BULL & BEAR MUNICIPAL INCOME FUND
11 Hanover Square
New York, New York 10005
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Bull & Bear Municipal Income Fund (the "Fund") at ___ a.m. on _____, 1996 at the
offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New
York.
At the Special Meeting, Fund shareholders will consider a proposal to
convert the Fund, the only outstanding series of Bull & Bear Municipal
Securities, Inc. (the "Company"), from an open-end, management investment
company to a closed-end, management investment company. The Fund's investment
objective will remain unchanged. As a closed-end Fund, we would expect its
shares to be traded on the American Stock Exchange or over-the-counter on Nasdaq
and no longer redeemable at net asset value. As part of the proposal to convert
the Fund to closed-end format, shareholders will also be asked to consider
amending certain investment restrictions of the Fund intended to increase the
potential for higher yields and total returns. The enclosed Proxy Statement
describes the proposal in detail and should be read carefully and retained for
future reference.
The Board of Directors has unanimously approved the proposal and recommends
that shareholders vote in favor of it. The proposal is intended to provide the
Fund with greater flexibility to seek its investment objective of the highest
possible income exempt from Federal income tax that is consistent with the
preservation of principal. The Fund will have greater capacity as a closed-end
fund to invest in illiquid securities and employ leverage, which could offer the
potential to enhance the Fund's yields and total returns. Moreover, the Board
anticipates that conversion to closed-end status will permit the Fund to reduce
its operating expenses.
Approval of the proposal requires the lesser of (a) the majority of the
Fund's outstanding shares or (b) at least 66 2/3% of the shares present and
voting on the proposal, provided that at least a majority of the shares
outstanding on the record date are present at the Special Meeting. You are
requested to give this matter your prompt attention and to sign, date and mail
the accompanying proxy as soon as possible in the return envelope provided for
your convenience to ensure its receipt before the Special Meeting.
Very truly yours,
The Board of Directors
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING OF SHAREHOLD ERS, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS
POSSIBLE IN THE ENCLOSED POSTPAID ENVELOPE.
<PAGE>
[Inside Front Cover]
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid expenses to the Fund involved in validating your vote if you fail
to sign your proxy card properly.
1. Individual Accounts: Sign you name exactly as it appears in the registration
on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to a name shown in the registration.
3. All Other Accounts: The capacity of the individuals signing the proxy card
should be indicated unless it is reflected in the form of registration. For
example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp............................ ABC Corp.
(2) ABC Corp............................ John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer........... John Doe
(4) ABC Corp., Profit Sharing Plan...... John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust........................... Jane Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78.................... Jane Doe
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA..... John B. Smith
(2) John B. Smith....................... John B. Smith, Jr. Executor
<PAGE>
BULL & BEAR MUNICIPAL INCOME FUND
11 Hanover Square
New York, New York 10005
Toll Free 1-800-847-4200
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be
Held on __________ __, 1996
----------------
To the Shareholders of
Bull & Bear Municipal Income Fund
Notice is hereby given that a Special Meeting of Shareholders of Bull &
Bear Municipal Income Fund (the "Fund") will be held at the offices of Skadden,
Arps, Slate, Meagher & Flom, 919 Third Avenue, ____ floor, New York, New York
10022 on ____ __, 1996 at a.m., to consider and vote upon the following:
To approve Charter amendments of Bull & Bear Municipal Securities, Inc.
that will result in the conversion of the Fund from open-end to
closed-end status and in connection therewith to delete the Fund's
investment restrictions on authority to borrow money, secure
indebtedness and purchase securities with conditions on resale, and to
amend the Fund's investment restriction on authority to issue senior
securities.
Approval of this proposal would have the effect of converting the Fund from a
diversified series of a registered open-end, management investment company to a
registered closed-end, diversified management investment company.
The proposal is discussed in greater detail in the attached Proxy
Statement. No other business may come before said meeting or any adjournment
thereof.
The close of business on __________ __, 1996, has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting and any adjournments thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE FUND.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, WE ASK THAT YOU PLEASE
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE WHICH NEEDS NO POSTAGE IF MAILED IN THE CONTINENTAL UNITED STATES.
INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE
COVER.
By Order of the Directors
--------------------------
William J. Maynard
Secretary
___________ __, 1996
<PAGE>
BULL & BEAR MUNICIPAL INCOME FUND
---------------------------
SPECIAL MEETING OF SHAREHOLDERS
___________ __, 1996
---------------------------
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Directors of Bull & Bear Municipal Securities, Inc. (the
"Company") for use at a Special Meeting of Shareholders of Bull & Bear Municipal
Income Fund (the "Fund") to be held on ______ __, 1996, at a.m. at the offices
of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, ____ floor, New York,
New York 10022, and at any adjournments thereof (the "Meeting"). A notice of
Special Meeting of Shareholders and a proxy card accompany this Proxy Statement.
