Filed with the Securities and Exchange Commission on April 30, 1999
1933 Act File No. 33-6898
1940 Act File No. 811-4741
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 23
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
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:
Deborah A. Sullivan, Esq. Stuart H. Coleman, Esq.
Bull & Bear Advisers, Inc. Stroock & Stroock & Lavan LLP
11 Hanover Square 180 Maiden Lane
New York, NY 10005 New York, NY 10038-4982
(Name and Address of Agent for Service)
It is proposed that this filing will become effective on May 1, 1999 pursuant to
paragraph (b) of Rule 485.
The Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The Registrant's most recent Rule 24f-2 Notice
was filed March 25,1999.
<PAGE>
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 FOR ITEMS REQUIRED BY FORM N-1A
Item No.
of Form N-lA Caption in Prospectus
1 Front and Back Cover Pages
2 "Investment Objective and Strategy", "Main Risks",
"Past Performance"
3 "Fees and Expenses of the Fund"
4 "Investment Objective and Strategy", "Main Risks"
5 not applicable
6 "Management"
7 "Purchasing Shares", "Redeeming Shares", "Account and Transaction
Policies", "Distributions and Taxes"
8 "Fees and Expenses of the Fund"
9 "Financial Highlights"
Caption in Statement of Additional Information
10 Cover Page
11 "Description of the Fund"
12 "Investment Objective and Strategy", "Investment Restrictions"
13 "Management of the Fund"
14 "Management of the Fund"
15 "Management of the Fund", "Investment Manager"
16 "Allocation of Brokerage"
17 Not Applicable
18 "Determination of Net Asset Value", "Purchase of Shares"
19 "Distributions and Taxes"
20 "Distribution of Shares"
21 "Calculation of Performance Data"
22 "Financial Statements"
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Bull & Bear U.S. and Overseas Fund
Prospectus Dated May 1, 1999
Bull & Bear U.S. and Overseas Fund seeks 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 assurance that the Fund will achieve its investment objective.
NEWSPAPER LISTING. Shares of the Fund are sold at the net
asset value per share which is shown daily in the mutual
fund section of newspapers under the "Winmill & Co.
Incorporated" heading.
This prospectus contains information you should know about the fund before you
invest. Please keep it for future reference.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
INVESTMENT OBJECTIVE AND STRATEGY ......................................... 2
MAIN RISKS ................................................................ 2
PAST PERFORMANCE .......................................................... 3
FEES AND EXPENSES OF THE FUND ............................................. 4
MANAGEMENT ................................................................ 5
FINANCIAL HIGHLIGHTS ...................................................... 6
PURCHASING SHARES ......................................................... 6
REDEEMING SHARES .......................................................... 8
ACCOUNT AND TRANSACTION POLICIES .......................................... 8
DISTRIBUTIONS AND TAXES ................................................... 9
FOR MORE INFORMATION ...................................................... 11
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INVESTMENT OBJECTIVE AND STRATEGY
Bull & Bear U.S. and Overseas Fund seeks 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 substantially all of its assets in equity securities of
issuers located in foreign countries with developed and/or emerging markets. The
fund may invest a portion of its assets in debt securities and in a combination
of countries which include the U.S. and foreign markets.
Also, the fund chooses value and growth stocks and may sell an investment when
the value or growth of the investment reaches or exceeds its estimated target,
when the issuer's investment no longer appears to meet the fund's investment
objective, or when the fund must meet redemptions.
The fund may, from time to time, under adverse market conditions and in a few
other instances, take temporary defensive positions that are inconsistent with
the fund's principal investment strategies, such as investing some or all of its
assets in money market securities. When the fund takes such temporary defensive
positions, the fund may not achieve its investment objective.
In addition to its investment objective, the fund has adopted certain investment
restrictions set forth in the Statement of Additional Information that are
fundamental and may not be changed without shareholder approval. The fund's
other investment policies are not fundamental and may be changed by the Board of
Directors without shareholder approval.
MAIN RISKS
The fund can be exposed to the unique risks of foreign investing. Political
turmoil and economic instability in the countries in which the fund invests
could adversely affect the value of your investment. Also, if the value of any
foreign currency in which the fund's investments are denominated declines
relative to the U.S. dollar, the value and total return of your investment in
the fund may decline as well.
Foreign investments, particularly investments in emerging markets, carry added
risks due to inadequate or inaccurate financial information about companies,
potential political disturbances and fluctuations in currency exchange rates.
The fund's bond investments are affected by interest rates. When interest rates
rise, the prices of bonds typically fall in proportion to their duration.
Duration, expressed in years, is based on the estimated payback period, or
"duration" of a bond and is the most widely used gauge of sensitivity to
interest rate change.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
The fund may also invest in cash and cash equivalents, short-term bonds,
repurchase agreements and convertible bonds. The fund may also lend portfolio
securities to other parties and borrow money to purchase securities.
The fund may engage in options, financial futures, and forward contracts, for
which there is no assurance of success.
The portfolio manager's skill in choosing appropriate investments for the fund
will determine in large part the fund's ability to achieve its investment
objectives.
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The fund may lend portfolio securities to borrowers for a fee. Securities may
only be lent if the fund receives collateral equal to the market value of the
assets lent. Some risk is involved if the borrowers suffer financial problems
and are unable to return the assets lent.
The fund expects to trade securities actively. This strategy could increase
transaction costs, reduce performance and may result in taxable distributions.
There are market and investment risks with any security and the value of an
investment in the fund will fluctuate over time and it is possible to lose money
invested in the fund.
The fund could be adversely effected if computer systems used by CEF Advisers,
Inc. (formerly Bull & Bear Advisers, Inc.) and the fund's other service
providers do not properly process and calculate date-related information on and
after January 1, 2000. CEF Advisers, Inc. is working to avoid these problems and
to obtain assurances from other service providers that they are taking similar
steps. There could be a negative impact on the fund. While the Fund cannot, at
this time, predict the degree of impact it is possible that foreign markets will
be less prepared than U.S. markets.
PAST PERFORMANCE
The bar chart provides some indication of the risks of investing in the fund by
showing changes in the fund's performance from year to year. The table compares
the fund's average annual returns for the 1, 5 and 10 year periods with those of
the Morgan Stanley Capital International World Index ("MSCI"), an index that is
unmanaged and fully invested in common stocks. Both the bar chart and the table
assume reinvestment of dividends and distributions. As with all mutual funds,
past performance is not necessarily an indication of future performance.
[GRAPHIC OMITTED]
1989; 11.10%, 1990; (6.61)%, 1991; 22.55%, 1992; 2.57%, 1993; 26.71%,
1994; (13.12)%, 1995; 25.11%, 1996; 5.34%, 1997; 5.64%, 1998; 1.18%
Best Quarter: 18.99%
10/98-12/98
Worst Quarter: (24.43)%
7/98-9/98
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Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
Bull & Bear U.S. and Overseas Fund 1.18% 4.12% 6.94%
MSCI 24.34% 15.68% 10.66%
FEES AND EXPENSES OF THE FUND
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the following tables. Shareholder fees are paid out of
your account. Annual fund operating expenses are paid out of fund assets, so
their effect is included in the share price.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)....................................... NONE
Maximum Deferred Sales Charge (Load)...................................... NONE
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends................................................................. NONE
Redemption Fee within 30 days of purchase................................. 1.00%
Annual fund operating expenses
(expenses that are deducted from fund assets)( as % of average daily net assets)
Management fees.......................................................... 1.00%
Distribution and Service (12b-1) fees.................................... 0.25%*
Other expenses........................................................... 1.33%
Total Annual Fund Operating Expenses..................................... 2.58%
*Reflects a Contractual Distribution fee waiver that will continue through May
1, 2000. Without such waiver, Distribution fee and Annual Fund Operating
Expenses would have been 1.00% and 3.33%, respectively.
