As filed with the Securities and Exchange Commission on April 30, 1996.
1933 Act File No. 33-2847
1940 Act File No. 811-4625
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16
BULL & BEAR SPECIAL EQUITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
11 Hanover Square
New York, New York 10005
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 1-212-785-0900
Copies to:
WILLIAM J. MAYNARD R. DARRELL MOUNTS, ESQ.
Bull & Bear Advisers, Inc. Kirkpatrick & Lockhart LLP
11 Hanover Square 1800 Massachusetts Avenue, N.W.
New York, New York 10005 Washington, D.C. 20036-1800
(Name and Address of
Agent for Service)
It is proposed that this filing will become effective immediately upon filing
pursuant to Rule 485(b).
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Notice required by Rule 24f-2 for the fiscal year ended December
31, 1995 was filed on February 29, 1996.
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
Proposed Proposed Maxi
Title of Securities Being Regis Amount of Maximum mum Aggregate Amount of
tered Shares Being Offering Offering Registration
Registered Price Per Price(2) Fee(2)
Unit(1)
<S> <C> <C> <C> <C>
Shares of Common Stock of Bull & 181,457 $26.20 $290,000 $100.00
Bear Special Equities Fund, Inc.,
Par Value $0.01.
===============================================================================================
</TABLE>
(1) The fee for the above shares to be registered by this filing has been
computed on the basis of the price in effect on April 11, 1996 pursuant to Rule
457(d) under the Securities Act of 1933.
(2) Calculation of the proposed maximum aggregate offering price has been made
pursuant to Rule 24e-2 under the Investment Company Act of 1940. During its
fiscal year ended December 31, 1995, Registrant redeemed or repurchased
6,287,493 shares. Registrant used 6,117,104 of the shares it redeemed or
repurchased during its fiscal year ended December 31, 1995, for a reduction
pursuant to paragraph (c) of Rule 24f-2 under the Investment Company Act of 1940
(shares sold; including shares issued in reinvestment of dividends). Registrant
is using this post-effective amendment to register the remaining 170,389 shares
redeemed or repurchased during its fiscal year ended December 31, 1995 plus
11,068 shares ($290,000/$26.20). During the current fiscal year, the Registrant
has filed no other post-effective amendments for the purpose of the reduction
pursuant to paragraph (a) of Rule 24e-2.
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Contents of Registration Statement
This registration statement consists of the following papers and
documents.
Cover Sheet
Table of Contents
Cross Reference Sheets
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Cross Reference Sheet
Part A. Item No. Prospectus Caption
1 Cover Page
2 Expense Table
3 Financial Highlights;
Performance Information
4 General
Risk Factors
Back Cover Page
5 The Investment Manager
Custodian and Transfer Agent
6 Cover Page
General
The Investment Manager
Distributions and Taxes
Determination of Net Asset Value
Shareholder Services
Capital Stock
Back Cover Page
7 How to Purchase Shares
Shareholder Services
Determination of Net Asset Value
Distribution of Shares
Back Cover Page
8 How to Redeem Shares
Determination of Net Asset Value
9 Not Applicable
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Cross Reference Sheet
Statement of Additional
Part B. Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Not Applicable
13 The Fund's Investment Program
Investment Restrictions
Options, Futures And Forward Currency Contract
Strategies
Allocation of Brokerage
Appendix
14 Officers and Directors
15 Officers and Directors
The Investment Manager
16 Officers and Directors
The Investment Manager
Investment Management Agreement
Distribution of Shares
Custodian and Transfer Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Determination of Net Asset Value
Purchase of Shares
20 Distributions and Taxes
21 Distribution of Shares
22 Performance Information
23 Financial Statements
Part C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
The sole investment objective of Bull & Bear Special Equities Fund ("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 objec tive, 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 investment objective.
-------------------------------------------------------------------------------
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 l, 1996, has been filed with the Securities
and Exchange Commission and is incorporated by reference in this prospectus. It
is available at no charge by calling 1-800-847-4200. Fund shares 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 TABLES. 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
Sales Load Imposed on Purchases..................NONE
Sales Load Imposed on Reinvested Dividends.......NONE
Deferred Sales Load..............................NONE
Redemption Fee within 30 days of purchase.......1.00%
Redemption Fee after 30 days of purchase.........NONE
Exchange Fees....................................NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees.................................0.84%
12b-1 Fees......................................1.00%
Other Expenses..................................1.04%
Total Fund Operating Expenses...................2.88%
EXAMPLE
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.............................
1 year 3 years 5 years 10 years
------ ------- ------- --------
$29 $89 $152 $320
The example set forth above assumes reinvestment of all dividends and other
distributions and assumes a 5% annual rate of return as required by the
Securities and Exchange Commission ("SEC"). THE EXAMPLE IS AN ILLUSTRATION ONLY
AND SHOULD NOT BE CONSIDERED AN INDICATION OF PAST OR FUTURE RETURNS AND
EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The percentages given for Annual Fund Operating Expenses are based on the Fund's
operating expenses and average daily net assets during its fiscal year ended
December 31, 1995. 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, 1995 Annual Report to Shareholders and incorporated by reference in
the Statement of Additional Information.
2
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ----- ------- ----- ---- ------ -----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period........ $19.11 $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........................ (.81) (.55) (.76) (.58) (.36) (.68) (1.14) (.86) (.15) (.13)
Net realized and unrealized gain (loss) 8.51 (3.28) 4.65 6.08 5.95 (7.21) 8.70 4.43 (.93) 1.96
on Investment ---- ------ ---- ---- ---- ------ ---- ---- ----- ----
Total from investment operations.......... 7.70 (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
investments (1.39) (.19) (5.64) ------ ----- ----- (4.05)(1.15) ------ -----
Net increase (decrease) in net asset value. 6.31 (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.............. $25.42 $19.11 $23.13 $24.88 $19.38 $13.79 $21.68 $18.17 $15.75 $16.83
====== ====== ====== ====== ===== ======= ===== ====== ====== ======
TOTAL RETURN.................................. 40.5% (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 period (000's omitted)...$56,340 $45,614 $73,957 $68,31 $16,738 $8,475$6,317 2,982 $2,337 $2,277
======= ======= ======= ====== ====== ===== ====== ====== ====== ======
Ratio of expenses to average net assets(a).... 2.88% 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 2.70% 2.43% 2.73% 2.78% 2.11% 3.19% 3.23% 1.49% .82% 1.23%
assets (b) ===== ===== ===== ===== ===== ===== ===== ===== ==== =====
Portfolio turnover rate....................... 319% 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>
Amount of Debt Average Amount of Average Number of Average Amount of
Outstanding at Debt Outstanding Shares Outstanding Debt Per Share
Years Ended End of Period During the Period 1 During the Period 1 During the Period
----------- --------------- --------------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
1995 $0 $4,925,275 2,345,320 $2.10
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
- ------------------
1 Based on monthly averages.
</TABLE>
3
<PAGE>
TABLE OF CONTENTS
Expense Tables..............2 Distributions and Taxes...............13
Financial Highlights........2 Determination of Net Asset Value......14
General.....................3 Investment Manager....................14
Risk Factors................3 Performance Information...............15
How to Purchase Shares......7 Distribution of Shares................15
Shareholder Services........9 Capital Stock.........................16
How to Redeem Shares.......12 Custodian and Transfer Agent..........16
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 MANAGER. 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.
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
3
<PAGE>
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
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 1994 the Fund's portfolio turnover rate was
309% and in 1995 it was 319%. 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,
as amended (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.
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 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 contemporane ously 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
4
<PAGE>
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 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 Fund's net assets, including warrants which are not listed on the New
York or American Stock Exchange (limited to not more than 2% of the Fund's net
assets). 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,
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 securi ties.
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 convert ing foreign currency into U.S. dollars; greater price
volatility and trading illiquidity; less public information on issuers of
securities; non-negotiable brokerage commissions; difficulty in enforcing legal
rights outside of the United States; lack of uniform accounting, auditing and
5
<PAGE>
financial reporting standards; the possible imposition of foreign taxes,
exchange controls (which may include suspension of the ability to transfer
currency from a given country), and currency restrictions; and the possible
greater political, economic and social instability of developing as well as
developed countries, including nationalization, expropriation of assets, and
war. Furthermore, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments position. 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 investments 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 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.
Since investment in foreign securities usually involves foreign
currencies and since the Fund may temporarily hold cash in bank deposits in
foreign currencies in order to facilitate portfolio transactions, 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 in which a Fund investment is denominated or which is
temporarily held by the Fund to facilitate portfolio transactions, the value of
such Fund assets and 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 currency 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, municipal securities, preferred stocks, 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 Investor
Service Center (see "Determination of Net Asset Value"). The minimum initial
investment is $1,000 for regular and Uniform Gifts/Transfers to Minors Act
custody accounts, and $500 for Bull & Bear retirement plans, which include
individual retirement
6
<PAGE>
accounts ("IRAs"), simplified employee plan IRAs ("SEP-IRAs"), rollover IRAs,
profit sharing and money purchase plans, and 403(b) plans . 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 Investor Service Center, 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.
ADDITIONAL INVESTMENTS. Additional investments may be made conveniently at any
time by any one or more of the following methods:
o 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 Investor 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 and the Plans do 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.
o 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 Investor Service Center, 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).
o ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional
shares of the Fund quickly and simply, just by calling Investor 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.
o 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
Investor Service Center, 1-800-847-4200, to give the name(s) under which the
account is to be registered, tax identification number, the name of the bank
sending the wire, and to be assigned a Bull & Bear 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 Investor Service
Center, Box 419789, Kansas City, MO 64141- 6789. This service is not available
on days when the Federal Reserve wire system is closed. Subsequent investments
by wire may be made at any time without having to call Investor Service Center
by simply following the same wiring procedures.
7
<PAGE>
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 and other distributions that are paid in additional shares (see
"Distributions and Taxes"). For joint tenant accounts, any account owner has the
authority to act on the account without notice to the other account owners.
Investor Service Center in its sole discretion and for its protection may, but
is not obligated to, require the written consent of all account owners of a
joint tenant account prior to acting upon the instructions of any account owner.
Stock certificates will be issued only for full shares when requested in
writing. In order to facilitate redemptions and 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 their net asset
value next determined after receipt and acceptance by Investor 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 made payable to
Special Equities Fund and drawn in U.S. dollars on a U.S. bank. No third party
checks will be accepted and the Fund reserves the right to reject any order for
any reason. Accounts are charged $30 by the Transfer Agent for submitting checks
for investment which are not honored by the investor's bank. The Fund may in its
discretion waive or lower the investment minimums.
SHAREHOLDER SERVICES
You may 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, Investor 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 other distributions paid by the Fund in
shares of any other Bull & Bear Fund. Shares of the other Bull & Bear Fund will
be purchased at the current net asset value calculated on the payment date. For
more information concerning this privilege and the other Bull & Bear Funds, or
to request a Dividend Sweep Authorization Form, please call Investor Service
Center, 1-800-847-4200. You may cancel this privilege by mailing written
notification to Investor Service Center, 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 dollar, share, or percentage 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 Investor 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).
To exchange shares, please call Investor 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:
o 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.
8
<PAGE>
o 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.
o 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.
o 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.
o BULL & BEAR U.S. AND OVERSEAS FUND invests worldwide for the highest possible
total return.
o 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 Investor 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, an exchange is 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 Investor Service Center, 1-800-847-4200. The
other Fund's prospectus should be read carefully before exchanging. You may give
exchange instructions to Investor Service Center by telephone without further
documentation. If you have requested share certificates, this procedure may be
utilized only if, prior to giving telephone instructions, you deliver the
certificates to the Transfer Agent for deposit into your account.
o 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. by calling toll-free at 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 (or
non-deductible) for Federal income tax purposes as noted below. Information on
any of the plans described below is available from Investor 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.
|X| IRA AND SEP-IRA ACCOUNTS. Anyone with earned income who is less than age 70
1/2at 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 SEP-IRA 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 1996
tax year from January 1, 1996 through April 15, 1997.
9
<PAGE>
BULL & BEAR NO-FEE IRA(R). The $10 annual fiduciary fee is waived if
your Bull & Bear IRA or Bull & Bear SEP-IRA has assets of $10,000 or
more or if you invest through the Bull & Bear Automatic Investment
Program.
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.
o IRA TRANSFER AND ROLLOVER ACCOUNTS. Special forms are available from
Investor 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.
o 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.
|X| SECTION 403(B) ACCOUNTS. Section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), permits the estab lishment 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 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 Investor Service Center, 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 Investor 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 Investor Service Center will contact the
bank designated on your Account
10
<PAGE>
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 Investor 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 Investor Service Center,
1-800-847-4200. Please read the prospectus carefully before exchanging.
REDEMPTION PRICE AND FEES. Fund shares may be redeemed at their net asset value
next determined after receipt of the redemption request in proper form. The Fund
is designed as a long term investment, and short term trading is discouraged.
Accordingly, if shares of the Fund held for 30 days or less are redeemed or
exchanged, the Fund will deduct a redemption fee equal to one percent of the net
asset value of shares redeemed or exchanged. The fee will be retained by the
Fund and used to offset the transaction costs that short term trading imposes on
the Fund and its shareholders. If an account contains shares with different
holding periods (i.e. some shares held 30 days or less, some shares held 31 days
or more), the shares with the longest holding period will be redeemed first to
determine if the Fund's redemption fee applies. Shares acquired through the
Dividend Sweep Privilege and the reinvestment of dividends and other
distributions or redeemed under the Systematic Withdrawal Plan are exempt from
the redemption fee. 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.
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 fifteen day delay to allow the check or transfer to
clear. The fifteen day clearing period does not affect the trade date on which a
purchase or redemption order is priced, or any dividends and other 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 Investor Service Center shall be liable for any loss or
damage for acting in good faith upon instructions received by telephone and
believed to be genuine. The Fund employs reasonable procedures to confirm that
instructions communicated by telephone are genuine 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
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
11
<PAGE>
Agent may require further documentation, and may restrict the mailing of
redemption proceeds to your address of record within 60 days of such address
being changed unless you provide a signature guarantee as described above.
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 Investor
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 Investor 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
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 its 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 those 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. Withholding at that rate also is required from
dividends and capital gain distributions payable to such 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 invest ments 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 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.
INVESTMENT MANAGER
12
<PAGE>
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 other affiliated investment companies. 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. 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, 1995,
investment management fees paid by the Fund represented approximately 0.84% 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 Russell 2000 Small Company Stock Index ("Russell 2000"). The Russell 2000 is
a small company index that 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. Performance Graphs
are from April 1, 1986 to December 31, 1995, and results in each case reflect
reinvestment of dividends and distributions.
Plot Points:
Fund: 10.0, 11.2, 10.5, 12.9, 18.3, 11.7, 16.4, 21.0, 24.5, 20.4, 28.7
Russell 2000: 10.0, 9.3, 8.4, 10.6, 12.3, 9.9, 14.4, 17.1, 20.3, 19.9, 25.6
Final Value Total Return Average Annual Return
Fund _____ $28,702 187.02% 11.38%
Russell 2000 ....... $25,591 155.91% 10.12%
Source: Lipper Analytical Services, Inc.
The change from the preceding fiscal year, when the Fund selected the
Standard & Poor's 500 Index ("S&P"), is to reflect the broad diversity of equity
securities in which the Fund may invest. For the 10 years ended December 31,
1995, the S&P's final value was $52,752, total return was 427.52%, and average
annual return was 16.32%.
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. Although the Fund imposes a 1% redemption fee on the redemption of
shares held for 30 days or less, all of the periods for which performance is
quoted are longer than 30 days, and therefore the 1% fee is not reflected in the
performance calculations. In addition, there is no sales charge upon
reinvestment of dividends or other distributions. The Fund's performance may be
compared to the perfor mance 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.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Investor
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 or to the Distributor. 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
affiliated investment companies. 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.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02109, acts
as custodian of the Fund's assets, performs certain accounting services for the
Fund, 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 Fund's transfer and dividend disbursing agent is DST Systems, Inc.,
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,
13
<PAGE>
purchases, redemptions, changes of address and similar matters. The costs of
facilities, personnel and other related expenses are allocated among the Fund
and other affiliated investment companies based on the relative number of
inquiries and other factors. The Fund may also enter into agreements with
brokers, banks and others who would perform, on behalf of its customers, certain
shareholder services not otherwise provided by the Transfer Agent or the
Distributor.
14
<PAGE>
[Left Side of Back Cover Page]
SPECIAL
EQUITIES
FUND
- -----------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-847-4200 1-212-363-1100
E-MAIL: BULBEAR @AOL.COM
- -----------------------------------------------------
CALL TOLL-FREE FOR FUND PERFORMANCE, EXCHANGES AMONG THE
BULL & BEAR FUNDS, AND TO OBTAIN INFORMATION CONCERNING
YOUR ACCOUNT.
1-800-847-4200 1-212-363-1100
- -----------------------------------------------------
Printed on recycled paper.
[Right Side of Back Cover Page]
SPECIAL
EQUITIES
FUND
- ---------------------------------------------------------
INVESTING AGGRESSIVELY
FOR MAXIMUM CAPITAL
APPRECIATION
ELECTRONIC FUNDS TRANSFERS
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS: IRA, SEP-IRA,
QUALIFIED PROFIT SHARING/MONEY
PURCHASE, 403(B), KEOGH
- ---------------------------------------------------------
PROSPECTUS
MAY 1, 1996
- ---------------------------------------------------------
MINIMUM INITIAL INVESTMENT:
REGULAR ACCOUNTS, $1,000;
IRAS, $500; AUTOMATIC
INVESTMENT PROGRAMS, $100
MINIMUM SUBSEQUENT INVESTMENTS: $100
B
&
PERFORMANCE DRIVEN(R)
15
<PAGE>
Statement of Additional Information May 1, 1996
BULL & BEAR SPECIAL EQUITIES FUND
11 Hanover Square
New York, NY 10005
1-800-847-4200
1-212-363-1100
The following Statement of Additional Information regarding Bull & Bear
Special Equities Fund, Inc. ("Fund") is not a prospectus and should be read in
conjunction with the Fund's latest prospectus. The Fund's latest prospectus,
dated May 1, 1996, is available to prospective investors without charge upon
request to Investor Service Center, 11 Hanover Square, New York, NY 10005,
telephone 1-800-847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM........................................2
INVESTMENT RESTRICTIONS..............................................5
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES............6
THE INVESTMENT COMPANY COMPLEX......................................16
OFFICERS AND DIRECTORS..............................................16
INVESTMENT MANAGER..................................................18
INVESTMENT MANAGEMENT AGREEMENT.....................................19
PERFORMANCE INFORMATION.............................................20
DISTRIBUTION OF SHARES..............................................24
DETERMINATION OF NET ASSET VALUE....................................25
PURCHASE OF SHARES..................................................26
ALLOCATION OF BROKERAGE.............................................26
DISTRIBUTIONS AND TAXES.............................................28
REPORTS TO SHAREHOLDERS.............................................30
CUSTODIAN AND TRANSFER AGENT........................................31
AUDITORS............................................................31
FINANCIAL STATEMENTS................................................31
APPENDIX -- DESCRIPTIONS OF BOND RATINGS............................32
1
<PAGE>
THE FUND'S INVESTMENT PROGRAM
The following information supplements the information concerning the
investment objective, policies and limitations of the Fund found in the
Prospectus.
FOREIGN SECURITIES. Because the Fund may invest in foreign securities,
investment in the Fund involves investment risks of adverse political and
economic developments that are different from an investment in a fund which
invests only in the securities of U.S. issuers. Such risks may include adverse
movements in the market value of foreign securities during days on which the
Fund's net asset value per share is not determined (see "Determination of Net
Asset Value"), the possible imposition of withholding taxes by foreign
governments on dividend or interest income payable on the securities held in the
portfolio, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of dividends
or principal and interest on securities in the portfolio.
ILLIQUID ASSETS. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, (a) more than 15%
of the Fund's net assets would be invested in illiquid assets, including
repurchase agreements not entitling the holder to payment of principal within
seven days, or (b) more than 10% of the Fund's total assets would be invested in
securities that are illiquid by virtue of restrictions on the sale of such
securities to the public without registration under the Securities Act of 1933,
as amended ("1933 Act"). The term "illiquid assets" for this purpose includes
securities that cannot be disposed of within seven days in the ordinary course
of business at approxi mately the amount at which the Fund has valued the
securities.
Illiquid restricted securities may be sold by the Fund only in privately
negotiated transactions or in a public offering with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Where registration is required, the Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Securities that are
freely marketable in the country where they are principally traded, but would
not be freely marketable in the U.S., are not included within the meaning of the
term "illiquid assets."
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are either themselves exempt from
registration or sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional restricted securities markets may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment in order to satisfy share redemption orders
on a timely basis. Such markets might include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. ("NASD") An insufficient number of qualified buyers
interested in purchasing certain restricted securities held by the Fund,
however, could affect
2
<PAGE>
adversely the marketability of such portfolio securities, and the Fund might be
unable to dispose of such securities promptly or at favorable prices.
The Board of Directors of the Fund has delegated the function of making
day-to-day determinations of liquidity to Bull & Bear Advisers, Inc. (the
"Investment Manager") pursuant to guidelines approved by the Board. The
Investment Manager takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades and quotes for the security,
(2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, and (3) dealer undertakings to make a
market in the security, and the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on liquidity decisions to the Board of Directors.
LOWER RATED DEBT SECURITIES. The Fund may invest in investment grade and
non-investment grade debt securities. Ratings of "investment grade" or better
include the four highest ratings of Standard & Poor's Ratings Services ("S&P")
('AAA', 'AA', 'A', or 'BBB') and Moody's Investors Service, Inc. ("Moody's")
('Aaa', 'Aa', 'A', or 'Baa'). There is no minimum quality rating for the debt
securities in which the Fund may invest and the Fund may invest up to 35% of its
assets in unrated debt securities or debt securities rated below investment
grade, although it has no current intention of investing more than 5% of its
total assets in such securities during the coming year. Moody's considers
securities rated Baa to have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
for such securities to make principal and interest payments than is the case for
higher grade debt securities. Debt securities rated below investment grade are
deemed by these agencies to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major risk
exposure to adverse conditions. Debt securities rated lower than B may include
securities that are in default or face the risk of default with respect to
principal or interest.
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. The Investment Manger will consider such an
event in determining whether the Fund should continue to hold the security but
is not required to dispose of it. Credit ratings attempt to evaluate the safety
of principal and interest payments and do not evaluate the risk of fluctuations
in market value. Also, rating agencies may fail to make timely changes in credit
ratings in response to subsequent events, so that an issuer's current financial
condition may be better or worse than the rating indicates. See the Appendix to
this Statement of Additional Information for a further description of S&P's and
Moody's ratings.
Lower rated debt securities generally offer a higher current yield than
that available for higher grade issues. However, lower rated securities involve
greater risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
adverse changes in the financial condition of the issuers and to price
fluctuations in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of interest and principal and increase the possibility of default. In
addition, the market for lower rated debt securities has expanded rapidly in
recent years, and its growth paralleled a long economic expansion. In the past,
the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically, but such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such decline in price will not recur. The market for lower rated
debt issues may be thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis,
3
<PAGE>
may also decrease the price and liquidity of lower rated securities, especially
in a thinly traded market.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
U.S. banks or dealers involving securities in which the Fund is authorized to
invest. A repurchase agreement is an instrument under which the Fund purchases
securities from a bank or dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed upon date and price reflecting a
market rate of interest. The Fund's custodian maintains custody of the
underlying securities until their repurchase; thus the obligation of the bank or
dealer to pay the repurchase price is, in effect, secured by such securities.