The business to be considered at the Meeting is:
A proposal to adopt Amended and Restated Articles of Incorporation for
the Company which would have the effect of converting the Fund from a
diversified series of a registered open-end, management investment company
to a registered closed-end, diversified management investment company; and,
in connection therewith, (i) to delete the current fundamental investment
restriction that prohibits the Fund from borrowing money (except in certain
circumstances), (ii) to delete the current fundamental investment
restriction that prohibits the transfer as security for indebtedness any
security owned by the Fund (except in certain circumstances), (iii) to
delete the current fundamental investment restriction that prohibits the
Fund from purchasing securities with legal or contractual conditions on
resale, and (iv) to replace the current fundamental investment restriction
that prohibits the Fund from issuing senior securities (except reverse
repurchase agreements, to the extent they may be deemed to involve the
issuance of senior securities) with a provision that permits the Fund to
issue senior securities (including borrowing money on margin or otherwise)
to the extent permitted under applicable law.
If the proposal is approved, the Directors will determine the date of
conversion.
The Fund is currently a diversified series of an open-end, management
investment company. The Fund's investment objective is to provide its
shareholders with the highest possible income exempt from Federal income tax
that is consistent with the preservation of principal. The Fund seeks to achieve
its investment objective by investing principally in a diversified portfolio of
municipal securities. No assurances can be given that the Fund's objective will
be achieved. Skadden, Arps, Slate, Meagher & Flom, counsel to the Fund, believes
that the conversion will not be a taxable event to the Fund or its shareholders.
Application will be made to list the Fund's shares on the American Stock
Exchange (the "AMEX") under the symbol "BBM", or if such listing is not
available, to trade over-the-counter on Nasdaq with the symbol "BBMU". Although
there is no current trading market for shares of the Fund's common stock, it is
expected that "when issued" trading of such shares will commence approximately
four business days prior to the date the conversion takes place. Shares of
closed-end investment companies frequently trade at a discount to net asset
value. The Fund cannot predict whether its shares will trade at, below or above
net asset value.
The address of the Fund is 11 Hanover Square, New York, New York 10005 and
the toll-free telephone number is 1-800-847-4200.
REQUIRED VOTE: APPROVAL OF THE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF
THE LESSER OF (A) A MAJORITY OF THE OUTSTANDING SHARES OF THE FUND OR (B) AT
LEAST 66 2/3% OF THE SHARES PRESENT AND VOTING ON THE PROPOSAL, PROVIDED THAT AT
LEAST A MAJORITY OF THE SHARES OUTSTANDING ON THE RECORD DATE ARE PRESENT AT THE
MEETING.
THIS PROXY STATEMENT SETS FORTH CONCISELY CERTAIN INFORMATION ABOUT THE
FUND AND THE PROPOSAL THAT SHAREHOLDERS SHOULD KNOW BEFORE GIVING A PROXY AND IT
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
__________, 1996
1
<PAGE>
GENERAL VOTING INFORMATION
In addition to the solicitation of proxies by mail, officers and regular
employees of the Fund, Bull & Bear Advisers, Inc. (the "Investment Manager"),
affiliates of the Investment Manager, and other representatives of the Fund may
also solicit proxies by telephone, telegraph or in person. In addition, the Fund
has retained Shareholder Communications Corporation to assist in the
solicitation of proxies for a fee estimated at $_____ plus reimbursement of
expenses. The costs of solicitation and the expenses incurred in connection with
preparing this Proxy Statement and its enclosures will be paid by the Fund. The
Fund will reimburse brokerage firms and others for its expenses in forwarding
solicitation materials to the beneficial owners of shares.
If the enclosed proxy is properly executed and returned in time to be voted
at the Meeting, the shares represented thereby will be voted in accordance with
the instructions marked thereon. Unless instructions to the contrary are marked
thereon, the proxy will be voted FOR the proposal. Any shareholder who has given
a proxy has the right to revoke it at any time prior to its exercise either by
attending the Meeting and voting his or her shares in person or by submitting a
letter of revocation or a proxy to the Fund at the above address prior to the
date of the Meeting.
In the event a quorum is present at the Meeting but sufficient votes to
approve the proposed transaction are not received, the persons named as proxies
may propose one or more adjournments of such Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares present at the Meeting in person or by proxy. If a
quorum is present, the persons named as proxies will vote those proxies which
they are entitled to vote FOR such proposal in favor of such an adjournment and
will vote those proxies required to be voted for rejection of such proposal
against any such adjournment.
The close of business on ________ __, 1996 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meeting and all adjournments thereof.
Each shareholder is entitled to one vote for each full share and an
appropriate fraction of a vote for each fractional share held on each matter to
be voted upon. On _________ __, 1996, there were ________ shares of the Fund
outstanding.
To the knowledge of the management of the Fund as of __________ __, 1996 ,
no person owns of record or beneficially 5% or more of the shares of the Fund.
