Filed with the Securities and Exchange Commission on APRIL 15, 1996.
1933 Act File No. 2-88608
1940 Act File No. 811-3934
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 23
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22
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 LLP
11 Hanover Square 1800 Massachusetts Avenue, N.W.
New York, New York 10005 Washington, D.C. 20036-1800
(Name and Address of
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 29, 1996.
CALCULATION OF REGISTRATION FEE
<TABLE>
PROPOSED MAXI PROPOSED MAXI
TITLE OF SECURITIES BEING REGISTERED AMOUNT OF MUM OFFERING MUM AGGREGATE AMOUNT OF
SHARES BEING PRICE PER OFFERING REGISTRATION
REGISTERED UNIT(1) PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
Shares of Common Stock of Bull & 109,676 $16.11 $290,000 $100.00
Bear Municipal Securities, Inc., Par
Value $0.01, designated 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 8, 1996 pursuant to Rule
457(d) under the 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, 1995, Registrant redeemed or repurchased 857,584
shares. Registrant used 765,909 of the shares it redeemed or repurchased during
its fiscal year ended December 31, 1995, for a reduction pursuant to paragraph
(c) of Rule 24f-2 under the Investment Company Act of 1940 (shares sold;
including shares issued in reinvestment of dividends). Registrant is using this
post-effective amendment to register the remaining 91,675 shares redeemed or
repurchased during its fiscal year ended December 31, 1995 plus 18,001 shares
($290,000/$16.11). 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.
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
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
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
The investment objective of Bull & Bear Municipal Income Fund ("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 principally 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.
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NEWSPAPER LISTING. Shares of the Fund are sold
at the net asset value per share which is shown
daily in the mutual fund section of newspapers
under the "Bull & Bear Group" heading.
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This prospectus contains information you should know about the Fund before
you invest. Please keep it for future reference. The Fund's Statement of
Additional Information, dated April 15, 1996, 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. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
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").
Shareholder Transaction Expenses
Sales Load Imposed on Purchases..................NONE
Sales Load Imposed on Reinvested
Dividends.......................................NONE
Deferred Sales Load..............................NONE
Redemption Fees .................................NONE
Exchange Fees....................................NONE
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (after waiver)..................0.43%
12b-1 Fees......................................0.35%
Other Expenses .................................1.00%
Total Fund Operating Expenses
(after waiver)..................................1.78%
<TABLE>
<S> <C> <C> <C> <C>
Example 1 3 5 10
year years years years
You would pay the following expenses on a $1,000 in $18 $56 $96 $209
vestment, assuming a 5% annual return and a redemption
at the end of each time period......................................
</TABLE>
The example set forth above assumes reinvestment of all dividends and other
distributions and uses an assumed 5% annual rate of return as required by the
Securities and Exchange Commission ("SEC"). The example is an illustration only
and should not be considered an indication of past or future returns and
expenses. Actual returns and expenses may be greater or less than those shown.
The percentages given for Annual Fund Operating Expenses are based on the Fund's
operating expenses and average daily net assets during its fiscal year ended
December 31, 1995. Without the Investment Manager's fee waiver, Management Fees
and Total Fund Operating Expenses would have been 0.60% and 1.95% 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 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, 1995 Annual Report to Shareholders and incorporated by reference in
the Statement of Additional Information.
2
<TABLE>
Years Ended December 31,
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PER SHARE DATA 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $15.25 $17.63 $17.06 $17.27 $16.91 $17.29 $17.44 $16.74 $18.17 $16.88
Income from investment operations:
Net investment income .70 .68 .75 .89 1.02 1.01 1.11 1.22 1.26 1.32
Net realized and unrealized gain (loss)
on investmen 1.78 (2.38) 1.02 .11 1.23 (.38) .40 .67 (1.43) 1.86
Total from investment operations 2.48 (1.70) 1.77 1.00 2.25 .63 1.51 1.89 (.17) 3.18
Less distributions:
Distributions from net investment income (.69) (.68) (.75) (.89) (1.03) (1.01) (1.14) (1.19) (1.26) (1.31)
Distributions from net realized gains --- --- (.45) (.32) (.86) --- (.52) --- --- (.58)
Total distributions (.69) (.68) (1.20) (1.21) (1.89) (1.01) (1.66) (1.19) (1.26) (1.89)
Net asset value at end of period $17.04 $15.25 $17.63 $17.06 $17.27 $16.91 $17.29 $17.44 $16.74 $18.17
TOTAL RETURN 16.58%(9.76)% 10.59% 6.04% 13.69% 3.88% 8.93% 11.63% (.91%) 19.63%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $16,220 $15,921 $21,345 $20,781 $20,458 $20,560 $20,482 $19,241 $16,141 $21,771
Ratio of expenses to average net assets(a) (b) 1.78% 1.60% 1.61% 1.60% 1.60% 1.50% 1.35% 1.27% 1.18% 1.18%
Ratio of net investment income to average net
assets (c4.31% 4.23% 4.25% 5.19% 5.86% 5.94% 6.35% 7.11% 7.18% 7.29%
Portfolio turnover rate 172% 275% 74% 320% 511% 172% 188% 70% 62% 60%
</TABLE>
__________________________________
(a) Ratio prior to reimbursement by the Investment Manager was 1.95%, 1.71%,
1.62%, 1.62%, 1.63%, 1.86%, and 1.76% respectively, for 1995, 1994,
1993, 1991, 1990, 1989, and 1988.
(b) Ratio after the reduction of custodian fees under a custodian agreement
was 1.62%. Prior to 1995, such reductions were reflected in the expense
ratios.
(c) Ratio prior to reimbursement by the Investment Manager was 4.14%, 4.12%,
4.24%, 5.84%, 5.81%, 5.84%, and 6.62% respectively, for 1995, 1994,
1993, 1991, 1990, 1989, and 1988.
Information relating to outstanding debt during the fiscal periods shown
below:
<TABLE>
Amount of Debt Average Amount of Average Number of Average Amount of
Fiscal Year Ended Outstanding at End Debt Outstanding Shares Outstanding Debt Per Share
December 31 of Period During the Period During the Period During the Period
<C> <C> <C> <C> <C>
1995 $0 $13,074 1,009,788 $0.01
1994 $0 $113,655 1,157,754 $0.10
1993 $0 $115,984 1,235,288 $0.09
</TABLE>
3
TABLE OF CONTENTS
Expense Table ....................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
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 at
better net prices.
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 Manager. 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. Prior to joining the Investment Manager in
1995, Mr. Landis was 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 securities. Municipal securities include
obligations issued by or on behalf of states, territories, and possessions ofthe
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. Such
securities include municipal bonds, municipal notes and tax-free commercial
paper.
The Fund may invest in municipal bonds rated at the time of purchase within
the four highest grades assigned by Fitch Investors Service, L.P. ("Fitch")
(AAA, AA, A and BBB), Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A,
and Baa), or Standard & Poor's Ratings Services ("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 (SP-1+, SP-1, and SP-2), 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. Descrip tions 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 varies depending
upon the Investment Manager's evaluation of current and 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 beexempt
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 an ITP for purposes of the AMT. Because the objective of the
Fund is to provide income exempt from Federal income tax, the Fund will invest
in taxable obligations only when the Investment Manager believes it would be in
the best interest of shareholders.
Municipal Bonds. Municipal bonds are debt obligations issued to obtain funds for
various public purposes that pay interest which is exempt from federal incometax
in the opinion of the bond issuer's counsel. Municipal bonds include general
obligation bonds and revenue bonds. 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.
Municipal bonds also include industrial development bonds ("IDBs") and private
activity bonds ("PABs"). 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 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. 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.
Municipal Notes and Tax-Free Commercial Paper. Municipal notes and tax-exempt
commercial paper include tax anticipation notes, bond anticipation notes,revenue
anticipation notes, and other forms of short term loans. Such notes are issued
with a short term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements and other revenues.
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 subjectto potentially
greater capital appreciation and depreciation than obligations with shorter
maturities and lower interest rates. An increase in interest rateswillgenerally
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
6
issuers of municipal securities in which the Fund invests to meet their
obligations to pay interest and principal when 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 future by
Congress, state legislators, or referenda 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 that 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. When the Fund enters into a reverse repurchase agreement, 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 repurchase commitment. 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 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 borrowings 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 securities, 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, 1995 and December 31, 1994,
the Fund's portfolio turnover rate was 172% and 275%, respectively. 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
policies and investment restrictions, set forth in the Statement of Additional
Informa tion, 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 Investor Service Center, 1-800-847-4200. Any election
will remain in effect until you notify Investor Service Center to the contrary.
Taxes. The Fund intends to continue to qualify for treatment as a regulated
investment company ("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 investmentincome 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.
8
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 gain, if any, when
designated as such, are taxable to shareholders as long term capital gains,
whether 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 bythat
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 -- for example, the Fund's dividends may be wholly or
partly taxable under state and/or local laws -- you should consult your tax
adviser.
TAX-FREE VERSUS TAXABLE YIELDS
The table below illustrates, at 1995 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>
Tax Brackets Based on Filing To Equal a Federal Tax-Free Yield of
Status:
(Taxable Income)
- ------------------------------------------ ----------------------------------------------------
Joint Single Marginal 5% 6% 7% 8%
Tax Rate
===================== ==================== ============ ============= ============ =========== ===========
A Taxable Investment Must Earn
====================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$38,000 $0-$22,750 15% 5.88% 7.06% 8.24% 9.41%
- --------------------- -------------------- ------------ ------------- ------------ ----------- -----------
$38,001- $22,751- 28% 6.94% 8.33% 9.72% 11.11%
$91,850 $55,100
- --------------------- -------------------- ------------ ------------- ------------ ----------- -----------
$91,851- $55,101- 31% 7.25% 8.70% 10.14% 11.59%
$140,000 $115,000
- --------------------- -------------------- ------------ ------------- ------------ ----------- -----------
$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 Investor
Service Center (see "Determination of Net Asset Value"). The minimum initial
investment is $1,000. The minimum subsequent investment is $100. The $1,000
9
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 $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 ac
count. 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 Investor 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 Program and 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 Investor 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 Investor 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 within two business days. 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.
10
Investment by Wire. For an initial investment by wire, you must first telephone
Investor Service Center, 1-800-847-4200, to give the name(s) under which the
account is to be registered, tax identification number, the name of the bank
sending the wire, and to be assigned a Bull & Bear Municipal Income Fund account
number. You may then purchase shares by requesting your bank to transmit
immediately available funds ("Federal 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
Investor 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. For joint tenant accounts,any account owner
has the authority to act on the account without notice to the other account
owners. Investor Service Center in its sole discretion and for its protection
may, but is not obligated to, require the written consent of all account owners
of a joint tenant account prior to acting upon the instructions of any account
owner. Stock certificates will be issued only for full shares when requested in
writing. In order to facilitate redemptions and 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 Investor
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 made
payable to the Fund and drawn in U.S. dollars on a U.S. bank. No third party
checks will be accepted, and the Fund reserves the right to reject any order for
any reason. Accounts are charged $30 by the Transfer Agent for submitting checks
for investment which are not honored by the investor's bank. 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, Investor 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 shares of any other Bull & Bear Fund. Shares of the other Bull & Bear
Fund will be purchased at the current net asset value calculated on the payment
date. For more information concerning this Privilege and the other Bull & Bear
Funds, or to request a Dividend Sweep Authorization Form, please call Investor
Service Center, 1-800-847-4200. You may cancel this Privilege by mailing written
notification to Investor Service Center, 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 Investor 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 Investor 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 Investor 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
12
unlimited check writing ($250 minimum per check). Pays monthly 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.
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
Investor 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 Investor Service Center by telephone without
further documentation. If you have requested share certificates, this procedure
may be utilized only if, prior to giving telephone instructions, you deliver the
certificates to the Transfer Agent for deposit into your account.
Bull & Bear Securities (Discount Brokerage Account) Transfers. If you have an
account at Bull & Bear Securities, Inc., an affiliate of the Investment
Manager and a wholly-owned subsidiary of Bull & Bear Group, Inc. offering
discount brokerage services, you may access your investment in any Bull &
Bear Fund to pay for securities purchased in your brokerage account, and 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 Investor 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
13
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 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 Investor 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 Investor 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 Investor 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 or ACH transfer is generally subject to a fifteen day delay to
allow the payment to clear. The fifteen day clearing period does not affect the
trade date on which a purchase or redemption order is priced, or any dividends
and capital gain distributions to which you may be entitled through the date of
redemption. Fund check writing redemption checks received during the fifteen day
clearing period will be rejected and marked "uncollected." The clearing period
does not apply to purchases made by wire. Due to the relatively higher cost of
maintaining small accounts, the Fund reserves the right, upon 60 days' notice,
to redeem any account 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 Fund nor Investor
Service Center shall be liable for any loss or damage for acting in good faith
upon instructions received by telephone and believed to be genuine. The Fund
employs reasonable procedures to confirm that instructions communicated by
telephone are genuine, 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 redemption are to
be paid to a non-shareholder of record, or to an address other than your address
of record, or the shares are to be assigned, the Transfer Agent may require that
your signature be guaranteed by an entity acceptable to the Transfer Agent, such
as a commercial bank or trust company or member firm of a national securities
exchange or of the NASD. A notary public may not guarantee signatures. The
Transfer Agent may require further documentation. The Transfer Agent may restric
the mailing of redemption proceeds to your address of record within 60 days of
such address being changed unless you provide a signature guarantee as described
above.
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, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities and other assets of the Fund are valued primarily on
the basis of market quotations, if 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 transactions.
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
15
Manager may also allocate portfolio transactions to broker/dealers that remit a
portion of their commissions as a credit against the Fund's expenses.
For its services, the Investment Manager receives a management fee, payable
monthly, based on the average daily net assets of the Fund, at the 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, 1995, the management fees paid by the Fund were .43% 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, Investor Service Center, Inc. (the
"Distributor"), 11 Hanover Square, New York, NY 10005, acts as the Fund's
principal agent for the sale of its shares. The Investment Manager is an
affiliate of the Distributor. The Fund has also adopted a plan of distribution
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Pursuant to the Plan,
the Fund 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 at the rate
of 25 basis points 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 exchange 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
16
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 itmay
be that the other Funds and Bull & Bear Securities, Inc. will benefit therefrom.
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, 1995, approximately $422,400 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 2.6% of
the Fund's net assets as of December 31, 1995. 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 compounded 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 $1,000 invested in the
Fund at the beginning of each of the specified periods, assuming the
reinvestment of any dividends and distributions paid by the Fund during such
periods. Advertisements may show such total return as a percentage rate or as
the value of a hypothetical investment at the end of the period. The Fund's
performance may be compared to the performance of broad groups of comparable
mutual funds, or the performance of unmanaged indexes of comparable securities.
The Fund does not impose any initial sales charge or redemption fee on the
purchase or redemption of its shares. The investment returns and principal value
of an investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. All advertised yield or total
return figures are based upon historical performance information and are not
intended to indicate future performance. The Fund's annual report to
shareholders contains further information about the Fund's performance. The
annual report is available upon request and free of charge.
CAPITAL STOCK
The Fund is a diversified series of shares issued by Bull & Bear Municipal
Securities, Inc. (the "Company"), an open-end management investment company
organized as a Maryland corporation in 1983. The Company is authorized to issue
up to 1 billion shares ($.01 par value), of which 50 million shares have been
designated Bull & Bear Municipal Income Fund as the only series presently. 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 DST Systems, Inc., P.O
Box 419789, Kansas City, MO 64141-6789. The Distributor provides certain
shareholder services to the Fund and is reimbursed its 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.
[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
- ---------------------------------------------------------
Statement of Additional Information April 15, 1996
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, 1996. The prospectus
is available to prospective investors without charge upon request to Investor
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 INVESTMENT COMPANY COMPLEX.............................................4
OFFICERS AND DIRECTORS.....................................................4
THE INVESTMENT MANAGER.....................................................7
INVESTMENT MANAGEMENT AGREEMENT............................................8
YIELD AND PERFORMANCE INFORMATION..........................................9
DISTRIBUTION OF SHARES....................................................15
DETERMINATION OF NET ASSET VALUE..........................................17
PURCHASE OF SHARES........................................................18
ALLOCATION OF BROKERAGE...................................................18
DISTRIBUTIONS AND TAXES...................................................20
REPORTS TO SHAREHOLDERS...................................................22
CUSTODIAN AND TRANSFER AGENT..............................................22
AUDITORS..................................................................22
FINANCIAL STATEMENTS......................................................22
APPENDIX..................................................................23
1
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 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, L.P. ("Fitch"), Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Services ("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 use 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.
2
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.
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 INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Bull & Bear Group, Inc.
(the "Investment Company Complex") are:
Bull & Bear Dollar Reserves
Bull & Bear U.S. Government Securities Fund
Bull & Bear Municipal Income Fund
Bull & Bear Global Income Fund
Bull & Bear U.S. and Overseas Fund
Bull & Bear Special Equities Fund
Bull & Bear Gold Investors
Midas Fund
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 certain other investment companies advised by the Investment Manager and its
affiliates (the "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
4
International Society of Financial Analysts. He is the father of Mark C. Winmill
and Thomas B. Winmill.
ROBERT D. ANDERSON* -- Vice Chairman and Director. He is Vice Chairman and a
Director of certain other investment companies in the 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, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ
07753. He is Senior Consultant with The Berger Financial Group, LLC specializing
in financial, estate and insurance matters. From March 1995 to December 1995, he
was President of Huber Hogan Knotts Consulting, Inc. financial consultants and
insurance planners. He was born February 7, 1930. From 1988 to 1990, he was
Chairman of Bruce Huber Associates. He is also a Director of other investment
companies in the 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 other investment companies in the 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 other investment companies in the 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 other investment companies in the 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 Funds Complex and of Group and certain of its
affiliates, Chairman of the Investment Manager and Investor Service Center, Inc.
(the "Distributor"), and President of Bull & Bear Securities, Inc. ("BBSI"). He
was born November 26, 1957. He received his M.B.A. from the Fuqua School of
Business at Duke University in 1987. From 1983 to 1985 he was Assistant Vice
President and Director of Marketing of E.P. Wilbur & Co., Inc., a real estate
development and syndication firm and Vice President of E.P.W. Securities, its
broker/dealer subsidiary. He is a son of Bassett S. Winmill and brother of
Thomas B. Winmill. He is also a Director of certain other investment companies
in the 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 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 and the SEC Rules Committee of
the Investment Company Institute. He is a son of Bassett S. Winmill and brother
of Mark C. Winmill. He is also a Director of certain other investment companies
in the Funds Complex.
5
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
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., 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
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.
JOSEPH LEUNG, CPA -- Treasurer and Chief Accounting Officer (since 1995). He is
Treasurer and Chief Accounting Officer of the Investment Manager and its
affiliates. From 1992 to 1995 he held various positions with Coopers & Lybrand
L.L.P., a public accounting firm. From 1991 to 1992, he was the accounting
supervisor at Retirement Systems Group, a mutual fund company. From 1987 to
1991, he held various positions with Ernst & Young, a public accounting firm. He
is a member of the American Institute of Certified Public Accountants. He was
born September 15, 1965.
WILLIAM J. MAYNARD -- Vice President and Secretary. He is Vice President and
Secretary of the 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.
6
<TABLE>
Compensation Table
Name of Aggregate Pension or Estimated Total
Person, Compensa- Retirement Annual Compensation
Position tion From Benefits Benefits Upon From
Registrant Accrued as Retirement Registrant
Part of Fund and Fund
Expenses Complex Paid
to Directors
<S> <C> <C> <C> <C>
Bassett S. None None None None
Winmill
Chairman
Robert D. None None None None
Anderson
Vice Chairman
Bruce B. $500 None None $12,500 from
Huber 6 Investment
Director Companies
James E. Hunt $500 None None $12,500 from
Director 6 Investment
Companies
Frederick A. $500 None None $12,500 from
Parker 6 Investment
Director Companies
John B. $500 None None $12,500 from
Russell 6 Investment
Director Companies
</TABLE>
Information in the above table is based on fees paid during the year ended
December 31, 1995.
