<PAGE>
================================================================================
MUNICIPAL INCOME FUND American Stock Exchange Symbol: BBM
- --------------------------------------------------------------------------------
11 Hanover Square, New York, NY 10005
August 15, 1997
Dear Shareholder:
Net asset value per share remained remarkably consistent over the first
half of the year, going from $16.41 at the close on December 31, 1996 to $16.38
on June 30, 1997. Total return on a net asset value basis was 2.58%, reflecting
distributions paid for the six month period. With a recent closing market price
on the Exchange of $14 1/4 per share, we believe that these levels offer an
appealing value opportunity to invest in shares of the Fund.
Review and Outlook
The first half of 1997 will be remembered as a time of strong economic
growth, low levels of unemployment and moderate inflation. It will also be
remembered that in March, the Federal Reserve Bank increased short term rates by
0.25%, ending one of the longest periods of unchanged rates in recent history.
Although debt markets were volatile during the first half of the year, we
believe that municipal bonds offer unusually attractive rates of return for
investors.
While municipal bonds have benefitted by the favorable trends in interest
rates, factors unique to the tax-exempt market were noteworthy during the first
half of the year. The strength of the economy caused tax revenues to increase,
leading to a reduced supply of municipal debt. Demand for municipals has
remained high due to the continued profitability of insurance companies, which
typically invest substantial amounts in tax-free bonds, and a desire by
individual investors to diversify out of what many view as expensive equity
markets. The elimination of concerns regarding radical tax reforms has also
contributed to the demand for municipal securities, and we continue to expect
strong performance in this market for the remainder of the year and into 1998.
Reinvestment Plan Offers Important Advantage
The Bull & Bear Municipal Income Fund Dividend Reinvestment Plan is
particularly attractive because quarterly dividend distributions are reinvested
without charge at the lower of net asset value per share or market price, which
can contribute significantly to growing your investment over time.
We appreciate your support and look forward to continuing to serve your
investment needs.
Sincerely,
/s/ Thomas B. Winmill /s/ Steven A. Landis
Thomas B. Winmill Steven A. Landis
President Senior Vice President
Portfolio Manager
<PAGE>
BULL & BEAR MUNICIPAL INCOME FUND, INC.
Schedule of Portfolio Investments - June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Value
--------- -------- --------
<C> <S> <C> <C>
Municipal Bonds (100.0%)
Alaska (4.3%)
$450,000 Alaska Energy Authority Power Revenue Bonds,
7.25%, due 7/1/21................................................. AAA $490,477
--------
Arizona (4.9%)
500,000 Phoenix General Obligation Bonds, Series A,
6.25%, due 7/1/16................................................. AA+ 558,700
--------
Colorado (4.4%)
480,000 Colorado Student Obligation Board Authority Revenue
Bonds, Series A3, 7.25%, due 9/1/05............................... A* 500,606
--------
Delaware (0.9%)
200,000 Delaware State Economic Developement Authority Revenue Bonds,
5.5%, due 10/1/17................................................. A 200,000
--------
Georgia (4.4%)
400,000 Georgia State Municipal Electric Authority Power Revenue
Bonds, 8.25%, due 1/1/11.......................................... A 504,972
--------
Hawaii (8.7%)
500,000 Hawaii County General Obligation Bonds, Series A, 5.60%,
due 5/1/13........................................................ AAA 516,825
400,000 Honolulu City & County General Obligation Bonds, Series A,
8.75%, due 1/1/03................................................. AA 478,392
--------
995,217
--------
Illinois (4.2%)
500,000 Chicago, Illinois General Obligation Bonds, 5.5%, due 1/1/21...... AAA 486,820
--------
Louisiana (3.8%)
400,000 Louisiana Public Facility Authority Revenue Bonds, Series A2,
6.50%, due 3/1/02................................................. AAA* 442,697
--------
Michigan (5.6%)
100,000 Dearborn, Michigan Economic Development Revenue Bonds,
4.15%, due 3/1/23................................................. A+ 100,000
500,000 Monroe County Pollution Control Revenue Bonds, Series I,
7.30%, due 9/1/19................................................. AAA 539,870
--------
639,870
--------
Mississippi (4.3%)
500,000 Mississippi State General Obligation Bonds, 5.10%, due 11/15/11... AA- 498,710
--------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Value
--------- -------- --------
<C> <S> <C> <C>