This Proxy Statement is first being mailed to shareholders on or about
_______ __, 1996.
2
<PAGE>
PROPOSAL:
TO APPROVE CHARTER AMENDMENTS THAT WILL RESULT IN THE CONVERSION OF BULL & BEAR
MUNICIPAL INCOME FUND FROM A DIVERSIFIED SERIES OF A REGISTERED OPEN-END,
MANAGEMENT INVESTMENT COMPANY TO A REGISTERED CLOSED-END, DIVERSIFIED MANAGEMENT
INVESTMENT COMPANY, AND IN CONNECTION THEREWITH TO DELETE THE FUND'S INVESTMENT
RESTRICTIONS ON AUTHORITY TO BORROW MONEY, SECURE INDEBTEDNESS AND PURCHASE
SECURITIES WITH CONDITIONS ON RESALE, AND TO AMEND THE FUND'S INVESTMENT
RESTRICTION ON AUTHORITY TO ISSUE SENIOR SECURITIES.
BACKGROUND
The Fund commenced operations in 1984 and is presently the only series of
shares issued by the Company (see "Description of Common Stock"), an open-end
management investment company organized as a Maryland corporation in 1983. The
investment objective of the 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 seeks to achieve its objective by investing
principally in a diversified portfolio of municipal securities of varying
maturities, depending on the Investment Manager's evaluation of current and
anticipated market conditions.
The Board of Directors has approved, subject to shareholder approval, the
conversion of the Fund from open-end to closed-end status. If the proposal is
approved and implemented, after conversion, a shareholder will be able to sell
shares at the current market price on a securities exchange or over-the-counter
market but will no longer be able to redeem shares at net asset value.
Application has been made for the Fund's shares to be listed on the AMEX with
the symbol "BBM", or if such listing is not available, to trade over-the-counter
on Nasdaq with the symbol "BBMU". The record date for conversion and the date of
conversion will be determined by the Board of Directors following shareholder
approval of the conversion.
REASONS FOR THE CONVERSION
The Board of Directors believes that the conversion will provide the Fund
with greater flexibility to seek its investment objective with lower operating
expenses.
Investment Flexibility. Open-end funds may not hold in excess of 15% of
their net assets in securities that are not readily marketable, including
restricted securities, and the Securities and Exchange Commission (the "SEC") is
considering reducing this percentage to 10%. In order to maintain a highly
liquid portfolio that is readily priced on a daily basis, the Fund has avoided
investing in various securities that the Investment Manager had otherwise found
attractive. A closed-end fund, however, may invest up to 100% of its assets in
such securities and generally values its assets only once per week. Moreover, in
connection with the conversion, the Fund's current fundamental investment
restriction that prohibit it from purchasing securities with legal or
contractual conditions on resale would be deleted. Although the Fund would not
expect to invest 100% of its assets in restricted and illiquid securities, the
ability to invest a higher proportion than 15% without the overriding need for
daily liquidity experienced in an open-end fund, in the view of the Board of
Directors and the Investment Manager, may increase the potential for higher
yields and total returns and therefore be beneficial to shareholders. Operating
in the closed-end format would give the Fund greater flexibility in pursuing
these kinds of investments.
The Fund currently may not, pursuant to its fundamental investment
restrictions, (1) 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%, or (2) 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. Closed- end funds, however, have greater flexibility in borrowing
and issuing senior securities, including debt or preferred stock, so long as
such preferred securities do not exceed one-half, and such debt does not exceed
one-third, of such fund's total assets. In accordance with SEC staff guidelines,
any such debt or preferred stock may be convertible, which may permit the Fund
to obtain leverage at attractive rates. Therefore, in connection with the
conversion, the Fund's fundamental investment restriction regarding borrowing
would be deleted and its fundamental investment restriction regarding senior
securities would be amended, as follows: "[The Fund may not:] issue senior
securities (including borrowing money) except to the extent permitted by
applicable law".
Under the Fund's current fundamental investment restrictions, the Fund may
not 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 bank borrowings (as discussed above), in which event
such mortgaging, pledging, or hypothecating may not exceed 15% of the Fund's
assets, valued at market. If the Fund converts to closed-end format, its greater
flexibility in borrowing money will be facilitated by the ability to transfer
securities it owns as security for indebtedness. Therefore, in connection with
the conversion, the Fund's current fundamental investment restriction that
prohibits such transfers would be deleted.
Use of leverage by the Fund would increase the Fund's total return to
shareholders if the Fund's returns on its investments out of the proceeds of
such leverage exceed the cost of such leverage. Although in the past the Fund
has not used leverage and there can be no assurance that if employed, it will be
successful, the Board of Directors and Investment Manager believe that increased
capacity to employ leverage may potentially increase yields and total returns.
Investing in illiquid securities, including securities with legal or
contractual conditions on resale, and using leverage for investment purposes
entail certain risks. With respect to illiquid securities, including securities
with legal or contractual conditions on resale, the Fund may not be able to
dispose of a security at the desired price at the time it wishes to make such
disposition. In addition, such securities often sell at a discount from liquid
and freely tradeable securities of the same class or type, although they are
also usually purchased at an equivalent discount which enhances yield while the
securities are held by the Fund. Such securities may also be more difficult to
price accurately although this is less significant in a closed-end fund where
shares are not purchased or sold solely on the basis of net asset value.
Leverage entails two primary risks. The first risk is that the use of leverage
magnifies the impact on the common shareholders of changes in net asset value.