The Fund's risk is limited to the ability of the seller to pay the agreed upon
amount on the repurchase date; if the seller defaults, the securities constitute
collateral for the seller's obligation to pay. If, however, the seller defaults
and the value of the collateral declines, the Fund may incur loss and expenses
in selling the collateral. To attempt to limit the risk in engaging in
repurchase agreements, the Fund enters into repur chase agreements only with
banks and dealers believed by the Investment Manager to present minimum credit
risks in accordance with guidelines established by the Board of Directors. The
Fund will not enter into a repurchase agreement with a maturity of more than
seven days if, as a result, more than 15% of its net assets would then be
invested in such agreements and other illiquid assets.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the
Fund may invest include direct obligations of the U.S. Government (such as
Treasury bills, notes and bonds) and obligations issued by U.S. government
agencies and instrumentalities backed by the full faith and credit of the U.S.
government, such as those issued by the Government National Mortgage
Association. In addition, the U.S. government securities in which the Fund may
invest include securities supported primarily or solely by the creditworthiness
of the issuer, such as securities issued by the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation and the Tennessee Valley
Authority. In the case of obligations not backed by the full faith and credit of
the U.S. government, the Fund must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment
and may not be able to assert a claim against the U.S. government itself in the
event the agency or instrumentality does not meet its commitments. Accordingly,
these securities may involve more risk than securities backed by the U.S.
government's full faith and credit.
MUNICIPAL SECURITIES. Under certain circumstances municipal securities may
offer the potential for capital appreciation relative to other fixed income
alternatives even without taking into consideration the tax-advantaged nature of
interest earned on such securities. At such times, the Fund may invest in
municipal securities of varying maturities. The municipal securities in which
the Fund may invest include general obligation and revenue or special obligation
securities. General obligation securities are secured by an issuer's pledge of
its full faith, credit and unlimited taxing power for the payment of principal
and interest. Revenue or special obligation securities are payable only from the
revenues derived from a particular facility or class of facility or project or,
in a few cases, from the proceeds of a special excise or other tax. Municipal
securities also include "private activity bonds", the interest income from which
generally is subject to the Federal alternative minimum tax. Even though the
interest from municipal securities may be exempt from Federal income tax,
dividends paid by the Fund attributable to that interest will be fully taxable
to Fund shareholders.
EQUITY SECURITIES. The Fund may invest in equity securities of U.S. and
foreign issuers that, in the Investment Manager's judgment, offer potential for
capital appreciation. Such equity securities involve greater risk of loss of
income than debt securities because issuers are not obligated to pay dividends.
In addition, equity securities are subordinate to debt securities, and are more
subject to changes in economic and industry conditions and in the financial
conditions of the issuers of such securities.
LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to engage in
securities or other lending transactions in an amount up to one-third of the
Fund's total assets, although it has no current intention of entering into such
transactions in excess of 5% of its net assets during the coming year. If the
Fund engages in lending transactions, it
4
<PAGE>
will enter into lending agreements that require that the loans be continuously
secured by cash, securities issued or guaranteed by the U.S. Government or its
agencies, or any combination of cash and such securities, as collateral equal at
all times to at least the market value of the assets lent. The Fund will
typically receive the dividends and interest paid by the assets lent, if any,
while simultaneously earning interest on the loan or a flat fee from the
borrower. The Fund will normally pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
on cash or securities held as collateral to the borrower or placing broker.
There are risks of delay to the Fund in receiving additional collateral and
risks of delay in recovery of, and failure to recover, the assets lent should
the borrower fail financially or otherwise violate the terms of the lending
agreement. Loans will be made only to borrowers deemed by the Investment Manager
to be of good standing and when, in the judgment of the Investment Manager, the
consideration which can be earned currently from such lending transactions
justifies the attendant risk. Any loan made by the Fund will provide that it may
be terminated by either party upon reasonable notice to the other party.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions that
may not be changed without the approval of the lesser of (a) 67% or more of the
voting securities of the Fund present at a meeting if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy or (b) more than 50% of the outstanding voting securities of the Fund.
Any investment restriction which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. The Fund may not:
(1) Issue senior securities as defined in the Investment Company Act of 1940,
as amended ("1940 Act"). The following will not be deemed to be senior
securities for this purpose: (a) evidences of indebtedness that the Fund is
permitted to incur, (b) the issuance of additional series or classes of
securities that the Board of Directors may establish, (c) the Fund's
futures, options, and forward currency transactions, and (d) to the extent
consistent with the 1940 Act and applicable rules and policies adopted by
the Securities and Exchange Commission ("SEC"), (i) the establishment or
use of a margin account with a broker for the purpose of effecting
securities transactions on margin and (ii) short sales;
(2) Lend its assets, provided however, that the following are not prohibited:
(a) the making of time or demand deposits with banks, (b) the purchase of
debt securities such as bonds, debentures, commercial paper, repurchase
agreements and short term obligations in accordance with the Fund's
investment objective and policies and (c) engaging in securities and other
asset loan transactions limited to one-third of the Fund's total assets;
(3) Underwrite the securities of other issuers, except to the extent that the
Fund may be deemed to be an underwriter under the Federal securities laws
in connection with the disposition of the Fund's authorized investments;
(4) Borrow money, except to the extent permitted by the 1940 Act;
(5) Purchase or sell commodities or commodity futures contracts, although it
may enter into (i) financial and foreign currency futures contracts and
options thereon, (ii) options on foreign currencies, and (iii) forward
contracts on foreign currencies; or
(6) Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real estate
or interests therein or issued by companies which invest in real estate or
interests therein.
The Fund's Board of Directors has established the following non-fundamental
investment limitations that may be changed by the Board without shareholder
approval:
5
<PAGE>
(i) The Fund may not invest in interests in oil, gas or other mineral
exploration or development programs or leases, although it may invest
in the securities of issuers which invest in or sponsor such programs
or such leases;
(ii) The Fund may not invest more than 5% of its assets in securities of
companies having a record of less than three years continuous operations
(including operations of predecessors);
(iii)The Fund may not purchase or otherwise acquire any security or invest in a
repurchase agreement if, as a result, (a) more than 15% of the Fund's net
assets (taken at current value) would be invested in illiquid assets,
including repurchase agreements not entitling the holder to payment of
principal within seven days, or (b) more than 10% of the Fund's total
assets would be invested in securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without
registration under the 1933 Act;
(iv) The Fund may not purchase or retain securities of any issuer if to
knowledge of the Fund, those officers or directors of the Fund or its
investment manager who each own beneficially more than 1/2 of 1% of the
securities of an issuer, own beneficially together more than 5% of the
securities of that issuer;
(v) The Fund may not purchase the securities of any investment company except
(a) by purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase, provided that immediately after such purchase
no more than: 10% of the Fund's total assets are invested in securities issued
by investment companies, 5% of the Fund's total assets are invested in
securities issued by any one investment company, or 3% of the voting securities
of any one such investment company are owned by the Fund, and (b) when such
purchase is part of a plan of merger, consolidation, reorganization or
acquisition of assets;
(vi) With respect to options transactions, (a) the Fund will write only covered
options and each such option will remain covered so long as the Fund is
obligated under the option; (b) the Fund will not write call or put options
having aggregate exercise prices greater than 25% of its net assets; and
(c) the Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the
premiums on all other options held by the Fund, does not exceed 5% of the
Fund's total assets;
(vii) With respect to financial and foreign currency futures and related options
(including options traded on a commodities exchange), (a) the Fund will not
purchase or sell futures contracts or related options other than for bona fide
hedging purposes if, immediately thereafter, the sum of the amount of initial
margin deposits on the Fund's existing futures positions and related options and
premiums paid for related options would exceed 5% of the Fund's total assets;
and (b) futures contracts and related options will not be purchased if
immediately thereafter more than 30% of the Fund's total assets would be so
invested; or
(viii) The Fund may not purchase securities on margin, except that the Fund
may obtain such short term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits
made in connection with transactions in options, futures contracts,
forward currency contracts and other derivative instruments shall not
be deemed to constitute purchasing securities on margin.
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
REGULATION OF THE USE OF OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT
STRATEGIES. As discussed in the Prospectus, the Investment Manager may engage in
certain options strategies to attempt to enhance return or for hedging purposes.
The Investment Manager also may use securities index futures contracts, interest
rate futures contracts, foreign currency futures contracts (collectively,
"futures contracts" or "futures"), options on futures contracts and forward
currency contracts for hedging purposes or in other circum stances permitted by
the CFTC. There is no guarantee, however, that the Investment Manager
6
<PAGE>
will engage in any of these transactions in the coming year. Certain special
characteris tics of and risks associated with using these instruments are
discussed below. In addition to the non-fundamental investment restrictions
described above in sections (vi) and (vii), use of options, forward currency
contracts and futures by the Fund is subject to the applicable regulations of
the SEC, the several options and futures exchanges upon which such instruments
may be traded, the CFTC and the various state regulatory authorities.
In addition to the products, strategies and risks described below and in
the Prospectus, the Investment Manager may discover additional opportunities in
connection with options, futures and forward currency contracts. These new
opportunities may become available as the Investment Manager develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures and forward currency contracts are
developed. The Investment Manager may utilize these opportunities to the extent
they are consistent with the Fund's investment objective, permitted by the
Fund's investment limitations and permitted by the applicable regulatory
authorities. The Fund's registration statement will be supplemented to the
extent that new products and strategies involve materially different risks than
those described below and in the Prospectus.
COVER FOR OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES. The
Fund will not use leverage in its options, futures and forward currency contract
strategies. Accordingly, the Fund will comply with guidelines established by the
SEC with respect to coverage of these strategies by either (1) setting aside
cash, U.S. Government or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount, or (2) holding
securities, currencies or other options or futures con tracts whose values are
expected to offset ("cover") its obligations thereunder. Securi ties, currencies
or other options or futures contracts used for cover and securities held in a
segregated account cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of the Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
OPTION INCOME AND HEDGING STRATEGIES. The Fund may purchase and write
(sell) both exchange-traded options and options traded on the over-the-counter
("OTC") market. Currently, options on debt securities are primarily traded on
the OTC market. Although many options on currencies are exchange-traded, the
majority of such options currently are traded on the OTC market. Exchange-traded
options in the U.S. are issued by a clearing organization affiliated with the
exchange on which the option is listed, which, in effect, guarantees completion
of every exchange-traded option transaction. In contrast, OTC options are
contracts between the Fund and its contra-party with no clearing organization
guarantee. Thus, when the Fund purchases an OTC option, it relies on the dealer
from which it has purchased the OTC option to make or take delivery of the
securities underlying the option. Failure by the dealer to do so would result in
the loss of any premium paid by the Fund as well as the loss of the expected
benefit of the transaction.
The Fund may purchase call options on securities (both equity and debt)
that the Investment Manager intends to include in the Fund's portfolio in order
to fix the cost of a future purchase. Call options also may be used as a means
of enhancing returns by, for example, participating in an anticipated price
increase of a security. In the event of a decline in the price of the underlying
security, use of this strategy would serve to limit the potential loss to the
Fund to the option premium paid; conversely, if the market price of the
underlying security increases above the exercise price and the Fund either sells
or exercises the option, any profit eventually realized would be reduced by the
premium paid.
The Fund may purchase put options on securities in order to hedge against a
decline in the market value of securities held in its portfolio or to attempt to
enhance return. The put option enables the Fund to sell the underlying security
at the predetermined exercise price; thus, the potential for loss to the Fund
below the exercise price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise price of the put
option, any profit the Fund realizes on the sale
7
<PAGE>
of the security would be reduced by the premium paid for the put option less any
amount for which the put option may be sold.
The Fund may on certain occasions wish to hedge against a decline in the
market value of securities held in its portfolio at a time when put options on
those particular securi ties are not available for purchase. The Fund may
therefore purchase a put option on other carefully selected securities, the
values of which historically have a high degree of positive correlation to the
value of such portfolio securities. If the Investment Manager's judgment is
correct, changes in the value of the put options should generally offset changes
in the value of the portfolio securities being hedged. However, the correlation
between the two values may not be as close in these transactions as in
transactions in which the Fund purchases a put option on a security held in its
portfolio. If the Investment Manager's judgment is not correct, the value of the
securities underlying the put option may decrease less than the value of the
Fund's portfolio securities and therefore the put option may not provide
complete protection against a decline in the value of the Fund's portfolio
securities below the level sought to be protected by the put option.
The Fund may write covered call options on securities in which it is
authorized to invest for hedging or to increase return in the form of premiums
received from the purchasers of the options. A call option gives the purchaser
of the option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the exercise price during the option period. The
strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price of
the underlying security held by the Fund declines, the amount of such decline
will be offset wholly or in part by the amount of the premium received by the
Fund. If, however, there is an increase in the market price of the underlying
security and the option is exercised, the Fund would be obligated to sell the
security at less than its market value. The Fund would give up the ability sell
any portfolio securities used to cover the call option while the call option was
outstanding. In addition, the Fund could lose the ability to participate in an
increase in the value of such securities above the exercise price of the call
option because such an increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the current market value).
Portfolio securities used to cover OTC options written also may be considered
illiquid, and therefore subject to the Fund's limitation on investing no more
than 15% of its net asset in illiquid securities, unless the OTC options are
sold to qualified dealers who agree that the Fund may repurchase any OTC options
it writes for a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
The Fund also may write covered put options on securities in which it is
authorized to invest. A put option gives the purchaser of the option the right
to sell, and the writer (seller) the obligation to buy, the underlying security
at the exercise price during the option period. So long as the obligation of the
writer continues, the writer may be assigned an exercise notice by the
broker/dealer through whom such option was sold, requiring it to make payment of
the exercise price against delivery of the underlying se curity. The operation
of put options in other respects, including their related risks and rewards, is
substantially identical to that of call options. If the put option is not
exercised, the Fund will realize income in the amount of the premium received.
This tech nique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security would decline below the exercise price less the premiums
received, in which case the Fund would expect to suffer a loss.
The Fund may purchase put and call options and write covered put and call
options on securities indexes in much the same manner as the more traditional
securities options discussed above, except that index options may serve as a
hedge against overall fluctua tions in the securities markets (or a market
sector) rather than anticipated increases or decreases in the value of a
particular security. A securities index assigns values to the
8
<PAGE>
securities included in the index and fluctuates with changes in such values.
Settlements of securities index options are effected with cash payments and do
not involve delivery of securities. Thus, upon settlement of a securities index
option, the purchaser will realize, and the writer will pay, an amount based on
the difference between the exercise price and the closing price of the index.
The effectiveness of hedging techniques using securities index options will
depend on the extent to which price movements in the securi ties index selected
correlate with price movements of the securities in which the Fund invests.
The Fund may purchase and write covered straddles on securities indexes. A
long straddle is a combination of a call and a put purchased on the same
security where the exercise price of the put is less than or equal to the
exercise price on the call. The Fund would enter into a long straddle when the
Investment Manager believes that it is likely that securities prices will be
more volatile during the term of the options than is implied by the option
pricing. A short straddle is a combination of a call and a put written on the
same security where the exercise price on the put is less than or equal to the
exercise price of the call where the same issue of the security is considered
"cover" for both the put and the call. The Fund would enter into a short
straddle when the Investment Manager believes that it is unlikely that
securities prices will be as volatile during the term of the options as is
implied by the option pricing. In such case, the Fund will set aside cash and/or
liquid, high-grade debt securities in a segregated account with its custodian
equivalent in value to the amount, if any, by which the put is "in-the-money,"
that is, that amount by which the exercise price of the put exceeds the current
market value of the underlying security.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Fund may take positions in
options on foreign currencies to hedge against the risk of foreign exchange rate
fluctuations on foreign securities that the Fund holds in its portfolio or that
it intends to purchase. For example, if the Fund enters into a contract to
purchase securities denominated in a foreign currency, it could effectively fix
the maximum U.S. dollar cost of the securities by purchasing call options on
that foreign currency. Similarly, if the Fund held securities denominated in a
foreign currency and anticipated a decline in the value of that currency against
the U.S. dollar, the Fund could hedge against such a decline by purchasing a put
option on the currency involved. The Fund's ability to establish and close out
positions in such options is subject to the maintenance of a liquid secondary
market. Although many options on foreign currencies are exchange-traded, the
majority are traded on the OTC market. The Fund will not purchase or write such
options unless, in the Investment Mana ger's opinion, the market for them is
sufficiently liquid to ensure that the risks in connection with such options are
not greater than the risks in connection with the underlying currency. In
addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (that is, less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the- clock
market. To the extent that the U.S. options markets are closed while the markets
for the underlying currencies remain open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the options
markets until they reopen.
9
<PAGE>
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell securities or currencies under a put or a call option it has written,
the Fund may purchase a put or a call option of the same series (that is, an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified securities or currencies under a call or put
option it has purchased, the Fund may sell an option of the same series as the
option held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge the Fund's
portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security, securities index or currency,
the time remaining until expiration, the relationship of the exercise price to
the market price, the historical price volatility of the underlying security,
securities index or currency and general market conditions. For this reason, the
successful use of options depends upon the Investment Manager's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets or, in the case of securities index options, fluctuations in
the market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. The
exercise price of the options may be below, equal to or above the current market
value of the underlying security, securities index or currency. Purchased
options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, the Fund will realize a loss in the amount of the premium paid
and any transaction costs.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Most
exchange-listed options relate to stocks. Although the Fund intends to purchase
or write only those exchange-traded options for which there appears to be a
liquid secondary market, there is no assurance that a liquid secondary market
will exist for any particular option at any particular time. Closing
transactions may be effected with respect to options traded in the OTC markets
(currently the primary markets for options on debt securities and a significant
market for foreign currencies) only by negotiating directly with the other party
to the option contract or in a secondary market for the option if such market
exists. Although the Fund will enter into OTC options with dealers that agree to
enter into, and that are expected to be capable of entering into, closing
transactions with the Fund, there can be no assurance that the Fund would be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. In the event of insolvency of the contra-party, the Fund may be
unable to liquidate an OTC option. Accordingly, it may not be possible to effect
closing transactions with respect to certain options, which would result in the
Fund having to exercise those options that it has purchased in order to realize
any profit. With respect to options written by the Fund, the inability to enter
into a closing transaction may result in material losses to the Fund. For
example, because the Fund must maintain a covered position with respect to any
call option it writes on a security, currency or se curities index, the Fund may
not sell the underlying securities or currency (or invest any cash securities
used to cover the option) during the period it is obligated under such option.
This requirement may impair the Fund's ability to sell a portfolio security or
make an investment at a time when such a sale or investment might be
advantageous.
(4) Securities index options are settled exclusively in cash. If the Fund
writes a call option on an index, the Fund will not know in advance the
difference, if any, between the closing value of the index on the exercise date
and the exercise price of the call option itself and thus will not know the
amount of cash payable upon settlement. In addition, a holder of a securities
index option who exercises it before the closing index value for that day is
available, runs the risk that the level of the underlying index may subsequently
change.
10
<PAGE>
(5) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs and taxes; however, the
Fund also may save on commissions by using options as a hedge rather than buying
or selling individual securi ties in anticipation or as a result of market
movements.
FUTURES AND RELATED OPTIONS STRATEGIES. The Fund may engage in futures
strategies for hedging purposes to attempt to reduce the overall investment risk
that would normally be expected to be associated with ownership of the
securities in which it invests. This may involve, among other things, using
futures strategies to manage the effective duration of the Fund. If the
Investment Manager wishes to shorten the effective duration of the Fund, the
Fund may sell a futures contract or a call option thereon, or purchase a put
option on that futures contract. If the Investment Manager wishes to lengthen
the effective duration of the Fund, the Fund may buy a futures contract or a
call option thereon, or sell a put option.
The Fund may use interest rate futures contracts and options thereon to
hedge its portfolio against changes in the general level of interest rates and
in other circumstances permitted by the CFTC. The Fund may purchase an interest
rate futures contract when it intends to purchase debt securities but has not
yet done so. This strategy may minimize the effect of all or part of an increase
in the market price of the debt security that the Fund intends to purchase in
the future. A rise in the price of the debt security prior to its purchase may
either be offset by an increase in the value of the futures contract purchased
by the Fund or avoided by taking delivery of the debt securities under the
futures contract. Conversely, a fall in the market price of the underlying debt
security may result in a corresponding decrease in the value of the futures
position. The Fund may sell an interest rate futures contract in order to
continue to receive the income from a debt security, while endeavoring to avoid
part or all of the decline in market value of that security that would accompany
an increase in interest rates.
The Fund may purchase a call option on an interest rate futures contract to
hedge against a market advance in debt securities that the Fund plans to acquire
at a future date. The purchase of a call option on an interest rate futures
contract is analogous to the purchase of a call option on an individual debt
security, which can be used as a temporary substitute for a position in the
security itself. The Fund also may write covered put options on interest rate
futures contracts as a partial anticipatory hedge and may write covered call
options on interest rate futures contracts as a partial hedge against a decline
in the price of debt securities held in the Fund's portfolio. The Fund may also
purchase put options on interest rate futures contracts in order to hedge
against a decline in the value of debt securities held in the Fund's portfolio.
The Fund may sell securities index futures contracts in anticipation of a
general market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a portion of the Fund's
portfolio correlates with a given index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus provide
an alternative to the liquidation of securities posi tions. For example, if the
Fund correctly anticipates a general market decline and sells securities index
futures to hedge against this risk, the gain in the futures position should
offset some or all of the decline in the value of the portfolio. The Fund may
purchase securities index futures contracts if a market or market sector advance
is antici pated. Such a purchase of a futures contract would serve as a
temporary substitute for the purchase of individual securities, which securities
may then be purchased in an orderly fashion. This strategy may minimize the
effect of all or part of an increase in the market price of securities that the
Fund intends to purchase. A rise in the price of the securi ties should be in
part or wholly offset by gains in the futures position.
As in the case of a purchase of a securities index futures contract, the
Fund may purchase a call option on a securities index futures contract to hedge
against a market advance in securities that the Fund plans to acquire at a
future date. The Fund may write covered put options on securities index futures
as a partial anticipatory hedge and may write covered call options on securities
index futures as a partial hedge against a decline in the price of securities
held in the Fund's portfolio. This is analogous to writing covered call options
on securities. The Fund also may purchase put options on securities
11
<PAGE>
index futures contracts. The purchase of put options on securities index futures
contracts is analogous to the purchase of protective put options on individual
securities where a level of protection is sought below which no additional
economic loss would be incurred by the Fund.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of foreign currency in relation to the
U.S. dollar. In addition, the Fund may sell foreign currency futures contracts
when the Investment Manager anticipates a general weakening of the foreign
currency exchange rate that could adversely affect the market value of the
Fund's foreign securities holdings or interest payments to be received in that
foreign currency. In this case, the sale of futures contracts on the underlying
currency may reduce the risk to the Fund of a reduction in market value caused
by foreign currency exchange rate variations and, by so doing, provide an
alternative to the liquidation of securities positions and resulting transaction
costs. When the Investment Manager anticipates a significant foreign exchange
rate increase while intending to invest in a security denominated in that
currency, the Fund may purchase a foreign currency futures contract to hedge
against the increased rates pending completion of the anticipated transaction.
Such a purchase would serve as a temporary measure to protect the Fund against
any rise in the foreign currency exchange rate that may add additional costs to
acquiring the foreign security position. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign currency
exchange rate at limited risk. The Fund may purchase a call option on a foreign
currency futures contract to hedge against a rise in the foreign currency
exchange rate while intending to invest in a security denominated in that
currency. The Fund may purchase put options on foreign currency futures
contracts as a hedge against a decline in the foreign currency exchange rates or
the value of its foreign portfolio securities. The Fund may write a covered put
option on a foreign currency futures contract as a partial anticipatory hedge
and may write a covered call option on a foreign currency futures contract as a
partial hedge against the effects of declining foreign currency exchange rates
on the value of foreign securi ties.
The Fund may also write put options on interest rate, securities index or
foreign currency futures contracts while, at the same time, purchasing call
options on the same interest rate, securities index or foreign currency futures
contract in order to synthetically create an interest rate, securities index or
foreign currency futures contract. The options will have the same strike prices
and expiration dates. The Fund will only engage in this strategy when it is more
advantageous to the Fund to do so as compared to purchasing the futures
contract.
The Fund may also purchase and write covered straddles on interest rate or
securities index futures contracts. A long straddle is a combination of a call
and a put purchased on the same security at the same exercise price. The Fund
would enter into a long straddle when it believes that it is likely that
securities prices will be more volatile during the term of the options than is
implied by the option pricing. A short straddle is a combination of a call and
put written on the same futures contract at the same exercise price where the
same security or futures contract is considered "cover" for both the put and the
call. The Fund would enter into a short straddle when it believes that it is
unlikely that securities prices will be as volatile during the term of the
options as is implied by the option pricing. In such case, the Fund will set
aside cash and/or liquid, high grade debt securities in a segregated account
with its custodian equal in value to the amount, if any, by which the put is
"in-the-money," that is the amount by which the exercise price of the put
exceeds the current market value of the underlying security.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING.