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, 1996, officers and Directors of the Fund owned less
than 1% of the outstanding shares of the Fund. As of March 31, 1996, 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 Investor Service Center, Inc., the Fund's distributor and a
registered broker/dealer, Midas Management Corporation, a registered investment
adviser, 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 of Group on the basis of his ownership of 100% of Group's
voting stock. The Fund and its
7
investment company affiliates had net assets of approximately $320 million as of
April 2, 1996.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays all
expenses required for the conduct of its business including, but not limited to,
custodian and transfer agency fees, accounting and legal fees, investment
management fees, fees of disinterested Directors, association fees, printing,
salaries of certain administrative and clerical personnel, necessary office
space, all expenses relating to the registration or qualification of the shares
of the Fund under Blue Sky laws and reasonable fees and expenses of counsel in
connection with such registration and qualification, miscellaneous expenses and
such non-recurring expenses as may arise, including actions, suits or
proceedings affecting the Fund and the legal obligation which the Company may
have to indemnify its officers and Directors with respect thereto. For the
fiscal years ended December 31, 1993, 1994, and 1995 the Fund paid to the
Investment Manager aggregate investment management fees of $133,084, $112,479
and $98,069, respectively, of which $1,667, $19,178 and $28,287, 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 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 $14,449, $12,187 and $13,322 for the fiscal years ended
December 31, 1993, 1994, and 1995, 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.
8
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, 1995 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, 1995 (and the tax-equivalent yield they represent using the
applicable tax rate of 39.6% for 1995). Tax-equivalent yield is calculated by
subtracting the maximum tax rate from 1 and dividing the current and compound 30
day yield by the result (1 - .396 = .604; 3.77%/.604 = 6.24%; 3.84%/.604 =
6.36%).
Yield Tax-Equivalent Yield
Current 3.77% 6.24%
Effective 3.84% 6.36%
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~~~=~~~2~[~8~{a~-~b} OVER cd~+~1~) SUP 6~-~1~]
Where: a = interest earned during the period.
b = expenses accrued for the period (net of waivers)
9
<PAGE>
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, 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 OVER P~) SUP {1 OVER n}~~-~~1
Where: T = average annual total return.
10
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 December 31, 1995, and for the period March 7, 1984 (commencement of
operations) through December 31, 1995 was 16.60%, 7.00%, and 9.03%,
respectively, (16.46%, 6.96%, and 8.78%, respectively, 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, 1995, 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
1995 Return Investment Investment
================================================================================
March 7, 1984 9.03% 177.98% $2,779.80 $27,798.03
January 1, 1986 7.70% 110.04% $2,100.35 $21,003.50
January 1, 1987 6.46% 75.61% $1,756.07 $17,560.74
January 1, 1988 7.42% 77.22% $1,772.23 $17,722.28
January 1, 1989 6.83% 58.77% $1,587.68 $15,876.85
January 1, 1990 6.48% 45.71% $1,457.14 $14,571.42
January 1, 1991 7.00% 40.28% $1,402.77 $14,027.67
January 1, 1992 5.39% 23.38% $1,233.82 $12,338.15
January 1, 1993 5.18% 16.35% $1,163.53 $11,635.25
January 1, 1994 2.57% 5.22% $1,052.15 $10,521.52
January 1, 1995 16.60% 16.60% $1,165.96 $11,659.62
Without the Investment Manager's fee waiver.
- ----------------------------------------------------------------------
Start of Periods Average Ending Value Ending Value
Ending Dec. 31, Annual Total of a $1,000 of a $10,000
1995 Return Return Investment Investment
=============================================================================
March 7, 1984 8.87% 170.50% $2,705.00 $27,049.98
January 1, 1986 7.54% 106.79% $2,067.87 $20,678.72
January 1, 1987 6.31% 73.39% $1,733.87 $17,338.71
11
Without the Investment Manager's fee waiver.
- ----------------------------------------------------------------------------
Start of Periods Average Ending Value Ending Value
Ending Dec. 31, Annual Total of a $1,000 of a $10,000
1995 Return Return Investment Investment
============================================================================
January 1, 1988 7.29% 75.55% $1,755.53 $17,555.29
January 1, 1989 6.71% 57.59% $1,575.88 $15,758.76
January 1, 1990 6.41% 45.19% $1,451.89 $14,518.93
January 1, 1991 6.96% 40.02% $1,400.16 $14,001.60
January 1, 1992 5.34% 23.15% $1,231.51 $12,315.15
January 1, 1993 5.11% 16.14% $1,161.36 $11,613.15
January 1, 1994 2.48% 5.03% $1,050.26 $10,502.60
January 1, 1995 16.46% 16.46% $1,164.62 $11,646.16
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, 1995 was 21.78% (21.95% with 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.
Source Material
From time to time, in marketing pieces and other Fund literature, the
Fund's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds'
12
backgrounds, management policies, salient features, management results, income
and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
Global Investor, a European publication that periodically reviews the
performancce of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman Brother
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.
13
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indexes, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
Salomon Brothers Broad Investment-Grade Bond Index -- is a market-weighted index
that contains approximately 4,700 individually priced investment-grade corporate
bonds rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
Salomon Brothers Market Performance tracks the Salomon Brothers bond index.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
14
USA Today, a national newspaper that periodically reports mutual fund
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
Wall Street Journal, a nationally distributed newspaper which regularly covers
financial news.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith,
Inc., Bear Stearns & Co., Inc., and Ibbotson Associates may be used, as well as
information provided by the Federal Reserve Board.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc. 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 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.
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
15
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 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
16
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 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, 1995, approximately $12,032 represented reimbursement of
expenses incurred for advertising, $10,425 for printing and mailing prospectuses
and other information to other than current shareholders, $9,528 for salaries of
marketing and sales personnel, $1,853 for payments to third parties who sold
shares of the Fund and provided certain services in connection therewith, and
$5,288 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.
The Glass-Steagall Act prohibits certain banks from engaging in the
business of underwriting, selling, or distributing securities such as shares of
a mutual fund. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in the Distributor's opinion it should not
prohibit banks from being paid for administrative and accounting services under
the Plan. If, because of changes in law or regulation, or because of new
interpretations of existing law, a bank or the Fund were prevented from
continuing these arrangements, it is expected that other arrangements for these
services will be made. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
DETERMINATION OF NET ASSET VALUE
The 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.
17
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 only issue shares upon payment of the purchase price by check
made payable to the Fund and drawn in U.S. dollars on a U.S. bank, or by Federal
Reserve wire transfer. Third party checks, credit cards, and cash will not be
accepted. The Fund reserves the right to reject any order, to cancel any order
due to nonpayment, to accept initial orders by telephone or telegram, and to
waive the limit on subsequent orders by telephone, with respect to any person or
class of persons. Orders to purchase shares are not binding on the Fund until
they are confirmed by the Transfer Agent. In order to permit the Fund's
shareholder base to expand, to avoid certain shareholder hardships, to correct
transactional errors, and to address similar exceptional situations, the Fund
may waive or lower the investment minimums with respect to any person or class
of persons.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. 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 of other affiliated 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 other affiliated 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
18
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 other affiliated 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 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/deal ers, 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, 1993, 1994, and 1995 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 other
affiliated funds.
Investment decisions for the Fund and for the other Funds managed by the
Investment Manager and its affiliates are made independently based on each
Fund's investment objectives and policies. The same investment decision,
however, may occasionally be made for two or more Funds. In such a case, the
Investment Manager may combine orders for two or more Funds for a particular
security if it appears that a combined order would reduce brokerage commissions
and/or result in a more favorable transaction price. Combined purchase or sale
orders are then averaged as to price and allocated as to amount according to a
formula deemed equitable to each Fund. While in some cases this practice could
have a detrimental effect upon the price or quantity available of the security
with respect to the Fund, the Investment Manager believes that the larger volume
of combined orders can generally result in better execution and prices.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Funds Complex does business with
may, from time
19
to time, own more than 5% of the publicly traded Class A non-voting Common Stock
of Group, the parent of the Investment Manager, and may provide clearing
services to BBSI.
The Fund's portfolio turnover rate may vary from year to year and will not
be a limiting factor when the Investment Manager deems portfolio changes
appropriate. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of securities in the
portfolio during the year.
DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the right
to credit the shareholder's account with additional shares of the Fund at the
then current net asset value in lieu of the cash payment and to thereafter issue
such shareholder's distributions in additional shares of the Fund.
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for this treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of 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.
20
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 reports to its shareholders after its fiscal year-end the
portion, if any, of its dividends paid during the preceding year that is a
tax-preference item for these purposes.
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 those dividends, without regard to whether they 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 its shareholders as ordinary income to the
extent of its 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.
21
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.
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. DST Systems, Inc., P.O. Box 419789, Kansas City, MO 64141-6789,
is the Fund's transfer and dividend disbursing agent. The Distributor provides
certain administrative and shareholder services to the Fund pursuant to the
Shareholder Services Agreement and is reimbursed by the Fund the actual costs
incurred with respect thereto. 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, 1993, 1994, and 1995 approximately $12,179, $16,280 and
$13,117, 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,
1995, together with the Report of the Fund's independent accountants thereon,
appear in the Fund's Annual Report to Shareholders and are incorporated herein
by reference.
22
APPENDIX
Ratings of Municipal Bonds
Fitch Investors Service, L.P. '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. Plus and minus
signs are used with a rating symbol to indicate the relative position of an
issuer within the rating category. Plus and minus signs, however, are not used
in the 'AAA' category.
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 risk 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 some time 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 Services. 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.
23
Ratings of Municipal Notes
Fitch Investors Service, L.P. '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 Services. '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, L.P. '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 ability for repayment of senior short term debt
obligations. 'Prime-1' repayment ability will often be evidenced by many of the
following characteristics: leading market 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, may 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 Services. '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'.
Prospectus
April 15, 1996
BU
& -----------------------------------------
Performance Driven
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.
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, 1995 containing financial statements as of and
for the fiscal period ended December 31, 1995 is incorporated into
the Statement of Additional Information by reference.
(b) Exhibits
(1) (a) Articles of Incorporation. Incorporated
herein by reference to corresponding Exhibit
of the initial Registration Statement, SEC
File No. 2-88608, filed December 28, 1983.
(b) Articles of Amendment (filed herewith).
(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 with the Securities and
Exchange Commission on April 12, 1995.
(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
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. 21 to the Registration Statement, SEC
File No. 2-88608, filed April 15, 1994.
(7) Bonus, profit sharing or pension plans -- not
applicable
(8) (a) Amended and Restated Custodian Agreement
(filed herewith).
(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. Incorporated
herein by reference to corresponding Exhibit
of Post-Effective Amendment 22 to the
Registration Statement, SEC File No. 2-88608
filed April 12, 1995.
(b) Assignment Agreement. Incorporated herein by
Effective Amendment 22 to the Registration
Statement, SEC File No. 2-88608, filed April
12, 1995.
(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.
(d) Credit Agreement (filed herewith).
(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)
(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 Funds II,
Inc., 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 Investor
Service Center, Inc. and Hanover Direct
Advertising Company, Inc. Incorporated
herein by reference to corresponding Exhibit
of Post-Effective Amendment No. 21 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. 21 to the
Registration Statement, SEC File No. 2-88608
filed April 15, 1994.
(17) Financial Data Schedule (filed herewith).
(18) Plan pursuant to Rule 18f-3 -- not applicable.
Item 25. Persons Controlled by or under Common Control with
Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of March 31, 1996)
- -------------- ----------------------
Shares of Common Stock, designated 905
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.
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 other Funds
managed by the Investment Manager and its affiliates, all of which are
wholly-owned subsidiaries of Bull & Bear Group, Inc. (the "Funds"). In addition,
such officers are officers and directors of Bull & Bear Group, Inc. and its
other subsidiaries; Investor Service Center, Inc., the distributor of the Funds
and a registered broker/dealer and Bull & Bear Securities, Inc., a discount
brokerage firm. The principal business of both companies 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, Investor Service
Center, Inc. ("Service Center") serves as principal underwriter
of Bull & Bear Gold Investors Ltd., Bull & Bear Funds II, Inc.,
Bull & Bear Funds I, Inc., Midas Fund, Inc., and Bull & Bear
Special Equities Fund, Inc.
b) Service Center serves as the Registrant's principal underwriter
with respect to Bull & Bear Municipal Income Fund. 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.
Position and Offices with
Name and Principal Investor Service Position and Offices
Business Address Center, Inc. with Registrant
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 Co-President and Chief
11 Hanover Square Chief Financial Officer Financial Officer
New York, NY 10005
Thomas B. Winmill President, Director Co-President and General
11 Hanover Square Counsel
New York, NY 10005
William J. Maynard Vice President and Vice President and
11 Hanover Square Secretary Secretary
New York, NY 10005
Kathleen B. Fliegauf Vice President and None
11 Hanover Square Assistant Secretary
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
Joseph Leung 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 DST Systems, Inc., 1055 Broadway, Kansas City, MO
64105-1594 (the offices of the Registrant's transfer and dividend disbursing
agent). Copies of certain of the records located at Investors Bank & Trust
Company and DST Systems, Inc. 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
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 15th day of
April, 1996.
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 15, 1996
- ---------------
Mark C. Winmill Executive Officer
Thomas B. Winmill Co-President and Co-Chief April 15, 1996
- -----------------
Thomas B. Winmill Executive Officer
Bassett S. Winmill Director, Chairman of the April 15, 1996
- ------------------
Bassett S. Winmill Board of Directors
Joseph Leung Treasurer, Principal April 15, 1996
Joseph Leung Accounting Officer
Robert D. Anderson Director April 15, 1996
Robert D. Anderson
Bruce B. Huber Director April 15, 1996
Bruce B. Huber
James E. Hunt Director April 15, 1996
James E. Hunt
Frederick A. Director April 15, 1996
Parker, Jr.
Frederick A.
Parker, Jr.
John B. Russell Director April 15, 1996
John B. Russell
EXHIBIT INDEX
(1) (b) Articles of Amendment
(8) (b) Amended and Restated Custodian Agreement
(9) (d) Credit Agreement
(10) (b) Opinion of counsel pursuant to Section 24(e)(1)
(11) Other opinions, appraisals, rulings and consents -
Accountants' consent
(17) Financial Data Schedule
Annual Report to Shareholders of the Fund for the fiscal period ended December
31, 1995 containing financial statements as and
for the fiscal period ended December 31, 1995..................................
February 15, 1996
Fellow Shareowners:
We are pleased to welcome our many new shareowners and to report that Bull &
Bear Municipal Income Fund achieved a total return of +16.58% for 1995,
comprised of monthly dividends and capital appreciation. This compares with
total returns of +16.98% and +17.46%, respectively for the Lipper Municipal Debt
Index and the Lehman Municipal Bond Index.
The Fund's approach of seeking the highest possible income exempt from Federal
income tax that is consistent with preservation of principal, makes it a
particularly attractive choice for conservative investors. The convenience of
monthly income, daily liquidity, and unlimited free check writing in amounts of
only $250 or more provide added appeal, as does the Fund's consistently good
performance over various longer periods: for the five years ended December 31,
1995, the Fund's average annual total return was +7.00%, for the past 10 years,
+7.70, and since inception, March 7, 1984, +8.78%. This is also reflected in the
accompanying illustration of investing $10,000 in the Fund at its inception,
followed by regular investments of $100 a month. The ending value of $50,058 was
more than double the $24,100 invested.
A variety of factors had an impact on the performance of municipal securities
during the year, but the most significant in our view was the easing of monetary
restraint by the Federal Reserve Bank in response to the moderate pace of the
economy, as well as the benign rate of inflation.
The Fund's strategy in 1995 was to lengthen the portfolio's average maturity
in the face of declining interest rates. This was done in order to reduce the
impact of lower rates on the income the Fund pays to its shareowners and to
benefit from rising bond prices. In addition, some premium bonds and bonds with
longer call protection were selectively added to the portfolio, again with the
objective of maintaining the return the Fund has provided its shareowners.
Chart follows: Municipal Income Fund
Results of an initial investment of $10,000 with subsequent investments of $100
a month from inception, March 7, 1984, through December 31, 1995, with dividends
and capital gain distributions reinvested. Investments for the period total
$24,100.
Plot points:$11.0,$15.0,$20.0,$21.0,$24.0.$28.0,$30.0.$36.0,$39.0,$45.0,$41.0
Ending Value:$50,058
While the economy as measured by the Gross Domestic Product for the third
quarter was reported to be up a healthy 4.2%, inflation at year end was only
2.5% at the consumer level, and only 2.2% over the prior year for producers.
These results were consistent with our forecasts at midyear, and produced
gratifying rates of return for investors. While some weakness may exist in net
new job creation, we believe this is associated more with restructuring in the
corporate sector, which is intended to enhance productivity and promote growth
in the long run, and not interest rate related.
To our minds, the Federal Reserve has achieved no small success in managing a
soft landing. We anticipate acceptable performance from the economy and
continued low levels of inflation. While significant progress has already been
made in reducing the Federal budget deficit, the potential exists for dramatic
additional reductions. Under these circumstances, our forecast is for stable to
slightly lower interest rates, and rewarding rates of total return for investors
in municipal securities.
In our prior report we emphasized the attraction of municipal bonds relative
to taxable securities. We felt that exaggerated concerns regarding radical tax
reform had caused municipal securities to be undervalued relative to taxable
assets. Our outlook has proven to be correct. While some of the differential
between the two markets has been recouped, we continue to believe that
tax-exempt securities still offer important incremental value versus taxable
securities.
We therefore see this as an attractive time to add to your investment. In
terms of seeking to achieve your long range financial goals, we especially favor
building your account on a regular basis, which can be done safely,
automatically and conveniently through the Bull & Bear Bank Transfer Plan, the
Bull & Bear Salary Investing Plan, and the Bull & Bear Government Direct Deposit
Plan. For information on any of these free services, simply give us a call and
we will help you get started.
If you have any questions or would like information on any of the Bull & Bear
Funds, the Bull & Bear No-Fee IRA (R) or opening a discount brokerage account at
Bull & Bear Securities, where you can earn American Airlines (R) AAdvantage (R)
miles on every trade, we would be very pleased to hear from you. Just call
1-800-847-4200, and an Investor Service Representative will be glad to assist
you, as always, without any obligation on your part.
Sincerely,
Robert D. Anderson
Vice Chairman
Steve A. Landis
Senior Vice President
Portfolio Manager
Total Return Performance Graphs
*Bull & Bear Municipal Income Fund ("Fund")
*Lehman Municipal Bond Index ("Lehman")
*Lipper Municipal Debt Index ("Lipper")
Lehman is unmanaged and fully invested in municipal bonds. Lipper is an equally
weighted index of the 30 largest municipal bond mutual funds. The Fund invests
in municipal securities and may also own taxable obligations and hold cash for
defensive purposes. Performance Graph results in each case reflect reinvestment
of dividends and distributions.