For example, a fund that uses leverage of one third of its total assets will
show a 1.5% increase or decline in net asset value for each 1% increase or
decline in the value of its total assets. The second risk is that if the cost of
leverage exceeds the return on the securities acquired with the proceeds of that
leverage, it will diminish rather than enhance the return to common
shareholders. These two risks would generally make the Fund's total return to
common shareholders more volatile. However, if the Fund is able to provide total
returns on its assets exceeding the costs of leverage, the use of leverage would
over the longer term enhance the Fund's yields and total returns, although there
can be no assurance that this can be achieved.
Moreover, to assist the Fund in meeting redemption requests, the Fund has
generally maintained a certain percentage of its assets in highly liquid but
lower-yielding securities. This investment strategy is considered important by
the Fund in managing redemption risk in the open-end format but would become
unnecessary if the Fund were to become closed-end. The shift to close-end format
would enable the Fund to invest substantially all of its assets in accordance
with its investment objective, thereby potentially increasing yields and total
returns to common shareholders of the Fund.
By voting in favor of the conversion, shareholders will authorize the
deletions and amendments to the Fund's fundamental investment restrictions
described above. As consistent with the Fund's investment objective, the Fund
intends to utilize the additional investment flexibility afforded by these
changes after conversion to closed-end format, depending on the Investment
Manager's evaluation of current and anticipated market conditions, but there can
be no assurance that such additional flexibility will be utilized or, if
utilized, enhance the Fund's performance or materially affect its yields or
total returns. Although to some extent these changes could have been adopted by
the Fund in an open-end format, the capacity of the Fund as a closed-end fund to
invest in illiquid securities, including those with legal or contractual
conditions to resale, and employ leverage is greater.
Reduced Fund Expenses. The conversion should enable the Fund to reduce
certain operating expenses.
As a closed-end fund the Fund will save money by not having to maintain
registrations in each state for sales of its shares, by terminating its
shareholder administration agreement and by terminating its plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act. However, these cost savings
will be partially offset by fees associated with the requirement of annual
meetings and listing of the Fund's shares on the AMEX or Nasdaq.
The impact of the elimination or reduction of those expenses of the Fund
which are not assessed as a percentage of net assets, including the shareholder
administration and state registration fees described above, and other such costs
such as registration under the Securities Act of 1933, as amended (the "1933
Act"), transfer agency and net asset value calculation accounting, depends
greatly upon the total net assets of the Fund. Accordingly, since it is
impossible to predict whether and to what extent net redemptions of shares of
the Fund may occur prior to its conversion to closed-end status, the expense
ratio after such conversion cannot be stated with certainty. If net assets
decrease, operating expense ratios will increase. Moreover, although to the
extent the Fund employs leverage its expenses will increase, leverage would only
be employed with the intention to at least commensurately increase the Fund's
gross income and net income and thereby increase the Fund's yields and total
returns.
At meetings on June 13, 1996 and June 26, 1996, the Board considered the
Fund's investment objective and policies in view of its recent operating
results, total net assets, prospects, market conditions, and other factors and
alternatives to conversion of the Fund and changes to its investment
restrictions, together with features and characteristics of closed-end funds
generally and pro forma and other information pertaining to the Fund, including
an assessment of risks, costs, and expenses pertaining to the conversion. After
consideration of these and other relevant matters, the Board unanimously
approved the proposal and has recommended that shareholders of the Fund vote in
favor of the proposal. The Board believes that the conversion is in the best
interests of the shareholders and the benefits thereof outweigh its costs. For a
description of the costs and expenses relating to the conversion, see "The
Conversion Expenses," below.
MANNER OF EFFECTING THE CONVERSION
Upon shareholder approval of the conversion, the Fund will mail
shareholders a notice of its intent to complete the conversion on a specified
date not less than 15 days after the date of such notice. Shareholders will
continue to be able to redeem their shares at net asset value until the
conversion occurs. Thereupon, the Company will file its Amended and Restated
Articles of Incorporation with the Secretary of State of Maryland, have the
Fund's registration of common shares with the SEC under the Securities and
Exchange Act of 1934 declared effective, file an amended registration statement
under the 1940 Act changing the Fund's status from open-end to closed-end and,
if approved for listing on the AMEX or over-the-counter on Nasdaq, commence
"when issued" trading approximately four days prior to the actual conversion.
Shareholders who have elected to reinvest dividends and distributions would
automatically be included in the Fund's dividend reinvestment plan (see
"Dividend Reinvestment and Cash Purchase Plan"). Shareholders will not be
required to turn in their share certificates or take any other action to
effectuate the conversion.
THE CONVERSION EXPENSES
The costs of converting the Fund, including the costs of this Proxy
Statement, the fees and expenses of counsel, and printing and listing fees are
estimated to be approximately $ . These costs will be borne by the Fund. See
also "The Reasons for the Conversion - Reduced Fund Expenses" herein.