No price is paid upon entering into a futures contract. Instead, upon entering
into a futures contract, the Fund is required to deposit with its custodian in a
segregated account in the name of the futures broker through whom the
transaction is effected an amount of cash, U.S. Government securities or other
liquid, high-grade debt instruments generally equal to 10% or less of the
contract value. This amount is known as "initial margin." When writing a call or
a put option on a futures contract, margin also must be deposited in accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin on futures contracts does not involve borrowing to finance the
futures
12
<PAGE>
transactions. Rather, initial margin on futures contracts is in the nature of a
performance bond or good-faith deposit on the contract that is returned to the
Fund upon termination of the transaction, assuming all obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment. Additionally, initial margin require ments may be increased generally
in the future by regulatory action. Subsequent payments, called "variation
margin," to and from the broker, are made on a daily basis as the value of the
futures or options position varies, a process known as "marking to the market."
For example, when the Fund purchases a contract and the value of the contract
rises, the Fund receives from the broker a variation margin payment equal to
that increase in value. Conversely, if the value of the futures position
declines, the Fund is required to make a variation margin payment to the broker
equal to the decline in value. Variation margin does not involve borrowing to
finance the futures transaction but rather represents a daily settlement of the
Fund's obligations to or from a clearing organization.
Buyers and sellers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing an offsetting contract or option. Futures
contracts or options thereon may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts or options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for the Fund to close a
position and, in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, if futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, there is no guarantee that the price of the securities will, in fact,
correlate with the price movements in the contracts and thus provide an offset
to losses on the contracts.
In considering the Fund's use of futures contracts and related options,
particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Investment Manager's ability to predict movements in the
direction of the overall securities, currencies and interest rate markets, which
requires different skills and techniques than predicting changes in the prices
of individual securities. Moreover, futures contracts relate not only to the
current price level of the underlying instrument or currency but also to the
anticipated price levels at some point in the future. There is, in addition, the
risk that the movements in the price of the futures contract will not correlate
with the movements in the prices of the securities or currencies being hedged.
For example, if the price of the securities index futures contract moves less
than the price of the securities that are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, the advantage may be partially offset by losses
in the futures position. In addition, if the Fund has insufficient cash, it may
have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect a rising market. Consequently, the Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract moves more than the price of the underlying securities, the
Fund will experience either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of the securities that
are the subject of the hedge.
13
<PAGE>
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities or currencies being hedged, movements in the prices
of futures contracts may not correlate perfectly with movements in the prices of
the hedged securities or currencies due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities or currencies that cause this situation to occur. First, as noted
above, all participants in the futures market are subject to initial and
variation margin requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts through offsetting transactions, distortions in the
normal price relationship between the securi ties or currencies and the futures
markets may occur. Second, because the margin deposit requirements in the
futures market are less onerous than margin requirements in the securi ties
market, there may be increased participation by speculators in the futures
market; such speculative activity in the futures market also may cause temporary
price distortions. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts over the
short term. In addition, activities of large traders in both the futures and
securities markets involving arbitrage and other investment strategies may
result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts.
Although the Fund intends to purchase and sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract at any particular time. In such event, it
may not be possible to close a futures positions, and in the event of adverse
price movements, the Fund would continue to be required to make variation margin
payments.
(4) Like options on securities and currencies, options on futures contracts
have limited life. The ability to establish and close out options on futures
will be subject to the development and maintenance of liquid secondary markets
on the relevant exchanges or boards of trade. There can be no certainty that
such markets for all options on futures contracts will develop.
(5) Purchasers of options on futures contracts pay a premium at the time of
purchase. This amount and the transaction costs are all that is at risk. Sellers
of options on futures contracts, however, must post initial margin and are
subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the under
lying securities index value or the securities or currencies being hedged.
(6) As is the case with options, the Fund's activities in the futures
markets may result in a higher portfolio turnover rate and additional
transaction costs in the form of added brokerage commissions and taxes; however,
the Fund also may save on commissions by using futures contracts or options
thereon as a hedge rather than buying or selling individual securities or
currencies in anticipation or as a result of market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above.
Options on foreign currency futures contracts may involve certain
additional risks. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of
14
<PAGE>
a call or put option on a foreign currency futures contract would result in a
loss, such as when there is no movement in the price of the underlying currency
or futures contract, when the purchase of the underlying futures contract would
not result in such a loss.
FORWARD CURRENCY CONTRACTS. The Fund may use forward currency contracts to
protect against uncertainty in the level of future foreign currency exchange
rates.
The Fund may enter into forward currency contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or the Fund anticipates
the receipt in a foreign currency of dividend or interest payments on a security
that it holds or anticipates purchasing the Fund may desire to "lock in" the
U.S. dollar price of the secur ity or the U.S. dollar equivalent of such
payment, as the case may be, by entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the
amount of foreign currency involved in the underlying transaction. The Fund will
thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received.
The Fund also may hedge by using forward currency contracts in connection
with portfo lio positions to lock in the U.S. dollar value of those positions,
to increase the Fund's exposure to foreign currencies that the Investment
Manager believes may rise in value relative to the U.S. dollar or to shift the
Fund's exposure to foreign currency fluctuations from one country to another.
For example, when the Investment Manager believes that the currency of a
particular foreign country may suffer a substantial decline relative to the U.S.
dollar or another currency, it may enter into a forward contract to sell the
amount of the former foreign currency approximating the value of some or all of
the Fund's portfolio securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used. Certain of these strategies may result in income
subject to the "Short-Short Limitation", described under "Distributions and
Taxes".
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the secur ity exceeds the amount of foreign currency the
Fund is obligated to deliver. The projection of short term currency market
movements is extremely difficult and the successful execution of a short term
hedging strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transaction costs. Under normal
circumstances, consideration of the prospects for currency parities will be
incorporated into the longer term decisions made with regard to overall
investment strategies. However, the Investment Manager believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Fund will be served.
At or before the maturity date of a forward contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward currency
15
<PAGE>
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
prices of the underlying securities the Fund owns or intends to acquire, but it
does fix a rate of exchange in advance. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Bull & Bear Group, Inc. (the
"Investment Company Complex") are:
Bull & Bear Dollar Reserves
Bull & Bear U.S. Government Securities Fund
Bull & Bear Municipal Income Fund
Bull & Bear Global Income Fund
Bull & Bear U.S. and Overseas Fund
Bull & Bear Special Equities Fund
Bull & Bear Gold Investors
Midas Fund
OFFICERS AND DIRECTORS
The officers and Directors of the Fund, their respective offices and principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each is 11 Hanover Square, New York, NY 10005.
BASSETT S. WINMILL* -- Chairman of the Board. He is Chairman of the Board of
certain other investment companies advised by the Investment Manager and its
affiliates (the "Investment Company Complex") and of the parent of the
Investment Manager, Bull & Bear Group, Inc. ("Group"). He was born February 10,
1930. He is a member of the New York Society of Security Analysts, the
Association for Investment Management and Research and the International Society
of Financial Analysts. He is the father of Mark C. Winmill and Thomas B.
Winmill.
ROBERT D. ANDERSON* -- Vice Chairman and Director. He is Vice Chairman and a
Director of certain other investment companies in the Investment Company Complex
and of the Investment Manager and its affiliates. He was born December 7, 1929.
He is a member of the Board of Governors of the Mutual Fund Education Alliance,
and of its predecessor, the No-Load Mutual Fund Association. He has also been a
member of the District #12, District Business Conduct and Investment Companies
Committees of the NASD.
BRUCE B. HUBER, CLU, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is Senior Consultant with The Berger Financial Group, LLC specializing in
financial, estate and insurance matters. From March 1995 to December 1995, he
was President of Huber Hogan Knotts Consulting, Inc. financial consultants and
insurance planners. He was born February 7, 1930. From 1988 to 1990, he was
Chairman of Bruce Huber Associates. He is also a Director of other investment
companies in the Investment Company Complex.
16
<PAGE>
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Kenny, Kindler, Hunt & Howe, Inc., executive recruiting
consultants. He was born December 14, 1930. From 1976 until 1983 he was Vice
President of Russell Reynolds Associates, Inc., also executive recruiting
consultants. He is also a Director of other investment companies in the
Investment Company Complex.
FREDERICK A. PARKER, JR. -- Director. 219 East 69th Street, New York, NY 10021.
He is President and Chief Executive Officer of American Pure Water Corporation,
a manufacturer of water purifying equipment. He was born November 14, 1926. He
is also a Director of other investment companies in the Investment Company
Complex.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He was Executive Vice President and a Director of Dan River, Inc., a diversified
textile company, from 1969 until he retired in 1981. He was born February 9,
1923. He is a Director of Wheelock, Inc., a manufacturer of signal products, and
a consultant for the National Executive Service Corps in the health care
industry. He is also a Director of other investment companies in the Investment
Company Complex.
MARK C. WINMILL -- Co-President, Co-Chief Executive Officer, and Chief Financial
Officer. He is Co-President, Co-Chief Executive Officer, and Chief Financial
Officer of the Investment Company Complex and of Group and certain of its
affiliates, Chairman of the Investment Manager and Investor Service Center, Inc.
(the "Distributor"), and President of Bull & Bear Securities, Inc. ("BBSI"). He
was born November 26, 1957. He received his M.B.A. from the Fuqua School of
Business at Duke University in 1987. From 1983 to 1985 he was Assistant Vice
President and Director of Marketing of E.P. Wilbur & Co., Inc., a real estate
development and syndication firm and Vice President of E.P.W. Securities, its
broker/dealer subsidiary. He is a son of Bassett S. Winmill and brother of
Thomas B. Winmill. He is also a Director of certain other investment companies
in the Investment Company Complex.
THOMAS B. WINMILL -- Co-President, Co-Chief Executive Officer, and General
Counsel. He is Co-President, Co-Chief Executive Officer, and General Counsel of
the Investment Company Complex and of Group and certain of its affiliates,
President of the Investment Manager and the Distributor, and Chairman of BBSI.
He was born June 25, 1959. He was associated with the law firm of Harris,
Mericle & Orr from 1984 to 1987. He is a member of the New York State Bar and
the SEC Rules Committee of the Investment Company Institute. He is a son of
Bassett S. Winmill and brother of Mark C. Winmill. He is also a Director of
certain other investment companies in the Investment Company Complex.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born March 1, 1955. From 1993 to 1995, he was Associate
Director -- Proprietary Trading at Barclays De Zoete Wedd Securities Inc., from
1992 to 1993 he was Director, Bond Arbitrage at WG Trading Company, and from
1989 to 1992 he was Vice President of Wilkinson Boyd Capital Markets.
BRETT B. SNEED, CFA -- Senior Vice President. He is Senior Vice President of the
Investment Company Complex, the Investment Manager and certain of its
affiliates. He was born June 11, 1941. He is a Chartered Financial Analyst, a
member of the Association for Investment Management and Research, and a member
of the New York Society of Security Analysts. From 1986 to 1988, he managed
private accounts, from 1981 to 1986, he was Vice President of Morgan Stanley
Asset Management, Inc. and prior thereto was a portfolio manager and member of
the Finance and Investment Committees of American International Group, Inc., an
insurance holding company.
JOSEPH LEUNG, CPA -- Treasurer and Chief Accounting Officer (since 1995). He is
Treasurer and Chief Accounting Officer of the Investment Manager and its
affiliates. From 1992 to 1995 he held various positions with Coopers & Lybrand
L.L.P., a public accounting firm. From 1991 to 1992, he was the accounting
supervisor at Retirement Systems Group, a mutual fund company. From 1987 to
1991, he held various positions with Ernst & Young, a public accounting firm. He
is a member of the American Institute of Certified Public Accountants.
He was born September 15, 1965.
17
<PAGE>
WILLIAM J. MAYNARD -- Vice President and Secretary. He is Vice President and
Secretary of the Investment Company Complex, the Investment Manager and its
affiliates. He was born September 13, 1964. From 1991 to 1994 he was associated
with the law firm of Skadden, Arps, Slate, Meagher & Flom. He is a member of the
New York State Bar.
* Bassett S. Winmill and Robert D. Anderson are "interested persons" of the Fund
as defined by the 1940 Act, because of their positions with the Investment
Manager.
COMPENSATION TABLE
<TABLE>
NAME OF Aggregate Pension or Estimated Total
PERSON, Compensa- Retirement Annual Compensation
POSITION tion From Benefits Benefits Upon From
Registrant Accrued as Retirement Registrant
Part of Fund and Fund
Expenses Complex Paid
to Directors
<S> <C> <C> <C> <C>
Bruce B. $3,000 None None $12,500 from
Huber 6 Investment
Director Companies
James E. Hunt $3,000 None None $12,500 from
Director 6 Investment
Companies
Frederick A. $3,000 None None $12,500 from
Parker 6 Investment
Director Companies
John B. $3,000 None None $12,500 from
Russell 6 Investment
Director Companies
</TABLE>
Information in the above table is based on fees paid during the year
ended December 31, 1995.
No officer, Director or employee of the Fund's Investment Manager
receives any compensation from the Fund for acting as an officer, Director or
employee of the Fund. As of April 3, 1996, officers and Directors of the Fund
owned less than 1% of the outstanding shares of the Fund. As of April 3, 1996,
no owner of record owned more than 5% of the outstanding shares of the Fund.
INVESTMENT MANAGER
The Investment Manager is Bull & Bear Advisers, Inc., 11 Hanover Square,
New York, NY 10005. The Investment Manager, a registered investment adviser, is
a wholly owned subsidiary of Group. The other principal subsidiaries of Group
include Investor Service Center, Inc., the Fund's Distributor and a registered
broker-dealer, Midas Management Corporation, a registered investment adviser,
and Bull & Bear Securities, Inc., a registered broker/dealer providing discount
brokerage services.
Group is a publicly-owned company whose securities are listed on the
Nasdaq Stock Market and traded in the over-the-counter market. Bassett S.
Winmill may be deemed a controlling person of Group on the basis of his
ownership of 100% of Group's voting stock and, therefore, of the Investment
Manager. The Fund and its investment company affiliates had net assets of
approximately $348 million as of April 15, 1996.
18
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays all
expenses required for the conduct of its business including, but not limited to,
custodian and transfer agency fees, accounting and legal fees, investment
management fees, fees of disinterested Directors, association fees, printing,
salaries of certain administrative and clerical personnel, necessary office
space, all expenses relating to the registration or qualification of the shares
of the Fund under Blue Sky laws and reasonable fees and expenses of counsel in
connection with such registration and qualification, miscellaneous expenses and
such non-recurring expenses as may arise, including actions, suits or
proceedings affecting the Fund and the legal obligation which the Fund may have
to indemnify its officers and Directors with respect thereto.
The Investment Manager has agreed in the Investment Management Agreement
that it will waive all or part of its fee or reimburse the Fund monthly if, and
to the extent that, the Fund's aggregate operating expenses exceed the most
restrictive limit imposed by any state in which shares of the Fund are qualified
for sale. Currently, the most restrictive such limit applicable to the Fund is
2.5% of the first $30 million of the Fund's average daily net assets, 2.0% of
the next $70 million of its average daily net assets and 1.5% of its average
daily net assets in excess of $100 million. Certain expenses, such as brokerage
commissions, taxes, interest, distribution fees, certain expenses attributable
to investing outside the United States and extraordinary items, are excluded
from this limitation. For the fiscal years ended December 31, 1993, 1994, and
1995, the Fund paid to the Investment Manager aggregate investment management
fees of $583,663, $442,387, and $456,593, respectively. No reimbursement was
made to the Fund by the Investment Manager for the fiscal years ended December
31, 1993, 1994, and 1995 pursuant to the expense guaranty described above.
If requested by the Fund's Board of Directors, the Investment Manager
may provide other services to the Fund such as, without limitation, the
functions of billing, accounting, certain shareholder communications and
services, administering state and Federal registrations, filings and controls
and other administrative services. Any services so requested and performed will
be for the account of the Fund and the costs of the Investment Manager in
rendering such services shall be reimbursed by the Fund, subject to examination
by those Directors of the Fund who are not interested persons of the Investment
Manager or any affiliate thereof. The cost of such services billed to the Fund
by the Investment Manager for the fiscal years ended December 31, 1993, 1994,
and 1995 was $25,193, $18,345, and $24,263, respectively.
The Investment Management Agreement provides that the Investment Manager
will not be liable to the Fund or any shareholder of the Fund for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the agreement relates. Nothing contained in the
Investment Management Agreement, however, shall be construed to protect the
Investment Manager against any liability to the Fund by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of obligations and duties under the
Investment Management Agreement.
The Investment Management Agreement will continue automatically for
successive periods of twelve months, provided such continuance is specifically
approved at least annually by (a) the Board of Directors of the Fund or by the
holders of a majority of the outstanding voting securities of the Fund as
defined in the 1940 Act and (b) a vote of a majority of the Directors of the
Fund who are not parties to the Investment Management Agreement, or interested
persons of any such party. The Investment Management Agreement may be terminated
without penalty at any time either by a vote of the Board of Directors of the
Fund or the holders of a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, on 60 days' written notice to the Investment
Manager, or by the Investment Manager on 60 days' written notice to the Fund,
and shall immediately terminate in the event of its assignment.
Group has granted the Fund a non-exclusive license to use the service
marks "Bull & Bear," "Bull & Bear Performance Driven," and "Performance Driven"
under certain terms and
19
<PAGE>
conditions on a royalty free basis. Such license will be withdrawn in the event
the investment manager of the Fund shall not be the Investment Manager or
another subsidiary of Group. If the license is terminated, the Fund will
eliminate all reference to "Bull & Bear" in its corporate name and cease to use
any of such service marks or any similar service marks in its business.
PERFORMANCE INFORMATION
The Fund computes its average annual total return by determining the
average annual compounded rate of return during specified periods that equates
the initial amount invested to the ending redeemable value of such investment.
This is done by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the
computation and subtracting one from the result. This calculation can be
expressed as follows:
T = (ERV OVER P) SUP {1 OVER n}-1
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made at
the beginning of the period which assumes all dividends and
other distributions by the Fund are reinvested on the
reinvestment date during the period.
P = hypothetical initial payment of $1,000.
n =period covered by the computation, expressed in terms of years.
The Fund's average annual total return for the one year and five year
periods ended December 31, 1995 and for the period December 20, 1986
(commencement of operations) to December 31, 1995 was 40.47%, 19.74% and 11.38%,
respectively.
The Fund's "total return" or "cumulative total return" or "cumulative
growth" is calculated by subtracting the amount of the Fund's net asset value
per share at the beginning of a stated period from the net asset value per share
at the end of the period (after giving effect to the reinvestment of all
distributions during the period), and dividing the result by the net asset value
per share at the beginning of the period. Although the Fund imposes a 1%
redemption fee on the redemption of shares held for 30 days or less, all of the
periods for which performance is quoted are longer than 30 days, and therefore
the 1% fee is not reflected in the performance calculations. The Fund's average
annual return, "total return" or "cumulative total return" or "cumulative
growth," expressed as a percentage rate and as the value of a hypothetical
$1,000 and $10,000 initial investment at the end of the period, for the periods
set forth below, commencing on the dates set forth and ending on December 31,
1995, are set forth below:
<TABLE>
AVERAGE
START OF PERIODS ANNUAL TOTAL ENDING VALUE OF ENDING VALUE
ENDING 12/31/95 RETURN RETURN A $1,000 IN OF A
VESTMENT $10,000 IN
VESTMENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 1995 40.47% 40.47% $1,404.68 $14,046.84
January 1, 1994 8.27% 17.23% $1,172.34 $11,723.45
January 1, 1993 10.90% 36.40% $1,364.04 $13,640.37
January 1, 1992 15.04% 75.12% $1,751.16 $17,511.58
January 1, 1991 19.74% 146.10% $2,461.01 $24,610.12
January 1, 1990 7.75% 56.54% $1,565.39 $15,653.89
January 1, 1989 12.12% 122.73% $2,227.30 $22,273.00
January 1, 1988 13.39% 173.35% $2,733.51 $27,335.14
January 1, 1987 11.00% 155.81% $2,558.12 $25,581.16
Inception-March 11.38% 187.02% $2,870.20 $28,701.98
20, 1986
</TABLE>
The Fund may provide the above described standard total return for a
period which ends as of not earlier than the most recent calendar quarter end
and which begins either twelve months before or at the time of commencement of
the Fund's operations. In addition, the Fund may provide nonstandardized total
return results for differing periods, such as for a recent month or quarter. For
example, the Fund's nonstandardized total return for the three months ended
December 31, 1995 was -18.82%. Such nonstandardized total returns are computed
as otherwise described above except that no annualization is made. Since
performance will vary, these results are not necessarily representative of
future results. Performance is a function of the type and quality of portfolio
securities and will reflect general market conditions and operating expenses.
See "The Fund's Investment Program" in the Prospectus. This Statement of
Additional Information may be in use for a full year and performance results for
periods subsequent to December 31, 1995 may vary substantially from those shown
above.
The Investment Manager and certain of its affiliates serve as investment
managers to the Fund and other affiliated investment companies, which have
individual and institutional shareholder investors throughout the United States
and in 37 foreign countries. The Fund may also provide performance information
based on an initial investment in the Fund and/or cumulative investments of
varying amounts over periods of time. Some or all of this information may be
provided either graphically or in tabular form.
SOURCE MATERIAL
From time to time, in marketing pieces and other Fund literature, the
Fund's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities, including
but not limited to small company growth, capital appreciation, and growth funds
indexes. Indexes are fully invested in the securities they index, whereas the
Fund is managed and may hold cash, non-comparable securities, or be leveraged.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' back grounds, management policies, salient features,
management results, income and dividend records, and price ranges.
21
<PAGE>
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value- weighted index calculated on price change only and does not include
income.
22
<PAGE>
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indexes, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
Salomon Brothers Broad Investment-Grade Bond Index -- is a market-weighted index
that contains approximately 4,700 individually priced investment-grade corporate
bonds rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
Salomon Brothers Market Performance tracks the Salomon Brothers bond index.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
Wall Street Journal, a nationally distributed newspaper which regularly covers
financial news.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith,
Inc., Bear Stearns & Co., Inc., and Ibbotson Associates may be used, as well as
information provided by the Federal Reserve Board.
23
<PAGE>
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc. acts
as the Distributor of the Fund's shares. Under the Distribution Agreement, the
Distributor shall use its best efforts, consistent with its other businesses, to
sell shares of the Fund. Fund shares are offered continuously. Pursuant to a
Plan of Distribution ("Plan") adopted under Rule 12b-1 of the 1940 Act, the Fund
pays the Distributor monthly a fee in the amount of one-quarter of one percent
per annum of the Fund's average daily net assets as compensation for service
activities and a fee in the amount of three-quarters of one percent per annum of
the Fund's average daily net assets as compensation for distribution activities.
In performing distribution and service activities pursuant to the Plan,
the Dis tributor may spend such amounts as it deems appropriate on any
activities or expenses primarily intended to result in the sale of the Fund's
shares or the servicing and maintenance of shareholder accounts, including, but
not limited to: advertising, direct mail, and promotional expenses; compensation
to the Distributor and its employees; compensation to and expenses, including
overhead and telephone and other communication expenses, of the Distributor, the
Investment Manager, the Fund, and selected dealers and their affiliates who
engage in or support the distribution of shares or who service shareholder
accounts; fulfillment expenses, including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and internal costs incurred by the
Distributor and allocated by the Distributor to its efforts to distribute shares
of the Fund such as office rent and equipment, employee salaries, employee
bonuses and other overhead expenses.
