BULL & BEAR SPECIAL EQUITIES FUND INC, 497, 1995-05-17

BULL & BEAR SPECIAL EQUITIES FUND INC
497, 1995-05-17

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PROSPECTUS

MAY 1, 1995 SPECIAL
EQUITIES
FUND
-------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-847-42001-212-363-1100

The sole investment objective of Bull & Bear Special Equities Fund is capital
appreciation. The Fund invests primarily in equity securities, often involving
special situations and emerging growth companies. To increase the potential
opportunities for achieving its objective, the Fund may borrow money from banks
from time to time to purchase or carry securities. The activities of the Fund,
a non-diversified management investment company, entail investment risks
significantly greater than the usual practices of most mutual funds and may
result in higher portfolio turnover, increased expenses and a greater amount of
short term capital gains and losses. There is no assurance that the Fund will
achieve its objective.

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NEWSPAPER LISTING. Shares of the Fund
are sold at the net asset value per
share which is shown daily in the
mutual fund section of newspapers
under the "Bull & Bear Group" heading.

----------------------------------------------------------------------

This prospectus contains information you should know about the Fund before
you invest. Please keep it for future reference. The Fund's Statement of
Additional Information, dated May 1, 1995, has been filed with the Securities
and Exchange Commission and is incorporated by reference in this prospectus. It
is available at no charge by calling 1-800-847-4200. Shares of the Fund are not
bank deposits or obligations of, or guaranteed or endorsed by any bank or any
affiliate of any bank, and are not Federally insured by, obligations of or
otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

1
<PAGE>

EXPENSE TABLE. The tables and example below are designed to help you
understand the various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. A $5 monthly account fee is charged if
your average monthly balance is less than $500, unless you are in the Bull &
Bear Automatic Investment Program (see "How to Purchase Shares").
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases....... NONE
Sales Load Imposed on Reinvested Divi-
dends................................ NONE
Deferred Sales Load................... NONE
Redemption Fees....................... NONE
Exchange Fees......................... NONE
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
(as a percentage of average net assets)
Management Fees....................................................... 0.85%
12b-1 Fees............................................................ 1.00%
Other Expenses........................................................ 1.07%
----
Total Fund Operating Expenses......................................... 2.92%
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual return
and a redemption at the end of each time
period........................................ $30 $90 $154 $324
</TABLE>
The example set forth above assumes reinvestment of all dividends and other
distributions and uses an assumed 5% annual rate of return as required by the
Securities and Exchange Commission ("SEC"). The example is an illustration
only and should not be considered an indication of past or future returns and
expenses. Actual returns and expenses may be greater or less than those shown.
The percentages given for annual Fund expenses are based on the Fund's
operating expenses and average daily net assets during its fiscal year ended
December 31, 1994. Long term shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.'s ("NASD") rules regarding investment
companies. "Other Expenses" includes amounts paid to the Fund's Custodian (net
of brokerage commission credits pursuant to an arrangement not anticipated to
increase materially brokerage commissions paid by the Fund--see "The
Investment Manager") and Transfer Agent and reimbursable to the Investment
Manager and the Distributor for certain administrative and shareholder
services, and does not include interest expense from the Fund's bank
borrowing.
FINANCIAL HIGHLIGHTS are presented below for a share of capital stock
outstanding throughout each period since the Fund's inception. The following
information is supplemental to the Fund's financial statements and report
thereon of Tait, Weller & Baker, independent accountants, appearing in the
December 31, 1994 Annual Report to Shareholders and incorporated by reference
in the Statement of Additional Information.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
PER SHARE DATA* 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
------- ------- ------- ------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at be-
ginning of period...... $ 23.13 $ 24.88 $ 19.38 $ 13.79 $21.68 $18.17 $15.75 $16.83 $15.00
------- ------- ------- ------- ------ ------ ------ ------ ------
Income from investment
operations:
Net investment loss.... (.55) (.76) (.58) (.36) (.68) (1.14) (.86) (.15) (.13)
Net realized and
unrealized gain
(loss) on invest-
ments................. (3.28) 4.65 6.08 5.95 (7.21) 8.70 4.43 (.93) 1.96
------- ------- ------- ------- ------ ------ ------ ------ ------
Total from investment
operations............. (3.83) 3.89 5.50 5.59 (7.89) 7.56 3.57 (1.08) 1.83
Less distributions:
Distributions from net
realized gains on in-
vestments............. (.19) (5.64) -- -- -- (4.05) (1.15) -- --
------- ------- ------- ------- ------ ------ ------ ------ ------
Net increase (de-
crease) in net asset
value............... (4.02) (1.75) 5.50 5.59 (7.89) 3.51 2.42 (1.08) 1.83
------- ------- ------- ------- ------ ------ ------ ------ ------
Net asset value at end
of period.............. $ 19.11 $ 23.13 $ 24.88 $ 19.38 $13.79 $21.68 $18.17 $15.75 $16.83
======= ======= ======= ======= ====== ====== ====== ====== ======
TOTAL RETURN............ (16.5)% 16.4% 28.4% 40.5% (36.4)% 42.3% 22.7% (6.4)% 12.2%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of pe-
riod (000's omitted)... $45,614 $73,957 $68,314 $16,738 $8,475 $6,317 $2,982 $2,337 $2,277
Ratio of expenses to av-
erage net assets(a).... 2.92% 2.74% 3.07% 2.83% 3.10% 3.50% 2.94% 3.01% 2.97%
Ratio of net investment
loss to average net
assets(b).............. 2.43% 2.73% 2.78% 2.11% 3.19% 3.23% 1.49% .82% 1.23%
Portfolio turnover rate. 309% 256% 261% 384% 475% 433% 514% 751% 558%
</TABLE>
- ------
/1/From commencement of operations, March 20, 1986. *Per share net investment
loss and net realized and unrealized gain (loss) on investments have been
computed using the average number of shares outstanding. (a) Ratio prior to
reimbursement by the Investment Manager was 5.56% for 1989. (b) Ratio prior to
reimbursement by the Investment Manager was 5.29% for 1989.
Information Relating to Outstanding Debt During the Fiscal Periods Shown
Below:
<TABLE>
<CAPTION>
Amount of Debt Average Amount of Average Number of Average Amount of
Years Ended Outstanding at Debt Outstanding Shares Outstanding Debt Per Share
December 31 End of Period During the Period/1/ During the Period/1/ During the Period
- ----------- -------------- -------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
1994 $6,820,000 $2,566,493 2,669,001 $0.96
1993 2,469,000 4,230,400 2,680,212 1.58
1992 8,007,000 2,889,822 1,786,311 1.62
1991 168,000 715,875 997,025 0.72
1990 0 1,307,671 649,739 2.01
1989 1,600,000 733,150 193,256 3.79
1988 0 423,497 146,469 2.89
</TABLE>
- ------
/1/Based on monthly averages.