Plot points Funds:$10.1,$12.0,$11.9,$13.2,$14.4,$15.0,$17.0,$18.0,$20.0,$18.0,
$21.0
Ending Value:$20,99
Plot points Lehman:$10.0,$11.9,$12.1,$13.3,$14.8,$15.9,$17.8,$19.4,$21.7,$20.6,
$24.2
Ending Value:$24,202
Plot points Lipper:$10.0,$12.0,$11.9,$13.3,$14.5,$15.5,$17.4,$18.9,$21.3,$20.0
$23.4
Ending Value:$23,358
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 property taxes. (For Bull &
Bear Performance Plus (R) discount brokerage accounts, the check writing minimum
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
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 1996 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, 1995, Bull & Bear
Municipal Income Fund's total return for one year was 16.46%, average annual
total return for the past five years was 6.96% and for the past ten years was
7.54%, 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
BULL & BEAR MUNICIPAL INCOME FUND
Schedule of Portfolio Investments - December 31, 1995
Standard
Principal & Poor's Market
Amount Rating Value
- --------- ---------
- -----------
Municipal Bonds (100.0%)
Arizona (1.8%)
Phoenix, Arizona General Obligation Bonds, Series A,
$255,000 6.25%, due 7/1/16..................................... AA+ $
294,336
- -----------
Delaware (1.9%)
300,000 Delaware State Economic Development, 5.15%, due 10/1/29. A1
300,000
- -----------
Georgia (6.5%)
Georgia Municipal Electric Authority Revenue Bonds, Series B,
800,000 8.25%, due 1/1/11........................................A
1,034,840
- -----------
Hawaii (9.6%)
Hawaii County General Obligation Bonds, Series A,
500,000 5.60%, due 5/1/13....................................... AAA
533,455
Honolulu City & County General Obligation Bonds, Series A,
800,000 8.75%, due 1/1/03.........................................AA
998,000
- -----------
1,531,455
- -----------
Indiana (3.5%)
Bloomington Sewer Works Revenue Bonds,
535,000 5.80%, due 1/1/13........................................ AAA
561,322
- -----------
Kentucky (4.3%)
Louisville, Kentucky Airport Lease Revenue Bonds, Series A,
615,000 7.875%, due 2/1/19......................................... A-
684,495
- -----------
Louisiana (3.4%)
Louisiana Public Facility Authority Revenue Bonds, Series A2,
500,000 6.50%, due 3/1/02............................................ AAA*
539,915
- -----------
Montana (4.6%)
University of Montana Revenue Bonds, Series C,
750,000 5%, due 11/15/17............................................. AAA
735,772
- -----------
Nevada (3.2%)
Nevada Housing Division Single Family Revenue Bonds,
500,000 6.35%, due 10/1/12........................................... AAA
514,115
- -----------
See accompanying notes to financial statements.
4
Standard
Principal & Poor's Market
Amount Rating Value
- --------- --------- -----------
New Jersey (10.1%)
$835,000 Morris County General Obligation Bonds, 5%,
due 7/15/13 ............................................... AAA $834,499
New Jersey Economic Development Authority Revenue Bonds,
250,000 Series A, 5.375%, due 1/15/16..................... A+ 246,673
Union County Utilities Authority Solid Waste Revenue Bonds,
500,000 7.15%, due 6/15/09................................ A- 535,565
-----------
1,616,737
-----------
New York (17.3%)
City of New York General Obligation Bonds,
500,000 7.5%, due 2/1/16............................... BBB+ 558,295
Metropolitan Transit Authority Revenue Bonds,
750,000 5.75%, due 7/1/13.............................. BBB 768,773
New York State Dormitory Authority State University Revenue
500,000 Bonds, Series C, 7.375%, due 5/15/10.............BBB+ 600,340
New York State Energy Research & Development Authority
750,000 Revenue Bonds, 7.125%, due 12/1/29............. A+ 836,895
-----------
2,764,303
-----------
North Carolina (7.4%)
North Carolina Municipal Power Agency Revenue Bonds,
600,000 7.50%, due 1/1/17................................A- 646,266
North Carolina Municipal Power Agency Revenue Bonds,
500,000 5.50%, due 1/1/13............................... AAA 527,820
-----------
1,174,086
-----------
Oklahoma (3.3%)
McAlester Oklahoma Public Works Authority Revenue Bonds,
500,000 5.50%, due 12/1/09.............................. AAA 524,580
-----------
Pennsylvania (1.8%)
Philadelphia Water & Waste Revenue Bonds,
250,000 6.25%, due 8/1/11...............................AAA 281,658
-----------
Puerto Rico (3.2%)
Commonwealth of Puerto Rico Highway and Trans. Authority
500,000 Revenue Bonds, Series X, 5.50%, due 7/1/15...... A 506,285
-----------
See accompanying notes to financial statements.
5
Standard
Principal & Poor's Market
Amount Rating Value
- --------- --------- -----------
Texas (3.4%)
Dallas-Fort Worth International Airport Revenue Bonds,
$500,000 7.25%, due 11/1/30.............................. BB+ $541,550
-----------
Utah (3.1%)
Intermountain Power Agency and Supply Revenue Bonds,
500,000 Series C, 5.25%, due 7/1/14..................... AA- 500,290
-----------
Virginia (4.7%)
Virginia Research Authority Water & Sewer System Revenue
750,000 Bonds, Series A, 5.125%, due 5/1/13..............AA 745,267
-----------
Washington (3.2%)
Washington State General Obligation Unlimited Bonds,
500,000 5.50%, due 5/1/18.............................. AA 517,965
-----------
Wisconsin (3.7%)
500,000 Wisconsin Clean Water Revenue Bonds, 6.875%,
due 6/1/11............................................... AA 595,440
-----------
Total Investments (cost: $14,974,753) (100.0%).......... $15,964,411
===========
- --------------------------------------------------------------------------------
* Moody's rating.
See accompanying notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS:
Investments at market value
(cost: $14,974,753) (note 1)................... $15,964,411
Cash........................................... 37,133
Receivables:
Investment securities sold..................... 510,545
Interest....................................... 303,428
Fund shares sold............................... 101
------------
Total assets................................... 16,815,618
------------
LIABILITIES:
Payables:
Investment securities purchased................ 514,573
Fund shares redeemed........................... 26,348
Distributions to shareholders.................. 15,619
Accrued management and distribution fees ...... 6,312
Accrued expenses............................... 32,735
------------
Total liabilities.............................. 595,587
------------
NET ASSETS: (applicable to 952,075
outstanding shares: 50,000,000 shares of
$.01 par value authorized)..................... $16,220,031
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($16,220,031 ~ 952,075) $17.04
============
At December 31, 1995 net assets consisted of:
Paid-in capital................................ $15,759,908
Net unrealized appreciation on investments .... 989,658
Accumulated net realized loss on investments .. (534,280)
Accumulated net investment income.............. 4,745
------------
$16,220,031
============
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
INVESTMENT INCOME:
Interest.............................. $971,601
-----------
EXPENSES:
Investment management (note 3)........ 98,069
Distribution (note 3)................. 57,207
Registration (note 3)................. 35,303
Transfer agent........................ 33,030
Custodian............................. 31,759
Professional (note 3)................. 27,603
Shareholder administration (note 3)... 13,117
Interest (note 5)..................... 2,887
Directors............................. 2,218
Other................................. 21,159
-----------
Total expenses........................ 322,352
Custodian credits (note 4)............ (27,289)
Investment management fees waived
(note 3).............................. (28,287)
-----------
Net expenses.......................... 266,776
-----------
Net investment income................. 704,825
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments...... 732,969
Unrealized appreciation of investments
during the period..................... 1,080,255
-----------
Net realized and unrealized gain on
investments........................... 1,813,224
-----------
Net increase in net assets resulting
from operations....................... $2,518,049
===========
------------
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,
1995 1994
- ------------ ------------
OPERATIONS:
Net investment income...........................................................
$704,825 $792,338
Net realized gain (loss) on investments.........................................
732,969 (1,267,250)
Unrealized appreciation (depreciation) of investments during the period.........
1,080,255 (1,430,317)
- ------------ ------------
Net increase (decrease) in net assets resulting from operations.................
2,518,049 (1,905,229)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.69 and $.68 per share, respectively)
(700,080) (792,722)
CAPITAL SHARE TRANSACTIONS:
Decrease in net assets resulting from capital share transactions (a)............
(1,519,230) (2,726,029)
- ------------ ------------
Total change in net assets......................................................
298,739 (5,423,980)
NET ASSETS:
Beginning of period.............................................................
15,921,292 21,345,272
- ------------ ------------
End of period (including accumulated net investment income of $4,745 for 1995)..
$16,220,031 $15,921,292
============ ============
- --------------------------------------------------------------------------------
- ------------------
(a) Transactions in capital shares were as follows:
<TABLE>
1995 1994
-------------------------
- ---------------------------
Shares Value Shares
Value
---------- -------------- ------------
- --------------
<S> <C> <C> <C>
Shares sold...................................... 736,003 $11,827,618 4,449,376
$71,964,789
Shares issued in reinvestment of distributions... 29,906 487,921 35,359
566,675
Shares redeemed.................................. (857,584) (13,834,769) (4,651,821)
(75,257,493)
---------- -------------- ------------
- --------------
Net decrease..................................... (91,675) $(1,519,230) (167,086)
$(2,726,029)
========== ============== ============
==============
</TABLE>
See accompanying notes to financial statements.
7
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 investment objective of the Fund is to provide
investors with the maximum level of income exempt from Federal income tax that
is consistent with the preservation of capital. The Fund seeks to achieve its
objective by investing primarily in a diversified portfolio of municipal
securities, depending on the Investment Manager's evaluation of current and
anticipated market conditions, which pay interest that is exempt from Federal
income tax. The Fund is subject to the risk of price fluctuations of the
municipal securities held in its portfolio which is generally a function of the
underlying credit rating of an issuer, the maturity length of its securities,
the securities' yield, and general economic and interest rate conditions. 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. In preparing financial statements in
conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(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. At December 31, 1995, the
Fund had an unused capital loss carryforward of approximately $534,000 which
expires in 2002. Based on Federal income tax cost of $14,974,753, gross
unrealized appreciation and gross unrealized depreciation were $993,600 and
$3,942, respectively, at December 31, 1995. Distributions paid to shareholders
during the year ended December 31, 1995 differ from net realized gains from
security transactions as determined for financial reporting purposes principally
as a result of utilization of capital loss carryforwards.
(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
8
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, 1995, $28,287 of management
fees were waived. Certain officers and directors of the Fund are officers and
directors of the Investment Manager and Investor Service Center, Inc. (formerly
Bull & Bear Service Center, Inc.), the Fund's Distributor. The Fund reimbursed
the Investment Manager $13,322 for providing certain administrative and
accounting services at cost for the year ended December 31, 1995.
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 by the Fund in
future periods to the extent that total expenditures do not exceed the amount
accrued by the Fund. At December 31, 1995, the reimbursable carryforward was
approximately $422,400. Investor Service Center also received $13,117 for
shareholder administration services it provided to the Fund at cost for the year
ended December 31, 1995.
(4) Purchases and proceeds of sales of securities other than short term notes
aggregated $26,484,138 and $28,195,884, respectively, for the year ended
December 31, 1995. Under an agreement with the custodian, custodian fees are
reduced by credits for cash balances. Such reductions amounted to $27,289 during
the year ended December 31, 1995.
(5) The Fund had an uncommitted bank line of credit for temporary or emergency
purposes which expired. For the year ended December 31, 1995, the weighted
average interest rate was 8.6% based on the balances outstanding during the year
and the weighted average amount outstanding was $13,074.
9
<TABLE>
FINANCIAL HIGHLIGHTS
Years Ended December
31,
- ---------------------------------------------
1995 1994 1993
1992 1991
-------- --------- --------
- -------- --------
PER SHARE DATA
<S> <C> <C> <C>
Net asset value at beginning of period..................... $15.25 $17.63 $17.06
$17.27 $16.91
-------- --------- --------
- -------- --------
Income from investment operations:
Net investment income...................................... .70 .68 .75
.89 1.02
Net realized and unrealized gain (loss) on investments..... 1.78 (2.38) 1.02
.11 1.23
-------- --------- --------
- -------- --------
Total from investment operations........................... 2.48 (1.70) 1.77
1.00 2.25
-------- --------- --------
- -------- --------
Less distributions:
Distributions from net investment income................... (.69) (.68) (.75)
(.89) (1.03)
Distributions from net realized gains on investments....... - - (.45)
(.32) (.86)
-------- --------- --------
- -------- --------
Total distributions........................................ (.69) (.68) (1.20)
(1.21) (1.89)
-------- --------- --------
- -------- --------
Net asset value at end of period........................... $17.04 $15.25 $17.63
$17.06 $17.27
======== ========= ========
======== ========
TOTAL RETURN............................................... 16.58% (9.76)% 10.59%
6.04% 13.69%
======== ========= ========
======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)................ $16,220 $15,921 $21,345
$20,781 $20,458
======== ========= ========
======== ========
Ratio of expenses to average net assets (a)(b)............. 1.78% 1.60% 1.61%
1.60% 1.60%
======== ========= ========
======== ========
Ratio of net investment income to average net assets (c)... 4.31% 4.23% 4.25%
5.19% 5.86%
======== ========= ========
======== ========
Portfolio turnover rate.................................... 172% 275% 74%
320% 511%
======== ========= ========
======== ========
- --------------------------------------------------------------------------------
</TABLE>
(a) Ratio prior to reimbursement by the Investment Manager was 1.95%, 1.71%,
1.62%, 1.62% and 1.63%, for the years ended December 31, 1995, 1994, 1993,
1992 and 1991, respectively.
(b) Ratio after the reduction of custodian fees under a custodian agreement was
1.62%. Prior to 1995, such reductions were reflected in the expense ratios.
(c) Ratio prior to reimbursement by the Investment Manager was 4.14%, 4.12%,
4.24%, 5.84% and 5.81%, for the years ended December 31, 1995, 1994, 1993,
1992 and 1991, respectively.
10
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, 1995, 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, 1995, 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, 1995, 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, 1996
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF BULL & BEAR MUNICIPAL SECURITIES, INC.
Pursuant to Sections 2-605(a)(4) and 2-607 of the Maryland General
Corporation Law, Bull & Bear Municipal Securities, Inc. ("Corporation")
certifies to the State Department of Assessments and Taxation of Maryland that:
ONE: Articles Sixth of the Corporation's Articles of
Incorporation is amended to change the name of the class of shares
of the Corporation as follows:
"Bull & Bear Tax-Free Income Fund" to "Bull &
Bear Municipal Income Fund".
TWO: The Amendment herein contained was approved by a majority of the
entire Board of Directors of the Corporation and is limited to a change
expressly permitted by Section 2-605(a)(4) of the Maryland General Corporation
Law to be made without action by the stockholders of the Corporation.
THREE: The Corporation is registered with the Securities
and Exchange Commission as an open-end investment company under the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the undersigned hereby executes these Articles of
Amendment on behalf of the Corporation, acknowledging it to be the act of the
Corporation, and further states under the penalties of perjury that, to the best
of his knowledge, information and belief, the matters and facts set forth herein
are true in all material respects.
Dated: May 4, 1995 BULL & BEAR MUNICIPAL SECURITIES, INC.
By: /s/ Thomas B. Winmill
Name: Thomas B. Winmill
Title: Co-President
Attest: /s/ William J. Maynard
Name: William J. Maynard
Title: Secretary
AMENDED AND RESTATED
CUSTODIAN AGREEMENT
Between
Bull & Bear Municipal Securities, Inc.
and
INVESTORS BANK & TRUST COMPANY
1. Bank Appointed Custodian..................................................4
2. Definitions...............................................................4
2.1 Authorized Person.......................................................4
2.2 Security................................................................4
2.3 Portfolio Security......................................................5
2.4 Officers' Certificate...................................................5
2.5 Book-Entry System.......................................................5
2.6 Depository..............................................................5
2.7 Proper Instructions.....................................................5
3. Separate Accounts.........................................................6
4. Certification as to Authorized Persons....................................6
5. Custody of Cash...........................................................6
5.1 Purchase of Securities..................................................6
5.3 Distributions and Expenses of Fund......................................7
5.4 Payment in Respect of Securities........................................7
5.5 Repayment of Loans......................................................7
5.6 Repayment of Cash.......................................................7
5.8 Other Authorized Payments...............................................7
5.9 Termination.............................................................8
6. Securities................................................................8
6.1 Segregation and Registration............................................8
6.2 Voting and Proxies......................................................8
6.3 Book-Entry System.......................................................8
6.4 Use of a Depository....................................................10
6.5 Use of Book-Entry System for Commercial Paper..........................11
6.6 Use of Immobilization Programs.........................................12
6.7 Eurodollar CDs.........................................................12
6.8 Options and Futures Transactions.......................................12
6.9 Segregated Account.....................................................13
6.10 Interest Bearing Call or Time Deposits................................14
6.11 Transfer of Securities................................................15
7. Redemptions..............................................................16
8. Merger. Dissolution. etc. of Fund........................................17
9. Actions of Bank Without Prior Authorization..............................17
10. Collections and Defaults................................................18
11. Maintenance of Records and Accounting Services...........................18
12. Fund Evaluation..........................................................18
13. Concerning the Bank......................................................19
13.1 Performance of Duties and Standard of Care.............................19
13.2 Agents and Subcustodians with Respect to Property of the Fund
Held in the United States...................................................20
13.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States................................................21
(a) Appointment of Foreign Sub-Custodians..........................21
(b) Foreign Securities Depositories................................21
(c) Segregation of Securities......................................21
(d) Agreements with Foreign Banking Institutions...................21
(e) Access of Independent Accountants of the Fund..................22
(f) Reports by Bank................................................22
(g) Transactions in Foreign Custody Account........................22
(h) Liability of Selected Foreign Sub-Custodians...................23
(i) Liability of Bank..............................................23
(j) Monitoring Responsibilities....................................23
(k) Tax Law........................................................24
13.4 Insurance..............................................................24
13.5. Fees and Expenses of Bank.............................................24
13.6 Advances by Bank.......................................................24
14. Termination..............................................................25
15. Confidentiality..........................................................25
16. Notices..................................................................26
17. Amendments...............................................................26
18. Parties..................................................................26
19. Governing Law............................................................26
20. Counterparts.............................................................26
CUSTODIAN AGREEMENT
AGREEMENT made as of this eighth day of June 1995, between Bull &
Bear Municipal Securities, Inc., a corporation (the "Fund") and INVESTORS BANK &
TRUST COMPANY (the "Bank").
WHEREAS, the Fund is an open-end management investment company, and the
Bank has at least the minimum qualifications required by Section 17(f)(1) of the
Investment Company Act of 1940 (the "1940 Act") to act as custodian of the
portfolio securities and cash of the Fund; and
WHEREAS, the Fund and the Bank now desire to enter into this Custodian Agreement
hereby referred to herein as the "Agreement";
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of the Fund's portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board of Directors or the Board of
Trustees ("the Board"), and set forth in a certificate as required by Section 4
hereof.
2.2 Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933, as amended,
including, without
4
limitation, any note, stock, treasury stock, bond, debenture, evidence of
indebtedness, certificate of interest or participation in any profit sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.3 Portfolio Security. Portfolio Security will mean any security owned
by the Fund.
2.4 Officers' Certificate. Officers' Certificate will mean, unless other-
wise indicated, any request, direction, instruction, or certification in writing
signed by any two Authorized Persons of the Fund.
2.5 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.6 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.7 Proper Instructions. Proper Instructions shall mean (i) instructions
regarding the purchase or sale of Portfolio Securities, and payments and
deliveries in connection therewith, given by an Authorized Person as shall have
been designated in an Officers' Certificate, such instructions to be given in
such form and manner as the Bank and the Fund shall agree upon from time to
time, and (ii) instructions (which may be continuing instructions) regarding
other matters signed or initialed by such two or more persons from time to time
designated in an Officers' Certificate as having been authorized by the Board.
Oral instructions will be considered Proper Instructions if the Bank reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
oral instructions to be promptly
5
confirmed in writing. The Bank shall act upon and comply with any subsequent
Proper Instruction which modifies a prior instruction and the sole obligation of
the Bank with respect to any follow-up or confirmatory instruction shall be to
make reasonable efforts to detect any discrepancy between the original
instruction and such confirmation and to report such discrepancy to the Fund.