MARKET TRADING; DISCOUNT TO NET ASSET VALUE
Open-end funds are redeemable at any time at net asset value and cannot be
sold at a premium or dis count in the marketplace. Closed-end funds, on the
other hand, are bought and sold in the securities markets and may trade at
either a premium to or discount from net asset value. Shares of closed-end funds
frequently trade at a discount from net asset value, which is a risk separate
and apart from the risk that the net asset value of the Fund's shares will
decrease. Prior to the conversion, there will have been no market for the Fund's
shares and no history of Fund investment performance as a closed-end fund,
increasing the likelihood of the risk that its shares will trade at a discount.
In addition, compared to other closed-end funds with similar investment
objective and policies, the Fund's relatively smaller amount of total net assets
and shares outstanding also increases the risk of trading at a discount.
Shareholders should also bear in mind that they will incur brokerage or other
transaction costs if they sell shares of closed-end funds in the securities
markets, whereas the transaction costs of redemptions of open-end funds are
generally absorbed by the fund. The Investment Manager, however, has arranged
with its affiliate, Bull & Bear Securities, Inc., that for two years after the
conversion, any shares in the Fund held by the Fund's transfer agent in its book
entry account may be sold at market value without commission if sold through
Bull & Bear Securities, Inc.
INVESTMENT MANAGEMENT SERVICES
INVESTMENT MANAGER
The Fund's Investment Manager is Bull & Bear Advisers, Inc., 11 Hanover
Square, New York, New York 10005. The Investment Manager, a registered
investment adviser, is a wholly-owned subsidiary of the Bull & Bear Group, Inc.
("Group"). Group is a publicly-owned company whose shares are traded on Nasdaq.
Bassett S. Winmill may be deemed a controlling person, as that term is defined
by the rules and regulations of the 1940 Act, of Group and the Investment
Manager on the basis of his ownership of 100% of Group's voting stock. The
investment companies (which includes the Fund) managed by the Investment Manager
and its affiliates had net assets in excess of $440 million as of May 31, 1996.
INVESTMENT MANAGEMENT AGREEMENT
Under the terms of the current Investment Management Agreement, the
management fee is calculated based upon the average daily net assets of the
Fund; upon the Fund's conversion to closed-end format, at which time the Fund's
net assets will be calculated weekly, the Investment Management Agreement would
be amended to provide that the fee be calculated based upon the average weekly
net assets of the Fund. Accordingly, by voting in favor of the proposal,
shareholders will approve this conforming amendment to the current Investment
Management Agreement. In all other material respects, the terms of the
Investment Management Agreement would remain the same.
DESCRIPTION OF COMMON STOCK
COMMON STOCK
Bull & Bear Municipal Income Fund is currently the only series of Bull &
Bear Municipal Securities, Inc., which was incorporated under the laws of the
State of Maryland in 1983. The Company is authorized to issue one billion shares
of stock, par value $.01 per share (the "Common Stock") of which 50 million
shares have been designated Bull & Bear Municipal Income Fund. Each share has
equal voting, dividend, distribution and liquidation rights. The shares
outstanding are fully paid and nonassessable, are redeemable at net asset value
per share next determined after the Fund receives a redemption request and have
no preemptive, conversion or cumulative voting rights. Upon conversion of the
Fund to closed-end status, shares of Common Stock will no longer be redeemable
at net asset value, and will continue not to have preemptive, conversion or
cumulative voting rights.
LISTING OF SHARES
Application will be made to list the Fund's shares on the AMEX upon notice
of issuance thereof with the symbol "BBM", or if such listing is not available,
to trade over-the-counter on Nasdaq with the symbol "BBMU". Although there is no
current trading market for shares of the Fund's Common Stock, it is expected
that "when issued" trading of such shares will commence approximately four
business days prior to the date the conversion takes place.
REPURCHASE OF SHARES
In the event the conversion is completed, the Fund will be a closed-end,
diversified management investment company and as such shareholders will not have
the right to redeem their shares directly from the Fund. As a closed-end fund,
however, the Fund will be able to repurchase its shares from time to time as and
when it deems such a repurchase advisable. Pursuant to the 1940 Act, the Fund
may repurchase its shares on a securities exchange (provided that the Fund has
informed its shareholders within the preceding six months of its intention to
repurchase such shares) or as otherwise permitted in accordance with Rule 23c-1
under the 1940 Act. Under that Rule, certain conditions must be met regard ing,
among other things, distribution of net income from the preceding fiscal year,
identity of the seller,
price paid, brokerage commissions, prior notice to shareholders of an intention
to purchase shares and purchasing in a manner and on a basis which does not
discriminate unfairly against the other shareholders through their interest in
the Fund.
Shares repurchased by the Fund will constitute authorized and unissued
shares of the Fund available for reissuance. The Fund may incur debt to finance
share repurchase transactions. Any gain in the value of the investments of the
Fund during the term of the borrowing that exceeds the interest paid on the
amount borrowed would cause the net asset value of its shares to increase more
rapidly than in the absence of borrowing. Conversely, any decline in the value
of the investments of the Fund would cause the net asset value of its shares to
decrease more rapidly than in the absence of borrowing. Borrowing money thus
creates an opportunity for greater capital gain at the risk of greater exposure
to capital loss.