2
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Transaction and Operating Expenses.. 2
Financial Highlights................ 2
General............................. 3
Risk Factors........................ 3
How to Purchase Shares.............. 7
Shareholder Services................ 9
How to Redeem Shares................ 12
</TABLE>
<TABLE>
<S> <C>
Distributions and Taxes........... 13
Determination of Net Asset Value.. 14
The Investment Manager............ 14
Performance Information........... 15
Distribution of Shares............ 16
Capital Stock..................... 16
Custodian and Transfer Agent...... 17
</TABLE>

GENERAL

PURPOSE OF THE FUND. The Fund is designed for investors seeking solely capital
appreciation. The Fund is not intended for investors whose objective is income
or conservation of capital, and you should not consider a purchase of Fund
shares to be a complete investment program.

INVESTMENT TECHNIQUES. The Fund seeks capital appreciation by investing
aggressively, depending on the Investment Manager's assessment of economic and
market factors, in equity securities, warrants, convertible securities and
debt instruments. The Fund may invest in the securities of a particular
company that, in the opinion of the Investment Manager, will appreciate within
a reasonable period of time, typically because of a development solely
applicable to that company, and regardless of general business conditions or
movements of the market as a whole ("special situations"). The Investment
Manager may also use strategies involving short sales, options, futures,
forward currency contracts and borrowings for investment purposes
("leverage"). Generally, the Investment Manager seeks to invest in the special
situations and emerging growth companies offering the greatest potential
capital appreciation, although there is no assurance that the Fund will
achieve its objective.

PORTFOLIO MANAGEMENT. Brett B. Sneed has been the Fund's Portfolio Manager for
the past six years. Mr. Sneed is Senior Vice President and a member of the
Investment Policy Committee of Bull & Bear Advisers, Inc. (the "Investment
Manager"). He was formerly Vice President of Morgan Stanley Asset Management,
Inc., and prior thereto a portfolio manager and member of the finance and
investment committees of American International Group, Inc., a major insurance
company. A graduate of Columbia College, Mr. Sneed is a Chartered Financial
Analyst and a member of the New York Society of Security Analysts.

THE FUND'S INVESTMENT PROGRAM. Under normal conditions, at least 65% of the
Fund's total assets will be invested in equity securities of U.S. and foreign
issuers and up to 35% may be invested for capital appreciation in corporate
bonds, debentures or preferred stocks (both convertible and non-convertible)
of U.S. and foreign issuers, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities"),
and municipal securities. These are fundamental policies that may not be
changed without shareholder approval. When the Investment Manager deems it
advisable, the Fund may, for temporary defensive purposes or in anticipation
of more favorable opportunities for the purchase of equity securities, hold
cash or invest all or a portion of its assets in short term fixed income
securities or repurchase agreements.

RISK FACTORS

Because of the following considerations, the Fund's investment program
should be considered speculative and involving substantial risk and should not
be considered a complete investment program. The investment program of the
Fund is designed for investors seeking capital appreciation, rather than
current income, and who are willing to assume the risks inherent in the Fund's
investment policies and practices. The activities in which the Fund engages
entail investment risks significantly greater than are inherent in the usual
practices of most mutual funds and may result in higher portfolio turnover,
increased expenses, and a greater amount of capital gains and losses.

3
<PAGE>

SPECIAL SITUATIONS. The Fund may invest without limit in special situations.
Developments creating special situations might include, among others:
liquidations, reorganizations, recapitalizations, mergers, material
litigation, technological breakthroughs, and new management or management
policies. Although large, well-known companies may be involved, special
situations more often involve comparatively small or unseasoned companies.
Special situations often involve much greater risk than is inherent in
ordinary investments due to, among other things, a lack of or presumed
inapplicability of the company's operating history, a limited market in the
company's securities, and the unreliable nature of the company's anticipated
earnings growth. Companies in actual or anticipated reorganizations or
restructurings often provide limited financial information and markets for
their securities may be erratic and volatile. The Fund will not, however,
purchase securities of any company with a record of less than three years'
continuous operation (including that of predecessors) if such purchase would
cause the Fund's investments in all such companies, taken at cost, to exceed
5% of the value of the Fund's total assets.

SHORT TERM INVESTING. The Fund may seek capital appreciation by investing for
the short term on the basis of both technical and fundamental considerations
as evaluated by the Investment Manager. Long term investments, by contrast,
are usually based upon fundamental evaluations. Short term investing may
result in the Fund's portfolio turnover rate being substantially greater than
that of similar investment companies. In 1993 the Fund's portfolio turnover
rate was 256% and in 1994 it was 309%. Higher turnover may increase Fund
brokerage costs and taxes payable by shareholders.

BORROWING. The Fund may borrow money from banks (including its custodian bank)
to purchase and carry securities and will pay interest thereon. If the
investment income on securities purchased with borrowed money exceeds the
interest paid on the borrowing, the Fund's income will be correspondingly
higher. If the investment income fails to cover the Fund's costs, including
interest on borrowings, or if there are losses, the net asset value of the
Fund's shares will decrease faster than would otherwise be the case. Such
borrowing is referred to as leverage, is speculative, and increases both
investment opportunity and investment risk. The Investment Company Act of 1940
(the "1940 Act") requires the Fund to maintain asset coverage of at least 300%
for all such borrowings, and should such asset coverage at any time fall below
300%, the Fund will be required to reduce its borrowing within three days to
the extent necessary to meet the requirements of the 1940 Act. To reduce its
borrowing the Fund might be required to sell securities at a disadvantageous
time. Interest on money borrowed is an expense the Fund would not otherwise
incur, and it may therefore have little or no investment income during periods
of substantial borrowings.

SHORT SALES. The Fund may from time to time use short sales, which means that
the Fund may sell a security that it does not own in the hope of replacing it
by a later purchase at a lower price. In order to make delivery to the buyer,
the Fund must borrow the security. When it does, the Fund incurs an obligation
to replace that security, whatever its price may be, at the time the Fund
purchases it for delivery to the lender. The Fund must also pay to the lender
of the security the dividends or interest payable during such period and may
have to pay a premium to borrow the security. The proceeds of the short sale
will be retained by the broker, to the extent necessary to meet the margin
requirements, until the short position is closed out. The obligation to
restore the borrowed security will at all times also be secured by collateral
consisting of cash, commercial paper or U.S. Government securities. In
addition to the amount required to be maintained by the broker, a similarly
collateralized deposit will be made to a segregated account at the Fund's
custodian bank in an amount such that the value of these two deposits will, at
all times, be at least equal to the greater of the market value of the
securities sold short at the time of such sale or their current market value.
Ordinarily, no interest will be received by the Fund on the proceeds of the
short sale held by the broker, although interest on the collateral securities
will belong to the Fund. The Fund will incur a loss, which could be
substantial, if the price of the security increases between the date of the
short sale and the date on which it purchases securities to replace those
borrowed. The Fund will realize a gain if the security declines in price
between those dates. Any such gain will be a short term gain.

4
<PAGE>

The frequency of short sales by the Fund may vary substantially, and no
specified portion of the Fund's assets will be invested in short sales.
However, not more than 25% of the value of the Fund's net assets will be used
to collateralize short sales. To adhere to the 25% limitation, the Fund may be
required to cover short sales at a disadvantageous time. As a matter of non-
fundamental policy, (1) not more than 2% of the value of the Fund's net assets
will be used to collateralize short sales of securities of any one issuer, and
the Fund will not have in effect, at any one time, short sales covering more
than 2% of the outstanding securities of any class of any issuer, (2) the Fund
will not at the same time purchase and sell short the same security, and (3)
short sales will be made only on securities fully listed on a national
securities exchange.