The Fund shall be responsible, at the Fund's expense, for taking any action,
including any reprocessing, necessary to correct any such discrepancy or error,
and to the extent such action requires the Bank to act the Fund shall give the
Bank specific Proper Instructions as to the action required. Upon receipt of an
Officers' Certificate as to the authorization by the Board accompanied by a
detailed description of procedures approved by the Fund, Proper Instructions may
include communication effected directly between electro-mechanical or electronic
devices provided that the Board and the Bank are satisfied that such procedures
afford adequate safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio, the
Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon).
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund, will sign a new or amended certification setting forth
the change and the new, additional or omitted names or signatures. The Bank will
be entitled to rely and act upon any Officers' Certificate given to it by the
Fund which has been signed by Authorized Persons named in the most recent
certification.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Section 13.2 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding shares of common stock of the Fund, notification from
the Fund's transfer agent as provided in Section 7, requesting such payment,
designating the payee or the account or accounts to which the Bank will release
funds for deposit, and stating that it is for a purpose permitted under the
terms of this Section 5, specifying the applicable subsection, the Bank will
make payments of cash held for the accounts of the Fund, insofar as funds are
available for that purpose, only as permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the Fund,
6
against contemporaneous receipt of such securities by the Bank or, against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper) of
purchase of the securities received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank before such payment is
made.
5.2 Redemptions. In such amount as may be necessary for the repurchase or
redemption of common shares of the Fund offered for repurchase or redemption in
accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account of
the Fund of dividends or other distributions to shareholders as may from time to
time be declared by the Board, interest, taxes, management or supervisory fees,
distribution fees, fees of the Bank for its services hereunder and reimbursement
of the expenses and liabilities of the Bank as provided hereunder, fees of any
transfer agent, fees for legal, accounting, and auditing services, or other
operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with the
conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but, in
the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery which may be entered into by the Bank on behalf of
the Fund upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions with which the Fund
deals or for their failure to comply with the terms of any contract or option.
5.8 Other Authorized Payments. For other authorized transactions of the
Fund, or other obligations of the Fund incurred for proper Fund purposes;
7
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: upon the termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 14 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed
pursuant to Section 13.2 hereof, the Bank as custodian, will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for
the account of the Fund. All such Portfolio Securities will be held or disposed
of by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise
directed by Proper Instructions or an Officers' Certificate), in the name of a
registered nominee of the Bank as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, and will execute and
deliver all such certificates in connection therewith as may be required by
such laws or regulations or under the laws of any state. The Fund will from
time to time furnish to the Bank appropriate instruments to enable it to hold
or deliver in proper form for transfer, or to register in the name of its
registered nominee, any Portfolio Securities which may from time to time be
registered inthe name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank will
vote any of the Portfolio Securities held hereunder, except in accordance with
Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials with respect to such Securities, such proxies to
be executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
6.3 Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund assets
8
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to the
Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities which are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for the
account of the Fund or shall pay cash collateral against the return of Portfolio
Securities loaned by the Fund upon (i) receipt of advice from the Book-Entry
System that such Securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Bank (or its agent) to reflect such
payment and transfer for the account of the Fund. The Bank (or its agent) shall
transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment for
securities sold or payment of the initial cash collateral against the delivery
of securities loaned by the Fund has been transferred to the Account; and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers
to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report obtained
by the Bank or its agent on the Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Book-Entry System. The Bank will provide the Fund and cause any such agent to
provide, at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, including Securities
deposited in the Book-Entry System, relating to the services provided by the
9
Bank or such agent under the Agreement;
(e) The Bank shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Book-Entry System by reason of any negligence,
willful misfeasance or bad faith of the Bank or any of its agents or of any of
its or their employees or from any reckless disregard by the Bank or any such
agent of its duty to use its best efforts to enforce such rights as it may have
against the Book-Entry System; at the election of the Fund, it shall be
entitled to be subrogated for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have as a
consequence of any such loss or damage if and to the extent that the Fund has
not been made whole for any loss or damage;
6.4 Use of a Depository. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange, release,
lend, deliver and otherwise deal with Portfolio Securities including stock
dividends, rights and other items of like nature, and to receive and remit to
the Bank on behalf of the Fund all income and other payments thereon and to take
all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of
any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through the
clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Bank shall pay cash collateral from the account of the Fund against the
return of Portfolio Securities loaned bythe Fund only upon delivery of the
Securities to or for the account of the Fund; and upon any sale of Portfolio
Securities, delivery of the Securities will be made only against payment thereof
or, in the event Portfolio Securities are loaned, delivery of Securities will be
made only against receipt of the initial cash collateral to or for the account
of the Fund; and
(d) The Bank shall be subject to the same liability and duty to the
Fund and its shareholders with respect to all securities of the Fund, and all
cash, stock dividends, rights and items of like nature to which the Fund is
entitled, held or received by a central securities system as agent for the Bank,
pursuant to the foregoing authorization, as if the same were held or received by
the Bank at its own offices. In this connection, with respect to the use of the
Depository by the Bank but without limiting the foregoing duty or liability, the
Bank, without cost to the Fund, shall ensure that:
10
(i) The Depository obtains replacement of any certificated Portfolio
Security deposited with it in the event such Security is lost, destroyed,
wrongfully taken or otherwise not available to be returned to the Bank upon its
request;
(ii) Any proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to the Bank confirmation
of any purchase or sale of Portfolio Securities and of the appropriate book
entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such records
with respect to the performance of the Bank's obligations and duties hereunder
as may be necessary for the Fund to comply with the recordkeeping requirements
of Section 31 (a) of the 1940 Act and Rule 3 l(a) thereunder; and
(v) Such Depository delivers to the Bank and the Fund all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.5 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank
has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining its Book-entry Paper
System, the Bank agrees that:
(a) the Bank will maintain all Book-Entry Paper held by the Fund in an
account of the Bank that includes only assets held by it for customers;
(b) the records of the Bank with respect to the Fund's purchase of
Book-entry Paper through the Bank will identify, by book-entry, Commercial Paper
belonging to the Fund which is included in the Book-entry Paper System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) the Bank shall pay for Book-Entry Paper purchased for the account
11
of the Fund upon contemporaneous (i) receipt of advice from the Issuer that such
sale of Book-Entry Paper has been effected, and (ii) the making of an entry on
the records of the Bank to reflect such payment and transfer for the account of
the Fund;
(d) the Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;
(e) the Bank shall transmit to the Fund a transaction journal
confirming each transaction in Book-Entry Paper for the account of the Fund on
the next business day following the transaction; and
(f) the Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper System as the
Fund may reasonably request from time to time.
6.6 Use of Immobilization Programs. Provided (i) the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of the 1940 Act, and (ii) for each year
following such approval the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval, the Bank shall enter into such immobilization
program with such bank acting as a subcustodian hereunder.
6.7 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Securities are identified on the books of the Bank as belonging to the Fund
and that the books of the Bank identify the European Branch holding such
Securities. Notwithstanding any other provision of this Agreement to the
contrary, except as stated in the first sentence of this subsection 6.7, the
Bank shall be under no other duty with respect to such Eurodollar CDs belonging
to the Fund, and shall have no liability to the Fund or its shareholders with
respect to the actions, inactions, whether negligent or otherwise of such
European Branch in connection with such Eurodollar CDs, except for any loss or
damage to the Fund resulting from the Bank's own negligence, willful misfeasance
or bad faith in the performance of its duties hereunder.
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. Upon receipt of Proper Instructions the Bank shall take action
12
as to put options ("puts") and call options ("calls") purchased or sold
(written) by the Fund regarding escrow or other arrangements (i) in accordance
with the provisions of any agreement entered into between the Bank, any
broker-dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Fund relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank shall be
under no duty or obligation to see that the Fund has deposited or is maintaining
adequate margin, if required, with any broker in connection with any option, nor
shall the Bank be under duty or obligation to present such option to the broker
for exercise unless it receives Proper Instructions from the Fund. The Bank
shall have no responsibility for the legality of any put or call purchased or
sold on behalf of the Fund, the propriety of any such purchase or sale, or the
adequacy of any collateral delivered to a broker in connection with an option or
deposited to or withdrawn from a Segregated Account (as defined in subsection
6.9 below). The Bank specifically, but not by way of limitation, shall not be
under any duty or obligation to: (i) periodically check or notify the Fund that
the amount of such collateral held by a broker or held in a Segregated Account
is sufficient to protect such broker of the Fund against any loss; (ii) effect
the return of any collateral delivered to a broker; or (iii) advise the Fund
that any option it holds, has or is about to expire. Such duties or obligations
shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
1. Upon receipt of Proper Instructions, the Bank shall take action
as to puts, calls and futures contracts ("Futures") purchased or sold by the
Fund in accordance with the provisions of any agreement among the Fund, the Bank
and a Futures Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with transactions by the
Fund.
2. The responsibilities and liabilities of the Bank as to futures,
puts and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(2) of this Section 6.8 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.9 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund, into which Account or Accounts may be transferred upon
receipt of Proper Instructions cash and/or Portfolio Securities:
13
(a) in accordance with the provisions of any agreement among the Fund,
the Bank and a broker-dealer registered under the Exchange Act and a member of
the NASD or any Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange or the Commodity
Futures Trading Commission or any registered Contract Market, or of any similar
organizations regarding escrow or other arrangements in connection with
transactions by the Fund;
(b) for the purpose of segregating cash or securities in connection
with options purchased or written by the Fund or commodity futures purchased or
written by the Fund,
(c) for the deposit of liquid assets, such as cash, U.S. Government
securities or other high grade debt obligations, having a market value (marked
to market on a daily basis) at all times equal to not less than the aggregate
purchase price due on the settlement dates of all the Fund's then outstanding
forward commitment or "when-issued" agreements relating to the purchase of
Portfolio Securities and all the Fund's then outstanding commitments under
reverse repurchase agreements entered into with broker-dealer firms;
(d) for the deposit of any Portfolio Securities which the Fund has
agreed to sell on a forward commitment basis, and; .
(e) for other proper corporate purposes, but only n the case of this
clause (f), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board, or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such Segregated Account and declaring
such purposes to be proper corporate purposes.
(f) Segregated accounts established and maintained hereunder shall
comply with the procedures required by Investment Company Act, including Release
No. 10666, or any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of Segregated Accounts by registered
investment companies;
(g) Assets may be withdrawn from the Segregated Account pursuant to
Proper Instructions only
(i) in accordance with the provisions of any agreements
referenced in (a) or (b) above;
(ii) for sale or delivery to meet the Fund's obligations under
outstanding firm commitment or when-issued agreements for the purchase
of Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or
14
greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward commitment
or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those
in the Segregated Account; or
(v) for delivery upon settlement of a forward commitment agreement
for the sale of Portfolio Securities.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt
of Proper Instructions relating to the purchase by the Fund of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.
6.11 Transfer of Securities. The Bank will transfer, exchange, deliver or
release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
for a purpose permitted under the terms of this Section 6.11, specifying the
applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
(a) upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or,
against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale of the Portfolio Securities received by the Bank
before such payment is made, as confirmed in the Proper Instructions received by
the Bank before such payment is made;
(b) in exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided
15
however that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to their terms into
other securities;
(d) for the purpose of redeeming in kind shares of the Fund upon
authorization from the Fund;
(e) in the case of option contracts owned by the Fund, for presentation to
the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or retired or
otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio Securities held
by the Bank in order to collateralize loans made to the Fund by any bank,
including the Bank; provided, however, that such Portfolio Securities will be
released only upon payment to the Bank for the account of the Fund of the moneys
borrowed, except that in cases where additional collateral is required to secure
a borrowing already made, and such fact is made to appear in the Proper
Instructions, further Portfolio Securities may be released for that purpose
without any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender, that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market value
of such security, as set forth in the Proper Instructions received by the Bank
before such payment is made;
(i) for the purpose of delivering portfolio securities lent by the
Fund to a bank or broker dealer, but only against receipt in accordance with
street delivery custom as set forth in Proper Instructions and subject to as may
be otherwise provided herein, of adequate collateral as agreed upon from time to
time by the Fund and the Bank, and upon receipt of payment in connection with
any repurchase agreement relating to such portfolio securities entered into by
the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
16
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such portfolio
securities shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b), (c),
(e), (f), (g), (h) and (i) securities or cash receivable in exchange therefor
shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of its
outstanding common shares, the Bank will rely on notification by the Fund's
transfer agent of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Articles and By-laws of the Fund, from assets
available for said purpose.
8. Merger. Dissolution. etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company where
the Fund is not the surviving entity, the sale by the Fund of all, or
substantially all, of its assets to another investment company, or the
liquidation or dissolution of the Fund and distribution of its assets, the Bank
will deliver the Portfolio Securities held by it under this Agreement and
disburse cash only upon the order of the Fund set forth in an Officers'
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distribution of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it
17
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use all reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held by it which is more than
ten days overdue on the date of such report and which has not previously been
reported.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act and will furnish the Fund daily
with a statement of condition of the Fund. The Bank will furnish to the Fund at
the end of every month, and at the close of each quarter of the Fund's fiscal
year, a list of the Portfolio Securities and the aggregate amount of cash held
by it for the Fund. The books and records of the Bank pertaining to its actions
under this Agreement and reports by the Bank or its independent accountants
18
concerning its accounting system, procedures for safeguarding securities and
internal accounting controls will be open to inspection and audit at reasonable
times by officers of or auditors employed by the Fund and will be preserved by
the Bank in the manner and in accordance with the applicable rules and
regulations under the 1940 Act.
The Bank shall keep the books of account and render statements or copies from
time to time as reasonably requested by the Treasurer or any executive officer
of the Fund.
The Bank shall assist generally in the preparation of reports to shareholders
and others, audits of accounts, and other ministerial matters of like nature.
12. Fund Evaluation. The Bank shall compute and, unless otherwise directed by
the Board, determine as of the close of business on the New York Stock Exchange
on each day on which said Exchange is open for unrestricted trading and as of
such other hours, if any, as may be authorized by the Board the net asset value
and the public offering price of a share of capital stock of the Fund, such
determination to be made in accordance with the provisions of the Articles and
By-laws of the Fund and Prospectus and Statement of Additional Information
relating to the Fund, as they may from time to time be amended, and any
applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Fund, the proper exchange and the NASD or such other
persons as the Fund may request of the results of such computation and
determination.
The Bank shall use reasonable care in computing the net asset value
hereunder, and the Bank shall be liable and shall hold the fund harmless for any
losses to the Fund occasioned by the Bank's own negligence in the performance of
its duties under this paragraph, provided however that the Bank may rely in good
faith upon information furnished to it by any Authorized Person in respect of
(i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board of Directors or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any source pursuant to (iii) above, provided the
Bank has timely supplied the Fund with such variance reports as are specifically
set forth on Schedule B annexed hereto.
13. Concerning the Bank.
13.1 Performance of Duties and Standard of Care.
In performing its duties hereunder and any other duties listed on any
Schedule hereto, if any, the Bank will be entitled to receive and act upon the
advice of independent counsel of its own selection, which may be counsel for the
Fund, and will be without liability for any action taken or thing done or
omitted to be done in accordance with this Agreement in good faith in conformity
19
with such advice. Except as otherwise expressly provided in Section 12, in the
performance of its duties hereunder, the Bank will be protected and not be
liable, and will be indemnified and held harmless for any action taken or
omitted to be taken by it in good faith reliance upon the terms of this
Agreement, any Officers' Certificate, Proper Instructions, resolution of the
Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine and for any other loss to the Fund except in
the case of its negligence, willful misfeasance or bad faith in the performance
of its duties or reckless disregard of its obligations and duties hereunder.
The Bank will be under no duty or obligation to inquire into and will not be
liable for:
(a) the validity of the issue of any Portfolio Securities purchased by
or for the Fund, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for the
Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Fund
or the sufficiency of the amount to be received therefor except to the
extent provided in Section 12;
(d) the legality of the repurchase of any common shares of the Fund or
the propriety of the amount to be paid therefor except to the extent
provided in Section 12;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event shall
the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from acts of God,
earthquakes, fires, floods, storms or other disturbances of nature, epidemics,
strikes, riots, nationalization, expropriation, currency restrictions, acts of
war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation,
the interruption, loss or malfunction of utilities, transportation, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence; or
20
(b) for special, punitive or consequential damages arising from the
provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
13.2 Agents and Subcustodians with Respect to Property of the Fund Held in
the United States. The Bank may employ agents in the performance of its duties
hereunder and shall be responsible for the acts and omissions of such agents as
if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ Subcustodians,
provided that any such subcustodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Fund or any other person by reason of any act or
omission of any such subcustodian and the Fund shall indemnify the Bank and hold
it harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any such subcustodian. Upon
request of the Bank, the Fund shall assume the entire defense of any action,
suit, or claim subject to the foregoing indemnity. The Fund shall pay all fees
and expenses of any subcustodian.
13.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Sub-Custodians. The Fund hereby authorizes
and instructs the Bank to employ as sub-custodians for the Fund's Portfolio
Securities and other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories designated on the
Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Upon
receipt of Proper Instructions, together with a certified resolution of the
Fund's Board of Trustees, the Bank and the Fund may agree to designate
additional foreign banking institutions and foreign securities depositories to
act as Selected Foreign Sub-Custodians hereunder. Upon receipt of Proper
Instructions, the Fund may instruct the Bank to cease the employment of any one
or more such Selected Foreign Sub-Custodians for maintaining custody of the
Fund's assets, and the Bank shall so cease to employ such sub-custodian as soon
as alternate custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Bank and the Fund, assets of the Fund shall be maintained
in foreign securities depositories only through arrangements implemented by the
foreign banking institutions serving as Selected Foreign Sub-Custodians pursuant
to the terms hereof. Where possible, such arrangements shall include entry into
agreements containing the provisions set forth in subparagraph (d) hereof.
Notwithstanding the foregoing, except as may otherwise be agreed upon in writing
by the Bank and the Fund, the Fund authorizes the deposit in Euroclear, the
securities clearance and depository facilities operated by Morgan Guaranty Trust
Company of New York in Brussels, Belgium, of Foreign Portfolio Securities
21
eligible for deposit therein and to utilize such securities depository in
connection with settlements of purchases and sales of securities and deliveries
and returns of securities, until notified to the contrary pursuant to
subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its books as
belonging to the Fund the Foreign Portfolio Securities held by each Selected
Foreign Sub-Custodian. Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such institution establish a
custody account for the Bank and hold in that account, Foreign Portfolio
Securities and other assets of the Fund, and, in the event that such institution
deposits Foreign Portfolio Securities in a foreign securities depository, that
it shall identify on its books as belonging to the Bank the securities so
deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement") shall be substantially in the
form previously made available to the Fund and shall provide that: (a) the
Fund's assets will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (b) beneficial ownership of the
Fund's assets will be freely transferable without the payment of money or value
other than for custody or administration (including, without limitation, any
fees or taxes payable upon transfers or reregistration of securities); (c)
adequate records will be maintained identifying the assets as belonging to Bank;
(d) officers of or auditors employed by, or other representatives of the Bank,
including to the extent permitted under applicable law, the independent public
accountants for the Fund, will be given access to the books and records of the
foreign banking institution relating to its actions under its agreement with the
Bank; and (e) assets of the Fund held by the Selected Foreign Sub-Custodian will
be subject only to the instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Fund. Upon request of the
Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-Custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and other
assets of the Fund held by Selected Foreign Sub-Custodians, including but not
limited to an identification of entities having possession of the Foreign
Portfolio Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Account. Transactions with respect
22
to the assets of the Fund held by a Selected Foreign Sub-Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable Foreign Sub-Custodian Agreement. If
at any time any Foreign Portfolio Securities shall be registered in the name of
the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold any
such nominee harmless from any liability by reason of the registration of such
securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
In connection with any action to be taken with respect to the Foreign
Portfolio Securities held hereunder, including, without limitation, the exercise
of any voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications with respect to such
Rights, and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign
Sub-Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Fund from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-Custodian Agreement. The Fund acknowledges
that the Bank, as a participant in Euroclear, is subject to the Terms and
Conditions Governing the Euroclear System, a copy of which has been made
available to the Fund. The Fund acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or
23
assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euroclear in connection with the Fund's securities and
other assets.
