Filed with the Securities and Exchange Commission on February 27, 1997
1933 Act File No. 33-6898
1940 Act File No. 811-4741
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 19
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19
BULL & BEAR FUNDS I, 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 paragraph (b) of rule 485
on (specify date) pursuant to paragraph (b) of rule 485
60 days after filing pursuant to paragraph (a)of rule 485
X on May 1, 1997 pursuant to paragraph (a) of rule 485
The Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The notice required by such Rule for its most
recent fiscal year was filed on February 20, 1997.
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BULL & BEAR FUNDS I, INC.
Contents of Registration Statement
This registration statement consists of the following papers and
documents.
Cover Sheet
Table of Contents
Cross Reference Sheet - Bull & Bear U.S. and Overseas Fund
Bull & Bear U.S. and Overseas Fund
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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BULL & BEAR FUNDS I, INC.
Bull & Bear U.S. and Overseas Fund
Cross Reference Sheet
PART A - PROSPECTUS
Part A. Item No. spectus Caption
1 Cover Page
2 Transaction and Operating Expenses
3 Financial Highlights
Performance Information
4 General
The Fund's Investment Program
Capital Stock
5 Investment Manager
Custodian and Transfer Agent
6 Cover Page
General
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 FUNDS I, INC.
Bull & Bear U.S. and Overseas Fund
Cross Reference Sheet
PART B - STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional
Part B. Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Cover Page
13 The Fund's Investment Program
Investment Restrictions
Options, Futures and Forward Currency
Contract Strategies
Appendix
14 Officers and Directors
15 Officers and Directors
Investment Manager
16 Investment Manager
Investment Management Agreement
Distribution of Shares
Custodian, Transfer and Dividend
Disbursing Agent
Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Purchase of Shares
Determination of Net Asset Value
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 investment objective of Bull & Bear U.S. and Overseas Fund ("Fund") is
to seek to obtain the highest possible total return on its assets from long term
growth of capital and from income principally through a portfolio of securities
of U.S. and overseas issuers. There is no limitation on the percentage or amount
of the Fund's assets which may be invested for growth of capital or income, and
at any time the investment emphasis may be placed solely or primarily on growth
of capital or solely or primarily on income. The Fund provides a means for you
to participate in investment opportunities around the world. There is no
assurance that the Fund will achieve its investment objective.
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NEWSPAPER LISTING. Shares of the Fund are sold at the net
asset value per share which is shown daily in the mutual fund
section of newspapers under the "Bull & Bear Group" heading.
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This prospectus contains information you should know about the Fund before
you invest. Please keep it for future reference. The Fund's Statement of
Additional Information, dated May 1, 1997, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference in this
prospectus. It is available at no charge by calling 1-800-847-4200. The SEC
maintains a Web site (http://www.sec.gov) that contains the Fund's Statement of
Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the SEC, as does
the Fund. 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
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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 $2 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............................... 0.99%
12b-1 Fees.................................... 1.00%
Other Expenses ............................... 1.21%
Total Fund Operating Expenses................. 3.20%
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
$32 $99 $167 $350
The example set forth above assumes reinvestment of all dividends and
distributions and assumes a 5% annual rate of return as required by the 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, 1996. This fee is higher than that
paid by most investment companies. 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 and Transfer Agent and reimbursed 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.1 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, 1996 Annual Report to
Shareholders and incorporated by reference in the Statement of Additional
Information. On February 26, 1992, the Fund adopted its present name and
investment objective. Prior thereto it was known as Bull & Bear Overseas Fund
Ltd. and sought to obtain the highest possible total return on its assets from
long term growth of capital and from income principally through a diversified
portfolio of marketable securities of non-U.S. companies.
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<TABLE>
Years Ended December 31,
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PER SHARE DATA1 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period$8.36 $7.08 $8.71 $7.59 $8.37 $7.62 $8.46 $8.03 $7.46 $ 7.50
Income from investment operations:
Net investment income (loss)...... (0.24) (0.23) (0.13) (0.20) 0.04 0.07 (0.01) (0.10) 0 .03 0.01
Net realized and unrealized gain (loss)
on investments................... 0.68 2.00 (1.01) 2.22 (0.25) 1.64 (0.72) 0.99 0.56 (0.05
Total from investment operations 0.44 1.77 (1.14) 2.02 (0.21) 1.71 (0.73) 0.89 0.59 (0.04
Less distributions:
Distributions from net investment --- --- --- --- --- --- (0.02) (0.02) ---
income
Distributions from net realized (0.89) (0.49) (0.49) (0.90) (0.57) (0.96) (0.11) (0.44) --- ---
gains
Net asset value at end of period $7.91 $8.36 $7.08 $8.71 $7.59 $8.37 $7.62 $8.46 $8.03 $7.46
TOTAL RETURN.................... 5.34% 25.11% (13.12)% 26.71% 2.57% 22.55% (8.61)% 11.10% 8.00% 0.60%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period $9,836 $9,808 $8,454 $12,250 $9,229 $1,275 $1,158 $1,149 $1,250 $1,042
(000's omitted)
Ratio of expenses to average
net assets(a)(b).......... 3.20% 3.55% 3.53% 3.55% 3.56% 3.56% 3.50% 3.50% 3.02% 3.20%
Ratio of net investment income
(loss) average net assets(c).......(2.74)%(2.85)%(1.65)% (2.36)% 0.51% 0.90% (0.09)% (1.29)% .44% .57%
Portfolio turnover rate......... 255% 214% 212% 182% 175% 208% 270% 178% 140% 18%
Average commission per share....$0.0536
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</TABLE>
1 Per share net investment income (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. The
selected per share data has been restated to reflect the 100% stock dividend
effective February 24, 1992. From commencement of operations, October 29, 1987.
(a) Ratios before the Investment Manager's reimbursement of expenses were 3.84%,
3.59%, 3.69%, 4.09%, 13.35%, 11.98%, 14.36%, and 10.13%, for the years ended
December 31, 1995, 1994, 1993, 1992, 1991, 1990, 1989, and 1988, respectively.
(b) Ratio after the reduction of custodian fees under a custodian agreement was
3.49% for 1995. Prior to 1995, such reductions were reflected in the expense
ratios. There were no custodian fee credits for 1996. (c) Ratios prior to
reimbursement by the Investment Manager were (3.14)%, (1.71)%, (2.50)%, (0.02)%,
(8.89)%, (8.57)%, (12.15)%, and (6.67)%, for the years ended December 31, 1995,
1994, 1993, 1992, 1991, 1990, 1989, and 1988, respectively.
Information relating to outstanding debt during the fiscal periods shown below:
<TABLE>
Amount of Debt Average Amount of Average Number of Average Amount of
<S> <C> <C> <C> <C>
Fiscal Year Ended Outstanding at End Debt Outstanding Shares Outstanding Debt Per Share
December 31 of Period During the Period During the Period During the Period
1996 $150,468 $8,535 1,198,206 $0.01
1995 0 47,539 1,182,551 0.04
1994 0 22,355 1,234,685 0.02
1993 0 22,097 1,211,741 0.02
</TABLE>
3
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TABLE OF CONTENTS
Expense Tables...........................2 Distributions and Taxes..........12
Financial Highlights.....................2 Determination of Net Asset Value.13
General..................................3 Investment Manager...............13
The Fund's Investment Program............4 Distribution of Shares...........13
How to Purchase Shares...................7 Performance Information..........14
Shareholder Services.....................8 Capital Stock....................14
How to Redeem Shares....................11 Custodian and Transfer Agent.....15
GENERAL
Purposes of the Fund. The Fund is for long term investors who wish to invest in
a professionally managed portfolio of securities of U.S. and foreign issuers
without having to become involved with the research, detailed bookkeeping, and
operational procedures normally associated with direct investment in such
securities. The Fund is not intended for investors who wish to speculate on
short term swings in U.S. and foreign securities markets. The value of the
Fund's portfolio securities will fluctuate based on global market conditions as
well as those of individual economies and markets. Consistent with a long term
investment approach, you should be able to maintain your investment in the Fund
during periods of adverse market conditions, and you should not rely on an
investment in the Fund for your short term financial needs.