The Fund may also make short sales "against the box." A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has
the right to obtain without additional cost securities identical to those sold
short. Such sales will not be subject to the limitations referred to above,
and may be used by the Fund to defer the realization of gain or loss for
Federal income tax purposes on securities then owned by the Fund.

WARRANTS. Warrants give their holder the right to purchase a given number of
shares of a particular company at specified prices within certain periods of
time. The purchaser of a warrant expects that the market price of the security
to which the warrant pertains will exceed the exercise price before the
warrant's expiration date. The purchaser risks losing the entire purchase
price of the warrant if the market price does not rise. Warrants are usually
tradable in the open market without actual exercise. Warrants are sometimes
sold in unit form with other securities of an issuer, and are frequently
employed in financing young, unseasoned companies. A warrant's purchase price
varies with its exercise price, current market value of the underlying
security, life of the warrant and various other investment factors.

The purchase price of warrants and premiums on put and call options written
by others, combinations thereof, or similar options will be limited to no more
than 20% of the value of the Fund's net assets. The Fund also will limit its
investment in warrants, valued at the lower of cost or market, to not more
than 5% of the value of the Fund's net assets, including (but not more than 2%
of the value of the Fund's net assets) warrants which are not listed on the
New York or American Stock Exchange. These non-fundamental limitations may
cause the Fund to dispose of warrants or put or call options at
disadvantageous times.

OPTIONS, FUTURES CONTRACTS, AND FORWARD CURRENCY CONTRACTS. The Fund may
purchase call options on securities that the Investment Manager intends to
include in the Fund's portfolio in order to fix the cost of a future purchase
or to attempt to enhance return by, for example, participating in an
anticipated price increase of a security. The Fund may purchase put options to
hedge against a decline in the market value of securities held in the Fund's
portfolio or to attempt to enhance return. The Fund may write (sell) covered
put and call options on securities in which it is authorized to invest. The
Fund may purchase and write covered straddles, purchase and write put and call
options on stock and bond indexes, and take positions in options on foreign
currencies to hedge against the risk of foreign exchange rate fluctuations on
foreign securities the Fund holds in its portfolio or that it intends to
purchase. The Fund may purchase and sell futures contracts on interest rates,
stock and bond indexes and foreign currencies, and may purchase put and call
options and write covered put and call options on such futures contracts.

The Fund may enter into forward currency contracts to set the rate at which
currency exchanges will be made for contemplated or completed transactions.
The Fund might also enter into forward currency contracts in amounts
approximating the value of one or more portfolio positions to fix the U.S.
dollar value of those positions. For example, when the Investment Manager
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. The Fund has no specific
limitation on the percentage of assets it may commit to foreign currency
exchange contracts,

5
<PAGE>

except that it will not enter into a forward contract if the amount of assets
set aside to cover the contract would impede portfolio management or the
Fund's ability to meet redemption requests.

Strategies with options, financial futures, and forward currency contracts
may be limited by market conditions, regulatory limits and tax considerations,
and the Fund might not employ any of the strategies described above. There can
be no assurance that any strategy used will be successful. The loss from
investing in futures transactions is potentially unlimited. Options and
futures may fail as hedging techniques in cases where price movements of the
securities underlying the options and futures do not follow the price
movements of the portfolio securities subject to the hedge. Gains and losses
on investments in options and futures depend on the Investment Manager's
ability to predict correctly the direction of stock prices, interest rates,
and other economic factors. In addition, the Fund will likely be unable to
control losses by closing its position where a liquid secondary market does
not exist and there is no assurance that a liquid secondary market for hedging
instruments will always exist. It also may be necessary to defer closing out
hedged positions to avoid adverse tax consequences. The percentage of the
Fund's assets segregated to cover its obligations under options, futures, or
forward currency contracts could impede effective portfolio management or the
ability to meet redemption or other current obligations.

ILLIQUID AND RESTRICTED SECURITIES. The Fund may invest in securities that are
not widely traded, and the Fund's position in such securities may be
substantial in relation to their market. In some cases it may be difficult for
the Fund to dispose of such securities at prevailing market prices in order to
meet redemptions. As non-fundamental investment restrictions, the Fund may
invest (i) up to 15% of its net assets in illiquid securities, including
repurchase agreements with a maturity of more than seven days and (ii) up to
10% of its total assets in restricted securities.

FOREIGN SECURITIES, MARKETS AND CURRENCIES. You should understand and consider
carefully the substantial risks involved in foreign investing. Investing in
foreign securities, which are generally denominated in foreign currencies, and
utilization of forward contracts on foreign currencies involve certain
considerations comprising both risk and opportunity not typically associated
with investing in U.S. securities. These considerations include: fluctuations
in currency exchange rates; restrictions on foreign investment and
repatriation of capital; costs of converting foreign currency into U.S.
dollars; greater price volatility and trading illiquidity; less public
information on issuers of securities; difficulty in enforcing legal rights
outside of the United States; lack of uniform accounting, auditing and
financial reporting standards; the possible imposition of foreign taxes and
exchange controls and currency restrictions; and the possible greater
political, economic and social instability of developing as well as developed
countries including without limitation nationalization, expropriation of
assets, and war. These risks are often heightened for investments in
developing countries and emerging markets or when the Fund's investments are
concentrated in a small number of countries. In addition, because
transactional and custodial expenses for foreign securities are generally
higher than for domestic securities, the Fund's expense ratio can be expected
to be higher than that of investment companies investing exclusively in
domestic securities.

The Fund may purchase securities on U.S. and foreign stock exchanges or in
the over-the-counter market. Foreign stock markets are generally not as
developed or efficient as those in the United States. In most foreign markets
volume and liquidity are less than in the United States and, at times,
volatility of price can be greater than in the United States. Fixed
commissions on some foreign stock exchanges are higher than the negotiated
commissions on U.S. exchanges. There is generally less government supervision
and regulation of foreign stock exchanges, brokers and companies than in the
United States. If the Fund invests in countries in which settlement of
transactions is subject to delay, its ability to purchase and sell portfolio
securities at the time it desires may be hampered. Delays in settlement
practices in foreign countries may also affect the Fund's liquidity, making it
more difficult to meet redemption requests, or require the Fund to maintain a
greater portion of its assets in money market instruments in order to meet
such requests. Some of the securities in which the Fund invests may not be
widely traded, and the Fund's position in such securities may be substantial
in relation to the market for

6
<PAGE>

such securities. Accordingly, it may be difficult for the Fund to dispose of
such securities at prevailing market prices in order to meet redemption
requests.

