SPECIAL EQUITIES FUND
Invests Aggressively
for Maximum Capital Appreciation
Annual Report
December 31, 1998
11 Hanover Square, New York, NY 10005
1-888-503-FUND for Investment Information
1-888-503-VOICE for Shareholder Services
www.mutualfunds.net
February 10, 1999
Fellow Shareholders:
It is a pleasure to welcome our shareholders who have opened a new
account during the year, in many cases taking advantage of our Investor Service
Center No-Fee Traditional, Roth and Education IRA.
Review and Outlook
Concerns about a recession and a pick-up of inflation in the U.S.
are proving to be unfounded, as new Government and private organizations'
economic reports provide strong evidence that despite slowing in some areas, the
economy is still growing, and that inflation is clearly under control.
On the economic front, the nation's gross domestic product - the
total of goods and services produced - grew at a surprising 5.6% rate in the
fourth quarter of 1998, the fastest pace in two years according to the Commerce
Department. Tying in with this strong performance is the report by the Labor
Department of a gain of 245,000 jobs in January, twice the amount forecast and
leaving the unemployment rate at just 4.3%, the lowest in 28 years. In addition,
manufacturing showed signs of strength in January as production and new orders
rose sharply according to the National Association of Purchasing Management, as
did construction spending, registering its seventh straight monthly increase in
December.
Adding to the flood of good news was the Conference Board's report
that new home sales surged 10.4% in 1998, and housing starts, in a release from
the Commerce Department, rose 3.5% in December, bringing the total for the year
to the highest level since 1987. In each case, this has triggered broad current
and future strength in home furnishing purchases as well. The Conference Board
also reported that their index of leading economic indicators, which is intended
to project the economy's performance six months out, rose 0.3% in December.
With respect to inflation, the Labor Department has reported that
inflation, as measured by the Consumer Price Index, skidded to an 0.8% rate in
the fourth quarter of 1998, the lowest in 40 years.
It is little wonder then, with employment strong - about a quarter
of a million jobs on average have been added in each of the last 12 months - the
nation's gains are being fueled by consumer spending, which climbed a hefty 4.4%
in the fourth quarter. And suggesting this is likely to continue is the latest
reading of the well regarded University of Michigan consumer sentiment index,
which rose to 101 in early January from 100.5 in late December.
Our strategy in 1998 was to attempt to identify fast growing
companies with reasonable valuations, and to hold their equity securities for
capital appreciation. If a company does meet our growth criteria, however, it
must also have a reasonable valuation in terms of price/earnings, price/sales,
price/cash flow, and similar ratios. The Fund also employed leverage, Futures,
and sold securities short during the year. The Russell 2000, an unmanaged, fully
invested small company index showed a negative 2.5% return for 1998. Reflecting
this result, the Fund's total return for the year was a negative 5.21%. The Fund
had a strong finish to the year with a total return of +12.75% for the fourth
quarter, which we will be seeking to build on in 1999.
A Convenient Way to Grow Your Account
With the strong economic background described above, and a relative
improvement in the performance of smaller capitalization growth and value stocks
in evidence in the new year, we believe this is an attractive time to add to
your investment.
<PAGE>
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 Investor Service Center Bank
Transfer Plan, the Investor Service Center Salary Investing Plan, and/or the
Investor Service Center 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
Investor Service Center Funds, the Investor Service Center No-Fee Traditional,
Roth or Education IRA, we would be very pleased to hear from you. Just call
1-888-503-FUND (3863), and an Investor Service Representative will be glad to
assist you, as always, without any obligation on your part.
Sincerely,
Robert D. Anderson Thomas B. Winmill
Vice Chairman President
<PAGE>
BULL & BEAR SPECIAL EQUITIES FUND, INC.