Global Investing. At various times since the end of World War II, many foreign
economies have grown faster than the United States' economy, and the return on
investments in these countries has often exceeded the return on similar
investments in the United States. Moreover, there has normally been a wide and
largely unrelated variation in performance among global equity and fixed income
markets over this period. Although there can be no assurance that these
conditions will continue in the future or that the Fund's Investment Manager
will be able to identify and acquire investments in the faster growing economies
or markets, the Investment Manager believes that investment in the securities of
U.S. and foreign issuers offers potential for significant total return. The
Fund's investment program has been developed in light of these beliefs to
provide an opportunity for you to participate in a professionally managed,
global portfolio of securities.
Portfolio Management. Investment decisions for the Fund have since February 20,
1997 been made by the Investment Policy Committee of Bull & Bear Advisers, Inc.
("Investment Manager").
THE FUND'S INVESTMENT PROGRAM
Investment Objective and Policies. The Fund's investment objective, which may
not be changed without shareholder approval, is to seek to obtain the highest
possible total return on its assets from long term growth of capital and from
income principally through a portfolio of securities of U.S. and overseas
issuers. The Fund may invest in any type of security including common stocks,
convertible securities, preferred stocks, bonds, notes and other debt securities
(including Eurodollar securities), warrants, obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, or by foreign
governments and their political subdivi sions, money market instruments such as
bankers' acceptances, commercial paper, short term corporate debt securities,
and repurchase agreements. The Fund may also engage in options, futures, and
forward currency transactions.
3
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Factors considered by the Investment Manager in evaluating and
selecting securities include economic and socio-political considerations, the
values of individual securities relative to other investment alternatives,
relative currency values and trends, trends in the determinants of corporate
profits, and management capabilities and practices. Investments may be made for
growth of capital or for income or any combination thereof for the purpose of
achieving a higher overall total return.
The Fund may invest in companies based in (or governments of or
within) Europe, the Far East, Australia, the United States, Canada, South and
Central America, and such other areas and countries as the Investment Manager
may determine. Under normal market conditions, the Fund's assets will be
invested in at least three different countries, including the United States. For
this purpose, an investment is considered made in a country where the issuer of
the security has substantial activities and interests, taking into account such
factors as location of its assets, personnel, sales and earnings, principal
corporate office, principal trading market for its securities, and place of
organization. There are no limitations on the relative amounts of the Fund's
assets that may be invested in any one country.
Fixed Income Investing. When seeking income, the Fund will normally invest in
investment grade fixed income securities of varying maturities, depending on the
Investment Manager's evaluation of market patterns and trends. The Fund may
invest up to 35% of its total assets in fixed income 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. The Fund may also
invest without limit in unrated securities if they offer, in the Investment
Manager's opinion, the opportunity for a high overall return by reason of their
yield, discount at purchase or potential for capital appreciation without undue
risk. For temporary defensive purposes the Fund may invest all or a portion of
its assets in high grade fixed income securities.
Investment grade securities are those rated in the top four categories
by a nationally recognized statistical rating organization such as Standard &
Poor's Ratings Services or Moody's Investors Service, Inc., ("Moody's") or, if
unrated, are determined by the Investment Manager to be of comparable quality.
Moody's considers securities in the fourth highest category to have speculative
characteristics. Securities rated below investment grade and many unrated
securities may be considered predominantly speculative and subject to greater
market fluctuations and risks of loss of income and principal than higher rated
fixed income securities. The market value of fixed income securities usually is
affected by changes in the level of interest rates. An increase in interest
rates tends to reduce the market value of such investments, and a decline in
interest rates tends to increase their value. In addition, fixed income
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Fluctuations in the market value of fixed
income securities subsequent to their acquisition do not affect cash income from
such securities but are reflected in the Fund's net asset value.
Overseas Investments, Markets, and Risk Factors. You should understand and
consider carefully the sub stantial risks involved in foreign investing.
Investing in foreign securities, which are generally denominated in foreign
currencies, and utilization of forward contracts on foreign currencies involves
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
repa triation of capital; costs of converting foreign currency into U.S.
dollars; greater price volatility and trading illiquidity; less public
information on issuers of securities; difficulty in enforcing legal rights
outside of the United States; lack of uniform accounting, auditing and financial
reporting standards; the possible imposition of foreign taxes, exchange controls
and currency restrictions; and the possible greater political, economic and
social instability of developing as well as developed countries including
without limitation, nationalization, expropriation of assets, and war. These
risks are often heightened for investments in developing countries and emerging
markets or when the Fund's investments are concentrated in a small number of
countries. In addition, because transactional and custodial expenses for foreign
securities are generally higher than for domestic securities,
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the expense ratio of the Fund can be expected to be higher than that of
investment companies investing exclusively in domestic securities. Securities
may be purchased by the Fund 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. Commissions on some foreign stock
exchanges are higher than the typically 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, the Fund's 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 requiring the Fund to maintain a greater portion of its
assets in money market instruments in order to meet such requests. Some of the
securities in which the Fund invests may not be widely traded, and the Fund's
position in such securities may be substantial in relation to the market for
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.
Investments in the equity and fixed income markets of developing
countries involve exposure to economic structures that are generally less
diverse and mature than in the United States and other developed countries, and
to political systems which may be less stable. A developing country can be
considered to be a country which is in the initial stages of its
industrialization cycle. In the past, markets of developing countries, also
known as "emerging markets", have been more volatile than the markets of
developed countries; however, such markets often have provided higher rates of
return to investors, and these characteristics can be expected to continue in
the future. Because there is no limit on the amount of the Fund's assets which
may be invested in companies in, or governments of, developing countries, an
investment in the Fund may be subject to risks greater than those of investment
companies which invest solely or primarily in the United States and other
developed countries.
Since investment in foreign securities usually involves foreign
currencies and since the Fund may temporarily hold funds 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 thus the Fund's net asset value per share) will increase
(all else being equal). Conversely, an increase in the value of the U.S. dollar
relative to such a foreign currency will result in a decline in the value of
such Fund assets (and its net asset value per share). The Fund may incur
additional costs in connection with conversions of currencies and securities
into U.S. dollars. The Fund will conduct its foreign currency transactions
either on a spot (i.e., cash) basis, or through entering into forward contracts.
The Fund generally will not enter into a forward currency contract with a term
of greater than one year.
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 security constitutes
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 expense in
selling the collateral. To attempt to limit the risk in engaging in repurchase
agreements, the Fund enters into repurchase agreements only with banks and
dealers believed
5
<PAGE>
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 securities.
Hedging and Income Strategies. 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 specific contemplated 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, it 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 its ability
to meet redemption requests.
Strategies with options, financial futures, and forward 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 ability of the Investment Manager 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 correlation between hedging instruments and the
securities or sectors being hedged also may be imperfect. The percentage of the
Fund's assets segregated to cover its obligations under options, futures, or
forward contracts could impede effective portfolio management or the ability to
meet redemption or other current obligations.
Portfolio Turnover. Given the Fund's investment objective, the portfolio
turnover rate will not be a limiting factor when the Investment Manager deems
changes in the portfolio appropriate, and the Fund's investment strategy
therefore includes the possibility of short term transactions. The Fund's
portfolio turnover rate will vary from year to year. In 1995 it was 214% and in
1996 it was 255%. Higher turnover may increase Fund brokerage costs and taxes
payable by shareholders. (See "Distributions and Taxes" and "Allocation of
Brokerage" in the Statement of Additional Information.)