When the Fund repurchases its shares for a price below their net asset
value, the net asset value of those shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares will be affected, either positively or negatively. Further,
interest on borrowings to finance share repurchase transactions will reduce the
net income of the Fund except to the extent the gross income attributable to
such shares exceeds the costs of such borrowings.
Although the Fund does not currently intend to repurchase shares, no
assurance can be given that the Fund will decide to repurchase shares in the
future, or, if undertaken, that such repurchases will reduce any market discount
that may develop. While the Fund does not currently intend to repurchase its
shares, its officers and directors, and the Investment Manager and its
affiliates may do so from time to time.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Board has adopted, effective upon conversion, a Dividend Reinvestment
and Cash Purchase Plan (the "Plan"). Under the Plan, distributions will be
reinvested in additional shares automatically, unless such shareholders elect to
receive cash. Each dividend and capital gains distribution, if any, declared by
the Fund on outstanding shares, unless elected otherwise by each shareholder by
notifying the Fund in writing at any time prior to the record date for a
particular dividend or distribution, will be paid on the payment date fixed by
the Board of Directors in that number of additional shares of the Fund equal to
(a) the amount of such dividend divided by the Fund's net asset value per share
if the average closing market price on the five trading days prior to the date
the shares trade ex-dividend (the "Market Price") is at or above such net asset
value per share on the record date for such distribution and (b) the amount of
such dividend divided by the Market Price if the Market Price is less than such
net asset value per share on the record date for such distribution. Upon a
shareholder's request to receive a certificate for his shares, a certificate
will be issued for such shares in whole share amounts and any fractional share
amounts will be paid in cash. There are no sales or other charges in connection
with the reinvestment of dividends and capital gains distributions. There is no
fixed dividend rate and there can be no assurance that the Fund will pay any
dividends or realize any capital gains. However, the Fund currently intends to
pay dividends and capital gains distributions, if any, on an annual basis.
CERTAIN PROVISIONS OF THE PROPOSED CHARTER OF THE FUND
In connection with the proposed conversion of the Fund to a closed-end,
registered investment company, the Board of Directors proposes the adoption of
the Amended and Restated Articles of Incorpo ration of the Company (the
"Proposed Charter"). The major differences between the Proposed Charter and the
current Articles of Incorporation are discussed below.
The adoption of the Proposed Charter would result in conversion of the Fund
to a closed-end investment company. Under the Proposed Charter, shareholders
would not have the right to acquire or redeem shares at net asset value directly
from the Fund; instead, shares would be traded on the AMEX or Nasdaq.
The net asset value of each share of the Company's capital stock would be
the current net asset value per share as determined in accordance with
procedures adopted from time to time by the Board of Directors which comply with
the 1940 Act. In the event of the liquidation or dissolution of the Fund, the
holders of the Common Stock would be entitled to receive all the net assets of
the Company not attributable to other classes of stock through any preference.
On each matter submitted to a vote of shareholders, each holder of a share
of capital stock of the Company would be entitled to one vote for each share
standing in such holder's name on the books of the Company. The Proposed Charter
provides that the Board of Directors may classify or reclassify any unissued
capital stock from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of the stock.
Under the Proposed Charter, the Company would be entitled to purchase
shares of its capital stock, to the extent that it may lawfully effect such
purchase under the 1940 Act and the Maryland General Corporation Law, upon such
terms and conditions and for such consideration as the Board of Directors shall
deem advisable. Currently, the Company is obligated to repurchase its shares at
net asset value upon request.
Each person who at any time is or was a director or an officer of the
Company shall be indemnified by the Company to the fullest extent permitted by
the Maryland General Corporation Law as it may be amended or interpreted from
time to time, including the advancing of expenses, subject to any limitations
imposed by the 1940 Act and the rules and regulations promulgated thereunder.
Furthermore, to the fullest extent permitted by the Maryland General Corporation
Law, as it may be amended or interpreted from time to time, subject to the
limitations imposed by the 1940 Act and the rules and regulations promulgated
thereunder, no director or officer of the Company would be personally liable to
the Company or its shareholders. No amendment of the Proposed Charter or repeal
of any of its provisions would be permitted to limit or eliminate any of the
benefits provided to any person who at any time is or was a director or officer
of the Fund in respect of any act or omission that occurred prior to such
amendment or repeal.
The Board of Directors would have the exclusive authority to make, alter or
repeal from time to time any of the By-Laws of the Company except any particular
By-Law which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the 1940 Act and the rules and
regulations promulgated thereunder.
As described in the following paragraphs, certain provisions of the
Proposed Charter could have the effect of limiting (i) the ability of other
entities or persons to acquire control of the Fund, (ii) the Fund's freedom to
engage in certain transactions, or (iii) the ability of the Board of Directors
or shareholders to amend the Proposed Charter or By-Laws or effectuate changes
in the Fund's management.
Except as otherwise provided in the Proposed Charter and notwithstanding
any provision of the Maryland General Corporation Law requiring approval by the
shareholders (or any class of shareholders) of any action by the affirmative
vote of a greater proportion than a majority of the votes entitled to be cast on
the matter, any such action could be taken or authorized upon the concurrence of
a majority of the number of votes entitled to be cast (or a majority of the
votes entitled to be cast as a separate class).