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
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<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
<S> <C> <C> <C> <C>
The example assumes that you invest $10,000 in the fund for
the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the
fund's operating expenses remain the same, except for the
first year periods. Although your actual cost may be higher
or lower, based on these assumptions your your cost would be**.... $ 261 $ 955 $1,672 $3,571
.............. ............... ................ ..............
<FN>
**Year one fees are based on contractual Distribution fee.
</FN>
</TABLE>
MANAGEMENT
CEF Advisers, Inc. is the investment manager of the fund, providing day-to-day
advice regarding portfolio transactions and is located at 11 Hanover Square, New
York, New York 10005. Thomas B. Winmill, President and Chief Executive Officer
of the investment manager and the Fund, is the Fund's portfolio manager. Mr.
Winmill has served as a member of the Investment Manager's Investment Policy
Committee since 1990. He helped establish general investment guidelines. He has
served as portfolio manager of the Fund since May 1, 1998.
Generally, the fund pays the investment manager a management fee based on the
average daily net assets of the fund, at the annual rate of 1% on the first $10
million and declining thereafter as a percentage of average daily net assets.
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, 1998, investment management fees paid by the Fund represented
approximately 1.00% of average daily net assets.
Investor Service Center, Inc. is the distributor of the fund and services
shareholder accounts. The fund has adopted a plan under Rule 12b-1 and pays the
distributor a distribution or 12b-1 fee in an amount of one percent per annum of
the fund's average daily net assets as compensation for distribution and service
activities. These fees are paid out of the Fund's assets on an ongoing-basis.
Overtime these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
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FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the past five years. The fiscal
year end is December 31. Certain information reflects financial results for a
single fund share. Total return shows how much your investment in the fund would
have increased (or decreased) during each period, assuming you had reinvested
all dividends and distributions. The figures for the periods shown were audited
by Tait, Weller & Baker, the fund's independent accountants, whose report, along
with the fund's financial statements, are included in the annual report, which
is available upon request.
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ----
PER SHARE DATA1
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $7.35 $7.91 $8.36 $7.08 $8.71
----- ----- ----- ----- -----
Net investment income (loss)............................ (.10) (0.05) (0.24) (0.23) (0.13)
Net realized and unrealized gain (loss) on
investments............................................ .18 0.46 0.68 2.00 (1.01)
--- ---- ---- ---- ------
Total from investment operations........................ .08 0.41 0.44 1.77 (1.14)
--- ---- ---- ---- ------
Distributions from net realized gains................... (.26) (0.97) (0.89) (0.49) (0.49)
Net asset value at end of period........................... $7.17 $7.35 $7.91 $8.36 $7.08
===== ===== ===== ===== =====
TOTAL RETURN............................................... 1.18% 5.64% 5.34% 25.11% (13.12)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)................ $7,340 $8,446 $9,836 $9,808 $8,454
Ratio of expenses to average net assets(a)(b).............. 3.33% 3.28% 3.20% 3.55% 3.53%
Ratio of net investment income (loss) to average
net assets(c)............................................. (1.38)% (0.63)% (2.74)% (2.85)% (1.65)%
Portfolio turnover rate.................................... 69% 205% 255% 214% 212%
<FN>
1 Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. (a) Expense ratio
prior to reimbursement by the Investment Manager was 3.84% and 3.59% for the
years ended December 31, 1995 and 1994. (b) Expense ratio after the custodian
fee credits was 3.22% and 3.49% for 1997 and 1995. Prior to 1995, such
reductions were reflected in the expense ratios. There were no custodian fee
credits for 1998 and 1996. (c) Ratio prior to reimbursement by the Investment
Manager was (3.14)% and (1.71)% for the years ended December 31, 1995 and 1994.
</FN>
</TABLE>
PURCHASING SHARES
Your price for fund shares is the fund's next calculation, after the order is
placed, of net asset value (NAV) per share which is determined as of the close
of regular trading on the New York Stock Exchange (currently, 4 p.m. eastern
time) each day the exchange is open. The fund's shares will not be priced on the
days on which the exchange is closed for trading. The fund's investments are
valued based on market value, or where market quotations are not readily
available, based on fair value as determined in good faith by the fund's board.
Distribution and Service (12b-1) Fees. The Fund has adopted a plan under Rule
12b-1 that allows it to pay the Distributor a fee at the annual rate of 1% of
the value of the Fund's average daily net assets for the sale of Fund shares and
for services provided to holders of Fund shares. Because these fees are paid out
of the Fund's assets on an ongoing basis, over time, these fees will increase
the cost of a shareholder's investment and may cost shareholders more than
paying other types of sales charges.
Opening Your Account.
By check. Complete and sign the Account Application that accompanies this
prospectus and mail it, along with your check made payable to Bull & Bear U.S.
and Overseas Fund, to Investor Service Center, Box 419789, Kansas City, MO
64141-6789 (see Minimum Investments below).
By wire. Telephone Investor Service Center toll-free at 1-888-503-FUND, to give
the name(s) under which
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the account is to be registered, tax identification number, the name of the bank
sending the wire, and to be assigned a 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 (see Minimum Investments
below).
Minimum Investments
Initial Additional
Regular account $1,000 $100
Uniform Gifts/Transfers to
Minors Act custody accounts $1,000 $100
Traditional IRA $1,000 $100
Roth IRA $1,000 $100
SEP-IRA $1,000 $100
SIMPLE IRA $1,000 $100
Rollover IRA $1,000 $100
403(b) plan $1,000 $100
Education IRA $500 N/A
Automatic Investment Program $100 $100
- ------------------------------------ ------------------- ---------------------
Checks must be payable to Bull & Bear U.S. and Overseas Fund in U.S. dollars.
Third party checks cannot be accepted. You may be charged a fee for any check
that does not clear.
IRAs and retirement accounts. For more information about the IRAs and retirement
accounts listed above, please call Investor Service Center toll-free at
1-888-503-FUND.
Automatic Investment Program. With the 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.
Bank Transfer Plan For making automatic investments
from a designated bank account.
................................................................................
Salary Investing Plan For making automatic investments
through a payroll deduction.
................................................................................
Government Direct Deposit Plan For making automatic investments
from your federal employment,
Social Security or other regular
federal government check.
The fund reserves the right to redeem any account if participation in the
program ends and the account's value is less than $1000 due to redemptions.
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For more information, or to request the necessary authorization form, please
call Investor Service Center toll-free at 1-888-503-FUND. You may modify or
terminate the Bank Transfer Plan at any time by written notice received 10 days
prior to the scheduled investment date. To modify or terminate the Salary
Investing Plan or Government Direct Deposit Plan, you should contact your
employer or the appropriate U.S. Government agency, respectively.
Adding to Your Account.
By check. Complete a Bull & Bear FastDeposit form and mail it, along with your
check, made payable to Bull & Bear U.S. and Overseas Fund, to Investor Service
Center, Box 419789, Kansas City, MO 64141-6789 (see Minimum Investments above).
If you do not use that form, include a letter indicating the account number to
which the subsequent investment is to be credited, and the name of the
registered owner.
By Electronic Funds Transfer (EFT). Telephone Investor Service Center toll-free
at 1-888-503-FUND. The bank you designate on your Account Application or
Authorization Form will be contacted to arrange for the EFT, which is done
through the Automated Clearing House system, to your fund account. Requests
received by 4 p.m., eastern time, will ordinarily be credited to your fund
account on the next business day. 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 (see Minimum Investments
above).