(i) Liability of Bank. The Bank shall have no more or less
responsibility or liability on account of the acts or omissions of any Selected
Foreign Sub-Custodian employed hereunder than any such Selected Foreign
Sub-Custodian has to the Bank and, without limiting the foregoing, the Bank
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or acts of
war or terrorism, political risk (including, but not limited to, exchange
control restrictions, confiscation, insurrection, civil strife or armed
hostilities) other losses due to Acts of God, nuclear incident or any loss where
the Selected Foreign Sub-Custodian has otherwise exercised reasonable care.
(j) Monitoring Responsibilities. The Bank shall furnish annually to the
Fund, information concerning the Selected Foreign Sub-Custodians employed
hereunder for use by the Fund in evaluating such Selected Foreign Sub-Custodians
to ensure compliance with the requirements of Rule 17f-5 of the Act. In
addition, the Bank will promptly inform the Fund in the event that the Bank is
notified by a Selected Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any other capital adequacy
test applicable to it by exemptive order, or if the Bank has actual knowledge of
any material loss of the assets of the Fund held by a Foreign Sub-Custodian.
(k) Tax Law. The Bank shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Bank as custodian of the
Fund by the tax laws of any jurisdiction, and it shall be the responsibility of
the Fund to notify the Bank of the obligations imposed on the Fund or the Bank
as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of jurisdictions for which the Fund has provided such
information.
13.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property and will maintain insurance in accordance
with industry practice but it need not maintain any special insurance for the
benefit of the Fund.
13.5. Fees and Expenses of Bank. The Fund will pay or reimburse the Bank
from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
24
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable out of pocket expenses incurred in
conjunction with termination of this Agreement by the Fund.
13.6 Advances by Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any Proper Authorization for such payments by the Fund. Should such a
payment or payments, with advanced funds, result in an overdraft (due to
insufficiencies of the Fund's account with the Bank, or for any other reason)
this Agreement deems any such overdraft or related indebtedness, a loan made by
the Bank to the Fund payable on demand and bearing interest at the current rate
charged by the Bank for such loans unless the Fund shall provide the Bank with
agreed upon compensating balances. The Fund agrees that the Bank shall have a
continuing lien and security interest to the extent of any overdraft or
indebtedness, in and to any property at any time held by it for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in its sole discretion, at
any time to charge any overdraft or indebtedness, together with interest due
thereon against any balance of account standing to the credit of the Fund on the
Bank's books.
14. Termination.
14.1 This Agreement may be terminated at any time without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such sixty days this Agreement will
terminate; provided, however, that the effective date of such termination may
be postponed to a date not more than ninety days from the date of delivery of
such notice (i) by the Bank in order to prepare for the transfer by the Bank of
all of the assets of the Fund held hereunder, and (ii) by the Fund in order to
give the Fund an opportunity to make suitable arrangements for a successor
custodian. At any time after the termination of this Agreement, the Fund will,
at its request, have access to the records of the Bank relating to the
performance of its duties as custodian.
14.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
25
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (14.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of its own selection which
meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported
capital, surplus and undivided profits aggregating not less than $2,000,000, to
be held as the property of the Fund under terms similar to those on which they
were held by the Bank, whereupon such bank or trust company so selected by the
Bank will become the successor custodian of such assets of the Fund with the
same effect as though selected by the Board.
14.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank.
15. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other
party, except as may be required by applicable law or at the request of a
governmental agency. The parties further agree that a breach of this provision
would irreparably damage the other party and accordingly agree that each of
them is entitled, without bond or other security, to an injunction or
injunctions to prevent breaches of this provision.
16. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Bull & Bear Funds II, Inc.
11 Hanover Square
New York, New York 10005
Attn: President
26
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Henry Joyce
or at such other place as such party may from time to time designate in
writing.
17. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.
18. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by the Board; and provided further
that termination proceedings pursuant to Section 14 hereof will not be deemed to
be an assignment within the meaning of this provision.
19. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts. 20. Counterparts.
his 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.
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
Bull & Bear Municipal Securities, Inc.
By: /s/ Thomas B. Winmill
Name: Thomas B. Winmill
Title: Co-President
ATTEST:
/s/ William J. Maynard
Secretary
Investors Bank & Trust Company
By: /s/ Henry N. Joyce
Name: Henry N. Joyce
Title: Director
ATTEST:
-----------------------------
DATE: June 8, 1995
28
<TABLE>
<CAPTION>
Foreign Subcustodian Network
Securities Depository /
Country Subcustodian Clearing Agency
<S> <C> <C>
Argentina Citibank, N. A., Buenos Aires Caja de Valores
Citibank New York Agreement November 15, 1990
Australia National Australia Bank Limited Austraclear
Agreement December 1990 CHESS
RITS
Austria Euroclear / Creditanstalt Bankverein OEKB
Euroclear Agreement May 1, 1990
Bangladesh Standard Chartered Bank, Dhaka None
Standard Chartered Regional Agreement July 23, 1992
Belgium Euroclear / General de Banque CIK
Euroclear Agreement May 1, 1990 Banque
Nationale
de Belge
Botswana Barclays Bank PLC/Barclays Bank of Botswana Ltd. None
Barclays Regional Agreement November 21, 1994
Brazil Banco de Boston, Sao Paulo BOVESPA
Agreement BVRJ
Canada Euroclear / Royal Bank of Canada CDS
Euroclear Agreement May 1, 1990
Canada Royal Trust Corporation of Canada CDS
Agreement October 22,1991
China Standard Chartered Bank, Shanghai SSCCRC
Standard Chartered Regional Agreement July 23, 1992
China Standard Chartered Bank, Shenzhen Shenzen
Central
Standard Chartered Regional Agreement July 23, 1992
<PAGE>
Registrars Co.
Colombia Cititrust Colombia S. A. Sociedad Fiduciaria, Bogota None
Citibank New York Agreement November 15, 1990
Czech Republic Chase Manhattan, N. A. / Ceskoslovenska Obchodni Banka
SCP
Chase New York Agreement March 1, 1994
Denmark Euroclear / Den Danske Bank
Vardipapercentralen
Euroclear Agreement May 1, 1990
</TABLE>
29
<TABLE>
<CAPTION>
<S> <C> <C>
Egypt Chase Manhattan, N. A. / National Bank of Egypt None
Chase New York Agreement March 1, 1994
Finland Euroclear / Kansallis-Osake-Pankki Central Share
Registry
Euroclear Agreement May 1, 1990 Helsinki Money
Market
France Euroclear / Morgan Guaranty Paris, Societe Generale
Sicovam
Euroclear Agreement May 1, 1990 Banque de
France
Germany Euroclear / Deutsche Bank A. G. Kassenverein
Euroclear Agreement May 1, 1990
Ghana Barclays Bank PLC / Barclays Bank of Ghana Ltd. None
Barclays Regional Agreement November 21,1994
Greece Citibank, N. A., Athens CSD
Citibank New York Agreement November 15, 1990
Hong Kong Standard Chartered Bank, Hong Kong CCASS
Standard Chartered Regional Agreement July 23, 1992
Hungary Citibank, Rt., Budapest Keler
Citibank New York Agreement November 15, 1990
Indonesia Standard Chartered Bank, Jakarta PT Klering
Dep Efek
Standard Charterd Regional Agreement July 23, 1992
Ireland Bank of Ireland Securities Services Gilts Settlement
Of fice
Agreement February 22, 1995
Israel Chase Manhattan, N.A. / Bank Leumi le-Israel The Stock
Exchange
Chase New York Agreement March 1, 1994 Clearing
House Ltd.
Italy Citibank, N. A., Milan Monte Titoli
Citibank New York Agreement November 15, 1990 Banca
d'Italia
Italy Euroclear / Credito Italiano Banca d'Italia
EuroclearAgreementMay 1, 1990
Japan Standard Chartered Bank, Tokyo JASDEC
Standard Chartered Regional Agreement July 23, 1992 Bank of
Japan
Jordan Citibank, N. A., Amman None
Citibank New York Agreement November 15,1990
</TABLE>
30
<TABLE>
<CAPTION>
<S> <C> <C>
Korea Standard Chartered Bank, Seoul KSD
Standard Chartered Regional Agreement July 23, 1992
Luxembourg Euroclear / Banque et Caisse d'Epargne de l'Etat None
Euroclear Agreement May 1, 1990
Malaysia Standard Chartered Bank Malaysia Berhad, Kuala Lumpur
MCD
Standard Chartered Regional Agreement July 23, 1992
Mauritius Chase Manhattan, N. A. / Hongkong Shanghai Banking Corp.
None
Chase New York Agreement March 1, 1994
Mexico Bancomer, S. A. S. D. Indeval
Agreement October 7,1994 Banco de Mexico
Morocco Chase Manhattan, N. A. / Banque Commercial du Maroc
None
Chase New York Agreement March 1, 1994
Netherlands Euroclear / ABN Amro Bank NECIGEF
Euroclear Agreement May 1, 1990 De
Nederlandsche Bank
New Zealand National Australia Bank Austraclear
AgreementDecember, 1990
Norway Euroclear I Christiania Bank VPS
Euroclear Agreement May 1, 1990
Pakistan Standard Chartered Bank, Karachi None
Standard Chartered Regional Agreement July 23, 1992
Peru Citibank, N. A., Lima CAVAL
Citibank New York Agreement November 15, 1990
Philippines Standard Chartered Bank, Manila None
Standard Chartered Regional Agreement July 23, 1992
Poland Citibank (Poland), S.A., Warsaw National
Depository of
Citibank New York Agreement November 15, 1990 Securities
Portugal Citibank Portugal S. A., Lisbon Central de
Valores
Citibank New York Agreement November 15,1990
Mobiliarios
Portugal Euroclear / Banco Comercial Portugues Central de
Valores
Euroclear Agreement May 1,1990 Mobiliarios
</TABLE>
31
<TABLE>
<S> <C> <C>
Singapore Standard Chartered Bank, Singapore CDS
Standard Chartered Regional Agreement July 23, 1992
South Africa Chase Manhattan N. A. / Standard Bank of South Africa None
Chase New York Agreement March 1, 1994
Spain Euroclear I Banco Santander SCLV
Euroclear Agreement May 1, 1990 Banco de Espana
Sri Lanka Standard Chartered Bank, Colombo Central
Depository
Standard Chartered Regional Agreement July 23,1992 System
Sweden Euroclear I Skandinaviska Enskilda Banken
Vardepapperscentralen
Euroclear Agreement May 1, 1990
Switzerland Citibank (Switzerland), Zurich SEGA
Citibank New York Agreement November 15, 1990
Switzerland Euroclear I Credit Suisse SEGA
EuroclearAgreementMay 1, 1990
Taiwan Standard Chartered Bank, Taipei Taiwan
Securities
Standard Chartered Regional Agreement July 23, 1992
Depository
Thailand Standard Chartered Bank, Bangkok SDC
Standard Chartered Regional Agreement July 23,1992
Turkey Chase Manhattan N. A., Istanbul IMKB
Chase New York Agreement March 1, 1994
Transnational Investors Bank & Trust Company Euroclear
United Kingdom Barclays Bank PLC CGO
Barclays Bank Regionl Agreement November 21,1994 CMO
Venezuela Citibank, N. A., Caracas None
Citibank New York Agreement November 15, 1990
Zambia Barclays Bank PLC None
Barclays Bank Regional Agreement November 21, 1994
Zimbabwe Barclays Bank PLC None
Barclays Bank Regional Agreement November 21,1994
</TABLE>
Form Of
CREDIT AGREEMENT
INVESTORS BANK & TRUST COMPANY
and
BULL & BEAR FUNDS I, INC.
BULL & BEAR FUNDS II, INC.
BULL & BEAR GOLD INVESTORS LTD.
BULL & BEAR MUNICIPAL SECURITIES, INC.
BULL & BEAR SPECIAL EQUITIES FUND, INC. and
MIDAS FUND, INC.
$20,000,000 REVOLVING CREDIT FACILITY
April 3, 1996
TABLE OF CONTENTS
Page
ARTICLE I. THE CREDIT FACILITY
1.01 The Credit Facility 1
1.02 Availability 3
1.03 Charges Against Accounts 3
1.04 Payments 3
1.05 Payment on Non-Business Days 3
1.06 Net Payments 3
1.07 Additional Amounts Payable 3
1.08 Source of Repayment; Payment of Fees and Other Charge 4
ARTICLE II. CONDITIONS
2.01 Conditions to Closing 5
2.02 Conditions of Making Loans 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.01 Organization 7
3.02 Authority 7
3.03 Approvals 8
3.04 Valid Obligations 8
3.05 Assets 8
3.06 Claims 8
3.07 Financial Statements 9
3.08 Taxes 9
3.09 Investment Company 9
3.10 Margin Stock 10
3.11 Representations Accurate 10
4.01 Affirmative Covenants Other Than
4.02 Negative Covenants 11
4.03 Reporting Requirements 13
ARTICLE V. EVENTS OF DEFAULT; REMEDIES
5.01 Events of Default 15
5.02 Remedies 16
5.03 Set-off 17
ARTICLE VI. MISCELLANEOUS
6.01 Right to Cure 17
6.02 Waivers 17
6.03 Delays 17
6.04 Notices 17
6.05 Captions 18
6.06 Jurisdiction 18
6.07 Execution 18
6.08 Governing Law 18
6.09 Fees 18
6.10 Binding Nature 18
6.11 Severability 18
6.12 Under Seal 19
ARTICLE VII. DEFINITIONS
7.01 Definitions 19
7.02 Use of Defined Terms 20
7.03 Accounting Terms 20
Exhibits
Exhibit A Form of Note
Exhibit B Form of Borrowing Notice
Exhibit C Designation of Portfolios
Schedules
Schedule A Additional Disclosure and Covenants
This Credit Agreement (the "Agreement") is made as of April 3, 1996
between Investors Bank & Trust Company, a Massachusetts trust company (the
"Bank"), and each of Bull & Bear Funds I, Inc., Bull & Bear Funds II, Inc., Bull
& Bear Gold Investors Ltd., Bull & Bear Municipal Securities, Inc., Bull & Bear
Special Equities Fund, Inc. and Midas Fund, Inc., each a Maryland corporation
with its principal office at 11 Hanover Square, New York, NY 10005 (each a
"Borrower" and collectively the "Borrowers").
WHEREAS, the Borrowers have requested that the Bank provide, and subject
to the terms and conditions of this Agreement and of the other agreements and
documents referred to herein, the Bank has agreed to provide, to the Borrowers a
credit facility (the "Credit Facility") of up to $20,000,000 to provide for the
short-term working capital requirements of the Borrowers;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Borrowers, in
order to induce the Bank to provide the Credit Facility, and intending to be
legally bound, hereby severally but not jointly agree with the Bank as follows:
ARTICLE I
THE CREDIT FACILITY
1.01.The Credit Facility. The Credit Facility shall consist of a revolving line
of credit pursuant to which the Bank may from time to time make Loans to the
Borrowers.
(a) Loans. Subject to the terms and conditions hereinafter set
forth, the Bank agrees to make Loans to any or all of the Borrowers and, with
respect to Borrowers composed of Portfolios, any and all of the Portfolios at
the Principal Office of the Bank on any Business Day prior to the Termination
Date, in such amounts as the Borrowers may request; provided, however, that any
such requests by the Borrowers or the Portfolios may not exceed the Aggregate
Eligible Loan Amount as to all Borrowers and Portfolios and the Eligible Loan
Amount as to any Borrower or Portfolio and further provided that the aggregate
of all Loans to any or all of the Borrowers outstanding shall at no time exceed
the lesser of (a) the Aggregate Eligible Loan Amount; or (b) $20,000,000. Within
the foregoing limits, subject to the terms and conditions of this Agreement, any
or all of the Borrowers and, with respect to Borrowers composed of Portfolios,
any and all of the Portfolios may obtain Loans, repay Loans in whole or in part
and obtain Loans again on one or more occasions. The Loans shall be evidenced by
the respective Note of each Borrower or Portfolio, dated as of the date hereof.
The Borrowers and Portfolios severally but not jointly hereby irrevocably
authorize the Bank to make or cause to be made, on a schedule to be attached to
the Notes or on the books of the Bank, at or following the time of making each
Loan and of receiving any payment of principal, an appropriate notation
reflecting such transaction and the then aggregate unpaid principal balance of
the Loans. The amount so noted shall constitute presumptive evidence as to the
amount owed by the Borrowers and the Portfolios with respect to the principal
amount of the Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrowers and the Portfolios hereunder or
under the Notes.
(b) Request for Loans. Each Borrower or Portfolio shall give the
Bank telephonic or written notice, specifying the amount and date of each Loan
requested, no later than 2:00 p.m. (Boston time) on the Business Day on which
the Borrower or Portfolio requests the proceeds of such Loan to be made
available by the Bank. Upon receipt from the Bank of a Borrowing Notice prepared
by the Bank in connection with such Loan request, the Borrower or Portfolio
shall execute such Borrowing Notice and return it promptly to the Bank.
(c) Repayment of Principal. Each Borrower or Portfolio shall
repay in full all Loans and all interest thereon upon the first to occur of (i)
the Termination Date; or (ii) an acceleration under Section 5.02(b) following an
Event of Default. Each Borrower or Portfolio may prepay, at any time, without
penalty, the whole or any portion of any Loans; provided that each such
prepayment shall be accompanied by a payment of all interest under the
respective Note or Notes accrued but unpaid to the date of prepayment.
(d) Interest Payments. Each Borrower and Portfolio will pay
interest on the principal amount of the aggregate Loans outstanding from time to
time, from the date of the initial Loan until payment of all Loans and the Notes
in full and the termination of the Credit Facility, such interest to be payable
monthly in arrears on the first Business Day of the next month, commencing with
May 1, 1996, and on the date of payment of the Loans in full. The rate of
interest so payable shall be a floating rate per annum equal to the Federal
Funds Rate plus one and three-quarters percent (1.75%) (but in no event in
excess of the maximum rate then permitted by applicable law), with a change in
such rate of interest to become effective on the same day on which any change in
the Federal Funds Rate is effective. Overdue principal and, to the extent
permitted by law, overdue interest shall bear interest at a floating rate per
annum which at all times shall be five percent (5%) plus the Federal Funds Rate
(but in no event in excess of the maximum rate from time to time then permitted
by applicable law), compounded monthly and payable on demand, with a change in
such rate of interest to become effective on the same day on which any change in
the Federal Funds Rate is effective.
(e) Commitment Fee. The Borrowers and Portfolios shall pay to the
Bank an annual commitment fee, in connection with the establishment and
maintenance of the Credit Facility at the rate of one-twentieth of one percent
(0.05%) per annum on the difference between (i) $20,000,000 and (ii) the average
daily amount of Loans outstanding under the Credit Facility, payable quarterly
in arrears on the first Business Day of the next calendar quarter.
(f) Use of Loan Proceeds. The proceeds of each Loan will be used
by the Borrowers and Portfolios solely to finance redemptions, purchase and hold
investment securities, finance working capital requirements and pay fund
expenses.
(g) Reduction or Termination of Credit Facility. The Borrowers
and Portfolios shall have the right, at any time for any reason and without
penalty, upon no less than ten (10) days' prior written notice to the Bank, to
terminate or reduce the amount of the Credit Facility. Any such reduction shall
be in the amount of $500,000 or a whole multiple thereof (or, if less, the
maximum amount of the Credit Facility) and shall be irrevocable. Each Borrower
or Portfolio shall have the right, at any time for any reason and without
penalty, upon no less than
ten (10) days' prior written notice to the Bank, to terminate its participation
in the Credit Facility provided by this Agreement. Upon any such termination of
participation by any Borrower or Portfolio, the Bank shall have the right, at
any time for any reason and without liability, upon no less than ten (10) days'
prior written notice to the Borrowers and the Portfolios, to terminate the
Credit Facility.