The proposed Charter provides that any business combination (including any
merger, consolidation, or share exchange with any interested shareholder or any
affiliate thereof) requires the affirmative vote of the holders of at least 80%
of the votes entitled to be cast by holders of voting stock, unless approved by
the vote of at least 80% of the Board of Directors, in which case such business
combination requires the affirmative vote of the holders of at least a majority
of the votes entitled to be cast by such holders.
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
authority of the direction of the Board of Directors, as to the amount of
assets, obligations or liabilities of the Company, as to the amount of net
income of the Company from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged), as
to the price of any security owned by the Company or as to any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the Company, and any reasonable
determination made in good faith by the Board of Directors would be final and
conclusive, and would be binding upon the Company and all holders of its capital
stock past, present and future, and shares of capital stock of the Company is
issued and sold on the condition and understanding, evidenced by the purchase of
shares of capital stock or acceptance of share certificates, that any and all
such determinations shall be binding. No provision of the Proposed Charter would
be effective to (a) require a waiver of compliance with any provision of the
1940 Act, or of any valid rule, regulation or order of the SEC thereunder or (b)
protect or purport to protect any director or officer of the Company against any
liability to the Company or its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
The private property of shareholders would not be subject to the payment of
corporate debts to any extent whatsoever.
The affirmative vote of holders of at least 80% of the votes entitled
to be cast by holders of voting stock is necessary to authorize the conversion
of the Fund from a closed-end to an open-end investment company, unless approved
by the vote of at least 80% of the Board of Directors, in which case such
conversion requires the affirmative vote of the holders of at least a majority
of the votes entitled to be cast by such holders.
The Company would reserve the right to amend, alter, change or repeal any
provision contained in the Proposed Charter, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders in the
Proposed Charter would be granted subject to this reservation. Notwithstanding
any other provisions of the Proposed Charter or By-Laws (and notwithstanding the
fact that a lesser percentage may be specified by law or by the Proposed Charter
or By-Laws), the amendment or repeal of Section 10 of Article V, Sections 3, 4
and 5 of Article VI, Sections 1 and 2 of Article VIII, Article X, Article XI,
Article XII and Article XIII of the proposed Charter would require the
affirmative vote
of the holders of at least 80% of the votes entitled to be cast by holders of
voting stock, unless approved by the vote of at least 80% of the Board of
Directors, in which case such amendment or repeal would require the affirmative
vote of the holders of at least a majority of the votes entitled to be cast by
such holders. These sections involve the applicability of the Proposed Charter
and By-Laws to shareholders, number and classification of directors,
indemnification of officers and directors, actions taken by concurrence of a
majority vote of shareholders, limited liability of shareholders, unlimited
existence, conversion to open-end status and amending the foregoing provisions.
The provisions of the Proposed Charter would provide for the Board of
Directors to be divided into five classes, each having a term of five years
(except, to ensure that the term of a class of directors expires each year, the
first class of directors will serve an initial one-year term and five-year terms
thereafter, the second class of directors will serve an initial two-year term
and five-year terms thereafter, the third class of directors will serve an
initial three-year term and five-year terms thereafter, and the fourth class of
directors will serve an initial four-year term and five-year terms thereafter).
Each year the term of one class of directors will expire. Accordingly, only
those directors in one class may be changed in any one year, and it would
require three years to change a majority of the Board of Directors. Such system
of electing directors may have the effect of maintaining continuity of
management and, thus, make it more difficult for shareholders to change the
majority of directors.
The provisions of the governing documents described above could have the
effect of depriving shareholders in the Fund of opportunities to sell their
shares at a premium over prevailing market prices, by discouraging a third party
from seeking to obtain control of the Fund in a tender offer or similar
transaction. The overall effect of these provisions is to render more difficult
the accomplishment of a merger or the assumption of control by a third party
unless approved by the Board of Directors.
TAX MATTERS
SUBCHAPTER M AND OTHER TAX MATTERS
The Fund has qualified and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Fund qualifies as a regulated investment company
and complies with certain distribution requirements, the Fund will not be
subject to Federal income tax on that part of its net investment income and
realized capital gains which it distributes to its shareholders.
To qualify as a regulated investment company, the Fund must meet certain
relatively complex tests. The loss of status as a regulated investment company
would result in the Fund being subject to Federal income tax on all its taxable
income and gains without regard to dividends and distributions paid to
shareholders.
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 private activity bonds (including, in the case of a
regulated investment company receiving interest on such bonds, a proportionate
part of the exempt-interest dividends paid by that
regulated investment company) is an item of tax preference for purposes of the
alternative minimum tax. Exempt-interest dividends received by a corporate
shareholder may be subject to the alternative minimum tax in any event. Fund
dividends may be subject to taxes of states and other taxing authorities.