Schedule of Portfolio Investments - December 31, 1998
Shares Market Value
COMMON STOCKS (95.7%)
Air-Conditioning & Warm Air Heating Equipment
& Commercial & Industrial Refrigerator Equipment (1.3%)
59,700 International Comfort Products Corp.* $ 477,600
Air Courier Services (2.3%)
23,800 Airborne Freight Corp. 858,287
Aircraft Engines & Engine Parts (.9%)
3,010 United Technologies Corp. 327,338
Arrangement of Transportation of Freight & Cargo (1.3%)
12,000 Expeditors International of Washington, Inc. 504,000
Carpets and Rugs (.8%)
32,000 Interface, Inc. 297,000
Commercial Banks (1.3%)
9,800 Royal Bank of Canada 488,775
Commercial Printing (.9%)
15,380 Quebecor Printing Inc. 333,554
Construction Machinery & Equipment (1.7%)
14,000 Manitowoc Company, Inc. 621,250
Converted Paper and Paperboard Products (1.5%)
47,700 Mail-Well, Inc.* 545,569
Cutlery, Handtools & General Hardware (.5%)
5,340 L.S. Starrett Co. Class A 183,229
Drawing and Insulating Nonferrous Wire (1.8%)
20,000 AFC Cable Systems, Inc.* 672,500
Electric & Other Services Combined (.9%)
12,970 Northwestern Corp. 342,894
Electric Lighting & Wiring Equipment (2.3%)
20,000 Genlyte Group Inc.*. 375,000
21,060 LSI Industries, Inc. 472,534
847,534
Fabricated Plate Work (.9%)
45,225 Chart Industries, Inc. 344,841
Gaskets, Packaging & Sealing Devices & Rubber
& Plastic Hoses (1.5%)
25,000 Wynn's International, Inc. 553,125
General Industrial Machinery & Equipment (1.9%)
28,000 Gardner Denver Inc.* 413,000
6,480 Ingersoll-Rand Co. 304,155
717,155
Household Furniture (.1%)
2,200 Chromcraft Revington, Inc.* 36,437
Industrial Trucks, Tractors, Trailers & Stackers (1.1%)
4,400 NACCO Industries, Inc. Class A 404,800
Life Insurance (2.6%)
5,490 AXA ADR 396,653
11,220 Delphi Financial Group, Inc. Class A* 588,349
985,002
Men's & Boys' Furnishings, Work Clothing
& Allied Garments (3.2%)
39,440 Quiksilver Inc.* 1,183,200
Millwood, Veneer, Plywood & Structural Wood Members (1.6%)
17,090 American Woodmark Corp. 585,332
Miscellaneous Electrical Machinery, Equipment
& Supplies (.6%)
7,740 C&D Technologies, Inc. 212,850
Miscellaneous Manufacturing Industries (2.3%)
20,000 CTS Corp. 870,000
Miscellaneous Plastic Products (.8%)
18,180 The First Years Inc. 287,471
Motor Homes (1.3%)
19,200 National R.V. Holdings, Inc.* 494,400
Motor Vehicles and Passenger Car Bodies (2.2%)
28,500 Navistar International Corp.* 812,250
Motor Vehicle Parts and Accessories (1.0%)
9,100 Dana Corp. 371,963
Operative Builders (5.2%)
33,250 D.R. Horton, Inc. 764,750
16,750 NVR, Inc.* 798,766
16,200 Toll Brothers, Inc.*. 365,513
1,929,029
Prefabricated Metal Buildings & Components (1.3%)
17,400 NCI Building Systems, Inc.* 489,375
Prefabricated Wood Buildings & Components (1.0%)
25,700 American Homestar Corp.* 385,500
Printed Circuit Boards (8.1%)
20,450 Benchmark Electronics, Inc.* 748,981
13,200 Jabil Circuit, Inc.* 985,050
24,800 Plexus Corp.* 840,100
4,800 Solectron Corp.* 446,100
3,020,231
Public Building and Related Furniture (1.2%)
25,000 Virco Manufacturing Corp. 459,375
Refrigeration & Service Industry Machinery (.5%)
4,600 Tennant Co. 189,463
Retail-Catalog & Mail-Order Houses (1.0%)
3,900 CDW Computer Centers, Inc.* 374,156
