to it at its office at the address first above written, or at such
other place as the Fund may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or
<PAGE>
required by this Agreement to be given to the Transfer Agent shall
be sufficiently given if addressed to the Transfer Agent and mailed
or delivered to the Secretary at 120 South LaSalle, Chicago, IL,
with a copy to the President at 811 Main Street, Kansas City, MO,
or at such other place as the Transfer Agent may from time to time
designate in writing.
4. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties with
the formality of this Agreement.
5. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns.
This Agreement shall not be assignable by either party without the
written consent of the other party, except that the Transfer Agent
may assign this Agreement to a corporate affiliate with advance
written notice to and consent by the Fund, which consent shall not
be unreasonably withheld.
6. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
7. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original; but
such counterparts shall, together, constitute only one instrument.
8. The provisions of this Agreement are intended to benefit
<PAGE>
only the Transfer Agent and the Fund, and no rights shall be
granted to any other person by virtue of this Agreement.
9. (a) The Transfer Agent will endeavor to assist in
resolving shareholder inquiries and errors relating to the period
during which prior transfer agents acted as such for the Fund. Any
such inquiries or errors which cannot be expediently resolved by
the Transfer Agent will be referred to the Fund.
(b) The Transfer Agent shall only be responsible for the
safekeeping and maintenance of transfer agency records, cancelled
certificates and correspondence of the Fund created or produced
prior to the time of conversion which are under its control and
acknowledged in a writing to the Fund to be in its possession. Any
expenses or liabilities incurred by the Transfer Agent as a result
of shareholder inquiries, regulatory compliance or audits related
to such records and not caused as a result of Transfer Agent's bad
faith, willful malfeasance or negligence shall be the
responsibility of the Fund as provided in Article VIII herein.
10. The Transfer Agent shall enter into and shall maintain in
effect with appropriate parties one or more agreements making
reasonable provision for periodic backup or computer files and data
with respect to the Fund and emergency use of electronic data
processing equipment. In the event of equipment failures the
<PAGE>
Transfer Agent shall at no additional expense to the Fund, take all
reasonable steps to minimize service interruptions, the Transfer
Agent shall have no liability with respect to the loss of data or
service interruptions caused by equipment failures, provided such
loss or interruption is not caused by the negligence of the
Transfer Agent and provided further that the Transfer Agent has
complied with the provisions of this Paragraph.
11. The Transfer Agent agrees on its own behalf and that of
its employees to make reasonable efforts to keep confidential all
records of the Fund and information relating to the Fund and its
shareholders (past, present and future), its investment advisor and
its principal underwriter, unless the release of such records or
information is otherwise consented to, in writing, by the Fund
prior to its release. The Fund agrees that such consent shall not
be unreasonably withheld, and may not be withheld where Transfer
Agent may be exposed to civil or criminal contempt proceedings or
when required to divulge such information or records to duly
constituted authorities.
12. The Transfer Agent shall maintain insurance of the types
and in the amounts deemed by it to be appropriate. To the extent
that policies of insurance may provide for coverage of claims for
liability or indemnity by the parties set forth in this Agreement,
<PAGE>
the contracts of insurance shall take precedence, and no provision
of this Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Fund, the Transfer Agent or other
insured party which would otherwise be a covered claim in the
absence of any provision of this Agreement.
13. The Transfer Agent represents and warrants that, to the
best of its knowledge, the various procedures and systems which the
Transfer Agent has implemented with regard to the safeguarding from
loss or damage attributable to fire, theft or any other cause
(including provision for twenty-four hours a day restricted access)
of the Fund's blank checks, certificates, records and other data
and the Transfer Agent's equipment, facilities and other property
used in the performance of its obligations hereunder are adequate,
and that it will make such changes therein from time to time as in
its judgment are required for the secure performance of its
obligations hereunder. The Transfer Agent shall review such
systems and procedures on a periodic basis and the Fund shall have
access to review these systems and procedures.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective corporate officer,
<PAGE>
thereunto duly authorized and their respective corporate seals to
be hereunto affixed, as the day and year first above written.
Supervised Service Company, Inc. Bull & Bear Municipal
Securities, Inc.
By: __________________________ By: _______________________
(Signature) (Signature)
__________________________ _______________________
(Name) (Name)
__________________________ _______________________
(Title) (Title)
<PAGE>
<PAGE>
SCHEDULE I
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at
such times as Fund and Transfer Agent may agree, Transfer Agent
will provide the services set forth below:
Examine and Process New Accounts, Subsequent Payments,
Liquidations, Exchanges, Telephone Transactions, Check Redemptions,
Automatic Withdrawals, Certificate Issuance, Wire Order Trades,
Dividends, Dividend Statements, Dealer Statements.
