MUNICIPAL INCOME FUND
AMERICAN STOCK EXCHANGE SYMBOL: BBM
11 HANOVER SQUARE
NEW YORK, NY 10005
1-888-847-4200
ANNUAL REPORT
DECEMBER 31, 1997
- -------------------------------------------------------------------
February 12, 1998
Fellow Shareholders:
We are pleased to report that the Fund's total return, based on the
change in market price of the shares, which have been hitting new highs on the
American Stock Exchange in 1998, and dividends was +9.73% for the 12 months
ended December 31, 1997. On a net asset value basis, the gain was +8.17%. The
Fund's current net asset value per share is $16.91. With a recent closing market
price on the Exchange of $16.375 per share, we believe this represents an
opportunity to purchase shares at an attractive discount from their underlying
value.
Dividend Distribution Increase Reflects New Policy
We are also pleased to report that beginning with the fourth quarter of
1997 the Fund's quarterly dividend distribution was increased to $.25 per share
from $.21 and $.19 previously as a result of the Fund's Board of Directors
recently adopting a managed 6% distribution policy. The policy is intended to
provide shareholders with a stable cash flow and eliminate or reduce the amount
by which net asset value per share exceeds the market price. Quarterly
distributions of 1.5% of the Fund's net asset value per share (6% on an annual
basis) will be paid primarily from ordinary income and any capital gains with
the balance coming from return of capital. We believe shares of the Fund are a
sound value for safety conscious income oriented investors.
Review and Outlook
We continue to anticipate attractive returns in the tax exempt bond
market in 1998. Issuance of new long term municipals in 1997 reached $220
billion, the highest since 1993. This was at least partly due to the low levels
of interest rates, reflecting in large measure a decline in the Federal deficit
from $107 billion in 1996 to $22 billion in 1997. Our anticipation of somewhat
lower rates in 1998 should again contribute to an ample supply of new municipal
debt. We also note the large volume of municipals that will begin to mature in
1998, which will promote reinvestment purchases.
While we have some concern that specific regions of the country may be
more sensitive to slowdowns associated with developments in Asia, we are more
impressed by the general increases in revenues most municipalities are
experiencing. Our outlook for the municipal market is positive.
An Easy Way to Grow Your Account
The Fund's Dividend Reinvestment Plan provides an attractive opportunity
to add to your holdings, particularly since the Fund's quarterly dividends are
reinvested without charge at the net asset value per share or market price,
whichever is lower.
At the Annual Stockholders Meeting held November 20, 1997, the Fund's
slate of directors was elected and the selection of Tait, Weller & Baker as the
Fund's independent accountants was ratified. We appreciate your support and look
forward to continuing to serve your investment needs.
Sincerely,
Thomas B. Winmill Steven A. Landis
President Senior Vice President
Portfolio Manager
<PAGE>
BULL & BEAR MUNICIPAL INCOME FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS - DECEMBER 31, 1997
STANDARD
PRINCIPAL & POOR'S MARKET
AMOUNT RATING VALUE
- -------- -------- ----------
Municipal Bonds (100.0%)
Alabama (2.0%)
$250,000 Alabama Special Care Facilities Revenue
Bonds, 5%, due 11/1/25............... AA+ $238,432
Alaska (4.1%)
450,000 Alaska Energy Authority Power Revenue
Bonds, 7.25%, due 7/1/21........... AAA 489,465
Arizona (4.9%)
500,000 Phoenix General Obligation Bonds,
Series A, 6.25%, due 7/1/16............. AA+ 583,510
Georgia (4.4%............
400,000 Georgia State Municipal Electric
Authority Power Revenue
Bonds, 8.25%, due 1/1/11............... A 522,728
Hawaii (8.6%)
500,000 Hawaii County General Obligation Bonds,
Series A, 5.60%, due 5/1/13........... AAA 541,895
400,000 Honolulu City & County General Obligation
Bonds, Series A, 8.75%, due 1/1/03..... AA 479,980
.................................. 1,021,875
Illinois (10.2%)
500,000 Chicago, Illinois General Obligation
Bonds, Series A, 5.125%, due 1/1/25... AAA 493,165
350,000 Chicago, Illinois Sales Tax Revenue
Bonds, 5.375%, due 1/1/27 AAA 352,929
250,000 Illinois Health Facilities Revenue Bonds,
Series A, 5%, due 7/1/24 AAA 240,420
125,000 Illinois Health Facilities Revenue Bonds,
5.25%, due 8/1/17 AAA 124,994
.................................. 1,211,508
Louisiana (2.9%)
400,000 Louisiana Public Facility Authority Revenue
Bonds, Series A2, 6.50%, due 3/1/02... AAA* 344,230
Massachusetts (9.2%)
500,000 Massachusetts Municipal Wholesale Electric
Power Supply System
Revenue Bonds, 5%, due 7/1/17........... AAA 490,235
500,000 Massachusetts State General Obligation
Bonds, 5%, due 8/1/17 AA- 493,220
110,000 Massachusetts State Water Resource
Revenue Bonds, 5%, due 12/1/25........ AAA 107,566
.................................. 1,091,021
<PAGE>
STANDARD
PRINCIPAL & POOR'S MARKET
AMOUNT RATING VALUE
- --------- -------- -----------
Mississippi (4.4%)
$500,000 Mississippi State General Obligation
Bonds, 5.10%, due 11/15/11.............. AA $520,965
Nevada (4.5%)
500,000 Nevada Housing Division Single Family
Revenue Bonds, 6.35%, due 10/1/12....... AAA 532,305
New Mexico (4.5%)
500,000 Las Cruces Revenue Bonds, 5.45%,
due 12/1/08......................... AAA 533,965
New York (11.6%).............