1.02. Availability. The proceeds of all Loans shall be credited by the Bank to a
general deposit account of the respective Borrower or Portfolio with the Bank.
1.03. Charges Against Accounts. The Bank may charge any deposit account,
and, after the occurrence of any Event of Default by a Borrower or Portfolio,
any custody, trust or agency account, of such defaulting Borrower or Portfolio
at or with the Bank, if any, with such Borrower's or Portfolio's payments of
interest, principal and other sums due, from time to time, under this Agreement,
or due under such Borrower's or Portfolio's Note, and will thereafter notify the
Borrower or Portfolio of the amount so charged. The failure of the Bank so to
charge any account or to give any such notice shall not affect the obligation of
the Borrower or Portfolio to pay interest, principal or other sums as provided
herein or in the Notes.
1.04. Payments. Except as otherwise provided in this Agreement, all
payments of interest, principal and any other sum payable hereunder and/or the
Notes shall be made to the Bank at its Principal Office, in immediately
available funds or by check. All payments received by the Bank after 11:00 a.m.
Eastern time on any day shall be deemed received as of the next succeeding
Business Day. All monies received by the Bank hereunder shall be applied first
to fees, charges, costs and expenses payable to the Bank under this Agreement,
next to interest then accrued on account of the Loans and only thereafter to
principal of the Loans. Interest payable under the Notes shall be computed on
the basis of a 360-day year for the number of days actually elapsed.
1.05. Payment on Non-Business Days. Whenever any payment to be made to the
Bank hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on each such date shall include the amount thereof
which shall accrue during the period of such extension of time.
1.06. Net Payments. All payments to the Bank hereunder and/or in respect of the
Notes shall be made without deduction, set-off or counterclaim, notwithstanding
any claim which any Borrower or Portfolio may now or at any time hereafter have
against the Bank.
1.07. Additional Amounts Payable.
(a) If the adoption of or any change in any statute, rule,
regulation, order or policy of any government authority or agency or in the
interpretation or application thereof or compliance by the Bank with any request
or directive (whether or not having the force of law) from any central bank or
other government authority or agency made subsequent to the date hereof:
(i) shall subject the Bank to any tax of any kind whatsoever with respect to
this Agreement, any Note or any Loan or change the basis of taxation of payments
to the Bank in respect thereof (except for changes in the rate of tax on the
overall net income of the Bank).
(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other extensions of
credit by, or any other acquisition of funds, by, any office of the Bank; or
(iii) shall impose on the Bank any other condition affecting the Credit
Facility, this Agreement or any Loan;
and the result of any of the foregoing is to increase the cost to the Bank, by
an amount which the Bank deems to be material, of making, continuing or
maintaining Loans or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, each Borrower or Portfolio whose Loans or
access to Loans under the Credit Facility are affected by the foregoing shall
promptly pay to the Bank, upon demand therefor by the Bank, such additional
amount or amounts as will compensate the Bank for such increased cost or reduced
amount receivable for all periods commencing 60 days after the Bank has provided
notice thereof to the Borrowers.
(b) If the Bank shall have determined that the adoption of or any
change in any statute, rule, regulation, order or policy of any government
authority or agency regarding capital adequacy or in the interpretation or
application thereof or compliance by the Bank or any corporation controlling the
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) from any governmental authority or agency made
subsequent to the date hereof shall have the effect of reducing the rate of
return on the Bank's or such corporation's capital as a consequence of its
obligations hereunder to a level below that which the Bank or such corporation
could have achieved but for such adoption, change or compliance by an amount
deemed by the Bank to be material, then from time to time, the Borrowers and the
Portfolios shall promptly pay to the Bank, upon demand therefor by the Bank,
such additional amount or amounts as will compensate the Bank for such reduction
for all periods commencing 60 days after the Bank has provided notice thereof to
the Borrowers and the Portfolios.
(c) If the Bank claims any additional amounts pursuant to this
Section 1.07, it shall promptly notify the Borrowers and the Portfolios of the
event by reason of which it has become so entitled. A certificate of an
authorized officer of the Bank as to any additional amounts payable pursuant to
this subsection submitted by the Bank to the Borrowers and the Portfolios shall
be conclusive in the absence of manifest error.
1.08. Source of Repayment; Payment of Fees and Other Charges.
(a) Notwithstanding any other provision of this Agreement, the
parties agree that the assets and liabilities of each Portfolio of a Borrower
are separate and distinct from the assets and liabilities of each other
Portfolio of such Borrower, and no Portfolio shall be liable hereunder
or shall be charged for any debt, obligation, liability, fee, or expense
hereunder arising out of or in connection with a transaction entered into
hereunder by or on behalf of any other Portfolio.
(b) Notwithstanding any other provision of this Agreement, each
Borrower or Portfolio, as the case may be, shall be liable only for its portion
of the commitment fee or any other fee or amount payable under this Agreement
(including, without limitation, under Sections 1.07 and 6.09), and such Borrower
or Portfolio shall not be liable for any portion of the commitment fee or such
other fee or amount of any other Borrower or Portfolio hereunder. The Borrowers
and Portfolios shall notify the Bank at least two Business Days in advance of a
commitment fee or other payment date of the manner in which the fees or other
amounts to be paid on such payment date are to be allocated among the Borrowers
and Portfolios.
ARTICLE II
CONDITIONS
2.01. Conditions to Closing. The obligation of the Bank to make the
initial Loans to each Borrower and with respect to a Borrower composed of
Portfolios, each Portfolio is subject to the satisfaction of all of the
following conditions on or prior to the Closing Date:
(a) Documents. The Bank shall have received this Agreement and
the Notes duly executed and delivered by the Borrowers and, with respect to a
Borrower composed of Portfolios, the Borrower on behalf of each Portfolio.
(b) Warranties True; Covenants Performed. All warranties and
representations of each Borrower or Portfolio in this Agreement shall be true
and accurate on the date of the Closing as if then given, and each Borrower or
Portfolio shall have performed or observed all of the terms, covenants,
conditions and obligations under this Agreement which are required to be
performed or observed by them on or prior to such date.
(c) Closing Certificate. The Bank shall have received a
certificate, dated as of the Closing Date and executed by or on behalf of the
Co-Chief Executive Officer or Chief Accounting Officer of each Borrower or
Portfolio, in form and content satisfactory to the Bank, stating the substance
of Section 2.01(b).
(d) Other Documents. The Bank shall have received all other
documents and assurances required hereunder or which it may reasonably request
in connection with the transactions contemplated by this Agreement, and such
documents shall be certified, when appropriate, by the proper authorities or
representatives of each Borrower or Portfolio, including without limitation the
following, and all such documents and all proceedings to be taken in connection
with such transactions shall be reasonably satisfactory in form and substance to
the Bank and its counsel:
(i) Copies of all documents evidencing necessary corporate action or approvals,
if any, with respect to this Agreement, the Notes and such other matters,
including,
without limitation, any required approvals of governmental authorities and other
persons or entities.
(ii) A certificate, signed by the Co-Chief Executive Officer or Chief Accounting
Officer of each Borrower or Portfolio, setting forth the names of the Co-Chief
Executive Officers, Chief Accounting Officer and any other persons authorized to
sign this Agreement, the Notes and any and all certificates, notices and reports
referred to herein on behalf of such Borrower or Portfolio; such certificate
shall state that the Bank may conclusively rely on the statements made therein
until the Bank shall receive a further certificate of a Co-Chief Executive
Officer or Chief Accounting Officer of such Borrower canceling or amending the
prior certificate.
(iii) A copy of the Certificate of Incorporation or comparable instrument of
each Borrower and all amendments thereto; a copy of the By-laws or comparable
instrument of each Borrower and Portfolio, as amended to date; a copy of the
prospectus and statement of additional information of each Borrower; as amended
to date; and a certificate of legal existence and good standing for each
Borrower issued as of a recent date by the appropriate public officials.
(iv) FR Forms U-1 executed by each Borrower or Portfolio and such other
documents which, in the opinion of the Bank or its counsel, are required to be
obtained in connection with the Loans under the Credit Facility by reason of the
provisions of any law or regulation applicable to the Bank, and the statements
made in such documents shall be such as, in the opinion of the Bank, will permit
such Loans under the Credit Facility from the Bank in accordance with such laws
and regulations.
(e) No Adverse Change. There shall have occurred no material adverse change
in the business, operations, properties, financial condition, or prospects of
any Borrower or Portfolio.
(f) Legal Opinion. All legal matters incident to this Agreement shall be
reasonably satisfactory to the Bank's counsel, and the Bank shall have received
at the Closing the legal opinion of counsel to the Borrowers and Portfolios in
form and substance reasonably satisfactory to the Bank.
(g) Borrowing Notice. Each Borrower or Portfolio requesting a Loan on the
Closing Date shall have executed and delivered to the Bank a Borrowing Notice.
2.02. Conditions of Making Loans. The obligation of the Bank to make any
Loans to any Borrower or Portfolio subsequent to the Closing Date is subject to
the satisfaction of the following conditions precedent on or before the date of
each such subsequent advance (the "Borrowing Date"):
(a) Representations and Warranties. The representations and warranties of
such Borrower or Portfolio in this Agreement and otherwise made by such Borrower
or Portfolio in
writing in connection with the transactions contemplated by this Agreement shall
have been correct as of the date on which made and shall also be correct at and
as of such Borrowing Date with the same effect as if made at and as of such
time, except as may have been disclosed in writing to the Bank by such Borrower
or Portfolio and to which the Bank has consented in writing and to the extent
that the facts upon which such representations and warranties are based may in
the ordinary course be changed by the transactions permitted or contemplated
hereby.
(b) Performance. Such Borrower or Portfolio shall have performed
and complied with all terms and conditions herein required to be performed or
complied with by it prior to or on such Borrowing Date, and on such Borrowing
Date there shall exist no Event of Default or condition which would, with any or
all the giving of notice or the lapse of time, result in an Event of Default
upon consummation of the subsequent advance to be made on such Borrowing Date.
(c) Borrowing Notice. Such Borrower or Portfolio shall have executed and
delivered to the Bank a Borrowing Notice.
Each request by any Borrower or Portfolio for a Loan subsequent to the Closing
Date shall constitute a certification by such Borrower or Portfolio that the
conditions specified in this Section 2.02 will be duly satisfied on the date of
the making of such Loan with respect to such Borrower or Portfolio.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrowers and Portfolios severally but not jointly represent and
warrant as follows:
3.01. Organization. Each Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland. Other
than as disclosed in Schedule A, each Borrower: (i) is duly qualified to do
business and in good standing in each jurisdiction where such qualification is
required, except those jurisdictions where the failure to so qualify will not
have a material adverse effect on such Borrower's business, prospects or
financial condition; (ii) has all requisite power and authority to conduct its
business as presently being conducted and as proposed to be conducted after the
Closing and to own its properties now and after the Closing; and (iii) has all
requisite power and authority to execute and deliver, and to perform all of its
obligations under, this Agreement and its respective Note provided, however,
that the Borrowers and Portfolios do not have the requisite authority to pledge
all of their assets as may be required by the Bank pursuant to Section 4.01(g)
of this Agreement..
3.02. Authority. The execution, delivery and performance by each Borrower
and Portfolio of this Agreement and its respective Note: (i) have been duly
authorized by all necessary corporate action; (ii) do not contravene any
provision of such Borrower's Certificate of Incorporation or comparable
instrument, or By-laws, prospectus, statement of additional information or
comparable documents provided, however, that certain Borrowers and Portfolios
are limited by investment limitations contained in their prospectuses or
statements of additional
information that limit their ability to pledge or otherwise grant a security
interest in their assets; (iii) do not violate any provision of any law, rule or
regulation or any judgment, determination or award provided, however, that the
Borrowers and Portfolios are limited by law, rule or regulation that limit their
ability to pledge or otherwise grant a security interest in their assets; (iv)
do not and will not result in a breach or constitute a default (or constitute an
event which with the passage of time or giving of notice or both could
constitute an event of default) under any agreement to which such Borrower or
Portfolio is a party or by which any of its properties are bound, including,
without limitation, any indenture, loan or credit agreement, lease, debt
instrument or mortgage; and (v) do not and will not result in or require the
creation or imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature upon or with respect to
any of the properties of the Borrower or Portfolio except in accordance with the
terms of this Agreement. No Borrower or Portfolio is in default under its
Certificate of Incorporation or comparable instrument, or By-laws, prospectus,
statement of additional information or comparable documents as now in effect, or
any law, rule or regulation, order, writ, judgment, injunction, decree,
determination, award or agreement referred to above, and no Borrower or
Portfolio will be in any such default by virtue of the transactions to be
entered into at the Closing, other than a default that will not have a material
adverse effect on such Borrower's or Portfolio's operations, assets or financial
condition.
3.03. Approvals. No authorization, consent, approval, license or exemption
of, or filing a registration with, any court or governmental department or
commission, board, bureau, agency, instrumentality or other person or entity,
domestic or foreign, is or will be necessary for the valid execution, delivery
or performance by each Borrower or Portfolio of this Agreement and/or its
respective Note other than filings which have already been made and consents or
approvals which have already been received.
3.04. Valid Obligations. This Agreement and the respective Notes have been
duly executed and delivered by each Borrower and, with respect to a Borrower
composed of Portfolios, each Portfolio and constitute legal, valid and binding
obligations of such Borrower or Portfolio, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles are applied in
a court of equity or at law.
3.05. Assets. Each Borrower and Portfolio has good and valid title in and
to its respective assets, subject to no security interest, mortgage, pledge,
lien, lease, encumbrance, charge, easement, restriction or encroachment except
for Permitted Liens and for defects and claims which, in the aggregate, could
not have a material adverse effect on the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio. Each Borrower's
and Portfolio's principal place of business is maintained at its Principal
Office at the location indicated in the preamble to this Agreement.
3.06. Claims. There are no actions, suits, proceedings or investigations
pending or threatened against any Borrower or Portfolio before any court or any
governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could prevent or hinder the consummation of the transactions contemplated hereby
or call into question the validity of this Agreement, any of the Notes or any
other document or instrument provided for or contemplated by this Agreement or
any action taken or to be taken in connection with the transactions contemplated
hereby or thereby, or which in any single case or in the aggregate might result
in any material adverse change in the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio or any material
impairment of the right or ability of such Borrower or Portfolio to carry on its
operations as now conducted or proposed to be conducted after the Closing.
3.07. Financial Statements. The Borrowers and Portfolios have previously
delivered to the Bank the audited financial statements of each Borrower and
Portfolio as of the end of its most recently completed fiscal year. All such
financial statements were prepared in accordance with GAAP, and accurately
reflect the financial condition of each such Borrower and Portfolio as of such
date. No Borrower or Portfolio has any liability, contingent or otherwise, that
could materially adversely affect its financial condition which is not reflected
in the financial statements previously delivered by the Borrower or Portfolio to
the Bank. Since the end of such Borrower's or Portfolio's most recently
completed fiscal year, there has not been a material adverse change in the
business, operations, property, financial condition or prospects of any Borrower
or Portfolio.
3.08. Taxes. Each Borrower and Portfolio has filed all federal, foreign,
state, local and other tax returns, reports and estimates which are required to
be filed and has paid all taxes, fees and other governmental charges shown on
such returns, reports and estimates and on all assessments received by it, to
the extent that such taxes have become due, except for any tax or assessment
which is being contested by such Borrower or Portfolio in good faith and by
appropriate proceedings and such Borrower or Portfolio has set aside on its
books sufficient reserves with respect thereto. All of such tax returns are
accurate and complete in all material respects. All other taxes and assessments
of any nature with respect to which each Borrower or Portfolio is obligated and
which have become due are being paid or adequate accruals have been set up
therefor. There are in effect no waivers of applicable statutes of limitations
for federal, state or local taxes for any period. No Borrower or Portfolio is
delinquent in the payment of any tax, assessment or governmental charge and no
Borrower or Portfolio has requested any extension of time within which to file
any tax return, which return has not since been filed, and no deficiencies for
any tax, assessment or governmental charge have been asserted or assessed, and
no Borrower or Portfolio knows of any material liability or basis therefor.
3.09. Investment Company. Each Borrower or Portfolio is duly registered as
an investment company pursuant to the Investment Company Act of 1940, as amended
(the "1940 Act") and is in compliance with all regulations, rules and orders
issued or promulgated pursuant to the 1940 Act, other than such regulations,
rules, and orders the non-compliance with which will not have a material adverse
effect on such Borrower's or Portfolio's operations, assets or financial
condition. Each Borrower and Portfolio is in compliance with its respective
prospectus and the investment policies and other policies described therein,
other than such investment policies, investment restrictions, other policies and
other requirements the non-compliance with
which will not have a material adverse effect on such Borrower's or Portfolio's
operations, assets or financial condition.
3.10. Margin Stock. Each Borrower and Portfolio has executed and delivered
to the Bank an executed FR Form U-1 (as defined in Regulation U of the Board of
Governors of the Federal Reserve System).
3.11. Representations Accurate. No representation or warranty made by any
Borrower or Portfolio herein, in any Note or in any other agreement, document,
instrument or certificate furnished from time to time in connection herewith or
therewith contains any misrepresentation of a material fact or omits to state
any material fact necessary to make the statements herein or therein (taken as a
whole in conjunction with all such documents) not misleading when made.
ARTICLE IV
COVENANTS
4.01. Affirmative Covenants Other Than Reporting Requirements. Without
limiting any other covenants and provisions hereof, each Borrower and, with
respect to a Borrower composed of Portfolios, each Portfolio severally but not
jointly covenant and agree that, so long as any Note, any Loan or any obligation
of such Borrower or Portfolio to the Bank, in any capacity, remains unpaid:
(a) Payments. Each Borrower or Portfolio shall duly and
punctually make the payments required under this Agreement and its respective
Note and shall perform and observe all of its other obligations under the
foregoing documents, in each case within any applicable grace period or cure
period provided for in Section 5.01 hereof.
(b) Payment of Taxes and Trade Debt. Each Borrower or Portfolio
will promptly pay and discharge all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profit or upon any property,
real, personal or mixed, belonging to it; provided, however, that such Borrower
or Portfolio shall not be required to pay any such tax, assessment, charge or
levy if the same shall not at the time be due and payable or if the same can be
paid thereafter without penalty or if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if such Borrower or
Portfolio shall have made adequate provision on its books for the payment of
such tax, assessment, charge or levy. Each Borrower or Portfolio will pay in a
timely manner all of its trade payables.
(c) Maintain Rights. Each Borrower or Portfolio shall:
(i) keep in full force and effect its corporate existence;
(ii)keep in full force and effect all material rights, registrations, licenses,
leases and franchises reasonably necessary to the conduct of its business;
provided that nothing in this Section 4.01(c)(ii) shall prevent the abandonment
or termination of any right, registration, license, lease or franchise, if, in
the reasonable opinion of the Board of Directors of the
applicable Borrower or Portfolio, such abandonment or termination is in the best
interest of such Borrower or Portfolio and not disadvantageous to the Bank;
(iii) duly observe and conform to all applicable material
laws, statutes, regulations, decrees, judgments, orders, writs and other
requirements of all governmental authorities in any way relating to it or the
conduct of its business (including without limitation the 1940 Act and the
regulations, rules and orders issued or promulgated thereunder), except where
the failure to so comply could not have a material adverse affect on the
business, operations, properties or financial condition or prospects of such
Borrower or Portfolio; and
(iv) abide by the additional covenants set forth in Schedule A.