Among other things, the Plan provides that (1) the Distributor will
submit to the Fund's Board of Directors at least quarterly, and the Directors
will review, reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made, (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment or agreement related thereto is approved, by the Fund's Board of
Directors, including those Directors who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan or any agreement related to the Plan ("Plan Directors"), acting in
person at a meeting called for that purpose, unless terminated by vote of a
majority of the Plan Directors, or by vote of a majority of the outstanding
voting securities of the Fund, (3) payments by the Fund under the Plan shall not
be materially increased without the affirmative vote of the holders of a
majority of the outstanding voting securities of the Fund and (4) while the Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund shall be committed to the discretion of the
Directors who are not interested persons of the Fund.
With the approval of the vote of a majority of the entire Board of
Directors and of the Plan Directors of the Fund, the Distributor has entered
into a related agreement with Hanover Direct Advertising Company, Inc. ("Hanover
Direct"), a wholly owned subsidiary of Group, in an attempt to obtain cost
savings on the marketing of the Fund's shares. Hanover Direct will provide
services to the Distributor on behalf of the Fund and the other Bull & Bear
Funds at standard industry rates, which includes commissions. The amount of
Hanover Direct's commissions over its cost of providing Fund marketing will be
credited to the Fund's distribution expenses and represent a savings on
marketing to the benefit of the Fund. to the extent Hanover Direct's costs
exceed such commissions, Hanover Direct will absorb any such costs.
It is the opinion of the Board of Directors that the Plan is necessary
to maintain a flow of subscriptions to offset redemptions. Redemptions of mutual
fund shares are inevitable. If redemptions are not offset by subscriptions, a
fund shrinks in size and its ability to maintain quality shareholder services
declines. Eventually, redemptions could cause a fund to become uneconomic.
Furthermore, an extended period of significant net redemptions may be
detrimental to orderly management of the portfolio. Offsetting redemptions
through sales efforts benefits shareholders by maintaining the viability of a
fund. In periods where net sales are achieved, additional benefits may accrue
relative
24
<PAGE>
to portfolio management and increased shareholder servicing capability. In
addition, increased assets enable the establishment and maintenance of a better
shareholder servicing staff which can respond more effectively and promptly to
shareholder inquiries and needs. While net increases in total assets are
desirable, the primary goal of the Plan is to prevent a decline in assets
serious enough to cause disruption of portfolio management and to impair the
Fund's ability to maintain a high level of quality shareholder services.
The Plan increases the overall expense ratio of the Fund; however, a
substantial decline in Fund assets is likely to increase the portion of the
Fund's expense ratio comprised of management fees and fixed costs (i.e., costs
other than the Plan) while a substantial increase in Fund assets would be
expected to reduce the portion of the expense ratio comprised of management fees
(reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Fund had any direct or indirect financial
interest in the operation of the Plan or any related agreement.
Of the amounts paid to the Distributor during the Fund's fiscal year
ended December 31, 1995, approximately $21,720 represented paid expenses
incurred for advertising, $146,546 for printing and mailing prospectuses and
other information to other than current shareholders, $219,715 for salaries of
marketing and sales personnel, $31,302 for payments to third parties who sold
shares of the Fund and provided certain services in connection therewith, and
$122,841 for overhead and miscellaneous expenses. These amounts have been
derived by determining the ratio each such category represents to the total
expenditures incurred by the Distributor in performing services pursuant to the
Plan and then applying such ratio to the total amount of compensation received
by the Distributor pursuant to the Plan.
The Glass-Steagall Act prohibits certain banks from engaging in the
business of underwriting, selling, or distributing securities such as shares of
a mutual fund. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in the Distributor's opinion it should not
prohibit banks from being paid for shareholder services under the Plan. If,
because of changes in law or regulation, or because of new interpretations of
existing law, a bank or the Fund were prevented from continuing these
arrangements, it is expected that other arrangements for these services will be
made. In addition, state securities laws on this issue may differ from the
interpretation of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.
eastern time, unless weather, equipment failure, or other factors contribute to
an earlier closing) each day the NYSE is open for trading ("Business Day"). The
NYSE is closed on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Because a portion of the Fund's net assets may be invested in
foreign securities that are traded in foreign markets that are not necessarily
closed on days when the NYSE is closed, the net asset value per share may be
affected on days when shareholders have no access to the Fund or its transfer
agent.
Securities owned by the Fund are valued by various methods depending on
the market or exchange on which they trade. Securities traded on the NYSE, the
American Stock Exchange and the Nasdaq National Stock Market are valued at the
last sale price, or if no sale has occurred, at the mean between the current bid
and asked prices. Securities traded on other exchanges are valued as nearly as
possible in the same manner. Securities traded only over-the-counter are valued
at the mean between the last available bid and asked quotations,
25
<PAGE>
if available, or at their fair value as determined in good faith by or under
general direction of the Board of Directors. Short term securities are valued
either at amortized cost or at original cost plus accrued interest, both of
which approximate current value.
Foreign securities, if any, are valued at the last sale price in a
principal market where they are traded, or, if last sale prices are unavailable,
at the mean between the last available bid and asked quotations. Foreign
security prices are expressed in their local currency and translated the value
of foreign securities from the local currency into U.S. dollars at current
exchange rates. Any changes in the value of forward contracts due to exchange
rate fluctuations are included in the determination of net asset value. Foreign
currency exchange rates are generally determined prior to the close of trading
on the NYSE. Occasionally, events affecting the value of foreign securities and
such exchange rates occur between the time at which they are determined and the
close of trading on the NYSE, which events will not be reflected in a
computation of a Fund's net asset value on that day. If events materially
affecting the value of such securities or currency exchange rates occur during
such time period, the securities will be valued at their fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors.
Price quotations generally are furnished by pricing services, which may
also use a matrix system to determine valuations. This system considers such
factors as security prices, yields, maturities, call features, ratings, and
developments relating to specific securities in arriving at valuations.
PURCHASE OF SHARES
THE CONDITIONS OF ORDERS. The Fund will only issue shares upon payment of the
purchase price by check made payable to the Fund and drawn in U.S. dollars on a
U.S. bank, or by Federal Reserve wire transfer. Third party checks, credit
cards, and cash will not be accepted. The Fund reserves the right to reject any
order, to cancel any order due to nonpayment, to accept initial orders by
telephone or telegram, and to waive the limit on subsequent orders by telephone,
with respect to any person or class of persons. Orders to purchase shares are
not binding on the Fund until they are confirmed by the Transfer Agent. In order
to permit the Fund's shareholder base to expand, to avoid certain shareholder
hardships, to correct transactional errors, and to address similar exceptional
situations, the Fund may waive or lower the investment minimums with respect to
any person or class of persons.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most
favorable net prices. Transactions are directed to brokers and dealers qualified
to execute orders or provide research, statistical or other services, and who
may sell shares of the Fund or other affiliated investment companies. The
Investment Manager may also allocate portfolio transactions to broker/dealers
that remit a portion of their commissions as a credit against the Custodian's
charges. No formula exists and no arrangement is made with or promised to any
broker/dealer which commits either a stated volume or percentage of brokerage
business based on research, statistical or other services furnished to the
Investment Manager or upon sale of Fund shares. Fund transactions in debt and
over-the-counter securities generally are with dealers acting as principals at
net prices with little or no brokerage costs. In certain circumstances, however,
the Fund may engage a broker as agent for a commission to effect transactions
for such securities. Purchases of securities from underwriters include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include a spread between the bid and asked price. While the
Investment Manager generally seeks competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available.
The Investment Manager directs portfolio transactions to broker/dealers
for execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular broker/dealer, including brokerage and research services, sales of
Fund shares and shares of other affiliated investment companies, and allocation
of commissions to the Fund's custodian. With respect to brokerage and research
services, consideration may be given in the selection of
26
<PAGE>
broker/dealers to brokerage or research services provided and payment may be
made of a fee higher than that charged by another broker/dealer which does not
furnish brokerage or research services or which furnishes brokerage or research
services deemed to be of lesser value, so long as the criteria of Section 28(e)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), or other
applicable law are met. Section 28(e) of the 1934 Act was adopted in 1975 and
specifies that a person with investment discretion shall not be "deemed to have
acted unlawfully or to have breached a fiduciary duty" solely because such
person has caused the account to pay a higher commission than the lowest
available under certain circumstances. To obtain the benefit of Section 28(e),
the person so exercising investment discretion must make a good faith
determination that the commissions paid are "reasonable in relation to the value
of the brokerage and research services provided . . . viewed in terms of either
that particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion." Thus, although the
Investment Manager may direct portfolio transactions without necessarily
obtaining the lowest price at which such broker/dealer, or another, may be
willing to do business, the Investment Manager seeks the best value for the Fund
on each trade that circumstances in the market place permit, including the value
inherent in on-going relationships with quality brokers.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for brokerage or research services
might exceed commissions that would be payable for execution alone, nor
generally can the value of such services to the Fund be measured, except to the
extent such services have a readily ascertainable market value. There is no
certainty that services so purchased, or the sale of fund shares, if any, will
be beneficial to the Fund, and it may be that other affiliated investment
companies will derive benefit therefrom. Such services being largely intangible,
no dollar amount can be attributed to benefits realized by the Fund or to
collateral benefits, if any, conferred on affiliated entities. Those services
may include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities, (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody). Pursuant to
arrangements with certain broker/dealers, such broker/dealers provide and pay
for various computer hardware, software and services, market pricing
information, investment subscriptions and memberships, and other third party and
internal research of assistance to the Investment Manager in the performance of
its investment decision-making responsibilities for transactions effected by
such broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
Bull & Bear Securities, Inc. ("BBSI"), a wholly owned subsidiary of
Group and the Investment Manager's affiliate, provides discount brokerage
services to the public as an introducing broker clearing through an unaffiliated
firm on a fully disclosed basis. The Investment Manager is authorized by the
Board of Directors of the Fund to place Fund brokerage through BBSI at its
posted discount rates and indirectly through BBSI's clearing firm. The Fund will
not deal with BBSI in any transaction in which BBSI acts as principal. The
clearing firm will execute trades in accordance with the fully-disclosed
clearing agreement between BBSI and the clearing firm. BBSI will be financially
responsible to the clearing firm for all trades of the Fund until complete
payment has been received by the Fund or the clearing firm. BBSI will provide
order entry services or order entry facilities to the Investment Manager,
arrange for execution and clearing of portfolio transactions through executing
and clearing brokers, monitor trades and settlements and perform limited
back-office functions including the maintenance of all records required of it by
the NASD.
27
<PAGE>
In order for BBSI to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by BBSI must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. The Fund's Board of Directors has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
BBSI are reasonable and fair. Although BBSI's posted discount rates may be lower
than those charged by full cost brokers, such rates may be higher than some
other discount brokers and certain brokers may be willing to do business at a
lower commission rate on certain trades. The Fund's Board of Directors has
determined that portfolio transactions may be executed through BBSI if, in the
judgement of the Investment Manager, the use of BBSI is likely to result in
price and execution at least as favorable as those of other qualified
broker/dealers and if, in particular transactions, BBSI charges the Fund a rate
consistent with that charged to comparable unaffiliated customers in similar
transactions. Brokerage transactions with BBSI are also subject to such
fiduciary standards as may be imposed by applicable law. The Investment
Manager's fees under its agreement with the Fund are not reduced by reason of
any brokerage commissions paid to BBSI.
During the fiscal years ended December 31, 1993, 1994, and 1995, the
Fund paid total brokerage commissions of $631,267, $787,320, and $883,910,
respectively. For the fiscal year ended December 31, 1995, $840,641 in brokerage
commissions was allocated to bro ker/dealers that provided research, analytical,
statistical, and other services to the Fund, including third party research,
market and comparative industry information, portfolio analysis services,
computerized market data and other services. No transactions were directed to
broker/dealers during such periods for selling shares of the Fund or any other
affiliated investment companies. During the Fund's fiscal years ended December
31, 1993, 1994, and 1995, the Fund paid $28,779, $48,645, and $43,269,
respectively, in brokerage commissions to BBSI, which represented 4.56%, 6.17%,
and 4.90% respectively, of the total brokerage commissions paid by the Fund and
9.30%, 14.57%, and 19.36%, respectively, of the aggregate dollar amount of
transactions involving the payment of commissions.
Investment decisions for the Fund and for the other Funds managed by the
Investment Manager or its affiliates are made independently based on each Fund's
investment objectives and policies. The same investment decision, however, may
occasionally be made for two or more Funds. In such a case, the Investment
Manager may combine orders for two or more Funds for a particular security if it
appears that a combined order would reduce brokerage commissions and/or result
in a more favorable transaction price. Combined purchase or sale orders are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each Fund. While in some cases this practice could have a
detrimental effect upon the price or quantity available of the security with
respect to the Fund, the Investment Manager believes that the larger volume of
combined orders can generally result in better execution and prices. The Fund is
not obligated to deal with any particular broker, dealer or group thereof.
Certain broker/dealers that the Bull & Bear Funds do business with may, from
time to time, own more than 5% of the publicly traded Class A non-voting Common
Stock of Group, the parent of the Investment Manager, and may provide clearing
services to BBSI.
DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the right
to credit the shareholder's account with additional Fund shares at the then
current net asset value in lieu of the cash payment and to thereafter issue such
shareholder's distributions in additional Fund shares.
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for this treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
28
<PAGE>
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options
or futures) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) the Fund must derive less than 30%
of its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three months -
options, futures, or forward contracts (other than those on foreign currencies),
or foreign currencies (or options, futures, or forward contracts thereon) that
are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect thereto) ("Short-Short
Limitation"); and (3) the Fund's investments must satisfy certain
diversification requirements. In any year during which the applicable provisions
of the Code are satisfied, the Fund will not be liable for Federal income tax on
net income and gains that are distributed to its shareholders. If for any
taxable year the Fund does not qualify for treatment as a RIC, all of its
taxable income will be taxed at corporate rates.
A portion of the dividends from the Fund's investment company taxable
income (whether paid in cash or in additional Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
A loss on the redemption of Fund shares that were held for six months or
less will be treated as long-term, instead of short-term, capital loss to the
extent the shareholder received any capital gain distributions on those shares.
Any dividend or other distribution will have the effect of reducing the
net asset value of the Fund's shares on the payment date by the amount thereof.
Furthermore, any such dividend or other distribution, although similar in effect
to a return of capital, will be subject to taxes. Dividends and other
distributions may also be subject to state and local taxes.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails by the end of any calendar year to distribute an amount
equal to the sum of (1) 98% of its ordinary income, (2) 98% of its capital gain
net income (determined on an October 31 fiscal year basis), plus (3) generally,
all income and gain not distributed or subject to corporate tax in the prior
calendar year. The Fund intends to avoid imposition of the Excise Tax by making
adequate distributions.
Dividends and interest received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. Pursuant to the election, the Fund
would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as paid
by the shareholder,the shareholder's proportionate share of those taxes, (2)
treat the shareholder's share of those taxes and of any dividend paid by the
Fund that represents income from foreign or U.S. possessions sources as the
shareholder's own income from those sources, and (3) either deduct the taxes
deemed paid by the shareholder in computing the shareholder's taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the shareholder's Federal income tax. The Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's income from sources within, and taxes paid to, foreign countries and U.S.
possessions if it makes this election.
29
<PAGE>
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain
(the excess of net long-term capital gain over net short-term capital loss) even
if those earnings and gain were not received by the Fund those earnings and gain
probably would have to be distributed to satisfy the Distribution Requirement
and avoid imposition of the Excise Tax. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Fund, would
be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market", in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of such
PFIC's stock over the adjusted basis in that stock (including mark-to-market
gain for each prior year for which an election was in effect).
OPTIONS, FUTURES, FORWARD CONTRACTS, AND FOREIGN CURRENCIES. The Fund's
use of hedging strategies, such as selling (writing) and purchasing options and
futures contracts and entering into forward currency contracts, involves complex
rules that will determine for income tax purposes the character and timing of
recognition of the gains and losses the Fund realizes in connection therewith.
Gains from the disposition of foreign currencies (except certain gains that may
be excluded by future regulations), and gains from options, futures, and forward
contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and futures
contracts (other than those on foreign currencies) will be subject to the
Short-Short Limitation if they are held for less than three months. Income from
the disposition of foreign currencies, and options, futures, and forward
contracts on foreign currencies, also will be subject to the Short-Short
Limitation if they are held for less than three months and are not directly
related to the Fund's principal business of investing in securities (or options
and futures with respect thereto).
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The Fund
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not so qualify, it may be
forced to defer the closing out of certain options, futures, and forward
currency contracts beyond the time when it otherwise would be advantageous to do
so, in order for the Fund to continue to qualify as a RIC.
The foregoing discussion of Federal income tax consequences is based on
the tax law in effect on the date of this Statement of Additional Information,
which is subject to change by legislative, judicial, or administrative action.
The Fund may be subject to state or local tax in jurisdictions in which it may
be deemed to be doing business.
30
<PAGE>
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
operations, and changes in net assets of the Fund. The Fund's fiscal year ends
on December 31.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02109, has
been retained to act as Custodian of the Fund's investments and may appoint one
or more subcustodians. The Custodian also performs accounting services for the
Fund. As part of its agreement with the Fund, the Custodian may apply credits or
charges for its services to the Fund for, respectively, positive or deficit cash
balances maintained by the Fund with the Custodian. DST Systems, Inc., Box
419789, Kansas City, MO 64141-6789, acts as the Fund's Transfer and Dividend
Disbursing Agent. The Distributor provides certain shareholder administration
services to the Fund and is reimbursed by the Fund the actual costs incurred
with respect thereto. For shareholder services, the Fund reimbursed the
Distributor approximately $118,676, $153,664, and $125,256 for the fiscal years
ended December 31, 1993, 1994 and 1995, respectively.
AUDITORS
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia, PA
19102-1707, are the independent accountants for the Fund. Financial statements
of the Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December 31,
1995, together with the Report of the Fund's independent accountants thereon,
appear in the Fund's Annual Report to Shareholders and are incorporated herein
by reference.
31
<PAGE>
APPENDIX -- DESCRIPTIONS OF BOND RATINGS
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa Bonds which are rated 'Aaa' are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated 'Aa' are judged to be of high quality by all standards
and, together with the 'Aaa' group, comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities of fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the longer term risks appear somewhat larger than in 'Aaa'
securities.
A Bonds which are rated 'A' possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated 'Baa' are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated 'B' generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated 'Caa' are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated 'Ca' represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Standard & Poor's Corporate Bond Ratings
AAA This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA Bonds rated 'AA' also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from 'AAA' issues only in small degree.
A Bonds rated 'A' have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB Bonds rated 'BBB' are regarded as having adequate capacity to pay interest
and repay principal. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for bonds in this
capacity than for bonds in higher rated categories.
BB, B, CCC, CC and C Bonds rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and
32
<PAGE>
repay principal in accordance with the terms of the obligation. 'BB' indicates
the lowest degree of speculation and 'C' the highest degree of speculation.
While such bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
33
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial statements for each of the seven years in the period
ended December 31, 1995, and for the period from March 20, 1993
(commencement of operations) through December 31, 1995.
(b) Financial Highlights:
The Annual Report to Shareholders of the Fund for the fiscal year
ended December 31, 1995 containing financial statements as of and
for the fiscal year ended December 31, 1995 is filed herewith.
(b) Exhibits
(1) Articles of Incorporation. Incorporated herein by reference to
corresponding Exhibit of the initial Registration Statement, SEC
File No. 33-2847, filed January 22, 1986.
(2) By-Laws
(3) Voting trust agreement -- none
(4) Specimen security. Incorporated herein by reference to corresponding
Exhibit of Post-Effective Amendment No. 15, SEC File No. 33-2847,
filed April 21, 1995.
(5) Investment advisory contract; Transfer agreement and consent.
Incorporated herein by reference to corresponding Exhibit of Post-
Effective Amendment No. 11, SEC File No. 33-2847, filed March 2,
1993.
(6) Underwriting agreement
(7) Bonus, profit sharing or pension plans -- none
(8) (a) Custodian Agreement. Incorporated herein by reference to
corresponding Exhibit of Pre-Effective Amendment No. 1 to the
Registration Statement, SEC File No. 33-2847, filed March 17,
1986.; amendment. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 12, SEC
File No. 33-2847, filed April 30, 1993.
(b) Depository Agreements. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 12, SEC
File No. 33-2847, filed April 30, 1993.
(c) Service and Agency Agreement (filed herewith)
(d) Custodial Account and IRA Disclosure Statement. Incorporated
herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 15, SEC File No. 33-2847, filed April 21, 1995.
(e) IRA Agreement. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 15, SEC
File No. 33-2847, filed April 21, 1995.
(9) (a) Transfer Agency Agreement. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 15, SEC
File No. 33-2847, filed April 21, 1995.
(b) Transfer Agency Assignment Agreement. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment
No. 15, SEC File No. 33-2847, filed April 21, 1995.
<PAGE>
(c) Shareholder services agreement. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment
No. 11, SEC File No. 33-2847, filed March 2, 1993.
(d) Agency Agreement. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 15, SEC
File No. 33-2847, filed April 21, 1995.
(e) Credit Agreement (filed herewith)
(10) (a) Opinion of counsel. Incorporated herein by reference to
corresponding Exhibit of the initial Registration Statement,
SEC File No. 33-2847, filed January 22, 1986.
(b) Opinion of counsel pursuant to Section 24 (e) (1) (filed
herewith)
(11) Other opinions, appraisals, rulings and consents -Accountants'
consent (filed herewith)
(12) Financial statements omitted from Item 23 -- not applicable
(13) Agreement for providing initial capital. Incorporated herein by
reference to corresponding Exhibit of Pre-Effective Amendment No. 1
to the Registration Statement, SEC File No. 33-2847, filed March 17,
1986.
(14) Prototype retirement plans. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 15, SEC File
No. 33-2847, filed April 21, 1995.
(a) Standardized Profit Sharing Adoption Agreement
(b) Defined Contribution Basic Plan Document
(c) Standardized Money Purchase Adoption Agreement
(d) Simplified Profit Sharing Adoption Agreement
(e) Simplified Money Purchase Adoption Agreement
(15) (a) Plan pursuant to Rule 12b-1
(b) Related Agreement to Plan of Distribution pursuant to Rule
12b-1 between Bull & Bear Service Center, Inc. and Hanover
Direct Advertising Company, Inc. Incorporated herein by
reference to corresponding Exhibit of Post-Effective Amendment
No. 12, SEC File No. 33-2847, filed April 30, 1993.
(c) Broker Services Agreements. Incorporated herein by reference
to corresponding Exhibit of Post-Effective Amendment No. 11,
SEC File No. 33-2847, filed March 2, 1993.
(16) Schedule for computation of performance quotations. Incorporated
herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 11, SEC File No. 33-2847, filed March 2, 1993.
(17) Financial Data Schedule (filed herewith).
(18) Plan pursuant to Rule 18f-3 -- not applicable.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of April 18, 1996)
Shares of Common Stock,
$0.01 par value 8,543
<PAGE>
Item 27. Indemnification
The Registrant is incorporated under Maryland law. Section 2-418 of
the Maryland General Corporation Law requires the Registrant to indemnify its
directors, officers and employees against expenses, including legal fees, in a
successful defense of a civil or criminal proceeding. The law also permits
indemnification of directors, officers, employees and agents unless it is proved
that (a) the act or omission of the person was material and was committed in bad
faith or was the result of active or deliberate dishonesty, (b) the person
received an improper personal benefit in money, property or services or (c) in
the case of a criminal action, the person had reasonable cause to believe that
the act or omission was unlawful.
Registrant's amended and restated Articles of Incorporation: (1)
provide that, to the maximum extent permitted by applicable law, a director or
officer will not be liable to the Registrant or its stockholders for monetary
damages; (2) require the Registrant to indemnify and advance expense as provided
in the By-laws to its present and past directors, officers, employees and
agents, and persons who are serving or have served at the request of the
Registrant in similar capacities for other entities in advance of final
disposition of any action against that person to the extent permitted by
Maryland law and the 1940 Act; (3) allow the corporation to purchase insurance
for any present or past director, officer, employee, or agent; and (4) require
that any repeal or modification of the amended and restated Articles of
Incorporation by the shareholders, or adoption or modification of any provision
of the Articles of Incorporation inconsistent with the indemnification
provisions, be prospective only to the extent such repeal or modification would,
if applied retrospectively, adversely affect any limitation on the liability of
or indemnification available to any person covered by the indemnification
provisions of the amended and restated Articles of Incorporation.