By wire. Subsequent investments by wire may be made at any time without having
to call Investor Service Center by simply following the same wiring procedures
above (see Minimum Investments above).
REDEEMING SHARES
Generally, you may redeem by any of the methods explained below. Requests for
redemption should include the following information:
o name of the registered owner(s) of the account
o account number
o fund name
o amount you want to sell
o recipient's name and address or wire information
In some instances, a signature guarantee may be required. Signature guarantees
help prevent against fraud. You can obtain one from most banks or securities
dealers, but not from a notary public. For joint accounts, each signature must
be guaranteed. Please call us to ensure that your signature quarantee will be
processed correctly.
By mail. Write to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, and request the specific amount to be redeemed. The request must be
signed by the registered owner(s).
By telephone. Telephone Investor Service Center toll-free at 1-888-503-FUND, to
expedite redemption of fund shares.
By EFT. Telephone Investor Service Center toll-free at 1-888-503-FUND and
request the specific amount to be redeemed through EFT. You may redeem as little
as $250 worth of shares by requesting EFT service. EFT proceeds are ordinarily
available in your bank account within two business days.
By wire. Telephone Investor Service Center toll-free at 1-888-503-FUND and
request the specific amount to be redeemed by wire.
Systematic Withdrawal Plan. If your shares have a value of at least $20,000 you
may elect automatic withdrawals from your fund account, subject to a minimum
withdrawal of $100. All dividends and distributions are reinvested in the fund.
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ACCOUNT AND TRANSACTION POLICIES
Order execution. Orders to buy and sell shares are executed at the next NAV
calculated after the order has been received in proper form. Orders received on
fund business days by 4 p.m., eastern time, will be redeemed from your account
that day. Orders received after 4 p.m., eastern time, will be redeemed from your
account on the next fund business day.
Redemption fee. The fund is designed as a long term investment, and short term
trading is discouraged. 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 NAV of shares redeemed or exchanged. Redemption fees are paid to
the Fund.
Redemption payment. Payment for shares redeemed will ordinarily be made within
seven days after receipt of the redemption request in proper form.
Accounts with below-minimum balances. If your account balance falls below $500
as a result of selling shares and not because of market action, the fund
reserves the right, upon 45 days' notice, to close your account or request that
you buy more shares.
Telephone privileges. The fund accepts telephone orders from all shareholders
and guards against fraud by following reasonable precautions such as requiring
personal identification before carrying out shareholder requests. You could be
responsible for any loss caused by an order which later proves to be fraudulent.
The Fund is not liable as long as the Fund follows reasonable procedures.
Assignment. Fund shares may be transferred to another owner. Instructions are
available from Investor Service Center by calling toll-free at 1-888-503-FUND.
DISTRIBUTIONS AND TAXES
Distributions. The fund pays its shareholders dividends from its net investment
income, and distributes any net capital gains that it has realized. Each of
these distributions is paid out once a year. Your distributions will be
reinvested in the fund unless you instruct the fund otherwise by calling
Investor Service Center toll-free at 1-888-503-FUND.
Taxes. Generally, you will be taxed when you sell shares, exchange shares and
receive distributions (whether reinvested or taken in cash). Typically, your tax
treatment will be as follows:
Transaction Tax treatment
- ----------- -------------
Income dividends....................................... Ordinary income
Short-term capital gains distributions................. Ordinary income
Long-term capital gains
distributions.......................................... Capital gains
Sales or exchanges of shares
held for more than one year............................ Capital gains or losses
Gains are treated as
ordinary income; losses
Sales or exchanges of shares held are subject to special
for one year or less................................... rules
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Each January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because everyone's tax situation is unique, please consult your tax professional
about your investment.
9
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(Back Cover)
FOR MORE INFORMATION about Bull & Bear U.S. and Overseas Fund, Inc.
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual reports. Contains performance data, lists portfolio holdings
and contains a letter from the fund's manager discussing recent market
conditions, economic trends and fund strategies that significantly affected the
fund's performance during the last fiscal year.
Statement of Additional Information (SAI). Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. A current SAI is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference (is legally considered part of this
prospectus).
To Obtain Information
By telephone
Call 1-888-503-FUND
By mail write to:
Bull & Bear U.S. and Overseas Fund
11 Hanover Square
New York, NY 10005
By e-mail write to:
[email protected]
On the Internet Fund documents
can be viewed online or downloaded from:
SEC http://www.sec.gov
Bull & Bear U.S. and Overseas Fund http://www.mutualfunds.net
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800- SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009. The fund's Investment Company Act file number is 811-4741.
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Statement of Additional Information May 1, 1999
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, 1999. 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.......................................................3
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES.....................4
THE INVESTMENT COMPANY COMPLEX...............................................10
OFFICERS AND DIRECTORS.......................................................10
INVESTMENT MANAGER...........................................................11
INVESTMENT MANAGEMENT AGREEMENT..............................................11
DETERMINATION OF NET ASSET VALUE.............................................11
PURCHASE OF SHARES...........................................................12
DISTRIBUTION OF SHARES.......................................................14
ALLOCATION OF BROKERAGE......................................................15
DISTRIBUTIONS AND TAXES......................................................17
REPORTS TO SHAREHOLDERS......................................................18
CUSTODIAN AND TRANSFER AGENT.................................................18
AUDITORS.....................................................................18
FINANCIAL STATEMENTS.........................................................18
APPENDIX -- DESCRIPTIONS OF BOND RATINGS.....................................19
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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. 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
Fund is "non-diversified," as defined in the Investment Company Act of 1940
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. Certain of these instruments
are often restricted securities because the securities are either themselves
exempt from registration or sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers ("QIB's"). 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 QIB's 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 resulting
in liquidity problems.
The Board of Directors has delegated the function of making day-to-day
determinations of liquidity to CEF Advisers, Inc. (formerly 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 and are
commonly referred to as "junk bonds". 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
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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 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 maintain with its Custodian in a
segregated account permissible liquid assets, 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.
Year 2000 Risks. Like other investment companies, financial and business
organizations around the world, the Fund will be adversely affected if the
computer systems used by the Investment Manager and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to the computer systems it uses and
to obtain satisfactory assurances that comparable steps are being taken by each
of the Fund's major service providers. The Fund does not expect to incur any
significant costs in order to address the Year 2000 Problem. However, at this
time there can be no assurances that these steps will be sufficient to avoid any
adverse impact on the Fund.
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:
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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;
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") (which currently
limits borrowing to no more than 33 1/3% of the value of the
Fund's total assets);
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 Fund's Board of Directors has established the following non-fundamental
investment limitations that may be changed by the Board without shareholder
approval:
The Fund may:
(i) Invest up to 15% of the value of its net assets in illiquid
securities, including repurchase agreements providing for
settlement in more than seven days after notice.
(ii) Purchase securities issued by other investment companies to the
extent permitted under the 1940 Act.
(iii) Pledge, mortgage, hypothecate or otherwise encumber its assets
to the extent permitted under the 1940 Act.
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 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,and the CFTC.
There can be no assurance that the techniques described herein will provide
adequate hedging or that such techniques are or will be actually or effectively
available due to liquidity, costliness, or other factors. Hedging maneuvers may
fail and investors should not assume the availability of any of the hedging
opportunities described herein. In any event, the Investment Manager will not
attempt perfect balancing, through hedging or otherwise and the Fund might not
use any hedging techniques, as described herein or otherwise.
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 in the prescribed amount, or (2) holding securities,
currencies or other options or futures contracts whose values are expected to
offset ("cover") its
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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 portfo lio in order to
fix the cost of a future purchase. The call option enables the Fund to buy the
underlying security at the predetermined exercise price. Call options also may
be used as a means of enhancing returns by, for example, participating in an
anticipated price increase of a security. In the event of a decline in the price
of the underlying security, use of this strategy would serve to limit the
potential loss to the Fund to the option premium paid; conversely, if the market
price of the underlying security increases above the exercise price and the Fund
either sells or exercises the option, any profit eventually realized would be
reduced by the premium paid.