(d) Books and Records. Each Borrower or Portfolio will (i) keep
proper books of record and account in which entries therein are full, true and
correct in all material respects in conformity with GAAP and all requirements of
law and shall be made of all material dealings and transactions in relation to
its business and activities, and (ii) permit representatives of the Bank to
visit and inspect any of its properties and to examine and make abstracts from
any of their books and records upon reasonable notice, at any reasonable time
during normal business hours and as often as may reasonably be desired, and to
discuss the business, operations, properties and financial condition of such
Borrower or Portfolio with its officers and employees and with their independent
certified public accountants.
(e) Compliance. Each Borrower or Portfolio will comply with its
respective prospectus, statement of additional information and other comparable
documents or instruments and all investment policies and other policies
described therein, other than such investment policies, investment restrictions,
other policies and other requirements the non-compliance with which will not
have a material adverse effect on such Borrower's or Portfolio's operations,
assets or financial condition.
(f) Use of Proceeds. Each Borrower or Portfolio shall use the proceeds of
each Loan solely for the purposes set forth in Section 1.01(f) hereof.
(g) Security. Immediately upon the request of the Bank in
accordance with Section 5.02(a) hereof, each Borrower or Portfolio shall execute
and deliver to the Bank a pledge agreement or security agreement and all other
documents, each in form and substance reasonably satisfactory to the Bank,
granting to the Bank a security interest in all assets of such Borrower or
Portfolio. In addition, such Borrower or Portfolio, at its expense, shall
execute, file and record all such further instruments (including without
limitation UCC-1 financing statements), and perform such other acts, as the Bank
may reasonably determine are necessary or advisable to maintain the priority of
the security interests in favor of the Bank created by the such documents on all
property subject thereto.
4.02. Negative Covenants. Without limiting any other covenants and
provisions hereof, each Borrower and, with respect to a Borrower composed of
Portfolios, each Portfolio severally but not jointly covenant and agree that, so
long as any Note or any Loan is outstanding or any
obligation of such Borrower or Portfolio to the Bank, in any capacity, have not
been fully performed:
(a) Liens. No Borrower or Portfolio will create, incur, assume or
suffer to exist any security interest, lien, mortgage, deed of trust, pledge,
levy, attachment, claim or other charge or encumbrance of any nature whatsoever
upon or with respect to any of its assets, whether now owned or hereafter
acquired, or assign or otherwise convey any right to receive income from any of
such assets ("Lien"), except for (1) Liens in favor of the Bank, (2)
restrictions under applicable securities laws, and agreements (such as
securities lending, stockholder voting or stock restriction agreements) entered
into by such Borrower or Portfolio in the ordinary course of its business, (3)
Liens for current taxes not delinquent or taxes being contested in good faith
and by appropriate proceedings and as to which reserves or other appropriate
provisions required by GAAP are being maintained, (4) Liens as are necessary in
connection with a secured letter of credit opened by such Borrower or Portfolio
in connection with such Borrower's or Portfolio's directors' and officers'
errors and omissions liability insurance policy, and (5) Liens in connection
with the payment of initial and variation margin in connection with futures and
options transactions and collateral arrangements with respect to options,
futures contracts, options on futures contracts, forward contracts, swaps, caps,
collars, floors, when-issued or delayed delivery securities or other authorized
investments ("Permitted Liens").
(b) Transfers. No Borrower or Portfolio shall sell, lease,
transfer or otherwise dispose of any of its assets, provided that such Borrower
or Portfolio may from time to time sell, lend or distribute its assets in the
ordinary course of such Borrower's or Portfolio's business absent the prior
written consent of the Bank.
(c) Mergers. No Borrower or Portfolio will enter into any
transaction of merger or consolidation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), without the prior written consent of
the Bank, which shall not be unreasonably withheld, other than a merger or
consolidation with another person in accordance with 17 C.F.R. Section 270.17a-8
if (1) such merger or consolidation complies in all respects with the
requirements of 17 C.F.R. Section 270.17a-8 and all rules promulgated in
connection therewith, and (2) the surviving entity assumes all of the
obligations to the Bank of the merging or consolidating Borrower(s) or
Portfolio(s).
(d) Indebtedness. No Borrower or Portfolio will incur any
additional Indebtedness, except for (1) Indebtedness to the Bank, (2) pursuant
to such Borrower's or Portfolio's securities lending activities conducted in the
ordinary course of its business and (3) reverse repurchase transactions entered
into in the ordinary course of its business in an amount not exceeding that
permitted by such Borrower's or Portfolio's investment policies and
restrictions.
(e) Bankruptcy. No Borrower or Portfolio will petition for relief
under the United States Bankruptcy Code or institute any similar bankruptcy,
insolvency, or receivership proceedings under any other federal or state law.
(f) No Amendment. No Borrower or Portfolio shall amend in any
material respect its respective registration statement, prospectus or investment
or other policies described therein if such amendment would materially and
adversely affect the Bank's rights under this Agreement or the respective Notes
without the prior written consent of the Bank, which shall not be unreasonably
withheld.
(g) No Change. No Borrower or Portfolio shall change or replace
its investment adviser, administrator, distributor or sponsor, without the prior
written consent of the Bank, which shall not be unreasonably withheld. No
Borrower or Portfolio shall change or replace its custodian without the prior
written consent of the Bank.
4.03. Reporting Requirements. So long as any Loan or any Note shall be
outstanding or any other obligation of each Borrower, or with respect to a
Borrower composed of Portfolios, each Portfolio to the Bank, in any capacity,
shall remain unpaid, such Borrower or Portfolio shall:
(a) Financial Reports. Furnish to the Bank:
(i) as soon as available, but in any event within ninety (90) days after
the end of each fiscal year of such Borrower or Portfolio, a copy of the audited
statement of assets and liabilities of such Borrower or Portfolio as at the end
of such fiscal year and the related audited statements of operations and cash
flows for such fiscal year, in each case setting forth in comparative form the
figures for the previous year, reported on by independent certified public
accountants of nationally recognized standing or otherwise reasonably acceptable
to the Bank, without a "going concern" or similar qualification or exception or
qualification as to the scope of the audit, together with any letter from the
management of such Borrower or Portfolio prepared in connection with such
Borrower's or Portfolio's annual audit report; and
(ii) as soon as available, but in any event within thirty (30) days after
the end of the first six months of each fiscal year of such Borrower or
Portfolio, copies of the unaudited statement of assets and liabilities of such
Borrower or Portfolio as at the end of such six-month period, together with the
related unaudited statement of operations for the portion of the fiscal year of
such Borrower or Portfolio through such six-month period, in each case certified
by the Chief Accounting Officer of such Borrower or Portfolio as presenting
fairly the financial condition and results of operations of such Borrower or
Portfolio, in conformity with GAAP (subject to normal year-end audit adjustments
and to the fact that such financial statements may be condensed and may not
include footnotes);
all such financial statements to be complete and correct in all material
respects and prepared in reasonable detail and, except as provided in (ii)
above, in conformity with GAAP applied consistently throughout the periods
reflected therein.
(b) Other Financial Reports. Furnish to the Bank:
(i) concurrently with the delivery of each set of the financial statements
referred to above, a certificate of the Chief Accounting Officer of such
Borrower or Portfolio stating that, to the best of such person's knowledge,
during the period covered by such set of financial statements the Borrower or
Portfolio has observed or performed in all respects all of its covenants and
agreements contained in this Agreement and its respective Note to be observed,
performed or satisfied by it, and that such person has obtained no knowledge of
any default or Event of Default (except as specified in such certificate);
(ii) promptly after the same are sent, copies of all other financial
statements of such Borrower or Portfolio, if any, which it sends to its
stockholders;
(iii) within thirty (30) days of the end of each quarter, a
schedule of such Borrower's or Portfolio's investment assets stating the cost
and fair market value of all such investments;
(iv) promptly, such additional financial and other information as the Bank
may from time to time reasonably request; and
(v) as soon as available, a copy of each other report submitted to such
Borrower or Portfolio by its certified public accountants in connection with any
annual, interim or special audit made by them of the books of such Borrower or
Portfolio.
(c) Notices. Give notice to the Bank, within five days of knowledge
thereof, of: (i) the occurrence of any Event of Default under this Agreement;
(ii) any default or event of default under any other contractual obligations of
such Borrower or Portfolio which, if not paid or remedied by such Borrower or
Portfolio or waived by the obligee thereon, could result in liability to such
Borrower or Portfolio in excess of $500,000 in any single instance or $1,000,000
in the aggregate;
(iii) any pending or threatened litigation, investigation or
proceeding of which such Borrower or Portfolio has received written notice which
may exist at any time between such Borrower or Portfolio and any other party
(including without limitation any governmental authority) which may have a
material adverse effect on the business, operations, property or financial
condition of such Borrower or Portfolio, or any material adverse development in
previously disclosed litigation, and such Borrower or Portfolio shall furnish
the Bank with copies of all legal process served upon such Borrower or
Portfolio;
(iv) a material adverse change in the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio; and
(v) the revocation, expiration or loss of any material license,
registration, permit or other governmental authorization of such Borrower or
Portfolio;
each notice pursuant to paragraphs (i) through (v) of this Section 4.03(c)to be
accompanied by a statement of the Chief Accounting Officer of such Borrower or
Portfolio setting forth details of the occurrence referred to therein and
stating what action, if any, such Borrower or Portfolio proposes to take with
respect thereto.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
5.01. Events of Default. The occurrence of each of the following shall
constitute an Event of Default with respect to a Borrower or, with respect to a
Borrower composed of Portfolios, a Portfolio under this Agreement and under the
Notes:
(a) Failure to Make Payment. Such Borrower or Portfolio shall
fail to make any payment of principal or interest on its respective Note, any
payment of the commitment fee hereunder or any other obligation in respect
hereof or thereof on or before the date when due; provided that any failure to
make any payment of interest on its respective Note shall not constitute an
Event of Default under this Agreement until such failure shall have continued
uncured for five (5) days.
(b) Representations and Warranties. Any representation or
warranty made by such Borrower or Portfolio in this Agreement, in any Note, or
in any certificate or writing in connection with this Agreement shall prove to
have been incorrect in any material respect when made, or any information
furnished in writing by such Borrower or Portfolio to the Bank, whether in this
Agreement or in any certificate or other writing required or contemplated by
this Agreement or by any of the Notes, shall prove to be untrue in any material
respect on the date on which it is or was given.
(c) Covenants. Such Borrower or Portfolio shall fail to perform
or observe any covenant or condition contained or referred to in this Agreement,
and such failure shall continue uncured for ten days after the Bank has provided
written notice thereof to such Borrower or Portfolio.
(d) Other Defaults. Any default shall exist and remain unwaived
or uncured with respect to other Indebtedness of such Borrower or Portfolio
which permits the acceleration of the maturity of any such Indebtedness in an
amount in excess of $500,000.
(e) Liens. Any lien, security interest, levy or assessment (other
than a Permitted Lien) is filed, recorded or perfected with respect to any
material part of the assets of such Borrower or Portfolio and is not released,
canceled, revoked, removed, repealed or otherwise terminated within thirty (30)
days after such filing or recording.
(f) Seizure of Assets. Any substantial part of the assets or
other property of such Borrower or Portfolio comes within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors.
(g) Judgments. Any judgment, order or writ in excess of $500,000
is rendered or entered against such Borrower or Portfolio or property of such
Borrower or Portfolio and not paid, satisfied or otherwise discharged within
sixty (60) days of the date such judgment, order or writ becomes final and
non-appealable.
(h) Insolvency. Such Borrower or Portfolio shall be generally
unable to pay its debts as they become due; the dissolution, termination of
existence, cessation of normal business operations or insolvency of such
Borrower or Portfolio; the appointment of a receiver of any part of the property
of, legal or equitable assignment, conveyance or transfer of property for the
benefit of creditors by, or the commencement of any proceedings under any
bankruptcy or insolvency laws by or against, such Borrower or Portfolio.
5.02. Remedies. Upon the occurrence of any Event of Default with respect
to any Borrower or Portfolio and at any time thereafter so long as the Event of
Default continues, in addition to any other rights and remedies available to the
Bank hereunder or otherwise, the Bank may exercise any one or more of the
following rights and remedies with respect to such Borrower or Portfolio (all of
which shall be cumulative):
(a) Require the defaulting Borrower or Portfolio to provide to
the Bank collateral security for the performance of its obligations to the Bank,
in form, substance and amount satisfactory to the Bank in its sole discretion.
(b) Declare the entire unpaid principal amount of the respective
Note then outstanding, all interest accrued and unpaid thereon and all other
amounts payable under this Agreement, and all other Indebtedness of the
defaulting Borrower or Portfolio to the Bank, forthwith due and payable,
whereupon the same shall become forthwith due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by each Borrower or Portfolio.
(c) Terminate the Credit Facility established by this Agreement
with respect to the defaulting Borrower or Portfolio.
(d) Enforce the provisions of this Agreement and any Note or
Notes by legal proceedings for the specific performance of any covenant or
agreement contained herein or for the enforcement of any other appropriate legal
or equitable remedy, and the Bank may recover damages caused by any breach by
the defaulting Borrower or Portfolio from such Borrower or Portfolio of the
provisions of this Agreement and any Note or Notes, including court costs,
reasonable attorneys' fees and other costs and expenses incurred in the
enforcement of the obligations of that Borrower or Portfolio hereunder.
(e) Exercise all rights and remedies hereunder, under the Notes
and under any other agreement with such Borrower or Portfolio; and exercise all
other rights and remedies which the Bank may have under applicable law.
5.03. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any rights, after the occurrence
of any Event of Default, the Bank is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to the
defaulting Borrower or Portfolio or to any other person or entity, all of which
are hereby expressly waived, to set off and to appropriate and apply any and all
deposits (general or special), securities and other property and any other
Indebtedness at any time in the possession of, or held or owing by, the Bank to
or for the credit or the account of such Borrower or Portfolio against and on
account of the obligations and liabilities of the defaulting Borrower or
Portfolio to the Bank under this Agreement or otherwise, without regard for the
availability or adequacy of other collateral. The defaulting Borrower or
Portfolio agrees to grant to the Bank, upon its request therefor after the
occurrence of any Event of Default, a security interest in and to all deposits
and all securities or other property of such Borrower or Portfolio in the
possession of the Bank from time to time, to secure the prompt and full payment
and performance of any and all obligations of such Borrower or Portfolio to the
Bank.
ARTICLE VI
MISCELLANEOUS
6.01. Right to Cure. In the event that any Borrower or Portfolio shall
fail to pay any tax, assessment, governmental charge or levy, except as the same
may be otherwise permitted hereunder, or in the event that any lien, encumbrance
or security interest prohibited hereby shall not be paid in full or discharged,
or in the event that any Borrower or Portfolio shall fail to pay or comply with
any other obligation hereunder, the Bank may, but shall not be required to, pay,
satisfy, perform, discharge or bond the same for the account of such Borrower or
Portfolio, and all moneys so paid by the Bank shall be payable on demand and
shall bear interest at the lesser of (i) a floating rate per annum equal to five
percent (5%) plus the Federal Funds Rate, with a change in such rate of interest
to become effective on the same day on which any change in the Federal Funds
Rate is effective, or (ii) the maximum rate permitted by the applicable law.
6.02. Waivers. This Agreement and the Notes may not be changed, waived,
discharged or terminated orally. The performance or observance by the Bank, on
the one hand, or any Borrower or Portfolio, on the other hand, of any term of
this Agreement or any of the Notes may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the prior written consent of the Borrower or Portfolio, on the one hand,
or the Bank, on the other hand.
6.03. Delays. No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any partial exercise or waiver of any privilege or right hereunder preclude any
further exercise of such privilege or right or the exercise of any other right,
power or privilege. The rights and remedies expressed in this Agreement and in
the Notes are cumulative and not exclusive of any right or remedy which any
party hereto may otherwise have.
6.04. Notices. Any notices, consents or other communications to be given
under this Agreement or under the Notes shall be in writing and shall be deemed
given when mailed to the
respective parties by overnight courier or by registered mail addressed, in the
case of each Borrower or Portfolio, to Bull & Bear Funds, attention of the
Co-President, at the address set forth on the first page of this Agreement, with
a copy to the Chief Accounting Officer at the same address, and in the case of
the Bank to the Bank, attention of David F. Flynn, Managing Director, at 89
South Street, Boston, MA 02111, with a copy to Mark D. Smith at Testa, Hurwitz &
Thibeault, 125 High Street, High Street Tower, Boston, MA 02110 or to such other
addresses as either party may from time to time designate for that purpose.
6.05. Captions. Section headings and defined terms in this Agreement are
included for convenience only and are not intended to modify or define any term
or provision of any such instrument.
6.06. Jurisdiction. The Borrowers and Portfolios accept for themselves and
in conjunction with their properties, unconditionally, the non-exclusive
jurisdiction of any state or federal court of competent jurisdiction in the
Commonwealth of Massachusetts in any action, suit, or proceeding of any kind,
including agreements waiving the right to a trial by jury, against them, which
arises out of or by reason of this Agreement.
6.07. Execution. This Agreement may be signed in any number of
counterparts, which together will be one and the same instrument. This Agreement
shall become effective whenever each party shall have signed at least one such
counterpart.
6.08. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts (without reference to the conflicts of laws or
choice of law provisions thereof) and for all purposes shall be construed in
accordance with the laws of such Commonwealth.
6.09. Fees. Whether or not any funds are disbursed hereunder, the
Borrowers and Portfolios shall pay all of the Bank's reasonable costs and
expenses in connection with the preparation, execution, delivery, review, and
enforcement of this Agreement and the Notes, and in connection with any
subsequent amendments thereto or waivers thereof, including reasonable legal
fees and disbursements, provided, however, that the amount of such legal fees
through the Closing Date shall not exceed $7,500.
6.10. Binding Nature. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns; provided that the rights and obligations under this Agreement and under
any of the Notes may not be assigned by any Borrower or Portfolio without the
written consent of the Bank or by the Bank without the written consent of each
Borrower and Portfolio (other than assignments by the Bank to entities meeting
the definition of "bank" in Section 2(a)(5) of the 1940 Act where written notice
of such assignment has been provided to each Borrower and Portfolio prior to or
contemporaneous with such assignment).
6.11. Severability. In the event that any provision of this Agreement or
the application hereof to any person, entity property or circumstances shall be
held to any extent to be invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to persons, entities, properties or circumstances other than those as
to which it has been held invalid or unenforceable, shall not be affected
thereby, and each provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
6.12.Under Seal. This Agreement shall be deemed to be an instrument under seal.
ARTICLE VII
Definitions
7.01.Definitions. For purposes of this Agreement and of the Notes, the following
additional definitions shall apply:
"Aggregate Eligible Loan Amount" shall mean the total of all
Eligible Loan Amounts.
"Borrowing Notice" shall mean a written notice from any Borrower
or Portfolio to the Bank substantially in the form of Exhibit B-1 or Exhibit B-2
attached hereto.
"Business Day" shall mean any day which is not a Saturday, a
Sunday or a public holiday under the laws of the United States of America or the
Commonwealth of Massachusetts applicable to banks or banking associations.
"Closing" shall mean a closing held at 10:00 A.M., in the offices
of Testa, Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, on April 3, 1996, or such other date, time and place as the
parties hereto mutually agree.
"Closing Date" shall mean the date on which the Closing shall occur.
"Credit Facility" shall have the meaning specified in the preamble to this
Agreement.
"Eligible Loan Amount" shall mean the lesser of (i) $9,500,000 or
(ii) 33% of the net assets of the applicable Borrower or Portfolio.
"Event of Default" shall have the meaning specified in Section 5.01 hereof.