Section 11.01 of Article XI of the By-Laws sets forth the
procedures by which the Registrant will indemnify its directors, officers,
employees and agents. Section 11.02 of Article XI of the By-Laws further
provides that the Registrant may purchase and maintain insurance or other
sources of reimbursement to the extent permitted by law on behalf of any person
who is or was a director or officer of the Registrant, or is or was serving at
the request of the Registrant as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in or arising out of his
or her position.
Registrant's amended Investment Management Agreement between the
Registrant and Bull & Bear Advisers, Inc. (the "Investment Manager") provides
that the Investment Manager shall not be liable to the Registrant or its series
or any shareholder of the Registrant or its series for any error of judgment or
mistake of law or for any loss suffered by the Registrant in connection with the
matters to which the Investment Management Agreement relates. However, the
Investment Manager is not protected against any liability to the Registrant or
to the series by reason of willful misfeasance, bad faith, or gross negligence
in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Investment Management Agreement.
Section 9 of the Distribution Agreement between Bull & Bear Funds II, Inc.
and Investor Service Center, Inc. ("Service Center") provides that the
Registrant will indemnify Service Center and its officers, directors and
controlling persons
<PAGE>
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by Service Center to the Registrant for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of the Distribution Agreement also provides
that Service Center agrees to indemnify, defend and hold the Registrant, its
officers and Directors free and harmless of any claims arising out of any
alleged untrue statement or any alleged omission of material fact contained in
information furnished by Service Center for use in the Registration Statement or
arising out of any agreement between Service Center and any retail dealer, or
arising out of supplementary literature or advertising used by Service Center in
connection with the Distribution Agreement.
The Registrant undertakes to carry out all indemnification
provisions of its Articles of Incorporation and By-Laws and the above-described
Investment Management Agreement in accordance with Investment Company Act
Release No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
The directors and officers of Bull & Bear Advisers, Inc., the
Investment Manager, are also directors and officers of the other Funds managed
by the Investment Manager, a wholly-owned subsidiary of Bull & Bear Group, Inc.
(the "Bull & Bear Funds"). In addition, such officers are officers and directors
of Bull & Bear Group, Inc. and its other subsidiaries; Investor Service Center,
Inc., the distributor of the Bull & Bear Funds and a registered broker/dealer,
Midas Management Corporation, a registered investment adviser, and Bull & Bear
Securities, Inc., a discount brokerage firm. The principal business of both
companies since their founding has been to serve as investment manager to
registered investment companies. The Investment Manager also serves as
investment
<PAGE>
manager of Bull & Bear Dollar Reserves, Bull & Bear Global Income Fund, and Bull
& Bear U.S. Government Securities Fund, each a series of Bull & Bear Funds II,
Inc.; Bull & Bear Municipal Income Fund, a series of shares issued by Bull &
Bear Municipal Securities, Inc.; Bull & Bear Gold Investors Ltd. and Bull & Bear
U.S. and Overseas Fund and Bull & Bear Quality Growth Fund, each a series of
Bull & Bear Funds I, Inc.
Item 29. Principal Underwriters
a) In addition to the Registrant, Investor Service Center, Inc. serves as
principal underwriter of Bull & Bear Gold Investors Ltd., Bull & Bear Funds II,
Inc., Bull & Bear Funds I, Inc., Midas Fund, Inc., and Bull & Bear Municipal
Securities, Inc.
b) Service Center will serve as the Registrant's principal underwriter with
respect to Bull & Bear Special Equities Fund, Inc. The directors and officers of
Service Center, their principal business addresses, their positions and offices
with Service Center and their positions and offices with the Registrant (if any)
are set forth below.
<TABLE>
Position and Offices with Bull & Position and Offices with
Name and Principal Business Bear Service Center, Inc. Registrant
Address
<S> <C> <C>
Bassett S. Winmill Director Chairman of the Board
11 Hanover Square
New York, NY 10005
Robert D. Anderson Vice Chairman and Director Vice Chairman and Director
11 Hanover Square
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Brett B. Sneed Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Chairman, Director and Chief Co-President and Chief Financial
11 Hanover Square Financial Officer Officer
New York, NY 10005
Thomas B. Winmill President, Director Co-President and General Counsel
11 Hanover Square
New York, NY 10005
William J. Maynard Vice President and Secretary Vice President and Secretary
11 Hanover Square
New York, NY 10005
Kathleen B. Fliegauf Vice President and Assistant None
11 Hanover Square Secretary
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
</TABLE>
<PAGE>
Joseph Leung Treasurer Treasurer
11 Hanover Square
New York, NY 1000
Item 30. Location of Accounts and Records
The minute books of Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and its Investment Manager). All other records required by Section
31(a) of the Investment Company Act of 1940 are located at Investors Bank &
Trust Company, 89 South Street, Boston, MA 02111 (the offices of Registrant's
custodian) and at DST Systems, Inc., P.O. Box 419789, Kansas City, MO 64141-6789
(the offices of the Registrant's transfer and dividend disbursing agent). Copies
of certain of the records located at Investors Bank & Trust Company and
Supervised Service Company are kept at 11 Hanover Square, New York, NY 10005.
Item 31. Management Services -- none
Item 32. Undertakings -- none
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City, County and State of New York on this 30th day of
April, 1996.
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By: Thomas B. Winmill
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Mark C. Winmill Co-President and Co-Chief April 30, 1996
- ---------------
Mark C. Winmill Executive Officer
Thomas B. Winmill Co-President and Co-Chief April 30, 1996
- -----------------
Thomas B. Winmill Executive Officer
Bassett S. Winmill Director, Chairman of the April 30, 1996
- ------------------
Bassett S. Winmill Board of Directors
Joseph Leung Treasurer, Principal April 30, 1996
Joseph Leung Accounting Officer
Robert D. Anderson Director April 30, 1996
Robert D. Anderson
Bruce B. Huber Director April 30, 1996
Bruce B. Huber
James E. Hunt Director April 30, 1996
James E. Hunt
Frederick A. Parker, Jr. Director April 30, 1996
- ------------------------
Frederick A. Parker, Jr.
John B. Russell Director April 30, 1996
John B. Russell
<PAGE>
EXHIBIT INDEX
EXHIBIT
(9) (e) Credit Agreement
(11) Other opinions, appraisals, rulings and consents - Accountants' consent
(10) (b) Opinion of counsel pursuant to Section 24(e)(1)
(17) Financial Data Schedule
Annual Reports to Shareholders of the Fund for the fiscal period ended December
31, 1995 containing financial statements as and for the fiscal period ended
December 31, 1995...............................................................
February 15, 1996
Fellow Shareowners:
We are very pleased to report that Bull & Bear Special Equities Fund achieved
a total return of +40.47% for 1995, a better result by almost a third than the
+30.78% gain turned in for the year by the Lipper Capital Appreciation Fund
Index. The Fund's results also compared favorably with the total return of
+36.94% for the Standard & Poor's 500 Stock Index. We are also very pleased to
report that the Fund's five year average annual total return was +19.74%. The
Fund's strong performance reflects a strategy of concentrating in technology and
health care issues for most of the year, as well as in several financial
holdings which turned in above average results.
We believe the Fund's approach of investing aggressively in special situations
and emerging growth companies, plus being able to use leverage when considered
advantageous, makes it an attractive and unique investment choice for investors
seeking long term capital appreciation. In this regard, it is a pleasure to
welcome our many new shareowners who have joined us since our last Report by
opening regular, Gifts/Transfers to Minors, and qualified retirement plan
accounts, such as IRAs.
Following a brief pause in January 1995, stock prices advanced dramatically
through mid-July, with the Dow Jones Industrial Average increasing by almost 1,
000 points. During the first half of the year, the lag effect of higher interest
rates, combined with slow growth in employment and personal income, resulted in
a sharp deceleration in consumer spending and put a damper on overall economic
growth. This caused businesses to cut back inventories, resulting in rapidly
diminishing inflationary pressures and sharply declining in terest rates. The
Federal Reserve, apparently believing its objective of slowing the economy to a
sustainable growth rate had been accomplished, began to
ease monetary restraint in early July. Interest-rate sensitive areas of the
economy, such as housing and automobile sales, responded vigorously to lower
rates. Third quarter economic growth jumped 3.8%, stock prices continued to
surge based on heightened earnings expectations and, as the year drew to a
close, there were hopes of agreement on a balanced budget over seven years. In
December, the Federal Reserve eased monetary policy further, and the stock
Chart follows: Special Equities Fund
Results of an initial investment of $10,000 with subsequent investments of $100
a month from inception, 3/20/86, through 12/31/96 with all distributions
reinvested. Investments for the period total $21,700.
Plot points: $12.0,$12.3,$16.3,$24.7,$16.5,$24.6,$33.1,$39.8,$34.3 Ending Value:
$49,747
market closed the year with its third best gain ever and the best advance in 20
years.
After the January 1996 stock market surge on good fourth quarter 1995
earnings, the Federal Reserve cut interest rates again, providing supportive
liquidity to the financial markets. We anticipate that continued bouts of
concern regarding the stalled budget process in Washington, however, may limit
stock market gains over the first half of 1996. In addition, prospects of a slow
rate of economic growth over the first half and mixed corporate earnings may
also affect the market outlook. In the second half of 1996, though, we expect
that a continuingly benign inflationary outlook and further monetary ease to
provide strong support for corporate earnings and stock prices. Certain smaller
capitalization growth issues and a large number of other small to medium sized
companies appear to offer excellent bargains. In short, we believe many
opportunities continue to exist for above average long term capital
appreciation.
We therefore see this as an attractive opportunity to add to your investment.
In terms of seeking to achieve your long range financial goals, we especially
favor building your account on a regular basis, which can be done safely,
automatically and conveniently through the Bull & Bear Bank Transfer Plan, Bull
& Bear Salary Investing Plan, and/or Bull & Bear Government Direct Deposit Plan.
For information on any of these free services, simply give us a call and we will
help you get started.
If you have any questions or would like information on any of the Bull & Bear
Funds, the Bull & Bear No-Fee IRA(R) or opening a discount brokerage account at
Bull & Bear Securities, where you can earn American Airlines(R) AAdvantage(R)
miles on every trade, we would be very pleased to hear from you. Just call
1-800-847-4200, and an Investor Service Representative will be glad to assist
you, as always, without any obligation on your part.
Sincerely,
Robert D. Anderson
Vice Chairman
Brett B. Sneed
Senior Vice President
Portfolio Manager
Total Return Performance Graphs
*Bull & Bear Special Equities Fund ("Fund")
*Russell 2000 ("2000")
The 2000 is a small company index that 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 $10,000 Performance Graphs are from April 1, 1986 to December 31, 1995, and
results in each case reflect reinvestment of dividends and distributions.
Plot Points:
Fund: 10.0,11.2,10.5,12.9,18.3,11.7,16.4,21.0,24.5,20.4,28.7
2000: 10.0,9.3,8.4,10.6,12.3,9.9,14.4,17.1,20.3,19.9,25.6
Final Value:
Fund:$28,702 Total Return:187.02% Average Annual Return:11.38%
2000:$25,591 Total Return:155.91% Average Annual Return:10.12%
INCOME FUNDS-
MONEY MARKET,
U.S. GOVERNMENT,
MUNICIPAL AND
GLOBAL
Monthly Dividends
Free, Unlimited
Check Writing
($250 minimum
per check)
Bull & Bear
Dollar Reserves
A high quality money market fund investing in U.S. Government securities. Income
is generally free from state income and intangible property taxes. (For Bull &
Bear Performance Plus (R) discount brokerage accounts, the check writing minimum
is $100.)
- -------------------------------------------------------------------------------
Bull & Bear
U.S. Government
Securities Fund
Investing for a high level of current income, liquidity and safety of principal.
- -------------------------------------------------------------------------------
Bull & Bear
Municipal Income Fund
Investing for the highest possible income exempt from Federal income tax that is
consistent with preservation of principal.
- -------------------------------------------------------------------------------
Bull & Bear
Global Income Fund
Investing for a high level of income from a global portfolio of primarily
investment grade fixed income securities.
- -------------------------------------------------------------------------------
GROWTH FUNDS-U.S., GLOBAL
AND PRECIOUS
METALS
Bull & Bear
U.S. and Overseas Fund
Invests worldwide for the highest possible total return.
- -------------------------------------------------------------------------------
Bull & Bear
Special Equities Fund
Invests aggressively for maximum capital appreciation.
- -------------------------------------------------------------------------------
Bull & Bear
Gold Investors
Seeks long term capital appreciation in investments with the potential to
provide a hedge against inflation and preserve the purchasing power of the
dollar.
- -------------------------------------------------------------------------------
Call our toll-free number for a prospectus containing more complete
information, including charges and expenses. Please read it carefully before
you invest.
- -------------------------------------------------------------------------------
DISCOUNT
BROKERAGE
SERVICES
Call Toll Free
1-800-VIP-4200
Bull & Bear
Securities, Inc.
Investors receive the investment information they need and the low commissions
they expect. Commission savings of up to 84% and more over full cost firms and
guaranteed 20% lower than Charles Schwab & Co. on every stock, bond and option
trade. (Transactions are subject to a low $31 minimum commission; comparisons
are based on a January 1996 survey of standard telephone orders; full cost firms
and larger discount brokers may offer additional services not available from
Bull & Bear Securities and rates may vary markedly for other types of products.)
- -------------------------------------------------------------------------------
Total Return Performance. For the periods ended December 31, 1995, Bull & Bear
Special Equities Fund's total return for one year was 40.47%, average annual
total return for the past five years was 19.74% and for the life of the Fund
(from March 20, 1986) was 11.38%. Past performance does not guarantee future
results. Investment return will fluctuate, so shares when redeemed may be worth
more or less than their cost. Dollar cost averaging does not assure a profit or
protect against loss in a declining market, and investors should consider their
ability to make purchases when prices are low.
3
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Schedule of Portfolio Investments - December 31, 1995
Market
Shares Value
- ------- -----------
COMMON STOCKS (99.1%)
Air Transportation (1.7%)
45,000 Atlantic Southeast Airlines Inc................. $ 967,500
-----------
Automobile Insurance (2.4%)
70,000 20th Century Industries, Inc.*.................. 1,391,250
-----------
Business Credit (.7%)
92,500 Financing for Science International Inc.*....... 375,781
-----------
Chemicals - Specialty (1.3%)
90,000 Planet Polymer Technology, Inc.*................ 720,000
-----------
Computer Terminals (2.5%)
75,000 Planar Systems, Inc.*........................... 1,434,375
-----------
Computer & Office Equipment (2.0%)
18,000 Digital Equipment Corp.*........................ 1,154,250
-----------
Hospital and Medical Service Plans (11.6%)
60,000 Apria Healthcare Group Inc. ..................... 1,695,000
60,000 Coventry Corp.*.................................. 1,237,500
22,000 Healthcare Compare Corp.*........................ 957,000
60,000 Mid-Atlantic Medical Services Inc.*.............. 1,455,000
19,000 United Healthcare Corp........................... 1,244,500
-----------
6,589,000
-----------
In Vitro and In Vivo Diagnostic Substances (4.5%)
160,000 Neoprobe Corp.*.................................. 2,580,000
-----------
Orthopedic, Prosthetic and Surgical
Appliances & Supplies (4.2%)
70,000 Biomet Inc.*..................................... 1,251,250
40,000 Sofamor/Denek Group, Inc.*....................... 1,135,000
-----------
2,386,250
-----------
Personal Credit Institutions (11.9%)
500,000 AmeriCredit Corp.*............................... 6,812,500
-----------
Pharmaceuticals (4.2%)
35,000 Elan Corp. PLC*.................................. 1,701,875
95,000 ICOS Corp.*...................................... 700,625
-----------
2,402,500
-----------
4
Market
Shares Value
- ------- -----------
Publishing and Filmed Entertainment (1.9%)
45,000 7th Level Inc.*......................................... $ 630,000
62,000 Harvey Entertainment Co.*............................... 465,000
-----------
1,095,000
-----------
Radio Telephone Communications (2.3%)
60,000 Mobile Telecommunication Technologies Corp.*............ 1,282,500
-----------
Retail - Services (3.5%)
75,000 Longhorn Steaks Inc.*................................... 1,331,250
50,000 Renters Choice Inc...................................... 687,500
-----------
2,018,750
-----------
Services - Amusement & Recreation Services (1.7%)
70,000 Westwood One, Inc.*..................................... 988,750
-----------
Services - Computer Integrated Systems Design (5.3%)
42,000 Network Equipment Technologies Inc.*.................... 1,149,750
45,000 Newbridge Network Corp.*................................ 1,861,875
-----------
3,011,625
-----------
Services - Computer Processing & Data Preparation (2.4%)
25,000 Shared Medical Systems Corp............................. 1,359,375
-----------
Services - Employment Leasing (3.9%)
65,000 Employee Solutions, Inc.*............................... 2,210,000
-----------
Services - Engineering Services (.5%)
105,000 Essex Corp. Units*...................................... 262,875
-----------
Services - Prepackaged Software (10.8%)
70,000 Datawatch Corp.*........................................ 350,000
40,000 Excalibur Technologies Corp.*........................... 1,460,000
50,000 Mercury Interactive Corp.*.............................. 912,500
90,000 Platinum Technology Inc.*............................... 1,653,750
82,500 System Software Associates, Inc......................... 1,794,375
-----------
6,170,625
-----------
Steel (2.1%)
110,000 Universal Stainless & Alloy Products, Inc.*............. 1,168,750
-----------
Surgical & Medical Instruments & Apparatus (5.8%)
60,000 Circon Corp.*........................................... 1,215,000
105,000 Utah Medical Products Inc.*............................. 2,080,312
-----------
3,295,312
-----------
Telephone & Telegraph Apparatus (1.9%)
80,000 Brite Voice Systems, Inc.*.............................. 1,110,000
-----------
5
Market
Shares Value
- --------- -----------
Telephone Communications (2.5%)
40,000 WorldCom, Inc.*........................................ $ 1,410,000
-----------
Television Broadcasting Stations (1.5%)
50,000 New World Communications Group, Inc. Class A*.......... 875,000
-----------
Wholesale-Computer & Peripheral Equipment & Software (6.0%)
200,000 Ameridata Technologies Inc.*.......................... 1,925,000
58,000 Cheyenne Software, Inc.*.............................. 1,515,250
-----------
3,440,250
-----------
Total Common Stocks (cost: $48,336,794) (99.1%).............. 56,512,218
-----------
Principal
Amount
- ---------
U.S. Government Agencies (.9%)
$515,000 Federal National Mortgage Assn.,
due 1/5/96 (cost: $514,686)... 514,686
-----------
Total Investments (cost: $48,851,480) (100.0%)................. $57,026,904
===========
- --------------------------------------------------------------------------------
* Indicates non-income producing security.
See accompanying notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS:
Investment at market value
(cost: $48,851,480) (note 1)................... $57,026,904
Cash........................................... 7,790
Receivables:
Fund shares sold............................... 120,641
Dividends...................................... 10,750
------------
Total assets................................... 57,166,085
------------
LIABILITIES:
Payables:
Investment securities purchased................ 450,887
Fund shares redeemed........................... 196,017
Accrued management and distribution fees....... 46,836
Accrued expenses............................... 132,794
------------
Total liabilities.............................. 826,534
------------
NET ASSETS: (applicable to 2,216,430
outstanding shares: 500,000,000 shares of
$.01 par value authorized)..................... $56,339,551
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($56,339,551 ~ 2,216,430) $25.42
============
At December 31, 1995 net assets consisted of:
Paid-in capital................................ $48,197,247
Accumulated net realized loss on investments... (33,120)
Net unrealized appreciation on investments..... 8,175,424
------------
$56,339,551
============
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
INVESTMENT INCOME:
Dividends............................. $ 82,173
Interest.............................. 16,890
------------
Total investment income............... 99,063
------------
EXPENSES:
Distribution (note 3)................. 542,124
Investment management (note 3)........ 456,593
Interest (note 5)..................... 432,058
Transfer agent........................ 134,345
Shareholder administration (note 3)... 125,256
Custodian............................. 104,505
Professional (note 3)................. 59,292
Registration (note 3)................. 52,298
Directors............................. 12,280
Other................................. 73,377
------------
Total expenses........................ 1,992,128
------------
Net investment loss................... (1,893,065)
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain from security
transactions.......................... 14,970,525
Unrealized appreciation of investments
during the period..................... 4,972,715
------------
Net realized and unrealized gain on
investments........................... 19,943,240
------------
Net increase in net assets resulting
from operations....................... $18,050,175
============
------------
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,
1995 1994
------------ -------------
OPERATIONS:
Net investment loss...................................$(1,893,065) $(1,472,841)
Net realized gain (loss) from security transactions... 14,970,525 (9,080,429)
Unrealized appreciation (depreciation) of investments
and futures contracts during the period... 4,972,715 (688,522)
-------------------------
Net increase (decrease) in net assets resulting
from operations................................. 18,050,175 (11,241,792)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from realized gains
($1.39 and $0.19 per share, respectively)...............(2,913,388) (473,631)
CAPITAL SHARE TRANSACTIONS:
Decrease in net assets resulting from
capital share transactions (a)..........................(4,411,285) (16,627,852)
--------------------------
Total change in net assets............................. 10,725,502 (28,343,275)
NET ASSETS:
Beginning of year...................................... 45,614,049 73,957,324
--------------------------
End of year.............................................$56,339,551 $45,614,049
==========================
- ------
(a) Transactions in capital shares were as follows:
<TABLE>
1995 1994
--------------------------- ----------------------------
Shares Value Shares Value
------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold...................................... 6,008,412 $129,150,027 5,376,232 $106,999,445
Shares issued in reinvestment of distributions... 108,692 2,697,731 21,023 388,975
Shares redeemed.................................. (6,287,493) (136,259,043) (6,208,346) (124,016,272)
------------ -------------- ------------ ---------------
Net decrease..................................... (170,389) $(4,411,285) (811,091) $(16,627,852)
============ ============== ============ ===============
See accompanying notes to financial statements.
7
</TABLE>
Notes to Financial Statements
(1) The Fund is registered under the Investment Company Act of 1940, as amended,
as a non-diversified, open-end management investment company. The investment
objective of the Fund is capital appreciation. The Fund seeks capital
appreciation by investing aggressively, depending on the assessment of economic
and market factors, in equity securities, warrants, convertible securities and
debt instruments. 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, securities traded on a national
securities exchange and securities traded on the Nasdaq National Market System
("NMS") are valued at the last reported sales price on the day the valuations
are made. Such securities that are not traded on a particular day and securities
traded in the over-the-counter market that are not on NMS are valued at the mean
between the current bid and asked prices. Securities for which quotations are
not readily available and other assets are valued at fair value as determined in
good faith by or under the direction of the Board of Directors. Securities
denominated in foreign currencies are translated into U.S. dollars at prevailing
exchange rates. Debt obligations with remaining maturities of 60 days or less
are valued at cost adjusted for amortization of premiums and accretion of
discounts. Futures contracts are marked to market daily and the variation margin
is recorded as an unrealized gain or loss. When a contract is closed, a realized
gain or loss is recorded equal to the difference between the opening and closing
value of the contract. Investment transactions are accounted for on the trade
date (date the order to buy or sell is executed). Dividend income and
distributions to shareholders are recorded on the ex-dividend date and interest
income is recorded on the accrual basis. In preparing financial statements in
conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(2) The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all 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. Based on Federal income
tax cost of $48,884,600, gross unrealized appreciation and gross unrealized
depreciation were $11,216,918 and $3,074,614, respectively at December 31, 1995.
Distributions paid to shareholders during the year ended December 31, 1995
differ from net realized gains from security transactions as determined for
financial reporting purposes principally as a result of utilization of capital
loss carryforwards and wash sales.