Nevada (4.5%)
$500,000 Nevada Housing Division Single Family Revenue Bonds,
6.35%, due 10/1/12................................................ AAA $ 513,465
-----------
New Mexico (4.5%)
500,000 Las Cruces Revenue Bonds, 5.45%, due 12/1/08...................... AAA 511,505
-----------
New York (15.6%)
250,000 New York General Obligation Bonds, 6.0%, due 8/1/13............... BBB+ 256,033
275,000 City of New York General Obligation Bonds, Series D,
7.50%, due 2/1/02................................................. BBB+ 313,481
40,000 City of New York General Obligation Bonds, Series D,
7.50%, due 2/1/16................................................. BBB+ 44,191
500,000 New York State Dormitory Authority State University Revenue
Bonds, Series C, 7.375%, due 5/15/10.............................. BBB+ 587,420
500,000 New York State Energy Research & Development Authority
Revenue Bonds, 7.125%, due 12/1/29................................ A+ 561,740
-----------
1,762,865
-----------
North Carolina (4.3%)
400,000 Martin City Industrial Facility Revenue Bonds, 5.65%, due 12/1/23. A 389,964
100,000 Wake County Industrial Facilities and Pollution Control Financing
Authority Revenue Bonds, 5.5%, due 3/1/17......................... A1* 100,000
-----------
489,964
-----------
Oklahoma (4.5%)
500,000 McAlester Public Works Authority Revenue Bonds, 5.50%,
due 12/1/09....................................................... AAA 512,195
-----------
Pennsylvania (2.4%)
250,000 Philadelphia Water & Waste Revenue Bonds, 6.25%, due 8/1/11....... AAA 277,960
-----------
South Carolina (4.3%)
500,000 Spartanburg Sanitation and Sewer District Sewer System Revenue
Bonds, 5.50%, due 6/1/27.......................................... AA+ 490,975
-----------
Texas (9.3%)
500,000 Austin Independent School District General Obligation Bonds,
5.75%, due 8/1/16................................................. AAA 511,150
500,000 Dallas-Fort Worth International Airport Revenue Bonds,
7.25%, due 11/1/30................................................ BAA 546,160
-----------
1,057,310
-----------
Wisconsin (5.1%)
500,000 Wisconsin Clean Water Revenue Bonds, Series 1,
6.875%, due 6/1/11................................................ AA+ 581,665
-----------
Total Investments (cost: $11,029,366) (100.0%)................ $11,515,973
===========
</TABLE>
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* Moody's rating
See accompanying notes to financial statements.
3
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments at market value
(cost: $11,029,366) (note 1) .......................... $11,515,973
Interest receivable ..................................... 186,907
Cash .................................................... 57,041
Other assets ............................................ 1,229
-----------
Total assets ........................................ 11,761,150
-----------
LIABILITIES:
Accrued expenses ........................................ 28,137
Accrued management fees ................................. 5,763
Other liabilities ....................................... 49,619
-----------
Total liabilities ................................... 83,519
-----------
NET ASSETS: (applicable to 712,716
outstanding shares: 1,000,000,000
shares of $.01 par value authorized) .................... $11,677,631
===========
NET ASSET VALUE PER SHARE
($11,677,631 / 712,716 shares
outstanding) ............................................ $16.38
======
At June 30, 1997, net assets consisted of:
Paid-in capital ......................................... $11,706,655
Net unrealized appreciation
on investments ........................................ 486,607
Accumulated net realized loss
on investments ........................................ (485,407)
Accumulated deficit in net investment
income ................................................ (30,224)
-----------
$11,677,631
===========
</TABLE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest ................................................... $330,790
--------
EXPENSES:
Investment management (note 3) ............................. 34,240
Custodian .................................................. 19,792
Transfer agent ............................................. 12,302
Professional (note 3) ...................................... 12,089
Printing ................................................... 5,455
Directors .................................................. 1,488
Registration (note 3) ...................................... 1,031
Interest (note 5) .......................................... 786
Other ...................................................... 6,466
--------
Total expenses ........................................... 93,649
--------