DAILY ACTIVITY
Maintain the following shareholder information in such a
manner as the Transfer Agent shall determine:
Name and Address, including Zip Code
Balance of Uncertificated Shares
Balance of Certificated Shares
Certificate number, number of shares, issuance date of each
certificate outstanding and cancellation date for each
certificate date for each certificate no longer outstanding,
if issued
Balance of dollars available for redemption
Dividend code (daily accrual, monthly reinvest, monthly cash
or quarterly cash)
Type of account code
Establishment date indicating the date an account was opened,
carrying forward pre-conversion data as available
Original establishment date for accounts opened by exchange
W-9 withholding status and periodic reporting
State of residence code
<PAGE>
Social Security or taxpayer identification number, and
indication of certification
Historical transactions on the account for the most recent 18
months, or other period as mutually agreed to from time-to-
time
Indication as to whether phone transactions can be accepted
for this account. Beneficial owner code, i.e. male, female,
joint tenant, etc.
An alternate or "secondary" account number issued by a dealer
(or bank, etc.) to a customer for use, inquiry and transaction
input by "remote accessors"
FUNCTIONS
Answer investor and dealer telephone and/or written inquiries,
except those concerning Fund policy, or requests for
investment advice which will be referred to the Fund, or those
which the Fund chooses to answer
Deposit Fund share certificates into accounts upon receipt of
instructions from the investor or other authorized person, if
issued
Examine and process transfers of shares insuring that all
transfer requirements and legal documents have been supplied
Process and confirm address changes
Process standard account record changes as required, i.e.
Dividend Codes, etc.
Microfilm source documents for transactions, such as account
applications and correspondence
Perform backup withholding for those accounts which federal
government regulations indicate is necessary
Perform withholdings on liquidations, if applicable, for
<PAGE>
employee benefit plans. Prepare and mail 5498s and 1099R's
Solicit missing taxpayer identification numbers
Provide remote access inquiry to Fund records via Fund
supplied hardware (Fund responsible for connection line and
monthly fee)
REPORTS PROVIDED
Daily Journals Reflecting all shares and
dollar activity for the
previous day
Blue Sky Report Supply information monthly
for Fund's preparation of
Blue Sky Reporting
N-SAR Report Supply monthly correspondence,
redemption and liquidation
information for use in fund's
N-SAR Report
Additionally, monthly average daily balance reports will be
provided at the Fund's request to the Fund at no charge.
Prepare and mail copies of summary statements to dealers and
investment advisers
Generate and mail confirmation statements for financial
transactions
DIVIDEND ACTIVITY
Reinvest or pay in cash including reinvesting in other funds
within the fund group serviced by the Transfer Agent as
described in each Fund Prospectus
Distribute capital gains simultaneously with income dividends
DEALER SERVICES
<PAGE>
Prepare and mail confirmation statements to dealers daily
Prepare and mail copies of statements to dealers, same
frequency as investor statements
ANNUAL MEETINGS
Assist Fund in obtaining a qualified service to: address and
mail proxies and related material, tabulate returned proxies
and supply daily reports when sufficient proxies have been
received
Prepare certified list of stockholders, hard copy or microform
PERIODIC ACTIVITIES
Mail transaction confirmation statements daily to investors
Address and mail four (4) periodic financial reports (material
must be adaptable to Transfer Agent's mechanical equipment as
reasonably specified by the Transfer Agent)
Mail periodic statement to investors
Compute, prepare and furnish all necessary reports to
Governmental authorities: Forms 1099R, 1099DIV, 1099B, 1042
and 1042S
Enclose various marketing material as designated by the Fund
in statement mailings, i.e. monthly and quarterly statements
(material must be adaptable to mechanical equipment as
reasonably specified by the Transfer Agent)
<PAGE>
<PAGE>
SCHEDULE II
RECORDS MAINTAINED BY TRANSFER AGENT
- Account applications
- Cancelled certificates plus stock powers and supporting
documents
- Checks including check registers, reconciliation records,
any adjustment records and tax withholding documentation
- Indemnity bonds for replacement of lost or missing stock
certificates and checks
- Liquidation, redemption, withdrawal and transfer requests
including stock powers, signature guarantees and any
supporting documentation
<PAGE>
SUPERVISED SERVICE COMPANY, INC.
April 4, 1995
VIA AIRBORNE EXPRESS
Bull & Bear Municipal Securities, Inc.
Attn: Thomas B. Winmill
11 Hanover Square
New York, NY 10005
Dear Mr. Winmill
As we have advised you, Supervised Service Company, Inc. (SSC) has entered an
agreement to sell substantially all of its assets, including its mutual fund
transfer agency business to DST Systems, Inc. (DST). DST has agreed to assume
and perform all of SSC's obligations under the Transfer Agency Agreement
between BULL & BEAR MUNICIPAL SECURITIES, INC. and SSC dated August 30, 1994,
(the "Agreement"). All of the terms and conditions of your agreement,
including the fee schedule, will remain in effect in accordance with the terms
of the Agreement.