(3) The Fund retains Bull & Bear Advisers, Inc. as its Investment Manager. Under
the Investment Management Agreement, the Investment Manager receives a
management fee, payable monthly, based on the average daily net assets of the
Fund at the annual rate of 1% on the first $10 million, 7/8 of 1% from $10
million to $30 million, 3/4 of 1% from $30 million to $150 million, 5/8 of 1%
from $150 million to $500 million, and 1/2 of 1% over $500 million. The
Investment Manager has undertaken that the operating expenses of the Fund for
each fiscal year (including management fees but excluding taxes, interest,
brokerage commissions and distribution plan expenses), expressed as a percentage
of average daily net assets, will not exceed the lowest rate prescribed by any
state in which shares of the Fund are qualified for sale. Currently such
limitation is 2.5% of the first $30 million of such assets, 2% of the next $70
million and 1.5% of the remaining net assets. If the Fund's expenses exceed such
rates, the Investment Manager will reimburse the Fund for any excess. Certain
officers and directors
8
of the Fund are officers and directors of the Investment Manager and Investor
Service Center, Inc. (formerly Bull & Bear Service Center, Inc.), the Fund's
Distributor. For the year ended December 31, 1995 the Fund paid $43,269 to Bull
& Bear Securities, Inc., an affiliate of the Investment Manager as commissions
for brokerage services. The Fund reimbursed the Investment Manager $24,263 for
providing certain administrative and accounting services at cost for the year
ended December 31, 1995.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"). Pursuant to the Plan, the Fund pays
the Distributor 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 fee for service activities is intended to cover personal services provided
to shareholders in the Fund and the maintenance of shareholder accounts. The fee
for distribution activities is to cover all other activities and expenses
primarily intended to result in the sale of the Fund's shares. Investor Service
Center also received $125,256 for shareholder administration services which it
provided to the Fund at cost for the year ended December 31, 1995.
(4) Purchases and proceeds of sales of securities other than short term notes
aggregated $185,498,801 and $202,876,384, respectively.
(5) The Fund had a committed bank line of credit which expired. For the year
ended December 31, 1995, the weighted average interest rate was 8.6% based on
the balances outstanding during the year and the weighted average amount
outstanding was $4,925,000. Included in interest expense is $6,892 for
commitment fees related to this line of credit.
9
<TABLE>
FINANCIAL HIGHLIGHTS
Years Ended December 31,
-----------------------------------------------
1995 1994 1993 1992 1991
---------- --------- -------- -------- --------
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................... $19.11 $23.13 $24.88 $19.38 $13.79
---------- --------- -------- -------- --------
Income from investment operations:
Net investment loss...................................... (.81) (.55) (.76) (.58) (.36)
Net realized and unrealized gain (loss) on investments... 8.51 (3.28) 4.65 6.08 5.95
---------- --------- -------- -------- --------
Total from investment operations......................... 7.70 (3.83) 3.89 5.50 5.59
Less distributions:
Distributions from net realized gains on investments..... (1.39) (.19) (5.64) - -
---------- --------- -------- -------- --------
Net increase (decrease) in net asset value............... 6.31 (4.02) (1.75) 5.50 5.59
---------- --------- -------- -------- --------
Net asset value at end of period......................... $25.42 $19.11 $23.13 $24.88 $19.38
========== ========= ======== ======== ========
TOTAL RETURN............................................. 40.5% (16.5)% 16.4% 28.4% 40.5%
========== ========= ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted).............. $56,340 $45,614 $73,957 $68,314 $16,738
========== ========= ======== ======== ========
Ratio of expenses to average net assets.................. 2.88%** 2.92% 2.74% 3.07% 2.83%
========== ========= ======== ======== ========
Ratio of net investment loss to average net assets....... 2.70% 2.43% 2.73% 2.78% 2.11%
========== ========= ======== ======== ========
Portfolio turnover rate.................................. 319% 309% 256% 261% 384%
========== ========= ======== ======== ========
- ------
* Per share net investment loss 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.
** Ratio including interest expense was 3.67%.
10
</TABLE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of Bull & Bear Special Equities Fund,
Inc.:
We have audited the accompanying statement of assets and liabilities of Bull &
Bear Special Equities Fund, Inc., including the schedule of portfolio
investments as of December 31, 1995, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Bull &
Bear Special Equities Fund, Inc. as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 19, 1996
Form Of
CREDIT AGREEMENT
INVESTORS BANK & TRUST COMPANY
and
BULL & BEAR FUNDS I, INC.
BULL & BEAR FUNDS II, INC.
BULL & BEAR GOLD INVESTORS LTD.
BULL & BEAR MUNICIPAL SECURITIES, INC.
BULL & BEAR SPECIAL EQUITIES FUND, INC. and
MIDAS FUND, INC.
$20,000,000 REVOLVING CREDIT FACILITY
April 3, 1996
TABLE OF CONTENTS
Page
ARTICLE I. THE CREDIT FACILITY
1.01 The Credit Facility 1
1.02 Availability 3
1.03 Charges Against Accounts 3
1.04 Payments 3
1.05 Payment on Non-Business Days 3
1.06 Net Payments 3
1.07 Additional Amounts Payable 3
1.08 Source of Repayment; Payment of Fees and Other Charge 4
ARTICLE II. CONDITIONS
2.01 Conditions to Closing 5
2.02 Conditions of Making Loans 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.01 Organization 7
3.02 Authority 7
3.03 Approvals 8
3.04 Valid Obligations 8
3.05 Assets 8
3.06 Claims 8
3.07 Financial Statements 9
3.08 Taxes 9
3.09 Investment Company 9
3.10 Margin Stock 10
3.11 Representations Accurate 10
4.01 Affirmative Covenants Other Than
4.02 Negative Covenants 11
4.03 Reporting Requirements 13
ARTICLE V. EVENTS OF DEFAULT; REMEDIES
5.01 Events of Default 15
5.02 Remedies 16
5.03 Set-off 17
ARTICLE VI. MISCELLANEOUS
6.01 Right to Cure 17
6.02 Waivers 17
6.03 Delays 17
6.04 Notices 17
6.05 Captions 18
6.06 Jurisdiction 18
6.07 Execution 18
6.08 Governing Law 18
6.09 Fees 18
6.10 Binding Nature 18
6.11 Severability 18
6.12 Under Seal 19
ARTICLE VII. DEFINITIONS
7.01 Definitions 19
7.02 Use of Defined Terms 20
7.03 Accounting Terms 20
Exhibits
Exhibit A Form of Note
Exhibit B Form of Borrowing Notice
Exhibit C Designation of Portfolios
Schedules
Schedule A Additional Disclosure and Covenants
This Credit Agreement (the "Agreement") is made as of April 3, 1996
between Investors Bank & Trust Company, a Massachusetts trust company (the
"Bank"), and each of Bull & Bear Funds I, Inc., Bull & Bear Funds II, Inc., Bull
& Bear Gold Investors Ltd., Bull & Bear Municipal Securities, Inc., Bull & Bear
Special Equities Fund, Inc. and Midas Fund, Inc., each a Maryland corporation
with its principal office at 11 Hanover Square, New York, NY 10005 (each a
"Borrower" and collectively the "Borrowers").
WHEREAS, the Borrowers have requested that the Bank provide, and subject
to the terms and conditions of this Agreement and of the other agreements and
documents referred to herein, the Bank has agreed to provide, to the Borrowers a
credit facility (the "Credit Facility") of up to $20,000,000 to provide for the
short-term working capital requirements of the Borrowers;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Borrowers, in
order to induce the Bank to provide the Credit Facility, and intending to be
legally bound, hereby severally but not jointly agree with the Bank as follows:
ARTICLE I
THE CREDIT FACILITY
1.01.The Credit Facility. The Credit Facility shall consist of a revolving line
of credit pursuant to which the Bank may from time to time make Loans to the
Borrowers.
(a) Loans. Subject to the terms and conditions hereinafter set
forth, the Bank agrees to make Loans to any or all of the Borrowers and, with
respect to Borrowers composed of Portfolios, any and all of the Portfolios at
the Principal Office of the Bank on any Business Day prior to the Termination
Date, in such amounts as the Borrowers may request; provided, however, that any
such requests by the Borrowers or the Portfolios may not exceed the Aggregate
Eligible Loan Amount as to all Borrowers and Portfolios and the Eligible Loan
Amount as to any Borrower or Portfolio and further provided that the aggregate
of all Loans to any or all of the Borrowers outstanding shall at no time exceed
the lesser of (a) the Aggregate Eligible Loan Amount; or (b) $20,000,000. Within
the foregoing limits, subject to the terms and conditions of this Agreement, any
or all of the Borrowers and, with respect to Borrowers composed of Portfolios,
any and all of the Portfolios may obtain Loans, repay Loans in whole or in part
and obtain Loans again on one or more occasions. The Loans shall be evidenced by
the respective Note of each Borrower or Portfolio, dated as of the date hereof.
The Borrowers and Portfolios severally but not jointly hereby irrevocably
authorize the Bank to make or cause to be made, on a schedule to be attached to
the Notes or on the books of the Bank, at or following the time of making each
Loan and of receiving any payment of principal, an appropriate notation
reflecting such transaction and the then aggregate unpaid principal balance of
the Loans. The amount so noted shall constitute presumptive evidence as to the
amount owed by the Borrowers and the Portfolios with respect to the principal
amount of the Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrowers and the Portfolios hereunder or
under the Notes.
(b) Request for Loans. Each Borrower or Portfolio shall give the
Bank telephonic or written notice, specifying the amount and date of each Loan
requested, no later than 2:00 p.m. (Boston time) on the Business Day on which
the Borrower or Portfolio requests the proceeds of such Loan to be made
available by the Bank. Upon receipt from the Bank of a Borrowing Notice prepared
by the Bank in connection with such Loan request, the Borrower or Portfolio
shall execute such Borrowing Notice and return it promptly to the Bank.
(c) Repayment of Principal. Each Borrower or Portfolio shall
repay in full all Loans and all interest thereon upon the first to occur of (i)
the Termination Date; or (ii) an acceleration under Section 5.02(b) following an
Event of Default. Each Borrower or Portfolio may prepay, at any time, without
penalty, the whole or any portion of any Loans; provided that each such
prepayment shall be accompanied by a payment of all interest under the
respective Note or Notes accrued but unpaid to the date of prepayment.
(d) Interest Payments. Each Borrower and Portfolio will pay
interest on the principal amount of the aggregate Loans outstanding from time to
time, from the date of the initial Loan until payment of all Loans and the Notes
in full and the termination of the Credit Facility, such interest to be payable
monthly in arrears on the first Business Day of the next month, commencing with
May 1, 1996, and on the date of payment of the Loans in full. The rate of
interest so payable shall be a floating rate per annum equal to the Federal
Funds Rate plus one and three-quarters percent (1.75%) (but in no event in
excess of the maximum rate then permitted by applicable law), with a change in
such rate of interest to become effective on the same day on which any change in
the Federal Funds Rate is effective. Overdue principal and, to the extent
permitted by law, overdue interest shall bear interest at a floating rate per
annum which at all times shall be five percent (5%) plus the Federal Funds Rate
(but in no event in excess of the maximum rate from time to time then permitted
by applicable law), compounded monthly and payable on demand, with a change in
such rate of interest to become effective on the same day on which any change in
the Federal Funds Rate is effective.
(e) Commitment Fee. The Borrowers and Portfolios shall pay to the
Bank an annual commitment fee, in connection with the establishment and
maintenance of the Credit Facility at the rate of one-twentieth of one percent
(0.05%) per annum on the difference between (i) $20,000,000 and (ii) the average
daily amount of Loans outstanding under the Credit Facility, payable quarterly
in arrears on the first Business Day of the next calendar quarter.
(f) Use of Loan Proceeds. The proceeds of each Loan will be used
by the Borrowers and Portfolios solely to finance redemptions, purchase and hold
investment securities, finance working capital requirements and pay fund
expenses.
(g) Reduction or Termination of Credit Facility. The Borrowers
and Portfolios shall have the right, at any time for any reason and without
penalty, upon no less than ten (10) days' prior written notice to the Bank, to
terminate or reduce the amount of the Credit Facility. Any such reduction shall
be in the amount of $500,000 or a whole multiple thereof (or, if less, the
maximum amount of the Credit Facility) and shall be irrevocable. Each Borrower
or Portfolio shall have the right, at any time for any reason and without
penalty, upon no less than
ten (10) days' prior written notice to the Bank, to terminate its participation
in the Credit Facility provided by this Agreement. Upon any such termination of
participation by any Borrower or Portfolio, the Bank shall have the right, at
any time for any reason and without liability, upon no less than ten (10) days'
prior written notice to the Borrowers and the Portfolios, to terminate the
Credit Facility.
1.02. Availability. The proceeds of all Loans shall be credited by the Bank to a
general deposit account of the respective Borrower or Portfolio with the Bank.
1.03. Charges Against Accounts. The Bank may charge any deposit account,
and, after the occurrence of any Event of Default by a Borrower or Portfolio,
any custody, trust or agency account, of such defaulting Borrower or Portfolio
at or with the Bank, if any, with such Borrower's or Portfolio's payments of
interest, principal and other sums due, from time to time, under this Agreement,
or due under such Borrower's or Portfolio's Note, and will thereafter notify the
Borrower or Portfolio of the amount so charged. The failure of the Bank so to
charge any account or to give any such notice shall not affect the obligation of
the Borrower or Portfolio to pay interest, principal or other sums as provided
herein or in the Notes.
1.04. Payments. Except as otherwise provided in this Agreement, all
payments of interest, principal and any other sum payable hereunder and/or the
Notes shall be made to the Bank at its Principal Office, in immediately
available funds or by check. All payments received by the Bank after 11:00 a.m.
Eastern time on any day shall be deemed received as of the next succeeding
Business Day. All monies received by the Bank hereunder shall be applied first
to fees, charges, costs and expenses payable to the Bank under this Agreement,
next to interest then accrued on account of the Loans and only thereafter to
principal of the Loans. Interest payable under the Notes shall be computed on
the basis of a 360-day year for the number of days actually elapsed.
1.05. Payment on Non-Business Days. Whenever any payment to be made to the
Bank hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on each such date shall include the amount thereof
which shall accrue during the period of such extension of time.
1.06. Net Payments. All payments to the Bank hereunder and/or in respect of the
Notes shall be made without deduction, set-off or counterclaim, notwithstanding
any claim which any Borrower or Portfolio may now or at any time hereafter have
against the Bank.
1.07. Additional Amounts Payable.
(a) If the adoption of or any change in any statute, rule,
regulation, order or policy of any government authority or agency or in the
interpretation or application thereof or compliance by the Bank with any request
or directive (whether or not having the force of law) from any central bank or
other government authority or agency made subsequent to the date hereof:
(i) shall subject the Bank to any tax of any kind whatsoever with respect to
this Agreement, any Note or any Loan or change the basis of taxation of payments
to the Bank in respect thereof (except for changes in the rate of tax on the
overall net income of the Bank).
(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other extensions of
credit by, or any other acquisition of funds, by, any office of the Bank; or
(iii) shall impose on the Bank any other condition affecting the Credit
Facility, this Agreement or any Loan;
and the result of any of the foregoing is to increase the cost to the Bank, by
an amount which the Bank deems to be material, of making, continuing or
maintaining Loans or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, each Borrower or Portfolio whose Loans or
access to Loans under the Credit Facility are affected by the foregoing shall
promptly pay to the Bank, upon demand therefor by the Bank, such additional
amount or amounts as will compensate the Bank for such increased cost or reduced
amount receivable for all periods commencing 60 days after the Bank has provided
notice thereof to the Borrowers.
(b) If the Bank shall have determined that the adoption of or any
change in any statute, rule, regulation, order or policy of any government
authority or agency regarding capital adequacy or in the interpretation or
application thereof or compliance by the Bank or any corporation controlling the
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) from any governmental authority or agency made
subsequent to the date hereof shall have the effect of reducing the rate of
return on the Bank's or such corporation's capital as a consequence of its
obligations hereunder to a level below that which the Bank or such corporation
could have achieved but for such adoption, change or compliance by an amount
deemed by the Bank to be material, then from time to time, the Borrowers and the
Portfolios shall promptly pay to the Bank, upon demand therefor by the Bank,
such additional amount or amounts as will compensate the Bank for such reduction
for all periods commencing 60 days after the Bank has provided notice thereof to
the Borrowers and the Portfolios.
(c) If the Bank claims any additional amounts pursuant to this
Section 1.07, it shall promptly notify the Borrowers and the Portfolios of the
event by reason of which it has become so entitled. A certificate of an
authorized officer of the Bank as to any additional amounts payable pursuant to
this subsection submitted by the Bank to the Borrowers and the Portfolios shall
be conclusive in the absence of manifest error.
1.08. Source of Repayment; Payment of Fees and Other Charges.
(a) Notwithstanding any other provision of this Agreement, the
parties agree that the assets and liabilities of each Portfolio of a Borrower
are separate and distinct from the assets and liabilities of each other
Portfolio of such Borrower, and no Portfolio shall be liable hereunder
or shall be charged for any debt, obligation, liability, fee, or expense
hereunder arising out of or in connection with a transaction entered into
hereunder by or on behalf of any other Portfolio.
(b) Notwithstanding any other provision of this Agreement, each
Borrower or Portfolio, as the case may be, shall be liable only for its portion
of the commitment fee or any other fee or amount payable under this Agreement
(including, without limitation, under Sections 1.07 and 6.09), and such Borrower
or Portfolio shall not be liable for any portion of the commitment fee or such
other fee or amount of any other Borrower or Portfolio hereunder. The Borrowers
and Portfolios shall notify the Bank at least two Business Days in advance of a
commitment fee or other payment date of the manner in which the fees or other
amounts to be paid on such payment date are to be allocated among the Borrowers
and Portfolios.
ARTICLE II
CONDITIONS
2.01. Conditions to Closing. The obligation of the Bank to make the
initial Loans to each Borrower and with respect to a Borrower composed of
Portfolios, each Portfolio is subject to the satisfaction of all of the
following conditions on or prior to the Closing Date:
(a) Documents. The Bank shall have received this Agreement and
the Notes duly executed and delivered by the Borrowers and, with respect to a
Borrower composed of Portfolios, the Borrower on behalf of each Portfolio.
(b) Warranties True; Covenants Performed. All warranties and
representations of each Borrower or Portfolio in this Agreement shall be true
and accurate on the date of the Closing as if then given, and each Borrower or
Portfolio shall have performed or observed all of the terms, covenants,
conditions and obligations under this Agreement which are required to be
performed or observed by them on or prior to such date.
(c) Closing Certificate. The Bank shall have received a
certificate, dated as of the Closing Date and executed by or on behalf of the
Co-Chief Executive Officer or Chief Accounting Officer of each Borrower or
Portfolio, in form and content satisfactory to the Bank, stating the substance
of Section 2.01(b).
(d) Other Documents. The Bank shall have received all other
documents and assurances required hereunder or which it may reasonably request
in connection with the transactions contemplated by this Agreement, and such
documents shall be certified, when appropriate, by the proper authorities or
representatives of each Borrower or Portfolio, including without limitation the
following, and all such documents and all proceedings to be taken in connection
with such transactions shall be reasonably satisfactory in form and substance to
the Bank and its counsel:
(i) Copies of all documents evidencing necessary corporate action or approvals,
if any, with respect to this Agreement, the Notes and such other matters,
including,
without limitation, any required approvals of governmental authorities and other
persons or entities.
(ii) A certificate, signed by the Co-Chief Executive Officer or Chief Accounting
Officer of each Borrower or Portfolio, setting forth the names of the Co-Chief
Executive Officers, Chief Accounting Officer and any other persons authorized to
sign this Agreement, the Notes and any and all certificates, notices and reports
referred to herein on behalf of such Borrower or Portfolio; such certificate
shall state that the Bank may conclusively rely on the statements made therein
until the Bank shall receive a further certificate of a Co-Chief Executive
Officer or Chief Accounting Officer of such Borrower canceling or amending the
prior certificate.
(iii) A copy of the Certificate of Incorporation or comparable instrument of
each Borrower and all amendments thereto; a copy of the By-laws or comparable
instrument of each Borrower and Portfolio, as amended to date; a copy of the
prospectus and statement of additional information of each Borrower; as amended
to date; and a certificate of legal existence and good standing for each
Borrower issued as of a recent date by the appropriate public officials.
(iv) FR Forms U-1 executed by each Borrower or Portfolio and such other
documents which, in the opinion of the Bank or its counsel, are required to be
obtained in connection with the Loans under the Credit Facility by reason of the
provisions of any law or regulation applicable to the Bank, and the statements
made in such documents shall be such as, in the opinion of the Bank, will permit
such Loans under the Credit Facility from the Bank in accordance with such laws
and regulations.
(e) No Adverse Change. There shall have occurred no material adverse change
in the business, operations, properties, financial condition, or prospects of
any Borrower or Portfolio.
(f) Legal Opinion. All legal matters incident to this Agreement shall be
reasonably satisfactory to the Bank's counsel, and the Bank shall have received
at the Closing the legal opinion of counsel to the Borrowers and Portfolios in
form and substance reasonably satisfactory to the Bank.
(g) Borrowing Notice. Each Borrower or Portfolio requesting a Loan on the
Closing Date shall have executed and delivered to the Bank a Borrowing Notice.
2.02. Conditions of Making Loans. The obligation of the Bank to make any
Loans to any Borrower or Portfolio subsequent to the Closing Date is subject to
the satisfaction of the following conditions precedent on or before the date of
each such subsequent advance (the "Borrowing Date"):
(a) Representations and Warranties. The representations and warranties of
such Borrower or Portfolio in this Agreement and otherwise made by such Borrower
or Portfolio in
writing in connection with the transactions contemplated by this Agreement shall
have been correct as of the date on which made and shall also be correct at and
as of such Borrowing Date with the same effect as if made at and as of such
time, except as may have been disclosed in writing to the Bank by such Borrower
or Portfolio and to which the Bank has consented in writing and to the extent
that the facts upon which such representations and warranties are based may in
the ordinary course be changed by the transactions permitted or contemplated
hereby.
(b) Performance. Such Borrower or Portfolio shall have performed
and complied with all terms and conditions herein required to be performed or
complied with by it prior to or on such Borrowing Date, and on such Borrowing
Date there shall exist no Event of Default or condition which would, with any or
all the giving of notice or the lapse of time, result in an Event of Default
upon consummation of the subsequent advance to be made on such Borrowing Date.
(c) Borrowing Notice. Such Borrower or Portfolio shall have executed and
delivered to the Bank a Borrowing Notice.
Each request by any Borrower or Portfolio for a Loan subsequent to the Closing
Date shall constitute a certification by such Borrower or Portfolio that the
conditions specified in this Section 2.02 will be duly satisfied on the date of
the making of such Loan with respect to such Borrower or Portfolio.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrowers and Portfolios severally but not jointly represent and
warrant as follows:
3.01. Organization. Each Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland. Other
than as disclosed in Schedule A, each Borrower: (i) is duly qualified to do
business and in good standing in each jurisdiction where such qualification is
required, except those jurisdictions where the failure to so qualify will not
have a material adverse effect on such Borrower's business, prospects or
financial condition; (ii) has all requisite power and authority to conduct its
business as presently being conducted and as proposed to be conducted after the
Closing and to own its properties now and after the Closing; and (iii) has all
requisite power and authority to execute and deliver, and to perform all of its
obligations under, this Agreement and its respective Note provided, however,
that the Borrowers and Portfolios do not have the requisite authority to pledge
all of their assets as may be required by the Bank pursuant to Section 4.01(g)
of this Agreement..
3.02. Authority. The execution, delivery and performance by each Borrower
and Portfolio of this Agreement and its respective Note: (i) have been duly
authorized by all necessary corporate action; (ii) do not contravene any
provision of such Borrower's Certificate of Incorporation or comparable
instrument, or By-laws, prospectus, statement of additional information or
comparable documents provided, however, that certain Borrowers and Portfolios
are limited by investment limitations contained in their prospectuses or
statements of additional
information that limit their ability to pledge or otherwise grant a security
interest in their assets; (iii) do not violate any provision of any law, rule or
regulation or any judgment, determination or award provided, however, that the
Borrowers and Portfolios are limited by law, rule or regulation that limit their
ability to pledge or otherwise grant a security interest in their assets; (iv)
do not and will not result in a breach or constitute a default (or constitute an
event which with the passage of time or giving of notice or both could
constitute an event of default) under any agreement to which such Borrower or
Portfolio is a party or by which any of its properties are bound, including,
without limitation, any indenture, loan or credit agreement, lease, debt
instrument or mortgage; and (v) do not and will not result in or require the
creation or imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature upon or with respect to
any of the properties of the Borrower or Portfolio except in accordance with the
terms of this Agreement. No Borrower or Portfolio is in default under its
Certificate of Incorporation or comparable instrument, or By-laws, prospectus,
statement of additional information or comparable documents as now in effect, or
any law, rule or regulation, order, writ, judgment, injunction, decree,
determination, award or agreement referred to above, and no Borrower or
Portfolio will be in any such default by virtue of the transactions to be
entered into at the Closing, other than a default that will not have a material
adverse effect on such Borrower's or Portfolio's operations, assets or financial
condition.