In any year, if the Fund has excess net realized long-term capital gains
over its net realized short-term capital losses, the Fund reserves authority not
to distribute such excess. If such excess is not distributed, a shareholder must
include in taxable income as long-term capital gain his share thereof. However,
the Fund will pay the taxes imposed on any such undistributed gain and the
shareholder will receive a credit or refund for taxes on his share of such
excess. If, for any year, the total distributions exceed accumulated
undistributed net investment income and net realized capital gains, the excess
will generally be treated as a tax-free return of capital (up to the amount of
the shareholder's tax basis in his shares). The amount treated as a tax-free
return of capital will reduce the shareholder's adjusted basis in his shares,
thereby increasing his potential loss on the sale of his shares.
The Fund will be required to make back-up withholding in an amount equal to
31% of a shareholder's dividend or capital gain distribution or the proceeds of
a redemption unless such shareholder has furnished the Fund with his taxpayer
identification number (a social security number in the case of an individual)
and certifies that the number is correct and that he has not been notified by
the Internal Revenue Services that he is subject to back-up withholding.
Skadden, Arps, Slate, Meagher & Flom, legal counsel for the Fund, believe,
for U.S. Federal income tax purposes, that the conversion will not be a taxable
event to the Fund or any shareholder.
The foregoing is a general and abbreviated summary of the provisions of the Code
applicable to a shareholder's investment in the Fund. Dividends and
distributions declared by the Fund may also be subject to state and local taxes.
Each shareholder is urged to consult its tax advisers concerning the Federal,
state and local tax consequences of their particular investment in the Fund.
THE BOARD OF DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS, HAS
UNANIMOUSLY APPROVED THE PROPOSAL AND RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL.
3
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ADDITIONAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund sends unaudited semi-annual and audited annual reports to their
respective shareholders, including a list of investments held.
The Fund will furnish, without charge, a copy of the Annual Report for the
fiscal year ended December 31, 1995 upon request to the Fund at 11 Hanover
Square, New York, New York 10005, toll-free telephone 1-800-847-4200.
BROKER NON-VOTES AND ABSTENTIONS
If a proxy which is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote" (that
is, a proxy from a broker or nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominee does
not have discretionary power), is unmarked or marked with an abstention
(collectively, "abstentions"), the shares represented thereby will be considered
to be present at the meeting for purposes of determining the existence of a
quorum for the transaction of business. Under Maryland law, abstentions do not
constitute a vote "for" or "against" a matter and will be disregarded in
determining the "votes cast" on an issue.
SHAREHOLDER PROPOSALS
Proposals by shareholders intended to be presented at the next annual
meeting (to be held in 1997) must be received by the Company on or before , 1997
(or 30 days before the annual meeting if such meeting is held after , 1997) in
order to be included in the proxy statement and proxy for that meeting.
ANNUAL MEETING REQUIREMENTS
If the Fund becomes closed-end and lists its shares on the AMEX or the
Nasdaq National Market System, it will be required to hold annual shareholder
meetings.
OTHER MATTERS TO COME BEFORE THE MEETING
The Directors do not intend to present any other business at the Meeting,
nor are they aware that any shareholder intends to do so. If, however, any other
matters are properly brought before the Meeting, the persons named in the
accompanying form of proxy will vote thereon in accordance with their judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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BULL & BEAR MUNICIPAL INCOME FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS
The undersigned hereby appoints Robert D. Anderson and Thomas B. Winmill,
and each of them, attorneys and proxies of the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of Bull & Bear Municipal Income Fund (the "Fund")
which the undersigned is entitled to vote at the Special Meeting of Shareholders
(the "Meeting") of the Fund to be held at the offices of Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, floor, New York, New York 10022 on ________
__, 1996, at 10:00 a.m., and at any adjournments thereof. The undersigned hereby
acknowledges receipt of the Notice of Special Meeting of Shareholders and Proxy
Statement and hereby instructs said attorneys and proxies to vote said shares as
indicated herein. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Meeting.
A majority of the proxies present and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder.
The undersigned hereby revokes any proxy previously given.
PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
AND RETURN IT IN THE ENCLOSED PAID ENVELOPE.
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
This proxy, if properly executed, will be voted in the manner directed by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR the proposal. Please refer to the Proxy Statement for a discussion of the
proposal.
1. TO APPROVE CHARTER AMENDMENTS THAT WILL RESULT IN THE CONVERSION OF BULL &
BEAR MUNICIPAL INCOME FUND FROM OPEN-END TO CLOSED-END STATUS AND IN
CONNECTION THEREWITH TO DELETE THE FUND'S INVESTMENT RESTRICTIONS ON AU
THORITY TO BORROW MONEY, SECURE INDEBTEDNESS AND PURCHASE SECURITIES WITH
LEGAL OR CONTRACTUAL CONDITIONS ON RESALE AND TO AMEND THE FUND'S INVEST
MENT RESTRICTIONS ON AUTHORITY TO ISSUE SENIOR SECURITIES.
|_| FOR |_| AGAINST |_| ABSTAIN
Date:
(Sign exactly as name(s) appear above) IMPORTANT: If joint owners, EITHER
may sign this proxy. When signing as executor, administrator, trustee, guardian
or corporate officer, please give your FULL title.
<PAGE>