We believe this transaction will ensure continued excellent service to you and
your shareholders. Please indicate your consent to the assignment of your
agreement to DST by executing and returning the enclosed copy of this letter
in the return Airborne Express envelope provided.
We would appreciate your prompt response. If you have questions, please
contact either of us at the numbers indicated below.
Supervised Service Company, Inc DST Systems, Inc.
By: Robert W. Ciarlelli By: Thomas A. McCullough
(816) 292-6206 (816) 435-8656
BULL & BEAR MUNICIPAL SECURITIES, INC. hereby consents to the assignment of
the Agreement to DST Systems, Inc. as described above.
By: Thomas B. Winmill
Co-President
<PAGE>
April 11, 1995
Bull & Bear Municipal Securities, Inc.
11 Hanover Square
New York, New York 10005
Dear Sir or Madam:
Bull & Bear Municipal Securities, Inc. ("Company") is a corporation
organized under the laws of the State of Maryland. We understand that the
Company is about to file Post-Effective Amend-ment No. 22 to its registration
statement on Form N-1A for the purpose of registering additional shares of
capital stock of the Company's sole series, Bull & Bear Tax-Free Income Fund
(authorized to do business as Bull & Bear Municipal Income Fund), under the
Securities Act of 1933, as amended ("1933 Act"), pursuant to Section 24(e)(1) of
the Investment Company Act of 1940, as amended ("1940 Act").
We have, as counsel, participated in various corporate and other
proceedings relating to the Company. We have examined copies, either certified
or otherwise proved to be genuine, of the Company's Articles of Incorporation
and By-Laws, as now in effect and other documents relating to its organization
and operation. Based upon the foregoing, it is our opinion that the shares of
capital stock of the Company currently being registered pursuant to Section
24(e)(1) as reflected in Post-Effective Amendment No. 22, when sold in
accordance with the Company's Articles of Incorpora-tion and By-Laws, will be
legally issued, fully paid and non-assessable, subject to compliance with the
1933 Act, the 1940 Act and applicable state laws regulating the offer and sale
of securities.
We hereby consent to this opinion accompanying Post-Effective Amendment No.
22 which you are about to file with the Securities and Exchange Commission.
Sincerely,
KIRKPATRICK & LOCKHART
By: Theodore L. Press
Theodore L. Press
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 19, 1995 on the
financial statements and financial highlights of Bull & Bear Municipal Income
Fund, a series of Bull & Bear Municipal Securities, Inc. Such financial
statements and financial highlights appear in the 1994 Annual Report to
Shareholders which is incorporated by reference in the Statement of Additional
Information filed in Post-Effective Amendment No. 22 under the Securities Act
of 1933 and Amendment No. 21 under the Investment Company Act of 1940 to the
Registration Statement on Form N-1A of Bull & Bear Municipal Income Fund, a
series of Bull & Bear Municipal Securities, Inc. We also consent to the
references to our firm in the Reistration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 11, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BULL & BEAR MUNICIPAL INCOME FUND ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 15,675,866
<INVESTMENTS-AT-VALUE> 15,585,286
<RECEIVABLES> 329,520
<ASSETS-OTHER> 776,962
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,691,750
<PAYABLE-FOR-SECURITIES> 704,440
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 66,018
<TOTAL-LIABILITIES> 770,458
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,220,656
<SHARES-COMMON-STOCK> 1,043,750
<SHARES-COMMON-PRIOR> 1,210,836
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,208,766)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (90,598)
<NET-ASSETS> 15,921,292
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,102,191
<OTHER-INCOME> 0
<EXPENSES-NET> 309,853
<NET-INVESTMENT-INCOME> 792,338
<REALIZED-GAINS-CURRENT> (1,267,250)
<APPREC-INCREASE-CURRENT> (1,430,317)
<NET-CHANGE-FROM-OPS> (1,905,229)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 792,722
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,449,376
<NUMBER-OF-SHARES-REDEEMED> 4,651,821
<SHARES-REINVESTED> 35,359
<NET-CHANGE-IN-ASSETS> (5,423,980)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112,479
<INTEREST-EXPENSE> 9,081
<GROSS-EXPENSE> 329,031
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 17.63
<PER-SHARE-NII> 0.68
<PER-SHARE-GAIN-APPREC> (2.38)
<PER-SHARE-DIVIDEND> 0.68
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.25
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 113,655
<AVG-DEBT-PER-SHARE> 0
</TABLE>