Net investment income .................................... 237,141
--------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments ........................... 26,597
Unrealized appreciation of investments
during the period ........................................ 20,008
--------
Net realized and unrealized gain on
investments ............................................ 46,605
--------
Net increase in net assets resulting
from operations ........................................ $283,746
========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1997 (Unaudited) and the Year Ended December
31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................................. $ 237,141 $ 582,934
Net realized gain on investments ....................................................... 26,597 22,276
Unrealized appreciation (depreciation) of investments during the period ................ 20,008 (523,058)
------------ ------------
Net increase in net assets resulting from operations ................................. 283,746 82,152
Subtraction from paid-in capital (note 6) .............................................. -- (70,200)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.38 and $.70 per share, respectively) ....... (267,365) (596,590)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from capital share transactions (a) (note 6) 169,960 (4,144,103)
------------ ------------
Total increase (decrease) in net assets .............................................. 186,341 (4,728,741)
NET ASSETS:
Beginning of period .................................................................... 11,491,290 16,220,031
------------ ------------
$ 11,677,631 $ 11,491,290
============ ============
</TABLE>
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(a) Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------- -----------------------
Shares Value Shares Value
------ -------- --------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................................ -- -- 59,832 $ 980,999
Shares issued in reinvestment of distributions ............. 12,304 $169,960 26,039 418,484
Shares redeemed ............................................ -- -- (337,526) (5,543,586)
------ -------- --------- ------------
Net increase (decrease) .................................... 12,304 $169,960 (251,655) $(4,144,103)
====== ======== ========= ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Notes to Financial Statements
(Unaudited)
(1) The Fund, a Maryland corporation, is registered under the Investment Company
Act of 1940, as amended, as a diversified closed-end management investment
company. The Fund's shares are listed on the American Stock Exchange, Inc. 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, as set forth in its prospectus. 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. Premiums and discounts are amortized in accordance with
income tax regulations. 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 Fund 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, 1996, the
Fund had an unused capital loss carryforward of approximately $512,000 which
expires in 2002. Based on Federal income tax cost of $11,029,366, gross
unrealized appreciation and gross unrealized depreciation were $499,357 and
$12,750, respectively, at June 30, 1997.
(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 weekly 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 agreed to waive all
or part of its fee or reimburse the Fund monthly if and to the extent the
aggregate operating expenses of the Fund exceed the most restrictive limit
imposed by any state in which shares of the Fund are qualified for sale,
although currently the Fund is not subject to any such limits. Certain officers
and directors of the Fund are officers and directors of the Investment Manager
and Investor Service Center, Inc., the Fund's former Distributor. The Fund
reimbursed the Investment Manager $1,914 for providing certain administrative
and accounting services at cost for the six months ended June 30, 1997.
(4) Purchases and proceeds of sales of securities other than short term notes
aggregated $1,950,261 and $2,508,489, respectively, for the six months ended
June 30, 1997.
(5) The Fund has a committed bank line of credit for temporary or emergency
purposes. As part of the agreement the Fund is required to pledge securities it
holds in its portfolio if there is an outstanding balance. At June 30, 1997,
there was no balance outstanding and the interest rate was equal to the Federal
Reserve Funds Rate plus 1.75 percentage points. For the six months ended June
30, 1997, the weighted average interest rate was 7.19% based on the balances
outstanding during the period and the weighted average amount outstanding was
$22,682.