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Other Information. The Fund is "non-diversified," as defined in the Investment
Company Act of 1940 ("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 and the price of Fund shares. The Fund may borrow money from a bank
for temporary or emergency purposes or by engaging in reverse repurchase
agreements provided that borrowings do not exceed one-third of the current value
of the Fund's assets taken at market value, less liabilities other than
borrowings. The Fund will not purchase securities for investment while bank
borrowing equaling 5% or more of its total assets is outstanding. In addition to
the Fund's fundamental investment objective, the Fund has adopted certain
fundamental investment restrictions which may not be changed without shareholder
approval. These other 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 Accounts ("IRAs"), SEP-IRAs, rollover IRAs, profit sharing
and money purchase plans, and 403(b) plan accounts. The minimum subsequent
investment is $100. The initial investment minimums are waived if you elect to
invest $100 or more each month in the Fund through the Bull & Bear Automatic
Investment Program (see "Additional Investments" below). The Fund in its
discretion may waive or lower the investment minimums.
Initial Investment. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
drawn to the order of U.S. and Overseas 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 Fund shares on each
pay date, depending upon your employer's direct deposit
program.
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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),
drawn to the order of U.S. and Overseas 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
Fund shares 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.
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 U.S. and Overseas 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; U.S. and Overseas 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.
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,
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we recommend that you do not request certificates. You will receive transaction
confirmations upon purchasing or selling shares, and quarterly statements.
When Orders are Effective. The purchase price for Fund shares is the net asset
value of such shares next determined after receipt and acceptance by 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 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.
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
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 and other distributions 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 Transfer Agent
may require the signature to be guaranteed), with a voided check.
Dividend Sweep Privilege. You may elect to have automatically invested either
all dividends or all dividends and other distributions paid by the Fund in any
other Bull & Bear Fund. Shares of the other Bull & Bear Fund will be purchased
at the current net asset value calculated on the payment date. For more
information concerning this privilege and the other Bull & Bear Funds, or to
request a Dividend Sweep Authorization Form, please call 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 Bull & Bear Fund after cancellation, you must submit a new
Authorization Form. Enrollment in or cancellation of this privilege is generally
effective three business days following receipt. This privilege is available
only for existing accounts and may not be used to open new accounts.
Systematic Withdrawal Plan. If you own Fund shares with a value of at least
$20,000 you may elect an automatic monthly or quarterly withdrawal of cash from
your Fund account in fixed or variable amounts, subject to a minimum amount of
$100. Under the Systematic Withdrawal Plan, all dividends and other
distributions, if any, are reinvested in the Fund.
Assignment. Fund shares may be transferred to another owner. Instructions are
available from Investor Service Center, 1-800-847-4200.
Exchange Privilege. You may exchange at least $500 worth of Fund shares for
shares of any Bull & Bear Fund listed below (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).
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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 Fund business day
and provide the following information: account registration information
including address, account number and 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.
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.
o Bull & Bear Special Equities Fund invests aggressively for maximum capital
appreciation.
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 net asset values of the Fund
and the other Bull & Bear Fund as determined at the close of the next Fund
business day. 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. 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 shares. 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 for Federal income
tax purposes as noted below. Information on any of these plans is available from
Investor Service Center by calling toll-free at 1-800-847-4200.
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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. For married couples, each spouse
may contribute up to $2,000 into an IRA regardless of whether each spouse has
$2,000 of earned income, provided, however, that their aggregate earned income
is at least $4,000 (where such income is less than $4,000, special rules apply).
Employers may also make contributions to an IRA on behalf of an individual under
a Simplified Employee Pension Plan ("SEP") in any amount up to 15% of up to
$150,000 of compensation. Also, although a Salary Reduction SEP ("SARSEP") may
no longer be established after that date, a small employer instead may establish
a Savings Incentive Match Plan for Employees ("SIMPLE"), which will allow
certain employees to make elective contributions of up to $6,000 per year and
will require the employer to make matching contributions up to 3% of each such
employee's salary.
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 1997 tax year through April 15, 1998 and for the
1998 tax year from January 1, 1998 through April 15, 1999.
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 many
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 that 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
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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 establishment of custodial accounts on
behalf of employees of public school systems and certain tax-exempt
organizations. A participant in such a plan does not pay taxes on any
contributions made by the participant's employer to the participant's account
pursuant to a salary reduction agreement, up to a maximum amount, or "exclusion
allowance." The exclusion allowance 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 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. 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
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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
(there is no check writing minimum for Bull & Bear Securities Performance
Plus(R) 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. The redemption price is the net asset value per share
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 capital gains 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 ordinarily be made within
seven days after receipt of a 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
business 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 capital gain distributions to which you
may be entitled through the date of redemption. The clearing period does not
apply to purchases made by wire. Due to the relatively higher cost of
maintaining small accounts, the Fund reserves the right, upon 45 days' notice,
to redeem any account, other than IRA and other Bull & Bear prototype retirement
plan accounts, worth less than $500 except if solely from market action, unless
an investment is made to restore the minimum value.
Telephone Privileges. You automatically have all telephone privileges to, among
other things, authorize purchases, redemptions and exchanges, with EFT or by
other means, unless declined on the Account Application or otherwise in writing.
Neither the Fund nor 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.
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Signature Guarantees. No signature guarantees are required when payment is to be
made to you at your address of record. If the redemption proceeds are to be paid
to a non-shareholder of record, or to an address other than your address of
record, or the shares are to be assigned, the Transfer Agent may require that
your signature be guaranteed by an entity acceptable to the Transfer Agent, such
as a commercial bank or trust company or member firm of a national securities
exchange or of the NASD. A notary public may not guarantee signatures. The
Transfer Agent may require further documentation, and may restrict the mailing
of redemption proceeds to your address of record within 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 paid in additional Fund shares
or shares of another Bull & Bear Fund pursuant to the Dividend Sweep Privilege,
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 shares of the Fund or another Bull & Bear
Fund 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 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 shares) when designated as such by the Fund, are taxable
to its 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 tax.
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.
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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
Federal, state and local 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 its investments and all other
assets minus any liabilities. The value of one share is determined by dividing
the net assets by the total number of shares outstanding. This is referred to as
"net asset value per share" and is determined as of the close of regular trading
on the New York Stock Exchange (currently, 4 p.m. eastern time, unless weather,
equipment failure or other factors contribute to an earlier closing) each
business day of the Fund. A business day of the Fund is any day on which the New
York Stock Exchange is open for trading. The following are not business days of
the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities and other assets of the Fund are valued primarily
on the basis of market quotations, if readily available. Foreign securities 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
Bull & Bear Advisers, Inc. ("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 to improve the Fund's total
return. During the fiscal year ended December 31, 1996, investment management
fees paid by the Fund represented approximately 0.99% of average daily net
assets net of reimbursement pursuant to the expense guaranty of the Investment
Manager. The Investment Manager provides certain administrative services to the
Fund at cost. The Investment Manager is a wholly owned subsidiary of Bull & Bear
Group, Inc. ("Group"). Group, a publicly owned company whose securities are
listed on the Nasdaq Stock Market, 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.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc.,
11 Hanover Square, New York, NY 10005 ("Distributor"), the Distributor acts as
the Fund's principal agent for the sale of its shares. The Investment Manager is
an affiliate of the Distributor. The Fund has also adopted a plan of
distribution ("Plan") pursuant to
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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
affiliated investment companies and Bull & Bear Securities, Inc. will benefit
therefrom.