The Fund may purchase put options on securities in order to hedge against a
decline in the market value of securities held in its portfolio or to attempt to
enhance return. The put option enables the Fund to sell the underlying security
at the predetermined exercise price; thus, the potential for loss to the Fund
below the exercise price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise price of the put
option, any profit the Fund realizes on the sale 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 securities, the values of which
historically have a high degree of positive correlation to the value of such
portfolio securities. If the Investment Manager's judgment is correct, changes
in the value of the put options should generally offset changes in the value of
the portfolio securities being hedged. However, the correlation between the two
values may not be as close in these transactions as in transactions in which the
Fund purchases a put option on a security held in its portfolio. If the
Investment Manager's judgment is not correct, the value of the securities
underlying the put option may decrease less than the value of the Fund's
portfolio securities and therefore the put option may not provide complete
protection against a decline in the value of the Fund's portfolio securities
below the level sought to be protected by the put option.
The Fund may write covered call options on securities in which it is
authorized to invest for hedging or to increase return in the form of premiums
received from the purchasers of the options. A call option gives the purchaser
of the option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the exercise price during the option period. The
strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price of
the underlying security held by the Fund declines, the amount of such decline
will be offset wholly or in part by the amount of the premium received by the
Fund. If, however, there is an increase in the market price of the underlying
security and the option is exercised, the Fund would be obligated to sell the
security at less than its market value. The Fund would give up the ability sell
any portfolio securities used to cover the call option while the call option was
outstanding. In addition, the Fund could lose the ability to participate in an
increase in the value of such securities above the exercise price of the call
option because such an increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the current market value).
Portfolio securities used to cover OTC options written also may be considered
illiquid, and therefore subject to the Fund's limitation on investing no more
than 15% of its net asset in illiquid securities, unless the OTC options are
sold to qualified dealers who agree that the Fund may repurchase any OTC options
it writes for a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
The Fund also may write covered put options on securities in which it is
authorized to invest. A put option gives the purchaser of the option the right
to sell, and the writer (seller) the obligation to buy, the underlying security
at the exercise price during the option period. So long as the obligation of the
writer continues, the writer may be assigned an exercise notice by the
broker/dealer through whom such option was sold, requiring it to make payment of
the exercise price against delivery of the underlying 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.
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 securities 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 future
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
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straddle when the Investment Manager believes that it is likely that futures
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 future 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 future 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
futures 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 permissible liquid
assets in a segregated account 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 future.
Foreign Currency Options and Related Risks. The Fund may take positions in
options on foreign currencies to hedge against the risk of foreign exchange rate
fluctuations on foreign securities that the Fund holds in its portfolio or that
it intends to purchase. For example, if the Fund enters into a contract to
purchase securities denominated in a foreign currency, it could effectively fix
the maximum U.S. dollar cost of the securities by purchasing call options on
that foreign currency. Similarly, if the Fund held securities denominated in a
foreign currency and anticipated a decline in the value of that currency against
the U.S. dollar, the Fund could hedge against such a decline by purchasing a put
option on the currency involved. The Fund's ability to establish and close out
positions in such options is subject to the maintenance of a liquid secondary
market. Although many options on foreign currencies are exchange-traded, the
majority are traded on the OTC market. The Fund will not purchase or write such
options unless, in the Investment 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 currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (that is, less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
To the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they reopen.
Special Characteristics and Risks of Options Trading. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell securities or currencies under a put or a call option it has written,
the Fund may purchase a put or a call option of the same series (that is, an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified se curities or currencies under a call or put
option it has purchased, the Fund may sell an option of the same series as the
option held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge the Fund's
portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security, securities index or currency,
the time remaining until expiration, the relationship of the exercise price to
the market price, the historical price volatility of the underlying security,
securities index or currency and general market conditions. For this reason, the
successful use of options depends upon the Investment Manager's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets or, in the case of securities index options, fluctuations in
the market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. The exercise
price of the options may be below, equal to or above the current market value of
the underlying security, securities index or currency. Purchased options that
expire unexercised have no value. Unless an option purchased by the Fund is
exercised or unless a closing transaction is effected with respect to that
position, the Fund will realize a loss in the amount of the premium paid and any
transaction costs.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Most
exchange-listed options relate to stocks. Although the Fund intends to purchase
or write only those exchange-traded options for which there appears to be a
liquid secondary market, there is no assurance that a liquid secondary market
will exist for any particular option at any particular time. Closing
transactions may be effected with respect to options traded in the OTC markets
(currently the primary markets for options on debt securities and a significant
market for foreign currencies) only by negotiating directly with the other party
to the option contract or in a secondary market for the option if such market
exists. Although the Fund will enter into OTC options with dealers that agree to
enter into, and that are expected to be capable of entering into, closing
transactions with the Fund, there can be no assurance that the Fund would be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. In the event of insolvency of the contra-party, the Fund may be
unable to liquidate an OTC option. Accordingly, it may not be possible to effect
closing transactions with respect to certain options, which would result in the
Fund having to exercise those options that it has purchased in order to realize
any profit. With respect to options written by the Fund, the inability to enter
into a closing transaction may result in material losses to the Fund. For
example, because the Fund must maintain a covered position with respect to any
call option it writes on a security, currency or securities index, the Fund may
not sell the underlying securities or currency (or invest any cash securities
used to cover the option) during the period it is obligated under such option.
This requirement may impair the Fund's ability to sell a portfolio security or
make an investment at a time when such a sale or investment might be
advantageous.
(4) Securities index options are settled exclusively in cash. If the Fund
writes a call option on an index, the Fund will not know in advance the
difference, if any, between the closing value of the index on the exercise date
and the exercise price of the call option itself and thus will not know the
amount of cash payable upon settlement. In addition, a holder of a securities
index option who exercises it before the closing index value for that day is
available, runs the risk that the level of the underlying index may subsequently
change.
6
<PAGE>
(5) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs and taxes; however, the
Fund also may save on commissions by using options as a hedge rather than buying
or selling individual 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 security that would accompany
an increase in interest rates.
The Fund may purchase a call option on an interest rate futures contract to
hedge against a market advance in debt securities that the Fund plans to acquire
at a future date. The purchase of a call option on an interest rate futures
contract is analogous to the purchase of a call option on an individual debt
security, which can be used as a temporary substitute for a position in the
security itself. The Fund also may write covered put options on interest rate
futures contracts as a partial anticipatory hedge and may write covered call
options on interest rate futures contracts as a partial hedge against a decline
in the price of debt securities held in the Fund's portfolio. The Fund may also
purchase put options on interest rate futures contracts in order to hedge
against a decline in the value of debt securities held in the Fund's portfolio.
The Fund may sell securities index futures contracts in anticipation of a
general market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a portion of the Fund's
portfolio correlates with a given index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus provide
an alternative to the liquidation of securities 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 securities, which securities may then
be purchased in an orderly fashion. This strategy may minimize the effect of all
or part of an increase in the market price of securities that the Fund intends
to purchase. A rise in the price of the 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 se curities 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 secur ity position. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign currency
exchange rate at limited risk. The Fund may purchase a call option on a foreign
currency futures contract to hedge against a rise in the foreign currency
exchange rate while intending to invest in a security denominated in that
currency. The Fund may purchase put options on foreign currency futures
contracts as a hedge against a decline in the foreign currency exchange rates or
the value of its foreign portfolio securities. The Fund may write a covered put
option on a foreign currency futures contract as a partial anticipatory hedge
and may write a covered call option on a foreign currency futures contract as a
partial hedge against the effects of declining foreign currency exchange rates
on the value of foreign 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.