250,000 New York General Obligation Bonds,
Series H, 6.0%, due 8/1/13........... BBB+ 266,655
40,000 City of New York General Obligation
Bonds, Series D, 7.50%, due 2/1/16..... BBB+ 44,881
500,000 New York State Dormitory Authority State
University Revenue Bonds, Series C, 7.375%,
due 5/15/10............................. A- 613,760
400,000 New York State Energy Research &
Development Authority
Revenue Bonds, 7.125%, due 12/1/29......... A+ 459,164
................................... 1,384,460
North Carolina (3.4%)
400,000 Martin County Industrial Facility Revenue
Bonds, 5.65%, due 12/1/23............... A 406,196
Oklahoma (4.5%)
500,000 McAlester Public Works Authority Revenue
Bonds, 5.50%, due 12/1/09.............. AAA 537,625
Pennsylvania (2.4%)
250,000 Philadelphia Water & Waste Revenue Bonds,
6.25%, due 8/1/11 AAA 287,345
Texas (13.3%)
500,000 Austin Independent School District General
Obligation Bonds, 5.75%, due 8/1/16....... AAA 528,390
500,000 Dallas-Fort Worth International Airport
Revenue Bonds, 7.25%, due 11/1/30...... BBB- 559,960
500,000 Woodlands Metro Center Municipal Utility
General Obligation
Bonds, 5%, due 10/1/21................ AAA 494,275
1,582,625
Wisconsin (5.1%)
500,000 Wisconsin Clean Water Revenue Bonds,
Series 1, 6.875%, due 6/1/11............ AA+ 607,571
Total Investments (cost: $11,061,451) (100.0%) $11,895,826
* Moody's rating.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS:
Investments at market value (cost: $11,061,451) (note 1)..... $11,895,826
Interest receivable.............................................. 199,875
Cash............................................................... 60,646
Other assets ........................................................ 2,958
Total assets...................................... 12,159,305
LIABILITIES:
Accrued expenses........................................... 13,575
Accrued management fees.................................... 6,165
Other liabilities.................................. 144
Total liabilities............................... 19,884
NET ASSETS: (applicable to 725,208
outstanding shares: 1,000,000,000 shares of
$.01 par value authorized)............................ $12,139,421
NET ASSET VALUE PER SHARE ($12,139,421/ 725,208
shares outstanding)..................... $16.74
At December 31, 1997, net assets consisted of:
Paid-in capital......................................... $11,670,979
Net unrealized appreciationon investments.................. 834,375
Accumulated net realized loss
on investments........................................ (365,933)
$12,139,421
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
INVESTMENT INCOME:
Interest................................................ $611,573
EXPENSES:
Investment management (note 3)............................. 70,340
Professional (note 3)...................................... 60,848
Custodian.................................................. 24,397
Transfer agent............................................. 22,063
Directors.................................................. 11,532
Printing......................................................... 5,829
Registration (note 3)....................................... 1,830
Interest (note 5)........................................... 1,233
Other ..................................................... 713
Total expenses............................................ 198,785
Fee reductions (note 4).............................. (1,611)
Net expenses......................................... 197,174
Net investment income................................ 414,399
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................................146,070
Unrealized appreciation of investments
during the period..........................................367,776
Net realized and unrealized gain on
investments................................................513,846
Net increase in net assets resulting
from operations................................... $928,245
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
OPERATIONS: 1997 1996
Net investment income $ 414,399 $ 582,934
Net realized gain on investments 146,070 22,276
Unrealized appreciation (depreciation)
of investments during the period 367,776 (523,058)
Net increase in net assets resulting
from operations 928,245 82,152
Subtraction from paid-in capital (note 6) (35,093) (70,200)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($.58 and $.70 per share, respectively) (414,399) (596,590)
Distributions in excess of net investment
income ($.26 per share) (182,289) _
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting
from capital share transactions (a) (note 6) 351,667 (4,144,103)
Total increase (decrease) in net assets 648,131 (4,728,741)
NET ASSETS:
Beginning of period 11,491,290 16,220,031
End of period $12,139,421 $11,491,290
(a)Transactions in capital shares were as follows:
1997 1996
SHARES VALUE SHARES VALUE
Shares sold -- -- 59,832 $ 980,999