PERFORMANCE INFORMATION
Advertisements and other sales literature for the Fund may refer to
the Fund's "average annual total return" and "cumulative total return." All such
quotations are based upon historical earnings and are not intended to indicate
future performance. The investment return on and principal value of an
investment in the Fund will fluctuate, so that an investor's shares when
redeemed may be worth more or less than their original cost. In addition to
advertising average annual total return and cumulative total return, comparative
performance information may be used from time to time in advertising the Fund's
shares, including data from Morningstar, Inc., Lipper Analytical Services, Inc.
and other sources. "Average annual total return" is the average annual
compounded rate of return on a hypothetical $1,000 investment made at the
beginning of the advertised period. In calculating average annual total return,
all dividends and other distributions are assumed to be reinvested. "Cumulative
total return" is calculated by subtracting a hypothetical $1,000 payment to the
Fund from the ending redeemable value of such payment (at the end of the
relevant advertised period), dividing such difference by $1,000 and multiplying
the quotient by 100. In calculating ending redeemable value, all dividends and
other distributions are assumed to be reinvested in additional Fund shares.
Although the Fund imposes a 1% redemption fee on the redemption of shares held
for 30 days or less, all of the periods for which performance is quoted are
longer than 30 days, and therefore the 1% fee is not reflected in the
performance calculations. In addition, there is no sales charge upon
reinvestment of dividends or other distributions. Additional information
regarding the Fund's performance is available in its Annual Report to
Shareholders, which is available at no charge upon request to Investor Service
Center, 1-800-847-4200.
CAPITAL STOCK
The Fund is a series of Bull & Bear Funds I, Inc. ("Corporation"), a
Maryland corporation organized in 1986. Prior to September 23, 1993, the
Corporation operated under the name Bull & Bear U.S. and Overseas Fund Ltd. The
Corporation is an open-end management investment company and is authorized to
issue up to 1,000,000,000 shares ($.01 par value). The Board of Directors has
designated 250,000,000 shares as shares
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<PAGE>
of Bull & Bear U.S. and Overseas Fund. The Corporation's Board of Directors
may establish one or more other series, although it has no current intention of
doing so.
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 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 25% 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 vote on the Fund's investment management
agreement, plan of distribution, or 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 by the Fund of such foreign custodial arrangements and depositories
will increase the Fund's expenses.
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. 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 may perform on behalf of their
customers certain shareholder services not otherwise provided by the Transfer
Agent or the Distributor.
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[Left Side of Back Cover Page]
U.S. AND
OVERSEAS
FUND
- -----------------------------------------------------
11 Hanover Square
New York, NY 10005
1-800-847-4200 1-212-363-1100
http://www.bull-and-bear.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]
U.S. AND
OVERSEAS
FUND
- ---------------------------------------------------------
Investing Worldwide
for the Highest Possible
Total Return
Electronic Funds Transfers
Automatic Investment Program
Retirement Plans: IRA, SEP-IRA,
Qualified Profit Sharing/Money
Purchase, 403(b), Keogh
- ---------------------------------------------------------
Prospectus
May 1, 1997
- ---------------------------------------------------------
Minimum Initial Investment:
Regular Accounts, $1,000;
IRAs, $500; Automatic
Investment Programs, $100
Minimum Subsequent Investments: $100
BULL
&
BEAR
- -----------------------------------------
Performance Driven(R)
18
<PAGE>
Statement of Additional Information May 1, 1997
BULL & BEAR U.S. AND OVERSEAS FUND
11 Hanover Square
New York, NY 10005
1-800-847-4200
Bull & Bear U.S. and Overseas Fund ("Fund") is a non-diversified series of
Bull & Bear Funds I, Inc. ("Corporation"), an open-end management investment
company organized as a Maryland corporation. This Statement of Additional
Information regarding the Fund is not a prospectus and should be read in
conjunction with the Fund's Prospectus dated May 1, 1997. The Prospectus is
available to prospective investors without charge upon request to Investor
Service Center, Inc., the Fund's Distributor, by calling 1-800-847-4200.
TABLE OF CONTENTS
THE FUND'S INVESTMENT PROGRAM..................................2
INVESTMENT RESTRICTIONS........................................5
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES......7
THE INVESTMENT COMPANY COMPLEX................................17
OFFICERS AND DIRECTORS........................................18
INVESTMENT MANAGER............................................20
INVESTMENT MANAGEMENT AGREEMENT...............................20
DETERMINATION OF NET ASSET VALUE..............................21
PURCHASE OF SHARES............................................22
PERFORMANCE INFORMATION.......................................22
DISTRIBUTION OF SHARES........................................27
ALLOCATION OF BROKERAGE.......................................29
DISTRIBUTIONS AND TAXES.......................................31
REPORTS TO SHAREHOLDERS.......................................33
CUSTODIAN AND TRANSFER AGENT..................................33
AUDITORS......................................................33
FINANCIAL STATEMENTS..........................................33
APPENDIX -- DESCRIPTIONS OF BOND RATINGS......................34
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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.
The Fund may invest in foreign securities by purchasing American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement.
Illiquid Assets. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, 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.
The term "illiquid assets" for this purpose includes securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately 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 Securities Act of 1933, as amended
("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
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<PAGE>
public or certain institutions is not dispositive of the liquidity of such
invest ments.
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. An insufficient number of qualified buyers interested
in purchasing certain restricted securities held by the Fund, however, could
affect 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 has delegated the function of making day-to-day
determina tions of liquidity to Bull & Bear Advisers, Inc. ("Investment
Manager") pursuant to guidelines approved by the Board. The Investment Manager
takes into account a number of factors in reaching liquidity determinations,
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, (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 determinations to the Board of Directors.
Lower Rated Debt Securities. The Fund is authorized to invest up to 35% of
its total assets in 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. Debt securities rated 'Ba' or lower by
Moody's Investors Service, Inc. ("Moody's") and 'BB' or lower by Standard &
Poor's Ratings Group ("S&P") are considered below investment grade. Debt
securities rated below investment grade are deemed by these rating agencies to
be predominantly speculative with respect to the issuers' 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 Manager 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 risks 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 further information regarding S&P's
and Moody's ratings.
Lower rated debt securities generally offer a higher current yield than
that available from higher grade issues. However, lower rated securities involve
higher 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
3
<PAGE>
increase the possibility of default. In addition, the market for lower rated
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 securities may be thinner and
less active than that for higher quality securities, which may limit the Fund's
ability to sell such securities at their fair value in response to changes in
the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
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.
Foreign Government Securities. The foreign government securities in which
the Fund may invest generally consist of obligations supported by national,
state or provincial governments or similar political subdivisions. Foreign
government securities also include debt obligations of supranational entities,
which include international organizations designated or supported by
governmental entities to promote economic reconstruction or development,
international banking institutions and related government agencies. Examples
include the International Bank for Reconstruction and Development (the World
Bank), the European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. Foreign government securities also include debt
securities of "quasi-governmental agencies" and debt securities denominated in
multinational currency units (such as the European Currency Unit) of an issuer
(including supranational issuers).
Preferred Securities. The Fund may invest in preferred stocks of U.S. and
foreign issuers. 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.
Reverse Repurchase Agreements. Although it has no intention of doing so
during its current fiscal year, the Fund may enter into reverse repurchase
agreements with banks. Such agreements involve the sale of securities held by
the Fund subject to its agreement to repurchase the securities held by the Fund
at an agreed-upon date and price reflecting a market rate of interest. Such
agreements are considered to be borrowings. All borrowings by the Fund are
limited to one-third of the Fund's assets and may be entered into only for
temporary or emergency purposes. Additionally, while a reverse repurchase
agreement is outstanding, the Fund will
4
<PAGE>
maintain with its Custodian in a segregated account cash and/or liquid high
grade debt securities, marked to market daily, in an amount at least equal to
the Fund's obligations under the reverse repurchase agreement.