Because foreign securities are generally denominated in foreign currencies,
the value of the assets of the Fund as measured in U.S. dollars may be
affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations. For example, if the value of the U.S.
dollar decreases relative to a foreign currency which a Fund investment is
denominated in or which is temporarily held by the Fund to facilitate
portfolio transactions, the value of such Fund assets (and thus the Fund's net
asset value per share) will increase (all else being equal). Conversely, an
increase in the value of the U.S. dollar relative to such a foreign currency
will result in a decline in the value of such Fund assets (and its net asset
value per share). The Fund may incur additional costs in connection with
conversions of currencies and securities into U.S. dollars. The Fund will
conduct its foreign currency exchange transactions either on a spot (i.e.,
cash) basis, or through entering into forward contracts. The Fund generally
will not enter into a forward contract with a term of greater than one year.

OTHER INVESTMENTS. The Fund may also invest in repurchase agreements, U.S.
Government securities and those of its agencies and instrumentalities,
municipal securities, preferred securities, and debt securities (including
lower rated debt securities). In the last year however, the Fund did not
invest more than 5% of its net assets in such securities and does not
currently intend to do so.

OTHER INFORMATION. The Fund is "non-diversified," as defined in the 1940 Act,
but intends to continue to qualify as a regulated investment company for
Federal income tax purposes. This means, in general, that more than 5% of the
Fund's total assets may be invested in the securities of one issuer (including
a foreign government), but only if at the close of each quarter of the Fund's
taxable year, the aggregate amount of such holdings does not exceed 50% of the
value of its total assets and no more than 25% of the value of its total
assets is invested in the securities of a single issuer. To the extent that
the Fund's portfolio at times may include the securities of a smaller number
of issuers than if it were diversified (as defined in the 1940 Act), the Fund
will at such times be subject to greater risk with respect to its portfolio
securities than an investment company that invests in a broader range of
securities in that changes in the financial condition or market assessment of
a single issuer may cause greater fluctuation in the Fund's total return. In
addition to the Fund's fundamental investment objective and the fundamental
policies stated above, the Fund has adopted certain fundamental investment
restrictions which may not be changed without shareholder approval. These
fundamental restrictions are set forth in the Statement of Additional
Information. All other investment policies described herein, unless otherwise
stated, are not fundamental and may be changed by the Fund's Board of
Directors without shareholder action.

HOW TO PURCHASE SHARES

The Fund's shares are sold on a continuing basis at the net asset value per
share next determined after receipt and acceptance of the order by Bull & Bear
Service Center (see "Determination of Net Asset Value"). The minimum initial
investment is $1,000 for regular and gifts/transfers to minors custody
accounts, and $500 for Bull & Bear retirement plans, which include Individual
Retirement Accounts ("IRAs"), SEP-IRAs, rollover IRAs, profit sharing and
money purchase plans, and 403(b) plan accounts. The minimum subsequent
investment is $100. The initial investment minimums are waived if you elect to
invest $100 or more each month in the Fund through the Bull & Bear Automatic
Investment Program (see "Additional Investments" below).

INITIAL INVESTMENT. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
payable to Special Equities Fund, mailed to Bull & Bear Service Center, P.O.
Box 419789, Kansas City, MO 64141-6789. Initial investments also may be made
by having your bank wire money, as set forth below, in order to avoid mail
delays.

7
<PAGE>

ADDITIONAL INVESTMENTS. Additional investments may be made conveniently at any
time by any one or more of the following methods:

. BULL & BEAR AUTOMATIC INVESTMENT PROGRAM. With the Bull & Bear Automatic
Investment Program, you can establish a convenient and affordable long term
investment program through one or more of the Plans explained below. Each
Plan is designed to facilitate an automatic monthly investment of $100 or
more into your Fund account.

The BULL & BEAR BANK TRANSFER PLAN lets you purchase Fund shares on a
certain day each month by transferring electronically a specified dollar
amount from your regular checking account, NOW account, or bank money
market deposit account.

In the BULL & BEAR SALARY INVESTING PLAN, part or all of your salary may
be invested electronically in shares of the Fund on each pay date,
depending upon your employer's direct deposit program.

The BULL & BEAR GOVERNMENT DIRECT DEPOSIT PLAN allows you to deposit
automatically part or all of certain U.S. Government payments into your
Fund account. Eligible U.S. Government payments include Social Security,
pension benefits, military or retirement benefits, salary, veteran's
benefits and most other recurring payments.

For more information concerning these Plans, or to request the necessary
authorization form(s), please call Bull & Bear Service Center, 1-800-847-4200.
You may modify or terminate the Bank Transfer Plan at any time by written
notice received at least 10 days prior to the scheduled investment date. To
modify or terminate the Salary Investing Plan or Government Direct Deposit
Plan, you should contact, respectively, your employer or the appropriate U.S.
government agency. The Fund reserves the right to redeem any account if
participation in the Program is terminated and the account's value is less
than $500. The Program does not assure a profit or protect against loss in a
declining market, and you should consider your ability to make purchases when
prices are low.

. CHECK. Mail a check or other negotiable bank draft ($100 minimum), made
payable to Special Equities Fund, together with a Bull & Bear FastDeposit
form to Bull & Bear Service Center, P.O. Box 419789, Kansas City, MO 64141-
6789. If you do not use that form, please send a letter indicating the Fund
and account number to which the subsequent investment is to be credited,
and name(s) of the registered owner(s).

. ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional
shares of the Fund quickly and simply, just by calling Bull & Bear Service
Center, 1-800-847-4200. We will contact the bank you designate on your
Account Application or Authorization Form to arrange for the EFT, which is
done through the Automated Clearing House system, to your Fund account. For
requests received by 4 p.m., eastern time, the investment will be credited
to your Fund account ordinarily within two business days. There is a $100
minimum for each EFT investment. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account
information must be submitted in writing with a voided check or deposit
slip.

. FEDERAL FUNDS WIRE. You may wire money, by following the procedures set
forth below, to receive that day's net asset value per share.

INVESTING BY WIRE. For an initial investment by wire, you must first telephone
Bull & Bear Service Center, 1-800-847-4200, to give the name(s) under which
the account is to be registered, tax identification number, the name of the
bank sending the wire, and to be assigned a Bull & Bear Special Equities Fund
account number. You may then purchase shares by requesting your bank to
transmit immediately available funds ("Federal funds") by wire to: United
Missouri Bank NA, ABA #10-10-00695; for Account 98-7052-724-3; Special
Equities Fund. Your account number and name(s) must be specified in the wire
as they are to appear on the account registration. You should then enter your
account number on your completed Account Application and promptly forward it
to Bull & Bear Service Center, P.O. Box 419789, Kansas City, MO 64141-6789.
This service is not available on days when the Federal Reserve wire

8
<PAGE>

system is closed. Subsequent investments by wire may be made at any time
without having to call Bull & Bear Service Center by simply following the same
wiring procedures.

SHAREHOLDER ACCOUNTS. When you invest in the Fund, your account will be
credited with all full and fractional shares (to three decimal places),
together with any dividends that are paid in additional shares (see
"Distributions and Taxes"). Stock certificates will be issued only for full
shares when requested in writing. In order to facilitate redemptions and
exchanges and provide safekeeping, we recommend that you do not request
certificates. You will receive transaction confirmations upon purchasing or
selling shares, and quarterly statements.