Shares issued in reinvestment
of distributions 24,789 $351,667 26,039 418,484
Shares redeemed -- -- (337,526) (5,543,586)
Net increase (decrease) 24,789 $351,667 (251,655) $(4,144,103)
<PAGE>
Notes to Financial Statements
(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, 1997, the
Fund had an unused capital loss carryforward of approximately $366,000 which
expires in 2002. Based on Federal income tax cost of $11,061,451, gross
unrealized appreciation was $834,375 at December 31, 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 $4,988 for providing certain administrative
and accounting services at cost for the year ended December 31, 1997. The Annual
Meeting of Shareholders ("Annual Meeting") of the Fund was held on November
<PAGE>
20, 1997 pursuant to notice given to all shareholders of record at the close of
business on October 1, 1997. At the Annual Meeting, shareholders were asked to
elect directors to serve for a specified term and to ratify the selection by the
Board of Directors of the Fund's independent auditors. Shareholders elected
Russell E. Burke, III, David R. Stack, Mark C. Winmill, Thomas B. Winmill and
Bassett S. Winmill Directors of the Fund with 478,696, 478,696, 475,473,
475,473, and 477,881 shares, respectively, voting in favor of election, and
24,890, 24,890, 28,113, 28,113 and 25,705 shares, respectively, voting to
abstain. Additionally, shareholders ratified the selection of Tait, Weller &
Baker as the Fund's independent auditors with 471,248 shares voting in favor of
ratification, 4,405 shares voting against ratification and 27,933 shares voting
to abstain.
(4) Purchases and proceeds of sales of securities other than short term notes
aggregated $4,892,143 and $5,174,699, respectively, for the year ended December
31, 1997. The Fund has entered into an arrangement with its custodian whereby
interest earned on uninvested cash balances was used to offset a portion of the
Fund's expenses. During the year ended December 31, 1997, the Fund's custodian
fees were reduced by $1,611 under such arrangements.
(5) The Fund has a committed bank line of credit. At December 31, 1997, there
was no balance outstanding and the interest rate was equal to the Federal
Reserve Funds Rate plus 1.00 percentage points. For the year ended December 31,
1997, the weighted average interest rate was 7.04% based on the balances
outstanding during the period and the weighted average amount outstanding was
$13,535.
(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 $105,300 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.
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $16.41 $17.04 $15.25 $17.63 $17.06
Income from investment operations:
Net investment income .58 .69 .70 .68 .75
Net realized and unrealized gain (loss) on investments .59 (.62) 1.78 (2.38) 1.02
Total from investment operations 1.17 .07 2.48 (1.70) 1.77
Less distributions:
Distributions from net investment income (.58) (.70) (.69) (.68) (.75)
Distributions in excess of net investment income (.26) -- -- -- --
Distributions from net realized gains on investments -- -- -- -- (.45)
Total distributions (.84) (.70) (.69) (.68) (1.20)
Net asset value at end of period $16.74 $16.41 $17.04 $15.25 $17.63
Per share market value at end of period $14.88 $14.38
TOTAL RETURN ON NET ASSET VALUE BASIS 8.17% .61% 16.58% (9.76)% 10.59%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $12,139 $11,491 $16,220 $15,921 $21,345
Ratio of expenses to average net assets (a) (c) 1.70% 1.68% 1.78% 1.60% 1.61%
Ratio of net investment income to average net assets (b) 3.53% 4.14% 4.31% 4.23% 4.25%
Portfolio turnover rate 43% 78% 172% 275% 74%
</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.
(A) RATIO PRIOR TO REIMBURSEMENT BY THE INVESTMENT MANAGER WAS 1.94%, 1.95%,
1.71%, AND 1.62% FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, AND
1993, RESPECTIVELY.
(B) RATIO PRIOR TO REIMBURSEMENT BY THE INVESTMENT MANAGER WAS 3.88%, 4.14%,
4.12%, AND 4.24% FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, AND
1993, RESPECTIVELY.
(C) RATIO AFTER THE REDUCTION OF CUSTODIAN FEES UNDER A CUSTODIAN AGREEMENT WAS
1.68% AND 1.62% FOR 1997 AND 1995, RESPECTIVELY. PRIOR TO 1995, SUCH
REDUCTIONS WERE REFLECTED IN THE EXPENSE RATIOS. THERE WERE NO CUSTODIAN
FEE CREDITS FOR 1996.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BULL & BEAR MUNICIPAL INCOME FUND, INC.:
WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND LIABILITIES OF BULL &
BEAR MUNICIPAL INCOME FUND, INC. INCLUDING THE SCHEDULE OF PORTFOLIO INVESTMENTS
AS OF DECEMBER 31, 1997, 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 AUDITS.
WE CONDUCTED OUR AUDITS 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, 1997, BY CORRESPONDENCE WITH THE CUSTODIAN. 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 AUDITS PROVIDE 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, INC. AS OF DECEMBER 31, 1997, 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 23, 1998