Short Sales. The Fund may engage in short sales if it owns or, by virtue of
its ownership of other securities, has the right to obtain without additional
cost securities equivalent in kind or amount to the securities sold. This
investment technique is known as a short sale "against the box." In a short
sale, the Fund sells a borrowed security and has a corresponding obligation to
the lender to return the identical security. The Fund will not dispose of the
securities underlying a short sale while a short sale is outstanding. The Fund
intends to engage in short sales against the box for hedging purposes. The
Investment Manager expects that the Fund will engage in short sales against the
box as a hedge when the Investment Manager believes that the price of a security
may decline, or when the Fund wants to sell the security it owns at the current
price but wants to defer recognition of gain or loss for tax purposes, or to
satisfy certain tests applicable to regulated investment companies under the
Internal Revenue Code of 1986, as amended ("Code"). The Investment Manager
currently anticipates that no more than 5% of the Fund's total assets would be
involved in short sales against the box.
Lending of Portfolio Securities. The Fund is authorized to engage in
securities 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 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 on
the assets lent, if any, while simultaneously earning interest on the loan or a
flat fee from the borrower. The Fund will normally pay 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 may be 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. Purchase securities of any one issuer if, as a result, more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would own
or hold 10% of the outstanding securities of that issuer, except that up to
50% of the Fund's total assets may be invested without regard to this
limitation and provided that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or securities of other investment companies;
5
<PAGE>
2. Lend money or securities, provided that (i) the making of time or demand
deposits with banks, (ii) the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short term
obligations in accordance with its investment objective and policies and
(iii) engaging in securities loan transactions limited to one-third of the
Fund's total assets are not prohibited;
3. Borrow money, except to the extent permitted by the Investment Company Act of
1940, as amended ("1940 Act");
4. Concentrate more than 25% of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered a
separate industry. This limitation shall not apply to obligations issued by the
U.S. government or its agencies or instrumentalities;
5. Invest in commodities or commodity futures contracts, although it may enter
into financial and foreign currency futures contracts and options thereon,
options on foreign currencies and forward contracts on foreign currencies;
6. Invest in real estate, although it may invest in securities which are secured
by real estate and securities of issuers which invest or deal in real estate;
7. Underwrite the securities of other issuers except to the extent the Fund
may be deemed to be an underwriter under the Federal securities laws in
connection with the disposition of the Fund's securities. The Fund may buy
and sell securities outside the United States which are not registered with
the Securities and Exchange Commission ("SEC") or marketable in the United
States; or
8. Issue senior securities as defined in the 1940 Act. The following will not be
deemed to be senior securities for this purpose: (i) evidences of indebtedness
that the Fund is permitted to incur, (ii) the issuance of additional series or
classes that the directors may establish, (iii) the Fund's futures, options and
forward currency transactions, and (iv) to the extent consistent with the 1940
Act and applicable rules and policies adopted by the SEC, (A) the establishment
or use of a margin account with a broker for the purpose of effecting securities
transactions on margin and (B) short sales;
9. The Fund, notwithstanding any other investment policy or restriction
(whether or not fundamental) may invest all of its assets in the securities
or beneficial interests of a single pooled investment fund having
substantially the same objectives, policies and limitations as the Fund.
The Corporation's Board of Directors has established the following
non-fundamental investment limitations that may be changed by the Board without
shareholder approval:
1. The Fund may not purchase or otherwise acquire any security or invest in a
repurchase agreement if, as a result, 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;
2. The Fund may not purchase the securities of any investment company (as
defined in the 1940 Act) 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
6
<PAGE>
the Fund, and (b) when such purchase is part of a plan of merger,
consolidation, reorganization or acquisition of assets;
3. The aggregate value of securities underlying put options on securities
written by the Fund, determined as of the date the put options are written,
will not exceed 25% of the Fund's net assets, and the aggregate value of
securities underlying call options on securities written by the Fund,
determined as of the date the call options are written, will not exceed 25%
of the Fund's net assets;
4. The Fund may purchase a put or call option on a security or a security
index, including any straddles or spreads, only if the value of its
premium, when aggregated with the premiums on all other such instruments
held by the Fund, does not exceed 5% of the Fund's total assets;
5. To the extent that the Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a Commodity Futures
Trading Commission ("CFTC") regulated exchange, in each case that is not for
bona fide hedging purposes (as defined by the CFTC), the aggregate initial
margin and premiums required to establish these positions (excluding the amount
by which options are "in-the-money") may not exceed 5% of the liquidation value
of the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into;
6. 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
contracts and other derivative instruments shall not be deemed to
constitute purchasing securities on margin;
7. The Fund may not mortgage, pledge or hypothecate any assets in excess of one-
third of the Fund's total assets;
8. The Fund may not make short sales of securities or maintain a short
position, except (a) the Fund may buy and sell options, futures contracts,
options on futures contracts, and forward contracts, and (b) the Fund may
sell "short against the box" where the Fund contemporaneously owns or has
the right to obtain at no added cost securities identical to those sold
short; and
9. The Fund may not borrow money, except (a) from a bank for temporary or
emergency purposes (not for leveraging or investment) or (b) by engaging in
reverse repurchase agreements, provided that immediately after all borrowings
pursuant to (a) and (b) there is asset coverage of at least 300 per centum for
all borrowings; provided that in the event that such asset coverage shall at any
time fall below 300 per centum the Fund shall within three days thereafter (not
including Sundays and holidays) reduce the amount of its borrowings such that
the asset coverage of such borrowings shall be at least 300 per centum. The Fund
may not purchase securities for investment while any bank borrowing equaling 5%
or more of its total assets is outstanding.
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 circumstances permitted by
the CFTC. Certain special characteristics of and risks associated with using
these instruments
7
<PAGE>
are discussed below. In addition to the non-fundamental investment restrictions
4 and 5 described above, the 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 or liquid securities whose value is marked to the market daily in a
segregated account with its Custodian in the prescribed amount, or (2) holding
securities, currencies or other options or futures contracts whose values are
expected to offset ("cover") its obligations thereunder. Securities, 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 secur ity. 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
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underlying security is higher than the exercise price of the put option, any
profit the Fund realizes on the sale 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 securities 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 portfo lio 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 portfo lio 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 secur ity 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 security. 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 technique 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.
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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 fluctuations in the securities markets (or a market
sector) rather than anticipated increases or decreases in the value of a
particular security. A securi ties index assigns values to the 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 securities 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 se curities 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 Manager'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 cur rencies at prices that are less favorable than
for round lots.
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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 informa tion 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 curren cies 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.
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 se curities 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
port folio, 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
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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 se curity, currency or securities index, the Fund may not sell the
underlying securi ties 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.
(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 securities 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 secur ity 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 securi ties 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
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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 positions. 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 anticipated. Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual secur ities, 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 securi ties that the Fund intends
to purchase. A rise in the price of the securities 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 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 portfo lio 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 securities.
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.
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The Fund may also purchase and write covered straddles on interest rate or
securi ties 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 or liquid securities whose value is
marked to the market daily 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 securi ties transactions, initial margin on
futures contracts does not involve borrowing to finance the futures
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 requirements 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
se curities, 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
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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.
(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 se curities 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 securities 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 securities
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.
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(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
underlying 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 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 security 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 portfolio 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
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<PAGE>
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
securi ties involved will not generally be possible because the future value of
such secur ities 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 security 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
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
17
<PAGE>
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.
("Investment Company Complex") are:
Bull & Bear Dollar Reserves
Bull & Bear U.S. Government Securities Fund, Inc.
Bull & Bear Municipal Income Fund, Inc.
Bull & Bear Global Income Fund, Inc.
Bull & Bear U.S. and Overseas Fund
Bull & Bear Special Equities Fund, Inc.