WHEN ORDERS ARE EFFECTIVE. The purchase price for Fund shares is the net asset
value of such shares next determined after receipt and acceptance by Bull &
Bear Service Center of a purchase order in proper form. All purchases are
accepted subject to collection at full face value in Federal funds. Checks
must be drawn in U.S. dollars on a U.S. bank. The Fund reserves the right to
reject any order. Accounts are charged $30 by the Transfer Agent for
submitting checks for investment which are not honored by the investor's bank.
The Fund may in its discretion waive or lower the investment minimums.

SHAREHOLDER SERVICES

You may modify or terminate your participation in any of the Fund's special
plans or services at any time. Shares or cash should not be withdrawn from any
tax-advantaged retirement plan described below, however, without consulting a
tax adviser concerning possible adverse tax consequences. Additional
information regarding any of the following services is available from the
Fund's Distributor, Bull & Bear Service Center, 1-800-847-4200.

ELECTRONIC FUNDS TRANSFER (EFT). You automatically have the privilege of
linking your bank account designated on your Account Application or
Authorization Form and your Fund account through Bull & Bear's EFT service.
With EFT, you use the Automated Clearing House system to electronically
transfer money quickly and safely between your bank and Fund accounts. EFT may
be used for purchasing and redeeming Fund shares, direct deposit of dividends
into your bank account, the Automatic Investment Program, the Systematic
Withdrawal Plan, and systematic IRA distributions. You may decline this
privilege by checking the indicated box on the Account Application. Any
subsequent changes in bank account information must be submitted in writing
(and the Fund may require the signature to be guaranteed), with a voided check
or deposit slip.

DIVIDEND SWEEP PRIVILEGE. You may elect to have automatically invested either
all dividends or all dividends and capital gain distributions paid by the Fund
in any other Bull & Bear Fund. Shares of the other Bull & Bear Fund will be
purchased at the current net asset value calculated on the payment date. For
more information concerning this privilege and the other Bull & Bear Funds, or
to request a Dividend Sweep Authorization Form, please call Bull & Bear
Service Center, 1-800-847-4200. You may cancel this privilege by mailing
written notification to Bull & Bear Service Center, P.O. Box 419789, Kansas
City, MO 64141-6789. To select a new Fund after cancellation, you must submit
a new Authorization Form. Enrollment in or cancellation of this privilege is
generally effective three business days following receipt. This privilege is
available only for existing accounts and may not be used to open new accounts.

SYSTEMATIC WITHDRAWAL PLAN. If you own Fund shares with a value of at least
$20,000 you may elect an automatic monthly or quarterly withdrawal of cash
from your Fund account in fixed or variable amounts, subject to a minimum
amount of $100. Under the Systematic Withdrawal Plan, all dividends and other
distributions, if any, are reinvested in the Fund.

ASSIGNMENT. Fund shares may be transferred to another owner. Instructions are
available from Bull & Bear Service Center, 1-800-847-4200.

EXCHANGE PRIVILEGE. You may exchange at least $500 worth of shares of the Fund
for shares of any other Bull & Bear Fund (provided the registration is exactly
the same, the shares may be sold in your state of residence, and the exchange
may otherwise legally be made).

9
<PAGE>

To exchange shares, please call Bull & Bear Service Center toll-free at 1-
800-847-4200 between 9 a.m. and 5 p.m. eastern time on any business day of the
Fund and provide the following information: account registration including
address and number; taxpayer identification number; percentage, number, or
dollar value of shares to be redeemed; name and, if different, the account
number of the Bull & Bear Fund to be purchased; and your identity and
telephone number. The other Bull & Bear Funds are:

. BULL & BEAR DOLLAR RESERVES is a high quality money market fund investing
in U.S. Government securities. Income is generally free from most state and
local income taxes. Free unlimited check writing ($250 minimum per check).
Pays monthly dividends.

. BULL & BEAR U.S. GOVERNMENT SECURITIES FUND invests for a high level of
current income, liquidity, and safety of principal. Free unlimited check
writing ($250 minimum per check). Pays monthly dividends.

. BULL & BEAR MUNICIPAL INCOME FUND invests for the highest possible income
exempt from Federal income tax consistent with preservation of principal.
Free unlimited check writing ($250 minimum per check). Pays monthly
dividends.

. BULL & BEAR GLOBAL INCOME FUND seeks a high level of income from a global
portfolio of primarily investment grade fixed income securities. Free
unlimited check writing ($250 minimum per check). Pays monthly dividends.

. BULL & BEAR QUALITY GROWTH FUND seeks growth of capital and income from a
portfolio of common stocks of large, quality companies with potential for
significant growth of earnings and dividends.

. BULL & BEAR U.S. AND OVERSEAS FUND invests worldwide for the highest
possible total return.

. BULL & BEAR GOLD INVESTORS seeks long term capital appreciation in
investments with the potential to provide a hedge against inflation and
preserve the purchasing power of the dollar.

Exchange requests received between 9 a.m. and 4 p.m. eastern time on any
business day of the Fund will be effected at the net asset values of the Fund
and the other Bull & Bear Fund as determined at the close of that business
day. Exchange requests received between 4 p.m. and 5 p.m. eastern time on any
business day of the Fund will be effected at the close of the next business
day of the Fund. If you are unable to reach Bull & Bear Service Center at the
above telephone number you may, in emergencies, call 1-212-363-1100 or
communicate by fax to 1-212-363-1103 or cable to the address BULLNBEAR
NEWYORK. Exchanges may be difficult or impossible to implement during periods
of rapid changes in economic or market conditions. Exchange privileges may be
terminated or modified by the Fund without notice. For tax purposes, exchanges
are treated as a redemption and purchase of shares. A free prospectus
containing more complete information including charges, expenses and
performance, on any of the Funds listed above is available from Bull & Bear
Service Center, 1-800-847-4200. The other Fund's prospectus should be read
carefully before exchanging. You may give exchange instructions to Bull & Bear
Service Center by telephone without further documentation. If you have
requested share certificates, this procedure may be utilized only if, prior to
giving telephone instructions, you deliver the certificates to the Transfer
Agent for deposit into your account.

. BULL & BEAR SECURITIES (DISCOUNT BROKERAGE ACCOUNT) TRANSFERS. If you have
an account at Bull & Bear Securities, Inc., an affiliate of the Investment
Manager and a wholly-owned subsidiary of Bull & Bear Group, Inc. offering
discount brokerage services, you may access your investment in any Bull &
Bear Fund to pay for securities purchased in your brokerage account and
have proceeds of securities sold in your brokerage account used to purchase
shares of any Bull & Bear Fund. You may request a Discount Brokerage
Account Application from Bull & Bear Securities, Inc., 1-800-262-5800.

TAX-ADVANTAGED RETIREMENT PLANS. These plans provide an opportunity to set
aside money for retirement in a tax-advantaged account in which earnings can
be compounded without incurring a tax liability until the money and earnings
are withdrawn. Contributions may be fully or partially deductible for

10
<PAGE>

Federal income tax purposes as noted below. Information on any of the plans
described below is available from Bull & Bear Service Center, 1-800-847-4200.