3.03. Approvals. No authorization, consent, approval, license or exemption
of, or filing a registration with, any court or governmental department or
commission, board, bureau, agency, instrumentality or other person or entity,
domestic or foreign, is or will be necessary for the valid execution, delivery
or performance by each Borrower or Portfolio of this Agreement and/or its
respective Note other than filings which have already been made and consents or
approvals which have already been received.
3.04. Valid Obligations. This Agreement and the respective Notes have been
duly executed and delivered by each Borrower and, with respect to a Borrower
composed of Portfolios, each Portfolio and constitute legal, valid and binding
obligations of such Borrower or Portfolio, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles are applied in
a court of equity or at law.
3.05. Assets. Each Borrower and Portfolio has good and valid title in and
to its respective assets, subject to no security interest, mortgage, pledge,
lien, lease, encumbrance, charge, easement, restriction or encroachment except
for Permitted Liens and for defects and claims which, in the aggregate, could
not have a material adverse effect on the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio. Each Borrower's
and Portfolio's principal place of business is maintained at its Principal
Office at the location indicated in the preamble to this Agreement.
3.06. Claims. There are no actions, suits, proceedings or investigations
pending or threatened against any Borrower or Portfolio before any court or any
governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could prevent or hinder the consummation of the transactions contemplated hereby
or call into question the validity of this Agreement, any of the Notes or any
other document or instrument provided for or contemplated by this Agreement or
any action taken or to be taken in connection with the transactions contemplated
hereby or thereby, or which in any single case or in the aggregate might result
in any material adverse change in the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio or any material
impairment of the right or ability of such Borrower or Portfolio to carry on its
operations as now conducted or proposed to be conducted after the Closing.
3.07. Financial Statements. The Borrowers and Portfolios have previously
delivered to the Bank the audited financial statements of each Borrower and
Portfolio as of the end of its most recently completed fiscal year. All such
financial statements were prepared in accordance with GAAP, and accurately
reflect the financial condition of each such Borrower and Portfolio as of such
date. No Borrower or Portfolio has any liability, contingent or otherwise, that
could materially adversely affect its financial condition which is not reflected
in the financial statements previously delivered by the Borrower or Portfolio to
the Bank. Since the end of such Borrower's or Portfolio's most recently
completed fiscal year, there has not been a material adverse change in the
business, operations, property, financial condition or prospects of any Borrower
or Portfolio.
3.08. Taxes. Each Borrower and Portfolio has filed all federal, foreign,
state, local and other tax returns, reports and estimates which are required to
be filed and has paid all taxes, fees and other governmental charges shown on
such returns, reports and estimates and on all assessments received by it, to
the extent that such taxes have become due, except for any tax or assessment
which is being contested by such Borrower or Portfolio in good faith and by
appropriate proceedings and such Borrower or Portfolio has set aside on its
books sufficient reserves with respect thereto. All of such tax returns are
accurate and complete in all material respects. All other taxes and assessments
of any nature with respect to which each Borrower or Portfolio is obligated and
which have become due are being paid or adequate accruals have been set up
therefor. There are in effect no waivers of applicable statutes of limitations
for federal, state or local taxes for any period. No Borrower or Portfolio is
delinquent in the payment of any tax, assessment or governmental charge and no
Borrower or Portfolio has requested any extension of time within which to file
any tax return, which return has not since been filed, and no deficiencies for
any tax, assessment or governmental charge have been asserted or assessed, and
no Borrower or Portfolio knows of any material liability or basis therefor.
3.09. Investment Company. Each Borrower or Portfolio is duly registered as
an investment company pursuant to the Investment Company Act of 1940, as amended
(the "1940 Act") and is in compliance with all regulations, rules and orders
issued or promulgated pursuant to the 1940 Act, other than such regulations,
rules, and orders the non-compliance with which will not have a material adverse
effect on such Borrower's or Portfolio's operations, assets or financial
condition. Each Borrower and Portfolio is in compliance with its respective
prospectus and the investment policies and other policies described therein,
other than such investment policies, investment restrictions, other policies and
other requirements the non-compliance with
which will not have a material adverse effect on such Borrower's or Portfolio's
operations, assets or financial condition.
3.10. Margin Stock. Each Borrower and Portfolio has executed and delivered
to the Bank an executed FR Form U-1 (as defined in Regulation U of the Board of
Governors of the Federal Reserve System).
3.11. Representations Accurate. No representation or warranty made by any
Borrower or Portfolio herein, in any Note or in any other agreement, document,
instrument or certificate furnished from time to time in connection herewith or
therewith contains any misrepresentation of a material fact or omits to state
any material fact necessary to make the statements herein or therein (taken as a
whole in conjunction with all such documents) not misleading when made.
ARTICLE IV
COVENANTS
4.01. Affirmative Covenants Other Than Reporting Requirements. Without
limiting any other covenants and provisions hereof, each Borrower and, with
respect to a Borrower composed of Portfolios, each Portfolio severally but not
jointly covenant and agree that, so long as any Note, any Loan or any obligation
of such Borrower or Portfolio to the Bank, in any capacity, remains unpaid:
(a) Payments. Each Borrower or Portfolio shall duly and
punctually make the payments required under this Agreement and its respective
Note and shall perform and observe all of its other obligations under the
foregoing documents, in each case within any applicable grace period or cure
period provided for in Section 5.01 hereof.
(b) Payment of Taxes and Trade Debt. Each Borrower or Portfolio
will promptly pay and discharge all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profit or upon any property,
real, personal or mixed, belonging to it; provided, however, that such Borrower
or Portfolio shall not be required to pay any such tax, assessment, charge or
levy if the same shall not at the time be due and payable or if the same can be
paid thereafter without penalty or if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if such Borrower or
Portfolio shall have made adequate provision on its books for the payment of
such tax, assessment, charge or levy. Each Borrower or Portfolio will pay in a
timely manner all of its trade payables.
(c) Maintain Rights. Each Borrower or Portfolio shall:
(i) keep in full force and effect its corporate existence;
(ii)keep in full force and effect all material rights, registrations, licenses,
leases and franchises reasonably necessary to the conduct of its business;
provided that nothing in this Section 4.01(c)(ii) shall prevent the abandonment
or termination of any right, registration, license, lease or franchise, if, in
the reasonable opinion of the Board of Directors of the
applicable Borrower or Portfolio, such abandonment or termination is in the best
interest of such Borrower or Portfolio and not disadvantageous to the Bank;
(iii) duly observe and conform to all applicable material
laws, statutes, regulations, decrees, judgments, orders, writs and other
requirements of all governmental authorities in any way relating to it or the
conduct of its business (including without limitation the 1940 Act and the
regulations, rules and orders issued or promulgated thereunder), except where
the failure to so comply could not have a material adverse affect on the
business, operations, properties or financial condition or prospects of such
Borrower or Portfolio; and
(iv) abide by the additional covenants set forth in Schedule A.
(d) Books and Records. Each Borrower or Portfolio will (i) keep
proper books of record and account in which entries therein are full, true and
correct in all material respects in conformity with GAAP and all requirements of
law and shall be made of all material dealings and transactions in relation to
its business and activities, and (ii) permit representatives of the Bank to
visit and inspect any of its properties and to examine and make abstracts from
any of their books and records upon reasonable notice, at any reasonable time
during normal business hours and as often as may reasonably be desired, and to
discuss the business, operations, properties and financial condition of such
Borrower or Portfolio with its officers and employees and with their independent
certified public accountants.
(e) Compliance. Each Borrower or Portfolio will comply with its
respective prospectus, statement of additional information and other comparable
documents or instruments and all investment policies and other policies
described therein, other than such investment policies, investment restrictions,
other policies and other requirements the non-compliance with which will not
have a material adverse effect on such Borrower's or Portfolio's operations,
assets or financial condition.
(f) Use of Proceeds. Each Borrower or Portfolio shall use the proceeds of
each Loan solely for the purposes set forth in Section 1.01(f) hereof.
(g) Security. Immediately upon the request of the Bank in
accordance with Section 5.02(a) hereof, each Borrower or Portfolio shall execute
and deliver to the Bank a pledge agreement or security agreement and all other
documents, each in form and substance reasonably satisfactory to the Bank,
granting to the Bank a security interest in all assets of such Borrower or
Portfolio. In addition, such Borrower or Portfolio, at its expense, shall
execute, file and record all such further instruments (including without
limitation UCC-1 financing statements), and perform such other acts, as the Bank
may reasonably determine are necessary or advisable to maintain the priority of
the security interests in favor of the Bank created by the such documents on all
property subject thereto.
4.02. Negative Covenants. Without limiting any other covenants and
provisions hereof, each Borrower and, with respect to a Borrower composed of
Portfolios, each Portfolio severally but not jointly covenant and agree that, so
long as any Note or any Loan is outstanding or any
obligation of such Borrower or Portfolio to the Bank, in any capacity, have not
been fully performed:
(a) Liens. No Borrower or Portfolio will create, incur, assume or
suffer to exist any security interest, lien, mortgage, deed of trust, pledge,
levy, attachment, claim or other charge or encumbrance of any nature whatsoever
upon or with respect to any of its assets, whether now owned or hereafter
acquired, or assign or otherwise convey any right to receive income from any of
such assets ("Lien"), except for (1) Liens in favor of the Bank, (2)
restrictions under applicable securities laws, and agreements (such as
securities lending, stockholder voting or stock restriction agreements) entered
into by such Borrower or Portfolio in the ordinary course of its business, (3)
Liens for current taxes not delinquent or taxes being contested in good faith
and by appropriate proceedings and as to which reserves or other appropriate
provisions required by GAAP are being maintained, (4) Liens as are necessary in
connection with a secured letter of credit opened by such Borrower or Portfolio
in connection with such Borrower's or Portfolio's directors' and officers'
errors and omissions liability insurance policy, and (5) Liens in connection
with the payment of initial and variation margin in connection with futures and
options transactions and collateral arrangements with respect to options,
futures contracts, options on futures contracts, forward contracts, swaps, caps,
collars, floors, when-issued or delayed delivery securities or other authorized
investments ("Permitted Liens").
(b) Transfers. No Borrower or Portfolio shall sell, lease,
transfer or otherwise dispose of any of its assets, provided that such Borrower
or Portfolio may from time to time sell, lend or distribute its assets in the
ordinary course of such Borrower's or Portfolio's business absent the prior
written consent of the Bank.
(c) Mergers. No Borrower or Portfolio will enter into any
transaction of merger or consolidation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), without the prior written consent of
the Bank, which shall not be unreasonably withheld, other than a merger or
consolidation with another person in accordance with 17 C.F.R. Section 270.17a-8
if (1) such merger or consolidation complies in all respects with the
requirements of 17 C.F.R. Section 270.17a-8 and all rules promulgated in
connection therewith, and (2) the surviving entity assumes all of the
obligations to the Bank of the merging or consolidating Borrower(s) or
Portfolio(s).
(d) Indebtedness. No Borrower or Portfolio will incur any
additional Indebtedness, except for (1) Indebtedness to the Bank, (2) pursuant
to such Borrower's or Portfolio's securities lending activities conducted in the
ordinary course of its business and (3) reverse repurchase transactions entered
into in the ordinary course of its business in an amount not exceeding that
permitted by such Borrower's or Portfolio's investment policies and
restrictions.
(e) Bankruptcy. No Borrower or Portfolio will petition for relief
under the United States Bankruptcy Code or institute any similar bankruptcy,
insolvency, or receivership proceedings under any other federal or state law.
(f) No Amendment. No Borrower or Portfolio shall amend in any
material respect its respective registration statement, prospectus or investment
or other policies described therein if such amendment would materially and
adversely affect the Bank's rights under this Agreement or the respective Notes
without the prior written consent of the Bank, which shall not be unreasonably
withheld.
(g) No Change. No Borrower or Portfolio shall change or replace
its investment adviser, administrator, distributor or sponsor, without the prior
written consent of the Bank, which shall not be unreasonably withheld. No
Borrower or Portfolio shall change or replace its custodian without the prior
written consent of the Bank.
4.03. Reporting Requirements. So long as any Loan or any Note shall be
outstanding or any other obligation of each Borrower, or with respect to a
Borrower composed of Portfolios, each Portfolio to the Bank, in any capacity,
shall remain unpaid, such Borrower or Portfolio shall:
(a) Financial Reports. Furnish to the Bank:
(i) as soon as available, but in any event within ninety (90) days after
the end of each fiscal year of such Borrower or Portfolio, a copy of the audited
statement of assets and liabilities of such Borrower or Portfolio as at the end
of such fiscal year and the related audited statements of operations and cash
flows for such fiscal year, in each case setting forth in comparative form the
figures for the previous year, reported on by independent certified public
accountants of nationally recognized standing or otherwise reasonably acceptable
to the Bank, without a "going concern" or similar qualification or exception or
qualification as to the scope of the audit, together with any letter from the
management of such Borrower or Portfolio prepared in connection with such
Borrower's or Portfolio's annual audit report; and
(ii) as soon as available, but in any event within thirty (30) days after
the end of the first six months of each fiscal year of such Borrower or
Portfolio, copies of the unaudited statement of assets and liabilities of such
Borrower or Portfolio as at the end of such six-month period, together with the
related unaudited statement of operations for the portion of the fiscal year of
such Borrower or Portfolio through such six-month period, in each case certified
by the Chief Accounting Officer of such Borrower or Portfolio as presenting
fairly the financial condition and results of operations of such Borrower or
Portfolio, in conformity with GAAP (subject to normal year-end audit adjustments
and to the fact that such financial statements may be condensed and may not
include footnotes);
all such financial statements to be complete and correct in all material
respects and prepared in reasonable detail and, except as provided in (ii)
above, in conformity with GAAP applied consistently throughout the periods
reflected therein.
(b) Other Financial Reports. Furnish to the Bank:
(i) concurrently with the delivery of each set of the financial statements
referred to above, a certificate of the Chief Accounting Officer of such
Borrower or Portfolio stating that, to the best of such person's knowledge,
during the period covered by such set of financial statements the Borrower or
Portfolio has observed or performed in all respects all of its covenants and
agreements contained in this Agreement and its respective Note to be observed,
performed or satisfied by it, and that such person has obtained no knowledge of
any default or Event of Default (except as specified in such certificate);
(ii) promptly after the same are sent, copies of all other financial
statements of such Borrower or Portfolio, if any, which it sends to its
stockholders;
(iii) within thirty (30) days of the end of each quarter, a
schedule of such Borrower's or Portfolio's investment assets stating the cost
and fair market value of all such investments;
(iv) promptly, such additional financial and other information as the Bank
may from time to time reasonably request; and
(v) as soon as available, a copy of each other report submitted to such
Borrower or Portfolio by its certified public accountants in connection with any
annual, interim or special audit made by them of the books of such Borrower or
Portfolio.
(c) Notices. Give notice to the Bank, within five days of knowledge
thereof, of: (i) the occurrence of any Event of Default under this Agreement;
(ii) any default or event of default under any other contractual obligations of
such Borrower or Portfolio which, if not paid or remedied by such Borrower or
Portfolio or waived by the obligee thereon, could result in liability to such
Borrower or Portfolio in excess of $500,000 in any single instance or $1,000,000
in the aggregate;
(iii) any pending or threatened litigation, investigation or
proceeding of which such Borrower or Portfolio has received written notice which
may exist at any time between such Borrower or Portfolio and any other party
(including without limitation any governmental authority) which may have a
material adverse effect on the business, operations, property or financial
condition of such Borrower or Portfolio, or any material adverse development in
previously disclosed litigation, and such Borrower or Portfolio shall furnish
the Bank with copies of all legal process served upon such Borrower or
Portfolio;
(iv) a material adverse change in the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio; and
(v) the revocation, expiration or loss of any material license,
registration, permit or other governmental authorization of such Borrower or
Portfolio;
each notice pursuant to paragraphs (i) through (v) of this Section 4.03(c)to be
accompanied by a statement of the Chief Accounting Officer of such Borrower or
Portfolio setting forth details of the occurrence referred to therein and
stating what action, if any, such Borrower or Portfolio proposes to take with
respect thereto.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
5.01. Events of Default. The occurrence of each of the following shall
constitute an Event of Default with respect to a Borrower or, with respect to a
Borrower composed of Portfolios, a Portfolio under this Agreement and under the
Notes:
(a) Failure to Make Payment. Such Borrower or Portfolio shall
fail to make any payment of principal or interest on its respective Note, any
payment of the commitment fee hereunder or any other obligation in respect
hereof or thereof on or before the date when due; provided that any failure to
make any payment of interest on its respective Note shall not constitute an
Event of Default under this Agreement until such failure shall have continued
uncured for five (5) days.
(b) Representations and Warranties. Any representation or
warranty made by such Borrower or Portfolio in this Agreement, in any Note, or
in any certificate or writing in connection with this Agreement shall prove to
have been incorrect in any material respect when made, or any information
furnished in writing by such Borrower or Portfolio to the Bank, whether in this
Agreement or in any certificate or other writing required or contemplated by
this Agreement or by any of the Notes, shall prove to be untrue in any material
respect on the date on which it is or was given.
(c) Covenants. Such Borrower or Portfolio shall fail to perform
or observe any covenant or condition contained or referred to in this Agreement,
and such failure shall continue uncured for ten days after the Bank has provided
written notice thereof to such Borrower or Portfolio.
(d) Other Defaults. Any default shall exist and remain unwaived
or uncured with respect to other Indebtedness of such Borrower or Portfolio
which permits the acceleration of the maturity of any such Indebtedness in an
amount in excess of $500,000.
(e) Liens. Any lien, security interest, levy or assessment (other
than a Permitted Lien) is filed, recorded or perfected with respect to any
material part of the assets of such Borrower or Portfolio and is not released,
canceled, revoked, removed, repealed or otherwise terminated within thirty (30)
days after such filing or recording.
(f) Seizure of Assets. Any substantial part of the assets or
other property of such Borrower or Portfolio comes within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors.
(g) Judgments. Any judgment, order or writ in excess of $500,000
is rendered or entered against such Borrower or Portfolio or property of such
Borrower or Portfolio and not paid, satisfied or otherwise discharged within
sixty (60) days of the date such judgment, order or writ becomes final and
non-appealable.
(h) Insolvency. Such Borrower or Portfolio shall be generally
unable to pay its debts as they become due; the dissolution, termination of
existence, cessation of normal business operations or insolvency of such
Borrower or Portfolio; the appointment of a receiver of any part of the property
of, legal or equitable assignment, conveyance or transfer of property for the
benefit of creditors by, or the commencement of any proceedings under any
bankruptcy or insolvency laws by or against, such Borrower or Portfolio.
5.02. Remedies. Upon the occurrence of any Event of Default with respect
to any Borrower or Portfolio and at any time thereafter so long as the Event of
Default continues, in addition to any other rights and remedies available to the
Bank hereunder or otherwise, the Bank may exercise any one or more of the
following rights and remedies with respect to such Borrower or Portfolio (all of
which shall be cumulative):
(a) Require the defaulting Borrower or Portfolio to provide to
the Bank collateral security for the performance of its obligations to the Bank,
in form, substance and amount satisfactory to the Bank in its sole discretion.
(b) Declare the entire unpaid principal amount of the respective
Note then outstanding, all interest accrued and unpaid thereon and all other
amounts payable under this Agreement, and all other Indebtedness of the
defaulting Borrower or Portfolio to the Bank, forthwith due and payable,
whereupon the same shall become forthwith due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by each Borrower or Portfolio.
(c) Terminate the Credit Facility established by this Agreement
with respect to the defaulting Borrower or Portfolio.
(d) Enforce the provisions of this Agreement and any Note or
Notes by legal proceedings for the specific performance of any covenant or
agreement contained herein or for the enforcement of any other appropriate legal
or equitable remedy, and the Bank may recover damages caused by any breach by
the defaulting Borrower or Portfolio from such Borrower or Portfolio of the
provisions of this Agreement and any Note or Notes, including court costs,
reasonable attorneys' fees and other costs and expenses incurred in the
enforcement of the obligations of that Borrower or Portfolio hereunder.
(e) Exercise all rights and remedies hereunder, under the Notes
and under any other agreement with such Borrower or Portfolio; and exercise all
other rights and remedies which the Bank may have under applicable law.
5.03. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any rights, after the occurrence
of any Event of Default, the Bank is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to the
defaulting Borrower or Portfolio or to any other person or entity, all of which
are hereby expressly waived, to set off and to appropriate and apply any and all
deposits (general or special), securities and other property and any other
Indebtedness at any time in the possession of, or held or owing by, the Bank to
or for the credit or the account of such Borrower or Portfolio against and on
account of the obligations and liabilities of the defaulting Borrower or
Portfolio to the Bank under this Agreement or otherwise, without regard for the
availability or adequacy of other collateral. The defaulting Borrower or
Portfolio agrees to grant to the Bank, upon its request therefor after the
occurrence of any Event of Default, a security interest in and to all deposits
and all securities or other property of such Borrower or Portfolio in the
possession of the Bank from time to time, to secure the prompt and full payment
and performance of any and all obligations of such Borrower or Portfolio to the
Bank.
ARTICLE VI
MISCELLANEOUS
6.01. Right to Cure. In the event that any Borrower or Portfolio shall
fail to pay any tax, assessment, governmental charge or levy, except as the same
may be otherwise permitted hereunder, or in the event that any lien, encumbrance
or security interest prohibited hereby shall not be paid in full or discharged,
or in the event that any Borrower or Portfolio shall fail to pay or comply with
any other obligation hereunder, the Bank may, but shall not be required to, pay,
satisfy, perform, discharge or bond the same for the account of such Borrower or
Portfolio, and all moneys so paid by the Bank shall be payable on demand and
shall bear interest at the lesser of (i) a floating rate per annum equal to five
percent (5%) plus the Federal Funds Rate, with a change in such rate of interest
to become effective on the same day on which any change in the Federal Funds
Rate is effective, or (ii) the maximum rate permitted by the applicable law.
6.02. Waivers. This Agreement and the Notes may not be changed, waived,
discharged or terminated orally. The performance or observance by the Bank, on
the one hand, or any Borrower or Portfolio, on the other hand, of any term of
this Agreement or any of the Notes may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the prior written consent of the Borrower or Portfolio, on the one hand,
or the Bank, on the other hand.
6.03. Delays. No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any partial exercise or waiver of any privilege or right hereunder preclude any
further exercise of such privilege or right or the exercise of any other right,
power or privilege. The rights and remedies expressed in this Agreement and in
the Notes are cumulative and not exclusive of any right or remedy which any
party hereto may otherwise have.
6.04. Notices. Any notices, consents or other communications to be given
under this Agreement or under the Notes shall be in writing and shall be deemed
given when mailed to the
respective parties by overnight courier or by registered mail addressed, in the
case of each Borrower or Portfolio, to Bull & Bear Funds, attention of the
Co-President, at the address set forth on the first page of this Agreement, with
a copy to the Chief Accounting Officer at the same address, and in the case of
the Bank to the Bank, attention of David F. Flynn, Managing Director, at 89
South Street, Boston, MA 02111, with a copy to Mark D. Smith at Testa, Hurwitz &
Thibeault, 125 High Street, High Street Tower, Boston, MA 02110 or to such other
addresses as either party may from time to time designate for that purpose.
6.05. Captions. Section headings and defined terms in this Agreement are
included for convenience only and are not intended to modify or define any term
or provision of any such instrument.