Bull & Bear Gold Investors Ltd.
Midas Fund, Inc.
Rockwood Fund, Inc.
OFFICERS AND DIRECTORS
The officers and Directors of the Corporation, 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
seven other investment companies in 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 seven 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 eight other
investment companies in the Investment Company Complex.
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 eight 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 eight other investment companies in the Investment Company
Complex.
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<PAGE>
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 eight 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.
("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 five 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 six
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.
JOSEPH LEUNG, CPA -- Treasurer and Chief Accounting Officer. He is Treasurer and
Chief Accounting Officer of the Investment Company Complex, 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.
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 LLP. 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
19
<PAGE>
Name of Person, Aggregate Pension or Estimated Total Compensation
Position Compensa- Retirement Annual BenefitsFrom Registrant and
tion From Benefits Accrued Upon RetirementInvestment Company
Registrant as Part of Fund Complex Paid to
Expenses Directors
Bruce B. Huber, $1,000 None None $12,500 from 9
Director Investment
Companies
James E. Hunt, $1,000 None None $12,500 from 9
Director Investment
Companies
Frederick A. $1,000 None None $12,500 from 9
Parker, Investment
Director Companies
John B. Russell, $1,000 None None $12,500 from 9
Director Investment
Companies
Information in the above table is based on fees paid during the year ended
December 31, 1996.
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 __, 1997, officers and Directors of the Fund owned less
than 1% of the outstanding shares of the Fund. As of April __, 1997, [Charles
Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, owned ____%] of
the outstanding shares of the Fund.
INVESTMENT MANAGER
The Fund's 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 and Rockwood Advisers,
Inc., registered investment advisers, 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 and the Investment Manager on the basis
of his ownership of 100% of Group's voting stock. The Fund and its investment
company affiliates had net assets of approximately $___ million as of April __,
1997.
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
20
<PAGE>
which the Fund may have to indemnify its officers and Directors with respect
thereto. For the fiscal years ended December 31, 1994, 1995, and 1996, the Fund
paid to the Investment Manager aggregate investment management fees of $99,685,
$96,092, and $102,565, respectively, of which $5,401, $27,939, and $0 was waived
for the years 1994, 1995, and 1996, respectively, pursuant to the expense
guarantee described below.
The Investment Manager has agreed in the Investment Management Agreement that
it will guarantee that the operating expenses of the Fund (including investment
management fees but excluding taxes, interest, brokerage commissions, expenses
incurred pursuant to a distribution plan under Rule 12b-1 of the 1940 Act, and
certain extraordinary expenses), expressed as a percentage of average daily net
assets, will not exceed for each fiscal year the most restrictive limit imposed
by any state in which shares of the Fund are qualified for sale. Currently, the
Fund is not subject to any such state-imposed limitation.
If requested by the 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. For such services, the Fund reimbursed the Investment
Manager $10,877, $11,376, and $6,275 for the fiscal years ended December 31,
1994, 1995, and 1996, respectively.
The Investment Management Agreement is not assignable and terminates
automatically in the event of its assignment. The Investment Management
Agreement may also be terminated without penalty on 60 days' written notice at
the option of either party thereto or by a vote of the Corporation's
shareholders. The Investment Management Agreement provides that the Investment
Manager shall not be liable to the Corporation or the Fund or any shareholder of
the Corporation or the Fund for any error of judgment or mistake of law or for
any loss suffered by the Corporation or the Fund or the Corporation's
shareholders in connection with the matters to which the Investment Management
Agreement relates. Nothing contained in the Investment Management Agreement,
however, shall be construed to protect the Investment Manager against any
liability to the Corporation or the Fund or the Corporation's shareholders 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.
Group has granted the Fund a non-exclusive license to use various service
marks including "Bull & Bear", "Bull & Bear Performance Driven", and
"Performance Driven" under certain terms and conditions on a royalty free basis.
Such license will be withdrawn in the event the Fund's investment manager 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.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of regular
trading for equity securities 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. 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 substantial portion of the Fund's net assets may be
invested in foreign securities and/or foreign currencies, trading in each of
which is conducted in foreign markets which are not necessarily closed on U.S.
holidays, the net asset
21
<PAGE>
value per share may be significantly affected on days when a shareholder has 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 New York Stock
Exchange, the American Stock Exchange and the Nasdaq 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 ask quotations, if
available, or at their fair value as determined in good faith by or under the
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 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 ask quotations. Foreign security prices are
expressed in their local currency and translated 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 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 drawn to the Fund's order 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 Fund's transfer agent. If an order is
canceled because of non-payment or because the purchaser's check does not clear,
the purchaser will be responsible for any loss the Fund incurs. If the purchaser
is already a shareholder, the Fund can redeem shares from the purchaser's
account to reimburse the Fund for any loss. In addition, the purchaser may be
prohibited or restricted from placing future purchase orders in the Fund or any
of the other Funds in the Investment Company Complex. 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.
PERFORMANCE INFORMATION
All advertised or published average annual total return and total return
figures are based upon historical performance information and are not intended
to indicate future performance. The investment returns and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Consequently, quotations of average
annual total return
22
<PAGE>
and total return should not be considered as representative of what the Fund's
total return will be in the future. 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. Performance is a
function of the type and quality of portfolio securities and will reflect
general market conditions and operating expenses. This Statement of Additional
Information may be in use for a full year and performance results for periods
subsequent to December 31, 1996 may vary substantially from those shown below.
Total Return and Average Annual Total Return
The Fund will advertise its average annual total return over specified
periods. The Fund computes its average annual total return by determining the
average annual compounded rate of return during specified periods that compares
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 period from October 29, 1987
(commencement of operations) to December 31, 1996, for the five year period
ended December 31, 1996, and for the one year period ended December 31, 1996 was
____%, _____%, and _____%, respectively.
"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. The Fund's "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 date set forth and
ending on December 31, 1996, together with the average annual return for such
periods, are set forth below:
23
<PAGE>
Start of Periods Average Total Ending Ending Value
Ending 12/31/96 Annual Return Value of a of a
Return $1,000 $10,000
Investment Investment
==============================================================================
January 1, 1996 % % $ $
January 1, 1995 % % $ $
January 1, 1994 % % $ $
January 1, 1993 % % $ $
January 1, 1992 % % $ $
January 1, 1991 % % $ $
January 1, 1990 % % $ $
January 1, 1989 % % $ $
January 1, 1988 % % $ $
October 29, 1987 % % $ $
The Fund may provide the above described standardized 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, 1996 was approximately ____%. Such nonstandardized total returns
are computed as otherwise described above except that no annualization is made.
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. 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.
24
<PAGE>
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' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
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.
25
<PAGE>
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.
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.
26
<PAGE>
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.
The Wall Street Journal, a nationally distributed newspaper which regularly
covers financial news.
The Wall Street Transcript, a periodical reporting on financial markets and
securities.
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.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc. acts as
the principal 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 Corporation'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 Board of Directors, including
those Directors who are not "interested persons" of the Fund and who have no
direct or indirect financial
27
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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 other affiliated
investment companies 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 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, 1996, approximately $2,104 represented paid expenses incurred for
advertising, $54,654 for printing and mailing prospectuses and other information
to other than current shareholders, $31,313 for salaries of marketing and sales
personnel, $2,749 for payments to third parties who sold shares of the Fund and
provided certain services in connection therewith, and $12,359 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
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<PAGE>
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.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most favorable net
prices. 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. Transactions are
directed to brokers and dealers qualified to execute orders or provide research,
brokerage or other services, and who may sell shares of the Fund or of other
affiliated funds. 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, brokerage or other
services furnished to the Investment Manager or upon sale of Fund shares.
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 bro ker/dealer, including brokerage and research services, sales of
Fund shares or of other affiliated funds, and allocation of commissions to the
Fund's Custodian. With respect to brokerage and research services, consideration
may be given in the selection of 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 ("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.