The minimum investment to establish a Bull & Bear IRA or other retirement
plan is $500. Minimum subsequent investments are $100. The initial investment
minimums are waived if you elect to invest $100 or more each month in the Fund
through the Bull & Bear Automatic Investment Program. There are no set-up fees
for any Bull & Bear Retirement Plans. Subject to change on 30 days' notice,
the plan custodian charges Bull & Bear IRAs a $10 annual fiduciary fee, $10
for each distribution prior to age 59 1/2, and a $20 plan termination fee;
however, the annual fiduciary fee is waived if your IRA has assets of $10,000
or more or if you invest regularly through the Bull & Bear Automatic
Investment Program.

. INDIVIDUAL RETIREMENT ACCOUNTS. Anyone with earned income who is less than
age 70 1/2 at the end of the tax year, even if also participating in
another type of retirement plan, may establish an IRA and contribute each
year up to $2,000 or 100% of earned income, whichever is less, and an
aggregate of up to $2,250 when a non-working spouse is also covered in a
separate spousal account. If each spouse has at least $2,000 of earned
income each year, they may contribute up to $4,000 annually. Employers may
also make contributions to an IRA on behalf of an individual under a
Simplified Employee Pension Plan ("SEP") in any amount up to 15% of up to
$150,000 of compensation. Generally, taxpayers may contribute to an IRA
during the tax year and through the next year until the income tax return
for that year is due, without regard to extensions. Thus, most individuals
may contribute for the 1995 tax year from January 1, 1995 through April 15,
1996.

DEDUCTIBILITY. IRA contributions are fully deductible for most taxpayers.
For a taxpayer who is an active participant in an employer-maintained
retirement plan (or whose spouse is), a portion of IRA contributions is
deductible if adjusted gross income (before the IRA deductions) is $40,000-
$50,000 (if married) and $25,000-$35,000 (if single). Only IRA
contributions by a taxpayer who is an active participant in an employer-
maintained retirement plan (or whose spouse is) and has adjusted gross
income of more than $50,000 (if married) and $35,000 (if single) will not
be deductible at all. An eligible individual may establish a Bull & Bear
IRA under the prototype plan available through the Fund, even though such
individual or spouse actively participates in an employer-maintained
retirement plan.

. IRA TRANSFER AND ROLLOVER ACCOUNTS. Special forms are available from Bull &
Bear Service Center, 1-800-847-4200, which make it easy to transfer or roll
over IRA assets to a Bull & Bear IRA. An IRA may be transferred from one
financial institution to another without adverse tax consequences.
Similarly, no taxes need be paid on a lump-sum distribution which you may
receive as a payment from a qualified pension or profit sharing plan due to
retirement, job termination or termination of the plan, so long as the
assets are put into an IRA Rollover account within 60 days of the receipt
of the payment. Withholding for Federal income tax purposes is required at
the rate of 20% for "eligible rollover distributions" made from any
retirement plan (other than an IRA) that are not directly transferred to an
"eligible retirement plan," such as a Bull & Bear Rollover Account.

. PROFIT SHARING AND MONEY PURCHASE PLANS. These Plans provide an opportunity
to accumulate earnings on a tax-deferred basis by permitting corporations,
self-employed individuals (including partners) and their employees
generally to contribute (and deduct) up to $30,000 annually or, if less,
25% (15% for profit sharing plans) of compensation or self-employment
earnings of up to $150,000. Corporations and partnerships, as well as all
self-employed persons, are eligible to establish these Plans. In addition,
a person who is both salaried and self-employed, such as a college
professor who serves as a consultant, may adopt these retirement plans
based on self-employment earnings.

. SECTION 403(B) ACCOUNTS. Section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), permits the establishment of custodial accounts
on behalf of employees of public school systems and certain tax-exempt
organizations. A participant in such a plan does not pay taxes on any
contributions made by the participant's employer to the participant's
account pursuant to a salary reduction agreement, up to a maximum amount,
or "exclusion allowance." The exclusion allowance

11
<PAGE>

is generally computed by multiplying the participant's years of service
times 20% of the participant's compensation included in gross income
received from the employer (reduced by any amount previously contributed by
the employer to any 403(b) account for the benefit of the participant and
excluded from the participant's gross income). However, the exclusion
allowance may not exceed the lesser of 25% of the participant's
compensation (limited as above) or $30,000. Contributions and subsequent
earnings thereon are not taxable until withdrawn, when they are received as
ordinary income.

HOW TO REDEEM SHARES

Generally, you may redeem by any of the methods explained below. Requests
for redemption should include the following information: your account
registration information including address, account number and taxpayer
identification number; dollar value, number or percentage of shares to be
redeemed; how and to where the proceeds are to be sent; if applicable, the
bank's name, address, ABA routing number, bank account registration and
account number, and a contact person's name and telephone number; and your
daytime telephone number.

BY MAIL. You may request that the Fund redeem any amount of shares by
submitting a written request to Bull & Bear Service Center, P.O. Box 419789,
Kansas City, MO 64141-6789, signed by the record owner(s). If the written
request is sent to the Fund, it will be forwarded to the above address. If
stock certificates have been issued for shares being redeemed, they must
accompany the written request.

BY TELEPHONE. You may telephone Bull & Bear Service Center, 1-800-847-4200 to
expedite redemption of Fund shares if share certificates have not been issued.

You may redeem as little as $250 worth of shares by requesting Bull &
Bear's Electronic Funds Transfer (EFT) service. With EFT, you can redeem
Fund shares quickly and conveniently because Bull & Bear Service Center
will contact the bank designated on your Account Application or
Authorization Form to arrange for the electronic transfer of your
redemption proceeds (through the Automated Clearing House system) to your
bank account. EFT proceeds are ordinarily available in your bank account
within two business days.

If you are redeeming $1,000 or more worth of shares, you may request that
the proceeds be mailed to your address of record or mailed or wired to your
authorized bank.

Telephone requests received on Fund business days by 4 p.m. eastern time
will be redeemed from your account that day, and if after, on the next Fund
business day. Any subsequent changes in bank account information must be
submitted in writing, signature guaranteed, with a voided check or deposit
slip. If you are unable to reach Bull & Bear Service Center at the above
telephone number you may, in emergencies, call 1-212-363-1100 or communicate
by fax to 1-212-363-1103 or cable to the address BULLNBEAR NEWYORK.
Redemptions by telephone may be difficult or impossible to implement during
periods of rapid changes in economic or market conditions.

CHECK WRITING ACCESS. You may exchange a minimum of $500 at any time by toll-
free telephone call into Bull & Bear Dollar Reserves, Bull & Bear's money
market fund, offering free personalized checks, a $250 check writing minimum
($100 minimum for Bull & Bear Securities Performance PlusSM discount brokerage
accounts), and no limit on the number of checks that may be written. A
signature card, which should be submitted for the check writing privilege, and
a free Bull & Bear Dollar Reserves prospectus containing more complete
information including yield, charges and expenses is available from Bull &
Bear Service Center, 1-800-847-4200. Please read the prospectus carefully
before exchanging.

REDEMPTION PRICE. The redemption price is the net asset value per share next
determined after receipt of the redemption request in proper form. Registered
broker/dealers, investment advisers, banks, and insurance companies may open
accounts and redeem shares by telephone or wire and may impose a charge for
handling purchases and redemptions when acting on behalf of others.