Retail-Computer & Prerecorded Tape Stores (1.9%)
37,500 Trans World Entertainment Corp.* 714,844
Retail-Family Clothing Stores (1.7%)
35,200 Goody's Family Clothing, Inc.* 353,100
12,180 The Buckle, Inc.* 292,320
645,420
Retail-Grocery Stores (2.9%)
5,280 Albertson's Inc. 336,270
12,290 Safeway Inc.* 748,922
1,085,192
Retail-Variety Stores (3.8%)
26,000 Ames Department Stores, Inc.* 702,000
24,000 Fred's Inc. 360,000
4,360 Wal-Mart Stores, Inc. 355,067
1,417,067
Rolling Drawing & Extruding of Nonferrous Metals (.9%)
17,200 Mueller Industries, Inc.* 349,375
Savings Institutions, Not Federally Chartered (1.8%)
27,620 Anchor Bancorp. Wisconsin, Inc. 662,880
Services-Advertising Agencies (1.1%)
6,800 WPP Group plc 419,900
Services-General Medical & Surgical Hospitals (1.3%)
9,600 Universal Health Services, Inc. Class B* 498,000
Services-Help Supply Services (.2%)
48,550 Westaff Inc.* 62,500
Services-Specialty Outpatient Facilities (2.8%)
15,550 Express Scripts, Inc.* 1,043,794
Soap, Detergent, Cleaning Preparations, Perfume,
Cosmetics (.9%)
13,100 Stepan Co. 348,788
Surgical & Medical Instruments & Apparatus (1.6%)
12,700 Teleflex Inc. 579,437
Trucking (1.2%)
16,900 Forward Air Corp.* 316,875
16,900 Landair Corp.* 126,750
443,625
Wholesale-Computer & Peripheral Equipment & Software (2.3%)
6,800 Ingram Micro Inc. Class A* 237,150
27,600 Pomeroy Computer Resources, Inc.* 621,000
858,150
Wholesale-Drugs Proprietaries & Druggists' Sundries (2.9%)
21,950 Bindley Western Industries, Inc. 1,081,037
Wholesale-Groceries & Related Products (.8%)
11,290 SYSCO Corp.. 309,769
Wholesale-Lumber, Plywood, Millwork & Wood Panels (1.3%)
16,200 Crane Co. 489,037
Wholesale-Medical, Dental & Hospital Equipment
& Supplies (1.6%)
13,900 Patterson Dental Co.* 604,650
Wholesale-Metals Service Centers & Offices (1.0%)
13,000 Reliance Steel & Aluminum Co. 359,125
Wholesale-Professional & Commerical Equipment
& Supplies (.9%)
14,370 Miami Computer Supply Corp.* 354,759
Women's, Misses' and Juniors Outerwear (4.9%)
16,400 Kellwood Co. 410,000
35,530 Tarrant Apparel Group* 1,407,876
1,817,876
Wood Household Furniture (1.0%)
21,520 Stanley Furniture Co., Inc.* 392,740
Total Common Stocks (cost: $31,507,639) 35,743,450
Warrants (1.0%)
48,864 News Corp. Ltd. ADS warrants* 359,150
Total Warrants (cost: $0) 359,150
Closed-End Funds (2.5%)
28,000 Equus II, Inc. 451,500
44,800 John Hancock Bank & Thrift Opportunity Fund 478,800
Total Closed-End Funds (cost: $1,168,744) 930,300
Par
Value Short Term Investments (.8%)
$315,00 U.S. Treasury Bill, due 1/21/99 (Cost: $314,204)(1) 314,204
Total Investments (cost: $32,990,587) (100%) $37,347,104
Shares Securities Sold Short
10,200 Bolder Technologies Corp.* $126,225
17,300 CellNet Data Systems, Inc.* 87,041
980 Cnet Inc.* 52,215
1,100 Excite, Inc.* 46,337
900 Lycos, Inc.* 49,978
800 MindSpring Enterprises, Inc.* 48,875
3,200 N2K Inc.* 41,700
11,500 Omnipoint Corp.* 107,094
4,500 Online System Services, Inc.* 58,781
3,000 Open Market, Inc.* 35,063
1,300 RealNetworks, Inc.* 46,434
3,000 SportsLine USA, Inc.* 46,969
2,200 Spyglass, Inc.* 48,263
Total (proceeds: $793,079) $ 794,975
* Indicates non-income producing security.