6.06. Jurisdiction. The Borrowers and Portfolios accept for themselves and
in conjunction with their properties, unconditionally, the non-exclusive
jurisdiction of any state or federal court of competent jurisdiction in the
Commonwealth of Massachusetts in any action, suit, or proceeding of any kind,
including agreements waiving the right to a trial by jury, against them, which
arises out of or by reason of this Agreement.
6.07. Execution. This Agreement may be signed in any number of
counterparts, which together will be one and the same instrument. This Agreement
shall become effective whenever each party shall have signed at least one such
counterpart.
6.08. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts (without reference to the conflicts of laws or
choice of law provisions thereof) and for all purposes shall be construed in
accordance with the laws of such Commonwealth.
6.09. Fees. Whether or not any funds are disbursed hereunder, the
Borrowers and Portfolios shall pay all of the Bank's reasonable costs and
expenses in connection with the preparation, execution, delivery, review, and
enforcement of this Agreement and the Notes, and in connection with any
subsequent amendments thereto or waivers thereof, including reasonable legal
fees and disbursements, provided, however, that the amount of such legal fees
through the Closing Date shall not exceed $7,500.
6.10. Binding Nature. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns; provided that the rights and obligations under this Agreement and under
any of the Notes may not be assigned by any Borrower or Portfolio without the
written consent of the Bank or by the Bank without the written consent of each
Borrower and Portfolio (other than assignments by the Bank to entities meeting
the definition of "bank" in Section 2(a)(5) of the 1940 Act where written notice
of such assignment has been provided to each Borrower and Portfolio prior to or
contemporaneous with such assignment).
6.11. Severability. In the event that any provision of this Agreement or
the application hereof to any person, entity property or circumstances shall be
held to any extent to be invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to persons, entities, properties or circumstances other than those as
to which it has been held invalid or unenforceable, shall not be affected
thereby, and each provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
6.12.Under Seal. This Agreement shall be deemed to be an instrument under seal.
ARTICLE VII
Definitions
7.01.Definitions. For purposes of this Agreement and of the Notes, the following
additional definitions shall apply:
"Aggregate Eligible Loan Amount" shall mean the total of all
Eligible Loan Amounts.
"Borrowing Notice" shall mean a written notice from any Borrower
or Portfolio to the Bank substantially in the form of Exhibit B-1 or Exhibit B-2
attached hereto.
"Business Day" shall mean any day which is not a Saturday, a
Sunday or a public holiday under the laws of the United States of America or the
Commonwealth of Massachusetts applicable to banks or banking associations.
"Closing" shall mean a closing held at 10:00 A.M., in the offices
of Testa, Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, on April 3, 1996, or such other date, time and place as the
parties hereto mutually agree.
"Closing Date" shall mean the date on which the Closing shall occur.
"Credit Facility" shall have the meaning specified in the preamble to this
Agreement.
"Eligible Loan Amount" shall mean the lesser of (i) $9,500,000 or
(ii) 33% of the net assets of the applicable Borrower or Portfolio.
"Event of Default" shall have the meaning specified in Section 5.01 hereof.
"Federal Funds Rate" shall mean the prevailing target Federal
Funds rate established by the Board of Governors or the Open Market Committee of
the Federal Reserve System for loans in the domestic U.S. overnight bank funds
market. For any day on which such target Federal Funds rate has not been
established or cannot be determined, then "Federal Funds Rate" shall mean the
Federal Funds Effective Rate for such day displayed on Bloomberg screen FEDL at
index:HP.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"Indebtedness" shall mean with respect to any Borrower or
Portfolio (i) all indebtedness or other obligations of such Borrower or
Portfolio for borrowed money, other than for trade accounts payable incurred in
the ordinary course of such Borrower's or Portfolio's businesses; and (ii) all
lease obligations of the Borrower or Portfolio which are required, in accordance
with GAAP, to be capitalized on the books of the lessee.
"Loan" shall mean a loan made by the Bank to any Borrower or
Portfolio pursuant to Section 1.01(a) of this Agreement.
"1940 Act" shall have the meaning given that term in Section 3.09
hereof.
"Note" or "Notes" shall mean the promissory note of each
respective Borrower or Portfolio substantially in the form of Exhibit A-1 or
Exhibit A-2 attached hereto.
"Permitted Liens" shall have the meaning given that term in
Section 4.02 hereof.
"Portfolio" means each series or class of shares of a Borrower
that constitutes a series under the 1940 Act, which such Borrower has previously
identified to the Bank as a Portfolio in a certificate substantially in the form
of Exhibit C hereto.
"Principal Office" shall mean, for the Borrowers and Portfolios,
the office at the location set forth in the preamble to this Agreement, and for
the Bank, the office located at 89 South Street, Boston, MA 02111.
"Termination Date" shall mean the earlier of (i) March 31, 1997,
(ii) such date on which the Borrowers and Portfolios terminate the Credit
Facility pursuant to Section 1.01(g) hereof or (iii) such date on which the Bank
terminates the Credit Facility pursuant to Section 1.01(g) or Section 5.02
hereof. The Bank may, in its sole and absolute discretion and with the consent
of the Borrowers and Portfolios, extend the Termination Date for successive
one-year periods, but no term or provision hereof shall be deemed to create any
implication that the Bank will or is required to extend the Termination Date.
7.02. Use of Defined Terms. Any defined term used in the plural preceded
by the definite article shall be taken to encompass all members of the relevant
class. Any defined term used in the singular preceded by "any" shall be taken to
indicate any number of the members of the relevant class.
7.03. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with United States generally accepted
accounting principles consistently applied on the basis used by the Borrowers in
prior years.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Credit
Agreement to be executed by their duly authorized officers as of the date first
above written.
INVESTORS BANK & TRUST COMPANY
By:______________________________
David F. Flynn
Managing Director
BULL & BEAR FUNDS I, INC.
By:________________________________
Name:
Title:
BULL & BEAR FUNDS II, INC.
By:________________________________
Name:
Title:
BULL & BEAR GOLD INVESTORS LTD.
By:________________________________
Name:
Title:
BULL & BEAR MUNICIPAL SECURITIES, INC.
By:________________________________
Name:
Title:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:________________________________
Name:
Title:
MIDAS FUND, INC.
By:________________________________
Name:
Title:
NOTE
$ 9,500,000.00 April 3, 1996
For value received, the undersigned, Midas Fund, Inc., a Maryland corporation
(the "Borrower"), hereby promises to pay Investors Bank & Trust Company (the
"Bank"), at its principal office at 89 South Street, Boston, MA 02111 or at such
other place as may be designated from time to time in writing by the Bank, the
principal sum of Nine Million Five Hundred Thousand dollars ($ 9,500,000.00), or
such lesser amount as may be from time to time outstanding, together with
interest in arrears from and including the date hereof on the unpaid principal
balance hereunder, computed daily, at the Federal Funds Rate as defined in the
Credit Agreement as hereinafter defined (the "Federal Funds Rate"), such rate of
interest to change with and as of each change in the Federal Funds Rate, payable
as set forth below. At the option of the Bank and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be five percent (5%) per annum above
the Federal Funds Rate. Interest shall be calculated on the basis of actual
number of days elapsed and a year of 360 days. Notwithstanding any other
provision of this Note, the Bank does not intend to charge and the Borrower
shall not be required to pay any interest or other fees or charges in excess of
the maximum permitted by applicable law; any payments in excess of such maximum
shall be refunded to the Borrower or credited to reduce principal hereunder. All
payments received by the Bank hereunder will be applied first to costs of
collection and fees, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
Principal shall be paid in accordance with Section 1.01(c) of the Credit
Agreement. Interest shall be paid monthly in arrears commencing on May 1, 1996,
and continuing on the first Business Day (as defined in the Credit Agreement) of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal. If any day on which a payment is due
pursuant to the terms of this Note is not a Business Day, such payment shall be
due on the next Business Day following.
This Note may be prepaid at any time, without premium or penalty, in whole or in
part. Any prepayment of principal shall be accompanied by a payment of accrued
interest in respect of the principal being prepaid.
This Note is entitled to the benefits of a Credit Agreement (the "Credit
Agreement") by and among the Borrower on behalf of the Portfolio, the other
Borrowers and Portfolios identified therein and the Bank of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Credit Agreement)
by or with respect to the Borrower, the Bank may declare any or all obligations
or liabilities of the Borrower on behalf of the Portfolio to the Bank (including
the unpaid principal hereunder and any interest due thereon) immediately due and
payable without presentment, demand, protest or notice.
In accordance with Section 5.03 of the Credit Agreement, after the occurrence of
an Event of Default, the Bank may set off or apply any deposits, securities or
other assets at any time held, credited by or due from the Bank to or for the
Borrower against this Note and any other liability now existing or hereafter
arising of the Borrower to the Bank.
If this Note is not paid in accordance with its terms, the Borrower shall pay to
the Bank, in addition to principal and accrued interest thereon, all costs of
collection of the principal and accrued interest, including, but not limited to,
reasonable attorneys' fees, court costs and other costs for the enforcement of
payment of this Note.
No waiver of any obligation of the Borrower under this Note shall be effective
unless it is in a writing signed by the Bank. A waiver by the Bank of any right
or remedy under this Note on any occasion shall not be a bar to exercise of the
same right or remedy on any subsequent occasion or of any other right or remedy
at any time.
Any notice required or permitted under this Note shall be in writing and shall
be deemed to have been given on the date of delivery, if personally delivered to
the party to whom notice is to be given, or if mailed to the party to whom
notice is to be given, by registered mail, return receipt requested, postage
prepaid, and addressed to the addressee at the address of the addressee set
forth in the Credit Agreement, or to the most recent address, specified by
written notice, given to the sender pursuant to this paragraph.
This Note is delivered in and shall be enforceable in accordance with the laws
of the Commonwealth of Massachusetts (without reference to the conflicts of laws
or choice of law provision thereof), and shall be construed in accordance
therewith, and shall have the effect of a sealed instrument.
The Borrower hereby expressly waives presentment, demand, and protest, notice of
demand, dishonor and nonpayment of this Note, and all other notices or demands
of any kind in connection with the delivery, acceptance, performance, default or
enforcement hereof, and hereby consents to any delays, extensions of time,
renewals, waivers or modifications that may be granted or consented to by the
holder hereof with respect to the time of payment or any other provision hereof
or of the Credit Agreement.
In the event any one or more of the provisions of this Note shall for any reason
be held to be invalid, illegal or unenforceable, in whole or in part or in any
respect, or in the event that any one or more of the provisions of this Note
operate or would prospectively operate to invalidate this Note, then and in any
such event, such provision(s) only shall be deemed null and void and shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
BORROWER:
MIDAS FUND, INC.
By: __________________________
Name:
Title:
ATTESTED:
By: ________________
Name:
Title:
EXHIBIT A-2
NOTE
$ April 3, 1996
For value received, the undersigned, , a Maryland corporation (the
"Borrower"), on behalf of the Portfolio designated below ("Portfolio"), hereby
promises to pay Investors Bank & Trust Company (the "Bank"), at its principal
office at 89 South Street, Boston, MA 02111 or at such other place as may be
designated from time to time in writing by the Bank, the principal sum ($
), or such lesser amount as may be from time to time outstanding,
together with interest in arrears from and including the date hereof on the
unpaid principal balance hereunder, computed daily, at the Federal Funds Rate as
defined in the Credit Agreement as hereinafter defined (the "Federal Funds
Rate"), such rate of interest to change with and as of each change in the
Federal Funds Rate, payable as set forth below. At the option of the Bank and to
the extent permitted by applicable law, the rate of interest on any unpaid
principal or interest not paid when due and payable hereunder shall be five
percent (5%) per annum above the Federal Funds Rate. Interest shall be
calculated on the basis of actual number of days elapsed and a year of 360 days.
Notwithstanding any other provision of this Note, the Bank does not intend to
charge and the Borrower on behalf of the Portfolio shall not be required to pay
any interest or other fees or charges in excess of the maximum permitted by
applicable law; any payments in excess of such maximum shall be refunded to the
Borrower on behalf of the Portfolio or credited to reduce principal hereunder.
All payments received by the Bank hereunder will be applied first to costs of
collection and fees, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
Principal shall be paid in accordance with Section 1.01(c) of the Credit
Agreement. Interest shall be paid monthly in arrears commencing on May 1, 1996,
and continuing on the first Business Day (as defined in the Credit Agreement) of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal. If any day on which a payment is due
pursuant to the terms of this Note is not a Business Day, such payment shall be
due on the next Business Day following.
This Note may be prepaid at any time, without premium or penalty, in whole
or in part. Any prepayment of principal shall be accompanied by a payment of
accrued interest in respect of the principal being prepaid.
This Note is entitled to the benefits of a Credit Agreement (the "Credit
Agreement") by and among the Borrower on behalf of the Portfolio, the other
Borrowers and Portfolios identified therein and the Bank of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Credit Agreement)
by or with respect to the Borrower on behalf of the Portfolio the Bank may
declare any or all obligations or liabilities of the Borrower on behalf of
the Portfolio to the Bank (including the unpaid principal hereunder and any
interest due thereon) immediately due and payable without presentment, demand,
protest or notice.
In accordance with Section 5.03 of the Credit Agreement, after the
occurrence of an Event of Default, the Bank may set off or apply any deposits,
securities or other assets at any time held, credited by or due from the Bank to
or for the Borrower on behalf of the Portfolio against this Note and any other
liability now existing or hereafter arising of the Borrower on behalf of the
Portfolio to the Bank.
If this Note is not paid in accordance with its terms, the Borrower on
behalf of the Portfolio shall pay to the Bank, in addition to principal and
accrued interest thereon, all costs of collection of the principal and accrued
interest, including, but not limited to, reasonable attorneys' fees, court costs
and other costs for the enforcement of payment of this Note.
No waiver of any obligation of the Borrower on behalf of the Portfolio
under this Note shall be effective unless it is in a writing signed by the Bank.
A waiver by the Bank of any right or remedy under this Note on any occasion
shall not be a bar to exercise of the same right or remedy on any subsequent
occasion or of any other right or remedy at any time.
Any notice required or permitted under this Note shall be in writing and
shall be deemed to have been given on the date of delivery, if personally
delivered to the party to whom notice is to be given, or if mailed to the party
to whom notice is to be given, by registered mail, return receipt requested,
postage prepaid, and addressed to the addressee at the address of the addressee
set forth in the Credit Agreement, or to the most recent address, specified by
written notice, given to the sender pursuant to this paragraph.
This Note is delivered in and shall be enforceable in accordance with the
laws of the Commonwealth of Massachusetts (without reference to the conflicts of
laws or choice of law provision thereof), and shall be construed in accordance
therewith, and shall have the effect of a sealed instrument.
The Borrower on behalf of the Portfolio hereby expressly waives
presentment, demand, and protest, notice of demand, dishonor and nonpayment of
this Note, and all other notices or demands of any kind in connection with the
delivery, acceptance, performance, default or enforcement hereof, and hereby
consents to any delays, extensions of time, renewals, waivers or modifications
that may be granted or consented to by the holder hereof with respect to the
time of payment or any other provision hereof or of the Credit Agreement.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, or in the event that any one or more of the provisions of this
Note operate or would prospectively operate to invalidate this Note, then and in
any such event, such provision(s) only shall be deemed null and void and shall
not affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
BORROWER:
on behalf of
-----------------------------------
(Name of Portfolio)
By: __________________________
Name:
Title:
ATTESTED:
By:_______________________
Name:
Title:
EXHIBIT B-1
BORROWING NOTICE
___________________________ (the "Borrower") hereby certifies as follows:
This Borrowing Notice is furnished to Investors Bank & Trust Company (the
"Bank") pursuant to the Credit Agreement dated as of April 3, 1996 by and among
the Bank, the Borrower and the other Borrowers and Portfolios party thereto (the
"Credit Agreement"). Unless otherwise defined herein, the terms used in this
Borrowing Notice have the meanings given them in the Credit Agreement.
The following information is correct as of the close of business on
_____________________________, 199__:
1. Maximum availability of all Borrowers and Portfolios: $________
(Lesser of (a) $20,000,000 or (b) Aggregate
Eligible Loan Amounts of all Borrowers and Portfolios)
2. Loans outstanding to all Borrowers and Portfolios: $________
3. Current availability of all Borrowers and Portfolios: $________
(Line 1 minus Line 2)
4. Net assets of the Borrower: $________
5. Eligible Loan Amount of the Borrower: $________
(Lesser of (a) $9,500,000 or
(b) 33% of Line 4)
6. Loans outstanding to the Borrower: $________
7. Current availability of the Borrower: $_______
(Line 5 minus Line 6)
8. Loan requested by the Borrower: $_______
(Cannot be larger than either
Line 3 or Line 7)
The conditions contained or referred to Sections 2.02(a) and (b) of the
Credit Agreement with respect to the undersigned Borrower have been satisfied on
and as of the date of this Borrowing Notice.
EXHIBIT B-2
BORROWING NOTICE
___________________________ (the "Borrower") hereby certifies as follows:
This Borrowing Notice is furnished to Investors Bank & Trust Company
(the "Bank") pursuant to the Credit Agreement dated as of April 3, 1996 by and
among the Bank, the Borrower on behalf of the Portfolio designated below and the
other Borrowers and Portfolios party thereto (the "Credit Agreement"). Unless
otherwise defined herein, the terms used in this Borrowing Notice have the
meanings given them in the Credit Agreement.
The following information is correct as of the close of business on
_____________________________, 199__:
1. Maximum availability of all Borrowers and Portfolios: $___________
(Lesser of (a) $20,000,000 or (b) Aggregate
Eligible Loan Amounts of all Borrowers and Portfolios)
2. Loans outstanding to all Borrowers and Portfolios: $___________
3. Current availability of all Borrowers and Portfolios: $___________
(Line 1 minus Line 2)
4. Net assets of the Portfolio: $__________
5. Eligible Loan Amount of the Portfolio: $___________
(Lesser of (a) $9,500,000 or
(b) 33% of Line 4)
6. Loans outstanding to the Portfolio: $___________
7. Current availability of the Portfolio: $___________
(Line 5 minus Line 6)
8. Loan requested by the Portfolio: $___________
(Cannot be larger than either
Line 3 or Line 7)
The conditions contained or referred to Sections 2.02(a) and (b) of the
Credit Agreement with respect to the undersigned Borrower on behalf of the
Portfolio designated below have been satisfied on and as of the date of this
Borrowing Notice.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
__________ day of _________________________, 199____.
BORROWER
-----------------------
(Name of Borrower)
on behalf of
-----------------------
(Name of Portfolio)
By: __________________________
Name:
Title:
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
Any of the following designated Portfolios of Bull & Bear
Funds I, Inc. (the "Borrower") may hereafter utilize the proceeds of the Loans
made to the Borrower under the Credit Agreement dated as of April 3, 1996:
Bull & Bear Quality Growth Fund
Bull & Bear U.S. and Overseas Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date written
above.
Bull & Bear Funds I,
Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
Any of the following designated Portfolios of Bull & Bear
Funds II, Inc. (the "Borrower") may hereafter utilize the proceeds of the Loans
made to the Borrower under the Credit Agreement dated as of April 3, 1996:
Bull & Bear Global Income Fund
Bull & Bear U.S. Government
Securities Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date
written above.
Bull & Bear Funds II,
Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
The following designated Portfolio of Bull & Bear
Municipal Securities, Inc. (the "Borrower") may hereafter utilize the
proceeds of the Loans made to the Borrower under the Credit Agreement dated as
of April 3, 1996:
Bull & Bear Municipal Income Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date written
above.
Bull & Bear
Municipal Securities, Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
202-778-9046
April 30, 1996
Bull & Bear Special Equities Fund, Inc.
11 Hanover Square
New York, NY 10005
Dear Sir or Madam:
Bull & Bear Special Equities Fund, Inc. ("Company") is a corporation
organized under the laws of the State of Maryland. We understand that the
Company is about to file Post-Effective Amendment No. 16 to its
registration statement on Form N-1A for the purpose of registering
additional shares of capital stock of the Company's sole series, Bull &
Bear Municipal Income Fund, under the Securities Act of 1933, as amended
("1933 Act"), pursuant to Section 24(e)(1) of the Investment Company Act of
1940, as amended ("1940 Act").
We have, as counsel, participated in various corporate and other
proceedings relating to the Company. We have examined copies, either
certified or otherwise proved to be genuine, of the Company's Articles of
Incorporation and By-Laws, as now in effect, and other documents relating
to its organization and operation. Based upon the foregoing, it is our
opinion that the shares of capital stock of the Company currently being
registered pursuant to Section 24(e)(1) as reflected in Post-Effective
Amendment No. 16, when sold in accordance with the Company's Articles of
Incorporation and By-Laws, will be legally issued, fully paid and non-
assessable, subject to compliance with the 1933 Act, and the 1940 Act and
applicable state laws regulating the offer and sale of securities.
We hereby consent to this opinion accompanying Post-Effective
Amendment No. 16 which you are about to file with the Securities and
Exchange Commission.
Sincerely,
DC-258308.1
KIRKPATRICK & LOCKHART LLP
By: /s/ Arthur J. Brown
Arthur J. Brown
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D. C. 20036-1800
ARTHUR J.BROWN
(202) 778-9046
[email protected]
April 30, 1996
EDGAR FILING
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Bull & Bear Special Equities, Inc.
File Nos. 33-2847/811-4625
Post-Effective Amendment No. 16
Ladies and Gentlemen:
We serve as counsel to Bull & Bear Special Equities Fund, Inc. (the
"Company"). In that capacity, we have reviewed Post-Effective Amendment No. 16
to the Company's Registration Statement on Form N-1A which accompanies this
letter ("Amendment"). Pursuant to Rule 485(b)(4) under the Securities Act of
1933, we represent that, to the best of our knowledge based upon our review, the
Amendment does not contain disclosures which would render it ineligible to
become effective pursuant to Rule 485(b).
Sincerely,
/s/ Arthur J. Brown
Enclosure
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 19, 1996 on the financial
statements and financial highlights of Bull & Bear Special Equities Fund, Inc.
Such financial statements and financial highlights appear in the 1995 Annual
Report to Shareholders which is incorporated by reference in the Statement of
Additional Information filed in Post-Effective Amendment No. 16 under the
Securities Act of 1933 and Amendment No. 16 under the Investment Company Act of
1940 to the Registration Statement on Form N-1A of Bull & Bear Special Equities
Fund, We also consent to the references to our firm in the Registration
Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 12, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Annual
Report and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<INVESTMENTS-AT-COST> 48,851,480
<INVESTMENTS-AT-VALUE> 57,026,904
<RECEIVABLES> 131,391
<ASSETS-OTHER> 7,790
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,166,085
<PAYABLE-FOR-SECURITIES> 450,887
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 357,647
<TOTAL-LIABILITIES> 826,534
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,197,247
<SHARES-COMMON-STOCK> 2,216,430
<SHARES-COMMON-PRIOR> 2,386,819
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33,120)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,175,424
<NET-ASSETS> 56,339,551
<DIVIDEND-INCOME> 82,173
<INTEREST-INCOME> 16,890
<OTHER-INCOME> 0
<EXPENSES-NET> 1,992,128
<NET-INVESTMENT-INCOME> (1,893,065)
<REALIZED-GAINS-CURRENT> 14,970,525
<APPREC-INCREASE-CURRENT> 4,972,715
<NET-CHANGE-FROM-OPS> 18,050,175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,913,338
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,008,412
<NUMBER-OF-SHARES-REDEEMED> 6,287,493
<SHARES-REINVESTED> 108,692
<NET-CHANGE-IN-ASSETS> 10,725,502
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,531,171)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 496,593
<INTEREST-EXPENSE> 432,058
<GROSS-EXPENSE> 1,992,128
<AVERAGE-NET-ASSETS> 54,213,510
<PER-SHARE-NAV-BEGIN> 19.11
<PER-SHARE-NII> (0.81)
<PER-SHARE-GAIN-APPREC> 8.51
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.39)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 25.42
<EXPENSE-RATIO> 2.88
<AVG-DEBT-OUTSTANDING> 4,925,000
<AVG-DEBT-PER-SHARE> 2.10
</TABLE>