The Fund may also purchase and write covered straddles on interest rate or
securities index futures contracts. A long straddle is a combination of a call
and a put purchased on the same security at the same exercise price. The Fund
would enter into a long straddle when it believes that it is likely that
securities prices will be more volatile during the term of the options than is
implied by the option pricing. A short straddle is a combination of a call and
put written on the same futures contract at the same exercise price where the
same security or futures contract is considered "cover" for both the put and the
call. The Fund would enter into a short straddle when it believes that it is
unlikely that
7
<PAGE>
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 permissible
liquid assets 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 securities 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
perfor mance 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
securities, by selling or purchasing an offsetting contract or option. Futures
contracts or options thereon may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts or options.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for the Fund to close a
position and, in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, if futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, there is no guarantee that the price of the securities will, in fact,
correlate with the price movements in the contracts and thus provide an offset
to losses on the contracts.
In considering the Fund's use of futures contracts and related options,
particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and related options will
depend upon the Investment Manager's ability to predict movements in the
direction of the overall securities, currencies and interest rate markets, which
requires different skills and techniques than predicting changes in the prices
of individual securities. Moreover, futures contracts relate not only to the
current price level of the underlying instrument or currency but also to the
anticipated price levels at some point in the future. There is, in addition, the
risk that the movements in the price of the futures contract will not correlate
with the movements in the prices of the securities or currencies being hedged.
For example, if the price of the securities index futures contract moves less
than the price of the securities that are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, the advantage may be partially offset by losses
in the futures position. In addition, if the Fund has insufficient cash, it may
have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect a rising market. Consequently, the Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract moves more than the price of the underlying securities, the
Fund will experience either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of the securities that
are the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities or currencies being hedged, movements in the prices
of futures contracts may not correlate perfectly with movements in the prices of
the hedged securities or currencies due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities or currencies that cause this situation to occur. First, as noted
above, all participants in the futures market are subject to initial and
variation margin requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts through offsetting transactions, distortions in the
normal price relationship between the 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.
(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.
8
<PAGE>
(5) Purchasers of options on futures contracts pay a premium at the time of
purchase. This amount and the transaction costs are all that is at risk. Sellers
of options on futures contracts, however, must post initial margin and are
subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the under
lying securities index value or the securities or currencies being hedged.
(6) As is the case with options, the Fund's activities in the futures markets
may result in a higher portfolio turnover rate and additional transaction costs
in the form of added brokerage commissions and taxes; however, the Fund also may
save on commissions by using futures contracts or options thereon as a hedge
rather than buying or selling individual securities or currencies in
anticipation or as a result of market movements.
Special Risks Related to Foreign Currency Futures Contracts and Related
Options. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above.
Options on foreign currency futures contracts may involve certain additional
risks. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Compared to the
purchase or sale of foreign currency futures contracts, the purchase of call or
put options thereon involves less potential risk to the Fund because the maximum
amount at risk is the premium paid for the option (plus transaction costs).
However, there may be circumstances when the purchase of 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 pay ments 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 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.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio secur ity
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
9
<PAGE>
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference between the prices
at which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Winmill & Co. Incorporated
(formerly Bull & Bear Group, Inc.) ("Investment Company Complex") are:
Bull & Bear Dollar Reserves
Bull & Bear Gold Investors Ltd.
Bull & Bear Special Equities Fund, Inc.
Bull & Bear U.S. and Overseas Fund
Bull & Bear U.S. Government Securities Fund, Inc.
Global Income Fund, Inc.
Midas Fund, Inc.
Rockwood Fund, Inc.
Tuxis Corporation
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.
THOMAS B. WINMILL* -- Chairman, Chief Executive Officer, President, and General
Counsel. He is President of the Investment Manager and the Distributor, and of
their affiliates. 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. He is also a Director of eight other investment companies in the
Investment Company Complex. He was born June 25, 1959.
ROBERT D. ANDERSON* -- Vice Chairman and Director. He is Vice Chairman and a
Director of two other investment companies in the Investment Company Complex and
of the Investment Manager and its affiliates. He is a former member of the
District #12, District Business Conduct and Investment Companies Committees of
the NASD. He was born December 7, 1929.
BRUCE B. HUBER, CLU, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is a Financial Representative with New England Financial, 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. From 1988 to 1990, he was Chairman of Bruce Huber
Associates. He is also a Director of five other investment companies in the
Investment Company Complex. He was born February 7, 1930.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Hunt & Howe Inc., executive recruiting consultants. He is also a
Director of five other investment companies in the Investment Company Complex.
He was born December 14, 1930.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
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 five other investment companies in the Investment
Company Complex. He was born February 9, 1923.
* Thomas B. 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.
The executive officers of the Fund, each of whom serves at the pleasure of the
Board of Directors, are as follows:
THOMAS B. WINMILL -- Chairman, Chief Executive Officer, President, and General
Counsel. (See biographical information above.)
ROBERT D. ANDERSON -- Vice Chairman and Director. (See biographical information
above.)
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Manager and certain of its affiliates. From 1993 to 1995, he was
Associate Director -- Proprietary Trading at Barclays de Zoete Wedd Securities
Inc., and from 1992 to 1993, he was Director, Bond Arbitrage at WG Trading
Company. He was born March 1, 1955.
JOSEPH LEUNG, CPA -- Chief Accounting Officer, Chief Financial Officer and
Treasurer. He is Treasurer and Chief Accounting Officer of the Investment
Manager and its affiliates. From 1992 to 1995 he held various positions with
Coopers & Lybrand L.L.P., a public accounting firm. He is a member of the
American Institute of Certified Public Accountants. He was born September 15,
1965.
DEBORAH ANN SULLIVAN, ESQ. -- Chief Compliance Officer, Secretary and Vice
President. She is Chief Compliance Officer, Secretary and Vice President of the
investment companies in the Investment Company Complex, and the Investment
Manager and its affiliates. From 1993 through 1994, she was the Blue Sky
Paralegal for SunAmerica Asset Management Corporation, and from 1992 through
1993, she was Compliance Administrator and Blue Sky Administrator with
Prudential Securities, Inc. and Prudential Mutual Fund Management, Inc. She
earned her Juris Doctor at Hofstra University, School of Law. She was born June
13, 1969.
10
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COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or Retirement Estimated Annual Total Compensation From Registrant and
NAME OF PERSON, Aggregate Compensation Benefits Accrued as Part Benefits Upon Investment Company Complex
POSITION From Registrant of Fund Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
Bruce B. Huber, $400 None None $12,500 from 6
Director Investment Companies
James E. Hunt, $400 None None $12,500 from 6
Director Investment Companies
John B. Russell, $400 None None $12,500 from 6
Director Investment Companies
</TABLE>
Information in the above table is based on fees paid during the year ended
December 31, 1998.
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 27, 1999, officers and Directors of the Fund owned less
than 1% of the outstanding shares of the Fund. As of April 27, 1999, no
shareowner of record owned 5% or more of the Fund's outstanding shares.
INVESTMENT MANAGER
The Fund's Investment Manager is CEF Advisers, Inc., 11 Hanover Square, New
York, NY 10005. The Investment Manager, a registered investment adviser, is a
wholly-owned subsidiary of the parent of the Investment Manager, Winmill & Co.
Incorporated ("Winmill"). The other principal subsidiaries of Winmill include
Investor Service Center, Inc., the Fund's Distributor and a registered
broker/dealer, Midas Management Corporation and Rockwood Advisers, Inc.,
registered investment advisers.