12
<PAGE>

REDEMPTION PAYMENT. Payment for shares redeemed will be made as soon as
possible, ordinarily within seven days after receipt of the redemption request
in proper form. The right of redemption may not be suspended, or date of
payment delayed more than seven days, except for any period (i) when the New
York Stock Exchange is closed or trading thereon is restricted as determined
by the SEC; (ii) under emergency circumstances as determined by the SEC that
make it not reasonably practicable for the Fund to dispose of securities owned
by it or fairly to determine the value of its assets; or (iii) as the SEC may
otherwise permit. The mailing of proceeds on redemption requests involving any
shares purchased by personal, corporate, or government check or EFT transfer
is generally subject to a ten day delay to allow the check or transfer to
clear. The ten day clearing period does not affect the trade date on which a
purchase or redemption order is priced, or any dividends and capital gain
distributions to which you may be entitled through the date of redemption. The
clearing period does not apply to purchases made by wire. Due to the
relatively higher cost of maintaining small accounts, the Fund reserves the
right, upon 45 days' notice, to redeem any account, other than IRA and other
Bull & Bear prototype retirement plan accounts, worth less than $500 except if
solely from market action, unless an investment is made to restore the minimum
value.

TELEPHONE PRIVILEGES. You automatically have all telephone privileges to,
among other things, authorize purchases, redemptions and exchanges, with EFT
or by other means, unless declined on the Account Application or otherwise in
writing. Neither the Fund nor Bull & Bear Service Center shall be liable for
any loss or damage for acting in good faith upon instructions received by
telephone and believed to be genuine. The Fund employs reasonable procedures
to confirm that instructions communicated by telephone are genuine and if it
does not, it may be liable for losses due to unauthorized or fraudulent
transactions. These procedures include requiring personal identification prior
to acting upon telephone instructions, providing written confirmation of such
transactions, and tape recording telephone conversations. The Fund may modify
or terminate any telephone privileges or shareholder services (except as
noted) at any time without notice.

SIGNATURE GUARANTEES. No signature guarantees are required when payment is to
be made to you at your address of record. If the redemption proceeds are to be
paid to a non-shareholder of record, or to an address other than your address
of record, or the shares are to be assigned, the Transfer Agent may require
that your signature be guaranteed by an entity acceptable to the Transfer
Agent, such as a commercial bank or trust company or member firm of a national
securities exchange or of the NASD. A notary public may not guarantee
signatures. The Transfer Agent may require further documentation, and may
restrict the mailing of redemption proceeds to your address of record within
30 days of such address being changed unless you provide a signature guarantee
as described above.

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS. The Fund pays dividends annually to its shareholders from its
net investment income, if any. The Fund also makes an annual distribution to
its shareholders out of any net realized capital gains, after offsetting any
capital loss carryover, and any net realized gains from foreign currency
transactions. Dividends and other distributions, if any, are declared, and
payable to shareholders of record on a date in December of each year. Such
distributions may be paid in January of the following year, in which event
they will be deemed received by the shareholders on the preceding December 31
for tax purposes. The Fund may also make an additional distribution following
the end of its fiscal year out of any undistributed income and capital gains.
Dividends and other distributions are made in additional Fund shares, unless
you elect to receive cash on the Account Application or so elect subsequently
by calling Bull & Bear Service Center, 1-800-847-4200. For Federal income tax
purposes, dividends and other distributions are treated in the same manner
whether received in additional Fund shares or in cash. Any election will
remain in effect until you notify Bull & Bear Service Center to the contrary.

TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal
income tax on that part of its investment company taxable income (generally
consisting of net investment income, net short term capital gains, and net
gains from

13
<PAGE>

certain foreign currency transactions) and net capital gain (the excess of net
long term capital gain over net short term capital loss) that is distributed
to its shareholders. Dividends paid by the Fund from its investment company
taxable income (whether paid in cash or in additional Fund shares) generally
are taxable to shareholders, other than shareholders that are not subject to
tax on their income, as ordinary income to the extent of the Fund's earnings
and profits; a portion of those dividends may be eligible for the corporate
dividends-received deduction. Distributions by the Fund of its net capital
gain (whether paid in cash or in additional Fund shares) when designated as
such by the Fund, are taxable to the shareholders as long term capital gains,
regardless of how long they have held their Fund shares. The Fund notifies its
shareholders following the end of each calendar year of the amounts of
dividends and capital gain distributions paid (or deemed paid) that year and
of any portion of those dividends that qualifies for the corporate dividends-
received deduction. Any dividend or other distribution paid by the Fund will
reduce the net asset value of Fund shares by the amount of the distribution.
Furthermore, such distribution, although similar in effect to a return of
capital, will be subject to taxes.

The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Such withholding also is required with respect
to shareholders who are otherwise subject to backup withholding.

The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. Since other tax
considerations may apply, you should consult your tax adviser.

DETERMINATION OF NET ASSET VALUE

The value of a share of the Fund is based on the value of its net assets.
The Fund's net assets are the total of the Fund's investments and all other
assets minus any liabilities. The value of one share is determined by dividing
the net assets by the total number of shares outstanding. This is referred to
as "net asset value per share," and is determined as of the close of regular
trading on the New York Stock Exchange (currently, 4 p.m. eastern time, unless
weather, equipment failure or other factors contribute to an earlier closing)
each business day of the Fund. A business day of the Fund is any day on which
the New York Stock Exchange is open for trading. The following are not
business days of the Fund: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Portfolio securities and other assets of the Fund are valued primarily on
the basis of market quotations, if readily available. Foreign securities, if
any, are valued on the basis of quotations from a primary market in which they
are traded and are translated from the local currency into U.S. dollars using
current exchange rates. Securities and other assets for which quotations are
not readily available will be valued at fair value as determined in good faith
by or under the direction of the Board of Directors.

THE INVESTMENT MANAGER

Bull & Bear Advisers, Inc. (the "Investment Manager") acts as general
manager of the Fund, being responsible for the various functions assumed by
it, including regularly furnishing advice with respect to portfolio
transactions. The Investment Manager manages the investment and reinvestment
of the Fund's assets, subject to the control and final direction of the Board
of Directors. The Investment Manager is authorized to place portfolio
transactions with Bull & Bear Securities, Inc., an affiliate of the Investment
Manager, and may allocate brokerage transactions by taking into account the
sales of shares of the Fund and the other Bull & Bear Funds. The Investment
Manager may also allocate transactions to broker/dealers that remit a portion
of their commissions as a credit against the Fund's expenses.

For its services, the Investment Manager receives a fee, payable monthly,
based on the average daily net assets of the Fund, at the annual rate of 1% on
the first $10 million, 7/8 of 1% over $10 million up to $30 million, 3/4 of 1%
over $30 million up to $150 million, 5/8 of 1% over $150 million up to $500
million, and 1/2 of 1% over $500 million. This fee is higher than that paid by
most investment companies.