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<PAGE>
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. These services may include "brokerage and
research services" as defined in Section 28(e)(3) of the 1934 Act, which
presently 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 bro
ker/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.
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.
During the fiscal years ended December 31, 1994, 1995, and 1996, the Fund
paid total brokerage commissions of $91,313, $77,049, and $106,792,
respectively. For the fiscal year ended December 31, 1996, $97,501 in brokerage
commissions was allocated to broker/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 of other
affiliated funds. During the Fund's fiscal years ended December 31, 1994, 1995,
and 1996, the Fund paid $9,218, $4,422, and $9,291, respectively, in brokerage
commissions to BBSI, which represented 10.0%, 5.70%, and 8.70%, respectively, of
the total brokerage commissions paid by the Fund and 20.5%, 12.3%, and 22.62%,
respectively, of the aggregate dollar amount of transactions involving the
payment of commissions.
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<PAGE>
The Fund is not obligated to deal with any particular broker, dealer or group
thereof. Certain broker/dealers that the Fund or other affiliated investment
companies 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.
The Fund's portfolio turnover rate may vary from year to year and will not be
a limiting factor when the Investment Manager deems portfolio changes
appropriate. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of securities in the
portfolio during the year.
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 that 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.
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,
futures, or forward contracts) 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 would 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 sale of Fund shares that were held for six months or less will
be treated as a long term (rather than a short term) capital loss to the extent
the seller received any capital gain distributions attributable to 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
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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 to distribute by the end of any calendar year 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,
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 would 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.
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 from 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 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",
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 qualified
electing fund's annual ordinary earnings and net capital gain (the excess of net
long term capital gain over net short term capital loss) even if they are not
distributed to the Fund; those amounts likely 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 each 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).
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Options, Futures, and Forward Contracts. The Fund's use of hedging
strategies, such as selling (writing) and purchasing options and futures
contracts and entering into forward contracts, involves complex rules that will
determine for income tax purposes the timing of recognition and character 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, futures and
forward 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, forward contracts
and foreign currency positions 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 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.
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,
income and expense, 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, Box 2197, 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 pursuant to a Shareholder Services Agreement and is
reimbursed by the Fund the actual costs incurred with respect thereto. For
services performed pursuant to the Shareholder Services Agreement, the Fund
reimbursed the Distributor for the fiscal years ended December 31, 1994, 1995
and 1996 approximately $24,778, $19,919, and $11,899, respectively.
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AUDITORS
Tait, Weller & Baker, Two Penn Center Plaza, Suite 700, Philadelphia, PA
19102- 1707, are the Fund's independent accountants. The Fund's financial
statements are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December 31, 1996,
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.
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APPENDIX -- DESCRIPTIONS OF BOND RATING-S
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged". Interest payments are protected by a large or
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. Together with the Aaa group they 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
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risk appear
somewhat larger than the 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 some time 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 the
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 Ratings Group Corporate Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
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AA An obligation rated AA differs from the highest rated
obligations only in small degree. The obligor's capacity to meet
its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However,
the obligor's capacity to meet its financial commitments on the
obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
BB An obligation rated BB is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than an
obligation rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair
the obligor's capacity or willingness to meet its financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the
obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
CCC The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on the obligation are being continued.
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BULL & BEAR FUNDS I, INC.
Part C - Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements to be included in Part A of this Registration
Statement:
Financial Highlights
Financial Statements to be included in Part B of this
Registration Statement:
The financial statements contained in the Fund's Annual Report
to Shareholders for the fiscal year ended December 31, 1996 are
incorporated into Part B by reference, except that the letter to
shareholders and other information contained on pages one and
two of said Annual Report is not so incorporated by reference
and is not part of this Registration Statement.
(b) Exhibits
(1) Amended and Restated Articles of Incorporation. Incorporated by
reference to corresponding Exhibit of Post-Effective Amendment No. 15 to
the Registration Statement, SEC File No. 33-6898, filed March 2, 1994.
(2) Amended By-Laws. Incorporated by reference to corresponding Exhibit of
Post-Effective Amendment No. 15 to the Registration Statement, SEC File
No. 33-6898, filed March 2, 1994.
(3) Voting trust agreement -- none
(4) (a) Specimen security with respect to Bull & Bear U.S. and Overseas
Fund. Incorporated by reference to corresponding Exhibit of
Post-Effective Amendment No. 17 to the Registration Statement,
SEC File No. 33-6898, filed April 28, 1995.
(5) (a) Investment Advisory Contract with respect to Bull & Bear U.S.
and Overseas Fund. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 15 to the Registration
Statement, SEC File No. 33-6898, filed March 2, 1994.
(b) Investment Advisory Contract with respect to Bull & Bear Quality
Growth Fund. Incorporated by reference to corresponding Exhibit
of Post-Effective Amendment No. 15 to the Registration
Statement, SEC File No. 33-6898, filed March 2, 1994.
(6) Distribution Agreement. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 15 to the Registration
Statement, SEC File No. 33-6898, filed March 2, 1994.
(7) Bonus, profit sharing or pension plans -- not applicable
(8) (a) Custodian Agreement. Incorporated herein by reference to
corresponding Exhibit of Post-Effective Amendment No. 5 to the
Registration Statement, SEC File No. 33-6898, filed May 1, 1990.
(b) Amendment to Custodian Agreement. Incorporated by reference to
corresponding Exhibit of Post-Effective Amendment No. 13 to the
Registration Statement, SEC File No. 33-6898, filed April 30,
1993.
<PAGE>
(c) Amendment dated September 28, 1993 to Custodian Agreement.
Incorporated by reference to corresponding Exhibit of Post-
Effective Amendment No. 15 to the Registration Statement, SEC
File No. 33-6898, filed March 2, 1994.
(d) Depository agreements. Incorporated by reference to
corresponding Exhibit of Post-Effective Amendment No. 13 to the
Registration Statement, SEC File No. 33-6898, filed April 30,
1993.
(e) Service and Agency Agreement. Incorporated by reference to
corresponding Exhibit of Post-Effective Amendment No. 17 to the
Registration Statement, SEC File No. 33-6898, filed April 28,
1995.
(f) Custodial Agreement and IRA Disclosure Statement. Incorporated
by reference to corresponding Exhibit of Post-Effective
Amendment No. 17 to the Registration Statement, SEC File No. 33-
6898, filed April 28, 1995.
(g) IRA Agreement. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 17 to the Registration
Statement, SEC File No. 33-6898, filed April 28, 1995.
(9) (a) ransfer Agency Agreement Incorporated by reference to
corresponding Exhibit of Post-Effective Amendment No. 17 to the
Registration Statement, SEC File No. 33-6898, filed April 28,
1995.
(b) Assignment Agreement. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 17 to the Registration
Statement, SEC File No. 33-6898, filed April 28, 1995.
(c) Shareholder Services Agreement. Incorporated by reference to
corresponding Exhibit of Post-Effective Amendment No. 15 to the
Registration Statement, SEC File No. 33-6898, filed March 2,
1994.
(d) Agency Agreement. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 17 to the Registration
Statement, SEC File No. 33-6898, filed April 28, 1995.
(e) Credit Agreement. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 18 to the Registration
Statement, SEC File No. 33-6898, filed April 30, 1996.
(10) Opinion of counsel. Incorporated by reference to corresponding Exhibit
of the initial Registration Statement, SEC File No. 33-6898, filed July
3, 1986.
(11) Other opinions, appraisals, rulings and consents:
(a) Accountants' consent with respect to Bull & Bear U.S. and
Overseas Fund
(12) Financial statements omitted from Item 23 -- not applicable
(13) Agreement for providing initial capital. Incorporated by reference to
corresponding Exhibit of Pre-Effective Amendment No. 2 to the
Registration Statement, SEC File No. 33-6898, filed June 12, 1987.