Winmill 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 Winmill and the Investment Manager on the
basis of his ownership of 100% of Winmill's voting stock. The Fund and its
investment company affiliates had net assets in excess of $254,000,000 as of
April 26, 1999.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays all
expenses required for the conduct of its business including, but not limited to,
custodian and transfer agency fees, accounting and legal fees, investment
management fees, fees of disinterested Directors, association fees, printing,
salaries of certain administrative and clerical personnel, necessary office
space, all expenses relating to the registration or qualification of the shares
of the Fund under Blue Sky laws and reasonable fees and expenses of counsel in
connection with such registration and qualification, miscellaneous expenses and
such non-recurring expenses as may arise, including actions, suits or
proceedings affecting the Fund and the legal obligation which the Fund may have
to indemnify its officers and Directors with respect thereto. For the fiscal
years ended December 31, 1996, 1997 and 1998, the Fund paid to the Investment
Manager aggregate investment management fees of $102,565, $91,519, and $79,269,
respectively.
If requested by the Board of Directors, the Investment Manager may provide
other services to the Fund such as 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 $6,275, $3,856 and $3,838
for the fiscal years ended December 31, 1996, 1997 and 1998, 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.
Winmill has granted the Fund a non-exclusive license to use various service
marks including "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
Winmill. If the license is terminated, the Fund will eliminate all reference to
those marks 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, Washington's Birthday,
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 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,
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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 Fund will only issue shares upon payment of the purchase price by check
made to the Fund's order in U.S. dollars and drawn 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. The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. A shareholder's order will be priced at the Fund's net asset value next
computed after such order is accepted by an authorized broker or the broker's
authorized designee.
CALCULATION OF PERFORMANCE DATA
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 the investor's shares when
redeemed may be worth more or less than their original cost.
Average Annual Total Return
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation assumes all dividends and other distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
Rule 12b-1 fees, charged to all shareholder accounts.
Average Annual Total Returns For Periods Ended December 31, 1998
One Year 1.18%
Five Years 4.12%
Ten Years 6.94%
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Cumulative Total Return
Cumulative total return is calculated by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR=( ERV-P )100
P
CTR=Cumulative total return
ERV=ending redeemable value at the end of the period of a hypothetical $1,000
payment made at the beginning of such period
P =initial payment of $1,000
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and other distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts.
The cumulative return for the Fund for the one year, five year and ten year
periods ending December 31, 1998 is 1.18%, 22.39%, and 95.61%, respectively.
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.
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 com panies, 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.
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<PAGE>
Morgan Stanley Capital International World Index measures the performance of
stock markets in 16 nations, including Australia, Hong Kong, Germany, the United
Kingdom, Canada, and the United States.
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, indices, 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 Smith Barney GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.
Salomon Smith Barney 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 Smith Barney 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 Smith Barney Market Performance tracks the Salomon Smith Barney bond
index.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
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 Smith Barney Holdings, 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 uses 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
Distributor 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
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<PAGE>
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 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 Winmill, 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 fees. The amount
of Hanover Direct's fees 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 fees, 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, 1998, approximately $110 represented paid expenses incurred for
advertising, $19,463 for printing and mailing prospectuses and other information
to other than current shareholders, $46,001 for salaries of marketing and sales
personnel, $4122 for payments to third parties who sold shares of the Fund and
provided certain services in connection therewith, and $9,573 for overhead and
miscellaneous expenses. These amounts have been derived by determining the ratio
each such category represents to the total expenditures incurred by the
Distributor in performing services pursuant to the Plan and then applying such
ratio to the total amount of compensation received by the Distributor pursuant
to the Plan.
The Glass-Steagall Act prohibits certain banks from engaging in the business
of underwriting, selling, or distributing securities such as shares of a mutual
fund. Although the scope of this prohibition under the Glass-Steagall Act has
not been fully defined, in the Distributor's opinion it should not prohibit
banks from being paid for shareholder services under the Plan. If, because of
changes in law or regulation, or because of new interpretations of existing law,
a bank or the Fund were prevented from continuing these arrangements, it is
expected that other arrangements for these services will be made. In addition,
state securities laws on this issue may differ from the interpretation of
Federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
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 broker/dealer, including brokerage and research services, sales of
shares of the Fund or other Funds advised by the Investment Manager or its
affiliates. 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
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<PAGE>
("1934 Act"), or other applicable law are met. Section 28(e) of the 1934 Act was
adopted in 1975 and specifies that a person with investment discretion shall not
be "deemed to have acted unlawfully or to have breached a fiduciary duty" solely
because such person has caused the account to pay a higher commission than the
lowest available under certain circumstances. To obtain the benefit of Section
28(e), the person so exercising investment discretion must make a good faith
determination that the commissions paid are "reasonable in relation to the value
of the brokerage and research services provided . . . viewed in terms of either
that particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion." Thus, although the
Investment Manager may direct portfolio transactions without necessarily
obtaining the lowest price at which such broker/dealer, or another, may be
willing to do business, the Investment Manager seeks the best value for the Fund
on each trade that circumstances in the market place permit, including the value
inherent in on-going relationships with quality brokers.
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for brokerage or research services might exceed
commissions that would be payable for execution alone, nor generally can the
value of such services to the Fund be measured, except to the extent such
services have a readily ascertainable market value. There is no certainty that
services so purchased, or the sale of Fund shares, if any, will be beneficial to
the Fund, and it may be that other affiliated investment companies will derive
benefit therefrom. Such services being largely intangible, no dollar amount can
be attributed to benefits realized by the Fund or to collateral benefits, if
any, conferred on affiliated entities. 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
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
Until March 31, 1999, Bull & Bear Securities, Inc. ("BBSI") was a wholly
owned subsidiary of Winmill and the Investment Manager's affiliate. BBSI
provides discount brokerage services to the public as an introducing broker
clearing through unaffiliated firms on a fully disclosed basis. The Investment
Manager was, until March 31, 1999, authorized to place Fund brokerage through
BBSI at its posted discount rates and indirectly through a BBSI clearing firm.
The Fund did not deal with BBSI in any transaction in which BBSI acts as
principal. The clearing firm executed trades in accordance with the fully
disclosed clearing agreement between BBSI and the clearing firm. BBSI was
financially responsible to the clearing firm for all trades of the Fund until
complete payment was received by the Fund or the clearing firm. BBSI provided
order entry services or order entry facilities to the Investment Manager,
arranged for execution and clearing of portfolio transactions through executing
and clearing brokers, monitored trades and settlements and performed limited
back-office functions including the maintenance of all records required of it by
the National Association of Securities Dealers, Inc.
In order for BBSI to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by BBSI must have been
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. The Fund's Board of Directors adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid
to BBSI were reasonable and fair. Although BBSI's posted discount rates may be
lower than those charged by full cost brokers, such rates may be higher than
some other discount brokers and certain brokers may be willing to do business at
a lower commission rate on certain trades. The Board determined that portfolio
transactions may have been executed through BBSI if, in the judgment of the
Investment Manager, the use of BBSI was likely to result in price and execution
at least as favorable as those of other qualified broker/dealers and if, in
particular transactions, BBSI charged the Fund a rate consistent with that
charged to comparable unaffiliated customers in similar transactions. Brokerage
transactions with BBSI were also subject to such fiduciary standards as may be
imposed by applicable law. The Investment Manager's fees under its agreement
with the Fund were not reduced by reason of any brokerage commissions paid to
BBSI.