6
<PAGE>
(6) Effective November 8, 1996, the Fund converted from an open-end management
investment company to a closed-end management investment company. In connection
with the conversion, costs of approximately $70,200 have been charged against
paid-in capital. In addition, the Fund has adopted a Dividend Reinvestment Plan
(the "Plan"). Under the Plan, each dividend and capital gain distribution, if
any, declared by the Fund on outstanding shares will, 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, be paid on the payment
date fixed by the Directors in additional shares in accordance with the
following: whenever the Market Price (as defined below) per share is equal to or
exceeds the net asset value per share at the time shares are valued for the
purpose of determining the number of shares equivalent to the cash dividend or
capital gain distribution (the "Valuation Date"), participants will be issued
additional shares equal to the amount of such dividend divided by the Fund's net
asset value per share. Whenever the Market Price per share is less than such net
asset value on the Valuation Date, participants will be issued additional shares
equal to the amount of such dividend divided by the Market Price. The Valuation
Date is the dividend or distribution payment date or, if that date is not an
American Stock Exchange trading day, the next trading day. For all purposes of
the Plan: (a) the Market Price of the shares on a particular date shall be the
average closing market price on the five trading days the shares traded
ex-dividend on the Exchange prior to such date or, if no sale occurred on the
Exchange prior to such date, and (b) net asset value per share on a particular
date shall be as determined by or on behalf of the Fund.
--------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months Years Ended December 31,
Ended June ----------------------------------------------------
30,1997
(Unaudited) 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA*
Net asset value at beginning of period .................. $16.41 $17.04 $15.25 $17.63 $17.06 $17.27
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ................................ .34 .69 .70 .68 .75 .89
Net realized and unrealized gain (loss) on investments .01 (.62) 1.78 2.38 1.02 .11
------- ------- ------- ------- ------- -------
Total from investment operations ................... .35 .07 2.48 1.70 1.77 1.00
------- ------- ------- ------- ------- -------
Less distributions:
Distributions from net investment income ............. (.38) (.70) (.69) (.68) (.75) (.89)
Distributions from net realized gains on investments . -- -- -- -- (.45) (.32)
------- ------- ------- ------- ------- -------
Total distributions ................................ (.38) (.70) (.69) (.68) (1.20) (1.21)
------- ------- ------- ------- ------- -------
Net asset value at end of period ........................ $16.38 $16.41 $17.04 $15.25 $17.63 $17.06
======= ======= ======= ======= ======= =======
Per share market value at end of period ................. $14.00 $14.38
======= =======
TOTAL RETURN ON NET ASSET VALUE BASIS ................... 2.58% .61% 16.58% (9.76)% 10.59% 6.04%
======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) ............. $11,678 $11,491 $16,220 $15,921 $21,345 $20,781
======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets (a) (c) ......... 1.64%** 1.68% 1.78% 1.60% 1.61% 1.60%
======= ======= ======= ======= ======= =======
Ratio of net investment income to average net assets (b) 4.16%** 4.14% 4.31% 4.23% 4.25% 5.19%
======= ======= ======= ======= ======= =======
Portfolio turnover rate ................................. 18% 78% 172% 275% 74% 320%
======= ======= ======= ======= ======= =======
</TABLE>
- ----------
* Per share net investment income and net realized and unrealized gain
(loss) on investments have been computed using the average number of
shares outstanding. These computations had no effect on net asset value
per share.
** Annualized
(a) Ratio prior to reimbursement by the Investment Manager was 1.94%, 1.95%,
1.71%, 1.62% and 1.62% for the years ended December 31, 1996, 1995, 1994,
1993 and 1992, respectively.
(b) Ratio prior to reimbursement by the Investment Manager was 3.88%, 4.14%,
4.12%, 4.24% and 5.84% for the years ended December 31, 1996, 1995, 1994,
1993, and 1992, respectively.
(c) Ratio after the reduction of custodian fees under a custodian agreement
was 1.62% for 1995. Prior to 1995, such reduction were reflected in the
expense ratios. There were no custodian fee credits for 1996 and 1997.
7
<PAGE>
MUNICIPAL
INCOME
FUND
================================================================================
11 Hanover Square
New York, NY 10005
1-888-847-4200
MUNICIPAL
INCOME
FUND
================================================================================
American Stock
Exchange Symbol:
BBM
- --------------------------------------------------------------------------------
Semi-Annual Report
June 30, 1997
BULL & BEAR_____________________________________________________________________
Performance Driven (R)
Printed on recycled paper [LOGO]
MI-121-6/7