(14) Prototype retirement plans. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 17 to the Registration
Statement, SEC File No. 33-6898, filed April 28, 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
<PAGE>
(15) (a) Plan pursuant to Rule 12b-1 with respect to Bull & Bear U.S. and
Overseas Fund. Incorporated by reference to corresponding
Exhibit of Post-Effective Amendment No. 15 to the Registration
Statement, SEC File No. 33-6898, filed March 2, 1994.
(c) Related Agreement to Plans of Distribution pursuant to Rule 12b-
1 between Investor Service Center, Inc. and Hanover Direct
Advertising Company, Inc. Incorporated by reference to
corresponding Exhibit of Post-Effective Amendment No. 15 to the
Registration Statement, SEC File No. 33-6898, filed March 2,
1994.
(d) Broker services agreements. Incorporated by reference to
corresponding Exhibit of Post-Effective Amendment No. 13 to the
Registration Statement, SEC File No. 33-6898, filed April 30,
1993.
(16) (a) Schedule for computation of performance quotations with respect
to Bull & Bear U.S. and Overseas Fund. Incorporated by reference
to corresponding Exhibit of Post-Effective Amendment No. 15 to
the Registration Statement, SEC File No. 33-6898, filed March 2,
1994.
(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 February 21, 1997)
Shares of Common Stock, 1,478
$0.01 par value, Bull & Bear U.S. and
Overseas Fund
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
<PAGE>
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.
Paragraph 12 of the Investment Management Agreement between the Registrant
and Bull & Bear Advisers, Inc. ("Investment Manager") with respect to Bull &
Bear U.S. and Overseas Fund ("Investment Management Agreement") provides that
the Investment Manager shall not be liable to the Registrant or the Fund or any
shareholder of the Registrant 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, but nothing herein contained shall be
construed to protect the Investment Manager against any liability to the
Registrant or the Fund or the Registrant's shareholders by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reasons of its reckless disregard of obligations and duties under the
Overseas Investment Management Agreement.
Section 9 of the Distribution Agreement between the Registrant and Investor
Service Center, Inc. ("Service Center") provides that the Registrant will
indemnify Service Center and its officers, directors and controlling persons
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
<PAGE>
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 contract 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 other Funds managed by the
Investment Manager, Midas Management Corporation and Rockwood Advisers, Inc.,
both of which are wholly-owned subsidiaries of Bull & Bear Group, Inc., (the
"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 Funds and a registered broker/dealer, Midas Management
Corporation and Rockwood Advisers, Inc., registered investment advisers, and
Bull & Bear Securities, Inc., a discount brokerage firm. The Investment Manager
also serves as investment manager of Bull & Bear Dollar Reserves, a series of
Bull & Bear Funds II, Inc.; Bull & Bear Global Income Fund, Inc.; Bull & Bear
U.S. Government Securities Fund, Inc.; Bull & Bear Municipal Income Fund, Inc.;
Bull & Bear Gold Investors Ltd. and Bull & Bear Special Equities Fund, Inc.
Midas Management Corporation serves as investment adviser to Midas Fund, Inc.,
and Rockwood Advisers, Inc. serves as investment adviser to Rockwood Fund, Inc.
Item 29. Principal Underwriters
a) In addition to the Registrant, Investor Service Center, Inc. ("Service
Center") serves as principal underwriter of Bull & Bear Gold Investors Ltd.,
Bull & Bear Funds II, Inc., Bull & Bear Special Equities Fund, Inc., Midas Fund,
Inc., and Rockwood Fund, Inc.
b) Service Center serves as the Registrant's principal underwriter with
respect to Bull & Bear Funds I, 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.
<PAGE>
Name and Principal Position and Offices with Position and Offices
Business Address Investor Service Center, Inc. with Registrant
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
Mark C. Winmill Chairman, Director and Chief Co-President and Chief
11 Hanover Square Financial Officer Financial Officer
New York, NY 10005
Thomas B. Winmill President, Director Co-President and General
11 Hanover Square Counsel
New York, NY 10005
William J. Maynard Vice President and Secretary Vice President and
11 Hanover Square Secretary
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
Joseph Leung Treasurer Treasurer
11 Hanover Square
New York, NY 10005
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 the
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 02109 (the offices of Registrant's
custodian) and at DST Systems, Inc., P.O. Box 419789, Kansas City, MO 64141-4789
(the offices of the Registrant's transfer and dividend disbursing agent). Copies
of certain of the records located at Investors Bank & Trust Company and DST
Systems are kept at 11 Hanover Square, New York, NY 10005 (the offices of the
Registrant and its Investment Manager).
Item 31. Management Services -- none
Item 32. Undertakings -- The Registrant hereby undertakes to furnish
each person to whom a prospectus is delivered with a copy of the
Registrant's annual report to shareholders upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 27th day of
February, 1997.
BULL & BEAR FUNDS I, INC.
/s/ Thomas B. Winmill
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 February 27, 1997
Mark C. Winmill Executive Officer
Thomas B. Winmill Co-President and Co-Chief February 27, 1997
Thomas B. Winmill Executive Officer
Bassett S. Winmill Director, Chairman of the February 27, 1997
Bassett S. Winmill Board of Directors
Joseph Leung Treasurer, Principal February 27, 1997
Joseph Leung Accounting Officer
Robert D. Anderson Director February 27, 1997
Robert D. Anderson
Bruce B. Huber Director February 27, 1997
Bruce B. Huber
James E. Hunt Director February 27, 1997
James E. Hunt
Frederick A. Parker, Jr. Director February 27, 1997
Frederick A. Parker, Jr.
John B. Russell Director February 27, 1997
John B. Russell
<PAGE>
EXHIBIT INDEX
EXHIBIT
(17) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information wxtraced form Bull & Bear
U.S. and Overseas Fund Annual Report and is qualifies in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000796532
<NAME> Bull & Bear Funds I, Inc.
<SERIES>
<NUMBER> 1
<NAME> U.S. and Overseas
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 8,864,171
<INVESTMENTS-AT-VALUE> 10,041,377
<RECEIVABLES> 4,638
<ASSETS-OTHER> 58,367
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,104,382
<PAYABLE-FOR-SECURITIES> 55,906
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 212,344
<TOTAL-LIABILITIES> 268,250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,581,246
<SHARES-COMMON-STOCK> 1,243,151
<SHARES-COMMON-PRIOR> 1,173,429
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 77,652
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,177,234
<NET-ASSETS> 9,836,132
<DIVIDEND-INCOME> 36,872
<INTEREST-INCOME> 11,208
<OTHER-INCOME> 0
<EXPENSES-NET> 331,205
<NET-INVESTMENT-INCOME> (283,125)
<REALIZED-GAINS-CURRENT> 1,217,380
<APPREC-INCREASE-CURRENT> (397,162)
<NET-CHANGE-FROM-OPS> 820,218
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,009,699
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 321,372
<NUMBER-OF-SHARES-REDEEMED> 595,238
<SHARES-REINVESTED> 113,076
<NET-CHANGE-IN-ASSETS> 28,353
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (17,859)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 102,565
<INTEREST-EXPENSE> 705
<GROSS-EXPENSE> 331,205
<AVERAGE-NET-ASSETS> 10,317,934
<PER-SHARE-NAV-BEGIN> 8.36
<PER-SHARE-NII> (.24)
<PER-SHARE-GAIN-APPREC> .68
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.89)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.91
<EXPENSE-RATIO> 3.20
<AVG-DEBT-OUTSTANDING> 8,535
<AVG-DEBT-PER-SHARE> .01
</TABLE>