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 (a
"bunched trade") if it appears that a combined order would reduce brokerage
commissions and/or result in a more favorable transaction price. All accounts
participating in a bunched trade shall receive the same execution price with all
transaction costs (e.g. commissions) shared on a pro rata basis. In the event
that there are insufficient securities to satisfy all orders, the partial amount
executed shall be allocated among participating accounts pro rata on the basis
of order size. In the event of a partial fill and the portfolio manager does not
deem the pro rata allocation of a specified number of shares to a particular
account to be sufficient, the portfolio manager may waive in writing such
allocation. In such event, the account's pro rata allocation shall be
reallocated to the other accounts that participated in the bunched trade.
Following trade execution, portfolio managers may determine in certain instances
that it would be fair and equitable to allocate securities purchased or sold in
such trade in a manner other than that which would follow from a mechanical
application of the procedures outlined above. Such instances may include (i)
partial fills and special accounts (In the event that there are insufficient
securities to satisfy all orders, it may be fair and equitable to give
designated accounts with special investment objectives and policies some degree
of priority over other types of accounts.); (ii) unsuitable or inappropriate
investment (It may be appropriate to deviate from the allocation determined by
application of these procedures if it is determined before the final allocation
that the security in question would be unsuitable or inappropriate for one or
more of the accounts originally designated). While in some cases this practice
could have a detrimental effect upon the price or quantity available of the
security with respect to the Fund, the Investment Manager believes that the
larger volume of combined orders can generally result in better execution and
prices. The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the 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 Winmillp, the parent
of the Investment Manager, and may provide clearing services to BBSI.
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During the fiscal years ended December 31, 1996, 1997 and 1998, the Fund paid
total brokerage commissions of $106,792, $69,075, and $17,680, respectively. For
the fiscal year ended December 31, 1998, $9,288 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. For the fiscal year ended December 31, 1998, no
brokerage commissions were allocated to broker/dealers for selling shares of the
Fund and other Funds advised by the Investment Manager or its affiliates. During
the Fund's fiscal years ended December 31, 1996, 1997 and 1998, the Fund paid
$9,291, $23,672, and $8,393 respectively, in brokerage commissions to BBSI,
which represented 8.70%, 34.27%, and 47.47% respectively, of the total brokerage
commissions paid by the Fund and 22.62%, 40.01%, and 57.00% respectively, of the
aggregate dollar amount of transactions involving the payment of commissions.
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 redeposit a shareholder check, thereby crediting 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 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"), and (2) 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 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
17
<PAGE>
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.
For tax years beginning after December 31, 1997, open-end RICs, such as the
Fund, are 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).
The Taxpayer Relief Act of 1997 included constructive sale provisions that
generally will apply if a Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures or forward contract or offsetting notional principal contract
(collectively, a "Contract") with respect to the same or substantially identical
property or (2) holds an appreciated financial position that is a Contract and
then acquires property that is the same as, or substantially identical to the
underlying property. In each instance, with certain exceptions, the Fund
generally will be taxed as if the appreciated financial position were sold at
its fair market value on the date the Fund enters into the financial position or
acquires the property, respectively. Transactions that are identified as hedging
or straddle transactions under other provisions of the Code can be subject to
the constructive sale provisions.
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 Fiduciary Trust Company, 801 Pennsylvania, Kansas City, MO 64105,
("Custodian") 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, 1996, 1997, and 1998 approximately $11,899, $11,055, and $10,478
respectively.
AUDITORS
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800, Philadelphia, PA
19103-2108, 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, 1998,
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.
18
<PAGE>
APPENDIX -- DESCRIPTIONS OF BOND RATINGS
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality.
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.
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.
C 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.
20
<PAGE>
BULL & BEAR FUNDS I, INC.
Part C. Other Information
Item 23. Exhibits
(a) Articles of Incorporation: Filed with the Securities and Exchange
Commission on April 30, 1998, Accession Number 0000796532-98-000005
(b) By-Laws as now in effect: Filed with the Securities and Exchange
Commission April 30, 1998, Accession Number 0000796532-98-000005
(c) Articles of Incorporation: Filed with the Securities and Exchange
Commission on April 30, 1998, Accession Number 0000796532-98-000005
By-Laws as now in effect: Filed with the Securities and Exchange
Commission April 30, 1998, Accession Number 0000796532-98-000005
(d) Form of Investment Management Agreement, filed with the
Securities and Exchange Commission on April 30, 1998,
accession number 0000796532-98-000005
(e) (1) Form of Distribution Agreement, filed with the
Securities and Exchange Commission on April 30,
1998, accession number 0000796532-98-000005.
(2) Form of Related Agreement to Plan of Distribution
between Investor Service Center, Inc. and Hanover
Direct Advertising Company, Inc., filed with the
Securities and Exchange Commission on April 30,
1998, Accession number 0000796532-98-000005.
(f) not applicable.
(g) (1) Form of Custody and Investment Accounting
Agreement, filed with the Securities and Exchange
Commission on April 29, 1997, accession number
0000796532-97-000004
(2) Form of Retirement Plan Custodial Services
Agreement, filed with the Securities and Exchange
Commission on April 30, 1998, Accession Number
0000796532-98-000005.
(h) (a) Form of Transfer Agency Agreement, filed with
the Securities and Exchange Commission on April
28, 1995, accession number 0000796532-95-000003
(b) Form of Agency Agreement, filed with the
Securities and Exchange Commission on April 30,
1998, accession number 0000796532-98-000005
(c) Form of credit facilities agreement, filed with
the Securities and Exchange Commission on
April 30, 1998, accession number
0000796532-98-000005.
(d) Form of Securities Lending Authorization
Agreement, filed with the Securities and Exchange
Commission on April 30, 1998, accession number
0000796532-98-000005.
(e) Form of Segregated Account Procedural and
Safekeeping Agreement, filed with the Securities
and Exchange Commission on April 30, 1998,
accession number 0000796532-98-000005.
(i) Opinion of Counsel as to Legality of
Securities, filed with the Securities and Exchange
Commission on April 30, 1998, accession number
0000796532-98-000005.
(j) (1) Accountants consent filed herewith.
(2) Opinion of Counsel with respect to eligibility for
effectiveness under paragraph (b) of rule 485
filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 25. Indemnification
The Registrant is incorporated under Maryland law. Section 2-418 of
the Maryland General Corporation Law requires the Registrant to indemnify its
directors, officers and employees against expenses, including legal fees, in a
successful defense of a civil or criminal proceeding. The law also permits
indemnification of directors, officers, employees and agents unless it is proved
that (a) the act or omission of the person was material and was committed in bad
faith or was the result of active or deliberate dishonesty, (b) the person
received an improper personal benefit in money, property or services or (c) in
the case of a criminal action, the person had reasonable cause to believe that
the act or omission was unlawful.
Registrant's amended and restated Articles of Incorporation: (1)
provide that, to the maximum extent permitted by applicable law, a director or
officer will not be liable to the Registrant or its stockholders for monetary
damages; (2) require the Registrant to indemnify and advance expense as provided
in the By-laws to its present and past directors, officers, employees and
agents, and persons who are serving or have served at the request of the
Registrant in similar capacities for other entities in advance of final
disposition of any action against that person to the extent permitted by
Maryland law and the 1940 Act; (3) allow the corporation to purchase insurance
for any present or past director, officer, employee, or agent; and (4) require
that any repeal or modification of the amended and restated Articles of
Incorporation by the shareholders, or adoption or modification of any provision
of the Articles of Incorporation inconsistent with the indemnification
provisions, be prospective only to the extent such repeal or modification would,
if applied retrospectively, adversely affect any limitation on the liability of
or indemnification available to any person covered by the indemnification
provisions of the amended and restated Articles of Incorporation.