14
<PAGE>

From time to time, the Investment Manager may waive all or part of this fee or
reimburse the Fund monthly to improve the Fund's total return. The Investment
Manager provides certain administrative services to the Fund at cost. During
the fiscal year ended December 31, 1994, investment management fees paid by
the Fund represented approximately 0.85% of average daily net assets. The
Investment Manager is a wholly owned subsidiary of Bull & Bear Group, Inc.
("Group"). Group, a publicly owned company whose securities are listed on
Nasdaq, is a New York based manager of mutual funds and discount brokerage
services. Bassett S. Winmill may be deemed a controlling person of Group and,
therefore, may be deemed a controlling person of the Investment Manager.

PERFORMANCE INFORMATION

From time to time the Fund may advertise its "average annual total return" or
"total return" (which may be referred to as cumulative total return or
cumulative growth) over specified periods. Average annual total return is
calculated pursuant to a standardized formula which assumes a hypothetical
$10,000 investment in the Fund was redeemed at the end of a stated period of
time, after giving effect to the reinvestment of dividends and distributions
during the period. The return is expressed as a percentage rate which, if
applied on a compounded annual basis, would result in the redeemable value of
the investment at the end of the period. The accompanying total return
performance graph compares results of a $10,000 investment in the Fund and in
the Standard & Poor's 500 Stock Index ("S&P 500"). The S&P 500 is unmanaged and
fully invested in common stocks. The Fund invests in common stocks and may also
own fixed income securities, options and use leverage. The Fund's inception was
March 20, 1986. The performance graphs begin April 1, 1986 and results in each
case reflect reinvestment of dividends and distributions.

[GRAPH APPEARS HERE]

AVERAGE ANNUAL TOTAL RETURN FOR
PERIODS ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
One Year: -16.54%
Five Years: 2.19%
Life (from 3/20/86): 8.48%
</TABLE>

Total return is computed on a per share basis, assumes the reinvestment of
dividends and distributions, and is calculated by combining the income and
principal changes for a specified period and dividing by the net asset value per
share at the beginning of the period. Advertisements may show total return as a
percentage rate or as the value of a hypothetical investment at the end of the
period. The Fund's performance may be compared to the performance of broad
groups of comparable mutual funds, or the performance of unmanaged indexes of
comparable securities. The Fund's total return is based upon historical
performance information and is not intended to indicate future performance.

1994 was a year of turmoil for the stock market. Although broad stock market
averages moved towards record highs as the year began, rising interest rates
caused the stock and bond markets, as well as foreign securities markets, to
decline sharply. The broad stock market averages recovered somewhat by the end
of the year, but the bond market recorded its worst performance since 1927.
The Fund experienced several earnings disappointments in its portfolio
holdings and the equivalent of a bear market in secondary over-the-counter
issues, but maintained its strategy of investing primarily in emerging growth
companies.

15
<PAGE>

DISTRIBUTION OF SHARES

Pursuant to a Distribution Agreement between the Fund and Bull & Bear
Service Center, Inc. (the "Distributor"), the Distributor acts as the Fund's
principal agent for the sale of Fund shares. The Fund has also adopted a plan
of distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Pursuant to the Plan, the Fund pays the Distributor monthly a distribution fee
in an amount of three-quarters of one percent per annum of the Fund's average
daily net assets and a service fee in an amount of one-quarter of one percent
per annum of the Fund's average daily net assets. The service fee portion is
intended to cover personal services provided to Fund shareholders and
maintenance of shareholder accounts. The distribution fee portion is intended
to cover all other activities and expenses primarily intended to result in the
sale of the Fund's shares. These fees may be retained by the Distributor or
passed through to brokers, banks and others who provide services to their
customers who are Fund shareholders at the rate of thirty-five basis points on
such customer balances. The Fund will pay the fees to the Distributor until
either the Plan is terminated or not renewed. In that event, the Distributor's
expenses in excess of fees received or accrued through the termination day
will be the Distributor's sole responsibility and not obligations of the Fund.
During the period they are in effect, the Distribution Agreement and Plan
obligate the Fund to pay fees to the Distributor as compensation for its
service and distribution activities. If the Distributor's expenses exceed the
fees, the Fund will not be obligated to pay any additional amount to the
Distributor. If the Distributor's expenses are less than such fees, it may
realize a profit. Certain other advertising and sales materials may be
prepared to promote the sale of Fund shares and shares of one or more other
Bull & Bear Funds. In such cases, the expenses will be allocated among the
Funds involved based on the inquiries resulting from the materials or other
factors deemed appropriate by the Board of Directors. The costs of personnel
and facilities of the Distributor to respond to inquiries by shareholders and
prospective shareholders will also be allocated based on such relative
inquiries or other factors. There is no certainty that the allocation of any
of the foregoing expenses will precisely allocate to the Fund costs
commensurate with the benefits it receives, and it may be that the other Funds
and Bull & Bear Securities, Inc. will benefit therefrom.

CAPITAL STOCK

The Fund is a non-diversified open-end management investment company
organized as a Maryland corporation in 1986. The Fund is authorized to issue
up to 500,000,000 shares ($.01 par value). The Fund's stock is freely
assignable by way of pledge (as, for example, for collateral purposes), gift,
settlement of an estate and also by an investor to another investor. Each
share has equal dividend, voting, liquidation and redemption rights with every
other share. The shares have no preemptive, conversion or cumulative voting
rights and they are not subject to further call or assessment. The Board of
Directors of the Fund may establish additional series or classes of shares,
although it has no current intention of doing so.

The Fund's By-Laws provide that there will be no annual meeting of
shareholders in any year except as required by law. In practical effect, this
means that the Fund will not hold an annual meeting of shareholders in years
in which the only matters which would be submitted to shareholders for their
approval are the election of Directors and ratification of the Directors'
selection of accountants, although holders of 10% of the Fund's shares may
call a meeting at any time. There will normally be no meetings of shareholders
for the purpose of electing Directors unless fewer than a majority of the
Directors holding office have been elected by shareholders. Shareholder
meetings will be held in years in which shareholder approval of the Fund's
investment management agreement, plan of distribution, or changes in its
fundamental investment objective, policies or restrictions is required by the
1940 Act.

16
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CUSTODIAN AND TRANSFER AGENT

Investors Bank & Trust Company, 89 South Street, Boston, MA 02109, acts as
custodian of the Fund's assets and may appoint one or more subcustodians
provided such subcustodianship is in compliance with the rules and regulations
promulgated under the 1940 Act. The Fund may maintain a portion of its assets
in foreign countries pursuant to such subcustodianships and related foreign
depositories. Utilization of such arrangements will increase the Fund's
expenses (see also the special considerations involving foreign securities
discussed above). The custodian also performs certain accounting services for
the Fund.

The Fund's transfer and dividend disbursing agent is DST Systems, Inc., P.O.
Box 419789, Kansas City, MO 64141-6789. The Distributor provides certain
shareholder administration services to the Fund and is reimbursed its cost by
the Fund. Such services include receiving and responding to shareholder
inquiries concerning their accounts and processing shareholder telephone
requests for transfers, purchases, redemptions, changes of address and similar
matters. The costs of facilities, personnel and other related expenses are
allocated among the Bull & Bear Funds based on the relative number of
inquiries and other factors.