"Federal Funds Rate" shall mean the prevailing target Federal
Funds rate established by the Board of Governors or the Open Market Committee of
the Federal Reserve System for loans in the domestic U.S. overnight bank funds
market. For any day on which such target Federal Funds rate has not been
established or cannot be determined, then "Federal Funds Rate" shall mean the
Federal Funds Effective Rate for such day displayed on Bloomberg screen FEDL at
index:HP.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"Indebtedness" shall mean with respect to any Borrower or
Portfolio (i) all indebtedness or other obligations of such Borrower or
Portfolio for borrowed money, other than for trade accounts payable incurred in
the ordinary course of such Borrower's or Portfolio's businesses; and (ii) all
lease obligations of the Borrower or Portfolio which are required, in accordance
with GAAP, to be capitalized on the books of the lessee.
"Loan" shall mean a loan made by the Bank to any Borrower or
Portfolio pursuant to Section 1.01(a) of this Agreement.
"1940 Act" shall have the meaning given that term in Section 3.09
hereof.
"Note" or "Notes" shall mean the promissory note of each
respective Borrower or Portfolio substantially in the form of Exhibit A-1 or
Exhibit A-2 attached hereto.
"Permitted Liens" shall have the meaning given that term in
Section 4.02 hereof.
"Portfolio" means each series or class of shares of a Borrower
that constitutes a series under the 1940 Act, which such Borrower has previously
identified to the Bank as a Portfolio in a certificate substantially in the form
of Exhibit C hereto.
"Principal Office" shall mean, for the Borrowers and Portfolios,
the office at the location set forth in the preamble to this Agreement, and for
the Bank, the office located at 89 South Street, Boston, MA 02111.
"Termination Date" shall mean the earlier of (i) March 31, 1997,
(ii) such date on which the Borrowers and Portfolios terminate the Credit
Facility pursuant to Section 1.01(g) hereof or (iii) such date on which the Bank
terminates the Credit Facility pursuant to Section 1.01(g) or Section 5.02
hereof. The Bank may, in its sole and absolute discretion and with the consent
of the Borrowers and Portfolios, extend the Termination Date for successive
one-year periods, but no term or provision hereof shall be deemed to create any
implication that the Bank will or is required to extend the Termination Date.
7.02. Use of Defined Terms. Any defined term used in the plural preceded
by the definite article shall be taken to encompass all members of the relevant
class. Any defined term used in the singular preceded by "any" shall be taken to
indicate any number of the members of the relevant class.
7.03. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with United States generally accepted
accounting principles consistently applied on the basis used by the Borrowers in
prior years.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Credit
Agreement to be executed by their duly authorized officers as of the date first
above written.
INVESTORS BANK & TRUST COMPANY
By:______________________________
David F. Flynn
Managing Director
BULL & BEAR FUNDS I, INC.
By:________________________________
Name:
Title:
BULL & BEAR FUNDS II, INC.
By:________________________________
Name:
Title:
BULL & BEAR GOLD INVESTORS LTD.
By:________________________________
Name:
Title:
BULL & BEAR MUNICIPAL SECURITIES, INC.
By:________________________________
Name:
Title:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:________________________________
Name:
Title:
MIDAS FUND, INC.
By:________________________________
Name:
Title:
NOTE
$ 9,500,000.00 April 3, 1996
For value received, the undersigned, Midas Fund, Inc., a Maryland corporation
(the "Borrower"), hereby promises to pay Investors Bank & Trust Company (the
"Bank"), at its principal office at 89 South Street, Boston, MA 02111 or at such
other place as may be designated from time to time in writing by the Bank, the
principal sum of Nine Million Five Hundred Thousand dollars ($ 9,500,000.00), or
such lesser amount as may be from time to time outstanding, together with
interest in arrears from and including the date hereof on the unpaid principal
balance hereunder, computed daily, at the Federal Funds Rate as defined in the
Credit Agreement as hereinafter defined (the "Federal Funds Rate"), such rate of
interest to change with and as of each change in the Federal Funds Rate, payable
as set forth below. At the option of the Bank and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be five percent (5%) per annum above
the Federal Funds Rate. Interest shall be calculated on the basis of actual
number of days elapsed and a year of 360 days. Notwithstanding any other
provision of this Note, the Bank does not intend to charge and the Borrower
shall not be required to pay any interest or other fees or charges in excess of
the maximum permitted by applicable law; any payments in excess of such maximum
shall be refunded to the Borrower or credited to reduce principal hereunder. All
payments received by the Bank hereunder will be applied first to costs of
collection and fees, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
Principal shall be paid in accordance with Section 1.01(c) of the Credit
Agreement. Interest shall be paid monthly in arrears commencing on May 1, 1996,
and continuing on the first Business Day (as defined in the Credit Agreement) of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal. If any day on which a payment is due
pursuant to the terms of this Note is not a Business Day, such payment shall be
due on the next Business Day following.
This Note may be prepaid at any time, without premium or penalty, in whole or in
part. Any prepayment of principal shall be accompanied by a payment of accrued
interest in respect of the principal being prepaid.
This Note is entitled to the benefits of a Credit Agreement (the "Credit
Agreement") by and among the Borrower on behalf of the Portfolio, the other
Borrowers and Portfolios identified therein and the Bank of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Credit Agreement)
by or with respect to the Borrower, the Bank may declare any or all obligations
or liabilities of the Borrower on behalf of the Portfolio to the Bank (including
the unpaid principal hereunder and any interest due thereon) immediately due and
payable without presentment, demand, protest or notice.
In accordance with Section 5.03 of the Credit Agreement, after the occurrence of
an Event of Default, the Bank may set off or apply any deposits, securities or
other assets at any time held, credited by or due from the Bank to or for the
Borrower against this Note and any other liability now existing or hereafter
arising of the Borrower to the Bank.
If this Note is not paid in accordance with its terms, the Borrower shall pay to
the Bank, in addition to principal and accrued interest thereon, all costs of
collection of the principal and accrued interest, including, but not limited to,
reasonable attorneys' fees, court costs and other costs for the enforcement of
payment of this Note.
No waiver of any obligation of the Borrower under this Note shall be effective
unless it is in a writing signed by the Bank. A waiver by the Bank of any right
or remedy under this Note on any occasion shall not be a bar to exercise of the
same right or remedy on any subsequent occasion or of any other right or remedy
at any time.
Any notice required or permitted under this Note shall be in writing and shall
be deemed to have been given on the date of delivery, if personally delivered to
the party to whom notice is to be given, or if mailed to the party to whom
notice is to be given, by registered mail, return receipt requested, postage
prepaid, and addressed to the addressee at the address of the addressee set
forth in the Credit Agreement, or to the most recent address, specified by
written notice, given to the sender pursuant to this paragraph.
This Note is delivered in and shall be enforceable in accordance with the laws
of the Commonwealth of Massachusetts (without reference to the conflicts of laws
or choice of law provision thereof), and shall be construed in accordance
therewith, and shall have the effect of a sealed instrument.
The Borrower hereby expressly waives presentment, demand, and protest, notice of
demand, dishonor and nonpayment of this Note, and all other notices or demands
of any kind in connection with the delivery, acceptance, performance, default or
enforcement hereof, and hereby consents to any delays, extensions of time,
renewals, waivers or modifications that may be granted or consented to by the
holder hereof with respect to the time of payment or any other provision hereof
or of the Credit Agreement.
In the event any one or more of the provisions of this Note shall for any reason
be held to be invalid, illegal or unenforceable, in whole or in part or in any
respect, or in the event that any one or more of the provisions of this Note
operate or would prospectively operate to invalidate this Note, then and in any
such event, such provision(s) only shall be deemed null and void and shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
BORROWER:
MIDAS FUND, INC.
By: __________________________
Name:
Title:
ATTESTED:
By: ________________
Name:
Title:
EXHIBIT A-2
NOTE
$ April 3, 1996
For value received, the undersigned, , a Maryland corporation (the
"Borrower"), on behalf of the Portfolio designated below ("Portfolio"), hereby
promises to pay Investors Bank & Trust Company (the "Bank"), at its principal
office at 89 South Street, Boston, MA 02111 or at such other place as may be
designated from time to time in writing by the Bank, the principal sum ($
), or such lesser amount as may be from time to time outstanding,
together with interest in arrears from and including the date hereof on the
unpaid principal balance hereunder, computed daily, at the Federal Funds Rate as
defined in the Credit Agreement as hereinafter defined (the "Federal Funds
Rate"), such rate of interest to change with and as of each change in the
Federal Funds Rate, payable as set forth below. At the option of the Bank and to
the extent permitted by applicable law, the rate of interest on any unpaid
principal or interest not paid when due and payable hereunder shall be five
percent (5%) per annum above the Federal Funds Rate. Interest shall be
calculated on the basis of actual number of days elapsed and a year of 360 days.
Notwithstanding any other provision of this Note, the Bank does not intend to
charge and the Borrower on behalf of the Portfolio shall not be required to pay
any interest or other fees or charges in excess of the maximum permitted by
applicable law; any payments in excess of such maximum shall be refunded to the
Borrower on behalf of the Portfolio or credited to reduce principal hereunder.
All payments received by the Bank hereunder will be applied first to costs of
collection and fees, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
Principal shall be paid in accordance with Section 1.01(c) of the Credit
Agreement. Interest shall be paid monthly in arrears commencing on May 1, 1996,
and continuing on the first Business Day (as defined in the Credit Agreement) of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal. If any day on which a payment is due
pursuant to the terms of this Note is not a Business Day, such payment shall be
due on the next Business Day following.
This Note may be prepaid at any time, without premium or penalty, in whole
or in part. Any prepayment of principal shall be accompanied by a payment of
accrued interest in respect of the principal being prepaid.
This Note is entitled to the benefits of a Credit Agreement (the "Credit
Agreement") by and among the Borrower on behalf of the Portfolio, the other
Borrowers and Portfolios identified therein and the Bank of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Credit Agreement)
by or with respect to the Borrower on behalf of the Portfolio the Bank may
declare any or all obligations or liabilities of the Borrower on behalf of
the Portfolio to the Bank (including the unpaid principal hereunder and any
interest due thereon) immediately due and payable without presentment, demand,
protest or notice.
In accordance with Section 5.03 of the Credit Agreement, after the
occurrence of an Event of Default, the Bank may set off or apply any deposits,
securities or other assets at any time held, credited by or due from the Bank to
or for the Borrower on behalf of the Portfolio against this Note and any other
liability now existing or hereafter arising of the Borrower on behalf of the
Portfolio to the Bank.
If this Note is not paid in accordance with its terms, the Borrower on
behalf of the Portfolio shall pay to the Bank, in addition to principal and
accrued interest thereon, all costs of collection of the principal and accrued
interest, including, but not limited to, reasonable attorneys' fees, court costs
and other costs for the enforcement of payment of this Note.
No waiver of any obligation of the Borrower on behalf of the Portfolio
under this Note shall be effective unless it is in a writing signed by the Bank.
A waiver by the Bank of any right or remedy under this Note on any occasion
shall not be a bar to exercise of the same right or remedy on any subsequent
occasion or of any other right or remedy at any time.
Any notice required or permitted under this Note shall be in writing and
shall be deemed to have been given on the date of delivery, if personally
delivered to the party to whom notice is to be given, or if mailed to the party
to whom notice is to be given, by registered mail, return receipt requested,
postage prepaid, and addressed to the addressee at the address of the addressee
set forth in the Credit Agreement, or to the most recent address, specified by
written notice, given to the sender pursuant to this paragraph.
This Note is delivered in and shall be enforceable in accordance with the
laws of the Commonwealth of Massachusetts (without reference to the conflicts of
laws or choice of law provision thereof), and shall be construed in accordance
therewith, and shall have the effect of a sealed instrument.
The Borrower on behalf of the Portfolio hereby expressly waives
presentment, demand, and protest, notice of demand, dishonor and nonpayment of
this Note, and all other notices or demands of any kind in connection with the
delivery, acceptance, performance, default or enforcement hereof, and hereby
consents to any delays, extensions of time, renewals, waivers or modifications
that may be granted or consented to by the holder hereof with respect to the
time of payment or any other provision hereof or of the Credit Agreement.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, or in the event that any one or more of the provisions of this
Note operate or would prospectively operate to invalidate this Note, then and in
any such event, such provision(s) only shall be deemed null and void and shall
not affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
BORROWER:
on behalf of
-----------------------------------
(Name of Portfolio)
By: __________________________
Name:
Title:
ATTESTED:
By:_______________________
Name:
Title:
EXHIBIT B-1
BORROWING NOTICE
___________________________ (the "Borrower") hereby certifies as follows:
This Borrowing Notice is furnished to Investors Bank & Trust Company (the
"Bank") pursuant to the Credit Agreement dated as of April 3, 1996 by and among
the Bank, the Borrower and the other Borrowers and Portfolios party thereto (the
"Credit Agreement"). Unless otherwise defined herein, the terms used in this
Borrowing Notice have the meanings given them in the Credit Agreement.
The following information is correct as of the close of business on
_____________________________, 199__:
1. Maximum availability of all Borrowers and Portfolios: $________
(Lesser of (a) $20,000,000 or (b) Aggregate
Eligible Loan Amounts of all Borrowers and Portfolios)
2. Loans outstanding to all Borrowers and Portfolios: $________
3. Current availability of all Borrowers and Portfolios: $________
(Line 1 minus Line 2)
4. Net assets of the Borrower: $________
5. Eligible Loan Amount of the Borrower: $________
(Lesser of (a) $9,500,000 or
(b) 33% of Line 4)
6. Loans outstanding to the Borrower: $________
7. Current availability of the Borrower: $_______
(Line 5 minus Line 6)
8. Loan requested by the Borrower: $_______
(Cannot be larger than either
Line 3 or Line 7)
The conditions contained or referred to Sections 2.02(a) and (b) of the
Credit Agreement with respect to the undersigned Borrower have been satisfied on
and as of the date of this Borrowing Notice.
EXHIBIT B-2
BORROWING NOTICE
___________________________ (the "Borrower") hereby certifies as follows:
This Borrowing Notice is furnished to Investors Bank & Trust Company
(the "Bank") pursuant to the Credit Agreement dated as of April 3, 1996 by and
among the Bank, the Borrower on behalf of the Portfolio designated below and the
other Borrowers and Portfolios party thereto (the "Credit Agreement"). Unless
otherwise defined herein, the terms used in this Borrowing Notice have the
meanings given them in the Credit Agreement.
The following information is correct as of the close of business on
_____________________________, 199__:
1. Maximum availability of all Borrowers and Portfolios: $___________
(Lesser of (a) $20,000,000 or (b) Aggregate
Eligible Loan Amounts of all Borrowers and Portfolios)
2. Loans outstanding to all Borrowers and Portfolios: $___________
3. Current availability of all Borrowers and Portfolios: $___________
(Line 1 minus Line 2)
4. Net assets of the Portfolio: $__________
5. Eligible Loan Amount of the Portfolio: $___________
(Lesser of (a) $9,500,000 or
(b) 33% of Line 4)
6. Loans outstanding to the Portfolio: $___________
7. Current availability of the Portfolio: $___________
(Line 5 minus Line 6)
8. Loan requested by the Portfolio: $___________
(Cannot be larger than either
Line 3 or Line 7)
The conditions contained or referred to Sections 2.02(a) and (b) of the
Credit Agreement with respect to the undersigned Borrower on behalf of the
Portfolio designated below have been satisfied on and as of the date of this
Borrowing Notice.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
__________ day of _________________________, 199____.
BORROWER
-----------------------
(Name of Borrower)
on behalf of
-----------------------
(Name of Portfolio)
By: __________________________
Name:
Title:
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
Any of the following designated Portfolios of Bull & Bear
Funds I, Inc. (the "Borrower") may hereafter utilize the proceeds of the Loans
made to the Borrower under the Credit Agreement dated as of April 3, 1996:
Bull & Bear Quality Growth Fund
Bull & Bear U.S. and Overseas Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date written
above.
Bull & Bear Funds I,
Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
Any of the following designated Portfolios of Bull & Bear
Funds II, Inc. (the "Borrower") may hereafter utilize the proceeds of the Loans
made to the Borrower under the Credit Agreement dated as of April 3, 1996:
Bull & Bear Global Income Fund
Bull & Bear U.S. Government
Securities Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date
written above.
Bull & Bear Funds II,
Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
The following designated Portfolio of Bull & Bear
Municipal Securities, Inc. (the "Borrower") may hereafter utilize the
proceeds of the Loans made to the Borrower under the Credit Agreement dated as
of April 3, 1996:
Bull & Bear Municipal Income Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date written
above.
Bull & Bear
Municipal Securities, Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
202-778-9046
April 12, 1996
Bull & Bear Municipal Securities, Inc.
11 Hanover Square
New York, NY 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 Amendment No. 23 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 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. 23, when sold in accordance with the Company's Articles of
Incorporation and By-Laws, will be legally issued, fully paid and non-
assessable, subject to compliance with the 1933 Act, and 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. 23 which you are about to file with the Securities and
Exchange Commission.
Sincerely,
DC-258308.1
KIRKPATRICK & LOCKHART LLP
By: /s/ Arthur J. Brown
Arthur J. Brown
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D. C. 20036-1800
R. Darrell Mounts
(202) 778-9046
[email protected]
April 12, 1996
EDGAR FILING
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Bull & Bear Municipal Securities, Inc.
File Nos. 2-88608/811-3934
Post-Effective Amendment No. 23
Ladies and Gentlemen:
We serve as counsel to Bull & Bear Municipal Securities, Inc. (the
"Company"). In that capacity, we have reviewed Post-Effective Amendment No. 23
to the Company's Registration Statement on Form N-1A which accompanies this
letter ("Amendment"). Pursuant to Rule 485(b)(4) under the Securities Act of
1933, we represent that, to the best of our knowledge based upon our review, the
Amendment does not contain disclosures which would render it ineligible to
become effective pursuant to Rule 485(b).
Sincerely,
/s/ R. Darrell Mounts
Enclosure
DC-259122.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 19, 1996 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 1995 Annual Report to
Shareholders which is incorporated by reference in the Statement of Additional
Information filed in Post-Effective Amendment No. 23 under the Securities Act of
1933 and Amendment No. 22 under the Investment Company Act of 1940 to the
Registration Statement on Form N-1A of Bull & Bear Municipal Income Fund,We
also consent to the references to our firm in the Registration Statement and
Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 12, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Annual
Report and is qualified in its entirety by reference to such financial
statments.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Bull & Bear Municipal Income Fund
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 14,974,753
<INVESTMENTS-AT-VALUE> 15,964,411
<RECEIVABLES> 814,074
<ASSETS-OTHER> 37,133
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,815,618
<PAYABLE-FOR-SECURITIES> 514,573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81,014
<TOTAL-LIABILITIES> 595,587
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,759,908
<SHARES-COMMON-STOCK> 952,075
<SHARES-COMMON-PRIOR> 1,043,750
<ACCUMULATED-NII-CURRENT> 4,754
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (534,280)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 989,658
<NET-ASSETS> 16,220,031
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 971,601
<OTHER-INCOME> 0
<EXPENSES-NET> 266,776
<NET-INVESTMENT-INCOME> 704,825
<REALIZED-GAINS-CURRENT> 732,969
<APPREC-INCREASE-CURRENT> 1,080,255
<NET-CHANGE-FROM-OPS> 2,518,049
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 700,080
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 736,003
<NUMBER-OF-SHARES-REDEEMED> 857,584
<SHARES-REINVESTED> 29,906
<NET-CHANGE-IN-ASSETS> 298,739
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,205,766)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,069
<INTEREST-EXPENSE> 2,887
<GROSS-EXPENSE> 322,352
<AVERAGE-NET-ASSETS> 16,344,817
<PER-SHARE-NAV-BEGIN> 15.25
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> 1.78
<PER-SHARE-DIVIDEND> (0.69)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.04
<EXPENSE-RATIO> 1.78
<AVG-DEBT-OUTSTANDING> 13,074
<AVG-DEBT-PER-SHARE> 0.01
</TABLE>