(1) Pledged as collateral for open futures contract at December 31, 1998.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS:
Investments at market value
(cost: $32,990,587) (note 1) ...........................$37,347,104
Receivables:
Investment securities sold .................................861,197
Securities sold short ......................................793,079
Variation margin .....................................................17,850
Dividends ............................................................11,200
Other assets .............................................................5,331
Total assets ............................................39,035,761
LIABILITIES:
Payables:
Demand note payable to bank (note 5) ..............................1,152,590
Securities sold short, at value,
proceeds $793,079 ..........................................794,975
Investment securities purchased ............................142,367
Fund shares repurchased .....................................35,416
Accrued expenses .....................................................69,823
Accrued management and
distribution fees ...........................................33,538
Total liabilities ........................................2,228,709
NET ASSETS: (applicable to 1,809,264
outstanding shares: 500,000,000 shares
of $.01 par value authorized) ...................................$36,807,052
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($36,807,052 / 1,809,264) ............................................$20.34
At December 31, 1998, net assets consisted of:
Paid-in capital .................................................$36,415,087
Accumulated net realized loss on
investments ............................................(4,190,738)
Net unrealized appreciation on investments
and futures ..............................................4,582,703
$36,807,052
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
INVESTMENT INCOME:
Dividends (net of foreign taxes of $3,399) .........................$ 319,020
Interest ............................................................... 38,998
Total investment income ................................... 358,018
EXPENSES:
Distribution (note 3) ................................................. 423,430
Investment management (note 3) ........................................ 367,537
Interest (note 5) ..................................................... 337,920
Transfer agent ......................................................... 86,482
Shareholder administration (note 3) .................................... 62,140
Custodian .............................................................. 58,355
Professional (note 3) .................................................. 51,893
Registration (note 3) .................................................. 34,382
Directors .............................................................. 10,014
Printing ................................................................ 5,748
Other .................................................................. 13,441
Total expenses ................................................... 1,451,342
Fee reductions (note 4) ................................... (4,981)
Net expenses ............................................ 1,446,361
Net investment loss ................................... (1,088,343)
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FUTURES:
Net realized loss from security
transactions ................................................... (2,540,433)
Net realized gain from futures
transactions ..................................................... 1,912,534
Unrealized appreciation of investments
and futures during the period ....................................... 11,710
Net realized and unrealized loss on
investments and futures ................................. (616,189)
Net decrease in net assets resulting
from operations ...................................... $(1,704,532)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
1998 1997
OPERATIONS:
<S> <C> <C>
Net investment loss .......................................................... $ (1,088,343) $ (768,834)
Net realized gain (loss) from futures transactions ............................. 1,912,534 (335,926)
Net realized gain (loss) from security transactions ............................ (2,540,433) 2,325,898
Unrealized appreciation of investments and futures during the period ........ 11,710 1,258,458
Net increase (decrease) in net assets resulting from operations .......... (1,704,532) 2,479,596
DISTRIBUTIONS TO SHAREHOLDERS:
Distribution from net realized gains ($1.78 and $0.75 per share, respectively).. (2,995,505) (1,388,183)
CAPITAL SHARE TRANSACTIONS:
Decrease in net assets resulting from capital share transactions (a) ........... (3,266,312) (6,157,931)
Total decrease in net assets ............................................. (7,966,349) (5,066,518)
NET ASSETS:
Beginning of period ............................................................ 44,773,401 49,839,919
End of period .................................................................. $36,807,052 $44,773,401
</TABLE>
<TABLE>
<CAPTION>
(a) Transactions in capital shares were as follows:
1998 1997
Shares Value Shares Value
<S> <C> <C> <C> <C>
Shares sold .......................109,718 $2,667,221 190,298 $4,598,454
Shares issued in reinvestment of ..144,137 2,794,520 57,687 1,285,837
distributions
Shares redeemed ..................(359,846) (8,728,053) (503,800) (12,042,222)
Net decrease .....................(105,991) ($3,266,312) (255,815) ($6,157,931)
</TABLE>
Notes to Financial Statements
(1) The Fund is a Maryland corporation 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 as set forth in the
prospectus, 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. Premiums and discounts are amortized in accordance with
income tax regulations. 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 $32,990,587 gross unrealized appreciation and gross unrealized
depreciation were $6,712,418 and $2,355,901 respectively at December 31, 1998.
Distributions paid to shareholders during the year ended December 31, 1998
differ from net realized gains from security transactions as determined for
financial reporting purposes principally as a result of utilization of net
operating losses to offset short-term capital gains.