Section 11.01 of Article XI of the By-Laws sets forth the
procedures by which the Registrant will indemnify its directors, officers,
employees and agents. Section 11.02 of Article XI of the By-Laws further
provides that the Registrant may purchase and maintain insurance or other
sources of reimbursement to the extent permitted by law on behalf of any person
who is or was a director or officer of the Registrant, or is or was serving at
the request of the Registrant as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in or arising out of his
or her position.
Registrant's amended Investment Management Agreement between the
Registrant and CEF Advisers, Inc. (formerly Bull & Bear Advisers, Inc.)
("Investment Manager") provides that the Investment Manager shall not be liable
to the Registrant or its series or any shareholder of the Registrant or its
series for any error of judgment or mistake of law or for
<PAGE>
any loss suffered by the Registrant in connection with the matters to which the
Investment Management Agreement relates. However, the Investment Manager is not
protected against any liability to the Registrant or to the series by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under the Investment Management Agreement.
Section 9 of the Distribution
Agreement between 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 Center
and any retail dealer, or arising out of supplementary literature or advertising
used by Service Center in connection with the Distribution Agreement.
The Registrant undertakes to carry out all indemnification
provisions of its Articles of Incorporation and By-Laws and the above-described
Investment Management Agreement in accordance with Investment Company Act
Release No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 26. Business and other Connections of Investment Adviser
The directors and officers of the Investment Manager, a wholly-owned subsidiary
of Winmill & Co. Incorporated (formerly Bull & Bear Group, Inc.), are also
directors and officers of other Funds managed by the Investment Manager
("Funds"). In addition, such officers are officers and directors of Winmill &
Co. Incorporated and its other subsidiaries Investor Service Center, Inc., the
Funds' distributor and a registered broker/dealer, Midas Management Corporation
and Rockwood Advisers, Inc., registered investment
<PAGE>
advisers. The principalbusiness of the Investment Manager, Midas Management
Corporation and Rockwood Advisers, Inc. since their founding has been to serve
as investment managers to registered investment companies. The Investment
Manager also serves as investment manager of Bull & Bear Dollar Reserves, a
series of Bull & Bear Funds II, Inc.; Bull & Bear U.S. Government Securities
Fund, Inc.; Inc.; Bull & Bear Gold Investors Ltd. and Bull & Bear Special
Equities Fund,Inc., Global Income Fund, Inc. and Tuxis Corporation. Midas
Management Corporation serves as investment adviser to Midas Fund, Inc. and
Rockwood Advisers, Inc. serves as investment adviser to Rockwood Fund, Inc.
Item 27. Principal Underwriters
a) In addition to the Registrant, Investor Service Center, Inc. serves a
principal underwriter of Bull & Bear Gold Investors Ltd., Bull & Bear Funds II,
Inc., Bull & Bear Funds I, Inc., Global Income Fund, Tuxis Corporation, Midas
Fund, Inc., and Rockwood Fund, Inc.
b) Service Center will serve as the Registrant's principal underwriter with
respect to Bull & Bear Special Equities Fund, Inc. The directors and officers of
Service Center, their principal business addresses, their positions and offices
with Service Center and their positions and offices with the Registrant (if any)
are set forth below.
Name and Principal Position and Offices with Position and Offices
Business Address Investor Service Center, Inc. with Registrant
- ------------------ ----------------------------- --------------------
Robert D. Anderson Vice Chairman and Director Vice Chairman
11 Hanover Square and Director
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Thomas B. Winmill Chief Executive Officer, Chairman, Chief Executive
11 Hanover Square Director, General Counsel and Officer, President and
New York, NY 10005 President General Counsel
Deborah A. Sullivan Chief Compliance Officer, Chief Compliance Officer,
11 Hanover Square Secretary and Vice President Secretary and Vice President
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
Joseph Leung Chief Accounting Officer Chief Accounting Officer, Chief
11 Hanover Square and Treasurer Financial Officer and Treasurer
New York, NY 10005
Item 28. Location of Accounts
and Records
The minute books of Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and its Investment Manager). All other records required by Section
31(a) of the Investment Company Act of 1940 are located at Investors Fiduciary
Trust Company, 801 Pennsylvania, Kansas City, MO 64105 (the offices of
Registrant's custodian) and at DST Systems, Inc., P.O. Box 419789, Kansas City,
MO 64141-6789 (the offices of the Registrant's transfer and dividend disbursing
agent). Copies of certain of the records located at Investors Fiduciary Trust
Company and DST Systems, Inc. are kept at 11 Hanover Square, New York, NY 10005.
Item 29. Management Services -- none
Item 30. 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 certifies that it meet all of the
requirements for effectivenes of this Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto authorized,
in the City, County and State of New York on this 30th day of April, 1999.
BULL & BEAR FUNDS I, INC.
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:
Thomas B. Winmill Chairman, Chief Executive April 30, 1999
- ----------------- Officer, President and
Thomas B. Winmill General Counsel
Joseph Leung Chief Accounting Officer, April 30, 1999
- ------------ Chief Financial Officer
Joseph Leung and Treasurer
Robert D. Anderson Director and Vice April 30, 1999
- ------------------ Chairman
Robert D. Anderson
Bruce B. Huber Director April 30, 1999
- --------------
Bruce B. Huber
James E. Hunt Director April 30, 1999
- -------------
James E. Hunt
John B. Russell Director April 30, 1999
- ---------------
John B. Russell
<PAGE>
EXHIBIT INDEX
PAGE
EXHIBIT NUMBER
(23)(j) (a) Accountants' consent.
(b) Opinion of counsel with respect to eligibility for
effectiveness under paragraph (b) of Rule 485.
(23)(n) Financial Data Schedule for the Fiscal Year ended December 31, 1998.
CONSENT 0F INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 15, 1999 on the financial
statements and financial highlights of Bull & Bear U.S. and Overseas Fund.
Such financial statements and financial highlights appear in the 1998 Annual
Report to Shareholders which is incorporated by reference in the Statement of
Additional Information filed in Post-Effective Amendment No. 23 under the
Securities Act of 1933 and Amendment No. 23 under the Investment Company
Act of 1940 to the Registration Statement on Form N-1A of Bull & Bear U.S. and
Overseas Fund. We also consent to the references to our Firm in the
Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 28, 1999
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NY 10038-4982
PHONE 212-806-5400
FAX 212-806-6006
April 29, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are counsel to Bull & Bear Funds I, Inc. (the "Fund"), and in so acting have
reviewed Post-Effective Amendment No. 23 (the "Post-Effective Amendment") to the
Fund's Registration Statement on Form N- 1A, Registration File No. 33-6898,
pertaining to the Fund's Bull & Bear U.S. and Overseas Fund.
Representatives of the Fund have advised us that the Fund will file the
Post-Effective Amendment pursuant to paragraph (b) of Rule 485 ("Rule 485")
promulgated under the Securities Act of 1933. In connection therewith, the Fund
has requested that we provide this letter.
In our examination of the Post-Effective Amendment, we have assumed the
conformity to the originals of all documents submitted to us as copies.
Based upon the foregoing, we hereby advise you that the prospectus included as
part of the Post-Effective Amendment does not include disclosure which we
believe would render it ineligible to become effective pursuant to paragraph (b)
of Rule 485.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Bull &
Bear U.S. and Overseas Fund Annual Report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000796532
<NAME> Bull & Bear Funds I, Inc.
<SERIES>
<NUMBER> 1
<NAME> Bull & Bear U.S. and Overseas Fund
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Dec-31-1998
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 6,261,318
<INVESTMENTS-AT-VALUE> 6,964,736
<RECEIVABLES> 9,238
<ASSETS-OTHER> 404,571
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,378,545
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,665
<TOTAL-LIABILITIES> 38,665
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</TABLE>