(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 agreed to waive all or part of its fee or reimburse the
Fund monthly if and to the extent the aggregate operating expenses of the Fund
exceed the most restrictive limit imposed by any state in which shares of the
Fund are qualified for sale, although currently the Fund is not subject to any
such limits. Certain officers and directors of the Fund are officers and
directors of the Investment Manager and Investor Service Center, Inc., the
Fund's
<PAGE>
Distributor. For the year ended December 31, 1998, the Fund paid $49,185 to Bull
& Bear Securities, Inc., an affiliate of the Investment Manager as commissions
for brokerage services. The Fund reimbursed the Investment Manager $20,306 for
providing certain administrative and accounting services at cost for the year
ended December 31, 1998. 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 $62,140 for shareholder
administration services which it provided to the Fund at cost for the year ended
December 31, 1998.
(4) Purchases and proceeds of sales of securities other than short term notes
aggregated $45,537,339 and $52,650,705, respectively. The Fund has entered into
an arrangement with its custodian whereby interest earned on uninvested cash
balances was used to offset a portion of the Fund's expenses. During the year
ended December 31, 1998, the Fund's custodian fees were reduced by $4,981, under
such arrangements.
(5) The Fund has a committed bank line of credit. At December 31, 1998, the
balance outstanding was $1,152,590 and the interest rate was equal to the
Federal Reserve Funds Rate plus 1.00 percentage point. For the year ended
December 31, 1998, the weighted average interest rate was 6.32% based on the
balances outstanding during the period and the weighted average amount
outstanding was $5,622,424.
(6) At December 31, 1998, the Fund had the following open long futures
positions:
Contracts Futures Value Unrealized Appreciation
21 S&P 500 Futures expire March 1999 $6,538,875 $228,375
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
1998 1997 1996 1995 1994
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period .......$23.38 $22.96 $25.42 $19.11 $23.13
Income from investment operations:
Net investment loss ........................(0.61) (0.38) (0.73) (0.81) (0.55)
Net realized and unrealized gain
(loss) on investments ..................(0.65) 1.55 0.99 8.51 (3.28)
Total from investment operations .........(1.26) 1.17 0.26 7.7 (3.83)
Less distributions:
Distributions from net realized
gains on investments ...................(1.78) (0.75) (2.72) (1.39) (0.19)
Net increase (decrease) in net asset value .(3.04) 0.42 (2.46) 6.31 (4.02)
Net asset value at end of period .............$20.34 $23.38 $22.96 $25.42 $19.11
TOTAL RETURN ..................................(5.00%) 5.30% 1.00% 40.50% (16.50%)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) ..$36,807 $44,773 $49,840 $56,340 $45,614
Ratio of expenses to average
net assets(a) (b) ...........................3.42% 2.81% 2.92% 3.67% 2.92%
Ratio of net investment loss to
average net assets..........................(2.57%) (1.48%) (2.81%) (2.70%) (2.43%)
Portfolio turnover rate ..........................97% 260% 31 31 309%
<FN>
* 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. (a) Ratio
excluding interest expense was 2.63%, 2.53%, 2.45% and 2.88% for the years ended
December 31, 1998, 1997, 1996 and 1995, respectively. (b) Ratio after custodian
fee credits was 3.41% and 2.79% for the years ended December 31, 1998 and 1997,
respectively. Prior to 1995, such credits were reflected in the ratio. There
were no custodian fee credits for 1996 and 1995.
</FN>
</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, 1998, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, 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 statements
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Bull & Bear Special Equities Fund, Inc. as of December 31, 1998, 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 15, 1999
<PAGE>
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 futures. The Performance Graphs cover January 1, 1989
to December 31, 1998, and reflect reinvestment of dividends and distributions.
Past performance is not predictive of future performance.
[Graph Omitted]
Final Total Average
Value Return Annual Return
Fund $22,451 124.51% 8.42%
2000 33,709 237.09 12.92
For Fund prospectuses and other
investment information, call toll-free
1-888-503-FUND
1-888-503-3863
For shareholder services by
Investor Access, call toll-free
1-888-503-VOICE
1-888-503-8642
Or, access the Fund on the web at
www.mutualfunds.net
